POLISHED.COM INC. Except as otherwise indicated by the context and for the purposes of this Quarterly Report on Form 10-Q, the terms "Company," "we," "us," or "our" refer to1847 Goedeker Inc. , aDelaware corporation, and its consolidated subsidiaries, including but not limited to,1 Stop Electronics Center, Inc. , aNew York corporation ("1 Stop"),Gold Coast Appliances, Inc. , aNew York corporation ("Gold Coast"),Superior Deals Inc. , aNew York corporation ("Superior Deals"), Joe'sAppliances LLC , aNew York limited liability company ("Joe's Appliances"), andYF Logistics LLC , aNew Jersey limited liability company ("YF Logistics" and together with 1 Stop, Gold Coast, Superior Deals, and Joe's Appliances, "Appliances Connection"),Appliances Connection Inc. ("ACI") andAC Gallery Inc. , aDelaware corporation ("AC Gallery "). 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 unaudited condensed consolidated 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 section "Cautionary Statement Regarding Forward-Looking Statements" and in our Annual Report on Form 10-K for the year endedDecember 31, 2021 under the heading Item 1A "Risk Factors." Overview The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes thereto, which are included in Part I, Item 1 of this Form 10-Q. We operate a content-driven and technology-enabled shopping destination for appliances, furniture and home goods. With warehouse fulfillment centers in the Northeast and Midwest, as well as showrooms inBrooklyn, New York ,St. Louis, Missouri andLargo, Florida , we offer one-stop shopping for national and global brands. We carry many household name-brands, including Bosch, Cafe, Frigidaire Pro, Whirlpool, LG, and Samsung, and also carry many major luxury appliance brands such asMiele , Thermador, La Cornue,Dacor , Ilve, Jenn-Air and Viking, among others. We also sell furniture, fitness equipment, plumbing fixtures, televisions, outdoor appliances, and patio furniture, as well as commercial appliances for builder and business clients. Recent Developments New Credit Agreement OnMay 9, 2022 , we entered into a Credit Agreement (the "New Credit Agreement") by and among the Company and ACI, as borrowers, certain of our subsidiaries as guarantors, each of the lenders identified therein (the "Lenders") andBank of America, N.A ., as administrative agent, swingline lender and letter of credit issuer (the "Agent"), pursuant to which the Lenders have agreed to make available to us senior secured credit facilities in the aggregate initial amount of$140,000,000 , including (i) a$100,000,000 term loan (the "New Term Loan") and (ii) a$40,000,000 revolving credit facility (the "New Revolving Loan"), which revolving credit facility includes a$2,000,000 swingline subfacility (the "New SwingLine Loan " and together with the New Term Loan and the New Revolving Loan, the "New Loans") and a$2,000,000 letter of credit subfacility, in each case, on the terms and conditions contained in the New Credit Agreement. The New Loans may from time to time be further evidenced by separate promissory notes issued by the borrowers. OnMay 9, 2022 , we borrowed the entire amount of the New Term Loan, but no New Revolving Loans have been made as ofMay 16, 2022 . The proceeds of the New Term Loan were applied, among other uses, to prepay the obligations in full under the Company's existing M&T Credit Agreement (as defined below). OnMay 9, 2022 , in connection with prepayment of the obligations under the M&T Credit Agreement, the M&T Credit Agreement was terminated. New Headquarters We have transitioned our corporate headquarters to our office space and showroom inBrooklyn, New York . OnMarch 15, 2022 , we entered into a lease agreement with 8780 19Ave LLC , a related party, for additional office space inBrooklyn to expand our headquarter office, currently located in the adjacent building, as we continue scaling our business and consolidating our corporate functions inBrooklyn . The lease expires onDecember 31, 2026 , with an option to extend for an additional five years thereafter. Share Repurchase Plan OnDecember 17, 2021 , we approved a new share repurchase program under which we may repurchase up to$25.0 million of our outstanding shares of common stock in the open market, in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Our decision to repurchase shares, as well as the timing of such repurchases, will depend on a variety of factors that include ongoing assessments of our capital needs, obtaining requisite senior lender consent, market conditions and the price of our common stock, and other corporate considerations, as determined by our management. The repurchase program may be suspended or discontinued at any time. As ofMarch 31, 2022 , no shares have been repurchased. 17
Ongoing Impact of Coronavirus Pandemic
We are continuing to closely monitor the impact of the COVID-19 pandemic on our business, results of operations and financial results. The situation surrounding the COVID-19 pandemic remains fluid and the full extent of the impact of the COVID-19 pandemic on our business will depend on certain developments including the duration and severity of the pandemic, the emergence of new variants that may continue to prolong the pandemic, the amount of time it will take for normal economic activity to resume, future government actions that may be taken, the impact on consumer activity and behaviors and the effect on our customers, employees, suppliers, partners and stockholders, all of which are uncertain and cannot be predicted. Our focus remains on promoting the health, safety and financial security of our employees and serving our customers. We are dependent upon suppliers to provide us with all of the products that we sell. While the home industry has fared much better during the COVID-19 pandemic than other sectors of the economy, the pandemic has negatively impacted and may continue to negatively impact suppliers, manufacturers and the overall supply chain of our products. As a result, we have faced and may continue to face delays or difficulty sourcing certain products, which could negatively affect our business and financial results. Even if we are able to find alternate sources for such products, they may cost more, which could adversely impact our profitability and financial condition.
The global deterioration in economic conditions, which may have an adverse impact on discretionary consumer spending, could also impact our business. For instance, consumer spending may be negatively impacted by general macroeconomic conditions, including a rise in unemployment, increased inflation, and decreased consumer confidence resulting from the pandemic and other economic conditions. Changing consumer behaviors as a result of the pandemic may also have a material impact on our revenue.
As the COVID-19 pandemic remains dynamic and subject to rapid and possibly material change, we will continue to actively monitor the COVID-19 situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our customers, employees, suppliers, partners, stockholders and communities. We cannot predict with any certainty whether and to what degree the disruption caused by the COVID-19 pandemic and reactions thereto will continue, and we expect to face difficulty in accurately forecasting our financial condition and operational results. See also Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 for more information.
Trends and Principal Factors Affecting Our Financial Performance
Our operating results are primarily affected by the following factors:
? our ability to acquire new customers or retain existing customers, including
those shopping online as a result of COVID-19;
? our ability to offer competitive product pricing;
? our ability to broaden product offerings;
? industry demand and competition;
? market conditions and our market position; and
? our ability to successfully integrate the operations of Appliances Connection
with our business. Notably, due to the COVID-19 pandemic and associated supply chain crisis, our freight costs have increased materially as a proportion of sales, putting downward pressure on our gross margins. While our historical freight costs as a percentage of sales decreased from 13.7% for the three months endedMarch 31, 2021 to 9.6% for the three months endedMarch 31, 2022 as we brought efficiencies to our pre-Appliances Connection Acquisition fulfillment operations, on a consolidated proforma basis, our freight costs as a percentage of sales increased 220 basis points from the first quarter of 2021. Recent increases in the fuel costs are putting additional downward pressure on our gross margins. Management believes that these trends are temporary in nature, and our margins will continue improving as supply chain stabilizes and fuel costs return back to normal.
Supply chain constraints also impacted our order fulfillment timing, further amplifying order cancellations and refunds caused by the outbreak of the COVID-19 pandemic.
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Factors Affecting Comparability of Our Future Results of Operations to Our Historical Results of Operations
The comparability of our results of operations between the periods discussed below is affected by the acquisitions we have completed during such periods. We may also evaluate and pursue acquisitions in the future, and such acquisitions, if completed, will continue to impact the comparability of our financial results. Our acquisitions may have materially different characteristics than our historical results, and such differences in economics may impact the comparability of our future results of operations to our historical results.
? On
? On
The Company accounted for the above acquisitions using the acquisition method of accounting in accordance with FASB ASC Topic 805 "Business Combinations." In accordance with ASC 805, the Company used its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. Results of Operations
Comparison of Three Months Ended
The unaudited condensed consolidated operating results presented below for the three months endedMarch 31, 2022 include the results of Appliances Connection, and, therefore, are not comparable to the consolidated operating results for the three months endedMarch 31, 2021 . The following table sets forth key components of our results of operations for the three months endedMarch 31, 2022 and 2021, in thousands and as a percentage of our revenue. For the Three Months For the Three Months Ended March 31, 2022 Ended March 31, 2021 % of % of Amount Net Sales Amount Net Sales Product sales, net$ 152,752 100.0 %$ 13,697 100.0 % Cost of goods sold 116,883 76.5 % 11,069 80.8 % Gross profit 35,869 23.5 % 2,628 19.2 % Operating Expenses Personnel 7,046 4.6 % 1,931 14.1 % Advertising 4,288 2.8 % 1,083 7.9 %
Bank and credit card fees 6,167 4.0 % 533 3.9 % Depreciation and amortization 2,734 1.8 % 122 0.9 % General and administrative 5,567 3.6 %
2,240 16.4 %
Total Operating Expenses 25,802 16.9 % 5,909 43.1 %
INCOME (LOSS) FROM OPERATIONS 10,067 6.6 %
(3,281 ) (24.0 )%
Other Income (Expenses)
Interest income 41 0.0 % 10 0.1 %Adjustment in value of contingency (2 ) (0.0 )%
- 0.0 %
Interest expense (936 ) (0.6 )% (232 ) (1.7 )%
Other income 135 0.1 % 10 0.1 %
Total Other Income (Expenses) (762 ) (0.5 )% (212 ) (1.5 )% NET INCOME (LOSS) BEFORE INCOME TAXES 9,305 6.1 %
(3,493 ) (25.5 )%
INCOME TAX EXPENSE 3,383 2.0 % - 0.0 %
NET INCOME (LOSS) $ 5,922 4.0 % $ (3,493 ) (25.5 )%
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Product sales, net. We generate revenue from the retail sale of appliances, furniture, home goods and related products. Our product sales were$152.8 million for the three months endedMarch 31, 2022 , as compared to$13.7 million for the three months endedMarch 31, 2021 , an increase of$139.1 million , or 1,015.2%. Such increases were primarily due to the impact of the Appliances Connection Acquisition.
Our product sale, net by type is as follows (in thousands):
For the Three Months For the Three Months
Ended March 31, 2022 Ended March 31, 2021
% of % of
Amount Net Sales Amount Net Sales
Appliance sales $ 140,975 92.3 % $ 10,273 75.0 %
Furniture sales 4,155 2.7 % 2,328 17.0 %
Other sales 7,622 5.0 % 1,096 8.0 %
Total $ 152,752 100.0 % $ 13,697 100.0 %
The percentage of furniture and other sales declined in the first quarter 2022
period as compared to the first quarter 2021 period as furniture and other sales
comprised a lower percentage of Appliances Connection sales.
Cost of goods sold. Our costs of goods sold are comprised of product costs and
freight costs. Product costs represent the amount we pay the manufacturer for
their product. We negotiate special terms and pricing with the manufacturer,
which are generally based on the number of products we purchase. Periodically,
manufacturers offer special pricing for purchasing a certain volume of products
at one time. Funding might also be offered to support our marketing and
advertising efforts. Freight is the cost of delivering products to customers.
Our cost of goods sold was $116.9 million for the three months ended March 31,
2022 , as compared to $11.1 million for the three months ended March 31, 2021 , an
increase of $105.8 million , or 956.0%, with the increase driven by the impact of
the Appliances Connection Acquisition.
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Our cost of goods sold by type is as follows (in thousands):
For the Three Months For the Three Months
Ended Ended
March 31, 2022 March 31, 2021
% of Net % of Net
Amount Sales Amount SalesProduct costs, net of vendor rebates$ 102,293 67.0 %
$ 9,193 67.1 % Freight costs 14,590 9.6 % 1,876 13.7 % Total$ 116,883 76.5 %$ 11,069 80.8 % Gross profit and gross margin. As a result of the foregoing, our gross profit was$35.9 million for the three months endedMarch 31, 2022 , as compared to$2.6 million for the three months endedMarch 31, 2021 , an increase of$33.2 million , or 1,264.6%. Our gross margin (gross profit as a percentage of net sales) was 23.5% for the three months endedMarch 31, 2022 and 19.2% for the three months endedMarch 31, 2021 . Such increases were primarily due to the impact of the Appliances Connection Acquisition. Personnel expenses. Personnel expenses include employee salaries and bonuses plus related payroll taxes. It also includes health insurance premiums, 401(k) contributions, training costs and stock compensation expense. Our personnel expenses were$7.0 million for the three months endedMarch 31, 2022 , as compared to$1.9 million for the three months endedMarch 31, 2021 , an increase of$5.1 million , or 264.9%. As a percentage of net sales, personnel expenses were 4.6% and 14.1% for the three months endedMarch 31, 2022 and 2021, respectively. Such changes were primarily due to the impact of the Appliances Connection Acquisition. Advertising expenses. Advertising expenses include the cost of marketing our products and primarily include online search engine expenses. Our advertising expenses were$4.3 million for the three months endedMarch 31, 2022 , as compared to$1.1 million for the three months endedMarch 31, 2021 , an increase of$3.2 million , or 295.9%. As a percentage of net sales, advertising expenses were 2.8% and 7.9% for the three months endedMarch 31, 2022 and 2021, respectively. Such changes were primarily due to the impact of the Appliances Connection Acquisition.
Bank and credit card fees. Bank and credit card fees are primarily the fees we pay credit card processors for processing credit card payments made by customers and to third party sellers on whose websites we sell parts and other small items. Our bank and credit card fees were$6.2 million for the three months endedMarch 31, 2022 , as compared to$0.5 million for the three months endedMarch 31, 2021 , an increase of$5.6 million , or 1,057.0%. As a percentage of net sales, bank and credit card fees were 4.0% and 3.9% for the three months endedMarch 31, 2022 and 2021, respectively. Bank and credit card fees are based on customer orders that are paid with a credit card (substantially all orders), so the increase was largely due to the increase in customer orders associated with the Appliances Connection Acquisition. Depreciation and amortization. Depreciation and amortization was$2.7 million , or 1.8% of net sales, for the three months endedMarch 31, 2022 , as compared to$0.1 million , or 0.9% of net sales, for the three months endedMarch 31, 2021 . The increase is the result of amortizing intangible assets acquired in the Appliances Connection Acquisition. General and administrative expenses. Our general and administrative expenses consist primarily of professional advisor fees, rent expense, insurance, unremitted sales tax, and other expenses incurred in connection with general operations. Our general and administrative expenses were$5.6 million for the three months endedMarch 31, 2022 , as compared to$2.2 million for the three months endedMarch 31, 2021 , an increase of$3.3 million , or 148.5%. As a percentage of net sales, general and administrative expenses were 3.6% and 16.4% for the three months endedMarch 31, 2022 and 2021, respectively. Such changes were primarily due to the impact of the Appliances Connection Acquisition.
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Total other income (expense). We had $0.8 million in total other expense, net,
for the three months ended March 31, 2022 , as compared to total other expense,
net, of $0.2 million for the three months ended March 31, 2021 . Total other
expense, net, for the three months ended March 31, 2022 consisted primarily of
interest expense of $0.7 million and financing costs of $0.2 million . Total
other expense, net, for the three months ended March 31, 2021 consisted
primarily of interest expense of $0.2 million .
Income tax benefit (expense). We had an income tax net expense of $3.4 million
for the three months ended March 31, 2022 , as compared to an income tax expense
of $nil for the three months ended March 31, 2021 . Such change was due to the
Company's profitability, primarily driven by the Appliances Connection
Acquisition.
Net income (loss). As a result of the cumulative effect of the factors described
above, we had net income of $5.9 million for the three months ended March 31,
2022 , as compared to a net loss of $3.5 million for the three months ended March
31, 2021 , an increase of $9.4 million , or 270.0%.
Liquidity and Capital Resources
As ofMarch 31, 2022 , we had cash and cash equivalents of$25.8 million and restricted cash of$2.6 million . For the three months endedMarch 31, 2022 , we had operating income of approximately$10.1 million , cash flows used in operations of$3.7 million and working capital of$24.9 million . As ofDecember 31, 2021 , we had cash and cash equivalents of$25.7 million and restricted cash of$8.1 million and working capital of$16.0 million . OnMay 9, 2022 , we entered into the New Credit Agreement, borrowed the full amount of the$100 million New Term Loan and used$55.9 million of the proceeds to pay off the M&T Credit Agreement in full. As ofMay 16, 2022 , we have not borrowed any additional funds under$40 million New Revolving Loan available under the New Credit Agreement. We have previously generated significant losses since our acquisition ofGoedeker Television and have relied on cash on hand, external bank lines of credit, proceeds from public offerings, issuance of third-party and related-party debt and the issuance of a note to support cashflow from operations. Notably, we reported positive cash flow from operations in 2020 as money was collected from the customers at the time orders were placed, instead of the time orders were shipped, leading to accumulation of customer deposits. OnJune 2, 2021 , we acquired Appliances Connection, which historically has been a profitable company with strong operating cash flow; however due to the ongoing COVID-19 pandemic and resulting supply chain constraints, we refunded to customers$34.0 million in customer deposits throughout 2021,$27.4 million of which was due to order cancellations, leading to a negative operating cash flow in 2021. At this point we have been able to clear the majority of the historical customer deposit balances, and based on current facts and circumstances, we believe that we will have adequate cash flow from operations, external bank lines of credit, and proceeds from any future issuances of debt or equity to fund operations and service debt obligations for at least the next twelve months. We may, however, in the future require additional cash resources due to changing business conditions, implementation of our strategy to expand our business, or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects. We assess liquidity and going concern uncertainty in our unaudited condensed consolidated financial statements to determine whether there are sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the unaudited condensed consolidated financial statements are issued or available to be issued, which is referred to as the "look-forward period", as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, we will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, our ability to delay or curtail expenditures or programs and our ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, we make certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent we deem probable those implementations can be achieved and we have the proper authority to execute them within the look-forward period. 22
We have prepared estimates of operations for fiscal years 2022 and 2023 and believe that sufficient funds will be generated from operations to fund our operations and to service our debt obligations for one year from the date of the filing of this report. We have considered the impact of COVID-19 on our business in these assumptions; however, it is too early to know the full impact of COVID-19 or its timing on a return to more normal operations. The unaudited condensed consolidated financial statements have been prepared on a going concern basis under which we are expected to be able to realize our assets and satisfy our liabilities in the normal course of business. We believe, based on relevant conditions and events that are known and reasonably knowable, that our forecasts, for one year from the date of the filing of this report, indicate improved operations and our ability to continue operations as a going concern. See Note 3 to the unaudited condensed consolidated financial statements, "Liquidity and Going Concern Assessment."
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