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
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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
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has been subject to such filing requirements for the past 90 days.
Indicate
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405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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| Smaller reporting company | ||
| Emerging growth company |
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As of November 11, 2022, there were
1847 HOLDINGS LLC
Quarterly Report on Form 10-Q
Period Ended September 30, 2022
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 | 25 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 43 |
| Item 4. | Controls and Procedures | 43 |
PART II
OTHER INFORMATION
| Item 1. | Legal Proceedings | 45 |
| Item 1A. | Risk Factors | 45 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 45 |
| Item 3. | Defaults Upon Senior Securities | 45 |
| Item 4. | Mine Safety Disclosures | 45 |
| Item 5. | Other Information | 45 |
| Item 6. | Exhibits | 46 |
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
| September 30,
2022 | December 31,
2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Investments | ||||||||
| Receivables, net | ||||||||
| Contract assets | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other long-term assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Contract liabilities | ||||||||
| Customer deposits | ||||||||
| 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 contingent note payable | ||||||||
| 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 | ||||||||
| Contingent note payable, net of current portion | ||||||||
| Deferred tax liability, net | ||||||||
| TOTAL LIABILITIES | ||||||||
| Mezzanine Equity | ||||||||
| Series A senior convertible preferred shares | ||||||||
| TOTAL MEZZANINE EQUITY | ||||||||
| Shareholders’ Deficit | ||||||||
| Series A senior convertible preferred shares, par value, | ||||||||
| Series B senior convertible preferred shares, par value, | ||||||||
| Allocation shares, | ||||||||
| Common shares, $ | ||||||||
| Distribution receivable | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL 1847 HOLDINGS SHAREHOLDERS’ EQUITY (DEFICIT) | ( | ) | ||||||
| NON-CONTROLLING INTERESTS | ||||||||
| TOTAL SHAREHOLDERS’ EQUITY (DEFICIT) | ( | ) | ||||||
| TOTAL LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY (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 September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Personnel | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Other income | - | |||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on forgiveness of debt | ||||||||||||||||
| Gain on disposal of property and equipment | ||||||||||||||||
| Gain on disposition of subsidiary | ||||||||||||||||
| Loss on extinguishment of debt | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss on write-down of contingent note payable | ( | ) | ( | ) | ||||||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ||||||||||
| INCOME TAX BENEFIT FROM CONTINUING OPERATIONS | ||||||||||||||||
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||||||
| NET INCOME FROM DISCONTINUED OPERATIONS | ||||||||||||||||
| NET INCOME (LOSS) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS FROM DISCONTINUED OPERATIONS | ||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO 1847 HOLDINGS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO 1847 HOLDINGS | ( | ) | ( | ) | ( | ) | ||||||||||
| NET INCOME FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO 1847 HOLDINGS | ||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO 1847 HOLDINGS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| PREFERRED SHARE DIVIDENDS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| DEEMED DIVIDEND RELATED TO DOWN ROUND PROVISION IN WARRANTS | ( | ) | ( | ) | ||||||||||||
| NET LOSS ATTRIBUTABLE TO 1847 HOLDINGS COMMON SHAREHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| LOSS PER COMMON SHARE ATTRIBUTABLE TO 1847 HOLDINGS COMMON SHAREHOLDERS | ||||||||||||||||
| BASIC | ||||||||||||||||
| LOSS PER COMMON SHARE FROM CONTINUING OPERATIONS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| EARNINGS PER COMMON SHARE FROM DISCONTINUED OPERATIONS | ||||||||||||||||
| LOSS PER COMMON SHARE | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| DILUTED | ||||||||||||||||
| LOSS PER COMMON SHARE FROM CONTINUING OPERATIONS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| EARNINGS PER COMMON SHARE FROM DISCONTINUED OPERATIONS | ||||||||||||||||
| LOSS PER COMMON SHARE | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||||||||||
| BASIC | ||||||||||||||||
| DILUTED | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
1847 HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
Three and Nine Months Ended September 30, 2022
| Series A Senior Convertible Preferred Shares | Series B Senior Convertible Preferred Shares | Allocation | Common Shares | Distribution | Additional Paid-In | Accumulated | Non- Controlling | Total Shareholders’ | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Shares | Amount | Receivable | Capital | Deficit | Interests | (Deficit) | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of series A preferred shares | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series B convertible preferred shares and warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends - common shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Dividends - series B senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||||||
| Issuance of series B convertible preferred shares and warrants | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Dividends - series B senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||||||
| Issuance of warrants in connection with notes payable | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon cashless exercise of warrants | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon partial extinguishment of convertible notes payable | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon partial extinguishment of contingent note payable | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon settlement of debt | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of preferred shares from mezzanine equity to permanent equity | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares and warrants in connection with a public offering | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of series A senior convertible preferred shares | ( | ) | ( | ) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Redemption of series B senior convertible preferred shares | - | ( | ) | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Dividends - common shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Dividends - series B senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Deemed dividends - down round provision in warrants | - | - | - | - | - | - | - | - | ( | ) | - | - | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||||||
4
1847 HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
Three and Nine Months Ended September 30, 2021
| Series A Senior Convertible Preferred Shares | Series B Senior Convertible Preferred Shares | Allocation | Common Shares | Distribution | Additional Paid-In | Accumulated | Non- Controlling | Total Shareholders’ | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Shares | Amount | Receivable | Capital | Deficit | Interests | (Deficit) | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Issuance of series A senior convertible preferred shares and warrants | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common adjustment shares | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Accrued dividend payable | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
| Accrued dividend payable | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | - | $ | - | $ | $ | $ | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
1847 HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine
Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Loss from discontinued operations | ( | ) | ||||||
| Gain on disposition of subsidiary | ( | ) | ||||||
| Gain on forgiveness of debt | ( | ) | ||||||
| Gain on disposal of property and equipment | ( | ) | ( | ) | ||||
| Loss on adjustment shares | ||||||||
| Loss on extinguishment of debt | ||||||||
| Loss on write-down of contingent note payable | ||||||||
| Deferred tax asset (liability) | ( | ) | ( | ) | ||||
| 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 | ( | ) | ||||||
| Other assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Contract liabilities | ( | ) | ( | ) | ||||
| Customer deposits | ( | ) | ||||||
| Due to related parties | ||||||||
| 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 | ||||||||
| Net paid in acquisitions | ( | ) | ||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from disposal of property and equipment | ||||||||
| Investments in certificates of deposit | ( | ) | ||||||
| Net cash used in investing activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by investing activities from discontinued operations | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from notes payable | ||||||||
| Net proceeds from issuance of common shares and warrants in public offering | ||||||||
| Net proceeds from issuance of series A senior convertible preferred shares | ||||||||
| Net proceeds from issuance of series B senior convertible preferred shares | ||||||||
| Proceeds from line of credit | ||||||||
| Repayments of notes payable and finance lease liabilities | ( | ) | ( | ) | ||||
| Repayments to sellers | ( | ) | ||||||
| Cash paid for financing costs | ( | ) | ||||||
| Redemption of series A senior convertible preferred shares | ( | ) | ||||||
| Redemption of series B senior convertible preferred shares | ( | ) | ||||||
| Dividends on series A senior convertible preferred shares | ( | ) | ( | ) | ||||
| Dividends on series B senior convertible preferred shares | ( | ) | ||||||
| Dividends on common shares | ( | ) | ||||||
| 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 | ( | ) | ||||||
| NET CHANGE IN CASH AND CASH EQUIVALENT FROM DISCONTINUED OPERATIONS | ||||||||
| CASH AND CASH EQUIVALENTS AVAILABLE FROM DISCONTINUED OPERATIONS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS | ||||||||
| Beginning of the period | ||||||||
| 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 | ||||||||
| Issuance of common shares upon conversion of series A preferred shares | $ | $ | ||||||
| Issuance of common shares upon cashless exercise of warrants | $ | $ | ||||||
| Deemed dividend from down round provision in warrants | $ | $ | ||||||
| Financed purchases of property and equipment | $ | $ | ||||||
| Debt discount on notes payable issued with warrants | $ | $ | ||||||
| Operating lease right-of-use asset and liability remeasurement | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(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 information and footnotes required by GAAP for complete financial statements. The December 31, 2021 consolidated balance sheet data was derived from audited financial statements but do not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 31, 2022. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. 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 nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
Reverse Share Split
On August 2, 2022, we effected a 1-for-4 reverse split of our outstanding common shares. All outstanding common shares and warrants were adjusted to reflect the 1-for-4 reverse split, with respective exercise prices of the warrants proportionately increased. The outstanding convertible notes and series A and B convertible senior 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.”
Reclassifications
Certain reclassifications within property and equipment, notes payable, preferred shares, and operating expenses have been made to 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.
Sequencing
Under ASC 815-40-35 (“ASC 815”), the Company has adopted a sequencing policy, whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest maturity date of potentially dilutive instruments first, with the earliest maturity date of grants receiving the first allocation of shares. Pursuant to ASC 815, issuances of securities to the Company’s employees and directors, or to compensate grantees in a share-based payment arrangement, are not subject to the sequencing policy.
7
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
NOTE 2—RECENT ACCOUNTING PRONOUCEMENTS
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. This pronouncement was amended under ASU 2019-10 to allow an extension on the adoption date for entities that qualify as a small reporting company. The Company has elected this extension and the effective date for the Company to adopt this standard will be for fiscal years beginning after December 15, 2022. The Company has not completed its assessment of the standard but does not expect the adoption to have a material impact on our condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06 Accounting for Convertible Instruments and Contracts In An Entity’s Own Equity. ASU 2020-06 simplifies the accounting for certain convertible instruments by removing the separation models for convertible debt with a cash conversion feature and for convertible instruments with a beneficial conversion feature. As a result, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, ASU 2020-06 amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The treasury stock method is no longer available. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted this guidance on January 1, 2022. The Company’s adoption of this update did not have a material impact on the condensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU amends ASC 805 to require acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in business combinations. The ASU is effective for public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This ASU should be applied prospectively to acquisitions occurring on or after the effective date of December 15, 2022, and early adoption is permitted. The Company adopted this guidance on January 1, 2022. The Company’s adoption of this update did not have a material impact on the condensed consolidated financial statements.
NOTE 3—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 consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.
As
of September 30, 2022, the Company had cash and cash equivalents of $
Management has prepared estimates of operations for fiscal year 2022 and 2023 believes that sufficient funds will be generated from operations to fund its operations and to service its debt obligations for one year from the date of the filing of these condensed consolidated financial statements, which indicate improved operations and the Company’s ability to continue operations as a going concern. The impact of COVID-19 on the Company’s business has been considered in these assumptions; however, it is too early to know the full impact of COVID-19 or its timing on a return to more normal operations.
8
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
The accompanying condensed consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business. Management believes that based on relevant conditions and events that are known and reasonably knowable that its forecasts for one year from the date of the filing of these condensed consolidated financial statements. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period.
NOTE 4—DISAGGREGATION OF REVENUES AND SEGMENT REPORTING
The
Company has
The Retail and Appliances Segment provides a wide variety of appliance products (laundry, refrigeration, cooking, dishwashers, outdoor, accessories, parts, and other appliance related products) and services (delivery, installation, service and repair, extended warranties, and financing).
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 offers vehicle emergency and safety warning lights for cars, trucks, industrial equipment, and emergency vehicles.
The Company provides general corporate services to its segments; however, these services are not considered when making operating decisions and assessing segment performance. These services are reported under “Corporate Services” below and these include costs associated with executive management, financing activities and public company compliance.
The Company’s revenues for the three and nine months ended September 30, 2022 and 2021 are disaggregated as follows:
| Three Months Ended September 30, 2022 | ||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Total | |||||||||||||
| Revenues | ||||||||||||||||
| Appliances | $ | $ | $ | $ | ||||||||||||
| Appliance accessories, parts, and other | ||||||||||||||||
| Automotive horns | ||||||||||||||||
| Automotive lighting | ||||||||||||||||
| Custom cabinets and countertops | ||||||||||||||||
| Finished carpentry | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| Three Months Ended September 30, 2021 | ||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Total | |||||||||||||
| Revenues | ||||||||||||||||
| Appliances | $ | $ | $ | $ | ||||||||||||
| Appliance accessories, parts, and other | ||||||||||||||||
| Automotive horns | ||||||||||||||||
| Automotive lighting | ||||||||||||||||
| Custom cabinets and countertops | ||||||||||||||||
| Finished carpentry | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
9
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
| Nine Months Ended September 30, 2022 | ||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Total | |||||||||||||
| Revenues | ||||||||||||||||
| Appliances | $ | $ | $ | $ | ||||||||||||
| Appliance accessories, parts, and other | ||||||||||||||||
| Automotive horns | ||||||||||||||||
| Automotive lighting | ||||||||||||||||
| Custom cabinets and countertops | ||||||||||||||||
| Finished carpentry | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Total | |||||||||||||
| Revenues | ||||||||||||||||
| Appliances | $ | $ | $ | $ | ||||||||||||
| Appliance accessories, parts, and other | ||||||||||||||||
| Automotive horns | ||||||||||||||||
| Automotive lighting | ||||||||||||||||
| Custom cabinets and countertops | ||||||||||||||||
| Finished carpentry | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
Segment information for the three and nine months ended September 30, 2022 and 2021 is as follows:
| Three Months Ended September 30, 2022 | ||||||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Corporate Services | Total | ||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||
| Personnel | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||
| Income (loss) from Operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| Three Months Ended September 30, 2021 | ||||||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Corporate Services | Total | ||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||
| Personnel | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||
| Income (Loss) from Operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
10
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Corporate Services | Total | ||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||
| Personnel | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||
| Income (Loss) from Operations | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Corporate Services | Total | ||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Operating expenses | - | |||||||||||||||||||
| Cost of sales | ||||||||||||||||||||
| Personnel | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||
| Income (Loss) from Operations | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||
NOTE 5—PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Equipment and machinery | $ | $ | ||||||
| Office furniture and equipment | ||||||||
| Transportation equipment | ||||||||
| Leasehold improvements | ||||||||
| Total property and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three and nine months ended September 30, 2022 was $
NOTE 6—INTANGIBLE ASSETS
Intangible assets at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Customer relationships | $ | $ | ||||||
| Marketing-related | ||||||||
| Technology-related | ||||||||
| Total intangible assets | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
11
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Amortization
expense for the three and nine months ended September 30, 2022 was $
Estimated amortization expense for intangible assets for the next five years consists of the following as of September 30, 2022:
| Year Ending December 31, | Amount | |||
| 2022 – remaining | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
NOTE 7—SELECTED ACCOUNT INFORMATION
Receivables at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Vendor rebates receivable | ||||||||
| Credit card payments in process of settlement | ||||||||
| Retainage | ||||||||
| Total receivables | ||||||||
| Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Total receivables, net | $ | $ | ||||||
Inventories at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Appliances | $ | $ | ||||||
| Automotive | ||||||||
| Construction | ||||||||
| Total inventories | ||||||||
| Less reserve for obsolescence | ( | ) | ( | ) | ||||
| Total inventories, net | $ | $ | ||||||
Inventory balances are composed of finished goods. Raw materials and work in process inventory are immaterial to the condensed consolidated financial statements.
Accounts payable and accrued expenses at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Trade accounts payable | $ | $ | ||||||
| Credit cards payable | ||||||||
| Accrued payroll liabilities | ||||||||
| Accrued interest | ||||||||
| Accrued dividends | ||||||||
| Other accrued liabilities | ||||||||
| Total accounts payable and accrued expenses | $ | $ | ||||||
12
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
NOTE 8—LEASES
Operating Leases
In
April 2022, the Company entered into a lease amendment to renew its office and warehouse space in the automotive supplies segment, located
in Deer Park, New York. The lease renewal will commence on August 1, 2022 and shall expire on July 31, 2025. Under the terms of the lease
renewal, the Company will lease the premises at the monthly rate of $
The following was included in our condensed consolidated balance sheet at September 30, 2022 and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Lease liabilities, current portion | ||||||||
| Lease liabilities, long-term | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Weighted-average remaining lease term (months) | ||||||||
| Weighted average discount rate | % | % | ||||||
Rent
expense for the three and nine months ended September 30, 2022 was $
As of September 30, 2022, maturities of operating lease liabilities were as follows:
| Year Ending December 31, | Amount | |||
| 2022 – remaining | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | ||||
| Less: imputed interest | ( | ) | ||
| Total operating lease liabilities | $ | |||
Finance Leases
On
March 28, 2022, the Company entered an equipment financing lease to purchase machinery and equipment totaling $
On
April 11, 2022, the Company entered in an equipment financing lease to purchase machinery and equipment totaling $
On
July 13, 2022, the Company entered in an equipment financing lease to purchase machinery and equipment totaling $
13
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
As of September 30, 2022, maturities of finance lease liabilities were as follows:
| Year Ending December 31, | Amount | |||
| 2022 – remaining | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total payments | ||||
| Less: amount representing interest | ( | ) | ||
| Present value of minimum finance lease payments | $ | |||
As
of September 30, 2022, the weighted-average remaining lease term for all finance leases is
NOTE 9—ACQUISITIONS
On
March 30, 2021, the Company acquired
On
October 8, 2021, the Company acquired
Pro Forma Information
The following unaudited pro forma results presented below include the effects of the Wolo, High Mountain and Sierra Homes acquisitions as if they had been consummated as of January 1, 2021, with adjustments to give effect to pro forma events that are directly attributable to the acquisitions.
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Net income (loss) attributable to common shareholders’ | ( | ) | ( | ) | ( | ) | ||||||||||
| Earnings (loss) per share attributable to common shareholders’: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
These unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been if the acquisitions had occurred at the beginning of the period presented, nor are they indicative of future results of operations.
14
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
NOTE 10—RELATED PARTIES
Management Services Agreement
Offsetting Management Services Agreements
The
Company’s subsidiary 1847 Asien Inc. (“1847 Asien”) entered into an offsetting management services agreement with the
Manager on May 28, 2020, the Company’s subsidiary 1847 Cabinet Inc. (“1847 Cabinet”) entered into an offsetting management
services agreement with the Manager on August 21, 2020 (which was amended and restated on October 8, 2021) and the Company’s subsidiary
1847 Wolo Inc. (“1847 Wolo”) entered into an offsetting management services agreement with the Manager on March 30, 2021.
1847
Asien expensed management fees of $
1847
Cabinet expensed management fees of $
1847
Wolo expensed management fees of $
On
a consolidated basis, the Company expensed total management fees of $
Advances
From
time to time, the Company has received advances from its chief executive officer to meet short-term working capital needs. As of September
30, 2022 and December 31, 2021, a total of $
As
of September 30, 2022 and December 31, 2021, the Manager has funded the Company $
15
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Building Lease
On
September 1, 2020, Kyle’s entered into an industrial lease agreement with Stephen Mallatt, Jr. and Rita Mallatt, who are officers
of Kyle’s and principal shareholders of the Company. The lease is for a term of five years, with an option for a renewal term of
five years and provides for a base rent of $
The
total rent expense under this related party leases was $
NOTE 11—MEZZANINE EQUITY
Series A Senior Convertible Preferred Shares
On
September 30, 2020, the Company executed a share designation, which was amended on November 20, 2020, March 26, 2021 and September 29,
2021, to designate
Ranking. The series A 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 A senior convertible preferred shares; (ii) on parity with the series B senior convertible preferred shares and each other class or series that is not expressly subordinated or made senior to the series A senior convertible preferred shares; and (iii) junior to 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 A senior convertible preferred shares.
Dividend
Rights. Holders of series A 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
A 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 A senior convertible preferred shares shall be entitled to receive an amount
of cash equal to
16
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Voting Rights. The series A senior convertible preferred shares do not have any voting rights; provided that, so long as any series A senior convertible preferred shares are outstanding, the affirmative vote of holders of a majority of series A senior convertible preferred shares, which majority must include Leonite Capital LLC so long as it holds any series A senior convertible preferred shares (the “Requisite Holders”), 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. In addition, so long as any series A senior convertible preferred shares are outstanding, the affirmative vote of the Requisite Holders shall be required prior to the creation or issuance by the Company or by its subsidiaries Kyle’s Custom Wood Shop, Inc. (“Kyle’s”) and Wolo Mfg. Corp. and Wolo Industrial Horn & Signal, Inc. (together, “Wolo”) of (i) any parity securities; (ii) any senior securities; and (iii) any new indebtedness other than (A) intercompany indebtedness by Kyle’s or Wolo in favor of the Company, (B) indebtedness incurred in favor of the sellers of Kyle’s or Wolo in connection with the acquisition of Kyle’s or Wolo, or (C) indebtedness (or the refinancing of such indebtedness) the proceeds of which are used to complete the acquisition of Kyle’s or Wolo related expenses or working capital to operate the business of Kyle’s or Wolo. Notwithstanding the foregoing, this shall not apply to any financing transaction the use of proceeds of which will be used to redeem the series A senior convertible preferred shares and the warrants issued in connection therewith.
Conversion
Rights. Each series A 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. The Company may redeem in whole, or upon the written consent of the Requisite Holders and in the manner provided for in such
written consent, in part, the series A senior convertible preferred shares by paying in cash therefore a sum equal to
Adjustments. The share designation contains standard adjustments to the conversion price in the event of any share splits, share combinations, share reclassifications, dividends paid in common shares, sales of substantially all of the Company’s assets, mergers, consolidations or similar transactions. In addition, the share designation provides that if, but only if, the Requisite Holders provide the Company with at least ten (10) business day’s prior written notice, then, from and after the date of such notice, the stated dividend rate, the stated value and the conversion price shall automatically adjust as follows:
| ● | On the first day of the 24th month following the issuance date of any series A senior convertible preferred shares, the stated dividend rate shall automatically increase by an additional five percent (5.0%) per annum, the stated value shall automatically increase by ten percent (10%) and the conversion price shall automatically adjust to the lower of the (i) initial conversion price and (ii) the price equal to the lowest VWAP of the ten (10) trading days immediately preceding such date. |
17
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
| ● | On the first day of the 36th month following the issuance date of any series A senior convertible preferred shares, the stated dividend rate shall automatically increase by an additional five percent (5.0%) per annum, the stated value shall automatically increase by ten percent (10%) and the conversion price shall automatically adjust to the lower of the (i) initial conversion price and (ii) the price equal to the lowest VWAP of the ten (10) trading days immediately preceding the third adjustment date. |
Notwithstanding the foregoing, the conversion price for purposes of the adjustments above shall not be adjusted to a number that is below $0.03. In addition, if any legislation or rules are adopted whereby the holding period of securities for purposes of Rule 144 of the Securities Act of 1933, as amended, for convertible securities that convert at market-adjusted rates is increased resulting in a longer holding period for convertible securities like the series A senior convertible preferred shares and the unavailability at the time of conversion of Rule 144, the pricing provisions that are based upon the lowest VWAP of the previous ten (10) trading days immediately preceding the relevant adjustment date shall be removed unless the common shares issuable upon conversion are then registered under an effective registration statement.
Additional
Equity Interest. On the third adjustment date set forth above, the Company is required to cause Kyle’s and Wolo to issue to
the holders of series A senior convertible preferred shares, on a pro rata basis, a ten percent (
As
of September 30, 2022 and December 31, 2021, the Company had
During
the three months ended September 30, 2022, the Company accrued dividends attributable to the series A senior convertible preferred shares
in the amount of $
On
February 16, 2022,
On
August 12, 2022, the Company redeemed
Series B Senior Convertible Preferred Shares
On
February 17, 2022, the Company executed a share designation to designate
18
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Ranking. The series B 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 B senior convertible preferred shares; (ii) on parity with the series A senior convertible preferred shares and each other class or series that is not expressly subordinated or made senior to the series A senior convertible preferred shares; and (iii) junior to 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 B senior convertible preferred shares.
Dividend
Rights. Holders of series B 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
B 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 B senior convertible preferred shares shall be entitled to receive an amount
of cash equal to
Voting Rights. The series B senior convertible preferred shares do not have any voting rights; provided that, so long as any series B senior convertible preferred shares are outstanding, the affirmative vote of holders of a majority of series B senior convertible preferred shares, voting as a separate class, shall be necessary for approving, effecting or validating (i) any amendment, alteration or repeal of any of the provisions of the share designation or (ii) the Company’s creation or issuance of any parity securities or any senior securities. Notwithstanding the foregoing, such vote of the holders shall not be required in connection with the issuance of parity securities or senior securities if, and so long as, the proceeds resulting from the issuance of such securities are used to redeem in full the outstanding series B senior convertible preferred shares.
Conversion
Rights. Each series B 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 ($
19
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Redemption
Rights. The Company may redeem in whole (but not in part) the series B senior convertible preferred shares by paying in cash therefore
a sum equal to
Adjustments. The share designation contains standard adjustments to the conversion price in the event of any share splits, share combinations, share reclassifications, dividends paid in common shares, sales of substantially all of the Company’s assets, mergers, consolidations or similar transactions. In addition, the share designation provides that the stated dividend rate, the stated value and the conversion price shall automatically adjust as follows:
| ● | On the first day of the 12th month following the issuance of the first series B senior convertible preferred share, the stated dividend rate shall automatically increase by five percent (5.0%) per annum and the conversion price shall automatically adjust to the lower of the (i) initial conversion price and (ii) the price equal to the lowest VWAP of the ten (10) trading days immediately preceding such date. |
| ● | On the first day of the 24th month following the issuance of the first series B senior convertible preferred share, the stated dividend rate shall automatically increase by an additional five percent (5.0%) per annum, the stated value shall automatically increase by ten percent (10%) and the conversion price shall automatically adjust to the lower of the (i) initial conversion price and (ii) the price equal to the lowest VWAP of the ten (10) trading days immediately preceding such date. |
| ● | On the first day of the 36th month following the issuance of the first series B senior convertible preferred share, the stated dividend rate shall automatically increase by an additional five percent (5.0%) per annum, the stated value shall automatically increase by ten percent (10%) and the conversion price shall automatically adjust to the lower of the (i) initial conversion price and (ii) the price equal to the lowest VWAP of the ten (10) trading days immediately preceding such date. |
Notwithstanding
the foregoing, the conversion price for purposes of the adjustments above shall not be adjusted to a number that is below $
From
February 24, 2022 to March 24, 2022, the Company sold an aggregate of
Each
unit consists of one (1) series B senior convertible preferred share and a three-year warrant to purchase one (1) common share at an
exercise price of $
As
of September 30, 2022 and December 31, 2021, the Company had
20
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
During
the three months ended September 30, 2022, the Company accrued dividends attributable to the series B senior convertible preferred shares
in the amount of $
On
August 26, 2022, the Company redeemed
Mezzanine Equity Classification
We applied the guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives and Hedging” (“ASC 815”), in order to determine the appropriate classification for both the series A senior convertible preferred shares and the series B senior convertible preferred shares.
ASC
480 requires equity instruments to be evaluated on an ongoing basis for mezzanine equity (temporary equity) vs permanent equity classification.
As a result of the maximum number of common shares that may be issuable (upon conversion of the preferred securities) exceeded the number
of authorized but unissued common shares available, temporary equity classification is required. As of December 31, 2021, there were
As a result of the 1-for-4 reverse split of our outstanding common shares
(see Note 1 for additional information), the maximum number of common shares that may be issuable (upon conversion of the preferred securities)
no longer exceeded the number of unissued common shares available, resulting in the reclassification of
NOTE 12—SHAREHOLDERS’ DEFICIT
Reverse Stock Split
The Company’s board of directors approved a 1-for-4 reverse stock split of its issued, outstanding common shares, which became effective August 2, 2022. See Note 1 for additional information.
Common Shares
As
of September 30, 2022, the Company was authorized to issue
On
February 16, 2022, the Company issued
From
July 12, 2022 to September 15, 2022, the Company issued
On
August 2, 2022, the Company entered into an underwriting agreement with Craft Capital Management LLC and R.F. Lafferty & Co. Inc.,
as representatives of the underwriters named on Schedule 1 thereto, relating to the Company’s public offering of common shares.
Under the underwriting agreement, the Company agreed to sell
21
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
On
August 2, 2022, the Company issued an aggregate of
On
August 2, 2022, the Company issued
On
August 2, 2022, the Company issued
On
March 23, 2022, the Company declared a common share dividend of $
On
July 29, 2022, the Company declared a common share dividend of $
On
August 23, 2022, the Company declared a common share dividend of $
Warrants
As described in Note 11, the Company issued units during the nine months ended September 30, 2022, with each unit consisting of one (1) series B senior convertible preferred share and a three-year warrant to purchase one (1) common share at an exercise price of $12.00 per common share (subject to adjustment), which such exercise price was adjusted to $4.20 following the adjustments described below. Accordingly, a portion of the proceeds were allocated to the warrant based on its relative fair value using the Geometric Brownian Motion Stock Path Monte Carlo Simulation. The assumptions used in the model were as follows: (i) dividend yield of 0%; (ii) expected volatility of 51.81%; (iii) weighted average risk-free interest rate of 0.31%; (iv) expected life of three years; (v) estimated fair value of the common shares of $7.76 per share; and (vi) various probability assumptions related to redemption, calls and price resets. The fair value of the warrants was $428,034, or $0.89 per warrant, resulting in the amount allocated to the warrants, based on their relative fair of $172,050, which was recorded as additional paid-in capital.
22
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
The warrants allow the holder to purchase one (1) common share at an exercise price of $12.00 per common share (subject to adjustment including upon any future equity offering with a lower exercise price), which may be exercised on a cashless basis under certain circumstances. The Company may force the exercise of the warrants at any time after the one year anniversary of the date of the warrants, if (i) the Company is listed on a national securities exchange or the over-the-counter market, (ii) the underlying common shares are registered or the holder of the warrant otherwise has the ability to trade the underlying common shares without restriction, (iii) the 30-day volume-weighted daily average price of the common shares exceeds 200% of the exercise price, as adjusted, and (iv) the average daily trading volume is at least 100,000 common shares during such 30-day period. The Company may redeem the warrants held by any holder in whole (but not in part) by paying in cash to such holder as follows: (i) $0.50 per share then underlying the warrant if within the first twelve (12) months of issuance; (ii) $1.00 per share then underlying the warrant if after the first twelve (12) months, but before twenty-four (24) months of issuance; and (iii) $1.50 per share then underlying the warrant if after twenty-four months, but before thirty-six (36) months.
On
July 8, 2022, the Company entered into a securities purchase agreement with Mast Hill Fund, L.P., pursuant to which the Company issued
to it a promissory note in the principal amount of $
As
a result of the issuance of the note to Mast Hill Fund, L.P. on July 8, 2022, the exercise price of certain of the Company’s outstanding
warrants was adjusted to $
From
July 12, 2022 to September 15, 2022, warrants for the purchase of
On
August 5, 2022, the Company issued a common share purchase warrant to each of Craft Capital Management LLC and R.F. Lafferty & Co.
Inc., the representatives of the underwriters for the public offering described above, for the purchase of
As
a result of the public offering, the exercise price of certain of the Company’s outstanding warrants was adjusted to $
23
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Below is a table summarizing the changes in warrants outstanding during the nine months ended September 30, 2022:
| Warrants | Weighted- Average Exercise Price | |||||||
| Outstanding at December 31, 2021 | $ | |||||||
| Granted(1) | ||||||||
| Exercised | ( | ) | ( | ) | ||||
| Outstanding at September 30, 2022 | $ | |||||||
| Exercisable at September 30, 2022 | $ | |||||||
| (1) |
As
of September 30, 2022, the outstanding warrants have a weighted average remaining contractual life of
NOTE 13—EARNINGS (LOSS) PER SHARE
The computation of weighted average shares outstanding and the basic and diluted loss per common share attributable to common shareholders for the three and nine months ended September 30, 2022 consisted of the following:
| Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||
| Net loss per common share attributable to common shareholders’ | ||||||||