10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2018

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 333-193821

1847 HOLDINGS LLC

(Exact name of registrant as specified in its charter)

 

Delaware	38-3922937
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

590 Madison Avenue, 21st Floor, New York, NY 10022

(Address of principal executive offices, Zip Code)

(212) 521-4052

(Registrant’s telephone number, including area code)

_____________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if a smaller reporting company)		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of May 21, 2018, there were 3,115,625 common shares of the registrant issued and outstanding.

1847 HOLDINGS LLC

Quarterly Report on Form 10-Q

 Period Ended March 31, 2018

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
Item 1	Financial Statements	3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39
PART II OTHER INFORMATION
Item 1	Legal Proceedings	41
Item 1A	Risk Factors	41
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4	Mine Safety Disclosures	41
Item 5	Other Information	41
Item 6	Exhibits	42

2

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

1847 HOLDINGS LLC

CONSOLIDATED FINANCIAL STATEMENTS

	Page
Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017	4
Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017 (unaudited)	5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 (unaudited)	6
Notes to Unaudited Consolidated Financial Statements	7

3

1847 HOLDINGS LLC

CONSOLIDATED BALANCE SHEETS

	March 31, 2018			December 31, 2017
	(unaudited)
ASSETS
Current Assets
Cash	$	78,112		$	501,422
Accounts receivable, net		94,066			310,363
Inventories, net		770,514			836,571
Prepaid expenses and other assets		180,844			174,877
TOTAL CURRENT ASSETS		1,123,536			1,823,233
Property and equipment, net		5,665,594			6,099,219
Goodwill		22,166			22,166
Intangible assets, net		26,633			28,333
Other assets		111,504			111,504
TOTAL ASSETS	$	6,949,433		$	8,084,455
LIABILITIES AND SHAREHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	1,396,868		$	1,229,106
Line of credit		400,000			675,000
Advances, related party		181,786			179,704
Note payable – related party		72,000			-
Note payable – current portion		14,247			14,247
Promissory note payable		1,025,000			1,025,000
Uncertain tax liability		127,000			126,000
Current portion of capital lease obligation		737,876			615,349
TOTAL CURRENT LIABILITIES		3,954,777			3,864,406
Non-current note-payable		54,508			58,020
Vesting note payable		395,634			395,634
Non-current deferred tax liability		741,401			988,601
Capital lease obligation, net of current portion		3,081,499			3,262,988
TOTAL LIABILITIES	$	8,227,819		$	8,569,649
TOTAL 1847 HOLDINGS LLC AND SUBSIDIARIES SHAREHOLDERS’ DEFICIT
Allocation shares, 1,000 shares issued and outstanding		1,000			1,000
Common Shares, 500,000,000 shares authorized, 3,115,625 shares issued and outstanding as of March 31, 2018 and December 31, 2017		3,115			3,115
Additional paid-in capital		11,891			11,891
Accumulated Deficit		(1,688,869	)		(1,159,724	)
TOTAL SHAREHOLDERS’ DEFICIT		(1,672,863	)		(1,143,718	)
NONCONTROLLING INTERESTS		394,477			658,524
TOTAL SHAREHOLDERS’ DEFICIT		(1,278,386	)		(485,194	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT	$	6,949,433		$	8,084,455

The accompanying notes are an integral part of these consolidated financial statements

4

1847 HOLDINGS LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,
	2018			2017
				(Revised)
REVENUE	$			$
Services		654,074			350,428
Sales of parts and equipment		108,571			311,435
TOTAL REVENUE		762,645			661,863
OPERATING EXPENSES
Cost of sales		98,288			228,890
Personnel costs		434,964			166,978
Depreciation and amortization		359,700			200,567
Fuel		218,740			78,168
General and administrative		535,283			408,172
TOTAL OPERATING EXPENSES		1,646,975			1,082,775
LOSS FROM OPERATIONS		(884,330	)		(420,912	)
OTHER INCOME (EXPENSE)
Financing costs		(9,963	)		(4,044	)
Interest expense		(104,974	)		(55,161	)
Gain (loss) on sale of fixed assets		(40,125	)		44,372
TOTAL OTHER INCOME (EXPENSE)		(155,062	)		(14,833	)
NET LOSS BEFORE INCOME TAXES		(1,039,392	)		(435,745	)
INCOME TAX PROVISION (BENEFIT)		(246,200	)		47,510
NET LOSS BEFORE NON-CONTROLLING INTERESTS		(793,192	)		(483,255	)
Less net loss attributable to non-controlling interests		(264,047	)		(111,125	)
NET LOSS ATTRIBUTABLE TO 1847 HOLDINGS SHAREHOLDERS	$	(529,145	)	$	(372,130	)
Net Loss Per Common Share: Basic and diluted	$	(0.17	)	$	(0.12	)
Weighted-average number of common shares outstanding: Basic and diluted		3,115,625			3,115,625

The accompanying notes are an integral part of these consolidated financial statements

5

1847 HOLDINGS LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	2018			2017
				(Revised)
OPERATING ACTIVITIES
Net loss	$	(793,192	)	$	(483,255	)
Adjustments to reconcile net loss to net cash provided by operating activities:
(Gain) loss on sale of fixed assets		40,125			(44,372	)
Depreciation and amortization		359,700			200,567
Amortization of financing costs		9,963			4,044
Changes in operating assets and liabilities:
Accounts receivable		216,297			(158,229	)
Inventory		66,057			142,189
Prepaid expenses and other assets		(5,967	)		(240	)
Accounts payable and accrued expenses		169,838			327,593
Uncertain tax position		1,000			52,847
Deferred tax liability and prepaid tax		(247,200	)		-
Interest payable		8,712
Due to related parties		2,082			107,517
Other liabilities		(10,787	)		(1,816	)
Net cash provided by (used in) operating activities		(183,372	)		146,845
INVESTING ACTIVITIES
Cash acquired in acquisition		-			338,411
Proceeds from the sale of fixed assets		35,500			48,794
Purchase of equipment		-			(93,077	)
Net cash provided by investing activities		35,500			294,128
FINANCING ACTIVITIES
Repayment to line of credit		(275,000	)		-
Note payable – related party		72,000			-
Payments on notes payable		(3,512	)		-
Principal payments on capital lease obligation		(68,926	)		(163,147	)
Net cash used in financing activities		(275,438	)		(163,147	)
NET CHANGE IN CASH		(423,310	)		277,826
CASH
Beginning of period		501,422			-
End of period	$	78,112		$	277,826
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	$	119,871		$	-
Income taxes paid	$	-		$	-

The accompanying notes are an integral part of these consolidated financial statements

6

1847 HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018 (UNAUDITED)

NOTE 1—ORGANIZATION AND NATURE OF BUSINESS

1847 Holdings LLC (“we,” “us,” “our” and the “Company”) was formed under the laws of the State of Delaware on January 22, 2013. We are in the business of acquiring small businesses in a variety of different industries. The Company is a limited liability company that has elected to be taxed as a partnership. The Company’s subsidiaries are corporations and are taxed as such.

To date, we have consummated three acquisitions. In September 2013, our wholly-owned subsidiary 1847 Management Services Inc. (“1847 Management”) acquired a 50% interest in each of two consulting firms previously controlled by our Chief Executive Officer, PPI Management Group, LLC and Christals Management, LLC.

On March 3, 2017, our wholly-owned subsidiary 1847 Neese Inc. (“1847 Neese”) entered into a stock purchase agreement with Neese, Inc. (“Neese”), and Alan Neese and Katherine Neese, pursuant to which 1847 Neese acquired all of the issued and outstanding capital stock of Neese.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and are presented in US dollars.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months period ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

Consolidated Financial Statements

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, 1847 Management, 1847 Neese and 1847 Fitness. All significant intercompany balances and transactions have been eliminated in consolidation.

Accounting Basis

The Company uses the accrual basis of accounting and GAAP. The Company has adopted a calendar year end.

Stock Splits

On January 22, 2018, we completed a 1-for-5 reverse split of our outstanding common shares. As a result of this stock split, our issued and outstanding common shares decreased from 3,115,500 to 623,125 shares.

On May 10, 2018, we completed a 5-for-1 stock split of our outstanding common shares. As a result of this stock split, our issued and outstanding common shares increased from 623,125 to 3,115,625 shares.

Accordingly, all share and per share information has been restated to retroactively show the effect of these stock splits.

7

Cash and Cash Equivalents

The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain Statements of Operations reclassifications have been made in the presentation of our prior financial statements and accompanying notes to conform to the presentation as of and for the three months ended March 31, 2018.

Revenue Recognition and Cost of Revenue 

On January 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer purchase orders, including significant judgments. Our payment terms are net 30 days from acceptance of delivery. We do not incur incremental costs obtaining purchase orders from our customers, however, if we did, because all of our contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized. Our adoption of this ASU, resulted in no change to our results of operations or our balance sheet.

The revenue that we recognize arises from purchase orders we receive from our customers. Our performance obligations under the purchase orders correspond to each service delivery or sale of equipment that we make to our customer under the purchase orders; as a result, each purchase order generally contains only one performance obligation based on the service or equipment sale to be completed. Control of the delivery transfers to our customers when the customer is able to direct the use of, and obtain substantially all of the benefits from, our products, which generally occurs at the later of when the customer obtains title to the equipment or when the customer assumes risk of loss. The transfer of control generally occurs at a point of delivery. Once this occurs, we have satisfied our performance obligation and we recognize revenue.

We also sell equipment by posting it on auction sites specializing in farm equipment. We post the equipment for sale on a “magazine” site for several weeks before the auction. When we decide to sell, we move the equipment to the auction site. The auctions are one day. If we accept a bid, the customer pays the bid price and arranges for pick-up of the equipment.

Transaction Price

We agree with our customers on the selling price of each transaction. This transaction price is generally based on the agreed upon service fee. In our contracts with customers, we allocate the entire transaction price to the service fee to the customer, which is the basis for the determination of the relative standalone selling price allocated to each performance obligation. Any sales tax, value added tax, and other tax we collect concurrently with our revenue-producing activities are excluded from revenue.

If we continued to apply legacy revenue recognition guidance for the first three months of 2018, our revenues, gross margin, and net loss would not have changed. See Note 1—Revenue Recognition for the impact of our adoption of ASU No. 2014-09.

Substantially all our sales are to businesses, including farmers or municipalities and very little to individuals.

8

Inventory

Inventory consists of machinery and equipment and parts acquired for resale and is valued at the lower-of-cost-or-market with cost determined on a specific item basis. The Company periodically evaluates the value of items in inventory and provides write-downs to inventory based on its estimate of market conditions. The Company estimates obsolescence allowance of $70,000 as of March 31, 2018 and December 31, 2017.

Basic Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing our net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing our net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There are no such common share equivalents outstanding as of March 31, 2018.

Going Concern Assessment

Beginning with the three months ended March 31, 2018 and all annual and interim periods thereafter, management will assess going concern uncertainty in the Company’s 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.

The Company has generated losses since its inception and has relied on cash on hand, external bank lines of credit and the sale of a note to support cashflow from operations. The Company attributes the 2017 losses to public company corporate overhead and losses generated by some of our subsidiary operations. As of and for the three months ended March 31, 2018, the Company had a net loss of $793,192 and negative working capital of approximately $2.8 million. 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 the consolidated financial statements in this Quarterly Report on Form 10-Q, indicate improved operations and the Company’s ability to continue operations as a going concern. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period.

Recent Accounting Pronouncements

Not Yet Adopted

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the update requires only a single-step quantitative test to identify and measure impairment based on the excess of a reporting unit’s carrying amount over its fair value. A qualitative assessment may still be completed first for an entity to determine if a quantitative impairment test is necessary. The update is effective for fiscal year 2021 and is to be adopted on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company will test goodwill for impairment within one year of the acquisition or annually as of December 1, and whenever indicators of impairment exist. 

9

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years; earlier adoption is permitted. In the financial statements in which the ASU is first applied, leases shall be measured and recognized at the beginning of the earliest comparative period presented with an adjustment to equity. Practical expedients are available for election as a package and if applied consistently to all leases. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial condition, results of operations and cash flows.

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. We are currently in the process of evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.

Recently Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as a new Topic, Accounting Standards Codification (“ASC”) Topic 606, which supersedes existing accounting standards for revenue recognition and creates a single framework. Additional updates to Topic 606 issued by the FASB in 2015 and 2016 include the following:

· ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of the new guidance such that the new provisions will now be required for fiscal years, and interim periods within those years, beginning after December 15, 2017.

· ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations (reporting revenue gross versus net).

· ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the implementation guidance on identifying performance obligations and classifying licensing arrangements.

· ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which clarifies the implementation guidance in a number of other areas.

The underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard permits the use of either a retrospective or modified retrospective application. ASU 2014-09 and ASU 2016-12 are effective for annual reporting periods beginning after December 15, 2017. The Company will adopt ASC 606 using the modified retrospective method for annual and interim reporting periods beginning January 1, 2018. The Company has aggregated and reviewed its contracts that are within the scope of ASC 606. Based on its evaluation, the Company does not anticipate the adoption of ASC 606 will have a material impact on its balance sheet or related consolidated statements of earnings, equity or cash flows. Accordingly, the Company will continue to recognize revenue at the time services are delivered and parts and equipment are sold.

10

NOTE 3—INVENTORIES

At March 31, 2018 and December 31, 2017, the inventory balances are composed of:

	2018			2017
Machinery & Equipment	$	658,370		$	715,483
Parts		182,144			191,088
Subtotal		840,514			906,571
Allowance for inventory obsolescence		(70,000	)		(70,000	)
Inventory, net	$	770,514		$	836,571

NOTE 4—PROPERTY AND EQUIPMENT

Property and equipment consist of the following at March 31, 2018 and December 31, 2017:

Classification	2018			2017
Buildings and improvements	$	5,338		$	5,338
Equipment and machinery		2,845,654			2,908,154
Tractors		3,129,888			3,129,888
Trucks and other vehicles		1,147,305			1,169,805
Total		7,128,185			7,213,185
Less: Accumulated depreciation		(1,462,591	)		(1,113,966	)
Property and equipment, net	$	5,665,594		$	6,099,219

Depreciation expense for the years ended March 31, 2018 and 2017 was $358,000 and $200,567, respectively

All fixed assets are pledged to secure loans from Utica Leasco. At March 31, 2018, $168,137 of Machinery and Equipment inventory was pledged to secure floor plan loans and $205,628 of Machinery and Equipment inventory was pledged to secure a loan from Utica Leasco.

11

NOTE 5—INTANGIBLE ASSETS

The following provides a breakdown of identifiable intangible assets – Customer Relationships as of March 31, 2018 and December 31, 2017:

	2018			2017
Identifiable intangible assets, gross	$	34,000		$	34,000
Accumulated amortization		(7,367	)		(5,667	)
Identifiable intangible assets, net	$	26,633		$	28,333

In connection with the acquisition of Neese, the Company identified intangible assets of $34,000 representing customer relationships. These assets are being amortized on a straight-line basis over their weighted average estimated useful life of 5 years and amortization expense amounted to $1,700 for the three months ended March 31, 2018.

As of March 31, 2018, the estimated annual amortization expense for each of the next five fiscal years is as follows:

2018 (remainder)	$	5,100
2019		6,800
2020		6,800
2021		6,800
2022		1,133
Total	$	26,633

NOTE 6—ACQUISITION

On March 3, 2017, our wholly-owned subsidiary 1847 Neese entered into a stock purchase agreement with Neese and Alan Neese and Katherine Neese, pursuant to which 1847 Neese acquired all of the issued and outstanding capital stock of Neese for an aggregate purchase price of: (i) $2,225,000 in cash (subject to certain adjustments); (ii) 450 shares of the common stock of 1847 Neese, constituting 45% of its capital stock; (iii) the issuance of a vesting promissory note in the principal amount of $1,875,000 (which was determined to have a fair value of $395,634); and (iv) the issuance of a short-term promissory note in the principal amount of $1,025,000.

The cash portion of the purchase price would have been adjusted upward if Neese’s final certified balance sheet, as of a date on or about the closing date, did not reflect a cash balance of at least $200,000. The cash balance on the closing date of March 3, 2017 amounted to approximately $676,056. The cash was paid by obtaining financing from Utica Leaseco (see Note 11).

12

The fair value of the purchase consideration issued to the sellers of Neese was allocated to the net tangible assets acquired. We accounted for the acquisition of Neese as the purchase of a business under GAAP under the acquisition method of accounting, the assets and liabilities acquired were recorded as of the acquisition date, at their respective fair values and consolidated with those of the Company. The fair value of the net assets acquired was approximately $8,269,000. The excess of the aggregate fair value of the net tangible assets has been allocated to an intangible asset, value of customer accounts and the remainder to goodwill.

Purchase Consideration
Cash Consideration (financed by a Capital Lease–Note 11)	$	3,240,000
Add: Subsidiary stock issued as non-controlling interest (Note 14)		852,864
Add: 8% Vesting Promissory Note (Note 10)		395,634
Add: Buyer Short Term Note, at 10% (Note 10)		1,025,000
Total acquisition price	$	5,513,498
Assets acquired and liabilities assumed at fair value
Cash	$	676,056
Accounts receivable		156,655
Prepaid expenses		90,238
Inventories		1,037,910
Property and equipment		6,167,104
Other assets		85,322
Accounts payable and accrued expenses		(209,913	)
Uncertain tax position		(129,000	)
Cash payable to seller		(337,645	)
Deferred tax liability		(2,079,395	)
Other liabilities
Net tangible assets acquired	$	5,457,332
Identifiable intangible assets and Goodwill
Intangible assets	$	34,000
Goodwill		22,166
Total Identifiable Intangible Assets and Goodwill	$	56,166
Total net assets acquired	$	5,513,498

13

The prior year balances have been revised to reflect the finalized purchase price allocation.

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

	For the Three months ended March 31,
	2018			2017
Revenues, net	$	762,645		$	1,874,571
Net income (loss) allocable to common shareholders	$	(529,145	)	$	(311,025	)
Net income (loss) per share	$	(0.17	)	$	(0.10	)
Weighted average number of shares outstanding		3,115,625			3,115,625

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

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

NOTE 7—LINE OF CREDIT

The Company’s subsidiary, Neese, entered into a loan and security agreement with Home State Bank, an Iowa state chartered bank (“Home State Bank”), governing a new revolving credit facility in a principal amount not to exceed $1,000,000 (the “Credit Facility”). The Home State Bank Loan Agreement is available for working capital and other general business purposes. Availability of borrowings under the Credit Facility from time to time is subject to discretionary advances approved by Home State Bank. The outstanding principal balance was $400,000 and $675,000 at March 31, 2018 and December 31, 2017, respectively. The Line of Credit bears interest at 4.85% (default rate 7.85%) and is due September 1, 2018.

NOTE 8—FLOOR PLAN LOANS PAYABLE

At March 31, 2018, $168,137 of Machinery and Equipment inventory was pledged to secure a floor plan loan from a commercial lender. The Company must remit proceeds from the sale of the secured inventory to the floor plan lender and pays a finance charge that can vary monthly at the option of the lender. This amount has been recorded in accounts payable and accrued expenses on the balance sheet as of March 31, 2018.

NOTE 9—NOTES PAYABLE

Notes payable at March 31, 2018 and December 31, 2017 are summarized as follows:

	March 31, 2018			December 31, 2017
Note payable - 2018 Kenworth Tractor	$	68,755		$	72,267
Current portion		(14,247	)		(14,247	)
Total Non-current portion	$	54,508		$	58,020

14

This Note from a commercial bank originated July 21, 2017 and is payable in 60 fixed monthly installments of $1,434 at a rate of 4.5% per annum.

On September 18, 2017, the Company and its subsidiary, 1847 Neese, Inc. originated two loans totaling $320,658 from a commercial bank secured by two tractors. The loans were payable in 60 fixed monthly installments totaling $5,980 at a rate of 4.5% per annum. The two notes were paid off October 31, 2017 with proceeds from an Amendment to the Utica Leaseco Master Lease Agreement.

At March 31, 2018, annual minimum future principal payments under the promissory notes are as follows:

	Amount
For the year ending March 31,
2018	$	10,735
2019		14,902
2020		15,581
2020		16,302
2022		11,235
Total payments		68,755
Less current portion of principal payments		(14,247	)
Long-term portion of principal payments	$	54,508

NOTE 10—PROMISSORY NOTES

8% Vesting Promissory Note

As noted above in Note 6, a portion of the purchase price for the acquisition of Neese was paid by the issuance of a vesting promissory note in the principal amount of $1,875,000 (which was determined to have a fair value of $395,634 as of March 31, 2018 and December 31, 2017) by 1847 Neese and Neese to the sellers of Neese. Payment of the principal and accrued interest on the vesting promissory note is subject to vesting and a contingent consideration subject to fair market valuation adjustment at each reporting period. The vesting promissory note bears interest on the vested portion of the principal amount at the rate of eight percent (8%) per annum and is due and payable in full on June 30, 2020 (the “Maturity Date”). The principal of the vesting promissory note vests in accordance with the following formula:

· Fiscal Year 2017: If Adjusted EBITDA for the fiscal year ending December 31, 2017, exceeds an Adjusted EBITDA target of $1,300,000 (the “Adjusted EBITDA Target”), then a portion of the principal amount of the vesting promissory note that is equal to sixty percent (60%) of such excess shall vest. Interest shall be payable on such vested portion of principal from January 1, 2017 through the Maturity Date. For the year ended December 31, 2017, Adjusted EBITDA was $788,958, below the threshold amount of $1,300,000, therefore no portion of the note vested in fiscal year 2017.

· Fiscal Year 2018: If Adjusted EBITDA for the fiscal year ending December 31, 2018, exceeds the Adjusted EBITDA Target, then a portion of the principal amount of the vesting promissory note that is equal to sixty percent (60%) of such excess shall vest. Interest shall be payable on such vested portion of principal from January 1, 2018 through the Maturity Date.

· Fiscal Year 2019: If Adjusted EBITDA for the fiscal year ending December 31, 2019, exceeds the Adjusted EBITDA Target, then a portion of the principal amount of the vesting promissory note that is equal to sixty percent (60%) of such excess shall vest. Interest shall be payable on such vested portion of principal from January 1, 2019 through the Maturity Date.

15

For purposes of the vesting promissory note, “Adjusted EBITDA” means the earnings before interest, taxes, depreciation and amortization expenses, in accordance with GAAP applied on a basis consistent with the accounting policies, practices and procedures used to prepare the financial statements of Neese as of the closing date, plus to the extent deducted in calculating such net income: (i) all expenses related to the transactions contemplated hereby and/or potential or completed future financings or acquisitions, including legal, accounting, due diligence and investment banking fees and expenses; (ii) all management fees, allocations or corporate overhead (including executive compensation) or other administrative costs that arise from the ownership of Neese by 1847 Neese including allocations of supervisory, centralized or other parent-level expense items; (iii) one-time extraordinary expenses or losses; and (iv) any reserves or adjustments to reserves which are not consistent with GAAP. Additionally, for purposes of calculating Adjusted EBITDA, the purchase and sales prices of goods and services sold by or purchased by Neese to or from 1847 Neese, its subsidiaries or affiliates shall be adjusted to reflect the amounts that Neese would have realized or paid if dealing with an independent third-party in an arm’s-length commercial transaction, and inventory items shall be properly categorized as such and shall not be expenses until such inventory is sold or consumed.

The vesting promissory note contains customary events of default, including in the event of: (i) non-payment; (ii) a default by 1847 Neese or Neese of any of their covenants under the stock purchase agreement, the vesting promissory note, or any other agreement entered into in connection with the stock purchase agreement, or a breach of any of their representations or warranties under such documents; or (iii) the bankruptcy of 1847 Neese or Neese.

10% Short-Term Promissory Note

As noted above in Note 6, a portion of the purchase price for the acquisition of Neese was paid by the issuance of a short-term promissory note in the principal amount of $1,025,000 by 1847 Neese and Neese to the sellers of Neese. The short-term promissory note bears interest on the outstanding principal amount at the rate of ten percent (10%) per annum and is due and payable in full on March 3, 2018; provided, however, that the unpaid principal, and all accrued, but unpaid, interest thereon shall be prepaid if at any time, and from time to time, the cash on hand of 1847 Neese and Neese exceeds $250,000 and, then, the prepayment shall be equal to the amount of cash in excess of $200,000 until the unpaid principal and accrued, but unpaid, interest thereon is fully prepaid. The short-term promissory note contains the same events of default as the vesting promissory note. The short-term promissory note has not been repaid, so we are in default under this note and the Company believes it will begin making payments in 2019.

NOTE 11—CAPITALIZED LEASES

Agreement dated March 3, 2017

The cash portion of the purchase price for the acquisition of Neese (Note 6) was financed under a capital lease transaction for Neese’s equipment with Utica Leas Eco, LLC (the “Lessor” or “Utica”), pursuant to a Master Lease Agreement, dated March 3, 2017, between Utica, as lessor, and 1847 Neese and Neese, as co-lessees (collectively, the “Lessee”). Under the Master Lease Agreement, the Lessor loaned an aggregate of $3,240,000 for certain of Neese’s equipment listed therein (the “Equipment”), which it leases to the Lessee. The initial term of the Master Lease Agreement was for 51 months. Under the Master Lease Agreement, the Lessee agreed to pay a monthly rent of $53,000 for the first three (3) months, with such amount increasing to $85,321.63 for the remaining forty-eight (48) months.

On June 14, 2017, the parties entered into a first amendment to lease documents, pursuant to which the parties agreed to, among other things, extend the term of the Master Lease Agreement from 51 months to 57 months and amend the payments due thereunder. Under the amendment, the Lessee agreed to pay a monthly rent of $53,000 for the first ten (10) months, with such amount increasing to $85,321.63 for the remaining forty-seven (47) months. In connection with the extension of the term of the Master Lease Agreement, the parties also amended the schedule of stipulated loss values and early termination payment schedule attached thereto. In connection with the amendment, the Lessee agreed to pay the Lessor an amendment fee of $2,500.

On February 1, 2018, Utica agreed to continue the $53,000 payments for three additional months and extend the maturity of the loan by three months. Additionally, Utica agreed to defer the February 3, 2018 payment to February 20, 2018. The Company paid one-half the normal late fee, $2,650 for the late payment. On March 2, 2018, Utica agreed to defer the March 3 payment to March 30, 2018. The Company will pay a late payment fee of $5,300 for the payment deferral.

16

Amendment dated October 31, 2017

As of October 31, 2017, the Company entered into an amendment of the March 3, 2017 Master Lease Agreement with Utica. The proceeds from the amendment were $980,000, which the Company used to purchase new equipment for use in its business and for one tractor for resale included in inventory. The term of the second master lease agreement was for 51 months with payments of $25,807.16 per month.

Forbearance Agreement

On April 18, 2018, the Lessor, the Lessee, and Ellery W. Roberts, as guarantor under the Master Lease Agreement (see Note 11), entered into a forbearance agreement relating to the non-payment of certain rent payments due under the Master Lease Agreement for the months of March 2018 and April 2018. See Note 17 for the terms of the forbearance agreement.

If any rent is not received by the Lessor within five (5) calendar days of the due date, the Lessee shall pay a late charge equal to ten (10%) percent of the amount. In addition, in the event that any payment is not processed or is returned on the basis of insufficient funds, upon demand, the Lessee shall pay the Lessor a charge equal to five percent (5%) of the amount of such payment. The Lessee is also required to pay an annual administration fee of $5,000. Upon the expiration of the term of the Master Lease Agreement, the Lessee is required to pay, together with all other amounts then due and payable under the Master Lease Agreement, in cash, an end of term buyout price equal to the lesser of: (a) $162,000 (five percent (5%) of the Total Invoice Cost (as defined in the Master Lease Agreement)); or (b) the fair market value of the Equipment, as determined by the Lessor. Upon the expiration of the Amendment to the Master Lease Agreement, the Lessee is required to pay, together with all other amounts then due and payable under the Master Lease Agreement, in cash, an end of term buyout price equal to the lesser of: (a) $49,000 (five percent (5%) of the Total Invoice Cost (as defined in the Master Lease Agreement)); or (b) the fair market value of the Equipment, as determined by the Lessor

Provided that no default under the Master Lease Agreement or the Amendment has occurred and is continuing beyond any applicable grace or cure period, the Lessee has an early buy-out option with respect to all but not less than all of the Equipment, upon the payment of any outstanding rental payments or other fees then due, plus an additional amount set forth in the Master Lease Agreement and the Amendment, which represents the anticipated fair market value of the Equipment as of the anticipated end date of the Master Lease Agreement. In addition, the Lessee shall pay to the Lessor an administrative charge to be determined by the Lessor to cover its time and expenses incurred in connection with the exercise of the option to purchase, including, but not limited to, reasonable attorney fees and costs. Furthermore, upon the exercise by the Lessee of this option to purchase the Equipment, the Lessee shall pay all sales and transfer taxes and all fees payable to any governmental authority as a result of the transfer of title of the Equipment to Lessee. The early buy-out option is not available on the Amendment to the Master Lease Agreement until after June 30, 2018.

In connection with the Master Lease Agreement and the Amendment thereto, the Lessee granted a security interest on all of its right, title and interest in and to: (i) the Equipment, together with all related software (embedded therein or otherwise) and general intangibles, all additions, attachments, accessories and accessions thereto whether or not furnished by the supplier; (ii) all accounts, chattel paper, deposit accounts, documents, other equipment, general intangibles, instruments, inventory, investment property, letter of credit rights and any supporting obligations related to any of the foregoing; (iii) all books and records pertaining to the foregoing; (iv) all property of such Lessee held by the Lessor, including all property of every description, in the custody of or in transit to the Lessor for any purpose, including safekeeping, collection or pledge, for the account of such Lessee or as to which such Lessee may have any right or power, including but not limited to cash; and (v) to the extent not otherwise included, all insurance, substitutions, replacements, exchanges, accessions, proceeds and products of the foregoing.

If the Company sells equipment, it must remit to Utica the amount loaned against the equipment. Such payments are accumulated and applied to the balance at the end of the lease term. During the three months ended March 31, 2018, $16,125 of payments were remitted to Utica.

17

The assets and liabilities under the master lease agreement are recorded at the fair value of the assets.

The Company adopted ASU 2015-03 by deducting $200,365 of net debt issuance costs from the long-term portion of the capital lease. Amortization of debt issuance costs totaled $9,967 for the three months ended March 31, 2018.

At March 31, 2018, annual minimum future lease payments under this Master Lease Agreement and Amendment are as follows:

	Amount
For the period ending March 31,
2018	$	1,204,259
2019		1,333,545
2020		1,333,545
2021		1,333,545
2022		196,451
Total minimum lease payments		5,401,345
Less amount representing interest		(1,556,043	)
Present value of minimum lease payments		3,845,302
Less current portion of minimum lease		(615,349	)
Less debt issuance costs, net		(156,065	)
Less payments to Lessor for release of lien		(21,900	)
End of lease buyout payments		211,000
Long-term present value of minimum lease payment	$	3,262,988

The interest rate on the capitalized lease is approximately 15.4%.

NOTE 12—LEASE

The Company leases a piece of equipment on an operating lease. The lease originated in May 2014 for a five year term with annual payments of $11,830. Following is a summary of remaining lease payments:

2018 (remainder of year)	$	8,873
2019		11,830
Total remaining payments	$	20,703

18

NOTE 13—RELATED PARTIES

Management Services Agreement

On April 15, 2013, the Company and 1847 Partners LLC (“our manager”), entered into a management services agreement, pursuant to which we are required to pay our manager a quarterly management fee equal to 0.5% (2.0% annualized) of our adjusted net assets for services performed.

On September 15, 2013, the parties entered into an amendment to the management services agreement that provides that in lieu of paying a quarterly management fee under the management services agreement based upon the adjusted net assets of our management consulting business, we will pay our manager a flat quarterly fee equal to $43,750. This amendment only applies to our management consulting business and does not apply to Neese or any businesses that we acquire in the future.

As of October 1, 2015, our manager agreed to suspend the flat quarterly management fee in the management consulting business due to the uncertainty of the underlying management services.

Offsetting Management Services Agreement - 1847 Neese

On March 3, 2017, 1847 Neese entered into an offsetting management services agreement with our manager.

Pursuant to the offsetting management services agreement, 1847 Neese appointed our manager to provide certain services to it for a quarterly management fee equal to $62,500 per quarter; provided, however, that: (i) pro rated payments shall be made in the first quarter and the last quarter of the term; (ii) if the aggregate amount of management fees paid or to be paid by 1847 Neese, together with all other management fees paid or to be paid by all other subsidiaries of the Company to our manager, in each case, with respect to any fiscal year exceeds, or is expected to exceed, 9.5% of our gross income with respect to such fiscal year, then the management fee to be paid by 1847 Neese for any remaining fiscal quarters in such fiscal year shall be reduced, on a pro rata basis determined by reference to the management fees to be paid to our manager by all of the subsidiaries of the Company, until the aggregate amount of the management fee paid or to be paid by 1847 Neese, together with all other management fees paid or to be paid by all other subsidiaries of the Company to our manager, in each case, with respect to such fiscal year, does not exceed 9.5% of our gross income with respect to such fiscal year; and (iii) if the aggregate amount of the management fee paid or to be paid by 1847 Neese, together with all other management fees paid or to be paid by all other subsidiaries of the Company to our manager, in each case, with respect to any fiscal quarter exceeds, or is expected to exceed, the aggregate amount of the management fee (before any adjustment thereto) calculated and payable under the management services agreement (the “Parent Management Fee”) with respect to such fiscal quarter, then the management fee to be paid by 1847 Neese for such fiscal quarter shall be reduced, on a pro rata basis, until the aggregate amount of the management fee paid or to be paid by 1847 Neese, together with all other management fees paid or to be paid by all other subsidiaries of the Company to our manager, in each case, with respect to such fiscal quarter, does not exceed the Parent Management Fee calculated and payable with respect to such fiscal quarter.

1847 Neese shall also reimburse our manager for all costs and expenses of 1847 Neese which are specifically approved by the board of directors of 1847 Neese, including all out-of-pocket costs and expenses, that are actually incurred by our manager or its affiliates on behalf of 1847 Neese in connection with performing services under the offsetting management services agreement.

The services provided by our manager include: conducting general and administrative supervision and oversight of 1847 Neese’s day-to-day business and operations, including, but not limited to, recruiting and hiring of personnel, administration of personnel and personnel benefits, development of administrative policies and procedures, establishment and management of banking services, managing and arranging for the maintaining of liability insurance, arranging for equipment rental, maintenance of all necessary permits and licenses, acquisition of any additional licenses and permits that become necessary, participation in risk management policies and procedures; and overseeing and consulting with respect to 1847 Neese’s business and operational strategies, the implementation of such strategies and the evaluation of such strategies, including, but not limited to, strategies with respect to capital expenditure and expansion programs, acquisitions or dispositions and product or service lines. The Company expensed $62,500 and $0 in management fee for the three months ended March 31, 2018 and for the period of March 3, 2017 through March 31, 2017, respectively.

19

Advances

From time to time, the Company has received advances from certain of its officers to meet short-term working capital needs. As of March 31, 2018 and December 31, 2017, a total of $118,833 advances from related parties are outstanding. These advances are unsecured, bear no interest, and do not have formal repayment terms or arrangements.

As of March 31, 2018 and December 31, 2017, our manager has funded the Company $62,953 and $60,870 in related party advances, respectively. These advances are unsecured, bear no interest, and do not have formal repayment terms or arrangements.

Promissory Note

On January 3, 2018, we issued a grid promissory note to our manager in the initial principal amount of $50,000. The note provides that we may from time to time request additional advances from our manager up to an aggregate additional amount of $100,000, which will be added to the note if our manager, in its sole discretion, so provides. Interest shall accrue on the unpaid portion of the principal amount and the unpaid portion of all advances outstanding at a fixed rate of 8% per annum, and along with the outstanding portion of the principal amount and the outstanding portion of all advances, shall be payable in one lump sum due on the maturity date, which is the first anniversary of the date of the note. If all or a portion of the principal amount or any advance under the note, or any interest payable thereon is not paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate of 12% per annum. In the event we complete a financing involving at least $500,000, we must, contemporaneously with the closing of such financing transaction, repay the entire outstanding principal and accrued and unpaid interest on the note. The note is unsecured and contains customary events of default. As of March 31, 2018, our manager has been advanced $72,000 of the promissory note and accrued interest of $1,392.

1847 Management

On October 3, 2017, our board of directors determined to discontinue our management consulting business operated by 1847 Management in order to devote more time and resources to Neese and future acquisitions.

Building Lease

We lease a building from officers of Neese (See Note 15).

NOTE 14—SHAREHOLDERS’ DEFICIT

Allocation shares

As of March 31, 2018 and December 31, 2017, we had authorized and outstanding 1,000 allocation shares. These allocation shares do not entitle the holder thereof to vote on any matter relating to the Company other than in connection with amendments to our operating agreement and in connection with certain other corporate transactions as specified in our operating agreement.

20

Our manager owns 100% of the allocation shares of the Company, which are a separate class of limited liability company interests that, together with the common shares, will comprise all of the classes of equity interests of the Company. Our manager received the allocation shares with its initial capitalization of the Company. The allocation shares generally will entitle our manager to receive a twenty percent (20%) profit allocation as a form of incentive designed to align the interests of our manager with those of our shareholders. Profit allocation has two components: an equity-based component and a distribution-based component. The equity-based component will be paid when the market for our shares appreciates, subject to certain conditions and adjustments. The distribution-based component will be paid when the distributions we pay to our shareholders exceed an annual hurdle rate of eight percent (8.0%), subject to certain conditions and adjustments. While the equity-based component and distribution-based component are interrelated in certain respects, each component may independently result in a payment of profit allocation if the relevant conditions to payment are satisfied.

The 1,000 allocation shares are issued and outstanding and held by our manager, which is controlled by Mr. Roberts, our chief executive officer and controlling shareholder.

Common shares

We have authorized 500,000,000 common shares as of March 31, 2018 and December 31, 2017 and we had 3,115,500 common shares issued and outstanding. The common shares entitle the holder thereof to one vote per share on all matters coming before the shareholders of the Company for a vote.

On January 22, 2018, we completed a 1-for-5 reverse split of our outstanding common shares. As a result of this stock split, our issued and outstanding common shares decreased from 3,115,500 to 623,125 shares. Accordingly, all share and per share information has been restated to retroactively show the effect of this stock split.

On May 10, 2018, we completed a 5-for-1 stock split of our outstanding common shares. As a result of this stock split, our issued and outstanding common shares increased from 623,125 to 3,115,625 shares.

During the period ended March 31, 2018, we did not issue any equity securities.

Noncontrolling Interests

Our Company owns 55.0% of 1847 Neese. For financial interests in which the Company owns a controlling financial interest, the Company applies the provisions of ASC 810, which are applicable to reporting the equity and net income or loss attributable to noncontrolling interests. The results of 1847 Neese are included in the consolidated statement of income. The net loss attributable to the 45% non-controlling interest of the subsidiary amount to $394,477 for the three months ended March 31, 2018 and $741,739 for the period March 3, 2017 through March 31, 2017.

21

NOTE 15—COMMITMENTS AND CONTINGENCIES

Agreement of Lease - Related Party

On March 3, 2017, Neese entered into an agreement of lease with K&A Holdings, LLC, a limited liability company that is wholly-owned by officers of Neese. The agreement of lease is for a term of ten (10) years and provides for a base rent of $8,333 per month. In the event of late payment, interest shall accrue on the unpaid amount at the rate of eighteen percent (18%) per annum. The agreement of lease contains customary events of default, including if Neese shall fail to pay rent within five (5) days after the due date, or if Neese shall fail to perform any other terms, covenants or conditions under the agreement of lease, and other customary representations, warranties and covenants.

Future minimum lease payments are approximately as follows:

Period Ending March 31,	Operating Leases
2018 (remainder of the year)	$	75,000
2019		100,000
2020		100,000
2021		100,000
2022		100,000
thereafter		441,667
Total minimum lease payments	$	916,667

Corporate office

An office space has been leased on a month-by-month basis.

The officers and directors are involved in other business activities and most likely will become involved in other business activities in the future.

22

NOTE 16—SUBSEQUENT EVENTS

In accordance with SFAS 165 (ASC 855-10), the Company has analyzed its operations subsequent to March 31, 2018 to the date these financial statements were issued, and has determined that, except as set forth below, it does not have any material subsequent events to disclose in these financial statements.

On July 7, 2017, our wholly-owned subsidiary 1847 Fitness, Inc. entered into a membership interest purchase agreement, which was amended on November 7, 2017 and December 18, 2017, with Central Florida Health Clubs, LLC d/b/a Gold’s Gym Orlando, a Florida limited liability company, CLFL, LLC d/b/a Gold’s Gym Clermont, a Florida limited liability company, MTDR LLC d/b/a Gold’s Gym Mt. Dora, a Florida limited liability company, SCFL, LLC d/b/a Gold’s Gym St. Cloud, a Florida limited liability company, and the sellers set forth in Exhibit A to the membership interest purchase agreement, for the purchase of all of the outstanding equity interests of such companies. This transaction was not completed and the agreement terminated automatically in accordance with its terms on March 1, 2018.

The Company received an additional draw of $3,500 from the Note Payable – Related party in May 2018 (See Note 13).

On April 18, 2018, the Lessor, the Lessee, and Ellery W. Roberts, as guarantor under the Master Lease Agreement (see Note 11), entered into a forbearance agreement relating to the non-payment of certain rent payments due under the Master Lease Agreement for the months of March 2018 and April 2018 (the “Forbearance Agreement”). Pursuant to the Forbearance Agreement, Lessor shall forbear from demanding payment in full and exercising its remedies under the Master Lease Agreement until June 3, 2018 (the “Expiration Date”). In the event of the occurrence of any event of default or other material default under the Master Lease Agreement or any non-compliance by the Lessee with any of the conditions set forth in the Forbearance Agreement, Lessor’s forbearance will be subject to earlier termination whereupon Lessor may accelerate any of the due and unpaid liabilities and exercise any and all remedies available under the Master Lease Agreement in its sole and absolute discretion.

Pursuant to the Forbearance Agreement, Lessee shall, among other things, (i) make the payments set forth in the Forbearance Agreement on or before the dates specified therein, totaling $173,375.76, (ii) be current on all rent due under Schedule 1 of the Master Lease Agreement by June 3, 2018 and be current on all rent due under Schedule 2 of the Master Lease Agreement by May 30, 2018, (ii) reinstate or renew and continue in effect all insurance as required under the Master Lease Agreement at Lessee’s sole cost and expense, (iv) pay a forbearance fee to Lessor totaling $4,500, which shall not be due until termination of the Master Lease Agreement and (v) execute a surrender agreement with respect to the Lessee’s equipment, which will be held in escrow by Lessor and not deemed effective unless and until the earlier to occur of: (a) the Expiration Date, provided liabilities under Master Lease Agreement remain due but unpaid; (b) such time as Lessor accelerates due and unpaid liabilities pursuant to the term of the Forbearance Agreement and the Master Lease Agreement; or (c) a default occurs under the Forbearance Agreement or the Master Lease Agreement (each a “Triggering Event”).

Pursuant to the terms of the surrender agreement also entered into on April 18, 2018, upon the occurrence of a Triggering Event, Lessee will (i) immediately surrender possession, and will direct any third party in possession of any leased equipment to immediately surrender possession, of such leased equipment to the Lessor or, at Lessor’s direction, Lessor’s agent, in accordance with the terms of the Master Lease Agreement; and (ii) deliver to the Lessor or Lessor’s agent all accounting and other records pertaining to, and all writings evidencing the leased equipment or any portion thereof. 

23

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Use of Terms

Except as otherwise indicated by the context and for the purposes of this report only, references in this report to:

· “1847 Holdings,” “we,” “our” and “our company” refer to 1847 Holdings LLC, a Delaware limited liability company, and its consolidated subsidiaries;

· “1847 Neese” refer to our majority-owned subsidiary 1847 Neese Inc., a Delaware corporation;

· “Neese” refer to 1847 Neese’s wholly-owned subsidiary Neese, Inc., an Iowa corporation;

· “our manager” refer to 1847 Partners LLC, a Delaware limited liability company;

· “our shareholders” refer to holders of our common shares;

· “small businesses” refer to businesses that have an enterprise value of less than $50 million;

· “SEC” refer to the Securities and Exchange Commission;

· “Securities Act” refer to the Securities Act of 1933, as amended; and

· “Exchange Act” refer to the Securities Exchange Act of 1934, as amended.

Special Note Regarding Forward Looking Statements

Certain information contained in this report includes forward-looking statements. The statements herein which are not historical reflect our current expectations and projections about our company’s future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to our company and our management and our interpretation of what is believed to be significant factors affecting the businesses, including many assumptions regarding future events. The following factors, among others, may affect our forward-looking statements:

· our ability to integrate Neese’s land application business;

· our ability to successfully identify and acquire additional businesses, and to operate such businesses that we may acquire in the future and to effectively integrate and improve such businesses;

· our organizational structure, which may limit our ability to meet our dividend and distribution policy;

24

· our ability to service and comply with the terms of indebtedness that we expect to incur in the future;

· our cash flow available for distribution and our ability to make monthly distributions in the future to our shareholders;

· our ability to pay the management fee, profit allocation and put price to our manager when due;

· labor disputes, strikes or other employee disputes or grievances;

· our ability to implement our acquisition and management strategies;

· the regulatory environment in which our businesses may operate under;

· trends in the industries in which our businesses may operate;

· operational costs and expenses, including, energy and labor costs;

· the competitive environment in which our businesses will operate;

· changes in general economic or business conditions or economic or demographic trends in the United States including changes in interest rates and inflation;

· our and our manager’s ability to retain or replace qualified employees of our future businesses and our manager;

· casualties, condemnation or catastrophic failures with respect to any of our future 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 future businesses.

  

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Item 1A. Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2017, and matters described in this report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this report will in fact occur.

 

25

Potential investors should not place undue reliance on any forward-looking statements. 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.

The specific discussions herein about our company include financial projections and future estimates and expectations about our company’s business. The projections, estimates and expectations are presented in this report only as a guide about future possibilities and do not represent actual amounts or assured events. All the projections and estimates are based exclusively on our company management’s own assessment of our business, the industry in which we work and the economy at large and other operational factors, including capital resources and liquidity, financial condition, fulfillment of contracts and opportunities. The actual results may differ significantly from the projections.

Potential investors should not make an investment decision based solely on our company’s projections, estimates or expectations.

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. Through our subsidiaries, we currently provide products and services to the agriculture, construction, lawn and garden industries, which we refer to as our land application business. Through our structure, we plan to 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 begin making and growing regular monthly distributions to our shareholders and increasing 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. Like we did when we acquired our land application business, we intend to make these future businesses our majority-owned subsidiaries and intend to 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.

We entered into a management services agreement with our manager on April 15, 2013, pursuant to which we are required to pay our manager a quarterly management fee equal to 0.5% (2.0% annualized) of our company’s adjusted net assets for services performed.

On March 3, 2017, in connection with the acquisition of Neese, 1847 Neese entered into an offsetting management services agreement with our manager. Pursuant to the offsetting management services agreement, 1847 Neese appointed our manager to provide certain services to it for a quarterly management fee equal to $62,500 per quarter; provided, however, that (i) pro rated payments shall be made in the first quarter and the last quarter of the term, (ii) if the aggregate amount of management fees paid or to be paid by 1847 Neese, together with all other management fees paid or to be paid by all other subsidiaries of our company to our manager, in each case, with respect to any fiscal year exceeds, or is expected to exceed, 9.5% of our gross income with respect to such fiscal year, then the management fee to be paid by 1847 Neese for any remaining fiscal quarters in such fiscal year shall be reduced, on a pro rata basis determined by reference to the management fees to be paid to our manager by all of the subsidiaries of our company, until the aggregate amount of the management fee paid or to be paid by 1847 Neese, together with all other management fees paid or to be paid by all other subsidiaries of our company to our manager, in each case, with respect to such fiscal year, does not exceed 9.5% of our gross income with respect to such fiscal year, and (iii) if the aggregate amount the management fee paid or to be paid by 1847 Neese, together with all other management fees paid or to be paid by all other subsidiaries of our company to our manager, in each case, with respect to any fiscal quarter exceeds, or is expected to exceed, the aggregate amount of the management fee (before any adjustment thereto) calculated and payable under the management services agreement, which we refer to as the parent management fee, with respect to such fiscal quarter, then the management fee to be paid by 1847 Neese for such fiscal quarter shall be reduced, on a pro rata basis, until the aggregate amount of the management fee paid or to be paid by 1847 Neese, together with all other management fees paid or to be paid by all other subsidiaries of our company to our manager, in each case, with respect to such fiscal quarter, does not exceed the parent management fee calculated and payable with respect to such fiscal quarter.

26

Our Land Application Business

Through Neese, which we acquired on March 3, 2017, we provide a wide range of products and services for the agriculture, construction, lawn and garden industries. Neese’s revenue mix is composed of waste disposal and a variety of agricultural services, wholesaling of agricultural equipment and parts, local trucking services, various shop services, and other products and services. Services to the local agricultural and farming communities include manure spreading, land rolling, bin whipping, cleaning of bulk storage bins and silos, equipment rental, trucking, vacuuming, building erection, and others.

Neese was acquired pursuant to a stock purchase agreement that our wholly-owned subsidiary 1847 Neese entered into with Neese and Alan Neese and Katherine Neese on March 3, 2017. Pursuant to the stock purchase agreement, 1847 Neese acquired all of the issued and outstanding capital stock of Neese for an aggregate purchase price of $6,655,000, consisting of: (i) $2,225,000 in cash (subject to certain adjustments); (ii) 450 shares of the common stock of 1847 Neese, valued by the parties at $1,530,000, constituting 45% of its capital stock; (iii) the issuance of a vesting promissory note in the principal amount of $1,875,000 (which was determined to have a fair value of $395,634) due June 30, 2020; and (iv) the issuance of a short-term promissory note in the principal amount of $1,025,000 due March 3, 2018. The short-term promissory note has not been repaid, so we are in default under this note and the Company believes it will begin making payments in 2019.

Our Historic Management Consulting Business

On September 15, 2013, our subsidiary 1847 Management acquired a 50% interest in each of PPI Management and Christals Management from our Chief Executive Officer and controlling shareholder, Ellery W. Roberts. Each of PPI Management and Christals Management were management consulting and advisory firms. On October 3, 2017, our board decided to discontinue our management consulting operations in order to devote more time and resources to Neese and our proposed acquisition of Fitness CF. 

Emerging Growth Company

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

· have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

· comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

· submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

· disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

27

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

Results of Operations

The following table sets forth key components of our results of operations during the three months ended March 31, 2018 and 2017, both in dollars and as a percentage of our revenue.

	Three Months Ended March 31, 2018						Three Months Ended March 31, 2017
	Amount			% of Revenue			Amount			% of Revenue
Revenue
Services	$	654,074			85.8		$	350,428			52.9
Sales of parts and equipment		108,571			14.2			311,435			47.1
Total Revenue		762,645			100.0			661,863			100.0
Operating expenses
Cost of sales		98,288			12.9			228,890			34.6
Personnel costs		434,964			57.0			166,978			25.2
Depreciation and amortization		359,700			47.2			200,567			30.3
Fuel		218,740			28.9			78,168			11.8
General and administrative		535,283			70.1			408,172			61.7
Total operating expenses		1,646,975			216.0			1,082,775			163.6
Loss from operations		(884,330	)		(116.0	)		(420,912	)		(63.6	)
Other income (expense)
Financing costs		(9,963	)		(1.3	)		(4,044	)		(0.6	)
Interest expense		(104,974	)		(13.8	)		(55,161	)		(8.3	)
Gain (loss) on sale of fixed assets		(40,125	)		(5.3	)		44,372			6.7
Total other income (expense)		(155,062	)		(20.3	)		(14,833	)		(2.2	)
Net loss before income taxes		(1,039,392	)		(136.3	)		(435,745	)		(65.8	)
Income tax provision (benefit)		(246,200	)		(32.3	)		47,510			(16.0	)
Net loss before non-controlling interests		(793,192	)		(104.0	)		(483,255	)		(7.2	)
Net loss attributable to non-controlling interests		(264,047	)		(34.5	)		(111,125	)		(16.8	)
Net loss attributable to company shareholders	$	(529,145	)		(69.4	)	$	(372,130	)		(56.2	)

28

Revenue. We did not generate revenue from our management consulting business for the three months ended March 31, 2018 or March 31, 2017. Revenue from our land application business, which we acquired on March 3, 2017, was $762,645 for the three months ended March 31, 2018 and $661,863 for the period from March 3, 2017 (date of acquisition) through March 31, 2017. Our land application business generates revenues through the provision of waste disposal and a variety of land application services, wholesaling of agricultural equipment and parts, local trucking services, various shop services, and other products and services. Sales of parts and equipment were $108,571 for the 2018 period compared to $311,435 for the 2017 period. In 2017, the Company had more emphasis on sales of equipment than in 2018. In the remainder of 2018, the Company intends to to put an emphasis on increasing sales of parts and equipment.

Cost of sales. Our cost of sales, attributable to our land application business, consists of the direct costs of our equipment and parts it sells in its business. Our cost of sales was $98,288 for the three months ended March 31, 2018 and $228,890 for the period from March 3, 2017 (date of acquisition) through March 31, 2017. The decline in cost of sales is attributable to the decline in sales and a decline in the gross profit margin on sales.

Personnel costs. Personnel costs, attributable to our land application business, include employee salaries and bonuses plus related payroll taxes. It also includes health insurance premiums, 401(k) contributions, and training costs. Our personnel costs were $434,964 for the three months ended March 31, 2018 and $166,978 for the period from March 3, 2017 (date of acquisition) through March 31, 2017. The company anticipates slightly lower personnel costs in 2018.

Fuel costs. Fuel costs, attributable to our land application business, include fuel for our on-road trucking and off-road manure spreading services. Our fuel costs were $218,740 for the three months ended March 31, 2018 and $78,168 for the period from March 3, 2017 (date of acquisition) through March 31, 2017. The current year fuel costs is anticipated to be consistent with the prior year.

General and administrative expenses. Our general and administrative expenses consist primarily of professional advisor fees, bad debts reserve and other expenses incurred in connection with general operations. Our total general and administrative expenses increased by $75,111 to $535,283 for the three months ended March 31, 2018, from $408,172 for the three months ended March 31, 2017. As a percentage of revenue, general and administrative expenses were 70.1% for the three months ended March 31, 2018.

General and administrative expenses for our land application business amounted to $330,253 for the three months ended March 31, 2018, and $171,861 for the period from March 3, 2017 (date of acquisition) through March 31, 2017. The primary components for the three months ended March 31, 2018 were professional fees of $90,640, attributable to audit and related fees and third party advisory fees, management fees of $62,500, and other general and administrative of $177,113. As a percentage of revenue, general and administrative expenses for our land application business amounted to 240.9% for the three months ended March 31, 2018.

General and administrative expenses for our holding company decreased by $29,680, or 12.6%, to $205,031 for the three months ended March 31, 2018, from $234,711 for the three months ended March 31, 2017. The decrease was due to the reduction of professional fees compared to the prior period.

Total other income (loss). We had $155,062 in total other loss for the three months ended March 31, 2018, as compared to other loss of $14,833 for the three months ended March 31, 2017. Other loss in the three months ended March 31, 2018 consisted of $104,974 interest expense, $9,963 of financing costs and loss on disposal of assets of $40,125, while other expense for the three months ended March 31, 2017 consisted of a gain on sale of fixed assets of $44,372, and interest expense and financing costs of $55,161 and $4,044, respectively, related to the Neese’s financings.

Net loss attributable to company shareholders. As a result of the cumulative effect of the factors described above, our net loss attributable to our shareholders increased to $529,145 for the three months ended March 31, 2018, as compared to $372,130 for the three months ended March 31, 2017.

29

Liquidity and Capital Resources

As of March 31, 2018, we had cash and cash equivalents of $78,112. To date, we have financed our operations primarily through cash flow from operations, augmented by cash proceeds from financing activities, short-term borrowings and equity contributions by our shareholders.

We must raise additional cash to implement our strategy and stay in business. If we are unable to obtain additional working capital our business may fail. Accordingly, we must raise cash from sources other than operations. We intend to raise funds for additional acquisitions primarily through debt financing at our company level, additional equity offerings, the sale of all or a part of our businesses or by undertaking a combination of any of the above. In addition to acquiring businesses, we expect to sell businesses that we own from time to time when attractive opportunities arise.

Our primary use of funds will be for future acquisitions, public company expenses including monthly distributions to our shareholders, investments in future acquisitions, payments to our manager pursuant to the management services agreement, potential payment of profit allocation to our manager and potential put price to our manager in respect of the allocation shares it owns. The management fee, expenses, potential profit allocation and potential put price are paid before monthly distributions to shareholders and may be significant and exceed the funds held by our company, which may require our company 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, 2017 for more information concerning the management fee, the profit allocation and put price.

The amount of management fee paid to our manager by our company is reduced by the aggregate amount of any offsetting management fees, if any, received by our manager from any of our businesses. As a result, the management fee paid to our manager may fluctuate from quarter to quarter. The amount of management fee paid to our manager may represent a significant cash obligation and will be senior in right to payments of distributions to our shareholders. In this respect, the payment of the management fee will reduce the amount of cash available for distribution to shareholders. See “Item 1. Business—Our Manager—Our Manager as a Service Provider—Management Fee” included in our Annual Report on Form 10-K for the year ended December 31, 2017 for more information on the calculation of the management fee.

Our manager, as holder of 100% of our allocation shares, is entitled to receive a twenty percent (20%) profit allocation as a form of preferred equity distribution, subject to an annual hurdle rate of eight percent (8%), as follows. Upon the sale of a 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 company’s consolidated net equity (determined according to GAAP 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 our company for its 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, 2017 for more information on the calculation of the profit allocation.

Our operating agreement also contains a supplemental put provision, which gives our manager the right, subject to certain conditions, to cause our company to purchase the allocation shares then owned by our manager upon termination of the management services agreement. The amount of put price under the supplemental put provision is determined by assuming all of our subsidiaries are sold at that time for their fair market value and then calculating the amount of profit allocation would be payable in such a case. If the management services agreement is terminated for any reason other than the manager’s resignation, the payment to our manager could be as much as twice the amount of such hypothetical profit allocation. As is the case with profit allocation, the calculation of the put price is complex and based on many factors that cannot be predicted with any certainty at this time. See “Item 1. Business—Our Manager—Our Manager as an Equity Holder—Supplemental Put Provision” included in our Annual Report on Form 10-K for the year ended December 31, 2017 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 our company for its operating and investing activities, including future acquisitions.

30

Summary of Cash Flow

The following table provides detailed information about our net cash flow for all financial statement periods presented in this report:

Cash Flow

	March 31,
	2018			2017
Net cash provided by (used in) operating activities	$	(183,372	)	$	146,845
Net cash provided by investing activities		35,500			294,128
Net cash used in financing activities		(275,438	)		(163,147	)
Net increase (decrease) in cash and cash equivalents		(423,310	)		277,826
Cash and cash equivalents at beginning of period		501,422			-
Cash and cash equivalent at end of period	$	78,112		$	277,826

Operating Activities

Net cash used in operating activities was $183,372 for the three months ended March 31, 2018, as compared to $146,845 net cash provided by operating activities for the three months ended March 31, 2017. For the three months ended March 31, 2018, the net loss of $793,182, offset by loss on disposal of assets of $40,125, amortization of financing costs of $9,963 and depreciation and amortization of $359,700, an increase of current assets of $276,387 and a decrease in current liabilities of $76,355 were the primary drivers of the used in by operating activities. For the three months ended March 31, 2017, the net loss of $483,255, offset by a gain on acquisition of $44,372 and depreciation and amortization of $200,567, a decrease in current assets, net, of $16,280 and an increase in current liabilities, net, of $486,141 were the primary drivers of the cash provided by operating activities.

Investing Activities

Net cash provided by investing activities was $35,500 for the three months ended March 31, 2018, consisting of $35,500 of proceeds from sale of fixed assets. Net cash provided by investing activities was $294,128 for the three months end March 31, 2017, consisting of $338,411 from the acquisition of Neese and proceeds from the sale of fixed assets of $48,794, offset by the purchase of $93,077 in property and equipment for Neese.

Financing Activities

Net cash used in financing activities was $275,438 for the three months ended March 31, 2018, as compared to $163,147 net cash used in financing activities for the three months ended March 31, 2017. For the three months ended March 31, 2018, net cash provided by financing activities consisted of $275,000 repayments of line of credit advances, proceeds from notes payable – related party of $72,000, principal payments on notes payable and lease obligations of $72,438. Net cash used in financing activities for the three months ended March 31, 2017 consisted of financing costs payments related to the Neese acquisition of $163,147.

31

Vesting Promissory Note

A portion of the purchase price for the acquisition of Neese was paid by the issuance of a vesting promissory note in the principal amount of $1,875,000 (which was determined to have a fair value of $395,634) by 1847 Neese and Neese to the sellers of Neese. Payment of the principal and accrued interest on the vesting promissory note is subject to vesting and a contingent consideration subject to fair market valuation adjustment at each reporting period. The vesting promissory note bears interest on the vested portion of the principal amount at the rate of eight percent (8%) per annum and is due and payable in full on June 30, 2020. The principal of the vesting promissory note vests in accordance with the following formula:

· Fiscal Year 2017: If Adjusted EBITDA for the fiscal year ending December 31, 2017 exceeds an Adjusted EBITDA target of $1,300,000 (referred to as the Adjusted EBITDA Target), then a portion of the principal amount of the vesting promissory note that is equal to sixty percent (60%) of such excess shall vest. Interest shall be payable on such vested portion of principal from January 1, 2017 through the maturity date. For the year ended December 31, 2017, Adjusted EBITDA was $788,958, below the threshold amount of $1,300,000, therefore no portion of the note vested in fiscal year 2017.

· Fiscal Year 2018: If Adjusted EBITDA for the fiscal year ending December 31, 2018 exceeds the Adjusted EBITDA Target, then a portion of the principal amount of the vesting promissory note that is equal to sixty percent (60%) of such excess shall vest. Interest shall be payable on such vested portion of principal from January 1, 2018 through the maturity date.

· Fiscal Year 2019: If Adjusted EBITDA for the fiscal year ending December 31, 2019 exceeds the Adjusted EBITDA Target, then a portion of the principal amount of the vesting promissory note that is equal to sixty percent (60%) of such excess shall vest. Interest shall be payable on such vested portion of principal from January 1, 2019 through the maturity date.

 

For purposes of the vesting promissory note, “Adjusted EBITDA” means the earnings before interest, taxes, depreciation and amortization expenses, in accordance with GAAP applied on a basis consistent with the accounting policies, practices and procedures used to prepare the financial statements of Neese as of the closing date, plus to the extent deducted in calculating such net income: (i) all expenses related to the transactions contemplated hereby and/or potential or completed future financings or acquisitions, including legal, accounting, due diligence and investment banking fees and expenses; (ii) all management fees, allocations or corporate overhead (including executive compensation) or other administrative costs that arise from the ownership of Neese by 1847 Neese including allocations of supervisory, centralized or other parent-level expense items; (iii) one-time extraordinary expenses or losses; and (iv) any reserves or adjustments to reserves which are not consistent with GAAP. Additionally, for purposes of calculating Adjusted EBITDA, the purchase and sales prices of goods and services sold by or purchased by Neese to or from 1847 Neese, its subsidiaries or affiliates shall be adjusted to reflect the amounts that Neese would have realized or paid if dealing with an independent third-party in an arm’s-length commercial transaction, and inventory items shall be properly categorized as such and shall not be expenses until such inventory is sold or consumed.

The vesting promissory note contains customary events of default, including in the event of: (i) non-payment; (ii) a default by 1847 Neese or Neese of any of their covenants under the stock purchase agreement, the vesting promissory note, or any other agreement entered into in connection with the acquisition of Neese, or a breach of any of their representations or warranties under such documents; or (iii) the bankruptcy of 1847 Neese or Neese.

Short-Term Promissory Note

A portion of the purchase price for the acquisition of Neese was paid by the issuance of a short-term promissory note in the principal amount of $1,025,000 by 1847 Neese and Neese to the sellers of Neese. The short-term promissory note bears interest on the outstanding principal amount at the rate of ten percent (10%) per annum and is due and payable in full on March 3, 2018; provided, however, that the unpaid principal, and all accrued, but unpaid, interest thereon shall be prepaid if at any time, and from time to time, the cash on hand of 1847 Neese and Neese exceeds $250,000 and, then, the prepayment shall be equal to the amount of cash in excess of $200,000 until the unpaid principal and accrued, but unpaid, interest thereon is fully prepaid. The short-term promissory note contains the same events of default as the vesting promissory note. The short-term promissory note has not been repaid, so we are in default under this note and the Company believes it will begin making payments in 2019.

32

Grid Promissory Note

On January 3, 2018, we issued a grid promissory note to our manager in the initial principal amount of $50,000. The note provides that we may from time to time request additional advances from our manager up to an aggregate additional amount of $100,000, which will be added to the note if our manager, in its sole discretion, so provides. Interest shall accrue on the unpaid portion of the principal amount and the unpaid portion of all advances outstanding at a fixed rate of 8% per annum, and along with the outstanding portion of the principal amount and the outstanding portion of all advances, shall be payable in one lump sum due on the maturity date, which is the first anniversary of the date of the note. If all or a portion of the principal amount or any advance under the note, or any interest payable thereon is not paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate of 12% per annum. In the event we complete a financing involving at least $500,000, we must, contemporaneously with the closing of such financing transaction, repay the entire outstanding principal and accrued and unpaid interest on the note. The note is unsecured and contains customary events of default.

Line of Credit

On September 26, 2017, Neese entered into a promissory note and security agreement with Home State Bank, an Iowa state chartered bank, governing a new revolving credit facility in a principal amount not to exceed $1,000,000. This loan is available for working capital and other general business purposes. Availability of borrowings under this loan agreement from time to time is subject to discretionary advances approved by Home State Bank. The outstanding principal balance amounted to $400,000 as of March 31, 2018 and the loan bears interest at 4.85%. The loan is due September 1, 2018. The loan is secured by certain assets of Neese.

Note Payable

On July 21, 2017, Neese entered into a promissory note with Home State Bank in the principal amount of $76,806, which is secured by a 2018 Kenworth T800 Semi Tractor, bears interest at 4.5%, amortized over 5 years, is payable in monthly installments of principal and interest of $1,434, and is due August 1, 2022.

Master Lease Agreement

The cash portion of the purchase price for the acquisition of Neese was financed under a capital lease transaction for Neese’s equipment with Utica Leaseco, LLC, or the Lessor, pursuant to a master lease agreement, dated March 3, 2017, between the Lessor and 1847 Neese and Neese, as co-lessees (collectively, referred to as the Lessee). Under the master lease agreement, the Lessor loaned an aggregate of $3,240,000 for certain of Neese’s equipment listed therein, which it leases to the Lessee. The initial term of the master lease agreement was for 51 months. Under the master lease agreement, the Lessee agreed to pay a monthly rent of $53,000 for the first three (3) months, with such amount increasing to $85,321.63 for the remaining forty-eight (48) months.

On June 14, 2017, the parties entered into a first amendment to lease documents, pursuant to which the parties agreed to, among other things, extend the term of the master lease agreement from 51 months to 57 months and amend the payments due thereunder. Under the amendment, the Lessee agreed to pay a monthly rent of $53,000 for the first ten (10) months, with such amount increasing to $85,321.63 for the remaining forty-seven (47) months. In connection with the extension of the term of the master lease agreement, the parties also amended the schedule of stipulated loss values and early termination payment schedule attached thereto. In connection with the amendment, the Lessee agreed to pay the Lessor an amendment fee of $2,500.

On October 31, 2017, the Lessee and the Lessor entered into a second equipment schedule to the master lease agreement, pursuant to which the Lessor loaned an aggregate of $980,000 for certain of Neese’s equipment listed therein. The term of the second equipment schedule is 51 months and agreed monthly payments are $25,807.

33

If any rent is not received by the Lessor within five (5) calendar days of the due date, the Lessee shall pay a late charge equal to ten (10%) percent of the amount. In addition, in the event that any payment is not processed or is returned on the basis of insufficient funds, upon demand, the Lessee shall pay the Lessor a charge equal to five percent (5%) of the amount of such payment. The Lessee is also required to pay an annual administration fee of $3,000. Upon the expiration of the term of the master lease agreement, the Lessee is required to pay, together with all other amounts then due and payable under the master lease agreement, in cash, an end of term buyout price equal to the lesser of: (a) five percent (5%) of the Total Invoice Cost (as defined in the master lease agreement); or (b) the fair market value of the equipment, as determined by the Lessor.

Provided that no default under the master lease agreement has occurred and is continuing beyond any applicable grace or cure period, the Lessee has an early buy-out option with respect to all but not less than all of the equipment, upon the payment of any outstanding rental payments or other fees then due, plus an additional amount set forth in the master lease agreement, which represents the anticipated fair market value of the equipment as of the anticipated end date of the master lease agreement. In addition, the Lessee shall pay to the Lessor an administrative charge to be determined by the Lessor to cover its time and expenses incurred in connection with the exercise of the option to purchase, including, but not limited to, reasonable attorney fees and costs. Furthermore, upon the exercise by the Lessee of this option to purchase the equipment, the Lessee shall pay all sales and transfer taxes and all fees payable to any governmental authority as a result of the transfer of title of the equipment to Lessee.

In connection with the master lease agreement, the Lessee granted a security interest on all of its right, title and interest in and to: (i) the equipment, together with all related software (embedded therein or otherwise) and general intangibles, all additions, attachments, accessories and accessions thereto whether or not furnished by the supplier; (ii) all accounts, chattel paper, deposit accounts, documents, other equipment, general intangibles, instruments, inventory, investment property, letter of credit rights and any supporting obligations related to any of the foregoing; (iii) all books and records pertaining to the foregoing; (iv) all property of such Lessee held by the Lessor, including all property of every description, in the custody of or in transit to the Lessor for any purpose, including safekeeping, collection or pledge, for the account of such Lessee or as to which such Lessee may have any right or power, including but not limited to cash; and (v) to the extent not otherwise included, all insurance, substitutions, replacements, exchanges, accessions, proceeds and products of the foregoing.

On April 18, 2018, the Lessor, the Lessee, and Ellery W. Roberts, as guarantor under the master lease agreement, entered into a forbearance agreement relating to the non-payment of certain rent payments due under the Master Lease Agreement for the months of March 2018 and April 2018. Pursuant to the forbearance agreement, Lessor shall forbear from demanding payment in full and exercising its remedies under the master lease agreement until June 3, 2018. In the event of the occurrence of any event of default or other material default under the master lease agreement or any non-compliance by the Lessee with any of the conditions set forth in the forbearance agreement, Lessor’s forbearance will be subject to earlier termination whereupon Lessor may accelerate any of the due and unpaid liabilities and exercise any and all remedies available under the master lease agreement in its sole and absolute discretion.

Pursuant to the forbearance agreement, Lessee shall, among other things, (i) make the payments set forth in the forbearance agreement on or before the dates specified therein, totaling $173,375.76, (ii) be current on all rent due under Schedule 1 of the master lease agreement by June 3, 2018 and be current on all rent due under Schedule 2 of the master lease agreement by May 30, 2018, (ii) reinstate or renew and continue in effect all insurance as required under the master lease agreement at Lessee’s sole cost and expense, (iv) pay a forbearance fee to Lessor totaling $4,500, which shall not be due until termination of the master lease agreement and (v) execute a surrender agreement with respect to the Lessee’s equipment, which will be held in escrow by Lessor and not deemed effective unless and until the earlier to occur of: (a) June 3, 2018, provided liabilities under master lease agreement remain due but unpaid; (b) such time as Lessor accelerates due and unpaid liabilities pursuant to the term of the forbearance agreement and the master lease agreement; or (c) a default occurs under the forbearance agreement or the master lease agreement (each referred to as a Triggering Event).

Pursuant to the terms of the surrender agreement also entered into on April 18, 2018, upon the occurrence of a Triggering Event, Lessee will (i) immediately surrender possession, and will direct any third party in possession of any leased equipment to immediately surrender possession, of such leased equipment to the Lessor or, at Lessor’s direction, Lessor’s agent, in accordance with the terms of the master lease agreement; and (ii) deliver to the Lessor or Lessor’s agent all accounting and other records pertaining to, and all writings evidencing the leased equipment or any portion thereof.

34

Contractual Obligations

We have engaged our manager to manage the day-to-day operations and affairs of our company. Our relationship with our manager will be governed principally by the following agreements:

· the management services agreement relating to the management services our manager will perform for us and the businesses we own and the management fee to be paid to our manager in respect thereof; and

· our company’s operating agreement setting forth our manager’s rights with respect to the allocation shares it owns, including the right to receive profit allocations from our company, and the supplemental put provision relating to our manager’s right to cause our company to purchase the allocation shares it owns.

 

Pursuant to the management services agreement that we entered into with our manager, our manager will have the right to cause our company to purchase the allocation shares then owned by our manager upon termination of the management services agreement. The redemption value of the allocation shares will be recorded outside of permanent equity in the mezzanine section of the balance sheet. We will recognize any change in the redemption value of the allocation shares by recording a dividend between net income and net income available to common shareholders. The amount recorded for the allocation shares is largely related to the fair value of the profit allocation that our manager, as holder of the allocation shares, will receive. The carrying value of the allocation shares will represent an estimate of the amounts to ultimately be paid to our manager, whether as a result of the occurrence of one or more of the various trigger events or upon the exercise of the supplemental put provision contained in our operating agreement following the termination of the management services agreement. 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, 2017 for more information about this agreement.

We also expect that our manager will enter into offsetting management services agreements, transaction services agreements and other agreements, in each case, with some or all of the businesses that we acquire in the future. See “Item 1. Business—Our Manager” included in our Annual Report on Form 10-K for the year ended December 31, 2017 for more information about these and other agreements our company intends to enter into with our manager.

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

The following discussion relates to critical accounting policies for our consolidated company. The preparation of financial statements in conformity with GAAP requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:

Revenue Recognition and Cost of Revenue. On January 1, 2018, we adopted ASC No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASC also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer purchase orders, including significant judgments. Our payment terms are net 30 days from acceptance of delivery. We do not incur incremental costs obtaining purchase orders from our customers, however, if we did, because all of our contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized. Our adoption of this ASC, resulted in no change to our results of operations or our balance sheet.

35

Allowance for credit losses. Provisions for credit losses are charged to income as losses are estimated to have occurred and in amounts sufficient to maintain an allowance for credit losses at an adequate level to provide for future losses on our accounts receivable. We charge credit losses against the allowance and credits subsequent recoveries, if any, to the allowance. Historical loss experience and contractual delinquency of accounts receivables, and management’s judgment are factors used in assessing the overall adequacy of the allowance and the resulting provision for credit losses. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or portfolio performance. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available. The allowance for credit losses consists of general and specific components. The general component of the allowance estimates credit losses for groups of accounts receivable on a collective basis and relates to probable incurred losses of unimpaired accounts receivables. We record a general allowance for credit losses that includes forecasted future credit losses.

Inventory. Inventory consists of machinery and equipment and parts acquired for resale and is valued at the lower-of-cost-or-market with cost determined on a specific item basis. We periodically evaluate the value of items in inventory and provide write-downs to inventory based on its estimate of market conditions.

Property and Equipment. Property and equipment is stated at cost. Depreciation of furniture, vehicles and equipment is calculated using the straight-line method over the estimated useful lives as follows: building and improvements (4 years); machinery and equipment (3-7 years); tractors (3-7 years); and trucks and vehicles (3-6 years).

Long-Lived Assets. We review our property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management at least annually. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Fair Value of Financial Instruments. Our financial instruments consist of cash and cash equivalents and amounts due to shareholders. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

Recent Accounting Pronouncements

We have reviewed all other Financial Accounting Standards Board issued ASC accounting pronouncements and interpretations thereof that have effective dates during the period reported and in future periods. We have carefully considered the new pronouncements that alter the previous GAAP and do not believe that any new or modified principles will have a material impact on our reported financial position or operations in the near term.

Reconciliation of Non-GAAP Financial Measures

From time to time we may publicly disclose certain “non-GAAP” financial measures, such as EBITDA and adjusted EBITDA, during our investor presentations, earnings releases, earnings conference calls or other venues. A non-GAAP financial measure is a numerical measure of historical or future performance, financial position or cash flow that excludes amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with GAAP in our financial statements, and vice versa for measures that include amounts, or are subject to adjustments that effectively include amounts, that are excluded from the most directly comparable measure as calculated and presented.

Non-GAAP financial measures are provided as additional information to investors in order to provide them with an alternative method for assessing our financial condition and operating results. These measures are not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.

The tables below reconcile the most directly comparable GAAP financial measures to adjusted EBITDA and cash flow available for distribution and reinvestment.

36

Reconciliation of EBITDA and Adjusted EBITDA

To provide investors with additional information about our financial results, we disclose within this report EBITDA and adjusted EBITDA, which are non-GAAP financial measures, of Neese. These metrics are derived exclusively from the operations of Neese as reflected in the financial statements of Neese. We have provided below a reconciliation between EBITDA and adjusted EBITDA and net income (loss). Net income (loss) is the most directly comparable financial measure prepared in accordance with GAAP.

EBITDA, or earnings before interest, income taxes, depreciation and amortization, is calculated as net income (loss) before interest expense, income tax expense (benefit), depreciation expense and amortization expense. Amortization expenses consist of amortization of intangibles and debt charges, including debt issuance costs, discounts and the like.

Adjusted EBITDA is calculated utilizing the same calculation as described above in arriving at EBITDA further adjusted by: (i) non-controlling stockholder compensation, which generally consists of non-cash stock option expense; (ii) acquisition costs, which consist of transaction costs (legal, accounting, due diligence and the like) incurred in connection with the acquisition of a business expensed during the period; (iii) management fees, which reflect fees due quarterly to our manager in connection with our management services agreement; (iv) allocations of corporate overhead (including executive compensation) or other administrative costs that arise from the ownership of our operating subsidiaries (once acquired) by our acquisition subsidiary or by us as the ultimate holding company, including allocations of supervisory, centralized or other parent level expense items; (v) one-time extraordinary expenses or losses; (vi) impairment charges, which reflect write downs to goodwill or other intangible assets; (vii) gains or losses recorded in connection with the sale of fixed assets; and (vii) gains or losses recognized upon the sale of a business.

We have included EBITDA and adjusted EBITDA in this report because we believe it enhances investors’ understanding of the operating results of Neese. EBITDA and adjusted EBITDA is provided because management believes it is an important measure of financial performance commonly used to determine the value of companies, to define standards for borrowing from institutional lenders and because it is the primary measure used by management to evaluate our performance.

Some limitations of EBITDA and adjusted EBITDA are:

· EBITDA and adjusted EBITDA do not reflect the interest expense of, or the cash requirements necessary to, service interest or principal payments on our debts;

· EBITDA and adjusted EBITDA do not reflect income tax payments that may represent a reduction in cash available to us;

· although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future; and

· other companies may calculate EBITDA or adjusted EBITDA differently or not at all, which reduces its usefulness as a comparative measure.

 

Because of these limitations, you should consider EBITDA and adjusted EBITDA alongside other financial performance measures, including net income of Neese and audited historical financial results presented elsewhere in the report in accordance with GAAP.

37

The following table presents a reconciliation of net income to EBITDA and adjusted EBITDA for the three months ended March 31, 2018:

	Three Months Ended March 31, 2018
	Corporate			Neese			Consolidated
Net income (loss)	$	(206,423	)	$	(586,769	)	$	(793,192	)
Adjusted for:
Provision (benefit) for income taxes		-			(246,200	)		(246,200	)
Interest expense, net		1,392			103,582			104,974
Depreciation and amortization		-			359,700			359,700
EBITDA		(205,031	)		(369,687	)		(574,718	)
Other		-			-			-
Adjusted EBITDA		(205,031	)		(369,687	)		(574,718	)

Cash Available for Distribution

The table below details cash receipts and payments that are not reflected on our income statement in order to provide an additional measure of management’s estimate of cash available for distribution, or CAD. CAD is a non-GAAP measure that we believe provides additional, useful information to our shareholders in order to enable them to evaluate our ability to make anticipated monthly distributions. CAD is not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.

The following table reconciles CAD to net income (loss) and cash flows provided by (used in) operating activities, which we consider to be the most directly comparable financial measure calculated and presented in accordance with GAAP.

	Three Months Ended March 31, 2018
Net income (loss)	$	(793,192	)
Adjustment to reconcile net loss to cash provided by operating activities:
Depreciation and amortization		359,700
Loss on fixed assets		40,125
Amortization of financing costs		9,963
Changes in operating assets and liabilities		200,012
Net cash used in operating activities
Estimated cash flow available for distribution and reinvestment	$	(183,372	)

38

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 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 SEC 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 March 31, 2018. 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, 2017, which we are still in the process of remediating as of March 31, 2018, 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, 2017 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.

39

During its evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2018, 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 sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements.

 

As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, our management has identified the steps necessary to address the material weaknesses, and in the first quarter of fiscal 2018, we continued to implement the following remedial procedures:

· Once we raise additional funds, Robert D. Barry, CPA intends to resign as a director of our company and will become our Chief Financial Officer. Mr. Barry has more than 10 years of experience acting as chief financial officer of various companies and has significant GAAP and SEC reporting experience.

· 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.

· We have identified a financial controller for Neese and anticipate hiring such person by June 1, 2018. Mr. Barry is acting as interim controller for Neese until a permanent controller is hired.

· We have engaged the outsourced accounting and financial reporting services of Carrollton Partners, LLC and will continue to use its services after Robert D. Barry assumes the role of Chief Financial Officer.

 

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 first quarter of fiscal 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

40

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.

Except as set forth below, there are no material changes to the risk factors included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017.

We are in default under the terms of our short-term promissory note, which could adversely affect our financial condition and results of operations.

Neese was acquired pursuant to a stock purchase agreement that our wholly-owned subsidiary, 1847 Neese, entered into with Neese and Alan Neese and Katherine Neese on March 3, 2017. Pursuant to the stock purchase agreement, 1847 Neese acquired all of the issued and outstanding capital stock of Neese for an aggregate purchase price of $6,655,000, consisting of, among other things, the issuance of a short-term promissory note in the principal amount of $1,025,000 due March 3, 2018. The short-term promissory note accrues interest at a rate of 10% per annum until the unpaid principal is paid in full.

We failed to pay the outstanding principal and accrued interest on the short-term promissory note at the maturity date of March 3, 2018, and that note is now in default. As a result of the default, Alan Neese and Katherine Neese, as collective holder of the short-term promissory note, may demand by written notice to our company that all of our obligations under the note be immediately due and payable without presentment, demand, protest or any other action, and may exercise any other remedies the holder may have at law or in equity. If the holder of the short-term promissory note does not waive the default for non-payment or otherwise agree to revise the terms of the short-term promissory note in a manner favorable to our company, and instead exercises its remedies thereunder, it could materially and adversely affect our financial condition and results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

We have not sold any equity securities during the first quarter of fiscal year 2018 that were not previously disclosed in a current report on Form 8-K that was filed during the quarter.

During the three month period ended March 31, 2018, we did not repurchase any of our common shares.

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 first quarter of fiscal year 2018 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.

41

ITEM 6. EXHIBITS.

Exhibit No.	Description
3.1	Certificate of Formation of 1847 Holdings LLC (Incorporated herein by reference to Exhibit 3.1 to the registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 7, 2017)
3.2	Second Amended and Restated Operating Agreement of 1847 Holdings LLC, dated January 19, 2018 (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on January 22, 2018)
4.1	Specimen certificate evidencing a common share of 1847 Holdings LLC (Incorporated herein by reference to Exhibit 4.1 to the registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 7, 2014)
10.1	Grid Promissory Note, dated January 3, 2018, issued by 1847 Holdings LLC in favor of 1847 Partners LLC (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed January 4, 2018)
31.1*	Certifications of Principal Executive Officer and Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certifications of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS ++	XBRL Instance Document
101.SCH ++	XBRL Taxonomy Extension Schema Document
101.CAL ++	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF ++	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB ++	XBRL Taxonomy Extension Label Linkbase Document
101.PRE ++	XBRL Taxonomy Extension Presentation Linkbase Document

______________ 

*Filed herewith.

++XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a report for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

42

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. 

	1847 HOLDINGS LLC
Date: May 21, 2018	By	/s/ Ellery W. Roberts
	Name:	Ellery W. Roberts
	Title:	Chief Executive Officer and Chief Financial Officer
		(Principal Executive Officer and Principal Financial and Accounting Officer)

43

EX-31.1

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: May 21, 2018	By:	/s/ Ellery W. Roberts
		Ellery W. Roberts
		Chief Executive Officer and Chief Financial Officer
		(Principal Executive Officer and Principal Financial and Accounting Officer)

EX-32.1

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 and 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 March 31, 2018 (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 this 21^st day of May, 2018.

By:	/s/ Ellery W. Roberts
	Ellery W. Roberts
	Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and 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.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2018	May 21, 2018
Document And Entity Information
Entity Registrant Name	1847 Holdings LLC
Entity Central Index Key	0001599407
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		3,115,625
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2018

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Current Assets
Cash	$ 78,112	$ 501,422
Accounts receivable, net	94,066	310,363
Inventories, net	770,514	836,571
Prepaid expenses and other assets	180,844	174,877
TOTAL CURRENT ASSETS	1,123,536	1,823,233
Property and equipment, net	5,665,594	6,099,219
Goodwill	22,166	22,166
Intangible assets, net	26,633	28,333
Other assets	111,504	111,504
TOTAL ASSETS	6,949,433	8,084,455
CURRENT LIABILITIES
Accounts payable and accrued expenses	1,396,868	1,229,106
Line of credit	400,000	675,000
Advances, related party	181,786	179,704
Note payable - related party	72,000
Note payable - current portion	14,247	14,247
Promissory note payable	1,025,000	1,025,000
Uncertain tax liability	127,000	126,000
Current portion of capital lease obligation	737,876	615,349
TOTAL CURRENT LIABILITIES	3,954,777	3,864,406
Non-current note-payable	54,508	58,020
Vesting note payable	395,634	395,634
Non-current deferred tax liability	741,401	988,601
Capital lease obligation, net of current portion	3,081,499	3,262,988
TOTAL LIABILITIES	8,227,819	8,569,649
TOTAL 1847 HOLDINGS LLC AND SUBSIDIARIES SHAREHOLDERS' DEFICIT
Allocation shares, 1,000 shares issued and outstanding	1,000	1,000
Common Shares, 500,000,000 shares authorized, 3,115,625 shares issued and outstanding as of March 31, 2018 and December 31, 2017	3,115	3,115
Additional paid-in capital	11,891	11,891
Accumulated Deficit	(1,688,869)	(1,159,724)
TOTAL SHAREHOLDERS' DEFICIT	(1,672,863)	(1,143,718)
NONCONTROLLING INTERESTS	394,477	658,524
TOTAL SHAREHOLDERS' DEFICIT	(1,278,386)	(485,194)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$ 6,949,433	$ 8,084,455

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - shares	Mar. 31, 2018	Dec. 31, 2017
SHAREHOLDERS' DEFICIT
Allocation shares, issued	1,000	1,000
Allocation shares, outstanding	1,000	1,000
Common shares, authorized	500,000,000	500,000,000
Common shares, issued	3,115,625	3,115,625
Common shares, outstanding	3,115,625	3,115,625

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
REVENUE
Services	$ 654,074	$ 350,428
Sales of parts and equipment	108,571	311,435
TOTAL REVENUE	762,645	661,863
OPERATING EXPENSES
Cost of sales	98,288	228,890
Personnel costs	434,964	166,978
Depreciation and amortization	359,700	200,567
Fuel	218,740	78,168
General and administrative	535,283	408,172
TOTAL OPERATING EXPENSES	1,646,975	1,082,775
LOSS FROM OPERATIONS	(884,330)	(420,912)
OTHER INCOME (EXPENSE)
Financing costs	(9,963)	(4,044)
Interest expense	(104,974)	(55,161)
Gain (loss) on sale of fixed assets	(40,125)	44,372
TOTAL OTHER INCOME (EXPENSE)	(155,062)	(14,833)
NET LOSS BEFORE INCOME TAXES	(1,039,392)	(435,745)
INCOME TAX PROVISION (BENEFIT)	(246,200)	47,510
NET LOSS BEFORE NON-CONTROLLING INTERESTS	(793,192)	(483,255)
Less net loss attributable to non-controlling interests	(264,047)	(111,125)
NET LOSS ATTRIBUTABLE TO 1847 HOLDINGS SHAREHOLDERS	$ (529,145)	$ (372,130)
Net Loss Per Common Share: Basic and diluted	$ (0.17)	$ (0.12)
Weighted-average number of common shares outstanding: Basic and diluted	3,115,625	3,115,625

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
OPERATING ACTIVITIES
Net loss	$ (793,192)	$ (483,255)
Adjustments to reconcile net income to net cash provided by operating activities:
(Gain) loss on sale of fixed assets	40,125	(44,372)
Depreciation and amortization	359,700	200,567
Amortization of financing costs	9,963	4,044
Changes in operating assets and liabilities:
Accounts receivable	216,297	(158,229)
Inventory	66,057	142,189
Prepaid expenses and other assets	(5,967)	(240)
Accounts payable and accrued expenses	169,838	327,593
Uncertain tax position	1,000	52,847
Deferred tax liability and prepaid tax	(247,200)
Interest payable	8,712
Due to related parties	2,082	107,517
Other liabilities	(10,787)	(1,816)
Net cash provided by (used in) operating activities	(183,372)	146,845
INVESTING ACTIVITIES
Cash acquired in acquisition		338,411
Proceeds from the sale of fixed assets	35,500	48,794
Purchase of equipment		(93,077)
Net cash provided by investing activities	35,500	294,128
FINANCING ACTIVITIES
Repayment to line of credit	(275,000)
Note payable related party	72,000
Payments on notes payable	(3,512)
Principal payments on capital lease obligation	(68,926)	(163,147)
Net cash used in financing activities	(275,438)	(163,147)
NET CHANGE IN CASH	(423,310)	277,826
CASH
Beginning of period	501,422
End of period	78,112	277,826
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	119,871
Income taxes paid

XML

ORGANIZATION AND NATURE OF BUSINESS

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS

1847 Holdings LLC (“we,” “us,” “our” and the “Company”) was formed under the laws of the State of Delaware on January 22, 2013. We are in the business of acquiring small businesses in a variety of different industries. The Company is a limited liability company that has elected to be taxed as a partnership. The Company’s subsidiaries are corporations and are taxed as such.

To date, we have consummated three acquisitions. In September 2013, our wholly-owned subsidiary 1847 Management Services Inc. (“1847 Management”) acquired a 50% interest in each of two consulting firms previously controlled by our Chief Executive Officer, PPI Management Group, LLC and Christals Management, LLC.

On March 3, 2017, our wholly-owned subsidiary 1847 Neese Inc. (“1847 Neese”) entered into a stock purchase agreement with Neese, Inc. (“Neese”), and Alan Neese and Katherine Neese, pursuant to which 1847 Neese acquired all of the issued and outstanding capital stock of Neese.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and are presented in US dollars.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months period ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

Consolidated Financial Statements

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, 1847 Management, 1847 Neese and 1847 Fitness. All significant intercompany balances and transactions have been eliminated in consolidation.

Accounting Basis

The Company uses the accrual basis of accounting and GAAP. The Company has adopted a calendar year end.

Stock Splits

On January 22, 2018, we completed a 1-for-5 reverse split of our outstanding common shares. As a result of this stock split, our issued and outstanding common shares decreased from 3,115,500 to 623,125 shares.

On May 10, 2018, we completed a 5-for-1 stock split of our outstanding common shares. As a result of this stock split, our issued and outstanding common shares increased from 623,125 to 3,115,625 shares.

Accordingly, all share and per share information has been restated to retroactively show the effect of these stock splits.

Cash and Cash Equivalents

The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain Statements of Operations reclassifications have been made in the presentation of our prior financial statements and accompanying notes to conform to the presentation as of and for the three months ended March 31, 2018.

Revenue Recognition and Cost of Revenue 

On January 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer purchase orders, including significant judgments. Our payment terms are net 30 days from acceptance of delivery. We do not incur incremental costs obtaining purchase orders from our customers, however, if we did, because all of our contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized. Our adoption of this ASU, resulted in no change to our results of operations or our balance sheet.

The revenue that we recognize arises from purchase orders we receive from our customers. Our performance obligations under the purchase orders correspond to each service delivery or sale of equipment that we make to our customer under the purchase orders; as a result, each purchase order generally contains only one performance obligation based on the service or equipment sale to be completed. Control of the delivery transfers to our customers when the customer is able to direct the use of, and obtain substantially all of the benefits from, our products, which generally occurs at the later of when the customer obtains title to the equipment or when the customer assumes risk of loss. The transfer of control generally occurs at a point of delivery. Once this occurs, we have satisfied our performance obligation and we recognize revenue.

We also sell equipment by posting it on auction sites specializing in farm equipment. We post the equipment for sale on a “magazine” site for several weeks before the auction. When we decide to sell, we move the equipment to the auction site. The auctions are one day. If we accept a bid, the customer pays the bid price and arranges for pick-up of the equipment.

Transaction Price

We agree with our customers on the selling price of each transaction. This transaction price is generally based on the agreed upon service fee. In our contracts with customers, we allocate the entire transaction price to the service fee to the customer, which is the basis for the determination of the relative standalone selling price allocated to each performance obligation. Any sales tax, value added tax, and other tax we collect concurrently with our revenue-producing activities are excluded from revenue.

If we continued to apply legacy revenue recognition guidance for the first three months of 2018, our revenues, gross margin, and net loss would not have changed. See Note 1—Revenue Recognition for the impact of our adoption of ASU No. 2014-09.

Substantially all our sales are to businesses, including farmers or municipalities and very little to individuals.

Inventory

Inventory consists of machinery and equipment and parts acquired for resale and is valued at the lower-of-cost-or-market with cost determined on a specific item basis. The Company periodically evaluates the value of items in inventory and provides write-downs to inventory based on its estimate of market conditions. The Company estimates obsolescence allowance of $70,000 as of March 31, 2018 and December 31, 2017.

Basic Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing our net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing our net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There are no such common share equivalents outstanding as of March 31, 2018.

Going Concern Assessment

Beginning with the three months ended March 31, 2018 and all annual and interim periods thereafter, management will assess going concern uncertainty in the Company’s 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.

The Company has generated losses since its inception and has relied on cash on hand, external bank lines of credit and the sale of a note to support cashflow from operations. The Company attributes the 2017 losses to public company corporate overhead and losses generated by some of our subsidiary operations. As of and for the three months ended March 31, 2018, the Company had a net loss of $793,192 and negative working capital of approximately $2.8 million. 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 the consolidated financial statements in this Quarterly Report on Form 10-Q, indicate improved operations and the Company’s ability to continue operations as a going concern. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period.

Recent Accounting Pronouncements

Not Yet Adopted

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the update requires only a single-step quantitative test to identify and measure impairment based on the excess of a reporting unit’s carrying amount over its fair value. A qualitative assessment may still be completed first for an entity to determine if a quantitative impairment test is necessary. The update is effective for fiscal year 2021 and is to be adopted on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company will test goodwill for impairment within one year of the acquisition or annually as of December 1, and whenever indicators of impairment exist. 

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years; earlier adoption is permitted. In the financial statements in which the ASU is first applied, leases shall be measured and recognized at the beginning of the earliest comparative period presented with an adjustment to equity. Practical expedients are available for election as a package and if applied consistently to all leases. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial condition, results of operations and cash flows.

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. We are currently in the process of evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.

Recently Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as a new Topic, Accounting Standards Codification (“ASC”) Topic 606, which supersedes existing accounting standards for revenue recognition and creates a single framework. Additional updates to Topic 606 issued by the FASB in 2015 and 2016 include the following:

• ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of the new guidance such that the new provisions will now be required for fiscal years, and interim periods within those years, beginning after December 15, 2017.

• ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations (reporting revenue gross versus net).

• ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the implementation guidance on identifying performance obligations and classifying licensing arrangements.

• ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which clarifies the implementation guidance in a number of other areas.

The underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard permits the use of either a retrospective or modified retrospective application. ASU 2014-09 and ASU 2016-12 are effective for annual reporting periods beginning after December 15, 2017. The Company will adopt ASC 606 using the modified retrospective method for annual and interim reporting periods beginning January 1, 2018. The Company has aggregated and reviewed its contracts that are within the scope of ASC 606. Based on its evaluation, the Company does not anticipate the adoption of ASC 606 will have a material impact on its balance sheet or related consolidated statements of earnings, equity or cash flows. Accordingly, the Company will continue to recognize revenue at the time services are delivered and parts and equipment are sold.

XML

INVENTORIES

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 3 - INVENTORIES

At March 31, 2018 and December 31, 2017, the inventory balances are composed of:

	2018			2017
Machinery & Equipment	$	658,370		$	715,483
Parts		182,144			191,088
Subtotal		840,514			906,571
Allowance for inventory obsolescence		(70,000	)		(70,000	)
Inventory, net	$	770,514		$	836,571

XML

PROPERTY AND EQUIPMENT

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following at March 31, 2018 and December 31, 2017:

Classification	2018			2017
Buildings and improvements	$	5,338		$	5,338
Equipment and machinery		2,845,654			2,908,154
Tractors		3,129,888			3,129,888
Trucks and other vehicles		1,147,305			1,169,805
Total		7,128,185			7,213,185
Less: Accumulated depreciation		(1,462,591	)		(1,113,966	)
Property and equipment, net	$	5,665,594		$	6,099,219

Depreciation expense for the years ended March 31, 2018 and 2017 was $358,000 and $200,567, respectively

All fixed assets are pledged to secure loans from Utica Leasco. At March 31, 2018, $168,137 of Machinery and Equipment inventory was pledged to secure floor plan loans and $205,628 of Machinery and Equipment inventory was pledged to secure a loan from Utica Leasco.

XML

INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 5 - INTANGIBLE ASSETS

The following provides a breakdown of identifiable intangible assets – Customer Relationships as of March 31, 2018 and December 31, 2017:

	2018			2017
Identifiable intangible assets, gross	$	34,000		$	34,000
Accumulated amortization		(7,367	)		(5,667	)
Identifiable intangible assets, net	$	26,633		$	28,333

In connection with the acquisition of Neese, the Company identified intangible assets of $34,000 representing customer relationships. These assets are being amortized on a straight-line basis over their weighted average estimated useful life of 5 years and amortization expense amounted to $1,700 for the three months ended March 31, 2018.

As of March 31, 2018, the estimated annual amortization expense for each of the next five fiscal years is as follows:

2018 (remainder)	$	5,100
2019		6,800
2020		6,800
2021		6,800
2022		1,133
Total	$	26,633

XML

ACQUISITION

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 6 - ACQUISITION

On March 3, 2017, our wholly-owned subsidiary 1847 Neese entered into a stock purchase agreement with Neese and Alan Neese and Katherine Neese, pursuant to which 1847 Neese acquired all of the issued and outstanding capital stock of Neese for an aggregate purchase price of: (i) $2,225,000 in cash (subject to certain adjustments); (ii) 450 shares of the common stock of 1847 Neese, constituting 45% of its capital stock; (iii) the issuance of a vesting promissory note in the principal amount of $1,875,000 (which was determined to have a fair value of $395,634); and (iv) the issuance of a short-term promissory note in the principal amount of $1,025,000.

The cash portion of the purchase price would have been adjusted upward if Neese’s final certified balance sheet, as of a date on or about the closing date, did not reflect a cash balance of at least $200,000. The cash balance on the closing date of March 3, 2017 amounted to approximately $676,056. The cash was paid by obtaining financing from Utica Leaseco (see Note 11).

The fair value of the purchase consideration issued to the sellers of Neese was allocated to the net tangible assets acquired. We accounted for the acquisition of Neese as the purchase of a business under GAAP under the acquisition method of accounting, the assets and liabilities acquired were recorded as of the acquisition date, at their respective fair values and consolidated with those of the Company. The fair value of the net assets acquired was approximately $8,269,000. The excess of the aggregate fair value of the net tangible assets has been allocated to an intangible asset, value of customer accounts and the remainder to goodwill.

Purchase Consideration
Cash Consideration (financed by a Capital Lease–Note 11)	$	3,240,000
Add: Subsidiary stock issued as non-controlling interest (Note 14)		852,864
Add: 8% Vesting Promissory Note (Note 10)		395,634
Add: Buyer Short Term Note, at 10% (Note 10)		1,025,000
Total acquisition price	$	5,513,498
Assets acquired and liabilities assumed at fair value
Cash	$	676,056
Accounts receivable		156,655
Prepaid expenses		90,238
Inventories		1,037,910
Property and equipment		6,167,104
Other assets		85,322
Accounts payable and accrued expenses		(209,913	)
Uncertain tax position		(129,000	)
Cash payable to seller		(337,645	)
Deferred tax liability		(2,079,395	)
Other liabilities
Net tangible assets acquired	$	5,457,332
Identifiable intangible assets and Goodwill
Intangible assets	$	34,000
Goodwill		22,166
Total Identifiable Intangible Assets and Goodwill	$	56,166
Total net assets acquired	$	5,513,498

The prior year balances have been revised to reflect the finalized purchase price allocation.

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

	For the Three months ended March 31,
	2018			2017
Revenues, net	$	762,645		$	1,874,571
Net income (loss) allocable to common shareholders	$	(529,145	)	$	(311,025	)
Net income (loss) per share	$	(0.17	)	$	(0.10	)
Weighted average number of shares outstanding		3,115,625			3,115,625

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

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

XML

LINE OF CREDIT

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 7 - LINE OF CREDIT

The Company’s subsidiary, Neese, entered into a loan and security agreement with Home State Bank, an Iowa state chartered bank (“Home State Bank”), governing a new revolving credit facility in a principal amount not to exceed $1,000,000 (the “Credit Facility”). The Home State Bank Loan Agreement is available for working capital and other general business purposes. Availability of borrowings under the Credit Facility from time to time is subject to discretionary advances approved by Home State Bank. The outstanding principal balance was $400,000 and $675,000 at March 31, 2018 and December 31, 2017, respectively. The Line of Credit bears interest at 4.85% (default rate 7.85%) and is due September 1, 2018.

XML

FLOOR PLAN LOANS PAYABLE

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 8 - FLOOR PLAN LOANS PAYABLE

At March 31, 2018, $168,137 of Machinery and Equipment inventory was pledged to secure a floor plan loan from a commercial lender. The Company must remit proceeds from the sale of the secured inventory to the floor plan lender and pays a finance charge that can vary monthly at the option of the lender. This amount has been recorded in accounts payable and accrued expenses on the balance sheet as of March 31, 2018.

XML

NOTES PAYABLE

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 9 - NOTES PAYABLE

Notes payable at March 31, 2018 and December 31, 2017 are summarized as follows:

	March 31, 2018			December 31, 2017
Note payable - 2018 Kenworth Tractor	$	68,755		$	72,267
Current portion		(14,247	)		(14,247	)
Total Non-current portion	$	54,508		$	58,020

This Note from a commercial bank originated July 21, 2017 and is payable in 60 fixed monthly installments of $1,434 at a rate of 4.5% per annum.

On September 18, 2017, the Company and its subsidiary, 1847 Neese, Inc. originated two loans totaling $320,658 from a commercial bank secured by two tractors. The loans were payable in 60 fixed monthly installments totaling $5,980 at a rate of 4.5% per annum. The two notes were paid off October 31, 2017 with proceeds from an Amendment to the Utica Leaseco Master Lease Agreement.

At March 31, 2018, annual minimum future principal payments under the promissory notes are as follows:

	Amount
For the year ending March 31,
2018	$	10,735
2019		14,902
2020		15,581
2020		16,302
2022		11,235
Total payments		68,755
Less current portion of principal payments		(14,247	)
Long-term portion of principal payments	$	54,508

XML

PROMISSORY NOTES

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 10 - PROMISSORY NOTES

8% Vesting Promissory Note

As noted above in Note 6, a portion of the purchase price for the acquisition of Neese was paid by the issuance of a vesting promissory note in the principal amount of $1,875,000 (which was determined to have a fair value of $395,634 as of March 31, 2018 and December 31, 2017) by 1847 Neese and Neese to the sellers of Neese. Payment of the principal and accrued interest on the vesting promissory note is subject to vesting and a contingent consideration subject to fair market valuation adjustment at each reporting period. The vesting promissory note bears interest on the vested portion of the principal amount at the rate of eight percent (8%) per annum and is due and payable in full on June 30, 2020 (the “Maturity Date”). The principal of the vesting promissory note vests in accordance with the following formula:

• Fiscal Year 2017: If Adjusted EBITDA for the fiscal year ending December 31, 2017, exceeds an Adjusted EBITDA target of $1,300,000 (the “Adjusted EBITDA Target”), then a portion of the principal amount of the vesting promissory note that is equal to sixty percent (60%) of such excess shall vest. Interest shall be payable on such vested portion of principal from January 1, 2017 through the Maturity Date. For the year ended December 31, 2017, Adjusted EBITDA was $788,958, below the threshold amount of $1,300,000, therefore no portion of the note vested in fiscal year 2017.

• Fiscal Year 2018: If Adjusted EBITDA for the fiscal year ending December 31, 2018, exceeds the Adjusted EBITDA Target, then a portion of the principal amount of the vesting promissory note that is equal to sixty percent (60%) of such excess shall vest. Interest shall be payable on such vested portion of principal from January 1, 2018 through the Maturity Date.

• Fiscal Year 2019: If Adjusted EBITDA for the fiscal year ending December 31, 2019, exceeds the Adjusted EBITDA Target, then a portion of the principal amount of the vesting promissory note that is equal to sixty percent (60%) of such excess shall vest. Interest shall be payable on such vested portion of principal from January 1, 2019 through the Maturity Date.

For purposes of the vesting promissory note, “Adjusted EBITDA” means the earnings before interest, taxes, depreciation and amortization expenses, in accordance with GAAP applied on a basis consistent with the accounting policies, practices and procedures used to prepare the financial statements of Neese as of the closing date, plus to the extent deducted in calculating such net income: (i) all expenses related to the transactions contemplated hereby and/or potential or completed future financings or acquisitions, including legal, accounting, due diligence and investment banking fees and expenses; (ii) all management fees, allocations or corporate overhead (including executive compensation) or other administrative costs that arise from the ownership of Neese by 1847 Neese including allocations of supervisory, centralized or other parent-level expense items; (iii) one-time extraordinary expenses or losses; and (iv) any reserves or adjustments to reserves which are not consistent with GAAP. Additionally, for purposes of calculating Adjusted EBITDA, the purchase and sales prices of goods and services sold by or purchased by Neese to or from 1847 Neese, its subsidiaries or affiliates shall be adjusted to reflect the amounts that Neese would have realized or paid if dealing with an independent third-party in an arm’s-length commercial transaction, and inventory items shall be properly categorized as such and shall not be expenses until such inventory is sold or consumed.

The vesting promissory note contains customary events of default, including in the event of: (i) non-payment; (ii) a default by 1847 Neese or Neese of any of their covenants under the stock purchase agreement, the vesting promissory note, or any other agreement entered into in connection with the stock purchase agreement, or a breach of any of their representations or warranties under such documents; or (iii) the bankruptcy of 1847 Neese or Neese.

10% Short-Term Promissory Note

As noted above in Note 6, a portion of the purchase price for the acquisition of Neese was paid by the issuance of a short-term promissory note in the principal amount of $1,025,000 by 1847 Neese and Neese to the sellers of Neese. The short-term promissory note bears interest on the outstanding principal amount at the rate of ten percent (10%) per annum and is due and payable in full on March 3, 2018; provided, however, that the unpaid principal, and all accrued, but unpaid, interest thereon shall be prepaid if at any time, and from time to time, the cash on hand of 1847 Neese and Neese exceeds $250,000 and, then, the prepayment shall be equal to the amount of cash in excess of $200,000 until the unpaid principal and accrued, but unpaid, interest thereon is fully prepaid. The short-term promissory note contains the same events of default as the vesting promissory note. The short-term promissory note has not been repaid, so we are in default under this note and the Company believes it will begin making payments in 2019.

XML

CAPITALIZED LEASES

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 11 - CAPITALIZED LEASES

Agreement dated March 3, 2017

The cash portion of the purchase price for the acquisition of Neese (Note 6) was financed under a capital lease transaction for Neese’s equipment with Utica Leas Eco, LLC (the “Lessor” or “Utica”), pursuant to a Master Lease Agreement, dated March 3, 2017, between Utica, as lessor, and 1847 Neese and Neese, as co-lessees (collectively, the “Lessee”). Under the Master Lease Agreement, the Lessor loaned an aggregate of $3,240,000 for certain of Neese’s equipment listed therein (the “Equipment”), which it leases to the Lessee. The initial term of the Master Lease Agreement was for 51 months. Under the Master Lease Agreement, the Lessee agreed to pay a monthly rent of $53,000 for the first three (3) months, with such amount increasing to $85,321.63 for the remaining forty-eight (48) months.

On June 14, 2017, the parties entered into a first amendment to lease documents, pursuant to which the parties agreed to, among other things, extend the term of the Master Lease Agreement from 51 months to 57 months and amend the payments due thereunder. Under the amendment, the Lessee agreed to pay a monthly rent of $53,000 for the first ten (10) months, with such amount increasing to $85,321.63 for the remaining forty-seven (47) months. In connection with the extension of the term of the Master Lease Agreement, the parties also amended the schedule of stipulated loss values and early termination payment schedule attached thereto. In connection with the amendment, the Lessee agreed to pay the Lessor an amendment fee of $2,500.

On February 1, 2018, Utica agreed to continue the $53,000 payments for three additional months and extend the maturity of the loan by three months. Additionally, Utica agreed to defer the February 3, 2018 payment to February 20, 2018. The Company paid one-half the normal late fee, $2,650 for the late payment. On March 2, 2018, Utica agreed to defer the March 3 payment to March 30, 2018. The Company will pay a late payment fee of $5,300 for the payment

Amendment dated October 31, 2017

As of October 31, 2017, the Company entered into an amendment of the March 3, 2017 Master Lease Agreement with Utica. The proceeds from the amendment were $980,000, which the Company used to purchase new equipment for use in its business and for one tractor for resale included in inventory. The term of the second master lease agreement was for 51 months with payments of $25,807.16 per month.

Forbearance Agreement

On April 18, 2018, the Lessor, the Lessee, and Ellery W. Roberts, as guarantor under the Master Lease Agreement (see Note 11), entered into a forbearance agreement relating to the non-payment of certain rent payments due under the Master Lease Agreement for the months of March 2018 and April 2018. See Note 17 for the terms of the forbearance agreement.

If any rent is not received by the Lessor within five (5) calendar days of the due date, the Lessee shall pay a late charge equal to ten (10%) percent of the amount. In addition, in the event that any payment is not processed or is returned on the basis of insufficient funds, upon demand, the Lessee shall pay the Lessor a charge equal to five percent (5%) of the amount of such payment. The Lessee is also required to pay an annual administration fee of $5,000. Upon the expiration of the term of the Master Lease Agreement, the Lessee is required to pay, together with all other amounts then due and payable under the Master Lease Agreement, in cash, an end of term buyout price equal to the lesser of: (a) $162,000 (five percent (5%) of the Total Invoice Cost (as defined in the Master Lease Agreement)); or (b) the fair market value of the Equipment, as determined by the Lessor. Upon the expiration of the Amendment to the Master Lease Agreement, the Lessee is required to pay, together with all other amounts then due and payable under the Master Lease Agreement, in cash, an end of term buyout price equal to the lesser of: (a) $49,000 (five percent (5%) of the Total Invoice Cost (as defined in the Master Lease Agreement)); or (b) the fair market value of the Equipment, as determined by the Lessor

Provided that no default under the Master Lease Agreement or the Amendment has occurred and is continuing beyond any applicable grace or cure period, the Lessee has an early buy-out option with respect to all but not less than all of the Equipment, upon the payment of any outstanding rental payments or other fees then due, plus an additional amount set forth in the Master Lease Agreement and the Amendment, which represents the anticipated fair market value of the Equipment as of the anticipated end date of the Master Lease Agreement. In addition, the Lessee shall pay to the Lessor an administrative charge to be determined by the Lessor to cover its time and expenses incurred in connection with the exercise of the option to purchase, including, but not limited to, reasonable attorney fees and costs. Furthermore, upon the exercise by the Lessee of this option to purchase the Equipment, the Lessee shall pay all sales and transfer taxes and all fees payable to any governmental authority as a result of the transfer of title of the Equipment to Lessee. The early buy-out option is not available on the Amendment to the Master Lease Agreement until after June 30, 2018.

In connection with the Master Lease Agreement and the Amendment thereto, the Lessee granted a security interest on all of its right, title and interest in and to: (i) the Equipment, together with all related software (embedded therein or otherwise) and general intangibles, all additions, attachments, accessories and accessions thereto whether or not furnished by the supplier; (ii) all accounts, chattel paper, deposit accounts, documents, other equipment, general intangibles, instruments, inventory, investment property, letter of credit rights and any supporting obligations related to any of the foregoing; (iii) all books and records pertaining to the foregoing; (iv) all property of such Lessee held by the Lessor, including all property of every description, in the custody of or in transit to the Lessor for any purpose, including safekeeping, collection or pledge, for the account of such Lessee or as to which such Lessee may have any right or power, including but not limited to cash; and (v) to the extent not otherwise included, all insurance, substitutions, replacements, exchanges, accessions, proceeds and products of the foregoing.

If the Company sells equipment, it must remit to Utica the amount loaned against the equipment. Such payments are accumulated and applied to the balance at the end of the lease term. During the three months ended March 31, 2018, $16,125 of payments were remitted to Utica.

The assets and liabilities under the master lease agreement are recorded at the fair value of the assets.

The Company adopted ASU 2015-03 by deducting $200,365 of net debt issuance costs from the long-term portion of the capital lease. Amortization of debt issuance costs totaled $9,967 for the three months ended March 31, 2018.

At March 31, 2018, annual minimum future lease payments under this Master Lease Agreement and Amendment are as follows:

	Amount
For the period ending March 31,
2018	$	1,204,259
2019		1,333,545
2020		1,333,545
2021		1,333,545
2022		196,451
Total minimum lease payments		5,401,345
Less amount representing interest		(1,556,043	)
Present value of minimum lease payments		3,845,302
Less current portion of minimum lease		(615,349	)
Less debt issuance costs, net		(156,065	)
Less payments to Lessor for release of lien		(21,900	)
End of lease buyout payments		211,000
Long-term present value of minimum lease payment	$	3,262,988

The interest rate on the capitalized lease is approximately 15.4%.

XML

LEASE

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 12 - LEASE

The Company leases a piece of equipment on an operating lease. The lease originated in May 2014 for a five year term with annual payments of $11,830. Following is a summary of remaining lease payments:

2018 (remainder of year)	$	8,873
2019		11,830
Total remaining payments	$	20,703

XML

RELATED PARTIES

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 13 - RELATED PARTIES

Management Services Agreement

On April 15, 2013, the Company and 1847 Partners LLC (“our manager”), entered into a management services agreement, pursuant to which we are required to pay our manager a quarterly management fee equal to 0.5% (2.0% annualized) of our adjusted net assets for services performed.

On September 15, 2013, the parties entered into an amendment to the management services agreement that provides that in lieu of paying a quarterly management fee under the management services agreement based upon the adjusted net assets of our management consulting business, we will pay our manager a flat quarterly fee equal to $43,750. This amendment only applies to our management consulting business and does not apply to Neese or any businesses that we acquire in the future.

As of October 1, 2015, our manager agreed to suspend the flat quarterly management fee in the management consulting business due to the uncertainty of the underlying management services.

Offsetting Management Services Agreement - 1847 Neese

On March 3, 2017, 1847 Neese entered into an offsetting management services agreement with our manager.

Pursuant to the offsetting management services agreement, 1847 Neese appointed our manager to provide certain services to it for a quarterly management fee equal to $62,500 per quarter; provided, however, that: (i) pro rated payments shall be made in the first quarter and the last quarter of the term; (ii) if the aggregate amount of management fees paid or to be paid by 1847 Neese, together with all other management fees paid or to be paid by all other subsidiaries of the Company to our manager, in each case, with respect to any fiscal year exceeds, or is expected to exceed, 9.5% of our gross income with respect to such fiscal year, then the management fee to be paid by 1847 Neese for any remaining fiscal quarters in such fiscal year shall be reduced, on a pro rata basis determined by reference to the management fees to be paid to our manager by all of the subsidiaries of the Company, until the aggregate amount of the management fee paid or to be paid by 1847 Neese, together with all other management fees paid or to be paid by all other subsidiaries of the Company to our manager, in each case, with respect to such fiscal year, does not exceed 9.5% of our gross income with respect to such fiscal year; and (iii) if the aggregate amount of the management fee paid or to be paid by 1847 Neese, together with all other management fees paid or to be paid by all other subsidiaries of the Company to our manager, in each case, with respect to any fiscal quarter exceeds, or is expected to exceed, the aggregate amount of the management fee (before any adjustment thereto) calculated and payable under the management services agreement (the “Parent Management Fee”) with respect to such fiscal quarter, then the management fee to be paid by 1847 Neese for such fiscal quarter shall be reduced, on a pro rata basis, until the aggregate amount of the management fee paid or to be paid by 1847 Neese, together with all other management fees paid or to be paid by all other subsidiaries of the Company to our manager, in each case, with respect to such fiscal quarter, does not exceed the Parent Management Fee calculated and payable with respect to such fiscal quarter.

1847 Neese shall also reimburse our manager for all costs and expenses of 1847 Neese which are specifically approved by the board of directors of 1847 Neese, including all out-of-pocket costs and expenses, that are actually incurred by our manager or its affiliates on behalf of 1847 Neese in connection with performing services under the offsetting management services agreement.

The services provided by our manager include: conducting general and administrative supervision and oversight of 1847 Neese’s day-to-day business and operations, including, but not limited to, recruiting and hiring of personnel, administration of personnel and personnel benefits, development of administrative policies and procedures, establishment and management of banking services, managing and arranging for the maintaining of liability insurance, arranging for equipment rental, maintenance of all necessary permits and licenses, acquisition of any additional licenses and permits that become necessary, participation in risk management policies and procedures; and overseeing and consulting with respect to 1847 Neese’s business and operational strategies, the implementation of such strategies and the evaluation of such strategies, including, but not limited to, strategies with respect to capital expenditure and expansion programs, acquisitions or dispositions and product or service lines. The Company expensed $62,500 and $0 in management fee for the three months ended March 31, 2018 and for the period of March 3, 2017 through March 31, 2017, respectively.

Advances

From time to time, the Company has received advances from certain of its officers to meet short-term working capital needs. As of March 31, 2018 and December 31, 2017, a total of $118,833 advances from related parties are outstanding. These advances are unsecured, bear no interest, and do not have formal repayment terms or arrangements.

As of March 31, 2018 and December 31, 2017, our manager has funded the Company $62,953 and $60,870 in related party advances, respectively. These advances are unsecured, bear no interest, and do not have formal repayment terms or arrangements.

Promissory Note

On January 3, 2018, we issued a grid promissory note to our manager in the initial principal amount of $50,000. The note provides that we may from time to time request additional advances from our manager up to an aggregate additional amount of $100,000, which will be added to the note if our manager, in its sole discretion, so provides. Interest shall accrue on the unpaid portion of the principal amount and the unpaid portion of all advances outstanding at a fixed rate of 8% per annum, and along with the outstanding portion of the principal amount and the outstanding portion of all advances, shall be payable in one lump sum due on the maturity date, which is the first anniversary of the date of the note. If all or a portion of the principal amount or any advance under the note, or any interest payable thereon is not paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate of 12% per annum. In the event we complete a financing involving at least $500,000, we must, contemporaneously with the closing of such financing transaction, repay the entire outstanding principal and accrued and unpaid interest on the note. The note is unsecured and contains customary events of default. As of March 31, 2018, our manager has been advanced $72,000 of the promissory note and accrued interest of $1,392.

1847 Management

On October 3, 2017, our board of directors determined to discontinue our management consulting business operated by 1847 Management in order to devote more time and resources to Neese and future acquisitions.

Building Lease

We lease a building from officers of Neese (See Note 15).

XML

SHAREHOLDERS DEFICIT

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 14 - SHAREHOLDERS’ DEFICIT

Allocation shares

As of March 31, 2018 and December 31, 2017, we had authorized and outstanding 1,000 allocation shares. These allocation shares do not entitle the holder thereof to vote on any matter relating to the Company other than in connection with amendments to our operating agreement and in connection with certain other corporate transactions as specified in our operating agreement.

Our manager owns 100% of the allocation shares of the Company, which are a separate class of limited liability company interests that, together with the common shares, will comprise all of the classes of equity interests of the Company. Our manager received the allocation shares with its initial capitalization of the Company. The allocation shares generally will entitle our manager to receive a twenty percent (20%) profit allocation as a form of incentive designed to align the interests of our manager with those of our shareholders. Profit allocation has two components: an equity-based component and a distribution-based component. The equity-based component will be paid when the market for our shares appreciates, subject to certain conditions and adjustments. The distribution-based component will be paid when the distributions we pay to our shareholders exceed an annual hurdle rate of eight percent (8.0%), subject to certain conditions and adjustments. While the equity-based component and distribution-based component are interrelated in certain respects, each component may independently result in a payment of profit allocation if the relevant conditions to payment are satisfied.

The 1,000 allocation shares are issued and outstanding and held by our manager, which is controlled by Mr. Roberts, our chief executive officer and controlling shareholder.

Common shares

We have authorized 500,000,000 common shares as of March 31, 2018 and December 31, 2017 and we had 3,115,500 common shares issued and outstanding. The common shares entitle the holder thereof to one vote per share on all matters coming before the shareholders of the Company for a vote.

On January 22, 2018, we completed a 1-for-5 reverse split of our outstanding common shares. As a result of this stock split, our issued and outstanding common shares decreased from 3,115,500 to 623,125 shares. Accordingly, all share and per share information has been restated to retroactively show the effect of this stock split.

On May 10, 2018, we completed a 5-for-1 stock split of our outstanding common shares. As a result of this stock split, our issued and outstanding common shares increased from 623,125 to 3,115,625 shares.

During the period ended March 31, 2018, we did not issue any equity securities.

Noncontrolling Interests

Our Company owns 55.0% of 1847 Neese. For financial interests in which the Company owns a controlling financial interest, the Company applies the provisions of ASC 810, which are applicable to reporting the equity and net income or loss attributable to noncontrolling interests. The results of 1847 Neese are included in the consolidated statement of income. The net loss attributable to the 45% non-controlling interest of the subsidiary amount to $394,477 for the three months ended March 31, 2018 and $741,739 for the period March 3, 2017 through March 31, 2017.

XML

COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 15 - COMMITMENTS AND CONTINGENCIES

Agreement of Lease - Related Party

On March 3, 2017, Neese entered into an agreement of lease with K&A Holdings, LLC, a limited liability company that is wholly-owned by officers of Neese. The agreement of lease is for a term of ten (10) years and provides for a base rent of $8,333 per month. In the event of late payment, interest shall accrue on the unpaid amount at the rate of eighteen percent (18%) per annum. The agreement of lease contains customary events of default, including if Neese shall fail to pay rent within five (5) days after the due date, or if Neese shall fail to perform any other terms, covenants or conditions under the agreement of lease, and other customary representations, warranties and covenants.

Future minimum lease payments are approximately as follows:

Period Ending March 31,	Operating Leases
2018 (remainder of the year)	$	75,000
2019		100,000
2020		100,000
2021		100,000
2022		100,000
thereafter		441,667
Total minimum lease payments	$	916,667

Corporate office

An office space has been leased on a month-by-month basis.

The officers and directors are involved in other business activities and most likely will become involved in other business activities in the future.

XML

SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

NOTE 16 - SUBSEQUENT EVENTS

In accordance with SFAS 165 (ASC 855-10), the Company has analyzed its operations subsequent to March 31, 2018 to the date these financial statements were issued, and has determined that, except as set forth below, it does not have any material subsequent events to disclose in these financial statements.

On July 7, 2017, our wholly-owned subsidiary 1847 Fitness, Inc. entered into a membership interest purchase agreement, which was amended on November 7, 2017 and December 18, 2017, with Central Florida Health Clubs, LLC d/b/a Gold’s Gym Orlando, a Florida limited liability company, CLFL, LLC d/b/a Gold’s Gym Clermont, a Florida limited liability company, MTDR LLC d/b/a Gold’s Gym Mt. Dora, a Florida limited liability company, SCFL, LLC d/b/a Gold’s Gym St. Cloud, a Florida limited liability company, and the sellers set forth in Exhibit A to the membership interest purchase agreement, for the purchase of all of the outstanding equity interests of such companies. This transaction was not completed and the agreement terminated automatically in accordance with its terms on March 1, 2018.

The Company received an additional draw of $3,500 from the Note Payable – Related party in May 2018 (See Note 13).

On April 18, 2018, the Lessor, the Lessee, and Ellery W. Roberts, as guarantor under the Master Lease Agreement (see Note 11), entered into a forbearance agreement relating to the non-payment of certain rent payments due under the Master Lease Agreement for the months of March 2018 and April 2018 (the “Forbearance Agreement”). Pursuant to the Forbearance Agreement, Lessor shall forbear from demanding payment in full and exercising its remedies under the Master Lease Agreement until June 3, 2018 (the “Expiration Date”). In the event of the occurrence of any event of default or other material default under the Master Lease Agreement or any non-compliance by the Lessee with any of the conditions set forth in the Forbearance Agreement, Lessor’s forbearance will be subject to earlier termination whereupon Lessor may accelerate any of the due and unpaid liabilities and exercise any and all remedies available under the Master Lease Agreement in its sole and absolute discretion.

Pursuant to the Forbearance Agreement, Lessee shall, among other things, (i) make the payments set forth in the Forbearance Agreement on or before the dates specified therein, totaling $173,375.76, (ii) be current on all rent due under Schedule 1 of the Master Lease Agreement by June 3, 2018 and be current on all rent due under Schedule 2 of the Master Lease Agreement by May 30, 2018, (ii) reinstate or renew and continue in effect all insurance as required under the Master Lease Agreement at Lessee’s sole cost and expense, (iv) pay a forbearance fee to Lessor totaling $4,500, which shall not be due until termination of the Master Lease Agreement and (v) execute a surrender agreement with respect to the Lessee’s equipment, which will be held in escrow by Lessor and not deemed effective unless and until the earlier to occur of: (a) the Expiration Date, provided liabilities under Master Lease Agreement remain due but unpaid; (b) such time as Lessor accelerates due and unpaid liabilities pursuant to the term of the Forbearance Agreement and the Master Lease Agreement; or (c) a default occurs under the Forbearance Agreement or the Master Lease Agreement (each a “Triggering Event”).

Pursuant to the terms of the surrender agreement also entered into on April 18, 2018, upon the occurrence of a Triggering Event, Lessee will (i) immediately surrender possession, and will direct any third party in possession of any leased equipment to immediately surrender possession, of such leased equipment to the Lessor or, at Lessor’s direction, Lessor’s agent, in accordance with the terms of the Master Lease Agreement; and (ii) deliver to the Lessor or Lessor’s agent all accounting and other records pertaining to, and all writings evidencing the leased equipment or any portion thereof. 

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2018

Summary Of Significant Accounting Policies Policies

Basis of Presentation

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and are presented in US dollars.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months period ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

Consolidated Financial Statements

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, 1847 Management, 1847 Neese and 1847 Fitness. All significant intercompany balances and transactions have been eliminated in consolidation.

Accounting Basis

The Company uses the accrual basis of accounting and GAAP. The Company has adopted a calendar year end.

Stock Splits

On January 22, 2018, we completed a 1-for-5 reverse split of our outstanding common shares. As a result of this stock split, our issued and outstanding common shares decreased from 3,115,500 to 623,125 shares.

On May 10, 2018, we completed a 5-for-1 stock split of our outstanding common shares. As a result of this stock split, our issued and outstanding common shares increased from 623,125 to 3,115,625 shares.

Accordingly, all share and per share information has been restated to retroactively show the effect of these stock splits.

Cash and Cash Equivalents

The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain Statements of Operations reclassifications have been made in the presentation of our prior financial statements and accompanying notes to conform to the presentation as of and for the three months ended March 31, 2018.

Revenue Recognition and Cost of Revenue

On January 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer purchase orders, including significant judgments. Our payment terms are net 30 days from acceptance of delivery. We do not incur incremental costs obtaining purchase orders from our customers, however, if we did, because all of our contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized. Our adoption of this ASU, resulted in no change to our results of operations or our balance sheet.

The revenue that we recognize arises from purchase orders we receive from our customers. Our performance obligations under the purchase orders correspond to each service delivery or sale of equipment that we make to our customer under the purchase orders; as a result, each purchase order generally contains only one performance obligation based on the service or equipment sale to be completed. Control of the delivery transfers to our customers when the customer is able to direct the use of, and obtain substantially all of the benefits from, our products, which generally occurs at the later of when the customer obtains title to the equipment or when the customer assumes risk of loss. The transfer of control generally occurs at a point of delivery. Once this occurs, we have satisfied our performance obligation and we recognize revenue.

We also sell equipment by posting it on auction sites specializing in farm equipment. We post the equipment for sale on a “magazine” site for several weeks before the auction. When we decide to sell, we move the equipment to the auction site. The auctions are one day. If we accept a bid, the customer pays the bid price and arranges for pick-up of the equipment.

Transaction Price

We agree with our customers on the selling price of each transaction. This transaction price is generally based on the agreed upon service fee. In our contracts with customers, we allocate the entire transaction price to the service fee to the customer, which is the basis for the determination of the relative standalone selling price allocated to each performance obligation. Any sales tax, value added tax, and other tax we collect concurrently with our revenue-producing activities are excluded from revenue.

If we continued to apply legacy revenue recognition guidance for the first three months of 2018, our revenues, gross margin, and net loss would not have changed. See Note 1—Revenue Recognition for the impact of our adoption of ASU No. 2014-09.

Substantially all our sales are to businesses, including farmers or municipalities and very little to individuals.

Inventory

Inventory consists of machinery and equipment and parts acquired for resale and is valued at the lower-of-cost-or-market with cost determined on a specific item basis. The Company periodically evaluates the value of items in inventory and provides write-downs to inventory based on its estimate of market conditions. The Company estimates obsolescence allowance of $70,000 as of March 31, 2018 and December 31, 2017.

Basic Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing our net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing our net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There are no such common share equivalents outstanding as of March 31, 2018.

Going Concern Assessment

Beginning with the three months ended March 31, 2018 and all annual and interim periods thereafter, management will assess going concern uncertainty in the Company’s 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.

The Company has generated losses since its inception and has relied on cash on hand, external bank lines of credit and the sale of a note to support cashflow from operations. The Company attributes the 2017 losses to public company corporate overhead and losses generated by some of our subsidiary operations. As of and for the three months ended March 31, 2018, the Company had a net loss of $793,192 and negative working capital of approximately $2.8 million. 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 the consolidated financial statements in this Quarterly Report on Form 10-Q, indicate improved operations and the Company’s ability to continue operations as a going concern. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period.

Recent Accounting Pronouncements

Not Yet Adopted

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the update requires only a single-step quantitative test to identify and measure impairment based on the excess of a reporting unit’s carrying amount over its fair value. A qualitative assessment may still be completed first for an entity to determine if a quantitative impairment test is necessary. The update is effective for fiscal year 2021 and is to be adopted on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company will test goodwill for impairment within one year of the acquisition or annually as of December 1, and whenever indicators of impairment exist. 

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years; earlier adoption is permitted. In the financial statements in which the ASU is first applied, leases shall be measured and recognized at the beginning of the earliest comparative period presented with an adjustment to equity. Practical expedients are available for election as a package and if applied consistently to all leases. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial condition, results of operations and cash flows.

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. We are currently in the process of evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.

Recently Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as a new Topic, Accounting Standards Codification (“ASC”) Topic 606, which supersedes existing accounting standards for revenue recognition and creates a single framework. Additional updates to Topic 606 issued by the FASB in 2015 and 2016 include the following:

• ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of the new guidance such that the new provisions will now be required for fiscal years, and interim periods within those years, beginning after December 15, 2017.

• ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations (reporting revenue gross versus net).

• ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the implementation guidance on identifying performance obligations and classifying licensing arrangements.

• ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which clarifies the implementation guidance in a number of other areas.

The underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard permits the use of either a retrospective or modified retrospective application. ASU 2014-09 and ASU 2016-12 are effective for annual reporting periods beginning after December 15, 2017. The Company will adopt ASC 606 using the modified retrospective method for annual and interim reporting periods beginning January 1, 2018. The Company has aggregated and reviewed its contracts that are within the scope of ASC 606. Based on its evaluation, the Company does not anticipate the adoption of ASC 606 will have a material impact on its balance sheet or related consolidated statements of earnings, equity or cash flows. Accordingly, the Company will continue to recognize revenue at the time services are delivered and parts and equipment are sold.

XML

INVENTORIES (Tables)

3 Months Ended

Mar. 31, 2018

Inventories Tables

Schedule of Inventory

	2018			2017
Machinery & Equipment	$	658,370		$	715,483
Parts		182,144			191,088
Subtotal		840,514			906,571
Allowance for inventory obsolescence		(70,000	)		(70,000	)
Inventory, net	$	770,514		$	836,571

XML

PROPERTY AND EQUIPMENT (Tables)

3 Months Ended

Mar. 31, 2018

Property And Equipment Tables

Schedule of property and equipment

Classification	2018			2017
Buildings and improvements	$	5,338		$	5,338
Equipment and machinery		2,845,654			2,908,154
Tractors		3,129,888			3,129,888
Trucks and other vehicles		1,147,305			1,169,805
Total		7,128,185			7,213,185
Less: Accumulated depreciation		(1,462,591	)		(1,113,966	)
Property and equipment, net	$	5,665,594		$	6,099,219

XML

INTANGIBLE ASSETS (Tables)

3 Months Ended

Mar. 31, 2018

Intangible Assets Tables

Intangible assets

	2018			2017
Identifiable intangible assets, gross	$	34,000		$	34,000
Accumulated amortization		(7,367	)		(5,667	)
Identifiable intangible assets, net	$	26,633		$	28,333

Estimated annual amortization expense

2018 (remainder)	$	5,100
2019		6,800
2020		6,800
2021		6,800
2022		1,133
Total	$	26,633

XML

ACQUISITION (Tables)

3 Months Ended

Mar. 31, 2018

Acquisition Tables

Schedule of Business Acquisitions by Acquisition, Contingent Consideration

Purchase Consideration
Cash Consideration (financed by a Capital Lease–Note 11)	$	3,240,000
Add: Subsidiary stock issued as non-controlling interest (Note 14)		852,864
Add: 8% Vesting Promissory Note (Note 10)		395,634
Add: Buyer Short Term Note, at 10% (Note 10)		1,025,000
Total acquisition price	$	5,513,498
Assets acquired and liabilities assumed at fair value
Cash	$	676,056
Accounts receivable		156,655
Prepaid expenses		90,238
Inventories		1,037,910
Property and equipment		6,167,104
Other assets		85,322
Accounts payable and accrued expenses		(209,913	)
Uncertain tax position		(129,000	)
Cash payable to seller		(337,645	)
Deferred tax liability		(2,079,395	)
Other liabilities
Net tangible assets acquired	$	5,457,332
Identifiable intangible assets and Goodwill
Intangible assets	$	34,000
Goodwill		22,166
Total Identifiable Intangible Assets and Goodwill	$	56,166
Total net assets acquired	$	5,513,498

Business acquisition pro forma information

	For the Three months ended March 31,
	2018			2017
Revenues, net	$	762,645		$	1,874,571
Net income (loss) allocable to common shareholders	$	(529,145	)	$	(311,025	)
Net income (loss) per share	$	(0.17	)	$	(0.10	)
Weighted average number of shares outstanding		3,115,625			3,115,625

XML

NOTES PAYABLE (Tables)

3 Months Ended

Mar. 31, 2018

Notes Payable Tables

Notes payable

	March 31, 2018			December 31, 2017
Note payable - 2018 Kenworth Tractor	$	68,755		$	72,267
Current portion		(14,247	)		(14,247	)
Total Non-current portion	$	54,508		$	58,020

Schedule of annual minimum future lease payments

	Amount
For the year ending March 31,
2018	$	10,735
2019		14,902
2020		15,581
2020		16,302
2022		11,235
Total payments		68,755
Less current portion of principal payments		(14,247	)
Long-term portion of principal payments	$	54,508

XML

CAPITALIZED LEASES (Tables)

3 Months Ended

Mar. 31, 2018

Capitalized Leases Tables

Schedule of Future Minimum Lease Payments for Capital Leases

	Amount
For the year ending December 31,
2018	$	1,204,259
2019		1,333,545
2020		1,333,545
2021		1,333,545
2022		196,451
Total minimum lease payments		5,401,345
Less amount representing interest		(1,556,043	)
Present value of minimum lease payments		3,845,302
Less current portion of minimum lease		(615,349	)
Less debt issuance costs, net		(156,065	)
Less payments to Lessor for release of lien		(21,900	)
End of lease buyout payments		211,000
Long-term present value of minimum lease payment	$	3,262,988

XML

LEASE (Tables)

3 Months Ended

Mar. 31, 2018

Lease Tables

Operating lease

2018 (remainder of year)	$	8,873
2019		11,830
Total remaining payments	$	20,703

XML

COMMITMENTS AND CONTINGENCIES (Tables)

3 Months Ended

Mar. 31, 2018

Commitments And Contingencies Tables

Schedule of Future Minimum Rental Payments for Operating Leases

Period Ending March 31,	Operating Leases
2018 (remainder of the year)	$	75,000
2019		100,000
2020		100,000
2021		100,000
2022		100,000
thereafter		441,667
Total minimum lease payments	$	916,667

XML

ORGANIZATION AND NATURE OF BUSINESS (Details Narrative)	3 Months Ended
	Mar. 31, 2018	Sep. 30, 2013
State of incorporation	Delaware
Date of Incorporation	Jan. 22, 2013
Firm One [Member]
Business acquisition percentage		50.00%
Firm Two [Member]
Business acquisition percentage		50.00%

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)		1 Months Ended	3 Months Ended
	May 10, 2018	Jan. 22, 2018	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Stock Split		1-for-5
Increase/Decrease in issued and outstanding common shares		3,115,500 to 623,125 shares
Obsolescence allowance			$ (70,000)		$ (70,000)
Net loss			(793,192)	$ (483,255)
Working capital deficit			$ (2,800,000)
Subsequent Event [Member]
Stock Split	5-for-1
Increase/Decrease in issued and outstanding common shares	623,125 to 3,115,625 shares

XML

INVENTORIES (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Subtotal	$ 840,514	$ 906,571
Allowance for inventory obsolescence	(70,000)	(70,000)
Inventory, net	770,514	836,571
Machinery & Equipment [Member]
Subtotal	658,370	715,483
Parts [Member]
Subtotal	$ 182,144	$ 191,088

XML

PROPERTY AND EQUIPMENT (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Total	$ 7,128,185	$ 7,213,185
Less: Accumulated depreciation	(1,462,591)	(1,113,966)
Property and equipment, net	5,665,594	6,099,219
Buildings and improvements [Member]
Total	5,338	5,338
Machinery & Equipment [Member]
Total	2,845,654	2,908,154
Tractors [Member]
Total	3,129,888	3,129,888
Trucks and other vehicles [Member]
Total	$ 1,147,305	$ 1,169,805

XML

PROPERTY AND EQUIPMENT (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Depreciation expense	$ 358,000	$ 200,567
Utica Leasco [Member]
Machinery and equipment inventory pledged to secure a loan	205,628
Utica Leasco [Member] | Floor Plan Loans [Member]
Machinery and equipment inventory pledged to secure a loan	$ 168,137

XML

INTANGIBLE ASSETS (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Identifiable intangible assets, net	$ 26,633	$ 28,333
Customer Relationships [Member]
Identifiable intangible assets, gross	34,000	34,000
Accumulated amortization	(7,367)	(5,667)
Identifiable intangible assets, net	$ 26,633	$ 28,333

XML

INTANGIBLE ASSETS (Details 1) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Intangible Assets Details 1
2018 (remainder)	$ 5,100
2019	6,800
2020	6,800
2021	6,800
2022	1,133
Total	$ 26,633	$ 28,333

XML

INTANGIBLE ASSETS (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Weighted average estimated useful life	5 years
Amortization expense	$ 1,700
Customer Relationships [Member]
Identifiable intangible assets	$ 34,000	$ 34,000

XML

ACQUISITION (Details)	Mar. 31, 2018 USD ($)
Purchase Consideration
Cash Consideration (financed by a Capital Lease –Note 11)	$ 3,240,000
Add: Subsidiary stock issued as non-controlling interest (Note 14)	852,864
Add: 8% Vesting Promissory Note (Note 10)	395,634
Add: Buyer Short Term Note, at 10% (Note 10)	1,025,000
Total acquisition price	5,513,498
Assets acquired and liabilities assumed at fair value
Cash	676,056
Accounts receivable	156,655
Prepaid expenses	90,238
Inventories	1,037,910
Property and equipment	6,167,104
Other assets	85,322
Accounts payable and accrued expenses	(209,913)
Uncertain tax position	(129,000)
Cash payable to seller	(337,645)
Deferred tax liability	(2,079,395)
Other liabilities
Net tangible assets acquired	5,457,332
Identifiable intangible assets and Goodwill
Intangible assets	34,000
Goodwill	22,166
Total Identifiable Intangible Assets and Goodwill	56,166
Total net assets acquired	$ 5,513,498

XML

ACQUISITION (Details 1) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Net income (loss) per share	$ (0.17)	$ (0.12)
Weighted average number of shares outstanding	3,115,625	3,115,625
Business Acquisitions [Member]
Revenues, net	$ 762,645	$ 1,874,571
Net income (loss) allocable to common shareholders	$ (529,145)	$ (311,025)
Net income (loss) per share	$ (0.17)	$ (0.10)
Weighted average number of shares outstanding	3,115,625	3,115,625

XML

ACQUISITION (Details Narrative) - USD ($)		3 Months Ended
	Mar. 03, 2017	Mar. 31, 2018	Dec. 31, 2017
Promissory note payable		$ 1,025,000	$ 1,025,000
Minimum [Member]
Business acquisition cash balance, closing		$ 200,000
Minimum [Member] | Property and equipment [Member]
Estimated useful life		1 year
Maximum [Member] | Property and equipment [Member]
Estimated useful life		10 years
1847 Neese Corporation [Member] | Neese Acquisition [Member]
Business acquisition purchase price	$ 2,225,000
Business acquisition equity interest issued or issuable	450 shares of the common stock of 1847 Neese, constituting 45% of its capital stock;
Business acquisition vesting promissory note	$ 1,875,000
Business acquisition fair value	395,634
Promissory note payable	1,025,000
Business acquisition cash balance, closing	676,056
Business acquisition fair value of net assets acquired	$ 8,269,000

XML

LINE OF CREDIT (Details Narrative) - Home State Bank [Member] - USD ($)

3 Months Ended

Mar. 31, 2018

Dec. 31, 2017

Line of credit facility bears interest

4.85%

Line of credit outstanding

$ 400,000

$ 675,000

Note due date

Sep. 01, 2018

Line of credit, description

The Company’s subsidiary, Neese, entered into a loan and security agreement with Home State Bank, an Iowa state chartered bank (“Home State Bank”), governing a new revolving credit facility in a principal amount not to exceed $1,000,000 (the “Credit Facility”).

XML

FLOOR PLAN LOANS PAYABLE (Details Narrative) - Utica Leasco [Member]	Mar. 31, 2018 USD ($)
Machinery and Equipment inventory pledged to secure a loan	$ 205,628
Floor Plan Loans [Member]
Machinery and Equipment inventory pledged to secure a loan	$ 168,137

XML

NOTES PAYABLE (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Current Portion	$ (14,247)	$ (14,247)
Total Non-current portion	54,508	58,020
2018 Kenworth Tractor [Member]
Notes payable	$ 68,755	$ 72,267

XML

NOTES PAYABLE (Details 1) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
For the year ending December 31,
Less current portion of principal payments	$ (14,247)	$ (14,247)
Long-term portion of principal payments	54,508	$ 58,020
Promissory Notes [Member]
For the year ending December 31,
2018	10,735
2019	14,902
2020	15,581
2021	16,302
2022	11,235
Total payments	68,755
Less current portion of principal payments	(14,247)
Long-term portion of principal payments	$ 54,508

XML

NOTES PAYABLE (Details Narrative) - USD ($)	1 Months Ended
	Sep. 18, 2017	Jul. 21, 2017
Secured promissory note interest rate		4.50%
Secured promissory note amortized period		5 years
Principal and interest debt repayment monthly installments		$ 1,434
Utica Leasco [Member]
Secured promissory note	$ 320,658
Secured promissory note interest rate	4.50%
Secured promissory note amortized period	5 years
Principal and interest debt repayment monthly installments	$ 5,980

XML

PROMISSORY NOTES (Details Narrative) - USD ($)

3 Months Ended

Mar. 03, 2018

Mar. 03, 2017

Mar. 31, 2018

Dec. 31, 2017

Interest rate

8.00%

Promissory note payable

$ 1,025,000

$ 1,025,000

Fiscal Year 2017 [Member]

Adjusted EBITDA target for vesting of promissory note

788,958

Threshold amount promissory note

$ 1,300,000

Description of vesting promissory note

Fiscal Year 2017: If Adjusted EBITDA for the fiscal year ending December 31, 2017, exceeds an Adjusted EBITDA target of $1,300,000 (the “Adjusted EBITDA Target”), then a portion of the principal amount of the vesting promissory note that is equal to sixty percent (60%) of such excess shall vest. Interest shall be payable on such vested portion of principal from January 1, 2017 through the Maturity Date. For the year ended December 31, 2017, Adjusted EBITDA was $788,958, below the threshold amount of $1,300,000, therefore no portion of the note vested in fiscal year 2017.

Fiscal Year 2018 [Member]

Description of vesting promissory note

Fiscal Year 2018: If Adjusted EBITDA for the fiscal year ending December 31, 2018, exceeds the Adjusted EBITDA Target, then a portion of the principal amount of the vesting promissory note that is equal to sixty percent (60%) of such excess shall vest. Interest shall be payable on such vested portion of principal from January 1, 2018 through the Maturity Date.

Fiscal Year 2019 [Member]

Description of vesting promissory note

Fiscal Year 2019: If Adjusted EBITDA for the fiscal year ending December 31, 2019, exceeds the Adjusted EBITDA Target, then a portion of the principal amount of the vesting promissory note that is equal to sixty percent (60%) of such excess shall vest. Interest shall be payable on such vested portion of principal from January 1, 2019 through the Maturity Date.

1847 Neese Corporation [Member] | Neese Acquisition [Member]

Business acquisition vesting promissory note

$ 1,875,000

Business acquisition fair value

395,634

Promissory note payable

$ 1,025,000

1847 Neese Corporation [Member] | Neese Acquisition [Member] | Short-Term Promissory Note [Member]

Interest rate

10.00%

Promissory note payable

$ 1,025,000

Description for prepayment of the promissory note and accrued interest

the unpaid principal, and all accrued, but unpaid, interest thereon shall be prepaid if at any time, and from time to time, the cash on hand of 1847 Neese and Neese exceeds $250,000 and, then, the prepayment shall be equal to the amount of cash in excess of $200,000 until the unpaid principal and accrued, but unpaid, interest thereon is fully prepaid.

Cash balance to prepay outstanding promissory note and accrued interest

$ 250,000

Prepayment of short term debt in excess of cash balance, amount

200,000

1847 Neese Corporation [Member] | Neese Acquisition [Member] | Vesting Promissory Note [Member]

Business acquisition vesting promissory note

1,875,000

Business acquisition fair value

$ 395,634

Interest rate

8.00%

Maturity Date

Jun. 30, 2020

XML

CAPITALIZED LEASES (Details)	Mar. 31, 2018 USD ($)
For the period ending March 31,
2018	$ 1,204,259
2019	1,333,545
2020	1,333,545
2021	1,333,545
2022	196,451
Total minimum lease payments	5,401,345
Less amount representing interest	(1,556,043)
Present value of minimum lease payments	3,845,302
Less current portion of minimum lease	(615,349)
Less debt issuance costs, net	(156,065)
Less payments to Lessor for release of lien	(21,900)
End of lease buyout payments	211,000
Long-term present value of minimum lease payment	$ 3,262,988

XML

CAPITALIZED LEASES (Details Narrative) - USD ($)

1 Months Ended

3 Months Ended

10 Months Ended

Feb. 01, 2018

Jun. 14, 2017

Mar. 03, 2017

Mar. 02, 2018

Mar. 31, 2018

Mar. 31, 2017

Oct. 31, 2017

Amortization of debt issuance costs

$ 9,963

$ 4,044

Master Lease Agreement [Member]

Lease term, Description

If any rent is not received by the Lessor within five (5) calendar days of the due date, the Lessee shall pay a late charge equal to ten (10%) percent of the amount.

Administration fee

$ 5,000

Leases payable description under lease agreement

the lesser of: (a) $162,000 (five percent (5%) of the Total Invoice Cost (as defined in the Master Lease Agreement)); or (b) the fair market value of the Equipment, as determined by the Lessor. Upon the expiration of the Amendment to the Master Lease Agreement, the Lessee is required to pay, together with all other amounts then due and payable under the Master Lease Agreement, in cash, an end of term buyout price equal to the lesser of: (a) $49,000 (five percent (5%) of the Total Invoice Cost (as defined in the Master Lease Agreement)); or (b) the fair market value of the Equipment, as determined by the Lessor

Interest rate, capitalized lease

15.40%

Debt issuance costs

$ 200,365

Amortization of debt issuance costs

9,967

Capital lease term

51 months

Lease rent monthly

$ 53,000

Number of months

3 months

Increased monthly rent

$ 85,322

Number of months for increased rent

48 months

Payments made to related party against loan taken for equipment

$ 16,125

Master Lease Agreement [Member] | Utica Leaseco, LLC [Member] | Equipment [Member]

Proceeds from capital lease

$ 3,240,000

Master Lease Agreement [Member] | Utica [Member]

Proceeds from capital lease

$ 980,000

Capital lease term

51 months

Lease rent monthly

$ 53,000

$ 25,807

Number of months

3 months

Late payment fee

$ 2,650

$ 5,300

Master Lease Agreement [Member] | First amendment lease documentst [Member]

Administration fee

$ 2,500

Capital lease term

57 months

Lease rent monthly

$ 53,000

Number of months

10 months

Increased monthly rent

$ 85,322

Number of months for increased rent

47 months

XML

LEASE (Details)	Mar. 31, 2018 USD ($)
2018 (remainder of year)	$ 100,000
2019	100,000
May 2014 [Member]
2018 (remainder of year)	8,873
2019	11,830
Total remaining payments	$ 20,703

XML

LEASE (Details Narrative)	3 Months Ended
	Mar. 31, 2018 USD ($)
Total minimum lease payments	$ 916,667
May 2014 [Member]
Total minimum lease payments	$ 11,830
Lease term	5 years

XML

RELATED PARTIES (Details Narrative) - USD ($)

1 Months Ended

3 Months Ended

Jan. 03, 2018

Mar. 03, 2017

Apr. 15, 2013

Mar. 31, 2018

Mar. 31, 2017

Dec. 31, 2017

Sep. 15, 2013

Management fee

$ 62,500

$ 0

Note payable – related party

72,000

Accrued interest

1,392

Officer [Member]

Advances from related party

118,833

118,833

Manager [Member]

Advances from related party

$ 62,953

$ 60,870

Offsetting Management Services Agreement [Member]

Management consulting fee, quarterly

$ 62,500

Management Services Agreement [Member]

Description of management fee

Quarterly management fee equal to 0.5% (2.0% annualized) of our adjusted net assets for services performed.

Management consulting fee, quarterly

$ 43,750

Description of gross income

expected to exceed, 9.5% of our gross income with respect to such fiscal year

Promissory Note [Member]

Initial principal amount

$ 50,000

Additional advances, description

The note provides that we may from time to time request additional advances from our manager up to an aggregate additional amount of $100,000, which will be added to the note if our manager, in its sole discretion, so provides.

Fixed annual interest rate

8.00%

Interest rate

12.00%

Repayment, description

In the event we complete a financing involving at least $500,000, we must, contemporaneously with the closing of such financing transaction, repay the entire outstanding principal and accrued and unpaid interest on the note.

XML

SHAREHOLDERS' DEFICIT (Details Narrative) - USD ($)		1 Months Ended	3 Months Ended
	May 10, 2018	Jan. 22, 2018	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Allocation shares, issued			1,000	1,000
Allocation shares, authorized			1,000	1,000
Allocation shares, outstanding			1,000	1,000
Common shares,authorized			500,000,000	500,000,000
Common shares, issued			3,115,625	3,115,625
Common shares, outstanding			3,115,625	3,115,625
Ownership of allocation shares by manager			100.00%
Allocation of profit			20.00%
Interest rate			8.00%
Noncontrolling interest, ownership percentage			45.00%
Net loss attributable subsidiary			$ 394,477	$ 658,524
Reverse stock split, description		1-for-5
Increase/Decrease in issued and outstanding common shares		3,115,500 to 623,125 shares
Subsequent Event [Member]
Reverse stock split, description	5-for-1
Increase/Decrease in issued and outstanding common shares	623,125 to 3,115,625 shares
Noncontrolling Interest [Member]
Acquisition interest acquired			55.00%
Net loss attributable subsidiary			$ 394,477		$ 741,739
Chief Executive Officer [Member]
Allocation shares, issued			1,000
Allocation shares, outstanding			1,000

XML

COMMITMENTS AND CONTINGENCIES (Details)	Mar. 31, 2018 USD ($)
Period Ending March 31,
2018 (remainder of the year)	$ 75,000
2019	100,000
2020	100,000
2021	100,000
2022	100,000
thereafter	441,667
Total minimum lease payments	$ 916,667

XML

COMMITMENTS AND CONTINGENCIES (Details Narrative) - K&A Holdings, LLC [Member]

3 Months Ended

Mar. 31, 2018

USD ($)

Lease agreement date

Mar. 03, 2017

Lease term

10 years

Lease rent monthly

$ 8,333

Lease term, Description

In the event of late payment, interest shall accrue on the unpaid amount at the rate of eighteen percent (18%) per annum. The agreement of lease contains customary events of default, including if Neese shall fail to pay rent within five (5) days after the due date, or if Neese shall fail to perform any other terms, covenants or conditions under the agreement of lease, and other customary representations, warranties and covenants.

XML

SUBSEQUENT EVENTS (Details Narrative) - Subsequent Event [Member] - USD ($)

1 Months Ended

Apr. 18, 2018

May 31, 2018

Note Payable – Related party

$ 3,500

Master Lease Agreement [Member]

Forbearance Agreement, description

Lessee shall, among other things, (i) make the payments set forth in the Forbearance Agreement on or before the dates specified therein, totaling $173,375.76, (ii) be current on all rent due under Schedule 1 of the Master Lease Agreement by June 3, 2018 and be current on all rent due under Schedule 2 of the Master Lease Agreement by May 30, 2018, (ii) reinstate or renew and continue in effect all insurance as required under the Master Lease Agreement at Lessee’s sole cost and expense, (iv) pay a forbearance fee to Lessor totaling $4,500, which shall not be due until termination of the Master Lease Agreement and (v) execute a surrender agreement with respect to the Lessee’s equipment, which will be held in escrow by Lessor and not deemed effective unless and until the earlier to occur of: (a) the Expiration Date, provided liabilities under Master Lease Agreement remain due but unpaid; (b) such time as Lessor accelerates due and unpaid liabilities pursuant to the term of the Forbearance Agreement and the Master Lease Agreement; or (c) a default occurs under the Forbearance Agreement or the Master Lease Agreement (each a “Triggering Event”).