efsh_8ka.htm

0001477932-19-003616.txt : 20190619 0001477932-19-003616.hdr.sgml : 20190619 20190619172126 ACCESSION NUMBER: 0001477932-19-003616 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20190405 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20190619 DATE AS OF CHANGE: 20190619 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 1847 Holdings LLC CENTRAL INDEX KEY: 0001599407 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 383922937 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 333-193821 FILM NUMBER: 19906808 BUSINESS ADDRESS: STREET 1: 590 MADISON AVENUE STREET 2: 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 212-521-4052 MAIL ADDRESS: STREET 1: 590 MADISON AVENUE STREET 2: 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 8-K/A 1 efsh_8ka.htm FORM 8-K/A efsh_8ka.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): June 19, 2019 (April 5, 2019)

1847 HOLDINGS LLC

(Exact name of registrant as specified in its charter)

Delaware

333-193821

38-3922937

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS 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 or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.

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 complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Securities registered pursuant to Section 12(b) of the Act: None

EXPLANATORY NOTE

On April 5, 2019, 1847 Goedeker Inc., a subsidiary of 1847 Holdings LLC (the “Company”), acquired substantially all of the assets of Goedeker Television Co., a Missouri corporation (the “Goedeker”), pursuant to an Asset Purchase Agreement, dated January 18, 2019, among 1847 Goedeker Inc., Goedeker, and Steve Goedeker and Mike Goedeker, as amended.

This Amendment No. 1 to Current Report on Form 8-K/A amends the Form 8-K that the Company filed on April 8, 2019 to include the financial statements of the business acquired as required by Items 9.01(a) and 9.01(b) of Form 8-K.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired

The audited financial statements of Goedeker for the years ended December 31, 2018 and 2017 and the accompanying notes thereto are filed as Exhibit 99.1 attached hereto and are incorporated by reference herein.

The unaudited financial statements of Goedeker for the three months ended March 31, 2019 and 2018 and the accompanying notes thereto are filed as Exhibit 99.2 attached hereto and are incorporated by reference herein.

(b) Pro forma financial information

The unaudited pro forma combined financial information giving effect to the acquisition is filed as Exhibit 99.3 attached hereto and is incorporated herein by reference.

(d) Exhibits

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 hereunto duly authorized.

	1847 HOLDINGS LLC

Date: June 19, 2019	/s/ Ellery W. Roberts
	Name: Ellery W. Roberts
	Title: Chief Executive Officer

EX-99.1 2 efsh_ex991.htm AUDITED FINANCIAL STATEMENTS efsh_ex991.htm

EXHIBIT 99.1

GOEDEKER TELEVISION COMPANY

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

AND

FINANCIAL STATEMENTS

For the Years Ended

December 31, 2018 and 2017

TABLE OF CONTENTS

Independent Auditor’s Report

3

Balance Sheets

4

Statements of Income

5

Statement of Stockholders’ Equity

6

Statements of Cash Flows

7

Notes to Financial Statements

8 – 11

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Goedeker Television Company:

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Goedeker Television Company (“the Company”) as of December 31, 2018 and 2017, the related statements of income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2018 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Sadler, Gibb & Associates, LLC

We have served as the Company’s auditor since 2019.

Salt Lake City, UT

June 19, 2019

Goedeker Television Co.

Balance Sheets

December 31, 2018 and 2017

		2018		2017
ASSETS
Current assets:
Cash	$	1,525,693	$	1,797,419
Receivables, net		2,635,932		2,907,708
Deposits with vendors		2,212,181		2,095,900
Merchandise inventory		3,111,594		3,709,575
Due from officers		50,634		50,634
Other assets		6,784		16,500
Total current assets		9,542,818		10,577,736
Property and equipment, net		216,286		255,925
Total assets	$	9,759,104	$	10,833,661

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable, net	$	2,360,562	$	2,879,670
Customer deposits		3,500,268		5,211,677
Payroll related liabilities		153,767		189,584
Accrued expenses and other liabilities		345,830		445,631
Total current liabilities		6,360,427		8,726,562

Stockholders’ equity
Common stock, no par value, 30,000 shares authorized, 7,000 shares issued and outstanding		7,000		7,000
Additional paid-in capital		707,049		707,049
Retained earnings		2,684,628		1,393,050
Total stockholders’ equity		3,398,677		2,107,099

Total liabilities and stockholders’ equity	$	9,759,104	$	10,833,661

The accompanying notes are an integral part of these financial statements

Goedeker Television Co.

Statements of Income

For the Years Ended

December 31, 2018 and 2017

	2018			2017
Net sales	$	56,307,960		$	58,555,495
Cost of goods sold		45,409,884			49,104,277
Gross profit		10,898,076			9,451,218

Operating expenses:
Personnel		3,627,883			3,705,336
Advertising		2,640,958			2,197,518
Bank and credit card fees		1,369,557			1,490,641
Other operating expenses		1,370,286			1,220,279
Total operating expenses		9,008,684			8,613,774

Income from operations		1,889,392			837,444

Other income (expense)
Other income		116,135			77,938
Interest expense		(149	)		-
Total other income (expense)		115,986			77,938

Net income	$	2,005,378		$	915,382

Earnings per share – basic and diluted	$	286.48		$	130.77

Weighted average number of shares outstanding – basic and diluted		7,000			7,000

The accompanying notes are an integral part of these financial statements

Goedeker Television Co.

Statement of Stockholders’ Equity

For the Years Ended

December 31, 2018 and 2017

	Common Stock				Additional Paid-in		Retained			Total Stockholders’
	Shares		Amount		Capital		Earnings			Equity
Balance January 1, 2017		7,000	$	7,000	$	707,049	$	1,458,664		$	2,172,713
Net income for the year ended December 31, 2017		-		-		-		915,382			915,382
Distributions to stockholders		-		-		-		(980,996	)		(980,996	)
Balance December 31, 2017		7,000		7,000		707,049		1,393,050			2,107,099
Net income for the year ended December 31, 2018		-		-		-		2,005,378			2,005,378
Distributions to stockholders		-		-		-		(713,800	)		(713,800	)
Balance December 31, 2018		7,000	$	7,000	$	707,049	$	2,684,628		$	3,398,677

The accompanying notes are an integral part of these financial statements

Goedeker Television Co.

Statements of Cash Flows

For the Years Ended

December 31, 2018 and 2017

		2018			2017
Cash flows from operating activities
Net income	$	2,005,378		$	915,382
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation		39,639			42,858
Changes in operating assets and liabilities
Receivables		271,776			(957,292	)
Deposits with vendors		(116,281	)		(262,832	)
Inventory		597,981			(1,247,732	)
Other assets		9,716			43,524
Accounts payable		(519,108	)		44,185
Customer deposits		(1,711,409	)		1,665,405
Payroll related liabilities		(35,817	)		(7,611	)
Accrued expenses and other liabilities		(99,801	)		39,380
Net cash provided by operating activities		442,074			275,267

Cash flows from financing activities
Distributions to stockholders		(713,800	)		(980,996	)
Cash used in financing activities		(713,800	)		(980,996	)

Net change in cash		(271,726	)		(705,734	)
Cash beginning of period		1,797,419			2,503,153
Cash end of period	$	1,525,693		$	1,797,419

Supplemental disclosures of cash flow information
Cash paid during the period for interest	$	-		$	-

The accompanying notes are an integral part of these financial statements

Goedeker Television Co.

Notes to Financial Statements

For the Years Ended December 31, 2018 and 2017

NOTE 1 — ORGANIZATION AND NATURE OF BUSINESS

Goedeker Television Co. (the “Company”) was formed under the laws of the State of Missouri in 1951 and is an independent retailer of major appliances, as well as furniture, housewares, plumbing products, and lighting. Its single showroom location is in St. Louis, Missouri. Since 2008, it has also sold its products through its website.

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.

Accounting Basis

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

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.

Revenue Recognition and Cost of Revenue

On January 1, 2018, the Company adopted Accounting Standards Update (“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 to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods. 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. The Company collects the full sales price from the customer at the time the order is placed. The Company does not incur incremental costs obtaining purchase orders from customers, however, if the Company did, because all the Company’s contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized. The Company’s adoption of this ASU resulted in no change to the Company’s results of operations or balance sheet.

The revenue that the Company recognizes arises from orders the Company receives from customers. The Company’s performance obligations under the customer orders correspond to each sale of merchandise that the Company makes to customers under the purchase orders; as a result, each purchase order generally contains only one performance obligation based on the merchandise sale to be completed. Control of the delivery transfers to customers when the customer can direct the use of, and obtain substantially all the benefits from, the Company’s products, which generally occurs when the customer assumes the risk of loss. The transfer of control generally occurs at the point of shipment. Once this occurs, the Company has satisfied its performance obligation and the Company recognizes revenue. Revenue from the sale of long-term service warranties are recognized net of costs to sell the contracts to the third-party warranty service company.

Transaction Price: The Company agrees with customers on the selling price of each transaction. This transaction price is generally based on the agreed upon sales price. In the Company’s contracts with customers, it allocates the entire transaction price to the sales price, 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 the Company collects concurrently with revenue-producing activities are excluded from revenue.

If the Company continued to apply legacy revenue recognition guidance for the year ended December 31, 2018, revenues, gross margin, and net loss would not have changed.

Cost of revenue includes the cost of purchased merchandise plus the cost of delivering merchandise and where applicable installation, net of promotional rebates and other incentives received from vendors.

Substantially all the Company’s sales are to individual retail consumers.

Disaggregated Revenue ‒ The Company disaggregates revenue from contracts with customers by contract type, as it believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

The Company’s revenue by sales type is as follows:

	For the Years Ended December 31,
	2018		2017
Appliance sales	$	42,871,864	$	43,134,923
Furniture sales		10,813,453		12,605,779
Other sales		2,622,643		2,814,793
Total revenue	$	56,307,960	$	58,555,495

Performance Obligations – Our performance obligations include delivery of products and, in some instances, performance of services such as installation. Revenue for the sale of merchandise is recognized upon shipment to the customer; or in some instances, upon delivery and installation of the product which typically occur simultaneously.

Receivables

Receivables consist of credit card transactions in the process of settlement. Vendor rebates receivable represent amounts due from manufactures from whom the Company purchases products. Rebates receivable are stated at the amount that management expects to collect from manufacturers, net of accounts payable amounts due the vendor. Rebates are calculated on product and model sales programs from specific vendors. The rebates are paid at intermittent periods either in cash or through issuance of vendor credit memos, which can be applied against vendor accounts payable. Based on the Company’s assessment of the credit history with its manufacturers, it has concluded that there should be no allowance for uncollectible accounts. The Company historically collects substantially all its outstanding rebates receivables. Uncollectible balances are expensed in the period it is determined to be uncollectible.

Inventory

Inventory consists of finished product acquired for resale and is valued at the lower-of-cost-or-market with cost determined on an average 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. Reserves for slow-moving and potentially obsolete inventories was $-0- and $-0- as of December 31, 2018 and 2017, respectively.

Property and Equipment

Property and equipment is stated at cost. Depreciation of furniture, vehicles and office equipment is calculated using the straight-line method over the estimated useful lives as follows:

Asset		Years
Equipment		10
Office equipment		7
Vehicles		7

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents. 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.

Income Taxes

The Company is a Subchapter S Corporation and income taxes are the responsibility of the Company’s stockholders.

Basic and Diluted Income Per Share

Basic income per share is calculated by dividing the 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 the 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 December 31, 2018 and 2017.

Recent Accounting Pronouncements

Recently Adopted

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” as a new Topic, 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 adopted 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.

NOTE 3 — RECEIVABLES

At December 31, 2018 and 2017, receivables consisted of the following:

	2018		2017
Credit card payments in process of settlement	$	629,498	$	946,179
Vendor rebates receivable		2,004,206		1,961,529
Other		2,228		-
Total receivables	$	2,635,932	$	2,907,708

NOTE 4 — MERCHANDISE INVENTORY

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

	2018		2017
Appliances	$	2,656,386	$	3,264,637
Furniture		327,458		331,033
Other		127,750		113,905
Total merchandise inventory	$	3,111,594	$	3,709,575

NOTE 5 — DEPOSITS WITH VENDORS

Deposits with vendors represent cash on deposit with one vendor arising from accumulated rebates paid by the vendor. The deposits are used by the vendor to seek to secure the Company’s purchases. The deposit can be withdrawn at any time up to the amount of the Company’s credit line with the vendor. Alternatively, the Company could secure their credit line with a floor plan line from a lender and withdraw all its deposits. The Company has elected to leave the deposits with the vendor on which it earns interest income.

NOTE 6 — PROPERTY AND EQUPMENT

As of December 31, 2018 and 2017, property and equipment consisted of the following:

	2018			2017
Equipment	$	81,242		$	81,242
Warehouse equipment		111,787			111,787
Furniture and fixtures		78,585			78,585
Transportation equipment		170,824			170,824
Leasehold improvements		249,993			249,993
Total		692,431			692,431
Accumulated depreciation		(476,145	)		(436,506	)
Property and equipment, net	$	216,286		$	255,925

Depreciation charged to operations for the years ended December 31, 2018 and 2017 amounted to $39,639 and $42,858, respectively.

NOTE 7 — CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of concentrated cash balances and rebate receivables. The Company maintains its cash balances in one financial institution located in St. Louis, Missouri. The balances are insured by the Federal Deposit Insurance Corporation up to $250,000. At December 31, 2018 and 2017, the Company’s uninsured cash balances total $1,275,693 and $1,542,419, respectively.

The Company has several contracts with vendors, of which net purchases from five major vendors represented 77.5% and 76.1% of total purchases for the years ended December 31, 2018 and 2017, respectively.

NOTE 8 — ADVERTISING

The Company’s advertising costs are primarily advertisements placed in local publications, television ads, and online advertising. Advertising costs are expensed as incurred and, for the years ended December 31, 2018 and 2017, amounted to $2,640,958 and $2,197,518, respectively.

NOTE 9 — RELATED PARTY TRANSACTIONS

The Company leases buildings on a month-to-month lease from certain stockholders. Rental expense paid to related parties for office and warehouse space charged to operations for the years ended December 31, 2018 and 2017 was $480,000 in each year.

The Company has advanced amounts to certain stockholders on a revolving loan basis. The amount is due upon request. The balance receivable from stockholders as of December 31, 2018 and 2017 was $50,634, and $50,634, respectively.

NOTE 10 — SUBSEQUENT EVENTS

Subsequent events were reviewed through June 19, 2019.

On April 5, 2019, the Company and its stockholders entered into an Asset Purchase Agreement (the “APA”) with 1847 Goedeker Inc., a wholly-owned subsidiary of 1847 Goedeker Holdco, Inc., which is a majority owned subsidiary of 1847 Holdings LLC. Under terms of the APA, 1847 Goedeker Inc. acquired substantially all of the Company’s assets and assumed substantially all its liabilities. The purchase price was $6.1 million paid as $1.5 million in cash, issuance of a $4.1 million subordinated note payable, and an earn out provision of $600,000 based on attainment of certain EBITDA targets. Additionally, 1847 Goedeker Inc. issued 22.5% of its common stock to the Company’s stockholders. Pending a formal valuation of the assets acquired and consideration paid, the Company allocated $5,815,000 of the excess purchase price to Goodwill.

EX-99.2 3 efsh_ex992.htm UNAUDITED FINANCIAL STATEMENTS efsh_ex992.htm

EXHIBIT 99.2

Goedeker Television Co.

Condensed Balance Sheets

March 31, 2019 and December 31, 2018

	March 31, 2019		December 31, 2018
ASSETS	(unaudited)
Current assets:
Cash	$	1,523,463	$	1,525,693
Receivables, net		1,286,511		2,635,932
Deposits with vendors		2,285,952		2,212,181
Merchandise inventory		2,549,115		3,111,594
Due from officers		50,634		50,634
Other assets		4,000		6,784
Total current assets		7,699,675		9,542,818
Property and equipment, net		206,612		216,286
Total assets	$	7,906,287	$	9,759,104

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable, net	$	1,944,605	$	2,360,562
Customer deposits		2,520,706		3,500,268
Payroll related liabilities		192,023		153,767
Accrued expenses and other liabilities		308,798		345,830
Total current liabilities		4,966,132		6,360,427

Stockholders’ equity
Common stock, no par value, 30,000 shares authorized, 7,000 shares issued and outstanding		7,000		7,000
Additional paid-in capital		707,049		707,049
Retained earnings		2,226,106		2,684,628
Total stockholders’ equity		2,940,155		3,398,677

Total liabilities and stockholders’ equity	$	7,906,287	$	9,759,104

The accompanying notes are an integral part of these financial statements

Goedeker Television Co.

Condensed Statements of Operations

For the Three Months Ended March 31, 2019 and 2018

(Unaudited)

	2019			2018
Net sales	$	11,947,046		$	15,236,186
Cost of goods sold		10,269,656			12,326,040
Gross profit		1,677,390			2,910,146

Operating expenses:
Personnel		882,721			933,579
Advertising		600,799			623,874
Bank and credit card fees		257,117			342,399
Other operating expenses		426,122			347,678
Total operating expenses		2,166,759			2,247,530

Income (loss) from operations		(489,369	)		662,616

Other income		30,847			35,428

Net income (loss)	$	(458,522	)	$	698,044

Earnings (loss) per share – basic and diluted	$	(65.50	)	$	99.72

Weighted average number of shares outstanding – basic and diluted		7,000			7,000

The accompanying notes are an integral part of these financial statements

Goedeker Television Co.

Condensed Statements of Stockholders’ Equity

For the Three Months Ended March 31, 2019 and 2018

(Unaudited)

	Common Stock				Additional Paid-in		Retained		Total Stockholders’
	Shares		Amount		Capital		Earnings		Equity
Balance January 1, 2018		7,000	$	7,000	$	707,049	$	1,393,050	$	2,107,099
Net income for the quarter ended March 31, 2018		-		-		-		698,044		698,044
Balance March 31, 2018		7,000	$	7,000	$	707,049	$	2,091,094		2,805,143

	Common Stock				Additional Paid-in		Retained			Total Stockholders’
	Shares		Amount		Capital		Earnings			Equity
Balance January 1, 2019		7,000	$	7,000	$	707,049	$	2,684,628		$	3,398,677
Net loss for the quarter ended March 31, 2019		-		-		-		(458,522	)		(458,522	)
Balance March 31, 2019		7,000	$	7,000	$	707,049	$	2,226,106		$	2,940,155

The accompanying notes are an integral part of these financial statements

Goedeker Television Co.

Condensed Statements of Cash Flows

For the Three Months Ended March 31, 2019 and 2018

(Unaudited)

		2019			2018
Cash flows from operating activities
Net income (loss)	$	(458,522	)	$	698,044
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation		9,674			9,993
Changes in operating assets and liabilities
Receivables		1,349,421			1,511,702
Deposits with vendors		(73,771	)		(133,812	)
Inventory		562,479			1,443,664
Other assets		2,784			2,992
Accounts payable		(415,957	)		(138,600	)
Customer deposits		(979,562	)		(2,780,659	)
Payroll related liabilities		38,256			31,480
Accrued expenses and other liabilities		(37,032	)		23,885
Net cash provided by (used in) operating activities		(2,230	)		668,689

Net change in cash		(2,230	)		668,689
Cash beginning of period		1,525,693			1,797,419
Cash end of period	$	1,523,463		$	2,466,108

Supplemental disclosures of cash flow information
Cash paid during the period for interest	$	-		$	-

The accompanying notes are an integral part of these financial statements

Goedeker Television Co.

Notes to Condensed Financial Statements

March 31, 2019

(Unaudited)

NOTE 1 — ORGANIZATION AND NATURE OF BUSINESS

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Condensed Financial Statements

The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2019 and for all periods presented herein have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These condensed financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2018. The results of operations for the three-month periods ended March 31, 2019 and 2018 are not necessarily indicative of the operating results for the full years.

Basis of Presentation

The financial statements of the Company have been prepared in accordance with GAAP and are presented in US dollars.

Accounting Basis

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

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

Revenue Recognition and Cost of Revenue

If the Company continued to apply legacy revenue recognition guidance for the year ended December 31, 2018, revenues, gross margin, and net loss would not have changed.

Substantially all the Company’s sales are to individual retail consumers.

The Company’s revenue by sales type is as follows:

	For the Three Months Ended March 31,
	2019		2018
Appliance sales	$	9,072,939	$	11,354,998
Furniture sales		2,292,493		3,136,646
Other sales		581,614		744,542
Total revenue	$	11,947,046	$	15,236,186

Receivables

Receivables consist of credit card transactions in the process of settlement. Vendor rebates receivable represent amounts due from manufactures from whom the Company purchases products. Rebates receivable are stated at the amount that management expects to collect from manufacturers, net of accounts payable amounts due the vendor. Rebates are calculated on product and model sales programs from specific vendors. The rebates are paid at intermittent periods either in cash or through issuance of vendor credit memos, which can be applied against vendor accounts payable. Based on the Company’s assessment of the credit history with its manufacturers, it has concluded that there should be no allowance for uncollectible accounts. The Company historically collects substantially all of its outstanding rebates receivables. Uncollectible balances are expensed in the period it is determined to be uncollectible.

Inventory

Property and Equipment

Property and equipment is stated at cost. Depreciation of furniture, vehicles and office equipment is calculated using the straight-line method over the estimated useful lives as follows:

Asset		Years
Equipment		10
Office equipment		7
Vehicles		7

Fair Value of Financial Instruments

Income Taxes

The Company is a Subchapter S Corporation and income taxes are the responsibility of the Company’s stockholders.

Basic and Diluted Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing the 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 the 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, 2019 and December 31, 2018.

Recent Accounting Pronouncements

Recently Adopted

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; and 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 adoption of this standard was determined to not have a material impact on the Company’s financial statements because the Company does not hold any long-term leases.

	·	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.

NOTE 3 — RECEIVABLES

At March 31, 2019 and December 31, 2018, receivables consisted of the following:

	March 31, 2019		December 31, 2018
	(unaudited)
Credit card payments in process of settlement	$	574,416	$	629,498
Vendor rebates receivable		712,095		2,004,206
Other		-		2,228
Total receivables	$	1,286,511	$	2,635,932

NOTE 4 — MERCHANDISE INVENTORY

At March 31, 2019 and December 31, 2018, the inventory balances are composed of:

	March 31, 2019		December 31, 2018
	(unaudited)
Appliances	$	2,150,571	$	2,656,386
Furniture		315,795		327,458
Other		82,749		127,750
Total inventory	$	2,549,115	$	3,111,594

NOTE 5 — DEPOSITS WITH VENDORS

NOTE 6 — PROPERTY AND EQUPMENT

At March 31, 2019 and December 31, 2018, property and equipment consisted of the following:

	March 31, 2019			December 31, 2018
	(unaudited)
Equipment	$	81,242		$	81,242
Warehouse equipment		111,787			111,787
Furniture and fixtures		78,585			78,585
Transportation equipment		170,824			170,824
Leasehold improvements		249,993			249,993
Total		692,431			692,431
Accumulated depreciation		(485,819	)		(476,145	)
Property and equipment, net	$	206,612		$	216,286

Depreciation charged to operations for the three-months ended March 31, 2019 and 2018 was $9,675 and $9,993, respectively.

NOTE 7 — CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of concentrated cash balances and rebate receivables. The Company maintains its cash balances in one financial institution located in St. Louis, Missouri. The balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At March 31 and December 31, 2018, the Company’s cash balances totaled $1,273,463 and $1,275,963 respectively, which are in excess of the FDIC $250,000 insurance limit.

The Company has several contracts with commercial vendors, of which net purchases from five major vendors for the three months ended March 31, 2019 represented 77.8% of the total net purchases, as compared to net purchases from five vendors for the three months ended March 31, 2018 represented 76.6% of the total net purchases.

NOTE 8 — ADVERTISING

The Company’s advertising costs are primarily advertisements placed in local publications, television ads, and online advertising. Advertising costs are expensed as incurred and, for the three months ended March 31, 2019 and 2018 amounted to $600,799 and $623,874, respectively.

NOTE 9 — RELATED PARTY TRANSACTIONS

The Company leases buildings on a month-to-month lease from certain stockholders. Rental expense paid to related parties for office and warehouse space charged to operations for the three months ended March 31, 2019 and 2018 amounted to $125,000 and $120,000, respectively.

The Company has advanced amounts to certain stockholders on a revolving loan basis. The amount is due upon request. The balance receivable from stockholders as of March 31, 2019 and December 31, 2018 was $50,634.

NOTE 10 — SUBSEQUENT EVENTS

Subsequent events were reviewed through June 19, 2019.

EX-99.3 4 efsh_ex993.htm UNAUDITED PRO FORMA FINANCIAL STATEMENTS efsh_ex993.htm

EXHIBIT 99.3

1847 HOLDINGS LLC

Pro Forma Combined Balance Sheet as of March 31, 2019

	1847 Holdings LLC			Goedeker Television Co.		Pro Forma Adjustments			Notes	Pro Forma Condensed
Assets
Current Assets
Cash and cash equivalents	$	96,224		$	1,523,463	$	116,713		(r-1)	$	3,054,900
							919,000		(t-1)
							(20,000	)	(a-5)
							635,000		(e-1)
							(215,500	)	(a-7)
Rebates receivable		-			1,286,511		-				1,286,511
Deposits with vendors		-			2,285,952		-				2,285,952
Accounts receivable, net		218,236			-		-				218,236
Inventory		535,694			2,549,115		-				3,084,809
Related party receivable		-			-		553,733		(a-3)		553,733
Due from officers		-			50,634		-				50,634
Prepaid expenses and other current assets, net		53,829			4,000		-				57,829
Total current assets		903,983			7,699,675		1,988,947				10,592,605

Property and equipment, net		4,148,737			206,612		-				4,355,349
Operating lease right of use assets		605,050			-		2,280,732		(a-10)		2,885,782
Goodwill - Neese		22,166			-		-				22,166

Goodwill - Goedeker		-			-		4,100,000		(a-1)		1,104,112
							478,000		(a-2)
							(2,940,155	)	(a-4)
							(553,733	)	(a-3)
							20,000		(a-5)
Intangible assets, net		19,833			-		-				19,833
Other Assets
Other Assets		375			-		-				375
Total assets	$	5,700,144		$	7,906,287	$	5,373,791			$	18,980,222
Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities
Accounts payable and accrued expenses	$	1,268,763		$	1,944,605	$	(584,287	)	(t-1)	$	2,629,081
Customer deposits					2,520,706						2,520,706
Payroll related liabilities					192,023		-				192,023
Accrued expenses and other liabilities		-			308,798		-				308,798
Current portion of operating lease liability		60,095			-		396,051		(a-10)		456,146
Floor plan payable		137,493			-		-				137,493
Advances, related party		176,296			-		-				176,296
Note payable, related party, including accrued interest of $7,549 as of December 31, 2018		126,889			-		-				126,889
Notes payable, current portion		224,798									224,798
Current portion of capital lease obligation		310,767			-		-				310,767
Total current liabilities		2,305,101			4,966,132		(188,236	)			7,082,997
Long-Term Liabilities
Non-current notes payable		3,099,531			-		-				3,099,531
Operating lease liability – long term		549,293					1,884,681		(a-10)		2,433,974
Promissory note payable		1,025,000			-		-				1,025,000

Goedeker Subordinated Promissory Note							4,100,000		(a-1)		4,100,000

Term Loan, net - SBCC							1,168,000		(t-1)		1,168,000
Revolving Loan, net - Burnley Capital							701,000		(r-1)		701,000
Note Payable, net – Leonite							-		(e-1)		-
Non-current deferred tax liability		118,201			-		-				118,201
Accrued expenses - long term		565,338			-		-				565,338
Capital lease obligation, net of current portion		700,006			-		-				700,006
Total liabilities		8,362,470			4,966,132		7,665,446				20,994,048

Stockholders’ Equity (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 December 31, 2018 and 2017		3,115			-		50		(e-4)		3,165
Goedeker Television Co. common shares		-			7,000		(7,000	)	(a-4)		-
Additional paid-in capital		11,891			707,049		(707,049	)	(e-4)		646,841
							99,950		(e-4)
							389,741		(e-3)
							145,259		(e-2)
Retained earnings (accumulated deficit)		(2,523,663	)		2,226,106		(2,226,106	)	(a-4)		(2,739,163	)
							(215,500	)	(a-7)
Total stockholders’ equity (deficit)		(2,507,657	)		2,940,155		(2,520,655	)			(2,088,157	)

Non-controlling interest		(154,669	)		-		229,000		(t-2)		74,331

Total liabilities and stockholders’ equity (deficit)	$	5,700,144		$	7,906,287	$	5,373,791			$	18,980,222

1847 HOLDINGS LLC

Pro Forma Combined Statement of Operations the three months ended March 31, 2019

	1847 Holdings LLC			Goedeker Television Co.			Pro Forma Adjustments			Notes	Pro Forma Condensed
Revenue	$	812,371		$	11,947,046		$	-			$	12,759,417
Cost of revenue		213,750			10,269,656			-				10,483,406
Gross profit		598,621			1,677,390			-				2,276,011
Personnel		457,197			882,721			-				1,339,918
Advertising		-			600,799			-				600,799
Depreciation and amortization		338,822			-			-				338,822
Fuel		188,377			-			-				188,377
Bank and credit card fees		-			257,117			-				257,117
Selling, general, and administrative expenses		375,735			-			62,500		(m-1)		438,235
Other Operating Expense		-			426,122			37,500		(r-4)		463,622
Total Operating Expenses		1,360,131			2,166,759			100,000				3,626,890
(Loss) income from operations		(761,510	)		(489,369	)		(100,000	)			(1,350,879	)
Financing costs and loss on early extinguishment of debt		(8,100	)		-			(7,458	)	(r-3)		(15,558	)
Write-down assets		-			-			-				-
Write-off contingent consideration		-			-			-				-
Interest expense		(144,292	)		-			(92,250	)	(a-6)		(511,466	)
								(71,375	)	(t-3)
								(19,620	)	(r-2)
								(183,929	)	(e-5)
Gain (loss) on sale of property and equipment		24,224			-			-				24,224
Other Income, net		-			30,847			-				30,847
Total other expense		(128,168	)		30,847			(374,632	)			(471,953	)
(Loss) income before income taxes and controlling interests		(889,678	)		(458,522	)		(474,632	)			(1,822,832	)
(Provision) benefit from income taxes		254,419			-			326,604		(a-8)		581,023
Net loss (income)		(635,259	)		(458,522	)		(148,028	)			(1,241,809	)
Net loss attributable to non-controlling interests		266,680			-			136,474		(a-9)		403,154
Net loss attributable to 1847 Holdings Shareholders	$	(368,579	)	$	(458,522	)	$	(11,554	)		$	(838,655	)

Earnings per share
Basic and Diluted Loss per Share - Common Stock	$	(0.20	)								$	(0.39	)
Weighted average number of shares outstanding
Basic and Diluted Common Stock		3,115,625						50,000				3,165,625

1847 HOLDINGS LLC

Pro Forma Combined Statement of Operations the year ended December 31, 2018

	1847 Holdings LLC			Goedeker Television Co.			Pro Forma Adjustments			Notes	Pro Forma Condensed
Revenue	$	7,333,847		$	56,307,960		$	-			$	63,641,807
Cost of revenue		2,370,757			45,409,884			-				47,780,641
Gross profit		4,963,090			10,898,076			-				15,861,166
Personnel		2,269,059			3,627,883			-				5,896,942
Advertising		-			2,640,958			-				2,640,958
Depreciation and amortization		1,441,898			-			-				1,441,898
Fuel		1,117,045			-			-				1,117,045
Bank and credit card fees		-			1,369,557			-				1,369,557
Selling, general, and administrative expenses		1,653,683			-			250,000		(m-1)		1,903,683
Other Operating Expense		-			1,370,286			150,000		(r-4)		1,520,286
Total Operating Expenses		6,481,685			9,008,684			400,000				15,890,369
(Loss) income from operations		(1,518,595	)		1,889,392			(400,000	)			(29,203	)
Financing costs and loss on early extinguishment of debt		(536,491	)		-			(29,834	)	(r-3)		(566,325	)
Write-down assets		(129,400	)		-			-				(129,400	)
Write-off contingent consideration		395,634			-			-				395,634
Interest expense		(562,629	)		(149	)		(369,000	)	(a-6)		(2,031,474	)
								(285,500	)	(t-3)
								(78,481	)	(r-2)
								(735,714	)	(e-5)
Gain (loss) on sale of property and equipment		28,408			-			-				28,408
Other Income, net		-			116,135			-				116,135
Total other expense		(804,478	)		115,986			(1,498,529	)			(2,187,021	)
(Loss) income before income taxes and controlling interests		(2,323,073	)		2,005,378			(1,898,529	)			(2,216,224	)
(Provision) benefit from income taxes		781,200			-			(37,397	)	(a-8)		743,803
Net loss (income)		(1,541,873	)		2,005,378			(1,935,926	)			(1,472,421	)
Net loss attributable to non-controlling interests		546,513			-			(15,627	)	(a-9)		530,886
Net loss attributable to 1847 Holdings Shareholders	$	(995,360	)	$	2,005,378		$	(1,951,553	)		$	(941,535	)

Earnings per share
Basic and Diluted Loss per Share - Common Stock	$	(0.49	)								$	(0.47	)
Weighted average number of shares outstanding
Basic and Diluted Common Stock		3,115,625						50,000				3,165,625

NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

NOTE 1 – DESCRIPTION OF THE TRANSACTION

On January 18, 2019, 1847 Goedeker Inc. (“1847 Goedeker”), a wholly-owned subsidiary of 1847 Holdings LLC (the “Company”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Goedeker Television Co., a Missouri corporation (“Goedeker”), and Steve Goedeker and Mike Goedeker (the “Stockholders”), pursuant to which 1847 Goedeker agreed to acquire substantially all of the assets of Goedeker used in its retail appliance and furniture business (the “Goedeker Business”) for an aggregate purchase price $6,200,000 consisting of: (i) $1,500,000 in cash, subject to adjustment; (ii) the issuance of a promissory note in the principal amount of $4,100,000; (iii) up to $600,000 in Earn Out Payments (as defined below) and (iv) the issuance to each Stockholder of a number of shares of common stock equal to 11.25% of the issued and outstanding stock of 1847 Goedeker as of the closing date (22.50% in the aggregate) (the “Acquisition”).

On March 20, 2019, the Company established 1847 Goedeker Holdco Inc. (“1847 Holdco”) as a wholly-owned subsidiary in the State of Delaware and subsequently transferred all of its shares in 1847 Goedeker to 1847 Holdco, such that 1847 Goedeker became a wholly-owned subsidiary of 1847 Holdco.

On April 5, 2019, 1847 Goedeker, 1847 Holdco, Goedeker and the Stockholders entered into Amendment No. 1 to the Asset Purchase Agreement (the “Amendment”) to amend certain terms of the Purchase Agreement. Following entry into the Amendment, closing of the Acquisition was completed on the same day.

Pursuant to the Amendment, 1847 Holdco, rather than 1847 Goedeker, issued to each Stockholder a number of shares of its common stock equal to a 11.25% non-dilutable interest in all of the issued and outstanding stock of 1847 Goedeker as of the closing date. The Amendment also added certain representations and warranties by 1847 Holdco and certain closing conditions for 1847 Holdco.

The Amendment also clarified that a Digital Marketing Agreement between Goedeker and Power Digital Marketing would not be assigned to 1847 Goedeker in the Acquisition. Goedeker agreed to cooperate with 1847 Goedeker in determining a reasonable arrangement designed to provide 1847 Goedeker with the benefits under such Digital Marketing Agreement. In consideration for Goedeker so cooperating, 1847 Goedeker agreed to pay to Goedeker a total of $20,000, which amount Goedeker will use to pay Power Digital Marketing for amounts due under the Digital Marketing Agreement for services to be rendered during the months of April 2019 and May 2019. Goedeker also agreed to cause the Digital Marketing Agreement to be terminated as of May 30, 2019 to ensure that Goedeker no longer has any obligations under the Digital Marketing Agreement.

As noted above, a portion of the purchase price was paid by the issuance by 1847 Goedeker of a 9% Subordinated Promissory Note in the principal amount of $4,100,000 (the “Goedeker Note”). The Goedeker Note will accrue interest at 9% per annum, amortized on a five-year straight-line basis and payable quarterly in accordance with the amortization schedule attached thereto, and mature on the fifth (5th) anniversary of the closing date. 1847 Goedeker has the right to redeem all or any portion of the Goedeker Note at any time prior to the maturity date without premium or penalty of any kind. The Goedeker Note contains customary events of default, including in the event of (i) non-payment, (ii) a default by 1847 Goedeker of any of its covenants under the Purchase Agreement or any other agreement entered into in connection with the Purchase Agreement, or a breach of any of representations or warranties under such documents, or (iii) the bankruptcy of 1847 Goedeker. The Goedeker Note also contains a cross default provision, whereby a default under the Revolving Loan or Term Loan (each as defined below), will also constitute an event of default under the Goedeker Note.

Goedeker is also entitled to receive the following payments (the “Earn Out Payments”) to the extent the Goedeker Business achieves the applicable EBITDA (as defined in the Purchase Agreement) targets:

1. An Earn Out Payment of $200,000 if the EBITDA of the Goedeker Business for the trailing twelve (12) month period from the closing date is $2,500,000 or greater;

2. An Earn Out Payment of $200,000 if the EBITDA of the Goedeker Business for the trailing twelve (12) month period from the first anniversary of closing date is $2,500,000 or greater; and

3. An Earn Out Payment of $200,000 if the EBITDA of the Goedeker Business for the trailing twelve (12) month period from the second anniversary of the closing date is $2,500,000 or greater.

To the extent the EBITDA of the Goedeker Business for any applicable period is less than $2,500,000 but greater than $1,500,000, 1847 Goedeker must pay a partial Earn Out Payment to Goedeker in an amount equal to the product determined by multiplying (i) the EBITDA Achievement Percentage by (ii) the applicable Earn Out Payment for such period, where the “Achievement Percentage” is the percentage determined by dividing (A) the amount of (i) the EBITDA of the Goedeker Business for the applicable period less (ii) $1,500,000, by (B) $1,000,000. For avoidance of doubt, no partial Earn Out Payments shall be earned or paid to the extent the EBITDA of the Goedeker Business for any applicable period is equal or less than $1,500,000.

To the extent Goedeker is entitled to all or a portion of an Earn Out Payment, the applicable Earn Out Payment(s) (or portion thereof) shall be paid on the date that is three (3) years from the closing date, and shall accrue interest from the date on which it is determined Goedeker is entitled to such Earn Out Payment (or portion thereof) at a rate equal to five percent (5%) per annum, computed on the basis of a 360 day year for the actual number of days elapsed.

During the earn out periods stated above, 1847 Goedeker agreed to (i) operate the Goedeker Business in the ordinary course of business substantially consistent with past practices, (ii) operate the Goedeker Business as a distinct business entity or division so that its results can be verified for purposes of calculating the Earn Out Payment, and (iii) adequately fund the Goedeker Business during the periods. Furthermore, 1847 Goedeker agreed that it would not, directly or indirectly, take any actions in bad faith that would have the purpose of avoiding the Earn Out Payment.

The rights of Goedeker to receive payments under the Goedeker Note and any Earn Out Payments are subordinate to the rights of Burnley and SBCC (each as defined below) under separate Subordination Agreements that Goedeker entered into with Burnley and SBCC on April 5, 2019 in connection with the Acquisition.

Pursuant to the Purchase Agreement, on April 5, 2019, 1847 Goedeker entered into a Lease Agreement (the “Lease”) with S.H.J., L.L.C., a Missouri limited liability company and affiliate of Goedeker. The Lease is for a term five (5) years and provides for a base rent of $45,000 per month. In addition, 1847 Goedeker is responsible for all taxes and insurance premiums during the lease term. In the event of late payment, interest shall accrue on the unpaid amount at the rate of eighteen percent (18%) per annum.

Management Services Agreement

On April 5, 2019, 1847 Goedeker Inc. entered into a Management Services Agreement (the “Offsetting MSA”) with the Company’s manager, 1847 Partners LLC (the “Manager”). The MSA is an Offsetting Management Services Agreement as defined in that certain Management Services Agreement, dated April 15, 2013, between the Company and the Manager (the “MSA”).

Pursuant to the Offsetting MSA, 1847 Goedeker appointed the Manager to provide certain services to it for a quarterly management fee equal to the greater of $62,500 or 2% of Adjusted Net Assets (as defined in the MSA) (the “Management Fee”); 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 Goedeker, together with all other management fees paid or to be paid by all other subsidiaries of the Company to the Manager, in each case, with respect to any fiscal year exceeds, or is expected to exceed, 9.5% of the Company’s gross income with respect to such fiscal year, then the Management Fee to be paid by 1847 Goedeker 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 the Manager by all of the subsidiaries of the Company, until the aggregate amount of the Management Fee paid or to be paid by 1847 Goedeker, together with all other management fees paid or to be paid by all other subsidiaries of the Company to the Manager, in each case, with respect to such fiscal year, does not exceed 9.5% of the Company’s gross income with respect to such fiscal year, and (iii) if the aggregate amount the Management Fee paid or to be paid by 1847 Goedeker, together with all other management fees paid or to be paid by all other subsidiaries of the Company to the 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 MSA (the “Parent Management Fee”) with respect to such fiscal quarter, then the Management Fee to be paid by 1847 Goedeker 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 Goedeker, together with all other management fees paid or to be paid by all other subsidiaries of the Company to the 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.

Notwithstanding the foregoing, payment of the Management Fee is subordinated to the payment of interest on the Goedeker Note, such that no payment of the Management Fee may be made if 1847 Goedeker is in default under the Goedeker Note with regard to interest payments and, for the avoidance of doubt, such payment of the Management Fee will be contingent on 1847 Goedeker being in good standing on all associated loan covenants. In addition, during the period that that any amounts are owed under the Goedeker Note or the Earn Out Payments, the annual Management Fee shall be capped at $250,000.

In addition, the rights of the Manager to receive payments under the Offsetting MSA are subordinate to the rights of Burnley and SBCC (each as defined below) under separate Subordination Agreements that the Manager entered into with Burnley and SBCC on April 5, 2019 in connection with the Acquisition.

1847 Goedeker shall also reimburse the Manager for all costs and expenses of 1847 Goedeker which are specifically approved by the board of directors of 1847 Goedeker, including all out-of-pocket costs and expenses, that are actually incurred by the Manager or its affiliates on behalf of 1847 Goedeker in connection with performing services under the Offsetting MSA.

The services provided by the Manager include: conducting general and administrative supervision and oversight of 1847 Goedeker’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 Goedeker’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.

NOTE 2 – FINANCING TRANSACTIONS

Revolving Loan

On April 5, 2019, 1847 Goedeker, as borrower, and 1847 Holdco entered into a Loan and Security Agreement (the “Revolving Loan Agreement”) with Burnley Capital LLC (“Burnley”) for revolving loans in an aggregate principal amount that will not exceed the lesser of (i) the Borrowing Base or (ii) $1,500,000 (provided that such amount may be increased to $3,000,000 in Burnley’s sole discretion) (the “Revolving Loan Amount”) minus reserves established Burnley at any time (the “Reserves”) in accordance with the Revolving Loan Agreement (the “Revolving Loan”). The “Borrowing Base” means an amount equal to the sum of the following: (i) the product of 85% multiplied by the liquidation value of 1847 Goedeker’s inventory (net of all liquidation costs) identified in the most recent inventory appraisal by an appraiser acceptable to Burnley (ii) multiplied by 1847 Goedeker’s Eligible Inventory (as defined in the Revolving Loan Agreement), valued at the lower of cost or market value, determined on a first-in-first-out basis. In connection with the closing of the Acquisition on April 5, 2019, 1847 Goedeker borrowed $744,000 under the Revolving Loan Agreement and issued a Revolving Note to Burnley in the principal amount of up to $1,500,000.

The Revolving Note matures on April 5, 2022, provided that at Burnley’s sole and absolute discretion, it may agree to extend the maturity date for two successive terms of one year each. The Revolving Note bears interest at a per annum rate equal to the greater of (i) the LIBOR Rate (as defined in the Revolving Loan Agreement) plus 6.00% or (ii) 8.50%; provided that upon an Event of Default (as defined below) all loans, all past due interest and all fees shall bear interest at a per annum rate equal to the foregoing rate plus 3.00%. 1847 Goedeker shall pay interest accrued on the Revolving Note in arrears on the last day of each month commencing on April 30, 2019.

1847 Goedeker may at any time and from time to time prepay the Revolving Note in whole or in part. If at any time the outstanding principal balance on the Revolving Note exceeds the lesser of (i) the difference of the Revolving Loan Amount minus any Reserves and (ii) the Borrowing Base, then 1847 Goedeker shall immediately prepay the Revolving Note in an aggregate amount equal to such excess. In addition, in the event and on each occasion that any Net Proceeds (as defined in the Revolving Loan Agreement) are received by or on behalf of 1847 Goedeker or 1847 Holdco in respect of any Prepayment Event following the occurrence and during the continuance of an Event of Default, 1847 Goedeker shall, immediately after such Net Proceeds are received, prepay the Revolving Note in an aggregate amount equal to 100% of such Net Proceeds. A “Prepayment Event” means (i) any sale, transfer, merger, liquidation or other disposition (including pursuant to a sale and leaseback transaction) of any property of 1847 Goedeker or 1847 Holdco; (ii) a Change of Control (as defined in the Revolving Loan Agreement); (iii) any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property of 1847 Goedeker or 1847 Holdco with a fair value immediately prior to such event equal to or greater than $25,000; (iv) the issuance by 1847 Goedeker of any capital stock or the receipt by 1847 Goedeker of any capital contribution; or (v) the incurrence by 1847 Goedeker or 1847 Holdco of any Indebtedness (as defined in the Revolving Loan Agreement), other than Indebtedness permitted under the Revolving Loan Agreement.

Under the Revolving Loan Agreement, 1847 Goedeker is required to pay a number of fees to Burnley, including the following:

· an origination fee of $15,000, which was paid at closing on April 5, 2019;

· a commitment fee during the period from closing to the earlier of the maturity date or termination of Burnley’s commitment to make loans under the Revolving Loan Agreement, which shall accrue at the rate of 0.50% per annum on the average daily difference of the Revolving Loan Amount then in effect minus the sum of the outstanding principal balance of the Revolving Note, which such accrued commitment fees are due and payable in arrears on the first day of each calendar month and on the date on which Burnley’s commitment to make loans under the Revolving Loan Agreement terminates, commencing on the first such date to occur after the closing date;

· an annual loan facility fee equal to 0.75% of the Revolving Commitment (i.e., the maximum amount that 1847 Goedeker may borrow under the Revolving Loan), which is fully earned on the closing date for the term of the loan (including any extension) but shall be due and payable on each anniversary of the closing date;

· a monthly collateral management fee for monitoring and servicing the Revolving Loan equal to $1,700 per month for the term of Revolving Note, which is fully earned and non-refundable as of the date of the Revolving Loan Agreement, but shall be payable monthly in arrears on the first day of each calendar month; provided that payment of the collateral management fee may be made, at the discretion of Burnley, by application of advances under the Revolving Loan or directly by 1847 Goedeker; and

· if the Revolving Loan is terminated for any reason, including by Burnley following an Event of Default, then 1847 Goedeker shall pay, as liquidated damages and compensation for the costs of being prepared to make funds available, an amount equal to the Applicable Percentage multiplied by the Revolving Commitment (i.e., the maximum amount that 1847 Goedeker may borrow under the Revolving Loan), wherein the term Applicable Percentage means (i) 3%, in the case of a termination on or prior to the first anniversary of the closing date, (ii) 2%, in the case of a termination after the first anniversary of the closing date but on or prior to the second anniversary thereof, and (iii) 0.5%, in the case of a termination after the second anniversary of the closing date but on or prior to the maturity date.

In addition to the foregoing, 1847 Goedeker was required under the Revolving Loan Agreement and the Term Loan Agreement described below to pay a consulting fee of $150,000 to GVC Financial Services, LLC at closing.

The Revolving Loan Agreement contains customary events of default, including, among others (each, an “Event of Default”): (i) for failure to pay principal and interest on the Revolving Note when due, or to pay any fees due under the Revolving Loan Agreement; (ii) if any representation, warranty or certification in the Revolving Loan Agreement or any document delivered in connection therewith is incorrect in any material respect; (iii) for failure to perform any covenant or agreement contained in the Revolving Loan Agreement or any document delivered in connection therewith; (iv) for the occurrence of any default in respect of any other Indebtedness of more than $100,000; (v) for any voluntary or involuntary bankruptcy, insolvency or dissolution; (vi) for the occurrence of one or more judgments, non-interlocutory orders, decrees or arbitration awards involving in the aggregate a liability of $25,000 or more; (vii) if 1847 Goedeker or 1847 Holdco, or officer thereof, is charged by a governmental authority, criminally indicted or convicted of a felony under any law that would reasonably be expected to lead to forfeiture of any material portion of collateral, or such entity is subject to an injunction restraining it from conducting its business; (viii) if Burnley determines that a Material Adverse Effect (as defined in the Revolving Loan Agreement) has occurred; (ix) if a Change of Control (as defined in the Revolving Loan Agreement) occurs; (x) if there is any material damage to, loss, theft or destruction of property which causes, for more than thirty consecutive days beyond the coverage period of any applicable business interruption insurance, the cessation or substantial curtailment of revenue producing activities; (xi) if there is a loss, suspension or revocation of, or failure to renew any permit if it could reasonably be expected to have a Material Adverse Effect; and (xii) for the occurrence of any default or event of default under the Term Loan (as defined below), the Goedeker Note, the Leonite Note (as defined below) or any other debt that is subordinated to the Revolving Loan.

The Revolving Loan Agreement contains customary representations, warranties and affirmative and negative financial and other covenants for a loan of this type. The Revolving Note is secured by a first priority security interest in all of the assets of 1847 Goedeker and 1847 Holdco. In connection with such security interest, on April 5, 2019, (i) 1847 Holdco entered into a Pledge Agreement with Burnley, pursuant to which 1847 Holdco pledged the shares of 1847 Goedeker held by it to Burnley, and (ii) 1847 Goedeker entered into a Deposit Account Control Agreement with Burnley, Small Business Community Capital II, L.P. and Montgomery Bank relating to the security interest in 1847 Goedeker’s bank accounts.

In addition, on April 5, 2019, the Company entered into a Guaranty with Burnley to guaranty the obligations under the Revolving Loan Agreement upon the occurrence of certain prohibited acts described in the Guaranty.

Term Loan

On April 5, 2019, 1847 Goedeker, as borrower, and 1847 Holdco entered into a Loan and Security Agreement (the “Term Loan Agreement”) with Small Business Community Capital II, L.P. (“SBCC”) for a term loan in the principal amount of $1,500,000 (the “Term Loan”), pursuant to which 1847 Goedeker issued to SBCC a Term Note in the principal amount of up to $1,500,000 and a ten-year warrant (the “SBCC Warrant”) to purchase shares of the most senior capital stock of 1847 Goedeker equal to 5.0% of the outstanding equity securities of 1847 Goedeker on a fully-diluted basis for an aggregate price equal to $100.

The Term Note matures on April 5, 2023 and bears interest at the sum of the Cash Interest Rate (defined as 11% per annum) plus the PIK Interest Rate (defined as 2% per annum); provided that upon an Event of Default all principal, past due interest and all fees shall bear interest at a per annum rate equal to the Cash Interest Rate and the PIK Interest Rate, in each case plus 3.00%. Interest accrued at the Cash Interest Rate shall be due and payable in arrears on the last day of each month commencing May 31, 2019. Interest accrued at the PIK Interest Rate shall be automatically capitalized, compounded and added to the principal amount of the Term Note on each last day of each quarter unless paid in cash on or prior to the last day of each quarter; provided that (i) interest accrued pursuant to an Event of Default shall be payable on demand, and (ii) in the event of any repayment or prepayment, accrued interest on the principal amount repaid or prepaid (including interest accrued at the PIK Interest Rate and not yet added to the principal amount of Term Note) shall be payable on the date of such repayment or prepayment. Notwithstanding the foregoing, all interest on Term Note, whether accrued at the Cash Interest Rate or the PIK Interest Rate, shall be due and payable in cash on the maturity date unless payment is sooner required by the Term Loan Agreement.

1847 Goedeker must repay to SBCC on the last business day of each March, June, September and December, commencing with the last business day of June 2019, an aggregate principal amount of the Term Note equal to $93,750, regardless of any prepayments made, and must pay the unpaid principal on the maturity date unless payment is sooner required by the Term Loan Agreement.

1847 Goedeker may prepay the Term Note in whole or in part from time to time; provided that if such prepayment occurs (i) prior to the first anniversary of the closing date, 1847 Goedeker shall pay SBCC an amount equal to 5.0% of such prepayment, (ii) prior to the second anniversary of the closing date and on or after the first anniversary of the closing date, 1847 Goedeker shall pay SBCC an amount equal to 3.0% of such prepayment, or (iii) prior to the third anniversary of the closing date and on or after the second anniversary of the closing date, 1847 Goedeker shall pay SBCC an amount equal to 1.0% of such prepayment, in each case as liquidated damages for damages for loss of bargain to SBCC. In addition, in the event and on each occasion that any Net Proceeds (as defined in the Term Loan Agreement) are received by or on behalf of 1847 Goedeker or 1847 Holdco in respect of any Prepayment Event (as defined above) following the occurrence and during the continuance of an Event of Default, 1847 Goedeker shall, immediately after such Net Proceeds are received, prepay the Term Note below in an aggregate amount equal to 100% of such Net Proceeds.

Under the Term Loan Agreement, 1847 Goedeker was required at closing to pay an origination fee of $30,000 to SBCC. Also, as described above, GVC Financial Services, LLC was paid a fee of $150,000 in connection with services it provided in connection with the Term Loan and the Revolving Loan.

The Term Loan Agreement contains the same Events of Default as the Revolving Loan Agreement, provided that the reference to the Term Loan in the cross-default provision refers instead to the Revolving Loan.

The Term Loan Agreement contains customary representations, warranties and affirmative and negative financial and other covenants for a loan of this type. The Term Note is secured by a second priority security interest (subordinate to the Revolving Loan) in all of the assets of 1847 Goedeker and 1847 Holdco. In connection with such security interest, on April 5, 2019, (i) 1847 Holdco entered into a Pledge Agreement with SBCC, pursuant to which 1847 Holdco pledged the shares of 1847 Goedeker held by it to SBCC, and (ii) 1847 Goedeker entered Deposit Account Control Agreement with Burnley, SBCC and Montgomery Bank relating to the security interest in 1847 Goedeker’s bank accounts.

In addition, on April 5, 2019, the Company entered into a Guaranty with SBCC to guaranty the obligations under the Term Loan Agreement upon the occurrence of certain prohibited acts described in the Guaranty.

Equity-Linked Financing

On April 5, 2019, the Company, 1847 Holdco and 1847 Goedeker (collectively, “1847”) entered into a Securities Purchase Agreement (the “Leonite Purchase Agreement”) with Leonite Capital LLC, a Delaware limited liability company (“Leonite”), pursuant to which 1847 issued to Leonite a secured convertible promissory note in the aggregate principal amount of $714,285.71 (the “Leonite Note”). As additional consideration for the purchase of the Leonite Note, (i) the Company issued to Leonite 50,000 common shares, (ii) the Company issued to Leonite a five-year warrant to purchase 200,000 common shares at an exercise price of $1.25 per share (subject to adjustment), which may be exercised on a cashless basis (the “Leonite Warrant”), and (iii) 1847 Holdco issued to Leonite shares of common stock equal to a 7.5% non-dilutable interest in 1847 Holdco.

The Leonite Note carries an original issue discount of $64,285.71 to cover Leonite’s legal fees, accounting fees, due diligence fees and/or other transactional costs incurred in connection with the purchase of the Leonite Note. Therefore, the purchase price of the Leonite Note was $650,000.

The Leonite Note bears interest at the rate of the greater of (i) 12% per annum and (ii) the prime rate as set forth in the Wall Street Journal on April 5, 2019 plus 6.5% guaranteed over the holding period on the unconverted principal amount, on the terms set forth in the Leonite Note (the “Stated Rate”). Any amount of principal or interest on the Leonite Note, which is not paid by the maturity date, shall bear interest at the rate at the lesser of 24% per annum or the maximum legal amount permitted by law (the “Default Interest”).

Beginning on May 5, 2019 and on the same day of each and every calendar month thereafter throughout the term of the Leonite Note, 1847 shall make monthly payments of interest only due under the Leonite Note to Leonite at the Stated Rate as set forth above. 1847 shall pay to Leonite on an accelerated basis any outstanding principal amount of the Leonite Note, along with accrued, but unpaid interest, from: (i) net proceeds of any future financings by the Company, but not its subsidiaries, whether debt or equity, or any other financing proceeds, except any transaction having a specific use of proceeds requirement that such proceeds are to be used exclusively to purchase the assets or equity of an unaffiliated business and the proceeds are used accordingly; (ii) net proceeds from any sale of assets of 1847 or any of its subsidiaries other than sales of assets in the ordinary course of business or receipt by 1847 or any of its subsidiaries of any tax credits, subject to rights of Goedeker, or other financing sources of 1847 (including its subsidiaries) existing prior to the date of the Leonite Note; and (iii) net proceeds from the sale of any assets outside of the ordinary course of business or securities in any subsidiary.

The Leonite Note will mature 12 months from the issue date, or April 5, 2020, at which time the principal amount and all accrued and unpaid interest, if any, and other fees relating to the Leonite Note, will be due and payable. Unless an event of default as set forth in the Leonite Note has occurred, 1847 has the right to prepay principal amount of, and any accrued and unpaid interest on, the Leonite Note at any time prior to the maturity date at 115% of the principal amount (the “Premium”), provided, however, that if the prepayment is the result of any of the occurrence of any of the transactions described in subparagraphs (i), (ii) or (iii) above then such prepayment shall be the unpaid principal amount, plus accrued and unpaid interest and other amounts due but without the Premium.

The Leonite Note contains customary events of default, including in the event of (i) non-payment, (ii) a breach by 1847 of its covenants under the Leonite Purchase Agreement or any other agreement entered into in connection with the Leonite Purchase Agreement, or a breach of any of representations or warranties under the Leonite Note, or (iii) the bankruptcy of 1847. The Leonite Note also contains a cross default provision, whereby a default by 1847 of any covenant or other term or condition contained in any of the other financial instrument issued by of 1847 to Leonite or any other third party after the passage all applicable notice and cure or grace periods that results in a material adverse effect shall, at Leonite’s option, be considered a default under the Leonite Note, in which event Leonite shall be entitled to apply all rights and remedies under the terms of the Leonite Note.

Under the Leonite Note, Leonite has the right at any time at its option to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of the Leonite Note into fully paid and non-assessable common shares or any shares of capital stock or other securities of the Company into which such common shares may be changed or reclassified. The number of common shares to be issued upon each conversion of the Leonite Note shall be determined by dividing the Conversion Amount by the applicable conversion price then in effect. The term “Conversion Amount” means, with respect to any conversion of the Leonite Note, the sum of: (i) the principal amount of the Leonite Note to be converted plus (ii) at Leonite’s option, accrued and unpaid interest, plus (iii) at Leonite’s option, Default Interest, if any, plus (iv) Leonite’s expenses relating to a conversion, plus (v) at Leonite’s option, any amounts owed to Leonite. The conversion price shall be $1.00 per share (the “Fixed Conversion Price”) (subject to adjustment as further described in the Leonite Note for common share distributions and splits, certain fundamental transactions, and anti-dilution adjustments), provided that at any time after any event of default under the Leonite Note, the conversion price shall immediately be equal to the lesser of (i) the Fixed Conversion Price less 40%; and (ii) the lowest weighted average price of the common shares during the 21 consecutive trading day period immediately preceding the trading day that 1847 receives a notice of conversion or (iii) the discount to market based on subsequent financings with other investors.

Notwithstanding the foregoing, in no event shall Leonite be entitled to convert any portion of the Leonite Note in excess of that portion of the Leonite Note upon conversion of which the sum of (1) the number of common shares beneficially owned by Leonite and its affiliates (other than common shares which may be deemed beneficially owned through the ownership of the unconverted portion of the Leonite Note or the unexercised or unconverted portion of any other security of the Company subject to a limitation on conversion or exercise analogous to the limitations contained in the Leonite Note, and, if applicable, net of any shares that may be deemed to be owned by any person not affiliated with Leonite who has purchased a portion of the Leonite Note from Leonite) and (2) the number of common shares issuable upon the conversion of the portion of the Leonite Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by Leonite and its affiliates of more than 4.99% of the outstanding common shares of the Company. Such limitations on conversion may be waived (up to a maximum of 9.99%) by Leonite upon, at its election, not less than 61 days’ prior notice to the Company, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by Leonite, as may be specified in such notice of waiver).

The Leonite Warrant also contains an ownership limitation. The Company shall not effect any exercise of the Leonite Warrant, and Leonite shall not have the right to exercise any portion of the Leonite Warrant, to the extent that after giving effect to issuance of common shares upon exercise the Leonite Warrant, Leonite, together with its affiliates, and any other persons acting as a group together with Leonite or any of its affiliates, would beneficially own in excess of 4.99% of the number of common shares outstanding immediately after giving effect to the issuance of common shares issuable upon exercise of the Leonite Warrant. Upon no fewer than 61 days’ prior notice to the Company, Leonite may increase or decrease such beneficial ownership limitation provisions and any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company.

The Leonite Purchase Agreement contains customary representations, warranties and covenants. In addition, pursuant to the Leonite Purchase Agreement, Leonite was granted piggy-back registration rights with respect to the common shares, the Leonite Warrant and the shares issuable upon exercise of the Leonite Warrant. Also, in the event that the Company proposes to offer and sell its securities in an Equity Financing (as defined in the Leonite Purchase Agreement), Leonite shall have the right, but not the obligation, to participate in the purchase of the securities being offered in such Equity Financing up to an amount equal to the principal amount of the Leonite Note until the earliest of (i) the maturity date, (ii) the date that the Leonite Note and all accrued but unpaid interest shall have been repaid in full, and (iii) the closing date of an Equity Financing in which all, or any remaining portion, of the outstanding principal amount of the Leonite Note along with accrued but unpaid interest thereon shall have been converted, in full, into, and on the same terms as, the securities being offered in such Equity Financing.

In addition, as long as Leonite owns at least five percent (5%) of the securities originally purchased under the Leonite Purchase Agreement, the Company must timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed it pursuant to the Securities Exchange Act of 1934, as amended, or make publicly available in accordance with Rule 144(c) such information as is required for Leonite to sell the securities under Rule 144. If the Company fails to remain current in its reporting obligations or to provide currently publicly available information in accordance with Rule 144(c) and such failure extends for a period of more than fifteen trading days (the date which such five trading day-period is exceeded, the “Event Date”), then in addition to any other rights Leonite may have under the Leonite Purchase Agreement or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date until the information failure is cured, the Company shall pay to Leonite an amount in cash, as partial liquidated damages and not as a penalty, equal to 0.75% of purchase price paid for the securities held by Leonite at the Event Date with a maximum amount of liquidated damages payable being capped at $150,000.

Concurrently with 1847 and Leonite entering into the Leonite Purchase Agreement and as security for 1847’s obligations thereunder, on April 5, 2019, the Company, 1847 Holdco and 1847 Goedeker entered into a Security and Pledge Agreement with Leonite (the “Security Agreement”). Pursuant to the Security Agreement, and in order to secure 1847’s timely payment of the Leonite Note and related obligations and the timely performance of each and all of its covenants and obligations under the Leonite Purchase Agreement and related documents, 1847 unconditionally and irrevocably granted, pledged and hypothecated to Leonite a continuing security interest in and to, a lien upon, assignment of, and right of set-off against, all presently existing and hereafter acquired or arising assets. Such security interest is a first priority security interest with respect to the securities that the Company owns in 1847 Holdco and in 1847 Neese Inc., and a third priority security interest with respect to all other assets.

The rights of Leonite to receive payments under the Leonite Note are subordinate to the rights of Burnley and SBCC under separate Subordination Agreements that Leonite entered into with them on April 5, 2019.

NOTE 3 – BASIS OF PRO FORMA PRESENTATION

The unaudited pro forma combined balance sheet as of December 31, 2018 combines the historical balance sheet of the Company with the historical balance sheet of Goedeker and has been prepared as if the Acquisition had occurred on December 31, 2018. The unaudited pro forma combined statement of operations for the year ended December 31, 2018 combines the historical statement of operations of the Company with the historical statement of operations of Goedeker and was prepared as if the Acquisition had occurred on January 1, 2018. The historical financial information is adjusted in the unaudited pro forma combined financial information to give effect to pro forma events that are (1) directly attributable to the proposed acquisition, (2) factually supportable, and (3) with respect to the combined statement of operations, expected to have a continuing impact on the combined results.

The Company accounted for the acquisition in the unaudited pro forma combined financial information using the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805 “Business Combinations” (“ASC 805”). In accordance with ASC 805, the Company used its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the Acquisition date. Goodwill as of the Acquisition date is measured as the difference of fair value of the net tangible assets and identifiable assets acquired over the purchase consideration.

The pro forma adjustments described below were developed based on management’s assumptions and estimates, including assumptions relating to the consideration paid and the allocation thereof to the assets acquired and liabilities assumed from Goedeker based on preliminary estimates to fair value. The final purchase consideration and allocation of the purchase consideration will differ from that reflected in the unaudited pro forma combined financial information after the final valuation procedures are performed and the amounts are finalized.

The unaudited pro forma combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of the combined company would have been had the acquisition occurred on the dates assumed, nor are the necessarily indicative of future consolidated results of operations or financial position.

The Company expects to incur costs and realize benefits associated with integrating the operations of the Company and the Goedeker Business. The unaudited pro forma combined financial statements do not reflect the costs of any integration activities or any benefits that may result from operating efficiencies or revenue synergies. The unaudited pro forma combined statement of operations does not reflect any non-recurring charges directly related to the Acquisition that the combined companies incurred upon completion of the Acquisition.

NOTE 4 – ESTIMATED PRELIMINARY PURCHASE PRICE CONSIDERATION

The Company has performed a preliminary valuation analysis of the fair market value of Goedeker’s assets acquired and liabilities assumed. The following table summarizes the preliminary allocation of the purchase price as of the Acquisition date:

Purchase consideration:
Note payable to Goedeker	$	4,100,000
Cash due to Goedeker		478,000
Cash due to Power Digital Marketing		20,000
Amount of consideration:	$	4,598,000

Assets acquired and liabilities assumed at preliminary fair value
Cash	$	1,523,463
Accounts receivable		1,286,511
Deposits with vendors		2,285,952
Inventories		2,549,115
Due from related party		553,733
Other current assets		50,634
Prepaid and other current assets		4,000
Property and equipment		206,612
Accounts payable and accrued expenses		(2,445,426	)
Customer deposits		(2,520,706	)
Other liabilities		-
Net tangible assets acquired	$	3,493,888

Total net assets acquired	$	3,493,888
Consideration paid		4,598,000
Preliminary goodwill	$	1,104,112

This preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma condensed combined balance sheet and statement of operations. Due to the recent completion of the Acquisition, the determination of the purchase price and the allocation of the purchase price used in the unaudited pro forma condensed combined financial information are based upon preliminary estimates, which are subject to change during the measurement period (up to one year from the acquisition date) as the Company finalizes the valuations of the assets acquired and liabilities assumed, including, but not limited to, contract receivables, prepaid expenses and other current assets, intangible assets, accounts payable, and deferred revenue. It is expected that the financial statement basis and income tax basis for the assets acquired and liabilities assumed will be the same. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments.

NOTE 5 – PRO FORMA ADJUSTMENTS

As the Acquisition has recently been completed, the Company is currently in the process of completing the purchase price allocation treating the Acquisition as a business combination (see Note 3). The purchase price allocation for Goedeker will be included in the Company’s consolidated financial statements in the second quarter of the year ending December 31, 2019.

The pro forma adjustments included in the unaudited pro forma condensed combined financial statements are as follows:

Asset Purchase Agreement

(a-1) Represents the issuance of $4,100,000 promissory note payable to Goedeker in conjunction with the Acquisition.

(a-2) Represents the estimated working capital payment of $478,000 to Goedeker in conjunction with Acquisition.

Estimated working capital adjustment:
Working capital on preliminary statement	$	(834,000	)
Target working capital		(1,802,000	)
Net working capital adjustment		968,000
Cash due to Goedeker		1,500,000
Cash left in the business		(1,990,000	)
Cash due to Goedeker	$	478,000

(a-3) Reflects the estimated working capital adjustment due to the Company as a result of the final purchase price adjustment in the amount of $553,733.

(a-4) Reflects the elimination of the Goedeker equity in common stock of $7,000, additional paid in capital of $707,049 and retained earnings of $2,226,106 for purposes of consolidation.

(a-5) In consideration for Goedeker so cooperating, 1847 Goedeker agreed to pay to Goedeker a total of $20,000, which amount Goedeker will use to pay Power Digital Marketing for amounts due under the Digital Marketing Agreement for services to be rendered during the months of April 2019 and May 2019.

(a-6) Reflects the interest expense resulting from the Promissory Notes of annualized interest of 9% or approximately $369,000 for the year ended December 31, 2018 and $92,250 for the three months ended March 31, 2019.

(a-7) Reflects the acquisition closing fees primarily professional fees of $215,500.

(a-8) Income taxes – Upon the acquisition of the assets by the Company, the taxable income and losses from the Goedeker Business will be included with the Company’s future corporate income tax filings.

(a-9) Reflects the non-controlling interest of the 22.5% interest in 1847 Goedeker retained by Goedeker.

(a-10) Reflects the impact of ASU 2016-02 (Topic 842) establishing a right-to-use asset and offsetting lease liability for the 5-year lease agreement agreed upon on April 5, 2019 for a monthly rent of $45,000.

Management Services Agreement

(m-1) Reflects an annualized management services agreement of a maximum of $250,000 paid to 1847 Partners LLC for the year ended December 31, 2018 and $62,500 for the three months ended March 31, 2019.

Revolving Loan

(r-1) Revolving loan – Represents the new $754,682 of debt incurred to finance the pay-off of $584,287 existing accounts payable and cash proceeds of $116,713, net of debt issuance costs and discounts as described in Note 2 above. The debt discount financing costs included a $15,000 origination fee and $28,000 of legal fees for a total of $43,000.

Details are summarized below:

Revolving loan	$	754,682
Interest Reserve		(10,682	)
Debt discount financing costs		(43,000	)
Total pro forma adjustment - non-current	$	701,000

(r-2) Interest expense – Reflects the interest expense of $78,481 resulting from the Revolving Note of annualized interest of 8.5% or approximately $64,148 and the amortization of debt discount of financing costs of $14,333 for the year ended December 31, 2018. The interest expense was $19,620 for the three months ended March 31, 2019.

(r-3) Financing costs – Reflects financing costs of the Revolving Loan for a commitment fee of 0.5% per annum, loan facility fee of 0.75% per annum and monthly collateral management fee of $1,700.

(r-4) Consulting fee – Represents the $150,000 for a consulting fee due to GVC Financial Services, LLC for the year ended December 31, 2018 and $37,500 for the three months ended March 31, 2019.

Term Loan

(t-1) Term loan – Reflects the new $1,500,000 of debt incurred to for operating working capital of $919,000, purchase agreement cash payment Goedeker of $478,000 and financing costs of $103,000 finance the pay-off of $584,287 existing accounts payable and cash proceeds of $116,713, net of debt issuance costs and discounts as described in Note 2 above. The debt discount financing costs included a $15,000 origination fee and $28,000 of legal fees for a total of $43,000.

2019 Promissory, including exit fee	$	1,500,000
Debt discount financing costs		(103,000	)
Debt discount feature of warrants issued		(229,000	)
Total pro forma adjustment - non-current	$	1,168,000

(t-2) Debt discount feature warrants issued – Represents a ten-year warrant to purchase shares of the most senior capital stock of 1847 Goedeker equal to 5.0% of the outstanding equity securities of 1847 Goedeker on a fully-diluted basis for aggregate price equal to $100. The estimated value amounted to $229,000 and adjusted to non-controlling interest.

(t-3) Interest expense – Reflects the interest expense of $285,500 resulting from the Term Loan financing including the annualized interest of 11.5% or approximately $172,500, PIK interest of 2% or approximately $30,000, the amortization of debt discount of financing costs of $25,750 and amortization of the warrant feature of $57,250 for the year ended December 31, 2018. The interest expense was $71,375 for the three months ended March 31, 2019.

Equity-Linked Financing

(e-1) Equity-Linked Financing – Represents the new $714,286 of debt, including $64,286 of Original Issued Discount (OID) interest, for operating working capital of $635,000, net of debt issuance costs and discounts as described in Note 2 above. The debt discount financing costs included a $15,000 origination fee and the issuance of 50,000 of common stock with a value of $100,000.

2019 Promissory, including exit fee	$	714,286
Original Issued Discount (OID)		(64,286	)
Debt discount feature of beneficial conversion feature (BCF)		(389,741	)
Debt discount feature of warrants issued		(145,259	)
Debt discount financing costs		(15,000	)
Debt discount feature of shares issued		(100,000	)
Total pro forma adjustment - current	$	-

(e-2) Warrant feature – Represents the Lee Warrant, which is exercisable over a period of five years, at an exercise price of $1.25 per share, and is valued at $182,340. The Leonite Warrant expires on April 4, 2024. The proforma adjustment of warrant expense is included as interest expense of 145,259, based on the one-year financing term.

(e-3) Beneficial conversion feature – The Leonite Note is convertible into Company common shares at a conversion price of $1.00 per share (the “Fixed Conversion Price”) (subject to adjustment); provided that at any time after any event of default under the Leonite Note, the conversion price shall immediately be equal to the lesser of (i) the Fixed Conversion Price less forty percent (40%); and (ii) the lowest weighted average price of the common shares during the twenty-one (21) consecutive trading days period immediately preceding the trading day that the Company receives a notice of conversion or (iii) the discount to market based on subsequent financings with other investors. The value attributable to the beneficial conversion feature amounted to $389,741.

(e-4) Share issuance – reflects issuance of 50,000 common shares in conjunction with the equity-linked financing.

(e-5) Interest expense – Reflects the interest expense of $735,714 resulting from the Leonite Note including the annualized interest of 12% or approximately $85,714, the amortization of debt discount of financing costs of $15,000, debt discount of amortization of share issuance of $100,000, amortization of the warrant feature of $145,259 and amortization of the beneficial conversion feature of $389,741 for the year ended December 31, 2018. The interest expense was $183,929 for the three months ended March 31, 2019.

Exhibit No.		Description of Exhibit
10.1		Asset Purchase Agreement, dated January 18, 2019, among 1847 Goedeker Inc., Goedeker Television Co., Inc. and Steve Goedeker and Mike Goedeker (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on April 8, 2019)

10.2		Amendment No. 1 to Asset Purchase Agreement, dated April 5, 2019, among 1847 Goedeker Inc., 1847 Goedeker Holdco Inc., Goedeker Television Co., Inc. and Steve Goedeker and Mike Goedeker (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on April 8, 2019)

10.3		9% Subordinated Promissory Note issued by 1847 Goedeker Inc. to Steve Goedeker, in his capacity as the Seller’s Representative, on April 5, 2019 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on April 8, 2019)

10.4		Subordination Agreement, dated April 5, 2019, between Goedeker Television Co., Inc. and Burnley Capital LLC and Acknowledged by 1847 Goedeker Inc. and 1847 Goedeker Holdco Inc. (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on April 8, 2019)

10.5		Subordination Agreement, dated April 5, 2019, between Goedeker Television Co., Inc. and Small Business Community Capital II, L.P. and Acknowledged by 1847 Goedeker Inc. and 1847 Goedeker Holdco Inc. (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on April 8, 2019)

10.6		Lease Agreement, dated April 5, 2019, between S.H.J., L.L.C. and 1847 Goedeker Inc. (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed on April 8, 2019)

10.7		Management Services Agreement, dated April 5, 2019, between 1847 Goedeker Inc. and 1847 Partners LLC (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed on April 8, 2019)

10.8		Management Fee Subordination Agreement, dated April 5, 2019, between Burnley Capital LLC and 1847 Partners LLC and Acknowledged by 1847 Goedeker Inc. (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed on April 8, 2019)

10.9		Management Fee Subordination Agreement, dated April 5, 2019, between Small Business Community Capital II, L.P. and 1847 Partners LLC and Acknowledged by 1847 Goedeker Inc. (incorporated by reference to Exhibit 10.9 to the Current Report on Form 8-K filed on April 8, 2019)

10.10		Loan and Security Agreement, dated April 5, 2019, among 1847 Goedeker Inc., 1847 Goedeker Holdco Inc. and Burnley Capital LLC (incorporated by reference to Exhibit 10.10 to the Current Report on Form 8-K filed on April 8, 2019)

10.11		Revolving Note issued by 1847 Goedeker Inc. to Burnley Capital LLC on April 5, 2019 (incorporated by reference to Exhibit 10.11 to the Current Report on Form 8-K filed on April 8, 2019)

10.12		Pledge Agreement, dated April 5, 2019, by 1847 Goedeker Holdco Inc. in favor of Burnley Capital LLC (incorporated by reference to Exhibit 10.12 to the Current Report on Form 8-K filed on April 8, 2019)

10.13		Deposit Account Control Agreement, dated April 5, 2019, among 1847 Goedeker Inc., Burnley Capital LLC, Small Business Community Capital II, L.P. and Montgomery Bank (incorporated by reference to Exhibit 10.13 to the Current Report on Form 8-K filed on April 8, 2019)

10.14		Guaranty, dated April 5, 2019, by 1847 Holdings LLC in favor of Burnley Capital LLC (incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-K filed on April 8, 2019)

10.15		Loan and Security Agreement, dated April 5, 2019, among 1847 Goedeker Inc., 1847 Goedeker Holdco Inc. and Small Business Community Capital II, L.P. (incorporated by reference to Exhibit 10.15 to the Current Report on Form 8-K filed on April 8, 2019)

10.16		Term Loan Note issued by 1847 Goedeker Inc. to Small Business Community Capital II, L.P. on April 5, 2019 (incorporated by reference to Exhibit 10.16 to the Current Report on Form 8-K filed on April 8, 2019)

10.17		Warrant to Purchase Company Shares issued by 1847 Goedeker Inc. to Small Business Community Capital II, L.P. on April 5, 2019 (incorporated by reference to Exhibit 10.17 to the Current Report on Form 8-K filed on April 8, 2019)

10.18		Pledge Agreement, dated April 5, 2019, by 1847 Goedeker Holdco Inc. in favor of Small Business Community Capital II, L.P. (incorporated by reference to Exhibit 10.18 to the Current Report on Form 8-K filed on April 8, 2019)

10.19		Guaranty, dated April 5, 2019, by 1847 Holdings LLC in favor of Small Business Community Capital II, L.P. (incorporated by reference to Exhibit 10.19 to the Current Report on Form 8-K filed on April 8, 2019)

10.20		Securities Purchase Agreement, dated April 5, 2019, among 1847 Holdings LLC, 1847 Goedeker Holdco Inc., 1847 Goedeker Inc. and Leonite Capital LLC (incorporated by reference to Exhibit 10.20 to the Current Report on Form 8-K filed on April 8, 2019)

10.21		Secured Convertible Promissory Note issued by 1847 Holdings LLC, 1847 Goedeker Holdco Inc. and 1847 Goedeker Inc. to Leonite Capital LLC on April 5, 2019 (incorporated by reference to Exhibit 10.21 to the Current Report on Form 8-K filed on April 8, 2019)

10.22		Common Share Purchase Warrant issued by 1847 Holdings LLC to Leonite Capital LLC on April 5, 2019 (incorporated by reference to Exhibit 10.22 to the Current Report on Form 8-K filed on April 8, 2019)

10.23		Security and Pledge Agreement, dated April 5, 2019, among 1847 Holdings LLC, 1847 Goedeker Holdco Inc., 1847 Goedeker Inc. and Leonite Capital LLC (incorporated by reference to Exhibit 10.23 to the Current Report on Form 8-K filed on April 8, 2019)

10.24		Subordination Agreement, dated April 5, 2019, by Leonite Capital LLC in favor of Burnley Capital LLC and Acknowledged by 1847 Goedeker Inc. and 1847 Goedeker Holdco Inc. (incorporated by reference to Exhibit 10.24 to the Current Report on Form 8-K filed on April 8, 2019)

10.25		Subordination Agreement, dated April 5, 2019, by Leonite Capital LLC in favor of Small Business Community Capital II, L.P. and Acknowledged by 1847 Goedeker Inc. and 1847 Goedeker Holdco Inc. (incorporated by reference to Exhibit 10.25 to the Current Report on Form 8-K filed on April 8, 2019)

99.1		Audited Financial Statements for the Years Ended December 31, 2018 and 2017

99.2		Unaudited Financial Statements for the Three Months Ended March 31, 2019 and 2018

99.3		Unaudited Pro Forma Financial Statements

Independent Auditor’s Report		3

Balance Sheets		4

Statements of Income		5

Statement of Stockholders’ Equity		6

Statements of Cash Flows		7

Notes to Financial Statements		8 – 11

	1.	An Earn Out Payment of $200,000 if the EBITDA of the Goedeker Business for the trailing twelve (12) month period from the closing date is $2,500,000 or greater;

	2.	An Earn Out Payment of $200,000 if the EBITDA of the Goedeker Business for the trailing twelve (12) month period from the first anniversary of closing date is $2,500,000 or greater; and

	3.	An Earn Out Payment of $200,000 if the EBITDA of the Goedeker Business for the trailing twelve (12) month period from the second anniversary of the closing date is $2,500,000 or greater.

	·	an origination fee of $15,000, which was paid at closing on April 5, 2019;

	·	a commitment fee during the period from closing to the earlier of the maturity date or termination of Burnley’s commitment to make loans under the Revolving Loan Agreement, which shall accrue at the rate of 0.50% per annum on the average daily difference of the Revolving Loan Amount then in effect minus the sum of the outstanding principal balance of the Revolving Note, which such accrued commitment fees are due and payable in arrears on the first day of each calendar month and on the date on which Burnley’s commitment to make loans under the Revolving Loan Agreement terminates, commencing on the first such date to occur after the closing date;

	·	an annual loan facility fee equal to 0.75% of the Revolving Commitment (i.e., the maximum amount that 1847 Goedeker may borrow under the Revolving Loan), which is fully earned on the closing date for the term of the loan (including any extension) but shall be due and payable on each anniversary of the closing date;

	·	a monthly collateral management fee for monitoring and servicing the Revolving Loan equal to $1,700 per month for the term of Revolving Note, which is fully earned and non-refundable as of the date of the Revolving Loan Agreement, but shall be payable monthly in arrears on the first day of each calendar month; provided that payment of the collateral management fee may be made, at the discretion of Burnley, by application of advances under the Revolving Loan or directly by 1847 Goedeker; and

	·	if the Revolving Loan is terminated for any reason, including by Burnley following an Event of Default, then 1847 Goedeker shall pay, as liquidated damages and compensation for the costs of being prepared to make funds available, an amount equal to the Applicable Percentage multiplied by the Revolving Commitment (i.e., the maximum amount that 1847 Goedeker may borrow under the Revolving Loan), wherein the term Applicable Percentage means (i) 3%, in the case of a termination on or prior to the first anniversary of the closing date, (ii) 2%, in the case of a termination after the first anniversary of the closing date but on or prior to the second anniversary thereof, and (iii) 0.5%, in the case of a termination after the second anniversary of the closing date but on or prior to the maturity date.