Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)

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.

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 increase 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.

Recent Developments

Amendment to Operating Agreement

On March 11, 2025, our manager entered into an amendment to our operating agreement to increase the number of common shares that we are authorized to issue from 500 million shares to 2 billion shares.

Warrant Exchange

As described below, on October 30, 2024, we issued series A warrants to certain investors, most of which were exercised shortly after issuance. On March 11, 2025, the exercise price of the remaining series A warrants was reduced to $0.81 per share, with a corresponding increase in the number of series A warrants. Following this adjustment, the number of series A warrants outstanding was increased to 632,990, with each series A warrant exercisable for two common shares, or an aggregate of 1,265,980 common shares. Following the adjustment, a holder exercised 193,348 series A warrants for 386,696 common shares, or the Exercised Shares. Accordingly, an aggregate of 439,642 series A warrants remained outstanding, or the Remaining Warrants.

On March 25, 2025, we entered into cancellation and exchange agreements with the holders of the Remaining Warrants and the Exercised Shares, pursuant to which such holders agreed to exchange the Remaining Warrants and the Exercised Shares for an aggregate of 1,027 series F convertible preferred shares.

In connection with the cancellation and exchange agreements, on March 25, 2025 we executed a share designation to establish the terms of the series F convertible preferred shares, or the Share Designation. Pursuant to the Share Designation, we designated 1,027 of our preferred shares as series F convertible preferred shares with a stated value of $1,000 per share. Following is a summary of the material terms of the series F convertible preferred shares:

Ranking. The series F convertible preferred shares rank, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common shares, allocation shares, series C preferred shares, series D preferred shares and each other class or series that is not expressly made senior to or on parity with the series F convertible preferred shares; (ii) on parity with each other class or series that is not expressly subordinated or made senior to the series F convertible preferred shares; and (iii) junior to the series A senior convertible preferred shares, all indebtedness and other liabilities with respect to assets available to satisfy claims against us and each other class or series that is expressly made senior to the series F convertible preferred shares.

Dividend Rights. Holders of series F convertible preferred shares are entitled to receive dividends, when, as and if declared on the common shares, pari passu with the holders of common shares, on an as-converted basis.

Liquidation Rights. Subject to the rights of creditors and the holders of any senior securities or parity securities (in each case, as defined in the Share Designation), upon any liquidation of our company, before any payment or distribution of the assets of our company (whether capital or surplus) shall be made to or set apart for the holders of junior securities (as defined in the Share Designation), each holder of outstanding series F convertible preferred shares shall be entitled to receive an amount of cash equal to 100% of the stated value ($1,000 per share). If, upon any liquidation, the assets, or proceeds thereof, distributable among the holders of the series F convertible preferred shares shall be insufficient to pay in full the preferential amount payable to the holders of the series F convertible preferred shares and liquidating payments on any other shares of any class or series of parity securities as to the distribution of assets on any liquidation, then such assets, or the proceeds thereof, shall be distributed among the holders of series F convertible preferred shares and any such other parity securities ratably in accordance with the respective amounts that would be payable on such series F convertible preferred shares and any such other parity securities if all amounts payable thereon were paid in full.

Voting Rights. The series F convertible preferred shares do not have any voting rights; provided that, so long as any series F convertible preferred shares are outstanding, we shall not, and shall not permit any of our subsidiaries to, directly or indirectly, without the affirmative vote of the holders of a majority of the then outstanding series F convertible preferred shares, (a) amend our certificate of formation or operating agreement in any manner that adversely affects any rights of the holders of the series F convertible preferred shares or alter or amend the Share Designation, (b) authorize or create any class of shares ranking as to dividends, redemption or distribution of assets upon a liquidation senior to, or otherwise pari passu with, the series F convertible preferred shares, or (c) enter into any agreement with respect to any of the foregoing.

Conversion Rights. Each series F convertible preferred share shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable common shares determined by dividing the stated value ($1,000 per share) by the conversion price of $0.1549 per share. The conversion price is subject to standard adjustments in the event of any share splits, share combinations, share reclassifications, dividends paid in common shares, sales of substantially all of our assets, mergers, consolidations or similar transactions, as well as for subsequent issuances of common shares, or securities convertible into or exercisable or exchangeable for common shares, at a price below the then conversion price; provided that a holder shall not be entitled to utilize a conversion price of less than $0.01 (subject to standard adjustments for share splits, share combinations, recapitalizations and similar transactions). Notwithstanding the foregoing, the aggregate number of common shares that we may issue upon conversion of the series F convertible preferred shares is limited to 5,385,291 shares (equal to 19.99% of our outstanding common shares prior to entry into the cancellation and exchange agreements) prior to obtaining shareholder approval of the issuance of all common shares that may be issued upon conversion of the series F convertible preferred shares, in accordance with NYSE American rules. Furthermore, we shall not effect any conversion of the series F convertible preferred shares, and a holder shall not have the right to convert any portion of the series F convertible preferred shares, to the extent that, after giving effect to the conversion, such holder (together with such holder's affiliates) would beneficially own in excess of 4.99% of the number of common shares outstanding immediately after giving effect to the issuance of common shares issuable upon conversion. This limitation may be waived (up to a maximum of 9.99%) by the holder in its sole discretion upon not less than sixty-one (61) days' prior notice to us.

Other Rights. Holders of series F convertible preferred shares have no redemption, preemptive or subscription rights for additional securities of our company.

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, 2024 and 2024.

Following the assignment of all of the assets of Asien's on February 26, 2024 as described under "-Discontinued Operations" below, our manager ceased to provide services to 1847 Asien for quarterly management fees. 1847 Asien expensed management fees of $50,000 and $300,000 for the years ended December 31, 2024 and 2023, respectively, which is included in discontinued operations.

On August 21, 2020, 1847 Cabinet entered into an offsetting management services agreement with our manager, which was amended on October 8, 2021. Pursuant to the amended management services agreement, our manager will provide certain services to 1847 Cabinet in exchange for a quarterly management fee equal to the greater of $125,000 or 2% of adjusted net assets (as defined within the amended management services agreement). 1847 Cabinet expensed management fees of $375,000 and $500,000 for the years ended December 31, 2024 and 2023, respectively, of which $125,000 is included in discontinued operations for the years ended December 31, 2024 and 2023 due to the sale of High Mountain described under "-Discontinued Operations" below.

On March 30, 2021, 1847 Wolo entered into an offsetting management services agreement with our manager. Pursuant to the management services agreement, our manager will provide certain services to 1847 Wolo in exchange for a quarterly management fee equal to the greater of $75,000 or 2% of adjusted net assets (as defined within the management services agreement). 1847 Wolo expensed management fees of $300,000 for the years ended December 31, 2024 and 2023.

Following the foreclosure sale of all of the assets of ICU Eyewear on August 5, 2024 as described under "-Discontinued Operations" below, our manager ceased to provide services to 1847 ICU for quarterly management fees. 1847 ICU expensed management fees of $175,000 and $225,000 for the years ended December 31, 2024 and 2023, respectively, which is included in discontinued operations.

On December 16, 2024, 1847 CMD entered into an offsetting management services agreement with our manager. Pursuant to the management services agreement, our manager will provide certain services to 1847 CMD in exchange for a quarterly management fee equal to the greater of $75,000 or 2% of adjusted net assets (as defined within the management services agreement).

In addition, if the aggregate amount of management fees paid or to be paid to our manager under the 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.

On a consolidated basis, for the year ended December 31, 2024, we expensed total management fees from continued operations and discontinued operations of $2,267,000 and $350,000, respectively. For the year ended December 31, 2023, we expensed total management fees from continued operations and discontinued operations of $633,333 and $691,667, respectively.

Segments

Following the divestures described under "-Discontinued Operations" below, we now have two reportable segments:

●

The construction segment provides finish carpentry and related products and services, including doors, frames, trim, hardware, millwork, cabinetry, and specialty construction accessories.

●

The automotive supplies segment provides horn and safety products (including electric, air, truck, marine, motorcycle, and industrial equipment) as well as vehicle emergency and safety warning lights for cars, trucks, industrial equipment, and emergency vehicles.

We report all other business activities that are not reportable in the corporate services segment. We provide general corporate services to our segments; however, these services are not considered when making operating decisions and assessing segment performance. The corporate services segment includes costs associated with executive management, financing activities and other public company-related costs.

Discontinued Operations

On February 26, 2024, Asien's entered into a general assignment for the benefit of its creditors with SG Service Co., LLC. Pursuant to the assignment, Asien's transferred ownership of all or substantially all of its right, title, and interest in, as well as custody and control of, its assets to SG Service Co., LLC in trust. Following the assignment, we retained no financial interest in Asien's. Accordingly, the results of operations of Asien's are reported as discontinued operations for the years ended December 31, 2024 and 2023.

Our company was a limited guarantor of the Loan Agreement that was entered into on September 11, 2023 between the ICU Lender, 1847 ICU and ICU Eyewear. Pursuant to the Loan Agreement, the ICU Lender had a security interest in all the assets of ICU Eyewear. ICU Eyewear was in default under the Loan Agreement and consented to a foreclosure by the ICU Lender and private sale of substantially all of its assets in an Article 9 sale process, pursuant to Section 9-610 of the Uniform Commercial Code as in effect in the State of New York and Section 9-610 of the Uniform Commercial Code as in effect in the State of California. On August 5, 2024, ICU Eyecare Solutions Inc., an entity that is not affiliated with our company, was the successful bidder with a cash bid of $4,250,000. Pursuant to an agreement, dated August 5, 2024, and in consideration for such purchase price, the ICU Lender having foreclosed on its security interest in all of the assets of ICU Eyewear then conveyed all of its rights, title, and interest in all of such assets to ICU Eyecare Solutions Inc. Following the sale, we retained no financial interest in ICU Eyewear. Accordingly, the results of operations of ICU Eyewear are reported as discontinued operations for the years ended December 31, 2024 and 2023.

On September 30, 2024, we entered into an asset purchase agreement with BFS and High Mountain, pursuant to which we sold substantially all of the assets of Hight Mountain to BFS for an aggregate cash only purchase price of $17,000,000, subject to certain pre-closing and post-closing adjustments. At closing, the purchase price was subject to a working capital adjustment and was also reduced by the amount of outstanding indebtedness repaid at closing or assumed by BFS, as well as certain transaction expenses. Additionally, the purchase price was reduced by $1,358,968, net of certain post-closing adjustments. Following the sale, we retained no financial interest in High Mountain. Accordingly, the results of operations of High Mountain are reported as discontinued operations for the years ended December 31, 2024 and 2023.

Results of Operations

The following table sets forth key components of our results of operations during the years ended December 31, 2024 and 2023, both in dollars and as a percentage of our revenues.

		Years Ended December 31,
		2024								2023
		Amount				% of Revenues				Amount				% of Revenues
Revenues		$	15,710,330				100.0	%		$	14,190,135				100.0	%
Operating expenses
Cost of revenues			7,937,588				50.5	%			7,637,496				53.8	%
Personnel			6,538,872				41.6	%			4,990,561				35.2	%
Depreciation and amortization			655,658				4.2	%			1,162,295				8.2	%
General and administrative			5,000,843				31.8	%			3,272,333				23.1	%
Professional fees			6,896,438				43.9	%			2,378,190				16.8	%
Impairment of goodwill and intangible assets			679,175				4.3	%			10,456,087				73.7	%
Total operating expenses			27,708,574				176.4	%			29,896,962				210.7	%
Loss from operations			(11,998,244	)			(76.4	)%			(15,706,827	)			(110.7	)%
Other income (expense)
Other income (expense)			(1,263,983	)			(8.0	)%			12,611				0.1	%
Gain on disposal of property and equipment			13,000				0.1	%			-				-
Interest expense			(4,262,224	)			(27.1	)%			(4,628,194	)			(32.6	)%
Amortization of debt discounts			(9,047,721	)			(57.6	)%			(4,232,231	)			(29.8	)%
Loss on extinguishment of debt			(4,709,793	)			(30.0	)%			-				-
Loss on change in fair value of warrant liabilities			(77,638,662	)			(494.2	)%			(27,900	)			(0.2	)%
Gain on change in fair value of derivative liabilities			1,401,373				8.9	%			385,138				2.7	%
Total other expense			(95,508,010	)			(607.9	)%			(8,490,576	)			(59.8	)%
Net loss from continuing operations before income taxes			(107,506,254	)			(684.3	)%			(24,197,403	)			(170.5	)%
Income tax provision			702,000				4.5	%			209,000				1.5	%
Net loss from continuing operations		$	(106,804,254	)			(679.8	)%		$	(23,988,403	)			(169.0	)%

Total revenues. Our total revenues were $15,710,330 for the year ended December 31, 2024, as compared to $14,190,135 for the year ended December 31, 2023.

The construction segment generates revenue through the sale of finished carpentry and related products and services. Revenues from the construction segment increased by $2,321,335, or 24.1%, to $11,960,884 for the year ended December 31, 2024 from $9,639,549 for the year ended December 31, 2023. The increase in revenues was primarily attributed to an increase in new multi-family projects and an increase in the average customer contract value.

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 decreased by $801,140, or 17.6%, to $3,749,446 for the year ended December 31, 2024 from $4,550,586 for the year ended December 31, 2023. The decrease in revenues was primarily attributed to working capital constraints on inventory.

Cost of revenues. Our total cost of revenues was $7,937,588 for the year ended December 31, 2024, as compared to $7,637,496 for the year ended December 31, 2023.

Cost of revenues 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 revenues for the construction segment increased by $956,944, or 21.3%, to $5,439,723 for the year ended December 31, 2024 from $4,482,779 for the year ended December 31, 2023. Such increase was primarily attributed to the corresponding increase in revenues. As a percentage of construction revenues, cost of revenues for the construction segment was 45.5% and 46.5% for the years ended December 31, 2024 and 2023, respectively.

Cost of revenues for the automotive supplies segment consists of the costs of purchased finished goods plus freight and tariff costs. Cost of revenues for the automotive supplies segment decreased by $656,852, or 20.8%, to $2,497,865 for the year ended December 31, 2024 from $3,154,717 for the year ended December 31, 2023. Such decrease was primarily attributed to the corresponding decrease in revenues. As a percentage of automotive supplies revenues, cost of revenues for the automotive supplies segment was 66.6% and 69.3% for the years ended December 31, 2024 and 2023, 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 $6,538,872 for the year ended December 31, 2024, as compared to $4,990,561 for the year ended December 31, 2023.

Personnel costs for the construction segment increased by $752,966, or 24.7%, to $3,805,928 for the year ended December 31, 2024 from $3,052,962 for the year ended December 31, 2023. Such increase was primarily attributed to increased employee headcount as a result of increased revenues and corporate wage allocations. As a percentage of construction revenue, personnel costs for the construction segment were 31.8% and 31.7% for the years ended December 31, 2024 and 2023, respectively.

Personnel costs for the automotive supplies segment increased by $17,507, or 1.9%, to $934,895 for the year ended December 31, 2023 from $917,388 for the year ended December 31, 2023. Such increase was primarily attributed to increased benefit costs. As a percentage of automotive supplies revenues, personnel costs for the automotive supplies segment were 24.9% and 20.2% for the years ended December 31, 2024 and 2023, respectively.

Personnel costs for the corporate services segment increased by $777,838, or 76.2%, to $1,798,049 for the year ended December 31, 2024 from $1,020,211 for the year ended December 31, 2023. Such increase was primarily attributed to increased benefit costs and accrued management bonuses and wages.

Depreciation and amortization. Our total depreciation and amortization expense decreased by $506,637, or 43.6%, to $655,658 for the year ended December 31, 2024 from $1,162,295 for the year ended December 31, 2023. Such decrease was primarily as a result of impairments of intangible assets.

General and administrative expenses. Our general and administrative expenses consist primarily of insurance expense, rent expense, management fees, advertising, bank fees, bad debt allowances, and other general expenses incurred in connection with general operations. Our total general and administrative expenses were $5,000,843 for the year ended December 31, 2024, as compared to $3,272,333 for the year ended December 31, 2023.

General and administrative expenses for the construction segment increased by $272,590, or 18.5%, to $1,745,773 for the year ended December 31, 2024 from $1,473,183 for the year ended December 31, 2023. Such increase was primarily attributed to increased revenues, along with increases in rent and office expenditures. As a percentage of construction revenue, general and administrative expenses for the construction segment were 14.6% and 15.3% for the years ended December 31, 2024 and 2023, respectively.

General and administrative expenses for the automotive supplies segment decreased by $82,879, or 8.7%, to $865,115 for the year ended December 31, 2024 from $947,994 for the year ended December 31, 2023. Such decrease was primarily attributed to decreased office expenditures. As a percentage of automotive supplies revenue, general and administrative expenses for the automotive supplies segment were 23.1% and 20.8% for the years ended December 31, 2024 and 2023, respectively.

General and administrative expenses for the corporate services segment increased by $1,538,799, or 180.8%, to $2,389,955 for the year ended December 31, 2024 from $851,156 for the year ended December 31, 2023. Such increase was primarily attributed to management fees from the sale of High Mountain that entitles our manager to receive a 20% profit allocation and a transaction fee of 2.0% from the sale of High Mountain and purchase of CMD, offset by decreased software and office expenditures.

Professional fees. Our total professional fees were $6,896,438 for the year ended December 31, 2024, as compared to $2,378,190 for the year ended December 31, 2023.

Professional fees for the construction segment decreased by $39,282, or 25.5%, to $114,731 for the year ended December 31, 2024 from $154,013 for the year ended December 31, 2023. Such decrease was primarily attributed to decreased consulting fees. As a percentage of construction revenue, professional fees for the construction segment were 1.0% and 1.6% for the years ended December 31, 2024 and 2023, respectively.

Professional fees for the automotive supplies segment increased by $25,790, or 13.1%, to $222,360 for the year ended December 31, 2024 from $196,570 for the year ended December 31, 2023. Such increase was primarily attributed to increased consulting fees. As a percentage of automotive supplies revenue, professional fees for the automotive supplies segment were 5.9% and 4.3% for the years ended December 31, 2024 and 2023, respectively.

Professional fees for our holding company increased by $4,531,740, or 223.5%, to $6,559,347 for the year ended December 31, 2024 from $2,027,607 for the year ended December 31, 2023. Such increase was primarily attributed to increased legals fees, consulting fees, investor relations, and other public company related fees. Additionally, during 2024 we prepaid $2.5 million in non-recurring consulting and investor relations fees using the proceeds from the public offering of common shares and pre-funded warrants described below.

Impairment of goodwill and intangible assets. For the year ended December 31, 2024, we recorded impairments of goodwill and intangible assets of $679,175, as compared to $10,456,087 for the year ended December 31, 2023.

Total other income (expense). We had $95,508,010 in total other expense, net, for the year ended December 31, 2024, as compared to other expense, net, of $8,490,576 for the year ended December 31, 2023. Other expense, net, for the year ended December 31, 2024 consisted of a loss on change in fair value of warrant liabilities of $77,638,662, amortization of debt discounts of $9,047,721, a loss on extinguishment of debt of $4,709,793, interest expense of $4,262,224 and other expense of $1,263,983, offset by a gain on change in fair value of derivative liabilities of $1,401,373 and a gain on disposal of property and equipment of $13,000, while other expense, net, for the year ended December 31, 2023 consisted of interest expense of $4,628,194, amortization of debt discounts of $4,232,231 and a loss on change in fair value of warrant liabilities of $27,900, offset by a gain on change in fair value of derivative liabilities of $385,138 and other income of $12,611.

Income tax provision. We had an income tax benefit of $702,000 and $209,000 for the years ended December 31, 2024 and 2023, respectively.

Net loss from continuing operations. As a result of the cumulative effect of the factors described above, our net loss from continuing operations was $106,804,254 for the year ended December 31, 2024, as compared to $23,988,403 for the year ended December 31, 2023.

Liquidity and Capital Resources

As of December 31, 2024, we had cash and cash equivalents of $2,502,450 and restricted cash of $1,358,968. 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.

Management plans to address the above as needed by, securing additional bank lines of credit, and obtaining additional financing through debt or equity transactions. Management has implemented tight cost controls to conserve cash.

The ability of our company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and to eventually attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if our company is unable to continue as a going concern. If our company is unable to obtain adequate capital, it could be forced to cease operations.

We 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. See 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 on many factors that cannot be predicted with any certainty at this time. See Item 1 "Business-Our Manager-Our Manager as an Equity Holder-Supplemental Put Provision" for more information on the calculation of the put price. The put price obligation, if our manager exercises its put right, will represent a significant cash payment and is senior in right to payments of distributions to our shareholders.

Therefore, the amount of put price will reduce the amount of cash available to us for our operating and investing activities, including future acquisitions.

Summary of Cash Flow

The following table provides detailed information about our net cash flow for the period indicated:

Cash Flow

		For the Years Ended December 31,
		2024				2023
Net cash used in operating activities from continuing operations		$	(14,635,636	)		$	(8,023,584	)
Net cash provided by (used in) investing activities from continuing operations			891,802				(27,843	)
Net cash provided by financing activities from continuing operations			16,931,807				7,863,654
Net change in cash and cash equivalents from continuing operations			3,187,973				(187,773	)
Cash and cash equivalents and restricted cash from continuing operations at beginning of year			673,445				861,218
Cash and cash equivalents and restricted cash from continuing operations at end of year		$	3,861,418			$	673,445

Net cash used in operating activities from continuing operations was $14,635,636 for the year ended December 31, 2024, as compared to $8,023,584 for the year ended December 31, 2023. Significant factors affecting the increase in net cash used in operating activities from continuing operations were primarily a result of the increased net loss, decreased contract liabilities and accounts payable, and increased receivables, partially offset by expenses, and decreased inventories and prepaid expenses.

Net cash provided by investing activities from continuing operations was $891,802 for the year ended December 31, 2024, as compared to net cash used in investing activities from continuing operations of $27,843 for the year ended December 31, 2023. The increase in the net cash provided by investing activities from continuing operations was primarily a result of the proceeds received from the sale of High Mountain, offset by the purchase of CMD during 2024.

Net cash provided by financing activities from continuing operations was $16,931,807 for the year ended December 31, 2024, as compared to $7,863,654 for the year ended December 31, 2023. The increase in the net cash provided by financing activities from continuing operations was primarily a result of increased proceeds from public and private offerings, offset by increased debt repayments.

Public Offering of Common Shares and Pre-Funded Warrants

On February 9, 2024, we entered into a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan Capital Securities, LLC, or Spartan, as placement agent, pursuant to which we agreed to issue and sell to such purchasers an aggregate of 9,364 common shares and prefunded warrants for the purchase of 16,280 common shares (all of which were exercised during the year ended December 31, 2024) at an offering price of $195.00 per common share and $193.05 per prefunded warrant, pursuant to our effective registration statement on Form S-1 (File No. 333-276670). On February 14, 2024, the closing of this offering was completed. At the closing, the purchasers prepaid the exercise price of the prefunded warrants in full. Therefore, we received total gross proceeds of $5,000,000. Pursuant to the placement agency agreement, Spartan received a cash transaction fee equal to 8% of the aggregate gross proceeds and reimbursement of certain out-of-pocket expenses. After deducting these and other offering expenses, we received net proceeds of approximately $4.4 million.

Public Offering of Units

On October 28, 2024, we entered into a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan, as placement agent, relating to our public offering of units. Pursuant to the securities purchase agreement and the placement agency agreement, we agreed to issue and sell to the purchasers an aggregate of 587,306 units, at a purchase price of $18.90 per unit, for total gross proceeds of approximately $11.1 million, pursuant to our registration statement on Form S-1 (File No. 333-282201) under the Securities Act. On October 30, 2024, the closing of the offering was completed. Pursuant to the placement agency agreement, Spartan received a cash transaction fee equal to 8% of the aggregate gross proceeds, a non-accountable expense allowance equal to 1% of the aggregate gross proceeds and reimbursement of certain out-of-pocket expenses. After deducting these expenses, we received net proceeds of approximately $9.9 million.

The units are comprised of (i) 587,306 common shares, (ii) series A warrants to purchase 587,306 common shares at an exercise price of $28.50 per share (which was subsequently adjusted to 8,558,723 shares at an exercise price of $1.50 in accordance with certain adjustment provisions contained in the series A warrants) and (iii) series B warrants to purchase 587,306 common shares at an exercise price of $37.80 per share (which was subsequently adjusted to 14,799,979 shares at an exercise price of $1.50 in accordance with certain adjustment provisions contained in the series B warrants). Please see Exhibit 4.1 to this report for a description of the terms of these warrants.

Private Placement of Units

On December 13, 2024, we entered into a securities purchase agreement with certain purchasers and a placement agreement with Spartan, as placement agent, pursuant to which we agreed to issue and sell to the purchasers an aggregate of 42,311,118 units, at a purchase price of $0.27 per unit, for total gross proceeds of approximately $11.42 million. On December 16, 2024, the closing of this private placement was completed. Pursuant to the placement agreement, Spartan received a cash transaction fee equal to 8% of the aggregate gross proceeds, a non-accountable expense allowance equal to 1% of the aggregate gross proceeds and reimbursement of certain out-of-pocket expenses. After deducting these and other offering expenses, we received net proceeds of approximately $10.2 million, all of which were used to pay the cash portion of the purchase price for the acquisition of CMD.

The units are comprised of (i) 3,437,210 common shares and pre-funded warrants for the purchase of 38,873,908 common shares, (ii) series A warrants to purchase 42,311,118 common shares at an exercise price of $0.81 per share and (iii) series B warrants to purchase 42,311,118 common shares at an exercise price of $0.54 per share. Please see Exhibit 4.1 to this report for a description of the terms of these warrants.

Debt

The following table shows aggregate figures for our total debt that is coming due in the short and long term as of December 31, 2024. For a complete description of the terms of our outstanding debt, please see Notes 14, 15 and 16 to our consolidated financial statements included elsewhere in this report.

		Short-Term				Long-Term				Total Debt
Notes Payable
Vehicle loans		$	44,894			$	8,530			$	53,424
CMD seller promissory note			1,050,000				-				1,050,000
6% Subordinated promissory note			500,000				-				500,000
Purchase and sale of future revenues loan			1,237,950				-				1,237,950
12% subordinated promissory note for services			500,000				-				500,000
20% OID subordinated promissory notes			3,217,932				-				3,217,932
25% OID subordinated promissory note			1,455,600				-				1,455,600
Total notes payable			8,006,376				8,530				8,014,906
Less: debt discounts			(220,465	)			-				(220,465	)
Total notes payable, net			7,785,911				8,530				7,794,441
Related Party Notes Payable
Related party promissory note			578,290				-				578,290
Convertible Notes Payable
Secured convertible promissory notes			23,074,286				-				23,074,286
Less: debt discounts			(985,137	)			-				(985,137	)
Total convertible notes payable, net			22,089,149				-				22,089,149
Finance Leases
Financing leases			182,043				423,198				605,241
Combined total debt		$	31,840,995			$	431,728			$	32,272,723
Less: combined debt discounts			(1,205,602	)			-				(1,205,602	)
Combined total debt, net		$	30,635,393			$	431,728			$	31,067,121

Contractual Obligations

Our principal commitments consist mostly of obligations under the loans described above, the operating leases described under Item 2 "Properties" and other contractual commitments described below.

We have engaged our manager to manage our day-to-day operations and affairs. Our relationship with our manager will be governed principally by the following agreements:

●

the management services agreement and offsetting management services agreements relating to the management services our manager will perform for us and the businesses we own and the management fee to be paid to our manager in respect thereof; and

●

our operating agreement setting forth our manager's rights with respect to the allocation shares it owns, including the right to receive profit allocations from us, and the supplemental put provision relating to our manager's right to cause us to purchase the allocation shares it owns.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

The following discussion relates to critical accounting policies for our consolidated company. The preparation of financial statements in conformity with GAAP requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management's difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:

Business Combinations. We account for business combinations under the acquisition method of accounting in accordance with Accounting Standards Codification, or ASC, Topic 805, "Business Combinations." We allocate the purchase price of an acquisition to the tangible and intangible assets acquired, liabilities assumed, and any non-controlling interest based on their estimated fair values at the acquisition date. We recognize the amount by which the purchase price of an acquired entity exceeds the net of the fair values assigned to the assets acquired and liabilities assumed as goodwill. In determining the fair values of assets acquired and liabilities assumed, we use various recognized valuation methods including the income, cost and market approaches in accordance with ASC Topic 820, "Fair Value Measurement." We make assumptions within certain valuation techniques, including discount rates, royalty rates, and the amount and timing of future cash flows. We initially perform these valuations based upon preliminary estimates and assumptions by management or independent valuation specialists under our supervision, where appropriate, and make revisions as estimates and assumptions are finalized, which may be up to one year from the acquisition date. Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred.

Long-Lived Assets. We review the carrying value of long-lived assets such as property and equipment, right of use assets, and definite-lived intangible assets for impairment in accordance with ASC Topic 360, "Property, Plant, and Equipment," whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These events and circumstances may include significant decreases in the market price of an asset or asset group, significant changes in the extent or manner in which an asset or asset group is being used by us or in its physical condition, a significant change in legal factors or in the business climate, a history or forecast of future operating or cash flow losses, significant disposal activity, a significant decline in revenue or adverse changes in the economic environment. If such facts indicate a potential impairment, we assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, we estimate the fair value of the asset group using appropriate valuation methodologies, which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset group's carrying amount and its estimated fair value.

Goodwill. In accordance with ASC Topic 350, "Intangibles - Goodwill and Other," we test goodwill for impairment annually on October 1, or more frequently when events or circumstances indicate an impairment may have occurred. When assessing the recoverability of goodwill, we may first assess qualitative factors in determining whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. The qualitative assessment is based on several factors, including the current operating environment, industry and market conditions, and overall financial performance. If we bypass the qualitative assessment, or if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform a quantitative assessment by comparing the estimated fair value of a reporting unit with its carrying amount. We estimate the fair value of our reporting units based on the present value of estimated future cash flows. Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes, and to estimate the future cash flows used to measure fair value. Our estimates of future cash flows consider past performance, current and anticipated market conditions, and internal projections and operating plans, including forecasted growth rates and estimated discount rates. If the fair value of a reporting unit is less than its carrying amount, a reporting unit is considered impaired, and an impairment charge is recognized for the difference.

Embedded Derivative Liabilities. We evaluate the embedded features of our financial instruments, including our preferred shares, convertible notes payable and warrants, in accordance with ASC Topic 480, "Distinguishing Liabilities from Equity," and ASC Topic 815 "Derivatives and Hedging." Certain conversion options and redemption features are required to be bifurcated from their host instrument and accounted for as free-standing derivative financial instruments should certain criteria be met. We apply significant judgment to identify and evaluate complex terms and conditions for financial instruments to determine whether such instruments are derivatives or contain features that qualify as embedded derivatives. Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract and the features of the derivatives. Bifurcated embedded derivatives are recognized at fair value, with changes in fair value recognized in the consolidated statement of operations each period. We have a sequencing policy, whereby in the event that reclassification of contracts from equity to assets or liabilities is necessary in accordance with ASC Topic 815 due to our inability to demonstrate we have sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest maturity date of potentially dilutive instruments first, with the earliest maturity date of grants receiving the first allocation of shares. Pursuant to ASC Topic 815, any issuances of securities to our employees and directors, or to compensate grantees in a share-based payment arrangement, are not subject to the sequencing policy.

Warrant Liabilities. We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants in accordance with the applicable authoritative guidance in ASC Topic 480 and ASC Topic 815-40, "Contracts in Entity's Own Equity." The assessment, which requires the use of professional judgment, considers whether the warrants are freestanding financial instruments, meet the definition of a liability, and whether the warrants meet all of the requirements for equity classification, including whether the warrants are indexed to our own common shares and whether the warrant holders could potentially require net cash settlement in a circumstance outside of our control, among other conditions for equity classification. For issued or modified warrants that meet all the criteria for equity classification, the warrants are recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are recorded at their initial fair value on the date of issuance, with changes in fair value recognized in the consolidated statement of operations each period.

Income Taxes. Income taxes are accounted for under the asset and liability method in accordance with ASC Topic 740, "Income Taxes." Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and establish a valuation allowance if, based on the weight of available evidence, we believe it is more likely than not that all or a portion of the deferred tax assets will not be realized. We recognize the tax benefit of an uncertain tax position only if it is more likely than not the position will be sustainable upon examination by the taxing authority, including resolution of any related appeals or litigation processes. This evaluation is based on all available evidence and assumes that the tax authorities have full knowledge of all relevant information concerning the tax position. The tax benefit recognized is measured as the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. We recognize interest accrued and penalties related to unrecognized tax benefits in income tax expense.