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restrictions on the payment of distributions by us to our shareholders or by our subsidiaries to us, and any other factors that the board |
of directors deems relevant. However, even if our board of directors were to decide to declare and pay distributions, our ability to pay |
such distributions may be adversely impacted due to unknown liabilities, government regulations, financial covenants of our debt, funds |
needed for acquisitions and to satisfy short- and long-term working capital needs of our businesses, or if our operating subsidiaries |
do not generate sufficient earnings and cash flow to support the payment of such distributions. In particular, we may incur debt in the |
future to acquire new businesses, which debt will have substantial debt commitments, which must be satisfied before we can make distributions. |
These factors could affect our ability to continue to make quarterly distributions to our common shareholders. We may use cash flow from our operating subsidiaries, capital resources, |
including borrowings under any third-party credit facilities that we establish, or reduction in equity to pay a distribution. See “ Material |
U.S. Federal Income Tax Considerations ” included in our amended registration statement on Form S-1 filed with SEC on January |
31, 2022, for more information about the tax treatment of distributions to our shareholders. Recent Sales of Unregistered Securities We have not sold any equity securities during |
the 2021 fiscal year that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed |
during the 2021 fiscal year. Purchases of Equity Securities No repurchases of our common shares were made |
during the fourth quarter of 2021. 77 ITEM 6. [RESERVED] ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 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. 78 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 registration rights described above, |
the securities purchase agreements provide several other covenants in favor of the investors, including information rights for significant |
shareholders, most favored nations provisions, and other covenants customary for similar transactions. The securities purchase agreements |
also contain customary representations, warranties 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 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. 79 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. |
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