Acquisitions and Growth Strategy - The company has completed two acquisitions to date, focusing on small businesses with an enterprise value of less than $50 million[264]. - The company intends to actively manage and grow its majority-owned subsidiaries through organic growth and add-on acquisitions[268]. - The company has identified long-term macroeconomic growth opportunities in industries with stable earnings and cash flows[268]. Financial Performance - Total revenue for the three months ended September 30, 2019, was $13,544,365, including $12,132,103 from the new retail and appliances segment, compared to $1,466,514 for the same period in 2018[283]. - Cost of sales for the three months ended September 30, 2019, was $10,709,830, including $10,113,543 from the retail and appliances segment, compared to $478,195 for the same period in 2018[287]. - Personnel costs for the three months ended September 30, 2019, were $1,501,428, including $980,620 from the retail and appliances segment, compared to $513,912 for the same period in 2018[289]. - General and administrative expenses increased by $1,629,903, or 488.4%, to $1,963,599 for the three months ended September 30, 2019, compared to $333,696 for the same period in 2018[292]. - Net loss attributable to company shareholders increased by $531,549, or 210.0%, to $784,711 for the three months ended September 30, 2019, from $253,162 for the same period in 2018[296]. - Total revenue for the nine months ended September 30, 2019, was $26,564,949, including $22,748,153 from the new retail and appliances segment, compared to $3,698,755 for the same period in 2018[299]. - Cost of sales for the nine months ended September 30, 2019, was $20,255,556, including $18,886,116 from the retail and appliances segment, compared to $1,034,786 for the same period in 2018[301]. - Net loss from operations for the nine months ended September 30, 2019, was $(2,679,703), compared to $(1,841,964) for the same period in 2018[299]. - Net loss attributable to shareholders increased by $984,477, or 96.5%, to $1,978,241 for the nine months ended September 30, 2019, compared to $1,019,893 in the prior year[311]. Cash Flow and Capital Needs - Cash and cash equivalents at the end of the period were $197,048, down from $333,880 at the beginning of the period[325]. - Net cash used in operating activities was $954,532 for the nine months ended September 30, 2019, an improvement from $1,075,882 in the same period of 2018[325]. - Net cash provided by investing activities was $1,158,042 for the nine months ended September 30, 2019, primarily from the acquisition of Goedeker[326]. - The company anticipates needing between $100,000 to $250,000 in additional capital for future acquisitions, potentially rising to $5,000,000 if sellers do not accept equity as part of the purchase price[313]. Debt and Financing - The company did not meet certain loan covenants, with actual total debt ratio at (9.6)x compared to the required ratio of 4.50x[317]. - Plans to regain compliance with debt covenants include hiring a new CEO for the retail and appliance business and engaging consultants to enhance online traffic[318]. - The company issued a grid promissory note with an initial principal amount of $50,000 and has received advances totaling $117,000 as of September 30, 2019, with accrued interest of $14,647[329]. - A revolving loan agreement with Burnley Capital LLC allows for loans up to $1,500,000, with a current balance of $576,962 as of September 30, 2019[330]. - The company has a revolving loan agreement with Northpoint for up to $1,000,000, with a current balance of $736,788 as of September 30, 2019[340]. - A term loan agreement with SBCC was established for $1,500,000, with a current balance of $1,049,186 as of September 30, 2019[345]. - The company has classified its debt under the loan and security agreement with Burnley as a current liability due to technical default[339]. - The loan agreements contain customary events of default, including non-payment and breaches of covenants[336][342]. - The revolving loan agreements are secured by the company's assets and inventory, ensuring priority in claims[337][343]. Revenue Recognition and Accounting Policies - Neese's revenue recognition is based on the transfer of control upon delivery, with performance obligations satisfied at that point[408]. - Goedeker recognizes revenue upon shipment or delivery and installation of products, with all sales primarily to individual retail consumers[419]. - The company adopted ASU No. 2014-09 for revenue recognition, resulting in no changes to its results of operations or balance sheet[405]. - Provisions for credit losses are charged to income based on historical loss experience and management's judgment, with future adjustments possible due to economic changes[426]. - The allowance for credit losses includes a general component that estimates future credit losses for unimpaired accounts receivable[427]. Assets and Liabilities - Inventory is valued at the lower of cost or market, with specific item basis for Neese and average item basis for Goedeker, and periodic evaluations are conducted[428]. - Property and equipment depreciation is calculated using the straight-line method over useful lives ranging from 3 to 7 years for machinery and equipment[429]. - Identifiable intangible assets are amortized over expected lives, with customer-related assets amortized on a straight-line basis over 5 years[431]. - Long-lived assets are reviewed for impairment at least annually, with recoverability measured against future undiscounted operating cash flows[432]. - Total debt amounts to $12,348,682, with short-term debt at $7,367,076 and long-term debt at $4,981,606[394].
1847 LLC(EFSH) - 2019 Q3 - Quarterly Report