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As a percentage of automotive supplies revenues, cost of revenues for the automotive supplies segment was 62.3% and 63.1% for the years |
ended December 31, 2022 and 2021, respectively. 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 $9,531,101 for the year ended December 31, 2021, as compared |
to $3,803,497 for the year ended December 31, 2021. Personnel |
costs for the retail and appliances segment increased by $38,626, or 4.9%, to $822,539 for the year ended December 31, 2022 from $783,913 |
for the year ended December 31, 2021. Such increase was primarily to increased employee headcount as a result of previous staffing shortages |
in the retail and appliances segment. As a percentage of retail and appliances revenue, personnel costs for the retail and appliances |
segment were 7.7% and 6.2% for the years ended December 31, 2022 and 2021, respectively. Personnel |
costs for the construction segment increased by $4,636,931, or 316.9%, to $6,100,374 for the year ended December 31, 2022 from $1,463,443 |
for the year ended December 31, 2021. Such increase was primarily due to the acquisitions of High Mountain and Innovative Cabinets, which |
were acquired in the fourth quarter of 2021. Excluding these acquisitions, personnel costs for the construction segment decreased by |
$47,132, or 4.9%. Such decrease was primarily due to decreased office personnel headcount in the construction segment. As a percentage |
of construction revenue, personnel costs for the construction segment were 19.2% and 12.0% for the years ended December 31, 2022 and |
2021, respectively. Personnel |
costs for the automotive supplies segment increased by $79,466, or 12.1%, to $1,094,361 for the year ended December 31, 2022 from $1,014,895 |
for the year ended December 31, 2021. Such increase was primarily due to the acquisition of Wolo, which was acquired on March 31, 2021. |
As a percentage of automotive supplies revenues, personnel costs for the automotive supplies segment was 16.9% and 17.8% for the years |
ended December 31, 2022 and 2021, respectively. Personnel |
costs for our holding company increased by $972,581, or 179.7%, to $1,513,827 for the year ended December 31, 2022 from $541,246 for |
the year ended December 31, 2021. Such increase was primarily due to increased headcount and management bonuses. Depreciation |
and amortization . Our total depreciation and amortization expense increased by $1,128,130, or 124.1%, to $2,037,112 for the year |
ended December 31, 2022 from $908,982 for the year ended December 31, 2021. Such increase was primarily as a result of the intangible |
assets and property and equipment acquired in the acquisitions of High Mountain and Innovative Cabinets, which were acquired in the fourth |
quarter of 2021. 96 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 $9,872,689 for the year ended December 31, 2022, as compared to $6,951,498 for the |
year ended December 31, 2021. General |
and administrative expenses for the retail and appliances segment decreased by $267,180, or 13.9%, to $1,649,702 for the year ended December |
31, 2022 from $1,916,882 for the year ended December 31, 2021. Such decrease was primarily due to the decrease in revenues from the retail |
and appliance segment. As a percentage of retail and appliances revenue, general and administrative expenses for the retail and appliances |
segment were 15.5% and 15.0% for the years ended December 31, 2022 and 2021, respectively. General |
and administrative expenses for the construction segment increased by $2,780,074, or 117.0%, to $5,156,425 for the year ended December |
31, 2022 from $2,376,351 for the year ended December 31, 2021. Such increase was primarily due to the acquisitions of High Mountain and |
Innovative Cabinets, which were acquired in the fourth quarter of 2021. Excluding these acquisitions, general and administrative expenses |
for the construction segment decreased by $26,926, or 2.5%. Such decrease was primarily attributable to a decrease in management fees |
as a result of the acquisitions of High Mountain and Innovative Cabinets, offset by increased rent from a new facility lease in the construction |
segment. As a percentage of construction revenue, general and administrative expenses for the construction segment were 16.2% and 19.5% |
for the years ended December 31, 2022 and 2021, respectively. General |
and administrative expenses for the automotive supplies segment decreased by $637,326, or 33.3%, to $1,275,369 for the year ended December |
31, 2022 from $1,912,695 for the year ended December 31, 2021. Such decrease was primarily due to the lack of acquisition related costs |
during the current period. As a percentage of automotive supplies revenue, general and administrative expenses for the automotive supplies |
segment were 19.7% and 33.5% for the years ended December 31, 2022 and 2021, respectively. General |
and administrative expenses for our holding company increased by $1,045,623, or 140.2%, to $1,791,193 for the year ended December 31, |
2022 from $745,570 for the year ended December 31, 2021. Such increase was primarily due to increased professional fees and corporate |
insurance. Total |
other income (expense) . We had $6,739,405 in total other expense, net, for the year ended December 31, 2022, as compared to other |
expense, net, of $2,399,119 for the year ended December 31, 2021. Other expense, net, for the year ended December 31, 2022 consisted |
of interest expense of $4,594,740, a loss on extinguishment of debt of $2,039,815, a loss on write-down of contingent note payable of |
$158,817 and other expense of $11,450, offset by a gain on disposal of property and equipment of $65,417, while 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 contingent 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. The loss on extinguishment of debt was a result of partially settling debt through |
the issuance of common shares and the significant increase in interest expense was primarily a result of note issuances during the period |
and convertible debt issuances during the fourth quarter of 2021 in order to help finance the acquisitions of High Mountain and Innovative |
Cabinets. Income |
tax benefit (expense) . We had an income tax benefit of $1,677,000 for the year ended December 31, 2022, as compared |
to an income tax expense of $218,139 for the year ended December 31, 2021. Net |
loss from continuing operations . As a result of the cumulative effect of the factors described above, our net loss from continuing |
operations was $10,801,913 for the year ended December 31, 2022, as compared to $3,721,157 for the year ended December 31, 2021, an increase |
of $7,080,756, or 190.3%. Liquidity |
and Capital Resources As |
of December 31, 2022, we had cash and cash equivalents of $1,079,355. To date, we have financed our operations primarily through revenue |
generated from operations, cash proceeds from financing activities, borrowings, and equity contributions by our shareholders. 97 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. 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. 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 |
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