1847 HOLDINGS LLC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS. (Form 10-K)

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The following discussion and analysis summarizes the significant factors
affecting our operating results, financial condition, liquidity and cash flows
as of and for the periods presented below. The following discussion and analysis
should be read in conjunction with our financial statements and the related
notes thereto included elsewhere in this report. The discussion contains
forward-looking statements that are based on the beliefs of management, as well
as assumptions made by, and information currently available to, management.
Actual results could differ materially from those discussed in or implied by
forward-looking statements as a result of various factors, including those
discussed below and elsewhere in this report, particularly in the sections
titled "Risk Factors" and "Special Note Regarding Forward-Looking Statements."



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 in North America. As of September 30, 2021, we have completed five
acquisitions and subsequently spun off two of the acquired companies.



On May 28, 2020, our subsidiary 1847 Asien acquired Asien's. Asien's has been in
business since 1948 serving the North Bay area of Sonoma 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.



On September 30, 2020, our subsidiary 1847 Cabinet acquired Kyle's. Kyle's is a
leading custom cabinetry maker servicing contractors and homeowners since 1976
in Boise, Idaho and the surrounding area. Kyle's focuses on designing, building,
and installing custom cabinetry primarily for custom and semi-custom builders.



On March 30, 2021, our subsidiary 1847 Wolo acquired Wolo. Headquartered in Deer
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.



On October 8, 2021, our subsidiary 1847 Cabinet acquired High Mountain and
Innovative Cabinets. Headquartered in Reno, 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 in
Reno, 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 on March 3, 2017, pursuant to which our subsidiary
1847 Neese acquired Neese, a business specializing in providing a wide range of
land application services and selling equipment and parts in Grand Junction,
Iowa. On April 19, 2021, we sold 1847 Neese back to the original owners.



On April 5, 2019, our subsidiary 1847 Goedeker acquired substantially all of the
assets of Goedeker Television, a one-stop e-commerce destination for home
furnishings, including appliances, furniture, home goods and related products.
On October 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 of growing
regular distributions to our common shareholders and increasing common
shareholder value over time.



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.



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Recent Developments



Unit Offering



On February 24, 2022, we entered into securities purchase agreements with
several accredited investors, pursuant to which we sold an aggregate of 320,333
units, at a price of $3.00 per unit, to such investors for aggregate gross
proceeds of $961,000. On March 24, 2022, we entered into securities purchase
agreements with additional accredited investors, pursuant to which we sold an
additional 106,666 units to such investors for aggregate gross proceeds of
$320,000. 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.



Pursuant to the securities purchase agreements, we are required to file a
registration statement with the SEC under the Securities Act covering the resale
of all shares issuable upon conversion of the series B senior convertible
preferred shares and exercise of the warrants with thirty (30) days after the
closing and use our commercially reasonable efforts to have the registration
statement declared effective by the SEC as soon as practicable, but in no event
later than (i) ninety (90) days after the closing in the event that the SEC does
not review the registration statement, or (ii) one hundred fifty (150) days
after the closing in the event that the SEC reviews the registration statement
(but in any event, no later than two (2) business days from the SEC indicating
that it has no further comments on the registration statement).



In addition to the registration rights described above, the securities purchase agreements contain several other clauses in favor of investors, including information rights for significant shareholders, most-favoured-nation provisions and other customary clauses for similar transactions. The securities purchase agreements also contain customary representations, collateral closing conditions and indemnities.


Dividend


On January 14, 2022, we paid our first quarterly dividend in the amount of $0.05
per share to the holders of common shares as of December 31, 2021. The total
dividend paid was $242,160.


Impact of the 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 in the 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.



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High Mountain was qualified as an essential business and remained open during
the pandemic. As it followed both federal and Nevada 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 with Nevada 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 and Nevada state
guidelines regarding occupancy restrictions. However, since a substantive amount
of its materials come from Asia, 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.



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 in China. The pandemic issues
impacting ports in the U.S. due to lack of personnel has had a ripple effect on
Chinese suppliers. Containers are slow to be emptied in the U.S., causing a
backlog of ships waiting to get into ports and limiting containers and ships
returning to China. 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 starting June 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. See also
"Risk Factors" for more information.



Management Fees



On April 15, 2013, we and our manager entered into a management services
agreement, pursuant to which we are required to pay our manager a quarterly
management fee equal to 0.5% of our adjusted net assets for services performed
(which we refer to as 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 our 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) our manager as of the end of
such fiscal quarter, and (iii) increased by the amount of any outstanding
accrued and unpaid parent management fees. We did not expense any parent
management fees for the years ended December 31, 2021 and 2020.



1847 Neese entered into an offsetting management services agreement with our
manager on March 3, 2017, which is included in discontinued operations, 1847
Goedeker entered into an offsetting management services agreement with our
manager on April 5, 2019, which is included in discontinued operations, 1847
Asien entered into an offsetting management services agreement with our manager
on May 28, 2020, 1847 Cabinet entered into an offsetting management services
agreement with our manager on August 21, 2020 (which was amended and restated on
October 8, 2021) and 1847 Wolo entered into an offsetting management services
agreement with our manager on March 30, 2021. Pursuant to the offsetting
management services agreements, 1847 Neese appointed our manager to provide
certain services to it for a quarterly management fee equal to $62,500, 1847
Goedeker appointed our manager to provide certain services to it for a quarterly
management fee equal to $62,500, 1847 Asien appointed our 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), 1847 Cabinet appointed our 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 on October 8, 2021, and 1847
Wolo appointed our 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 our
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 our manager under other offsetting
management services agreements.



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Each of these entities shall also reimburse our 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
our manager or its affiliates on behalf of these entities in connection with
performing services under the offsetting management services agreements.



1847 Asien incurred management fees of $300,000 for the year ended December 31, 2021 and $178,022 for the period of May 29, 2020 for December 31, 2020.

1847 Cabinet management fees charged to $345,556 for the year ended December 31, 2021 and $75,000 for the period of October 1, 2020 for December 31, 2020.

1847 Wolo expensed management fees of $225,833 for the year ended December 31,
2021. In conjunction with acquisition of Wolo, our manager also received a
fee
of $110,000.


On a consolidated basis, we expensed total management fees of $981,389 and
$253,022 for the years ended December 31, 2021 and 2020, respectively.


Segments



The Financial 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 of December 31, 2021, 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 in Santa 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 in Boise, 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 in Reno, 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 in Reno,
Nevada, specializes in custom cabinetry and countertops.



The automotive supplies segment is comprised of the business of Wolo, which is
based in Deer 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


On October 23, 2020, we distributed all of the shares of 1847 Goedeker that we
held to our shareholders. As a result of this distribution, 1847 Goedeker is no
longer a subsidiary of our company. All financial information of 1847 Goedeker
previously presented as part of retail and appliance services operations are
classified as discontinued operations and not presented as part of continuing
operations for the year ended December 31, 2020.



On April 19, 2021, we entered into a stock purchase agreement with the original
owners of 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 our 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 years ended December 31, 2021 and
2020.



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Results of Operations


The following table shows the main components of our results of operations during the years ended December 31, 2021 and 2020, both in dollars and as a percentage of our revenue.


                                                             Years Ended December 31,
                                                      2021                             2020
                                                               % of                             % of
                                              Amount         Revenues          Amount         Revenues
Revenues
Furniture and appliances                   $ 12,741,064           41.6 %   
$  7,625,222           87.2 %
Construction                                 12,203,890           39.8 %       1,120,224           12.8 %
Automotive supplies                           5,716,030           18.6 %               -              -
Total revenues                               30,660,984          100.0 %       8,745,446          100.0 %
Operating expenses
Cost of sales                                20,311,724           66.2 %       6,531,435           74.7 %
Personnel costs                               3,247,441           10.6 %         734,867            8.4 %
Depreciation and amortization                   908,982            3.0 %         176,612            2.0 %
General and administrative                    7,296,736           23.8 %       2,652,429           30.3 %
Total operating expenses                     31,764,883          103.6 %      10,095,343          115.4 %
Net loss from operations                     (1,103,899 )         (3.6 )%     (1,349,897 )        (15.4 )%
Other income (expense)
Gain on forgiveness of debt                     360,302            1.2 %               -              -
Loss on write-down of vesting note
payable - related party                        (602,204 )         (2.0 )%              -              -
Loss on extinguishment of debt                 (137,692 )         (0.4 )%       (286,350 )         (3.3 )%
Loss on redemption of preferred shares       (4,017,553 )        (13.1 )%              -              -
Gain on disposition of subsidiary             3,282,804           10.7 %               -              -
Gain on sale of property and equipment           10,885              -                 -              -
Other income and (expense)                          876              -           (18,196 )         (0.2 )%
Interest expense                             (1,296,537 )         (4.2 )%       (249,626 )         (2.9 )%
Total other income (expense)                 (2,399,119 )         (7.8 )%       (554,172 )         (6.3 )%
Net loss before income taxes                 (3,503,018 )        (11.4 )%     (1,904,069 )        (21.8 )%
Income tax benefit (expense)                   (218,139 )         (0.7 )%         83,931            1.0 %

Net loss from continuing operations ($3,721,157) (12.1)% ($1,820,138) (20.8)%

Total revenue. Our total income was $30,660,984 for the year ended December 31, 2021compared to $8,745,446 for the year ended December 31, 2020.



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 were $12,741,064 for the year ended December 31, 2021 and
$7,625,222 for the period from May 29, 2020 to December 31, 2020 following
the
acquisition of Asien's.



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 were $12,203,890 for the year ended
December 31, 2021, including revenue from the acquisitions of High Mountain and
Innovative Cabinets of $6,766,540 for the period of October 9, 2021 to December
31, 2021, and $1,120,224 for the period from October 1, 2020 to December 31,
2020 following the acquisition of Kyle's.



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 $5,716,030 for the period from April 1, 2021 to
December 31, 2021 following the acquisition of Wolo.



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Cost of sales. Our total cost of sales was $20,311,724 for the year ended
December 31, 2021compared to $6,531,435 for the year ended December 31, 2020.

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 was
$9,773,371 for the year ended December 31, 2021 and $5,866,413 for the period
from May 29, 2020 to December 31, 2020 following the acquisition of Asien's. As
a percentage of retail and appliances revenues, cost of sales for the retail and
appliances segment was 76.7% for the year ended December 31, 2021 and 76.9% for
the period from May 29, 2020 to December 31, 2020.



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 was
$6,966,064 for the year ended December 31, 2021, including costs from the
acquisitions of High Mountain and Innovative Cabinets of $3,899,268 for the
period of October 9, 2021 to December 31, 2021, and $665,022 for the period from
October 1, 2020 to December 31, 2020. As a percentage of construction revenues,
cost of sales for the construction segment was 57.1% for the year ended December
31, 2021 and 59.4% for the period from October 1, 2020 to December 31, 2020
following the acquisition of Kyle's.



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 $3,572,289 for the period from April 1, 2021 to
December 31, 2021 following the acquisition of Wolo. As a percentage of
automotive supplies revenues, cost of sales for the automotive supplies segment
was 62.5% for the period from April 1, 2021 to September 30, 2021.



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 $3,247,442 for
the year ended December 31, 2021, as compared to $734,867 for the year ended
December 31, 2020.



Personnel costs for the retail and appliances segment were $1,013,992 for the
year ended December 31, 2021 and $525,346 for the period from May 29, 2020 to
December 31, 2020 following the acquisition of Asien's. As a percentage of
retail and appliances revenue, personnel costs for the retail and appliances
segment were 8.0% for the year ended December 31, 2021 and 6.9% for the period
from May 29, 2020 to December 31, 2020.



Personnel costs for the construction segment were $1,518,643 for the year ended
December 31, 2021, including costs from the acquisitions of High Mountain and
Innovative Cabinets of $522,560 for the period of October 9, 2021 to December
31, 2021, and $209,521 for the period from October 1, 2020 to December 31, 2020
following the acquisition of Kyle's. As a percentage of construction revenue,
personnel costs for the construction segment were 12.4% for the year ended
December 31, 2021 and 18.7% for the period from October 1, 2020 to December
31,
2020.



Personnel costs for the automotive supplies segment were $714,807 for the period
from April 1, 2021 to December 31, 2021 following the acquisition of Wolo. As a
percentage of automotive supplies revenue, personnel costs for the automotive
supplies segment were 12.5% for the period from April 1, 2021 to December 31,
2021.



Depreciation and amortization. Our total depreciation and amortization expense
was $908,982 for the year ended December 31, 2021, as compared to $176,612 for
the year ended December 31, 2020.



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 $7,296,736 for the year ended December 31, 2021, as compared to
$2,652,429 for the year ended December 31, 2020.



General and administrative expenses for the retail and appliances segment were
$1,696,267 for the year ended December 31, 2021 and $1,362,169 for the period
from May 29, 2020 to December 31, 2020 following the acquisition of Asien's. As
a percentage of retail and appliances revenue, general and administrative
expenses for the retail and appliances segment were 13.3% for the year ended
December 31, 2021 and 17.9% for the period from May 29, 2020 to December 31,
2020.





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General and administrative expenses for the construction segment were $2,064,918
for the year ended December 31, 2021, including costs from the acquisitions of
High Mountain and Innovative Cabinets of $1,133,747 for the period of October 9,
2021 to December 31, 2021, and $394,168 for the period from October 1, 2020 to
December 31, 2020 following the acquisition of Kyle's. As a percentage of
construction revenue, general and administrative expenses for the construction
segment were 16.9% for the year ended December 31, 2021 and 22.9% for the period
from October 1, 2020 to December 31, 2020.



General and administrative expenses for the automotive supplies segment were
$2,248,738 for the period from April 1, 2021 to December 31, 2021 following the
acquisition of Wolo. As a percentage of automotive supplies revenue, general and
administrative expenses for the automotive supplies segment were 39.3% for the
period from April 1, 2021 to December 31, 2021.



The general and administrative expenses of our holding company increased by
$390,718i.e. 43.6%, at $1,286,813 for the year ended December 31, 2021 from
$896,092 for the year ended December 31, 2020. The increase is attributable to an increase in general expenses, professional fees and executive severance, offset by stock-based compensation of $436,386 issued during the period of the previous year.



Total other income (expense). We had $2,399,119 in total other expense, net, for
the year ended December 31, 2021, as compared to other expense, net, of $554,172
for the year ended December 31, 2020. Other expense, net, for the year ended
December 31, 2021 consisted of a loss on redemption of preferred shares of
$4,017,553, interest expense of $1,296,537, a loss on write-down of vesting note
payable of $602,204 and a loss on extinguishment of debt of $137,692, offset by
a gain on disposition of subsidiary of $3,282,804 related to the disposition of
Neese, a gain on forgiveness of debt of $360,302, a gain on sale of property and
equipment of $10,885 and other income of $876, while total other expense, net,
for the year ended December 31, 2020 consisted of a loss on extinguishment of
debt of $286,350, interest expense of $249,626 and other expense of $18,196.



Income tax benefit (expense). We had an income tax expense of $218,139 for the
year ended December 31, 2021, as compared to an income tax benefit of $83,931
for the year ended December 31, 2020.



Net loss from continuing operations. As a result of the cumulative effect of the
factors described above, our net loss from continuing operations was $3,721,157
for the year ended December 31, 2021, as compared to $1,820,138 for the year
ended December 31, 2020.


Cash and capital resources

From December 31, 2021we had cash and cash equivalents of $1,383,533. To date, we have funded our operations primarily through revenue generated from operations, cash proceeds from financing activities, borrowings and capital contributions from our shareholders.

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.



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 our manager pursuant to the management services
agreement, potential payment of profit allocation to our manager and potential
put price to our 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. Item 1 "Business-Our Manager" for more information
concerning the management fee, the profit allocation and put price.



The amount of management fee paid to our manager by us is reduced by the
aggregate amount of any offsetting management fees, if any, received by our
manager from any of our businesses. As a result, the management fee paid to our
manager may fluctuate from quarter to quarter. The amount of management fee paid
to our 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.



                                       84





Our 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 subsidiary, our 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 us 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 us, multiplied by (iii) the subsidiary's average
share (determined based on gross assets, generally) of our consolidated net
equity (determined according to GAAP with certain adjustments). In certain
circumstances, after a subsidiary has been held for at least 5 years, our
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" for more information on the calculation
of
the profit allocation.



Our operating agreement also contains a supplemental put provision, which gives
our manager the right, subject to certain conditions, to cause us to purchase
the allocation shares then owned by our 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 our manager's resignation, the payment
to our 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" for more information on the
calculation of the put price. The put price obligation, if our 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.



Summary of Cash Flow



The following table provides detailed information about our net cash flow for
the period indicated:



                                   Cash Flow



                                                                 Years Ended December 31,
                                                                   2021             2020

Net cash provided by (used in) operating activities from continuing operations

                                          $    

(897,566) $137,500
Net cash provided by (used in) investing activities from continuing operations

(15,684,770 ) 1,060,872 Net cash provided by financing activities of continuing operations

16,585,520 181,977 Net increase in cash and cash equivalents from continuing operations

                                                             3,184       1,380,349
Cash and cash equivalents at beginning of year                     1,380,349               -
Cash and cash equivalent at end of year                        $   1,383,533     $ 1,380,349




Net cash used in operating activities from continuing operations was $897,566
for the year ended December 31, 2021, as compared to net cash provided by
operating activities from continuing operations of $137,500 for the year ended
December 31, 2020. For the year ended December 31, 2021, the net loss of
$3,588,934, a gain of disposition of subsidiary of $3,282,804, a change in
contract liabilities of $950,640 and a gain on forgiveness of debt of $360,302,
offset by a loss on redemption of series A senior convertible preferred shares
of $4,017,553, non-cash depreciation and amortization of $908,982, an increase
in accounts payable and accrued expenses of $719,890, a loss on write-down of
contingent notes payable of $602,204, a decrease in inventory of $389,110 and a
change in debt discounts of $382,565, were the primary drivers of the net cash
used in operating activities. For the year ended December 31, 2020, the net loss
of $9,658,769, a decrease in prepaids and other costs of $495,831 and an
increase in inventory of $565,264, offset by a gain from discontinued operations
of $7,838,631, an increase in accounts payable and accrued expenses of $962,464
and an increase in customer deposits of $965,254, were the primary drivers of
the net cash provided by operating activities.



Net cash used in investing activities from continuing operations was $15,684,770
for the year ended December 31, 2021, as compared to net cash provided by
investing activities from continuing operations of $1,060,872 for the year ended
December 31, 2020. Net cash used in investing activities for the year ended
December 31, 2021 consisted of net cash acquired in (paid for) acquisitions
(Wolo, High Mountain and Innovative Cabinets) of $15,857,295 and purchase of
equipment and vehicles of $177,475, offset by proceeds from disposition of
subsidiary of $325,000 and proceeds from the sale of property and equipment of
$25,000, while net cash provided by investing activities for the year ended
December 31, 2020 consisted of net cash acquired in (paid for) acquisitions
(Asien's and Kyle's) of $1,409,936, offset by investments in certificates of
deposits of $276,270 and purchases of equipment in the amount of $72,794.



                                       85





Net cash provided by financing activities from continuing operations was
$16,585,520 for the year ended December 31, 2021, as compared to $181,977 for
the year ended December 31, 2020. Net cash provided by financing activities for
the year ended December 31, 2021 consisted of net proceeds on convertible notes
payable of $23,744,975, proceeds on notes payable of $3,550,000 and proceeds of
$3,000,000 from the sale of units described below, offset by redemption of
preferred shares of $6,054,241, net payments on notes payable of $5,021,511,
payments of preferred dividends of $1,032,806, net payments due to the Wolo and
Asien's sellers of $977,686, net repayment on lines of credit of $301,081,
financing fees of $165,230, payment of vesting note payable of $100,000 and
repayment of grid note of $56,900. Net cash provided by financing activities for
the year ended December 31, 2020 consisted of net proceeds of $4,921,315 from
the sale of units described below, proceeds from line of credit of $301,081,
proceeds from the exercise of stock options and warrants of $212,500 and
proceeds from vehicle loans of $21,968, offset by the payment to Kyle's seller
of $4,356,162, repayment of notes payable of $856,225 and grid note payments of
$62,500.





Unit Offering


On September 30, 2020, we sold an aggregate of 2,189,835 units, at a price of
$1.90 per unit, for aggregate gross proceeds of $4,160,684. On October 26, 2020,
we sold an additional 442,443 units for an aggregate purchase price of $840,640.



On March 26, 2021, we sold an aggregate of 1,818,182 units, at a price of $1.65
per unit, for aggregate gross proceeds of $3,000,000. As described in further
detail below, we contributed to 1847 Wolo the $3,000,000 raised in this offering
in exchange for 1,000 shares of 1847 Wolo's series A preferred stock, at a price
of $3,000 per share, to fund, in part, the planned acquisition of Wolo by 1847
Wolo.


Each unit consists of one (1) Series A Convertible First Preferred Share and a three-year warrant to purchase one (1) common share at an exercise price of
$2.50 per common share (subject to adjustment), which may be exercised on a cashless basis in certain circumstances.



In exchange for the consent of the holders of the series A senior convertible
preferred shares issued in 2020 to the issuance of the units on March 26, 2021
at a lower purchase price than such holders paid for their shares, we issued an
aggregate of 398,838 common shares to such holders.



On October 12, 2021, we redeemed 2,632,278 series A senior convertible preferred
shares for a total redemption price, including dividends through such date,
of
$6,395,645.



Subscription Agreement


On March 29, 2021, we entered into a subscription agreement with 1847 Wolo,
pursuant to which 1847 Wolo issued to us 1,000 shares of its series A preferred
stock, for gross proceeds to 1847 Wolo of $3,000,000. The series A preferred
stock has no voting rights and is not convertible into the common stock or any
other securities of 1847 Wolo. Dividends at the rate per annum of 16.0% of the
stated value of $3,000 per share shall accrue on the series A preferred stock
(subject to adjustment) and shall accrue from day to day, whether or not
declared, and shall be cumulative. Accruing dividends are payable quarterly in
arrears on each of the following dividend payment dates: January 15, April 15,
July 15 and October 15 beginning on April 15, 2021. Upon any liquidation,
dissolution or winding up of 1847 Wolo, before any payment shall be made to the
holders of 1847 Wolo's common stock, the series A preferred stock then
outstanding shall be entitled to be paid out of the funds and assets available
for distribution to 1847 Wolo's stockholders an amount per share equal to the
stated value of $3,000 per share, plus any accrued, but unpaid dividends.



                                       86




Second Amended and Restated Intercompany Secured Promissory Note

In connection with the acquisition of Kyle's, we provided 1847 Cabinet with the
funds necessary to pay the cash portion of the purchase price and cover
acquisition expenses. In connection therewith, on September 30, 2020, 1847
Cabinet issued a secured promissory note to our company in the principal amount
of $4,525,000, which was amended and restated on December 11, 2020 and on
October 8, 2021 to increase the principal amount of up to $15,955,325. The note
bears interest at the rate of 16% per annum. Interest on the note is cumulative
and any unpaid accrued interest will compound on each anniversary date of the
note. Interest is due and payable in arrears to us on December 1, March 1, June
1 and October 1, commencing on December 1, 2021. In the event payment of
principal or interest due under the note is not made when due, giving effect to
any grace period which may be applicable, or in the event of any other default
(as defined in the note), the outstanding principal balance shall from the date
of default immediately bear interest at the rate of 5% above the then applicable
interest rate for so long as such default continues. We may demand payment in
full of the note at any time, even if 1847 Cabinet has complied with all of the
terms of the note, and the note shall be due in full, without demand, upon the
third-party sale of all or substantially all the assets and business of 1847
Cabinet or the third-party sale or other disposition of any capital stock of
1847 Cabinet. 1847 Cabinet may prepay the note at any time without penalty. If
and to the extent any amounts are owing under the secured convertible promissory
notes described below due to a default thereunder, in addition to payment
obligations due under the note, 1847 Cabinet is required to immediately make
payments to us so that we may make payments in compliance with the terms of the
secured convertible promissory notes. The note contains customary covenants and
events of default, is guaranteed by Kyle's, High Mountain and Innovative
Cabinets and is secured by a security interest in all of the assets of 1847
Cabinet, Kyle's, High Mountain and Innovative Cabinets; provided that our rights
to receive payments under the note are subordinated to the rights of the
purchasers under secured convertible promissory notes described below. The
remaining principal balance of the note at December 31, 2021 was $6,549,073 and
it had accrued interest of $35,416.



Debt


Secured convertible promissory notes

On October 8, 2021, we and each of our subsidiaries 1847 Asien, 1847 Wolo, 1847
Cabinet, Asien's, Wolo, Kyle's, High Mountain and Innovative Cabinets, entered
into a note purchase agreement with two institutional investors, including
Leonite, pursuant to which we issued to these purchasers secured convertible
promissory notes in the aggregate principal amount of $24,860,000. The notes
contain an aggregate original issue discount of $497,200. As a result, the total
purchase price was $24,362,800. After payment of expenses of $617,825, we
received net proceeds of $23,744,975, of which $10,687,500 was used to fund the
cash portion of the purchase price for the acquisition of High Mountain and
Innovative Cabinets. In addition, as consideration for the financing, we granted
the financing agent 750,000 warrants with a fair value of $956,526 and 7.5%
interest in High Mountain and Innovative Cabinets which had a fair value of
$1,146,803. The agent fees were reflected as a discount against the convertible
note payable with the warrants being included in additional paid in capital and
the equity interest being including within noncontrolling interest on the
consolidated balance sheet. The remaining principal balance of the notes at
December 31, 2021 is $23,787,936, net of debt discounts of $3,072,064, and they
have accrued interest of $467,689.



The notes bear interest at a rate per annum equal to the greater of (i) 4.75%
plus the U.S. Prime Rate that appears in The Wall Street Journal from time to
time or (ii) 8%; provided that, upon an event of default (as defined in the
notes), such rate shall increase to 24% or the maximum legal rate. Payments of
interest only, computed at such rate on the outstanding principal amount, will
be due and payable quarterly in arrears commencing on January 1, 2022 and
continuing on the first day of each calendar quarter thereafter through and
including the maturity date, October 8, 2026.



We may voluntarily prepay the notes in whole or in part upon payment of a
prepayment fee in an amount equal to 10% of the principal and interest paid in
connection with such prepayment. In addition, immediately upon receipt by our
company or any subsidiary of any proceeds from any issuance of indebtedness
(other than certain permitted indebtedness), any proceeds of any sale or
disposition by our company or any subsidiary of any of the collateral or any of
its respective assets (other than asset sales or dispositions in the ordinary
course of business which are permitted by the note purchase agreement), or any
proceeds from any casualty insurance policies or eminent domain, condemnation or
similar proceedings, we must prepay the notes in an amount equal to all such
proceeds, net of reasonable and customary transaction costs, fees and expenses
properly attributable to such transaction and payable by our company or a
subsidiary in connection therewith (in each case, paid to non-affiliates).



The holders of the notes may, in their sole discretion, elect to convert any
outstanding and unpaid principal portion of the notes, and any accrued but
unpaid interest on such portion, into our common shares at a conversion price
equal to $2.50 (subject to standard adjustments, including a full ratchet
antidilution adjustment); provided that the notes contain certain beneficial
ownership limitations.



Pursuant to the terms of the notes, until the date that is eighteen (18) months
after the issuance date of the notes, the holders shall have the right, but not
the obligation, to participate in any securities offering other than a permitted
issuance (as defined in the note purchase agreement) in an amount of up to the
original principal amount of the notes. In addition, the holders shall have the
right of first refusal to participate in any issuance of indebtedness until the
notes have been terminated; provided, however, that this right of first refusal
shall not apply to permitted issuances.



The note purchase agreement and the notes contain customary representations,
warranties, affirmative and negative financial and other covenants and events of
default for loans of this type. The notes are guaranteed by each subsidiary and
are secured by a first priority security interest in all of the assets of our
company and its subsidiaries.


6% Subordinated Convertible Promissory Notes



A portion of the purchase price for the acquisition of High Mountain and
Innovative Cabinets on October 8, 2021 was paid by the issuance of 6%
subordinated convertible promissory notes in the aggregate principal amount of
$5,880,345 by 1847 Cabinet to the sellers of High Mountain and Innovative
Cabinets. The remaining principal balance of the notes at December 31, 2021 is
$4,838,997, net of debt discount at $1,041,348, and they have accrued interest
of $108,262.



                                       87




The notes bear interest at a rate of six percent (6%) per annum and are due and
payable on October 8, 2024; provided that upon an event of default (as defined
in the notes), such interest rate shall increase to ten percent (10%) per annum.
1847 Cabinet may prepay the notes in whole or in part, without penalty or
premium, upon ten (10) business days prior written notice to the holders of
the
notes.



At any time prior to October 8, 2022, the holders may, in their sole discretion,
elect to convert up to twenty percent (20%) of the original principal amount of
the notes and all accrued, but unpaid, interest into such number of shares of
the common stock of 1847 Cabinet determined by dividing the amount to be
converted by a conversion price determined by dividing (i) the fair market value
of 1847 Cabinet (determined in accordance with the notes) by (ii) the number of
shares of 1847 Cabinet outstanding on a fully diluted basis. In addition, on
October 8, 2021, we entered into an exchange agreement with the holders,
pursuant to which we granted them the right to exchange all of the principal
amount and accrued but unpaid interest under the notes or any portion thereof
for a number of our common shares to be determined by dividing the amount to be
converted by an exchange price equal to the higher of (i) the 30-day volume
weighted average price for our common shares on the primary national securities
exchange or over-the-counter market on which our common shares are traded over
the thirty (30) trading days immediately prior to the applicable exchange date
or (ii) $2.50 (subject to equitable adjustments for stock splits, stock
combinations, recapitalizations and similar transactions).



The Notes contain customary events of default, including default under the secured convertible promissory notes described above. The rights of Holders to receive payments under the Notes are subordinate to the rights of purchasers under the Secured Convertible Promissory Notes described above.



6% Amortizing Promissory Note



On July 29, 2020, 1847 Asien entered into a securities purchase agreement with
Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen, as trustees of the
Wilhelmsen Family Trust, U/D/T Dated May 1, 1992, or the Asien's Seller,
pursuant to which the Asien's Seller sold 415,000 of our common shares to 1847
Asien a purchase price of $2.50 per share. As consideration, 1847 Asien issued
to the Asien's Seller a two-year 6% amortizing promissory note in the aggregate
principal amount of $1,037,500. On October 8, 2021, 1847 Asien and the Asien's
Seller entered into amendment no. 1 to securities purchase agreement to amend
certain terms of the securities purchase agreement and the 6% amortizing
promissory note. Pursuant to the amendment, the repayment terms of the 6%
amortizing promissory note were revised so that one-half (50%) of the
outstanding principal amount ($518,750) and all accrued interest thereon shall
be amortized on a two-year straight-line basis and payable quarterly in
accordance with the amortization schedule set forth on Exhibit A to the
amendment, except for the payments that were initially scheduled on January 1,
2022 and April 1, 2022, which were paid from the proceeds of the senior
convertible promissory notes described above, and the second-half (50%) of the
outstanding principal amount ($518,750) and all accrued, but unpaid interest
thereon shall be paid on the second anniversary of the date of the 6% amortizing
promissory note, along with any other unpaid principal or accrued interest
thereon. The note is unsecured and contains customary events of default. The
remaining principal balance of the note at December 31, 2021 was $581,963 and it
had accrued interest of $21,758.



Vesting Promissory Note


A portion of the purchase price for the acquisition of Kyle's on September 30,
2020 was paid by the issuance of a vesting promissory note by 1847 Cabinet to
Stephen Mallatt, Jr. and Rita Mallatt, or the Kyle's Sellers, in the principal
amount of $1,050,000, which increased to a principal amount of up to $1,260,000
pursuant to the vested percentage calculation described below. Payment of the
principal and accrued interest on the note is subject to vesting as described
below. The note bears interest on the vested portion of principal amount at the
rate of eight percent (8%) per annum. To the extent vested, the vested portion
of the principal and all accrued but unpaid interest on such vested portion of
the principal shall be paid in one lump sum on the last day of the thirty-sixth
(36th) month following the date of the note.



The vested principal of the note due at the maturity date shall be calculated
each year based on the average annual consolidated EBITDA (as defined in the
note) of 1847 Cabinet for each of the years ended December 31, 2020, 2021 and
2022. The EBITDA for each year shall be divided by $1.4 million multiplied by
100 to obtain the vested percentage. The vested principal for each year shall be
equal to the vested percentage for that year multiplied by $350,000. To the
extent that the vested percentage for the subject year is less than 80%, no
portion of the note for that year shall vest. To the extent that the vested
percentage for the subject year is equal to or greater than 120%, the vested
principal shall be equal to $420,000 for that year and no more. For the year
ended December 31, 2020, EBITDA of 1847 Cabinet was approximately $1,531,000,
resulting in a vested amount of approximately $415,000. For the year ended
December 31, 2021, EBITDA of 1847 Cabinet was approximately $427,504, resulting
in an additional vested amount of approximately $602,204. As of December 31,
2021, the outstanding balance of this note was $1,001,183.



                                       88




1847 Cabinet will have the right to redeem all but no less than all of the note
at any time prior to the maturity date. If 1847 Cabinet elects to redeem the
note, the redemption price will be payable in cash and is equal to the then
outstanding vested portion of the principal plus any remaining unvested
principal amount plus accrued but unpaid interest thereon (calculated over 36
months). For purposes of this redemption calculation, the "unvested principal
amount" shall be $350,000 per year.



The note contains customary events of default. The right of the Kyle's Sellers
to receive payments under the note is subordinated to all indebtedness of 1847
Cabinet, whether outstanding as of the closing date or thereafter created, to
banks, insurance companies and other financial institutions or funds, and
federal or state taxation authorities.



Financing Leases


At May 6, 2021Kyle’s entered into an equipment finance lease to purchase equipment for $276,896ripening the December 1, 2027. The balance payable was
$276,896 from December 31, 2021.



On October 12, 2021, Kyle's entered in an equipment financing lease to purchase
equipment for $245,375, maturing on December 1, 2027. The balance payable was
$245,375 as of December 31, 2021.



On February 14, 2019, High Mountain entered in an equipment financing lease to
purchase a lift truck for $24,337, maturing on January 19, 2024. The balance
payable was $11,044 as of December 31, 2021.



At June 2, 2020, High mountain entered into an equipment finance lease for the purchase of desktop printers for $9,240ripening the May 2, 2024. The balance payable was $5,757 from December 31, 2021.


Vehicle Loans



Asien's has entered into seven retail installment sale contracts pursuant to
which Asien's agreed to finance its delivery trucks at rates ranging from 3.74%
to 8.72% with an aggregate remaining principal amount of $146,043 as of December
31, 2021.



Kyle's has entered into two retail installment sale contracts pursuant to which
Kyle's agreed to finance its delivery trucks at rates ranging from 5.90% to
6.54% with an aggregate remaining principal amount of $64,255 as of December 31,
2021.


High mountain and Innovative Cabinets entered into seventeen installment retail contracts under which they agreed to finance delivery trucks and equipment at rates ranging from 3.74% to 6.80%, with a total amount in remaining principal of $186,054 from December 31, 2021.


Total Debt



The following table shows aggregate figures for the total debt described above
that is coming due in the short and long term as of December 31, 2021. See the
above disclosures for more details regarding these loans.



                                                      Short-Term       Long-Term        Total Debt
Secured Convertible Promissory Notes                 $          -     $ 21,791,657     $ 21,791,657
6% Subordinated Convertible Promissory Notes                    -        4,838,998        4,838,998
6% Amortizing Promissory Note                             581,961                -          581,961
Vesting Promissory Note                                         -        1,011,183        1,011,183
Financing Leases                                           99,384          457,173          556,557
Vehicle Loans                                             111,829          250,133          361,962
Total                                                $    793,174     $ 28,349,144     $ 29,142,318




                                       89





Contractual Obligations


Our principal commitments consist mainly of obligations under the borrowings described above, operating leases described in Section 2 “Properties” and other contractual commitments described below.

We have hired our manager to manage our operations and day-to-day affairs. Our relationship with our manager will be governed primarily by the following agreements:

? the management services agreement and compensatory management services agreements

regarding the management services that our manager will perform for us and the

businesses owned by us and management fees payable to our manager in respect of

   thereof; and



? our operating agreement setting out the rights of our manager with respect to the

award shares he holds, including the right to receive profit allocations

from us, and the additional sale clause relating to the right of our manager of

   cause us to purchase the allocation shares it owns.



Off-balance sheet arrangements



We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.



Critical Accounting Policies



The following discussion relates to critical accounting policies for our
consolidated company. The preparation of financial statements in conformity with
GAAP requires our management to make assumptions, estimates and judgments that
affect the amounts reported, including the notes thereto, and related
disclosures of commitments and contingencies, if any. We have identified certain
accounting policies that are significant to the preparation of our financial
statements. These accounting policies are important for an understanding of our
financial condition and results of operation. Critical accounting policies are
those that are most important to the portrayal of our financial condition and
results of operations and require management's difficult, subjective, or complex
judgment, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain and may change in subsequent periods.
Certain accounting estimates are particularly sensitive because of their
significance to financial statements and because of the possibility that future
events affecting the estimate may differ significantly from management's current
judgments. We believe the following critical accounting policies involve the
most significant estimates and judgments used in the preparation of our
financial statements:



Revenue recognition and revenue cost



On January 1, 2018, we adopted Accounting Standards Update, or ASU, No. 2014-09,
Revenue from Contracts with Customers (Topic 606), which supersedes the revenue
recognition requirements in ASC Topic 605, Revenue Recognition. This ASU is
based on the principle that revenue is recognized to depict the transfer of
goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or
services. This ASU also requires additional disclosure about the nature, amount,
timing, and uncertainty of revenue and cash flows arising from customer purchase
orders, including significant judgments. Our adoption of this ASU resulted in no
change to our results of operations or balance sheet.



Retail and appliance segment



We collect 100% of the payment for special-order models including tax and 50% of
the payment for non-special orders from the customer at the time the order is
placed. We do not incur incremental costs obtaining purchase orders from
customers, however, if we did, because all contracts are less than a year in
duration, any contract costs incurred would be expensed rather than capitalized.



Performance Obligations - The revenue that we recognize arises from orders we
receive from customers. Our performance obligations under the customer orders
correspond to each sale of merchandise that we make 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, our products, which generally occurs
when the customer assumes the risk of loss. The transfer of control generally
occurs at the point of pickup, shipment, or installation. Once this occurs, we
have satisfied our performance obligation and we recognize revenue.



Transaction Price - We agree with customers on the selling price of each
transaction. This transaction price is generally based on the agreed upon sales
price. In our contracts with customers, we allocate 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
that we collect concurrently with revenue-producing activities are excluded
from
revenue.


Cost of revenue includes the cost of purchased merchandise plus freight and any
applicable delivery charges from the vendor to us. Substantially all sales are
to individual retail consumers (homeowners), builders and designers. The large
majority of customers are homeowners and their contractors, with the homeowner
being key in the final decisions. We have a diverse customer base with no one
client accounting for more than 5% of total revenue.



                                       90




Customer deposits - We record customer deposits when payments are received in
advance of the delivery of the merchandise. We expect that substantially all of
the customer deposits will be recognized within six months as the performance
obligations are satisfied.



Construction Segment



Our construction segment revenues are derived primarily through contracts with
customers whereby we specialize in all aspects of products and services relating
to finished carpentry, custom cabinetry, and countertops. We recognize revenue
when control of the promised goods or services is transferred to customers, in
an amount that reflects the consideration we expect to be entitled to in
exchange for those goods or services. We account for a contract when we have
approval and commitment from both parties, the rights of the parties are
identified, payment terms are identified, the contract has commercial substance,
and collectability of consideration is probable.



A contract's transaction price is allocated to each distinct performance
obligation and recognized as revenue when, or as, the performance obligation is
satisfied. Since most contracts are bundled to include both material and
installation services, we combine these items into one performance obligation as
the overall promise to transfer the individual goods or services is not
separately identifiable from other promises in the contract and, therefore, is
not distinct. We do offer assurance-type warranties on certain of its installed
products and services that do not represent a separate performance obligation
and, as such, do not impact the timing or extent of revenue recognition.



For any contracts that are not complete at the reporting date, we recognize
revenue over time, because of the continuous transfer of control to the customer
as work is performed at the customer's site and, therefore, the customer
controls the asset as it is being installed. We utilize the cost-to-cost measure
of progress method as we believe this best depicts the transfer of control of
assets to the customer, which occurs as costs are incurred. When this method is
used, we estimate the costs to complete individual contracts and record as
revenue that portion of the total contract price that is considered complete
based on the relationship of costs incurred to date to total anticipated costs.
Unforeseen events and circumstances can alter the estimate of the costs
associated with a particular contract. Total estimated costs at completion can
be impacted by changes in productivity, scheduling, cost of labor, and
materials. Additionally, external factors such as weather, and customer delays
may affect the progress of a project's completion, and thus the timing and
amount of revenue recognition, cash flow, and profitability from a particular
contract may be adversely affected.



An insignificant part of sales, mostly retail sales, is recognized at a point in time when the sale takes place. Sales taxes, when incurred, are recorded as a liability and excluded from revenue on a net basis.

Contracts can be subject to modification to account for changes in contract
specifications and requirements. We consider contract modifications to exist
when the modification either creates new, or changes the existing, enforceable
rights and obligations. Most contract modifications are for goods or services
that are not distinct from the existing contract due to the significant
integration service provided in the context of the contract and are accounted
for as if they were part of that existing contract. The effect of a contract
modification on the transaction price and our measure of progress for the
performance obligation to which it relates, is recognized as an adjustment to
revenue on a cumulative catch-up basis.



All contracts are billed either contractually or as work is performed. Billing
on long-term contracts occurs primarily on a monthly basis throughout the
contract period whereby we submit progress invoices for customer payment based
on actual or estimated costs incurred during the billing period. On some
contracts, the customer may withhold payment on an invoice equal to a percentage
of the invoice amount, which will be subsequently paid after satisfactory
completion of each project. This amount is referred to as retainage and is
common practice in the construction industry, as it allows for customers to
ensure the quality of the service performed prior to full payment. The retention
provisions are not considered a significant financing component.



The cost of earned revenue includes all direct material and labor costs and indirect costs related to the performance of the contract. The cost of significant uninstalled materials, rework or scrap is generally excluded from the measurement of cost against the cost of progress because it is not commensurate with the progress of the entity in meeting the performance obligation.

Contract assets and contract liabilities



We record a contract asset when we have satisfied our performance obligation
prior to billing and a contract liability when a customer payment is received
prior to the satisfaction of our performance obligation. The difference between
the beginning and ending balances of contract assets and liabilities primarily
results from the timing of our performance and the customer's payment. At times,
we have a right to payment from previous performance that is conditional on
something other than passage of time, such as retainage, which is included in
contract assets or contract liabilities, as determined on a contract-by-contract
basis.



                                       91





Automotive Supplies Segment


Our automotive supplies segment 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. Focused on the automotive and industrial
after-market, we sell our products to big-box national retail chains, through
specialty and industrial distributors, as well as online/mail order retailers
and original equipment manufacturers.



We collect 100% of the payment for internet and phone orders, including tax,
from the customer at the time the order is shipped. Customers placing orders
with a purchase order through the EDI (Electronic Data Interface) are allowed to
purchase on credit and make payment after receipt of product on the agreed
upon
terms.


Performance Obligations - The revenue that we recognize arises from orders we
receive from contracts with customers. Our performance obligations under the
customer orders correspond to each sale of merchandise that we make to customers
and each 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, our products, which generally occurs when the customer assumes
the risk of loss. The transfer of control generally occurs at the point of
shipment of the order. Once this occurs, we have satisfied our performance
obligation and we recognize revenue.



Transaction Price - We agree with customers on the selling price of each
transaction. This transaction price is generally based on the agreed upon sales
price. In our contracts with customers, we allocate 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
that we collect concurrently with revenue-producing activities are excluded
from
revenue.


Cost of sales includes the cost of goods purchased plus freight, warehouse wages, tariffs and any applicable delivery charges from seller to us.



Warranties vary and are typically 90 days to consumers and manufacturing defect
warranty to are available to resellers. At times, depending on the product, we
can also offer a warranty up to 12 months.



Receivables


Receivables consist of trade accounts receivable from customer, credit card
transactions in the process of settlement, and vendor rebates receivable. Vendor
rebates receivable represent amounts due from manufactures from whom we purchase
products. Rebates receivables 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 our assessment of the credit history with manufacturers, we
have concluded that there should be no allowance for uncollectible accounts. We
historically collect substantially all of our outstanding rebates receivable.
Retainage receivables represent the amount retained by customers to ensure the
quality of the installation and is received after satisfactory completion of
each installation project. Management regularly reviews aging of retainage
receivables and changes in payment trends and records an allowance when
collection of amounts due are considered at risk. The allowance for doubtful
accounts amounted to $359,000 and $0 for the years ended December 31, 2021 and
2020, respectively. Uncollectible balances are expensed in the periods they are
determined to be uncollectible.



Inventory


For Asien's, inventory mainly consists of appliances that are acquired for
resale and is valued at the average cost determined on a specific item basis.
Inventory also consists of parts that are used in service and repairs and may or
may not be charged to the customer depending on warranty and contractual
relationship. Kyle's typically orders inventory on a job-by-job basis and those
jobs are put into production within hours of being received. The inventory in
production is accounted for in the contract assets and liabilities and follows
the percentage completion methodology. Inventories consisting of materials and
supplies are stated at lower of costs or market. High Mountain and Innovative
Cabinets' inventory mainly consists of doors, door frames, baseboards, crown
molding, cabinetry, countertops, custom cabinets, closet shelving, and other
related products. We value inventory at each balance sheet date to ensure that
it is carried at the lower of cost or net realizable value with cost determined
based on the average cost basis. Wolo's inventory consists of finished goods
acquired for resale and is valued at the weighted-average cost determined on a
specific item basis. We periodically evaluate the value of items in inventory
and provide write-downs to inventory based on our estimate of market conditions.
We estimated an obsolescence allowance of $387,848 and $12,824 at December
31,
2021 and 2020, respectively.



                                       92





Property and Equipment


Property, plant and equipment are recorded at historical cost less accumulated amortization. Depreciation of furniture, vehicles and equipment is calculated using the straight-line method over the estimated useful life as follows:


                             Useful Life
                               (Years)
Building and Improvements           4
Machinery and Equipment            3-7
Trucks and Vehicles                3-6



Good will 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 recorded 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.



Identifiable intangible assets acquired are amortized over the following periods:



                                                   Expected Life
Acquired intangible Asset   Amortization Basis        (years)
Customer-Related            Straight-line basis          5-15
Marketing-Related           Straight-line basis            5




Long-Lived Assets



We review our 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



Our financial instruments consist of cash and cash equivalents, certificates of
deposit 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.



The fair value of a financial instrument is the amount that could be received
upon the sale of an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Financial
assets are marked to bid prices and financial liabilities are marked to offer
prices. Fair value measurements do not include transaction costs. A fair value
hierarchy is used to prioritize the quality and reliability of the information
used to determine fair values. Categorization within the fair value hierarchy is
based on the lowest level of input that is significant to the fair value
measurement. The three-level hierarchy is as follows:



Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs based on the market or inputs corroborated by market data.

Level 3 – Unobservable inputs that are not supported by market date.

Our held-to-maturity securities consist of certificates of deposit.


                                       93




Liability relating to derivatives



We account 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.



Stock-Based Compensation



We record stock-based compensation in accordance with ASC 718,
Compensation-Stock Compensation. All transactions in which goods or services are
the consideration received for the issuance of equity instruments are accounted
for based on the fair value of the consideration received or the fair value of
the equity instrument issued, whichever is more reliably measurable. Equity
instruments issued to employees and the cost of the services received as
consideration are measured and recognized based on the fair value of the equity
instruments issued and are recognized over the employees required service
period, which is generally the vesting period.



Operating Leases



ASC 842 requires recognition of leases on the consolidated balance sheets as
right-of-use, or ROU, assets and lease liabilities. ROU assets represent our
right to use underlying assets for the lease terms and lease liabilities
represent our obligation to make lease payments arising from the leases.
Operating lease ROU assets and operating lease liabilities are recognized based
on the present value and future minimum lease payments over the lease term at
commencement date. As our leases do not provide an implicit rate, we used our
estimated incremental borrowing rate based on the information available at
commencement date in determining the present value of lease payments. A number
of the lease agreements contain options to renew and options to terminate the
leases early. The lease term used to calculate ROU assets and lease liabilities
only includes renewal and termination options that are deemed reasonably certain
to be exercised.



We recognized lease liabilities, with corresponding ROU assets, based on the
present value of unpaid lease payments for existing operating leases longer than
twelve months. The ROU assets were adjusted per ASC 842 transition guidance for
existing lease-related balances of accrued and prepaid rent, and unamortized
lease incentives provided by lessors. Operating lease cost is recognized as a
single lease cost on a straight-line basis over the lease term and is recorded
in selling, general and administrative expenses. Variable lease payments for
common area maintenance, property taxes and other operating expenses are
recognized as expense in the period when the changes in facts and circumstances
on which the variable lease payments are based occur. We have elected not to
separate lease and non-lease components for all property leases for the purposes
of calculating ROU assets and lease liabilities.

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