NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)

Property and equipment is stated at the historical cost. Maintenance and repairs of property and equipment are charged to operations as incurred. Leasehold improvements are amortized over the lesser of the base term of the lease or estimated life of the leasehold improvements. Depreciation is computed using the straight-line method over estimated useful lives as follows:

The Company tests its goodwill for impairment at least annually on December 31 and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial results.

The Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were no impairment charges during ~~the~~ three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.

~~At September 30, 2020~~As of March 31, 2021 and December 31, ~~2019,~~2020, definite-lived intangible assets primarily consisted of tradenames and customer relationships which are being amortized over their estimated useful lives, ~~ranging from~~or 5 ~~to 15~~ years.

The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.

In applying the acquisition method of accounting, amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition, with the remainder recorded as goodwill. Identifiable intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Identifiable intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. Intangible assets with indefinite lives are tested for impairment within one year of acquisitions or annually as of December 1, and whenever indicators of impairment exist. The fair values of intangible assets are compared against their carrying values, and an impairment loss would be recognized for the amount by which a carrying amount exceeds its fair value. At March 31, 2021 and December 31, 2020, there were no impairments in intangible or the right of use (“ROU”) assets.

1847 GOEDEKER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)

~~SEPTEMBER 30, 2020 AND 2019~~

~~(UNAUDITED)~~

Long-Lived Assets

The Company reviews its property and equipment and any identifiable intangibles (including ROU asset) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management ~~at least annually.~~upon triggering events. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. At March 31, 2021 and December 31, 2020, there were no impairments in long-lived assets.

Lease Liabilities

Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term at the lease commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses an estimated incremental borrowing rate (“IBR”) based on the information available at the commencement date of the respective lease to determine the present value of future payments. The determination of the IBR requires judgment and is primarily based on publicly available information for companies within the same industry and with similar credit profiles. The Company adjusts the rate for the impact of collateralization, the lease term and other specific terms included in each lease arrangement. The IBR is determined at the lease commencement and is subsequently reassessed upon a modification to the lease arrangement.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The Company reviews the ROU asset for impairment whenever events or changes in circumstances indicate that the carrying amount of the ROU asset may not be recoverable. When such events occur, the Company compares the carrying amount of the ROU asset to the undiscounted expected future cash flows related to the ROU asset. If the comparison indicates that an impairment exists, the amount of the impairment is calculated as the difference between the excess of the carrying amount over the fair value of the ROU asset. If a readily determinable market price does not exist, fair value is estimated using discounted expected cash flows attributable to the ROU asset.

Fair Value of Financial Instruments

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Cash, restricted cash, receivables, inventory, and prepaid expenses approximate fair value, due to their short-term nature. The fair value hierarchy is defined in the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

~~Derivative Instrument Liability~~Customer Deposits

Customer deposits represent the amount collected from customers when an order is placed. The ~~Company accounts for derivative instruments in accordance with ASC 815,~~ ~~Derivatives and Hedging~~~~, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments~~deposits are transferred to revenue when the order ships to the customer or contracts, and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At December 31, 2019,returned to the Company ~~classified a warrant issued in conjunction with a term loan as a derivative instrument (see Note 10).~~if the order is subsequently cancelled.

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)

Income Taxes

Under the Company’s accounting policies, the Company initially recognizes a tax position in its unaudited condensed consolidated financial statements when it becomes more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax positions that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authorities assuming full knowledge of the position and all relevant facts. Although the Company believes its provisions for unrecognized tax positions are reasonable, the Company can make no assurance that the final tax outcome of these matters will not be different from that which the Company has reflected in its income tax provisions and accruals. The tax law is subject to varied interpretations, and the Company has taken positions related to certain matters where the law is subject to interpretation. Such differences could have a material impact on the Company’s income tax provisions and operating results in the period(s) in which the Company makes such determination.

Sales Tax Liability

On June 21, 2018, the U.S. Supreme Court issued an opinion in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), whereby the longstanding Quill Corp v. North Dakota sales tax case was overruled, and states may now require remote sellers to collect sales tax under certain circumstances. In 2020, the Company began collecting sales tax in nearly all states that have sales tax. The Company accrued sales taxes in the states with sales tax. The Company accrued the potential liability from the effective date of a state’s adoption of the Wayfair decision up to the date the Company began collecting and filing sales taxes in the various states. At March 31, 2021 and December 31, 2020, the amount of such accrual was $5,915,910 and $5,804,100, respectively, which is included in accounts payable and accrued expenses. To date, only one state has notified the Company of a potential sales tax liability of approximately $82,000, all of which was previously accrued.

~~1847 GOEDEKER INC.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020 AND 2019~~

~~(UNAUDITED)~~

Basic Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing the net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive ~~debt or equity. As the Company had a net loss for~~securities. For the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, the potentially dilutive securities were ~~(i)~~ warrants for the purchase of ~~55,560~~455,560 shares of common stock ~~issued to affiliates of the underwriter in its initial public offering described below~~ and ~~(ii)~~ options for the purchase of ~~483,158~~555,000 shares of common stock. The potentially dilutive securities for the three months ended March 31, 2020 were warrants for the purchase of 250,000 shares of common stock. These potentially dilutive securities were excluded from diluted loss per share.

Reclassifications

Certain accounts have been reclassified to conform with classifications adopted in the period ended March 31, 2021. Such reclassifications had no effect on net earnings or financial position.

Going Concern Assessment

Management assesses going concern uncertainty in the Company’s unaudited condensed consolidated financial statements to determine whether there is 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 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, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)

The Company has generated significant losses since its acquisition and has relied on cash on hand, external bank lines of credit, proceeds from the IPO described below, issuance of third party and related party debt and the ~~sale~~issuance of a note to support cashflow from operations.

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the Company incurred operating losses of ~~$4,879,963,~~approximately $3,280,686, cash flows ~~from~~used in operations of ~~$7,383,978,~~$2,807,673 and negative working capital of ~~$4,898,501.~~$19,801,748.

Management has prepared estimates of operations for fiscal ~~year 2020~~years 2021 and 2022 and believes that sufficient funds will be generated from operations to fund its operations, and to service its debt obligations for one year from the date of the filing of ~~the~~these unaudited condensed consolidated financial statements in the Company’s Form 10-Q.

On August 4, 2020, the Company completed an initial public offering of its common stock, pursuant to which the Company sold 1,111,200 shares of its common stock, at a purchase price of $9.00 per share, for total gross proceeds of $10,000,800 (the “IPO”). After deducting the underwriting commission and offering expenses,As described in Note 10 below, the Company received net proceeds ~~of. $8,602,166. The Company used a portion~~ of $4,590,000 from the sale of 10% OID senior secured promissory notes due December 19, 2021 and warrants on March 19, 2021. These proceeds will supplement the Company’s cash flow from ~~this offering to pay off certain debt.~~operations and provide additional liquidity.

The impact of COVID-19 on the Company’s business has been considered 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 accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business.

Management believes that based on relevant conditions and events that are known and reasonably knowable that its forecasts, for one year from the date of the filing of these unaudited condensed consolidated financial statements, indicate improved operations and the Company’s ability to continue operations as a going concern. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period.

~~1847 GOEDEKER INC.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020 AND 2019~~

~~(UNAUDITED)~~

Recent Accounting Pronouncements

Recently Adopted

~~In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~ (“ASC 842”), which requires lessees to recognize right-of-use (“ROU”) assets and related lease liabilities on the balance sheet for all leases greater than one year in duration. The Company adopted ASC 842 on January 1, 2019 using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach did not require any transition accounting for leases that expired before the earliest comparative period presented. The adoption of this standard resulted in the recording of ROU assets and lease liabilities for all of the Company’s lease agreements with original terms of greater than one year. The adoption of ASC 842 did not have a significant impact on the Company’s statements of income or cash flows. See Note 13 for the required disclosures relating to the Company’s lease agreements.

~~In June 2018, the FASB issued ASU 2018-07,~~ ~~Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,~~ ~~which simplifies the accounting for nonemployee share-based payment transactions by expanding the scope of ASC Topic 718,~~ ~~Compensation - Stock Compensation~~, to include share-based payment transactions for acquiring goods and services from nonemployees. Under the new standard, most of the guidance on stock compensation payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. This standard became effective for the Company on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s financial statements.

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~, which allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from U.S. federal tax legislation commonly referred to as the Tax Cuts and Jobs Act, which was enacted in December 2017. ASU 2018-02 became effective for the Company on January 1, 2019 and resulted in a decrease of approximately $748,000 to retained earnings due to the reclassification from AOCI of the effect of the corporate income tax rate change on our cash flow hedges. The adoption of this standard did not have a material impact on the Company’s financial statements.

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. ASU 2017-12 became effective for the Company on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted. The Company adopted ASU 2018-15 on January 1, 2020 on a prospective basis. The adoption of this standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies and adds various disclosure requirements related to fair value disclosures. Disclosures related to transfers between fair value hierarchy levels will be removed and further detail around changes in unrealized gains and losses for the period and unobservable inputs used in determining level 3 fair value measurements will be added, among other changes. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company adopted ASU 2018-13 on January 1, 2020 on a prospective basis. The adoption of this standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

1847 GOEDEKER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)

~~SEPTEMBER 30, 2020 AND 2019~~

~~(UNAUDITED)~~

Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrumentswhich requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2019. This pronouncement was amended under ASU 2019-10 to allow an extension on the adoption date for entities that qualify as a small reporting company. The Company has elected this extension and the effective date for the Company to adopt this standard will be for fiscal years beginning after December 15, 2022. The Company has not completed its assessment of the standard but does not expect the adoption to have a material impact on the Company’s financial position, results of operations, or cash flows.

The Company currently believes that all other issued and not yet effective accounting standards are not relevant to the Company’s unaudited condensed consolidated financial statements.

~~Reclassifications~~

~~Certain accounts have been reclassified to conform with classifications adopted in the period ended September 30, 2020. Such reclassifications had no effect on net earnings or financial position.~~

NOTE 3—RESTATEMENT OF FINANCIAL STATEMENTS

The Company restated its previously issued financial statements as for the three months ended March 31, 2020 to reflect the modification of a sales tax liability. The Company determined that it should accrue a liability for potential 2020 sales taxes that might be payable to the states in which it operates as a result of the Wayfair decision (See Note 2 – Sales Tax Liability). Accordingly, the Company accrued a liability of $921,900, representing a potential liability for sales taxes and penalties of $873,200 and interest expense of $48,700.

The following tables summarize the effect of the restatement on the specific items presented in the Company’s previously reported financial statements:

1847 GOEDEKER INC.

STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2020

	As Filed			Adjustments			As Restated
Gross profit	$	1,566,008		$	-		$	1,566,008
Operating Expenses
General and administrative		566,640			873,200			1,439,840
Total Operating Expenses		2,881,141			873,200			3,754,341
LOSS FROM OPERATIONS		(1,315,133	)		(873,200	)		(2,188,333	)
Total Other Income (Expense)		(404,987	)		(48,700	)		(453,687	)
NET LOSS BEFORE INCOME TAXES		(1,720,120	)		(921,900	)		(2,642,020	)
INCOME TAX BENEFIT (EXPENSE)		435,000			-			435,000
NET LOSS	$	(1,285,120	)	$	(921,900	)	$	(2,207,020	)

LOSS PER COMMON SHARE – BASIC AND DILUTED	$	(0.26	)				$	(0.44	)
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC AND DILUTED		5,000,000						5,000,000

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)

1847 GOEDEKER INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

Three Months Ended March 31, 2020

	Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Deficit
As Filed:
Balance, January 1, 2020		4,750,000	$	475	$	1,079,179	$	(2,068,150	)	$	(795,954	)
Net loss		-		-		-		(1,285,120	)		(1,285,120	)
Balance, March 31, 2020		4,750,000	$	475	$	1,079,179	$	(3,353,270	)	$	(2,081,074	)

As Restated:
Balance, January 1, 2020		4,750,000	$	475	$	1,079,179	$	(5,157,871	)	$	(4,078,217	)
Net loss		-		-		-		(2,207,020	)		(2,207,020	)
Balance, March 31, 2020		4,750,000	$	475	$	1,079,179	$	(7,364,891	)	$	(6,285,237	)

1847 GOEDEKER INC.

STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2020

	As Filed			Adjustments			As Restated
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,285,120	)	$	(921,900	)	$	(2,207,020	)
Accounts payable and accrued expenses		520,364			921,900			1,442,264
Net cash provided by (used in) operating activities		958,356			-			958,356
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities		-			-			-
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by (used in) financing activities		(775,158	)		-			(775,158	)
NET CHANGE IN CASH AND RESTRICTED CASH		183,198			-			183,198
CASH AND RESTRICTED CASH, BEGINNING OF PERIOD		64,470			-			64,470
CASH AND RESTRICTED CASH, END OF PERIOD	$	247,668		$	-		$	247,668

NOTE 4—RECEIVABLES

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, receivables consisted of the following: respectively.

September 30,
2020
December 31,
2019
Credit card payments in process of settlement $ 274,179 $ 406,838
Vendor rebates receivable 945,276 1,455,248
Total $ 1,219,455 $ 1,862,086

	March 31, 2021		December 31, 2020
Vendor rebates receivable	$	604,372	$	1,337,791
Credit cards in process of collection		343,982		660,441
Total receivables	$	948,354	$	1,998,232

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)

NOTE 4—5—MERCHANDISE INVENTORY

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the inventory balances are composed of:

	September 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
Appliances	$	3,205,699		$	1,538,552		$	5,985,757		$	5,285,975
Furniture		191,310			184,755			249,008			194,852
Other		114,864			81,783			73,719			91,414
Total merchandise inventory		3,511,873			1,805,090			6,308,484			5,572,241

Allowance for inventory obsolescence		(425,000	)		(425,000	)		(425,000	)		(425,000	)
Merchandise inventory, net	$	3,086,873		$	1,380,090		$	5,883,484		$	5,147,241

NOTE 5—6—VENDOR DEPOSITS

Deposits with vendors represent cash on deposit with one vendor arising from accumulated rebates paid by the vendor. The deposits are used by the vendor to seek to secure the Company’s purchases. The deposit can be withdrawn at any time up to the amount of the Company’s credit line with the vendor. Alternatively, the Company could secure their credit line with a floor plan line from a lender and withdraw all its deposits. The Company has elected to leave the deposits with the vendor on which it earns interest income.

~~1847 GOEDEKER INC.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020 AND 2019~~

~~(UNAUDITED)~~

Prior to obtaining an open line of credit with a major vendor, the Company paid in advance for its purchases. The vendor did not ship product to the Company until an order was complete. As a result, the vendor held Company funds. A second vendor uses the Company’s vendor deposit account as collateral. Orders from this vendor exceeded the deposit account and the Company prepaid for some orders. Vendor deposits as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 were ~~$547,648~~$742,926 and ~~$294,960,~~$547,648, respectively.

NOTE 6—7—PROPERTY AND EQUIPMENT

Property and equipment consist of the following at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

	September 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
Equipment	$	14,976		$	7,376		$	69,336		$	69,336
Warehouse equipment		61,070			29,188			61,070			61,070
Furniture and fixtures		512			512			512			512
Transportation equipment		63,784		��	63,784			63,784			63,784
Leasehold improvements		129,203			117,626			136,931			136,931
Construction in progress								126,116			-
Total property and equipment		269,545			218,486			457,749			331,633
Accumulated depreciation		(67,143	)		(32,880	)		(102,168	)		(85,685	)
Property and equipment, net	$	202,402		$	185,606		$	355,581		$	245,948

Depreciation expense for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 ~~the period April 6, 2019 to September 30, 2019~~was $16,483 and ~~the period January 1, 2019 to April 5, 2019 was $34,264, $22,578, and $9,675,~~$10,959, respectively.

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)

NOTE 7—8—INTANGIBLE ASSETS

The following provides a breakdown of identifiable intangible assets as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

	September 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
Customer relationships	$	749,00		$	749,000		$	749,000		$	749,000
Marketing related		1,368,000			1,368,000
Marketing related - tradename								1,368,000			1,368,000
Total intangible assets		2,117,000			2,117,000			2,117,000			2,117,000
Accumulated amortization		(480,805	)		(238,156	)		(840,912	)		(735,063	)
Intangible assets, net	$	1,636,195		$	1,878,844		$	1,276,088		$	1,381,937

In connection with the acquisition of Goedeker, the Company identified intangible assets of $2,117,000, representing trade names and customer relationships. These assets are being amortized on a straight-line basis over their weighted average estimated useful life of ~~8.5~~3 years. Amortization expense for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 ~~the period April 6, 2019 to September 30, 2019~~was $105,849 and ~~the period January 1, 2019 to April 5, 2019 was $242,649, $76,390 and $-0-,~~$80,882, respectively.

As of ~~September 30, 2020,~~March 31, 2021, the estimated annual amortization expense for each of the next five years is as follows:

2020 (remainder of year) $ 80,883
2021 323,532
2022 323,532
2023 323,532
2024 122,132
Thereafter 462,584
Total $ 1,636,195

~~1847 GOEDEKER INC.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020 AND 2019~~

~~(UNAUDITED)~~

2021 (remainder of year)	$	317,547
2022		423,396
2023		423,396
2024		111,749
Total	$	1,276,088

NOTE ~~8—BUSINESS COMBINATION~~9—ACCOUNTS PAYABLE AND ACCRUED EXPENSES

On January 18, 2019, the Company entered into an asset purchase agreement with Goedeker and Steve Goedeker and Mike Goedeker (the “Stockholders”), pursuant to which the Company agreed to acquire substantially all of the assets of Goedeker used in its retail appliance and furniture business (the “Goedeker Business”).

On April 5, 2019, the Company, Goedeker and the Stockholders entered into an amendment to the asset purchase agreement and closing of the acquisition of substantially all of the assets of Goedeker was completed.

The ~~aggregate purchase price, recorded as a capital contribution from Holdco, was $4,483,418 consisting of: (i) the issuance~~following is schedule of a promissory note in the principal amount of $4,100,000 and a deemed fair value of $3,422,398; (ii) up to $600,000 in earn out payments (as described below) with a deemed fair value of $81,494; and (iii) a 22.5% ownership interest in Holdco transferred to the sellers with a deemed fair value of $979,523.

The asset purchase agreement provided for an adjustment to the purchase price based on the difference between actual working capital at closing and the seller’s preliminary estimate of closing date working capital. In accordance with the asset purchase agreement, an independent CPA firm was retained by the Company and Goedeker to resolve differences in the working capital amounts. The report issued by that CPA firm determined that Goedeker owed the Company $809,000, which Goedeker has not paid. On or about March 23, 2020, the Company submitted a claim for arbitration to the American Arbitration Association relating to Goedeker’s failure to pay. The claim alleged, ~~inter alia~~, breach of contract, fraud, indemnification and the breach of the covenant of good faith and fair dealing. The Company alleged damages in the amount of $809,000, plus attorneys’ fees and costs. The $809,000 is included in other assets in the accompanying balance sheet as of December 31, 2019.

On June 2, 2020, the Company entered into a settlement agreement with Goedeker, Steve Goedeker, Mike Goedeker and 1847 Holdings LLC, the Company’s parent company at such time (“1847 Holdings”). The settlement agreement and the related transaction documents that are exhibits to the settlement agreement were all signed on June 2, 2020 only became effective upon the closing of the IPO on August 4, 2020. Pursuant to the settlement agreement, the parties entered into an amendment and restatement of the 9% subordinated promissory note described below (see Note 11). In addition, the parties agreed that the arbitration action described above would be settled effective upon the closing of the IPO and that each party to such arbitration action would release all claims that it has against the other parties to such action. As part of the settlement of the arbitration action, the Company agreed that the sellers will not have to pay the $809,000 working capital adjustment amount, which resulted in a loss on write-off of acquisition receivable during the nine months ended September 30, 2020.

~~Goedeker is also entitled to receive the following earn out payments to the extent the Goedeker Business achieves the applicable EBITDA (as defined in the asset purchase agreement) targets:~~

~~An earn out payment of $200,000 if the EBITDA of the Goedeker Business for the trailing twelve (12) month period from the closing date is $2,500,000 or greater;~~

~~An earn out payment of $200,000 if the EBITDA of the Goedeker Business for the trailing twelve (12) month period from the first anniversary of closing date is $2,500,000 or greater; and~~

~~An earn out payment of $200,000 if the EBITDA of the Goedeker Business for the trailing twelve (12) month period from the second anniversary of the closing date is $2,500,000 or greater.~~

To the extent the EBITDA of the Goedeker Business for any applicable period is less than $2,500,000 but greater than $1,500,000, the Company must pay a partial earn out payment to Goedeker in an amount equal to the product determined by multiplying (i) the EBITDA Achievement Percentage by (ii) the applicable earn out payment for such period, where the “Achievement Percentage” is the percentage determined by dividing (A) the amount of (i) the EBITDA of the Goedeker Business for the applicable period less (ii) $1,500,000, by (B) $1,000,000. For avoidance of doubt, no partial earn out payments shall be earned or paid to the extent the EBITDA of the Goedeker Business for any applicable period is equal or less than $1,500,000. For the trailing twelve (12) month period from the closing date, EBITDA for the Goedeker Business was ($2,825,000) so Goedeker is not entitled to an earn our payment for that period.

~~1847 GOEDEKER INC.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020 AND 2019~~

~~(UNAUDITED)~~

To the extent Goedeker is entitled to all or a portion of an earn out payment, the applicable earn out payment(s) (or portion thereof) shall be paid on the date that is three (3) years from the closing date, and shall accrue interest from the date on which it is determined Goedeker is entitled to such earn out payment (or portion thereof) at a rate equal to five percent (5%) per annum, computed on the basis of a 360 day year for the actual number of days elapsed.

~~The Company determined the fair value of the earnout on the date of acquisition was $81,494. Such amount was recorded as a contingent consideration liability within the~~ accounts payable and accrued ~~expense line item on the balance sheet~~expenses at March 31, 2021 and ~~is revalued to fair value each reporting period until settled. The year 1 contingent liability of $32,246 was written-off in the year ending~~ December 31, 2019 as the target was not met and the balance of the liability at December 31, 2019 is $49,248. Management reviewed the contingent consideration due at September 30, 2020 and does not believe any adjustments are required at September 30, 2020 or for the nine months then ended.2020:

The fair value of the purchase consideration issued to Goedeker was allocated to the net tangible assets acquired. The Company accounted for the acquisition as the purchase of a business under GAAP under the acquisition method of accounting, and the assets and liabilities acquired were recorded as of the acquisition date, at their respective fair values and consolidated with those of the Company. The fair value of the net liabilities assumed was approximately $614,337. The excess of the aggregate fair value of the net tangible assets has been allocated to goodwill. Provisional goodwill was estimated at $4,976,106 at December 31, 2019 due to the preliminary valuation. During the period ending September 30, 2020, the Company subsequently adjusted the value of goodwill by $121,736 to $5,097,752 based on the finalized purchase price allocation.

~~The table below shows the analysis of the Goedeker asset purchase:~~

Purchase consideration at fair value:

Note payable, net of $462,102 debt discount and $215,500 of capitalized financing costs $ 3,422,398
Contingent note payable 81,494
Fair value of ownership interest in Holdco transferred to seller 979,523
Amount of consideration $ 4,483,415

Assets acquired and liabilities assumed at fair value
Accounts receivable $ 334,446
Inventories 1,851,251
Working capital adjustment receivable and other assets 1,104,863
Property and equipment 216,286
Customer related intangibles 749,000
Marketing related intangibles 1,368,000
Accounts payable and accrued expenses (3,929,876 )
Customer deposits (2,308,307 )
Net tangible assets acquired (liabilities assumed) $ (614,337 )

Total net assets acquired (liabilities assumed) $ (614,337 )
Consideration paid 4,483,415
Goodwill $ 5,097,752

~~1847 GOEDEKER INC.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020 AND 2019~~

~~(UNAUDITED)~~

~~NOTE 9—LINES OF CREDIT~~

~~Burnley Capital LLC~~

On April 5, 2019, the Company, as borrower, and Holdco entered into a loan and security agreement with Burnley Capital LLC (“Burnley”) for revolving loans in an aggregate principal amount that will not exceed the lesser of (i) the borrowing base (as defined in the loan and security agreement) or (ii) $1,500,000 minus reserves established Burnley at any time in accordance with the loan and security agreement. In connection with the closing of the acquisition of Goedeker on April 5, 2019, the Company borrowed $744,000 under the loan and security agreement and issued a revolving note to Burnley in the principal amount of up to $1,500,000. As of December 31, 2019, the balance of the line of credit was $571,997.

On August 4, 2020, the Company used a portion of the proceeds from the IPO to repay the revolving note in full and the loan and security agreement was terminated. The total payoff amount was $118,194, consisting of principal of $32,350, interest of $42 and prepayment, legal, and other fees of $85,802.

~~Northpoint Commercial Finance LLC~~

On June 24, 2019, the Company, as borrower, entered into a loan and security agreement with Northpoint Commercial Finance LLC, which was amended on August 2, 2019, for revolving loans up to an aggregate maximum loan amount of $1,000,000 for the acquisition, financing or refinancing by the Company of inventory at an interest rate of LIBOR plus 7.99%. As of December 31, 2019, the balance of the line of credit was $678,993. The Company terminated the loan and security agreement on May 18, 2020 and there is no outstanding balance as of September 30, 2020.

	March 31, 2021		December 31, 2020
Trade accounts payable	$	5,267,392	$	5,975,486
Sales tax		5,915,910		5,804,100
Accrued payroll liabilities		510,388		492,573
Accrued interest		10,000		10,000
Accrued liability for sales returns		200,000		200,000
Other accrued liabilities		453,132		219,556
Total accounts payable and accrued expenses	$	12,356,822	$	12,701,715

NOTE 10—NOTES PAYABLE ~~AND WARRANT LIABILITY~~

Arvest Loan

On August 25, 2020, the Company entered into a promissory note and security agreement with Arvest Bank for a loan in the principal amount of $3,500,000. As of ~~September 30, 2020,~~March 31, 2021, the outstanding balance of this loan is ~~$3,340,602,~~$3,026,812, comprised of principal of ~~$3,446,126,~~$3,119,806, net of unamortized loan costs of ~~$103,524.~~$92,994. The Company classified ~~$657,979~~$668,744 as a current liability and the balance as a long-term liability.

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)

The loan matures on August 25, 2025 and bears interest at 3.250% per annum; provided that, upon an event of default, the interest rate shall increase by 6% until paid in full. Pursuant to the terms of the loan agreement, the Company is required to make monthly payments of $63,353 beginning on September 25, 2020 and until the maturity date, at which time all unpaid principal and interest will be due. The Company may prepay the loan in full or in part at any time without penalty. The loan agreement contains customary events of default and affirmative and negative covenants for a loan of this type. The loan is secured by all financial assets credited to the Company’s securities account held by Arvest Investments, Inc.

Maturities of the debt are as follows:

For the years ended December 31,
2020 (remainder of year)	$	162,498
2021		663,339
2021 (remainder of year)				$	499,517
2022		685,222			685,222
2023		707,826			707,826
2024		731,177			731,177
2025		496,064			496,064
Total	$	3,446,126		$	3,119,806
Less: Loan costs		(103,524	)		(92,994	)
Total	$	3,342,602		$	3,026,812

~~1847 GOEDEKER INC.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020 AND 2019~~

~~(UNAUDITED)~~The Company repaid this loan on May 10, 2021. See Note 15.

~~PPP Loan~~10% OID Senior Promissory Notes

On ~~April 8, 2020,~~March 19, 2021, the Company received a $642,600 Paycheck Protection Program (the “PPP”) loan from the United States Small Business Administration under provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP loan has an 18-month term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. The PPP loan contains events of default and other provisions customary for a loan of this type. The PPP provides that the loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The balance of the PPP loan was $642,600 as of September 30, 2020 and was classified as a current liability in the accompanying balance sheet. On November 2, 2020, the Company repaid the PPP loan.

~~Small Business Community Capital II, L.P.~~

~~On April 5, 2019, the Company, as borrower, and Holdco~~ entered into a ~~loan and security~~securities purchase agreement with ~~Small Business Community Capital II, L.P. (“SBCC”) for a term loan in the principal amount of $1,500,000,~~two institutional investors, pursuant to which the Company issued to ~~SBCC~~each investor (i) a ~~term note in the principal amount of up to $1,500,000 and a ten-year warrant to purchase shares of the most~~10% OID senior capital stock of the Company equal to 5.0% of the outstanding equity securities of the Company on a fully-diluted basis for an aggregate price equal to $100. As of December 31, 2019, the balance of the note was $999,201.

On August 4, 2020, the Company used a portion of the proceeds from the IPO to repay the term note in full and the loan and security agreement was terminated. The total payoff amount was $1,122,412 consisting of principal of $1,066,640, interest of $11,773 and prepayment, legal, and other fees of $43,999.

The Company classified the warrant as a derivative liability on the balance sheet at June 30, 2020 of $2,250,000 based on the estimated value of the warrant in the IPO. The increase in the value of the warrant from the estimated value of $122,344 at December 31, 2019 resulted in a charge of $2,127,656 during the nine months ended September 30, 2020. Immediately prior to the closing of the IPO on August 4, 2020, SBCC converted the warrant into 250,000 shares of common stock.

~~NOTE 11—NOTES PAYABLE, RELATED PARTIES~~

~~As noted in Note 8, a portion of the purchase price for the acquisition was paid by the issuance by the Company to Steve Goedeker, as representative of Goedeker, of a 9% subordinated~~secured promissory note in the principal amount of ~~$4,100,000. As of December 31, 2019, the balance of the note was $3,300,444.~~

~~Pursuant to the settlement agreement described above (see Note 8), the parties entered into an amendment~~$2,750,000 and ~~restatement of the note that became effective as of the closing of the IPO on August 4, 2020, pursuant to which (i) the principal amount of the existing note was increased by $250,000,~~ (ii) upon the closing of the IPO, the Company agreed to make all payments of principal and interest due under the note through the date of the closing, and (iii) from and after the closing, the interest rate of the note was increased from 9% to 12%. In accordance with the terms of the amended and restated note, the Company used a ~~portion of the proceeds from the IPO to pay $1,083,842 of the balance of the note representing a $696,204 reduction in the principal balance and interest accrued through August 4, 2020 of $387,638.~~

The Company refinanced this note payable with proceeds from the Arvest Loan. In connection with the refinance, the Company recorded a $757,239 loss on extinguishment of debt consisting of a $250,000 forbearance fee, write-off of unamortized loan discount of $338,873, and write-off of unamortized debt costs of $168,366.

~~NOTE 12—CONVERTIBLE PROMISSORY NOTE~~

On April 5, 2019, 1847 Holdings, Holdco and the Company (collectively, “1847”) entered into a securities purchase agreement with Leonite Capital LLC, a Delaware limited liability company (“Leonite”), pursuant to which 1847 issued to Leonite a secured convertible promissory note in the aggregate principal amount of $714,286. As additional consideration for the purchase of the note, (i) 1847 Holdings issued to Leonite 50,000 common shares, (ii) 1847 Holdings issued to Leonite a five-yearfour-year warrant to purchase 200,000 shares of the Company’s common ~~shares~~stock at an exercise price of ~~$1.25 per share (subject~~$12.00, subject to ~~adjustment),~~adjustments, which may be exercised on a cashless basis, ~~and (iii) Holdco issued to Leonite shares of common stock equal to~~for a ~~7.5% non-dilutable interest in Holdco. As of December 31, 2019, the balance of the note was $584,943.~~

~~1847 GOEDEKER INC.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020 AND 2019~~

~~(UNAUDITED)~~

On May 11, 2020, 1847 and Leonite entered into a first amendment to secured convertible promissory note, pursuant to which the parties agreed (i) to extend the maturity date of the note to October 5, 2020, (ii) that 1847’s failure to repay the note on the original maturity date of April 5, 2020 shall not constitute and event of default under the note and (iii) to increase the principal amount of the note by $207,145, as a forbearance fee. The Company accounted for this transaction as a loss on extinguishment of debt.

~~In connection with the amendment, (i) 1847 Holdings issued to Leonite another five-year warrant to~~ purchase ~~200,000 common shares at an exercise~~ price of $1.25 per share (subject to adjustment), which may be exercised on a cashless basis and (ii) upon closing of 1847 Holdings’ acquisition of Asien’s Appliance, Inc., 1847 Holdings’ wholly owned subsidiary 1847 Asien Inc. issued to Leonite shares of common stock equal to a 5% interest$2,500,000 each, or $5,000,000 in ~~1847 Asien Inc. The Company accounted for~~ the ~~issuance of~~aggregate, the ~~200,000 additional warrants as a $566,711 loss on debt restructuring and an increase in additional paid-in-capital, representing the estimated~~relative fair value of which is $1,340,438 and was recorded as debt discount. After deducting a placement fee and other expenses, the ~~200,000 additional warrants for a five-year period.~~

~~1847 Holdings issued 50,000 common shares valued at $137,500 and a debt-discount related to the warrants valued at $292,673. In the second quarter~~Company received net proceeds of ~~2020, the $137,500 value~~$4,590,000. As of the shares was transferred from a liability to 1847 Holdings to additional paid-in-capital. The Company amortized $129,343 of financing costs related to the shares and warrants in the nine months ended September 30, 2020.

Under the note, Leonite has the right at any time at its option to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of the note into fully paid and non-assessable common shares or any shares of capital stock or other securities of 1847 Holdings into which such common shares may be changed or reclassified.

~~On May 4, 2020, Leonite converted $100,000 of~~March 31, 2021, the outstanding balance of the ~~note into 100,000 common~~notes is $3,347,763, comprised of principal of $5,500,000, net of unamortized loan costs of $2,152,237. Loan costs consist of unamortized original issue discount of $870,291 and unamortized warrant value of $1,281,946. The original issue discount and warrant expense are amortized as interest expense. See also Note 13.

The notes bear interest at a rate of 10% per annum and mature on December 19, 2021. The notes may be prepaid by the Company in whole or in part at any time or from time to time without penalty or premium upon at least five (5) days prior written notice, which notice period may be waived by the holder. In addition, if the Company issues and sells shares of ~~1847 Holdings. The~~its equity securities to investors on or before the maturity date in an equity financing with total gross proceeds of not less than $10,000,000 (excluding the conversion of the notes or other convertible securities issued for capital raising purposes), then the Company ~~accounted for this transaction as a $100,000 reduction in~~must repay the then-outstanding principal amount of the ~~debt,~~notes and any accrued but unpaid interest.

The notes are secured by a ~~$175,000 loss on extinguishment of debt, and a $275,000 increase~~first priority security interest in ~~additional paid-in-capital representing the fair value~~all of the ~~1847 Holdings~~Company’s assets and contain customary events of default. Upon, and during the continuance of, an event of default, the notes are convertible, in whole or in part, at the option of the holder into shares of common ~~shares on~~stock at a conversion price equal to $12.00, or if lower, 80% of the lowest volume weighted average price for the twenty (20) consecutive trading days prior to the applicable conversion date, but in no event less than $9.00. The conversion price will be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the common stock. In addition, if the Company sells or grants any common stock or securities convertible into or exchangeable for common stock or grants any right to reprice such securities at an effective price per share that is lower than the then conversion price, the conversion ~~date.~~price shall be reduced to such price, subject to certain exceptions. See Note 13 for additional terms of the warrants.

On July 24, 2020, Leonite converted $50,000 of the outstanding balance of the note into 50,000 common shares of 1847 Holdings. The Company accounted for this transaction as a $50,000 reduction in the principal amount of the debt, a $50,000 loss on extinguishment of debt, and a $100,000 increase in additional paid-in-capital representing the fair value of the 1847 Holdings common shares on the conversion date.

~~As a result of the activity on this note, $50,000 and $998,856 were recorded as loss on extinguishment of debt for the three and nine months ended September 30, 2020, respectively.~~

~~On August 4, 2020, the Company used a portion of the proceeds from the IPO to repay the note in full. The total payoff amount was $780,653, consisting of principal of $771,431 and interest of $9,222.~~

On September 2, 2020, 1847 Holdings and Leonite entered into an amendment to the warrant issued on April 5, 2019, pursuant to which the warrant was amended to allow for the exercise of the warrant for 180,000 common shares of 1847 Holdings in exchange for Leonite’s surrender of the remaining 20,000 common shares underlying that warrant, as well as all 200,000 common shares underlying the second warrant issued to Leonite on May 11, 2020. On September 18, 2020, Leonite exercised the warrant in accordance with the foregoing for 180,000 common shares of 1847 Holdings. As a result, both warrants have terminated.

1847 GOEDEKER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30,~~
MARCH 31, 2021 AND 2020 ~~AND 2019~~

(UNAUDITED)

NOTE ~~13—~~11—OPERATING ~~LEASE~~LEASES

On April 5, 2019, the Company entered into a lease agreement with S.H.J., L.L.C., a Missouri limited liability company and affiliate of the Company at that time. The lease is for a term five (5) years and provides for a base rent of $45,000 per month. In addition, the Company is responsible for all taxes and insurance premiums during the lease term. In the event of late payment, interest shall accrue on the unpaid amount at the rate of eighteen percent (18%) per annum. The lease contains customary events of ~~default, including if: (i)~~default.

On January 13, 2021, the Company ~~shall fail~~entered into a lease agreement with Westgate 200, LLC for a new premises in St. Charles, Missouri. The lease is for a term of 63 months with two (2) options to renew for additional five (5) year periods and provides for a base rent of $4.35 per square foot per year with 2.5% annual increases and a three-month abatement, resulting in a base rent during the first year of $20,977 per month, increasing to a base rent during the fifth year of $23,147 per month. The Company must also pay its 29% pro rata portion of the property taxes, operating expenses and insurance costs and is also responsible to pay ~~rent within five (5) days after~~for the ~~due date; (ii) any insurance required to be maintained by~~utilities used on the premises. The lease contains customary events of default.

On March 31, 2021, the Company ~~pursuant~~amended the lease agreement with Westgate 200, LLC that increased the space available to the ~~lease shall be canceled, terminated, expire, reduced, or materially changed; (iii)~~Company. The amendment increased the ~~Company shall fail~~Company’s share of the pro rata portion property taxes, operating expenses and insurance costs from 29% to ~~comply with any~~43.4%. The initial term ~~provision, or covenant~~ of the lease is extended by one year to April 30, 2027. Monthly rent payments remain at $20,977 until September 30, 2021 and ~~shall not begin~~increase to $31,465 per month until April 30, 2022 and ~~pursue~~then increases at approximately 2.5% per month every year. In connection with ~~reasonable diligence~~ the ~~cure of such failure within fifteen (15) days after written notice thereof to the Company; (iv)~~new leases, the Company ~~shall become insolvent, make an assignment for~~recorded a Right of Use asset and liability of $1,954,022 representing the ~~benefit~~present value of creditors, or file a petition under any section or chapter of the Bankruptcy Code, or under any similar law or statute of the United States of America or any State thereof; or (v) a receiver or trustee shall be appointed for the leased premises or for all or substantially all of the assets of the Company.future lease payments.

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021, the Company accrued rent expense of $62,386. During the three months ended March 31, 2020, the Company paid and expensed rent payments of ~~$135,000 and $405,000, respectively.~~$135,000.

Supplemental balance sheet information related to leases at March 31, 2021 was as follows:

Operating lease right-of-use asset $ 2,300,000
Accumulated amortization (613,577 )
Net balance $ 1,686,423

Lease liability, current portion $ 443,469
Lease liability, long-term 1,242,954
Total operating lease liability $ 1,686,423

Weighted average remaining lease term (months) 42

Weighted average discount rate 6.5 %

Operating lease right-of-use assets	$	3,404,861

Lease liabilities, current portion	$	664,043
Lease liabilities, long-term		2,803,203
Total operating lease liabilities	$	3,467,246

Weighted average remaining lease term (months)		57

Weighted average discount rate		5.9	%

Maturities of the lease ~~liability~~liabilities for each of the next five years is as follows:

2020 (remainder of year)	$	135,000
2021		540,000
2021 (remainder of year)				$	604,279
2022		540,000			923,945
2023		540,000			933,493
2024		135,000			538,041
2025					413,168
Thereafter					565,936
Total lease payments	$	1,890,000		$	3,978,862

Less imputed interest		(203,577	)		(511,616	)
Total lease liability	$	1,686,423		$	3,467,246

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)

NOTE ~~14—~~12—RELATED PARTIES

~~Offsetting Management Services Agreement~~

On April 5, 2019, the Company entered into an offsetting management services agreement with 1847 Partners LLC (the “Manager”), a company owned and controlled by Ellery W. Roberts, the Company’s chairman and ~~controlling shareholder of 1847 Holdings.~~a significant stockholder. This agreement was amended on April 21, 2020 with the amendment becoming effective at the closing of IPO on August 4, 2020.

~~1847 GOEDEKER INC.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020 AND 2019~~

~~(UNAUDITED)~~

Pursuant to the offsetting management services agreement, as amended, the Company appointed the Manager to provide certain services to it for a quarterly management fee equal to $62,500; provided, however, that, (i) pro-rated payments shall be made in the first quarter and the last quarter of the term, (ii) if the aggregate amount of management fees paid or to be paid by the Company, together with all other management fees paid or to be paid by all other subsidiaries of 1847 Holdings to the Manager, in each case, with respect to any fiscal year exceeds, or is expected to exceed, 9.5% of 1847 Holdings’ gross income with respect to such fiscal year, then the management fee to be paid by the Company for any remaining fiscal quarters in such fiscal year shall be reduced, on a pro rata basis determined by reference to the management fees to be paid to the Manager by all of the subsidiaries of 1847 Holdings, until the aggregate amount of the management fee paid or to be paid by the Company, together with all other management fees paid or to be paid by all other subsidiaries of 1847 Holdings to the Manager, in each case, with respect to such fiscal year, does not exceed 9.5% of 1847 Holdings’ gross income with respect to such fiscal year, and (iii) if the aggregate amount the management fee paid or to be paid by the Company, together with all other management fees paid or to be paid by all other subsidiaries of 1847 Holdings to the Manager, in each case, with respect to any fiscal quarter exceeds, or is expected to exceed, the aggregate amount of the parent management fee (as defined in the offsetting management services agreement) with respect to such fiscal quarter, then the management fee to be paid by the Company for such fiscal quarter shall be reduced, on a pro rata basis, until the aggregate amount of the management fee paid or to be paid by the Company, together with all other management fees paid or to be paid by all other subsidiaries of 1847 Holdings to the Manager, in each case, with respect to such fiscal quarter, does not exceed the parent management fee calculated and payable with respect to such fiscal quarter.

The Company shall also reimburse the Manager for all costs and expenses of the Company which are specifically approved by the board of directors of the Company, including all out-of-pocket costs and expenses, that are actually incurred by the Manager or its affiliates on behalf of Goedeker in connection with performing services under the offsetting management services agreement. The Company did not pay any expenses for the three months ended March 31, 2021 and 2020.

The Company expensed ~~$187,500 and $121,290~~$62,500 in management fees for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019, respectively.~~

~~Advances~~

As discussed in Note 12, on April 5, 2019, 1847 Holdings issued 50,000 common shares and 200,000 warrants to Leonite in order to induce Leonite to extend credit to the Company. The common shares of 1847 Holdings were valued at $137,500. As part of the modification to this convertible note payable, 1847 Holdings also granted an additional 200,000 warrants to purchase 1847 Holdings’ common shares to Leonite.2020.

NOTE ~~15—~~13—STOCKHOLDERS’ DEFICIT

As of ~~September 30, 2020,~~March 31, 2021, the Company was authorized to issue 200,000,000 shares of common stock, $0.0001 par value per share, and 20,000,000 shares of “blank check” preferred stock, 0.0001 par value per share. To date, the Company has not designated or issued any shares of preferred stock.

Common Stock

As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had 6,111,200 ~~and 4,750,000~~ shares of common stock issued and ~~outstanding, respectively.~~outstanding. Each share entitles the holder thereof to one vote per share on all matters coming before the stockholders of the Company for a vote.

~~Upon the Company’s inception on January 10, 2019, the~~The Company ~~issued 4,750,000~~did not issue any shares of common stock ~~for a total purchase price of $1.00.~~during the three months ended March 31, 2021 and 2020.

On August 4, 2020, the Company sold 1,111,200 shares of common stock for total gross proceeds of $10,000,800. After deducting the underwriting commission and expenses, the Company received net proceeds of $8,602,166.

~~On August 4, 2020, the Company issued 250,000 shares of common stock to SBCC upon conversion of its warrant (see Note 16).~~

1847 GOEDEKER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)

~~SEPTEMBER 30, 2020 AND 2019~~

~~(UNAUDITED)~~

Equity Incentive Plan

Effective as of July 30, 2020, the Company established the 1847 Goedeker Inc. 2020 Equity Incentive Plan ~~(“Plan”~~(the “Plan”). The Plan was approved by the Company’s board of directors and stockholders on April 21, 2020. The Plan is administered by compensation committee of the board of directors. The Plan permits the grant of restricted stock, stock options and other forms of incentive compensation to the Company’s officers, employees, directors and consultants. ~~The~~As of March 31, 2021, the maximum number of shares of common stock that may be issued pursuant to awards granted under the Plan iswas 555,000 ~~shares. As of September 30, 2020,~~shares and there were ~~483,158~~555,000 shares ~~granted and 71,842 shares remaining available under the Plan.~~granted. See also Note 15.

During the ~~three months~~year ended ~~September 30,~~December 31, 2020, the Company issued options for the purchase of ~~483,158~~555,000 shares of common stock with a total ~~compensation expense~~value of ~~$1,601,064.~~$1,848,056. The Company recorded stock option expense of ~~$281,194 and~~$124,575 for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. The remaining compensation expense of ~~$1,319,870~~$1,324,573 will be recognized over the remaining vesting ~~periods.~~period of forty months.

The following table presents activity relating to stock options for the ~~nine~~three months ended ~~September 30, 2020:~~March 31, 2021:

	Shares		Weighted Average Exercise Price		Weighted Average Contractual Term in Years		Shares		Weighted Average Exercise Price		Weighted Average Contractual Term in Years
Outstanding at December 31, 2019		-	$	-		-
Outstanding at January 1, 2021								555,000	$	9.00		9
Granted		483,158		9.00		6.25		-		-		-
Exercised		-		-		-		-		-		-
Forfeited / Cancelled / Expired		-		-		-		-		-		-
Outstanding at September 30, 2020		483,158	$	9.00		6.25
Outstanding at March 31, 2021								555,000	$	9.00		8.75

Exercisable at September 30, 2020		65,790	$	9.00		6.25
Exercisable at March 31, 2021								65,790	$	9.00		8.75

As of ~~September 30, 2020,~~March 31, 2021, vested outstanding stock options had no intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock.

The Company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award. The service period is generally the vesting period. ~~The following assumptions were used to calculate stock-based compensation expense for the nine months ended September 30, 2020:~~

~~Volatility~~	~~46.6~~	%
~~Risk-free interest rate~~	~~0.47~~	%
~~Dividend yield~~	~~0.0~~	%
~~Expected term~~	~~10 years~~

~~The following table sets forth stock-based compensation expense for the three months ended September 30, 2020, the remainder of 2020, and the four succeeding years:~~

Three months ended September 30, 2020 $ 281,194
Remainder of 2020 117,714
2021 483,185
2022 462,024
2023 367,198
2024 136,742
Total stock-based compensation $ 1,848,056

Warrants

On August 4, 2020, the Company issued warrants for the purchase of 55,560 shares of common stock to affiliates of the representative in the IPO. ~~The~~These warrants are exercisable at any time and from time to time, in whole or in part, beginning on January 26, 2021 until July 30, 2025, at a per share exercise price equal to $11.25. The warrants will result in a total compensation expense of $168,736 to be recognized over the vesting period. As of the period ended September 30, 2020, the Company had recognized compensation expense of $54,960. The remaining compensation expense of $113,774 will be recognized over the remaining vesting period.

On ~~April 5, 2019,~~March 19, 2021, the Company issued ~~to SBCC a ten-year warrant~~four-year warrants to purchase ~~shares of the most senior capital stock of the Company equal to 5.0% of the outstanding equity securities of the Company on a fully-diluted basis for~~ an aggregate ~~price equal to $100. SBCC exercised this warrant for the purchase~~ of ~~250,000~~400,000 shares of common stock to two investors at an exercise price of $12.00, subject to adjustments, which may be exercised on ~~August 4, 2020.~~a cashless basis (See Note 10).

1847 GOEDEKER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30,~~
MARCH 31, 2021 AND 2020 ~~AND 2019~~

(UNAUDITED)

The following table presents activity relating to the warrants for the ~~nine~~three months ended ~~September 30, 2020:~~March 31, 2021:

	Shares		Weighted Average Exercise Price		Weighted Average Contractual Term in Years		Shares		Weighted Average Exercise Price		Weighted Average Contractual Term in Years
Outstanding at December 31, 2019		-	$	-		-
Outstanding at January 1, 2021								55,560	$	11.25		4.5
Granted		55,560		11.25		4.83		400,000		12.00		4.0
Exercised		-		-		-		-		-		-
Cancelled / Expired		-		-		-		-		-		-
Outstanding at September 30, 2020		55,560	$	11.25		4.83

Exercisable at September 30, 2020		-	$	-		-
Outstanding at March 31, 2021								455,560	$	11.91		4.1

The Company recognizes stock issuance expense for the warrants on a straight-line basis over the ~~term~~vesting period of the warrants. ~~The service period is generally the vesting period.~~ The following assumptions were used to calculate ~~stock issuance~~warrant expense for the ~~nine~~three months ended ~~September 30, 2020:~~March 31, 2021:

Volatility	~~46.5~~74.2	%
Risk-free interest rate	~~0.47~~0.615	%
Dividend yield	0.0	%
~~Expected term~~Term	54.0 years

NOTE ~~16—~~14—COMMITMENTS AND CONTINGENCIES

On January 18, 2019, the Company entered into an asset purchase agreement with Goedeker, Steve Goedeker and Mike Goedeker, pursuant to which on April 5, 2019 the Company acquired substantially all of the assets of Goedeker used in its retail appliance and furniture business (the “Goedeker Business”).

Pursuant to the asset purchase agreement, Goedeker entitled to receive an earn out payment of $200,000 if the EBITDA (as defined in the asset purchase agreement) of the Goedeker Business for the trailing twelve (12) month period from April 5, 2022 is $2,500,000 or greater, and may be entitled to receive a partial earn out payment if the EBITDA of the Goedeker Business is less than $2,500,000 but greater than $1,500,000. The Company expects to meet this target and adjusted the contingent note payable in the condensed consolidated balance sheet to the present value of the amount due.

NOTE 15—SUBSEQUENT EVENTS

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to ~~September 30, 2020~~March 31, 2021 to the date these unaudited condensed consolidated financial statements were issued and has determined that it does not have any material subsequent events to disclose in these unaudited condensed consolidated financial statements, except as set forth below.

Amendment to Securities Purchase Agreement

On October 20, 2020, the Company entered into a securities purchase agreement, which was amended on December 8, 2020, with ~~Appliances Connection Inc., a newly-formed wholly owned subsidiary of the Company (the “Buyer”),~~ACI and 1 Stop Electronics Center, Inc., Gold Coast Appliances, Inc., Superior Deals Inc., Joe’s Appliances LLC and YF Logistics LLC (collectively, ~~the “Companies”~~“Appliances Connection”) and the ~~other parties signatory~~sellers set forth on Exhibit A thereto, ~~(the “Sellers”),~~ pursuant to which ~~the Buyer~~ACI agreed to acquire all of the issued and outstanding capital stock or other equity securities of ~~the Companies from the Sellers~~Appliances Connection for an aggregate purchase price of $210,000,000, subject to adjustment, ~~as described below. The purchase price consists~~consisting of (i) $168,000,000 in cash, (ii) ~~1,222,239~~2,333,333 shares of the Company’s common stock ~~and 1,111,094 shares of the Company’s series A preferred stock, collectively~~ having a stated value that is equal to $21,000,000, and (iii) a number of shares of the Company’s ~~series A-1 preferred~~common stock that is equal to (A) $21,000,000 divided by (B) the average of the closing price of the ~~shares of the~~ Company’s common stock (as reported on the NYSE American) for the 20 trading days immediately preceding the 3rd trading day prior to the closing date of the ~~securities purchase agreement. The terms of the series A preferred stock and series A-1 preferred stock have not yet been determined.~~transaction.

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 AND 2020
(UNAUDITED)

~~The purchase price is subject to a closing net working capital adjustment provision. Under this provision,~~On April 6, 2021, the ~~Sellers shall deliver~~parties entered into an amendment to the ~~Buyer at least one day prior~~securities purchase agreement, pursuant to which (i) the outside date (as defined in the securities purchase agreement) by which the closing of the securities purchase agreement ~~a statement setting forth their good faith estimate~~must be completed was changed to June 30, 2021, (ii) the definition of ~~the~~ net working capital of the Companies. If such estimated net working capital exceeds a target net working capital of -$15,476,941, then within five (5) days the Buyer shall make a cash payment to the Sellers that is equal to such excess. If such target net working capital exceeds such estimated net working capital, then either (i) if finally determined at the closing, the cash portion of the purchase price shall be decreased by such excess or (ii) within 5 days of the closing, the Sellers shall make a cash payment to the Buyer that is equal to such excess.

~~1847 GOEDEKER INC.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020 AND 2019~~

~~(UNAUDITED)~~

~~The purchase price is also subject to a post-closing net working capital adjustment provision. On or before the 75~~^th ~~day following the closing of~~set forth in the securities purchase agreement was revised to clarify that the ~~Buyer shall deliver~~accrued liabilities for potential sales tax will not be included in such calculation, and (iii) the condition to closing the Sellers a statement setting forth its calculation of the net working capital. If such net working capital exceeds the estimated net working capital referred to above, then within five (5) days after the final determination of such net working capital the Buyer shall send paymenttransaction contemplated by wire transfer of immediately available funds to the Sellers in an amount equal to such excess. If the estimated net working capital exceeds such net working capital, then within five (5) days the Sellers shall pay to the Buyer in cash an amount equal to such excess.

The cash portion of the purchase price will also be (i) decreased by (A) the amount of any outstanding unpaid indebtedness of the Companies (other than trade debt) existing as of the closing date and (B) any transaction expenses, and (ii) increased by the amount of cash or cash equivalents held by, or on the books of, the Companies as of the closing date, if any, that is in excess of $850,000.

~~Upon execution of~~ the securities purchase agreement relating to a lease for the ~~Buyer paid a deposit in the amount of $100,000, which will be credited towards the cash portion of the purchase price at closing.~~Gold Coast location was deleted, because such lease has since been terminated.

The securities purchase agreement contains customary representations, warranties and covenants, including a covenant that the Sellers will not compete with the business of 1 Stop Electronics Center, Inc. as of the closing date for a period of two (2) years following closing, as well as customary closing conditions, including, without limitation, the expiration or termination of any waiting period applicableAmendment to the consummation of the transaction under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended; the receipt of all authorizations, consents and approvals of all governmental authorities or agencies; the release of any security interests; the Buyer obtaining the requisite acquisition financing; and delivery of all opinions and documents required for the transfer of the securities of the Companies to the Buyer.

~~Repayment of PPP Loan~~Equity Incentive Plan Increase

On ~~November 2, 2020,~~April 9, 2021, the board of directors approved an amendment to the Plan to increase the number of shares of common Stock reserved for issuance under the Plan from 555,000 to 1,000,000 shares. Such increase was approved by the Company’s stockholders effective as of May 13, 2021.

Repayment of Note

On May 10, 2021, the Company repaid the ~~balance of the PPP~~Arvest loan (see Note 10).

by transferring principal and accrued interest from the restricted cash account.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our consolidated financial statements and should be read in conjunction with such consolidated financial statements and notes thereto set forth elsewhere herein.

All periods presented on or prior to April 5, 2019 represent the operations of Goedeker (as defined below), our predecessor. Unless otherwise specified, all results of operations information for the three and nine months ended September 30, 2019 reflects the full periods.

References to “Successor” refer to the financial position and results of operations of the Company subsequent to April 5, 2019. References to “Predecessor” refer to the financial position and results of operations of Goedeker on and before April 5, 2019.

Special Note Regarding Forward Looking Statements

This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

●

the impact of the coronavirus pandemic on our operations and financial condition;

●

our goals and strategies;

●

our future business development, financial condition and results of operations;

●

expected changes in our revenue, costs or expenditures;

●

growth of and competition trends in our industry;

●

our expectations regarding demand for, and market acceptance of, our products;

●

our expectations regarding our relationships with investors, institutional funding partners and other parties we collaborate with;

●

fluctuations in general economic and business conditions in the markets in which we operate; and

●

relevant government policies and regulations relating to our industry.

In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under ~~the heading~~Item 1A “Risk Factors” included in our ~~Registration Statement~~Annual Report on Form ~~S-1, originally filed with~~10-K for the ~~Securities and Exchange Commission on August~~year ended December 31, 2020 ~~as amended,~~ and elsewhere in this report. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance.

The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

Overview

1847 Goedeker Inc. (“we,” “us,” “our” or the “Company”) was incorporated in the State of Delaware on January 10, 2019 for the sole purpose of acquiring substantially all of the assets of Goedeker Television Co. (“Goedeker”). On April 5, 2019, we acquired substantially all of the assets of Goedeker. As a result of this transaction, we acquired the former business of Goedeker and continue to operate this business. All discussions in this report regarding our business prior to the acquisition reflect the business of Goedeker, our predecessor company. Prior to our acquisition of substantially all of the assets of Goedeker, we had no operations other than operations relating to our incorporation and organization.

~~The Company~~ is a one-stop e-commerce destination for home furnishings, including appliances, furniture, home goods and related products. Since our founding in 1951, we have evolved from a local brick and mortar operation serving the St. Louis metro area to a large nationwide omnichannel retailer that offers one-stop shopping for the leading brands. While we still maintain our St. Louis showroom, over ~~90%~~95% of our sales are placed through our website at www.goedekers.com. We offer over ~~185,000 SKUs~~141,000 stock-keeping units organized by category and product features, providing visitors to the site an easy to navigate shopping experience.

Through our e-commerce business model, we offer an online marketplace for consumers looking for variety, style, service and value when shopping for nearly any home product needed. We are focused on bringing our customers an experience that is at the forefront of shopping online for the home. We have built a large online selection of appliances, furniture, home goods and related products. We are able to offer this vast selection of products because our model requires minimal ~~inventory.~~inventory in relation to our sales. We specialize in the home category and this has enabled us to build a shopping experience and logistics infrastructure that is tailored to the unique characteristics of our market.

Recent Developments

Impact of Coronavirus Pandemic

In ~~December~~late 2019, a novel strain of coronavirus, or COVID-19, was reported to have surfaced in Wuhan, China. The virus has since spread to over 150 countries and every state in the United States. On March 11, 2020, the World Health Organization declared the outbreak a pandemic, and on March 13, 2020, the United States declared a national emergency.

Most states and cities, ~~have~~including in markets in which we operate, reacted by instituting quarantines, restrictions on travel, “stay at home” rules, social distancing measures and restrictions on the types of businesses that ~~may~~could continue to operate, as well as guidance in response to the pandemic and the need to contain it. ~~Effective April 6, 2020, the Governor of Missouri announced a stay at home order that was in effect until May 3, 2020.~~ Pursuant to ~~this order, non-essential businesses, such as~~restrictions in Missouri, our showroom ~~were forced to close. However,~~was closed from April through June of 2020, but our call center and warehouse continued to operate. ~~According to Missouri’s re-opening plan, retail stores, such as our showroom, may re-open effective May 4, 2020 but with limitations on the number of individuals allowed in the showroom.~~ Since over ~~90%~~95% of our sales are completed online and our call center and warehouse and distribution operations continued to operate, the restrictions put in place have not ~~yet~~ had a materially negative impact on our operations. ~~On June 16, 2020,~~However, the situation surrounding COVID-19 remains fluid, and we may be required to close or limit service offerings in our ~~showroom re-opened~~retail facility or warehouse in response to guidance from applicable government and public health officials, which could adversely affect our operations and revenues.

In addition, we are dependent upon suppliers to provide us with all of the ~~public, with restrictions~~products that ~~masks~~we sell. The pandemic has impacted and may continue to impact suppliers and manufacturers of certain 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 ~~worn~~negatively impacted by ~~customers~~general macroeconomic conditions, including a rise in unemployment, and ~~employees,~~decreased consumer confidence resulting from the pandemic. Changing consumer behaviors as a result of the pandemic may also have a material impact on our revenue.

Furthermore, the spread of COVID-19 has adversely impacted global economic activity and has contributed to significant volatility and negative pressure in ~~compliance with St. Louis County mandates.~~financial markets. The pandemic has resulted, and may continue to result, in a significant disruption of global financial markets, which may reduce our ability to access capital in the future, which could negatively affect our liquidity.

We have taken steps to take care of our employees, including providing the ability for employees to work remotely and implementing strategies to support appropriate social distancing techniques for those employees who are not able to work remotely. We have also taken precautions with regard to employee, facility and office hygiene as well as implementing significant travel restrictions. We are also assessing our business continuity plans for all business units in the context of the pandemic. This is a rapidly evolving situation, and we will continue to monitor and mitigate developments affecting our workforce, our suppliers, our customers, and the public at large to the extent we are able to do so. We have and will continue to carefully review all rules, regulations, and orders and responding accordingly.

We are dependent upon suppliers to provide us with all of the products that we sell. The pandemic has impacted and may continue to impact suppliers and manufacturers of certain 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.

If the current pace of the pandemic ~~cannot be slowed~~does not continue to slow and the spread of ~~the virus~~COVID-19 is not contained, our business operations could be further delayed or interrupted. We expect that government and health authorities may announce new or extend existing restrictions, which could require us to make further adjustments to our operations in order to comply with any such restrictions. We may also experience limitations in employee resources. In addition, our operations could be disrupted if any of our employees were suspected of having ~~the virus,~~COVID-19, which could require quarantine of some or all such employees or closure of our facilities for disinfection. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs.

The extent to which the pandemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this ~~report,~~prospectus, including new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment, and future developments in the global supply chain and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.

Amendment to Securities Purchase Agreement

On October 20, 2020, ~~the Company~~we entered into a securities purchase agreement, which was amended on December 8, 2020, with our wholly owned subsidiary, Appliances Connection Inc.~~, a newly-formed wholly owned subsidiary of the Company (the “Buyer”~~ (“ACI”), and 1 Stop Electronics Center, Inc., Gold Coast Appliances, Inc., Superior Deals Inc., Joe’s Appliances LLC and YF Logistics LLC (collectively, ~~the “Companies”~~“Appliances Connection”) and the ~~other parties signatory~~sellers set forth on Exhibit A thereto, ~~(the “Sellers”),~~ pursuant to which ~~the Buyer~~ACI agreed to acquire all of the issued and outstanding capital stock or other equity securities of ~~the Companies from the Sellers~~Appliances Connection for an aggregate purchase price of $210,000,000, subject to adjustment, ~~as described below. The purchase price consists~~consisting of (i) $168,000,000 in cash, (ii) ~~1,222,239~~2,333,333 shares of ~~the Company’s~~our common stock ~~and 1,111,094 shares of the Company’s series A preferred stock, collectively~~ having a stated value that is equal to $21,000,000, and (iii) a number of shares of ~~the Company’s series A-1 preferred~~our common stock that is equal to (A) $21,000,000 divided by (B) the average of the closing price of ~~the shares of the Company’s~~our common stock (as reported on the NYSE American) for the 20 trading days immediately preceding the 3rd trading day prior to the closing date of the ~~securities purchase agreement.~~transaction.

The securities purchase agreement contains customary representations, warranties and covenants, including a covenant that the Sellers will not compete with the business of 1 Stop Electronics Center, Inc. as of the closing date for a period of two (2) years following closing, as well as customary closing conditions, including, without limitation, the expiration or termination of any waiting period applicable to the consummation of the transaction under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended; the receipt of all authorizations, consents and approvals of all governmental authorities or agencies; the release of any security interests; the Buyer obtaining the requisite acquisition financing; and delivery of all opinions and documents required for the transfer of the securities of the Companies to the Buyer.

Repayment of ~~PPP Loan~~Note

On ~~November 2, 2020, the Company~~May 10, 2021, we repaid the ~~balance of~~term loan from Arvest Bank described below by transferring principal and accrued interest from the ~~Paycheck Protection Program loan described below.~~restricted cash account.

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;

●

our ability to offer competitive product pricing;

●

our ability to broaden product offerings;

●

industry demand and competition; and

●

market conditions and our market position.

Key Financial Operating Metrics

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Site Sessions (in millions) 2.7 1.5 7.3 4.8
Order History $ 36,963,583 $ 15,236,006 $ 82,095,491 $ 44,989,811
Days from Order to Shipment (Average) 40 24 33 22
Three Months Ended
March 31,
2021 2020
Site Sessions (in millions) 2.5 1.4
Order History (in millions) $ 30.7 $ 15.4

A site session occurs when a person visits our website. An order occurs when a customer has visited our website and ordered one or more items and has paid for them. ~~The days from~~An order ~~to shipment~~ is ~~a measure, in the case of orders shipped from~~paid for by our ~~warehouse, of the time from~~customer when the order ~~until the product ordered~~ is ~~loaded onto the shipper’s truck for delivery,~~placed and ~~in the case of drop shipments, the time between~~booked as revenue by us when the order ~~and the date that we are invoiced (assuming that the vendor invoices us on the day that shipment to the customer~~ is ~~made).~~shipped.

Total revenues and total orders for any given month may not be equal for two primary reasons: (1) normal customer cancellations and (2) the time required to ship an order and recognize revenue. ~~The~~When there are no supply chain issues, the time from order to shipping is between 20 and 25 days. Thus, an order made after the 10th of the current month will become revenue in the succeeding month, distorting the comparison between a months’ orders and its sales. COVID-19 significantly increased the time between order and shipment, which increased customer.

Our site sessions increased to approximately ~~2.7~~2.5 million in the ~~quarter~~three months ended ~~September 30, 2020,~~March 31, 2021, as compared to approximately ~~1.5~~1.4 million in the ~~quarter ended September 30, 2019. In addition, our site sessions increased to approximately 7.3 million in the nine~~three months ended September 30, 2020, as compared to approximately 4.8 million in the nine months ended September 30, 2019. These increased site sessions were achieved at a lower cost per session beginning in February of 2020 and have continued through the date of this report.
March 31, 2021. These increased site sessions resulted in three-year highs for orders in the ~~quarter~~three months ended ~~September 30, 2020. An order is paid for by our customer when the order is placed and booked as revenue by us when the order is shipped.~~March 31, 2021.

Higher orders have positively impacted our working capital as orders yield cash in advance of shipment. Improvements in our working capital as a result of higher orders have positively impacted our delivery times thereby reducing the time from order to shipment. A reduction in days from order to shipment results in fewer cancelled orders and, as a result, higher revenues.
Given what we believe to be the linear relationship between advertising, site visits, orders, and days from order to shipment impacting cancellations, we believe that the increase in working capital provided by the IPO (as defined below) will have a dramatically positive impact on accelerating our growth rate and profitability.
Emerging Growth Company

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

● have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
● comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
● submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and
● disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an emerging growth company ~~for up to five years, or~~ until the earliest of (i) the last day of the fiscal year following the fifth anniversary of our initial public offering, (ii) the last day of the first fiscal year in which our total annual gross revenues ~~exceed $1~~are $1.07 billion or more, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or ~~(iii)~~(iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

Results of Operations
Comparison of Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

The following table sets forth key components of our results of operations for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ in dollars and as a percentage of our net sales.

Three Months Ended
September 30, 2020 Three Months Ended
September 30, 2019
Three Months Ended
March 31,
2021

Three Months Ended
March 31,
2020
(As Restated)

Amount % of
Net Sales Amount % of
Net Sales Amount
% of
Net Sales
Amount
% of
Net Sales

Products sales, net $ 13,435,095 100.0 % $ 12,202,271 100.0 % $ 13,697,368 100.00 % $ 9,677,178 100.00 %
Cost of goods sold 11,264,569 83.8 % 10,183,711 83.5 % 11,068,911 80.81 % 8,111,170 83.82 %
Gross profit 2,170,526 16.2 % 2,018,560 16.5 % 2,628,457 19.19 % 1,566,008 16.18 %
Operating expenses
Personnel 2,161,929 13.4 % 989,318 8.1 % 1,931,324 14.10 % 1,311,484 13.55 %
Advertising 1,432,834 10.5 % 696,771 5.7 % 1,083,248 7.91 % 666,436 6.89 %
Bank and credit card fees 574,808 4.2 % 279,412 2.3 % 532,742 3.89 % 244,740 2.53 %
Depreciation and amortization 93,283 0.7 % 11,044 0.1 % 122,331 0.89 % 91,841 0.95 %
General and administrative 957,703 7.0 % 594,916 4.9 % 2,239,498 16.35 % 1,439,840 14.88 %
Total operating expenses 5,220,557 38.3 % 2,571,461 21.1 % 5,909,143 43.14 % 3,754,341 38.80 %
Net loss from operations (3,050,031 ) (22.4 )% (552,901 ) (4.5 )%
Loss from operations (3,280,686 ) (23.95 )% (2,188,333 ) (22.61 )%
Other income (expense)
Interest income 1,418 0.0 % - - 10,096 0.07 % - -
Financing costs (488,460 ) (3.6 )% (165,097 ) (1.4 )%
Interest expense (157,312 ) (1.2 )% (182,772 ) (1.5 )% (232,831 ) (1.70 )% (456,070 ) (4.71 )%
Loss on extinguishment of debt (807,239 ) (5.9 )% - -
Change in fair value of warrant liability - - 54,500 0.4 %
Other income (expense) 1,657 0.0 % (35,388 ) (0.3 )%
Other income 10,206 0.07 % 2,383 0.02 %
Total other income (expense) (1,449,936 ) (10.6 )% (328,757 ) (2.7 )% (212,529 ) (1.55 )% (453,687 ) (4.69 )%
Net loss before income taxes (4,499,967 ) (33.0 )% (881,658 ) (7.2 )% (3,493,215 ) (25.50 )% (2,642,020 ) (27.30 )%
Income tax benefit 838,176 6.1 % - - - - 435,000 4.50 %
Net loss $ (3,661,791 ) (26.8 )% $ (881,658 ) (7.2 )% $ (3,493,215 ) (25.50 )% $ (2,207,020 ) (22.81 )%

Product sales, net. We generate revenue from the retail sale of home furnishings, including appliances, furniture, home goods and related products. Our product sales ~~were $13,435,095~~increased by $4,020,190, or 41.54%, to $13,697,368 for the three months ended ~~September 30, 2020, as compared to $12,202,271~~March 31, 2021 from $9,677,178 for the three months ended ~~September 30, 2019, an increase of $1,232,271, or 10.1%.~~March 31, 2020. The increase is due to increased sales volume to meet appliance and furniture demand resulting from increased advertising, which has a direct impact on customer orders and shipped sales.

During the three months ended ~~September 30, 2020,~~March 31, 2021, we experienced delays in getting products from manufacturers whose production facilities were closed or operating at reduced capacity because of the coronavirus pandemic, which resulted in ~~some~~ cancellations of some customer orders. For the three months ended ~~September 30, 2020,~~March 31, 2021, we estimate that cancellations caused by shipping delays approximated ~~$15.9~~$11.0 million based on the historical ratio of shipped sales to customer orders of approximately ~~79%~~80.7% for the three most recent pre COVID-19 years (2017 to 2019) to the actual ratio of approximately ~~37%~~44.7% in the three months ended ~~September 30, 2020.~~March 31, 2021.

Our past performance is generally indicative of future performance to the extent that there are seasonal factors such as Black Friday, Cyber Monday, and other shopping days when sales spike.

Our revenue by sales type is as follows:

Three Months Ended
September 30, 2020 Three Months Ended
September 30, 2019
Three Months Ended
March 31,
2021

Three Months Ended
March 31,
2020

Amount % Amount % Amount % Amount %
Appliance sales $ 8,991,853 66.9 % $ 10,086,490 82.7 % $ 10,273,393 75.00 % $ 7,802,104 80.62 %
Furniture sales 3,554,704 26.5 % 1,398,843 11.5 % 2,327,834 16.99 % 1,281,836 13.25 %
Other sales 888,538 6.6 % 716,938 5.9 % 1,096,141 8.00 % 593,238 6.13 %
Total $ 13,435,095 100.0 % $ 12,202,271 100.0 % $ 13,697,368 100.00 % $ 9,677,178 100.00 %

The percentage of furniture sales increased in the 2021 period as compared to the 2020 period as furniture was more readily available from manufacturers than appliances.
Cost of goods sold. Our cost of goods sold consists of the cost of purchased merchandise plus the cost of delivering merchandise and, where applicable, installation, net of promotional rebates and other incentives received from vendors. Our cost of goods sold ~~was $11,264,569~~increased by $2,957,741, or 36.47%, to $11,068,911 for the three months ended ~~September 30, 2020, as compared to $10,183,711~~March 31, 2021 from $8,111,170 for the three months ended ~~September 30, 2019, an increase of $1,080,858, or 10.6%. Such increase was due to the increase in sales volume.~~March 31, 2020. As a percentage of net sales, cost of ~~sales increased~~goods sold decreased from ~~83.5% in the 2019 period to 83.8%~~83.82% in the 2020 period to 80.81% in the 2021 period. ~~The increase is attributable~~Such decrease was due to the sale of more furniture and other products in the quarter. Product cost for appliances sold in the 2021 period was similar to product cost for appliances that were sold in the 2020 period; however, the mix of furniture and other ~~normal variables.~~items sold in 2021 had a lower product cost than the furniture and other items sold in 2020.
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 ~~in 2020~~ stock compensation expense. Our personnel expenses ~~were $2,161,929~~increased by $619,840, or 47.26%, to $1,931,324 for the three months ended ~~September 30, 2020, as compared to $989,318~~March 31, 2021 from $1,311,484 for the three months ended ~~September 30, 2019, an increase~~March 31, 2020. As a percentage of ~~$1,172,611, or 118.5%.~~net sales, personnel expenses increased from 13.55% in the 2020 period to 14.10% in the 2021 period. The increase is the result of hiring ~~additional~~the senior management team and support staff needed because of increased customer ~~demand for our products. During~~orders. Additionally, during the quarter, we ~~also~~ incurred stock compensation expenses of ~~$281,194. Beginning~~$124,575 that we did not have in the ~~second quarter of~~ 2020 ~~we had a dramatic increase in cancellations of customer~~quarter. We believe it is important to also compare our expenses to orders ~~which were primarily~~when product availability is constrained as our personnel, advertising, and bank and credit card fees are directly or indirectly related to customer orders. As a percentage of orders, personnel expenses decreased from 8.5% in the ~~lack of product availability. We hired a number of temporary employees~~2020 period to ~~process cancellations and address~~6.2% in the ~~related customer service issues. We are reducing the number of temporary employees but expect we will have a number of them through the fourth quarter.~~2021 period.
Advertising expenses. Advertising expenses include the cost of marketing our products and primarily include online search engine expenses. Our advertising expenses ~~were $1,432,834~~increased by $416,812, or 62.54%, to $1,083,248 for the three months ended ~~September 30, 2020, as compared to $696,771~~March 31, 2021 from $666,436 for the three months ended ~~September 30, 2019, an increase~~March 31, 2020. As a percentage of ~~$736,062, or 105.6%.~~net sales, advertising expenses increased from 6.89% in the 2021 period to 7.91% in the 2021 period. The increase relates to an increase in advertising spending to drive traffic to our website. As a percentage of orders, advertising expenses decreased from 4.3% in the 2020 period to 3.5% in the 2021 period.
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. Our bank and credit card fees ~~were $574,808~~increased by $288,002, or 117.68%, to $532,742 for the three months ended ~~September 30, 2020, as compared to $279,412~~March 31, 2021 from $244,740 for the three months ended ~~September 30, 2019, an increase~~March 31, 2020. As a percentage of ~~$295,396 or 105.7%.~~net sales, bank and credit card fees increased from 2.53% in the 2020 period to 3.89% in the 2021 period. These 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. We pay a credit card fee for each order, regardless of whether that order is shipped or cancelled by customer. As a percentage of orders, bank and credit card fees increased from 1.6% in the 2020 period to 1.7% in the 2021 period.
Depreciation and amortization. Depreciation and amortization was $122,331, or 0.89% of net sales, for the three months ended March 31, 2021, as compared to $91,841, or 0.95% of net sales, for the three months ended March 31, 2020.

General and administrative expenses. Our general and administrative expenses consist primarily of professional advisor fees, ~~bad debts,~~ rent expense, insurance, unremitted sales tax, and other expenses incurred in connection with general operations. Our general and administrative expenses ~~were $957,703~~increased by $799,658, or 55.54%, to $2,239,498 for the three months ended ~~September 30, 2020, as compared to $594,916~~March 31, 2021 from $1,439,840 for the three months ended ~~September 30, 2019, an~~March 31, 2020. As a percentage of net sales, general and administrative expenses increased from 14.88% in the 2020 period to 16.35% in the 2021 period. The increase ~~of $362,787, or 61.0%. The primary increases are~~was largely due to increased directors and officers insurance expenses, fees to our independent directors, and legal, audit and other professional fees ~~for audits,~~in connection with becoming a public company in August 2020, as well as consulting fees to upgrade our online shopping cart, fees for our Electronic Data Interchange initiative, and other consulting fees. In the three months ended March 31, 2021, we incurred non-recurring expenses totaling approximately $695,000, representing $445,488 in expenses related to the Appliances Connection acquisition and the balance for the reaudit of 2019. In the 2020 period, we incurred $873,200 non-recurring accrual for sales tax. General and administrative expenses without these non-recurring expenses were $1,544,011 and $566,640 for the three months ended March 31, 2021 and 2020, respectively. As a percentage of orders, general and administrative expenses were 7.3% in the 2021 period compared to 9.4% 2020 period.
Total other income (expense). We had ~~$1,449,936~~$212,529 in total other expense, net, for the three months ended ~~September 30, 2020,~~March 31, 2021, as compared to total other expense, net, of ~~$328,757~~$453,687 for the three months ended ~~September 30, 2019.~~March 31, 2020. Total other expense, net, for the three months ended ~~September 30, 2020~~March 31, 2021 consisted of ~~financing costs of $488,460,~~ interest expense of ~~$157,312 and loss on extinguishment of debt of $807,239,~~$232,831, offset by interest income of ~~$1,418~~$10,096 and other income of ~~$1,657,~~$10,206, while other expense, net, for the three months ended ~~September 30, 2019~~March 31, 2020 consisted of ~~financing costs of $165,097,~~ interest expense of ~~$182,772 and other expense of $35,388,~~$456,070, offset by ~~a change in warrant liability~~other income of ~~$54,500.~~$2,383.
Net loss. As a result of the cumulative effect of the factors described above, we had a net loss of ~~$3,661,791~~$3,493,215 for the three months ended ~~September 30, 2020,~~March 31, 2021, as compared to ~~$881,658~~$2,207,020 for the three months ended ~~September 30, 2019,~~March 31, 2020, an increase of ~~$2,780,133~~$1,286,195, or ~~315.3%~~58.28%.
31
~~Comparison of Nine Months September 30, 2020 and 2019~~

The following table sets forth key components of our results of operations for the nine months ended September 30, 2020 (Successor), the period from April 6, 2020 to September 30, 2019 (Successor), and the period from April 1, 2019 to April 5, 2019 (Predecessor), in dollars and as a percentage of our net sales.
Successor Predecessor
Nine Months Ended
September 30, 2020 Period April 6 to
September 30, 2019 Period January 1 to
April 5, 2019
Amount % of Net
Sales Amount % of Net
Sales Amount % of Net
Sales
Product sales, net $ 38,397,304 100.0 % $ 22,748,151 100.0 % $ 12,946,901 100.0 %
Cost of goods sold 32,060,897 83.5 % 18,886,117 83.0 % 11,004,842 85.0 %
Gross profit 6,336,407 16.5 % 3,862,034 17.0 % 1,942,059 15.0 %
Operating expenses
Personnel 4,513,602 11.7 % 1,875,543 8.2 % 913,919 7.1 %
Advertising 2,991,177 7.7 % 1,221,993 5.4 % 714,276 5.5 %
Bank and credit card fees 1,274,117 3.3 % 511,685 2.2 % 329,247 2.5 %
Depreciation and amortization 276,914 0.7 % 98,481 0.4 % 9,675 0.1 %
General and administrative 2,160,560 5.6 % 1,134,036 5.0 % 451,214 3.5 %
Total operating expenses 11,216,370 29.1 % 4,841,738 21.3 % 2,418,331 18.7 %
Loss from operations (4,879,963 ) (12.6 )% (979,704 ) (4.3 )% (476,272 ) (3.7 )%
Other income (expense)
Interest income 2,480 0.0 % - 23,807 0.2 %
Financing costs (757,646 ) (2.0 )% (324,352 ) (1.4 )% - -
Interest expense (604,908 ) (1.6 )% (387,794 ) (1.7 )% - -
Loss on extinguishment of debt (1,756,095 ) (4.5 )% - - - -
Write-off of acquisition receivable (809,000 ) (2.1 )% - - - -
Change in fair value of warrant liability (2,127,656 ) (5.5 )% 57,100 0.3 % - -
Other income (expense) 6,920 0.0 % 9,830 0.0 % 7,200 0.1 %
Total other income (expense) (6,045,905 ) (15.7 )% (645,216 ) (2.8 )% 31,007 0.2 %
Net loss before income taxes (10,925,868 ) (28.3 )% (1,624,920 ) (7.1 )% (445,265 ) (3.4 )%
Income tax benefit 1,962,129 5.1 % - - - -
Net loss $ (8,963,739 ) (23.2 )% $ (1,624,920 ) (7.1 )% $ (445,265 ) (3.4 )%
We believe that reviewing our operating results for the nine months ended September 30, 2019 by combining the results of the 2019 successor period (April 6, 2019 through September 30, 2019) and 2019 predecessor period (January 1, 2019 through April 5, 2019) with the pro forma adjustments related to the acquisition is more useful in discussing our overall operating performance compared to the results of the nine months ended September 30, 2020 (successor). We do not see any potential risks associated with utilizing this pro forma presentation.

~~Following are the combined periods for 2020 and 2019:~~
Nine Months Ended
September 30,
2020
Successor Period
April 6 to
September 30,
2019
Successor Period January 1 to April 5, 2019
Predecessor Pro Forma
Adjustments Pro Forma
Combined
Nine Months
Ended
September 30,
2019 Increase
(Decrease)
Product sales, net $ 38,397,304 $ 22,748,151 $ 12,946,901 - $ 35,695,052 $ 2,853,126
Cost of goods sold 32,060,897 18,886,117 11,004,842 - 29,890,959 2,320,926
Gross profit 6,336,407 3,862,034 1,942,059 - 5,804,093 532,200
Operating expenses
Personnel 4,513,602 1,875,543 913,919 - 2,789,462 1,748,526
Advertising 2,991,177 1,221,993 714,276 - 1,936,269 1,054,907
Bank and credit card fees 1,274,117 511,685 329,247 - 840,932 442,700
Depreciation and amortization 276,914 98,481 9,675 (a) 157,273 265,429 87,874
General and administrative 2,160,560 1,134,3036 451,214 - 1,585,250 541,549
Total operating expenses 11,216,370 4,841,738 2,418,331 157,273 7,417,342 3,875,556
Loss from operations (4,879,963 ) (979,704 ) (476,272 ) (157,273 ) (1,613,249 ) (3,343,356 )
Other income (expense)
Interest income 2,480 23,807 - 23,807 (21,327 )
Financing costs (757,646 ) (324,352 ) - (b) (239,018 ) (563,370 ) (433,295 )
Interest expense (604,908 ) (387,794 ) - (c) (38,509 ) (426,303 ) (178,607 )
Loss on extinguishment of debt (1,756,095 ) - - - - (1,756,095 )
Write-off of acquisition receivable (809,000 ) - - - - (809,000 )
Change in fair value of warrant (2,127,656 ) 57,100 - - 57,100 (2,184,756 )
Other income 6,920 9,830 7,200 - 17,030 (19,784 )
Total other income (expense) (6,045,905 ) (645,216 ) 31,007 (277,527 ) (891,736 ) (5,402,864 )
Net loss before income taxes (10,925,868 ) (1,624,920 ) (445,265 ) (434,800 ) (2,504,985 ) (8,746,220 )
Income tax benefit 1,962,129 - - - - 1962,129
Net loss $ (8,963,739 ) $ (1,624,290 ) $ (445,265 ) $ (434,800 ) $ (2,504,985 ) $ (6,784,091 )
~~Notes~~
(a) Amortization of intangible assets acquired in acquisition $ 157,273

(b) Reflects amortization of costs associated with acquisition debt as follows:
Amortization of the cost of shares issued in acquisition $ 68,750
Amortization of the cost of warrants issued in acquisition 170,268
Total $ 239,018

(c) Amortization of discount on note to seller $ 38,509
33
~~Product sales, net~~. Our product sales were $38,397,304 for the nine months ended September 30, 2020, as compared to $35,695,052 for the nine months ended September 30, 2019, an increase of $2,702,252, or 7.6%, which included $22,748,151 for our successor from April 6, 2019 to September 30, 2019 and $12,946,901 for our predecessor from January 1, 2019 to April 5, 2019. The increase is due to increased sales volume to meet appliance and furniture demand resulting from increased advertising, which has a direct impact on customer orders and shipped sales. In the first three months, sales were affected by working capital issues, which delayed the timing of ordering product to fulfill customer orders resulting in increased order cancellations. Late in the second quarter and into the third quarter of 2020, we experienced delays in getting products from manufacturers whose production facilities were closed or operating at reduced capacity because of the coronavirus pandemic, which resulted in some cancellations of customer orders. We estimate that cancellations caused by shipping delays approximated $26.4 million in the nine months ended September 30, 2020, based on the historical ratio of shipped sales to customer orders of approximately 79% to the actual ratio of approximately 47% in the nine months ended September 30, 2020.
~~Our revenue by sales type is as follows:~~
Nine Months Ended September 30,
2020
Successor 2019
Successor 2019
Predecessor 2019
Total
Appliance sales $ 28,326,963 $ 18,535,800 $ 9,784,525 $ 28,320,325
Furniture sales 7,604,867 2,969,389 2,456,085 5,425,474
Other sales 2,465,474 1,242,962 706,291 1,949,253
Total $ 38,603,267 $ 22,748,151 $ 12,946,901 $ 35,695,052
~~Cost of goods sold~~. Our cost of goods sold was $32,060,897 for the nine months ended September 30, 2020, as compared to $29,890,959 for the nine months ended September 30, 2019, an increase of $2,169,938, or 7.3%, which included $18,886,117 for our successor from April 6, 2019 to September 30, 2019 and $11,004,842 for our predecessor from January 1, 2019 to April 5, 2019. As a percentage of net sales, cost of sales declined from 83.7% in the 2019 period to 83.5% in the 2020 period. Prior to the acquisition in April 2019, we made adjustments to cost of sales in March 2019 that related to 2018. Had the adjustments been made in 2018, cost of sales would have been 82.8% in the 2019 period. The remaining difference is attributable to product mix and other normal variables.
~~Personnel expenses~~. Our personnel expenses were $4,513,602 for the nine months ended September 30, 2020, as compared to $2,789,462 for the nine months ended September 30, 2019, an increase of $1,724,140, or 61.8%, which included $1,875,543 for our successor from April 6, 2019 to September 30, 2019 and $913,919 for our predecessor from January 1, 2019 to April 5, 2019. The increase is the result of hiring additional senior management and other staff needed for increased customer demand for our products, the accrual of $359,216 as the present value of a severance contract payable to our former president, and $281,194 in stock compensation expense. During the second and third quarters, there was a dramatic increase in cancellations of customer orders, which were primarily related to the lack of product availability. We hired a number of temporary employees to process cancellations and address the related customer service issues. We are reducing the number of temporary employees but expect we will have a number of them through the fourth quarter.
34
~~Advertising expenses~~. Our advertising expenses were $2,991,177 for the nine months ended September 30, 2020, as compared to $1,936,269 for the nine months ended September 30, 2019, an increase of $1,054,908, or 54.5%, which included $1,221,993 for our successor from April 6, 2019 to September 30, 2019 and $714,276 for our predecessor from January 1, 2019 to April 5, 2019. The increase relates to an increase in advertising spending to drive traffic to our website.
~~Bank and credit card fees~~. Our bank and credit card fees were $1,274,177 for the nine months ended September 30, 2020, as compared to $840,932 for the nine months ended September 30, 2019, an increase of $433,185, or 54.5%, which included $511,685 for our successor from April 6, 2019 to September 30, 2019 and $329,247 for our predecessor from January 1, 2019 to April 5, 2019. These fees are based on customer orders that are paid with a credit card (substantially all orders) so the increase was due to the increase in customer orders.
~~General and administrative expenses~~. Our general and administrative expenses were $2,160,560 for the nine months ended September 30, 2020, as compared to $1,585,250 for the nine months ended September 30, 2019, an increase of $575,310, or 36.3%, which included $1,134,036 for our successor from April 6, 2019 to September 30, 2019 and $451,214 for our predecessor from January 1, 2019 to April 5, 2019. The primary increases are professional fees for audits, consulting fees to upgrade our online shopping cart, fees to the Manager under the offsetting management services agreement described below, fees for our Electronic Data Interchange initiative, and other consulting fees.
~~Total other income (expense)~~. We had $6,045,905 in total other expense, net, for the nine months ended September 30, 2020, as compared to total other expense, net, of $614,209 for the nine months ended September 30, 2019, which included expenses of $645,216 for our successor from April 6, 2019 to September 30, 2019 and income of $31,007 for our predecessor from January 1, 2019 to April 5, 2019. Total other expense, net, for the nine months ended September 30, 2020 consisted of financing costs of $757,646, interest expense of $604,908, loss on debt modification and extinguishment of $1,756,095, loss on acquisition working capital receivable of $809,000, and change in the warrant liability of $2,127,656, offset by interest income of $2,480 and other income of $6,920, while other expense for the nine months ended September 30, 2019 consisted of financing costs of $324,352 and interest expense, net, of $387,794, offset by a change in warrant liability of $57,100 and other income of $40,837.
~~Net loss~~. As a result of the cumulative effect of the factors described above, we had a net loss of $8,963,739, which is net of a $1,962,129 income tax benefit for the nine months ended September 30, 2020, as compared to $2,070,185 for the nine months ended September 30, 2019, an increase of $6,893,554 or 333.0%, which included $1,624,920 for our successor from April 6, 2019 to September 30, 2019 and $445,265 for our predecessor from January 1, 2019 to April 5, 2019. The net loss for the nine months ended September 30, 2020 was affected by (i) a loss on early extinguishment of debt of $1,756,095, (ii) a write-off of acquisition receivable of $809,000 and (iii) a non-cash charge to change in warrant liability expense of $2,127,656. These three non-cash charges equal $4,692,751 in the aggregate. Excluding these three non-cash charges, the non-GAAP net loss before income taxes for the nine months ended September 30, 2020 was $6,233,117, as compared to the reported net loss before income taxes of $10,925,868.
~~Non-GAAP to GAAP Reconciliation~~
This report contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). The non-GAAP financial measures are net loss before taxes excluding the following non-cash charges (i) a loss on extinguishment of debt of $1,756,095, (ii) a write-off of acquisition receivable of $809,000 and (iii) a non-cash charge to change in warrant liability expense of $2,127,656.
The non-GAAP financial information should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Management, however, believes that these non-GAAP financial measures, when used in conjunction with the results presented in accordance with GAAP, may provide a more complete understanding of our results and may facilitate a fuller analysis of our results, particularly in evaluating performance from one period to another. Management has chosen to provide this supplemental information to investors, analysts, and other interested parties to enable them to perform additional analyses of results and to illustrate the results giving effect to the non-GAAP adjustments shown in the reconciliation described in the next paragraph. Furthermore, the economic substance behind our decision to use such non-GAAP measures is that such measures approximate our controllable operating performance more closely than the most directly comparable GAAP financial measures. Management strongly encourages investors to review our financial statements and publicly filed reports in their entirety and cautions investors that the non-GAAP measures used by us may differ from similar measures used by other companies, even when similar terms are used to identify such measures.

~~The following tables provide a reconciliation of the non-GAAP measures disclosed above to the comparable GAAP measure.~~
Nine Months Ended September 30, 2020
GAAP Elimination of Non-Cash Charges Non-GAAP
Loss from operations $ (4,879,963 ) $ - $ (4,879,963 )
Other income (expense)
Interest income 2,480 - 2,480
Financing costs (757,646 ) - (757,646 )
Interest expense (604,908 ) - (604,908 )
Loss on extinguishment of debt (1,756,095 ) (1,756,095 ) -
Write-off of acquisition receivable (809,000 ) (809,000 ) -
Change in fair value of warrant liability (2,127,656 ) (2,127,656 ) -
Other income (expense) 6,920 - 6,920
Total other income (expense) (6,045,905 ) (4,692,751 ) (1,353,154 )
Net loss before income taxes $ (10,925,868 ) $ (6,233,117 )
Liquidity and Capital Resources

As of ~~September 30, 2020,~~March 31, 2021, we had cash and cash equivalents of ~~$3,466,981~~$1,309,374 and restricted cash of ~~$8,912,367. To date, we~~$10,094,932. We have ~~financed our operations primarily through revenue generated from operations,~~relied on cash on hand, external bank ~~borrowings and~~lines of credit, proceeds from our initial public ~~offering.~~offering described below, issuance of third party and related party debt and the issuance of notes to support cashflow from operations. For the three months ended March 31, 2021, we incurred operating losses of approximately $3,280,686, cash flows used in operations of $2,807,673 and negative working capital of $19,801,748.

~~We believe~~On March 19, 2021, we received net proceeds of $4,590,000 from the sale of notes due December 19, 2021 and warrants described below. These proceeds will supplement our cash flow from operations and provide additional liquidity.
Management has prepared estimates of operations for fiscal years 2021 and 2022 and believes that ~~our current levels of cash~~sufficient funds will be ~~sufficient~~generated from operations to ~~meet our anticipated cash needs for~~fund our operations and to service our debt obligations for ~~at least~~one year from the ~~next 12 months.~~date of the filing of this report. 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.~~prospects
The impact of COVID-19 on our business has been considered 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 accompanying 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.

Summary of Cash Flow

The following table provides detailed information about our net cash flow for all financial statement periods presented in this report.

Nine Months Ended September 30, Nine Months Ended September 30, 2019 Three Months Ended
March 31,
2020
Successor 2019 Successor 2019 Predecessor 2019 Total 2021
2020
(As Restated)

Net cash provided by (used in) operating activities $ 7,383,978 $ (1,294,681 ) $ 611,268 $ (683,413 ) $ (2,807,673 ) $ 958,356
Net cash used in investing activities (51,059 ) (1,244,006 ) - (1,244,006 ) (126,115 ) -
Net cash provided by financing activities 4,981,959 2,723,625 - 2,723,625
Net change in cash $ 12,314,878 $ 184,938 $ 611,268 $ 796,206
Net cash provided by (used in) financing activities 4,426,178 (775,158 )
Net change in cash and restricted cash 1,492,390 183,198
Cash and restricted cash, beginning of period 9,911,916 64,470
Cash and restricted cash, end of period $ 11,404,306 $ 247,668

Our ~~net cash provided by operating activities was $7,383,978 for the nine months ended September 30, 2020, as compared to~~ net cash used in operating activities ~~of $683,413~~was $2,807,673 for the ~~nine~~three months ended ~~September 30, 2019, which included net cash used in operating activities of $1,294,681 for our successor from April 6, 2019~~March 31, 2021, as compared to ~~September 30, 2019 and~~ net cash provided by operating activities of ~~$611,268~~$958,356 for the three months ended March 31, 2020. For the three months ended March 31, 2021, our ~~predecessor from January 1, 2019 to April 5, 2019. The~~net loss of $3,493,215, a decrease in merchandise inventory of $736,243 and a decrease in accounts payable and accrued expensed of $344,893, offset by an increase in receivables of $1,049,878 and an increase in customer deposits of $390,196, were the primary drivers of the net cash used in operating activities. For the three months ended March 31, 2020, our net loss of $2,207,020 and deferred tax assets of $435,000, offset by increases in customer deposits of $1,270,488 and accounts payable and accrued expenses of $1,442,264, were the primary drivers of the net cash provided by operating ~~activities is primarily our net loss and an increase in customer deposits.~~activities.

Our net cash used in investing activities was ~~$51,059 and $1,2444,006~~$126,115 for the ~~nine~~three months ended ~~September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020,~~March 31, 2021, all of which consisted of expenditures to upgrade our ~~net cash used in investing activities consisted entirely of purchases of property and equipment, while our net cash used in~~new warehouse. We had no investing activities for the ~~nine~~three months ended ~~September 30, 2019 consisted of purchases of property and equipment of $11,874 and $1,232,132 related to our acquisition of Goedeker.~~March 31, 2020.

Our net cash provided by financing activities was ~~$4,981,959 and $2,939,125~~$4,426,178 for the ~~nine~~three months ended ~~September 30, 2020 and 2019, respectively, all~~March 31, 2021, as compared to net cash used in financing activities of ~~which was during~~$775,158 for the ~~period from April 6, 2019 to September 30, 2019.~~three months ended March 31, 2020. Net cash provided by financing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 consisted of proceeds from the private placement described below of 4,590,000, offset by repayment on notes payable of $163,822. Net cash used in financing activities for the three months ended March 31, 2020 consisted of net ~~proceeds of $8,602,166 from our initial public offering and $642,600 in proceeds from our PPP loan, offset by~~ payments ~~of $6,318,098~~ on our notes payable and lines of credit and payment of $105,279 in loan financing costs. Net cash provided financing activities for the nine months ended September 30, 2019 consisted of net borrowings from lines of credit of ~~$1,339,430, proceeds from notes payable of $4,037,321,~~$681,408 and ~~proceeds from convertible notes payable of $650,000, offset by repayments~~repayment on notes payable of ~~$5,546,667 and cash paid for financing costs of $359,500.~~$93,750.
Private Placement
~~Initial Public Offering~~

On ~~August 4, 2020,~~March 19, 2021, we ~~sold 1,111,200~~entered into a securities purchase agreement with two institutional investors, pursuant to which we issued to each investor (i) a 10% OID senior secured promissory note in the principal amount of $2,750,000 and (ii) a four-year warrant to purchase 200,000 shares of our common stock ~~in connection with our initial public offering (the “IPO”)~~at an exercise price of $12.00, subject to ~~the underwriters at~~adjustments, which may be exercised on a cashless basis, for a purchase price ~~per share~~ of ~~$8.325 (the offering price to~~$2,500,000 each, or $5,000,000 in the ~~public of $9.00 per share minus the underwriters’ discount) for total gross proceeds of $10,000,800.~~aggregate. After deducting ~~the underwriting commission~~a placement fee and other expenses, we received net proceeds of ~~approximately $8,602,166. We also issued warrants for~~$4,590,000. As of March 31, 2021, the ~~purchase of 55,560 shares of common stock to affiliates~~outstanding balance of the ~~representative~~notes is $3,347,763, comprised of ~~the underwriters.~~ principal of $5,500,000, net of unamortized loan costs of $2,152,237. Loan costs consist of unamortized original issue discount of $870,291 and unamortized warrant value of $1,281,946.
The ~~warrants are exercisable~~notes bear interest at ~~any time~~a rate of 10% per annum and ~~from time to time,~~mature on December 19, 2021. The notes may be prepaid by us in whole or in part ~~beginning~~at any time or from time to time without penalty or premium upon at least five (5) days prior written notice, which notice period may be waived by the holder. In addition, if we issue and sell shares of our equity securities to investors on ~~January 26, 2021~~ ~~until July 30, 2025,~~ or before the maturity date in an equity financing with total gross proceeds of not less than $10,000,000 (excluding the conversion of the notes or other convertible securities issued for capital raising purposes), then we must repay the then-outstanding principal amount of the notes and any accrued but unpaid interest.

The notes are secured by a first priority security interest in all of our assets and contain customary events of default. Upon, and during the continuance of, an event of default, the notes are convertible, in whole or in part, at the option of the holder into shares of common stock at a ~~per share exercise~~conversion price equal to ~~$11.25 (125%~~$12.00, or if lower, 80% of the ~~public offering~~lowest volume weighted average price for the twenty (20) consecutive trading days prior to the applicable conversion date, but in no event less than $9.00. The conversion price will be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the common stock. In addition, if we sell or grant any common stock or securities convertible into or exchangeable for common stock or grants any right to reprice such securities at an effective price per ~~share).~~share that is lower than the then conversion price, the conversion price shall be reduced to such price, subject to certain exceptions set forth in the notes.
Term Loan ~~- Arvest Bank~~

On August 25, 2020, ~~the Company~~we entered into a promissory note and security agreement with Arvest Bank for a loan in the principal amount of $3,500,000. As of ~~September 30, 2020,~~March 31, 2021, the outstanding balance of this loan is ~~$3,342,602,~~$3,026,812, comprised of principal of ~~$3,446,126,~~$3,119,806, net of unamortized loan costs of ~~$103,524.~~$92,994.

The loan matures on August 25, 2025 and bears interest at 3.250% per annum; provided that, upon an event of default, the interest rate shall increase by 6% until paid in full. Pursuant to the terms of the loan agreement, ~~the Company is~~we are required to make monthly payments of ~~$63,352.85~~$63,353 beginning on September 25, 2020 and until the maturity date, at which time all unpaid principal and interest will be due. ~~The Company~~We may prepay the loan in full or in part at any time without penalty. The loan agreement contains customary events of default and affirmative and negative covenants for a loan of this type. The loan is secured by all financial assets credited to ~~the Company’s~~our securities account held by Arvest Investments, Inc.
~~Paycheck Protection Program Loan~~
On April 8, 2020, the Company received a $642,600 Paycheck Protection Program (the “PPP”) loan from the United States Small Business Administration under provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP loan has an 18-month term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. The PPP loan contains events of default and other provisions customary for a loan of this type. The PPP provides that the loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The balance of the PPP loan was $642,600 as of September 30, 2020 and was classified as a current liability in the accompanying balance sheet. On November 2, 2020, the Company repaid the PPP loan.
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~~Revolving Loan - Burnley Capital LLC~~
On April 5, 2019, the Company, as borrower, and the Company’s parent company at such time, 1847 Goedeker Holdco Inc. (“Holdco”), entered into a loan and security agreement with Burnley Capital LLC (“Burnley”) for revolving loans in an aggregate principal amount that will not exceed the lesser of (i) the borrowing base (as defined in the loan and security agreement) or (ii) $1,500,000 minus reserves established Burnley at any time in accordance with the loan and security agreement. In connection with the closing of the acquisition of Goedeker on April 5, 2019, the Company borrowed $744,000 under the loan and security agreement and issued a revolving note to Burnley in the principal amount of up to $1,500,000. As of December 31, 2019, the balance of the line of credit was $571,997.
On August 4, 2020, the Company used a portion of the proceeds from the IPO to repay the revolving note in full and the loan and security agreement was terminated. The total payoff amount was $118,194, consisting of principal of $32,350, interest of $42 and prepayment, legal, and other fees of $85,802.
~~Revolving Loan - Northpoint Commercial Finance LLC~~
On June 24, 2019, the Company, as borrower, entered into a loan and security agreement with Northpoint Commercial Finance LLC, which was amended on August 2, 2019, for revolving loans up to an aggregate maximum loan amount of $1,000,000 for the acquisition, financing or refinancing by the Company of inventory at an interest rate of LIBOR plus 7.99%. As of December 31, 2019, the balance of the line of credit was $678,993. The Company terminated the loan and security agreement on May 18, 2020 and there is no outstanding balance as of September 30, 2020.
~~Term Loan - Small Business Community Capital II, L.P.~~
On April 5, 2019, the Company, as borrower, and Holdco entered into a loan and security agreement with Small Business Community Capital II, L.P. (“SBCC”) for a term loan in the principal amount of $1,500,000, pursuant to which the Company issued to SBCC a term note in the principal amount of up to $1,500,000 and a ten-year warrant to purchase shares of the most senior capital stock of the Company equal to 5.0% of the outstanding equity securities of the Company on a fully-diluted basis for an aggregate price equal to $100. As of December 31, 2019, the balance of the note was $999,201.
On August 4, 2020, the Company used a portion of the proceeds from the IPO to repay the term note in full and the loan and security agreement was terminated. The total payoff amount was $1,122,412 consisting of principal of $1,066,640, interest of $11,773 and prepayment, legal, and other fees of $43,999.
The Company classified the warrant as a derivative liability on the balance sheet at June 30, 2020 of $2,250,000 based on the estimated value of the warrant in the IPO. The increase in the value of the warrant from the estimated value of $122,344 at March 31, 2020 resulted in a charge of $2,127,656 during the nine months ended September 30, 2020. Immediately prior to the closing of the IPO on August 4, 2020, SBCC converted the warrant into 250,000 shares of common stock.
~~Secured Convertible Promissory Note - Leonite Capital LLC~~
On April 5, 2019, the Company’s parent company, 1847 Holdings LLC (“1847 Holdings”), Holdco and the Company (collectively, “1847”) entered into a securities purchase agreement with Leonite Capital LLC, a Delaware limited liability company (“Leonite”), pursuant to which 1847 issued to Leonite a secured convertible promissory note in the aggregate principal amount of $714,286. As additional consideration for the purchase of the note, (i) 1847 Holdings issued to Leonite 50,000 common shares, (ii) 1847 Holdings issued to Leonite a five-year warrant to purchase 200,000 common shares at an exercise price of $1.25 per share (subject to adjustment), which may be exercised on a cashless basis, and (iii) Holdco issued to Leonite shares of common stock equal to a 7.5% non-dilutable interest in Holdco. As of December 31, 2019, the balance of the note was ~~$584,943.~~Contractual Obligations

~~On May 11, 2020, 1847 and Leonite entered into a first amendment to secured convertible promissory note, pursuant to which the parties agreed (i) to extend the maturity date~~Our principal commitments consist mostly of ~~the note to October 5, 2020, (ii) that 1847’s failure to repay the note on the original maturity date of April 5, 2020 shall not constitute and event of default~~obligations under the ~~note~~loans described above and ~~(iii) to increase the principal amount of the note by $207,145, as a forbearance fee. The Company accounted for this transaction as a loss on extinguishment of debt.~~other contractual commitments described below.

In connection with the amendment, (i) 1847 Holdings issued to Leonite another five-year warrant to purchase 200,000 common shares at an exercise price of $1.25 per share (subject to adjustment), which may be exercised on a cashless basis and (ii) upon closing of 1847 Holdings’ acquisition of Asien’s Appliance, Inc., 1847 Holdings’ wholly owned subsidiary 1847 Asien Inc. issued to Leonite shares of common stock equal to a 5% interest in 1847 Asien Inc. The Company accounted for the issuance of the 200,000 additional warrants as a $566,711 loss on debt restructuring and an increase in additional paid-in-capital, representing the estimated fair value of the 200,000 additional warrants for a five-year period.
1847 Holdings issued 50,000 common shares valued at $137,500 and a debt-discount related to the warrants valued at $292,673. In the second quarter of 2020, the $137,500 value of the shares was transferred from a liability to 1847 Holdings to additional paid-in-capital. The Company amortized $129,343 of financing costs related to the shares and warrants in the nine months ended September 30, 2020.

Under the note, Leonite has the right at any time at its option to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of the note into fully paid and non-assessable common shares or any shares of capital stock or other securities of 1847 Holdings into which such common shares may be changed or reclassified.
On May 4, 2020, Leonite converted $100,000 of the outstanding balance of the note into 100,000 common shares of 1847 Holdings. The Company accounted for this transaction as a $100,000 reduction in the principal amount of the debt, a $175,000 loss on extinguishment of debt, and a $275,000 increase in additional paid-in-capital representing the fair value of the 1847 Holdings common shares on the conversion date.
On July 24, 2020, Leonite converted $50,000 of the outstanding balance of the note into 50,000 common shares of 1847 Holdings. The Company accounted for this transaction as a $50,000 reduction in the principal amount of the debt, a $50,000 loss on extinguishment of debt, and a $100,000 increase in additional paid-in-capital representing the fair value of the 1847 Holdings common shares on the conversion date.
~~On August 4, 2020, the Company used a portion of the proceeds from the IPO to repay the note in full. The total payoff amount was $780,653, consisting of principal of $771,431 and interest of $9,222.~~
On September 2, 2020, 1847 Holdings and Leonite entered into an amendment to the warrant issued on April 5, 2019, pursuant to which the warrant was amended to allow for the exercise of the warrant for 180,000 common shares of 1847 Holdings in exchange for Leonite’s surrender of the remaining 20,000 common shares underlying that warrant, as well as all 200,000 common shares underlying the second warrant issued to Leonite on May 11, 2020. On September 18, 2020, Leonite exercised the warrant in accordance with the foregoing for 180,000 common shares of 1847 Holdings. As a result, both warrants have terminated.
~~9% Subordinated Promissory Note - Goedeker~~
A portion of the purchase price for the acquisition of the assets of Goedeker was paid by the issuance by the Company to Steve Goedeker, as representative of Goedeker, of a 9% subordinated promissory note in the principal amount of $4,100,000. As of December 31, 2019, the balance of the note was $~~3,300,444.~~
On June 2, 2020, the parties entered into an amendment and restatement of the note that became effective as of the closing of the IPO on August 4, 2020, pursuant to which (i) the principal amount of the existing note was increased by $250,000, (ii) upon the closing of the IPO, the Company agreed to make all payments of principal and interest due under the note through the date of the closing, and (iii) from and after the closing, the interest rate of the note was increased from 9% to 12%. In accordance with the terms of the amended and restated note, the Company used a portion of the proceeds from the IPO to pay $1,083,842 of the balance of the note representing a $696,204 reduction in the principal balance and interest accrued through August 4, 2020 of $387,638.
~~On August 25, 2020, the Company used a portion of the proceeds from loan from Arvest Bank to repay this promissory note in full.~~
~~Contractual Obligations~~
~~Offsetting~~ Management Services Agreement

On April 5, 2019, we entered into ~~an offsetting~~a management services agreement with 1847 Partners LLC (the “Manager”), ~~which also serves as the manager for 1847 Holdings. This agreement was amended on April 21, 2020 with the amendment becoming effective at the closing of IPO on August 4, 2020. Pursuant~~pursuant to ~~the offsetting management services agreement, as amended,~~which we appointed the Manager to provide certain services to us for a quarterly management fee equal to $62,500. Under certain circumstances specified in the ~~offsetting~~ management services agreement, our quarterly fee may be reduced if similar fees payable to the Manager by ~~other~~ subsidiaries of our former parent company, 1847 Holdings LLC, exceed a threshold amount.

Pursuant to the ~~offsetting~~ management services agreement, we must also reimburse the Manager for all costs and expenses which are specifically approved by our board of directors, including all out-of-pocket costs and expenses, that are actually incurred by ~~the Manager~~us or ~~its~~our affiliates on our behalf in connection with performing services under the ~~offsetting~~ management services agreement.

The services provided by the Manager include: conducting general and administrative supervision and oversight of our day-to-day business and operations, including, but not limited to, recruiting and hiring of personnel, administration of personnel and personnel benefits, development of administrative policies and procedures, establishment and management of banking services, managing and arranging for the maintaining of liability insurance, arranging for equipment rental, maintenance of all necessary permits and licenses, acquisition of any additional licenses and permits that become necessary, participation in risk management policies and procedures; and overseeing and consulting with respect to our business and operational strategies, the implementation of such strategies and the evaluation of such strategies, including, but not limited to, strategies with respect to capital expenditure and expansion programs, acquisitions or dispositions and product or service lines.

We expensed ~~$187,500 and $121,290~~$62,500 in management fees for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019, respectively.~~2020.
Earn Out ~~Payments~~Payment

Pursuant to ~~the~~an asset purchase agreement, ~~with~~dated January 18, 2019, as amended, among the Company, Goedeker itTelevision Co. (“Goedeker”), Steve Goedeker and Mike Goedeker, Goedeker is ~~also~~ entitled to receive ~~the following~~an earn out ~~payments to~~payment of $200,000 if the ~~extent that our business achieves the applicable~~ EBITDA (as defined in the asset purchase agreement) ~~targets:~~
1. Anof the business acquired from Goedeker for the trailing twelve (12) month period from April 5, 2022 is $2,500,000 or greater, and may be entitled to receive a partial earn out payment ~~of $200,000~~ if the EBITDA ~~of our business for the trailing twelve (12) month period from the closing date is $2,500,000 or greater;~~
2. ~~An earn out payment of $200,000 if the EBITDA of our business for the trailing twelve (12) month period from the first anniversary of closing date is $2,500,000 or greater; and~~
3. ~~An earn out payment of $200,000 if the EBITDA of our business for the trailing twelve (12) month period from the second anniversary of the closing date is $2,500,000 or greater.~~
~~To the extent the EBITDA of our business for any applicable period~~ is less than $2,500,000 but greater than ~~$1,500,000,~~$1,500,000.

Leases
On April 5, 2019, we ~~must~~entered into a lease agreement with S.H.J., L.L.C., a Missouri limited liability company and affiliate of Goedeker, for our corporate headquarters, including approximately 50,000 square feet of office, showroom and warehouse space, located in Ballwin, Missouri. The lease is for a term of five (5) years and provides for a base rent of $45,000 per month. In addition, we are responsible for all taxes and insurance premiums during the lease term. The lease agreement contains customary events of default.
On January 13, 2021, we entered into a lease agreement with Westgate 200, LLC, which was amended on March 30, 2021, for a new location totaling approximately 86,800 square feet of office, showroom and warehouse space in St. Charles, Missouri. The initial term of the lease expires on April 30, 2027 with two (2) options to renew for additional five (5) year periods. The base rent is initially $20,977 per month and increases to $31,465 on October 1, 2021, with annual increases thereafter to a base rent during the sixth year of $35,558 per month. We will also pay ~~a partial earn out payment~~our 43.4% pro rata portion of the property taxes, operating expenses and insurance costs and are also responsible to Goedeker in an amount equal to the product determined by multiplying (i) the EBITDA Achievement Percentage by (ii) the applicable earn out payment for such period, where the “Achievement Percentage” is the percentage determined by dividing (A) the amount of (i) the EBITDA of our businesspay for the ~~applicable period less (ii) $1,500,000, by (B) $1,000,000. For avoidance~~utilities used on the premises. The lease agreement contains customary events of doubt, no partial earn out payments shall be earned or paid to the extent the EBITDA of our business for any applicable period is equal or less than $1,500,000. For the trailing twelve (12) month period from the closing date, EBITDA was $(2,825,000) so Goedeker is not entitled to an earn our payment for that period.default.

To the extent Goedeker is entitled to all or a portion of an earn out payment, the applicable earn out payment(s) (or portion thereof) shall be paid on the date that is three (3) years from the closing date, and shall accrue interest from the date on which it is determined Goedeker is entitled to such earn out payment (or portion thereof) at a rate equal to five percent (5%) per annum, computed on the basis of a 360 day year for the actual number of days elapsed.
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 company.~~the 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:

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Revenue Recognition and Cost of Revenue

~~On January 1, 2018, the~~The Company ~~adopted~~records revenue in accordance with Financial Accounting Standards ~~Update~~Board (“~~ASU”~~FASB”) ~~No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~~~, which supersedes the revenue recognition requirements in~~ Accounting ~~Standard~~Standards Codification (“ASC”) Topic ~~605,~~ 606. Revenue ~~Recognition~~~~. This ASU is based on the principle that revenue~~ is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ~~This ASU~~ASC 606 also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer purchase orders, including significant judgments. ~~The Company’s adoption of this ASU resulted in no change to the Company’s results of operations or balance sheet.~~

The Company collects the full sales price from the customer at the time the order is placed, which is recorded as customer deposits on the accompanying ~~condensed~~consolidated balance sheet. The Company does not incur incremental costs obtaining purchase orders from customers, however, if the Company did, because all the Company’s contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized.

The revenue that the Company recognizes arises from orders it receives from its customers. The Company’s performance obligations under the customer orders correspond to each sale of merchandise that it makes to customers under the purchase orders; as a result, each purchase order generally contains only one performance obligation based on the merchandise sale to be completed.

Control of the delivery transfers to customers when the customer can direct the use of, and obtain substantially all the benefits from, the Company’s products, which generally occurs when the customer assumes the risk of loss. The risk of loss shifts to the customer at different times depending on the method of delivery. The Company delivers products to its customers in three possible ways. The first way is through a shipment of the products through a third-party carrier from the Company’s warehouse to the customer (a “Company Shipment”). The second way is through a shipment of the products through a third-party carrier from a warehouse other than the Company’s warehouse to the customer (a “Drop Shipment”) and the third way is where the Company itself delivers the products to the customer and often also installs the product (a “Local Delivery”). In the case of a Local Delivery, the Company loads the product on to its own truck and delivers and installs the product at the customer’s location. When a product is delivered through a Local Delivery, risk of loss passes to the customer at the time of installation and revenue is recognized upon installation at the customer’s location. In the case of a Company Shipment and a Drop Shipment, the delivery to the customer is made free on board, or FOB, shipping point (whether from the Company’s warehouse or a third party’s warehouse). Therefore, risk of loss and title transfers to the customer once the products are shipped (i.e., leaves the Company’s warehouse or a third-party’s warehouse). After shipment and prior to delivery, the customer is able to redirect the product to a different destination, which demonstrates the customer’s control over the product once shipped. Once the risk of loss has shifted to the customer, the Company has satisfied its performance obligation and the Company recognizes revenue.

The Company agrees with customers on the selling price of each transaction. This transaction price is generally based on the agreed upon sales price. In the Company’s contracts with customers, it allocates the entire transaction price to the sales price, which is the basis for the determination of the relative standalone selling price allocated to each performance obligation. Any sales tax, value added tax, and other tax the Company collects concurrently with revenue-producing activities are excluded from revenue.

~~If the Company continued to apply legacy revenue recognition guidance for the nine months ended September 30, 2020 and 2019, revenues, gross margin, and net loss would not have changed.~~
Cost of revenue includes the cost of purchased merchandise plus the cost of shipping merchandise and where applicable installation, net of promotional rebates and other incentives received from vendors.

Substantially all the Company’s sales are to individual retail consumers.

Shipping and Handling ‒ The Company bills its customers for shipping and handling charges, which are included in net sales for the applicable period, and the corresponding shipping and handling expense is reported in cost of sales.

Disaggregated Revenue ‒ The Company disaggregates revenue from contracts with customers by ~~contract~~product type, as it believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

The Company also sells extended warranty contracts. The Company is an agent for the warranty company and earns a commission on the warranty contracts purchased by customers; therefore, the cost of the warranty contracts is netted against warranty revenue in the accompanying consolidated statement of operations. The Company assumes no liability for repairs to products on which it has sold a warranty contract.
41

The Company experiences operational trends which are primarily holidays such as Presidents Day, Memorial Day, July 4th, Labor Day, Thanksgiving Day, and Christmas and Black Friday and Cyber Monday.
Receivables

Receivables ~~consist of credit card transactions in the process of settlement. Vendor~~represent rebates receivable ~~represent amounts~~ due from manufacturers from whom the Company purchases ~~products.~~products and amounts due from credit card processors that do not settle within two days. Rebates receivable are stated at the amount that management expects to collect from manufacturers, net of accounts payable amounts due the vendor. Rebates are calculated on product and model sales programs from specific vendors. The rebates are paid at intermittent periods either in cash or through issuance of vendor credit memos, which can be applied against vendor accounts payable. Based on the Company’s assessment of the credit history with its manufacturers, it has concluded that there should be no allowance for uncollectible accounts. The Company historically collects substantially all of its outstanding rebates receivables. Uncollectible balances are expensed in the period it is determined to be uncollectible.
Merchandise Inventory

Inventory consists of finished products acquired for resale and is valued at the ~~low-of-cost-or-market~~lower-of-cost-or-market with cost determined on an average item basis. The Company periodically evaluates the value of items in inventory and provides write-downs to inventory based on its estimate of market conditions.

~~Property and Equipment~~
Property and equipment is stated at the historical cost. Maintenance and repairs of property and equipment are charged to operations as incurred. Leasehold improvements are amortized over the lesser of the base term of the lease or estimated life of the leasehold improvements. Depreciation is computed using the straight-line method over estimated useful lives as follows:
~~Category~~ ~~Useful Life (Years)~~
~~Machinery and equipment~~ 5
~~Office equipment~~ 5
~~Vehicles~~ 5
Goodwill

The Company tests its goodwill for impairment at least annually on December 31 and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial results.

The Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were no impairment charges during ~~the~~ three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.
Intangible Assets

~~At September 30, 2020~~As of March 31, 2021 and December 31, ~~2019,~~2020, definite-lived intangible assets primarily consisted of tradenames and customer relationships which are being amortized over their estimated useful lives, ~~ranging from~~or 5 ~~to 15~~ years.

The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.

In applying the acquisition method of accounting, amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition, with the remainder recorded as goodwill. Identifiable intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Identifiable intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. Intangible assets with indefinite lives are tested for impairment within one year of acquisitions or annually as of December 1, and whenever indicators of impairment exist. The fair values of intangible assets are compared against their carrying values, and an impairment loss would be recognized for the amount by which a carrying amount exceeds its fair value. At March 31, 2021 and December 31, 2020, there were no impairments in intangible or the right of use (“ROU”) assets.

42
Long-Lived Assets

The Company reviews its property and equipment and any identifiable intangibles (including ROU asset) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management ~~at least annually.~~upon triggering events. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. At March 31, 2021 and December 31, 2020, there were no impairments in long-lived assets.
Lease Liabilities
~~Derivative Instrument Liability~~
Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term at the lease commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses an estimated incremental borrowing rate (“IBR”) based on the information available at the commencement date of the respective lease to determine the present value of future payments. The determination of the IBR requires judgment and is primarily based on publicly available information for companies within the same industry and with similar credit profiles. The Company adjusts the rate for the impact of collateralization, the lease term and other specific terms included in each lease arrangement. The IBR is determined at the lease commencement and is subsequently reassessed upon a modification to the lease arrangement.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The Company ~~accounts~~reviews the ROU asset for ~~derivative instruments~~impairment whenever events or changes in ~~accordance with ASC 815,~~ ~~Derivatives and Hedging~~, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts, and requires recognitioncircumstances indicate that the carrying amount of ~~all derivatives on~~ the ~~balance sheet at fair value, regardless~~ROU asset may not be recoverable. When such events occur, the Company compares the carrying amount of ~~hedging relationship designation. Accounting for changes in~~the ROU asset to the undiscounted expected future cash flows related to the ROU asset. If the comparison indicates that an impairment exists, the amount of the impairment is calculated as the difference between the excess of the carrying amount over the fair value of the ~~derivative instruments depends on whether~~ROU asset. If a readily determinable market price does not exist, fair value is estimated using discounted expected cash flows attributable to the ~~derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged.~~ROU asset.

~~Recent Accounting Pronouncements~~
Sales Tax Liability
~~Recently Adopted~~

On June 21, 2018, the U.S. Supreme Court issued an opinion in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), whereby the longstanding Quill Corp v. North Dakota sales tax case was overruled, and states may now require remote sellers to collect sales tax under certain circumstances. In ~~February 2016,~~2020, the ~~Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~ ~~(“ASC 842”), which requires lessees to recognize right-of-use (“ROU”) assets and related lease liabilities on the balance sheet for~~Company began collecting sales tax in nearly all ~~leases greater than one year in duration.~~states that have sales tax. The Company ~~adopted ASC 842 on January 1, 2019 using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented~~accrued sales taxes in the financial statements. The modified retrospective approach did not require any transition accounting for leases that expired before the earliest comparative period presented. The adoption of this standard resulted in the recording of ROU assets and lease liabilities for all of the Company’s lease agreementsstates with original terms of greater than one year. The adoption of ASC 842 did not have a significant impact on the Company’s statements of income or cash flows. See Note 13 for the required disclosures relating to the Company’s lease agreements.
~~In June 2018, the FASB issued ASU 2018-07,~~ ~~Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,~~ ~~which simplifies the accounting for nonemployee share-based payment transactions by expanding the scope of ASC Topic 718,~~ ~~Compensation - Stock Compensation~~, to include share-based payment transactions for acquiring goods and services from nonemployees. Under the new standard, most of the guidance on stock compensation payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. This standard became effective for the Company on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s financial statements.
~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~, which allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from U.S. federal tax legislation commonly referred to as the Tax Cuts and Jobs Act, which was enacted in December 2017. ASU 2018-02 became effective for the Company on January 1, 2019 and resulted in a decrease of approximately $748,000 to retained earnings due to the reclassification from AOCI of the effect of the corporate income tax rate change on our cash flow hedges. The adoption of this standard did not have a material impact on the Company’s financial statements.
~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. ASU 2017-12 became effective for the Company on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s financial statements.

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted.sales tax. The Company ~~adopted ASU 2018-15 on January 1, 2020 on a prospective basis. The adoption of this standard did not have a material impact on~~accrued the ~~Company’s financial statements.~~
~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement~~, which removes, modifies and adds various disclosure requirements related to fair value disclosures. Disclosures related to transfers between fair value hierarchy levels will be removed and further detail around changes in unrealized gains and losses for the period and unobservable inputs used in determining level 3 fair value measurements will be added, among other changes. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company adopted ASU 2018-13 on January 1, 2020 on a prospective basis. The adoption of this standard did not have a material impact on the Company’s financial statements.
~~Not Yet Adopted~~
~~In June 2016, the FASB issued ASU 2016-13~~ ~~Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2019. This pronouncement was amended under ASU 2019-10 to allow an extension on the adoption date for entities that qualify as a small reporting company. The Company has elected this extension andpotential liability from the effective date ~~for~~of a state’s adoption of the Wayfair decision up to the date the Company ~~to adopt this standard will be for fiscal years beginning after~~began collecting and filing sales taxes in the various states. At March 31, 2021 and December ~~15, 2022. The~~31, 2020, the amount of such accrual was $5,915,910 and $5,804,100, respectively, which is included in accounts payable and accrued expenses. To date, only one state has notified the Company ~~has not completed its assessment~~ of ~~the standard but does not expect the adoption to have~~ a ~~material impact on the Company’s financial position, results~~potential sales tax liability of ~~operations, or cash flows.~~approximately $82,000, all of which was previously accrued.

~~The Company currently believes that all other issued and not yet effective accounting standards are not relevant to the Company’s financial statements.~~
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We have adopted and maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this quarterly report on Form 10-Q, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission (the “SEC”). Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, our management, including our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of disclosure controls and procedures (as defined in ~~Rule~~Exchange Act Rules 13a-15(e) ~~under~~and 15d-15(e)) as of the ~~Exchange Act). Disclosure~~end of the period covered by this quarterly report on Form 10-Q, have concluded that, due to deficiencies identified in our preliminary evaluation, our disclosure controls and procedures ~~refer to controls and other procedures designed~~are ineffective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, ~~of the Securities and Exchange Commission~~ and that such information is accumulated and communicated to our management, including our ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer,~~Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Subject to receipt of additional financing, we intend to retain additional individuals and resources to remedy the ineffective controls.

As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of September 30, 2020. Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer determined that our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
~~Previously Disclosed Material Weakness~~

~~As previously disclosed~~There were no changes in ~~our Quarterly Report on Form 10-Q for~~ the ~~period ended June 30, 2020, management identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in~~Company’s internal control over financial reporting ~~such~~or in any other factors that ~~there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.~~

~~The material weakness was due to a control deficiency that existed related to our design and maintenance of adequate~~could significantly affect these controls, over the preparation and review of certain account reconciliations and journal entries. Specifically, we did not design and maintain controls to ensure (i) the appropriate segregation of duties in the preparation and review of account reconciliations and journal entries and (ii) account reconciliations and journal entries were reviewed at the appropriate level of precision.
~~Remediation of Previously Disclosed Material Weakness~~
As previously disclosed, we hired a new controller to take charge of the accounting process and improve processes and procedures to address the identified material weaknesses issues. Based on the remediation performed by us, management has concluded that the material weakness described above and first disclosed in our Form 10-Q for the period ended June 30, 2020 has been remediated as of September 30, 2020.
We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
~~Except for the changes described above, there were no changes in our internal controls over financial reporting~~ during the ~~third quarter of 2020~~three months ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, ~~our~~the Company’s internal control over financial ~~reporting.~~reporting

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

ITEM 1A. RISK FACTORS.

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

We have not sold any equity securities during three months ended ~~September 30, 2020~~March 31, 2021 that were not previously disclosed in a current report on Form 8-K that was filed during the quarter.

We did not repurchase any of shares of our common stock during the three months ended ~~September 30, 2020.~~March 31, 2021.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

We have no information to disclose that was required to be in a report on Form 8-K during the three months ended ~~September 30, 2020~~March 31, 2021 but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

46

ITEM 6. EXHIBITS.

Exhibit No. Description ~~of Exhibit~~
3.1 Amended and Restated Certificate of Incorporation of 1847 Goedeker Inc. (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8 filed on August 3, 2020)
3.2 Bylaws of 1847 Goedeker Inc. (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 filed on April 22, 2020)
~~4.1~~4.2 Common Stock Purchase Warrant issued to Evergreen Capital Management LLC on March 19, 2021 (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on March 25, 2021)
4.3 Common Stock Purchase Warrant issued to SILAC Insurance Company on March 19, 2021 (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed on March 25, 2021)
4.4 Form of Representative’s Warrant ~~Agreement~~for Initial Public Offering (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on August 5, 2020)
10.1 ~~Amendment to Letter~~Lease Agreement, dated ~~July 16, 2020,~~January 13, 2021, by and between Westgate 200, LLC and 1847 Goedeker Inc. ~~and Small Business Community Capital II, L.P. (incorporated by reference to Exhibit 10.38 to the Amendment No. 4 to Registration Statement on Form S-1/A filed on July 16, 2020)~~
~~10.2~~ ~~Promissory Note and Security Agreement, dated August 25, 2020, by 1847 Goedeker Inc. in favor of Arvest Bank~~ (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on ~~August 31, 2020)~~January 20, 2021)
10.2 Securities Purchase Agreement, dated March 19, 2021, among 1847 Goedeker Inc., Evergreen Capital Management LLC and SILAC Insurance Company (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 25, 2021)
10.3 ~~Securities Entitlement Control~~Security Agreement, dated ~~August 25, 2020, among Arvest Bank,~~March 19, 2021, between 1847 Goedeker Inc. and ~~Arvest Investments, Inc.~~SILAC Insurance Company (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on ~~August 31, 2020)~~March 25, 2021)
10.4 10% OID Senior Secured Promissory Note issued to Evergreen Capital Management LLC on March 19, 2021 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on March 25, 2021)
10.5 10% OID Senior Secured Promissory Note issued to SILAC Insurance Company on March 19, 2021 (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on March 25, 2021)
31.1* Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certifications of Principal Financial and Accounting Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1* Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2* Certifications of Principal Financial and Accounting Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: ~~November 16, 2020~~May 12, 2021 1847 GOEDEKER INC.

/s/ Douglas T. Moore
Name: Douglas T. Moore
Title: Chief Executive Officer
(Principal Executive Officer)

/s/ Robert D. Barry
Name: Robert D. Barry
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)

38
48

Delaware		83-3713938
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

~~13850 Manchester Rd., Ballwin,~~3817 Millstone Parkway, St. Charles, MO		~~63011~~63301
(Address of principal executive offices)		(Zip Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		GOED		NYSE American LLC

		Page

Condensed Consolidated Balance Sheets as of ~~September 30, 2020~~March 31, 2021 (unaudited) and December 31, ~~2019~~2020		2
Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~for the Three Months Ended September 30, 2019, and the Period from April 6, 2019 to September 30, 2019 (Successor), and for the Period from January 1, 2019 to April 5, 2019 (Predecessor)~~(As Restated) (unaudited)		3
Condensed Consolidated Statement of Stockholders’ ~~Equity~~Deficit for ~~Predecessor for the Period from January 1, 2019 to April 5, 2019~~Three Months Ended March 31, 2021 and 2020 (As Restated) (unaudited)		4
~~Statement of Stockholders’ Equity (Defecit) for Successor for the Period from April 6, 2019 to September 30, 2019 and for Nine Months Ended September 30, 2020 (unaudited)~~		5
Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and the Period from April 6, 2019~~(As Restated) (unaudited)		5
Notes to ~~September 30, 2019 (Successor) and for the Period from January 1, 2019 to April 5, 2019 (Predecessor)~~Condensed Consolidated Financial Statements (unaudited)		6
~~Notes to Financial Statements~~		7

	September, 2020			December 31, 2019
	(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	3,466,981		$	64,470
Restricted cash		8,912,367			-
Receivables		1,219,455			1,862,086
Vendor deposits		547,648			294,960
Merchandise inventory, net		3,086,873			1,380,090
Prepaid expenses and other current assets		1,073,253			892,796
Total Current Assets		18,306,577			4,494,402
Property and equipment, net		202,402			185,606
Operating lease right-of-use assets		1,686,423			2,000,755
Goodwill		5,097,752			4,976,016
Intangible assets, net		1,636,195			1,878,844
Deferred tax assets		2,660,432			698,303
Other long-term assets		45,000			45,000
TOTAL ASSETS	$	29,634,781		$	14,278,926

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities
Accounts payable and accrued expenses	$	4,371,204		$	2,465,220
Customer deposits		17,089,826			4,164,296
Advances, related party		-			137,500
Lines of credit		-			1,250,930
Current portion of notes payable, related parties		-			1,068,075
Current portion of notes payable		1,300,579			999,200
Convertible notes payable		-			584,943
Warrant liability		-			122,344
Current portion of operating lease liabilities		443,469			422,520
Total Current Liabilities		23,205,078			11,215,028
Notes payable, related parties, net of current portion		-			2,232,369
Notes payable, net of current portion		2,684,623			-
Operating lease liabilities, net of current portion		1,242,954			1,578,235
Contingent note payable		49,248			49,248
TOTAL LIABILITIES		27,181,903			15,074,880
Stockholders’ Equity (Deficit)
Preferred stock, $.0001 par value, 20,000,000 shares authorized; none issued and outstanding at September 30, 2020 or December 31, 2019		-			-
Common stock, $.0001 par value, 200,000,000 shares authorized; 6,111,200 and 4,750,000 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		611			475
Additional paid-in capital		13,484,156			1,271,721
Accumulated deficit		(11,031,889	)		(2,068,150	)
Total Stockholders’ Equity (Deficit)		2,452,878			(795,954	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	29,634,781		$	14,278,926

PART I
FINANCIAL INFORMATION

Item 1.	Financial Statements		1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44	35
Item 4.	Controls and Procedures	44	35

~~PART II~~
PART II OTHER INFORMATION

Item 1.	Legal Proceedings	46	36
Item 1A.	Risk Factors	46	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46	36
Item 3.	Defaults Upon Senior Securities	46	36
Item 4.	Mine Safety Disclosures	46	36
Item 5.	Other Information	46	36
Item 6.	Exhibits	47	37

	Successor												Predecessor
	Three Months Ended September 30, 2020			Three Months Ended September 30, 2019			Nine Months Ended September 30, 2020			Period from April 6, 2019 through September 30, 2019			Period from January 1, 2019 through April 5, 2019
Product sales, net	$	13,435,095		$	12,202,271		$	38,397,304		$	22,748,151		$	12,946,901
Cost of goods sold		11,264,569			10,183,711			32,060,897			18,886,117			11,004,842
Gross profit		2,170,527			2,018,560			6,336,407			3,862,034			1,942,059

Operating Expenses
Personnel		2,161,929			989,318			4,513,602			1,875,543			913,919
Advertising		1,432,834			696,771			2,991,177			1,221,993			714,276
Bank and credit card fees		574,808			279,412			1,274,117			511,685			329,247
Depreciation and amortization		93,283			11,044			276,914			98,481			9,675
General and administrative		957,703			594,916			2,160,560			1,134036			451,214
Total Operating Expenses		5,220,557			2,571,461			11,216,370			4,841,738			2,418,331

LOSS FROM OPERATIONS		(3,050,031	)		(552,901	)		(4,879,963	)		(979,704	)		(476,272	)

Other Income (Expense)
Interest income		1,418			-			2,480			-			23,807
Financing costs		(488,460	)		(165,097	)		(757,646	)		(324,352	)		-
Interest expense		(157,312	)		(182,772	)		(604,908	)		(387,794	)		-
Loss on extinguishment of debt		(807,239	)		-			(1,756,095	)		-			-
Write-off of acquisition receivable		-			-			(809,000	)		-			-
Change in fair value of warrant liability		-			54,500			(2,127,656	)		57,100			-
Other income (expense)		1,657			(35,388	)		6,920			9,830			7,200
Total Other Income (Expense)		(1,449,936	)		(328,757	)		(6,045,905	)		(645,216	)		31,007

NET LOSS BEFORE INCOME TAXES		(4,499,967	)		(881,658	)		(10,925,868	)		(1,624,920	)		(445,265	)

INCOME TAX BENEFIT		838,176			-			1,962,129			-			-

NET LOSS	$	(3,661,791	)	$	(881,658	)	$	(8,963,739	)	$	(1,624,920	)	$	(445,265	)

LOSS PER COMMON SHARE – BASIC AND DILUTED	$	(0.65	)	$	(0.19	)	$	(1.77	)	$	(0.34	)	$	(63.61	)

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC AND DILUTED		5,667,330			4,750,000			5,059,137			4,750,000			7,000

					Additional					Total
	Common Stock				Paid-in		Retained			Stockholder’s
	Shares		Amount		Capital		Earnings			Equity
Balance, December 31, 2018	7,000	$	7,000	$	707,049	$	2,684,628		$	3,398,677
Net loss for the period from January 1, 2019 through April 5, 2019	-		-		-		(445,265	)		(445,265	)
Balance, April 5, 2019	7,000	$	7,000	$	707,049	$	2,239,263		$	2,953,412

					Additional					Total Stockholder’s
	Common Stock				Paid-in		Accumulated			Equity
	Shares		Amount		Capital		Deficit			(Deficit)
Balance, April 6, 2019	-	$	-	$	-	$	-		$	-
Capital contribution by Holdco for the acquisition of Goedeker Television Co.	4,750,000		475		979,048		-			979,523
Issuance of warrants in connection with notes payable	-		-		292,673		-			292,673
Net loss for the period from April 6, 2019 through June 30, 2019	-		-		-		(743,262	)		(743,262	)
Balance, June 30, 2019	4,750,000	$	475	$	1,271,721	$	(743,262	)	$	528,934
Net loss	-		-		-		(881,658	)		(881,658	)
Balance, September 30, 2019	4,750,000	$	475	$	1,271,721	$	(1,624,920	)	$	(352,724	)

	Three Months Ended March 31,
	2021			2020 (As Restated)
Product sales, net	$	13,697,368		$	9,677,178
Cost of goods sold		11,068,911			8,111,170
Gross profit		2,628,457			1,566,008

Operating Expenses
Personnel		1,931,324			1,311,484
Advertising		1,083,248			666,436
Bank and credit card fees		532,742			244,740
Depreciation and amortization		122,331			91,841
General and administrative		2,239,498			1,439,840
Total Operating Expenses		5,909,143			3,754,341

LOSS FROM OPERATIONS		(3,280,686	)		(2,188,333	)

Other Income (Expense)
Interest income		10,096			-
Interest expense		(232,831	)		(456,070	)
Other income		10,206			2,383
Total Other Income (Expense)		(212,529	)		(453,687	)

NET LOSS BEFORE INCOME TAXES		(3,493,215	)		(2,642,020	)

INCOME TAX BENEFIT		-			435,000

NET LOSS	$	(3,493,215	)	$	(2,207,020	)

LOSS PER COMMON SHARE – BASIC AND DILUTED	$	(0.57	)	$	(0.44	)

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC AND DILUTED		6,111,200			5,000,000

	Successor								Predecessor		March 31,
	Three Months Ended September 30, 2020		Three Months Ended September 30, 2019		Nine Months Ended September 30, 2020		Period from April 6, 2019 through September 30, 2019		Period from January 1, 2019 through April 5, 2019		2021		2020
Appliance sales	$	8,991,853	$	10,086,490	$	28,326,963	$	18,535,800	$	9,784,525	$	10,273,393	$	7,802,104
Furniture sales		3,554,704		1,398,843		7,604,867		2,969,389		2,456,085		2,327,834		1,281,836
Other sales		888,538		716,938		2,465,474		1,242,962		706,291		1,096,141		593,238
Total	$	13,435,095	$	12,202,271	$	38,397,304	$	22,748,151	$	12,946,901	$	13,697,368	$	9,677,178

Category		Useful Life (Years)
Machinery and equipment		5
Office equipment		5
Vehicles		5

	September 30, 2020		December 31, 2019
Credit card payments in process of settlement	$	274,179	$	406,838
Vendor rebates receivable		945,276		1,455,248
Total	$	1,219,455	$	1,862,086

2020 (remainder of year)	$	80,883
2021		323,532
2022		323,532
2023		323,532
2024		122,132
Thereafter		462,584
Total	$	1,636,195

Purchase consideration at fair value:
Note payable, net of $462,102 debt discount and $215,500 of capitalized financing costs	$	3,422,398
Contingent note payable		81,494
Fair value of ownership interest in Holdco transferred to seller		979,523
Amount of consideration	$	4,483,415

Assets acquired and liabilities assumed at fair value
Accounts receivable	$	334,446
Inventories		1,851,251
Working capital adjustment receivable and other assets		1,104,863
Property and equipment		216,286
Customer related intangibles		749,000
Marketing related intangibles		1,368,000
Accounts payable and accrued expenses		(3,929,876	)
Customer deposits		(2,308,307	)
Net tangible assets acquired (liabilities assumed)	$	(614,337	)

Total net assets acquired (liabilities assumed)	$	(614,337	)
Consideration paid		4,483,415
Goodwill	$	5,097,752

Operating lease right-of-use asset	$	2,300,000
Accumulated amortization		(613,577	)
Net balance	$	1,686,423

Lease liability, current portion	$	443,469
Lease liability, long-term		1,242,954
Total operating lease liability	$	1,686,423

Weighted average remaining lease term (months)		42

Weighted average discount rate		6.5	%

Three months ended September 30, 2020	$	281,194
Remainder of 2020		117,714
2021		483,185
2022		462,024
2023		367,198
2024		136,742
Total stock-based compensation	$	1,848,056

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Site Sessions (in millions)		2.7		1.5		7.3		4.8
Order History	$	36,963,583	$	15,236,006	$	82,095,491	$	44,989,811
Days from Order to Shipment (Average)		40		24		33		22

	Three Months Ended September 30, 2020						Three Months Ended September 30, 2019						Three Months Ended March 31, 2021						Three Months Ended March 31, 2020 (As Restated)
	Amount			% of Net Sales			Amount			% of Net Sales			Amount			% of Net Sales			Amount			% of Net Sales
Products sales, net	$	13,435,095			100.0	%	$	12,202,271			100.0	%	$	13,697,368			100.00	%	$	9,677,178			100.00	%
Cost of goods sold		11,264,569			83.8	%		10,183,711			83.5	%		11,068,911			80.81	%		8,111,170			83.82	%
Gross profit		2,170,526			16.2	%		2,018,560			16.5	%		2,628,457			19.19	%		1,566,008			16.18	%
Operating expenses
Personnel		2,161,929			13.4	%		989,318			8.1	%		1,931,324			14.10	%		1,311,484			13.55	%
Advertising		1,432,834			10.5	%		696,771			5.7	%		1,083,248			7.91	%		666,436			6.89	%
Bank and credit card fees		574,808			4.2	%		279,412			2.3	%		532,742			3.89	%		244,740			2.53	%
Depreciation and amortization		93,283			0.7	%		11,044			0.1	%		122,331			0.89	%		91,841			0.95	%
General and administrative		957,703			7.0	%		594,916			4.9	%		2,239,498			16.35	%		1,439,840			14.88	%
Total operating expenses		5,220,557			38.3	%		2,571,461			21.1	%		5,909,143			43.14	%		3,754,341			38.80	%
Net loss from operations		(3,050,031	)		(22.4	)%		(552,901	)		(4.5	)%
Loss from operations														(3,280,686	)		(23.95	)%		(2,188,333	)		(22.61	)%
Other income (expense)
Interest income		1,418			0.0	%		-			-			10,096			0.07	%		-			-
Financing costs		(488,460	)		(3.6	)%		(165,097	)		(1.4	)%
Interest expense		(157,312	)		(1.2	)%		(182,772	)		(1.5	)%		(232,831	)		(1.70	)%		(456,070	)		(4.71	)%
Loss on extinguishment of debt		(807,239	)		(5.9	)%		-			-
Change in fair value of warrant liability		-			-			54,500			0.4	%
Other income (expense)		1,657			0.0	%		(35,388	)		(0.3	)%
Other income														10,206			0.07	%		2,383			0.02	%
Total other income (expense)		(1,449,936	)		(10.6	)%		(328,757	)		(2.7	)%		(212,529	)		(1.55	)%		(453,687	)		(4.69	)%
Net loss before income taxes		(4,499,967	)		(33.0	)%		(881,658	)		(7.2	)%		(3,493,215	)		(25.50	)%		(2,642,020	)		(27.30	)%
Income tax benefit		838,176			6.1	%		-			-			-			-			435,000			4.50	%
Net loss	$	(3,661,791	)		(26.8	)%	$	(881,658	)		(7.2	)%	$	(3,493,215	)		(25.50	)%	$	(2,207,020	)		(22.81	)%

	Successor												Predecessor
	Nine Months Ended September 30, 2020						Period April 6 to September 30, 2019						Period January 1 to April 5, 2019
	Amount			% of Net Sales			Amount			% of Net Sales			Amount			% of Net Sales
Product sales, net	$	38,397,304			100.0	%	$	22,748,151			100.0	%	$	12,946,901			100.0	%
Cost of goods sold		32,060,897			83.5	%		18,886,117			83.0	%		11,004,842			85.0	%
Gross profit		6,336,407			16.5	%		3,862,034			17.0	%		1,942,059			15.0	%
Operating expenses
Personnel		4,513,602			11.7	%		1,875,543			8.2	%		913,919			7.1	%
Advertising		2,991,177			7.7	%		1,221,993			5.4	%		714,276			5.5	%
Bank and credit card fees		1,274,117			3.3	%		511,685			2.2	%		329,247			2.5	%
Depreciation and amortization		276,914			0.7	%		98,481			0.4	%		9,675			0.1	%
General and administrative		2,160,560			5.6	%		1,134,036			5.0	%		451,214			3.5	%
Total operating expenses		11,216,370			29.1	%		4,841,738			21.3	%		2,418,331			18.7	%
Loss from operations		(4,879,963	)		(12.6	)%		(979,704	)		(4.3	)%		(476,272	)		(3.7	)%
Other income (expense)
Interest income		2,480			0.0	%					-			23,807			0.2	%
Financing costs		(757,646	)		(2.0	)%		(324,352	)		(1.4	)%		-			-
Interest expense		(604,908	)		(1.6	)%		(387,794	)		(1.7	)%		-			-
Loss on extinguishment of debt		(1,756,095	)		(4.5	)%		-			-			-			-
Write-off of acquisition receivable		(809,000	)		(2.1	)%		-			-			-			-
Change in fair value of warrant liability		(2,127,656	)		(5.5	)%		57,100			0.3	%		-			-
Other income (expense)		6,920			0.0	%		9,830			0.0	%		7,200			0.1	%
Total other income (expense)		(6,045,905	)		(15.7	)%		(645,216	)		(2.8	)%		31,007			0.2	%
Net loss before income taxes		(10,925,868	)		(28.3	)%		(1,624,920	)		(7.1	)%		(445,265	)		(3.4	)%
Income tax benefit		1,962,129			5.1	%		-			-			-			-
Net loss	$	(8,963,739	)		(23.2	)%	$	(1,624,920	)		(7.1	)%	$	(445,265	)		(3.4	)%

	Nine Months Ended September 30, 2020 Successor			Period April 6 to September 30, 2019 Successor			Period January 1 to April 5, 2019 Predecessor			Pro Forma Adjustments			Pro Forma Combined Nine Months Ended September 30, 2019			Increase (Decrease)
Product sales, net	$	38,397,304		$	22,748,151		$	12,946,901			-		$	35,695,052		$	2,853,126
Cost of goods sold		32,060,897			18,886,117			11,004,842			-			29,890,959			2,320,926
Gross profit		6,336,407			3,862,034			1,942,059			-			5,804,093			532,200
Operating expenses
Personnel		4,513,602			1,875,543			913,919			-			2,789,462			1,748,526
Advertising		2,991,177			1,221,993			714,276			-			1,936,269			1,054,907
Bank and credit card fees		1,274,117			511,685			329,247			-			840,932			442,700
Depreciation and amortization		276,914			98,481			9,675	(a)		157,273			265,429			87,874
General and administrative		2,160,560			1,134,3036			451,214			-			1,585,250			541,549
Total operating expenses		11,216,370			4,841,738			2,418,331			157,273			7,417,342			3,875,556
Loss from operations		(4,879,963	)		(979,704	)		(476,272	)		(157,273	)		(1,613,249	)		(3,343,356	)
Other income (expense)
Interest income		2,480						23,807			-			23,807			(21,327	)
Financing costs		(757,646	)		(324,352	)		-	(b)		(239,018	)		(563,370	)		(433,295	)
Interest expense		(604,908	)		(387,794	)		-	(c)		(38,509	)		(426,303	)		(178,607	)
Loss on extinguishment of debt		(1,756,095	)		-			-			-			-			(1,756,095	)
Write-off of acquisition receivable		(809,000	)		-			-			-			-			(809,000	)
Change in fair value of warrant		(2,127,656	)		57,100			-			-			57,100			(2,184,756	)
Other income		6,920			9,830			7,200			-			17,030			(19,784	)
Total other income (expense)		(6,045,905	)		(645,216	)		31,007			(277,527	)		(891,736	)		(5,402,864	)
Net loss before income taxes		(10,925,868	)		(1,624,920	)		(445,265	)		(434,800	)		(2,504,985	)		(8,746,220	)
Income tax benefit		1,962,129			-			-			-			-			1962,129
Net loss	$	(8,963,739	)	$	(1,624,290	)	$	(445,265	)	$	(434,800	)	$	(2,504,985	)	$	(6,784,091	)

(a)	Amortization of intangible assets acquired in acquisition	$	157,273

(b)	Reflects amortization of costs associated with acquisition debt as follows:
	Amortization of the cost of shares issued in acquisition	$	68,750
	Amortization of the cost of warrants issued in acquisition		170,268
	Total	$	239,018

(c)	Amortization of discount on note to seller	$	38,509

	Nine Months Ended September 30,
	2020 Successor		2019 Successor		2019 Predecessor		2019 Total
Appliance sales	$	28,326,963	$	18,535,800	$	9,784,525	$	28,320,325
Furniture sales		7,604,867		2,969,389		2,456,085		5,425,474
Other sales		2,465,474		1,242,962		706,291		1,949,253
Total	$	38,603,267	$	22,748,151	$	12,946,901	$	35,695,052

	Nine Months Ended September 30, 2020
	GAAP			Elimination of Non-Cash Charges			Non-GAAP
Loss from operations	$	(4,879,963	)	$	-		$	(4,879,963	)
Other income (expense)
Interest income		2,480			-			2,480
Financing costs		(757,646	)		-			(757,646	)
Interest expense		(604,908	)		-			(604,908	)
Loss on extinguishment of debt		(1,756,095	)		(1,756,095	)		-
Write-off of acquisition receivable		(809,000	)		(809,000	)		-
Change in fair value of warrant liability		(2,127,656	)		(2,127,656	)		-
Other income (expense)		6,920			-			6,920
Total other income (expense)		(6,045,905	)		(4,692,751	)		(1,353,154	)
Net loss before income taxes	$	(10,925,868	)				$	(6,233,117	)

	Nine Months Ended September 30,			Nine Months Ended September 30, 2019								Three Months Ended March 31,
	2020 Successor			2019 Successor			2019 Predecessor		2019 Total			2021			2020 (As Restated)
Net cash provided by (used in) operating activities	$	7,383,978		$	(1,294,681	)	$	611,268	$	(683,413	)	$	(2,807,673	)	$	958,356
Net cash used in investing activities		(51,059	)		(1,244,006	)		-		(1,244,006	)		(126,115	)		-
Net cash provided by financing activities		4,981,959			2,723,625			-		2,723,625
Net change in cash	$	12,314,878		$	184,938		$	611,268	$	796,206
Net cash provided by (used in) financing activities													4,426,178			(775,158	)
Net change in cash and restricted cash													1,492,390			183,198
Cash and restricted cash, beginning of period													9,911,916			64,470
Cash and restricted cash, end of period												$	11,404,306		$	247,668

~~Category~~		~~Useful Life (Years)~~
~~Machinery and equipment~~		5
~~Office equipment~~		5
~~Vehicles~~		5

Exhibit No.		Description ~~of Exhibit~~
3.1		Amended and Restated Certificate of Incorporation of 1847 Goedeker Inc. (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8 filed on August 3, 2020)
3.2		Bylaws of 1847 Goedeker Inc. (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 filed on April 22, 2020)
~~4.1~~4.2		Common Stock Purchase Warrant issued to Evergreen Capital Management LLC on March 19, 2021 (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on March 25, 2021)
4.3		Common Stock Purchase Warrant issued to SILAC Insurance Company on March 19, 2021 (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed on March 25, 2021)
4.4		Form of Representative’s Warrant ~~Agreement~~for Initial Public Offering (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on August 5, 2020)
10.1		~~Amendment to Letter~~Lease Agreement, dated ~~July 16, 2020,~~January 13, 2021, by and between Westgate 200, LLC and 1847 Goedeker Inc. ~~and Small Business Community Capital II, L.P. (incorporated by reference to Exhibit 10.38 to the Amendment No. 4 to Registration Statement on Form S-1/A filed on July 16, 2020)~~
~~10.2~~		~~Promissory Note and Security Agreement, dated August 25, 2020, by 1847 Goedeker Inc. in favor of Arvest Bank~~ (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on ~~August 31, 2020)~~January 20, 2021)
10.2		Securities Purchase Agreement, dated March 19, 2021, among 1847 Goedeker Inc., Evergreen Capital Management LLC and SILAC Insurance Company (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 25, 2021)
10.3		~~Securities Entitlement Control~~Security Agreement, dated ~~August 25, 2020, among Arvest Bank,~~March 19, 2021, between 1847 Goedeker Inc. and ~~Arvest Investments, Inc.~~SILAC Insurance Company (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on ~~August 31, 2020)~~March 25, 2021)
10.4		10% OID Senior Secured Promissory Note issued to Evergreen Capital Management LLC on March 19, 2021 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on March 25, 2021)
10.5		10% OID Senior Secured Promissory Note issued to SILAC Insurance Company on March 19, 2021 (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on March 25, 2021)
31.1*		Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certifications of Principal Financial and Accounting Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certifications of Principal Financial and Accounting Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

Date: ~~November 16, 2020~~May 12, 2021	1847 GOEDEKER INC.

	/s/ Douglas T. Moore
	Name:	Douglas T. Moore
	Title:	Chief Executive Officer
	(Principal Executive Officer)

	/s/ Robert D. Barry
	Name:	Robert D. Barry
	Title:	Chief Financial Officer
	(Principal Financial and Accounting Officer)