UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended:
or
For the transition period from ____________ to _____________
Commission
File Number:
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No
As of August 15, 2024, there were
1847 HOLDINGS LLC
Quarterly Report on Form 10-Q
Period Ended June 30, 2024
TABLE OF CONTENTS
| PART I | ||
| FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 38 |
| Item 4. | Controls and Procedures | 38 |
| PART II | ||
| OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 40 |
| Item 1A. | Risk Factors | 40 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 40 |
| Item 3. | Defaults Upon Senior Securities | 40 |
| Item 4. | Mine Safety Disclosures | 40 |
| Item 5. | Other Information | 40 |
| Item 6. | Exhibits | 41 |
i
PART I
FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS. |
1847 HOLDINGS LLC
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1
1847 HOLDINGS LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Receivables, net | ||||||||
| Contract assets | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Current assets of discontinued operations | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Long-term deposits | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Non-current assets of discontinued operations | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Contract liabilities | ||||||||
| Due to related parties | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Current portion of finance lease liabilities | ||||||||
| Current portion of notes payable, net | ||||||||
| Current portion of convertible notes payable, net | ||||||||
| Current portion of revolving line of credit, net | ||||||||
| Related party note payable | ||||||||
| Derivative liabilities | ||||||||
| Warrant liabilities | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Finance lease liabilities, net of current portion | ||||||||
| Notes payable, net of current portion | ||||||||
| Convertible notes payable, net of current portion | ||||||||
| Revolving line of credit, net of current portion | ||||||||
| Deferred tax liability, net | ||||||||
| Non-current liabilities of discontinued operations | ||||||||
| TOTAL LIABILITIES | ||||||||
| Shareholders’ Deficit | ||||||||
| Series A senior convertible preferred shares, par value, | ||||||||
| Series B senior convertible preferred shares, par value, | ||||||||
| Series D senior convertible preferred shares, par value, | ||||||||
| Allocation shares, | ||||||||
| Common shares, $ | ||||||||
| Distribution receivable | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL 1847 HOLDINGS SHAREHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| NON-CONTROLLING INTERESTS | ( | ) | ( | ) | ||||
| TOTAL SHAREHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
1847 HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Personnel | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Impairment of goodwill and intangible assets | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Other income | ||||||||||||||||
| Loss on disposal of property and equipment | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discounts | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on extinguishment of debt | ( | ) | ( | ) | ||||||||||||
| Gain on change in fair value of warrant liabilities | ||||||||||||||||
| Loss on change in fair value of derivative liabilities | ( | ) | ( | ) | ||||||||||||
| Preliminary gain on bargain purchase | ||||||||||||||||
| Total Other Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ||||||||||||
| NET LOSS FROM CONTINUING OPERATIONS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss from discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain on disposition of Asien’s | ||||||||||||||||
| NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS | ( | ) | ( | ) | ||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS FROM CONTINUING OPERATIONS | ||||||||||||||||
| NET (INCOME) LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS FROM DISCONTINUED OPERATIONS | ( | ) | ||||||||||||||
| NET LOSS ATTRIBUTABLE TO 1847 HOLDINGS | $ | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
| NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO 1847 HOLDINGS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO 1847 HOLDINGS | ( | ) | ( | ) | ||||||||||||
| NET LOSS ATTRIBUTABLE TO 1847 HOLDINGS | $ | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
| PREFERRED SHARE DIVIDENDS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| DEEMED DIVIDENDS | ( | ) | ( | ) | ( | ) | ||||||||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS’ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| ( | ) | ( | ) | |||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
1847 HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(UNAUDITED)
| Series
A Senior Convertible Preferred Shares | Series
B Senior Convertible Preferred Shares | Series
D Senior Convertible Preferred Shares | Allocation | Common Shares | Distribution | Additional Paid-In | Accumulated | Non-
Controlling | Total Shareholders’ | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Shares | Amount | Receivable | Capital | Deficit | Interests | Deficit | |||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon settlement of accrued series A preferred share dividends | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon settlement of accrued series B preferred share dividends | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of series A preferred shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of series B preferred shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of convertible notes payable | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares and prefunded warrants in connection with a public offering | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of warrant liabilities upon exercise of prefunded warrants | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon exercise of prefunded warrants | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Extinguishment of warrant liabilities upon exercise of prefunded warrants | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend from down round provision in warrants | - | - | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends - series B senior convertible preferred shares | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of series B preferred shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of convertible notes payable | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants in connection with a private debt offering | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon exercise of prefunded warrants | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Extinguishment of warrant liabilities upon exercise of prefunded warrants | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series D preferred shares in connection with a private debt offering | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends - series D senior convertible preferred shares | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||
4
1847 HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(UNAUDITED)
Series
A Senior Preferred Shares | Series
B Senior Preferred Shares | Allocation | Common Shares | Distribution | Additional Paid-In | Accumulated | Non- Controlling | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Shares | Amount | Receivable | Capital | Deficit | Interests | (Deficit) | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||||||
| Issuance of common shares upon settlement of accrued series A preferred shares dividends | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares and warrants in connection with a private debt offering | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon cashless exercise of warrants | ||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend from issuance of warrants to common shareholders | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend from down round provision in warrants | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Dividends - series B senior convertible preferred shares | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||||||
| Issuance of common shares upon settlement of accrued series A preferred shares dividends | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon cashless exercise of warrants | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon exercise of warrants | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of series B preferred shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend from down round provision in warrants | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Dividends - series B senior convertible preferred shares | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
1847 HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss from discontinued operations | ||||||||
| Gain on disposition of Asien’s | ( | ) | ||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Preliminary gain on bargain purchase | ( | ) | ||||||
| Loss on disposal of property and equipment | ||||||||
| Loss on extinguishment of debt | ||||||||
| Impairment of goodwill and intangible assets | ||||||||
| Gain on change in fair value of warrant liabilities | ( | ) | ||||||
| Loss on change in fair value of derivative liabilities | ||||||||
| Deferred taxes | ( | ) | ||||||
| Inventory reserve | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discounts | ||||||||
| Amortization of right-of-use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | ( | ) | ( | ) | ||||
| Contract assets | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Contract liabilities | ( | ) | ||||||
| Customer deposits | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash used in operating activities from discontinued operations | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash paid for ICU Eyewear, net of cash acquired | ( | ) | ||||||
| Purchases of property and equipment | ( | ) | ||||||
| Net cash used in investing activities from continuing operations | ( | ) | ||||||
| Net cash used in investing activities from discontinued operations | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net proceeds from notes payable | ||||||||
| Net proceeds from issuance of common shares and warrants in connection with a private debt offering | ||||||||
| Net proceeds from issuance of common shares and warrants in connection with a public offering | ||||||||
| Net proceeds (repayments) from revolving line of credit | ( | ) | ||||||
| Proceeds from exercise of warrants | ||||||||
| Repayments of notes payable and finance lease liabilities | ( | ) | ( | ) | ||||
| Repayments of convertible notes payable | ( | ) | ||||||
| Accrued series B preferred share dividends paid | ( | ) | ||||||
| Net cash provided by financing activities from continuing operations | ||||||||
| Net cash used in financing activities from discontinued operations | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS | ||||||||
| Cash from continuing operations at the beginning of the period | $ | $ | ||||||
| Cash from continuing operations at the end of the period | $ | |||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Net assets acquired in the acquisition of ICU Eyewear | $ | $ | ||||||
| Net assets from the disposition of Asien’s | $ | $ | ||||||
| Deemed dividend from issuance of warrants to common shareholders | $ | $ | ||||||
| Deemed dividend from down round provision in warrants | $ | $ | ||||||
| Accrued dividends on series A preferred shares | $ | $ | ||||||
| Accrued dividends on series B preferred shares | $ | $ | ||||||
| Accrued dividends on series D preferred shares | $ | $ | ||||||
| Issuance of common shares upon settlement of accrued series A dividends | $ | $ | ||||||
| Issuance of common shares upon settlement of accrued series B dividends | $ | $ | ||||||
| Issuance of common shares upon conversion of series A shares | $ | $ | ||||||
| Issuance of common shares upon conversion of series B shares | $ | $ | ||||||
| Issuance of common shares upon cashless exercise of warrants | $ | $ | ||||||
| Debt discount on notes payable | $ | $ | ||||||
| Fair value of derivative liabilities recognized upon issuance of promissory notes | $ | $ | ||||||
| Fair value of warrant liabilities recognized upon issuance of prefunded warrants | $ | $ | ||||||
| Issuance of common shares upon exercise of prefunded warrants | $ | $ | ||||||
| Extinguishment of warrant liabilities upon exercise of prefunded warrants | $ | $ | ||||||
| Issuance of common shares upon conversion of convertible notes payable and accrued interest | $ | $ | ||||||
| Issuance of warrants in connection with a private debt offering | $ | $ | ||||||
| Issuance of series D preferred shares in connection with a private debt offering | $ | $ | ||||||
| Financed purchases of property and equipment | $ | $ | ||||||
| Fair value of note payable issued for services | $ | $ | ||||||
| Reclassification of accrued interest to convertible notes payable | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
NOTE 1—BASIS OF PRESENTATION AND OTHER INFORMATION
The accompanying unaudited condensed consolidated financial statements of 1847 Holdings LLC (the “Company,” “we,” “us,” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all the information and footnotes required by GAAP for complete financial statements. The December 31, 2023 consolidated balance sheet data was derived from audited financial statements but do not include all disclosures required by GAAP. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K, as filed with the Securities and Exchange Commission on April 25, 2024. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
Discontinued Operations
On February 26, 2024, Asien’s Appliance, Inc. (“Asien’s”), a wholly owned subsidiary of 1847 Asien Inc. (“1847 Asien”), entered into a general assignment (the “Assignment Agreement”), for the benefit of its creditors, with SG Service Co., LLC (the “Assignee”). Pursuant to the Assignment Agreement, Asien’s transferred ownership of all or substantially all of its right, title, and interest in, as well as custody and control of, its assets to the Assignee in trust. The results of operations of Asien’s are reported as discontinued operations for the three and six months ended June 30, 2024 and 2023. Unless otherwise noted, amounts and disclosures throughout these notes to condensed consolidated financial statements relate solely to continuing operations and exclude all discontinued operations. See Note 3 for additional information.
The Company evaluates all disposal transactions to determine whether such disposal qualifies for reporting as discontinued operations in accordance with ASC 205-20, “Discontinued Operations.” A disposal of a component or a group of components is reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results when the following occurs: (1) a component (or group of components) meets the criteria to be classified as held for sale; (2) the component or group of components is disposed of by sale; or (3) the component or group of components is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spin-off). For any component classified as held for sale or disposed of by sale or other than by sale, qualifying for presentation as a discontinued operation, the Company reports the results of operations of the discontinued operations (including any gain or loss recognized on the disposal or loss recognized on classification as held for sale of a discontinued operation), less applicable income taxes (benefit), as a separate component in the consolidated statement of operations for current and all prior periods presented. The Company also reports assets and liabilities associated with discontinued operations as separate line items on the consolidated balance sheet for prior periods.
Reverse Share Splits
On July 8, 2024, the Company effected a 1-for-13 reverse split of its outstanding common shares. All outstanding common shares and warrants were adjusted to reflect the 1-for-13 reverse split, with the respective exercise prices of the warrants proportionately increased. The outstanding convertible notes and preferred shares conversion prices were adjusted to reflect a proportional decrease in the number of common shares to be issued upon conversion.
All share and per share data throughout these condensed consolidated financial statements have been retroactively adjusted to reflect the reverse share split. The total number of authorized common shares did not change. As a result of the reverse common share split, an amount equal to the decreased value of common shares was reclassified from “common shares” to “additional paid-in capital.”
7
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
Reclassifications
Certain reclassifications within operating expenses have been made to the prior period’s financial statements to conform to the current period financial statement presentation. There is no impact in total to the results of operations and cash flows in all periods presented.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about reportable segment’s profit or loss and assets that are currently required annually. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. These amendments are to be applied retrospectively. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which enhances the transparency and decision usefulness of income tax disclosures by requiring; (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2025, with early adoption permitted. These amendments are to be applied prospectively, with retrospective application permitted. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements.
The Company currently believes there are no other issued and not yet effective accounting standards that are materially relevant to our condensed consolidated financial statements.
8
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
NOTE 2—LIQUIDITY AND GOING CONCERN ASSESSMENT
Management assesses liquidity and going concern uncertainty in the Company’s condensed consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the financial statements are issued, which is referred to as the “look-forward period,” as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management considered various scenarios, forecasts, projections, estimates and made certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, management made certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.
As of June 30, 2024, the Company had cash and
cash equivalents of $
The Company has generated operating losses since its inception and has relied on cash on hand, sales of securities, external bank lines of credit, and issuance of third-party and related party debt to support cashflows from operations. The Company expects that within the next twelve months, it will not have sufficient cash and other resources on hand to sustain its current operations or meet its obligations as they become due unless it obtains additional financing. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
An assessment was performed to determine whether there were conditions or events that, considered in the aggregate, raised substantial doubt about the Company’s ability to continue as a going concern within one year after the condensed consolidated financial statements are issued. Initially, this assessment did not consider the potential mitigating effect of management’s plans that had not been fully implemented. Based on this assessment, substantial doubt exists regarding the Company’s ability to continue as a going concern.
Management plans to address these concerns by securing additional financing through debt and equity offerings. Management assessed the mitigating effect of its plans to determine if it is probable that the plans would be effectively implemented within one year after the consolidated financial statements are issued and when implemented, would mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern. These plans are subject to market conditions and reliance on third parties, and there is no assurance that effective implementation of the Company’s plans will result in the necessary funding to continue current operations and satisfy current debt obligations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern beyond one year from the date the condensed consolidated financial statements are issued.
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
9
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
NOTE 3—DISCONTINUED OPERATIONS
On February 26, 2024, Asien’s entered into an Assignment Agreement, for the benefit of its creditors. Pursuant to the Assignment Agreement, Asien’s transferred ownership of all or substantially all of its right, title, and interest in, as well as custody and control of, its assets to the Assignee in trust. The Company received no cash consideration related to the assignment. Following the assignment, the Company retained no financial interest in Asien’s.
The
assignment of Asien’s represents a strategic shift and its results are reported as discontinued operations for the three and six
months ended June 30, 2024 and 2023. The Company recognized a gain on disposition of Asien’s of $
| December
31, 2023 | ||||
| Current assets of discontinued operations | ||||
| Cash and cash equivalents | $ | |||
| Investments | ||||
| Receivables | ||||
| Inventories, net | ||||
| Prepaid expenses and other current assets | ||||
| Total current assets of discontinued operations | ||||
| Non-current assets of discontinued operations | ||||
| Property and equipment, net | ||||
| Total assets of discontinued operations | $ | |||
| Current liabilities of discontinued operations | ||||
| Accounts payable and accrued expenses | $ | |||
| Customer deposits | ||||
| Current portion of notes payable | ||||
| Total current liabilities of discontinued operations | ||||
| Non-current liabilities of discontinued operations | ||||
| Notes payable, net of current portion | ||||
| Total liabilities of discontinued operations | $ | |||
10
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
| Three
Months Ended June 30, | Six
Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Personnel | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Other Income (Expense) | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Total Other Expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss from discontinued operations before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax benefit | ||||||||||||||||
| Net loss from discontinued operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net income (loss) attributable to non-controlling interests from discontinued operations | ( | ) | ||||||||||||||
| Net loss from discontinued operations attributable to 1847 Holdings | $ | ( | ) | ( | ) | ( | ) | |||||||||
11
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
| Six
Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Deferred taxes | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Customer deposits | ( | ) | ||||||
| Net cash used in operating activities from discontinued operations | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Investments in certificates of deposit | ( | ) | ||||||
| Net cash used in investing activities from discontinued operations | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Net cash used in financing activities from discontinued operations | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents from discontinued operations | $ | ( | ) | $ | ( | ) | ||
NOTE 4—DISAGGREGATION OF REVENUES AND SEGMENT REPORTING
Following
the divesture of the retail and appliances segment, the Company now has
The Retail and Eyewear Segment provides a wide variety of eyewear products (non-prescription reading glasses, sunglasses, blue light blocking eyewear, sun readers, outdoor specialty sunglasses and other eyewear-related products) as well as personal protective equipment (face masks and select health and personal care items).
The Construction Segment provides finished carpentry products and services (door frames, base boards, crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, fireplace mantles, windows, and custom design and build of cabinetry and countertops).
The Automotive Supplies Segment provides horn and safety products (electric, air, truck, marine, motorcycle, and industrial equipment) and vehicle emergency and safety warning lights (cars, trucks, industrial equipment, and emergency vehicles).
The Company reports all other business activities that are not reportable in the Corporate Services Segment. The Company provides general corporate services to its segments; however, these services are not considered when making operating decisions and assessing segment performance. The Corporate Services Segment includes costs associated with executive management, financing activities and other public company-related costs.
12
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
| For the Three Months Ended June 30, 2024 | ||||||||||||||||
| Retail
and Eyewear | Construction | Automotive Supplies | Total | |||||||||||||
| Revenues | ||||||||||||||||
| Eyewear-related | $ | $ | $ | $ | ||||||||||||
| Personal protective equipment and other | ||||||||||||||||
| Automotive horns | ||||||||||||||||
| Automotive lighting | ||||||||||||||||
| Custom cabinets and countertops | ||||||||||||||||
| Finished carpentry | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| For the Three Months Ended June 30, 2023 | ||||||||||||||||
| Retail
and Eyewear | Construction | Automotive Supplies | Total | |||||||||||||
| Revenues | ||||||||||||||||
| Eyewear-related | $ | $ | $ | $ | ||||||||||||
| Personal protective equipment and other | ||||||||||||||||
| Automotive horns | ||||||||||||||||
| Automotive lighting | ||||||||||||||||
| Custom cabinets and countertops | ||||||||||||||||
| Finished carpentry | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| For the Six Months Ended June 30, 2024 | ||||||||||||||||
| Retail
and Eyewear | Construction | Automotive Supplies | Total | |||||||||||||
| Revenues | ||||||||||||||||
| Eyewear-related | $ | $ | $ | $ | ||||||||||||
| Personal protective equipment and other | ||||||||||||||||
| Automotive horns | ||||||||||||||||
| Automotive lighting | ||||||||||||||||
| Custom cabinets and countertops | ||||||||||||||||
| Finished carpentry | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| For the Six Months Ended June 30, 2023 | ||||||||||||||||
| Retail
and Eyewear | Construction | Automotive Supplies | Total | |||||||||||||
| Revenues | ||||||||||||||||
| Eyewear-related | $ | $ | $ | $ | ||||||||||||
| Personal protective equipment and other | ||||||||||||||||
| Automotive horns | ||||||||||||||||
| Automotive lighting | ||||||||||||||||
| Custom cabinets and countertops | ||||||||||||||||
| Finished carpentry | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
13
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
| For the Three Months Ended June 30, 2024 | ||||||||||||||||||||
| Retail
and Eyewear | Construction | Automotive Supplies | Corporate Services | Total | ||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Cost of revenues | ||||||||||||||||||||
| Personnel | ( | ) | ||||||||||||||||||
| Personnel – corporate allocation | ( | ) | ( | ) | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| General and administrative | ( | ) | ||||||||||||||||||
| General and administrative – management fees | ||||||||||||||||||||
| General and administrative – corporate allocation | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Professional fees | ||||||||||||||||||||
| Impairment of goodwill and intangible assets | ||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||
| Income (loss) from operations | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| For the Three Months Ended June 30, 2023 | ||||||||||||||||||||
| Retail
and Eyewear | Construction | Automotive Supplies | Corporate Services | Total | ||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Cost of revenues | ||||||||||||||||||||
| Personnel | ( | ) | ||||||||||||||||||
| Personnel – corporate allocation | ( | ) | ( | ) | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| General and administrative | ( | ) | ||||||||||||||||||
| General and administrative – management fees | ||||||||||||||||||||
| General and administrative – corporate allocation | ( | ) | ( | ) | ||||||||||||||||
| Professional fees | ||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||
| Income (loss) from operations | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| For the Six Months Ended June 30, 2024 | ||||||||||||||||||||
| Retail
and Eyewear | Construction | Automotive Supplies | Corporate Services | Total | ||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Cost of revenues | ||||||||||||||||||||
| Personnel | ( | ) | ||||||||||||||||||
| Personnel – corporate allocation | ( | ) | ( | ) | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| General and administrative | ( | ) | ||||||||||||||||||
| General and administrative – management fees | ||||||||||||||||||||
| General and administrative – corporate allocation | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Professional fees | ||||||||||||||||||||
| Impairment of goodwill and intangible assets | ||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||
| Income (loss) from operations | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
14
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
| For the Six Months Ended June 30, 2023 | ||||||||||||||||||||
| Retail
and Eyewear | Construction | Automotive Supplies | Corporate Services | Total | ||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Cost of revenues | ||||||||||||||||||||
| Personnel | ( | ) | ||||||||||||||||||
| Personnel – corporate allocation | ( | ) | ( | ) | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| General and administrative | ( | ) | ||||||||||||||||||
| General and administrative – management fees | ||||||||||||||||||||
| General and administrative – corporate allocation | ( | ) | ( | ) | ||||||||||||||||
| Professional fees | ||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||
| Income (loss) from operations | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| As of June 30, 2024 | ||||||||||||||||||||
| Retail
and Eyewear | Construction | Automotive
Supplies | Corporate
Services | Total | ||||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets | $ | $ | $ | $ | $ | |||||||||||||||
| Long-lived assets | ||||||||||||||||||||
| Goodwill | ||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | |||||||||||||||
NOTE 5—PROPERTY AND EQUIPMENT
| June
30, 2024 | December 31, 2023 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Office furniture and equipment | ||||||||
| Transportation equipment | ||||||||
| Displays | ||||||||
| Leasehold improvements | ||||||||
| Total property and equipment | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation expense for the three and six months ended June 30, 2024
was $
15
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
NOTE 6—INTANGIBLE ASSETS AND GOODWILL
| June
30, 2024 | December 31, 2023 | |||||||
| Customer-related | $ | $ | ||||||
| Marketing-related | ||||||||
| Total intangible assets | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Total intangible assets, net | $ | $ | ||||||
Amortization
expense for the three and six months ended June 30, 2024 was $
During the three and six months ended June 30, 2024, the Company recorded
impairments of $
| Year Ending December 31, | Amount | |||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total estimated amortization expense | $ | |||
| Amount | ||||
| Balance as of December 31, 2023 | $ | |||
| Impairments | ( | ) | ||
| Balance as of June 30, 2024 | $ | |||
During the three and six months ended June 30, 2024, the Company recorded
goodwill impairments of $
NOTE 7—SELECTED ACCOUNT INFORMATION
Receivables
| June
30, 2024 | December 31, 2023 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Factoring reserve holdback | ||||||||
| Retainage | ||||||||
| Total receivables | ||||||||
| Allowance for expected credit losses | ( | ) | ( | ) | ||||
| Total receivables, net | $ | $ | ||||||
16
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
Inventories
| June
30, 2024 | December 31, 2023 | |||||||
| Eyewear | $ | $ | ||||||
| Automotive | ||||||||
| Construction | ||||||||
| Total inventories | ||||||||
| Less reserve for obsolescence | ( | ) | ( | ) | ||||
| Total inventories, net | $ | $ | ||||||
Prepaid Expenses and Other Current Assets
| June
30, 2024 | December 31, 2023 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Prepaid inventory | ||||||||
| Prepaid taxes | ||||||||
| Other current assets | ||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
On
February 7, 2024, the Company entered into a consulting agreement with TraDigital Marketing Group for consulting services related to
investor relations, digital marketing and advertising, and strategic advisory, totaling $
On
February 8, 2024, the Company entered into a consulting agreement with Alchemy Advisory LLC for consulting services related to business
and investor outreach, totaling $
On
February 8, 2024, the Company entered into a consulting agreement with Reef Digital LLC for consulting services related to investor relations,
IT support, and strategic advisory, totaling $
On
February 8, 2024, the Company entered into a consulting agreement with SeaPath Advisory, LLC for consulting services related to content
marketing and strategic advisory, totaling $
The
Company prepaid these consulting agreements, totaling $
Accounts Payable and Accrued Expenses
| June 30, 2024 | December 31, 2023 | |||||||
| Trade accounts payable | $ | $ | ||||||
| Credit cards payable | ||||||||
| Accrued payroll liabilities | ||||||||
| Accrued interest | ||||||||
| Accrued dividends | ||||||||
| Accrued taxes | ||||||||
| Other accrued liabilities | ||||||||
| Total accounts payable and accrued expenses | $ | $ | ||||||
17
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
NOTE 8—LEASES
Operating Leases
| June 30, 2024 | December 31, 2023 | |||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease liabilities, current portion | ||||||||
| Operating lease liabilities, long-term | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Weighted-average remaining lease term (months) | ||||||||
| Weighted average discount rate | % | % | ||||||
Rent
expense for the three and six months ended June 30, 2024 was $
| Year Ending December 31, | Amount | |||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total | ||||
| Less: imputed interest | ( | ) | ||
| Total operating lease liabilities | $ | |||
Finance Leases
| Year Ending December 31, | Amount | |||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total | ||||
| Less: amount representing interest | ( | ) | ||
| Total finance lease liabilities | $ | |||
As
of June 30, 2024, the weighted-average remaining lease term for all finance leases is
18
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
NOTE 9—FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
| Fair Value Measurements as of June 30, 2024 | ||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Warrant liabilities | ||||||||||||||||
| Total recurring fair value measurements | $ | $ | ||||||||||||||
| Amount | ||||
| Derivative Liabilities | ||||
| Balance as of December 31, 2023 | $ | |||
| Initial fair value of derivative liabilities upon issuance | ||||
| Loss on change in fair value of derivative liabilities | ||||
| Extinguishment of derivative liabilities upon conversion or settlement | ( | ) | ||
| Balance as of June 30, 2024 | $ | |||
| Amount | ||||
| Warrant Liabilities | ||||
| Balance as of December 31, 2023 | $ | |||
| Fair value of warrant liabilities upon issuance | ||||
| Gain on change in fair value of warrant liabilities | ( | ) | ||
| Extinguishment of warrant liabilities upon exercise of prefunded warrants | ( | ) | ||
| Balance as of June 30, 2024 | $ | |||
NOTE 10—DEBT
Notes Payable
Private Placement of 20% OID Promissory Notes and Warrants
On August 11, 2023, the Company entered into a
securities purchase agreement in a private placement transaction with certain accredited investors, pursuant to which the Company issued
and sold to the investors
On February 11, 2024, the Company and remaining
note holders entered into amendments to the notes issued on August 11, 2023, pursuant to which the parties agreed to extend the maturity
date of these remaining notes to April 11, 2024. As additional consideration for the amendments, the Company agreed to increase the outstanding
principal by
On April 11, 2024, the Company and remaining note
holders entered into amendments to the notes amended on February 11, 2024, pursuant to which the parties agreed to extend the maturity
date of these remaining notes to July 10, 2024. As additional consideration for the amendments, the Company agreed to increase the outstanding
principal by
As
of June 30, 2024, the total outstanding principal balance is $
19
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
Private
Placement of
On
March 4, 2024, the Company issued a
The
Company may voluntarily prepay the note in full at any time. In addition, if the Company consummates any equity or equity-linked or debt
securities issuance, or enters into a loan agreement or other financing, other than certain excluded debt (as defined in the note), then
the Company must prepay the note in full. The note is unsecured and has priority over all other unsecured indebtedness, except for certain
senior indebtedness (as defined in the note). The note contains customary affirmative and negative covenants and events of default for
a loan of this type. Upon an event of default, the outstanding balance of the note will be assessed a
The Company evaluated whether this promissory
note contains embedded features that qualify as derivatives pursuant to ASC 815. The Company determined that the note’s embedded
features, specifically that should the Company default on the note, the note holder will receive a default penalty of
The
fair value of the embedded redemption derivative liability within this promissory note was calculated using a Probability Weighted Expected
Return valuation methodology, considering the likelihood of occurrence. The model used a discount rate of
On June 4, 2024, an event of default occurred, resulting in a $
Private
Placement of
On May 8, 2024, the Company entered into securities
purchase agreement with an accredited investor, pursuant to which the Company issued to such investor (i) a
The
note is due and payable on August 8, 2024. The Company may voluntarily prepay the note in full at any time. In addition, if the Company
consummates any sale of a material amount of assets of the Company or any of its subsidiaries, then the net proceeds thereof shall be
applied to the payment or prepayment of the note. The note is unsecured and has priority over all other unsecured indebtedness of the
Company, except for certain senior indebtedness (as defined in the note). The note contains customary affirmative and negative covenants
and events of default for a loan of this type. Upon an event of default, the outstanding balance of the note will be assessed a
The note becomes convertible into common shares
at the option of the holder at any time on or following the date that an event of default (as defined in the note agreement) occurs under
the note at a conversion price equal to
The Company evaluated the embedded features within
this note in accordance with ASC 480 and ASC 815. The Company determined that the embedded features, specifically (i) the default penalty
of
The initial fair value of the derivative liabilities was determined
using a Monte Carlo Simulation valuation model, considering various potential outcomes and scenarios. The model used the following assumptions:
(i) dividend yield of
As
of June 30, 2024, the total outstanding principal balance is $
20
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
Private Placement of
On May 9, 2024, the Company entered into a securities
purchase agreement with an accredited investor, pursuant to which the Company issued to such investor a promissory note in the principal
amount of $
In addition, if, at any time prior to the full
repayment of the note, the Company receives cash proceeds from any source or series of related or unrelated sources, including but not
limited to, from payments from customers, the issuance of equity or debt, the issuance of securities pursuant to an equity line of credit
(as defined in the note) or the sale of assets, the investor will have the right in its sole discretion to require the Company to immediately
apply up to
The fair value of the
The Company evaluated whether this promissory
note contains embedded features that qualify as derivatives pursuant to ASC 815. The Company determined that the note’s embedded
features, specifically should the Company default on the note, the note holder will receive a default penalty of
The fair value of the embedded redemption derivative
liability within this promissory note was calculated using a Probability Weighted Expected Return valuation methodology, considering the
likelihood of occurrence. The model used a discount rate of
As of June 30, 2024, the total outstanding principal
balance is $
Private Placement of OID Promissory Note and Series D Preferred Shares
On June 28, 2024, the Company’s subsidiaries
1847 Cabinet Inc., High Mountain Door & Trim Inc., Sierra Homes, LLC d/b/a Innovative Cabinets & Design and Kyle’s Custom
Wood Shop, Inc. (the “Borrowers”) issued an OID promissory note in the principal amount of up to $
The note bears interest at a rate per annum equal
to the greater of (i)
In connection with the issuance of the note, the Company entered into a memorandum of understanding with the Breadcrumbs, pursuant to which the Company agreed to issue to Breadcrumbs upon the closing of each tranche under the note and (ii) series D senior convertible preferred shares with a stated value equal to the principal amount of such each such tranche (see Note 11 for further details).
The Company evaluated whether this promissory
note contains embedded features that qualify as derivatives pursuant to ASC 815. The Company determined that the note’s embedded
features, specifically that should the Company default on the note, the note holder will receive a default penalty of
The fair value of the embedded redemption derivative
liability within this promissory note was calculated using a Probability Weighted Expected Return valuation methodology, considering the
likelihood of occurrence. The model used a discount rate of
As of June 30, 2024, the total outstanding principal
balance is $
21
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
NOTE 11—SHAREHOLDERS’ DEFICIT
Series A Senior Convertible Preferred Shares
During the six months ended June 30, 2024, the Company accrued dividends
of $
During the six months ended June 30, 2024, an
aggregate of
As
of June 30, 2024 and December 31, 2023, the Company had
Series B Senior Convertible Preferred Shares
During the six months ended June 30, 2024, the Company accrued dividends
of $
During
the six months ended June 30, 2024, an aggregate of
As
of June 30, 2024 and December 31, 2023, the Company had
Series D Senior Convertible Preferred Shares
On
June 27, 2024, the Company executed a share designation to designate
Ranking. The series D senior convertible preferred shares rank, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common shares, allocation shares, and each other class or series that is not expressly made senior to or on parity with the series D senior convertible preferred shares; (ii) on parity with each other class or series that is not expressly subordinated or made senior to the series D senior convertible preferred shares; and (iii) junior to the Series A senior convertible preferred shares, all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company and each other class or series that is expressly made senior to the series D senior convertible preferred shares.
Dividend
Rights. Holders of series D senior convertible preferred shares are entitled to dividends at a rate per annum of
Liquidation
Rights. Subject to the rights of creditors and the holders of any senior securities or parity securities (in each case, as defined
in the share designation), upon any liquidation of the Company or its subsidiaries, before any payment or distribution of the assets
of the Company (whether capital or surplus) shall be made to or set apart for the holders of securities that are junior to the series
D senior convertible preferred shares as to the distribution of assets on any liquidation of the Company, including the common shares
and allocation shares, each holder of outstanding series D senior convertible preferred shares shall be entitled to receive an amount
of cash equal to
Voting Rights. The series D senior convertible preferred shares do not have any voting rights; provided that, so long as any series D senior convertible preferred shares are outstanding, the affirmative vote of holders of a majority of series D senior convertible preferred shares, voting as a separate class, shall be necessary for approving, effecting or validating any amendment, alteration or repeal of any of the provisions of the share designation.
22
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
Conversion Rights. Each series D senior
convertible preferred share, plus all accrued and unpaid dividends thereon, shall be convertible, at the option of the holder thereof,
at any time and from time to time, into such number of fully paid and nonassessable common shares determined by dividing the stated value
($
Redemption Rights. Not redeemable.
On June 28, 2024, the issued
During the six months ended June 30, 2024, the
Company accrued dividends of $
Common Shares
On
February 9, 2024, the Company entered into a securities purchase agreement with certain purchasers and a placement agency agreement with
Spartan, pursuant to which the Company agreed to issue and sell to such purchasers an aggregate of
During the
six months ended June 30, 2024, the Company issued an aggregate of
During
the six months ended June 30, 2024, the Company issued an aggregate of
During the six months ended June 30, 2024, the
Company issued an aggregate of
During
the six months ended June 30, 2024, the Company issued an aggregate of
Potential Common Stock Equivalents
As of June 30, 2024, there were
23
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
Warrants
Warrants Issued in Public Equity Offering
On
February 14, 2024 (as described above), the Company closed on a securities purchase agreement with certain purchasers and a placement
agency agreement with Spartan, pursuant to which the Company agreed to issue and sell to such purchasers prefunded warrants for the purchase
of
The
Company evaluated the prefunded warrants as either equity-classified or liability-classified instruments based on an assessment of the
specific terms of the prefunded warrants and applicable authoritative guidance from ASC 480 and ASC 815-40. The Company determined the
prefunded warrants issued failed the indexation guidance under ASC 815-40, specifically, the prefunded warrants provide for a Black-Scholes
value calculation in the event of certain transactions (“Fundamental Transactions”), which includes a floor on volatility
utilized in the value calculation at
The
fair value of the warrants deemed to be a liability, due to certain contingent put features, was determined using the Black-Scholes option
pricing model, which was deemed to be an appropriate model due to the terms of the warrants issued, including a fixed term and exercise
price. The assumptions used in the model were as follows: (i) dividend yield of
Warrants
Issued in Private Placement with
On May 8, 2024, the Company issued five-year warrants for the purchase of
The
Company evaluated the warrants as either equity-classified or liability-classified instruments based on an assessment of the specific
terms of the warrants and applicable authoritative guidance from ASC 480 and ASC 815-40. The Company determined the warrants issued failed
the indexation guidance under ASC 815-40, specifically, the warrants provide for a Black-Scholes value calculation in the event of certain
transactions (“Fundamental Transactions”), which includes a floor on volatility utilized in the value calculation at
The
fair value of the warrants deemed to be a liability, due to certain contingent put features, was determined using the Black-Scholes option
pricing model, which was deemed to be an appropriate model due to the terms of the warrants issued, including a fixed term and exercise
price. The assumptions used in the model were as follows: (i) dividend yield of
The
remaining proceeds were allocated to the placement agent warrants and note based on their relative fair value using the Black-Scholes
option pricing model. The assumptions used in the model were as follows: (i) dividend yield of
24
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
Exercise Price Adjustments to Warrants
As a result of the issuance of common shares in
the offering on February 14, 2024, the exercise price of certain of the Company’s outstanding warrants was adjusted to $
| Warrants | Weighted- Average Exercise Price | |||||||
| Outstanding at December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Exercised/settled | ( | ) | ( | ) | ||||
| Outstanding at June 30, 2024 | $ | |||||||
| Exercisable at June 30, 2024 | $ | |||||||
As
of June 30, 2024, the outstanding warrants have a weighted average remaining contractual life of
NOTE 12—SUBSEQUENT EVENTS
OID Note Extensions
On
July 10, 2024, the Company and the holders of the
Private Placements of OID Promissory Note and Series D Preferred Shares
On July 3, 2024, the Borrowers and Breadcrumbs
executed tranche No. 2 to the OID promissory note issued on June 28, 2024 (see Note 10) in the principal amount of $
On July 16, 2024, the Borrowers and Breadcrumbs
executed tranche No. 3 to the OID promissory note issued on June 28, 2024 (see Note 10) in the principal amount of $
On August 12, 2024, the Borrowers and Breadcrumbs
executed tranche No. 4 to the OID promissory note issued on June 28, 2024 (see Note 10) in the principal amount of $
ICU Eyewear Foreclosure Sale
The Company is a limited guarantor of an Amended
and Restated Credit and Security Agreement (the “Loan Agreement”) that was entered into on September 11, 2023, between AB
Lending SPV I LLC d/b/a Mountain Ridge Capital (the “ICU Lender”), ICU Eyewear, Inc. (“ICU Eyewear”), ICU Eyewear
Holdings, Inc., and 1847 ICU Holdings Inc. (the “ICU Parties”). Pursuant to the Loan Agreement, the ICU Lender had a security
interest in all the assets of ICU Eyewear. ICU Eyewear was in default under the Loan Agreement and, with the approval of the other ICU
Parties, consented to a foreclosure by the ICU Lender and private sale of substantially all of its assets in an Article 9 sale process,
pursuant to Section 9-610 of the Uniform Commercial Code as in effect in the State of New York and Section 9-610 of the Uniform Commercial
Code as in effect in the State of California (the “Asset Sale”). On August 5, 2024, ICU Eyecare Solutions Inc. (“ICU
Solutions”), an entity that is not affiliated with the Company, was the successful bidder of the Asset Sale with a cash bid of $
In connection with the Asset Sale, the Company and the ICU Parties entered into a non-competition agreement pursuant to which the Company and each other ICU Party agreed that, from and after August 5, 2024 and ending on August 5, 2029, it will not own, manage, control, participate in, or in any manner engage in the sale at wholesale or retail of (i) eyewear products, including eyeglasses, sunglasses, reading glasses, frames for eyeglasses, sunglasses, and reading glasses, and (ii) eyewear accessories, including cases, chains, cords and lanyards.
25
| ITEM | 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein.
Use of Terms
Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “us,” “our” and “our company” refer to 1847 Holdings LLC, a Delaware limited liability company, and its consolidated subsidiaries. References to “our manager” refer to 1847 Partners LLC, a Delaware limited liability company.
Special Note Regarding Forward Looking Statements
This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
| ● | our ability to effectively integrate and operate the businesses that we acquire; |
| ● | our ability to successfully identify and acquire additional businesses; |
| ● | our organizational structure, which may limit our ability to meet our dividend and distribution policy; |
| ● | our ability to service and comply with the terms of indebtedness; |
| ● | our cash flow available for distribution and our ability to make distributions to our common shareholders; |
| ● | our ability to pay the management fee, profit allocation and put price to our manager when due; |
| ● | labor disputes, strikes or other employee disputes or grievances; |
| ● | the regulatory environment in which our businesses operate under; |
| ● | trends in the industries in which our businesses operate; |
| ● | the competitive environment in which our businesses operate; |
| ● | changes in general economic or business conditions or economic or demographic trends in the United States including changes in interest rates and inflation; |
| ● | our and our manager’s ability to retain or replace qualified employees of our businesses and our manager; |
| ● | casualties, condemnation or catastrophic failures with respect to any of our business’ facilities; |
| ● | costs and effects of legal and administrative proceedings, settlements, investigations and claims; and |
| ● | extraordinary or force majeure events affecting the business or operations of our businesses. |
In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2023 and elsewhere in this report. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
26
Overview
We are an acquisition holding company focused on acquiring and managing a group of small businesses, which we characterize as those that have an enterprise value of less than $50 million, in a variety of different industries headquartered in North America.
On May 28, 2020, our subsidiary 1847 Asien Inc., or 1847 Asien, acquired Asien’s Appliance, Inc., a California corporation, or Asien’s. Asien’s has been in business since 1948 serving the North Bay area of Sonoma County, California. It provides a wide variety of appliance services, including sales, delivery/installation, in-home service and repair, extended warranties, and financing. Its main focus is delivering personal sales and exceptional service to its customers at competitive prices.
On February 26, 2024, Asien’s entered into a general assignment, for the benefit of its creditors, with SG Service Co., LLC, or the Assignee. Pursuant to the Assignment Agreement, Asien’s transferred ownership of all or substantially all of its right, title, and interest in, as well as custody and control of, its assets to the Assignee in trust. Following the assignment, we retained no financial interest in Asien’s. Accordingly, the results of operations of Asien’s are reported as discontinued operations for the three and six months ended June 30, 2024 and 2023.
On September 30, 2020, our subsidiary 1847 Cabinet Inc., or 1847 Cabinet, acquired Kyle’s Custom Wood Shop, Inc., an Idaho corporation, or Kyle’s. Kyle’s is a leading custom cabinetry maker servicing contractors and homeowners since 1976 in Boise, Idaho and the surrounding area. Kyle’s focuses on designing, building, and installing custom cabinetry primarily for custom and semi-custom builders.
On March 30, 2021, our subsidiary 1847 Wolo Inc., or 1847 Wolo, acquired Wolo Mfg. Corp., a New York corporation, and Wolo Industrial Horn & Signal, Inc., a New York corporation (which we collectively refer to as Wolo). Headquartered in Deer Park, New York and founded in 1965, Wolo designs and sells horn and safety products (electric, air, truck, marine, motorcycle and industrial equipment), and offers vehicle emergency and safety warning lights for cars, trucks, industrial equipment and emergency vehicles.
On October 8, 2021, our subsidiary 1847 Cabinet acquired High Mountain Door & Trim Inc., a Nevada corporation, or High Mountain, and Sierra Homes, LLC d/b/a Innovative Cabinets & Design, a Nevada limited liability company, or Innovative Cabinets. Headquartered in Reno, Nevada and founded in 2014, High Mountain specializes in all aspects of finished carpentry products and services, including doors, door frames, base boards, crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, and fireplace mantles, among others, working primarily with large homebuilders of single-family homes and commercial and multi-family developers. Innovative Cabinets is headquartered in Reno, Nevada and was founded in 2008. It specializes in custom cabinetry and countertops for a client base consisting of single-family homeowners, builders of multi-family homes, as well as commercial clients.
On February 9, 2023, our subsidiary 1847 ICU Holdings Inc., or 1847 ICU, acquired ICU Eyewear Holdings, Inc., a California corporation, and its subsidiary ICU Eyewear, Inc., a California corporation, which we collectively refer to as ICU Eyewear. Headquartered in Hollister, California and founded in 1956, ICU Eyewear specializes in the sale and distribution of reading eyewear and sunglasses, blue light blocking eyewear, sun readers, and other outdoor specialty sunglasses, as well as select health and personal care items, including face masks.
Through our structure, we offer investors an opportunity to participate in the ownership and growth of a portfolio of businesses that traditionally have been owned and managed by private equity firms, private individuals or families, financial institutions or large conglomerates. We believe that our management and acquisition strategies will allow us to achieve our goals to make and grow regular distributions to our common shareholders and increase common shareholder value over time.
We seek to acquire controlling interests in small businesses that we believe operate in industries with long-term macroeconomic growth opportunities, and that have positive and stable earnings and cash flows, face minimal threats of technological or competitive obsolescence and have strong management teams largely in place. We believe that private company operators and corporate parents looking to sell their businesses will consider us to be an attractive purchaser of their businesses. We make these businesses our majority-owned subsidiaries and actively manage and grow such businesses. We expect to improve our businesses over the long term through organic growth opportunities, add-on acquisitions and operational improvements.
Recent Developments
OID Note Extension
On July 10, 2024, we and the holders of the 20% OID subordinated promissory notes originally issued on August 11, 2023, entered into amendments to the notes, pursuant to which the parties agreed to extend the maturity date of these notes to October 10, 2024. As additional consideration for the amendments, we agreed to increase the outstanding principal by 25% of the outstanding principal amounts of the notes as an amendment fee.
Private Placements of OID Promissory Note and Series D Preferred Shares
On June 28, 2024, our subsidiaries 1847 Cabinet, High Mountain, Innovative Cabinets and Kyle’s issued an original issue discount, or OID, promissory note in the principal amount of up to $2,472,000, to be advanced in one or more tranches, to Breadcrumbs Capital LLC, or the Lender. In connection with the issuance of the note, we entered into a memorandum of understanding with the Lender, pursuant to which we agreed to issue to the Lender upon the closing of each tranche under the note series D senior convertible preferred shares with a stated value equal to the principal amount of each such tranche.
On June 28, 2024, the parties executed tranche No. 1 in the principal amount of $666,667 for total cash proceeds of $475,000. In connection with such tranche, we issued 1,966,570 series D senior convertible preferred shares to the Lender.
On July 3, 2024, the parties executed tranche No. 2 in the principal amount of $466,667 for total cash proceeds of $350,000. In connection with such tranche, we issued 1,376,599 series D senior convertible preferred shares to the Lender.
27
On July 16, 2024, the parties executed tranche No. in the principal amount of $233,333 for total cash proceeds of $175,000. In connection with such tranche, we issued 688,298 series D senior convertible preferred shares to the Lender.
On August 12, 2024, the parties executed tranche No. 4 in the principal amount of $466,667 for total cash proceeds of $350,000. In connection with such tranche, we issued 1,376,599 series D senior convertible preferred shares to the Lender.
ICU Eyewear Foreclosure Sale
Our company is a limited guarantor of an Amended and Restated Credit and Security Agreement, or the Loan Agreement, that was entered into on September 11, 2023, between AB Lending SPV I LLC d/b/a Mountain Ridge Capital, or the Lender, ICU Eyewear and 1847 ICU. Pursuant to the Loan Agreement, the Lender had a security interest in all the assets of ICU Eyewear. ICU Eyewear was in default under the Loan Agreement and consented to a foreclosure by the Lender and private sale of substantially all of its assets in an Article 9 sale process, pursuant to Section 9-610 of the Uniform Commercial Code as in effect in the State of New York and Section 9-610 of the Uniform Commercial Code as in effect in the State of California (which we refer to as the Asset Sale). On August 5, 2024, ICU Eyecare Solutions Inc., an entity that is not affiliated with our company, was the successful bidder of the Asset Sale with a cash bid of $4,250,000. Pursuant to an agreement dated August 5, 2024 and in consideration for such purchase price, the Lender having foreclosed on its security interest in all of the assets of ICU Eyewear then conveyed all of its rights, title, and interest in all of such assets to ICU Solutions Inc.
In connection with the Asset Sale, we entered into a non-competition agreement pursuant to which we agreed that, from and after August 5, 2024 and ending on August 5, 2029, we will not own, manage, control, participate in, or in any manner engage in the sale at wholesale or retail of (i) eyewear products, including eyeglasses, sunglasses, reading glasses, frames for eyeglasses, sunglasses, and reading glasses, and (ii) eyewear accessories, including cases, chains, cords and lanyards.
Management Fees
On April 15, 2013, we and our manager entered into a management services agreement, pursuant to which we are required to pay our manager a quarterly management fee equal to 0.5% of our adjusted net assets for services performed (which we refer to as the parent management fee). The amount of the parent management fee with respect to any fiscal quarter is (i) reduced by the aggregate amount of any management fees received by our manager under any offsetting management services agreements with respect to such fiscal quarter, (ii) reduced (or increased) by the amount of any over-paid (or under-paid) parent management fees received by (or owed to) our manager as of the end of such fiscal quarter, and (iii) increased by the amount of any outstanding accrued and unpaid parent management fees. We did not expense any parent management fees for the three and six months ended June 30, 2024 and 2023.
Following the assignment of Asien’s assets to the Assignee in trust on February 26, 2024, our manager ceased to provide services to 1847 Asien for quarterly management fees. 1847 Asien expensed management fees of $0 and $75,000 for the three months ended June 30, 2024 and 2023, respectively, and $50,000 and $150,000 for the six months ended June 30, 2024 and 2023, respectively, which is included in discontinued operations.
On August 21, 2020, 1847 Cabinet entered into an offsetting management services agreement with our manager, which was amended on October 8, 2021. Pursuant to the amended management services agreement, our manager will provide certain services to 1847 Cabinet in exchange for a quarterly management fee. This fee will be the greater of $125,000 or 2% of adjusted net assets (as defined within the amended management services agreement). 1847 Cabinet expensed management fees of $125,000 for the three months ended June 30, 2024 and 2023 and $250,000 for the six months ended June 30, 2024 and 2023.
On March 30, 2021, 1847 Wolo entered into an offsetting management services agreement with our manager. Pursuant to the management services agreement, our manager will provide certain services to 1847 Wolo in exchange for a quarterly management fee. This fee will be the greater of $75,000 or 2% of adjusted net assets (as defined within the management services agreement). 1847 Wolo expensed management fees of $75,000 for the three months ended June 30, 2024 and 2023 and $150,000 for the six months ended June 30, 2024 and 2023.
On February 9, 2023, 1847 ICU entered into an offsetting management services agreement with our manager. Pursuant to the management services agreement, our manager will provide certain services to 1847 ICU in exchange for a quarterly management fee. This fee will be the greater of $75,000 or 2% of adjusted net assets (as defined within the management services agreement). 1847 ICU expensed management fees of $75,000 for the three months ended June 30, 2024 and 2023 and $150,000 and $75,000 for the six months ended June 30, 2024 and 2023, respectively.
In addition, if the aggregate amount of management fees paid or to be paid to our manager under the offsetting management services agreements, exceeds, or is expected to exceed, 9.5% of our gross income in any fiscal year or the parent management fee in any fiscal quarter, then the management fee to be paid by such entities shall be reduced, on a pro rata basis determined by reference to the other management fees to be paid to our manager under other offsetting management services agreements.
On a consolidated basis, our company expensed total management fees from continued operations and discontinued operations of $275,000 and $0 for the three months ended June 30, 2024, respectively, and $275,000 and $75,000 for the three months ended June 30, 2023, respectively. Our company expensed total management fees from continued operations and discontinued operations of $550,000 and $50,000 for the six months ended June 30, 2024, respectively, and $475,000 and $150,000 for the six months ended June 30, 2023, respectively.
28
Segments
Following the divesture of the 1847 Asien retail and appliances segment, we now have three reportable segments:
| ● | The retail and eyewear segment provides a wide variety of eyewear products (non-prescription reading glasses, sunglasses, blue light blocking eyewear, sun readers, outdoor specialty sunglasses and other eyewear-related products) as well as personal protective equipment (face masks and select health and personal care items). |
| ● | The construction segment provides finished carpentry products and services (door frames, base boards, crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, fireplace mantles, windows, and custom design and build of cabinetry and countertops). |
| ● | The automotive supplies segment provides horn and safety products (electric, air, truck, marine, motorcycle, and industrial equipment) and vehicle emergency and safety warning lights (cars, trucks, industrial equipment, and emergency vehicles). |
We report all other business activities that are not reportable in the corporate services segment. We provide general corporate services to our segments; however, these services are not considered when making operating decisions and assessing segment performance. The corporate services segment includes costs associated with executive management, financing activities and other public company-related costs.
Results of Operations
Comparison of the Three Months Ended June 30, 2024 and 2023
The following table sets forth key components of our results of continued operations during the three months ended June 30, 2024 and 2023, both in dollars and as a percentage of our revenues.
| For the Three Months Ended June 30, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Amount | % of Revenues | Amount | % of Revenues | |||||||||||||
| Revenues | $ | 15,501,359 | 100.0 | % | $ | 17,362,093 | 100.0 | % | ||||||||
| Operating expenses | ||||||||||||||||
| Cost of revenues | 8,757,513 | 56.5 | % | 11,456,303 | 66.0 | % | ||||||||||
| Personnel | 3,406,902 | 22.0 | % | 2,942,810 | 16.9 | % | ||||||||||
| Depreciation and amortization | 421,468 | 2.7 | % | 572,194 | 3.3 | % | ||||||||||
| General and administrative | 2,395,880 | 15.5 | % | 2,350,155 | 13.5 | % | ||||||||||
| Professional fees | 1,847,073 | 11.9 | % | 485,901 | 2.8 | % | ||||||||||
| Impairment of goodwill and intangible assets | 1,216,966 | 7.9 | % | - | - | |||||||||||
| Total operating expenses | 18,045,802 | 116.4 | % | 17,807,363 | 102.6 | % | ||||||||||
| Loss from operations | (2,544,443 | ) | (16.4 | )% | (445,270 | ) | (2.6 | )% | ||||||||
| Other income (expense) | ||||||||||||||||
| Other income | 47,769 | 0.3 | % | 18,696 | 0.1 | % | ||||||||||
| Loss on disposal of property and equipment | (13,815 | ) | (0.1 | )% | - | - | ||||||||||
| Interest expense | (1,302,599 | ) | (8.4 | )% | (1,231,341 | ) | (7.1 | )% | ||||||||
| Amortization of debt discounts | (2,929,336 | ) | (18.9 | )% | (772,561 | ) | (4.4 | )% | ||||||||
| Loss on extinguishment of debt | (778,875 | ) | (5.0 | )% | - | - | ||||||||||
| Gain on change in fair value of warrant liabilities | 3,661,800 | 23.6 | % | - | - | |||||||||||
| Loss on change in fair value of derivative liabilities | (1,290,563 | ) | (8.3 | )% | - | - | ||||||||||
| Total other expense | (2,605,619 | ) | (16.8 | )% | (1,985,206 | ) | (11.4 | )% | ||||||||
| Net loss before income taxes | (5,150,062 | ) | (33.2 | )% | (2,430,476 | ) | (14.0 | )% | ||||||||
| Income tax benefit (expense) | 243,250 | 1.6 | % | (931,321 | ) | (5.4 | )% | |||||||||
| Net loss | $ | (4,906,812 | ) | (31.7 | )% | $ | (3,361,797 | ) | (19.4 | )% | ||||||
Revenues. Our total revenues were $15,501,359 for the three months ended June 30, 2024, as compared to $17,362,093 for the three months ended June 30, 2023.
The retail and eyewear segment generates revenue through sales of eyewear products, including non-prescription reading glasses, sunglasses, blue light blocking eyewear, sun readers and outdoor specialty sunglasses. Revenues from the retail and eyewear segment decreased by $1,417,160, or 31.5%, to $3,076,901 for the three months ended June 30, 2024 from $4,494,061 for the three months ended June 30, 2023. The decline in revenues was primarily attributed to supply chain delays with manufacturers and decreased customer demand.
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The construction segment generates revenue through the sale of finished carpentry products and services, including doors, door frames, base boards, crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, and fireplace mantles, among others, as well as kitchen countertops. Revenues from the construction segment decreased by $182,524, or 1.6%, to $11,321,371 for the three months ended June 30, 2024 from $11,503,895 for the three months ended June 30, 2023. The decrease in revenues was primarily attributed to skilled labor shortages and supply chain delays within cabinetry projects.
The automotive supplies segment generates revenue through the design and sale of horn and safety products (electric, air, truck, marine, motorcycle and industrial equipment), including vehicle emergency and safety warning lights for cars, trucks, industrial equipment and emergency vehicles. Revenues from the automotive supplies segment decreased by $261,050, or 19.1%, to $1,103,087 for the three months ended June 30, 2024 from $1,364,137 for the three months ended June 30, 2023. The decline in revenues was primarily attributed to inventory challenges within the supply chain to meet customer demands.
Cost of revenues. Our total cost of revenues was $8,757,513 for the three months ended June 30, 2024, as compared to $11,456,303 for the three months ended June 30, 2023.
Cost of revenues for the retail and eyewear segment consists of the costs of purchased finished goods plus freight and tariff costs. Cost of revenues for the retail and eyewear segment decreased by $2,008,943, or 58.6%, to $1,421,597 for the three months ended June 30, 2024 from $3,430,540 for the three months ended June 30, 2023. Such decrease was primarily attributed to the corresponding decrease in revenues and fulfillment costs. As a percentage of retail and eyewear revenues, cost of revenues for the retail and eyewear segment was 46.2% and 76.3% for the three months ended June 30, 2024 and 2023, respectively.
Cost of revenues for the construction segment consists of finished goods, lumber, hardware and materials and plus direct labor and related costs, net of any material discounts from vendors. Cost of revenues for the construction segment decreased by $589,226, or 8.2%, to $6,611,425 for the three months ended June 30, 2024 from $7,200,651 for the three months ended June 30, 2023. Such decrease was primarily attributed to the corresponding decrease in revenues and improved supply chain negotiations leading to better pricing and more efficient procurement. As a percentage of construction revenues, cost of revenues for the construction segment was 58.4% and 62.6% for the three months ended June 30, 2024 and 2023, respectively.
Cost of revenues for the automotive supplies segment consists of the costs of purchased finished goods plus freight and tariff costs. Cost of revenues for the automotive supplies segment decreased by $100,621, or 12.2%, to $724,491 for the three months ended June 30, 2024 from $825,112 for the three months ended June 30, 2023. Such decrease was primarily attributed to the corresponding decrease in revenues, offset by increased product costs. As a percentage of automotive supplies revenues, cost of revenues for the automotive supplies segment was 65.7% and 60.5% for the three months ended June 30, 2024 and 2023, respectively.
Personnel costs. Personnel costs include employee salaries and bonuses plus related payroll taxes. It also includes health insurance premiums, 401(k) contributions, and training costs. Our total personnel costs were $3,406,902 for the three months ended June 30, 2024, as compared to $2,942,810 for the three months ended June 30, 2023.
Personnel costs for the retail and eyewear segment decreased by $191,673, or 24.2%, to $600,763 for the three months ended June 30, 2024 from $792,436 for the three months ended June 30, 2023. Such decrease was primarily attributed to the corresponding decrease in revenues, offset by the implementation of revised compensation policies aimed at enhancing cost efficiency. As a percentage of retail and eyewear revenue, personnel costs for the retail and eyewear segment were 19.5% and 17.6% for the three months ended June 30, 2024 and 2023, respectively.
Personnel costs for the construction segment increased by $569,991, or 32.4%, to $2,329,306 for the three months ended June 30, 2024 from $1,759,315 for the three months ended June 30, 2023. Such increase was primarily attributed to increased employee headcount and corporate wage allocations. As a percentage of construction revenue, personnel costs for the construction segment were 20.6% and 15.3% for the three months ended June 30, 2024 and 2023, respectively.
Personnel costs for the automotive supplies segment decreased by $11,828, or 5.1%, to $219,381 for the three months ended June 30, 2024 from $231,209 for the three months ended June 30, 2023. Such decrease was primarily attributed to the corresponding decrease in revenues, offset by the implementation of revised compensation policies aimed at enhancing cost efficiency. As a percentage of automotive supplies revenue, personnel costs for the automotive supplies segment were 19.9% and 16.9% for the three months ended June 30, 2024 and 2023, respectively.
Personnel costs for our holding company increased by $97,602, or 61.1%, to $257,452 for the three months ended June 30, 2024 from $159,850 for the three months ended June 30, 2023. Such increase was primarily attributed to accrued management bonuses and wages.
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Depreciation and amortization. Our total depreciation and amortization expense decreased by $150,726, or 26.3%, to $421,468 for the three months ended June 30, 2024 from $572,194 for the three months ended June 30, 2023. Such decrease was primarily as a result of the impairment of intangible assets during the current and prior periods.
General and administrative expenses. Our general and administrative expenses consist primarily of insurance expense, rent expense, management fees, advertising, bank fees, bad debt allowances, and other general expenses incurred in connection with general operations. Our total general and administrative expenses were $2,395,880 for the three months ended June 30, 2024, as compared to $2,350,155 for the three months ended June 30, 2023.
General and administrative expenses for the retail and eyewear segment decreased by $778, or 0.1%, to $579,999 for the three months ended June 30, 2024 from $580,777 for the three months ended June 30, 2023. General and administrative costs remained consistent period over period. As a percentage of retail and eyewear revenue, general and administrative expenses for the retail and eyewear segment were 18.9% and 12.9% for the three months ended June 30, 2024 and 2023, respectively.
General and administrative expenses for the construction segment decreased by $115,804, or 8.2%, to $1,304,869 for the three months ended June 30, 2024 from $1,420,673 for the three months ended June 30, 2023. Such decrease was primarily attributed to decreased revenues and office expenditures. As a percentage of construction revenue, general and administrative expenses for the construction segment were 11.5% and 12.3% for the three months ended June 30, 2024 and 2023, respectively.
General and administrative expenses for the automotive supplies segment increased by $2,204, or 1.0%, to $215,116 for the three months ended June 30, 2024 from $212,912 for the three months ended June 30, 2023. Such increase was primarily attributed to increased office expenditures and insurance costs, offset by decreased rent expense. As a percentage of automotive supplies revenue, general and administrative expenses for the automotive supplies segment were 19.5% and 15.6% for the three months ended June 30, 2024 and 2023, respectively.
General and administrative expenses for our holding company increased by $160,103, or 117.9%, to $295,896 for the three months ended June 30, 2024 from $135,793 for the three months ended June 30, 2023. Such increase was primarily attributed to increased insurance expenses and board fees.
Professional fees. Our total professional fees were $1,847,073 for the three months ended June 30, 2024, as compared to $485,901 for the three months ended June 30, 2023.
Professional fees for the retail and eyewear segment increased by $276,298, or 236.4%, to $393,153 for the three months ended June 30, 2024 from $116,855 for the three months ended June 30, 2023. Such increase was primarily attributed to increased consulting fees and shared service costs. As a percentage of retail and eyewear revenue, professional fees for the retail and eyewear segment were 12.8% and 2.6% for the three months ended June 30, 2024 and 2023, respectively.
Professional fees for the construction segment increased by $31,620, or 74.1%, to $74,294 for the three months ended June 30, 2024 from $42,674 for the three months ended June 30, 2023. Such increase was primarily attributed to increased consulting fees. As a percentage of construction revenue, professional fees for the construction segment were 0.7% and 0.4% for the three months ended June 30, 2024 and 2023, respectively.
Professional fees for the automotive supplies segment increased by $43,386, or 85.5%, to $94,113 for the three months ended June 30, 2024 from $50,727 for the three months ended June 30, 2023. Such increase was primarily attributed to increased consulting fees. As a percentage of automotive supplies revenue, professional fees for the automotive supplies segment were 8.5% and 3.7% for the three months ended June 30, 2024 and 2023, respectively.
Professional fees for our holding company increased by $1,009,868, or 366.4%, to $1,285,513 for the three months ended June 30, 2024 from $275,645 for the three months ended June 30, 2023. Such increase was primarily attributed to increased consulting fees, investor relations, and other public company related fees.
Impairment of goodwill and intangible assets. For the three months ended June 30, 2024, we recorded goodwill impairments of $757,283 and intangible asset impairments of $459,683, as compared to no impairments for the three months ended June 30, 2023.
Total other income (expense). We had total other expense, net of $2,605,619 for the three months ended June 30, 2024, as compared to $1,985,206 for the three months ended June 30, 2023. Other expense, net, for the three months ended June 30, 2024 consisted of interest expense of $1,302,599, amortization of debt discounts of $2,929,336, loss on extinguishment of debt of $778,875, loss on change in fair value of derivative liabilities of $1,290,563, and a loss on disposal of property of equipment of $13,815, offset by a gain on change in fair value of warrant liabilities of $3,661,800 and other income of $47,769. Other expense, net, for the three months ended June 30, 2023, consisted of interest expense of $1,231,341 and amortization of debt discounts of $772,561, offset by other income of $18,696.
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Income tax benefit (expense). We had an income tax benefit of $243,250 and an income tax expense of $931,321 for the three months ended June 30, 2024 and 2023, respectively.
Net loss from continuing operations. As a result of the cumulative effect of the factors described above, we had a net loss of $4,906,812 for the three months ended June 30, 2024, as compared to $3,361,797 for the three months ended June 30, 2023.
Comparison of the Six Months Ended June 30, 2024 and 2023
The following table sets forth key components of our results of continued operations during the six months ended June 30, 2024 and 2023, both in dollars and as a percentage of our revenues.
| For the Six Months Ended June 30, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Amount | % of Revenues | Amount | % of Revenues | |||||||||||||
| Revenues | $ | 30,414,856 | 100.0 | % | $ | 30,327,696 | 100.0 | % | ||||||||
| Operating expenses | ||||||||||||||||
| Cost of revenues | 18,083,074 | 59.5 | % | 19,488,597 | 64.3 | % | ||||||||||
| Personnel | 6,522,258 | 21.4 | % | 5,416,230 | 17.9 | % | ||||||||||
| Depreciation and amortization | 845,930 | 2.8 | % | 1,099,200 | 3.6 | % | ||||||||||
| General and administrative | 4,528,480 | 14.9 | % | 3,851,794 | 12.7 | % | ||||||||||
| Professional fees | 4,872,222 | 16.0 | % | 873,722 | 2.9 | % | ||||||||||
| Impairment of goodwill and intangible assets | 1,216,966 | 4.0 | % | - | - | |||||||||||
| Total operating expenses | 36,068,930 | 118.6 | % | 30,729,543 | 101.3 | % | ||||||||||
| Loss from operations | (5,654,074 | ) | (18.6 | )% | (401,847 | ) | (1.3 | )% | ||||||||
| Other income (expense) | ||||||||||||||||
| Other income | 27,837 | 0.1 | % | 51,594 | 0.2 | % | ||||||||||
| Loss on disposal of property and equipment | (13,815 | ) | (0.0 | )% | - | - | ||||||||||
| Interest expense | (2,619,489 | ) | (8.6 | )% | (2,610,777 | ) | (8.6 | )% | ||||||||
| Amortization of debt discounts | (6,604,925 | ) | (21.7 | )% | (1,185,211 | ) | (3.9 | )% | ||||||||
| Loss on extinguishment of debt | (1,200,750 | ) | (3.9 | )% | - | - | ||||||||||
| Gain on change in fair value of warrant liabilities | 1,759,600 | 5.8 | % | - | - | |||||||||||
| Loss on change in fair value of derivative liabilities | (1,903,025 | ) | (6.3 | )% | - | - | ||||||||||
| Preliminary gain on bargain purchase | - | - | 2,639,861 | 8.7 | % | |||||||||||
| Total other expense | (10,554,567 | ) | (34.7 | )% | (1,104,533 | ) | (3.6 | )% | ||||||||
| Net loss before income taxes | (16,208,641 | ) | (53.3 | )% | (1,506,380 | ) | (5.0 | )% | ||||||||
| Income tax benefit (expense) | 145,250 | 0.5 | % | (703,321 | ) | (2.3 | )% | |||||||||
| Net loss | $ | (16,063,391 | ) | (52.8 | )% | $ | (2,209,701 | ) | (7.3 | )% | ||||||
Revenues. Our total revenues were $30,414,856 for the six months ended June 30, 2024, as compared to $30,327,696 for the six months ended June 30, 2023.
Revenues from the retail and eyewear segment were $6,973,068 for the six months ended June 30, 2024 and $7,286,773 for the period from February 9, 2023 (date of acquisition) to June 30, 2023.
Revenues from the construction segment increased by $143,720, or 0.7%, to $20,560,340 for the six months ended June 30, 2024 from $20,416,620 for the six months ended June 30, 2023. The increase in revenues was primarily attributed to an increase in new multi-family projects and an increase in the average customer contract value.
Revenues from the automotive supplies segment increased by $257,145, or 9.8%, to $2,881,448 for the six months ended June 30, 2024 from $2,624,303 for the six months ended June 30, 2023. The increase in revenues was primarily attributed to an improved supply chain with manufacturers, although inventory challenges within the supply chain to meet customer demands persist.
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Cost of revenues. Our total cost of revenues was $18,083,074 for the six months ended June 30, 2024, as compared to $19,488,597 for the six months ended June 30, 2023.
Cost of revenues for the retail and eyewear segment were $4,420,530, or 63.4% of retail and eyewear revenues, for the six months ended June 30, 2024 and $5,377,551, or 73.8% of retail and eyewear revenues, for the period from February 9, 2023 (date of acquisition) to June 30, 2023.
Cost of revenues for the construction segment decreased by $805,987, or 6.4%, to $11,769,691 for the six months ended June 30, 2024 from $12,575,678 for the six months ended June 30, 2023. Such decrease was primarily attributed improved supply chain negotiations leading to better pricing and more efficient procurement, offset an increase in revenues. As a percentage of construction revenues, cost of revenues for the construction segment was 57.2% and 61.6% for the six months ended June 30, 2024 and 2023, respectively.
Cost of revenues for the automotive supplies segment increased by $357,485, or 23.3%, to $1,892,853 for the six months ended June 30, 2024 from $1,535,368 for the six months ended June 30, 2023. Such increase was primarily attributed to the corresponding increase in revenues, offset by increased product costs. As a percentage of automotive supplies revenues, cost of revenues for the automotive supplies segment was 65.7% and 58.5% for the six months ended June 30, 2024 and 2023, respectively.
Personnel costs. Our total personnel costs were $6,522,258 for the six months ended June 30, 2024, as compared to $5,416,230 for the six months ended June 30, 2023.
Personnel costs for the retail and eyewear segment were $1,253,954, or 18.0% of retail and eyewear revenues, for the six months ended June 30, 2024 and $1,319,511, or 18.1% of retail and eyewear revenues, for the period from February 9, 2023 (date of acquisition) to June 30, 2023.
Personnel costs for the construction segment increased by $728,448, or 22.0%, to $4,045,499 for the six months ended June 30, 2024 from $3,317,051 for the six months ended June 30, 2023. Such increase was primarily attributed to increased employee headcount as a result of increased revenues and corporate wage allocations. As a percentage of construction revenue, personnel costs for the construction segment were 19.7% and 16.2% for the six months ended June 30, 2024 and 2023, respectively.
Personnel costs for the automotive supplies segment decreased by $10,016, or 2.0%, to $482,113 for the six months ended June 30, 2024 from $492,129 for the six months ended June 30, 2023. Personnel costs remained consistent period over period. As a percentage of automotive supplies revenue, personnel costs for the automotive supplies segment were 16.7% and 18.8% for the six months ended June 30, 2024 and 2023, respectively.
Personnel costs for our holding company increased by $453,153, or 157.6%, to $740,692 for the six months ended June 30, 2024 from $287,539 for the six months ended June 30, 2023. Such increase was primarily attributed to accrued management bonuses and wages.
Depreciation and amortization. Our total depreciation and amortization expense decreased by $253,270, or 23.0%, to $845,930 for the six months ended June 30, 2024 from $1,099,200 for the six months ended June 30, 2023. Such decrease was primarily as a result of the impairment of intangible assets during the current and prior periods.
General and administrative expenses. Our total general and administrative expenses were $4,528,480 for the six months ended June 30, 2024, as compared to $3,851,794 for the six months ended June 30, 2023.
General and administrative expenses for the retail and eyewear segment were $992,971, or 14.2% of retail and eyewear revenues, for the six months ended June 30, 2024 and $681,087, or 9.3% of retail and eyewear revenues, for the period from February 9, 2023 (date of acquisition) to June 30, 2023.
General and administrative expenses for the construction segment increased by $207,631, or 9.0%, to $2,526,030 for the six months ended June 30, 2024 from $2,318,399 for the six months ended June 30, 2023. Such increase was primarily attributed to increased revenues, along with increases in rent and office expenditures. As a percentage of construction revenue, general and administrative expenses for the construction segment were 12.3% and 11.4% for the six months ended June 30, 2024 and 2023, respectively.
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General and administrative expenses for the automotive supplies segment increased by $3,453, or 0.8%, to $463,512 for the six months ended June 30, 2024 from $460,059 for the six months ended June 30, 2023. General and administrative costs remained consistent period over period. As a percentage of automotive supplies revenue, general and administrative expenses for the automotive supplies segment were 16.1% and 17.5% for the six months ended June 30, 2024 and 2023, respectively.
General and administrative expenses for our holding company increased by $153,718, or 39.2%, to $545,967 for the six months ended June 30, 2024 from $392,249 for the six months ended June 30, 2023. Such increase was primarily attributed to increased insurance expenses and board fees.
Professional fees. Our total professional fees were $4,872,222 for the six months ended June 30, 2024, as compared to $873,722 for the six months ended June 30, 2023.
Professional fees for the retail and eyewear segment were $625,333, or 9.0% of retail and eyewear revenues, for the six months ended June 30, 2024 and $194,348, or 2.7% of retail and eyewear revenues, for the period from February 9, 2023 (date of acquisition) to June 30, 2023.
Professional fees for the construction segment increased by $21,196, or 17.8%, to $140,021 for the six months ended June 30, 2024 from $118,825 for the six months ended June 30, 2023. Such increase was primarily attributed to increased consulting fees. As a percentage of construction revenue, professional fees for the construction segment were 0.7% and 0.6% for the six months ended June 30, 2024 and 2023, respectively.
Professional fees for the automotive supplies segment increased by $74,136, or 68.6%, to $182,134 for the six months ended June 30, 2024 from $107,998 for the six months ended June 30, 2023. Such increase was primarily attributed to increased consulting fees. As a percentage of automotive supplies revenue, professional fees for the automotive supplies segment were 6.3% and 4.1% for the six months ended June 30, 2024 and 2023, respectively.
Professional fees for our holding company increased by $3,472,183, or 767.2%, to $3,924,734 for the six months ended June 30, 2024 from $452,551 for the six months ended June 30, 2023. Such increase was primarily attributed to increased consulting fees, investor relations, and other public company related fees. Additionally, during the period, we prepaid $2.5 million in non-recurring consulting and investor relations fees using the proceeds from the public offering described below. Of this amount, $2.4 million was expensed to professional fees for the six months ended June 30, 2024.
Impairment of goodwill and intangible assets. For the six months ended June 30, 2024, we recorded goodwill impairments of $757,283 and intangible asset impairments of $459,683, as compared to no impairments for the six months ended June 30, 2023.
Total other income (expense). We had total other expense, net of $10,554,567 for the six months ended June 30, 2024, as compared to $1,104,533 for the six months ended June 30, 2023. Other expense, net, for the six months ended June 30, 2024 consisted of interest expense of $2,619,489, amortization of debt discounts of $6,604,925, loss on extinguishment of debt of $1,200,750, loss on change in fair value of derivative liabilities of $1,903,025, and a loss on disposal of property of equipment of $13,815, offset by a gain on change in fair value of warrant liabilities of $1,759,600 and other income of $27,837. Other expense, net, for the six months ended June 30, 2023, consisted of interest expense of $2,610,777 and amortization of debt discounts of $1,185,211, offset by a preliminary gain on bargain purchase of $2,639,861 related to the acquisition of ICU Eyewear and other income of $51,594.
Income tax benefit (expense). We had an income tax benefit of $145,250 and an income tax expense of $703,321 for the six months ended June 30, 2024 and 2023, respectively.
Net loss from continuing operations. As a result of the cumulative effect of the factors described above, we had a net loss of $16,063,391 for the six months ended June 30, 2024, as compared to $2,209,701 for the six months ended June 30, 2023.
Liquidity and Capital Resources
As of June 30, 2024, we had cash and cash equivalents of $800,989. To date, we have financed our operations primarily through revenue generated from operations, cash proceeds from financing activities, borrowings, and equity contributions by our shareholders.
Management plans to address the above as needed by, securing additional bank lines of credit, and obtaining additional financing through debt or equity transactions. Management has implemented tight cost controls to conserve cash.
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The ability of our company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and to eventually attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if our company is unable to continue as a going concern. If our company is unable to obtain adequate capital, it could be forced to cease operations.
We believe additional funds are required to execute our business plan and our strategy of acquiring additional businesses. The funds required to execute our business plan will depend on the size, capital structure and purchase price consideration that the seller of a target business deems acceptable in a given transaction. The amount of funds needed to execute our business plan also depends on what portion of the purchase price of a target business the seller of that business is willing to take in the form of seller notes or our equity or equity in one of our subsidiaries. We will seek growth as funds become available from cash flow, borrowings, additional capital raised privately or publicly, or seller retained financing.
Our primary use of funds will be for future acquisitions, public company expenses including regular distributions to our shareholders, investments in future acquisitions, payments to our manager pursuant to the management services agreement, potential payment of profit allocation to our manager and potential put price to our manager in respect of the allocation shares it owns. The management fee, expenses, potential profit allocation and potential put price are paid before distributions to shareholders and may be significant and exceed the funds we hold, which may require us to dispose of assets or incur debt to fund such expenditures. See Item 1. “Business—Our Manager” included in our Annual Report on Form 10-K for the year ended December 31, 2023 for more information concerning the management fee, the profit allocation and put price.
The amount of management fee paid to our manager by us is reduced by the aggregate amount of any offsetting management fees, if any, received by our manager from any of our businesses. As a result, the management fee paid to our manager may fluctuate from quarter to quarter. The amount of management fee paid to our manager may represent a significant cash obligation. In this respect, the payment of the management fee will reduce the amount of cash available for distribution to shareholders.
Our manager, as holder of 100% of our allocation shares, is entitled to receive a twenty percent (20%) profit allocation as a form of preferred equity distribution, subject to an annual hurdle rate of eight percent (8%), as follows. Upon the sale of a subsidiary, our manager will be paid a profit allocation if the sum of (i) the excess of the gain on the sale of such subsidiary over a high-water mark plus (ii) the subsidiary’s net income since its acquisition by us exceeds the 8% hurdle rate. The 8% hurdle rate is the product of (i) a 2% rate per quarter, multiplied by (ii) the number of quarters such subsidiary was held by us, multiplied by (iii) the subsidiary’s average share (determined based on gross assets, generally) of our consolidated net equity (determined according to U.S. generally accepted accounting principles, or GAAP, with certain adjustments). In certain circumstances, after a subsidiary has been held for at least 5 years, our manager may also trigger a profit allocation with respect to such subsidiary (determined based solely on the subsidiary’s net income since its acquisition). The amount of profit allocation may represent a significant cash payment and is senior in right to payments of distributions to our shareholders. Therefore, the amount of profit allocation paid, when paid, will reduce the amount of cash available to us for our operating and investing activities, including future acquisitions. See Item 1. “Business—Our Manager—Our Manager as an Equity Holder—Manager’s Profit Allocation” included in our Annual Report on Form 10-K for the year ended December 31, 2023 for more information on the calculation of the profit allocation.
The last occurrence of profit allocation distribution to our manager by our company was during the fourth quarter of 2020, concurrent with the spin-off of a former subsidiary. Following the profit allocation distribution to our manager, our board of directors identified a need to adjust the distribution to our manager, which resulted in the recognition of a $2 million distribution receivable from our manager within shareholders’ equity, with repayment anticipated upon the occurrence of the next qualified profit allocation distribution event.
On April 23, 2024, we and our manager entered into a letter agreement regarding the timing of payment of the distribution receivable, pursuant to which the parties agreed to treat the distribution receivable as a $2,000,000, plus interest accrued thereon at a non-compounding rate equal to the applicable federal rate, unqualified obligation of our manager to be repaid as a credit against all future profit allocations resulting from both a sale event and a holding event payable to our manager, all until the distribution receivable is fully paid, provided that, if the distribution receivable is not fully paid by the application of such credit or otherwise by the first to occur of (i) December 31, 2024 and (ii) the date of the sale of all or substantially all the assets (in a transaction of any form) or the liquidation, dissolution or winding up, voluntary or involuntary, of either party, then upon such date the unpaid balance shall be immediately due, payable and paid by our manager.
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Our operating agreement also contains a supplemental put provision, which gives our manager the right, subject to certain conditions, to cause us to purchase the allocation shares then owned by our manager upon termination of the management services agreement. The amount of put price under the supplemental put provision is determined by assuming all of our subsidiaries are sold at that time for their fair market value and then calculating the amount of profit allocation would be payable in such a case. If the management services agreement is terminated for any reason other than our manager’s resignation, the payment to our manager could be as much as twice the amount of such hypothetical profit allocation. As is the case with profit allocation, the calculation of the put price is complex and based on many factors that cannot be predicted with any certainty at this time. See Item 1. “Business—Our Manager—Our Manager as an Equity Holder—Supplemental Put Provision” included in our Annual Report on Form 10-K for the year ended December 31, 2023 for more information on the calculation of the put price. The put price obligation, if our manager exercises its put right, will represent a significant cash payment and is senior in right to payments of distributions to our shareholders. Therefore, the amount of put price will reduce the amount of cash available to us for our operating and investing activities, including future acquisitions.
Summary of Cash Flow
The following table provides detailed information about our net cash flows from continuing operations for the periods indicated:
| Six
Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (3,897,532 | ) | $ | (2,428,145 | ) | ||
| Net cash used in investing activities | - | (3,895,670 | ) | |||||
| Net cash provided by financing activities | 3,966,577 | 5,938,520 | ||||||
| Net change in cash and cash equivalents | 69,045 | (385,295 | ) | |||||
| Cash and cash equivalents at the beginning of period | 731,944 | 868,944 | ||||||
| Cash and cash equivalents at the end of period | $ | 800,989 | $ | 483,649 | ||||
Net cash used in operating activities was $3,897,532 for the six months ended June 30, 2024, as compared to $2,428,145 for the six months ended June 30, 2023. Significant factors affecting the increase in net cash used in operating activities were primarily a result of the net loss during the six months ended June 30, 2024, decreased contract liabilities, inventories and prepaid expenses, partially offset by decreased receivables and prepaid expenses, and increased account payable and accrued expenses.
Net cash used in investing activities was $0 for the six months ended June 30, 2024, as compared to $3,895,670 for the six months ended June 30, 2023. The decrease in the net cash used in investing activities was primarily a result of the cash paid for the acquisition of ICU Eyewear during the six months ended June 30, 2023.
Net cash provided by financing activities was $3,966,577 for the six months ended June 30, 2024, as compared to $5,938,520 for the six months ended June 30, 2023. The decrease in the net cash provided by financing activities was primarily a result of decreased proceeds in private placements and revolving loans, increased debt repayments, offset by increased proceeds from public offerings.
Public Offering
On February 9, 2024, we entered into a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan Capital Securities, LLC, or Spartan, pursuant to which we agreed to issue and sell to such purchasers an aggregate of 140,457 common shares and prefunded warrants for the purchase of 244,161 common shares at an offering price of $13.00 per common share and $12.87 per prefunded warrant, pursuant to our effective registration statement on Form S-1 (File No. 333-276670). On February 14, 2024, the closing of this offering was completed. At the closing, the purchasers prepaid the exercise price of the prefunded warrants in full. Therefore, we received total gross proceeds of $5,000,000. Pursuant to the placement agency agreement, Spartan received a cash transaction fee equal to 8% of the aggregate gross proceeds and reimbursement of certain out-of-pocket expenses. After deducting these and other offering expenses, we received net proceeds of approximately $4,335,000. During the six months ended June 30, 2024, we issued an aggregate of 174,126 common shares upon the exercise of prefunded warrants.
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Debt
The following table shows aggregate figures for our total debt that is coming due in the short and long term as of June 30, 2024. For a complete description of the terms of our outstanding debt, please see Note 10 to our condensed consolidated financial statements above and Notes 10, 12, 13 and 14 to our consolidated financial statements for the years ended December 31, 2023 and 2022 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission, or the SEC, on April 25, 2024.
| Short-Term | Long-Term | Total Debt | ||||||||||
| Notes Payable | ||||||||||||
| Vehicle loans | $ | 85,972 | $ | 213,663 | $ | 299,635 | ||||||
| 6% Amortizing promissory note | 562,411 | - | 562,411 | |||||||||
| 6% Subordinated promissory note | 500,000 | - | 500,000 | |||||||||
| Purchase and sale of future revenues loan | 786,000 | - | 786,000 | |||||||||
| 12% subordinated promissory note for services | 500,000 | - | 500,000 | |||||||||
| 20% OID subordinated promissory notes | 6,906,250 | - | 6,906,250 | |||||||||
| 25% OID subordinated promissory note | 666,667 | - | 666,667 | |||||||||
| Total notes payable | 10,007,300 | 213,663 | 10,220,963 | |||||||||
| Less: debt discounts | (1,127,258 | ) | - | (1,127,258 | ) | |||||||
| Total notes payable, net | 8,880,042 | 213,663 | 9,093,705 | |||||||||
| Related Party Notes Payable | ||||||||||||
| Related party promissory note | 578,290 | - | 578,290 | |||||||||
| Convertible Notes Payable | ||||||||||||
| Secured convertible promissory notes | - | 24,110,000 | 24,110,000 | |||||||||
| 6% subordinated convertible promissory notes | 2,520,346 | - | 2,520,346 | |||||||||
| Promissory notes issued in private placements | 724,281 | - | 724,281 | |||||||||
| Total convertible notes payable | 3,244,627 | 24,110,000 | 27,354,627 | |||||||||
| Less: debt discounts | (46,396 | ) | (1,463,312 | ) | (1,509,708 | ) | ||||||
| Total convertible notes payable, net | 3,198,231 | 22,646,688 | 25,844,919 | |||||||||
| Revolving Line of Credit | ||||||||||||
| Revolving loan | 3,691,558 | - | 3,691,558 | |||||||||
| Less: debt discounts | - | - | - | |||||||||
| Total revolving line of credit | 3,691,558 | - | 3,691,558 | |||||||||
| Finance Leases | ||||||||||||
| Financing leases | 177,030 | 515,490 | 692,520 | |||||||||
| Combined total debt | $ | 17,698,805 | $ | 24,839,153 | $ | 42,537,958 | ||||||
| Less: combined debt discounts | (1,173,654 | ) | (1,463,312 | ) | (2,636,966 | ) | ||||||
| Combined total debt, net | $ | 16,525,151 | $ | 23,375,841 | $ | 39,900,992 | ||||||
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Contractual Obligations
Our principal commitments consist mostly of obligations under the loans described above and other contractual commitments described below.
We have engaged our manager to manage our day-to-day operations and affairs. Our relationship with our manager will be governed principally by the following agreements:
| ● | the management services agreement and offsetting management services agreements relating to the management services our manager will perform for us and the businesses we own and the management fee to be paid to our manager in respect thereof; and |
| ● | our operating agreement setting forth our manager’s rights with respect to the allocation shares it owns, including the right to receive profit allocations from us, and the supplemental put provision relating to our manager’s right to cause us to purchase the allocation shares it owns. |
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
The preparation of the unaudited condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
For a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on April 25, 2024.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not applicable.
| ITEM 4. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2024, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. As a result of this evaluation, our chief executive officer and chief financial officer have concluded that, as of June 30, 2024, our disclosure controls and procedures were not effective due to the material weaknesses described below. Notwithstanding the identified material weaknesses, management, including our chief executive officer and chief financial officer, believes the consolidated financial statements included in this report fairly represent, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in accordance with GAAP.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure
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Changes in Internal Control Over Financial Reporting
We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
During its evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2024, our management identified the following material weaknesses:
| ● | we do not have written documentation of our internal control policies and procedures, including written policies and procedures to ensure the correct application of accounting and financial reporting with respect to the current requirements of GAAP and SEC disclosure requirements; |
| ● | we failed to maintain a sufficient complement of personnel in our accounting and reporting department to ensure adequate segregation of duties such that appropriate review and monitoring of its financial records are executed; and |
| ● | we did not design and maintain effective internal controls related to our information technology general controls in the areas of user access and program change-management over certain information technology systems that support our financial reporting processes. |
As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, our management has identified the steps necessary to address the material weaknesses, and in the second quarter of 2024, we continued to implement the following remedial procedures:
| ● | increasing personnel resources and technical accounting expertise within the accounting function; |
| ● | until we have sufficient technical accounting resources, we have engaged external consultants to provide support and to assist us in our evaluation of more complex applications of GAAP; |
| ● | engaging internal control consultants to assist us in performing a financial reporting risk assessment as well as identifying and designing our system of internal controls necessary to mitigate the risks identified; and |
| ● | preparation of written documentation of our internal control policies and procedures. |
We continue to enhance corporate oversight over process-level controls and structures to ensure that there is appropriate assignment of authority, responsibility, and accountability to enable remediation of our material weaknesses. We believe that our remediation plan will be sufficient to remediate the identified material weaknesses and strengthen our internal control over financial reporting. As we continue to evaluate, and work to improve, our internal control over financial reporting, management may determine that additional measures to address control deficiencies or modifications to the remediation plan are necessary.
Other than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls over financial reporting during the second quarter of 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS. |
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
| ITEM 1A. | RISK FACTORS. |
Not applicable.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
Except as set forth below, we have not sold any equity securities during the three months ended June 30, 2024 that were not previously disclosed in a current report on Form 8-K that was filed during the quarter.
On June 28, 2024, our subsidiaries 1847 Cabinet, High Mountain, Innovative Cabinets and Kyle’s issued an original issue discount, or OID, promissory note in the principal amount of up to $2,472,000, to be advanced in one or more tranches, to the Lender. In connection with the issuance of the note, we entered into a memorandum of understanding with the Lender, pursuant to which we agreed to issue to the Lender upon the closing of each tranche under the note series D senior convertible preferred shares with a stated value equal to the principal amount of each such tranche. On June 28, 2024, the parties executed tranche No. 1 in the principal amount of $666,667 for total cash proceeds of $475,000. In connection with such tranche, we issued 1,966,570 series D senior convertible preferred shares to the Lender.
We did not repurchase any of our common shares during the three months ended June 30, 2024.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES. |
Not applicable.
| ITEM 5. | OTHER INFORMATION. |
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| ITEM 6. | EXHIBITS. |
41
| * | Filed herewith |
| ** | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: August 19, 2024 | 1847 HOLDINGS LLC |
| /s/ Ellery W. Roberts | |
| Name: Ellery W. Roberts | |
| Title: Chief Executive Officer | |
| (Principal Executive Officer) | |
| /s/ Vernice L. Howard | |
| Name: Vernice L. Howard | |
| Title: Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
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