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

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The embedded conversion options of the series B senior convertible preferred shares and warrants were clearly and closely related to
the equity host and did not require bifurcation. The $ 1,429,700 of net proceeds were allocated on a relative fair value basis of $ 1,257,650 to the series B preferred shares and $ 172,050 to the warrants. The series B preferred shares fair value was derived using an Option Pricing
Method and the warrants fair value was derived using a Monte Carlo Simulation Model. As
of September 30, 2022 and December 31, 2021, the Company had 464,899 and 0 series B senior convertible preferred shares issued and outstanding,
respectively. 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 $ 50,309 and paid prior period accrued dividends of $48,197 . During the nine months ended September 30, 2022, the Company
accrued dividends attributable to the series B senior convertible preferred shares in the amount of $ 113,052 and paid prior period accrued
dividends of $77,548 . On
August 26, 2022, the Company redeemed 16,667 series B senior convertible preferred shares for a total redemption price of $ 57,501 . 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 1,818,182 series A senior convertible preferred shares presented in mezzanine equity. 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 1,684,849 series A senior convertible
preferred shares and 481,566 series B senior convertible preferred shares from mezzanine equity to permanent equity. 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 500,000,000 common shares. As of September 30, 2022 and December 31, 2021,
the Company had 4,079,137 and 1,210,918 common shares issued and outstanding, respectively. On
February 16, 2022, the Company issued 38,096 common shares upon the conversion of 133,333 series A senior convertible preferred shares. From
July 12, 2022 to September 15, 2022, the Company issued 126,669 common shares upon cashless exercises of a warrants. 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 1,428,572 common shares to the underwriters, at a gross purchase price per
share of $ 4.20 per share, pursuant to the Company’s registration statement on Form S-1 (File No. 333-259011) under the Securities
Act of 1933, as amended. On August 5, 2022, the closing of the public offering was completed and the Company sold 1,428,572 common shares
for total gross proceeds of $ 6 million. After deducting underwriting commissions and expenses, the Company received net proceeds of approximately
$ 5.15 million. 21 1847
HOLDINGS LLC NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER
30, 2022 (UNAUDITED) On
August 2, 2022, the Company issued an aggregate of 800,000 common shares upon the partial extinguishment of convertible promissory
notes. On October 8, 2021, 1847 Cabinet issued 6 % subordinated convertible promissory notes in the aggregate principal amount of $ 5,880,345 to Steven J. Parkey and Jose D. Garcia-Rendon. On July 26, 2022, the Company and 1847 Cabinet entered into a conversion agreement with
Steven J. Parkey and Jose D. Garcia-Rendon, pursuant to which they agreed to convert an aggregate of $ 3,360,000 of the convertible notes
into an aggregate of 800,000 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 debt of $ 1,280,000 . On
August 2, 2022, the Company issued 189,815 common shares upon the partial extinguishment of a contingent note payable. On September
30, 2020, 1847 Cabinet Inc. issued an 8 % vesting promissory note in the principal amount of up to $ 1,260,000 to Stephen Mallatt, Jr.
and Rita Mallatt. On July 26, 2022, the Company and 1847 Cabinet entered into a conversion agreement with Stephen Mallatt, Jr. and Rita
Mallatt, 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 debt of $ 303,706 . On
August 2, 2022, the Company issued 285,067 common shares to Bevilacqua PLLC, the Company’s outside securities counsel, upon
the settlement of accounts payable. On July 26, 2022, the Company also entered into a conversion agreement with Bevilacqua PLLC, pursuant
to which it agreed to convert $ 1,197,280 of the accounts payable owed to it into 285,067 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 debt of $ 456,109 . On
March 23, 2022, the Company declared a common share dividend of $ 0.05 per share, or an aggregate of $ 249,762 , to shareholders of record
as of March 31, 2022. This dividend was paid on April 15, 2022. On
July 29, 2022, the Company declared a common share dividend of $ 0.13125 per share, or an aggregate of $ 337,841 , to shareholders of record
as of August 4, 2022. This dividend was paid on August 19, 2022. On
August 23, 2022, the Company declared a common share dividend of $ 0.13125 per share, or an aggregate of $ 505,751 to shareholders of record
as of September 30, 2022. This dividend was paid on October 17, 2022. 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 $ 600,000 , and a five-year warrant for the purchase of 100,000 common shares at an
exercise price of $ 6.00 per share (subject to adjustment), which such exercise price was adjusted to $ 4.20 following the adjustments
described below, which may be exercised on a cashless basis if the market price of the Company’s common shares is greater than
the exercise price, for total net proceeds of $ 499,600 . Additionally, the Company issued a three-year warrant to J.H. Darbie & Co
(the broker) for the purchase of 3,600 common shares at an exercise price of $ 7.50 (subject to adjustment), which such exercise price
was adjusted to $ 4.20 following the adjustments described below, which may be exercised on a cashless basis if the market price of the
Company’s common shares is greater than the exercise price. Accordingly, a portion of the proceeds were allocated to the warrants
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 49.11 %; (iii) weighted average risk-free interest rate of 3.13 %;
(iv) expected life of five years ; (v) estimated fair value of the common shares of $ 7.23 per share; and (vi) various probability assumptions
related to down round price adjustments. The fair value of the warrants was $ 2,405,306 , or $ 6.01 per warrant, resulting in the amount
allocated to the warrants, based on their relative fair of $ 402,650 , which was recorded as additional paid-in capital. On August 10,
2022, the promissory note was repaid in full. 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 $ 5.20 pursuant to certain antidilution provisions of such warrants (down round feature). In addition, certain

The embedded conversion options of the series B senior convertible preferred shares and warrants were clearly and closely related to

the equity host and did not require bifurcation. The $ 1,429,700 of net proceeds were allocated on a relative fair value basis of $ 1,257,650 to the series B preferred shares and $ 172,050 to the warrants. The series B preferred shares fair value was derived using an Option Pricing

Method and the warrants fair value was derived using a Monte Carlo Simulation Model. As

of September 30, 2022 and December 31, 2021, the Company had 464,899 and 0 series B senior convertible preferred shares issued and outstanding,

respectively. 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 $ 50,309 and paid prior period accrued dividends of $48,197 . During the nine months ended September 30, 2022, the Company

accrued dividends attributable to the series B senior convertible preferred shares in the amount of $ 113,052 and paid prior period accrued

dividends of $77,548 . On

August 26, 2022, the Company redeemed 16,667 series B senior convertible preferred shares for a total redemption price of $ 57,501 . 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 1,818,182 series A senior convertible preferred shares presented in mezzanine equity. 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 1,684,849 series A senior convertible

preferred shares and 481,566 series B senior convertible preferred shares from mezzanine equity to permanent equity. 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 500,000,000 common shares. As of September 30, 2022 and December 31, 2021,

the Company had 4,079,137 and 1,210,918 common shares issued and outstanding, respectively. On

February 16, 2022, the Company issued 38,096 common shares upon the conversion of 133,333 series A senior convertible preferred shares. From

July 12, 2022 to September 15, 2022, the Company issued 126,669 common shares upon cashless exercises of a warrants. 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 1,428,572 common shares to the underwriters, at a gross purchase price per

share of $ 4.20 per share, pursuant to the Company’s registration statement on Form S-1 (File No. 333-259011) under the Securities

Act of 1933, as amended. On August 5, 2022, the closing of the public offering was completed and the Company sold 1,428,572 common shares

for total gross proceeds of $ 6 million. After deducting underwriting commissions and expenses, the Company received net proceeds of approximately

$ 5.15 million. 21 1847

HOLDINGS LLC NOTES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER

30, 2022 (UNAUDITED) On

August 2, 2022, the Company issued an aggregate of 800,000 common shares upon the partial extinguishment of convertible promissory

notes. On October 8, 2021, 1847 Cabinet issued 6 % subordinated convertible promissory notes in the aggregate principal amount of $ 5,880,345 to Steven J. Parkey and Jose D. Garcia-Rendon. On July 26, 2022, the Company and 1847 Cabinet entered into a conversion agreement with

Steven J. Parkey and Jose D. Garcia-Rendon, pursuant to which they agreed to convert an aggregate of $ 3,360,000 of the convertible notes

into an aggregate of 800,000 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 debt of $ 1,280,000 . On

August 2, 2022, the Company issued 189,815 common shares upon the partial extinguishment of a contingent note payable. On September

30, 2020, 1847 Cabinet Inc. issued an 8 % vesting promissory note in the principal amount of up to $ 1,260,000 to Stephen Mallatt, Jr.

and Rita Mallatt. On July 26, 2022, the Company and 1847 Cabinet entered into a conversion agreement with Stephen Mallatt, Jr. and Rita

Mallatt, 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 debt of $ 303,706 . On

August 2, 2022, the Company issued 285,067 common shares to Bevilacqua PLLC, the Company’s outside securities counsel, upon

the settlement of accounts payable. On July 26, 2022, the Company also entered into a conversion agreement with Bevilacqua PLLC, pursuant

to which it agreed to convert $ 1,197,280 of the accounts payable owed to it into 285,067 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 debt of $ 456,109 . On

March 23, 2022, the Company declared a common share dividend of $ 0.05 per share, or an aggregate of $ 249,762 , to shareholders of record

as of March 31, 2022. This dividend was paid on April 15, 2022. On

July 29, 2022, the Company declared a common share dividend of $ 0.13125 per share, or an aggregate of $ 337,841 , to shareholders of record

as of August 4, 2022. This dividend was paid on August 19, 2022. On

August 23, 2022, the Company declared a common share dividend of $ 0.13125 per share, or an aggregate of $ 505,751 to shareholders of record

as of September 30, 2022. This dividend was paid on October 17, 2022. 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 $ 600,000 , and a five-year warrant for the purchase of 100,000 common shares at an

exercise price of $ 6.00 per share (subject to adjustment), which such exercise price was adjusted to $ 4.20 following the adjustments

described below, which may be exercised on a cashless basis if the market price of the Company’s common shares is greater than

the exercise price, for total net proceeds of $ 499,600 . Additionally, the Company issued a three-year warrant to J.H. Darbie & Co

(the broker) for the purchase of 3,600 common shares at an exercise price of $ 7.50 (subject to adjustment), which such exercise price

was adjusted to $ 4.20 following the adjustments described below, which may be exercised on a cashless basis if the market price of the

Company’s common shares is greater than the exercise price. Accordingly, a portion of the proceeds were allocated to the warrants

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 49.11 %; (iii) weighted average risk-free interest rate of 3.13 %;

(iv) expected life of five years ; (v) estimated fair value of the common shares of $ 7.23 per share; and (vi) various probability assumptions

related to down round price adjustments. The fair value of the warrants was $ 2,405,306 , or $ 6.01 per warrant, resulting in the amount

allocated to the warrants, based on their relative fair of $ 402,650 , which was recorded as additional paid-in capital. On August 10,

2022, the promissory note was repaid in full. 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 $ 5.20 pursuant to certain antidilution provisions of such warrants (down round feature). In addition, certain