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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. 80 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 expensed management fees of $300,000 |
for the year ended December 31, 2021 and $178,022 for the period from May 29, 2020 to December 31, 2020. 1847 Cabinet expensed management fees of $345,556 |
for the year ended December 31, 2021 and $75,000 for the period from October 1, 2020 to 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. 81 Results of Operations The following table sets forth key components |
of our results of operations during the years ended December 31, 2021 and 2020, both in dollars and as a percentage of our revenues. Years Ended December 31, 2021 2020 Amount % of Revenues Amount % of 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 revenues . Our total revenues |
were $30,660,984 for the year ended December 31, 2021, as compared 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. 82 Cost of sales . Our total cost of |
sales was $20,311,724 for the year ended December 31, 2021, as compared 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 |
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