1847 HOLDINGS LLC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)

The following discussion and analysis summarizes the significant factors
affecting our operating results, financial condition, liquidity and cash flows
as of and for the periods presented below. The following discussion and analysis
should be read in conjunction with our financial statements and the related
notes thereto included elsewhere in this report. The discussion contains
forward-looking statements that are based on the beliefs of management, as well
as assumptions made by, and information currently available to, management.
Actual results could differ materially from those discussed in or implied by
forward-looking statements as a result of various factors, including those
discussed below and elsewhere in this report, particularly in the sections
titled "Risk Factors" and "Special Note Regarding Forward-Looking Statements."



Overview

We are an acquisition holding company focused on acquiring and managing a group of small businesses, which we characterize as those that have an enterprise value of less than $50 million, in a variety of different industries headquartered in North America.

On May 28, 2020, our subsidiary 1847 Asien acquired Asien's. Asien's has been in
business since 1948 serving the North Bay area of Sonoma County, California. It
provides a wide variety of appliance services, including sales,
delivery/installation, in-home service and repair, extended warranties, and
financing. Its main focus is delivering personal sales and exceptional service
to its customers at competitive prices.



On September 30, 2020, our subsidiary 1847 Cabinet acquired Kyle's. Kyle's is a
leading custom cabinetry maker servicing contractors and homeowners since 1976
in Boise, Idaho and the surrounding area. Kyle's focuses on designing, building,
and installing custom cabinetry primarily for custom and semi-custom builders.



On March 30, 2021, our subsidiary 1847 Wolo acquired Wolo. Headquartered in Deer
Park, New York and founded in 1965, Wolo designs and sells horn and safety
products (electric, air, truck, marine, motorcycle and industrial equipment),
and offers vehicle emergency and safety warning lights for cars, trucks,
industrial equipment and emergency vehicles.



On October 8, 2021, our subsidiary 1847 Cabinet acquired High Mountain and
Innovative Cabinets. Headquartered in Reno, Nevada and founded in 2014, High
Mountain specializes in all aspects of finished carpentry products and services,
including doors, door frames, base boards, crown molding, cabinetry, bathroom
sinks and cabinets, bookcases, built-in closets, and fireplace mantles, among
others, working primarily with large homebuilders of single-family homes and
commercial and multi-family developers. Innovative Cabinets is headquartered in
Reno, Nevada and was founded in 2008. It specializes in custom cabinetry and
countertops for a client base consisting of single-family homeowners, builders
of multi-family homes, as well as commercial clients.



On February 9, 2023, our subsidiary 1847 ICU acquired ICU Eyewear. Headquartered
in Hollister, California and founded in 1956, ICU Eyewear specializes in the
sale and distribution of reading eyewear and sunglasses, blue light blocking
eyewear, sun readers, and other outdoor specialty sunglasses, as well as select
health and personal care items, including face masks.



Through our structure, we offer investors an opportunity to participate in the
ownership and growth of a portfolio of businesses that traditionally have been
owned and managed by private equity firms, private individuals or families,
financial institutions or large conglomerates. We believe that our management
and acquisition strategies will allow us to achieve our goals of growing
regular distributions to our common shareholders and increasing common
shareholder value over time.



We seek to acquire controlling interests in small businesses that we believe
operate in industries with long-term macroeconomic growth opportunities, and
that have positive and stable earnings and cash flows, face minimal threats of
technological or competitive obsolescence and have strong management teams
largely in place. We believe that private company operators and corporate
parents looking to sell their businesses will consider us to be an attractive
purchaser of their businesses. We make these businesses our majority-owned
subsidiaries and actively manage and grow such businesses. We expect to improve
our businesses over the long term through organic growth opportunities, add-on
acquisitions and operational improvements.



Recent Developments



Warrant Dividend



On January 3, 2023, we issued warrants for the purchase of 407,872 common shares
as a dividend to our common shareholders of record as of December 23, 2022
pursuant to a warrant agent agreement, dated January 3, 2023, with VStock
Transfer, LLC. Each holder of common shares received a warrant to purchase one
(1) common share for every ten (10) common shares owned as of the record date
(with the number of shares underlying the warrant received rounded down to the
nearest whole number). Each warrant represents the right to purchase common
shares at an initial exercise price of $4.20 per share (subject to certain
adjustments as set forth in the warrants). At any time we may, at our option,
voluntarily reduce the then-current exercise price to such amount and for such
period or periods of time which may be through the expiration date as may be
deemed appropriate by our board of directors. Cashless exercises of the warrants
are not permitted.



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The warrants will generally be exercisable in whole or in part beginning on the
later of (i) January 3, 2024 or (ii) the date that a registration statement on
Form S-3 with respect to the issuance and registration of the common shares
underlying the warrants has been filed with and declared effective by the SEC,
and thereafter until January 3, 2026.



We may redeem the warrants at any time in whole or in part at $0.001 per warrant
(subject to equitable adjustment to reflect share splits, share dividends, share
combinations, recapitalizations and like occurrences) upon not less than 30
days' prior written notice to the registered holders of the warrants.



Private Placements



On February 3, 2023, we entered into securities purchase agreements with two
accredited investors, pursuant to which we issued to such investors (i)
promissory notes in the aggregate principal amount of $604,000, which include an
original issue discount in the amount of $60,400, (ii) five-year warrants for
the purchase of an aggregate of 125,833 common shares at an exercise price of
$4.20 per share (subject to adjustment) and (iii) an aggregate of 125,833 common
shares for an aggregate purchase price of $543,600.



On February 9, 2023, we entered into securities purchase agreements with the
same two accredited investors, pursuant to which we issued to such investors (i)
promissory notes in the aggregate principal amount of $2,557,575, which include
an original issue discount in the amount of $139,091, and (ii) five-year
warrants for the purchase of an aggregate of 532,827 common shares at an
exercise price of $4.20 per share (subject to adjustment). We also issued
289,772 common shares to one investor and issued to the other investor a
five-year warrant for the purchase of 243,055 common shares at an exercise price
of 0.01 per share (subject to adjustment). The aggregate purchase price was
$2,301,818.



On February 22, 2023, we entered into another securities purchase agreement with
one of the investors pursuant to which we issued to such investor (i) a
promissory note in the principal amount of $878,000, which includes an original
issue discount in the amount of $87,800, (ii) a five-year warrant for the
purchase of 182,917 common shares at an exercise price of $4.20 per share
(subject to adjustment) and (iii) a five-year warrant for the purchase of
198,343 common shares at an exercise price of $0.01 per share (subject to
adjustment) for a total purchase price of $790,200.



In the aggregate, we issued promissory notes in the aggregate principal amount
of $4,039,575, warrants for the purchase of an aggregate of 1,282,975 common
shares and 415,605 common shares for gross proceeds of $3,635,618 and net
proceeds of approximately $3,553,118.



The notes bear interest at a rate of 12% per annum and mature on the first
anniversary of the date of issuance; provided that any principal amount or
interest which is not paid when due shall bear interest at a rate of the lesser
of 16% per annum or the maximum amount permitted by law from the due date
thereof until the same is paid. The notes require monthly payments of principal
and interest commencing in May 2023. We may voluntarily prepay the outstanding
principal amount and accrued interest of each note in whole upon payment of
certain prepayment fees. In addition, if at any time we receive cash proceeds
from any source or series of related or unrelated sources, including, but not
limited to, the issuance of equity or debt, the exercise of outstanding
warrants, the issuance of securities pursuant to an equity line of credit (as
defined in the notes) or the sale of assets outside of the ordinary course of
business, each holder shall have the right in its sole discretion to require us
to immediately apply up to 50% of such proceeds to repay all or any portion of
the outstanding principal amount and interest then due under the notes. The
notes are unsecured and have priority over all other unsecured indebtedness. The
notes contain customary affirmative and negative covenants and events of default
for a loan of this type.



The notes are convertible into common shares at the option of the holders at any
time on or following the date that an event of default (as defined in the notes)
occurs under the notes at a conversion price equal the lower of (i) $4.20
(subject to adjustments) and (ii) 80% of the lowest volume weighted average
price of our common shares on any trading day during the five (5) trading days
prior to the conversion date; provided that such conversion price shall not be
less than $0.03 (subject to adjustments).



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The conversion price of the notes and the exercise price of the warrants are
subject to standard adjustments, including a price-based adjustment in the event
that we issue any common shares or other securities convertible into or
exercisable for common shares at an effective price per share that is lower than
the conversion or exercise price, subject to certain exceptions. In addition,
the notes and the warrants contain an ownership limitation, such that we shall
not effect any conversion or exercise, and the holders shall not have the right
to convert or exercise, any portion of the notes or the warrants to the extent
that after giving effect to the issuance of common shares upon conversion or
exercise, such holder, together with its affiliates and any other persons acting
as a group together with such holder or any of 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 conversion
or exercise.



Acquisition of ICU Eyewear



On December 21, 2022, our newly formed wholly owned subsidiaries 1847 ICU and
1847 ICU Acquisition Sub Inc. entered into an agreement and plan of merger, or
the merger agreement, with ICU Eyewear Holdings Inc. and San Francisco Equity
Partners, as the stockholder representative, which was amended on February

9,
2023.

On February 9, 2023, closing of the transactions contemplated by the merger
agreement was completed. Pursuant to the merger agreement, 1847 ICU Acquisition
Sub Inc. merged with and into ICU Eyewear Holdings Inc., with ICU Eyewear
Holdings Inc. surviving the merger as a wholly owned subsidiary of 1847 ICU. The
merger consideration paid by 1847 ICU to the stockholders of ICU Eyewear
Holdings Inc. consists of (i) $4,000,000 in cash, minus any unpaid debt of ICU
Eyewear and certain transaction expenses, and (ii) 6% subordinated promissory
notes in the aggregate principal amount of $500,000.



The notes bear interest at the rate of 6% per annum with all principal and
accrued interest being due and payable in one lump sum on February 9, 2024;
provided that upon an event of default (as defined in the notes), such interest
rate shall increase to 10%. 1847 ICU may prepay all or any portion of the notes
at any time prior to the maturity date without premium or penalty of any kind.
The notes contain customary events of default, including, without limitation, in
the event of (i) non-payment, (ii) a default by 1847 ICU of any of its covenants
in the notes, the merger agreement or any other agreement entered into in
connection with the merger agreement, or a breach of any of the representations
or warranties under such documents, (iii) the insolvency or bankruptcy of 1847
ICU or ICU Eyewear or (iv) a change of control (as defined in the notes) of 1847
ICU or ICU Eyewear. The notes are unsecured and subordinated to all senior
indebtedness (as defined in the notes).

Loan and Security Agreement

On February 9, 2023, 1847 ICU and ICU Eyewear entered into a loan and security
agreement, or the loan agreement, with Industrial Funding Group, Inc. for a
revolving loan of up to $5,000,000, which is evidenced by a secured promissory
note in the principal amount of up to $5,000,000. On February 9, 2023, we
received an advance of $2,063,182 under the note, of which $1,963,182 was used
to repay certain debt of ICU Eyewear in connection with the merger agreement,
with the remaining $100,000 used to pay lender fees. On February 11, 2023, the
Industrial Funding Group, Inc. sold and assigned the loan agreement, the note
and related loan documents to GemCap Solutions, LLC.



The note matures on February 9, 2025 with all advances bearing interest at an
annual rate equal to the greater of (i) the sum of (a) the "Prime Rate" as
reported in the "Money Rates" column of The Wall Street Journal, adjusted as and
when such prime rate changes, plus (b) eight percent (8.00%), and (ii) fifteen
percent (15.00%); provided that following and during the continuation of an
event of default (as defined in the loan agreement), interest on the unpaid
principal balance of the advances shall accrue at an annual rate equal to such
rate plus three percent (3.00%). Interest accrued on the advances shall be
payable monthly commencing on March 7, 2023. We may voluntarily prepay the
entire unpaid principal amount of the note without premium or penalty; provided
that in the event that we make such prepayment on or before February 9, 2024,
then we must pay certain fees set forth in the note. The note is secured by all
of the assets of 1847 ICU and ICU Eyewear.



The loan agreement contains customary representations, warranties and
affirmative and negative financial and other covenants for loans of this type.
The loan agreement contains customary events of default, including, among
others: (i) for failure to pay principal and interest on the note when due, or
to pay any fees due under the loan agreement; (ii) for failure to perform any
covenant or agreement contained in the loan agreement or any document delivered
in connection therewith; (iii) if any statement, representation or warranty in
the loan agreement or any document delivered in connection therewith is at any
time found to have been false in any material respect at the time such
representation or warranty was made; (iv) if we default under any agreement or
contract with a third party which default would result in a liability to us in
excess of $25,000; (v) for any voluntary or involuntary bankruptcy, insolvency,
or dissolution or assignment to creditors; (vi) if any judgments or attachments
aggregating in excess of $10,000 at any given time are obtained against us which
remain unstayed for a period of ten (10) days or are enforced or if there is an
indictment under an criminal statute or proceeding pursuant to which remedies
sought may include the forfeiture of any property; (vii) if a material adverse
effect or change of control (each as defined in the loan agreement) shall have
occurred; (viii) for certain environmental claims; and (ix) for failure to
notify the lender of certain events or failure to deliver certain documentation
required by the loan agreement.



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Amendment to Conversion Agreement

On March 30, 2023, we entered into an amendment to the conversion agreement described in "-Liquidity and Capital Resources-Debt-Related Party Promissory Note" below, effective retroactively to October 1, 2022. Pursuant to the amendment, we agreed to pay a total of $642,544 in three monthly payments commencing on April 5, 2023.

Amendment to 6% Amortizing Promissory Note

On April 6, 2023, we entered into an amendment to the 6% amortizing promissory
note described in in "-Liquidity and Capital Resources-Debt-6% Amortizing
Promissory Note" below, effective retroactively to October 20, 2022. Pursuant to
the amendment, the parties agreed to extend the maturity date of the note to
July 30, 2023 and revised the repayment terms so that the outstanding principal
amount and all accrued interest thereon shall be payable in three payments on
April 6, 2023, June 30, 2023 and July 30, 2023. As additional consideration for
entering into the amendment, we also agreed to pay an amendment fee of $84,362
on the maturity date.

Impact of Coronavirus Pandemic

In December 2019, a novel coronavirus disease, or COVID-19, was initially
reported and on March 11, 2020, the World Health Organization characterized
COVID-19 as a pandemic. COVID-19 has had a widespread and detrimental effect on
the global economy as a result of the continued increase in the number of cases
and affected countries and actions by public health and governmental
authorities, businesses, other organizations, and individuals to address the
outbreak, including travel bans and restrictions, quarantines, shelter in place,
stay at home or total lock-down orders and business limitations and shutdowns.



Despite recent developments of vaccines, the duration and severity of COVID-19,
mutations and possible additional mutations and the degree of their impact on
our business is uncertain and difficult to predict. The continued spread of the
outbreak could result in one or more of the following conditions that could have
a material adverse impact on our business operations and financial condition:
delays or difficulty sourcing certain products and raw materials; increased
costs for such products and raw materials; and loss of productivity due to
employee absences. Notably, approximately 90% of Wolo's vendor base is located
in China. The pandemic issues impacting ports in the U.S. due to lack of
personnel has had a ripple effect on Chinese suppliers. Containers are slow to
be emptied in the U.S., causing a backlog of ships waiting to get into ports and
limiting containers and ships returning to China. The lack of containers and
available space on ships has escalated shipping costs by over 300% from 2020.
Our inability to respond to and manage the potential impact of such events
effectively could have a material adverse effect on our business, financial
condition, and results of operations.



Our efforts to help mitigate the negative impact of the outbreak on our business
may not be effective, and we may be affected by a protracted economic downturn.
Furthermore, while many governmental authorities around the world have and
continue to enact legislation to address the impact of COVID-19, including
measures intended to mitigate some of the more severe anticipated economic
effects of the virus, we may not benefit from such legislation, or such
legislation may prove to be ineffective in addressing COVID-19's impact on our
and our customer's businesses and operations. Even after the COVID-19 outbreak
has subsided, we may continue to experience impacts to our business as a result
of COVID-19's global economic impact and any recession that has occurred or may
occur in the future. Further, as the COVID-19 situation is unprecedented and
continuously evolving, COVID-19 may also affect our operating and financial
results in a manner that is not presently known to us or in a manner that we
currently do not consider that may present significant risks to our operations.



The extent to which the COVID-19 pandemic may impact our results will depend on
future developments, which are highly uncertain and cannot be predicted as of
the date of this report. Nevertheless, the pandemic and the current financial,
economic and capital markets environment, and future developments in the global
supply chain and other areas present material uncertainty and risk with respect
to our performance, financial condition, results of operations and cash flows.
See also Item 1A "Risk Factors" for more information.



Management Fees



On April 15, 2013, we and our manager entered into a management services
agreement, pursuant to which we are required to pay our manager a quarterly
management fee equal to 0.5% of our adjusted net assets for services performed
(which we refer to as 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 our 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) our manager as of the end of
such fiscal quarter, and (iii) increased by the amount of any outstanding
accrued and unpaid parent management fees. We did not expense any parent
management fees for the years ended December 31, 2022 and 2021.



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1847 Asien entered into an offsetting management services agreement with our
manager on May 28, 2020, 1847 Cabinet entered into an offsetting management
services agreement with our manager on August 21, 2020 (which was amended and
restated on October 8, 2021), 1847 Wolo entered into an offsetting management
services agreement with our manager on March 30, 2021 and 1847 ICU entered into
an offsetting management services agreement with our manager on February 9,
2023. Pursuant to the offsetting management services agreements, each of 1847
Asien, 1847 Wolo and 1847 ICU appointed our 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) and 1847
Cabinet appointed our 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; 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 our
manager under other offsetting management services agreements, exceeds, or is
expected to exceed, 9.5% of our 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 our manager under other offsetting
management services agreements.



Each of these entities shall also reimburse our manager for all of their costs
and expenses which are specifically approved by their board of directors,
including all out-of-pocket costs and expenses, which are actually incurred by
our manager or its affiliates on behalf of these entities in connection with
performing services under the offsetting management services agreements.

1847 Asien expensed management fees of $300,000 for the years ended December 31, 2022 and 2021.

1847 Cabinet expensed management fees of $500,000 and $350,000 for the years ended December 31, 2022 and 2021, respectively.

1847 Wolo expensed management fees of $300,000 and $225,000 for the years ended December 31, 2022 and 2021, respectively.

On a consolidated basis, our company expensed total management fees of $1,100,000 and $875,000 for the years ended December 31, 2022 and 2021, respectively.

Segments



The Financial Accounting Standards Board, or FASB, Accounting Standard
Codification, or ASC, Topic 280, Segment Reporting, requires that an enterprise
report selected information about reportable segments in its financial reports
issued to its shareholders. As of December 31, 2022, we have three reportable
segments - the retail and appliances segment, which is operated by Asien's, the
construction segment, which is operated by Kyle's, High Mountain and Innovative
Cabinets, and the automotive supplies segment, which is operated by Wolo.



The retail and appliances segment is comprised of the business of Asien's, which
is based in Santa Rosa, California, and provides a wide variety of appliance
services including sales, delivery, installation, service and repair, extended
warranties, and financing.



The construction segment is comprised of the businesses of Kyle's, High Mountain
and Innovative Cabinets. Kyle's, which is based in Boise, Idaho, provides a wide
variety of construction services including custom design and build of kitchen
and bathroom cabinetry, delivery, installation, service and repair, extended
warranties, and financing. High Mountain, which is based in Reno, Nevada,
specializes in all aspects of finished carpentry products and services,
including doors, door frames, base boards, crown molding, cabinetry, bathroom
sinks and cabinets, bookcases, built-in closets, and fireplace mantles, among
others, as well as window installation. Innovative Cabinets, also based in Reno,
Nevada, specializes in custom cabinetry and countertops.



The automotive supplies segment is comprised of the business of Wolo, which is
based in Deer Park, New York, and designs and sells horn and safety products
(electric, air, truck, marine, motorcycle and industrial equipment), and offers
vehicle emergency and safety warning lights for cars, trucks, industrial
equipment and emergency vehicles.



We provide general corporate services to our segments; however, these services
are not considered when making operating decisions and assessing segment
performance. These services are reported under "Corporate Services" below and
these include costs associated with executive management, financing activities
and public company compliance.



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Discontinued Operations



On April 19, 2021, we entered into a stock purchase agreement with the original
owners of Neese, pursuant to which they purchased our 55% ownership interest in
1847 Neese for a purchase price of $325,000 in cash. As a result of this
transaction, 1847 Neese is no longer a subsidiary of our company. All financial
information of 1847 Neese previously presented as part of land management
services operations are classified as discontinued operations and not presented
as part of continuing operations for the year ended December 31, 2021.



Results of Operations



The following table sets forth key components of our results of operations
during the years ended December 31, 2022 and 2021, both in dollars and as a
percentage of our revenues.



                                                                  Years Ended December 31,
                                                            2022                             2021
                                                                     % of                             % of
                                                   Amount          Revenues          Amount         Revenues
Revenues                                        $  48,929,124         100.00 %    $ 30,660,984          100.0 %
Operating Expenses
Cost of revenues                                   33,227,730           67.9 %      20,100,906           65.6 %
Personnel                                           9,531,101           19.5 %       3,803,497           12.4 %
Depreciation and amortization                       2,037,112            4.2 %         908,982            3.0 %
General and administrative                          9,872,689           20.2 %       6,951,498           22.7 %
Total Operating Expenses                           54,668,632          111.7 %      31,764,883          103.6 %
Loss From Operations                               (5,739,508 )        (11.7 )%     (1,103,899 )         (3.6 )%
Other Income (Expenses)
Other income (expense)                                (11,450 )         (0.0 )%            876            0.0 %
Interest expense                                   (4,594,740 )         (9.4 )%     (1,296,537 )         (4.2 )%
Gain on forgiveness of debt                                 -              -           360,302            1.2 %
Gain on disposal of property and equipment             65,417            0.1 %          10,885            0.0 %
Gain on disposition of subsidiary                           -              -         3,282,804           10.7 %
Loss on extinguishment of debt                     (2,039,815 )         (4.2 )%       (137,692 )         (0.4 )%
Loss on redemption of preferred shares                      -              -        (4,017,553 )        (13.1 )%
Loss on write-down of contingent note payable        (158,817 )         (0.3 )%       (602,204 )         (2.0 )%
Total Other Income (Expense)                       (6,739,405 )        (13.8 )%     (2,399,119 )         (7.8 )%
Net Loss Before Income Taxes                      (12,478,913 )        (25.5 )%     (3,503,018 )        (11.4 )%
Income tax benefit (expense)                        1,677,000            3.4 %        (218,139 )         (0.7 )%
Net Loss From Continuing Operations             $ (10,801,913 )        (22.1 )%   $ (3,721,157 )        (12.1 )%

Total revenues. Our total revenues were $48,929,124 for the year ended December 31, 2022, as compared to $30,660,984 for the year ended December 31, 2021.

The retail and appliances segment generates revenue through the sales of home
furnishings, including appliances and related products. Revenues from the retail
and appliances segment decreased by $2,069,934, or 16.2%, to $10,671,129 for the
year ended December 31, 2022 from $12,741,063 for the year ended December 31,
2021. Such decrease was primarily due to ongoing supply chain delays and cost
increases with appliance manufacturers, increased time it takes to receive
products, and decreased customer demand.



The construction segment generates revenue through the sale of finished
carpentry products and services, including doors, door frames, base boards,
crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in
closets, and fireplace mantles, among others, as well as kitchen countertops.
Revenues from the construction segment increased by $19,565,017, or 160.3%, to
$31,768,907 for the year ended December 31, 2022 from $12,203,890 for the year
ended December 31, 2021. Such increase was primarily due to the acquisitions of
High Mountain and Innovative Cabinets, which were acquired in the fourth quarter
of 2021. Excluding these acquisitions, revenues from the construction segment
increased by $514,545, or 9.5%. Such increase was primarily due to increases in
the average customer contract in the construction segment.



The automotive supplies segment generates revenue through the design and sale of
horn and safety products (electric, air, truck, marine, motorcycle and
industrial equipment), including vehicle emergency and safety warning lights for
cars, trucks, industrial equipment and emergency vehicles. Revenues from the
automotive supplies segment increased by $773,057, or 13.5%, to $6,489,088 for
the year ended December 31, 2022 from $5,716,031 for the year ended December 31,
2021. Such increase was primarily due to the acquisition of Wolo, which was

acquired on March 31, 2021.



                                       95





Cost of revenues. Our total cost of revenues was $33,227,730 for the year ended
December 31, 2022, as compared to $20,100,906 for the year ended December 31,
2021.

Cost of revenues for the retail and appliances segment consists of the cost of
purchased merchandise plus the cost of delivering merchandise and where
applicable installation, net of promotional rebates and other incentives
received from vendors. Cost of revenues for the retail and appliances segment
decreased by $1,579,436, or 16.1%, to $8,203,401 for the year ended December 31,
2022 from $9,782,837 for the year ended December 31, 2021. Such decrease
primarily due to the decrease in revenues from the retail and appliance segment.
As a percentage of retail and appliances revenues, cost of revenues for the
retail and appliances segment was 76.9% and 76.8% for the years ended December
31, 2022 and 2021, respectively.



Cost of revenues for the construction segment consists of finished goods,
lumber, hardware and materials and plus direct labor and related costs, net of
any material discounts from vendors. Cost of revenues for the construction
segment increased by $14,270,276, or 212.7%, to $20,980,103 for the year ended
December 31, 2022 from $6,709,827 for the year ended December 31, 2021. Such
increase was primarily due to the acquisitions of High Mountain and Innovative
Cabinets, which were acquired in the fourth quarter of 2021. Excluding these
acquisitions, cost of revenues for the construction segment increased by
$544,095, or 18.4%. Such increase was primarily due to the corresponding
increase in revenues from the construction segment, as well as increased product
and delivery costs. As a percentage of construction revenues, cost of revenues
for the construction segment was 66.0% and 55.0% for the years ended December
31, 2022 and 2021, respectively.



Cost of revenues for the automotive supplies segment consists of the costs of
purchased finished goods plus freight and tariff costs. Cost of revenues for the
automotive supplies segment increased by $435,984, or 12.1%, to $4,044,226 for
the year ended December 31, 2022 from $3,608,242 for the year ended December 31,
2021. Such increase was primarily due to the acquisition of Wolo, which was
acquired on March 31, 2021. As a percentage of automotive supplies revenues,
cost of revenues for the automotive supplies segment was 62.3% and 63.1% for the
years ended December 31, 2022 and 2021, respectively.



Personnel costs. Personnel costs include employee salaries and bonuses plus
related payroll taxes. It also includes health insurance premiums, 401(k)
contributions, and training costs. Our total personnel costs were $9,531,101 for
the year ended December 31, 2021, as compared to $3,803,497 for the year ended
December 31, 2021.

Personnel costs for the retail and appliances segment increased by $38,626, or
4.9%, to $822,539 for the year ended December 31, 2022 from $783,913 for the
year ended December 31, 2021. Such increase was primarily to increased employee
headcount as a result of previous staffing shortages in the retail and
appliances segment. As a percentage of retail and appliances revenue, personnel
costs for the retail and appliances segment were 7.7% and 6.2% for the years
ended December 31, 2022 and 2021, respectively.



Personnel costs for the construction segment increased by $4,636,931, or 316.9%,
to $6,100,374 for the year ended December 31, 2022 from $1,463,443 for the year
ended December 31, 2021. Such increase was primarily due to the acquisitions of
High Mountain and Innovative Cabinets, which were acquired in the fourth quarter
of 2021. Excluding these acquisitions, personnel costs for the construction
segment decreased by $47,132, or 4.9%. Such decrease was primarily due to
decreased office personnel headcount in the construction segment. As a
percentage of construction revenue, personnel costs for the construction segment
were 19.2% and 12.0% for the years ended December 31, 2022 and 2021,
respectively.



Personnel costs for the automotive supplies segment increased by $79,466, or
12.1%, to $1,094,361 for the year ended December 31, 2022 from $1,014,895 for
the year ended December 31, 2021. Such increase was primarily due to the
acquisition of Wolo, which was acquired on March 31, 2021. As a percentage of
automotive supplies revenues, personnel costs for the automotive supplies
segment was 16.9% and 17.8% for the years ended December 31, 2022 and 2021,
respectively.



Personnel costs for our holding company increased by $972,581, or 179.7%, to
$1,513,827 for the year ended December 31, 2022 from $541,246 for the year ended
December 31, 2021. Such increase was primarily due to increased headcount and
management bonuses.



Depreciation and amortization. Our total depreciation and amortization expense
increased by $1,128,130, or 124.1%, to $2,037,112 for the year ended December
31, 2022 from $908,982 for the year ended December 31, 2021. Such increase was
primarily as a result of the intangible assets and property and equipment
acquired in the acquisitions of High Mountain and Innovative Cabinets, which
were acquired in the fourth quarter of 2021.



                                       96





General and administrative expenses. Our general and administrative expenses
consist primarily of professional advisor fees, stock-based compensation, bad
debts reserve, rent expense, advertising, bank fees, and other expenses incurred
in connection with general operations. Our total general and administrative
expenses were $9,872,689 for the year ended December 31, 2022, as compared to
$6,951,498 for the year ended December 31, 2021.



General and administrative expenses for the retail and appliances segment
decreased by $267,180, or 13.9%, to $1,649,702 for the year ended December 31,
2022 from $1,916,882 for the year ended December 31, 2021. Such decrease was
primarily due to the decrease in revenues from the retail and appliance segment.
As a percentage of retail and appliances revenue, general and administrative
expenses for the retail and appliances segment were 15.5% and 15.0% for the
years ended December 31, 2022 and 2021, respectively.



General and administrative expenses for the construction segment increased by
$2,780,074, or 117.0%, to $5,156,425 for the year ended December 31, 2022 from
$2,376,351 for the year ended December 31, 2021. Such increase was primarily due
to the acquisitions of High Mountain and Innovative Cabinets, which were
acquired in the fourth quarter of 2021. Excluding these acquisitions, general
and administrative expenses for the construction segment decreased by $26,926,
or 2.5%. Such decrease was primarily attributable to a decrease in management
fees as a result of the acquisitions of High Mountain and Innovative Cabinets,
offset by increased rent from a new facility lease in the construction segment.
As a percentage of construction revenue, general and administrative expenses for
the construction segment were 16.2% and 19.5% for the years ended December 31,
2022 and 2021, respectively.



General and administrative expenses for the automotive supplies segment
decreased by $637,326, or 33.3%, to $1,275,369 for the year ended December 31,
2022 from $1,912,695 for the year ended December 31, 2021. Such decrease was
primarily due to the lack of acquisition related costs during the current
period. As a percentage of automotive supplies revenue, general and
administrative expenses for the automotive supplies segment were 19.7% and 33.5%
for the years ended December 31, 2022 and 2021, respectively.



General and administrative expenses for our holding company increased by
$1,045,623, or 140.2%, to $1,791,193 for the year ended December 31, 2022 from
$745,570 for the year ended December 31, 2021. Such increase was primarily due
to increased professional fees and corporate insurance.



Total other income (expense). We had $6,739,405 in total other expense, net, for
the year ended December 31, 2022, as compared to other expense, net, of
$2,399,119 for the year ended December 31, 2021. Other expense, net, for the
year ended December 31, 2022 consisted of interest expense of $4,594,740, a loss
on extinguishment of debt of $2,039,815, a loss on write-down of contingent note
payable of $158,817 and other expense of $11,450, offset by a gain on disposal
of property and equipment of $65,417, while other expense, net, for the year
ended December 31, 2021 consisted of a loss on redemption of preferred shares of
$4,017,553, interest expense of $1,296,537, a loss on write-down of contingent
note payable of $602,204 and a loss on extinguishment of debt of $137,692,
offset by a gain on disposition of subsidiary of $3,282,804 related to the
disposition of Neese, a gain on forgiveness of debt of $360,302, a gain on sale
of property and equipment of $10,885 and other income of $876. The loss on
extinguishment of debt was a result of partially settling debt through the
issuance of common shares and the significant increase in interest expense was
primarily a result of note issuances during the period and convertible debt
issuances during the fourth quarter of 2021 in order to help finance the
acquisitions of High Mountain and Innovative Cabinets.



Income tax benefit (expense). We had an income tax benefit of $1,677,000 for the
year ended December 31, 2022, as compared to an income tax expense of $218,139
for the year ended December 31, 2021.



Net loss from continuing operations. As a result of the cumulative effect of the
factors described above, our net loss from continuing operations was $10,801,913
for the year ended December 31, 2022, as compared to $3,721,157 for the year
ended December 31, 2021, an increase of $7,080,756, or 190.3%.

Liquidity and Capital Resources

As of December 31, 2022, we had cash and cash equivalents of $1,079,355. To date, we have financed our operations primarily through revenue generated from operations, cash proceeds from financing activities, borrowings, and equity contributions by our shareholders.

                                       97

Although we do not believe that we will require additional cash to continue our
operations over the next twelve months, we do believe additional funds are
required to execute our business plan and our strategy of acquiring additional
businesses. The funds required to execute our business plan will depend on the
size, capital structure and purchase price consideration that the seller of a
target business deems acceptable in a given transaction. The amount of funds
needed to execute our business plan also depends on what portion of the purchase
price of a target business the seller of that business is willing to take in the
form of seller notes or our equity or equity in one of our subsidiaries. We will
seek growth as funds become available from cash flow, borrowings, additional
capital raised privately or publicly, or seller retained financing.



Our primary use of funds will be for future acquisitions, public company
expenses including regular distributions to our shareholders, investments in
future acquisitions, payments to our manager pursuant to the management services
agreement, potential payment of profit allocation to our manager and potential
put price to our manager in respect of the allocation shares it owns. The
management fee, expenses, potential profit allocation and potential put price
are paid before distributions to shareholders and may be significant and exceed
the funds we hold, which may require us to dispose of assets or incur debt to
fund such expenditures. Item 1 "Business-Our Manager" for more information
concerning the management fee, the profit allocation and put price.



The amount of management fee paid to our manager by us is reduced by the
aggregate amount of any offsetting management fees, if any, received by our
manager from any of our businesses. As a result, the management fee paid to our
manager may fluctuate from quarter to quarter. The amount of management fee paid
to our manager may represent a significant cash obligation. In this respect, the
payment of the management fee will reduce the amount of cash available for
distribution to shareholders.



Our manager, as holder of 100% of our allocation shares, is entitled to receive
a twenty percent (20%) profit allocation as a form of preferred equity
distribution, subject to an annual hurdle rate of eight percent (8%), as
follows. Upon the sale of a subsidiary, our manager will be paid a profit
allocation if the sum of (i) the excess of the gain on the sale of such
subsidiary over a high-water mark plus (ii) the subsidiary's net income since
its acquisition by us exceeds the 8% hurdle rate. The 8% hurdle rate is the
product of (i) a 2% rate per quarter, multiplied by (ii) the number of quarters
such subsidiary was held by us, multiplied by (iii) the subsidiary's average
share (determined based on gross assets, generally) of our consolidated net
equity (determined according to GAAP with certain adjustments). In certain
circumstances, after a subsidiary has been held for at least 5 years, our
manager may also trigger a profit allocation with respect to such subsidiary
(determined based solely on the subsidiary's net income since its acquisition).
The amount of profit allocation may represent a significant cash payment and is
senior in right to payments of distributions to our shareholders. Therefore, the
amount of profit allocation paid, when paid, will reduce the amount of cash
available to us for our operating and investing activities, including future
acquisitions. See Item 1 "Business-Our Manager-Our Manager as an Equity
Holder-Manager's Profit Allocation" for more information on the calculation

of
the profit allocation.



Our operating agreement also contains a supplemental put provision, which gives
our manager the right, subject to certain conditions, to cause us to purchase
the allocation shares then owned by our manager upon termination of the
management services agreement. The amount of put price under the supplemental
put provision is determined by assuming all of our subsidiaries are sold at that
time for their fair market value and then calculating the amount of profit
allocation would be payable in such a case. If the management services agreement
is terminated for any reason other than our manager's resignation, the payment
to our manager could be as much as twice the amount of such hypothetical profit
allocation. As is the case with profit allocation, the calculation of the put
price is complex and based on many factors that cannot be predicted with any
certainty at this time. See Item 1 "Business-Our Manager-Our Manager as an
Equity Holder-Supplemental Put Provision" for more information on the
calculation of the put price. The put price obligation, if our manager exercises
its put right, will represent a significant cash payment and is senior in right
to payments of distributions to our shareholders. Therefore, the amount of put
price will reduce the amount of cash available to us for our operating and
investing activities, including future acquisitions.



                                       98





Summary of Cash Flow



The following table provides detailed information about our net cash flow for
the period indicated:



                                   Cash Flow

                                                                  Years Ended December 31,
                                                                   2022             2021
Net cash used in operating activities from continuing
operations                                                     $ (4,131,477

) $ (897,566 ) Net cash used in investing activities from continuing operations

                                                         (160,418 

) (15,684,770 ) Net cash provided by financing activities from continuing operations

                                                        3,987,717 

16,585,520

Net increase (decrease) in cash and cash equivalents from continuing operations

                                              (304,178 )           3,184
Cash and cash equivalents at beginning of year                    1,383,533

1,380,349

Cash and cash equivalent at end of year                        $  1,079,355

$   1,383,533




Net cash used in operating activities from continuing operations was $4,131,477
for the year ended December 31, 2022, as compared to $897,566 for the year ended
December 31, 2021. The increase in cash used from operating activities was
primarily a result of the increased net loss, decreased receivables, and
increased deferred tax liability, offset by increased inventories and increased
accounts payable and accrued expenses.



Net cash used in investing activities from continuing operations was $160,418
for the year ended December 31, 2022, as compared to $15,684,770 for the year
ended December 31, 2021. The decrease in cash used in investing activities was
primarily a result of the cash paid in acquisitions during the prior year.



Net cash provided by financing activities from continuing operations was
$3,987,717 for the year ended December 31, 2022, as compared to $16,585,520 for
the year ended December 31, 2021. The decrease in cash provided by investing
activities was primarily a result of decreased proceeds from preferred shares
and notes payable issuances and increased dividend payments, offset by an equity
offering and decreased notes payable payments.



Series A Unit Offering



On March 26, 2021, we sold an aggregate of 1,818,182 units, at a price of $1.65
per unit, for aggregate gross proceeds of $3,000,000. Each unit consists of one
(1) series A senior convertible preferred share and a three-year warrant to
purchase one (1) common share at an exercise price of $10.00 per common share
(subject to adjustment), which such exercise price was adjusted to $4.20
following the adjustments described below, which may be exercised on a cashless
basis under certain circumstances. As described in further detail below, we
contributed to 1847 Wolo the $3,000,000 raised in this offering in exchange for
1,000 shares of 1847 Wolo's series A preferred stock, at a price of $3,000 per
share, to fund, in part, the planned acquisition of Wolo by 1847 Wolo.



In exchange for the consent of the holders of our outstanding series A senior
convertible preferred shares to the issuance of these units at a lower purchase
price than such holders paid for their shares, we issued an aggregate of 99,710
common shares to such holders.



Series B Unit Offering



From February 24, 2022 to March 24, 2022, we sold an aggregate of 426,999 units,
at a price of $3.00 per unit, for aggregate gross proceeds of $1,281,000. From
April 20, 2022 to May 19, 2022, we sold an aggregate of 54,567 units to our
Chief Executive Officer, Ellery W. Roberts, for aggregate gross proceeds of
$163,700. We had total issuance costs relating to these offerings of
approximately $15,000, resulting in net proceeds of $1,429,700. Each unit
consists of one (1) series B senior convertible preferred share and a three-year
warrant to purchase one (1) common share at an exercise price of $12.00 per
share (subject to adjustment), which such exercise price was adjusted to $4.20
following the down round warrant adjustments described below, which may be
exercised on a cashless basis under certain circumstances.



Private Placement

On July 8, 2022, we entered into a securities purchase agreement with Mast Hill
Fund, L.P., pursuant to which we issued to it a promissory note in the principal
amount of $600,000 and a five-year warrant for the purchase of 100,000 common
shares at an exercise price of $6.00 per share (subject to adjustment), which
such exercise price was adjusted to $4.20 following the adjustments described
below, which may be exercised on a cashless basis if the market price of our
common shares is greater than the exercise price, for total net proceeds of
$499,600. Additionally, we issued a three-year warrant to J.H. Darbie & Co (the
broker) for the purchase of 3,600 common shares at an exercise price of $7.50
(subject to adjustment), which such exercise price was adjusted to $4.20
following the adjustments described below, which may be exercised on a cashless
basis if the market price of our common shares is greater than the exercise
price. Accordingly, a portion of the proceeds were allocated to the warrants
based on its relative fair value using the Geometric Brownian Motion Stock Path
Monte Carlo Simulation. On August 10, 2022, the promissory note was repaid

in
full.



                                       99





Public Offering



On August 2, 2022, we entered into an underwriting agreement with Craft Capital
Management LLC and R.F. Lafferty & Co. Inc., as representatives of the
underwriters named on Schedule 1 thereto, relating to our public offering of
common shares. Under the underwriting agreement, we agreed to sell 1,428,572
common shares to the underwriters, at a gross purchase price per share of $4.20
per share, pursuant to our registration statement on Form S-1 (File No.
333-259011) under the Securities Act. On August 5, 2022, the closing of the
public offering was completed and we sold 1,428,572 common shares for total
gross proceeds of $6 million. After deducting underwriting commissions and
expenses, we received net proceeds of approximately $5.15 million.



Dividends

During the year ended December 31, 2022, we accrued dividends attributable to
the series A senior convertible preferred shares in the amount of $590,162 and
paid prior period accrued dividends of $615,593.



During the year ended December 31, 2022, we accrued dividends attributable to
the series B senior convertible preferred shares in the amount of $162,268 and
paid prior period accrued dividends of $129,103.



On November 10, 2021, we declared a common share dividend of $0.05 per share, or
an aggregate of $242,160, to shareholders of record as of December 31, 2021. The
dividend paid was paid on January 14, 2022.

On March 23, 2022, we declared a common share dividend of $0.05 per share, or an aggregate of $249,762, to shareholders of record as of March 31, 2022. This dividend was paid on April 15, 2022.

On July 29, 2022, we declared a common share dividend of $0.13125 per share, or
an aggregate of $337,841, to shareholders of record as of August 4, 2022. This
dividend was paid on August 19, 2022.



On August 23, 2022, we declared a common share dividend of $0.13125 per share,
or an aggregate of $505,751 to shareholders of record as of September 30, 2022.
This dividend was paid on October 17, 2022.



Warrant Adjustments

As a result of the issuance of the note to Mast Hill Fund, L.P. on July 8, 2022,
the exercise price of certain of our outstanding warrants was adjusted to $5.20
pursuant to certain antidilution provisions of such warrants (down round
feature). In addition, certain of our outstanding warrants include an "full
ratchet" feature, whereby the exercise price was reset to $5.20 and the number
of shares underlying the warrants was increased in the same proportion as the
exercise price decrease. As a result, we recognized a deemed dividend of
approximately $6.4 million, which was calculated using a Black-Scholes pricing
model.



As a result of the public offering, the exercise price of certain of our
outstanding warrants was adjusted to $4.20 pursuant to certain antidilution
provisions of such warrants (down round feature). In addition, certain of our
outstanding warrants include an "full ratchet" feature, whereby the exercise
price was reset to $4.20 and the number of shares underlying the warrants was
increased in the same proportion as the exercise price decrease. As a result, we
recognized a deemed dividend of approximately $2.6 million, which was calculated
using a Black-Scholes pricing model.



                                      100





Debt

Secured Convertible Promissory Notes

On October 8, 2021, we and each of our subsidiaries 1847 Asien, 1847 Wolo, 1847
Cabinet, Asien's, Wolo, Kyle's, High Mountain and Innovative Cabinets, entered
into a note purchase agreement with two institutional investors, including
Leonite, pursuant to which we 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, we
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, we granted
the financing agent 187,500 warrants 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.



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.



We 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 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 operating agreement setting forth the Manager's rights with respect to the

allocation shares it owns, including the right to receive profit allocations

from us, and the supplemental put provision relating to the Manager's right to

   cause us to purchase the allocation shares it owns.




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Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.



Critical Accounting Policies



The following discussion relates to critical accounting policies for our
consolidated company. The preparation of financial statements in conformity with
GAAP requires our management to make assumptions, estimates and judgments that
affect the amounts reported, including the notes thereto, and related
disclosures of commitments and contingencies, if any. We have identified certain
accounting policies that are significant to the preparation of our financial
statements. These accounting policies are important for an understanding of our
financial condition and results of operation. Critical accounting policies are
those that are most important to the portrayal of our financial condition and
results of operations and require management's difficult, subjective, or complex
judgment, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain and may change in subsequent periods.
Certain accounting estimates are particularly sensitive because of their
significance to financial statements and because of the possibility that future
events affecting the estimate may differ significantly from management's current
judgments. We believe the following critical accounting policies involve the
most significant estimates and judgments used in the preparation of our
financial statements:

Revenue Recognition and Cost of Revenue

We record revenue in accordance with FASB ASC Topic 606, "Revenue from Contracts
with Customers." 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. ASC 606
also requires additional disclosure about the nature, amount, timing, and
uncertainty of revenue and cash flows arising from customer purchase orders,
including significant judgments.



Retail and Appliances Segment



We collect payment for special-order models including tax and partial payment
for non-special orders from the customer at the time the order is placed. We do
not incur incremental costs obtaining purchase orders from customers, however,
if we did, because all contracts are less than a year in duration, any contract
costs incurred would be expensed rather than capitalized.



Performance Obligations - The revenue that we recognize arises from orders we
receive from customers. Our performance obligations under the customer orders
correspond to each sale of merchandise that we make to customers under the
purchase orders; as a result, each purchase order generally contains only one
performance obligation based on the merchandise sale to be completed. Control of
the delivery transfers to customers when the customer can direct the use of, and
obtain substantially all the benefits from, our products, which generally occurs
when the customer assumes the risk of loss. The transfer of control generally
occurs at the point of pickup, shipment, or installation. Once this occurs, we
have satisfied our performance obligation and we recognize revenue.



Transaction Price - We agree with customers on the selling price of each
transaction. This transaction price is generally based on the agreed upon sales
price. In our contracts with customers, we allocate the entire transaction price
to the sales price, which is the basis for the determination of the relative
standalone selling price allocated to each performance obligation. Any sales tax
that we collect concurrently with revenue-producing activities are excluded

from
revenue.

Cost of revenue includes the cost of purchased merchandise plus freight and any
applicable delivery charges from the vendor to us. Substantially all sales are
to individual retail consumers (homeowners), builders and designers. The large
majority of customers are homeowners and their contractors, with the homeowner
being key in the final decisions. We have a diverse customer base with no one
client accounting for more than 10% of total revenue.



Customer deposits - We record customer deposits when payments are received in
advance of the delivery of the merchandise. We expect that substantially all of
the customer deposits will be recognized within six months as the performance
obligations are satisfied.



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Construction Segment



We recognize revenue when control of the promised goods or services is
transferred to 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 we have 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. Since most 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 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 output method to
measure progress toward completion for the value of the goods and services
transferred to the customer as we believe this best depicts the transfer of
control of assets to the customer. 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 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.

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 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 long-term contracts occurs primarily on a monthly basis throughout the
contract period whereby we submit progress invoices for customer payment as work
is performed. On some 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.

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 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.



Automotive Supplies Segment

We collect payment for internet and phone orders, including tax, from the customer at the time the order is shipped. Customers placing orders with a purchase order through the EDI (Electronic Data Interface) are allowed to purchase on credit and make payment after receipt of product on the agreed upon terms.

Performance Obligations - The revenue that we recognize arises from orders we
receive from contracts with customers. Our performance obligations under the
customer orders correspond to each sale of merchandise that we make to customers
and each order generally contains only one performance obligation based on the
merchandise sale to be completed. Control of the delivery transfers to customers
when the customer can direct the use of, and obtain substantially all the
benefits from, our products, which generally occurs when the customer assumes
the risk of loss. The transfer of control generally occurs at the point of
shipment of the order. Once this occurs, we have satisfied our performance
obligation and it recognizes revenue.



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Transaction Price - We agree with customers on the selling price of each
transaction. This transaction price is generally based on the agreed upon sales
price. In our contracts with customers, we allocate the entire transaction price
to the sales price, which is the basis for the determination of the relative
standalone selling price allocated to each performance obligation. Any sales tax
that we collect concurrently with revenue-producing activities are excluded

from
revenue.



Cost of revenues includes the cost of purchased merchandise plus freight,
warehouse salaries, tariffs, and any applicable delivery charges from the vendor
to us. We had two major customers who represent a significant portion of revenue
in the automotive segment. These two customers represented 39.4% of total
revenue in the automotive segment for the year ended December 31, 2022.



Warranties vary and are typically 90 days to consumers and manufacturing defect
warranty to are available to resellers. At times, depending on the product, we
can also offer a warranty up to 12 months.



Goodwill

Goodwill represents the excess of purchase price over the fair value of the net
assets acquired. We evaluate goodwill for impairment annually, or more
frequently if an event occurs or circumstances that indicate the goodwill is not
recoverable. When impairment indicators are identified, we may elect to perform
an optional qualitative assessment to determine whether it is more likely than
not that the fair value of our reporting units has fallen below their carrying
value. This assessment is based on several factors, including industry and
market conditions, overall financial performance, including an assessment of
cash flows in comparison to actual and projected results of prior periods. If it
is determined that it is more likely than not that the fair value of a reporting
unit is less than its carrying value based on our qualitative analysis, or if we
elect to skip this step, we perform a Step 1 quantitative analysis to determine
the fair value of the reporting unit. At December 31, 2022 and 2021, there

were
no impairments of goodwill.



Intangible assets



These assets are reviewed for impairment when events or changes in circumstances
indicate that the carrying amount may not be recoverable. If impaired,
intangible assets are written down to fair value based on discounted cash flows
or other valuation techniques. We have no intangibles with indefinite lives. At
December 31, 2022 and 2021, there were no impairments of intangible assets.

Long-Lived Assets

We review our property and equipment and right-of-use assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset group may not be recoverable. The test for impairment is required to be
performed by management upon triggering events. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to
the future undiscounted cash flow expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less costs to sell. At December 31, 2022
and 2021, there were no impairments of long-lived assets.



Income Taxes

Income taxes are accounted for under the asset and liability method. Under the
asset and liability method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.



Deferred income tax assets and liabilities are recorded with respect to
temporary differences in the accounting treatment of items for financial
reporting purposes and for income tax purposes. Where, based on the weight of
available evidence, it is more likely than not that some amount of recorded
deferred tax assets will not be realized, a valuation allowance is established
for the amount that, in management's judgment, is sufficient to reduce the
deferred tax asset to an amount that is more likely than not to be realized. A
tax position must meet a minimum probability threshold before a financial
statement benefit is recognized. The minimum threshold is defined as a tax
position that is more likely than not to be sustained upon examination by the
applicable taxing authority, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. The tax
benefit to be recognized is measured as the largest amount of benefit that is
greater than fifty percent likely of being realized upon ultimate settlement.



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