arcee-ai/sec-data-full · Datasets at Hugging Face

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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, 2022 for more information on the calculation
of the profit allocation. Our operating agreement also contains a supplemental
put provision, which gives our manager the right, subject to certain conditions, to cause 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, 2022 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. 25 Summary of Cash Flow The following table provides detailed information
about our net cash flow for the period indicat Three Months Ended March 31, 2023 2022 Net cash used in operating activities $ (1,851,766 ) $ (536,260 ) Net cash used in investing activities (3,734,632 ) (31,055 ) Net cash provided by financing activities 6,804,970 822,706 Net increase in cash and cash equivalents 1,218,572 255,391 Cash and cash equivalents at beginning of period 1,079,355 1,383,533 Cash and cash equivalents at end of period $ 2,297,927 $ 1,638,924 Net cash used in operating activities was $1,851,766
for the three months ended March 31, 2023, as compared to $536,260 for the three months ended March 31, 2022. The increase in the net
cash used in operating activities was primarily a result of the gain on bargain purchase of $2,639,861 related to the acquisition of ICU
Eyewear, increased payments to accounts payable and accrued expenses, offset by an increase in inventories. Net cash used in investing activities was $3,734,632
for the three months ended March 31, 2023, as compared to $31,055 for the three months ended March 31, 2022. The increase in the net cash
used in investing activities was primarily a result of the cash paid for the acquisition of ICU Eyewear. Net cash provided by financing activities was
$6,804,970 for the three months ended March 31, 2023, as compared to $822,706 for the three months ended March 31, 2022. The increase
in the net cash provided by investing activities was primarily a result of the proceeds from the private placements and revolving loan
described below. Debt Revolving Loan On February 9, 2023, 1847 ICU and ICU Eyewear
entered into a loan and security agreement, or the loan agreement, with Industrial Funding Group, Inc. for a revolving loan of up to $5,000,000,
which is evidenced by a secured promissory note in the principal amount of up to $5,000,000. On February 9, 2023, we received an advance
of $2,063,182 under the note, of which $1,963,182 was used to repay certain debt of ICU Eyewear in connection with the merger agreement,
with the remaining $100,000 used to pay lender fees. On February 11, 2023, the Industrial Funding Group, Inc. sold and assigned the loan
agreement, the note and related loan documents to GemCap Solutions, LLC. The remaining principal balance of the note at March 31, 2023
is $2,063,182 and an accrued interest balance of $42,042. The note matures on February 9, 2025 with all
advances bearing interest at an annual rate equal to the greater of (i) the sum of (a) the “Prime Rate” as reported in the
“Money Rates” column of The Wall Street Journal, adjusted as and when such prime rate changes, plus (b) eight percent (8.00%),
and (ii) fifteen percent (15.00%); provided that following and during the continuation of an event of default (as defined in the loan
agreement), interest on the unpaid principal balance of the advances shall accrue at an annual rate equal to such rate plus three percent
(3.00%). Interest accrued on the advances shall be payable monthly commencing on March 7, 2023. We may voluntarily prepay the entire unpaid
principal amount of the note without premium or penalty; provided that in the event that we make such prepayment on or before February
9, 2024, then we must pay certain fees set forth in the note. The note is secured by all of the assets of 1847 ICU and ICU Eyewear. The loan agreement contains customary representations,
warranties and affirmative and negative financial and other covenants for loans of this type. The loan agreement contains customary events
of default, including, among othe (i) for failure to pay principal and interest on the note when due, or to pay any fees due under
the loan agreement; (ii) for failure to perform any covenant or agreement contained in the loan agreement or any document delivered in
connection therewith; (iii) if any statement, representation or warranty in the loan agreement or any document delivered in connection
therewith is at any time found to have been false in any material respect at the time such representation or warranty was made; (iv) if
we default under any agreement or contract with a third party which default would result in a liability to us in excess of $25,000; (v)
for any voluntary or involuntary bankruptcy, insolvency, or dissolution or assignment to creditors; (vi) if any judgments or attachments
aggregating in excess of $10,000 at any given time are obtained against us which remain unstayed for a period of ten (10) days or are
enforced or if there is an indictment under an criminal statute or proceeding pursuant to which remedies sought may include the forfeiture
of any property; (vii) if a material adverse effect or change of control (each as defined in the loan agreement) shall have occurred;
(viii) for certain environmental claims; and (ix) for failure to notify the lender of certain events or failure to deliver certain documentation
required by the loan agreement. 26 Purchase and Sale
of Future Receivables Agreement On March 31, 2023, we entered into a non-recourse
funding agreement with a third-party for the sale of future receivables totaling $1,965,000 for net cash proceeds of $1,410,000. We are
required to make weekly ACH payments in the amount of $39,300. The agreement also allows for the third-party to file UCCs securing their
interest in the receivables and includes customary events of default. We recorded a debt discount of $555,000, which will be amortized
under the effective interest method. We are utilizing the prospective method to account for subsequent changes in the estimated future
payments, whereby if there is a change in the estimated future cash flows, a new effective interest rate is determined based on the revised
estimate of remaining cash flows. As of March 31, 2023 the effective interest rate was approximately 72%. Promissory Notes
issued in Private Placement On February 3, 2023, the Company entered into
securities purchase agreements with two accredited investors, pursuant to which the Company issued to such investors (i) promissory notes
in the aggregate principal amount of $604,000 and (ii) five-year warrants for the purchase of an aggregate of 125,833 common shares at
an exercise price of $4.20 per share (subject to adjustment) for total cash proceeds of $540,000. As additional consideration, the Company
issued an aggregate of 125,833 common shares to the investors as a commitment fee. Additionally, the Company issued a five-year warrant
to J.H. Darbie & Co (the broker) for the purchase of 892 common shares at an exercise price of $5.25 (subject to adjustment). On February 9, 2023, the Company entered into
securities purchase agreements with two accredited investors, pursuant to which the Company issued to such investors (i) promissory notes
in the aggregate principal amount of $2,557,575 and (ii) five-year warrants for the purchase of an aggregate of 532,827 common shares
at an exercise price of $4.20 per share (subject to adjustment) for total cash proceeds of $2,271,818. As additional consideration, the
Company issued 289,772 common shares to one investor and issued to the other investor a five-year warrant for the purchase of 243,055
common shares at an exercise price of 0.01 per share (subject to adjustment), which were issued as a commitment fee. Additionally, the
Company issued a five-year warrant to J.H. Darbie & Co (the broker) for the purchase of 11,923 common shares at an exercise price
of $5.25 (subject to adjustment). On February 22, 2023, the Company entered into
securities purchase agreement with one accredited investor, pursuant to which the Company issued to such investor (i) a promissory note
in the principal amount of $878,000 and (ii) five-year warrants for the purchase of an aggregate of 182,917 common shares at an exercise
price of $4.20 per share (subject to adjustment) for total cash proceeds of $737,700. As additional consideration, the Company issued
a five-year warrant for the purchase of 198,343 common shares at an exercise price of $0.01 per share (subject to adjustment) to the investor
as a commitment fee. Additionally, the Company issued a five-year warrant to J.H. Darbie & Co (the broker) for the purchase of 7,526
common shares at an exercise price of $5.25 (subject to adjustment). In the aggregate, the Company issued promissory
notes in the aggregate principal amount of $4,039,575, warrants for the purchase of an aggregate of 1,303,316 common shares, and 415,605
common shares for net proceeds of $3,549,518. The remaining principal balance of the notes at March 31, 2023 is $2,405,234, net of debt
discounts of $1,634,341, and an accrued interest balance of $63,842. These notes bear interest at a rate of 12% per
annum and mature on the first anniversary of the date of issuance; provided that any principal amount or interest which is not paid when
due shall bear interest at a rate of the lesser of 16% per annum or the maximum amount permitted by law from the due date thereof until
the same is paid. The notes require monthly payments of principal and interest commencing in May 2023. The Company may voluntarily prepay
the outstanding principal amount and accrued interest of each note in whole upon payment of certain prepayment fees. In addition, if at
any time the Company receives cash proceeds from any source or series of related or unrelated sources, including, but not limited to,
the issuance of equity or debt, the exercise of outstanding warrants, the issuance of securities pursuant to an equity line of credit
(as defined in the notes) or the sale of assets outside of the ordinary course of business, each holder shall have the right in its sole
discretion to require the Company to immediately apply up to 50% of such proceeds to repay all or any portion of the outstanding principal
amount and interest then due under the notes. The notes are unsecured and have priority over all other unsecured indebtedness. The notes
contain customary affirmative and negative covenants and events of default for a loan of this type. The notes become convertible into common shares
at the option of the holders at any time on or following the date that an event of default (as defined in the notes) occurs under the
notes at a conversion price equal the lower of (i) $4.20 (subject to adjustments) and (ii) 80% of the lowest volume weighted average price

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, 2022 for more information on the calculation

of the profit allocation. Our operating agreement also contains a supplemental

put provision, which gives our manager the right, subject to certain conditions, to cause 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, 2022 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. 25 Summary of Cash Flow The following table provides detailed information

about our net cash flow for the period indicat Three Months Ended March 31, 2023 2022 Net cash used in operating activities $ (1,851,766 ) $ (536,260 ) Net cash used in investing activities (3,734,632 ) (31,055 ) Net cash provided by financing activities 6,804,970 822,706 Net increase in cash and cash equivalents 1,218,572 255,391 Cash and cash equivalents at beginning of period 1,079,355 1,383,533 Cash and cash equivalents at end of period $ 2,297,927 $ 1,638,924 Net cash used in operating activities was $1,851,766

for the three months ended March 31, 2023, as compared to $536,260 for the three months ended March 31, 2022. The increase in the net

cash used in operating activities was primarily a result of the gain on bargain purchase of $2,639,861 related to the acquisition of ICU

Eyewear, increased payments to accounts payable and accrued expenses, offset by an increase in inventories. Net cash used in investing activities was $3,734,632

for the three months ended March 31, 2023, as compared to $31,055 for the three months ended March 31, 2022. The increase in the net cash

used in investing activities was primarily a result of the cash paid for the acquisition of ICU Eyewear. Net cash provided by financing activities was

$6,804,970 for the three months ended March 31, 2023, as compared to $822,706 for the three months ended March 31, 2022. The increase

in the net cash provided by investing activities was primarily a result of the proceeds from the private placements and revolving loan

described below. Debt Revolving Loan On February 9, 2023, 1847 ICU and ICU Eyewear

entered into a loan and security agreement, or the loan agreement, with Industrial Funding Group, Inc. for a revolving loan of up to $5,000,000,

which is evidenced by a secured promissory note in the principal amount of up to $5,000,000. On February 9, 2023, we received an advance

of $2,063,182 under the note, of which $1,963,182 was used to repay certain debt of ICU Eyewear in connection with the merger agreement,

with the remaining $100,000 used to pay lender fees. On February 11, 2023, the Industrial Funding Group, Inc. sold and assigned the loan

agreement, the note and related loan documents to GemCap Solutions, LLC. The remaining principal balance of the note at March 31, 2023

is $2,063,182 and an accrued interest balance of $42,042. The note matures on February 9, 2025 with all

advances bearing interest at an annual rate equal to the greater of (i) the sum of (a) the “Prime Rate” as reported in the

“Money Rates” column of The Wall Street Journal, adjusted as and when such prime rate changes, plus (b) eight percent (8.00%),

and (ii) fifteen percent (15.00%); provided that following and during the continuation of an event of default (as defined in the loan

agreement), interest on the unpaid principal balance of the advances shall accrue at an annual rate equal to such rate plus three percent

(3.00%). Interest accrued on the advances shall be payable monthly commencing on March 7, 2023. We may voluntarily prepay the entire unpaid

principal amount of the note without premium or penalty; provided that in the event that we make such prepayment on or before February

9, 2024, then we must pay certain fees set forth in the note. The note is secured by all of the assets of 1847 ICU and ICU Eyewear. The loan agreement contains customary representations,

warranties and affirmative and negative financial and other covenants for loans of this type. The loan agreement contains customary events

of default, including, among othe (i) for failure to pay principal and interest on the note when due, or to pay any fees due under

the loan agreement; (ii) for failure to perform any covenant or agreement contained in the loan agreement or any document delivered in

connection therewith; (iii) if any statement, representation or warranty in the loan agreement or any document delivered in connection

therewith is at any time found to have been false in any material respect at the time such representation or warranty was made; (iv) if

we default under any agreement or contract with a third party which default would result in a liability to us in excess of $25,000; (v)

for any voluntary or involuntary bankruptcy, insolvency, or dissolution or assignment to creditors; (vi) if any judgments or attachments

aggregating in excess of $10,000 at any given time are obtained against us which remain unstayed for a period of ten (10) days or are

enforced or if there is an indictment under an criminal statute or proceeding pursuant to which remedies sought may include the forfeiture

of any property; (vii) if a material adverse effect or change of control (each as defined in the loan agreement) shall have occurred;

(viii) for certain environmental claims; and (ix) for failure to notify the lender of certain events or failure to deliver certain documentation

required by the loan agreement. 26 Purchase and Sale

of Future Receivables Agreement On March 31, 2023, we entered into a non-recourse

funding agreement with a third-party for the sale of future receivables totaling $1,965,000 for net cash proceeds of $1,410,000. We are

required to make weekly ACH payments in the amount of $39,300. The agreement also allows for the third-party to file UCCs securing their

interest in the receivables and includes customary events of default. We recorded a debt discount of $555,000, which will be amortized

under the effective interest method. We are utilizing the prospective method to account for subsequent changes in the estimated future

payments, whereby if there is a change in the estimated future cash flows, a new effective interest rate is determined based on the revised

estimate of remaining cash flows. As of March 31, 2023 the effective interest rate was approximately 72%. Promissory Notes

issued in Private Placement On February 3, 2023, the Company entered into

securities purchase agreements with two accredited investors, pursuant to which the Company issued to such investors (i) promissory notes

in the aggregate principal amount of $604,000 and (ii) five-year warrants for the purchase of an aggregate of 125,833 common shares at

an exercise price of $4.20 per share (subject to adjustment) for total cash proceeds of $540,000. As additional consideration, the Company

issued an aggregate of 125,833 common shares to the investors as a commitment fee. Additionally, the Company issued a five-year warrant

to J.H. Darbie & Co (the broker) for the purchase of 892 common shares at an exercise price of $5.25 (subject to adjustment). On February 9, 2023, the Company entered into

securities purchase agreements with two accredited investors, pursuant to which the Company issued to such investors (i) promissory notes

in the aggregate principal amount of $2,557,575 and (ii) five-year warrants for the purchase of an aggregate of 532,827 common shares

at an exercise price of $4.20 per share (subject to adjustment) for total cash proceeds of $2,271,818. As additional consideration, the

Company issued 289,772 common shares to one investor and issued to the other investor a five-year warrant for the purchase of 243,055

common shares at an exercise price of 0.01 per share (subject to adjustment), which were issued as a commitment fee. Additionally, the

Company issued a five-year warrant to J.H. Darbie & Co (the broker) for the purchase of 11,923 common shares at an exercise price

of $5.25 (subject to adjustment). On February 22, 2023, the Company entered into

securities purchase agreement with one accredited investor, pursuant to which the Company issued to such investor (i) a promissory note

in the principal amount of $878,000 and (ii) five-year warrants for the purchase of an aggregate of 182,917 common shares at an exercise

price of $4.20 per share (subject to adjustment) for total cash proceeds of $737,700. As additional consideration, the Company issued

a five-year warrant for the purchase of 198,343 common shares at an exercise price of $0.01 per share (subject to adjustment) to the investor

as a commitment fee. Additionally, the Company issued a five-year warrant to J.H. Darbie & Co (the broker) for the purchase of 7,526

common shares at an exercise price of $5.25 (subject to adjustment). In the aggregate, the Company issued promissory

notes in the aggregate principal amount of $4,039,575, warrants for the purchase of an aggregate of 1,303,316 common shares, and 415,605

common shares for net proceeds of $3,549,518. The remaining principal balance of the notes at March 31, 2023 is $2,405,234, net of debt

discounts of $1,634,341, and an accrued interest balance of $63,842. These notes bear interest at a rate of 12% per

annum and mature on the first anniversary of the date of issuance; provided that any principal amount or interest which is not paid when

due shall bear interest at a rate of the lesser of 16% per annum or the maximum amount permitted by law from the due date thereof until

the same is paid. The notes require monthly payments of principal and interest commencing in May 2023. The Company may voluntarily prepay

the outstanding principal amount and accrued interest of each note in whole upon payment of certain prepayment fees. In addition, if at

any time the Company receives cash proceeds from any source or series of related or unrelated sources, including, but not limited to,

the issuance of equity or debt, the exercise of outstanding warrants, the issuance of securities pursuant to an equity line of credit

(as defined in the notes) or the sale of assets outside of the ordinary course of business, each holder shall have the right in its sole

discretion to require the Company to immediately apply up to 50% of such proceeds to repay all or any portion of the outstanding principal

amount and interest then due under the notes. The notes are unsecured and have priority over all other unsecured indebtedness. The notes

contain customary affirmative and negative covenants and events of default for a loan of this type. The notes become convertible into common shares

at the option of the holders at any time on or following the date that an event of default (as defined in the notes) occurs under the

notes at a conversion price equal the lower of (i) $4.20 (subject to adjustments) and (ii) 80% of the lowest volume weighted average price