8-K/A
1847 Holdings LLC (LBRA)
UNITEDSTATES
SECURITIESAND EXCHANGE COMMISSION
Washington,D.C. 20549
FORM8-K/A
(AmendmentNo. 1)
CURRENTREPORT
Pursuantto Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 2, 2021 (March 30, 2021)
| 1847 HOLDINGS LLC | ||
|---|---|---|
| (Exact<br> name of registrant as specified in its charter) | ||
| Delaware | 333-193821 | 38-3922937 |
| --- | --- | --- |
| (State or other jurisdiction<br><br> of incorporation) | (Commission File Number) | (IRS Employer <br><br> Identification No.) |
| 590 Madison Avenue, 21st Floor, New York, NY | 10022 | |
| --- | --- | |
| (Address of principal executive<br> offices) | (Zip Code) | |
| (212) 417-9800 | ||
| --- | ||
| (Registrant’s telephone<br> number, including area code) | ||
| (Former<br> name or former address, if changed since last report) | ||
| --- |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written<br>communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting<br>material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement<br>communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement<br>communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
EXPLANATORYNOTE
On March 30, 2021, 1847 Wolo Inc., a subsidiary of 1847 Holdings LLC (the “Company”), acquired all of the issued and outstanding capital stock of Wolo Mfg. Corp., a New York corporation, and Wolo Industrial Horn & Signal, Inc., a New York corporation (together, “Wolo”), pursuant to a Stock Purchase Agreement, dated December 22, 2020, among 1847 Wolo Inc., the Company, Wolo and Barbara Solow and Stanley Solow, as amended on March 30, 2021.
This Amendment No. 1 to Current Report on Form 8-K/A amends the Form 8-K that the Company filed on April 5, 2021 to include the financial statements of the business acquired as required by Items 9.01(a) and 9.01(b) of Form 8-K.
| Item 9.01 | Financial Statements and Exhibits. |
|---|
(a) Financial Statements of Business Acquired
The audited combined financial statements of Wolo for the years ended December 31, 2020 and 2019 and the accompanying notes thereto are filed as Exhibit 99.1 attached hereto and are incorporated by reference herein.
(b) Pro forma financial information
The unaudited pro forma combined financial information giving effect to the acquisition is filed as Exhibit 99.3 attached hereto and is incorporated herein by reference.
(d) Exhibits
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| 1847 HOLDINGS LLC | |
|---|---|
| Date:<br> August 2, 2021 | /s/ Ellery<br> W. Roberts |
| Name: Ellery W. Roberts | |
| Title: Chief Executive Officer |
2
Exhibit99.1
WOLOMFG. CORP. AND WOLO INDUSTRIAL HORN & SIGNAL, INC.
REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
AND
COMBINEDFINANCIAL STATEMENTS
FORTHE YEARS ENDED DECEMBER 31, 2020 AND 2019
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM
To the Stockholders
Wolo Mfg. Corp. and Wolo Industrial Horn & Sign, Inc.
Opinion on the Financial Statements
We have audited the accompanying combined balance sheets of Wolo Mfg. Corp. and Wolo Industrial Horn & Sign, Inc. (collectively “the Company”) as of December 31, 2020 and 2019, the related combined statements of income and changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Sadler, Gibb & Associates, LLC
We have served as the Company’s auditor since 2021.
Draper, UT
July 29, 2021
2
WOLO MFG. CORP. AND WOLOINDUSTRIAL HORN & SIGNAL, INC.
COMBINED BALANCE SHEETS
| December 31,<br> <br>2020 | December 31,<br> <br>2019 | |||
|---|---|---|---|---|
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 574,983 | $ | 1,091,346 |
| Accounts receivable | 1,514,262 | 1,459,522 | ||
| Inventory, net | 2,526,193 | 2,667,427 | ||
| Prepaid expenses and other current assets | 62,234 | 124,738 | ||
| Total current assets | 4,677,672 | 5,343,033 | ||
| Long-term assets: | ||||
| Property and equipment, net | 10,407 | 16,052 | ||
| Operating lease right-of-use asset | 123,561 | 45,048 | ||
| Security deposits | 6,482 | 6,482 | ||
| Total long-term assets | 140,450 | 67,582 | ||
| Total assets | $ | 4,818,122 | $ | 5,410,615 |
| Liabilities and stockholders' equity | ||||
| Current liabilities: | ||||
| Accounts payable and accrued expenses | $ | 125,241 | $ | 143,879 |
| Income taxes payable | 85,580 | 89 | ||
| Current portion of operating lease liability | 76,233 | 45,048 | ||
| Current portion of SBA note payable | 105,018 | - | ||
| Total current liabilities | 392,072 | 189,016 | ||
| Long-term liabilities | ||||
| SBA note payable – net of current portion | 67,332 | - | ||
| Operating lease liability – net of current portion | 47,328 | - | ||
| Total long-term liabilities | 114,660 | - | ||
| Total liabilities | 506,732 | 189,016 | ||
| Stockholders' Equity | ||||
| Stockholders' equity | 4,311,390 | 5,221,599 | ||
| Total liabilities and stockholders’ equity | $ | 4,818,122 | $ | 5,410,615 |
The accompanying notes are an integral part of these combined financial statements.
3
WOLO MFG. CORP. AND WOLOINDUSTRIAL HORN & SIGNAL, INC.
COMBINED STATEMENTS OFINCOME AND CHANGES IN STOCKHOLDERS’ EQUITY
| For the Years Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| Revenues | $ | 7,444,776 | $ | 7,640,304 | ||
| Cost of Goods Sold | 4,095,389 | 4,399,717 | ||||
| Gross Profit | 3,349,387 | 3,240,587 | ||||
| Operating expenses: | ||||||
| Personnel | 584,852 | 752,149 | ||||
| General and administrative | 1,736,058 | 1,868,530 | ||||
| Depreciation and amortization | 5,949 | 6,031 | ||||
| Total operating expenses | 2,326,859 | 2,626,710 | ||||
| Income from operations | 1,022,528 | 613,877 | ||||
| Other Income and Expense | ||||||
| Settlement income | - | 80,794 | ||||
| Interest income | 10 | 39 | ||||
| Interest expense | (1,140 | ) | (635 | ) | ||
| Gain on forgiveness of debt | 10,000 | - | ||||
| Other income | 14 | 212 | ||||
| Total other income/(expenses) | 8,884 | 80,410 | ||||
| Net income before income taxes | 1,031,412 | 694,287 | ||||
| Income tax expense | (216,621 | ) | (145,376 | ) | ||
| Net Income | $ | 814,791 | $ | 548,911 | ||
| Stockholders’ Equity, Beginning | 5,221,599 | 5,172,688 | ||||
| Distribution to stockholders | (1,725,000 | ) | (500,000 | ) | ||
| Stockholders’ Equity, Ending | $ | 4,311,390 | $ | 5,221,599 |
The accompanying notes are an integral part of these combined financial statements.
4
WOLO MFG. CORP. AND WOLOINDUSTRIAL HORN & SIGNAL, INC.
COMBINED STATEMENTS OFCASH FLOWS
| For the Years Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| Cash flows from operating activities: | ||||||
| Net Income | $ | 814,791 | $ | 548,911 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Depreciation and amortization | 5,645 | 5,971 | ||||
| Amortization of right-of-use assets | 75,150 | 75,176 | ||||
| Changes in current assets and liabilities: | ||||||
| Accounts receivable | (54,740 | ) | 172,710 | |||
| Prepaid expenses and other current assets | 62,504 | 214,746 | ||||
| Inventory | 141,234 | (50,922 | ) | |||
| Accounts payable and accrued expenses | 66,853 | (6,141 | ) | |||
| Operating lease liability | (75,150 | ) | (75,176 | ) | ||
| Deposits | - | (38 | ) | |||
| Net cash provided by operating activities | 1,036,287 | 885,237 | ||||
| Cash flows from investing activities: | ||||||
| Purchases of property and equipment | - | (5,939 | ) | |||
| Net cash used-in investing activities | - | (5,939 | ) | |||
| Cash flows from financing activities: | ||||||
| Net proceeds from related party notes payable | - | (75,000 | ) | |||
| Proceeds from PPP loan | 172,350 | - | ||||
| Distribution to stockholders | (1,725,000 | ) | (500,000 | ) | ||
| Net cash used-in financing activities | (1,552,650 | ) | (575,000 | ) | ||
| Net change to cash and cash equivalents | (516,363 | ) | 304,298 | |||
| Cash at beginning of period | 1,091,346 | 787,048 | ||||
| Cash at end of period | $ | 574,983 | $ | 1,091,346 | ||
| Supplemental Cash Flow disclosures: | ||||||
| Cash paid for interest | $ | - | $ | - | ||
| Cash paid for taxes | $ | 216,621 | $ | 145,376 | ||
| Non Cash Investing and Financing Activities: | ||||||
| Change in right-of-use asset/liability due to lease amendments | $ | 153,863 | $ | 76,275 |
The accompanying notes are an integral part of these combined financial statements.
5
WOLO MFG. CORP. AND WOLO INDUSTRIAL HORN &SIGNAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND2019
NOTE1 – ORGANIZATION AND NATURE OF BUSINESS
Wolo Mfg. Corp. was formed under the laws of the State of New York on August 6, 1965. Wolo Industrial Horn & Signal, Inc. was formed under the laws of the State of New York on January 27, 1999. The entities collectively do business as Wolo and are referred to throughout as “Wolo” or “the Company.”
Founded in 1965, Wolo was a one-person operation with an idea and commitment to manufacture a single patented hood lock. Today, Wolo is a second–generation family owned and operated business with the same mission, to provide the very best quality products and customer service. Wolo provides innovative products to protect and keep people safe. Wolo is the leader in horn design and technology (electric, air, truck, marine, motorcycle and industrial equipment). Wolo also offers vehicle emergency and safety warning lights for cars, trucks, industrial equipment and emergency vehicles.
NOTE2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basisof Presentation
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and are presented in US dollars. In the opinion of management, all adjustments considered necessary for a fair presentation have been included.
Cash
At December 31, 2020 and December 31, 2019, the Company had $139,732 and $457,877, respectively, in its domestic accounts in excess of Federal Deposit Insurance Corporation insured limits. ****
Useof Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
RevenueRecognition and Cost of Revenue
On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer purchase orders, including significant judgments. The Company’s adoption of this ASU resulted in no change to the Company’s results of operations or balance sheet.
Wolo collects 100% of the payment for internet and phone orders, including tax, from the customer at the time the order is shipped. Customers placing orders with a purchase order through the EDI (Electronic Data Interface) are allowed to purchase on credit and make payment after receipt of product on the agreed upon terms.
Performance Obligations – The revenue that Wolo recognizes arises from orders it receives from contracts with customers. Wolo’s performance obligations under the customer orders correspond to each sale of merchandise that it makes to customers and each order generally contains only one performance obligation based on the merchandise sale to be completed. Control of the delivery transfers to customers when the customer can direct the use of, and obtain substantially all the benefits from, Wolo’s products, which generally occurs when the customer assumes the risk of loss. The transfer of control generally occurs at the point of shipment of the order. Once this occurs, Wolo has satisfied its performance obligation and Wolo recognizes revenue.
6
WOLO MFG. CORP. AND WOLO INDUSTRIAL HORN &SIGNAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND2019
Transaction Price ‒ Wolo agrees with customers on the selling price of each transaction. This transaction price is generally based on the agreed upon sales price. In Wolo’s contracts with customers, it allocates the entire transaction price to the sales price, which is the basis for the determination of the relative standalone selling price allocated to each performance obligation. Any sales tax that Wolo collects concurrently with revenue-producing activities are excluded from revenue.
Cost of sales includes the cost of purchased merchandise plus freight, warehouse salaries, tariffs, and any applicable delivery charges from the vendor to the company.
Warranties vary and are typically 90 days to consumers and manufacturing defect warranty to are available to resellers. At times, depending on the product, the company can also offer a warranty up to 12 months.
The majority of Wolo’s sales are to business to business (“B2B”) clients, with three exceeding 10% of revenue in 2020. The Company had sales to Zhongshan Yonglong Car Accessories and E-Own Corp in 2020 each making up 21% of total revenue and Echo Industrial making up 18% of total revenue in 2019.
Disaggregated Revenue ‒ Wolo disaggregates revenue from contracts with customers by contract type, as it believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Wolo’s revenue by sales type is as follows:
| For the Years Ended December 31, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| B2B – Resellers/other | $ | 7,446,776 | $ | 7,640,304 |
| Total revenue | $ | 7,444,776 | $ | 7,640,304 |
Receivables
Receivables consists of customer’s balance payments for which the Company extends credit to certain customers, primarily B2B sales, based on prior business relationship and credit worthiness. Based on the Company’s assessment of the credit history with its customers, it has concluded that there should be no allowance for uncollectible accounts.
The Company historically collects substantially all its trade receivables from customers. Uncollectible balances are expensed in the period it is determined to be uncollectible.
The Company factors accounts receivable from two of its customers. The factor bears all of the risk of the collectability of these two accounts.
Inventory
Inventory consists of finished goods acquired for resale and is valued at the weighted-average cost determined on a specific item basis. The Company periodically evaluates the value of items in inventory and provides write-downs to inventory based on estimate of its ability to sell the item as well as general market conditions. The Company typically has In-Transit inventory that ships internationally through its network of carriers. The In-Transit shipping terms are primarily FOB shipping point terms at the international port and risk of loss passes at that point in transit. Based on these evaluations, the Company estimated an obsolescence allowance of $148,000 at December 31, 2020 and 2019.
ProductWarranties
The Company offers assurance-type warranties from 90 days to 1 year on its products. The Company estimates the costs associated with the warranty obligation using historical data of warranty claims and costs incurred to satisfy those claims. The Company estimates, based upon a review of historical warranty claim experience, the costs that may be incurred under our warranties and record a liability in the amount of such estimate at the time a product is sold. Factors that affect our warranty liability include the number of units sold, historical and anticipated rates of warranty claims, and cost per claim. We periodically assess the adequacy of our recorded warranty liability and adjust the accrual as claims data and historical experience warrants. The Company has assessed the costs of fulfilling its existing assurance-type warranties and has determined that the estimated outstanding warranty obligation on December 31, 2020 and 2019 are immaterial to the Company’s financial statements.
7
WOLO MFG. CORP. AND WOLO INDUSTRIAL HORN &SIGNAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND2019
Propertyand Equipment
Property and equipment is stated at the historical cost. Maintenance and repairs of property and equipment are charged to operations as incurred.
Depreciation is computed using the straight-line method over estimated useful lives as follows:
| Useful Lives (Years) | |
|---|---|
| Furniture and fixtures | 7 |
| Machinery and equipment | 5-7 |
Long-livedAssets
The Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management at least annually. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
FairValue of Financial Instruments
The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined in the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The cash and cash equivalents held by the Company are included in Level 1 in the fair value hierarchy. The carrying value of accounts receivable, accounts payable, and accrued liabilities approximate their fair value because of the short-term nature of these instruments.
IncomeTaxes
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss, credit carryforwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company recognizes a tax benefit for an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. There are no uncertain tax positions as of December 31, 2020 and December 31, 2019. The Company’s accounting policy is to include penalties and interest related to income taxes in selling, general and administrative expenses.
The Company is subject to Corporate Federal and State income taxes. The Company paid income taxes of $216,621 and $145,376 for 2020 and 2019, respectively.
8
WOLO MFG. CORP. AND WOLO INDUSTRIAL HORN &SIGNAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND2019
RecentAccounting Pronouncements
On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers(Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer purchase orders, including significant judgments. The Company’s adoption of this ASU as of January 1, 2018 resulted in no change to the Company’s results of operations or balance sheet.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which made changes to the accounting for leases that primarily affect presentation and disclosure requirements. The new standard will require the recognition of a right to use asset and underlying lease liability for operating leases with an initial life in excess of one year. This standard is effective for private companies for years beginning after December 15, 2019. We are in the process of evaluating the impact of the new standard on our consolidated financial statements.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of Operations.
NOTE3 – RECEIVABLES
At December 31, 2020 and 2019, receivables consisted of the following:
| December 31,<br><br> 2020 | December 31,<br><br> 2019 | |||
|---|---|---|---|---|
| Trade receivables from customers | $ | 1,513,432 | $ | 1,456,462 |
| Employee receivables | - | 2,230 | ||
| Total receivables | $ | 1,513,432 | $ | 1,458,692 |
AccountsReceivable Factoring
As a part of its working capital management, the Company sells certain receivables through a single third-party financial institution (the “Factor”). The amount sold varies each month based on the amount of underlying receivables and cash flow needs of the Company. The factoring facility, which was initiated in August 2014, allows the Company to a factor specific vendor accounts receivables, accelerating access to cash and reducing credit risk. The factoring facility and margin rate is reviewed from time to time and the margin rates ranged from 1.375% to 1.625%.
Costs incurred on the sale of receivables are recorded in other expense, net in the combined statements of income. The sale of receivables under this contract is considered an off-balance sheet arrangement to the Company and is accounted for as a true sale and is excluded from accounts receivable in the combined balance sheet. ****
NOTE4 – INVENTORY
Inventory consists of the following at December 31, 2020 and, 2019:
| Classification | December 31,<br><br> <br>2020 | December 31,<br><br> <br>2019 | ||||
|---|---|---|---|---|---|---|
| Finished Goods | $ | 1,481,155 | $ | 1,725,530 | ||
| Components | 761,498 | 595,066 | ||||
| In-Transit | 431,540 | 494,831 | ||||
| Total | 2,674,193 | 2,815,427 | ||||
| Less: Inventory reserve<br> for excess and slow mowing inventory | (148,000 | ) | (148,000 | ) | ||
| Inventory, net | $ | 2,526,193 | $ | 2,667,427 |
9
WOLO MFG. CORP. AND WOLO INDUSTRIAL HORN &SIGNAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND2019
NOTE5 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 2020 and, 2019:
| Classification | December 31,<br><br> <br>2020 | December 31,<br><br> <br>2019 | ||||
|---|---|---|---|---|---|---|
| Furniture and fixtures | $ | 1,710 | $ | 1,710 | ||
| Equipment | 34,704 | 34,704 | ||||
| Total | 36,414 | 36,414 | ||||
| Less: Accumulated<br> depreciation | (26,007 | ) | (20,362 | ) | ||
| Property and equipment,<br> net | $ | 10,407 | $ | 16,052 |
Depreciation expense for the years ended December 31, 2020 and 2019 was $5,571 and $6,032, respectively.
NOTE6 – RELATED PARTY TRANSACTIONS
On December 14, 2018, the Company obtained a $75,000 loan from the owner of the Company. The note was a verbal agreement, and no interest was accrued on the note. Additionally, the note was due on demand.
On April 6, 2019, the Company made a cash payment of $75,000 on the related party note.
NOTE7 – SBA NOTE PAYABLE
On May 1, 2020, the Company received $172,350 in Paycheck Protection Program (“PPP”) loans from the Small Business Administration (the “SBA”) under provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The PPP loans have two-year terms and bear interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP loans may be prepaid at any time prior to maturity with no prepayment penalties. The PPP loans contain events of default and other provisions customary for loans of this type. The PPP provides that the PPP loans may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company used the proceeds from the PPP loans for qualifying expenses and to applied for forgiveness of the PPP loans in accordance with the terms of the CARES Act. On March 26, 2021, the Company received notice from Chase Bank that its loan had been forgiven in its entirety by the SBA. The Company has classified $105,018 of the PPP loans as current liabilities and $67,332 as long-term liabilities pending SBA clarification of the final loan terms.
The other income of $10,000 was Economic Injury Disaster Loan (“EIDL”) program advance provided by SBA, in conjunction with the PPP loans, which is designed to provide emergency economic relief to business that were impacted by COVID-10 pandemic. The advance will not have to be repaid. Wolo received the advance but was not approved for the EIDL loan.
NOTE8 – STOCKHOLDERS’ EQUITY
During the years ended December 31, 2020 and 2019, net cash of $1,725,000 and $500,000, respectively, was distributed to stockholders.
During the years ended December 31, 2020 and 2019, both Wolo Mfg. Corp. and Wolo Industrial Horn & Signal, Inc. had 200 shares of common stock authorized and 100 shares of common stock issued and outstanding. The shares of common stock do not have a stated par value. There were no shares issued by either Company during the periods under review.
NOTE9 – SUPPLIER CONCENTRATION
Significant suppliers are those that account for greater than 10% of the Company’s purchases.
In 2020 and 2019, the Company purchased a substantial portion of finished goods from four third-party vendors which comprised of 56% and 52% of the Company’s purchases, respectively. The Company believes there are numerous other suppliers that could be substituted should the supplier become unavailable or non-competitive.
10
WOLO MFG. CORP. AND WOLO INDUSTRIAL HORN &SIGNAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND2019
NOTE10 – COMMITMENTS AND CONTINGENCIES
The Company is party to a variety of legal actions arising out of the normal course of business. Plaintiffs occasionally seek punitive or exemplary damages. The Company does not believe that such normal and routine litigation will have a material impact on its combined financial results.
NOTE11 – SETTLEMENT INCOME
On August 16, 2017, the Apollo Fire Detectors Limited (“Apollo”) filed a petition with the United States Patent and Trademark office to invalidate a trademark held by the Company. Both parties agreed to a settlement agreement on September 17, 2019 in order to end the drawn-out legal process. As part of the settlement agreement, the Company granted coexistence to Apollo, effectively granting Apollo permission to legally use the trademark in their normal course of business. In return for being granted coexistence, Apollo agreed to pay the Company $19,800 within five business days of the settlement agreement.
On November 30, 2017, the Company filed a lawsuit against The Aftak Corporation d/b/a Vixen Horns for copyright infringement, trademark infringement, false advertising, unfair completion and related claims in connection with certain goods and their associated packaging, instructions sheets, and advertisements. On July 9, 2019, both parties signed a settlement agreement, effectively dropping the lawsuit. As part of the settlement agreement, Vixen Horns agreed to pay the Company $60,000 within five business days of the settlement agreement.
The Company’s settlement income for the year ended December 31, 2019 was $80,794. There were no settlements in the year ended December 31, 2020.
NOTE12 – PROVISION FOR INCOME TAXES
During the years ended December 31, 2020 and 2019, the Company recognized no interest or penalties related to income taxes. Accordingly, the Company had neither accruals for interest and penalties at December 31, 2020 or December 31, 2019. If the Company were to incur such charges, it would elect to recognize interest related to underpayment of income taxes as interest expense and recognize any penalties as operating expenses.
The Company is current on its Federal and New York State income tax filings. Tax years that remain open for examination are 2017 through 2019.
The table below outlines the components of income tax expense:
| For the Years Ended<br><br> December 31, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Federal | $ | 216,621 | $ | 145,376 |
| State | - | - | ||
| Total provision for income taxes | $ | 216,621 | $ | 145,376 |
The table below reconciles our effective tax rate to the statutory tax rate:
| For the Years Ended<br><br> <br>December 31, | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| Federal statutory tax rate | 21.0 | % | 21.0 | % | ||
| State statutory tax rate, net federal effect | - | - | ||||
| Total provision for income taxes | 27.0 | % | 27.0 | % |
The Company has no material deferred income taxes assets or liabilities.
11
WOLO MFG. CORP. AND WOLO INDUSTRIAL HORN &SIGNAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND2019
NOTE13 – OPERATING LEASES
In February 2016, the FASB issued ASU No. 2016-02, Leases, which was subsequently amended by ASU No. 2018-01, ASU No. 2018-10 and ASU No. 2018-11, collectively ASC 842. Under this standard, which applies to both lessors and lessees, lessees will be required to recognize all leases (except for short-term leases) as a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and as a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the statements of operations.
The Company adopted ASC 842 on January 1, 2019, using the additional (optional) approach, with certain available practical expedients. We elected the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components for any of our leases. After giving effect to the adoption of practical expedients, no right-of-use asset or lease liability was required to be recorded on the date of adoption. The Company continues to account for leases in the prior period consolidated financial statements under ASC 840. The Company has presented additional qualitative and quantitative disclosures regarding the Company’s lease obligations as required upon implementation of ASC 842 and has identified and implemented changes to its business processes and internal controls relating to implementation of the new standard. We recognize variable lease payments in the period in which the obligation for those payments is incurred. Variable lease payments that depend on an index or a rate are initially measured using the index or rate at the commencement date, otherwise variable lease payments are recognized in the period incurred.
On October 4, 1978, Wolo Mfg. Corp. entered into a lease agreement with PKL Realty LLC (formerly P.K.L. Realty Corp). This lease agreement has been amended numerous times. Pursuant to the latest amendment entered into in July 2020, the lease expires on July 31, 2022. The lease agreement contains customary events of default representations, warranties and covenants.
| December 31,<br><br> 2020 | |||
|---|---|---|---|
| Operating lease right-of-use lease asset | $ | 153,663 | |
| Accumulated amortization | (30,102 | ) | |
| Net balance | $ | 123,561 | |
| Operating lease liability, current portion | 76,233 | ||
| Operating lease liability, long term | 47,328 | ||
| Total operating lease liabilities | $ | 123,561 | |
| Weighted Average Remaining Lease Term - operating leases | 19 months | ||
| Weighted Average Discount Rate - operating leases | 6.0 | % |
Future minimum lease payments under this operating lease as of December 31, 2020 were as follows:
| 2021 | $ | 81,755 | |
|---|---|---|---|
| 2022 | 48,111 | ||
| Total lease payments | 129,866 | ||
| Less imputed interest | (6,305 | ) | |
| Maturities of lease liabilities | $ | 123,561 |
12
WOLO MFG. CORP. AND WOLO INDUSTRIAL HORN &SIGNAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND2019
NOTE14 – SUBSEQUENT EVENTS
Management has reviewed subsequent events through July 23, 2021, which is the date these financial statements were available to be issued and has concluded that, other than the following, no additional disclosures are required.
Amendmentto the Stock Purchase Agreement and Closing
On December 22, 2020, Wolo entered into a Stock Purchase Agreement (the “Purchase Agreement”) with 1847 Wolo Inc. (“1847 Wolo”), a subsidiary of 1847 Holdings LLC (the “Company”), and the sellers named therein (together, the “Sellers”), pursuant to which 1847 Wolo agreed to acquire all of the issued and outstanding capital stock of the Company (the “Acquisition”).
On March 30, 2021, the parties entered into Amendment No. 1 to the Purchase Agreement (the “Amendment”) to amend certain terms of the Purchase Agreement. Following entry into the Amendment, closing of the Acquisition was completed on the same day.
Pursuant to the terms of the Purchase Agreement, as amended by the Amendment, 1847 Wolo agreed to acquire all of the issued and outstanding capital stock of Wolo for an aggregate purchase price of $7,400,000, subject to adjustment as described below. The purchase price consists of (i) $6,550,000 in cash and (ii) a secured promissory note in the principal amount of $850,000.
The purchase price is subject to a post-closing working capital adjustment provision. Under this provision, the Sellers delivered to Wolo at the closing of the Acquisition an unaudited balance sheet of Wolo as of that date (the “Preliminary Balance Sheet”). On or before the 75^th^ day following the closing of the Acquisition, Wolo shall deliver to the Sellers an audited balance sheet as of the closing date (the “Final Balance Sheet”). If the net working capital reflected on the Final Balance Sheet (the “Final Working Capital”) exceeds the net working capital reflected on the Preliminary Balance Sheet (the “Preliminary Working Capital”), Wolo shall, within seven days, pay to the Sellers an amount of cash that is equal to such excess. If the Preliminary Working Capital exceeds the Final Working Capital, the Sellers shall, within seven days, pay to Wolo an amount in cash equal to such excess.
13
Exhibit99.2
1847HOLDINGS LLC
UNAUDITEDPRO FORMA COMBINED FINANCIAL INFORMATION
1847 HOLDINGS LLC
PRO FORMA COMBINED BALANCESHEET
AS OF DECEMBER 31, 2020
| 1847 Holdings LLC | Wolo | Pro Forma Adjustments | Notes | Pro Forma Condensed | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||||||
| Current Assets | ||||||||||||
| Cash and cash equivalents | $ | 976,538 | $ | 574,983 | $ | (574,983 | ) | (a-2) | $ | 976,538 | ||
| Restricted cash | 403,811 | - | - | 403,811 | ||||||||
| Contract assets | 70,230 | - | - | 70,230 | ||||||||
| Accounts receivable, net | 525,625 | 1,514,262 | - | 2,039,887 | ||||||||
| Inventory, net | 2,022,754 | 2,526,193 | - | 4,548,947 | ||||||||
| Prepaid expenses and other current assets, net | 550,964 | 62,234 | - | 613,198 | ||||||||
| Discontinued operations – current assets | 1,324,608 | - | - | 1,324,608 | ||||||||
| Total current assets | 5,874,530 | 4,677,672 | (574,983 | ) | 9,977,219 | |||||||
| Property and equipment, net | 398,503 | 10,407 | - | 408,910 | ||||||||
| Operating lease right of use assets | 357,208 | 123,561 | - | 480,769 | ||||||||
| Investments | 276,270 | - | - | 276,270 | ||||||||
| Goodwill | 5,989,817 | - | 4,073,576 | (a-2) | 10,063,393 | |||||||
| Intangibles assets, net | 3,885,467 | - | - | 3,885,467 | ||||||||
| Other assets | 375 | 6,482 | - | 6,857 | ||||||||
| Discontinued operations – long-term assets | 2,457,770 | - | - | 2,457,770 | ||||||||
| Total assets | $ | 19,239,940 | $ | 4,818,122 | $ | 3,498,593 | $ | 27,556,655 | ||||
| Liabilities and Stockholders' Equity (Deficit) | ||||||||||||
| Current Liabilities | ||||||||||||
| Accounts payable and accrued expenses | $ | 2,558,559 | $ | 125,241 | $ | - | $ | 2,683,800 | ||||
| Customer deposits | 3,370,957 | - | - | 3,370,957 | ||||||||
| Current portion of operating lease liability | 66,803 | 76,233 | - | 143,036 | ||||||||
| Advances, related party | 190,192 | - | - | 190,192 | ||||||||
| Due to seller | 33,630 | - | 574,983 | (a-2) | 608,613 | |||||||
| Lines of credit | 301,081 | - | 770,475 | (r-1) | 1,071,556 | |||||||
| Note payable, related party | 56,900 | - | - | 56,900 | ||||||||
| Notes payable, current portion | 429,183 | 105,018 | 481,250 | (p-5) | 1,015,451 | |||||||
| Contract liabilities | 77,403 | - | - | 77,403 | ||||||||
| Payroll Tax Payable | - | 85,580 | - | 85,580 | ||||||||
| Discontinued operations – current liabilities | 999,122 | - | - | 999,122 | ||||||||
| Total current liabilities | 8,083,830 | 392,072 | 1,826,708 | 10,302,610 | ||||||||
| Long-Term Liabilities | ||||||||||||
| Operating lease liability – long term, net of current portion | 291,183 | 47,328 | - | 338,511 | ||||||||
| Notes payable – long term, net of current portion | 1,637,310 | 67,332 | 2,903,520 | (p-5) | 5,458,162 | |||||||
| 850,000 | (p-6) | |||||||||||
| Discontinued operations – long-term liabilities | 5,981,467 | - | - | 5,981,467 | ||||||||
| Total liabilities | 15,993,790 | 506,732 | 5,580,228 | 22,080,750 | ||||||||
| Stockholders' Equity (Deficit) | ||||||||||||
| Allocation shares, 1,000 shares issued and outstanding | 1,000 | - | - | 1,000 | ||||||||
| Series A preferred stock, 3,157,895 authorized, 2,632,278 outstanding as of December 31, 2020 | 2,971,427 | - | 3,000,000 | (u-1) | 4,498,513 | |||||||
| (1,472,914 | ) | (u-1) | ||||||||||
| Distribution receivable | (2,000,000 | ) | - | - | (2,000,000 | ) | ||||||
| Common Shares, 500,000,000 shares authorized, 4,444,013 shares issued and outstanding as of December 31, 2020 | 4,444 | - | - | 4,444 | ||||||||
| Additional paid-in capital | 17,005,491 | - | 3,000,000 | (u-1) | 20,005,491 | |||||||
| Accumulated deficit | (13,856,973 | ) | 4,311,390 | (4,311,390 | ) | (a-2) | (16,096,536 | ) | ||||
| (1,527,086 | ) | (u-1) | ||||||||||
| (712,477 | ) | (r-1) | ||||||||||
| Total 1847 Holding stockholders’ equity (deficit) | 4,125,389 | 4,311,390 | (2,023,867 | ) | 6,412,912 | |||||||
| Non-controlling interest | (879,239 | ) | - | (57,768 | ) | (r-1) | (937,007 | ) | ||||
| Total Stockholders’ Equity | 3,246,150 | 4,311,390 | (2,081,635 | ) | 5,475,905 | |||||||
| Total liabilities and stockholders’ equity (deficit) | $ | 19,239,940 | $ | 4,818,122 | $ | 3,498,593 | $ | 27,556,655 |
2
1847 HOLDINGS LLC
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2020
| 1847 Holdings LLC | Wolo | Asien’s Appliance, Inc.<br> <br>January 1 to May 28, 2020 | Kyle’s Custom Wood Shop, Inc.<br> <br>January 1 to September 30, 2020 | Pro Forma Adjustments | Notes | Pro Forma Condensed | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue | $ | 15,448,045 | $ | 7,444,776 | $ | 5,154,012 | $ | 3,132,105 | $ | (6,702,599 | ) | (n-1) | $ | 24,476,338 | |||||
| Cost of revenue | 9,406,228 | 4,095,389 | 3,916,192 | 1,712,824 | (2,874,792 | ) | (n-1) | 16,255,841 | |||||||||||
| Gross profit | 6,041,817 | 3,349,387 | 1,237,820 | 1,419,281 | (3,827,807 | ) | 8,220,498 | ||||||||||||
| Operating expenses: | |||||||||||||||||||
| Personnel | 2,553,589 | 584,852 | 333,900 | 227,644 | (1,818,722 | ) | (n-1) | 1,881,263 | |||||||||||
| Depreciation and amortization | 1,447,077 | 5,949 | 21,199 | 90,376 | (1,270,465 | ) | (n-1) | 294,136 | |||||||||||
| Fuel | 378,115 | - | - | - | (378,115 | ) | (n-1) | - | |||||||||||
| General and administrative expenses | 4,185,442 | 1,736,058 | 439,185 | 499,540 | (1,533,011 | ) | (n-1) | 5,974,192 | |||||||||||
| 121,978 | (m-1) | ||||||||||||||||||
| 225,000 | (m-2) | ||||||||||||||||||
| 300,000 | (m-3) | ||||||||||||||||||
| Total operating expenses | 8,564,223 | 2,326,859 | 794,284 | 817,560 | (4,353,335 | ) | 8,149,591 | ||||||||||||
| Net income (loss) from operations | (2,522,406 | ) | 1,022,528 | 443,536 | 601,721 | 525,528 | 70,907 | ||||||||||||
| Other income (expense) | |||||||||||||||||||
| Financing costs | (205,075 | ) | - | - | - | 35,075 | (n-1) | (170,000 | ) | ||||||||||
| Loss on early extinguishment of debt | (382,681 | ) | - | - | - | 96,331 | (n-1) | (286,350 | ) | ||||||||||
| Interest expense, net | (460,559 | ) | (1,130 | ) | (3,122 | ) | 528 | (6,597 | ) | (p-1) | (696,416 | ) | |||||||
| (22,957 | ) | (p-2) | |||||||||||||||||
| (86,589 | ) | (p-3) | |||||||||||||||||
| (128,100 | ) | (p-4) | |||||||||||||||||
| 380,932 | (n-1) | ||||||||||||||||||
| (32,745 | ) | (r-1) | |||||||||||||||||
| (268,077 | ) | (p-5) | |||||||||||||||||
| (68,000 | ) | (p-6) | |||||||||||||||||
| Gain on sale of property and equipment | 130,749 | - | - | - | (130,748 | ) | (n-1) | - | |||||||||||
| Other income (expense), net | (24,271 | ) | 10,014 | 18,394 | 281,125 | 6,075 | (n-1) | 291,337 | |||||||||||
| Total other income (expense) | (941,837 | ) | 8,884 | 15,272 | 281,653 | (225,400 | ) | (861,429 | ) | ||||||||||
| Net income (loss) before income taxes | (3,464,243 | ) | 1,031,412 | 458,808 | 883,374 | 300,128 | (790,522 | ) | |||||||||||
| Income tax expense (benefit) | (431,631 | ) | 216,621 | - | - | 157,702 | (a-1) | (109,810 | ) | ||||||||||
| 347,700 | (n-1) | ||||||||||||||||||
| (180,582 | ) | (a-1) | |||||||||||||||||
| Net income (loss) from continuing operations | (3,032,612 | ) | 814,791 | 458,808 | 883,374 | (24,693 | ) | (900,332 | ) | ||||||||||
| Net income (loss) from discontinued operations | (7,171,772 | ) | - | - | - | (666,860 | ) | (7,838,632 | ) | ||||||||||
| Net income (loss) | (10,204,383 | ) | 814,791 | 458,808 | 883,374 | (691,553 | ) | (8,738,963 | ) | ||||||||||
| Less net income (loss) attributable to non-controlling interests | (595,731 | ) | - | - | - | 545,610 | (n-1) | (86,739 | ) | ||||||||||
| - | - | - | - | (36,618 | ) | (a-3) | - | ||||||||||||
| Net loss available to common shareholders | (9,608,652 | ) | 814,791 | 458,808 | 883,374 | (1,200,545 | ) | (8,652,224 | ) | ||||||||||
| Deemed dividend related to issuance of preferred stock | 3,051,478 | - | - | - | 1,527,086 | (u-1) | 5,086,464 | ||||||||||||
| 507,900 | (u-2) | ||||||||||||||||||
| Distribution – Allocation shares | 5,985,000 | - | - | - | - | 5,985,000 | |||||||||||||
| 1847 Goedeker spin-off dividend | 283,257 | - | - | - | - | 283,257 | |||||||||||||
| Net income (loss) attributable to 1847 Holdings shareholders | $ | (18,928,387 | ) | $ | 814,791 | $ | 458,808 | $ | 883,374 | $ | (3,235,331 | ) | $ | (20,006,745 | ) | ||||
| Net loss per common share from continuing operations: basic and diluted | $ | (0.82 | ) | $ | (0.21 | ) | |||||||||||||
| Net loss per common share from discontinued operations: basic and diluted | $ | (3.16 | ) | $ | (1.79 | ) | |||||||||||||
| Net loss per common share: basic and diluted | $ | (2.60 | ) | $ | (1.97 | ) | |||||||||||||
| Weighted-average number of common shares outstanding: basic and diluted | 3,692,429 | 169,411 | 525,000 | 4,386,840 |
3
1847 HOLDINGS LLC
NOTES UNAUDITED PRO FORMAFINANCIAL STATEMENTS
NOTE1 – DESCRIPTION OF THE TRANSACTIONS
WoloAcquisition and Related Transactions
On December 22, 2020, 1847 Holdings LLC (the “Company”) and its wholly-owned subsidiary 1847 Wolo Inc. (“1847 Wolo”) entered into a stock purchase agreement (the “Wolo Purchase Agreement”) with Wolo Mfg. Corp., a New York corporation (“Wolo Mfg”), and Wolo Industrial Horn & Signal, Inc., a New York corporation (“Wolo H&S” and together with Wolo Mfg, “Wolo”), and Barbara Solow and Stanley Solow (together, the “Wolo Sellers”), pursuant to which 1847 Wolo agreed to acquire all of the issued and outstanding stock of Wolo Mfg and Wolo H&S (the “Wolo Acquisition”).
On March 30, 2021, 1847 Wolo, the Company, Wolo and the Sellers entered into Amendment No. 1 to the Purchase Agreement to amend certain terms of the Wolo Purchase Agreement. Following entry into such amendment, closing of the Wolo Acquisition was completed on the same day. As a result of this transaction, the Company owns 92.5% of 1847 Wolo, with the remaining 7.5% held by a third-party, and 1847 Wolo owns 100% of Wolo Mfg and Wolo H&S.
The aggregate purchase price was $7,400,000 (subject to adjustment as described below) consisting of (i) $6,550,000 in cash (subject to adjustment) and (ii) a secured promissory note in the aggregate principal amount of $850,000.
The purchase price is subject to a post-closing working capital adjustment provision. Under this provision, the Wolo Sellers delivered to 1847 Wolo at the closing of the Wolo Acquisition an unaudited balance sheet of Wolo as of that date. On or before the 75^th^ day following the closing of the Wolo Acquisition 1847 Wolo shall deliver to the Wolo Sellers an audited balance sheet as of the closing date. If the net working capital reflected on such balance sheet exceeds the net working capital reflected on the balance sheet delivered at closing, 1847 Wolo shall, within seven days, pay to the Wolo Sellers an amount of cash that is equal to such excess. If the net working capital reflected on such balance sheet is less than the net working capital reflected on the balance sheet delivered at closing, the Wolo Sellers shall, within seven days, pay to 1847 Wolo an amount in cash equal to such deficiency.
6%Secured Promissory Note
As noted above, a portion of the purchase price under the Wolo Purchase Agreement was paid by the issuance of a secured promissory note in the principal amount of $850,000 by 1847 Wolo to the Wolo Sellers. Interest on the outstanding principal amount will be payable quarterly at the rate of six percent (6%) per annum. The note matures on the 39-month anniversary following the closing of the Wolo Acquisition, at which time the outstanding principal amount of the note, along with all accrued, but unpaid interest, shall be paid in one lump sum. 1847 Wolo has the right to redeem all or any portion of the note at any time prior to the maturity date without premium or penalty of any kind. The note contains customary events of default, including in the event of (i) non-payment, (ii) a default by 1847 Wolo of any of its covenants under the Wolo Purchase Agreement or any other agreement entered into in connection with the Wolo Purchase Agreement, or a breach of any of representations or warranties under such documents, or (iii) the bankruptcy of 1847 Wolo.
The rights of the Wolo Sellers to receive payments under the note are subordinate to the rights of Sterling (as defined below).
ManagementServices Agreement
On March 30, 2021, 1847 Wolo entered into a Management Services Agreement (the “Wolo Offsetting MSA”) with the Company’s manager, 1847 Partners LLC (the “Manager”). The Wolo Offsetting MSA is an offsetting management services agreement as defined in that certain Management Services Agreement, dated April 15, 2013, between the Company and the Manager (the “MSA”).
4
1847 HOLDINGS LLC
NOTES UNAUDITED PRO FORMAFINANCIAL STATEMENTS
Pursuant to the Wolo Offsetting MSA, 1847 Wolo appointed the Manager to provide certain services to it for a quarterly management fee equal to the greater of $75,000 or 2% of Adjusted Net Assets (as defined in the MSA); provided, however, that (i) pro-rated payments shall be made in the first quarter and the last quarter of the term, (ii) if the aggregate amount of management fees paid or to be paid by 1847 Wolo, together with all other management fees paid or to be paid by all other subsidiaries of the Company to the Manager, in each case, with respect to any fiscal year exceeds, or is expected to exceed, 9.5% of the Company’s gross income with respect to such fiscal year, then the management fee to be paid by 1847 Wolo for any remaining fiscal quarters in such fiscal year shall be reduced, on a pro rata basis determined by reference to the management fees to be paid to the Manager by all of the subsidiaries of the Company, until the aggregate amount of the Management Fee paid or to be paid by 1847 Wolo, together with all other management fees paid or to be paid by all other subsidiaries of the Company to the Manager, in each case, with respect to such fiscal year, does not exceed 9.5% of the Company’s gross income with respect to such fiscal year, and (iii) if the aggregate amount the management fee paid or to be paid by 1847 Wolo, together with all other management fees paid or to be paid by all other subsidiaries of the Company to the Manager, in each case, with respect to any fiscal quarter exceeds, or is expected to exceed, the aggregate amount of the management fee (before any adjustment thereto) calculated and payable under the MSA (the “Parent Management Fee”) with respect to such fiscal quarter, then the management fee to be paid by 1847 Wolo for such fiscal quarter shall be reduced, on a pro rata basis, until the aggregate amount of the management fee paid or to be paid by 1847 Wolo, together with all other management fees paid or to be paid by all other subsidiaries of the Company to the Manager, in each case, with respect to such fiscal quarter, does not exceed the Parent Management Fee calculated and payable with respect to such fiscal quarter.
The rights of the Manager to receive payments under the Wolo Offsetting MSA are subordinate to the rights of Sterling.
1847 Wolo shall also reimburse the Manager for all costs and expenses of 1847 Wolo which are specifically approved by the board of directors of 1847 Wolo, including all out-of-pocket costs and expenses, that are actually incurred by the Manager or its affiliates on behalf of 1847 Wolo in connection with performing services under the Wolo Offsetting MSA.
The services provided by the Manager include: conducting general and administrative supervision and oversight of 1847 Wolo’s day-to-day business and operations, including, but not limited to, recruiting and hiring of personnel, administration of personnel and personnel benefits, development of administrative policies and procedures, establishment and management of banking services, managing and arranging for the maintaining of liability insurance, arranging for equipment rental, maintenance of all necessary permits and licenses, acquisition of any additional licenses and permits that become necessary, participation in risk management policies and procedures; and overseeing and consulting with respect to 1847 Wolo’s business and operational strategies, the implementation of such strategies and the evaluation of such strategies, including, but not limited to, strategies with respect to capital expenditure and expansion programs, acquisitions or dispositions and product or service lines.
CreditAgreement and Notes
On March 30, 2021, 1847 Wolo and Wolo (collectively, “Borrower”) entered into a Credit Agreement (the “Credit Agreement”) with Sterling National Bank (“Sterling”) for (i) revolving loans in an aggregate principal amount that will not exceed the lesser of (x) the Borrowing Base (as defined below) or (y) $1,000,000 (the “Revolving Loan”) and (ii) a term loan in the principal amount of $3,550,000 (the “Term Loan”). The Revolving Loan is evidenced by a Revolving Credit Note dated March 30, 2021 and payable to Sterling (the “Revolving Note”) and the Term Loan is evidenced by a $3,550,000 Term Note dated March 30, 2021 and payable to Sterling (the “Term Note”). The “Borrowing Base” means an amount equal to the sum of the following: (A) 80% of the Borrower’s Eligible Accounts (as defined in the Credit Agreement) PLUS (B) the lesser of: (1) 50% percent of Eligible Inventory (as defined in the Credit Agreement) or (2) $400,000.00, MINUS (C) such reserves as Sterling may establish from time to time in its sole discretion. Sterling has the right from time to time, in its sole discretion, to amend, substitute or modify the percentages set forth in the definition of Borrowing Base and the definition(s) of Eligible Accounts and Eligible Inventory.
The Revolving Note matures on March 29, 2022 and bears interest at a per annum rate equal to the greater of (i) the Prime Rate (as defined in the Credit Agreement) or (ii) 3.75%. The Term Loan matures on April 1, 2024 and bears interest at a per annum rate equal to the greater of (x) the Prime Rate plus 3.00% or (y) 5.00%; provided that upon an Event of Default (as defined below) all loans, all past due interest and all fees shall bear interest at a per annum rate equal to the foregoing rate plus 5.00%. Interest accrued on the Revolving Note and the Term Note shall be payable on the first day of each month commencing on the first such day of the first month following the making of such Revolving Loan or Term Loan, as applicable.
5
1847 HOLDINGS LLC
NOTES UNAUDITED PRO FORMAFINANCIAL STATEMENTS
With respect to the Term Loan, the Borrower must repay to Sterling on the first day of each month, (i) beginning on May 1, 2021 and ending on March 1, 2022, eleven (11) equal monthly principal payments of $43,750.00 each, (ii) beginning on April 1, 2022 and ending on March 1, 2024, twenty-four (24) equal monthly payments of $59,167.00 each and (iii) on April 1, 2024, a final principal payment in the amount of $1,648,742.00. In addition, beginning on June 1, 2022 and on each anniversary thereof thereafter until such time as the Term Loan is repaid in full, the Borrower shall pay to Sterling an additional principal payment equal to 50% of the Excess Cash Flow (as defined in the Credit Agreement), if any (any such payment will be applied to the most remote payment of principal due under the Credit Agreement).
The Borrower may at any time and from time to time voluntarily prepay the Revolving Note or the Term Note in whole or in part. If at any time the outstanding principal balance on the Revolving Note exceeds the lesser of (i) the Borrowing Base or (ii) the Maximum Facility Amount (as defined in the Credit Agreement)(such excess being hereinafter referred to as an “Overadvance”), either without Sterling’s consent, including, as the result of Eligible Accounts or Eligible Inventory becoming ineligible (an “Unintentional Overadvance”) or with Sterling’s consent, as the result of Sterling making additional advances in its discretion that result in an Overadvance (a “Permitted Overadvance”), Borrower shall (x) in the case of an Unintentional Overadvance, on demand made by Sterling, pay Sterling such amount as will eliminate the Overadvance; and (y) in the case of a Permitted Overadvance, pay to Sterling such amount as will eliminate the Overadvance. At the end of any month in which any Overadvance has occurred Borrower shall be charged an Overadvance Fee in the amount of 1.50% of the highest Overadvance Amount during each month in which the Overadvance remains outstanding.
Under the Credit Agreement, the Borrower is required to pay a number of fees to Sterling, including the following:
| ● | a<br> closing fee in the amount of $56,875 in connection with the Revolving Loans and in the<br> amount of $56,875 in connection with the Term Loan, both of which were paid at closing<br> on March 30, 2021 |
|---|---|
| ● | If<br> Sterling has not received the full amount of any monthly payment on or before the date it<br> is due (including as a result of funds not available to be automatically debited on the date<br> on which any such payment is due), the Borrower shall pay a late fee to Sterling in an amount<br> equal to six percent (6%) of such overdue payment. |
| --- | --- |
The Credit Agreement contains customary events of default, including, among others (each, an “Event of Default”): (i) for failure to pay principal and interest on the Revolving Note or Term Note when due, or to pay any fees due under the Credit Agreement; (ii) if any representation, warranty or certification in the Credit Agreement or any document delivered in connection therewith proves to have been false or misleading in any material respect when made; (iii) for failure to perform any covenant or agreement contained in the Credit Agreement or any document delivered in connection therewith; (iv) failure to maintain adequate collateral security value satisfactory to Sterling; (v) for any voluntary or involuntary bankruptcy, insolvency or dissolution; (vi) for the occurrence of one or more judgments, decrees or arbitration awards involving in the aggregate a liability of $50,000 or more; (vii) if any director, officer or owner of more than 10% of the equity any Borrower entity is indicted for any felony offense under any federal or state law; (viii) if a Change of Control (as defined in the Credit Agreement) occurs; (ix) if Sterling’s security interest in any of the collateral fails to be a first priority security interest (subject only to permitted liens); (x) the occurrence of such a change in the condition, affairs (financial or otherwise) or operations of any Borrower entity, or the occurrence of any other event or circumstance, such that Sterling, in its sole discretion, deems that it is insecure or that the prospects for timely or full payment or performance of any obligation to Sterling has been or may be materially impaired; (xi) if there is a loss, suspension or revocation of, or failure to renew, any permit if it could reasonably be expected to have a Material Adverse Effect; (xii) if Borrower engages in any act prohibited by any subordination agreement to which it is a party, or makes any payment on subordinated indebtedness that the applicable subordinated creditor was not contractually entitled to receive; and (xiii) for the occurrence of any default or event of default under the Seller Subordination Agreement (as defined in the Credit Agreement).
Each of the Revolving Note and the Term Note is secured by a first priority security interest in all of the assets of the Borrower.
6
1847 HOLDINGS LLC
NOTES UNAUDITED PRO FORMAFINANCIAL STATEMENTS
UnitOffering
On March 26, 2021, the Company entered into several securities purchase agreements (the “Unit Purchase Agreements”) with certain purchasers (the “Purchasers”), pursuant to which the Company sold an aggregate of 1,818,182 Units, at a price of $1.65 per Unit, to the Purchasers for an aggregate purchase price of $3,000,000 (the “Company Financing”). Each Unit consists of (i) one (1) Series A Senior Convertible Preferred Share of the Company with a stated value of $2.00 per share (the “Series A Shares”), and (ii) a three-year warrant to purchase one (1) Common Share of the Company at an exercise price of $2.50 per Common Share (subject to adjustment), which may be exercised on a cashless basis under certain circumstances (the “Warrants” and, together with the Series A Shares, “Units”). The sale by the Company of the Units was completed on March 26, 2021. The proceeds of the Company Financing were used to fund, in part, the Wolo Acquisition.
On March 26, 2021, the Company also entered into a subscription agreement (the “Subscription Agreement”) with 1847 Wolo, pursuant to which 1847 Wolo issued to the Company 1,000 shares of 1847 Wolo’s Series A Preferred Stock at a price of $3,000 per share, in exchange for the Company’s contribution to 1847 Wolo of the $3,000,000 raised in the Company Financing, so that 1847 Wolo would have the funds to acquire Wolo.
Kyle’sAcquisition and Related Transactions
On August 27, 2020, the Company and 1847 Cabinet Inc. (“1847 Cabinet”), a wholly owned subsidiary of the Company, entered into a stock purchase agreement with Kyle’s Custom Wood Shop, Inc., an Idaho corporation (“Kyle’s”), and Stephen Mallatt, Jr. and Rita Mallatt (the “Kyle’s Sellers”), pursuant to which 1847 Cabinet agreed to acquire all of issued and outstanding capital stock of Kyle’s (the “Kyle’s Acquisition”).
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 Kyle’s Acquisition was completed on the same day. As a result of this transaction, the Company owns 92.5% of 1847 Cabinet, with the remaining 7.5% held by a third-party, and 1847 Cabinet owns 100% of Kyle’s.
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 Distribution described above.
VestingPromissory Note
As noted above, a portion of the purchase price for the Kyle’s Acquisition was paid by the issuance of a vesting promissory note by 1847 Cabinet to the Kyle’s Sellers in the principal amount of $1,050,000, which increased to a principal amount of up to $1,260,000 pursuant to the vested percentage calculation described below. Payment of the principal and accrued interest on the note is subject to vesting as described below. The note bears interest on the vested portion of principal amount at the rate of eight percent (8%) per annum. To the extent vested, the vested portion of the principal and all accrued but unpaid interest on such vested portion of the principal shall be paid in one lump sum on the last day of the thirty-sixth (36th) month following the date of the note.
The vested principal of the note due at the maturity date shall be calculated each year based on the average annual consolidated EBITDA (as defined in the note) of 1847 Cabinet for each of the years ended December 31, 2020, 2021 and 2022. The EBITDA for each year shall be divided by $1.4 million multiplied by 100 to obtain the vested percentage. The vested principal for each year shall be equal to the vested percentage for that year multiplied by $350,000. To the extent that the vested percentage for the subject year is less than 80%, no portion of the note for that year shall vest. To the extent that the vested percentage for the subject year is equal to or greater than 120%, the vested principal shall be equal to $420,000 for that year and no more.
1847 Cabinet will have the right to redeem all but no less than all of the note at any time prior to the maturity date. If 1847 Cabinet elects to redeem the note, the redemption price will be payable in cash and is equal to the then outstanding vested portion of the principal plus any remaining unvested principal amount plus accrued but unpaid interest thereon (calculated over 36 months). For purposes of this redemption calculation, the “unvested principal amount” shall be $350,000 per year.
7
1847 HOLDINGS LLC
NOTES UNAUDITED PRO FORMAFINANCIAL STATEMENTS
The note contains customary events of default. The right of the Kyle’s Sellers to receive payments under the note is subordinated to all indebtedness of 1847 Cabinet, whether outstanding as of the closing date or thereafter created, to banks, insurance companies and other financial institutions or funds, and federal or state taxation authorities.
ManagementServices Agreement
On August 21, 2020, 1847 Cabinet entered into a management services agreement (the “Cabinet Offsetting MSA”) with the Manager. The Cabinet Offsetting MSA has the same terms as the Wolo Offsetting MSA.
Asien’sAcquisition and Related Transactions
On March 27, 2020, the Company and 1847 Asien Inc. (“1847 Asien”), a wholly owned subsidiary of the Company, entered into a Stock Purchase Agreement (the “Asien’s Purchase Agreement”) with Asien’s Appliance, Inc. (“Asien’s”) and Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen, as trustees of the Wilhelmsen Family Trust, U/D/T Dated May 1, 1992 (the “Asien’s Seller”), pursuant to which 1847 Asien agreed to acquire all of the issued and outstanding capital stock of Asien’s (the “Asien’s Acquisition”).
On May 28**,**2020, 1847 Asien, the Company, Asien’s and the Asien’s Seller entered into Amendment No. 1 to the Asien’s Purchase Agreement to amend certain terms of the Asien’s Purchase Agreement. Following entry into such amendment closing of the Asien’s Acquisition was completed on the same day. As a result of this transaction, the Company owns 95% of 1847 Asien, with the remaining 5% held by a third-party, and 1847 Asien owns 100% of Asien’s.
The aggregate purchase price was $1,918,000 consisting of: (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.
8%Subordinated Amortizing Promissory Note
As noted above, a portion of the purchase price for the Asien’s Acquisition was paid by the issuance of a subordinated amortizing promissory note in the principal amount of $200,000 by 1847 Asien to the Asien’s Seller. Interest on the outstanding principal amount will be payable quarterly at the rate of eight percent (8%) per annum. The outstanding principal amount of the note will amortize on a one-year straight-line basis in accordance with a specified amortization schedule, with all unpaid principal and accrued, but unpaid interest being fully due and payable on May 28, 2021. The note is unsecured and contains customary events of default. The right of the Asien’s Seller to receive payments under the note is subordinated to all indebtedness of 1847 Asien to banks, insurance companies and other financial institutions or funds, and federal or state taxation authorities.
1%Demand Promissory Note
A portion of the purchase price for the Asien’s Acquisition was paid by the issuance of demand promissory note in the principal amount of $655,000 by 1847 Asien to the Asien’s Seller. The note accrued interest at a rate of one percent (1%) computed on the basis of a 360-day year. Principal and accrued interest on the note was payable 24 hours after written demand by the Seller. The note was repaid in June 2020.
Agreementof Sale of Future Receipts
On May 28, 2020, 1847 Asien and Asien’s entered into an agreement of sale of future receipts with TVT Direct Funding LLC (“TVT”), pursuant to which 1847 Asien and Asien’s agreed to sell future receivables with a value of $685,000 to TVT for a purchase price of $500,000. 1847 Asien and Asien’s agreed to deliver to TVT 20% of its weekly future receipts, or approximately $23,300, over the course of an estimated seven-month term, or such date when the above amount of receivables has been delivered to TVT. 1847 Asien used the proceeds from this sale to finance the Asien’s Acquisition. In addition to all other sums due to TVT under this agreement, 1847 Asien and Asien’s agreed to pay to TVT certain additional fees, including a one-time origination fees of $25,000, as reimbursement of costs incurred by TVT for financial and legal due diligence. The future payments under the TVT agreement were secured by a subordinated security interest in all of the tangible and intangible assets of 1847 Asien and Asien’s. This agreement was terminated in 2020.
8
1847 HOLDINGS LLC
NOTES UNAUDITED PRO FORMAFINANCIAL STATEMENTS
ManagementServices Agreement
On May 28, 2020, 1847 Asien entered into a management services agreement (the “Asien’s Offsetting MSA”) with the Manager. The Asien’s Offsetting MSA has the same terms as the Wolo Offsetting MSA and the Kyle’s Offsetting MSA.
Dispositionof Neese
On April 19, 2021, the Company entered into a stock purchase agreement with Alan Neese and Katherine Neese (the “Buyers”), pursuant to which the Company sold 550 shares of the common stock of 1847 Neese Inc. (“1847 Neese”), constituting 55% of the issued and outstanding capital stock of 1847 Neese, to the Buyers for an aggregate purchase price of $325,000 in cash (the “Neese Disposition”). As a result of the Neese Disposition, 1847 Neese is no longer a majority-owned subsidiary of the Company. The Neese Disposition therefore resulted in the disposition of the business and assets of 1847 Neese and its wholly owned subsidiary Neese, Inc. (“Neese”).
Dispositionof Goedeker
On October 23, 2020, the Company distributed all of the shares of 1847 Goedeker Inc. (“Goedeker”) that it held to its shareholders (the “Goedeker Disposition”). As a result of the Goedeker Disposition, Goedeker is no longer a subsidiary of the Company. The Goedeker Disposition therefore resulted in the disposition of the business and assets of Goedeker.
NOTE2 – BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma combined balance sheet as of December 31, 2020 combines the historical balance sheet of the Company with the historical balance sheet of Wolo and has been prepared as if the Wolo Acquisition had occurred on January 1, 2020. The unaudited pro forma combined statement of operations for the year ended December 31, 2020 combines the historical statement of operations of the Company with the historical statement of operations of Wolo, Asien’s and Kyle’s and reflects the Neese Disposition. The unaudited pro forma combined statement of operations for the year ended December 31, 2020 was prepared as if these transactions had occurred on January 1, 2020.
The historical financial information is adjusted in the unaudited pro forma combined financial information to give effect to pro forma events that are (1) directly attributable to the proposed acquisition, (2) factually supportable, and (3) with respect to the combined statement of operations, expected to have a continuing impact on the combined results.
The Company accounted for the Wolo Acquisition, the Asien’s Acquisition and the Kyle’s Acquisition in the unaudited pro forma combined financial information using the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 805 “Business Combinations”. In accordance with ASC 805, the Company 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 as of the acquisition dates is measured as the difference of fair value of the net tangible assets and identifiable assets acquired over the purchase consideration.
9
1847 HOLDINGS LLC
NOTES UNAUDITED PRO FORMAFINANCIAL STATEMENTS
Pursuant to ASC Topic 205-20, “Presentation of Financial Statements - Discontinued Operations,” the results of operations from 1847 Neese and Goedeker for the year ended December 31, 2020 have been classified as discontinued operations as part of the unaudited pro forma combined statement of operations presented herein. ASC 360-10-45-9 requires that a long-lived asset (disposal group) to be sold shall be classified as held for sale in the period in which a set of criteria have been met, including criteria that the sale of the asset (disposal group) is probable and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. For the Goedeker Disposition, these criteria were achieved on September 10, 2020, when the board approved the Goedeker Disposition, and subsequently on October 23, 2020, when the Company completed the Goedeker Disposition. These criteria were achieved in March 2021 for the Neese Disposition, when the parties agreed to the Neese Disposition, and subsequently on April 19, 2021, when the Neese Disposition was completed. Therefore, the results of operations from 1847 Neese were classified as discontinued operations in the Company’s previously reported financial statements as of March 31, 2021 and for the three months then ended, so the Company is not providing a balance sheet or statement of operations for March 31, 2021 in these unaudited pro forma combined financial statements.
The unaudited pro forma combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of the combined company would have been had the transactions described herein occurred on the dates assumed, nor are the necessarily indicative of future consolidated results of operations or financial position.
The Company expects to incur costs and realize benefits associated with integrating the operations of the Company and Wolo, Asien’s and Kyle’s. The unaudited pro forma combined financial statements do not reflect the costs of any integration activities or any benefits that may result from operating efficiencies or revenue synergies. The unaudited pro forma combined statement of operations does not reflect any non-recurring charges directly related to the Wolo Acquisition, the Asien’s Acquisition and the Kyle’s Acquisition that the combined companies incurred upon completion of the Wolo Acquisition, the Asien’s Acquisition and the Kyle’s Acquisition.
NOTE3 – PURCHASE PRICE CONSIDERATION
Wolo
The provisional 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 generally accepted accounting principles in the United States of America (“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 $5,386,891. 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 in the Company’s financial statements in future periods.
10
1847 HOLDINGS LLC
NOTES UNAUDITED PRO FORMAFINANCIAL STATEMENTS
The table below shows a preliminary analysis for the Wolo Acquisition:
| Purchase consideration at preliminary fair value: | |||
|---|---|---|---|
| Notes payable | $ | 850,000 | |
| Cash | 6,550,000 | ||
| Due to seller | 1,094,524 | ||
| Amount of consideration | $ | 8,494,524 | |
| Assets acquired and liabilities assumed at preliminary fair value | |||
| Cash | $ | 1,094,524 | |
| Accounts receivable | 1,860,107 | ||
| Inventory | 2,325,548 | ||
| Other current assets | 218,154 | ||
| Accounts payable and accrued expenses | (111,442 | ) | |
| Other liabilities | - | ||
| Net assets acquired | $ | 5,386,891 | |
| Total net assets acquired | $ | 5,386,891 | |
| Consideration paid | 8,494,524 | ||
| Preliminary Goodwill | $ | 3,107,633 |
The estimated useful life remaining on the property and equipment acquired is 5 to 7 years.
Kyle’s
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 $527,618. 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 Acquisition:
| Purchase consideration at fair value: | |||
|---|---|---|---|
| Common shares | $ | 3,675,000 | |
| Notes payable | 498,979 | ||
| Due to seller | 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 |
11
1847 HOLDINGS LLC
NOTES UNAUDITED PRO FORMAFINANCIAL STATEMENTS
The estimated useful life remaining on the property and equipment acquired is 3 to 7 years.
Asien’s
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 $1,171,272. 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 Acquisition:
| Purchase Consideration at fair value: | |||
|---|---|---|---|
| Common shares | $ | 1,037,500 | |
| Notes payable | 855,000 | ||
| Due to seller | 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.
NOTE4 – PRO FORMA ADJUSTMENTS
The pro forma adjustments included in the unaudited pro forma combined financial statements are as follows:
Acquisition
(a-1) Upon the acquisition by the Company, the taxable income and losses from Wolo, Asien’s and Kyle’s will be included with the Company’s future corporate income tax filings.
(a-2) Reflects the cash distribution to the Wolo Sellers and purchase accounting for the Wolo Acquisition.
(a-3) Reflects the allocation of the 7.5% non-controlling interest of 1847 Wolo on the proforma adjustments.
ManagementServices Agreements
(m-1) Reflects an annualized management fee paid by 1847 Asien to the Manager for the period January 1, 2020 to May 28, 2020.
12
1847 HOLDINGS LLC
NOTES UNAUDITED PRO FORMAFINANCIAL STATEMENTS
(m-2) Reflects an annualized management fee paid by 1847 Cabinet to the Manager for the period January 1, 2020 to September 30, 2020.
**(m-3)**Reflects an annualized management fee paid by 1847 Wolo to the Manager for the year ended December 31, 2020.
Neesedisposition
(n-1) Reflects the disposition of Neese as a discontinued operation for the year ended December 31, 2020.
PromissoryNotes
(p-1) Reflects the interest expense resulting from the 8% promissory note annualized interest for the period January 1, 2020 to May 28, 2020.
(p-2) Reflects the interest expense resulting from the 1% promissory note annualized interest for the period January 1, 2020 to May 28, 2020.
(p-3) Reflects the interest expense resulting from TVT agreement amortized interest for the period January 1, 2020 to May 28, 2020.
(p-4) Reflects the interest expense and debt discount resulting from the vesting promissory note for the period January 1, 2020 to September 30, 2020.
***(p-5)***Reflects the principal, net of fees, for the Term loan and the interest expense and debt discount resulting for the year ended December 31, 2020.
***(p-6)***Reflects the principal for the 6% secured promissory note and the interest expense for the year ended December 31, 2020. ****
Revolvingloan
**(r-1)**Reflects the advance from the Revolving loan of $770,475 acquisition costs and the interest expense resulting from the 4.25% annualized interest for the year ended December 31, 2020.
UnitOffering
(u-1) Reflects the proceeds of $3,000,000 and allocated warrant and beneficial conversion features in the Unit Purchase Agreements.
(u-2) Reflects the series A annualized dividend of 14% in conjunction with the Uni Purchase Agreements.
13