8-K/A - LBRA - Equibles

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The SecuritiesExchange Act of 1934

Date of Report (Date of earliest event reported):

January 27, 2022 (October 6, 2021)

1847 HOLDINGS LLC
(Exact name of registrant as specified in its charter)
Delaware	000-56128	38-3922937
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(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
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(Address of principal executive offices)	(Zip Code)
(212) 417-9800
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(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
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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 communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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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

October 8, 2021, 1847 Cabinet Inc. (“1847 Cabinet”), a subsidiary of 1847 Holdings LLC (the “Company”), acquired all of the issued and outstanding capital stock of High Mountain Door & Trim Inc., a Nevada corporation (“High Mountain”), and Sierra Homes, LLC, a Nevada limited liability company (“Sierra Homes”), pursuant to a Securities Purchase Agreement, dated September 23, 2021, among 1847 Cabinet, High Mountain, Sierra Homes, and Steven J. Parkey and Jose D. Garcia-Rendon, as amended on October 6, 2021.

This Amendment No. 1 to Current Report on Form 8-K/A amends the Form 8-K that the Company filed on October 13, 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 High Mountain and Sierra Homes 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.

The unaudited combined financial statements of High Mountain and Sierra Homes for the nine months ended September 30, 2021 and 2020 and the accompanying notes thereto are filed as Exhibit 99.2 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

Exhibit No.	Description of Exhibit
4.1	Warrant for Common Shares issued by 1847 Holdings LLC to Leonite Capital LLC on October 8, 2021 (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on October 13, 2021)
4.2	Warrant for Common Shares issued by 1847 Holdings LLC to Leonite Capital LLC on October 8, 2021 (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed on October 13, 2021)
10.1	Securities Purchase Agreement, dated September 23, 2021, among 1847 Cabinet Inc., High Mountain Door & Trim Inc., Sierra Homes, LLC, Steven J. Parkey and Jose D. Garcia-Rendon (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on October 13, 2021)
10.2	Amendment No.1 to Securities Purchase Agreement, dated October 6, 2021, among 1847 Cabinet Inc., High Mountain Door & Trim Inc., Sierra Homes, LLC, Steven J. Parkey and Jose D. Garcia-Rendon (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on October 13, 2021)
10.3	6% Subordinated Convertible Promissory Note issued by 1847 Cabinet Inc. to Steven J. Parkey on October 8, 2021 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on October 13, 2021)
10.4	6% Subordinated Convertible Promissory Note issued by 1847 Cabinet Inc. to Jose D. Garcia-Rendon on October 8, 2021 (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on October 13, 2021)
10.5	Exchange Agreement, dated October 8, 2021, among 1847 Holdings LLC, Steven J. Parkey and Jose D. Garcia-Rendon (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on October 13, 2021)
10.6	Management Services Agreement, dated August 21, 2020, by and between 1847 Cabinet Inc. and 1847 Partners LLC (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on October 7, 2020)
10.7	Amended and Restated Management Services Agreement, dated October 8, 2021, between 1847 Cabinet Inc. and 1847 Partners LLC (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed on October 13, 2021)
10.8	Secured Promissory Note issued by 1847 Holdings LLC to 1847 Cabinet Inc. on September 30, 2020 (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on October 7, 2020)
10.9	Amended and Restated Secured Promissory Note issued by 1847 Holdings LLC to 1847 Cabinet Inc. on December 11, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 11, 2020)
10.10	Second Amended and Restated Secured Promissory Note issued by 1847 Holdings LLC to 1847 Cabinet Inc. on October 8, 2021 (incorporated by reference to Exhibit 10.10 to the Current Report on Form 8-K filed on October 13, 2021)

10.11	Note Purchase Agreement, dated October 8, 2021, among 1847 Holdings LLC, 1847 Asien Inc., 1847 Wolo Inc., 1847 Cabinet Inc., Asien’s Appliance, Inc., Wolo Mfg. Corp., Wolo Industrial Horn & Signal, Inc., Kyle’s Custom Wood Shop, Inc., High Mountain Door & Trim Inc., Sierra Homes, LLC, SILAC Insurance Company and Leonite Capital, LLC (incorporated by reference to Exhibit 10.11 to the Current Report on Form 8-K filed on October 13, 2021)
10.12	Secured Convertible Promissory Note issued by 1847 Holdings LLC to SILAC Insurance Company on October 8, 2021 (incorporated by reference to Exhibit 10.12 to the Current Report on Form 8-K filed on October 13, 2021)
10.13	Secured Convertible Promissory Note issued by 1847 Holdings LLC to SILAC Insurance Company on October 8, 2021 (incorporated by reference to Exhibit 10.13 to the Current Report on Form 8-K filed on October 13, 2021)
10.14	Secured Convertible Promissory Note issued by 1847 Holdings LLC to Leonite Capital LLC on October 8, 2021 (incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-K filed on October 13, 2021)
10.15	Guaranty Agreement, dated October 8, 2021, among 1847 Asien Inc., 1847 Wolo Inc., 1847 Cabinet Inc., Asien’s Appliance, Inc., Wolo Mfg. Corp., Wolo Industrial Horn & Signal, Inc., Kyle’s Custom Wood Shop, Inc., High Mountain Door & Trim Inc., Sierra Homes, LLC and Leonite Capital LLC (incorporated by reference to Exhibit 10.15 to the Current Report on Form 8-K filed on October 13, 2021)
10.16	Security Agreement, dated October 8, 2021, among 1847 Holdings LLC, 1847 Asien Inc., 1847 Wolo Inc., 1847 Cabinet Inc., Asien’s Appliance, Inc., Wolo Mfg. Corp., Wolo Industrial Horn & Signal, Inc., Kyle’s Custom Wood Shop, Inc., High Mountain Door & Trim Inc., Sierra Homes, LLC and Leonite Capital, LLC (incorporated by reference to Exhibit 10.16 to the Current Report on Form 8-K filed on October 13, 2021)
10.17	Intellectual Property Security Agreement, dated October 8, 2021, among Wolo Mfg. Corp., Wolo Industrial Horn & Signal, Inc. and Leonite Capital, LLC (incorporated by reference to Exhibit 10.17 to the Current Report on Form 8-K filed on October 13, 2021)
10.18	Amendment No. 1 to Securities Purchase Agreement, dated October 8, 2021, between 1847 Asien Inc. and Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen, as Trustees of the Wilhelmsen Family Trust, U/D/T dated May 1, 1992 (incorporated by reference to Exhibit 10.18 to the Current Report on Form 8-K filed on October 13, 2021)
99.1	Audited Combined Financial Statements for the Years Ended December 31, 2020 and 2019
99.2	Unaudited Combined Financial Statements for the Nine Months Ended September 30, 2021 and 2020
99.3	Unaudited Pro Forma Combined Financial Statements
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

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.

Date: January 27, 2022	1847 HOLDINGS LLC
	/s/ Ellery W. Roberts
	Name: Ellery W. Roberts
	Title: Chief Executive Officer

Exhibit99.1

HIGHMOUNTAIN DOOR & TRIM INC. AND SIERRA HOMES, LLC

(D/B/AINNOVATIVE CABINETS & DESIGN)

AUDITEDCOMBINED FINANCIAL STATEMENTS

YEARSENDED DECEMBER 31, 2020 AND 2019

REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Owners

High Mountain Door & Trim, Inc. and Sierra Homes LLC (dba Innovative Cabinets & Design)

Opinion on the Financial Statements

We have audited the accompanying combined balance sheets of High Mountain Door & Trim, Inc. and Sierra Homes LLC (collectively “the Company”), as of December 31, 2020 and 2019, the related combined statements of income and changes in owner’s 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.

CriticalAudit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the combined financial statements that was communicated or required to be communicated to the board of directors and that (i) relates to accounts or disclosures that are material to the combined financial statements, and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

RevenueRecognition

As described further in Note 2 to the combined financial statements, revenues derived from contracts with customers are recognized as the performance obligations are satisfied over time. The Company uses estimates of project costs incurred and total costs for each contract to recognize revenue. Under the cost-to-cost approach, the determination of the progress toward completion requires management to prepare estimates of the costs to complete. In addition, the Company’s contracts may include variable consideration related to contract modifications through change orders or claims, and management must also estimate the variable consideration the Company expects to receive in order to estimate the total contract revenue. We identified revenue recognized over time to be a critical audit matter.

The principal considerations for our determination that revenue recognized over time is a critical audit matter is that auditing management’s estimate of the progress toward completion of its projects was complex and subjective. This is due to the considerable judgement required to evaluate management’s determination of the forecasted costs to complete its contracts as future results may vary significantly from past estimates due to changes in facts and circumstances. In addition, auditing the Company’s measurement of variable consideration is also complex and highly judgmental and can have a material effect on the amount of revenue recognized.

Our audit procedures related to revenue recognized over time included the following, among others:

●	We<br> obtained an understanding and evaluated the Company’s processes and controls related<br> to contract revenue recognition.
●	We<br> evaluated the Company’s cost-to-cost estimates by evaluating the appropriate application<br> of the cost-to-cost method, including the significant assumptions used to develop the estimated<br> cost to complete, and the completeness and accuracy of the underlying data.
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●	We<br> evaluated the estimated variable consideration by evaluating the appropriate application<br> of the most likely amount method and examining relevant supporting documentation.
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/s/Sadler, Gibb & Associates, LLC

We have served as the Company’s auditor since 2021.

Draper, UT

January 27, 2022

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

COMBINED BALANCE SHEETS

	December 31,<br><br> <br>2020		December 31,<br> <br>2019
ASSETS
Current Assets
Cash and cash equivalents	$	1,368,927	$	1,212,972
Accounts receivable, net		1,900,892		917,510
Contract assets		160,118		84,980
Inventories, net		1,272,397		676,704
Prepaid expenses and other current assets		168,829		106,943
Total Current Assets		4,871,163		2,999,109
Property and equipment, net		589,588		614,402
Operating lease right-of-use assets		224,398		383,655
Other assets		47,431		26,274
TOTAL ASSETS	$	5,732,580	$	4,023,440
LIABILITIES AND OWNERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	341,265	$	344,547
Contract liabilities		4,158,964		2,955,890
Current portion of notes payable		63,932		83,432
Current portion of finance lease liabilities		7,654		4,932
Current portion of operating lease liabilities		186,825		257,150
Total Current Liabilities		4,758,640		3,645,951
Notes payable, net of current portion		155,625		155,957
Finance lease liabilities, net of current portion		16,197		15,478
Operating lease liabilities, net of current portion		42,166		132,196
TOTAL LIABILITIES		4,972,628		3,949,582
Owners’ Equity		759,952		73,858
TOTAL LIABILITIES AND OWNERS’ EQUITY	$	5,732,580	$	4,023,440

The accompanying notes are an integral part of these combined financial statements.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

COMBINED STATEMENTS OFINCOME AND CHANGES IN OWNERS’ EQUITY

	For the Years Ended<br><br> December 31,
	2020			2019
Net sales	$	17,655,250		$	15,249,851
Cost of sales		12,184,092			11,380,264
Gross Profit		5,471,158			3,869,587
Operating Expenses:
General and administrative		964,366			481,457
Personnel		2,552,683			1,961,307
Occupancy		341,093			326,509
Depreciation and amortization		210,826			173,829
Total Operating Expenses		4,068,968			2,943,102
Income From Operations		1,402,190			926,485
Other Income (Expense)
Other income		220			883
Gain on forgiveness of PPP loans		1,191,424			-
Interest expense		(21,830	)		(12,908	)
Gain (loss) on disposal of property and equipment		44,090			(11,401	)
Total Other Income (Expense)		1,213,904			(23,426	)
Net Income	$	2,616,094		$	903,059
Owners’ Equity (Deficit) - Beginning	$	73,858		$	(497,201	)
Distribution paid		(1,930,000	)		(332,000	)
Owners’ Equity - Ending	$	759,952		$	73,858

The accompanying notes are an integral part of these combined financial statements.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

COMBINED STATEMENTS OF CASH FLOWS

	For the Years Ended<br><br> December 31,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	2,616,094		$	903,059
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		210,826			173,829
Amortization of operating lease right-of-use assets		246,228			245,291
Loss (gain) on disposal of property and equipment		(44,090	)		11,401
Gain on forgiveness of PPP loans		(1,191,424	)		-
Changes in current assets and liabilities:
Accounts receivable		(983,382	)		(412,432	)
Contract assets		(75,138	)		(84,980	)
Inventory		(595,693	)		242,843
Prepaid expenses and other assets		(83,043	)		(78,107	)
Accounts payable and accrued expenses		3,690			33,516
Contract liabilities		1,203,074			326,310
Operating lease liabilities		(247,326	)		(239,600	)
Net cash provided by operating activities		1,059,816			1,121,130
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(75,468	)		(149,748	)
Net cash used in investing activities		(75,468	)		(149,748	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable		1,184,452			-
Repayments of notes payable		(77,046	)		(131,366	)
Repayments of financing lease liabilities		(5,799	)		(3,927	)
Distributions paid		1,930,000	)		(332,000	)
Net cash used in financing activities		(828,393	)		(467,293	)
NET CHANGE TO CASH AND CASH EQUIVALENTS		155,955			504,089
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		1,212,972			708,883
CASH AND CASH EQUIVALENTS, END OF YEAR	$	1,368,927		$	1,212,972
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	14,858		$	12,908
Cash paid for income taxes	$	-		$	-
Non-cash investing and financing activities:
Operating lease right-of-use asset and liability	$	-		$	628,946
Operating lease right-of-use asset and liability remeasurement	$	86,971		$	-
Financed purchases of property and equipment	$	80,874		$	163,671

The accompanying notes are an integral part of these combined financial statements.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2020 and 2019

NOTE1 – ORGANIZATION AND NATURE OF BUSINESS

High Mountain Door & Trim Inc. (“HMD&T”) was formed under the laws of the State of Nevada on April 4, 2014. Sierra Homes, LLC, dba Innovative Cabinets & Design (“IC&D”) was formed under the laws of the State of Nevada on June 17, 2008. The entities collectively are referred to throughout as “we”, “us”, “our” or “the Company.”

HMD&T is headquartered in Reno, NV, and specializes in all aspects of finished carpentry products and services, working primarily with large homebuilders of single-family homes and commercial and multi-family developers. Finished carpentry includes all the finishing required for single-family and multi-family residential dwellings; these include doors, door frames, baseboards, crown molding, cabinetry, bathroom sinks and cabinets, hardware, bookcases, built-in closets, fireplace mantles, millwork, and window installations.

IC&D is headquartered in Reno, NV, and specializes in custom cabinetry and countertops working primarily with single-family homeowners, builders of multi-family homes, as well as commercial clients. Custom cabinetry and countertops include custom cabinet and countertop design and installation work in remodeling kitchens, bathrooms, home offices, etc.

NOTE2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basisof Presentation

The combined 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. All intercompany transactions have been eliminated. In the opinion of management, all adjustments considered necessary for a fair presentation have been included.

Cashand Cash Equivalents

The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents. At December 31, 2020 and 2019, the Company had $1,021,291 and $733,126, respectively, in its domestic accounts in excess of Federal Deposit Insurance Corporation (“FDIC”) insured limits. No losses have been incurred by the Company as a result of such excesses of FDIC limits.

Useof Estimates

The preparation of the combined 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 combined financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. It is reasonably possible that changes may occur in the near term that would affect management’s estimates with respect to the cost-to-cost measure of progress method, allowance for doubtful accounts, and inventory reserve. Revisions in estimated revenue from contracts are made in the year in which circumstances requiring the revision become probable.

Revenueand Cost Recognition

The Company records revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606. This Accounting Standards Update (“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.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2020 and 2019

NOTE2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenueand Cost Recognition (Continued)

Our revenues are derived primarily through contracts with customers whereby we specialize in all aspects of products and services relating to finished carpentry, custom cabinetry, and countertops. We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Most of our contracts are bundled to include both material and installation services, we combine these items into one performance obligation as the overall promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and, therefore, is not distinct. We do offer assurance-type warranties on certain of our installed products and services that do not represent a separate performance obligation and, as such, do not impact the timing or extent of revenue recognition.

For any of our contracts that are not complete at the reporting date, we recognize revenue over time, because of the continuous transfer of control to the customer as work is performed at the customer’s site and, therefore, the customer controls the asset as it is being installed. We utilize the cost-to-cost measure of progress method as we believe this best depicts the transfer of control of assets to the customer, which occurs as costs are incurred. When this method is used, we estimate the costs to complete individual contracts and record as revenue that portion of the total contract price that is considered complete based on the relationship of costs incurred to date to total anticipated costs. Unforeseen events and circumstances can alter the estimate of the costs associated with a particular contract. Total estimated costs at completion, can be impacted by changes in productivity, scheduling, cost of labor, and materials. Additionally, external factors such as weather, and customer delays may affect the progress of a project’s completion, and thus the timing and amount of revenue recognition, cash flow, and profitability from a particular contract may be adversely affected.

An insignificant portion of our sales, primarily retail sales, is accounted for on a point-in-time basis when the sale occurs. Sales taxes, when incurred, are recorded as a liability and excluded from revenue on a net basis.

Our contracts can be subject to modification to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis.

All contracts are billed either contractually or as work is performed. Billing on our long-term contracts occurs primarily on a monthly basis throughout the contract period whereby we submit progress invoices for customer payment based on actual or estimated costs incurred during the billing period. On some of our contracts the customer may withhold payment on an invoice equal to a percentage of the invoice amount, which will be subsequently paid after satisfactory completion of each project. This amount is referred to as retainage and is common practice in the construction industry, as it allows for customers to ensure the quality of the service performed prior to full payment. The retention provisions are not considered a significant financing component.

Cost of revenues earned include all direct material and labor costs and those indirect costs related to contract performance. The cost of significant uninstalled materials, re-work, or scrap is generally excluded from the cost-to-cost measure of progress as it is not proportionate to the entity’s progress in satisfying the performance obligation.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2020 and 2019

NOTE2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ContractAssets and Contract Liabilities

We record a contract asset when we have satisfied our performance obligation prior to billing and a contract liability when a customer payment is received prior to the satisfaction of our performance obligation. The difference between the beginning and ending balances of our contract assets and liabilities primarily results from the timing of our performance and the customer’s payment. At times, we have a right to payment from previous performance that is conditional on something other than passage of time, such as retainage, which is included in contract assets or contract liabilities, as determined on a contract-by-contract basis.

As of December 31, 2020, the Company had $274,941 in retainage, of which $114,823 was netted against contract liabilities. As of December 31, 2019, the Company had $169,521 in retainage, of which $84,541 was netted against contract liabilities.

AccountsReceivable

Accounts receivable include billed and unbilled amounts for services provided to customers for which we have an unconditional right to payment. Billed and unbilled amounts for which payment is contingent on anything other than the passage of time are included in contract assets and contract liabilities on a contract-by-contract basis.

The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. The Company historically collects substantially all its contract receivables from customers and bad debt expense has been historically immaterial to the combined financial statements. Uncollectible balances are expensed in the period it is determined to be uncollectible. The Company had no significant concentrations of receivables balances as of December 31, 2020 and 2019.

Inventories

Inventory mainly consists of doors, door frames, baseboards, crown molding, cabinetry, countertops, custom cabinets, closet shelving, and other related products. We value inventory at each balance sheet date to ensure that it is carried at the lower of cost or net realizable value with cost determined based on the average cost basis. A reserve for slow-moving and potentially obsolete inventories is recorded as of each balance sheet date and total inventories are presented net of that reserve. The Company periodically evaluates the value of items in inventory and provides write-downs to inventory based on its estimate of market conditions. The Company estimated an obsolescence allowance of $76,300 at December 31, 2020 and December 31, 2019, respectively.

Propertyand Equipment

Property and equipment is stated at the historical cost and depreciated on a straight-line method over the estimated useful life of the asset. Expected useful lives of property and equipment vary but generally are the shorter of lease life or five years for leasehold improvements and five years for vehicles, equipment, and office furniture.

Long-livedAssets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When projections indicate that the carrying value of the long-lived asset is not recoverable, the carrying value is reduced by the estimated excess of the carrying value over the fair value. An impairment charge is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the long-lived assets as determined by projected discounted net future cashflows.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2020 and 2019

NOTE2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Leases

The Company recognizes right-of-use ("ROU") assets and related lease liabilities on the balance sheet for all leases greater than one year in duration. Lease liabilities and their corresponding ROU assets are initially measured at the present value of the unpaid lease payments as of the lease commencement date. As most of the Company's leases do not provide an implicit rate, the Company uses an estimated incremental borrowing rate ("IBR") based on the information available at the commencement date of the respective lease to determine the present value of future payments. The determination of the IBR requires judgment and is primarily based on publicly available information for companies within the same industry and with similar credit profiles. The Company adjusts the rate for the impact of collateralization, the lease term and other specific terms included in each lease arrangement. The IBR is determined at the lease commencement and is subsequently reassessed upon a modification to the lease arrangement.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term and equal amounts of rent expense is attributed to each period during the term of the lease, regardless of when actual payments are made. This generally results in rent expense in excess of cash payments during the early years of a lease and rent expense less than cash payments in later years. The difference between rent expense recognized and actual rental payments is typically represented as the spread between the ROU asset and lease liability.

Our facilities’ operating leases have lease and non-lease fixed cost components, which we account for as one single lease component in calculating the present value of minimum lease payments. Variable lease and non-lease cost components are expensed as incurred.

We do not recognize ROU assets and lease liabilities for short-term leases that have an initial lease term of 12 months or less. We recognize the lease payments associated with short-term leases as an expense on a straight-line basis over the lease term.

CompletedAcquisition

On September 23, 2021, 1847 Cabinet Inc. (“1847 Cabinet”), a wholly owned subsidiary of 1847 Holdings LLC (“1847 Holdings”), entered into a securities purchase agreement with the Company, and Steven J. Parkey and Jose D. Garcia-Rendon (together, the “Sellers”), pursuant to which 1847 Cabinet agreed to acquire all of the issued and outstanding capital stock or other equity securities of the Company from the Sellers (the “Acquisition”).

Pursuant to the terms of the securities purchase agreement, as amended (the “Purchase Agreement”), 1847 Cabinet acquired all of the issued and outstanding capital stock or other equity securities of the Company from the Sellers for an aggregate purchase price of $16,567,845, after certain adjustments made at closing and subject to additional post-closing adjustments as described below. The purchase price consists of (i) $10,687,500 in cash and (ii) the issuance by 1847 Cabinet of 6% subordinated convertible promissory notes in the aggregate principal amount of $5,880,345.

The purchase price is subject to a post-closing working capital adjustment provision. On or before the 75th day following the closing, 1847 Cabinet must deliver to the Sellers its calculation of the final net working capital of the Company as of the closing date. If such final net working capital exceeds the estimated net working capital, 1847 Cabinet must, within seven days, pay to the Sellers an amount of cash that is equal to such excess. If the estimated net working capital exceeds the final net working capital, the Sellers must, within seven days, pay to 1847 Cabinet an amount in cash equal to such excess. As of the date of this report, the post-closing working capital adjustment has not been completed notwithstanding the fact that the date of this report is past the 75th day following closing. The Company and 1847 Cabinet have agreed with the Sellers to finalize the post-working capital adjustment promptly following the date of this report.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2020 and 2019

NOTE2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CompletedAcquisition (Continued)

As noted above, a portion of the purchase price for the Acquisition was paid by the issuance of 6% subordinated convertible promissory notes in the aggregate principal amount of $5,880,345 by 1847 Cabinet to the Sellers (the “Seller Notes”). The Seller Notes bear interest at a rate of six percent (6%) per annum and are due and payable on October 8, 2024; provided that upon an event of default (as defined in the Seller Notes), such interest rate shall increase to ten percent (10%) per annum. 1847 Cabinet may prepay the Seller Notes in whole or in part, without penalty or premium, upon ten (10) business days prior written notice to the holders of the Seller Notes.

At any time prior to October 8, 2022, the holders may, in their sole discretion, elect to convert up to twenty percent (20%) of the original principal amount of the Seller Notes and all accrued, but unpaid, interest into such number of shares of the common stock of 1847 Cabinet determined by dividing the amount to be converted by a conversion price determined by dividing (i) the fair market value of 1847 Cabinet (determined in accordance with the Seller Notes) by (ii) the number of shares of 1847 Cabinet outstanding on a fully diluted basis. The holders may also exchange the Seller Notes or any portion thereof for securities of the Company pursuant to the exchange agreement described below.

Pursuant to the terms of the Seller Notes, 1847 Cabinet must provide at least thirty (30) days prior notice prior to the consummation of a corporate transaction (as defined in the Seller Notes), which generally includes (i) the sale of all or substantially all of the assets of 1847 Cabinet and the Company, (ii) the merger, consolidation or any other reorganization of any of these companies, other than a reorganization where the holders of the voting securities of such companies prior to such reorganization continue to hold a majority of the outstanding voting securities after such reorganization; or (iii) any transfer (whether by sale, merger, consolidation or otherwise) of more that fifty percent (50%) of the outstanding voting securities of any of these companies. In the event of such corporate transaction, the Sellers may exercise their right to convert a portion of the outstanding principal balance and accrued but unpaid interest into 1847 Cabinet’s common stock, exercise their right to exchange all or any portion of the outstanding principal balance and accrued but unpaid interest pursuant to the exchange agreement, and/or accelerate the maturity date such that the outstanding principal balance together with all accrued but unpaid interest and all other amounts payable under the Seller Notes (less any amounts to be converted or exchanged, if applicable) shall become due and payable in full upon the consummation of the corporate transaction.

The Seller Notes contain customary events of default, including in the event of a default under the Senior Notes described below. The rights of the holders to receive payments under the Seller Notes are subordinated to the rights of the Purchasers under Senior Notes described below.

On October 8, 2021, the Company entered into an exchange agreement with the Sellers (the “Exchange Agreement”), pursuant to which the Company granted the Sellers and their permitted assigns the right, but not the obligation, to exchange all of the principal amount and accrued but unpaid interest under the Seller Notes as may be the outstanding from time to time or any portion thereof for a number of common shares of the Company to be determined by dividing the amount to be converted by an exchange price equal to the higher of (i) the 30-day volume weighted average price for the common shares on the primary national securities exchange or over the counter market on which the common shares are traded over the thirty (30) trading days immediately prior to the applicable exchange date or (ii) $2.50 (subject to equitable adjustments for stock splits, stock combinations, recapitalizations and similar transactions).

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2020 and 2019

NOTE2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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. Cash, restricted cash, receivables, inventory, and prepaid expenses approximate fair value. 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.

IncomeTaxes

All combined entities have elected to be taxed as an “S Corporation” under the provisions of the Internal Revenue Code and comparable state income tax law. As an S Corporation, the Company is generally not subject to corporate income taxes and the Company’s net income or loss is reported on the individual tax return of the stockholder of the Company. Therefore, no provision or liability for income taxes is reflected in the combined financial statements.

Management has evaluated its tax positions and has concluded that the Company had taken no uncertain tax positions that could require adjustment or disclosure in the combined financial statements to comply with provisions set forth in ASC 740, Income Taxes.

Impactof COVID-19

In December 2019, a novel strain of coronavirus (“COVID-19”) emerged in China. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The extent of the COVID-19 pandemic’s continued effect on our operational and financial performance and those of third parties on which the Company relies will depend on future developments, including the duration, spread and intensity of the outbreak, the pace at which jurisdictions across the country re-open and restrictions begin to lift. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. The Company does not yet know the full extent of potential impacts on its business and financing. However, these effects could have a material impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which the Company relies.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2020 and 2019

NOTE2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RecentAccounting Pronouncements

In May 2014, the FASB issued ASU 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. ASU 2014-09 is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. The Company’s adoption of this ASU resulted in no material changes 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. The Company’s adoption of this ASU resulted in the recognition of an ROU asset and liability in the amount of $628,946 and no material changes to the Company’s results of operations.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. The Company’s adoption of this ASU resulted in no material changes to the Company’s results of operations or balance sheet.

In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on FinancialInstruments which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2019. This pronouncement was amended under ASU 2019-10 to allow an extension on the adoption date for entities that qualify as a small reporting company. The Company has elected this extension and the effective date for the Company to adopt this standard will be for fiscal years beginning after December 15, 2022. The Company has not completed its assessment of the standard but does not expect the adoption to have a material impact on the Company’s financial position, results of operations, or cash flows.

The Company currently believes that all other issued and not yet effective accounting standards are not relevant to the Company’s combined financial statements.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2020 and 2019

NOTE3 – REVENUE RECOGNITION

The following table presents the Company’s revenues disaggregated by type of service of such revenue recognized during the years ended December 31, 2020 and 2019:

****	December 31,		December 31,
****	2020		2019
Finished carpentry	$	11,547,948	$	10,455,483
Custom cabinets and countertops		6,107,302		4,794,368
Net revenues	$	17,655,250	$	15,249,851

The following outstanding contract assets and liabilities related to our uncompleted contracts and customer deposits were as follows at December 31, 2020 and 2019:

****	December 31,		December 31,
****	2020		2019
Contract assets	$	160,118	$	84,980
Contract liabilities	$	4,158,964	$	2,955,890

The difference between contract assets and contract liabilities as of December 31, 2020 compared to December 31, 2019 is primarily the result of timing differences between our performance of obligations under contracts and customer payments. We did not recognize any impairment losses on our receivables and contract assets during the years ended December 31, 2020 and 2019.

As of December 31, 2020, the Company had approximately $22.2 million of estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied).

NOTE4 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31, 2020 and 2019:

****	December 31,		****	December 31,		****
****	2020		****	2019		****
Leasehold improvements	$	26,941		$	11,225
Transportation equipment		785,982			725,723
Machinery and equipment		241,304			240,043
Office furniture and equipment		118,288			89,350
Total property and equipment		1,172,515			1,066,341
Less: accumulated depreciation		(582,927	)		(451,939	)
Property and equipment, net	$	589,588		$	614,402

Depreciation expense for the years ended December 31, 2020 and 2019 was $210,826 and $173,829, respectively.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2020 and 2019

NOTE5 – LEASES

FinancingLeases

On February 14, 2019, the Company entered in an equipment financing lease to purchase a lift truck for $24,337, maturing on January 19, 2024. As of December 31, 2020 and 2019, the balance payable was $15,869 and $20,410, respectively.

On June 2, 2020, the Company entered in an equipment financing lease to purchase office printers for $9,240, maturing on May 2, 2024. As of December 31, 2020 and 2019, the balance payable was $7,982 and $0, respectively.

Following is a summary of payments due on financing leases for the succeeding five years:

Year Ending December 31,	Amount		****
2021	$	8,161
2022		8,161
2023		8,161
2024		1,515
2025		-
Thereafter		-
Total payments		25,998
Less: amount representing interest		(2,147	)
Present value of minimum lease payments	$	23,851

As of December 31, 2020 and 2019, the weighted-average remaining lease term for all finance leases is 3.10 years and 4.10 years, respectively.

OperatingLeases

The Company has three facility leases, including a warehouse, showroom, and office facilities under long-term leases.

Commencing January 20, 2020, the Company amended their design center lease by extending the lease for an additional 3 years and provides a base rent of $2,936 for the first 12 months, which will increase by 3 percent every 12 months. In addition, the Company is responsible for all taxes, insurance, and certain operating costs during the lease term. The lease agreement contains customary events of default, representations, warranties and covenants. As a result of the lease amendment, the Company remeasured the lease and recognized an additional $86,971 lease liability and corresponding ROU asset.

As of December 31, 2020 and 2019, the weighted-average remaining lease term for all operating leases is 1.3 years and 1.7 years, respectively.

Because the Company generally does not have access to the rate implicit in operating leases, we utilize our incremental borrowing rate as the discount rate. The weighted average discount rate associated with operating leases as of December 31, 2020 and 2019 is 6.09 percent and 6.01 percent, respectively.

The Company recognizes operating lease expense on a straight-line basis over the lease term. Rental expense under the operating lease for the years ended December 31, 2020 and 2019 were $273,180 and $276,951, respectively.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2020 and 2019

NOTE5 – LEASES (CONTINUED)

OperatingLeases (Continued)

Supplemental balance sheet information related to lease at December 31, 2020 was as follows:

Operating lease right-of-use asset	224,398
Lease liability, current portion	186,825
Lease liability, long-term	42,166
Total operating lease liability	228,991
Weighted-average remaining lease term (months)	16
Weighted average discount rate	6.01	%

Future minimum lease payments under operating leases as of December 31, 2020 were as follows:

Year Ending December 31,	Amount		****
2021	$	192,138
2022		37,375
2023		9,420
2024		-
2025		-
Thereafter	-
Total	$	238,933
Less imputed interest		(9,942	)
Total lease liability	$	228,991

NOTE6 – NOTES PAYABLE

The Company has financed purchases of transportation vehicles with notes payable which are secured by the vehicles purchased.

From April 8, 2020 to April 13, 2020, the Company received a total of $1,184,452 in Paycheck Protection Program (“PPP”) loans from the Small Business Administration (“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 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 November 13, 2020, the Company received notice from Heritage Bank of Nevada that its loans had been forgiven in its entirety by the SBA.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2020 and 2019

NOTE6 – NOTES PAYABLE (CONTINUED)

Notes payable consist of the following at December 31, 2020 and 2019:

****	Origination	Maturity	Interest		****	December 31,		****	December 31,		****
Lender	Date	Date	Rate		****	2020		****	2019		****
Isuzu Finance of America	03/23/15	04/01/20		6.30	%	$	-		$	2,337
Reno Buick GMC Cadillac	09/06/15	09/06/21		3.50	%		-			16,766
Reno Buick GMC Cadillac	09/06/15	09/06/21		3.50	%		-			15,219
Reno Buick GMC Cadillac	12/09/16	12/23/22		4.70	%		13,088			19,180
Future Ford Lincoln	07/31/18	08/14/23		6.09	%		13,735			18,329
Future Ford Lincoln	07/31/18	08/14/23		6.09	%		8,245			11,004
Future Ford Lincoln	07/31/18	08/14/23		6.09	%		8,245			11,004
Future Ford Lincoln	07/31/18	08/14/23		6.09	%		13,735			18,329
US Bank	04/10/19	04/01/24		6.80	%		47,544			59,834
Future Ford Lincoln	06/13/19	06/28/23		6.34	%		11,158			15,140
Future Ford Lincoln	06/13/19	06/28/23		6.34	%		14,544			19,735
Future Ford Lincoln	12/27/19	01/10/24		5.24	%		10,832			13,723
Future Ford Lincoln	12/27/19	01/10/24		5.24	%		14,831			18,789
Reno Buick GMC Cadillac	02/26/20	03/11/26		3.99	%		31,800			-
Reno Buick GMC Cadillac	02/26/20	03/11/26		3.99	%		31,800			-
Total notes payable						$	219,557		$	239,389
Less: current portion							(63,932	)		(155,957	)
Notes payable, net of current portion						$	155,625		$	83,432

Following is a summary of notes payable payments due for the succeeding five years:

Year Ending December 31,	Amount
2021	$	63,932
2022		67,707
2023		53,001
2024		18,531
2025		13,044
Thereafter		3,342
Total	$	219,557

NOTE7 – SUPPLIER CONCENTRATION

Significant customers and suppliers are those that account for greater than ten percent of the Company’s revenues and purchases.

In 2020 and 2019, the Company purchased a substantial portion of finished goods from four third-party vendors, which compromised 54.2% percent and 48.5% percent of the Company’s purchases, respectively. The Company believes there are numerous other suppliers that could be substituted should any of the suppliers become unavailable or non-competitive.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2020 and 2019

NOTE8 – COMMITMENTS AND CONTINGENCIES

There are no legal proceedings which the Company believes will have a material adverse effect on its financial position.

NOTE9 – SUBSEQUENT EVENTS

On December 7, 2020, the Company entered into a new warehouse and office lease, which commenced on January 1, 2021. The lease has a 5-year term and provides a base rent of $15,600 for the first 12 months, which will increase by 3 percent every 12 months. In addition, the Company is responsible for the proportional share taxes, insurance, and certain operating costs during the lease term. The lease agreement contains customary events of default, representations, warranties and covenants.

From February through May 2021, the Company financed purchases of five transportation vehicles through the issuance of notes payable for $97,528, which are secured by the vehicles purchased. The notes mature in five years and have an interest rate of 3.74%.

On March 24, 2021, the Company received $362,815 from a second PPP loan from the SBA under provisions of the CARES Act. The PPP loan has a two-year term and bears 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 provides that the PPP loan 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 October 6, 2021, the Company received notice from Heritage Bank of Nevada that its loan had been forgiven in its entirety by the SBA.

On October 29, 2021, the Company entered into a new warehouse and office lease with an estimated commencement date of February 1, 2022. The lease has a 5-year term and provides a base rent of $29,400 for 12 months, which will increase by 4 percent every 12 months. In addition, the Company is responsible for the proportional share of taxes, insurance, and certain operating costs during the lease term. The lease agreement contains customary events of default, representations, warranties and covenants.

On October 6, 2021, 1847 Cabinet, the Company and the Sellers entered into amendment No. 1 to securities purchase agreement to amend certain terms of the securities purchase agreement. On October 8, 2021, closing of the Acquisition was completed. Pursuant to the terms of the securities purchase agreement, as amended, 1847 Cabinet acquired all of the issued and outstanding capital stock or other equity securities of the Company from the Sellers for an aggregate purchase price of $16,567,845, after certain adjustments made at closing and subject to additional post-closing adjustments. The purchase price consists of (i) $10,687,500 in cash and (ii) the issuance by 1847 Cabinet of 6% subordinated convertible promissory notes in the aggregate principal amount of $5,880,345 as described further in Note 2.

Subsequent to December 31, 2020, the Company paid $4,007,863 in owner distributions.

Exhibit 99.2

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

UNAUDITED COMBINED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

COMBINED BALANCE SHEETS

	September 30, 2021			December 31,<br> <br>2020
	(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	559,573		$	1,368,927
Contract receivable		1,610,750			1,900,892
Contract assets		203,282			114,823
Inventories, net		1,743,753			1,272,397
Prepaid expenses and other current assets		57,020			168,829
Total Current Assets		4,174,378			4,825,868
Property and equipment, net		584,039			589,588
Operating lease right-of-use assets		858,570			224,398
Other assets		36,092			47,431
TOTAL ASSETS	$	5,653,079		$	5,687,285
LIABILITIES AND OWNERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	920,651		$	341,265
Contract liabilities		3,602,168			4,113,669
Current portion of notes payable		74,909			63,932
Current portion of finance lease liabilities		7,972			7,654
Current portion of operating lease liabilities		245,850			186,825
Total Current Liabilities		4,851,550			4,713,345
Notes payable, net of current portion		492,305			155,625
Finance lease liabilities, net of current portion		10,628			16,197
Operating lease liabilities, net of current portion		636,697			42,166
TOTAL LIABILITIES		5,991,180			4,927,333
Owners’ Equity
Owners’ equity		(338,101	)		759,952
Total Owner’s Equity		(338,101	)		759,952
TOTAL LIABILITIES AND OWNERS’ EQUITY	$	5,653,079		$	5,687,285

The accompanying notes are an integral part of these unaudited condensed combined financial statements.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

COMBINED STATEMENTS OF INCOME AND CHANGES INOWNERS’ EQUITY

(Unaudited)

	For the Periods Ended September 30,
	2021			2020
Net sales	$	18,501,565		$	13,019,911
Cost of sales		12,697,676			9,164,080
Gross Profit		5,803,889			3,855,831
Operating Expenses:
General and administrative		713,387			676,148
Personnel		2,032,762			1,800,032
Occupancy		352,467			256,381
Depreciation and amortization		170,077			159,090
Total Operating Expenses		3,268,693			2,891,651
Income From Operations		2,535,196			964,180
Other Income (Expense)
Other income		5			320
Interest expense		(11,391	)		(17,248	)
Disposal of property and equipment		37,000			44,090
Total Other Income (Expense)		25,614			27,162
Net Income	$	2,560,810		$	991,342
Owners’ Equity - Beginning	$	759,952		$	73,858
Distribution paid		(3,658,863	)		(770,000	)
Owners’ Equity - Ending	$	(338,101	)	$	295,200

The accompanying notes are an integral part of these unaudited condensed combined financial statements.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

COMBINED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Periods Ended September 30,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	2,560,810		$	991,342
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		170,077			159,090
Inventory reserve		41,729			-
Amortization of operating lease right-of-use assets		262,591			182,130
Loss (gain) on disposal of property and equipment		(37,000	)		(44,090	)
Changes in current assets and liabilities:
Contract receivables		290,142			(1,715,229	)
Contract assets		(88,459	)		(112,112	)
Inventory		(513,085	)		(298,651	)
Prepaid expenses and other assets		123,148			(42,706	)
Accounts payable and accrued expenses		579,386			326,099
Contract liabilities		(511,501	)		1,607,873
Operating lease liabilities		(243,207	)		(183,050	)
Net cash provided by operating activities		2,634,631			870,696
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(30,000	)		(73,373	)
Net cash used in investing activities		(30,000	)		(73,373	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable		362,815			1,184,452
Repayments of notes payable		(112,686	)		(61,631	)
Repayments of financing lease liabilities		(5,251	)		(4,095	)
Distributions paid		(3,658,863	)		(770,000	)
Net cash provided by (used in) financing activities		(3,413,985	)		348,726
NET CHANGE TO CASH AND CASH EQUIVALENTS		(809,354	)		1,146,049
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		1,368,927			1,212,972
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	559,573		$	2,359,021
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	9,577		$	12,908
Cash paid for income taxes	$	-		$	-
Non-cash investing and financing activities:
Operating lease right-of-use asset and liability	$	896,763		$	-
Operating lease right-of-use asset and liability remeasurement	$	-		$	86,971
Financed purchases of fixed assets	$	74,354		$	80,874

The accompanying notes are an integral part of these unaudited condensed combined financial statements.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS

September 30, 2021 and 2020

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

Basis of Presentation

Cash and Cash Equivalents

The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents. At September 30, 2021 and 2020, the Company had $56,396 and $2,089,979, respectively, in its domestic accounts in excess of Federal Deposit Insurance Corporation (“FDIC”) insured limits. No losses have been incurred by the Company as a result of such excesses of FDIC limits.

Use of Estimates

Revenue and Cost Recognition

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS

September 30, 2021 and 2020

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (CONTINUED)

Revenue and Cost Recognition (Continued)

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS

September 30, 2021 and 2020

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (CONTINUED)

Contract Assets and Contract Liabilities

As of September 30, 2021, the Company had $512,585 in retainage, of which $203,282 was netted against contract liabilities. As of December 31, 2020, the Company had $274,941 in retainage, of which $114,823 was netted against contract liabilities.

Accounts Receivable

Inventories

Inventory mainly consists of doors, door frames, baseboards, crown molding, cabinetry, countertops, custom cabinets, closet shelving, and other related products. We value inventory at each balance sheet date to ensure that it is carried at the lower of cost or net realizable value with cost determined based on the average cost basis. A reserve for slow-moving and potentially obsolete inventories is recorded as of each balance sheet date and total inventories are presented net of that reserve. The Company periodically evaluates the value of items in inventory and provides write-downs to inventory based on its estimate of market conditions. The Company estimated an obsolescence allowance of $118,029 and $76,300 at September 30, 2021 and December 31, 2019, respectively.

Property and Equipment

Long-lived Assets

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS

September 30, 2021 and 2020

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (CONTINUED)

Leases

Completed Acquisition

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS

September 30, 2021 and 2020

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (CONTINUED)

Completed Acquisition (Continued)

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS

September 30, 2021 and 2020

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (CONTINUED)

Fair Value of Financial Instruments

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.

Income Taxes

Impact of COVID-19

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13 FinancialInstruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2019. This pronouncement was amended under ASU 2019-10 to allow an extension on the adoption date for entities that qualify as a small reporting company. The Company has elected this extension and the effective date for the Company to adopt this standard will be for fiscal years beginning after December 15, 2022. The Company has not completed its assessment of the standard but does not expect the adoption to have a material impact on the Company’s financial position, results of operations, or cash flows.

The Company currently believes that all other issued and not yet effective accounting standards are not relevant to the Company’s combined financial statements.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS

September 30, 2021 and 2020

NOTE 3 – REVENUE RECOGNITION

The following table presents the Company’s revenues disaggregated by type of service of such revenue recognized during the nine months ended September 30, 2021 and 2020:

	September 30,<br><br>2021		September 30,<br><br>2020
Finished carpentry	$	13,912,885	$	8,474,562
Custom cabinets and countertops		4,588,680		4,545,349
Net revenues	$	18,501,565	$	13,019,911

The following outstanding contract assets and liabilities related to our uncompleted contracts and customer deposits were as follows at September 30, 2021 and December 31, 2020:

	September 30, 2021		December 31,<br><br>2020
Contract assets	$	309,303	$	160,118
Contract liabilities	$	3,708,189	$	4,158,964

The difference between contract assets and contract liabilities as of September 30, 2021 compared to December 31, 2020 is primarily the result of timing differences between our performance of obligations under contracts and customer payments. We did not recognize any impairment losses on our receivables and contract assets during the nine months ended September 30, 2021 and 2020.

As of September 30, 2021, the Company had approximately $17.5 million of estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied).

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following at September 30, 2021 and December 31, 2020:

	September 30,			December 31,
	2021			2020
Leasehold improvements	$	26,941		$	26,941
Transportation equipment		913,010			785,982
Machinery and equipment		241,304			241,304
Office furniture and equipment		118,288			118,288
Total property and equipment		1,299,543			1,172,515
Less: accumulated depreciation		(715,504	)		(582,927	)
Property and equipment, net	$	584,039		$	589,588

Depreciation expense for the nine months ended September 30, 2021 and 2020 was $170,077 and $159,090, respectively.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS

September 30, 2021 and 2020

NOTE 5 – LEASES

Financing Leases

On February 14, 2019, the Company entered in an equipment financing lease to purchase a lift truck for $24,337, maturing on January 19, 2024. As of September 30, 2021 and December 31, 2020, the balance payable was $12,278 and $15,869, respectively.

On June 2, 2020, the Company entered in an equipment financing lease to purchase office printers for $9,240, maturing on May 2, 2024. As of September 30, 2021 and December 31, 2020, the balance payable was $6,322 and $7,982, respectively.

Following is a summary of payments due on financing leases for the succeeding five years:

Period Ending September 30,	Amount
2021 - remaining	$	2,041
2022		8,161
2023		8,161
2024		1,515
2025		-
Thereafter		-
Total payments		19,878
Less: amount representing interest		(1,278	)
Present value of minimum lease payments	$	18,600

As of September 30, 2021 and December 31, 2020, the weighted-average remaining lease term for all finance leases is 2.40 years and 3.10 years, respectively.

Operating Leases

The Company has three facility leases, including a warehouse, showroom, and office facilities under long-term leases.

On December 7, 2020, the Company entered into a new warehouse and office lease, which commenced on January 1, 2021. The lease has a 5-year term and provides a base rent of $15,600 for the first 12 months, which will increase by 3.5 percent every 12 months. In addition, the Company is responsible for the proportional share taxes, insurance, and certain operating costs during the lease term. The lease agreement contains customary events of default, representations, warranties and covenants. As a result of the lease, the Company recognized a $896,763 lease liability and corresponding ROU asset.

As of September 30, 2021 and December 31, 2020, the weighted-average remaining lease term for all operating leases is 4.8 years and 1.3 years, respectively.

Because the Company generally does not have access to the rate implicit in operating leases, we utilize our incremental borrowing rate as the discount rate. The weighted average discount rate associated with operating leases as of September 30, 2021 and December 31, 2020 is 4.06 percent and 6.09 percent, respectively.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS

September 30, 2021 and 2020

NOTE 5 – LEASES (CONTINUED)

Operating Leases (Continued)

The Company recognizes operating lease expense on a straight-line basis over the lease term. Rental expense under the operating lease for the nine months ended September 30, 2021 and 2020 were $295,382 and $204,971, respectively.

Supplemental balance sheet information related to lease at September 30, 2021 was as follows:

Operating lease right-of-use asset	858,570
Lease liability, current portion	245,850
Lease liability, long-term	636,697
Total operating lease liability	882,547
Weighted-average remaining lease term (months)	58
Weighted average discount rate	4.06	%

Future minimum lease payments under operating leases as of September 30, 2021 were as follows:

Period Ending September 30,	Amount
2021<br>- remaining	$	87,741
2022		230,191
2023		208,020
2024		204,558
2025		210,695
Thereafter		18,085
Total	$	959,290
Less imputed interest		(76,743	)
Total lease liability	$	882,547

NOTE 6 – NOTES PAYABLE

The Company has financed purchases of transportation vehicles with notes payable which are secured by the vehicles purchased.

On March 24, 2021, the Company received $362,815 from a second Paycheck Protection Program (“PPP”) loan from the Small Business Administration (“SBA”) under provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The PPP loan has a two-year term and bears 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 provides that the PPP loan 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. Subsequent to period end, on October 6, 2021, the Company received notice from Heritage Bank of Nevada that its loan had been forgiven in its entirety by the SBA.

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS

September 30, 2021 and 2020

NOTE 6 – NOTES PAYABLE (CONTINUED)

Notes payable consist of the following at September 30, 2021 and December 31, 2020:

	Origination	Maturity	Interest			September 30			December 31,
Lender	Date	Date	Rate			2021			2020
Reno Buick GMC Cadillac	12/09/16	12/23/22		4.70	%	$	8,326		$	13,088
Future Ford Lincoln	07/31/18	08/14/23		6.09	%		10,098			13,735
Future Ford Lincoln	07/31/18	08/14/23		6.09	%		6,062			8,245
Future Ford Lincoln	07/31/18	08/14/23		6.09	%		6,062			8,245
Future Ford Lincoln	07/31/18	08/14/23		6.09	%		10,098			13,735
US Bank	04/10/19	04/01/24		6.80	%		37,763			47,544
Future Ford Lincoln	06/13/19	06/28/23		6.34	%		7,997			11,158
Future Ford Lincoln	06/13/19	06/28/23		6.34	%		10,425			14,544
Future Ford Lincoln	12/27/19	01/10/24		5.24	%		8,359			10,832
Future Ford Lincoln	12/27/19	01/10/24		5.24	%		11,445			14,831
Reno Buick GMC Cadillac	02/26/20	03/11/26		3.99	%		-			31,800
Reno Buick GMC Cadillac	02/26/20	03/11/26		3.99	%		-			31,800
Future Ford Lincoln	02/03/21	02/20/26		3.74	%		32,163			-
Reno Buick GMC Cadillac	02/03/21	02/20/26		3.74	%		17,113			-
Reno Buick GMC Cadillac	02/03/21	02/20/26		3.74	%		17,113			-
Heritage Bank of Nevada	03/24/21	03/26/23		1.00	%		362,815			-
Future Ford Lincoln	05/12/21	05/26/25		3.74	%		12,060			-
Future Ford Lincoln	05/12/21	05/26/25		3.74	%		9,315			-
Total notes payable						$	567,214		$	219,557
Less: current portion							(74,909	)		(63,932	)
Notes payable, net of current portion						$	492,305		$	155,625

Following is a summary of notes payable payments due for the succeeding five years:

Period Ending September 30,	Amount
2021 - remaining	$	18,345
2022		75,947
2023		424,347
2024		27,362
2025		18,503
Thereafter		2,710
Total	$	567,214

HIGH MOUNTAIN DOOR & TRIM INC. AND SIERRAHOMES, LLC

(D/B/A INNOVATIVE CABINETS & DESIGN)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS

September 30, 2021 and 2020

NOTE 7 – SUPPLIERCONCENTRATION

Significant customers and suppliers are those that account for greater than ten percent of the Company’s revenues and purchases.

During the nine months ended September 30, 2021 and 2020, the Company purchased a substantial portion of finished goods from four third-party vendors, which compromised 46.6 percent and 53.8 percent 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.

NOTE 8 – COMMITMENTSAND CONTINGENCIES

There are no legal proceedings which the Company believes will have a material adverse effect on its financial position.

NOTE 9 – SUBSEQUENT EVENTS

Subsequent to September 30, 2021, the Company paid $349,000 in owner distributions.

Exhibit 99.3

1847 HOLDINGS LLC

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

1847 HOLDINGS LLC

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF SEPTEMBER 30, 2021

	1847 Holdings			High Mountain and Innovative Cabinets			Pro Forma Adjustments				Pro Forma
ASSETS
CURRENT ASSETS
Cash	$	973,172		$	559,573		$	(351,021	)	(a-2)	$	1,920,149
								738,425		(s-3)		-
Accounts receivable, net		2,114,337			1,610,750			-				3,725,087
Inventories, net		4,155,926			1,743,753			-				5,899,679
Contract assets		109,968			309,303			-				419,271
Prepaid expenses and other current assets		635,908			57,020			-				692,928
TOTAL CURRENT ASSETS		7,989,311			4,280,399			387,404				12,657,114
Investments		276,540			-			-				276,540
Property and equipment, net		562,235			584,039			-				1,146,274
Operating lease right-of-use assets		733,180			858,570			-				1,591,750
Goodwill		7,680,771			-			17,256,967		(a-2)		24,937,738
Intangible assets, net		5,270,816			-			-				5,270,816
Other assets		6,851			36,092			-				42,943
TOTAL ASSETS	$	22,519,704		$	5,759,100		$	17,644,371			$	45,923,175
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	3,106,924		$	920,651		$	(69,103	)	(s-2)	$	3,958,472
Current portion of operating lease liability		185,128			245,850			-				430,978
Current portion of financing lease liability		-			7,972			-				7,972
Advances, related party		193,761			-			-				193,761
Lines of credit		1,296,309			-			(1,296,309	)	(s-2)		-
Note payable – related party		56,900			-			(56,900	)	(s-2)		-
Notes payable – current portion		917,003			74,909			(617,502	)	(s-2)		374,410
Contract liabilities		3,607,155			3,708,189			-				7,315,344
TOTAL CURRENT LIABILITIES		9,363,180			4,957,571			(2,039,814	)			12,280,937
Operating lease liability – long term, net of current portion		552,285			636,697			-				1,188,982
Financing lease liability – long term, net of current portion		-			10,628			-				10,628
Notes payable – long term, net of current portion		4,593,691			492,305			(3,758,591	)	(s-2)		1,327,405
Note payable – High Mountain and Innovative Cabinets sellers		-			-			5,880,345		(s-4)		5,880,345
Note payable – long term (Silac)		-			-			24,760,000		(s-1)		24,760,000
Note payable – debt discount (Silac)		-			-			(597,200	)	(s-1)		(597,200	)
Deferred tax liability		285,000			-			-				285,000
TOTAL LIABILITIES	$	14,794,156		$	6,097,201		$	24,244,739			$	45,136,096
SHAREHOLDERS’ EQUITY
Allocation shares, 1,000 shares issued and outstanding		1,000			-			-				1,000
Series A convertible preferred shares, 4,450,460 shares outstanding as of September 30, 2021		4,635,656			-			(3,108,570	)	(s-2)		1,527,086
Distribution receivable		(2,000,000	)		-			-				(2,000,000	)
Common shares, 500,000,000 shares authorized, 4,842,851 shares issued and outstanding as of September 30, 2021		4,843			-			-				4,843
Additional paid-in capital		19,949,403			-			-				19,949,403
Members’ equity (deficit)		-			(338,101	)		338,101		(a-2)		-
Accumulated deficit		(13,987,670	)		-			(3,287,074	)	(s-2)		(17,817,569	)
								(542,825	)	(a-2)
TOTAL 1847 HOLDINGS SHAREHOLDERS’ EQUITY		8,603,232			(338,101	)		(6,057,543	)			1,664,763
NON-CONTROLLING INTERESTS		(877,684	)		-			-		(s-2)		(877,684	)
TOTAL SHAREHOLDERS’ EQUITY		7,725,548			(338,101	)		(6,600,368	)			787,079
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	22,519,704		$	5,759,100		$	17,644,371			$	45,923,175

1847 HOLDINGS LLC

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2021

	1847 Holdings LLC			High Mountain and Innovative Cabinets<br> <br>January 1 to September 30, 2021			Wolo January 1 to March 30, 2021			Pro Forma Adjustments				Pro Forma
Revenues	$	18,163,257		$	18,501,565		$	2,426,455		$	-			$	39,091,277
Cost of revenues		12,348,594			12,697,676			1,392,333			-				26,438,603
Gross profit		5,814,663			5,803,889			1,034,122			-				12,652,674
Operating expenses:
Personnel		2,198,231			2,032,762			128,088			-				4,359,081
Depreciation and amortization		547,655			170,077			1,379			-				719,111
General and administrative		4,519,504			1,065,854			341,612			75,000		(m-3)		6,151,970
											150,000		(m-4)
Total operating expenses		7,265,390			3,268,693			471,079			225,000				11,230,162
Net income (loss) from operations		(1,450,727	)		2,535,196			563,043			(225,000	)			1,422,512
Other income (expense)
Gain on forgiveness of debt		360,302			-			173,850			-				534,152
Financing costs		(14,050	)		-			-			-				(14,050	)
Gain on disposal of property and equipment		-			37,000			-			-				37,000
Loss on extinguishment of debt		(757,792	)		-			-			-				(757,792	)
Gain on disposition of subsidiary		3,282,804			-			-			-				3,282,804
Other income/(expense)		10,885			5			51,070			-				61,960
Interest expense		(295,782	)		(11,391	)		(355	)		(1,506,233	)	(p-6)		(2,078,376	))
											(264,616	)	(p-8)
Total other income (expense)		2,586,367			25,614			224,565			(1,770,848	)			1,065,698
Net income (loss) before income taxes		1,135,640			2,560,810			787,608			(1,995,848	)			2,488,210
Income tax benefit (expense)		21,900			-			(129,342	)		538,879		(a-1)		431,437
Net income (loss) from continuing operations	$	1,157,540		$	2,560,810		$	658,266		$	(1,456,969	)		$	2,919,647
Net income (loss) from discontinued operations		240,405			-			-			-				240,405
Less net income (loss) from discontinued operations attributable to noncontrolling interests		108,182			-			-			-				108,182
Net income (loss) from discontinued operations attributable to common shareholders		132,223			-			-			-				132,223
Net income (loss)		1,289,763			2,560,810			658,266			(1,456,969	)			3,051,870
Less net income (loss) attributable to non-controlling interests		(106,628	)		-			-			121,379		(a-3)		14,751
Net income (loss) available to common shareholders	$	1,396,391		$	2,560,810		$	658,266		$	(1,578,348	)		$	3,037,118
Preferred stock accrued dividend		813,481			-			-			-				813,481
Deemed dividend related to issuance of preferred stock		1,527,086			-			-			-				1,527,086
Net income (loss) attributable to shareholders	$	(944,176	)	$	2,560,810		$	658,266		$	(1,578,348	)		$	696,551
Net income (loss) per common share from continuing operations: basic	$	0.25			-			-			-			$	0.62
Net income (loss) per common share from discontinued operations: basic	$	0.03			-			-			-			$	0.03
Net income (loss) per common share: basic	$	(0.20	)		-			-			-			$	0.15
Net income (loss) per common share from continuing operations diluted	$	0.14			-			-			-			$	0.35
Net income (loss) per common share from discontinued operations: diluted	$	0.02			-			-			-			$	0.02
Net income (loss) per common share: diluted	$	(0.11	)		-			-			-			$	0.08
Weighted-average common shares outstanding: basic		4,718,671			-			-			-				4,718,671
Weighted-average common shares outstanding: dilutive		8,260,040			-			-			-				8,260,040

1847 HOLDINGS LLC

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2020

	1847 Holdings LLC			High Mountain and Innovative Cabinets			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				Pro Forma
Revenues	$	15,448,045		$	17,655,250		$	7,444,776		$	5,154,012		$	3,132,105	$	(6,702,599	)	(n-1)	$	42,131,589
Cost of revenues		9,406,228			12,184,092			4,095,389			3,916,192			1,712,824		(2,874,792	)	(n-1)		28,439,933
Gross profit		6,041,817			5,471,158			3,349,387			1,237,820			1,419,281		(3,827,807	)			13,691,656
Operating expenses:
Personnel		2,553,589			2,552,683			584,852			333,900			227,644		(1,818,722	)	(n-1)		4,433,946
Depreciation and amortization		1,447,077			210,826			5,949			21,199			90,376		(1,270,465	)	(n-1)		504,962
Fuel		378,115			-			-			-			-		(378,115	)	(n-1)		-
General and administrative		4,185,442			1,305,459			1,736,058			439,185			499,540		(1,533,011	)	(n-1)		7,479,651
																121,978		(m-1)
																225,000		(m-2)
																300,000		(m-3)
																200,000		(m-4)
Total operating expenses		8,564,223			4,068,968			2,326,859			794,284			817,560		(4,153,335	)			12,418,559
Net income (loss) from operations		(2,522,406	)		1,402,190			1,022,528			443,536			601,721		325,528				1,273,097
Other income (expense)
Financing costs		(205,075	)		-			-			-			-		35,075		(n-1)		(170,000	)
Gain on forgiveness of debt		-			1,191,424			-			-			-		-				1,191,424
Loss on early extinguishment of debt		(382,681	)		-			-			-			-		96,331		(n-1)		(286,350	)
Interest expense, net		(460,559	)		(21,830	)		(1,130	)		(3,122	)		528		(6,597	)	(p-1)		(2,690,300	))
																(2,701	)	(p-2)
																(86,589	)	(p-3)
																(128,100	)	(p-4)
																380,932		(n-1)
																(2,008,311	)	(p-5)
																(352,821	)	(p-7)
Gain on sale of property and equipment		130,749			44,090			-			-			-		(130,749	)	(n-1)		44,090
Other income (expense), net		(24,271	)		220			10,014			18,394			281,125		6,075		(n-1)		291,557
Total other income (expense)		(941,837	)		1,213,904			8,884			15,272			281,653		(2,197,455	)			(1,619,579	)
Net income (loss) before income taxes		(3,464,243	)		2,616,094			1,031,412			458,808			883,374		(1,871,927	)			(346,482	)
Income tax benefit (expense)		431,631			-			(216,621	)		-			-		(157,702	)	(a-1)		(209,392	)
																(347,700	)	(n-1)
																81,000		(a-1)
Net income (loss) from continuing operations		(3,032,612	)		2,616,094			814,791			458,808			883,374		(2,296,329	)			(555,874	)
Net income (loss) from discontinued operations		(7,171,771	)		-			-			-			-		(666,860	)			(7,838,631	)
Net income (loss)		(10,204,383	)		2,616,094			814,791			458,808			883,374		(2,963,189	)			(8,394,505	)
Less net income (loss) attributable to non-controlling interests		(595,731	)		-			-			-			-		545,610		(n-1)		35,419
																(16,425	)	(a-3)
																101,965		(a-4)
Net loss available to common shareholders		(9,608,652	)		2,616,094			814,791			458,808			883,374		(3,594,339	)			(8,429,924	)
Deemed dividend related to issuance of preferred stock		3,051,478			-			-			-			-		1,527,086		(u-1)		5,086,264
																507,700		(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	)	$	2,616,094		$	814,791		$	458,808		$	883,374	$	(5,629,125	)		$	(19,784,445	)
Net loss per common share from continuing operations: basic and diluted	$	(0.82	)																$	(0.19	)
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	)																$	(1.98	)
Weighted-average number of common shares outstanding: basic and diluted		3,692,429									169,411			525,000						4,386,840

1847 HOLDINGS LLC

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – DESCRIPTION OF THE TRANSACTIONS

High Mountain and Innovative Cabinets Acquisitionand Related Transactions

On September 23, 2021, 1847 Cabinet Inc. (“1847 Cabinet”), a wholly owned subsidiary of 1847 Holdings LLC (the “Company”), entered into a securities purchase agreement with High Mountain Door & Trim Inc., a Nevada corporation (“High Mountain”), Sierra Homes, LLC d/b/a Innovative Cabinets & Design, a Nevada limited liability company (“Innovative Cabinets”), and Steven J. Parkey and Jose D. Garcia-Rendon (together, the “H&S Sellers”), pursuant to which 1847 Cabinet agreed to acquire all of the issued and outstanding capital stock or other equity securities of High Mountain and Innovative Cabinets from the H&S Sellers (the “H&S Acquisition”).

On October 6, 2021, 1847 Cabinet, High Mountain, Innovative Cabinets and the H&S Sellers entered into amendment No. 1 to securities purchase agreement to amend certain terms of the securities purchase agreement. On October 8, 2021, closing of the H&S Acquisition was completed.

Pursuant to the terms of the securities purchase agreement, as amended (the “H&S Purchase Agreement”), 1847 Cabinet acquired all of the issued and outstanding capital stock or other equity securities of High Mountain and Innovative Cabinets from the H&S Sellers for an aggregate purchase price of $16,567,845, after certain adjustments made at closing and subject to additional post-closing adjustments as described below. The purchase price consists of (i) $10,687,500 in cash and (ii) the issuance by 1847 Cabinet of 6% subordinated convertible promissory notes in the aggregate principal amount of $5,880,345.

The purchase price is subject to a post-closing working capital adjustment provision. Under this provision, the H&S Sellers delivered to 1847 Cabinet at the closing an unaudited balance sheet of High Mountain and Innovative Cabinets and a calculation of estimated net working capital of High Mountain and Innovative Cabinets as of that date. On or before the 75th day following the closing, 1847 Cabinet must deliver to the H&S Sellers an unaudited balance sheet of High Mountain and Innovative Cabinets and its calculation of the final net working capital of High Mountain and Innovative Cabinets as of the closing date. If such final net working capital exceeds the estimated net working capital, 1847 Cabinet must, within seven days, pay to the H&S Sellers an amount of cash that is equal to such excess. If the estimated net working capital exceeds the final net working capital, the H&S Sellers must, within seven days, pay to 1847 Cabinet an amount in cash equal to such excess.

6% SubordinatedConvertible Promissory Notes

As noted above, a portion of the purchase price for the H&S Acquisition was paid by the issuance of 6% subordinated convertible promissory notes in the aggregate principal amount of $5,880,345 by 1847 Cabinet to the H&S Sellers. The notes bear interest at a rate of six percent (6%) per annum and are due and payable on October 8, 2024; provided that upon an event of default (as defined in the notes), such interest rate shall increase to ten percent (10%) per annum. 1847 Cabinet may prepay the notes in whole or in part, without penalty or premium, upon ten (10) business days prior written notice to the holders of the notes. At any time prior to October 8, 2022, the holders may, in their sole discretion, elect to convert up to twenty percent (20%) of the original principal amount of the notes and all accrued, but unpaid, interest into such number of shares of the common stock of 1847 Cabinet determined by dividing the amount to be converted by a conversion price determined by dividing (i) the fair market value of 1847 Cabinet (determined in accordance with the notes) by (ii) the number of shares of 1847 Cabinet outstanding on a fully diluted basis. The holders may also exchange the notes or any portion thereof for securities of the Company pursuant to the exchange agreement described below. The notes contain customary events of default, including in the event of a default under the Senior Notes described below. The rights of the holders to receive payments under the motes are subordinated to the rights of the purchasers under Senior Notes described below.

Exchange Agreement

On October 8, 2021, the Company entered into an exchange agreement with the H&S Sellers, pursuant to which the Company granted the H&S Sellers and their permitted assigns the right, but not the obligation, to exchange all of the principal amount and accrued but unpaid interest under the notes as may be the outstanding from time to time or any portion thereof for a number of common shares of the Company to be determined by dividing the amount to be converted by an exchange price equal to the higher of (i) the 30-day volume weighted average price for the common shares on the primary national securities exchange or over the counter market on which the common shares are traded over the thirty (30) trading days immediately prior to the applicable exchange date or (ii) $2.50 (subject to equitable adjustments for stock splits, stock combinations, recapitalizations and similar transactions).

Secured ConvertiblePromissory Notes

On October 8, 2021, the Company and each of its subsidiaries 1847 Asien Inc., 1847 Wolo Inc., 1847 Cabinet, Asien’s Appliance, Inc., Wolo Mfg. Corp., Wolo Industrial Horn & Signal, Inc., Kyle’s Custom Wood Shop, Inc., High Mountain and Innovative Cabinets entered into a note purchase agreement with two institutional investors, including Leonite Capital LLC (“Leonite”), pursuant to which the Company issued to the investors secured convertible promissory notes in the aggregate principal amount of $24,860,000 (the “Senior Notes”).

The Senior Notes contain an aggregate original issue discount of $497,200. As a result, the total purchase price was $24,362,800. After payment of expenses of $742,825, the Company received net proceeds of $23,619,975, of which $10,687,500 was used to fund the cash portion of the purchase price for the H&S Acquisition.

The Senior Notes bear interest at a rate per annum equal to the greater of (i) 4.75% plus the U.S. prime rate that appears in The Wall Street Journal from time to time or (ii) 8%; provided that, upon an event of default (as defined in the Senior Notes), such rate shall increase to 24% or the maximum legal rate. Payments of interest only, computed at such rate on the outstanding principal amount, will be due and payable quarterly in arrears commencing on January 1, 2022 and continuing on the first day of each calendar quarter thereafter through and including the maturity date, October 8, 2026.

The Company may voluntarily prepay the Senior Notes in whole or in part upon payment of a prepayment fee in an amount equal to 10% of the principal and interest paid in connection with such prepayment. In addition, immediately upon receipt by the Company or any subsidiary of any proceeds from any issuance of indebtedness (other than certain permitted indebtedness), any proceeds of any sale or disposition by the Company or any subsidiary of any of the collateral or any of its respective assets (other than asset sales or dispositions in the ordinary course of business which are permitted by the note purchase agreement), or any proceeds from any casualty insurance policies or eminent domain, condemnation or similar proceedings, the Company must prepay the Senior Notes in an amount equal to all such proceeds, net of reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by the Company or a subsidiary in connection therewith (in each case, paid to non-affiliates).

The holders of the Senior Notes may, in their sole discretion, elect to convert any outstanding and unpaid principal portion of the Senior Notes, and any accrued but unpaid interest on such portion, into common shares of the Company at a conversion price equal to $2.50 (subject to standard adjustments, including a full ratchet antidilution adjustment). Notwithstanding the foregoing, the Senior Notes contain a beneficial ownership limitation, which provides that the Company shall not effect any conversion to the extent that after giving effect to the conversion, the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of common shares outstanding immediately after giving effect to the issuance of common shares upon such conversion. Upon no fewer than 61 days’ prior notice to the Company, a holder may increase or decrease such beneficial ownership limitation (up to a maximum of 9.99%) and any such increase or decrease will not be effective until the 61^st^ day after such notice is delivered to the Company.

Pursuant to the terms of the Senior Notes, until the date that is eighteen (18) months after the issuance date of the Senior Notes, the holders shall have the right, but not the obligation, to participate in any securities offering of the Company other than a permitted issuance (as defined in the note purchase agreement) in an amount of up to the original principal amount of the Senior Notes. In addition, the holders shall have the right of first refusal to participate in any issuance of indebtedness by the Company until the Senior Notes have been terminated; provided, however, that this right of first refusal shall not apply to permitted issuances.

The note purchase agreement and the Senior Notes contain customary representations, warranties, affirmative and negative financial and other covenants and events of default for loans of this type. The Senior Notes are guaranteed by each subsidiary and are secured by a first priority security interest in all of the assets of the Company and its subsidiaries.

Warrants

In connection with the loan made by Leonite, on October 8, 2021, the Company issued to Leonite a five-year warrant for the purchase of 250,000 common shares with an exercise price of $0.01 per share and a five-year warrant for the purchase of 500,000 common shares with an exercise price of $2.50 per share. The exercise price is subject to standard adjustments, including upon any future equity offering with a lower exercise price. Upon a reduction to the exercise price of such warrants, the number of warrant shares shall increase such that the aggregate exercise price will remain the same. The warrants may be exercised on a cashless basis under certain circumstances and contain certain beneficial ownership limitations.

Subsidiary EquityIssuance

In connection with the loan made by Leonite, on October 8, 2021, the Company also issued to Leonite a number of shares or membership units, as applicable, representing a 7.50% fully-diluted ownership interest in each of High Mountain and Innovative Cabinets. As a result, 1847 Cabinet owns 92.5% of each of these subsidiaries.

Wolo Acquisition and Related Transactions

On December 22, 2020, 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 Leonite, and 1847 Wolo owns 100% of Wolo Mfg and Wolo H&S.

The aggregate purchase price was $8,344,055, consisting of (i) $6,550,000 in cash, (ii) a 6% secured promissory note in the aggregate principal amount of $850,000 and (iii) cash paid to seller, net of working capital adjustment, of $944,055.

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 prepay 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 and is secured by all of the assets of Wolo; provided that the rights of the Wolo Sellers under the note are subordinate to the rights of Sterling National Bank under the credit agreement described below. On October 8, 2021, the note was repaid in full.

Management Services 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”).

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 National Bank.

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.

Credit Agreement 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.

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.

The Credit Agreement contains customary representations, warranties, affirmative and negative financial and other covenants and events of default for loans of this type. Each of the Revolving Note and the Term Note is secured by a first priority security interest in all of the assets of 1847 Wolo and Wolo.

On October 8, 2021, the Revolving Loan and the Term Loan were repaid in full.

Unit Offering

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. See “Description of Securities” for a description of the terms of the Series A Shares.

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’s Acquisition and Related Transactions

On August 27, 2020, the Company and 1847 Cabinet 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 Leonite, 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 below.

Vesting Promissory 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. For the year ended December 31, 2020, EBITDA of 1847 Cabinet was approximately $1,531,000, resulting in a vested amount of approximately $415,000 and an outstanding balance of $498,979.

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.

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.

Second Amendedand Restated Subordinated Secured Promissory Note

On September 30, 2020, 1847 Cabinet issued a subordinated secured promissory note to the Company in the principal amount of up to $4,525,000 to provide it with the funds necessary to acquire Kyle’s, which was amended and restated as of December 11, 2020.

On October 8, 2021, the Company, 1847 Cabinet, Kyle’s, High Mountain and Innovative Cabinets entered into a second amended and restated subordinated secured promissory note in the principal amount of up to $15,955,325. The note bears interest at the rate of 16% per annum. Interest on the note is cumulative and any unpaid accrued interest will compound on each anniversary date of the note. Interest is due and payable in arrears to the Company on December 1, March 1, June 1 and October 1, commencing on December 1, 2021. In the event payment of principal or interest due under the note is not made when due, giving effect to any grace period which may be applicable, or in the event of any other default (as defined in the note), the outstanding principal balance shall from the date of default immediately bear interest at the rate of 5% above the then applicable interest rate for so long as such default continues.

The Company may demand payment in full of the note at any time, even if 1847 Cabinet has complied with all of the terms of the note, and the note shall be due in full, without demand, upon the third party sale of all or substantially all the assets and business of 1847 Cabinet or the third party sale or other disposition of any capital stock of 1847 Cabinet. 1847 Cabinet may prepay the note at any time without penalty. If and to the extent any amounts are owing under the Senior Notes due to a default thereunder, in addition to payment obligations due under the note, 1847 Cabinet is required to immediately make payments to the Company so that the Company may make payments in compliance with the terms of the Senior Notes.

The note contains customary covenants and events of default for loans of this type. The note is guaranteed by Kyle’s, High Mountain and Innovative Cabinets and is secured by a security interest in all of the assets of 1847 Cabinet, Kyle’s, High Mountain and Innovative Cabinets; provided that the rights of the Company to receive payments under the note are subordinated to the rights of the purchasers under Senior Notes.

Management Services Agreement

On August 21, 2020, 1847 Cabinet entered into a management services agreement (the “Cabinet Offsetting MSA”) with the Manager. The Cabinet Offsetting MSA originally had the same terms as the Wolo Offsetting MSA.

On October 8, 2021, the parties entered into an amended and restated management services agreement (the “Amended and Restated MSA”). Pursuant to the Amended and Restated MSA, the quarterly management fee was increased to $125,000 or 2% of adjusted net assets (as defined in the MSA). The Amended and Restated MSA also revised the provision regarding removal of the Manager to provide that the Manager may be removed by 1847 Cabinet if: (i) a majority of 1847 Cabinet’s board of directors vote to terminate the Amended and Restated MSA and the holders of at least a majority of the then outstanding voting stock (other than voting stock beneficially owned by the Manager) vote to terminate the Amended and Restated MSA; (ii) neither Ellery W. Roberts nor his designated successor, heirs, beneficiaries or permitted assigns control the Manager, and such change occurred without the prior written consent of 1847 Cabinet’s board of directors; (iii) there is a finding by a court of competent jurisdiction in a final, non-appealable order that the Manager materially breached the terms of the Amended and Restated MSA and such breach continued unremedied for sixty (60) days after the Manager received written notice from 1847 Cabinet setting forth the terms of such breach, or the Manager acted with gross negligence, willful misconduct, bad faith or reckless disregard in performing its duties and obligations under Amended and Restated MSA or engaged in fraudulent or dishonest acts in connection with the business and operations of 1847 Cabinet; (iv) the Manager has been convicted of a felony under Federal or State law, 1847 Cabinet’s board of directors finds that the Manager is demonstrably and materially incapable of performing its duties and obligations under the Amended and Restated MSA, and the holders of at least sixty-six and two-thirds percentage (66 ⅔%) of then outstanding voting stock (other than voting stock beneficially owned by the Manager) vote to terminate the Amended and Restated MSA; or (v) there is a finding by a court of competent jurisdiction that the Manager has engaged in fraudulent or dishonest acts in connection with the business or operations of 1847 Cabinet or acted with gross negligence, willful misconduct, bad faith or reckless disregard in performing its duties and obligations under the Amended and Restated MSA, and the holders of at least sixty-six and two-thirds percentage (66 ⅔%) of the then outstanding voting stock (other than voting stock beneficially owned by the Manager) vote to terminate the Amended and Restated MSA.

Finally, the Amended and Restated MSA also revised the termination provision to provide that if there is a termination under section (i) of the preceding paragraph, then 1847 Cabinet must pay a termination fee to the Manager that is equal to three times (3x) the then current maximum annual management fee payable to the Manager, which shall be payable in eight (8) equal quarterly installments.

Asien’s Acquisition 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 Leonite, 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. The shares were repurchased by 1847 Asien on July 29, 2020 in exchange for a 6% amortizing promissory note.

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. The note and accrued interest were repaid in May 2021.

6% Amortizing PromissoryNote

On July 29, 2020, 1847 Asien entered into a securities purchase agreement with the Asien’s Seller, pursuant to which the Asien’s Seller sold to 415,000 of the Company’s common shares to 1847 Asien at a purchase price of $2.50 per share. As consideration, 1847 Asien issued to the Asien’s Seller a two-year 6% amortizing promissory note in the aggregate principal amount of $1,037,500.

On October 8, 2021, 1847 Asien and the Asien’s Seller entered into amendment no. 1 to securities purchase agreement to amend certain terms of the securities purchase agreement and the 6% amortizing promissory note. Pursuant to the amendment, the repayment terms of the 6% amortizing promissory note were revised so that one-half (50%) of the outstanding principal amount ($518,750) and all accrued interest thereon shall be amortized on a two-year straight-line basis and payable quarterly in accordance with the amortization schedule set forth on Exhibit A to the amendment, except for the payments that were initially scheduled on January 1, 2022 and April 1, 2022, which were paid from the proceeds of the Senior Notes, and the second-half (50%) of the outstanding principal amount ($518,750) and all accrued, but unpaid interest thereon shall be paid on the second anniversary of the date of the amortizing promissory note, along with any other unpaid principal or accrued interest thereon.

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.

Agreement of 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.

Management Services 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.

Disposition of 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”).

Disposition of 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.

NOTE 2 – BASIS OF PRO FORMA PRESENTATION

The unaudited pro forma consolidated balance sheet as of September 30, 2021 combines the historical balance sheet of the Company with the historical balance sheet of High Mountain and Innovative Cabinets. The unaudited pro forma consolidated balance sheet as of September 30, 2021 was prepared as if this transaction had occurred on January 1, 2021.

The unaudited pro forma consolidated statement of operations for the nine months ended September 30, 2021 combines the historical statement of operations of the Company with the historical statement of operations of Wolo, High Mountain and Innovative Cabinets and reflects the Neese Disposition. The unaudited pro forma consolidated statement of operations for the nine months ended September 30, 2021 was prepared as if these transactions had occurred on January 1, 2021.

The unaudited pro forma consolidated 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 Asien’s, Kyle’s, Wolo, High Mountain and Innovative Cabinets and reflects the Neese Disposition. The unaudited pro forma consolidated 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 consolidated 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 H&S Acquisition, the Wolo Acquisition, the Asien’s Acquisition and the Kyle’s Acquisition in the unaudited pro forma consolidated 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.

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 consolidated 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.

The unaudited pro forma consolidated 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 High Mountain, Innovative Cabinets, Wolo, Asien’s and Kyle’s. The unaudited pro forma consolidated 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 consolidated statement of operations does not reflect any non-recurring charges directly related to the H&S Acquisition, the Wolo Acquisition, the Asien’s Acquisition and the Kyle’s Acquisition that the combined companies incurred upon completion of the H&S Acquisition, the Wolo Acquisition, the Asien’s Acquisition and the Kyle’s Acquisition.

NOTE 3 – PURCHASE PRICE CONSIDERATION

High Mountain and Innovative Cabinets

The fair value of the purchase consideration issued to the H&S Sellers was allocated to the net tangible assets acquired. The Company accounted for the H&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 $(419,705). 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 H&S Acquisition:

Purchase consideration at fair value:
Cash	$	10,687,500
Notes payable		5,880,345
Due to seller		-
Amount of consideration	$	16,567,845
Assets acquired and liabilities assumed at fair value
Cash	$	208,552
Accounts receivable		1,689,114
Inventory		1,848,729
Contract assets		367,177
Other current assets		44,679
Property and equipment		610,882
Operating lease assets		831,951
Other assets		36,092
Accounts payable and accrued expenses		(1,207,424	)
Contract liabilities		(3,770,081	)
Lease liabilities		(856,377	)
Financing leases		(18,600	)
Loans payable		(204,399	)
Net tangible assets acquired	$	(419,705	)
Total net assets acquired	$	(419,705	)
Consideration paid		16,567,845
Goodwill	$	16,987,550

The estimated useful life remaining on the property and equipment acquired is 3 to 7 years.

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 $6,653,102. 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.

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
Net cash paid to Seller (post closing)		944,055
Amount of consideration	$	8,344,055
Assets acquired and liabilities assumed at preliminary fair value
Cash	$	1,171,654
Accounts receivable		1,860,107
Inventory		1,991,629
Customer related intangibles		233,000
Marketing related intangibles		992,000
Technology related intangibles		623,000
Other current assets		218,154
Deferred tax liability		(325,000	)
Accounts payable and accrued expenses		(111,442	)
Net tangible assets acquired	$	6,653,102
Total net assets acquired	$	8,344,055
Consideration paid		6,653,102
Preliminary Goodwill	$	1,690,953

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

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.

NOTE 4 – 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 H&S Sellers and purchase accounting for the H&S Acquisition.

(a-3) Reflects the allocation of the 7.5% non-controlling interest of 1847 Wolo on the proforma adjustments.

(a-4) Reflects the allocation of the 7.5% non-controlling interest of 1847 Cabinet on the proforma adjustments.

Management Services 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.

(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.

(m-4) Reflects annualized management fee paid by 1847 Cabinet attributable to acquisitions to the Manager for the nine months ended September 30, 2021 and the year ended December 31, 2020.

Neese Disposition

(n-1) Reflects the disposition of Neese as a discontinued operation for the year ended December 31, 2020.

Promissory Notes

(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 interest expense for the Secured Convertible Promissory Note, dated October 8, 2021, for the year ended December 31, 2020.

(p-6) Reflects the interest expense for the Secured Convertible Promissory Note, dated October 8, 2021, for the nine months ended September 30, 2021

(p-7) Reflects the interest expense for the H&S Seller 6% Subordinated Convertible Promissory Note for the year ended December 31, 2020.

(p-8) Reflects the interest expense for the H&S Seller 6% subordinated convertible promissory note for the nine months ended September 30, 2021.

SILAC Financing

(s-1) Reflects the issuance, net of cost, of the Secured Convertible Promissory Note, dated October 8, 2021.

(s-2) Reflects the payoff of series A preferred shares, line of credit, accrued interest, grid note, and notes payable from Wolo, Asien’s, and Kyle’s in conjunction with the Secured Convertible Promissory Note, dated October 8, 2021.

(s-3) Reflects net working capital proceeds in conjunction with the Secured Convertible Promissory Note, dated October 8, 2021.

(s-4) Reflects the issuance of 6% Subordinated Convertible Promissory Note to H&S Seller.

Unit Offering

(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 Unit Purchase Agreements.