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on Form 10-K where indicated. The registrant’s definitive proxy statement will be filed with the U.S. Securities and Exchange Commission |
within 120 days after the end of the fiscal year to which this report relates. 1847 Holdings LLC Annual Report on Form 10-K Year Ended December 31, 2022 TABLE OF CONTENTS PART I Item 1. Business 1 Item 1A. Risk Factors 42 Item 1B. Unresolved Staff Comments 86 Item 2. Properties 86 Item 3. Legal Proceedings 87 Item 4. Mine Safety Disclosures 87 PART II Item 5. Market for Registrant’s Common |
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 88 Item 6. [Reserved] 89 Item 7. Management’s Discussion and |
Analysis of Financial Condition and Results of Operations 90 Item 7A. Quantitative and Qualitative Disclosures |
About Market Risk 107 Item 8. Financial Statements and Supplementary |
Data 107 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 107 Item 9A. Controls and Procedures 107 Item 9B. Other Information 108 Item 9C. Disclosure Regarding Foreign Jurisdictions |
that Prevent Inspections 108 PART III Item 10. Directors, Executive Officers and |
Corporate Governance 109 Item 11. Executive Compensation 109 Item 12. Security Ownership of Certain Beneficial |
Owners and Management and Related Stockholder Matters 109 Item 13. Certain Relationships and Related |
Transactions, and Director Independence 109 Item 14. Principal Accounting Fees and Services 109 PART IV Item 15. Exhibit and Financial Statement Schedules 110 Item 16. Form 10-K Summary 115 i INTRODUCTORY NOTES Use of Terms Except as otherwise indicated by the context and |
for the purposes of this report only, references in this report to “we,” “us,” “our” and “our |
company” are to 1847 Holdings LLC, a Delaware limited liability company, and its consolidated subsidiaries, and references to “our |
manager” are to 1847 Partners LLC, a Delaware limited liability company. Special Note Regarding Forward-Looking Statements This report contains forward-looking statements |
that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than |
statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance |
and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance |
or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied |
by these forward-looking statements. Forward-looking statements include, but are not limited to, statements ab ● our ability to effectively integrate and operate the businesses that we acquire; ● our ability to successfully identify and acquire additional businesses; ● our organizational structure, which may limit our ability to meet our dividend and distribution policy; ● our ability to service and comply with the terms of indebtedness; ● our cash flow available for distribution and our ability to make distributions to our common shareholders; ● our ability to pay the management fee, profit allocation and put price to our manager when due; ● labor disputes, strikes or other employee disputes or grievances; ● the regulatory environment in which our businesses operate under; ● trends in the industries in which our businesses operate; ● the competitive environment in which our businesses operate; ● changes in general economic or business conditions or economic or demographic trends in the United States |
including changes in interest rates and inflation; ● our and our manager’s ability to retain or replace qualified employees of our businesses and our |
manager; ● casualties, condemnation or catastrophic failures with respect to any of our business’ facilities; ● costs and effects of legal and administrative proceedings, settlements, investigations and claims; and ● extraordinary or force majeure events affecting the business or operations of our businesses. In some cases, you can identify forward-looking |
statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” |
“plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” |
“potential,” “project” or “continue” or the negative of these terms or other comparable terminology. |
These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and |
unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. |
Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Item |
1A “ Risk Factors ” and elsewhere in this report. If one or more of these risks or uncertainties occur, or if our underlying |
assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking |
statements. No forward-looking statement is a guarantee of future performance. In addition, statements that “we believe” |
and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available |
to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information |
may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or |
review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to |
unduly rely upon these statements. The forward-looking statements made in this report |
relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the |
federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new |
information, future events, changed circumstances or any other reason. ii PART I ITEM |
1. BUSINESS. OUR BUSINESS 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. On May 28, 2020, our subsidiary 1847 Asien Inc., |
or 1847 Asien, acquired Asien’s Appliance, Inc., a California corporation, or 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 |
Inc., or 1847 Cabinet, acquired Kyle’s Custom Wood Shop, Inc., an Idaho corporation, or 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 Inc., |
or 1847 Wolo, acquired Wolo Mfg. Corp., a New York corporation, and Wolo Industrial Horn & Signal, Inc., a New York corporation (which |
we collectively refer to as 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 Door & Trim Inc., a Nevada corporation, or High Mountain, and Sierra Homes, LLC d/b/a Innovative Cabinets & |
Design, a Nevada limited liability company, or 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. On February 9, 2023, our subsidiary, 1847 ICU |
Holdings Inc., or 1847 ICU, acquired ICU Eyewear Holdings, Inc., a California corporation, and its subsidiary ICU Eyewear, Inc., a California |
corporation, which we collectively refer to as ICU Eyewear. Headquartered in Hollister, California and founded in 1956, ICU Eyewear specializes |
in the sale and distribution of reading eyewear and sunglasses, blue light blocking eyewear, sun readers, and other outdoor specialty |
sunglasses, as well as select health and personal care items, including face masks. Through our structure, we offer investors an opportunity |
to participate in the ownership and growth of a portfolio of businesses that traditionally have been owned and managed by private equity |
firms, private individuals or families, financial institutions or large conglomerates. We believe that our management and acquisition |
strategies will allow us to achieve our goals to make and grow 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. 1 Our Market Opportunity We acquire and manage small businesses, which |
we characterize as those that have an enterprise value of less than $50 million. We believe that the merger and acquisition market for |
small businesses is highly fragmented and provides significant opportunities to purchase businesses at attractive prices. For example, |
according to GF Data, platform acquisitions with enterprise values greater than $50.0 million commanded valuation premiums 30% higher |
than platform acquisitions with enterprise values less than $50.0 million (8.2x trailing twelve month adjusted EBITDA (Earnings Before |
Interest, Taxes, Depreciation and Amortization) versus 6.3x trailing twelve month adjusted EBITDA, respectively). We believe that the following factors contribute |
to lower acquisition multiples for small business ● there are typically fewer potential acquirers for these businesses; ● third-party financing generally is less available for these acquisitions; ● sellers of these businesses may consider non-economic factors, such as continuing board membership or |
the effect of the sale on their employees; and ● these businesses are generally less frequently sold pursuant to an auction process. We believe that our management team’s strong |
relationships with business brokers, investment and commercial bankers, accountants, attorneys and other potential sources of acquisition |
opportunities offers us substantial opportunities to purchase small businesses. See Item 10 “Directors, Executive Officers and |
Corporate Governance ” for more information about our management team. We also believe that significant opportunities |
exist to improve the performance of the businesses upon their acquisition. In the past, our manager has acquired businesses that are often |
formerly owned by seasoned entrepreneurs or large corporate parents. In these cases, our manager has frequently found that there have |
been opportunities to further build upon the management teams of acquired businesses. In addition, our manager has frequently found that |
financial reporting and management information systems of acquired businesses may be improved, both of which can lead to substantial improvements |
in earnings and cash flow. Finally, because these businesses tend to be too small to have their own corporate development efforts, we |
believe opportunities exist to assist these businesses in meaningful ways as they pursue organic or external growth strategies that were |
often not pursued by their previous owners. Our Strategy Our long-term goals are to make and grow regular |
distributions to our common shareholders and to increase common shareholder value over the long-term. We plan to continue focusing on |
acquiring businesses. Therefore, we intend to continue to identify, perform due diligence on, negotiate and consummate platform acquisitions |
of small businesses in attractive industry sectors. Unlike buyers of small businesses that rely on |
significant leverage to consummate acquisitions (as demonstrated by the data presented by total enterprise value, or TEV, below), we plan |
to limit the use of third-party (i.e., external) acquisition leverage so that our debt will not exceed the market value of the assets |
we acquire and so that our debt to EBITDA ratio will not exceed 1.25x to 1 for our operating subsidiaries. We believe that limiting leverage |
in this manner will avoid the imposition on stringent lender controls on our operations that would otherwise potentially hamper the growth |
of our operating subsidiaries and otherwise harm our business even during times when we have positive operating cash flows. Additionally, |
in our experience, leverage rarely leads to “break-out” returns and often creates negative return outcomes that are not correlated |
with the profitability of the business. 2 Sour GF Data ® Sour GF Data ® Management Strategy Our management strategy involves the identification, |
performance of due diligence, negotiation and consummation of acquisitions. After acquiring businesses, we attempt to grow the businesses |
both organically and through add-on or bolt-on acquisitions. Add-on or bolt-on acquisitions are acquisitions by a company of other companies |
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