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Ending December 31, Amount 2023 $ 551,210 2024 66,988 2025 52,231 2026 17,427 2027 8,184 Thereafter - Total payments $ 696,040 NOTE 13 —NOTE PAYABLE – RELATED PARTY On September 30, 2020, a portion of the purchase |
price for the acquisition of Kyle’s was paid by the issuance of a promissory note by 1847 Cabinet to the Kyle’s Sellers in |
the principal amount of $ 1,260,000 . Payment of the principal and accrued interest on the note was subject to vesting. As of December 31, |
2021, the vested principal and accrued interest balance of the related party note was $1,001,183 and $103,156, respectively. On July 26, 2022, the Company and 1847 Cabinet |
entered into a conversion agreement with the Kyle’s Sellers, pursuant to which they agreed to convert $797,221 of the vesting note |
into 189,815 common shares of the Company at a conversion price of $4.20 per share. As a result, the Company recognized a loss on extinguishment |
of debt of $ 303,706 . Pursuant to the conversion agreement, the note was cancelled, and the Company agreed to pay $ 558,734 to the Kyle’s |
Sellers no later than October 1, 2022. See also Note 20 regarding an amendment to the conversion agreement. As of December 31, 2022, the |
vested principal and accrued interest balance of the related party note was $ 362,779 and $ 203,291 , respectively. NOTE |
14—CONVERTIBLE PROMISSORY NOTES Secured |
Convertible Promissory Notes On |
October 8, 2021, the Company and each of its subsidiaries 1847 Asien, 1847 Wolo, 1847 Cabinet, entered into a note purchase agreement |
with two institutional investors, pursuant to which the Company issued to these purchasers secured convertible promissory notes in the |
aggregate principal amount of $ 24,860,000 . The notes contain an aggregate original issue discount of $ 497,200 . As a result, the total |
purchase price was $ 24,362,800 . After payment of expenses of $ 617,825 , the Company received net proceeds of $ 23,744,975 , of which $ 10,687,500 was used to fund the cash portion of the purchase price for the acquisition of High Mountain and Innovative Cabinets. In addition, as |
consideration for the financing, the Company granted the financing agent warrants for the purchase of 187,500 common shares with a fair |
value of $956,526 and 7.5% interest in High Mountain and Innovative Cabinets which had a fair value of $1,146,803 . The agent fees were |
reflected as a discount against the convertible note payable with the warrants being included in additional paid in capital and the equity |
interest being including within noncontrolling interest on the consolidated balance sheet. The remaining principal balance of the convertible |
notes at December 31, 2022 is $ 22,432,803 , net of debt discounts of $ 2,427,197 , and an accrued interest balance of $ 500,702 . F- 28 1847 |
HOLDINGS LLC NOTES |
TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER |
31, 2022 AND 2021 The |
notes bear interest at a rate per annum equal to the greater of (i) 4.75% plus the U.S. Prime Rate that appears in The Wall Street Journal |
from time to time or (ii) 8%; provided that, upon an event of default (as defined in the notes), such rate shall increase to 24% or the |
maximum legal rate. Payments of interest only, computed at such rate on the outstanding principal amount, will be due and payable quarterly |
in arrears commencing on January 1, 2022 and continuing on the first day of each calendar quarter thereafter through and including the |
maturity date, October 8, 2026. The |
Company may voluntarily prepay the notes in whole or in part upon payment of a prepayment fee in an amount equal to 10 % of the principal |
and interest paid in connection with such prepayment. In addition, immediately upon receipt by 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 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 notes may, in their sole discretion, elect to convert any outstanding and unpaid principal portion of the notes, and any |
accrued but unpaid interest on such portion, into common shares at a conversion price equal to $ 4.20 (subject to standard adjustments, |
including a full ratchet antidilution adjustment); provided that the notes contain certain beneficial ownership limitations. Pursuant |
to the terms of the notes, until the date that is eighteen (18) months after the issuance date of the notes, the holders shall have the |
right, but not the obligation, to participate in any securities offering other than a permitted issuance (as defined in the note purchase |
agreement) in an amount of up to the original principal amount of the notes. In addition, the holders shall have the right of first refusal |
to participate in any issuance of indebtedness until the notes have been terminated; provided, however, that this right of first refusal |
shall not apply to permitted issuances. The |
note purchase agreement and the notes contain customary representations, warranties, affirmative and negative financial and other covenants |
and events of default for loans of this type. The notes are guaranteed by each subsidiary and are secured by a first priority security |
interest in all of the assets of the Company and its subsidiaries. 6% |
Subordinated Convertible Promissory Notes On |
October 8, 2021, a portion of the purchase price for the acquisition of High Mountain and Innovative Cabinets 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&I 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. In addition, on October |
8, 2021, the Company entered into an exchange agreement with the holders, pursuant to which the Company granted them the right to exchange |
all of the principal amount and accrued but unpaid interest under the notes or any portion thereof for a number of common shares 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) $ 10.00 (subject to equitable adjustments |
for stock splits, stock combinations, recapitalizations and similar transactions). F- 29 1847 |
HOLDINGS LLC NOTES |
TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER |
31, 2022 AND 2021 The |
notes contain customary events of default, including in the event of a default under the secured convertible promissory notes described |
above. The rights of the holders to receive payments under the notes are subordinated to the rights of the purchasers under secured convertible |
promissory notes described above. On |
July 26, 2022, the Company and 1847 Cabinet entered into a conversion agreement with the H&I Sellers, pursuant to which they agreed |
to convert an aggregate of $ 3,360,000 of the convertible notes into an aggregate of 800,000 common shares of the Company at a conversion |
price of $ 4.20 per share. As a result, the Company recognized a loss on extinguishment of debt of $ 1,280,000 . The remaining principal |
balance of the convertible notes at December 31, 2022 is $2,234,996, net of debt discounts of $285,350, and an accrued interest balance |
of $381,426. Following |
is a summary of payments due on convertible notes payable for the succeeding five yea Year |
Ending December 31, Amount 2023 $ - 2024 2,520,346 2025 - 2026 24,860,000 2027 - Thereafter - Total payments $ 27,380,346 NOTE 15—RELATED |
PARTIES Management |
Services Agreement On |
April 15, 2013, the Company and 1847 Partners LLC (the “Manager”) entered into a management services agreement, pursuant |
to which the Company is required to pay the Manager a quarterly management fee equal to 0.5% of its adjusted net assets for services |
performed (the “Parent Management Fee”). The amount of the Parent Management Fee with respect to any fiscal quarter is (i) |
reduced by the aggregate amount of any management fees received by the Manager under any offsetting management services agreements with |
respect to such fiscal quarter, (ii) reduced (or increased) by the amount of any over-paid (or under-paid) Parent Management Fees received |
by (or owed to) the Manager as of the end of such fiscal quarter, and (iii) increased by the amount of any outstanding accrued and unpaid |
Parent Management Fees. The Company expensed $ 0 in Parent Management Fees for the years ended December 31, 2022 and 2021. Offsetting |
Management Services Agreements 1847 |
Asien entered into an offsetting management services agreement with the Manager on May 28, 2020, 1847 Cabinet entered into an offsetting |
management services agreement with the Manager on August 21, 2020 (which was amended and restated on October 8, 2021) and 1847 Wolo entered |
into an offsetting management services agreement with the Manager on March 30, 2021. Pursuant to the offsetting management services agreements, |
1847 Asien 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 management services agreement), 1847 Cabinet 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 management services |
agreement), which was increased to $125,000 or 2% of adjusted net assets on October 8, 2021, and 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 |
management services agreement); provided, however, in each case that if the aggregate amount of management fees paid or to be paid by |
such entities, together with all other management fees paid or to be paid to the Manager under other offsetting management services agreements, |
exceeds, or is expected to exceed, 9.5% of the Company’s gross income in any fiscal year or the Parent Management Fee in any fiscal |
quarter, then the management fee to be paid by such entities shall be reduced, on a pro rata basis determined by reference to the other |
management fees to be paid to the Manager under other offsetting management services agreements. F- 30 1847 |
HOLDINGS LLC NOTES |
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