NOTE 19—SHAREHOLDERS’ DEFICIT

Allocation Shares

As of December 31, 2025 and 2024, the Company had authorized and outstanding 1,000 allocation shares. The 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 operating agreement.

The allocation shares are held by the Manager, which is controlled by Mr. Roberts, the Company’s chief executive officer and a principal shareholder.

Common Shares

On March 11, 2025, the Second Amended and Restated Operating Agreement, as amended of the Company, was amended pursuant to Amendment No. 4 to Second Amended and Restated Operating Agreement (the “Amendment”), entered into by 1847 Partners LLC, as the Manager (as defined in the Operating Agreement). The Amendment was approved by shareholders on March 11, 2025. The Amendment increased the number of common shares that the Company is authorized to issue from 500 million shares to 2 billion shares.

As of December 31, 2025 and 2024, the Company was authorized to issue 2,000,000,000 and 500,000,000 common shares, respectively, and had 61,918,659 and 25,400,386 common shares issued and outstanding, respectively.

On July 18, 2025, 15 common shares were cancelled by the holder thereof.

On August 29, 2025, the Company issued 1,420,000 common shares with a fair value of $100,394 to a consultant for services rendered.

During the year ended December 31, 2025, the Company issued an aggregate of 8,221,126 common shares upon the conversion of a convertible promissory note totaling $324,590.

During the year ended December 31, 2025, the Company issued an aggregate of 13,277,162 common shares upon the cashless exercise of pre-funded warrants and an aggregate of 13,600,000 common shares upon the cashless exercise of series A warrants issued in December 2024, resulting in extinguishment of warrant liabilities of $254,700.

On February 9, 2024, the Company entered into a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan Capital Securities, LLC (“Spartan”), pursuant to which the Company agreed to issue and sell to such purchasers an aggregate of 9,364 common shares and pre-funded warrants for the purchase of 16,280 common shares at an offering price of $195.00 per common share and $193.05 per pre-funded warrant, pursuant to the Company’s effective registration statement on Form S-1 (File No. 333-276670). On February 14, 2024, the closing of this offering was completed. At closing, the purchasers prepaid the exercise price of the pre-funded warrants in full. Therefore, the Company received total gross proceeds of $5 million. Pursuant to the placement agency agreement, Spartan received a cash transaction fee equal to 8% of the aggregate gross proceeds and reimbursement of certain out-of-pocket expenses. After deducting these and other related expenses, the Company received net proceeds of approximately $4.4 million. 

On October 28, 2024, the Company entered into a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan, as placement agent, relating to the Company’s public offering of units. Pursuant to the securities purchase agreement and the placement agency agreement, the Company agreed to issue and sell to the purchasers an aggregate of 587,306 units, at a purchase price of $18.90 per unit, for total gross proceeds of approximately $11.1 million, pursuant to the Company’s registration statement on Form S-1 (File No. 333-282201) under the Securities Act of 1933, as amended. The units are comprised of (i) 587,306 common shares, (ii) series A warrants to purchase 587,306 common shares at an exercise price of $28.50 per share and (iii) series B warrants to purchase 587,306 common shares at an exercise price of $37.80 per share. On October 30, 2024, the closing of the offering was completed. Pursuant to the placement agency agreement, Spartan received a cash transaction fee equal to 8% of the aggregate gross proceeds and reimbursement of certain out-of-pocket expenses. After deducting these and other related expenses, the Company received net proceeds of approximately $9.9 million.

On December 13, 2024, the Company entered into a securities purchase agreement with certain purchasers and a placement agreement with Spartan, as placement agent, pursuant to which the Company agreed to issue and sell to the purchasers an aggregate of 42,311,118 units, at a purchase price of $0.27 per unit, for total gross proceeds of approximately $11.42 million. The units are comprised of (i) 3,437,210 common shares and pre-funded warrants for the purchase of 38,873,908 common shares, (ii) series A warrants to purchase 42,311,118 common shares at an exercise price of $0.81 per share and (iii) series B warrants to purchase 42,311,118 common shares at an exercise price of $0.54 per share. On December 16, 2024, the closing of the Offering was completed. Pursuant to the placement agency agreement, Spartan received a cash transaction fee equal to 8% of the aggregate gross proceeds and reimbursement of certain out-of-pocket expenses. After deducting these and other related expenses, the Company received net proceeds of approximately $10.2 million.

During the year ended December 31, 2024, the Company issued an aggregate of 4,712,822 common shares with a fair value of $4,141,427 upon conversions of convertible promissory notes and accrued interest totaling $2,638,870 and extinguishment of derivative liabilities of $855,520.

During the year ended December 31, 2024, the Company issued an aggregate of 11,401 common shares with a fair value of $538,720 upon partial extinguishment of notes payable. As a result, the Company recognized a loss on extinguishment of debt of $317,145.

During the year ended December 31, 2024, the Company issued an aggregate of 676 common shares to the holders of the series A and B senior convertible preferred shares in settlement of $144,267 of accrued dividends. Pursuant to the series A and B senior convertible preferred shares designations, dividends payable in common shares shall be calculated based on a price equal to eighty percent (80%) of the volume weighted-average price for the common shares on the Company’s principal trading market during the five (5) trading days immediately prior to the applicable dividend payment date.

During the year ended December 31, 2024, the Company issued an aggregate of 2,437 common shares upon the conversion of an aggregate of 181,212 series A senior convertible preferred shares.

During the year ended December 31, 2024, the Company issued an aggregate of 1,523 common shares upon the conversion of an aggregate of 91,567 series B senior convertible preferred shares.

During the year ended December 31, 2024, the Company issued an aggregate of 16,495,374 common shares upon the cashless exercise of other warrants, resulting in extinguishment of warrant liabilities of $16,526,400.

Warrants

Warrants Issued in Public Equity Offering – February 2024

On February 14, 2024, the Company closed a public equity offering pursuant to a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan, pursuant to which the Company issued pre-funded warrants to purchase of 16,280 common shares at an exercise price of $1.95 per share.

The Company evaluated the pre-funded warrants for classification as equity or liability instruments in accordance with ASC 480 and ASC 815-40. The Company determined the pre-funded warrants failed the indexation guidance under ASC 815-40 because the warrants provide for a Black-Scholes value calculation upon certain fundamental transactions that include a volatility floor of 100% or greater. This provision introduces leverage to the holders that could result in a settlement value exceeding that of a fixed-for-fixed option on the Company’s own equity, and therefore the pre-funded warrants do not qualify for equity classification. Accordingly, the pre-funded warrants were recorded at fair value upon issuance as a liability and remeasured at each reporting period with changes in fair value recognized in the consolidated statements of operations (see Note 13—Fair Value Measurements).

The initial fair value of the warrant liability was determined using the Black-Scholes option pricing model with the following assumptions: (i) dividend yield of 0%; (ii) expected volatility of 149.05%; (iii) risk-free interest rate of 4.86%; (iv) expected life of one year; (v) estimated fair value of the common shares of $380.25 per share; and (vi) exercise price of $1.95 per share.

Warrants Issued in Private Placement with 20% OID Promissory Note

On May 8, 2024, the Company issued five-year warrants to purchase 477 common shares at an adjusted exercise price of $524.55 per share (subject to standard adjustments as defined in the warrant agreement). Additionally, the Company issued a five-year warrant to the placement agent, Spartan, to purchase 39 common shares at an adjusted exercise price of $577.05 per share (subject to standard adjustments as defined in the warrant agreement). The warrants are exercisable beginning six months after the date of issuance.

The Company evaluated the warrants for classification as equity or liability instruments in accordance with ASC 480 and ASC 815-40. The Company determined that the warrants failed the indexation guidance under ASC 815-40 because the warrants provide for a Black-Scholes value calculation upon certain fundamental transactions that include a volatility floor of 100% or greater. This provision introduces leverage to the holders that could result in a settlement value exceeding that of a fixed-for-fixed option on the Company’s own equity, and therefore the warrants do not qualify for equity classification. Accordingly, the warrants were recorded at fair value upon issuance as a liability and remeasured at each reporting period with changes in fair value recognized in the consolidated statements of operations (see Note 13—Fair Value Measurements). The warrants issued to the placement agent were classified as equity.

The initial fair value of the warrant liability was determined using the Black-Scholes option pricing model with the following assumptions: (i) dividend yield of 0%; (ii) expected volatility of 160.8%; (iii) risk-free interest rate of 4.50%; (iv) expected life of 5.5 years; (v) estimated fair value of the common shares of $468 per share; and (vi) exercise price of $524.55 per share.

The remaining proceeds were allocated to the placement agent warrants and promissory note based on their relative fair values. The fair value of the placement agent warrants was determined using the Black-Scholes option pricing model with the following assumptions: (i) dividend yield of 0%; (ii) expected volatility of 160.8%; (iii) risk-free interest rate of 4.50%; (iv) expected life of 5.5 years; (v) estimated fair value of the common shares of $468 per share; and (vi) exercise price of $577.05 per share. The fair value of the placement agent warrants was $16,800, of which $7,573 was allocated based on relative fair value and recorded as additional paid-in capital.

Series A and Series B Warrants Issued in Public Equity Offering – October 2024

On October 30, 2024, the Company closed a public equity offering pursuant to a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan, pursuant to which the Company issued series A warrants to purchase 587,306 common shares and series B warrants to purchase 587,306 common shares.

The series A warrants are exercisable at any time at an exercise price of $28.50 per share and expire five years from the date of issuance. The series B warrants are exercisable at any time at an exercise price of $37.80 per share and expire five years from the date of issuance. The series A warrants include an alternate cashless exercise option pursuant to which holders may receive a number of common shares equal to the product of (i) the aggregate number of common shares that would be issuable upon a cash exercise of the series A warrants and (ii) 2.0. In addition, the series A and B warrants contain a reset of the exercise price to a price equal to the lesser of (i) the then exercise price and (ii) lowest volume weighted-average price for the five trading days immediately preceding and immediately following the date the Company effects a reverse share split in the future with a proportionate adjustment to the number of shares underlying the series A warrants and the series B warrants, subject to a floor price of $1.50. In addition, the series B warrants contain a down round feature providing for an adjustment to the exercise price and number of underlying shares upon the Company’s issuance of common shares or common share equivalents at a price below the then-current exercise price, subject to a floor price of $1.50.

The Company evaluated the warrants for classification as equity or liability instruments in accordance with ASC 480 and ASC 815-40. The Company determined that the warrants failed the indexation guidance under ASC 815-40 due to (i) the alternate cashless exercise option in the series A warrants and (ii) the reset provision following a reverse share split applicable to both the series A and series B warrants, subject to a floor price of $1.50. These provisions introduce leverage to the holders that could result in a settlement value exceeding that of a fixed-for-fixed option on the Company’s own equity, and therefore the warrants do not qualify for equity classification. Accordingly, the warrants were recorded at fair value upon issuance as a liability and remeasured at each reporting period with changes in fair value recognized in the consolidated statements of operations (see Note 13—Fair Value Measurements).

The initial fair value of the warrant liabilities was determined using a Geometric Brownian Motion Stock Monte Carlo Simulation model with the following assumptions: (i) dividend yield of 0%; (ii) expected volatility of 201.96%; (iii) risk-free interest rate of 4.05%; (iv) maximum term of five years; (v) estimated fair value of the series A warrants of $83.73 per share and an estimated fair value of the series B warrants of $29.75 per share; and (vi) various probability assumptions.

On March 11, 2025, the exercise price of the series A warrants was reduced to $0.81 per share with a proportionate increase in the number of series A warrants outstanding to 632,990, each exercisable for two common shares, representing an aggregate of 1,265,980 common shares. On March 25, 2025, the Company entered into cancellation and exchange agreements with the remaining holders of the series A warrants issued on October 30, 2024, pursuant to which such holders agreed to exchange such warrants for an aggregate of 1,027 series F convertible preferred shares. See Note 18—Convertible Preferred Shares for additional information.

On March 11, 2025, the exercise price of the series B warrants was adjusted to $0.54 per share and the number of series B warrants was proportionally increased to 41,111,053.

Series A and Series B Warrants Issued in Private Equity Offering – December 2024

On December 16, 2024, the Company closed a private equity offering pursuant to a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan, pursuant to which the Company issued (i) pre-funded warrants to purchase 38,873,908 common shares, (ii) series A warrants to purchase 42,311,118 common shares, and (iii) series B warrants to purchase 42,311,118 common shares.

The pre-funded warrants are exercisable at any time following shareholder approval until exercised in full at an exercise price of $0.01 per share, which has been pre-paid in full by the purchasers. The exercise price and number of shares issuable upon exercise are subject to adjustment for share dividends, share splits, share combinations, reclassifications, and similar events. The pre-funded warrants issued to the placement agent were classified as equity.

The series A warrants are exercisable at an exercise price of $0.81 per share and the series B warrants are exercisable at an exercise price of $0.54 per share, in each case subject to adjustment and following shareholder approval. The series A and series B warrants expire five years from the later of (i) the date shareholder approval is obtained and (ii) the earlier of the date the initial registration statement registering the underlying shares for resale is declared effective or the date such shares may be sold without restriction pursuant to Rule 144. The series A and series B warrants may be exercised on a cashless basis if no effective registration statement is available with respect to the underlying shares.

The series A warrants include an alternate cashless exercise option pursuant to which holders may receive a number of common shares equal to the product of (i) the number of shares issuable upon a cash exercise of the series A warrants and (ii) 1.25. The series A and series B warrants are also subject to the following exercise price reset provisions:

In no event will the exercise prices of the series A and series B warrants be reduced below the floor price of $0.054 (subject to shareholder approval). Upon each share combination event the floor price will be reduced by 50% and will continue to be so adjusted for each subsequent share combination event.

The Company evaluated the series A and series B warrants for classification as equity or liability instruments in accordance with ASC 480 and ASC 815-40. The Company determined that the warrants failed the indexation guidance under ASC 815-40 due to (i) the alternate cashless exercise option in the series A warrants, (ii) the share combination reset provision applicable to both the series A and series B warrants, subject to a floor price that resets after each share combination event, and (iii) the registration reset provision applicable to both the Series A and Series B warrants, subject to a floor price of $0.054. These provisions introduce leverage to the holders that could result in a settlement value exceeding that of a fixed-for-fixed option on the Company’s own equity, and therefore the warrants do not qualify for equity classification. Accordingly, the warrants were recorded at fair value upon issuance as a liability and remeasured at each reporting period with changes in fair value recognized in the consolidated statements of operations (see Note 13—Fair Value Measurements).

The initial fair value of the warrant liabilities was determined using a Geometric Brownian Motion Stock Monte Carlo Simulation model with the following assumptions: (i) dividend yield of 0%; (ii) expected volatility of 196.59%; (iii) risk-free interest rate of 4.16%; (iv) maximum term of five years; (v) estimated fair value of the series A warrants of $1.22 per share and an estimated fair value of the series B warrants of $0.65 per share; and (vi) various probability assumptions.

On October 15, 2025, the exercise prices of the series A and series B warrants were adjusted to $0.054 per share and the number of series A warrants and series B warrants was proportionally increased to 634,666,770 and 423,111,180, respectively.

Exercise Price Adjustments

In addition to the adjustments described above, the following warrant exercise price adjustments occurred during the years ended December 31, 2025 and 2024.

On February 14, 2024, as a result of the public equity offering, the exercise price of certain outstanding warrants was adjusted to $1.95 pursuant to antidilution provisions contained in such warrants. The Company recognized a deemed dividend of $1,000 in connection with this adjustment, calculated using a Black-Scholes option pricing model.

On November 11, 2024, as a result of the 1-for-15 reverse share split, the exercise price of the series A and series B warrants issued in the October 2024 offering was adjusted to $1.50 and the number of underlying shares was increased by 22,184,090 pursuant to antidilution provisions contained in such warrants.

On December 16, 2024, as a result of the private equity offering, the exercise price of certain outstanding warrants was adjusted to $0.27 pursuant to antidilution provisions contained in such warrants.

On March 11, 2025, as a result of shareholder approval, the exercise price of the series B warrants was adjusted to $0.54 per share and the number of series B warrants was proportionally increased to 41,111,053.

On October 15, 2025, as a result of the registration reset, the exercise prices of the series A and series B warrants were adjusted to $0.054 per share and the number of series A warrants and series B warrants was proportionally increased to 634,666,770 and 423,111,180, respectively.

The following table summarizes the changes in warrants outstanding during the years ended December 31, 2025 and 2024:

As of December 31, 2025, the outstanding warrants have a weighted average remaining contractual life of 4.65 years and a total intrinsic value of $19,036,919.