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with such prepayment. In addition, immediately upon receipt by our 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 our 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, |
we 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 our 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 our common shares at a conversion price equal to $10.00 (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 our assets. 6% |
Subordinated Convertible Promissory Notes On |
October 8, 2021, 1847 Cabinet issued 6% subordinated convertible promissory notes in the aggregate principal amount of $5,880,345 to |
Steven J. Parkey and Jose D. Garcia-Rendon, the sellers of High Mountain and Innovative Cabinets. On July 26, 2022, we and 1847 Cabinet |
entered into a conversion agreement with Steven J. Parkey and Jose D. Garcia-Rendon, 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 at a conversion price of $4.20 per share. As a result, |
we recognized a loss on extinguishment of debt of $1,280,000. The remaining principal balance of the notes at December 31, 2022 is $2,234,996, |
net of debt discounts of $285,350, and an accrued interest balance of $381,426. 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, we entered into an exchange agreement with the holders, pursuant to which we 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 our 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 our common |
shares on the primary national securities exchange or over-the-counter market on which our 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). 101 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. 6% |
Amortizing Promissory Note On |
July 29, 2020, 1847 Asien entered into a securities purchase agreement with Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen, as trustees |
of the Wilhelmsen Family Trust, U/D/T Dated May 1, 1992, or the Asien’s Seller, pursuant to which the Asien’s Seller sold |
103,750 of our common shares to 1847 Asien a purchase price of $10.00 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, the parties 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 convertible promissory |
notes described above, 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 6% amortizing promissory note, along with any other unpaid principal |
or accrued interest thereon. On October 20, 2022, the parties entered into a letter agreement pursuant to which the parties agreed to |
extend the maturity date of the note to February 28, 2023 and revised the repayment terms so that the outstanding principal amount and |
all accrued interest thereon shall be payable monthly, beginning on November 30, 2022, in accordance with the payment schedule set forth |
on Exhibit A to the letter agreement. As additional consideration for entering into the letter agreement, 1847 Asien also agreed to pay |
the Asien’s Seller $87,707 as an amendment fee. The note is unsecured and contains customary events of default. The remaining principal |
and accrued interest balance of the note at December 31, 2022 was $465,805 and $94,456, respectively. Related Party Promissory Note 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 Stephen Mallatt, Jr. and Rita Mallatt, or 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 remaining principal and accrued interest balance of the note was $203,291. On |
July 26, 2022, we 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 at a conversion price of $4.20 per share. As a result, we recognized |
a loss on extinguishment of debt of $303,706. Pursuant to the conversion agreement, the note was cancelled, and we agreed to pay $558,734 |
to the Kyle’s Sellers no later than October 1, 2022. See also “— Recent Developments ” above regarding the |
amendment to the conversion agreement. Financing |
Leases On |
May 6, 2021, Kyle’s entered in an equipment financing lease to purchase equipment for $276,896, which matures in December 2027. |
The balance payable was $229,080 as of December 31, 2022. On |
October 12, 2021, Kyle’s entered in an equipment financing lease to purchase equipment for $245,376, which matures in December |
2027. The balance payable was $203,169 as of December 31, 2022. 102 On |
March 28, 2022, Kyle’s entered an equipment financing lease to purchase machinery and equipment for $316,798, which matures in |
January 2028. The balance payable was $274,527 as of December 31, 2022. On |
April 11, 2022, Kyle’s entered in an equipment financing lease to purchase machinery and equipment for $11,706, which matures in |
June 2027. The balance payable was $10,237 as of December 31, 2022. On |
July 13, 2022, Kyle’s entered in an equipment financing lease to purchase machinery and equipment for $240,260, which matures in |
June 2028. The balance payable was $223,179 as of December 31, 2022. Vehicle |
Loans Asien’s |
has entered into seven retail installment sale contracts pursuant to which it agreed to finance its delivery trucks at rates ranging |
from 3.74% to 8.72% with an aggregate remaining principal amount of $93,140 as of December 31, 2022. Kyle’s |
has entered into two retail installment sale contracts pursuant to which it agreed to finance its delivery trucks at rates ranging from |
5.90% to 6.54% with an aggregate remaining principal amount of $50,950 as of December 31, 2022. High |
Mountain has entered into twelve retail installment sale contracts pursuant to which it agreed to finance delivery trucks and equipment |
at rates ranging from 3.74% to 6.34% with an aggregate remaining principal amount of $71,723 as of December 31, 2022. Innovative |
Cabinets has entered into two retail installment sale contracts pursuant to which it agreed to finance delivery trucks and equipment |
at rates of 3.74% with an aggregate remaining principal amount of $14,422 as of December 31, 2022. Total |
Debt The |
following table shows aggregate figures for the total debt, net of discounts, described above that is coming due in the short and long |
term as of December 31, 2022. See the above disclosures for more details regarding these loans. Short-Term Long-Term Total |
Debt Secured Convertible |
Promissory Notes $ - $ 22,432,803 $ 24,432,803 6% Subordinated Convertible |
Promissory Notes - 2,234,996 2,234,996 6% Amortizing Promissory Note 465,805 - 465,805 Related Party Promissory Note 362,779 - 362,779 Financing Leases 185,718 784,148 969,866 Vehicle |
Loans 85,405 144,830 230,235 Total $ 1,099,707 $ 25,596,777 $ 26,696,484 Contractual |
Obligations Our |
principal commitments consist mostly of obligations under the loans described above and other contractual commitments described below. We |
have engaged the Manager to manage our day-to-day operations and affairs. Our relationship with the Manager will be governed principally |
by the following agreements: ● the |
management services agreement and offsetting management services agreements relating to the |
management services the Manager will perform for us and the businesses we own and the management |
fee to be paid to the Manager in respect thereof; and ● our |
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