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in any such action. Our operating |
agreement governing our shares provides that, to the fullest extent permitted by law, holders of our shares waive the right to a jury |
trial of any claim they may have against us arising out of or relating to our operating agreement, including any claim under the U.S. |
federal securities laws. If we opposed |
a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances |
of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute |
jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States |
Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under |
the laws of the State of Delaware, which govern our operating agreement, by a federal or state court in the State of Delaware, which has |
non-exclusive jurisdiction over matters arising under the operating agreement. In determining whether to enforce a contractual pre-dispute |
jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right |
to a jury trial. We believe that this is the case with respect to our operating agreement. It is advisable that you consult legal counsel |
regarding the jury waiver provision before entering into the operating agreement. If you or |
any other holders or beneficial owners of our shares bring a claim against us in connection with matters arising under our operating agreement, |
including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with |
respect to such claims, which may have the effect of limiting and discouraging lawsuits against us. If a lawsuit is brought against us |
under our operating agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according |
to different civil procedures and may result in different outcomes than a trial by jury would have, including results that could be less |
favorable to the plaintiffs in any such action. Nevertheless, |
if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the operating agreement |
with a jury trial. No condition, stipulation or provision of the operating agreement serves as a waiver by any holder or beneficial owner |
of our shares or by us of compliance with the U.S. federal securities laws and the rules and regulations promulgated thereunder. 73 ITEM 1B. UNRESOLVED STAFF COMMENTS. Not applicable. ITEM 2. PROPERTIES. Our principal office is located at 590 Madison |
Avenue, 21st Floor, New York, NY 10022. We entered into an office service agreement with Regus Management Group, LLC for use |
of office space at this location effective January 22, 2013. Under the agreement, in exchange for our right to use the office space at |
this location, we are required to pay a monthly fee of $479 (excluding taxes). Asien’s is located at 1801 Piner Rd., Santa |
Rosa, CA 95401. The site is approximately 11,000 square feet in total and consists of a 6,000 square foot showroom display area as well |
as a general office, accounting office, service department and 4,000 square foot warehouse. We lease this site on a month-to-month basis |
for approximately $10,154 per month. We also rent an additional 3,000 square feet of warehouse and office space in an adjacent building |
for $2,000 per month. Kyle’s is located at 10849 W. Emerald St. |
Boise, ID 83713. It operates from a 6,600 square foot facility, which includes corporate offices, administration, production floor, warehouse, |
and employee areas. On September 1, 2020, Kyle’s entered into an industrial lease agreement with Stephen Mallatt, Jr. and Rita Mallatt, |
the sellers of Kyle’s. The lease is for a term of five years, with an option for a renewal term of five years, and provides for |
a base rent of $7,000 per month for the first 12 months, which will increase to $7,210 for months 13-16 and to $7,426 for months 37-60. |
In addition, Kyle’s is responsible for all taxes, insurance and certain operating costs during the lease term. The lease agreement |
contains customary events of default, representations, warranties and covenants. On June 9, 2021, Kyle’s entered into a lease |
agreement for an additional facility located at 11193 W. Emerald St. Boise, ID 83713. The facility consists of 9,530 square feet of office |
and warehouse space. The lease commenced on January 1, 2022 and is for a term of 62 months, with an option for a renewal term of five |
years, and provides for a base rent of $3,336 for months 3-4 (with no payments for the first two months), with gradual increases to $7,508 |
for final year. In addition, Kyle’s is responsible for its proportionate share of all taxes, insurance and certain operating costs |
during the lease term. The lease agreement contains customary events of default, representations, warranties and covenants. High Mountain is located at 4935 Brookside Ct, |
Reno, NV 89502. It operates from a 23,115 square foot facility, which includes corporate offices, a production floor and warehouse space, |
that it leases. The existing lease for this property commenced on January 1, 2018 and was for a period of 48 months, expiring on December |
31, 2021. High Mountain is continuing to pay on a month-to-month basis until the new facility described below is ready. The base rent |
is $12,767 per month. In addition, High Mountain is responsible for its proportionate share of all taxes, insurance and certain operating |
costs. The lease agreement contains customary events of default, representations, warranties and covenants. On October 29, 2021, High Mountain entered into |
a lease for a new 42,000 square foot facility located at 8895 Double Diamond Pkwy, Reno, NV 89521. The term of the lease will commence |
upon the completion of work, which is expected in March or April 2022, and is for a period of 61 months. The base rent is $29,400 for |
months 2-13 (with no payments for the first month), with gradual increases to $34,394 for months 50-61. In addition, High Mountain is |
responsible for its proportionate share of all taxes, insurance and certain operating costs during the lease term. The lease agreement |
contains customary events of default, representations, warranties and covenants. 74 Innovative Cabinets is headquartered at 4690 Longley |
Lane, Suite 29, Reno, NV 89509. It operates from a 4,078 square foot facility, which includes corporate offices, showroom and warehouse |
space. The term of the lease commenced on April 1, 2020 and is for a period of 36 months. The base rent is $2,936 for the first year, |
with gradual increases to $3,140 for the final year. In addition, Innovative Cabinets is responsible for its proportionate share of all |
taxes, insurance and certain operating costs during the lease term. The lease agreement contains customary events of default, representations, |
warranties and covenants. Innovative Cabinets also leases a 24,000 square |
foot facility located at 875 East Patriot Boulevard, Suite 280, Reno, NV 89511, consisting of warehouse and production space. The term |
of the lease commenced on January 1, 2021 and is for a period of 61 months. The base rent is $15,600 for 2021, with gradual increases |
to $18,085 for 2026. In addition, Innovative Cabinets is responsible for its proportionate share of all taxes, insurance and certain operating |
costs during the lease term. The lease agreement contains customary events of default, representations, warranties and covenants. Wolo is located at 1 Saxwood St., Deer Park, NY |
11729. This 10,000 square foot facility houses our offices, production space and stored inventory. The term of the lease for this space |
commenced in 1978 and has been extended numerous times. Pursuant to the latest amendment entered into in July 2020, the lease expires |
on July 31, 2022 and provides for rent of $6,897 from August 8, 2021 to July 31, 2022. The lease agreement contains customary events of |
default representations, warranties and covenants. We believe that all our properties have been adequately |
maintained, are generally in good condition, and are suitable and adequate for our businesses. ITEM 3. LEGAL PROCEEDINGS. From time to time, we may become involved in various |
lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, |
and an adverse result in these or other matters may arise from time to time that may harm our business. We are not currently aware of |
any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating |
results. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 75 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common shares are eligible for quotation on |
the OTCQB market under the symbol “EFSH.” The following table sets forth, for the periods indicated, the high and low closing |
prices of our common shares. These prices reflect inter-dealer prices, without retain mark-up or commission, and may not represent actual |
transactions. Closing Prices High Low Fiscal Year Ended December 31, 2020 1 st Quarter $ 2.75 $ 1.01 2 nd Quarter 3.40 0.80 3 rd Quarter 6.90 1.81 4 th Quarter 5.30 1.32 Fiscal Year Ended December 31, 2021 1 st Quarter 2.50 1.05 2 nd Quarter 2.40 1.51 3 rd Quarter 2.40 1.50 4 th Quarter 2.60 1.62 Number of Holders of Our Common Shares As of March 30, 2022, there were approximately |
52 shareholders of record of our common shares. In computing the number of holders of record of our common shares, each broker-dealer |
and clearing corporation holding shares on behalf of its customers is counted as a single shareholder. Securities Authorized for Issuance Under Equity |
Compensation Plans As of December 31, 2021, we did not have in effect |
any compensation plans under which our equity securities were authorized for issuance and we did not have any outstanding share options. Dividend Policy Holders of our series A senior convertible preferred |
shares are entitled to dividends at a rate per annum of 14.0% of the stated value of $2.00 per share (subject to adjustment). Dividends |
shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall be payable quarterly in arrears on each |
dividend payment date in cash or common shares at our discretion. Dividends payable in common shares shall be calculated based on a price |
equal to eighty percent (80%) of the volume weighted average price for the common shares on our principal trading market during the five |
(5) trading days immediately prior to the applicable dividend payment date; provided that if our common shares are not registered, any |
dividends payable in common shares shall be calculated based upon the fixed price of $1.57; and provided further that we may only elect |
to pay dividends in common shares based upon such fixed price if the volume weighted average price for the common shares on our principal |
trading market during the five (5) trading days immediately prior to the applicable dividend payment date is $1.57 or higher. 76 Holders of our series B senior convertible preferred |
shares are entitled to dividends at a rate per annum of 14.0% of the stated value of $3.00 per share (subject to adjustment). Dividends |
shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall be payable quarterly in arrears on each |
dividend payment date in cash or common shares at our discretion. Dividends payable in common shares shall be calculated based on a price |
equal to eighty percent (80%) of the volume weighted average price for the common shares our principal trading market during the five |
(5) trading days immediately prior to the applicable dividend payment date; provided that if our common shares are not registered, any |
dividends payable in common shares shall be calculated based upon the fixed price of $2.70; and provided further that we may only elect |
to pay dividends in common shares based upon such fixed price if the volume weighted average price for the common shares on our principal |
trading market during the five (5) trading days immediately prior to the applicable dividend payment date is $2.70 or higher. We plan to make regular quarterly distributions |
on our outstanding common shares equal to $0.05 per share, subject to our operating subsidiaries generating sufficient cash flow to support |
such regular cash distributions. We have announced that if our planned uplisting |
to a national securities exchange is completed, we will increase our quarterly dividend to $0.10 per share. Our distribution policy will be based on the liquidity |
and capital of our businesses and on our intention to pay out as distributions to our shareholders most of the cash resulting from the |
ordinary operation of the businesses, and not to retain significant cash balances in excess of what is prudent for our company or our |
businesses, or as may be prudent for the consummation of attractive acquisition opportunities. If our strategy is successful, we expect |
to maintain and increase the level of quarterly distributions to common shareholders in the future. The declaration and payment of any monthly distribution to our common |
shareholders will be subject to the approval of our board of directors. Our board of directors will take into account such matters as |
general business conditions, our financial condition, results of operations, capital requirements and any contractual, legal and regulatory |
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