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EX-10.2 - OPTION AGREEMENT - 1847 Holdings LLCefsh_ex102.htm
EX-32.1 - CERTIFICATION - 1847 Holdings LLCefsh_ex321.htm
EX-10.1 - TERMINATION OF MEMBERSHIP INTEREST PURCHASE AGREEMENT - 1847 Holdings LLCefsh_ex101.htm
EX-31.1 - CERTIFICATION - 1847 Holdings LLCefsh_ex311.htm
EX-10.3 - BROKER SERVICES AND LOAN ADMINISTRATION AND SERVICING AGREEMENT - 1847 Holdings LLCefsh_ex103.htm

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10−Q

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30, 2015

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ___________

 

Commission File Number: 333-193821

 

1847 HOLDINGS LLC

(Exact name of registrant as specified in its charter)

 

Delaware

38-3922937

(State or other jurisdiction
of incorporation or organization)

(I.R.S. Employer
Identification No.)

 

590 Madison Avenue, 18th Floor, New York, NY 98001

(Address of principal executive offices, Zip Code)

 

(212) 521-4052

(Registrant's telephone number, including area code)

 

____________________________________________________________ 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

  

Large accelerated filer 

¨

Accelerated filer 

¨

Non-accelerated filer  

¨

Smaller reporting company 

x

(Do not check if a smaller reporting company)   

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

As of November 14, 2015, there were 77,887,500 common shares of the registrant issued and outstanding.

 

 

1847 HOLDINGS LLC

 

Quarterly Report on Form 10-Q

 Period Ended September 30, 2015

 

TABLE OF CONTENTS

 

PART I

FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

Financial Statements

 

3

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

 

10

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

22

 

Item 4.

Controls and Procedures

 

 

22

 

 

 

 

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

 

24

 

Item 1A.

Risk Factors

 

 

24

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

24

 

Item 3.

Defaults Upon Senior Securities

 

 

24

 

Item 4.

Mine Safety Disclosures

 

 

24

 

Item 5.

Other Information

 

 

24

 

Item 6.

Exhibits

 

 

24

 

 

 
2
 

 

PART I

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

1847 HOLDINGS LLC

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

 

 

 

September 30,
2015

 

 

December 31,
2014

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash

 

$463

 

 

$-

 

Accounts receivable

 

 

100,000

 

 

 

62,500

 

Other assets

 

 

369

 

 

 

369

 

 

 

 

 

 

 

 

 

 

TOTAL CURRENT ASSETS

 

 

100,832

 

 

 

62,869

 

 

 

 

 

 

 

 

 

 

INVESTMENTS

 

 

6

 

 

 

6

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$100,838

 

 

$62,875

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Bank Overdraft

 

$-

 

 

$446

 

Accounts payable and accrued expenses

 

 

361,759

 

 

 

208,585

 

Advances, related party

 

 

92,146

 

 

 

42,558

 

TOTAL LIABILITIES

 

 

453,905

 

 

 

251,589

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Allocation shares, 1,000 shares issued and outstanding

 

 

1,000

 

 

 

1,000

 

 

 

 

 

 

 

 

 

 

Common Shares, 500,000,000 shares authorized, 77,887,500 shares issued and outstanding as of September 30, 2015 and December 31, 2014

 

 

7

 

 

 

7

 

Additional Paid In Capital

 

 

14,999

 

 

 

14,999

 

Accumulated Deficit

 

 

(369,073)

 

 

(204,720)
 

 

 

 

 

 

 

 

 

TOTAL SHAREHOLDERS' DEFICIT

 

 

(353,067)

 

 

(188,714)
 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT

 

$100,838

 

 

$62,875

 

 

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

 

 
3
 

 

1847 HOLDINGS LLC

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

 

 

 

  Three Months Ended
September 30,

 

 

  Nine Months Ended
September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

$43,750

 

 

$43,750

 

 

$131,250

 

 

$131,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition consulting

 

 

39,790

 

 

 

-

 

 

 

39,790

 

 

 

-

 

General and administrative

 

 

45,787

 

 

 

44,849

 

 

 

135,922

 

 

 

133,313

 

Professional fees

 

 

39,297

 

 

 

12,816

 

 

 

119,891

 

 

 

78,418

 

TOTAL OPERATING EXPENSES

 

 

124,874

 

 

 

57,665

 

 

 

295,603

 

 

 

211,731

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS FROM OPERATIONS

 

 

(81,124)

 

 

(13,915)

 

 

(164,353)

 

 

(80,481)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PROVISION FOR INCOME TAXES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

$(81,124)

 

$(13,915)

 

$(164,353)

 

$(80,481)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Per Share: Basic and diluted

 

 

(0.00)

 

 

(0.00)

 

 

(0.00)

 

 

(0.00)

Weighted-average number of common shares outstanding: Basic and diluted

 

 

77,887,500

 

 

 

77,216,471

 

 

 

77,887,500

 

 

 

77,884,904

 

 

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

 

 
4
 

 

1847 HOLDINGS LLC

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)


 

 

For the
nine months ended
September 30,
2015

 

 

For the
nine months ended
September 30,
2014

 

OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$(164,353)

 

$(80,481)
 

 

 

 

 

 

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Financing costs

 

 

-

 

 

 

(13,500)
 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Increase accounts receivable

 

 

(37,500)

 

 

(37,500)

(Increase) decrease in prepaids

 

 

-

 

 

 

15,000

 

Increase in other assets

 

 

-

 

 

 

(6,500)

Increase (decrease) in accounts payable and accrued expenses

 

 

153,173

 

 

 

90,441

 

Net cash used in operating activities

 

 

(48,680)

 

 

(32,540)
 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Repayment of bank overdraft

 

 

(446)

 

 

-

 

Proceeds from sale of common stock

 

 

-

 

 

 

13,500

 

Loans from director

 

 

49,589

 

 

 

19,225

 

Net cash (used) by financing activities

 

 

49,143

 

 

 

32,725

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

 

463

 

 

 

185

 

 

 

 

 

 

 

 

 

 

CASH

 

 

 

 

 

 

 

 

Beginning of period

 

 

-

 

 

 

-

 

End of period

 

$463

 

 

$185

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Interest paid

 

$-

 

 

$-

 

Income taxes paid

 

$-

 

 

$-

 

 

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

 

 
5
 

 

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

 

1847 Holdings LLC was formed under the laws of the State of Delaware on January 22, 2013. We are in the business of acquiring small to medium size businesses in a variety of different industries. To date, we have consummated one acquisition. Our wholly owned subsidiary acquired a 50% interest in each two consulting firms previously controlled by our Chief Executive Officer.

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, 1847 Management Services, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars.

 

Accounting Basis

 

The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America ("GAAP" accounting). The Company has adopted a calendar year end.

 

Common Share Distribution and Increase of Authorized Common Shares

 

On July 2, 2014, the Company amended the Operating Agreement of 1847 Holdings LLC to effect a share distribution of its outstanding and authorized common shares at a ratio of 74 for 1 (the "Share Distribution"). 

 

Simultaneously with the Share Distribution, the Company's authorized common shares were increased from 50,000,000 to 500,000,000 shares. On July 2, 2014, the Company's issued and outstanding common shares were increased from 1,038,050 to 77,853,750 shares. Accordingly, all share and per share information has been restated to retroactively show the effect of the Share Distribution.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents.

 

Fair Value of Financial Instruments

 

The Company's financial instruments consist of cash and cash equivalents and amounts due to shareholder. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

 

Income Taxes

 

Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

 
6
 

 

Revenue Recognition

 

Revenue will be recognized when it is realized or realizable and earned. Specifically, revenue will be recognized when all of the following criteria are met: (1) Persuasive evidence of an arrangement exists; (2) Service has occurred, customer acceptance has been achieved; (3) Our selling price to the buyer is fixed and determinable; and (4) Collection is reasonably assured. The Company recognizes revenue when services have been provided and collection is reasonably assured.

 

Stock-Based Compensation

 

Stock-based compensation is accounted for at fair value in accordance with ASC Topic 718. To date, the Company has not adopted a stock option plan and has not granted any stock options.

 

Basic Income (Loss) Per Share

 

Basic income (loss) per share is calculated by dividing the Company's net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company's net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There are no such common share equivalents outstanding as of September 30, 2015.

 

Comprehensive Income

 

The Company has established standards for reporting and display of comprehensive income, its components and accumulated balances. When applicable, the Company would disclose this information on its Statement of Shareholders' Equity. Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners. The Company has not had any significant transactions that are required to be reported in other comprehensive income.

 

Recent Accounting Pronouncements

 

On June 10, 2014, the Financial Accounting Standards Board ("FASB") issued update ASU 2014-10, Development Stage Entities (Topic 915). Amongst other things, the amendments in this update removed the definition of development stage entity from Topic 915, thereby removing the distinction between development stage entities and other reporting entities from US GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of income, cash flows and shareholders equity, (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments are effective for annual reporting periods beginning after December 31, 2014 and interim reporting periods beginning after December 15, 2015, however entities are permitted to early adopt for any annual or interim reporting period for which the financial statements have yet to be issued. The Company has elected to early adopt these amendments and accordingly have not labeled the financial statements as those of a development stage entity and have not presented inception-to-date information on the respective financial statements.

 

In May 2014, the FASB amended the ASC and created Topic 606, Revenue from Contracts with Customers, to clarify the principles for recognizing revenue. This guidance will be effective for the Company beginning January 1, 2017 and must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. We have not yet determined the effects of this new guidance on our financial statements.

 

In August 2014, the FASB issued a new U.S. GAAP accounting standard that provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new accounting standard requires management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The new accounting standard is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.

 

 
7
 

 

NOTE 3 – GOING CONCERN

 

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate continuation of the Company as a going concern. The Company currently has limited working capital, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.

 

Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management's efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.

 

NOTE 4 – INVESTMENTS

 

On September 15, 2013, 1847 Management Services, Inc., the Company's wholly owned subsidiary, acquired a 50% interest in each of PPI Management Group, LLC and Christals Management LLC from our Chief Executive Officer and controlling shareholder, Ellery W. Roberts. In connection with the acquisition of such equity interests from Mr. Roberts, we issued to Mr. Roberts 65,625,000 of our common shares pursuant to a securities purchase agreement.

 

NOTE 5 – RELATED PARTIES

 

Management Services Agreement

 

The company and our manager have entered into a management services agreement on April 15, 2013, pursuant to which we are required to pay our manager a quarterly management fee equal to 0.5% (2.0% annualized) of our company's adjusted net assets for services performed. On September 15, 2013, we entered into an amendment to our management services agreement that provides that in lieu of paying a quarterly management fee under the management services agreement based upon the adjusted net assets of our management consulting business, we will pay our manager a flat quarterly fee equal to $43,750. This amendment only applies to our management consulting business and will not apply to any businesses that we acquire in the future.

 

Advances

 

From time to time, the Company has received advances from certain of its officers and related parties to meet short-term working capital needs. For the period ended September 30, 2015 and December 31, 2014, a total of $92,146 and $42,558 advances from related parties are outstanding. These advances are unsecured, bear no interest, and do not have formal repayment terms or arrangements.

 

NOTE 6 – EQUITY

 

Allocation shares

 

As of September 30, 2015 and December 31, 2014, the Company had authorized and outstanding 1,000 allocation shares. These Allocation Shares do not entitle the holder thereof to vote on any matter relating to the Company other than in connection with amendments to the Company's operating agreement and in connection with certain other corporate transactions as specified in the Company's operating agreement.

 

Our manager owns 100% of the allocation shares of our company, which are a separate class of limited liability company interests that, together with the common shares, will comprise all of the classes of equity interests of our company. Our manager received the allocation shares with its initial capitalization of our company. The allocation shares generally will entitle our manager to receive a 20% profit allocation as a form of incentive designed to align the interests of our manager with those of our shareholders. Profit allocation has two components: an equity-based component and a distribution-based component. The equity-based component will be paid when the market for our shares appreciates, subject to certain conditions and adjustments. The distribution-based component will be paid when the distributions we pay to our shareholders exceed an annual hurdle rate of 8.0%, subject to certain conditions and adjustments. While the equity-based component and distribution-based component are interrelated in certain respects, each component may independently result in a payment of profit allocation if the relevant conditions to payment are satisfied.

 

The 1,000 allocation shares are issued and outstanding and held by our manager, which is controlled by Mr. Roberts, our chief executive officer and controlling shareholder.

 

 
8
 

  

Common Share Dividend and Increase of Authorized Common Shares

 

On July 2, 2014, the following matters were approved by written consent of a member of the Company holding a majority of the outstanding common shares of our company: (1) An amendment to the Amended and Restated Operating Agreement of our company increasing the number of authorized common shares of the Company from 50 million common shares to 500 million common shares; and (2) a share distribution of 74 common shares to each of the Company's members for each common share held by such members as of the record date July 2, 2014.

 

Since the share dividend occurred after the period covered by this report, all share numbers are provided on a pre-dividend basis.

 

Initial Public Offering

 

In July 2014, the Company received the remaining gross proceeds from the initial public offering of $450 of the total $13,500, excluding offering expenses.

 

Common shares

 

The Company has authorized 500,000,000 common shares as of September 30, 2015 and December 31, 2014 and the Company had 77,887,500 common shares issued and outstanding. The common shares entitle the holder thereof to one vote per share on all matters coming before the shareholders of our company for a vote.

 

During the period ended September 30, 2014, the Company issued the following equity instruments: 

 

 

·

In June, 2014, the Company sold a total of 978,750 shares of common stock for gross proceeds from our initial public offering in the amount of $13,050, not including accounting, legal, transfer agent, and other offering expenses. Including such expenses, estimated net expenses of the IPO were $47,568.

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

 

The Company neither owns nor leases any real or personal property. An office space has been leased on a month-by-month basis.

 

The officers and directors are involved in other business activities and most likely will become involved in other business activities in the future.

 

NOTE 8 – SUBSEQUENT EVENTS

 

In accordance with SFAS 165 (ASC 855-10) the Company has analyzed its operations subsequent to September 30, 2015 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements.

 

 
9
 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Special Note Regarding Forward Looking Statements

 

In addition to historical information, this report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. We cannot give any guarantee that the plans, intentions or expectations described in the forward-looking statements will be achieved. All forward-looking statements involve significant risks and uncertainties, and actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those factors described in Item 1A "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. Readers should carefully review such risk factors as well as factors described in other documents that we file from time to time with the Securities and Exchange Commission.

 

In some cases, you can identify forward-looking statements by terminology such as "guidance," "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "projects," "potential," "proposed," "intended," or "continue" or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other "forward-looking" information. There may be events in the future that we are not able to accurately predict or control. You should be aware that the occurrence of any of the events described in our risk factors and other disclosures could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, and levels of activity, performance or achievements. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include, without limitation:

 

·

our ability to successfully identify and acquire a platform acquisition and to operate such business and any other businesses that we acquire in the future and to effectively integrate and improve such business and any future acquisitions;

·

our ability to service and comply with the terms of indebtedness that we expect to incur in the future;

·

our cash flow available for distribution after we identify and acquire a platform acquisition and our ability to make distributions in the future to our shareholders;

·

our ability to pay the management fee, profit allocation and put price when due;

·

our ability to make and finance future acquisitions, including, but not limited to, the acquisition of a platform acquisition after it has been identified;

·

our ability to implement our acquisition and management strategies;

·

the regulatory environment in which our future businesses may operate under;

·

trends in the industries in which our future businesses may operate;

·

the competitive environment in which our future businesses will operate;

·

changes in general economic or business conditions or economic or demographic trends in the United States including changes in interest rates and inflation;

·

our and our manager's ability to retain or replace qualified employees of our future businesses and our manager;

·

casualties, condemnation or catastrophic failures with respect to any of our future business' facilities;

·

the implementation, costs and effects of legal and administrative proceedings, settlements, investigations and claims; and

·

extraordinary or force majeure events affecting the business or operations of our future businesses.

 

 
10
 

  

Use of Terms

 

Except as otherwise indicated by the context and for the purposes of this report only, references in this report to: 

 

 

·

"1847," "we," "us" and "our" refer to our company, including our management consulting business;

 

·

"our management consulting businesses" refers, collectively, to the management consulting and advisory business conducted by each of PPI Management and Christals Management;

 

·

"our businesses" or "our future businesses" refers, collectively, to our management consulting business and the businesses in which we may own a controlling interest from time to time in the future;

 

·

"1847 Management" refers to 1847 Management Services, Inc., our wholly-owned subsidiary;

 

·

"Monrovia Auto Finance" refers to Monrovia Auto Finance, Inc., formerly Monrovia Money Train, Inc., our wholly-owned subsidiary;

 

·

"PPI Management" refers to PPI Management Group, LLC, our 50% owned subsidiary;

 

·

"Christals Management" refers to Christals Management LLC, our 50% owned subsidiary;

 

·

"our shareholders" refers to holders of our common shares;

 

·

"SEC" refers to the Securities and Exchange Commission;

 

·

"Securities Act" refers to the Securities Act of 1933, as amended; and

 

·

"Exchange Act" refers to the Securities Exchange Act of 1934, as amended.

 

Share Split

 

Unless otherwise noted, all common share numbers in this report reflect a 74-for-1-share distribution effected on July 2, 2014.

 

Overview

 

We operate a consulting and advisory services business with plans to acquire additional small to medium size businesses in a variety of different industries. Through our structure, we plan to 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 distributions to our shareholders and increasing shareholder value over time.

 

As an initial step in our plan to acquire small to medium size businesses in a variety of different industries our subsidiary, 1847 Management, acquired a 50% interest in each of PPI Management and Christals Management from our Chief Executive Officer and controlling shareholder, Ellery W. Roberts. In connection with the acquisition of such equity interests from Mr. Roberts, we issued to Mr. Roberts 65,625,000 of our common shares pursuant to a securities purchase agreement, dated September 15, 2013, between our company and Mr. Roberts. Each of PPI Management and Christals Management are management consulting and advisory firms. Mr. Roberts is a manager of each of PPI Management and Christals Management and is responsible for providing consulting and advisory services to the clients of PPI Management and Christals Management. We also acquired these business interests in an attempt to minimize future conflicts of interest involving the splitting of Mr. Roberts's business time. Mr. Roberts and the board of directors of our company determined that it would be in the best interests of our company to acquire such interests in PPI Management and Christals Management so that our company can operate such management consulting and advisory businesses and so Mr. Roberts's business time will not be diverted away from the business and affairs of our company.

 

 
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Although we expect to continue to operate our management consulting business and generate revenues therefrom, we do not intend to expand our management consulting business by seeking new clients at this time. Instead, we plan to focus all of our efforts (other than efforts necessary to operate PPI Management and Christals Management) on identifying a platform acquisition, raising capital necessary to consummate a platform acquisition after it is identified, and completing a platform acquisition after the necessary capital is raised.

 

PPI Management acts as an advisor to PPI Acquisition Holdings, LLC, or PPI Acquisition, pursuant to an advisory agreement with PPI Acquisition. Under the advisory agreement, PPI Management provides PPI Acquisition and its subsidiary, Pawn Plus, Inc., or Pawn Plus, with management and consulting services in consideration for an advisory fee. Similarly, Christals Management acts as an advisor to Peekay Acquisition, LLC, or Peekay, pursuant to an advisory agreement with Peekay. The Christals advisory agreement is very similar to the PPI Management advisory agreement. Under the Christals advisory agreement, Christals Management provides Peekay and its subsidiaries with the same kind of management and consulting services that PPI Management provides to PPI Acquisition and Pawn Plus and Christals Management also receives fees for providing these services.

 

Under our advisory agreement with Peekay, Christals Management generates annual revenues of $250,000 per year payable quarterly. Since 1847 Management owns 50% of Christals Management, 1847 Management is entitled to 50% of the aggregate $250,000 in compensation under the Christals advisory agreement, or $125,000 per year. This amount is paid to Christals Management in quarterly installments. Under our advisory agreement with PPI Acquisition, PPI Management is entitled to a fee equal to 5.75% of PPI Acquisition's earnings before interest, taxes, depreciation and amortization, or EBITDA, payable as follows: (i) 3.75% of EBITDA for any fiscal quarter is payable quarterly in advance and (ii) the difference between 5.75% of EBITDA for any fiscal year and the aggregate quarterly payments previously paid with respect to fiscal quarters in such fiscal year, payable yearly in arrears.

 

We expect to generate revenues through the provision by our indirect subsidiaries, PPI Management and Christals Management, of management consulting services to two clients under separate advisory agreements. Since we only hold a 50% interest in each of PPI Management and Christals Management, we will be entitled to 50% of the revenues and net income of PPI Management and Christals Management.

 

Our cash balance is $463 as of September 30, 2015. Our current cash balance will not be sufficient to fund our operations for the next 12 months if we are unable to successfully borrow money from our affiliates or raise money from third parties. We will need funding from third parties or from our affiliates in order to achieve our business plan goals. The minimum amount of financing that we need in the next 12 months to continue operations is estimated to be $150,000. Our current operations are solely dependent on personal loans and capital contributions from our principal executive officer. We have been utilizing and may utilize funds from Ellery W. Roberts, our Chief Executive Officer and Chairman, who has informally agreed to advance funds to allow us to cover our expenses pending our initial platform acquisition. There is no a maximum amount of funds that Mr. Roberts has agreed to advance. Mr. Roberts has no formal commitment, arrangement or legal obligation to advance or loan funds to our company. In order to achieve our business plan goals, we will need to raise additional capital.

 

Our auditors have issued a going concern opinion. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have not generated significant revenues and will incur additional expenses as a result of being a public reporting company. If we are unable to obtain additional working capital our business may fail. Accordingly, we must raise cash from sources other than operations. Our only other source for cash at this time is investments by our Chief Executive Officer and Chairman in our company. We must raise cash to implement our projected plan of operations.

 

We qualify as an "emerging growth company" under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

 

 

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have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

 

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comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

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submit certain executive compensation matters to shareholder advisory votes, such as "say-on-pay" and "say-on-frequency;" and

 

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disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO's compensation to median employee compensation.

 

 
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In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

We will remain an "emerging growth company" for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

Membership Interest Purchase Agreement

 

On March 6, 2015, Monrovia Auto Finance entered into a Membership Interest Purchase Agreement, or the Purchase Agreement, with Jarrod Clarke, or Clarke, and Jarrod Clarke Holdings, Inc., collectively, the Money Train Members, Money Train Title Loans, LLC, or Money Train, and on Track LLC (together with Money Train, the Money Train Companies). Further information about the Purchase Agreement was disclosed in a Current Report on Form 8-K filed by the Company with the SEC on March 10, 2015. A copy of the Purchase Agreement was subsequently filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on April 15, 2015.

 

On September 11, 2015, each of the parties to the Purchase Agreement entered into a Termination of Membership Interest Purchase Agreement ("Termination Agreement") in accordance with Section 8.1(a) of the Purchase Agreement, which provides for termination pursuant to mutual written consent of Monrovia Auto Finance and the Money Train Members at any time prior to the closing. The parties wished to enter into the Termination Agreement because the closing contemplated by the Purchase Agreement had not occurred and the parties did not expect that the closing of this agreement would occur. There are no material relationships between us and Monrovia Auto Finance and the other parties except as disclosed below. No early termination penalties were incurred by us or Monrovia Auto Finance in connection with the Termination Agreement.

 

Option Agreement and Servicing Agreement

 

In connection with the above, on September 11, 2015, we, the Money Train Members and the Money Train Companies entered into an Option Agreement, or the Option Agreement, pursuant to which the Money Train Members and the Money Train Companies agreed to grant us or any designee an option to purchase either, but not both, of (i) all of the equity of the Money Train Companies or (ii) up to all the assets of each of the Money Train Companies together with certain liabilities of each of the Companies, to be more fully defined based upon mutual agreement of the parties. The option may be exercised until the one-year anniversary of a Broker Services and Loan Administration and Servicing Agreement between Money Train and Monrovia Auto Finance, dated as of September 11, 2015, or the Servicing Agreement, which is described below. The option exercise price will be equal to either (i) four (4) times the aggregate six-month trailing EBITDA of the Money Train Companies (on an annualized basis) as of the date of determination, subject to adjustment for purposes of the Option Agreement to add back to earnings the amount of salary paid to Clarke during the applicable period, or (ii) $6 million, whichever is greater, unless the Money Train Members and Money Train Companies consent otherwise.

 

In addition, on September 11, 2015, Monrovia Auto Finance and Money Train entered into the Servicing Agreement. The purpose of the Servicing Agreement is to set forth the terms and conditions which will govern certain business activities and transactions to be provided by Money Train, as broker-servicer, and Monrovia Auto Finance, as lender, to borrowers and prospective borrowers seeking loans. Money Train has developed a broker services program pursuant to applicable New Mexico consumer credit laws and regulations under which Money Train may provide broker services including but not limited to assisting borrowers in obtaining loans. Monrovia Auto Finance may make installment loans to borrowers secured by a first lien in the borrowers' motor vehicle in accordance with applicable New Mexico consumer credit laws and regulations. Money Train desires to offer its broker-servicer program to Borrowers who may be interested in the loan program.

 

 
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Under the Servicing Agreement, the parties agreed that the loan program shall consist of the origination, funding, and collection of loans in accordance with program guidelines to borrowers at such locations in the State of New Mexico as Money Train, as broker-servicer, may designate from time to time. The parties agreed that Monrovia Auto Finance will act as lender under the loan program and shall have sole responsibility for establishing credit and underwriting criteria for the loans, making the decisions as to whether or not to make loans to prospective borrowers, funding the loans, and, subject to the timely performance of Money Train's broker-servicer obligations, managing the loan program in accordance with Monrovia Auto Finance's express obligations under the Servicing Agreement and the program guidelines. Except as expressly provided in the Servicing Agreement, (a) nothing therein will be deemed to commit Monrovia Auto Finance to originate or fund any particular level or number of loans, and (b) Monrovia Auto Finance made no representation as to the amount of funding it will be able to raise for the loans. In the event defaulted loans are equal to or greater than twenty-two percent (22%) of the outstanding principal balance of the loan portfolio from time to time, Monrovia Auto Finance has the option, in its sole discretion, to immediately suspend the origination and funding of loans without notice.

 

Under the Servicing Agreement, Money Train's responsibility will be to act as a "loan broker and loan servicer" on behalf of consumers and Monrovia Auto Finance in accordance with the laws of the State of New Mexico. Money Train's sole compensation under the Servicing Agreement broker program will be the fee paid to it by Monrovia Auto Finance to be defined in the program guidelines. Money Train will enter into separate broker agreements with borrowers. It will have the sole discretion to determine whether to offer any consumer the opportunity to apply for a loan. Money Train has no obligation to submit a minimum number of loan applications from borrowers to Monrovia Auto Finance or broker any level or number of applicants, and has sole discretion to approve or deny broker services to any prospective borrower.

 

The parties to the Servicing Agreement will generally be responsible for their own costs and expenses and for preparing their own respective program materials and advertising materials. However, Monrovia Auto Finance will be responsible for the cost of any radio or television advertisements that the parties mutually agree upon.

 

The Servicing Agreement loan and broker programs shall commence on October 1, 2015, subject to the parties having requisite licensing, software and systems in place by this date. As of the date of this report, we have not obtained the required license and as a result the Servicing Agreement loan and broker programs have not yet been initiated. Either party may terminate the agreement upon default by the other party. Each party may also terminate immediately if it determines that the Servicing Agreement or programs under it are illegal, a regulatory authority requires termination, the party determines in its reasonable discretion that the Servicing Agreement programs may materially adversely affect its operations or relationship with a regulatory authority. In addition, each party may terminate the Servicing Agreement upon ninety (90) days' prior written notice. However, the parties' obligations with respect to outstanding loans will remain in effect for so long as such loans remain outstanding, notwithstanding termination. In addition, if Money Train terminates the Servicing Agreement without cause, it will continue to service outstanding loans for up to one year after termination so that Monrovia Auto Finance may engage a replacement servicer for the loans.

 

Critical Accounting Policies

 

The following discussion relates to critical accounting policies for our company and our management consulting business. The preparation of our financial statements in conformity with United States Generally Accepted Accounting Principles, or GAAP, will require us to adopt accounting policies and make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates under different assumptions and judgments and uncertainties, and potentially could result in materially different results under different conditions. Our critical accounting policies are discussed below. These policies are generally consistent with the accounting policies followed by our management consulting business. Our board of directors will review these critical accounting policies. 

 

Supplemental Put Provision

 

Our operating agreement contains a supplemental put provision pursuant to which our manager has the right to cause our company to purchase the allocation shares then owned by our manager upon termination of the management services agreement with our manager for a price to be determined in accordance with and subject to the conditions provided in the put provision. The allocation shares will be recorded at their redemption value as a result of the allocation shareholder's ability to require our company to purchase the allocation shares upon exercise of the supplemental put. The allocation shares will be reflected outside of permanent equity in the mezzanine section of the balance sheet at the closing of our public offering. The change in value of the allocation shares will be recorded through the income statement as a dividend between net income and net income available to common shareholders. The redemption value of the allocation shares is largely related to the fair value of the profit allocation that our manager, as holder of the allocation shares, will receive. The valuation of the allocation shares requires the use of complex models, which are produced based on highly sensitive assumptions and estimates. The impact of over-estimating or under-estimating the redemption value of the allocation shares could have a material adverse effect on future operating results. In addition, the value of the allocation shares will be subject to the volatility of our company's operations, which may result in significant period-to-period fluctuations in the amount recorded for the allocation shares. 

 

 
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Manager's Profit Allocation

 

We are obligated to pay our manager, as holder of the allocation shares, a profit allocation, which will be paid as a distribution on the allocation shares. The profit allocation to be paid to our manager is intended to reflect a sharing of the distributions we make to our shareholders in excess of an annual hurdle rate. 

 

The profit allocation will be accounted for as a dividend recorded through equity and not as an expense through the statement of operations. However, the dividend will be recorded between net income and net income available to common shareholders. The profit allocation will be recorded quarterly based on the change in the amount payable to the allocation shareholder.

 

Revenue Recognition

 

Our company recognizes revenue when it is realized or realizable and earned. Our company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement, the product has been shipped or the services, including installation services, have been provided to the customer, the sales price is fixed or determinable and collectability is reasonably assured. Provisions for customer returns and other allowances based on historical experience are recognized at the time the related sale is recognized. 

 

Business Combinations

 

The acquisition of our management consulting business and any future acquisitions of controlling interest in other businesses will be accounted for under the purchase method of accounting as provided under GAAP (we have not entered into any letters of intent nor have we currently identified any specific businesses to acquire). The amounts assigned to the identifiable assets acquired and the liabilities assumed in connection with each acquisition will be based on their respective estimated fair values as of the date of acquisitions with the remainder, if any, to be recorded as goodwill. The fair values will be determined by our management team, taking into consideration information supplied by our manager's operating partners, the management of the acquired entities and other relevant information. The determination of fair values requires significant judgment by our management team, which may consult with outside consultants on future acquisitions to assist in the process. This judgment could result in either higher or lower value being assigned to amortizable or depreciable assets, which could result in either higher or lower amortization or depreciation expense.

 

Goodwill and Intangible Assets

 

Significant intangible assets that will be acquired in connection with the future acquisition by us of businesses will likely include customer relationships, trade names, trademarks and goodwill. 

 

Trade names and trademarks acquired in the contemplated acquisition are amortized over their respective lives or, in some cases, may be considered indefinite life intangibles, which are not amortizable pursuant to GAAP. Goodwill represents the excess purchase price over fair value of net assets acquired and liabilities assumed in a business combination. Goodwill is not subject to amortization. The intangibles acquired in the contemplated transaction that will be subject to amortization are customer relationships and will be amortized using the straight-line method over the estimated useful lives of the intangible assets, which we will determine based on the consideration of several factors including historical customer turnover rates. Intangible assets are required to be assessed for impairment annually, or more often in certain circumstances, in accordance with ASC 350 Intangible Goodwill and Other Assets. 

 

The goodwill impairment test is a two-step process, which will require management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of each of our businesses based on a discounted cash flow model using revenue and profit forecasts and comparing those estimated fair values with the carrying values, which include the allocated goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an "implied fair value" of goodwill. The determination of a business's "implied fair value" of goodwill requires the allocation of the estimated fair value of the business to the assets and liabilities of the businesses. Any unallocated fair value represents the "implied fair value" of goodwill, which will then be compared to its corresponding carrying value and an impairment loss will be recognized in the amount equal to the difference. The "implied fair value" of our businesses will be determined by our management team and will generally be based upon future cash flow projections for the business, discounted to present value. In conducting future goodwill impairment tests, we will use outside valuation consultants when our management team considers it appropriate to do so. 

 

 
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The impairment tests for trade names and trademarks require the determination of the fair value of such assets. The impairment test for customer relationships also must be evaluated based upon the impact of any significant changes in our company's customer base, relationships and turnover rates. If the fair value of a trade name, trademark, or customer relationship is less than its carrying value, an impairment loss will be recognized in an amount equal to the difference. 

 

We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill and/or the other intangible assets. Such events include, but are not limited to strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base and material adverse effects in relationships with significant customers.

 

Property, Plant and Equipment

 

Property, plant and equipment of our management consulting business and any businesses that we may acquire in the future will be recorded at fair value and property, plant and equipment subsequently purchased by our businesses will be recorded at cost. Depreciation on property, plant and equipment will be computed using the straight-line method over the estimated useful lives of the property, plant and equipment. The useful lives of property, plant and equipment are determined based upon historical experience and the anticipated use of the property, plant and equipment based upon our current plans. Useful lives represent the periods the assets are expected to remain in service assuming normal routine maintenance. We will review the estimated useful lives assigned to property, plant and equipment when experience suggests that they may have changed from our initial assessment. Factors that lead to such a conclusion may include physical observation of asset usage, examination of realized gains and losses on asset disposals and consideration of current market trends such as technological obsolescence or change in market demand. 

 

We will perform impairment reviews of property, plant and equipment when events or circumstances indicate that the value of the assets may be impaired. Indicators include operating or cash flow losses, significant decreases in market value or changes in the long-lived assets' physical condition. When indicators of impairment are present, management will need to determine whether the sum of the undiscounted future cash flows estimated to be generated by the potentially impaired assets is less than the carrying amount of those assets. In this circumstance, the impairment loss will be recognized equal to the amount by which the carrying amount of the assets exceeds their fair value. The estimates of both the undiscounted future cash flows and the fair values of assets require the use of complex models, which are produced based upon numerous assumptions and estimates by management. In certain circumstances, experts may be utilized to assist management in measuring the impairment loss associated with property, plant and equipment. 

 

Stock Equity-Based Compensation

 

ASC 718 Compensation-Stock Compensation, sets accounting requirements for "share-based" compensation to employees and requires companies to recognize in the income statement the grant-date fair value of the stock options and other equity-based compensation. 1847 Management did not have any stock equity-based compensation. It is our company's policy to account for equity-based compensation in accordance with ASC 718. 

 

Recent Accounting Pronouncements

 

On June 10, 2014, the Financial Accounting Standards Board ("FASB") issued update ASU 2014-10, Development Stage Entities (Topic 915). Amongst other things, the amendments in this update removed the definition of development stage entity from Topic 915, thereby removing the distinction between development stage entities and other reporting entities from US GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of income, cash flows and shareholders equity, (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments are effective for annual reporting periods beginning after December 31, 2014 and interim reporting periods beginning after December 15, 2015, however entities are permitted to early adopt for any annual or interim reporting period for which the financial statements have yet to be issued. The Company has elected to early adopt these amendments and accordingly have not labeled the financial statements as those of a development stage entity and have not presented inception-to-date information on the respective financial statements.

 

 
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In May 2014, the FASB amended the ASC and created Topic 606, Revenue from Contracts with Customers, to clarify the principles for recognizing revenue. This guidance will be effective for the Company beginning January 1, 2017 and must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. We have not yet determined the effects of this new guidance on our financial statements.

 

In August 2014, the FASB issued a new U.S. GAAP accounting standard that provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new accounting standard requires management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The new accounting standard is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.

 

Our Company

 

Net Sales

 

We do not plan to generate sales apart from those generated by our management consulting business and those other businesses that we may acquire in the future. However, we plan on generating interest income on the investment of available funds. The amount of investment income will be dependent upon the available funds and may vary significantly from period to period. Our investment in our management consulting business and in future businesses that we may acquire will be in the form of loans from our company to our management consulting business, as well as equity contributions to that business. Cash flow coming to us will be the result of interest and principal payments on those loans and potentially dividends. However, these loans will be eliminated in consolidation in accordance with GAAP.

 

Expenses

 

Our operating expenses will primarily consist of cost of professional services and for other fees, costs and expenses. These other expenses will include the cost of audits, Sarbanes-Oxley compliance costs, directors and officers insurance premiums paid, and tax preparation services. We estimate that our company's annual incremental operating expenses will be approximately $100,000.

 

In addition to the incremental operating expenses discussed above, pursuant to the management services agreement, our company will pay our manager a quarterly management fee equal to 0.5% (2.0% annualized) of our adjusted net assets, which is defined in the management services agreement. By amendment to the management services agreement, in lieu of paying a quarterly management fee under the management services agreement based upon the adjusted net assets of our management consulting business, we will pay our manager a flat quarterly fee equal to $43,750. We expect to generate sufficient revenues from our management consulting business to pay our manager a flat quarterly fee of $43,750. Although we expect that our management consulting business will generate sufficient fees to cover the manager's quarterly flat fee, if for any reason it does not, our manager has agreed verbally that such fee will accrue until sufficient revenues are generated. We also expect that until we begin making acquisitions, all revenues generated from our management consulting business will be used to cover operating expenses, including management fees. We will not use the proceeds of our public offering to pay our manager the quarterly management-consulting fee. This amendment only applies to our management consulting business and will not apply to any businesses that we acquire in the future. The amount of the management fee payable will be reduced by the aggregate amount of any offsetting management fees, if any, received by our manager from any of the businesses that we may acquire in the future. As part of its business strategy, our company does intend to acquire additional businesses (we have not entered into any letters of intent nor have we currently identified any specific businesses to acquire). We intend to finance our acquisition strategy primarily through a combination of using the funds raised in our public offering, issuing new equity and incurring debt as well as cash generated by operations. Therefore, the net adjusted assets, and the management fee, may fluctuate from quarter to quarter due to acquisitions or dispositions of our businesses and performance of our businesses. The growth in the adjusted net assets as defined in the management services agreement will, most likely, increase due to these acquisitions and will increase the management fee regardless of whether such acquisitions contribute positively to our net income. As a result, we anticipate that the management fee will represent a significant percentage of our net income following the acquisition by us of businesses in the future. See "Item 1. Business – Our Manager – Our Manager as a Service Provider – Management Fee" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 for more information about the calculation, an example of such calculation and payment of the management fee and the specific definitions of the terms used in such calculation.

 

 
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Financial Condition, Liquidity and Capital Resources

 

We generate cash on an ongoing basis from our management consulting business in addition to any dividends received from our future businesses. We intend to raise funds for additional acquisitions primarily through debt financing at our company level, additional equity offerings, the sale of all or a part of our businesses or by undertaking a combination of any of the above. In addition to acquiring businesses, we expect to sell businesses that we own from time to time when attractive opportunities arise.

 

Our primary use of funds will be for public company expenses including cash 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 held by our company, which may require our company to dispose of assets or incur debt to fund such expenditures. 

 

The amount of management fee paid to our manager by our company 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 and will be senior in right to payments of distributions to our shareholders. 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 20% profit allocation as a form of preferred equity distribution that is subject to an annual hurdle rate of 8.0% with respect to distributions to our shareholders. The determination of the amount of profit allocation is dependent on a number of factors, including the amount of distributions to our shareholders, the operating results of our businesses and the market value of our common shares outstanding. We cannot determine the amount of profit allocation that will be paid to our manager because the factors impacting the determination of the profit allocation cannot be estimated or predicted with any degree of certainty. As an initial matter, these factors will fluctuate substantially during the period prior to the first calculation of profit allocation and, therefore, these factors will fluctuate from quarter to quarter. These fluctuations will significantly impact the amount of profit allocation to be paid to our manager. 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 our company for its operating and investing activities, including future acquisitions.

 

Our operating agreement also contains a supplemental put provision, which gives our manager the right, subject to certain conditions, to cause our company 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 conceptually based on the formulation of profit allocation and is generally intended to provide our manager with a right to receive 20% of the value of our company upon sale of the allocation shares determined by reference to the value distributed to or otherwise realized by our shareholders. 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. The put price obligation, if the 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 our company for its operating and investing activities, including future acquisitions.

 

See the section entitled "Item 1. Business – Our Manager" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 for more information concerning the management fee, the profit allocation and put price.

 

Dividend and Distribution Policy

 

We intend to pursue a policy of making regular distributions on our outstanding common shares after we acquire a platform business that has sufficient cash flow to permit us to make regular distributions. Our policy is based on the liquidity and capital of our businesses and on our intention to pay out as distributions to our shareholders the majority of cash resulting from the ordinary operation of the businesses, and not to retain significant cash balances in excess of what is prudent for our company or our businesses, or as may be prudent for the consummation of attractive acquisition opportunities. 

 

Our company anticipates using such cash received to make debt repayments, pay operating expenses, including the management fee, and to make distributions. We may use such cash from the capital resources of our company to pay distributions. See the section entitled "Material U.S. Federal Income Tax Considerations" of our Registration Statement on Form S-1, as amended, for more information about the tax treatment of distributions to our shareholders.

 

 
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Our ability to pay distributions may be constrained by our operating expenses, which include the management fee to be paid to our manager pursuant to the management services agreement. Other constraints on our ability to pay distributions include unknown liabilities, government regulations, financial covenants of the debt of our company, funds needed for acquisitions and to satisfy short- and long-term working capital needs of our businesses, or if the businesses that we may acquire in the future do not generate sufficient earnings and cash flow to support the payment of such distributions. In particular, we may incur additional debt in the future to acquire new businesses, which debt will have additional debt commitments, which must be satisfied before we can make distributions. These factors could affect our ability to continue to make distributions, in the initial quarterly per share amounts or at all. 

 

Our manager owns 100% of the allocation shares in our company, which generally will entitle our manager to receive a 20% profit allocation as a form of preferred equity distribution, subject to an annual hurdle rate of 8.0%, which is applicable to our distributions to our shareholders. Accordingly, the cash flow available for distribution to shareholders will be reduced by the payment of profit allocation to our manager.

 

In addition, our operating agreement contains a supplemental put provision pursuant to which our manager has the right to cause our company to purchase the allocation shares then owned by our manager upon termination of the management services agreement. Our company's obligations under the supplemental put provision are absolute and unconditional. In addition, the supplemental put provision places certain additional obligations on our company upon exercise of our manager's put right until such time as our company's obligations under the supplemental put provision have been satisfied, including limitations on declaring and paying any distributions.

 

Contractual Obligations

 

We have engaged our manager to manage the day-to-day operations and affairs of our company. Our relationship with our manager will be governed principally by the following agreements:

 

 

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the management services agreement relating to the management services our manager will perform for us and the businesses we own and the management fee to be paid to our manager in respect thereof; and

 

·

our company's operating agreement setting forth our manager's rights with respect to the allocation shares it owns, including the right to receive profit allocations from our company, and the supplemental put provision relating to our manager's right to cause our company to purchase the allocation shares it owns.

 

Pursuant to the management services agreement that we entered into with our manager, our manager will have the right to cause our company to purchase the allocation shares then owned by our manager upon termination of the management services agreement. The redemption value of the allocation shares will be recorded outside of permanent equity in the mezzanine section of the balance sheet. We will recognize any change in the redemption value of the allocation shares by recording a dividend between net income and net income available to common shareholders. The amount recorded for the allocation shares is largely related to the fair value of the profit allocation that our manager, as holder of the allocation shares, will receive. The carrying value of the allocation shares will represent an estimate of the amounts to ultimately be paid to our manager, whether as a result of the occurrence of one or more of the various trigger events or upon the exercise of the supplemental put provision contained in our operating agreement following the termination of the management services agreement. 

 

We also expect that our manager will enter into offsetting management services agreements, transaction services agreements and other agreements, in each case, with some or all of the businesses that we acquire in the future.

 

 
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Plan of Operation

 

We believe that we must raise at least $150,000 in order to sustain operations for at least 12 months. However if we are unable to successfully identify and acquire a platform business that generates cash flow and/or raise additional capital we may not have sufficient cash flow to continue our operations. 

 

To meet our need for cash we attempted to raise money from our public offering. Of a total offering amount of $500,000 of common shares, we sold 1,012,500 common shares for a total of $13,500, before offering expenses. As a result, we did not raise enough funds from our public offering to fund our ongoing operations. If we are unable to raise additional financing and successfully identify and acquire a platform business that generates sufficient cash flow in the near future we will need to find alternative sources of financing or we may have to discontinue our operations. 

 

Upon raising sufficient financing, our specific goal is to try to identify and acquire a profitable platform business. 

 

Our plan of operation involves spending the following amounts on the items identified in the table below in each of the next twelve months or until we are able to successfully complete a platform acquisition or significant capital raise.

 

Action

 

Estimated Cost

 

Marketing, advertising

 

$13,000

 

Rent

 

$2,000

 

Other running expenses

 

$5,000

 

 

Marketing and advertising activities will include electronic and postal mail of brochures and marketing collateral to investment banks, institutions, service providers (including accountants and attorneys) and others for the purposes of driving "top of mind" presence with intermediaries that represent the interests of potential target opportunities.

 

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.

 

Limited Operating History

 

There is no significant historical financial information about us upon which to base an evaluation of our performance. We are in start-up stage operations and have not generated a significant amount of revenues. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns due to price and cost increases in services and products.

 

Results of Operations

 

Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue our operation. 

 

We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.

 

 
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Comparison of Three Months Ended September 30, 2015 and 2014

 

Revenues

 

We generated management fee revenues from our indirect subsidiaries in the amount of $43,750 during the three months ended September 30, 2015, as compared to $43,750 during the three months ended September 30, 2014.

 

Operating Expenses

 

Administrative and professional fees amounted to $124,874 and $57,665 for the three months ended September 30, 2015 and 2014, respectively. During the three months ended September 30, 2015 and 2014, quarterly fees due and payable to our manager under the management services agreement were $43,750 and $43,750, respectively. During the three months ended September 30, 2015 and 2014, corporate expenses of $41,334 and $13,915 were primarily related to office and professional fees, respectively. Furthermore, in the three months ended September 30, 2015, the Company expensed $39,790 in due diligence and consulting costs related to the execution of the Termination Agreement (see Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations – Overview – Membership Interest Purchase Agreement).

  

Operating loss

 

Our loss amounted to $81,124 and $13,915 for the three months ended September 30, 2015 and 2014, respectively. Our loss is attributable to the administrative costs and professional fees incurred as there is currently no gross margin generated from our management fee revenue. We have not yet completed our initial platform acquisition and do not expect to generate significant cash from our operations such that we might generate any profits until we are able to raise sufficient capital to complete our initial platform acquisition.

 

Comparison of Nine Months Ended September 30, 2015 and 2014

 

Revenues

 

The Company generated management fee revenues from our indirect subsidiaries in the amount of $131,250 and $131,250 in the nine months ended September 30, 2015 and 2014, respectively.

 

Operating Expenses

 

Administrative and professional fees amounted to $295,603 and $211,731, respectively, for the nine months ended September 30, 2015 and 2014, respectively. During the nine months ended September 30, 2015 and 2014, quarterly fees due and payable to our manager under the management services agreement were $131,250 and $130,000, respectively. During the nine months ended September 30, 2015 and 2014, corporate expenses of $124,563 and $81,731were primarily related to office and professional fees, respectively. Furthermore, in the three months ended September 30, 2015, the Company expensed $39,790 in due diligence and consulting costs related to the execution of the Termination Agreement (see Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations – Overview – Membership Interest Purchase Agreement).

 

Operating loss

 

Our loss amounted to $164,353 and $80,481 for the nine months ended September 30, 2015 and 2014, respectively. Our loss since attributable to the administrative costs and professional fees incurred as there is currently no gross margin generated from our management fee revenue. We have not meaningfully commenced our proposed business operations and will not do so until we have generated sufficient cash from financing.

 

 
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Liquidity and Capital Resources of our Management Consulting Business

 

As of September 30, 2015, we had $463 in cash and our current assets were comprised of $100,000management fee accounts receivable and other assets of $375 and our liabilities were $453,905, comprised of $92,146 owed to Ellery W. Roberts, our Chief Executive Officer and affiliated entities, and accounts payable of $361,759.

 

Since inception, we have sold 66,625,000 common shares to our Chief Executive Officer and Chairman, in exchange for a 50% equity interest in each of PPI Management and Christals Management. In addition, on September 15, 2013, we entered into a restricted stock purchase agreement with Bevilacqua PLLC, a consultant to the Company, and Joseph J. Kaufman, an independent contractor consulting for Bevilacqua PLLC. Pursuant to this Agreement, the consultants received a total of 11,250,000 common shares in consideration for corporate and securities legal advisory services provided and to be provided to the Company.

 

On May 9, 2014, we commenced our IPO of 37,500,000 common shares at an offering price of $0.0133 per share. On June 30, 2014, we filed a post-effective amendment to our Form S-1 to terminate the IPO. The post-effective amendment was declared effective by the Securities and Exchange Commission on July 1, 2014. Gross proceeds from the offering were $13,500, not including accounting, legal, transfer agent, and other offering expenses. Including such expenses, estimated net expenses of the IPO were $47,568. 

 

We will attempt to raise additional necessary funds to proceed with all phases of our plan of operation. The sources of funding we may consider to fund this work include a new public offering, a private placement of our securities or loans from our Chief Executive Officer and Chairman.

 

As we were unable to raise sufficient funds in our IPO, we will seek capital from other sources such as taking loans, which will likely not even be possible for our company. However, if such financing were available, because we are an emerging growth company, we would likely have to pay additional costs associated with high-risk loans and be subject to an above market interest rate. At such time these funds are required, management would evaluate the terms of such debt financing. If our company cannot raise additional proceeds via a private placement of its equity or debt securities, or secure a loan, we would be required to cease business operations. As a result, investors would lose all of their investment. 

 

Our auditors have issued a "going concern" opinion, meaning that there is substantial doubt if we can continue as an on-going business for the next twelve months unless we are successful in acquiring a platform business that has sufficient cash flows or we obtain additional capital. No substantial revenues are anticipated until we have completed the financing from one or more future public or private offerings and implemented our plan of operations. Our only source for cash at this time is revenues generated by our indirect subsidiaries PPI Management and Christals Management and investments from our IPO. We must raise additional cash to implement our strategy and stay in business. If we are unable to obtain additional working capital our business may fail. Accordingly, we must raise cash from sources other than operations. Our only other source for cash at this time is investments by our Chief Executive Officer and Chairman in our company. We must raise the additional cash to implement our projected plan of operations described above under "Plan of Operation". The company anticipates over the next 12 months the cost of being a reporting public company will be approximately $30,000. 

 

Should our company fail to gain sufficient financing our company would be forced to scale back or abort completely the implementation of our 12-month plan of operation.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

 
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As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of September 30, 2015. Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer determined that, because of the material weaknesses described in Item 9A "Controls and Procedures" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which we are still in the process of remediating as of September 30, 2015, our disclosure controls and procedures were not effective. Investors are directed to Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 for the description of these weaknesses.

 

Changes in Internal Control Over Financial Reporting

 

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

 

During its evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2015, our management identified the following material weaknesses:

 

We did not have appropriate policies and procedures in place to evaluate the proper accounting and disclosures of key documents and agreements.

 

 

 

We do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements.

 

As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, our management has identified the steps necessary to address the material weaknesses, and in the third quarter of fiscal 2015, we continued to implement the following remedial procedures:

 

We are in the process of hiring a chief financial officer with significant U.S. GAAP and SEC reporting experience.

 

 

 

We plan to make necessary changes by providing training to our financial team and our other relevant personnel on the U.S. GAAP accounting guidelines applicable to our financial reporting requirements.

 

We intend to complete the remediation of the material weaknesses discussed above as soon as practicable but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weaknesses that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.

 

Other than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls over financial reporting during the third quarter of fiscal 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
23
 

  

PART II
OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

 

ITEM 1A. RISK FACTORS.

 

Not applicable.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

We have not sold any equity securities during the third quarter of fiscal year 2015 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during the quarter.

 

During the three-month period ended September 30, 2015, we did not repurchase any of our common shares.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

We have no information to disclose that was required to be in a report on Form 8-K during the third quarter of fiscal year 2015, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

 

ITEM 6. EXHIBITS.

 

The list of exhibits in the Exhibit Index to this report is incorporated herein by reference.

 

 
24
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

1847 HOLDINGS LLC

 

 

 

 

Date: November 23, 2015

By:

/s/ Ellery W. Roberts

 

Name:

Ellery W. Roberts

 

Title:

Chief Executive Officer and Chief Financial Officer

 

 

(Principal Executive Officer and
Principal Financial and Accounting Officer)

 

 

 
25
 

 

EXHIBIT INDEX

 

Exhibit No.

Description

 

 

 

10.1

Termination of Membership Interest Purchase Agreement, dated as of September 11, 2015, among Monrovia Auto Finance, Inc., Money Train Title Loans, LLC, On Track, LLC, Jarrod Clarke Holdings, Inc., and Jarrod Clarke

 

 

 

10.2

Option Agreement, dated as September 11, 2015, among Monrovia Auto Finance, Inc., Money Train Title Loans, LLC, On Track, LLC, Jarrod Clarke Holdings, Inc., and Jarrod Clarke

 

 

 

10.3

Broker Services and Loan Administration and Servicing Agreement, dated September 11, 2015, between Monrovia Auto Finance, Inc. and Money Train Title Loans, LLC

 

 

 

31.1

Certifications of Principal Executive Officer and Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

Certifications of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS *

XBRL Instance Document

 

 

 

101.SCH *

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL *

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF *

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB *

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE *

XBRL Taxonomy Extension Presentation Linkbase Document

______________  

*XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a report for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

 

 

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