1847 LLC(EFSH) - 2025 Q4 - Annual Report

Management Fees and Profit Allocation - The manager entered into offsetting management services agreements with five subsidiaries, which may vary in management fees based on future agreements[105] - The quarterly management fee is calculated as 0.5% of adjusted net assets, resulting in a hypothetical fee of $450,000 based on total assets of $100 million[108] - Total offsetting management fees from acquired companies amounted to $400,000, leading to a net quarterly management fee payable of $50,000[108] - Transaction services agreements allow the manager to charge fees based on a tiered structure: 2.0% for the first $50 million, 1.5% for the next $50 million, and 1.0% for amounts over $100 million[110] - The manager's profit allocation is set at 20% of profits exceeding an 8% hurdle rate, calculated based on the subsidiary's net income since acquisition[120] - The termination fee for the management services agreement is calculated as two times the sum of the quarterly management fees for the four quarters preceding termination[119] - The company is responsible for reimbursing the manager for costs incurred on its behalf, excluding overhead and costs related to unpursued acquisitions[115][116] - The board of directors will review and approve the manager's profit allocation calculation, which is not paid annually but upon specific trigger events[121][126] - The calculation of the manager's profit allocation will undergo a "true-up" process based on available financial statements, potentially delaying realization of benefits[125] - Any disputes regarding the manager's profit allocation calculation will be resolved by independent accounting firms, with their determination being binding[127] - The manager's profit allocation will be calculated based on a total profit allocation amount that exceeds the business' level 1 hurdle amount, which is based on an 8% annualized hurdle rate[128] - For Company A, a capital gain of $25 million was realized over its net book value at the time of sale, with a contribution-based profit of $5 million since acquisition[133] - Company B's contribution-based profit since acquisition is $7 million, with cumulative gains and losses amounting to $20 million[134] - The total profit allocation amount for Company A is $30 million, while for Company B it is $27 million[134] - The level 1 hurdle amount for Company A is calculated to be $12 million, and for Company B it is $10 million[134] - The manager's profit allocation for Company A is $6 million, while for Company B it is $1.4 million[134] - The high-water mark allocation for Company B is $4 million, which is deducted from the manager's profit allocation[134] - Tax distributions will be paid to the manager if taxable income is allocated but not realized through distributions equal to the taxes payable[129] - The management services agreement termination does not affect the manager's rights to profit allocations unless the put right is exercised[132] - The put price upon termination of the management services agreement will be based on two separate calculations of the manager's profit allocation as of the exercise date[139] Business Operations and Market Presence - The construction business accounted for approximately 97.6% and 76.1% of total revenues for the years ended December 31, 2025, and 2024, respectively[147] - The company has expanded its coverage area to include the greater Las Vegas metro area, southern Utah, and northern Arizona, which are among the fastest-growing economic regions in the Western U.S.[148] - As of December 31, 2025, the construction companies employed 170 full-time employees, with no representation by labor unions[171] - CMD utilizes in-house technology programs and machinery, including CNC machinery, to enhance production efficiency and manage project workflows[153] - The company has established long-term relationships with builders such as Toll Brothers and Whiting Turner Construction, contributing to high customer retention levels[160] - The pricing strategy focuses on delivering quality and performance at a value-based price target, offering better features than competitors[156] - The company sources raw materials from multiple suppliers, with a significant portion coming from Asian-based suppliers, which may be subject to import tariffs[157] - The construction business is subject to various environmental regulations, and compliance efforts do not eliminate the risk of potential liabilities or penalties[173] - The company has a strong regional presence in the greater Las Vegas and Boise metro areas, which are key markets for growth opportunities[169] - CMD's competitive strengths include a superior reputation, established blue-chip clients, and streamlined operations that enhance efficiency and profitability[168] - The automotive supplies business accounted for approximately 2.4% and 23.9% of total revenues for the years ended December 31, 2025 and 2024, respectively[177] - The company has established long-term relationships with suppliers, with many spanning over 15 years, and has implemented volume discounts to offset increased material and labor costs[192] - The company has been granted 37 patents, with about half being utility patents that protect product functionality, providing a competitive advantage[206] - The company is expanding its warehouse space and operations in Nevada to capture additional bid opportunities in the ready-to-assemble cabinet segment[179] - The top-selling product, the Bad Boy horn, is designed for easy installation and produces a sound that is two times louder than factory horns[181] - The company has entered the motorcycle and industrial aftermarket segments, as well as a product line for the marine parts aftermarket[201] - The company has a diverse customer base, including major retailers like Amazon and AutoZone, with many customer relationships lasting over 10 years[200] - The company is pursuing growth through new product development and expanding online sales platforms, including its own website and major e-commerce sites[205] - The company has implemented an integrated EDI system to improve order fulfillment efficiency and reduce errors[202] - The company is focused on geographic expansion into areas like Idaho and Nevada, targeting both residential and commercial projects[179] - The company is subject to various federal, state, and local laws and regulations, including those related to labor, discrimination, and data privacy, but compliance has not adversely affected operations to date[210] - There are no applicable quantitative and qualitative disclosures about market risk for the company[506]