1847 HOLDINGS LLC The following management's discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein. Use of Terms Except as otherwise indicated by the context and for the purposes of this report only, references in this report to "we," "us," "our" and the "Company" refer to1847 Holdings LLC , aDelaware limited liability company, and its consolidated subsidiaries. References to the "Manager" refer to 1847Partners LLC , aDelaware limited liability company.
Special Note Regarding Forward Looking Statements
This report contains forward-looking statements that are based on our management's beliefs and assumptions and on information currently available to us. All statements other than statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
? our ability to effectively integrate and operate the businesses that we
acquire;
? our ability to successfully identify and acquire additional businesses;
? our organizational structure, which may limit our ability to meet our dividend
and distribution policy;
? our ability to service and comply with the terms of indebtedness;
? our cash flow available for distribution and our ability to make distributions
to our common shareholders;
? our ability to pay the management fee, profit allocation and put price to the
Manager when due;
? labor disputes, strikes or other employee disputes or grievances;
? the regulatory environment in which our businesses operate under;
? trends in the industries in which our businesses operate;
? the competitive environment in which our businesses operate;
? changes in general economic or business conditions or economic or demographic
trends in
? our and the Manager's ability to retain or replace qualified employees of our
businesses and the Manager;
? casualties, condemnation or catastrophic failures with respect to any of our
business' facilities;
? 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 businesses.
In some cases, you can identify forward-looking statements by terms such as "may," "could," "will," "should," "would," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," "project" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Item 1A "Risk Factors" included in our annual report on Form 10-K for the year endedDecember 31, 2021 . If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. 20
The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
Overview We are an acquisition holding company focused on acquiring and managing a group of small businesses, which we characterize as those that have an enterprise value of less than$50 million , in a variety of different industries headquartered inNorth America . To date, we have completed six acquisitions and subsequently spun off two of the acquired companies. OnMay 28, 2020 , our subsidiary 1847Asien Inc. ("1847 Asien") acquired Asien'sAppliance, Inc. , aCalifornia corporation ("Asien's"). Asien's has been in business since 1948 serving theNorth Bay area ofSonoma County, California . It provides a wide variety of appliance services, including sales, delivery/installation, in-home service and repair, extended warranties, and financing. Its main focus is delivering personal sales and exceptional service to its customers at competitive prices. OnSeptember 30, 2020 , our subsidiary 1847Cabinet Inc. ("1847Cabinet ") acquired Kyle'sCustom Wood Shop, Inc. , anIdaho corporation ("Kyle's"). Kyle's is a leading custom cabinetry maker servicing contractors and homeowners since 1976 inBoise, Idaho and the surrounding area. Kyle's focuses on designing, building, and installing custom cabinetry primarily for custom and semi-custom builders. OnMarch 30, 2021 , our subsidiary 1847Wolo Inc. ("1847 Wolo") acquiredWolo Mfg. Corp. , aNew York corporation, andWolo Industrial Horn & Signal, Inc. , aNew York corporation (together, "Wolo"). Headquartered inDeer Park, New York and founded in 1965, Wolo designs and sells horn and safety products (electric, air, truck, marine, motorcycle and industrial equipment), and offers vehicle emergency and safety warning lights for cars, trucks, industrial equipment
and emergency vehicles.
OnOctober 8, 2021 , our subsidiary 1847Cabinet acquiredHigh Mountain Door & Trim Inc. , aNevada corporation ("High Mountain"), andSierra Homes, LLC d/b/a Innovative Cabinets & Design, aNevada limited liability company ("Innovative Cabinets"). Headquartered inReno, Nevada and founded in 2014, High Mountain specializes in all aspects of finished carpentry products and services, including doors, door frames, base boards, crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, and fireplace mantles, among others, working primarily with large homebuilders of single-family homes and commercial and multi-family developers. Innovative Cabinets is headquartered inReno, Nevada and was founded in 2008. It specializes in custom cabinetry and countertops for a client base consisting of single-family homeowners, builders of multi-family homes, as well as commercial clients. Our first acquisition was onMarch 3, 2017 , pursuant to which our subsidiary 1847Neese Inc. ("1847 Neese") acquiredNeese, Inc. , a business specializing in providing a wide range of land application services and selling equipment and parts inGrand Junction, Iowa . OnApril 19, 2021 , we sold 1847 Neese back to the original owners. OnApril 5, 2019 , our subsidiary 1847 Goedeker Inc. ("1847 Goedeker") acquired substantially all of the assets ofGoedeker Television Co. , a one-stop e-commerce destination for home furnishings, including appliances, furniture, home goods and related products. OnOctober 23, 2020 , we distributed all of the shares of 1847 Goedeker that we held to our shareholders, so we no longer own 1847 Goedeker.
Through our structure, we 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 to grow
regular distributions to our common shareholders and increasing common
shareholder value over time.
21
We seek to acquire controlling interests in small businesses that we believe
operate in industries with long-term macroeconomic growth opportunities, and
that have positive and stable earnings and cash flows, face minimal threats of
technological or competitive obsolescence and have strong management teams
largely in place. We believe that private company operators and corporate
parents looking to sell their businesses will consider us to be an attractive
purchaser of their businesses. We make these businesses our majority-owned
subsidiaries and actively manage and grow such businesses. We expect to improve
our businesses over the long term through organic growth opportunities, add-on
acquisitions and operational improvements.
Recent Developments
On April 20, 2022 , we entered into a securities purchase agreement with Ellery
W. Roberts , our Chief Executive Officer, pursuant to which we sold 28,333 units,
at a price of $3.00 per unit, for aggregate gross proceeds of $85,000 . On May
12, 2022 , we sold an additional 16,667 units to Mr. Roberts for aggregate gross
proceeds of $50,000 . Each unit consists of one (1) series B senior convertible
preferred share and a three-year warrant to purchase one (1) common share at an
exercise price of $3.00 per share (subject to adjustment), which may be
exercised on a cashless basis under certain circumstances.
Impact of Coronavirus Pandemic
Starting in late 2019, a novel strain of the coronavirus, or COVID-19, began to rapidly spread around the world and every state inthe United States . Most states and cities have at various times instituted quarantines, restrictions on travel, "stay at home" rules, social distancing measures and restrictions on the types of businesses that could continue to operate, as well as guidance in response to the pandemic and the need to contain it. At this time, there continues to be significant volatility and uncertainty relating to the full extent to which the COVID-19 pandemic and the various responses to it will impact our business, operations and financial results. Asien's was qualified as an essential business and remained open during the pandemic, with certain occupancy restrictions at times, so it did not experience any meaningful business interruption. However, Asien's is dependent upon suppliers to provide it with all of the products that its sells. The pandemic has impacted and may continue to impact suppliers and manufacturers of certain of its products. As a result, Asien's has faced and may continue to face delays or difficulty sourcing certain products, which could negatively affect its business and financial results. Even if Asien's is able to find alternate sources for such products, they may cost more, which could adversely impact Asien's profitability and financial condition. Kyle's was also qualified as an essential business and remained open during the pandemic, with certain occupancy restrictions at times, so it did not experience any meaningful business interruption. However, certain key customers of Kyle's elected to either temporarily stop building homes or delayed their building process, particularly during the second quarter of 2020, which adversely affected Kyle's sales. Further, early on during the pandemic, several of Kyle's employees had taken time off because of medical issues, and some of them did not return to employment. Kyle's has been hiring and training new employees to replace lost productivity because of the aforementioned loss of employees. Kyle's did not experience any meaningful business interruption related to any of its key suppliers; although recently, potentially as a result of the pandemic and resulting impact, Kyle's has seen price increases in certain key raw materials such as wood products and hardware. These increases may negatively affect Kyle's profitability and financial condition. If the pace of the pandemic does not continue to slow, it may continue to negatively affect Kyle's ability to generate sales opportunities and to hire productive employees, as well as impact the cost of raw materials. Therefore, Kyle's business operations may experience further delays and experience lost sales opportunities and increased costs, which could further adversely impact Kyle's profitability and financial condition. High Mountain was qualified as an essential business and remained open during the pandemic. As it followed both federal andNevada state guidelines regarding occupancy restrictions, it did not experience significant business disruptions, although it did experience some loss of productivity due to employee absences. High Mountain continues to comply withNevada state and CDC guidelines regarding workplace safety. Innovative Cabinets was also qualified as an essential business and thus remained open during the pandemic, while complying with federal andNevada state guidelines regarding occupancy restrictions. However, since a substantive amount of its materials come fromAsia , where its manufacturing network is located, Innovative Cabinets did experience longer supply chain lead-times and higher logistics costs. It has been exploring alternative sourcing opportunities. Given the prevailing market conditions for building supplies and materials, it may continue to experience supply chain issues and higher supply costs, which could adversely impact its profitability and financial condition. 22 Wolo qualified as an essential business and remained open during the pandemic. At no time during the pandemic did it experience an internal contamination forcing it to stop its business. The pandemic has had a dramatic impact on Wolo's supply chain as it has on others in the automotive aftermarket. Approximately 90% of Wolo's vendor base is located inChina . The pandemic issues impacting ports in theU.S. due to lack of personnel has had a ripple effect on Chinese suppliers. Containers are slow to be emptied in theU.S. , causing a backlog of ships waiting to get into ports and limiting containers and ships returning toChina . The lack of containers and available space on ships has escalated shipping costs by over 300% from 2020. Costs for raw materials have also started to increase due to availability. Wolo cannot absorb these increases and began passing on a price increase to customers startingJune 1, 2021 , although the effective date may be later for some customers. We believe that this is an industry-wide issue and that it should not put Wolo in an unfavorable pricing position.
The spread of COVID-19 has also adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The pandemic has resulted, and may continue to result, in a significant disruption of global financial markets, which may reduce our ability to access capital in the future, which could negatively affect our liquidity. The extent to which the pandemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this report, including the effectiveness of vaccines and other treatments for COVID-19, and other new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment, and future developments in the global supply chain and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows. Management Fees OnApril 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 three months endedMarch 31, 2022 and 2021. 1847 Neese entered into an offsetting management services agreement with the Manager onMarch 3, 2017 , which is included in discontinued operations, 1847 Asien entered into an offsetting management services agreement with the Manager onMay 28, 2020 , 1847Cabinet entered into an offsetting management services agreement with the Manager onAugust 21, 2020 (which was amended and restated onOctober 8, 2021 ) and 1847 Wolo entered into an offsetting management services agreement with the Manager onMarch 30, 2021 . Pursuant to the offsetting management services agreements, 1847 Neese appointed the Manager to provide certain services to it for a quarterly management fee equal to$62,500 , 1847 Asien appointed the Manager to provide certain services to it for a quarterly management fee equal to the greater of$75,000 or 2% of adjusted net assets (as defined in the management services agreement), 1847Cabinet appointed the Manager to provide certain services to it for a quarterly management fee equal to the greater of$75,000 or 2% of adjusted net assets (as defined in the management services agreement), which was increased to$125,000 or 2% of adjusted net assets onOctober 8, 2021 , and 1847 Wolo appointed the Manager to provide certain services to it for a quarterly management fee equal to the greater of$75,000 or 2% of adjusted net assets (as defined in the management services agreement); provided, however, in each case that if the aggregate amount of management fees paid or to be paid by such entities, together with all other management fees paid or to be paid to the Manager under other offsetting management services agreements, exceeds, or is expected to exceed, 9.5% of our 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.
23
Each of these subsidiaries shall also reimburse the Manager for all of their
costs and expenses which are specifically approved by their board of directors,
including all out-of-pocket costs and expenses, which are actually incurred by
the Manager or its affiliates on behalf of these subsidiaries in connection with
performing services under the offsetting management services agreements.
1847 Asien expensed management fees of
1847
1847 Wolo expensed management fees of
On a consolidated basis, the Company expensed total management fees of
Segments TheFinancial Accounting Standards Board , or FASB, Accounting Standard Codification, or ASC, Topic 280, Segment Reporting, requires that an enterprise report selected information about reportable segments in its financial reports issued to its shareholders. As ofMarch 31, 2022 , we have three reportable segments - the retail and appliances segment, which is operated by Asien's, the construction segment, which is operated by Kyle's, High Mountain and Innovative Cabinets, and the automotive supplies segment, which is operated by Wolo. The retail and appliances segment is comprised of the business of Asien's, which is based inSanta Rosa, California , and provides a wide variety of appliance services including sales, delivery, installation, service and repair, extended warranties, and financing. The construction segment is comprised of the businesses of Kyle's, High Mountain and Innovative Cabinets. Kyle's, which is based inBoise, Idaho , provides a wide variety of construction services including custom design and build of kitchen and bathroom cabinetry, delivery, installation, service and repair, extended warranties, and financing. High Mountain, which is based inReno, Nevada , specializes in all aspects of finished carpentry products and services, including doors, door frames, base boards, crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, and fireplace mantles, among others, as well as window installation. Innovative Cabinets, also based inReno, Nevada , specializes in custom cabinetry and countertops. The automotive supplies segment is comprised of the business of Wolo, which is based inDeer Park, New York , and designs and sells horn and safety products (electric, air, truck, marine, motorcycle and industrial equipment), and offers vehicle emergency and safety warning lights for cars, trucks, industrial equipment and emergency vehicles. We provide general corporate services to our segments; however, these services are not considered when making operating decisions and assessing segment performance. These services are reported under "Corporate Services" below and these include costs associated with executive management, financing activities and public company compliance. Discontinued Operations OnApril 19, 2021 , we entered into a stock purchase agreement withAlan Neese andKatherine Neese , pursuant to which they purchased our 55% ownership interest in 1847 Neese for a purchase price of$325,000 in cash. As a result of this transaction, 1847 Neese is no longer a subsidiary of the Company. All financial information of 1847 Neese previously presented as part of land management services operations are classified as discontinued operations and not presented as part of continuing operations for the three months endedMarch 31, 2021 .
24
Results of Operations
Comparison of the Three Months Ended
The following table sets forth key components of our results of operations
during the three months ended
Three Months Ended March 31,
2022 2021
% of % of
Amount Revenues Amount Revenues
Revenues $ 12,073,878 100.0 % $ 4,780,275 100.0 %
Operating expenses
Cost of sales 7,749,130 64.2 % 3,260,682 68.2 %
Personnel 1,577,700 13.1 % 484,672 10.1 %
Depreciation and amortization 511,371 4.2 % 122,106 2.6 %
General and administrative 2,166,207 17.9 % 1,324,196 27.7 %
Total operating expenses 12,004,408 99.4 % 5,191,656 108.6 %
Income (loss) from operations 69,470 0.6 % (411,381 ) (8.6 )%
Other income (expenses)
Other income 318 0.0 % - -
Interest expense (906,743 ) (7.5 )% (45,121 ) (0.9 )%
Gain on forgiveness of debt - - 360,302 7.5 %
Gain on sale of property and equipment 32,747 0.3 %
- -
Loss on adjustment shares - - (757,792 ) (15.9 )%
Total other income (expense) (873,678 ) (7.2 )% (442,611 ) (9.3 )%
Net loss before income taxes (804,208 ) (6.7 )% (853,992 ) (17.9 )%
Income expense (123,000 ) (1.0 )% - -
Net loss from continuing operations
Revenues. Our total revenues were
The retail and appliances segment generates revenue through the sales of home furnishings, including appliances and related products. Revenues from the retail and appliances segment decreased by$743,582 , or 22.8%, to$2,520,784 for the three months endedMarch 31, 2022 from$3,264,366 for the three months endedMarch 31, 2021 . Such decrease was primarily due to ongoing supply chain delays with appliance manufactures and the increased time it takes to receive products. The construction segment generates revenue through the sale of finished carpentry products and services, including doors, door frames, base boards, crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, and fireplace mantles, among others, as well as kitchen countertops. Revenues from the construction segment increased by$6,395,194 , or 421.9%, to$7,911,103 for the three months endedMarch 31, 2022 from$1,515,909 for the three months endedMarch 31, 2021 . Such increase was primarily due to the acquisitions of High Mountain and Innovative Cabinets, which were acquired in the fourth quarter of 2021. Excluding these acquisitions, revenues from the construction segment increased by$145,845 , or 9.6%. Such increase was primarily due to increases in the average customer contract in the construction segment. The automotive supplies segment generates revenue through the design and sale of horn and safety products (electric, air, truck, marine, motorcycle and industrial equipment), including vehicle emergency and safety warning lights for cars, trucks, industrial equipment and emergency vehicles. Revenues from the automotive supplies segment were$1,641,991 for the three months endedMarch 31, 2022 . 25
Cost of sales. Our total cost of sales was$7,749,130 for the three months endedMarch 31, 2022 , as compared to$3,260,682 for the three months ended March
31, 2021.
Cost of sales for the retail and appliances segment consists of 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. Cost of sales for the retail and appliances segment decreased by$635,202 , or 25.3%, to$1,871,450 for the three months endedMarch 31, 2022 from$2,506,652 for the three months endedMarch 31, 2021 . Such decrease was primarily due to corresponding the decrease in revenues from the retail and appliance segment. As a percentage of retail and appliances revenues, cost of sales for the retail and appliances segment was 74.2% and 76.8% for the three months endedMarch 31, 2022 and 2021, respectively. Cost of sales for the construction segment consists of finished goods, lumber, hardware and materials and plus direct labor and related costs, net of any material discounts from vendors. Cost of sales for the construction segment increased by$4,125,561 , or 547.1%, to$4,879,591 for the three months endedMarch 31, 2022 from$754,030 for the three months endedMarch 31, 2021 . Such increase was primarily due to the acquisitions of High Mountain and Innovative Cabinets, which were acquired in the fourth quarter of 2021. Excluding these acquisitions, cost of sales for the construction segment increased by$151,350 , or 20.1%. Such increase was primarily due to corresponding the increase in revenues from the construction segment, as well as increased product and delivery costs. As a percentage of construction revenues, cost of sales for the construction segment was 54.5% and 49.7% for the three months endedMarch 31, 2022 and 2021, respectively.
Cost of sales for the automotive supplies segment consists of the costs of purchased finished goods plus freight and tariff costs. Cost of sales for the automotive supplies segment was$998,089 for the three months endedMarch 31, 2022 . As a percentage of automotive supplies revenues, cost of sales for the automotive supplies segment was 60.8% for the three months endedMarch 31, 2022 . Personnel costs. Personnel costs include employee salaries and bonuses plus related payroll taxes. It also includes health insurance premiums, 401(k) contributions, and training costs. Our total personnel costs were$1,577,700 for the three months endedMarch 31, 2021 , as compared to$484,672 for the three months endedMarch 31, 2021 . Personnel costs for the retail and appliances segment decreased by$22,695 , or 9.0%, to$230,388 for the three months endedMarch 31, 2022 from$253,083 for the three months endedMarch 31, 2021 . Such decrease was primarily due to decreased employee headcount as a result of decreased operations from the retail and appliances segment. As a percentage of retail and appliances revenue, personnel costs for the retail and appliances segment were 9.1% and 7.8% for the three months endedMarch 31, 2022 and 2021, respectively. Personnel costs for the construction segment increased by$902,621 , or 389.8%, to$1,134,210 for the three months endedMarch 31, 2022 from$231,589 for the three months endedMarch 31, 2021 . Such increase was primarily due to the acquisitions of High Mountain and Innovative Cabinets, which were acquired in the fourth quarter of 2021. Excluding these acquisitions, personnel costs for the construction segment decreased by$26,290 , or 11.4%. Such decrease was primarily due to decreased office personnel headcount in the construction segment. As a percentage of construction revenue, personnel costs for the construction segment were 12.4% and 15.3% for the three months ended March
31, 2022 and 2021, respectively. Personnel costs for the automotive supplies segment were$300,328 for the three months endedMarch 31, 2022 . As a percentage of automotive supplies revenue, personnel costs for the automotive supplies segment were 18.3% for the three months endedMarch 31, 2022 . Depreciation and amortization. Our total depreciation and amortization expense was$511,371 for the three months endedMarch 31, 2022 , as compared to$122,106 for the three months endedMarch 31, 2022 . General and administrative expenses. Our general and administrative expenses consist primarily of professional advisor fees, stock-based compensation, bad debts reserve, rent expense, advertising, bank fees, and other expenses incurred in connection with general operations. Our total general and administrative expenses were$2,166,207 for the three months endedMarch 31, 2022 , as compared to$1,324,196 for the three months endedMarch 31, 2021 . 26 General and administrative expenses for the retail and appliances segment increased by$14,907 , or 3.4%, to$449,494 for the three months endedMarch 31, 2022 from$434,587 for the three months endedMarch 31, 2021 . Such increase was primarily due to increased marketing and professional fees. As a percentage of retail and appliances revenue, general and administrative expenses for the retail and appliances segment were 17.8% and 13.3% for the three months endedMarch 31, 2022 and 2021, respectively. General and administrative expenses for the construction segment increased by$901,247 , or 418.6%, to$1,116,558 for the three months endedMarch 31, 2022 from$215,311 for the three months endedMarch 31, 2021 . Such increase was primarily due to the acquisitions of High Mountain and Innovative Cabinets, which were acquired in the fourth quarter of 2021. Excluding these acquisitions, general and administrative expenses for the construction segment increased by$45,097 , or 20.9%. Such increase was primarily due to increased rent from a new facility lease, as well as increased professional fees in the construction segment. As a percentage of construction revenue, general and administrative expenses for the construction segment were 15.7% and 14.2% for the three months endedMarch 31, 2022 and 2021, respectively.
General and administrative expenses for the automotive supplies segment were
General and administrative expenses for our holding company increased by$137,371 , or 180.7%, to$213,374 for the three months endedMarch 31, 2022 from$76,003 for the three months endedMarch 31, 2021 . Such increase was primarily due to increased corporate costs and professional fees. Total other income (expense). We had$873,678 in total other expense, net, for the three months endedMarch 31, 2022 , as compared to other expense, net, of$442,611 for the three months endedMarch 31, 2021 . Other expense, net, for the three months endedMarch 31, 2022 consisted of$906,743 of interest expense, offset by a gain on disposal of property of equipment of$32,747 and other income of$318 , while other expense, net, for the three months endedMarch 31, 2021 consisted of loss on adjustment shares of$757,792 and interest expense of$45,121 , offset by a gain on forgiveness of debt of$360,302 .
Income tax expense. We had an income tax expense of
Net loss from continuing operations. As a result of the cumulative effect of the factors described above, our net loss from continuing operations was$927,208 for the three months endedMarch 31, 2022 , as compared to a net loss of$853,992 for the three months endedMarch 31, 2021 .
Liquidity and Capital Resources
As of
Although we do not believe that we will require additional cash to continue our operations over the next twelve months, we do believe additional funds are required to execute our business plan and our strategy of acquiring additional businesses. The funds required to execute our business plan will depend on the size, capital structure and purchase price consideration that the seller of a target business deems acceptable in a given transaction. The amount of funds needed to execute our business plan also depends on what portion of the purchase price of a target business the seller of that business is willing to take in the form of seller notes or our equity or equity in one of our subsidiaries. Given these factors, we believe that the amount of outside additional capital necessary to execute our business plan on the low end (assuming target company sellers accept a significant portion of the purchase price in the form of seller notes or our equity or equity in one of our subsidiaries) ranges between$100,000 to$250,000 . If, and to the extent, that sellers are unwilling to accept a significant portion of the purchase price in seller notes and equity, then the cash required to execute our business plan could be as much as$5,000,000 . We will seek growth as funds become available from cash flow, borrowings, additional capital raised privately or publicly, or seller retained financing. 27 Our primary use of funds will be for future acquisitions, public company expenses including regular distributions to our shareholders, investments in future acquisitions, payments to the Manager pursuant to the management services agreement, potential payment of profit allocation to the Manager and potential put price to the 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 we hold, which may require us to dispose of assets or incur debt to fund such expenditures. See Item 1. "Business-Our Manager" included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 for more information concerning the management fee, the profit allocation and put price. The amount of management fee paid to the Manager by us is reduced by the aggregate amount of any offsetting management fees, if any, received by the Manager from any of our businesses. As a result, the management fee paid to the Manager may fluctuate from quarter to quarter. The amount of management fee paid to the Manager may represent a significant cash obligation. In this respect, the payment of the management fee will reduce the amount of cash available for distribution to shareholders. The Manager, as holder of 100% of our allocation shares, is entitled to receive a twenty percent (20%) profit allocation as a form of preferred equity distribution, subject to an annual hurdle rate of eight percent (8%), as follows. Upon the sale of a company subsidiary, the Manager will be paid a profit allocation if the sum of (i) the excess of the gain on the sale of such subsidiary over a high water mark plus (ii) the subsidiary's net income since its acquisition by the Company exceeds the 8% hurdle rate. The 8% hurdle rate is the product of (i) a 2% rate per quarter, multiplied by (ii) the number of quarters such subsidiary was held by the Company, multiplied by (iii) the subsidiary's average share (determined based on gross assets, generally) of our consolidated net equity (determined according toUnited States generally accepted accounting principles with certain adjustments). In certain circumstances, after a subsidiary has been held for at least 5 years, the Manager may also trigger a profit allocation with respect to such subsidiary (determined based solely on the subsidiary's net income since its acquisition). 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 us for our operating and investing activities, including future acquisitions. See Item 1. "Business-Our Manager-Our Manager as an Equity Holder-Manager's Profit Allocation" included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 for more information on the calculation of the profit allocation. Our operating agreement also contains a supplemental put provision, which gives the Manager the right, subject to certain conditions, to cause us to purchase the allocation shares then owned by the Manager upon termination of the management services agreement. The amount of put price under the supplemental put provision is determined by assuming all of our subsidiaries are sold at that time for their fair market value and then calculating the amount of profit allocation would be payable in such a case. If the management services agreement is terminated for any reason other than the Manager's resignation, the payment to the Manager could be as much as twice the amount of such hypothetical profit allocation. 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. See Item 1. "Business-Our Manager-Our Manager as an Equity Holder-Supplemental Put Provision" included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 for more information on the calculation of the put price. 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 us for our operating and investing activities, including future acquisitions.
© Edgar Online, source
