| Summary of Significant Accounting Policies | NOTE
2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis
of Presentation The
financial statements of the Company have been prepared without audit in accordance with generally accepted accounting principles
in the United States of America ("GAAP") and are presented in US dollars. In
the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and nine month periods ended September 30, 2019 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2019. These
unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial
statements and notes thereto contained in the Company's annual report on Form 10-K for the year ended December 31, 2018. Accounting
Basis The
Company uses the accrual basis of accounting and GAAP. The Company has adopted a calendar year end. Stock
Splits On
January 22, 2018, the Company completed a 1-for-5 reverse split of its outstanding common shares. As a result of this stock split,
the Company's issued and outstanding common shares decreased from 3,115,500 to 623,125 shares. On
May 10, 2018, the Company completed a 5-for-1 forward stock split of its outstanding common shares. As a result of this stock
split, the Company's issued and outstanding common shares increased from 623,125 to 3,115,625 shares. Accordingly,
all share and per share information has been restated to retroactively show the effect of these stock splits. Segment
Reporting The
Financial Accounting Standards Board ("FASB") Accounting Standard Codification ("ASC") Topic 280, Segment
Reporting, requires that an enterprise report selected information about reportable segments in its financial reports issued to
its stockholders. Beginning with the second quarter of 2019, the Company changed its operating and reportable segments from one
segment to two segments: the Land Management Segment, which is operated by Neese, and the Retail and Appliances Segment, which
is operated by Goedeker. The
Land Management Segment will be responsible for the activities that provide professional services on waste disposal and land application
services based in Grand Junction, Iowa. The
Retail and Appliances Segment will be responsible for the activities in e-commerce destination for home furnishings, including
appliances, furniture, bath and kitchen fixtures, décor, lighting and home goods based in St. Louis, Missouri. The
Company provides general corporate services to its segments; however, these services are not considered when making operating
decisions and assessing segment performance. These services are reported under "Holding Company" below and these include
costs associated with executive management, financing activities and public company compliance. Cash
and Cash Equivalents The
Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents. Use
of Estimates The
preparation of financial statements in conformity with GAAP 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. Reclassifications Certain
Statements of Operations reclassifications have been made in the presentation of the Company's prior financial statements
and accompanying notes to conform to the presentation as of and for the three and nine months ended September 30, 2019. The Company
reclassified certain operating expense accounts in the Consolidated Statement of Operations. The reclassification had no impact
on financial position, net income, or shareholder's equity. Revenue
Recognition and Cost of Revenue On
January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts
with Customers (Topic 606) Revenue Recognition Land
Management Segment Neese's
payment terms are due on demand from acceptance of delivery. Neese does not incur incremental costs obtaining purchase orders
from customers, however, if Neese did, because all of Neese's contracts are less than a year in duration, any contract costs
incurred would be expensed rather than capitalized. The
revenue that Neese recognizes arises from orders it receives from customers. Neese's performance obligations under the customer
orders correspond to each service delivery or sale of equipment that Neese makes to customers under the purchase orders; as a
result, each purchase order generally contains only one performance obligation based on the service or equipment sale to be completed.
Control of the delivery transfers to customers when the customer is able to direct the use of, and obtain substantially all of
the benefits from, Neese's products, which generally occurs at the later of when the customer obtains title to the equipment
or when the customer assumes risk of loss. The transfer of control generally occurs at a point of delivery. Once this occurs,
Neese has satisfied its performance obligation and Neese recognizes revenue. Neese
also sells equipment by posting it on auction sites specializing in farm equipment. Neese posts the equipment for sale on a "magazine"
site for several weeks before the auction. When Neese decides to sell, it moves the equipment to the auction site. The auctions
are one day. If Neese accepts a bid, the customer pays the bid price and arranges for pick-up of the equipment. Transaction
Price ‒ Neese agrees with customers on the selling price of each transaction. This transaction price is generally based
on the agreed upon service fee. In Neese's contracts with customers, it allocates the entire transaction price to the service
fee to the customer, which is the basis for the determination of the relative standalone selling price allocated to each performance
obligation. Any sales tax, value added tax, and other tax Neese collects concurrently with revenue-producing activities are excluded
from revenue. If
Neese continued to apply legacy revenue recognition guidance for the three and nine months ended September 30, 2019, revenues,
gross margin, and net loss would not have changed. Substantially
all of Neese's sales are to businesses, including farmers or municipalities and very little to individuals. Disaggregated
Revenue ‒ Neese disaggregates revenue from contracts with customers by contract type, as it believes it best depicts how
the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Neese's
revenue by contract type is as follows:
Three Months Ended Nine Months Ended
2019 2018 2019 2018
Revenues
Trucking $ 383,709 $ 568,004 $ 1,267,550 $ 1,580,032
Waste hauling and pumping 40,781 45,349 417,138 296,891
Repairs 181,129 163,618 309,330 429,348
Other 136,422 106,489 299,747 236,816
Total services 742,041 883,460 2,293,765 2,543,087
Sales of parts and equipment 670,221 583,054 1,523,031 1,155,668
Total revenue $ 1,412,262 $ 1,466,514 $ 3,816,796 $ 3,698,755 Performance
Obligations ‒ Performance obligations for the different types of services are discussed below:
● Trucking
● Waste
Hauling and pumping
● Repairs
● Sales
of parts and equipment Accounts
Receivable, Net ‒ Accounts receivable, net, are amounts due from customers where there is an unconditional right to consideration.
Unbilled receivables of $0 and $139,766 are included in this balance at September 30, 2019 and December 31, 2018, respectively.
The payment of consideration related to these unbilled receivables is subject only to the passage of time. Neese
reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. Estimates are
used to determine the amount of the allowance for doubtful accounts necessary to reduce accounts receivable to its estimated net
realizable value. The estimates are based on an analysis of past due receivables, historical bad debt trends, current economic
conditions, and customer specific information. After Neese has exhausted all collection efforts, the outstanding receivable balance
relating to services provided is written off against the allowance. Additions to the provision for bad debt are charged to expense. Neese
determined that an allowance for loss of $29,001 was required at September 30, 2019 and December 31, 2018. Retail
and Appliances Segment Goedeker
collects the full sales price from the customer at the time the order is placed. Goedeker does not incur incremental costs obtaining
purchase orders from customers, however, if Goedeker did, because all Goedeker's contracts are less than a year in duration,
any contract costs incurred would be expensed rather than capitalized. The
revenue that Goedeker recognizes arises from orders it receives from customers. Goedeker's performance obligations under
the customer orders correspond to each sale of merchandise that it makes to customers under the purchase orders; as a result,
each purchase order generally contains only one performance obligation based on the merchandise sale to be completed. Control
of the delivery transfers to customers when the customer can direct the use of, and obtain substantially all the benefits from,
Goedeker's products, which generally occurs when the customer assumes the risk of loss. The transfer of control generally
occurs at the point of shipment. Once this occurs, Goedeker has satisfied its performance obligation and Goedeker recognizes revenue.
Revenue from the sale of long-term service warranties are recognized net of costs to sell the contracts to the third-party warranty
service company. Transaction
Price ‒ Goedeker agrees with customers on the selling price of each transaction. This transaction price is generally based
on the agreed upon sales price. In Goedeker's contracts with customers, it allocates the entire transaction price to the
sales price, which is the basis for the determination of the relative standalone selling price allocated to each performance obligation.
Any sales tax, value added tax, and other tax Goedeker collects concurrently with revenue-producing activities are excluded from
revenue. If
Goedeker continued to apply legacy revenue recognition guidance for the three and nine months ended September 30, 2019, revenues,
gross margin, and net loss would not have changed. Cost
of revenue includes the cost of purchased merchandise plus the cost of delivering merchandise and where applicable installation,
net of promotional rebates and other incentives received from vendors. Substantially
all Goedeker's sales are to individual retail consumers. Disaggregated
Revenue Goedeker's
revenue by sales type is as follows:
Three Months Ended Nine Months Ended
2019 2018 2019 2018
Appliance sales $ 10,086,489 $ - $ 18,535,801 $ -
Furniture sales 1,398,843 - 2,969,390 -
Other sales 646,771 - 1,242,962 -
Total revenue $ 12,132,103 $ - $ 22,748,153 $ - Performance
Obligations – Goedeker's performance obligations include delivery of products and, in some instances, performance
of services such as installation. Revenue for the sale of merchandise is recognized upon shipment to the customer; or in some
instances, upon delivery and installation of the product which typically occur simultaneously. Receivables Receivables
consist of credit card transactions in the process of settlement. Vendor rebates receivable represent amounts due from manufactures
from whom the Company purchases products. Rebates receivable are stated at the amount that management expects to collect from
manufacturers, net of accounts payable amounts due the vendor. Rebates are calculated on product and model sales programs from
specific vendors. The rebates are paid at intermittent periods either in cash or through issuance of vendor credit memos, which
can be applied against vendor accounts payable. Based on the Company's assessment of the credit history with its manufacturers,
it has concluded that there should be no allowance for uncollectible accounts. The Company historically collects substantially
all of its outstanding rebates receivables. Uncollectible balances are expensed in the period it is determined to be uncollectible. Allowance
for Credit Losses Provisions
for credit losses are charged to income as losses are estimated to have occurred and in amounts sufficient to maintain an allowance
for credit losses at an adequate level to provide for future losses on the Company's accounts receivable. The Company charges
credit losses against the allowance and credits subsequent recoveries, if any, to the allowance. Historical loss experience and
contractual delinquency of accounts receivables, and management's judgment are factors used in assessing the overall adequacy
of the allowance and the resulting provision for credit losses. While management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or portfolio
performance. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revisions as
more information becomes available. The
allowance for credit losses consists of general and specific components. The general component of the allowance estimates credit
losses for groups of accounts receivable on a collective basis and relates to probable incurred losses of unimpaired accounts
receivables. The Company records a general allowance for credit losses that includes forecasted future credit losses. Inventory Inventory
consists of finished products acquired for resale and is valued at the lower-of-cost-or-market with cost determined on a specific
item basis for the Neese and of finished products acquired for resale and is valued at the low-of-cost-or-market with cost determined
on a average item basis for Goedeker. The Company periodically evaluates the value of items in inventory and provides write-downs
to inventory based on its estimate of market conditions. The Company estimated an obsolescence allowance of $99,546 at September
30, 2019 and December 31, 2018. Property
and Equipment Property
and equipment is stated at cost. Depreciation of furniture, vehicles and equipment is calculated using the straight-line method
over the estimated useful lives as follows:
Useful Life (Years)
Building and Improvements 4
Machinery and Equipment 3-7
Tractors 3-7
Trucks and vehicles 3-6 Goodwill
and Intangible Assets In
applying the acquisition method of accounting, amounts assigned to identifiable assets and liabilities acquired were based on
estimated fair values as of the date of acquisition, with the remainder recorded as goodwill. Identifiable intangible assets are
initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Identifiable
intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators
of impairment arise. Intangible assets with indefinite lives are tested for impairment within one year of acquisitions or annually
as of December 1, and whenever indicators of impairment exist. The fair value of intangible assets are compared with their carrying
values, and an impairment loss would be recognized for the amount by which a carrying amount exceeds its fair value. Acquired
identifiable intangible assets are amortized over the following periods:
Acquired intangible Asset Amortization Basis Expected Life (years)
Customer-Related Straight-line basis 5 Long-Lived
Assets The
Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management
at least annually. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset
to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of
the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Fair
Value of Financial Instruments The
Company's financial instruments consist of cash and cash equivalents and amounts due to shareholders. 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. Derivative
Instrument Liability The
Company accounts for derivative instruments in accordance with ASC 815, Derivatives and Hedging, which establishes accounting
and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in
other financial instruments or contracts, and requires recognition of all derivatives on the balance sheet at fair value, regardless
of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the
derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At September
30, 2019, the Company classified a warrant issued in conjunction with a term loan as a derivative instrument. (see Note 11). 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. 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 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 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. As the Company had a net loss for
the three and nine months ended September 30, 2019, the following 895,565 potentially dilutive securities were excluded from diluted
loss per share: 200,000 for outstanding warrants and 695,565 related to the convertible note payable and accrued interest. There
are no such common share equivalents outstanding as of September 30, 2018. Going
Concern Assessment Management
assesses going concern uncertainty in the Company's consolidated financial statements to determine whether there is sufficient
cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the
date the consolidated financial statements are issued or available to be issued, which is referred to as the "look-forward
period", as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management,
management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including
the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and
its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable,
management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures
to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them
within the look-forward period. The
Company has generated losses since its inception and has relied on cash on hand, external bank lines of credit and the sale of
a note to support cashflow from operations. As of and for the nine months ended September 30, 2019, the Company had a net loss
attributable to 1847 Holdings shareholders of $1,978,241, negative working capital of $9,612,640 and net cash used in operations
of $954,532. Management believes that based on relevant conditions and events that are known and reasonably knowable that
its forecasts, for one year from the date of the filing of the consolidated financial statements in this Quarterly Report on Form
10-Q, indicate improved operations and the Company's ability to continue operations as a going concern. The Company has
contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period. Recent
Accounting Pronouncements Not
Yet Adopted In
January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment.
In
June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments Recently
Adopted In
February 2016, the FASB issued ASU 2016-02, Leases |
