NOTE 14—NOTES PAYABLE

Notes payable as of December 31, 2025 and 2024 consist of the following:

Vehicle Loans

The Company has financed vehicle purchases with notes payable secured by the underlying. These notes carry interest rates ranging from 1.99% to 6.54% and have original terms of four to five years. As of December 31, 2025, the outstanding balance was $8,530.

6% Subordinated Promissory Notes

As part of the consideration for the acquisition of ICU Eyewear, 1847 ICU issued subordinated promissory notes to the sellers in the aggregate principal amount of $500,000. The notes bear interest at 6% per annum, with all principal and accrued interest due and payable in a single lump sum on February 9, 2024. Upon an event of default, the interest rate increases to 10% per annum. The notes are unsecured and subordinated to all senior indebtedness.

As of December 31, 2025, the outstanding principal balance is $500,000 and accrued interest is $126,389.

Purchase and Sale of Future Revenues Loan

On March 31, 2023, the Company and its subsidiary 1847 Cabinet entered into a non-recourse funding agreement with a third-party for the sale of future revenues totaling $1,965,000 for net cash proceeds of $1,410,000, requiring weekly ACH payments in the amount of $39,300. The Company recorded an initial debt discount of $555,000, amortized under the effective interest method, resulting in an initial effective interest rate of 72.4%. The agreement allows the third party to file UCC financing statements securing their interest in the receivables and includes customary events of default.

On November 30, 2023, the agreement was amended to increase the outstanding balance by $1,375,500 to $1,965,000 for net cash proceeds of $865,500. The Company evaluated the amendment under ASC 470-50, “Modifications and Extinguishments,” determined it to be a modification, and recorded an additional debt discount of $510,000. Following the modification, the effective interest rate was 65.1%.

On July 23, 2024, the agreement was further amended to increase the outstanding balance by $1,624,400 to $2,292,500 for net cash proceeds of $1,029,400. The Company evaluated the amendment under ASC 470-50, and determined it to be a modification, and recorded an additional debt discount of $595,000. Following the modification, the effective interest rate was 74.8%.

On April 24, 2025, the agreement was further amended to increase the outstanding balance by $845,650 to $1,350,000 for net cash proceeds of $465,650, with weekly ACH payments revised to $27,000. The Company evaluated the amendment under ASC 470-50, and determined it to be a modification, and recorded an additional debt discount of $380,000. Following the modification, the effective interest rate was 82.2%.

As of December 31, 2025, the outstanding principal balance is $405,000, net of unamortized debt discount of $46,829.

20% OID Promissory Notes – March 2024

On March 4, 2024, the Company issued a 20% original issue discount (“OID”) subordinated promissory note in the principal amount of $1,250,000 to an accredited investor for net cash proceeds of $999,900. The note was subsequently amended and restated on March 27, 2024 to increase the principal amount to $1,562,500 for additional cash proceeds of $250,000, and again on April 9, 2024 to increase the principal amount to $2,500,000 for additional cash proceeds of $750,000.

The Company evaluated the note for embedded features that qualify as derivatives under ASC 815. The Company determined that the 50% default penalty constitutes a deemed redemption feature, requiring bifurcation from the host instrument and separate accounting as a freestanding derivative liability. The fair value of the embedded redemption derivative liability was determined using a probability-weighted expected return methodology. Subsequent changes in fair value are recognized in the consolidated statements of operations each reporting period. The OID, issuance costs, and initial fair value of the embedded derivative liability were collectively recorded as a debt discount, amortized to interest expense over the term of the note using the effective interest method.

On June 4, 2024, an event of default occurred, resulting in a $1,250,000 increase to the principal balance. The Company recognized a loss on extinguishment of debt of $1,250,000 and extinguished the derivative liability.

The note was subsequently amended on five occasions to extend the maturity date, with the Company agreeing to increase the outstanding principal as consideration for each extension as follows:

Commencing November 15, 2025, the note requires monthly cash payments of $100,000, increasing to $150,000 per month beginning December 15, 2025 and continuing on the 15th of each month thereafter until maturity. The note may be prepaid in whole or in part at any time. In addition, the Company is required to apply a minimum of 40% of the net proceeds from any equity, equity-linked, or debt securities issuance or financing transaction, other than excluded debt as defined in the note, toward repayment of this note. The note is unsecured and has priority over all other unsecured indebtedness except for certain senior indebtedness as defined in the note. Upon an event of default, the outstanding principal balance will be assessed a 50% penalty.

As of December 31, 2025, the outstanding principal balance is $3,313,820.

12% Promissory Note for Services

On May 9, 2024, the Company entered into a securities purchase agreement with an accredited investor pursuant to which the Company issued a promissory note in the principal amount of $500,000 in consideration for the holder entering into a lock-up agreement to not execute any conversions of a secured convertible note issued to the holder on October 8, 2021 (see Note 15—Convertible Notes Payable) into common shares of the Company, subject to certain exceptions. The note bears interest at 12% per annum and matured on May 9, 2025. Upon an event of default, the interest rate increases to 16% per annum and the outstanding balance is assessed a 50% penalty. The note is unsecured and has priority over all other unsecured indebtedness. At any time prior to full repayment, the holder has the right in its sole discretion to require the Company to apply up to 100% of cash proceeds received from any source toward repayment of outstanding principal and accrued interest.

The note was recorded at fair value on the date of issuance. The fair value was determined as the present value of contractual cash flows using a market interest rate of 13.76%, resulting in an initial fair value of $492,000, recognized in the consolidated statements of operations. The resulting discount of $8,000 was amortized to interest expense over the term of the note using the effective interest method.

The Company evaluated the note for embedded features that qualify as derivatives under ASC 815. The Company determined that the 50% default penalty constitutes a deemed redemption feature requiring bifurcation from the host instrument and separate accounting as a freestanding derivative liability. The fair value of the embedded redemption derivative liability was determined using a probability-weighted expected return methodology, with the initial fair value recognized in the consolidated statements of operations. Subsequent changes in fair value are recognized in the consolidated statements of operations each reporting period.

On May 9, 2025, an event of default occurred, resulting in a $280,000 increase to the principal balance. The Company recognized a loss on extinguishment of debt of $280,000 and extinguished the corresponding derivative liability.

As of December 31, 2025, the outstanding principal balance is $840,000 and accrued interest is $86,900.

25% OID Promissory Note

On June 28, 2024, the Company’s subsidiaries 1847 Cabinet, High Mountain, ICD and Kyle’s (the “Borrowers”) issued an 25% OID promissory note in the principal amount of up to $2,472,000, to be advanced in one or more tranches, to Breadcrumbs Capital LLC (“Breadcrumbs”). The tranches were executed as follows:

The note bears interest at the greater of (i) 8% plus the U.S. Prime Rate as published in The Wall Street Journal or (ii) 14% per annum. Upon an event of default, the interest rate increases to 36% or the maximum legal rate, and the outstanding balance is assessed a 35% penalty. Each tranche is due and payable three months after issuance. The note is secured by all assets of the Borrowers pursuant to a security agreement, subordinate to the senior lender, Leonite Capital LLC.

In connection with the issuance of the note, the Company entered into a memorandum of understanding with Breadcrumbs pursuant to which, upon the closing of each tranche, the Company agreed to issue series D senior convertible preferred shares with a stated value equal to the principal amount of each tranche. See Note 18—Convertible Preferred Shares for further details for additional information.

The Company evaluated the note for embedded features that qualify as derivatives under ASC 815. The Company determined that the 35% default penalty constitutes a deemed redemption feature requiring bifurcation from the host instrument and separate accounting as a freestanding derivative liability. The fair value of the embedded redemption derivative liability was determined using a probability-weighted expected return methodology. Subsequent changes in fair value are recognized in the consolidated statements of operations each reporting period. The OID, issuance costs, and allocated fair values of both the series D senior convertible preferred shares and the bifurcated embedded redemption derivative liability were collectively recorded as a debt discount, amortized to interest expense over the term of the note using the effective interest method.

Upon maturity, an event of default occurred, resulting in a $377,370 increase to the principal balance. The Company recognized a loss on extinguishment of debt of $377,370 and extinguished the corresponding derivative liability.

As of December 31, 2025, the outstanding principal balance is $1,455,600 and accrued interest is $763,921.

CMD Seller Promissory Note

As part of the consideration for the acquisition of CMD (see Note 5—Business Combinations), on December 16, 2024, 1847 CMD issued the seller a non-interest-bearing promissory note in the principal amount of $1,050,000, due and payable on February 16, 2025, and did not bear interest. The note was repaid in full on February 14, 2025.