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on March 3, 2018. The note is unsecured and contains customary events of default. The note has not been repaid, so the Company is in |
default under this note. Under terms of the term loan with Home State Bank described above, this note may not be paid until the term |
loan is paid in full. The payees on the note agreed to the modification of its terms by signing the loan agreement for the Home State |
Bank term loan. Accordingly, the loan is shown as a long-term liability as of December 31, 2020. Additionally, Home State Bank limits |
the payment of interest on this note to $40,000 annually. The Company continued to accrue interest at the contract rate; however, given |
the limitations of the term loan, all accrued interest in excess of $40,000 is included in long-term accrued expenses. Notes Payable, Related Parties A portion of the purchase price for the acquisition |
of Goedeker Television was paid by the issuance by Goedeker to Steve Goedeker, as representative of Goedeker Television, of a 9% subordinated |
promissory note in the principal amount of $4,100,000. As of December 31, 2019, the balance of the note was $3,300,444. Pursuant to a settlement agreement, the parties |
entered into an amendment and restatement of the note that became effective as of the closing of the Goedeker IPO on August 4, 2020, |
pursuant to which (i) the principal amount of the existing note was increased by $250,000, (ii) upon the closing of the Goedeker IPO, |
Goedeker agreed to make all payments of principal and interest due under the note through the date of the closing, and (iii) from and |
after the closing, the interest rate of the note was increased from 9% to 12%. In accordance with the terms of the amended and restated |
note, Goedeker used a portion of the proceeds from the Goedeker IPO to pay $1,083,842 of the balance of the note representing a $696,204 |
reduction in the principal balance and interest accrued through August 4, 2020 of $387,638. In August 2020, Goedeker refinanced this note |
payable with proceeds from a loan from Arvest Bank. In connection with the refinance, Goedeker recorded a $ 757,239 loss on extinguishment |
of debt consisting of a $ 250,000 forbearance fee, write-off of unamortized loan discount of $ 338,873 , and write-off of unamortized debt |
costs of $ 168,366 . F- 22 1847 HOLDINGS LLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 Convertible Promissory Note On April 5, 2019, the Company, Holdco and Goedeker |
entered into a securities purchase agreement with Leonite Capital LLC, a Delaware limited liability company, pursuant to which they issued |
to Leonite Capital LLC a secured convertible promissory note in the aggregate principal amount of $ 714,286 due April 5, 2020. See Note |
12 for further details of the convertible promissory note. Financing Lease The cash portion of the purchase price for the |
acquisition of Neese was financed under a capital lease transaction for Neese’s equipment with Utica Leaseco, LLC (“Utica”), |
pursuant to a master lease agreement, dated March 3, 2017, between Utica, as lessor, and 1847 Neese and Neese, as co-lessees (collectively, |
the “Lessee”), which was amended on June 14, 2017. Under the master lease agreement, as amended, Utica loaned an aggregate |
of $ 3,240,000 for certain of Neese’s equipment listed therein, which it leases to the Lessee. A portion of the proceeds from the |
term loan from Home State Bank were applied to reduce the balance of this lease to $ 475,000 . The lease was payable in 46 payments of |
$12,882 beginning July 3, 2018 and an end-of-term buyout of $38,000. On October 31, 2017, the parties entered into |
a second equipment schedule to the master lease agreement, pursuant to which Utica loaned an aggregate of $980,000 for certain of Neese’s |
equipment listed therein. The term of the second equipment schedule was 51 months and agreed monthly payments are $25,807. On July 29, 2020, the Company paid $ 568,597 to |
repay this capital lease transaction with Utica in full. NOTE 6—RECEIVABLES At December 31, 2021 and 2020, receivables consisted |
of the followin December 31, 2021 December 31, 2020 Credit card payments in process of settlement $ 116,187 $ 158,924 Retainage 803,989 - Trade receivables from customers 2,691,702 366,701 Vendor rebates receivable 126,118 - Total receivables 3,737,996 525,625 Allowance for doubtful accounts ( 359,000 ) - Accounts receivable, net $ 3,378,996 $ 525,625 NOTE 7—INVENTORIES At December 31, 2021 and 2020, the inventory |
balances are composed of finished goods for sale, as well as materials, parts, and components used in construction. December 31, 2021 December 31, 2020 Construction $ 1,543,980 $ 6,308 Appliances 2,206,336 2,029,270 Automotive 2,064,834 - Subtotal 5,815,150 2,035,578 Allowance for inventory obsolescence ( 387,848 ) ( 12,824 ) Inventories, net $ 5,427,302 $ 2,022,754 F- 23 1847 HOLDINGS LLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 NOTE 8—PROPERTY AND EQUIPMENT Property and equipment consist of the following |
at December 31, 2021 and 2020: Classification December 31, 2021 December 31, 2020 Buildings and leasehold improvements $ 135,804 $ 42,601 Equipment and machinery 836,622 171,179 Office furniture and equipment 53,725 2,613 Transportation equipment 864,121 213,850 Total 1,890,272 430,243 L Accumulated depreciation ( 194,961 ) ( 31,740 ) Property and equipment, net $ 1,695,311 $ 398,503 Depreciation expense for the years ended December |
31, 2021 and 2020 was $ 166,413 and $ 31,740 , respectively. NOTE 9—INTANGIBLE ASSETS The following provides |
a breakdown of identifiable intangible assets as of December 31, 2021 and 2020: December 31, 2021 December 31, 2020 Customer Relationships Identifiable intangible assets $ 5,791,000 $ 3,189,000 Accumulated amortization ( 399,480 ) ( 63,419 ) Customer relationship identifiable intangible assets, net 5,391,520 3,125,581 Marketing Related Identifiable intangible assets 5,917,000 841,000 Accumulated amortization ( 418,404 ) ( 81,114 ) Marketing related identifiable intangible assets, net 5,498,596 759,886 Technology Related Identifiable intangible assets 623,000 - Accumulated amortization ( 69,219 ) - Technology related identifiable intangible assets, net 553,781 - Total Identifiable intangible assets, net $ 11,443,897 $ 3,885,467 In connection with the |
acquisitions of Asien’s, Kyle’s, Wolo, and High Mountain and Innovative Cabinets, the Company identified intangible assets |
of $ 1,009,000 , $ 3,021,000 , $ 1,848,000 , and $ 6,453,000 respectively, representing trade names, customer relationships, and technology. |
These assets are being amortized on a straight-line basis over their weighted-average estimated useful life of 8.2 years and amortization |
expense amounted to $ 742,571 and $ 144,533 for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, |
the estimated annual amortization expense for each of the next five fiscal years is as follows: 2022 $ 1,458,780 2023 1,458,780 2024 1,458,750 2025 1,325,745 2026 1,157,523 Thereafter 4,584,319 Total $ 11,443,897 F- 24 1847 HOLDINGS LLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 NOTE 10—ACQUISITIONS Asien’s On March 27, 2020, the Company and 1847 Asien |
entered into a stock purchase agreement with the Asien’s Seller, pursuant to which 1847 Asien agreed to acquire all of the issued |
and outstanding capital stock of Asien’s. The Company acquired Asien’s, which provides a wide variety of appliance services, |
including sales, delivery/installation, in-home service and repair, extended warranties, and financing in the North Bay area of Sonoma |
County, California, to expand into the appliance industry. On May 28, 2020, the Company, 1847 |
Asien, Asien’s and the Asien’s Seller entered into an amendment to the stock purchase agreement and closing of the acquisition |
of all of the issued and outstanding capital stock of Asien’s was completed (the “Asien’s Acquisition”). The aggregate purchase price was $ 1,918,000 consisting |
o (i) $ 233,000 in cash; (ii) the issuance of an amortizing promissory note in the principal amount of $ 200,000 ; (iii) the issuance |
of a demand promissory note in the principal amount of $ 655,000 ; and (iv) 415,000 common shares of the Company, having a mutually agreed |
upon value of $ 830,000 and a fair value of $ 1,037,500 , which may be repurchased by 1847 Asien for a period of one year following the |
closing at a purchase price of $ 2.50 per share. The shares were repurchased by 1847 Asien on July 29, 2020 in exchange for a 6 % amortizing |
promissory note (See Note 11). The fair value of the purchase consideration issued to the Asien’s |
Seller was allocated to the net tangible assets acquired. The Company accounted for the Asien’s Acquisition as the purchase of a |
business under GAAP under the acquisition method of accounting, and the assets and liabilities acquired were recorded as of the acquisition |
date, at their respective fair values and consolidated with those of the Company. The fair value of the net assets acquired was approximately |
$ 1,182,925 . The excess of the aggregate fair value of the net tangible assets has been allocated to goodwill. The table below shows analysis for the Asien’s |
Acquisiti Purchase Consideration at fair val Common shares $ 1,037,500 Notes payable 855,000 Cash paid to Seller (post-closing) 233,000 Amount of consideration $ 2,125,500 Assets acquired and liabilities assumed at fair value Cash $ 1,501,285 Accounts receivable 235,746 Inventories 1,457,489 Other current assets 41,427 Property and equipment 157,052 Customer related intangibles 462,000 Marketing related intangibles 547,000 Accounts payable and accrued expenses ( 280,752 ) Customer deposits ( 2,405,703 ) Notes payable ( 509,272 ) Other liabilities ( 23,347 ) Net assets acquired $ 1,182,925 Total net assets acquired $ 1,182,925 Consideration paid 2,125,500 Goodwill $ 942,575 The estimated useful life remaining on the property |
and equipment acquired is 5 to 13 years. F- 25 1847 HOLDINGS LLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 Kyle’s On August 27, 2020, the Company and 1847 Cabinet |
entered into a stock purchase agreement with Kyle’s and the Kyle’s Sellers, pursuant to which 1847 Cabinet agreed to acquire |
all of issued and outstanding capital stock of Kyle’s. The Company acquired Kyle’s, a leading custom cabinetry maker servicing |
contractors and homeowners in Boise, Idaho, to expand into contracting services. On September 30, 2020, the Company, 1847 |
Cabinet, Kyle’s and the Kyle’s Sellers entered into addendum to the stock purchase and closing of the acquisition of all |
of the issued and outstanding capital stock of Kyle’s was completed (the “Kyle’s Acquisition”). The aggregate purchase price was $ 6,839,792 , |
consisting of (i) $ 4,389,792 in cash, (ii) an 8 % contingent subordinated note in the aggregate principal amount of $ 1,050,000 and (iii) 700,000 common shares of the Company, having a mutually agreed upon value of $ 1,400,000 and a fair value of $ 3,675,000 . The shares were |
issued on October 16, 2020, immediately following the record date for the Goedeker Spin-Off described above. The fair value of the purchase consideration issued |
to the Kyle’s Sellers was allocated to the net tangible assets acquired. The Company accounted for the Kyle’s Acquisition |
as the purchase of a business under GAAP under the acquisition method of accounting, and the assets and liabilities acquired were recorded |
as of the acquisition date, at their respective fair values and consolidated with those of the Company. The fair value of the net assets |
acquired was approximately $ 3,516,530 . The excess of the aggregate fair value of the net tangible assets has been allocated to goodwill. The table below shows an analysis for the Kyle’s |
Acquisiti Purchase consideration at fair val Common shares $ 3,675,000 Notes payable 498,979 Cash 4,389,792 Amount of consideration $ 8,563,771 Assets acquired and liabilities assumed at fair value Cash $ 130,000 Accounts receivable 385,095 Costs in excess of billings 122,016 Other current assets 13,707 Property and equipment 200,737 Customer related intangibles 2,727,000 Marketing related intangibles 294,000 Accounts payable and accrued expenses ( 263,597 ) Billings in excess of costs ( 43,428 ) Other liabilities ( 49,000 ) Net tangible assets acquired $ 3,516,530 Total net assets acquired $ 3,516,530 Consideration paid 8,563,771 Goodwill $ 5,047,241 The estimated useful life remaining on the property |
and equipment acquired is 3 to 7 years. Wolo On December 22, 2020, the Company 1847 Wolo entered |
into a stock purchase agreement with Wolo and the Wolo Sellers, pursuant to which 1847 Wolo agreed to acquire all of the issued and outstanding |
capital stock of Wolo. On March 30, 2021, the Company, 1847 Wolo, Wolo |
and the Wolo Sellers entered into amendment No. 1 to the stock purchase agreement and closing of the acquisition of all of the issued |
and outstanding capital stock of Wolo was completed (the “Wolo Acquisition”). F- 26 1847 HOLDINGS LLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 The aggregate purchase price was $ 8,344,056 , |
consisting of (i) $ 6,550,000 in cash, (ii) a 6 % secured promissory note in the aggregate principal amount of $ 850,000 and (iii) cash |
paid to seller, net of working capital adjustment, of $ 944,056 . The fair value of the purchase consideration issued |
to the Wolo Sellers was allocated to the net tangible assets acquired. The Company accounted for the Wolo Acquisition as the purchase |
of a business under GAAP under the acquisition method of accounting, and the assets and liabilities acquired were recorded as of the acquisition |
date, at their respective fair values and consolidated with those of the Company. The fair value of the net assets acquired was approximately |
$ 6,606,403 . The excess of the aggregate fair value of the net tangible assets has been allocated to goodwill. The table below shows an analysis for the Wolo |
Acquisiti Purchase consideration at fair val Notes payable $ 850,000 Cash 6,550,000 Net cash paid to Seller (post-closing) 944,056 Amount of consideration $ 8,344,056 Assets acquired and liabilities assumed at fair value Cash $ 1,171,655 Accounts receivable 1,860,107 Inventory 1,944,929 Customer related intangibles 233,000 Marketing related intangibles 992,000 Technology related intangibles 623,000 Other current assets 218,154 Deferred tax liability ( 325,000 ) Accounts payable and accrued expenses ( 111,442 ) Net tangible assets acquired $ 6,606,403 Total net assets acquired $ 6,606,403 Consideration paid 8,344,056 Goodwill $ 1,737,653 High Mountain and Innovative Cabinets On September 23, 2021, 1847 Cabinet entered into |
a securities purchase agreement with High Mountain, Innovative Cabinets and the H&I Sellers, which was amended on October 6, 2021, |
pursuant to which 1847 Cabinet agreed to acquire all of the issued and outstanding capital stock or other equity securities of High Mountain |
and Innovative Cabinets. On October 8, 2021, closing of the acquisition was completed (the “H&I Acquisition”). The purchase price was $ 15,441,173 (subject to |
adjustment), consisting of (i) $ 10,687,500 in cash (subject to adjustment) and (ii) the issuance by 1847 Cabinet of 6 % subordinated convertible |
promissory notes in the amount of $ 4,753,673 consisting of an aggregate principal amount of $ 5,880,345 , net of debt discount of $ 1,126,672 . The purchase price is |
subject to a post-closing working capital adjustment provision. Under this provision, the H&I Sellers delivered to 1847 Cabinet |
at the closing an unaudited balance sheet of High Mountain and Innovative Cabinets and a calculation of estimated net working capital |
of High Mountain and Innovative Cabinets as of that date. On or before the 75th day following the closing, 1847 Cabinet must deliver |
to the H&I Sellers an unaudited balance sheet of High Mountain and Innovative Cabinets and its calculation of the final net working |
capital of High Mountain and Innovative Cabinets as of the closing date. If such final net working capital exceeds the estimated net working |
capital, 1847 Cabinet must, within seven days, pay to the H&I Sellers an amount of cash that is equal to such excess. If the estimated |
net working capital exceeds the final net working capital, the H&I Sellers must, within seven days, pay to 1847 Cabinet an amount |
in cash equal to such excess. As of the date of this report, the post-closing working capital adjustment has not been completed notwithstanding |
the fact that the date of this report is past the 75th day following closing. The Company and 1847 Cabinet have agreed with the Sellers |
to finalize the post-working capital adjustment. F- 27 1847 HOLDINGS LLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 The fair value of the purchase consideration issued |
to the H&I Sellers was allocated to the net tangible assets acquired. The Company accounted for the H&I Acquisition as the purchase |
of a business under GAAP under the acquisition method of accounting, and the assets and liabilities acquired were recorded as of the acquisition |
date, at their respective fair values and consolidated with those of the Company. The fair value of the net assets acquired was approximately |
$ 3,716,376 . The excess of the aggregate fair value of the net tangible assets has been allocated to goodwill. The Company is currently in the process of completing |
the preliminary purchase price allocation as an acquisition of certain assets. The final purchase price allocation for Wolo will be included |
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