NOTE 16—RELATED PARTIES

Related Party Note Payable

A portion of the consideration for the acquisition of Kyle’s on September 30, 2020 was paid through the issuance of a vesting promissory note by 1847 Cabinet to Stephen Mallatt, Jr. and Rita Mallatt, officers of Kyle’s, in the principal amount of $1,260,000. On July 26, 2022, the Company and 1847 Cabinet entered into a conversion agreement with Stephen Mallatt, Jr. and Rita Mallatt pursuant to which $797,221 of the vesting note was converted into 10 common shares at a conversion price of $81,900 per share, the vesting note was cancelled, and the remaining balance of $558,734 was due by October 1, 2022. The conversion agreement was subsequently amended on multiple occasions to extend the due date, with the latest amendment extending the due date to July 30, 2023 and providing for an amendment fee of $76,784.

On June 27, 2025, the conversion agreement and a consulting agreement, dated March 16, 2024, between the Company and Stephen Mallatt, Jr. and Rita Mallatt were cancelled, and 1847 Cabinet issued an 8% promissory note in the principal amount of $1,567,621 to Stephen Mallatt, Jr. and Rita Mallatt. The note bears interest at 8% per annum and matures on November 15, 2027, with monthly payments commencing July 15, 2025. All amounts outstanding under the note are required to be repaid in full upon a sale of CMD. The note is unsecured and contains customary events of default. The Company recognized a loss on extinguishment of debt of $458,218 in connection with the issuance of the new note.

As of December 31, 2025, the outstanding principal balance is $1,265,326.

Management Services Agreements

On April 15, 2013, the Company and the Manager entered into a management services agreement, pursuant to which the Company is required to pay the Manager a quarterly management fee equal to 0.5% of its adjusted net assets for services performed (the “Parent Management Fee”). The amount of the Parent Management Fee with respect to any fiscal quarter is (i) reduced by the aggregate amount of any management fees received by the Manager under any offsetting management services agreements with respect to such fiscal quarter, (ii) reduced (or increased) by the amount of any over-paid (or under-paid) Parent Management Fees received by (or owed to) the Manager as of the end of such fiscal quarter, and (iii) increased by the amount of any outstanding accrued and unpaid Parent Management Fees. The Company expensed $0 in Parent Management Fees for the years ended December 31, 2025 and 2024.

On May 28, 2020, 1847 Asien entered into an offsetting management services agreement with the Manager. Pursuant to the management services agreement, the Manager will provide certain services to 1847 Asien in exchange for a quarterly management fee. This fee will be the greater of $75,000 or 2% of adjusted net assets (as defined within the management services agreement). Following the assignment of all of the assets of Asien’s on February 26, 2024, the Manager ceased to provide services to 1847 Asien for quarterly management fees. 1847 Asien expensed management fees of $50,000 for the year ended December 31, 2024, which is included in discontinued operations. See Note 4—Discontinued Operations for additional information.

On August 21, 2020, 1847 Cabinet entered into an offsetting management services agreement with the Manager, which was amended on October 8, 2021. Pursuant to the amended management services agreement, the Manager will provide certain services to 1847 Cabinet in exchange for a quarterly management fee. This fee will be the greater of $125,000 or 2% of adjusted net assets (as defined within the amended management services agreement). For the years ended December 31, 2025 and 2024, 1847 Cabinet expensed management fees of $500,000 and $375,000, respectively. For the year ended December 31, 2024, $125,000 was included in discontinued operations as a result of the sale of High Mountain. See Note 4—Discontinued Operations for additional information.

On March 30, 2021, 1847 Wolo entered into an offsetting management services agreement with the Manager. Pursuant to the management services agreement, the Manager will provide certain services to 1847 Wolo in exchange for a quarterly management fee. This fee will be the greater of $75,000 or 2% of adjusted net assets (as defined within the management services agreement). 1847 Wolo expensed management fees of $300,000 for the years ended December 31, 2025 and 2024.

On February 9, 2023, 1847 ICU entered into an offsetting management services agreement with the Manager. Pursuant to the management services agreement, the Manager will provide certain services to 1847 ICU in exchange for a quarterly management fee. This fee will be the greater of $75,000 or 2% of adjusted net assets (as defined within the management services agreement). Following the sale of all of the assets of ICU Eyewear on August 5, 2024, the Manager ceased to provide services to 1847 ICU for quarterly management fees. 1847 ICU expensed management fees of $175,000 for the year ended December 31, 2024, which is included in discontinued operations. See Note 4—Discontinued Operations for additional information.

On December 16, 2024, 1847 CMD entered into an offsetting management services agreement with the Manager. Pursuant to the management services agreement, the Manager will provide certain services to 1847 CMD in exchange for a quarterly management fee. This fee will be the greater of $75,000 or 2% of adjusted net assets (as defined within the management services agreement). 1847 CMD expensed management fees of $300,000 for the year ended December 31, 2025.

In addition, if the aggregate amount of management fees paid or to be paid to the Manager under the offsetting management services agreements, exceeds, or is expected to exceed, 9.5% of the Company’s gross income in any fiscal year or the Parent Management Fee in any fiscal quarter, then the management fee to be paid by such entities shall be reduced, on a pro rata basis determined by reference to the other management fees to be paid to the Manager under other offsetting management services agreements.

In addition, under the Company’s operating agreement with the Manager, in the event of an acquisition of a target business or disposition of a subsidiary, the Manager will receive a transaction fee of 2% of the aggregate purchase price, which percentage decreases if the purchase exceeds $50 million.

The profit allocation and transaction fees are included in management fees. On a consolidated basis, for the year ended December 31, 2025, the Company expensed total management fees of $1,100,000. For the year ended December 31, 2024, the Company expensed total management fees from continued operations and discontinued operations of $2,267,000 and $350,000, respectively.

Manager’s Profit Allocation and Transaction Fees

The Manager owns 100% of the allocation shares of the Company which represent the original equity interest in the Company. As a holder of the allocation shares, the Manager is entitled to receive a 20% profit allocation as a form of preferred distribution, pursuant to a profit allocation formula upon the occurrence of certain events. Generally, the distribution of the profit allocation is paid upon the occurrence of the sale of a material amount of capital stock or assets of one of the Company’s businesses, including if the Company distributes its equity ownership in a subsidiary to the Company’s shareholders in a spin-off or similar transaction (a “Sale Event”), or, at the option of the Manager, at the five-year anniversary date of the acquisition of one of the Company’s businesses (a “Holding Event”). The calculation of the profit allocation and the rights of the Manager, as the holder of the allocation shares, are governed by the operating agreement. The Company records distributions of the profit allocation to the holders upon occurrence of a Sale Event or Holding Event as dividends declared on allocation interests to shareholders’ equity when they are approved by the Company’s board of directors. In addition, under the Company’s operating agreement with the Manager, in the event of an acquisition of a target business or disposition of a subsidiary, the Manager will receive a transaction fee of 2% of the aggregate purchase price, which percentage decreases if the purchase exceeds $50 million.

During 2020, concurrent with the spin-off of a former subsidiary, the board of directors identified a need to adjust the distribution to the Manger, which resulted in the recognition of a $2 million distribution receivable from the Manager within shareholders’ deficit, with repayment anticipated upon the occurrence of the next qualified profit allocation distribution event (the “Distribution Receivable”).

On April 23, 2024, the Company and the Manager entered into a letter agreement regarding the timing of payment of the Distribution Receivable, pursuant to which the parties agreed to treat the Distribution Receivable as a $2,000,000 unqualified obligation of the Manager to be repaid as a credit against all future profit allocations resulting from both a Sale Event and a Holding Event payable to the Manager, all until the Distribution Receivable is fully paid, provided that, if the Distribution Receivable is not fully paid by the application of such credit or otherwise by the first to occur of (i) December 31, 2024 and (ii) the date of the sale of all or substantially all the assets (in a transaction of any form) or the liquidation, dissolution or winding up, voluntary or involuntary, of either party, then upon such date the unpaid balance shall be immediately due, payable and paid by the Manager. During the year ended December 31, 2024, the Distribution Receivable was settled in full.

On September 30, 2024, the Company completed the sale of High Mountain (see Note 4—Discontinued Operations). The sale qualified as a sale event under the Company’s operating agreement, entitling the Manager to a 20% profit allocation of $875,000 and a transaction fee of 2.0% of the sales price, or $340,000, in accordance with the profit allocation formula outlined in the operating agreement. On December 16, 2024, the Company completed the acquisition of CMD (see Note 5—Business Combinations), entitling the Manager to a transaction fee of 2.0% of the purchase price, or $377,000. The profit allocation and transaction fees were recorded as management fees in the consolidated statements of operations. 

Building Lease

See Note 12—Leases regarding the building lease for the property leased by Kyle’s from Stephen Mallat, Jr. and Rita Mallatt, officers of Kyle’s. During the years ended December 31, 2025 and 2024, the Company recognized lease expense of $90,923 and $87,106, respectively, under this related party lease.