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attractive businesses by minimizing delay and closing conditions that are often related to acquisition-specific financings. In this respect, |
we believe that, at some point in the future, we may need to pursue additional debt or equity financings, or offer equity in our company |
or target businesses to the sellers of such target businesses, in order to fund acquisitions. Our Competitive Advantages We believe that our manager’s collective investment experience and |
approach to executing our investment strategy provide us with several competitive advantages. These competitive advantages, certain of |
which are discussed below, have enabled our management to generate very attractive risk- adjusted returns for investors in their predecessor |
firms. 6 Robust Network . |
Through their activities with their predecessor firms and their comprehensive |
marketing capabilities, we believe that the management team of our manager has established a “top of mind” position among |
investment bankers and business brokers targeting small businesses. By employing an institutionalized, multi-platform marketing strategy, |
we believe our manager has established a robust national network of personal relationships with intermediaries, seasoned operating executives, |
entrepreneurs and managers, thereby firmly establishing our presence and credibility in the small business market. In contrast to many |
other buyers of and investors in small businesses, we believe that we can buy businesses at value-oriented multiples and through our asset |
management activities with a group of professional, experienced and talented operating partners, create appreciable value. We believe |
our experience, track record and consistent execution of our marketing and investment activities will allow us to maintain a leadership |
position as the preferred partner for today’s small business market. Disciplined Deal Sourcing . |
We employ an institutionalized, multi-platform approach to sourcing new acquisition opportunities. Our deal sourcing efforts include |
leveraging relationships with more than 3,000 qualified deal sources through regular calling, mail and e-mail campaigns, assignment of |
regional marketing responsibilities, in-person visits and high-profile sponsorship of important conferences and industry events. We supplement |
these activities by retaining selected intermediary firms to conduct targeted searches for opportunities in specific categories on an |
opportunistic basis. As a result of the significant time and effort spent on these activities, we believe we established close relationships |
and unique “top of mind” awareness with many of the most productive intermediary sources for small business acquisition opportunities |
in the United States. While reinforcing our market leadership, this capability enables us to generate a large number of attractive acquisition |
opportunities. Differentiated Acquisition |
Capabilities in the Small Business Market . We deploy a differentiated approach to acquiring businesses in the small business |
market. Our management concentrates their efforts on mature companies with sustainable value propositions, which can be supported by |
our resources and institutional expertise. Our evaluation of acquisition opportunities typically involves significant input from a seasoned |
operating partner with relevant experience, which we believe enhances both our diligence and ongoing monitoring capabilities. In addition, |
we approach every acquisition opportunity with creative structures, which we believe enables us to engineer mutually attractive scenarios |
for sellers, whereas competing buyers may be limited by their rigid structural requirements. We believe our commitment to conservative |
capital structures and valuation will enhance each acquired operating subsidiary’s ability to deliver consistent levels of cash |
available for distribution, while additionally supporting reinvestment for growth. Value Proposition for |
Business Owners . We employ a creative, flexible approach by tailoring each acquisition structure to meet the specific liquidity |
needs and certain qualitative objectives of the target’s owners and management team. In addition to serving as an exit pathway |
for sellers, we seek to align our interests with the sellers by enabling them to retain and/or earn (through incentive compensation) |
a substantial economic interest in their businesses following the acquisition and by typically allowing the incumbent management team |
to retain operating control of the acquired operating subsidiary on a day-to-day basis. We believe that our company is an appealing buyer |
for small business owners and managers due to our track record of capitalizing portfolio companies conservatively, enhancing our ability |
to execute on its strategic initiatives and adding equity value. As a result, we believe business owners and managers will find our company |
to be a dynamic, value-added buyer that brings considerable resources to achieve their strategic, capital and operating needs, resulting |
in substantial value creation for the operating subsidiary. Operating Partner . |
Our manager has consistently worked with a strong network of seasoned operating |
partners - former entrepreneurs and executives with extensive experience building, managing and optimizing successful small businesses |
across a range of industries. We believe that our operating partner model will enable us to make a significant improvement in the operating |
subsidiary, as compared to other buyers, such as traditional private equity firms, which rely principally upon investment professionals |
to make acquisition/investment and monitoring decisions regarding not only the business, financial and legal due diligence aspects of |
a business but also the more operational aspects including industry dynamics, management strength and strategic growth initiatives. We |
typically engage an operating partner soon after identifying a target business for acquisition, enhancing our acquisition judgment and |
building the acquisition team’s relationship with the subsidiary’s management team. Operating partners usually serve as a |
member of the board of directors of an operating subsidiary and spend two to four days per month working with the subsidiary’s management |
team. We leverage the operating partner’s extensive experience to build the management team, improve operations and assist with |
strategic growth initiatives, resulting in value creation. Small Business Market |
Experience . We believe the history and experience of our manager’s partnering with companies in the small business market |
allows us to identify highly attractive acquisition opportunities and add significant value to our operating subsidiaries. Our manager’s |
investment experience in the small business market prior to forming our company has further contributed to our institutional expertise |
in the acquisition, strategic and operational decisions critical to the long-term success of small businesses. Since 2000, the management |
team of our manager has collectively been presented with several thousand investment opportunities and actively worked with more than |
30 small businesses on all facets of their strategy, development and operations, which we have successfully translated into unique, institutionalized |
capabilities directed towards creating value in small businesses. Intellectual Property Our manager owns certain intellectual property |
relating to the term “1847.” Our manager has granted our company a license to use the term “1847” in its business. Employees As of December 31, 2021, our company had three |
full-time employees (excluding our operating subsidiaries described below). 7 OUR CORPORATE STRUCTURE AND HISTORY Our company is a Delaware limited liability company |
that was formed on January 22, 2013. Your rights as a holder of common shares, and the fiduciary duties of our board of directors and |
executive officers, and any limitations relating thereto, are set forth in the operating agreement governing our company and differ from |
those applying to a Delaware corporation. However, subject to certain exceptions, the documents governing our company specify that the |
duties of our directors and officers will be generally consistent with the duties of directors and officers of a Delaware corporation. Our company is classified as a partnership for |
U.S. federal income tax purposes. Under the partnership income tax provisions, our company is not expected to incur any U.S. federal income |
tax liability; rather, each of our shareholders will be required to take into account his or her allocable share of company income, gain, |
loss, deduction and credit. As a holder of our shares, you may not receive cash distributions sufficient in amount to cover taxes in respect |
of your allocable share of our net taxable income. We will file a partnership return with the IRS and will issue you with tax information, |
including a Schedule K-1, setting forth your allocable share of our income, gain, loss, deduction, credit and other items. The U.S. federal |
income tax rules that apply to partnerships are complex, and complying with the reporting requirements may require significant time and |
expense. See “ Material U.S. Federal Income Tax Considerations ” included in our amended registration statement on Form |
S-1 filed with the Securities and Exchange Commission, or the SEC, on January 31, 2022, for more information. We currently have four classes of limited liability |
company interests - the common shares, the series A senior convertible preferred shares, the series B senior convertible preferred shares |
and the allocation shares. All of our allocation shares have been and will continue to be held by our manager. On March 3, 2017, our newly formed wholly-owned |
subsidiary 1847 Neese acquired all of the issued and outstanding capital stock of Neese for an aggregate purchase price of $6,655,000, |
consisting o (i) $2,225,000 in cash; (ii) 450 shares of the common stock of 1847 Neese, valued by the parties at $1,530,000, constituting |
45% of its capital stock; (iii) the issuance of a vesting promissory note in the principal amount of $1,875,000 (which was determined |
to have a fair value of $395,634) due June 30, 2020; and (iv) the issuance of a short-term promissory note in the principal amount of |
$1,025,000 due March 3, 2018. 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. On April 5, 2019, our newly formed indirect wholly-owned |
subsidiary 1847 Goedeker acquired substantially all of the assets of Goedeker Television for an aggregate purchase price of $6,200,000 |
consisting o (i) $1,500,000 in cash; (ii) the issuance of a promissory note in the principal amount of $4,100,000; and (iii) up to |
$600,000 in earn out payments. As additional consideration, our newly formed wholly-owned subsidiary 1847 Goedeker Holdco Inc., or 1847 |
Holdco, issued to each of the stockholders of Goedeker Television a number of shares of its common stock equal to a 11.25% non-dilutable |
interest in all of the issued and outstanding stock of 1847 Holdco as of the closing date. On August 4, 2020, 1847 Holdco distributed |
all of its shares of 1847 Goedeker to its stockholders in accordance with their pro rata ownership in 1847 Holdco, after which time 1847 |
Holdco was dissolved. On October 23, 2020, we distributed all of the shares of 1847 Goedeker that we held to our shareholders. As a result |
of this distribution, 1847 Goedeker is no longer a subsidiary of our company. On May 28, 2020, our newly formed wholly-owned |
subsidiary 1847 Asien acquired all of the issued and outstanding capital stock of Asien’s for an aggregate purchase price of $1,918,000 |
consisting o (i) $233,000 in cash; (ii) the issuance of an amortizing promissory note in the principal amount of $200,000; (iii) the |
issuance of a demand promissory note in the principal amount of $655,000; and (iv) 415,000 common shares of our company, having a mutually |
agreed upon value of $830,000 and a fair value of $1,037,500, which could be repurchased by 1847 Asien for a period of one year following |
the closing at a purchase price of $2.50 per share. The shares were repurchased by 1847 Asien on July 29, 2020. As a result of this transaction, |
we own 95% of 1847 Asien, with the remaining 5% held by Leonite Capital LLC, or Leonite, and 1847 Asien owns 100% of Asien’s. 1847 |
Asien was formed in the State of Delaware on March 24, 2020 and Asien’s was formed in the State of California on February 6, 2004. 8 On September 30, 2020, our newly formed wholly-owned |
subsidiary 1847 Cabinet acquired all of the issued and outstanding capital stock of Kyle’s for an aggregate purchase price of up |
to $6,839,792, consisting of (i) $4,389,792 in cash, (ii) an 8% contingent subordinated note in the aggregate principal amount of up to |
$1,050,000, and (iii) 700,000 common shares of our company, having a mutually agreed upon value of $1,400,000 and a fair value of $3,675,000. |
As a result of this transaction, we own 92.5% of 1847 Cabinet, with the remaining 7.5% held by Leonite, and 1847 Cabinet owns 100% of |