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

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used its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at
the acquisition date. Goodwill is measured as the excess of the purchase consideration over the fair value of the net tangible assets
and identifiable assets acquired, or if the fair value of the net assets acquired exceeds the purchase consideration, a bargain purchase
gain is recorded. The preliminary fair value of the purchase consideration
issued to the ICU Eyewear stockholders was allocated to the net tangible assets acquired. The preliminary fair value of the net assets
acquired was $ 7,139,861 , exceeding the purchase consideration, resulting in a bargain purchase gain of $ 2,639,861 . For the three and
six months ended June 30, 2023, ICU Eyewear contributed revenue of $ 4,494,061 and $ 7,286,773 , respectively. Additionally, for the same
periods, ICU Eyewear reported a net loss of $ 622,776 and net income of $ 1,958,661 , respectively, which are included in our condensed
consolidated statements of operations for the respective periods. The table below represents the estimated preliminary
purchase price allocation to the net assets acquir Provisional purchase consideration at preliminary fair val Cash $ 4,000,000 Notes payable 500,000 Amount of consideration $ 4,500,000 Assets acquired and liabilities assumed at preliminary fair value Cash $ 329,113 Accounts receivable 1,922,052 Inventory 9,997,332 Prepaids and other current assets 79,777 Property and equipment 545,670 Other assets 74,800 Marketing related intangibles 308,000 Accounts payable and accrued expenses ( 6,116,883 ) Net tangible assets acquired $ 7,139,861 Consideration paid 4,500,000 Preliminary gain on bargain purchase $ ( 2,639,861 ) 14 1847 HOLDINGS LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2023 (UNAUDITED) Pro Forma Information The following unaudited pro forma results presented
below include the effects of the ICU Eyewear acquisition as if it had been consummated as of January 1, 2022, with adjustments to give
effect to pro forma events that are directly attributable to this acquisition. Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenues $ 19,390,739 $ 12,891,243 $ 36,870,614 $ 24,965,121 Net loss ( 3,970,036 ) ( 147,668 ) ( 2,942,065 ) ( 1,074,876 ) Net loss attributable to common shareholders ( 4,469,958 ) ( 352,733 ) ( 5,374,799 ) ( 1,360,978 ) Loss per share attributable to common shareholders Basic and diluted $ ( 0.76 ) $ ( 0.28 ) $ ( 1.05 ) $ ( 1.10 ) 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. NOTE 10—NOTES PAYABLE 6% Subordinated Promissory Notes As part of the consideration paid in the acquisition
of ICU Eyewear, 1847 ICU issued the sellers 6 % subordinated promissory notes in the aggregate principal amount of $ 500,000 . The notes
bear interest at the rate of 6 % per annum with all principal and accrued interest being due and payable in one lump sum on February 9,
2024; provided that upon an event of default (as defined in the notes), such interest rate shall increase to 10 %. 1847 ICU may prepay
all or any portion of the notes at any time prior to the maturity date without premium or penalty of any kind. The notes contain customary
events of default, including, without limitation, in the event of (i) non-payment, (ii) a default by 1847 ICU of any of its covenants
in the notes, the agreement and plan of merger or any other agreement entered into in connection with the agreement and plan of merger,
or a breach of any of the representations or warranties under such documents, (iii) the insolvency or bankruptcy of 1847 ICU or ICU Eyewear
or (iv) a change of control (as defined in the notes) of 1847 ICU or ICU Eyewear. The notes are unsecured and subordinated to all senior
indebtedness. Revolving Line of Credit On February 9, 2023, 1847 ICU and ICU Eyewear
entered into a loan and security 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, 1847 ICU 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 agreement and plan of merger,
with the remaining $ 100,000 used to pay lender fees. On February 11, 2023, the Industrial Funding Group, Inc. sold and assigned the loan
and security agreement, the note and related loan documents to GemCap Solutions, LLC. 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
and security 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. The borrowers 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 the borrowers must pay certain fees set forth in the note. The note is secured by all of the assets
of 1847 ICU and ICU Eyewear. 15 1847 HOLDINGS LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2023 (UNAUDITED) The loan and security agreement contains customary
representations, warranties and affirmative and negative financial and other covenants for loans of this type. The loan and security
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 and security agreement; (ii) for failure to perform any covenant or agreement contained in
the loan and security agreement or any document delivered in connection therewith; (iii) if any statement, representation or warranty
in the loan and security 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 the borrowers 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 the borrowers 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 and security 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
and security agreement. Private Placements 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). Accordingly,
a portion of the proceeds were allocated to the warrants and common shares based on their relative fair value using the Geometric Brownian
Motion Stock Path Monte Carlo Simulation. The exercise prices of all of the foregoing warrants were adjusted to $ 0.5948 on April 30,
2023 (see Note 12). 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). Accordingly, a portion of the proceeds were allocated to the warrants and common shares based on their
relative fair value using the Geometric Brownian Motion Stock Path Monte Carlo Simulation. The exercise prices of all of the foregoing
warrants were adjusted to $ 0.5948 on April 30, 2023 (see Note 12). 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). Accordingly, a portion of the proceeds were allocated to
the warrants based on their relative fair value using the Geometric Brownian Motion Stock Path Monte Carlo Simulation. The exercise prices
of all of the foregoing warrants were adjusted to $ 0.5948 on April 30, 2023 (see Note 12). 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 . 16 1847 HOLDINGS LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2023 (UNAUDITED) 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 of the common shares on any trading day during the five (5) trading days prior to the conversion date; provided that such conversion
price shall not be less than $ 0.03 (subject to adjustments). The conversion price was adjusted to $ 0.5948 on April 30, 2023 (see Note
12). Purchase and Sale of Future Receivables
Agreement On March 31, 2023, the Company and its subsidiary
1847 Cabinet Inc. (“1847 Cabinet”) 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 . The Company is 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. The Company recorded a debt discount of $ 555,000 ,
which will be amortized under the effective interest method. The Company is 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 June 30, 2023, the effective interest rate was 72.4 %. NOTE 11—RELATED PARTIES Related Party Notes Payable On September 30, 2020, a portion of the purchase
price for the acquisition of Kyle’s Custom Wood Shop, Inc. (“Kyle’s”) was paid by the issuance of a promissory
note by 1847 Cabinet to the sellers in the principal amount of $ 1,260,000 . Payment of the principal and accrued interest on the note
was subject to vesting. On July 26, 2022, the Company and 1847 Cabinet
entered into a conversion agreement with sellers, pursuant to which they agreed to convert $ 797,221 of the vesting note into 189,815 common shares of the Company at a conversion price of $ 4.20 per share. As a result, the Company recognized a loss on extinguishment of

used its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at

the acquisition date. Goodwill is measured as the excess of the purchase consideration over the fair value of the net tangible assets

and identifiable assets acquired, or if the fair value of the net assets acquired exceeds the purchase consideration, a bargain purchase

gain is recorded. The preliminary fair value of the purchase consideration

issued to the ICU Eyewear stockholders was allocated to the net tangible assets acquired. The preliminary fair value of the net assets

acquired was $ 7,139,861 , exceeding the purchase consideration, resulting in a bargain purchase gain of $ 2,639,861 . For the three and

six months ended June 30, 2023, ICU Eyewear contributed revenue of $ 4,494,061 and $ 7,286,773 , respectively. Additionally, for the same

periods, ICU Eyewear reported a net loss of $ 622,776 and net income of $ 1,958,661 , respectively, which are included in our condensed

consolidated statements of operations for the respective periods. The table below represents the estimated preliminary

purchase price allocation to the net assets acquir Provisional purchase consideration at preliminary fair val Cash $ 4,000,000 Notes payable 500,000 Amount of consideration $ 4,500,000 Assets acquired and liabilities assumed at preliminary fair value Cash $ 329,113 Accounts receivable 1,922,052 Inventory 9,997,332 Prepaids and other current assets 79,777 Property and equipment 545,670 Other assets 74,800 Marketing related intangibles 308,000 Accounts payable and accrued expenses ( 6,116,883 ) Net tangible assets acquired $ 7,139,861 Consideration paid 4,500,000 Preliminary gain on bargain purchase $ ( 2,639,861 ) 14 1847 HOLDINGS LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2023 (UNAUDITED) Pro Forma Information The following unaudited pro forma results presented

below include the effects of the ICU Eyewear acquisition as if it had been consummated as of January 1, 2022, with adjustments to give

effect to pro forma events that are directly attributable to this acquisition. Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenues $ 19,390,739 $ 12,891,243 $ 36,870,614 $ 24,965,121 Net loss ( 3,970,036 ) ( 147,668 ) ( 2,942,065 ) ( 1,074,876 ) Net loss attributable to common shareholders ( 4,469,958 ) ( 352,733 ) ( 5,374,799 ) ( 1,360,978 ) Loss per share attributable to common shareholders Basic and diluted $ ( 0.76 ) $ ( 0.28 ) $ ( 1.05 ) $ ( 1.10 ) 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. NOTE 10—NOTES PAYABLE 6% Subordinated Promissory Notes As part of the consideration paid in the acquisition

of ICU Eyewear, 1847 ICU issued the sellers 6 % subordinated promissory notes in the aggregate principal amount of $ 500,000 . The notes

bear interest at the rate of 6 % per annum with all principal and accrued interest being due and payable in one lump sum on February 9,

2024; provided that upon an event of default (as defined in the notes), such interest rate shall increase to 10 %. 1847 ICU may prepay

all or any portion of the notes at any time prior to the maturity date without premium or penalty of any kind. The notes contain customary

events of default, including, without limitation, in the event of (i) non-payment, (ii) a default by 1847 ICU of any of its covenants

in the notes, the agreement and plan of merger or any other agreement entered into in connection with the agreement and plan of merger,

or a breach of any of the representations or warranties under such documents, (iii) the insolvency or bankruptcy of 1847 ICU or ICU Eyewear

or (iv) a change of control (as defined in the notes) of 1847 ICU or ICU Eyewear. The notes are unsecured and subordinated to all senior

indebtedness. Revolving Line of Credit On February 9, 2023, 1847 ICU and ICU Eyewear

entered into a loan and security 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, 1847 ICU 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 agreement and plan of merger,

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

and security agreement, the note and related loan documents to GemCap Solutions, LLC. 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

and security 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. The borrowers 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 the borrowers must pay certain fees set forth in the note. The note is secured by all of the assets

of 1847 ICU and ICU Eyewear. 15 1847 HOLDINGS LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2023 (UNAUDITED) The loan and security agreement contains customary

representations, warranties and affirmative and negative financial and other covenants for loans of this type. The loan and security

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 and security agreement; (ii) for failure to perform any covenant or agreement contained in

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

in the loan and security 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 the borrowers 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 the borrowers 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 and security 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

and security agreement. Private Placements 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). Accordingly,

a portion of the proceeds were allocated to the warrants and common shares based on their relative fair value using the Geometric Brownian

Motion Stock Path Monte Carlo Simulation. The exercise prices of all of the foregoing warrants were adjusted to $ 0.5948 on April 30,

2023 (see Note 12). 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). Accordingly, a portion of the proceeds were allocated to the warrants and common shares based on their

relative fair value using the Geometric Brownian Motion Stock Path Monte Carlo Simulation. The exercise prices of all of the foregoing

warrants were adjusted to $ 0.5948 on April 30, 2023 (see Note 12). 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). Accordingly, a portion of the proceeds were allocated to

the warrants based on their relative fair value using the Geometric Brownian Motion Stock Path Monte Carlo Simulation. The exercise prices

of all of the foregoing warrants were adjusted to $ 0.5948 on April 30, 2023 (see Note 12). 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 . 16 1847 HOLDINGS LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2023 (UNAUDITED) 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 of the common shares on any trading day during the five (5) trading days prior to the conversion date; provided that such conversion

price shall not be less than $ 0.03 (subject to adjustments). The conversion price was adjusted to $ 0.5948 on April 30, 2023 (see Note

12). Purchase and Sale of Future Receivables

Agreement On March 31, 2023, the Company and its subsidiary

1847 Cabinet Inc. (“1847 Cabinet”) 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 . The Company is 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. The Company recorded a debt discount of $ 555,000 ,

which will be amortized under the effective interest method. The Company is 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 June 30, 2023, the effective interest rate was 72.4 %. NOTE 11—RELATED PARTIES Related Party Notes Payable On September 30, 2020, a portion of the purchase

price for the acquisition of Kyle’s Custom Wood Shop, Inc. (“Kyle’s”) was paid by the issuance of a promissory

note by 1847 Cabinet to the sellers in the principal amount of $ 1,260,000 . Payment of the principal and accrued interest on the note

was subject to vesting. On July 26, 2022, the Company and 1847 Cabinet

entered into a conversion agreement with sellers, pursuant to which they agreed to convert $ 797,221 of the vesting note into 189,815 common shares of the Company at a conversion price of $ 4.20 per share. As a result, the Company recognized a loss on extinguishment of