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

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were to decide to declare and pay distributions, our ability to pay such distributions may be adversely impacted due to unknown liabilities,
government regulations, financial covenants of our debt, funds needed for acquisitions and to satisfy short- and long-term working capital
needs of our businesses, or if our operating subsidiaries do not generate sufficient earnings and cash flow to support the payment of
such distributions. In particular, we may incur debt in the future to acquire new businesses, which debt will have substantial debt commitments,
which must be satisfied before we can make distributions. These factors could affect our ability to continue to make quarterly distributions
to our common shareholders. We
may use cash flow from our operating subsidiaries, capital resources, including borrowings under any third-party credit facilities that
we establish, or reduction in equity to pay a distribution. See “ Material U.S. Federal Income Tax Considerations ”
included in our prospectus, dated August 2, 2022 and filed with the Securities and Exchange Commission, or the SEC, on August 4, 2022,
for more information about the tax treatment of distributions to our shareholders. Recent
Sales of Unregistered Securities We
have not sold any equity securities during the 2022 fiscal year that were not previously disclosed in a quarterly report on Form 10-Q
or a current report on Form 8-K that was filed during the 2022 fiscal year. Purchases
of Equity Securities No
repurchases of our common shares were made during the fourth quarter of 2022. ITEM
6. [RESERVED] 89 ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The
following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity
and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our
financial statements and the related notes thereto included elsewhere in this report. The discussion contains forward-looking statements
that are based on the beliefs of management, as well as assumptions made by, and information currently available to, management. Actual
results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including
those discussed below and elsewhere in this report, particularly in the sections titled “Risk Factors” and “Special
Note Regarding Forward-Looking Statements.” Overview We
are an acquisition holding company focused on acquiring and managing a group of small businesses, which we characterize as those that
have an enterprise value of less than $50 million, in a variety of different industries headquartered in North America. On
May 28, 2020, our subsidiary 1847 Asien acquired Asien’s. Asien’s has been in business since 1948 serving the North Bay area
of Sonoma County, California. It provides a wide variety of appliance services, including sales, delivery/installation, in-home service
and repair, extended warranties, and financing. Its main focus is delivering personal sales and exceptional service to its customers
at competitive prices. On
September 30, 2020, our subsidiary 1847 Cabinet acquired Kyle’s. Kyle’s is a leading custom cabinetry maker servicing contractors
and homeowners since 1976 in Boise, Idaho and the surrounding area. Kyle’s focuses on designing, building, and installing custom
cabinetry primarily for custom and semi-custom builders. On
March 30, 2021, our subsidiary 1847 Wolo acquired Wolo. Headquartered in Deer Park, New York and founded in 1965, Wolo designs and sells
horn and safety products (electric, air, truck, marine, motorcycle and industrial equipment), and offers vehicle emergency and safety
warning lights for cars, trucks, industrial equipment and emergency vehicles. On
October 8, 2021, our subsidiary 1847 Cabinet acquired High Mountain and Innovative Cabinets. Headquartered in Reno, Nevada and founded
in 2014, High Mountain specializes in all aspects of finished carpentry products and services, including doors, door frames, base boards,
crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, and fireplace mantles, among others, working primarily
with large homebuilders of single-family homes and commercial and multi-family developers. Innovative Cabinets is headquartered in Reno,
Nevada and was founded in 2008. It specializes in custom cabinetry and countertops for a client base consisting of single-family homeowners,
builders of multi-family homes, as well as commercial clients. On
February 9, 2023, our subsidiary 1847 ICU acquired ICU Eyewear. Headquartered in Hollister, California and founded in 1956, ICU Eyewear
specializes in the sale and distribution of reading eyewear and sunglasses, blue light blocking eyewear, sun readers, and other outdoor
specialty sunglasses, as well as select health and personal care items, including face masks. Through
our structure, we offer investors an opportunity to participate in the ownership and growth of a portfolio of businesses that traditionally
have been owned and managed by private equity firms, private individuals or families, financial institutions or large conglomerates.
We believe that our management and acquisition strategies will allow us to achieve our goals of growing regular distributions to
our common shareholders and increasing common shareholder value over time. We
seek to acquire controlling interests in small businesses that we believe operate in industries with long-term macroeconomic growth opportunities,
and that have positive and stable earnings and cash flows, face minimal threats of technological or competitive obsolescence and have
strong management teams largely in place. We believe that private company operators and corporate parents looking to sell their businesses
will consider us to be an attractive purchaser of their businesses. We make these businesses our majority-owned subsidiaries and actively
manage and grow such businesses. We expect to improve our businesses over the long term through organic growth opportunities, add-on
acquisitions and operational improvements. Recent
Developments Warrant
Dividend On
January 3, 2023, we issued warrants for the purchase of 407,872 common shares as a dividend to our common shareholders of record as of
December 23, 2022 pursuant to a warrant agent agreement, dated January 3, 2023, with VStock Transfer, LLC. Each holder of common shares
received a warrant to purchase one (1) common share for every ten (10) common shares owned as of the record date (with the number of
shares underlying the warrant received rounded down to the nearest whole number). Each warrant represents the right to purchase common
shares at an initial exercise price of $4.20 per share (subject to certain adjustments as set forth in the warrants). At any time we
may, at our option, voluntarily reduce the then-current exercise price to such amount and for such period or periods of time which may
be through the expiration date as may be deemed appropriate by our board of directors. Cashless exercises of the warrants are not permitted. 90 The
warrants will generally be exercisable in whole or in part beginning on the later of (i) January 3, 2024 or (ii) the date that a registration
statement on Form S-3 with respect to the issuance and registration of the common shares underlying the warrants has been filed with
and declared effective by the SEC, and thereafter until January 3, 2026. We
may redeem the warrants at any time in whole or in part at $0.001 per warrant (subject to equitable adjustment to reflect share splits,
share dividends, share combinations, recapitalizations and like occurrences) upon not less than 30 days’ prior written notice to
the registered holders of the warrants. Private
Placements On
February 3, 2023, we entered into securities purchase agreements with two accredited investors, pursuant to which we issued to such investors
(i) promissory notes in the aggregate principal amount of $604,000, which include an original issue discount in the amount of $60,400,
(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) and (iii) an aggregate of 125,833 common shares for an aggregate purchase price of $543,600. On
February 9, 2023, we entered into securities purchase agreements with the same two accredited investors, pursuant to which we issued
to such investors (i) promissory notes in the aggregate principal amount of $2,557,575, which include an original issue discount in the
amount of $139,091, 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). We also 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). The aggregate purchase
price was $2,301,818. On
February 22, 2023, we entered into another securities purchase agreement with one of the investors pursuant to which we issued to such
investor (i) a promissory note in the principal amount of $878,000, which includes an original issue discount in the amount of $87,800,
(ii) a five-year warrant for the purchase of 182,917 common shares at an exercise price of $4.20 per share (subject to adjustment) and
(iii) a five-year warrant for the purchase of 198,343 common shares at an exercise price of $0.01 per share (subject to adjustment) for
a total purchase price of $790,200. In
the aggregate, we issued promissory notes in the aggregate principal amount of $4,039,575, warrants for the purchase of an aggregate
of 1,282,975 common shares and 415,605 common shares for gross proceeds of $3,635,618 and net proceeds of approximately $3,553,118. The
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. We 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 we receive 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 us 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 are 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%

were to decide to declare and pay distributions, our ability to pay such distributions may be adversely impacted due to unknown liabilities,

government regulations, financial covenants of our debt, funds needed for acquisitions and to satisfy short- and long-term working capital

needs of our businesses, or if our operating subsidiaries do not generate sufficient earnings and cash flow to support the payment of

such distributions. In particular, we may incur debt in the future to acquire new businesses, which debt will have substantial debt commitments,

which must be satisfied before we can make distributions. These factors could affect our ability to continue to make quarterly distributions

to our common shareholders. We

may use cash flow from our operating subsidiaries, capital resources, including borrowings under any third-party credit facilities that

we establish, or reduction in equity to pay a distribution. See “ Material U.S. Federal Income Tax Considerations ”

included in our prospectus, dated August 2, 2022 and filed with the Securities and Exchange Commission, or the SEC, on August 4, 2022,

for more information about the tax treatment of distributions to our shareholders. Recent

Sales of Unregistered Securities We

have not sold any equity securities during the 2022 fiscal year that were not previously disclosed in a quarterly report on Form 10-Q

or a current report on Form 8-K that was filed during the 2022 fiscal year. Purchases

of Equity Securities No

repurchases of our common shares were made during the fourth quarter of 2022. ITEM

6. [RESERVED] 89 ITEM

7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The

following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity

and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our

financial statements and the related notes thereto included elsewhere in this report. The discussion contains forward-looking statements

that are based on the beliefs of management, as well as assumptions made by, and information currently available to, management. Actual

results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including

those discussed below and elsewhere in this report, particularly in the sections titled “Risk Factors” and “Special

Note Regarding Forward-Looking Statements.” Overview We

are an acquisition holding company focused on acquiring and managing a group of small businesses, which we characterize as those that

have an enterprise value of less than $50 million, in a variety of different industries headquartered in North America. On

May 28, 2020, our subsidiary 1847 Asien acquired Asien’s. Asien’s has been in business since 1948 serving the North Bay area

of Sonoma County, California. It provides a wide variety of appliance services, including sales, delivery/installation, in-home service

and repair, extended warranties, and financing. Its main focus is delivering personal sales and exceptional service to its customers

at competitive prices. On

September 30, 2020, our subsidiary 1847 Cabinet acquired Kyle’s. Kyle’s is a leading custom cabinetry maker servicing contractors

and homeowners since 1976 in Boise, Idaho and the surrounding area. Kyle’s focuses on designing, building, and installing custom

cabinetry primarily for custom and semi-custom builders. On

March 30, 2021, our subsidiary 1847 Wolo acquired Wolo. Headquartered in Deer Park, New York and founded in 1965, Wolo designs and sells

horn and safety products (electric, air, truck, marine, motorcycle and industrial equipment), and offers vehicle emergency and safety

warning lights for cars, trucks, industrial equipment and emergency vehicles. On

October 8, 2021, our subsidiary 1847 Cabinet acquired High Mountain and Innovative Cabinets. Headquartered in Reno, Nevada and founded

in 2014, High Mountain specializes in all aspects of finished carpentry products and services, including doors, door frames, base boards,

crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, and fireplace mantles, among others, working primarily

with large homebuilders of single-family homes and commercial and multi-family developers. Innovative Cabinets is headquartered in Reno,

Nevada and was founded in 2008. It specializes in custom cabinetry and countertops for a client base consisting of single-family homeowners,

builders of multi-family homes, as well as commercial clients. On

February 9, 2023, our subsidiary 1847 ICU acquired ICU Eyewear. Headquartered in Hollister, California and founded in 1956, ICU Eyewear

specializes in the sale and distribution of reading eyewear and sunglasses, blue light blocking eyewear, sun readers, and other outdoor

specialty sunglasses, as well as select health and personal care items, including face masks. Through

our structure, we offer investors an opportunity to participate in the ownership and growth of a portfolio of businesses that traditionally

have been owned and managed by private equity firms, private individuals or families, financial institutions or large conglomerates.

We believe that our management and acquisition strategies will allow us to achieve our goals of growing regular distributions to

our common shareholders and increasing common shareholder value over time. We

seek to acquire controlling interests in small businesses that we believe operate in industries with long-term macroeconomic growth opportunities,

and that have positive and stable earnings and cash flows, face minimal threats of technological or competitive obsolescence and have

strong management teams largely in place. We believe that private company operators and corporate parents looking to sell their businesses

will consider us to be an attractive purchaser of their businesses. We make these businesses our majority-owned subsidiaries and actively

manage and grow such businesses. We expect to improve our businesses over the long term through organic growth opportunities, add-on

acquisitions and operational improvements. Recent

Developments Warrant

Dividend On

January 3, 2023, we issued warrants for the purchase of 407,872 common shares as a dividend to our common shareholders of record as of

December 23, 2022 pursuant to a warrant agent agreement, dated January 3, 2023, with VStock Transfer, LLC. Each holder of common shares

received a warrant to purchase one (1) common share for every ten (10) common shares owned as of the record date (with the number of

shares underlying the warrant received rounded down to the nearest whole number). Each warrant represents the right to purchase common

shares at an initial exercise price of $4.20 per share (subject to certain adjustments as set forth in the warrants). At any time we

may, at our option, voluntarily reduce the then-current exercise price to such amount and for such period or periods of time which may

be through the expiration date as may be deemed appropriate by our board of directors. Cashless exercises of the warrants are not permitted. 90 The

warrants will generally be exercisable in whole or in part beginning on the later of (i) January 3, 2024 or (ii) the date that a registration

statement on Form S-3 with respect to the issuance and registration of the common shares underlying the warrants has been filed with

and declared effective by the SEC, and thereafter until January 3, 2026. We

may redeem the warrants at any time in whole or in part at $0.001 per warrant (subject to equitable adjustment to reflect share splits,

share dividends, share combinations, recapitalizations and like occurrences) upon not less than 30 days’ prior written notice to

the registered holders of the warrants. Private

Placements On

February 3, 2023, we entered into securities purchase agreements with two accredited investors, pursuant to which we issued to such investors

(i) promissory notes in the aggregate principal amount of $604,000, which include an original issue discount in the amount of $60,400,

(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) and (iii) an aggregate of 125,833 common shares for an aggregate purchase price of $543,600. On

February 9, 2023, we entered into securities purchase agreements with the same two accredited investors, pursuant to which we issued

to such investors (i) promissory notes in the aggregate principal amount of $2,557,575, which include an original issue discount in the

amount of $139,091, 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). We also 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). The aggregate purchase

price was $2,301,818. On

February 22, 2023, we entered into another securities purchase agreement with one of the investors pursuant to which we issued to such

investor (i) a promissory note in the principal amount of $878,000, which includes an original issue discount in the amount of $87,800,

(ii) a five-year warrant for the purchase of 182,917 common shares at an exercise price of $4.20 per share (subject to adjustment) and

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

a total purchase price of $790,200. In

the aggregate, we issued promissory notes in the aggregate principal amount of $4,039,575, warrants for the purchase of an aggregate

of 1,282,975 common shares and 415,605 common shares for gross proceeds of $3,635,618 and net proceeds of approximately $3,553,118. The

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. We 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 we receive 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 us 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 are 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%