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of equipment and vehicles of $177,475, offset by proceeds from disposition of subsidiary of $325,000 and proceeds from the sale |
of property and equipment of $25,000, while net cash provided by investing activities for the year ended December 31, 2020 consisted |
of net cash acquired in (paid for) acquisitions (Asien’s and Kyle’s) of $1,409,936, offset by investments in certificates |
of deposits of $276,270 and purchases of equipment in the amount of $72,794. 85 Net cash provided by financing activities from |
continuing operations was $16,585,520 for the year ended December 31, 2021, as compared to $181,977 for the year ended December 31, 2020. |
Net cash provided by financing activities for the year ended December 31, 2021 consisted of net proceeds on convertible notes payable |
of $23,744,975, proceeds on notes payable of $3,550,000 and proceeds of $3,000,000 from the sale of units described below, offset by redemption |
of preferred shares of $6,054,241, net payments on notes payable of $5,021,511, payments of preferred dividends of $1,032,806, net payments |
due to the Wolo and Asien’s sellers of $977,686, net repayment on lines of credit of $301,081, financing fees of $165,230, payment |
of vesting note payable of $100,000 and repayment of grid note of $56,900. Net cash provided by financing activities for the year ended |
December 31, 2020 consisted of net proceeds of $4,921,315 from the sale of units described below, proceeds from line of credit of $301,081, |
proceeds from the exercise of stock options and warrants of $212,500 and proceeds from vehicle loans of $21,968, offset by the payment |
to Kyle’s seller of $4,356,162, repayment of notes payable of $856,225 and grid note payments of $62,500. Unit Offering On September 30, 2020, we sold an aggregate of |
2,189,835 units, at a price of $1.90 per unit, for aggregate gross proceeds of $4,160,684. On October 26, 2020, we sold an additional |
442,443 units for an aggregate purchase price of $840,640. On March 26, 2021, we sold an aggregate of 1,818,182 |
units, at a price of $1.65 per unit, for aggregate gross proceeds of $3,000,000. As described in further detail below, we contributed |
to 1847 Wolo the $3,000,000 raised in this offering in exchange for 1,000 shares of 1847 Wolo’s series A preferred stock, at a price |
of $3,000 per share, to fund, in part, the planned acquisition of Wolo by 1847 Wolo. Each unit consists of one (1) series A senior |
convertible preferred share and a three-year warrant to purchase one (1) common share at an exercise price of $2.50 per common share (subject |
to adjustment), which may be exercised on a cashless basis under certain circumstances. In exchange for the consent of the holders of |
the series A senior convertible preferred shares issued in 2020 to the issuance of the units on March 26, 2021 at a lower purchase price |
than such holders paid for their shares, we issued an aggregate of 398,838 common shares to such holders. On October |
12, 2021, we redeemed 2,632,278 series A senior convertible preferred shares for a total redemption price, including dividends through |
such date, of $6,395,645. Subscription Agreement On March 29, 2021, we entered into a subscription |
agreement with 1847 Wolo, pursuant to which 1847 Wolo issued to us 1,000 shares of its series A preferred stock, for gross proceeds |
to 1847 Wolo of $3,000,000. The series A preferred stock has no voting rights and is not convertible into the common stock or any other |
securities of 1847 Wolo. Dividends at the rate per annum of 16.0% of the stated value of $3,000 per share shall accrue on the series A |
preferred stock (subject to adjustment) and shall accrue from day to day, whether or not declared, and shall be cumulative. Accruing dividends |
are payable quarterly in arrears on each of the following dividend payment dat January 15, April 15, July 15 and October 15 beginning |
on April 15, 2021. Upon any liquidation, dissolution or winding up of 1847 Wolo, before any payment shall be made to the holders of 1847 |
Wolo’s common stock, the series A preferred stock then outstanding shall be entitled to be paid out of the funds and assets available |
for distribution to 1847 Wolo’s stockholders an amount per share equal to the stated value of $3,000 per share, plus any accrued, |
but unpaid dividends. 86 Second Amended |
and Restated Intercompany Secured Promissory Note In connection with the acquisition of Kyle’s, |
we provided 1847 Cabinet with the funds necessary to pay the cash portion of the purchase price and cover acquisition expenses. In connection |
therewith, on September 30, 2020, 1847 Cabinet issued a secured promissory note to our company in the principal amount of $4,525,000, |
which was amended and restated on December 11, 2020 and on October 8, 2021 to increase the principal amount of up to $15,955,325. The |
note bears interest at the rate of 16% per annum. Interest on the note is cumulative and any unpaid accrued interest will compound on |
each anniversary date of the note. Interest is due and payable in arrears to us on December 1, March 1, June 1 and October 1, commencing |
on December 1, 2021. In the event payment of principal or interest due under the note is not made when due, giving effect to any grace |
period which may be applicable, or in the event of any other default (as defined in the note), the outstanding principal balance shall |
from the date of default immediately bear interest at the rate of 5% above the then applicable interest rate for so long as such default |
continues. We may demand payment in full of the note at any time, even if 1847 Cabinet has complied with all of the terms of the note, |
and the note shall be due in full, without demand, upon the third-party sale of all or substantially all the assets and business of 1847 |
Cabinet or the third-party sale or other disposition of any capital stock of 1847 Cabinet. 1847 Cabinet may prepay the note at any time |
without penalty. If and to the extent any amounts are owing under the secured convertible promissory notes described below due to a default |
thereunder, in addition to payment obligations due under the note, 1847 Cabinet is required to immediately make payments to us so that |
we may make payments in compliance with the terms of the secured convertible promissory notes. The |
note contains customary covenants and events of default, is guaranteed by Kyle’s, High Mountain and Innovative Cabinets |
and is secured by a security interest in all of the assets of 1847 Cabinet, Kyle’s, High |
Mountain and Innovative Cabinets; provided that our rights to receive payments under the note are subordinated to the rights of the purchasers |
under secured convertible promissory notes described below. The remaining principal balance of the note at December 31, 2021 was $6,549,073 |
and it had accrued interest of $35,416. Debt Secured Convertible |
Promissory Notes On October 8, 2021, we and each of our subsidiaries |
1847 Asien, 1847 Wolo, 1847 Cabinet, Asien’s, Wolo, Kyle’s, High Mountain and Innovative Cabinets, entered into a note purchase |
agreement with two institutional investors, including Leonite, pursuant to which we issued to these purchasers secured convertible promissory |
notes in the aggregate principal amount of $24,860,000. The notes contain an aggregate original issue discount of $497,200. As a result, |
the total purchase price was $24,362,800. After payment of expenses of $617,825, we received net proceeds of $23,744,975, of which $10,687,500 |
was used to fund the cash portion of the purchase price for the acquisition of High Mountain and Innovative Cabinets. In addition, as consideration for the financing, we granted the financing agent 750,000 warrants with a fair |
value of $956,526 and 7.5% interest in High Mountain and Innovative Cabinets which had a fair value of $1,146,803. The agent fees were |
reflected as a discount against the convertible note payable with the warrants being included in additional paid in capital and the equity |
interest being including within noncontrolling interest on the consolidated balance sheet. The remaining principal |
balance of the notes at December 31, 2021 is $23,787,936, net of debt discounts of $3,072,064, and they have accrued interest of $467,689. The notes bear interest |
at a rate per annum equal to the greater of (i) 4.75% plus the U.S. Prime Rate that appears in The Wall Street Journal from time |
to time or (ii) 8%; provided that, upon an event of default (as defined in the notes), such rate shall increase to 24% or the maximum |
legal rate. Payments of interest only, computed at such rate on the outstanding principal amount, will be due and payable quarterly in |
arrears commencing on January 1, 2022 and continuing on the first day of each calendar quarter thereafter through and including the maturity |
date, October 8, 2026. We may voluntarily prepay |
the notes in whole or in part upon payment of a prepayment fee in an amount equal to 10% of the principal and interest paid in connection |
with such prepayment. In addition, immediately upon receipt by our company or any subsidiary of any proceeds from any issuance of indebtedness |
(other than certain permitted indebtedness), any proceeds of any sale or disposition by our company or any subsidiary of any of the collateral |
or any of its respective assets (other than asset sales or dispositions in the ordinary course of business which are permitted by the |
note purchase agreement), or any proceeds from any casualty insurance policies or eminent domain, condemnation or similar proceedings, |
we must prepay the notes in an amount equal to all such proceeds, net of reasonable and customary transaction costs, fees and expenses |
properly attributable to such transaction and payable by our company or a subsidiary in connection therewith (in each case, paid to non-affiliates). The holders of the notes |
may, in their sole discretion, elect to convert any outstanding and unpaid principal portion of the notes, and any accrued but unpaid |
interest on such portion, into our common shares at a conversion price equal to $2.50 (subject to standard adjustments, including a full |
ratchet antidilution adjustment); provided that the notes contain certain beneficial ownership limitations. Pursuant to the terms |
of the notes, until the date that is eighteen (18) months after the issuance date of the notes, the holders shall have the right, but |
not the obligation, to participate in any securities offering other than a permitted issuance (as defined in the note purchase agreement) |
in an amount of up to the original principal amount of the notes. In addition, the holders shall have the right of first refusal to participate |
in any issuance of indebtedness until the notes have been terminated; provided, however, that this right of first refusal shall not apply |
to permitted issuances. The note |
purchase agreement and the notes contain customary representations, warranties, affirmative and negative financial and other covenants |
and events of default for loans of this type. The notes are guaranteed by each subsidiary and are secured by a first priority security |
interest in all of the assets of our company and its subsidiaries. 6% Subordinated |
Convertible Promissory Notes A portion of the purchase |
price for the acquisition of High Mountain and Innovative Cabinets on October 8, |
2021 was paid by the issuance of 6% subordinated convertible promissory notes in the aggregate principal amount of $5,880,345 by |
1847 Cabinet to the sellers of High Mountain and Innovative Cabinets. The remaining principal balance of the notes at December 31, 2021 |
is $4,838,997, net of debt discount at $1,041,348, and they have accrued interest of $108,262. 87 The |
notes bear interest at a rate of six percent (6%) per annum and are due and payable on October 8, 2024; provided that upon an event of |
default (as defined in the notes), such interest rate shall increase to ten percent (10%) per annum. 1847 Cabinet may prepay the notes |
in whole or in part, without penalty or premium, upon ten (10) business days prior written notice to the holders of the notes. At |
any time prior to October 8, 2022, the holders may, in their sole discretion, elect to convert up to twenty percent (20%) of the original |
principal amount of the notes and all accrued, but unpaid, interest into such number of shares of the common stock of 1847 Cabinet determined |
by dividing the amount to be converted by a conversion price determined by dividing (i) the fair market value of 1847 Cabinet (determined |
in accordance with the notes) by (ii) the number of shares of 1847 Cabinet outstanding on a fully diluted basis. In |
addition, on October 8, 2021, we entered into an exchange agreement with the holders, pursuant to which we granted them the right |
to exchange all of the principal amount and accrued but unpaid interest under the notes or any portion thereof for a number of our common |
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