UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10−Q~~10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~June~~September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File No. 001-39418

Polished.com Inc.

(Exact name of registrant as specified in its charter)

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

1870 Bath Avenue, Brooklyn, NY		11214
(Address of principal executive offices)		(Zip code)

800-299-9470

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	POL	~~NYSE American LLC~~
~~Warrants to Purchase Common Stock~~	~~POL WS~~	NYSE American LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~August 10,~~November 17, 2023, there were ~~105,469,878~~2,109,347 shares of the registrant’s common stock issued and outstanding.

Polished.com Inc.

Quarterly Report on Form 10-Q
Period Ended ~~June~~September 30, 2023

TABLE OF CONTENTS

	PART I FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34

CAUTIONARY STATEMENT 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:

●

cybersecurity or data security breaches such as the hacking attack we disclosed in May 2023, the improper disclosure of confidential, personal or proprietary data and changes to laws and regulations governing cybersecurity and data privacy, including any related costs, fines or lawsuits, and our ability to continue ongoing operations and safeguard the integrity of our information technology infrastructure, data, and employee, customer and vendor information;

●

our ability to acquire new customers and sustain and/or manage our growth;

●

the effect of supply chain delays and disruptions on our operations and financial condition;

●

our goals and strategies;

●

the identification of material weaknesses in our internal control over financial reporting and disclosure controls and procedures that, if not corrected, could affect the reliability of our unaudited condensed consolidated financial statements and have other adverse consequences such as a failure to meet reporting obligations;

●

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 Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 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.

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

POLISHED.COM INC.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

		Page
Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2023 (Unaudited) and December 31, 2022		2
Condensed Consolidated Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022 (Unaudited)		3
Condensed Consolidated Statement of Stockholders’ Equity for Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022 (Unaudited)		4
Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022 (Unaudited)		5
Notes to Condensed Consolidated Financial Statements (Unaudited)		6

POLISHED.COM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	June 30,			December 31,			September 30,			December 31,
	2023			2022			2023			2022
	(Unaudited)						(Unaudited)
ASSETS

Current Assets
Cash and cash equivalents	$	8,977		$	19,549		$	9,811		$	19,549
Restricted cash		4,687			950			5,391			950
Receivables, net		22,089			26,650			19,864			26,650
Vendor deposits		30,452			25,022			30,828			25,022
Merchandise inventory, net		39,448			41,766			30,093			41,766
Prepaid expenses and other current assets		10,141			11,217			11,526			11,217

Total Current Assets		115,794			125,154			107,513			125,154

Property and equipment, net		4,671			5,075			3,275			5,075
Operating lease right-of-use assets		10,019			11,688			9,172			11,688
Derivative instruments		3,752			3,178			4,197			3,178
Goodwill		106,173			106,173			106,173			106,173
Intangible assets, net		8,789			10,296			8,036			10,296
Deferred tax asset		-			1			-			1
Other long-term assets		350			349			451			349

TOTAL ASSETS	$	249,548		$	261,914		$	238,817		$	261,914

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts payable and accrued expenses	$	78,176		$	81,537		$	76,524		$	81,537
Customer deposits		4,041			7,292			4,530			7,292
Current portion of notes payable, net		7,866			6,628			7,859			6,628
Current portion of finance lease liabilities		111			112			110			112
Current portion of operating lease liabilities		2,730			3,726			1,945			3,726

Total Current Liabilities		92,924			99,295			90,968			99,295

Notes payable, net of current portion		87,065			90,816			85,160			90,816
Finance lease liabilities, net of current portion		169			225			142			225
Operating lease liabilities, net of current portion		8,108			9,013			7,919			9,013
Deferred tax liability		286			-			262			-

TOTAL LIABILITIES		188,552			199,349			184,451			199,349

Stockholders’ Equity
Preferred stock, $0.0001 par value, 20,000,000 shares authorized; none issued and outstanding as of June 30, 2023 and December 31, 2022		-			-
Common stock, $0.0001 par value, 200,000,000 shares authorized; 105,469,878 and 105,227,876 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		11			11
Preferred stock, $0.0001 par value, 20,000,000 shares authorized; none issued and outstanding as of September 30, 2023 and December 31, 2022								-			-
Common stock, $0.0001 par value, 200,000,000 shares authorized; 2,109,398 and 2,104,558 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively								1			1
Additional paid-in capital		223,015			222,827			223,029			222,837
Accumulated deficit		(162,030	)		(160,273	)		(168,664	)		(160,273	)

TOTAL STOCKHOLDERS’ EQUITY		60,996			62,565			54,366			62,565

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	249,548		$	261,914		$	238,817		$	261,914

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

POLISHED.COM INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(Unaudited)

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,			June 30,			June 30,			June 30,			September 30,			September 30,			September 30,			September 30,
	2023			2022			2023			2022			2023			2022			2023			2022
Product sales, net	$	87,761		$	138,463		$	183,200		$	287,144		$	77,818		$	143,566		$	261,018		$	430,710
Cost of goods sold		68,181			115,438			142,474			233,357			62,513			122,431			204,987			355,788
Gross profit		19,580			23,025			40,726			53,787			15,305			21,135			56,031			74,922

Operating Expenses
Personnel		6,021			7,402			12,505			14,048			5,874			8,348			18,379			22,396
Advertising		4,512			5,363			9,633			10,941			5,061			7,534			14,694			18,475
Bank and credit card fees		3,005			4,600			6,378			9,189			2,557			5,932			8,935			15,121
Depreciation and amortization		1,068			2,887			2,138			5,706			1,061			2,882			3,199			8,588
General and administrative		4,885			3,563			9,872			7,818			6,747			7,260			16,619			15,078

Total Operating Expenses		19,491			23,815			40,526			47,702			21,300			31,956			61,826			79,658

INCOME (LOSS) FROM OPERATIONS		89			(790	)		200			6,085
LOSS FROM OPERATIONS														(5,995	)		(10,821	)		(5,795	)		(4,736	)

Other Income (Expenses)
Interest income		375			64			732			108			407			174			1,139			282
Adjustment in value of contingency		-			-						(2	)		-			-			-			(2	)
Interest expense		(1,053	)		(302	)		(2,935	)		(1,243	)		(1,886	)		(1,351	)		(4,821	)		(2,594	)
Gain (loss) on change in fair value of derivative instruments		1,899			(936	)		574			(936	)
Gain on change in fair value of derivative instruments														446			4,476			1,020			3,540
Loss on settlement of debt		-			(3,241	)		-			(3,241	)		-			-			-			(3,241	)
Other income (expense)		22			(41	)		104			(90	)		227			(50	)		331			(140	)

Total Other Income (Expenses)		1,243			(4,456	)		(1,525	)		(5,404	)		(806	)		3,249			(2,331	)		(2,155	)

NET INCOME (LOSS) BEFORE INCOME TAXES		1,332			(5,246	)		(1,325	)		681
NET LOSS BEFORE INCOME TAXES														(6,801	)		(7,572	)		(8,126	)		(6,891	)

INCOME TAX (EXPENSE) BENEFIT		(328	)		954			(432	)		846			167			2,388			(265	)		3,234

NET INCOME (LOSS)	$	1,004		$	(4,292	)	$	(1,757	)	$	1,527
NET LOSS													$	(6,634	)	$	(5,184	)	$	(8,391	)	$	(3,657	)

Income per common share
Basic	$	0.01		$	(0.04	)	$	(0.02	)	$	0.01		$	(3.14	)	$	(2.46	)	$	(3.98	)	$	(1.73	)
Diluted	$	0.01		$	(0.04	)	$	(0.02	)	$	0.01		$	(3.14	)	$	(2.46	)	$	(3.98	)	$	(1.73	)

Weighted average common shares outstanding
Basic		105,469,878			105,774,197			105,425,640			106,080,764			2,109,398			2,104,558			2,108,811			2,115,846
Diluted		105,469,878			105,774,197			105,425,640			106,080,764			2,109,398			2,104,558			2,108,811			2,115,846

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

POLISHED.COM INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share and per share data)

For the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023

					Additional					Treasury		Total
	Common Stock				Paid-In		Accumulated			Stock		Stockholders’			Common Stock				Additional Paid-In		Accumulated			Treasury Stock		Total Stockholders’
	Shares		Amount		Capital		Deficit			At Cost		Equity			Shares		Amount		Capital		Deficit			At Cost		Equity
Balance January 1, 2023		105,227,876		11		222,827		(160,273	)		-		62,565			2,104,558		1		222,837		(160,273	)		-		62,565
Issuance of common stock through equity incentive awards		83,011		-		60		-			-		60			1,660		-		60		-			-		60
Issuance of common stock in connection with employment agreements		158,991		-		120		-			-		120			3,180		-		120		-			-		120
Stock compensation expense		-		-		8		-			-		8			-		-		8		-			-		8
Net loss for the three months ended March 31, 2023		-		-		-		(2,761	)		-		(2,761	)		-		-		-		(2,761	)		-		(2,761	)
Balance March 31, 2023 (unaudited)		105,469,878		11		223,015		(163,034	)		-		59,992			2,109,398		1		223,025		(163,034	)		-		59,992
Stock compensation expense																				2							2
Net income for the three months ended June 30, 2023		-		-		-		1,004			-		1,004									1,004					1,004
Balance June 30, 2023 (Unaudited)		105,227,876		11		223,015		(162,030	)		-		60,996
Balance June 30, 2023 (unaudited)																2,109,398		1		223,027		(162,030	)		-		60,998
Stock compensation expense																-		-		2		-			-		2
Net loss for the three months ended September 30, 2023																						(6,634	)				(6,634	)
Balance September 30, 2023 (Unaudited)																2,109,398		1		223,029		(168,664	)		-		54,366

For the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022

						Additional					Treasury			Total
	Common Stock					Paid-In		Accumulated			Stock			Stockholders’			Common Stock					Additional Paid-In		Accumulated			Treasury Stock			Total Stockholders’
	Shares			Amount		Capital		Deficit			At Cost			Equity			Shares			Amount		Capital		Deficit			At Cost			Equity
Balance January 1, 2022		106,387,332		$	11	$	224,648	$	(34,308	)		-		$	190,351			2,127,747		$	1	$	224,658	$	(34,308	)		-		$	190,351
Issuance of common stock through equity incentive awards		69,766			-		120		-			-			120			1,395			-		120		-			-			120
Stock compensation expense for the three months ended March 31, 2022		-			-		33		-			-			33			-			-		33		-			-			33
Net income for the three months ended March 31, 2022		-			-		-		5,819			-			5,819			-			-		-		5,819			-			5,819
Balance March 31, 2022 (Unaudited)		106,457,098			11		224,801		(28,489	)					196,323			2,129,142			1		224,811		(28,489	)					196,323
Purchase of treasury stock		(1,229,222	)		-		-		-			(2,000	)		(2,000	)		(24,584	)		-		-		-			(2,000	)		(2,000	)
Stock compensation expense for the three months ended June 30, 2022		-			-		20		-			-			20			-			-		20		-			-			20
Net loss for the three months ended June 30, 2022		-			-		-		(4,292	)		-			(4,292	)		-			-		-		(4,292	)		-			(4,292	)
Balance June 30, 2022 (Unaudited)		105,227,876		$	11	$	224,821	$	(32,781	)	$	(2,000	)	$	190,051			2,104,558			1		224,831		(32,781	)		(2,000	)		190,051
Stock compensation expense for the three months ended September 30, 2022																		-			-		20		-			-			20
Net loss for the three months ended September 30, 2022																		-			-		-		(5,184	)		-			(5,184	)
Balance September 30, 2022 (Unaudited)																		2,104,558		$	1	$	224,851	$	(37,965	)	$	(2,000	)	$	184,887

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

POLISHED.COM INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share and per share data)

(Unaudited)

	Six Months Ended						Nine Months Ended
	June 30,			June 30,			September 30,			September 30,
	2023			2022			2023			2022

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(1,757	)	$	1,527
Net loss							$	(8,391	)	$	(3,657	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization		2,138			5,706			3,199			8,588
Amortization of debt discount		109			406			163			460
Loss on settlement of debt		-			3,241			-			3,241
Loss on disposal of fixed assets								1,094			-
Stock-based compensation		68			173			72			193
Adjustment to contingent liability		-			2			-			2
Inventory reserve		(500	)		157			(1,200	)		557
Loss (Gain) on change in fair value of derivative instruments		(574	)		936			(1,020	)		(3,540	)
Bad debt expense		5			175			(219	)		411
Deferred tax expense (benefit)		287			(938	)		263			(3,234	)
Non-cash lease expense		1,670			1,610			2,516			2,425
Changes in operating assets and liabilities:
Accounts receivable		4,555			(2,301	)		7,005			(1,772	)
Deposits with vendors		(5,430	)		(5,931	)		(5,806	)		(12,586	)
Inventory		2,818			(4,513	)		12,873			7,349
Prepaid expenses and other current assets		1,075			(355	)		(410	)		(3,846	)
Accounts payable and accrued liabilities		(3,240	)		(10,652	)		(4,893	)		(12,143	)
Due to related party		-			2,413			-			2,413
Customer deposits		(3,251	)		(12,065	)		(2,762	)		(20,860	)
Operating lease liabilities		(1,901	)		(1,781	)		(2,874	)		(2,694	)
Net cash (used in) provided operating activities		(3,928	)		(22,190	)
Net cash used in operating activities								(390	)		(38,693	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(134	)		(256	)		(140	)		(1,318	)
Net cash used in investing activities		(134	)		(256	)		(140	)		(1,318	)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash received from notes payable		-			43,045			-			43,044
Repayment of notes payable		(2,716	)		(3,223	)		(4,682	)		(4,580	)
Repayments of financing lease liabilities		(57	)		(48	)		(85	)		(78	)
Purchase of treasury stock at cost		-			(2,000	)		-			(2,000	)
Net cash (used in) provided by financing activities		(2,773	)		37,774			(4,767	)		36,386

NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH		(6,835	)		15,328			(5,297	)		(3,625	)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD		20,499			33,791			20,499			33,791

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD	$	13,664		$	49,119		$	15,202		$	30,166

Cash, cash equivalents, and restricted cash consist of the following:
End of the period
Cash and cash equivalents	$	8,977		$	47,386		$	9,811		$	28,433
Restricted cash		4,687			1,733			5,391			1,733

	$	13,664		$	49,119		$	15,202		$	30,166

Cash, cash equivalents, and restricted cash consist of the following:
Beginning of the period
Cash and cash equivalents	$	19,549		$	25,724		$	19,549		$	25,724
Restricted cash		950			8,067			950			8,067

	$	20,499		$	33,791		$	20,499		$	33,791

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	2,494		$	1,531		$	4,821		$	2,731
Cash paid for income taxes	$	-		$	-		$	-		$	3,905

NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued in vesting of RSUs	$	-		$	-		$	-		$	-
Financed purchases of property and equipment	$	94		$	308		$	94		$	308
Common stock issued in connection with employment agreements	$	121		$	-		$	121		$	-
Debt discount on notes payable	$	-		$	1,104		$	-		$	1,104
Settlement of notes payable and interest through the issuance of a new note	$	-		$	55,851		$	-		$	55,851

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~June~~September 30, 2023 and 2022 (UNAUDITED)

NOTE 1—BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Polished.com Inc. (the “Company,” “Polished.com Inc.,” “we,” “us,” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting and reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the results of the interim periods presented. Certain information and note disclosures normally included in the audited financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The information included in the Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022. Furthermore, interim results for the three and ~~six~~nine months ended ~~June~~September 30, 2023 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023 or future periods.

NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS

Recently 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 and the effective date for the Company to adopt this standard will be for fiscal years beginning after December 15, 2022. The Company adopted this guidance on January 1, 2023. The Company’s adoption of this update did not have a material impact on the consolidated financial statements and related disclosures.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU amends ASC 805 to require acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in business combinations. The ASU is effective for public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted this guidance on January 1, 2023. The Company’s adoption of this update did not have a material impact on the consolidated financial statements and related disclosures.

In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures (Topic 326): Financial Instruments – Credit Losses. This amended guidance will eliminate the accounting designation of a loan modification as a TDR, including eliminating the measurement guidance for TDRs. The amendments also enhance existing disclosure requirements and introduce new requirements related to modifications of receivables made to borrowers experiencing financial difficulty. Additionally, this guidance requires entities to disclose gross write-offs by year of origination for financing receivables, such as loans and interest receivable. The ASU is effective January 1, 2023, and is required to be applied prospectively, except for the recognition and measurement of TDRs which can be applied on a modified retrospective basis. The Company adopted this guidance on January 1, 2023. The Company’s adoption of this update did not have a material impact on the consolidated financial statements and related disclosures.

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~June~~September 30, 2023 and 2022 (UNAUDITED)

NOTE 3—LIQUIDITY AND GOING CONCERN ASSESSMENT

Management assesses liquidity and going concern uncertainty in the Company’s ~~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 ~~unaudited condensed~~ consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, 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.

As of ~~June~~September 30, 2023, we had cash and cash equivalents of ~~$13.7~~$9.8 million, ~~including~~ restricted cash of ~~$4.7~~$5.4 million, and vendor deposits of ~~$30.5~~$30.8 million. For the ~~six~~nine months ended ~~June~~September 30, 2023, ~~we had~~the Company incurred an operating ~~income~~loss of ~~approximately $0.2~~$5.8 million (including $3.2 million in non-cash charges for depreciation and amortization), cash flows used in operations of ~~$3.9~~$0.4 million, and working capital of ~~$22.9~~$15.9 million. As of December 31, 2022, we had cash and ~~for~~cash equivalents of $19.6 million, restricted cash of $1.0 million, and vendor deposits of $25 million, and total working capital of $25.9 million. For the year ended December 31, 2022, ~~we had~~the Company incurred an operating loss of ~~$128.3~~$134.4 million (including a$11.5 million in non-cash charges for depreciation and amortization, as well as an impairment charge of $109.1 million), and cash flows used in operations of $46.7 ~~million, cash and cash equivalents of $20.5 million including restricted cash of $0.95 million and working capital of $25.9~~ million.

The Company performed an assessment to determine whether there were conditions or events that, considered in the aggregate, raised substantial doubt about the Company’s ability to continue as a going concern within one year after the filing date of this report, when the accompanying financial statements are being issued. Initially, this assessment did not consider the potential mitigating effect of management’s plans that had not been fully implemented.

Based on the initial assessment, substantial doubt exists regarding our ability to continue as a going concern. Management then assessed the mitigating effect of its plans to determine if it is probable that the plans (1) would be effectively implemented within one year after the filing date of this report, when the accompanying financial statements are being issued and (2) when implemented, would mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern.

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023 and 2022 (UNAUDITED)

As discussed below, the Company has implemented plans which encompass short-term cash preservation initiatives to provide the Company with adequate liquidity to meet its obligations for at least the 12-month period following the date its financial statements are issued, in addition to creating sustained cash flow generation thereafter. The Company has either taken or intends to take, the following actions, among others, to improve its liquidity position and to address uncertainty about its ability to continue as a going concern:

●

As described in Note 8, the Company entered into a loan amendment of their term loan and revolver loan agreement with Bank of America, ~~in which Bank~~granting the Company a waiver (relating to the specified events of ~~America waived specific technical defaults and re-established a revolver loan commitment balance of $10 million.~~default) through November 2024.

●

We are taking concrete steps to improve efficiency and profitability through headcount reductions and consolidation of operations including the closing of one warehouse and the imminent ~~consolidation~~relocation to a new warehouse increasing the efficiency of ~~two existing New Jersey warehouses into one new warehouse.~~warehouse operations and reduction of product damage.

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 and 2022 (UNAUDITED)

●

We hired an internationally recognized firm of digital advertising consultants to help us improve our return on advertising ~~spend,~~spend. This firm provided us the tools needed to improve future digital marketing results which we ~~believe when completed will result in more sales per dollar of advertising expense.~~are now beginning to deploy.

●

We are implementing new financing initiatives for our customers, including a new store-branded credit card and a leasing alternative for customers who do not qualify for conventional ~~credit, and we have added a new payment processor which will provide additional liquidity compared to our incumbent processor.~~credit.

●

We have changed our sales focus to emphasizing the sale of high-margin luxury products, ~~as opposed~~in addition to mass-market appliances, began becoming dealers for higher-margin small appliances and promoting them on our website, and have begun actively negotiating improved terms with several of our largest appliance vendors.

Management has prepared estimates of operations for fiscal years 2023 and 2024 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 these consolidated financial statements in the Company’s 10-Q. The accompanying ~~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 ~~condensed~~ consolidated financial statements, indicate improved operations and the Company’s ability to continue operations as a going concern.

NOTE 4—DISAGGREGATION OF REVENUES

The Company sells a vast assortment of household appliances, including refrigerators, ovens, dishwashers, microwaves, freezers, washers and dryers. In addition to appliances, we also offer a broad assortment of products in the furniture, décor, bed & bath, lighting, outdoor living, electronics categories, fitness equipment, plumbing fixtures, air conditioners, fireplaces, fans, dehumidifiers, humidifiers, air purifiers and televisions.

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. Each customer order generally contains only one performance obligation based on the merchandise sale to be delivered, at which time revenue is recognized.

The Company disaggregates revenue from contracts with customers by 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’s disaggregated revenue by product type is as follows (in thousands):

	For the Three Months Ended				For the Six Months Ended				For the Three Months Ended				For the Nine Months Ended
	June 30		June 30		June 30		June 30		September 30		September 30		September 30		September 30
	2023		2022		2023		2022		2023		2022		2023		2022
Appliance sales	$	77,505	$	128,242	$	164,177	$	266,791	$	70,620	$	136,044	$	234,797	$	402,835
Furniture and other sales		10,256		10,221		19,023		20,353		7,198		7,522		26,221		27,875

Total	$	87,761	$	138,463	$	183,200	$	287,144	$	77,818	$	141,566	$	261,018	$	430,710

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~June~~September 30, 2023 and 2022 (UNAUDITED)

NOTE 5—SUPPLEMENTAL FINANCIAL STATEMENT DISCLOSURES

~~Recivables~~Receivables

Receivables at ~~June~~September 30, 2023 and December 31, 2022, consisted of the following (in thousands):

	June 30,			December 31,			September 30,			December 31,
	2023			2022			2023			2022

Trade accounts receivable	$	13,325		$	13,691		$	15,050		$	13,691
Vendor rebates receivable		8,046			8,514			5,459			8,514
Other receivables		2,230			5,951			637			5,951

Total receivables		23,601			28,156			21,146			28,156
Less allowance for doubtful accounts		(1,512	)		(1,506	)		(1,282	)		(1,506	)

Total receivables, net	$	22,089		$	26,650		$	19,864		$	26,650

Merchandise Inventory

Inventory as ~~June~~of September 30, 2023 and December 31, 2022, consisted of the following (in thousands):

	June 30,			December 31,			September 30,			December 31,
	2023			2022			2023			2022

Appliances	$	37,625		$	39,702		$	28,240		$	39,702
Furniture and other		3,112			3,853			2,442			3,853

Total merchandise inventory		40,737			43,555			30,682			43,555
Less reserve for obsolescence		(1,289	)		(1,789	)		(589	)		(1,789	)

Total merchandise inventory, net	$	39,448		$	41,766		$	30,093		$	41,766

Property and Equipment

Property and equipment at ~~June~~September 30, 2023 and December 31, 2022, consisted of the following (in thousands):

	June 30,			December 31,			September 30,			December 31,
	2023			2022			2023			2022

Warehouse equipment	$	291		$	291		$	806		$	806
Financed warehouse		515			515
Furniture and fixtures		332			324			337			324
Transportation equipment		1,566			1,466			1,566			1,466

Leasehold improvements		3,251			3,131			2,157			3,131
Showroom inventory		1,037			1,037			1,037			1,037

Total property and equipment		6,992			6,764			5,903			6,764
Less: accumulated depreciation		(2,321	)		(1,689	)		(2,628	)		(1,689	)

Property and equipment, net	$	4,671		$	5,075		$	3,275		$	5,075

Depreciation expense for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, was $0.3 million and ~~$0.6~~$0.9 million, respectively.

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~June~~September 30, 2023 and 2022 (UNAUDITED)

Intangible Assets

The following table provides a breakdown of identifiable intangible assets as of ~~June~~September 30, 2023 and December 31, 2022 (in thousands):

	June 30,			December 31,			September 30,			December 31,
	2023			2022			2023			2022
Customer relationships	$	3,461		$	3,461		$	3,461		$	3,461
Marketing related - tradename		6,835			6,835			6,835			6,835
Total intangible assets		10,296			10,296			10,296			10,296
Accumulated amortization		(1,507	)		(-	)		(2,260	)		(-	)

Intangible assets, net	$	8,789		$	10,296		$	8,036		$	10,296

Amortization expense for the three and ~~six~~nine months ended ~~June~~September 30, 2023, was $0.8 million and ~~$1.5~~$2.3 million, respectively. In comparison, amortization expense for the three and ~~six~~nine months ended ~~June~~September 30, 2022, was $2.6 million and ~~$5.1~~$7.7 million, respectively.

These assets are being amortized on a straight-line basis over their weighted average estimated useful life of ~~2.9~~2.6 years.

At ~~June~~September 30, 2023, estimated annual amortization expense for each of the next five years is as follows (in thousands):

Year ending December 31,	Amount		Amount
2023 (Remainder of year)	$	1,507	$	754
2024		3,013		3,013
2025		3,013		3,013
2026		1,256		1,256
2027				-

Total	$	8,789	$	8,036

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses at ~~June~~September 30, 2023 and December 31, 2022, consisted of the following (in thousands):

	June 30,		December 31,		September 30,		December 31,
	2023		2022		2023		2022

Trade accounts payable	$	38,945	$	34,345	$	38,002	$	34,345
Accrued sales tax		30,397		36,196		32,039		36,196
Accrued payroll liabilities		697		680		1,110		680
Accrued interest		19		37		39		37
Accrued liability for sales returns		3,916		3,916		1,916		3,916
Credit cards payable		81		32		115		32
Accrued insurance		-		1,180		-		1,180
Other accrued liabilities		4,121		5,151		3,303		5,151

Total accounts payable and accrued expenses	$	78,176	$	81,537	$	76,524	$	81,537

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~June~~September 30, 2023 and 2022 (UNAUDITED)

NOTE 6—OPERATING LEASES

The following was included in our unaudited condensed consolidated balance sheet at ~~June~~September 30, 2023 and December 31, 2022 (in thousands):

	June 30,			December 31,			September 30,			December 31,
	2023			2022			2023			2022

Operating lease right-of-use assets	$	10,019		$	11,688		$	9,172		$	11,688

Lease liabilities, current portion		2,730			3,726			1,945			3,726
Lease liabilities, long-term		8,108			9,013			7,919			9,013

Total operating lease liabilities	$	10,838		$	12,739		$	9,864		$	12,739

Weighted-average remaining lease term (months)		76			73			77			73

Weighted average discount rate		3.9	%		3.9	%		3.9	%		3.9	%

Operating lease expense for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, was ~~$0.9~~$1.3 million and ~~$1.9~~$3.2 million, respectively.

As of ~~June~~September 30, 2023, maturities of operating lease liabilities were as follows, in thousands:

Years Ending December 31,	Amount			Amount
2023 – Remainder of year	$	2,029		$	948
2024		1,808			1,808
2025		1,489			1,489
2026		1,532			1,532
2027		1,284			1,284
Thereafter		4,159			4,158

Total		12,301			11,219
Less: imputed interest		(1,463	)		(1,355	)

Total operating lease liabilities	$	10,838		$	9,864

Finance Leases

The Company has three finance leases. At ~~June~~September 30, 2023, the total amount due on these leases was $0.3 million.

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~June~~September 30, 2023 and 2022 (UNAUDITED)

NOTE 7—RELATED PARTIES

On March 15, 2022, the Company entered into a lease for additional office space with 8780 ~~19th~~19^th Ave LLC (“Landlord”), an entity owned by Albert and Elie Fouerti, the Company’s former Chief Executive and Chief Operating Officer, respectively. The Company contends that the lease required the Landlord do certain work at Landlord’s expense to improve the building at a cost of approximately $1.2 million. Landlord has refused to pay for this work, contending that this expense was the Company’s responsibility. In addition, the total remaining amount due on the lease at ~~June~~September 30, 2023 is also approximately $1.2 million. Landlord contends that the Company is in default of the lease for failing to pay rent. The Company disagrees that its rent obligations have been triggered and further contends that Landlord has violated the lease by failing to pay for the work. ~~The~~On August 23, 2023, the Company entered into a lease termination agreement with the Landlord. Under the terms of the termination agreement, the Company was relieved of its obligations under the lease and agreed to terminate its claims for reimbursement of the ~~Landlord remain in dispute over these issues.~~improvements it made to the building and to pay $100,000.

DMI

The Company is a member of DMI, an appliance purchasing cooperative. DMI purchases consumer electronics and appliances at wholesale prices from various vendors, and then makes such products available to its members, including the Company, who sell such products to end consumers. DMI’s purchasing group arrangement provides its members, including the Company, with leverage and purchasing power with appliance vendors, and increases the Company’s ability to compete with competitors, including big box appliance and electronics retailers. The Company owns an approximate 1.6% interest in DMI.

During the ~~six~~nine months ended ~~June~~September 30, 2023, total purchases from DMI represented approximately 65% of total purchases. At ~~June~~September 30, 2023 vendor deposits at DMI totaled ~~$30.5~~$30.8 million.

Lease Agreements

The Company has lease agreements with 1870 Bath Ave. LLC, 812 and ~~5th~~5^th Ave Realty LLC. These two entities are owned by the Company’s former Chief Executive Officer and Chief Operating Officer. In addition, the Company has a sublease agreement with DMI. The total rent expense under these related party leases was $0.8 million for the ~~six~~nine months ended ~~June~~September 30, 2023.

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~June~~September 30, 2023 and 2022 (UNAUDITED)

NOTE 8—NOTES PAYABLE

Credit Facilities

Bank of America Credit Agreement

On May 9, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”) with the lenders identified therein (the “Lenders”) and Bank of America, N.A., as administrative agent, swingline lender and letter of credit issuer (the “Agent”), pursuant to which the Lenders agreed to make available to the Borrowers senior secured credit facilities in the aggregate initial amount of $140.0 million, including (i) a $100.0 million term loan (the “Term Loan”) and (ii) a $40.0 million revolving credit facility (the “Revolving Loan”), which revolving credit facility included a $2.00 million swingline sublimit (the “Swing Line Loan” and together with the Term Loan and the Revolving Loan, the “Loans”) and, separately, a $10.0 million letter of credit commitment, in each case, on the terms and conditions contained in the Credit Agreement.

On May 9, 2022, the Company borrowed the entire amount of the Term Loan in the aggregate principal amount of $100.0 million. A portion of the proceeds of the Term Loan were to repay and terminate the M&T Credit Agreement. Commencing on September 30, 2022, through and including ~~June~~September 30, 2023, the Borrowers repaid the principal amount of the Term Loan in quarterly installments of $1,250,000 each, payable on the last business day of each March, June, September, and December.

As of ~~June~~September 30, 2023, the carrying value of the Term Loan was ~~$94.1~~$92.3 million, comprised of a principal of ~~$95.0~~$93.1 million, net of unamortized loan costs of ~~$0.9~~$0.8 million. Loan costs before amortization included $1.1 million of lender and other fees.

As a result of our technical non-compliance with specified loan covenants for both the Bank of America Term Loan and Revolving Loan, based in part due to our failure to timely deliver financial statements, Bank of America froze the $40.0 million Revolving Loan before any borrowings had been made against the facility.

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023 and 2022 (UNAUDITED)

On July 25, 2023, the Company and Bank of America amended the Credit Agreement (the ~~“Amendment”~~“First Amendment”), in part, to require the Company maintain liquidity, which includes cash and certain qualifying customer and credit card account receivables, of $8.0 million. The Company and Bank of America amended the Credit Agreement on November 20, 2023 (the “Second Amendment”), which requires the Company to establish a Bank of America cash collateral account where cash and cash equivalents deposited in the cash collateral account do not constitute Liquidity for purposes of the Credit Agreement. Further, the Second Amendment requires that (i) at least $3.0 million of Liquidity be comprised of unrestricted cash and cash equivalents and (ii) more than $5.0 million of Liquidity be comprised of certain qualifying customer and credit card accounts receivable.

The Company entered into the Second Amendment, in part, to waive events of defaults on its existing ~~credit agreement.~~Credit Agreement. The Term Loan Lenders, as part of the Second Amendment, agreed to defer the principal installment of the Term Loans in the amount of $937,500 required to be made on December 31, 2023 until the earliest to occur of (i) January 31, 2024, (ii) the date on which a subordinated Term Loan or an equity contribution, as applicable, is consummated (even if the date of such consummation precedes December 31, 2023) and (iii) an event of default. The Second Amendment requires the Company to pay the existing Term Facility and Revolving Facility by ~~August 31,~~November 30, 2024 (the “Maturity Date”). The Revolving Loan decreased to $10,000,000 from and after July 25, 2023. The Letter of Credit commitments decreased to $2,000,000 and the Swing Line Loan was eliminated. The Amendment also establishes a new EBITDA covenant and requires the Company to maintain minimum liquidity of $8.0 million including restricted cash and $3.0 million excluding restricted cash. Liquidity as defined in the Amendment includes Cash and certain qualifying customer and credit card accounts receivable.

The Term Loan and Revolving Loan will bear interest on the unpaid principal amount thereof as follows: (i) if it is a loan bearing interest at a rate determined by the Base Rate, then at the Base Rate plus the Applicable Rate for such loan and (ii) if it is a loan bearing interest at a rate determined by Term SOFR, then at Term SOFR plus the Applicable Rate for such loan. The Company may elect to continue or convert the existing interest rate benchmark for the Term Loan from Term SOFR to Base Rate, and may elect the interest rate benchmark for future revolving loans as either Term SOFR or Base Rate (and, with respect to any loan made using Term SOFR, may also select the interest period applicable to any such loan), by notifying the Agent and the Lenders from time to time in accordance with the provisions of the Amendment and Credit Agreement. The Applicable Rate increased from a high of 1.95% and 0.95%, respectively, for Term SOFR and Base Rate in the Credit Agreement to 4.00% for each of Term SOFR and Base Rate as a result of the Amendment. Interest is payable in arrears on each Interest Payment Date (as defined in the Credit Agreement). Notwithstanding the foregoing, following an event of default, the loans under the Credit Facilities will bear interest at a rate that is 2% per annum higher than the interest rate then in effect for the applicable loan.

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 and 2022 (UNAUDITED)

On May 9, 2022, the Company entered into an interest rate swap agreement to reduce its exposure to fluctuations in the floating interest rate tied to SOFR (see Note 9). The initial notional amount of the swap is $100 million with aan original termination date of May 31, 2029, which was amended in the current period to May 31, 2027. As a result of the swap, the Company pays interest at a fixed rate of 2.9%, plus applicable margins.

Commencing on September 30, 2023, through and including ~~June~~September 30, 2024, the Borrowers must repay the principal amount of the Term Loan in installments of $937,500 each, payable on the last business day of December and January and quarterly installments of $1,875,000 ~~each,~~ payable on the last business day of each March, June, September and December. Revolving Loans may be repaid and reborrowed at any time until the Maturity Date, subject to the terms and conditions set forth in the Credit Agreement. Mandatory prepayments of Revolving Loans are required if the amount borrowed at any time exceeds the commitment amount. The Company may voluntarily prepay the Loans from time to time in accordance with the provisions of the Credit Agreement, and will be required to prepay the Loans under certain limited circumstances as set forth in the Credit Agreement, including upon receipt of cash proceeds in connection with certain specified asset sales, receipt of loss or condemnation proceeds or other cash proceeds received other than in the ordinary course of business or upon receipt of cash proceeds from the incurrence of indebtedness that is not permitted under the Credit Agreement, all as more specifically set forth in the Credit Agreement. The Loans may from time to time be further evidenced by separate promissory notes issued by the Borrowers.

As a result of the reduced term, the Company has begun discussions with investment bankers to place financing to replace the existing credit agreement by August 31, 2024.

Vehicle Loans

The Company has financed purchases of transportation vehicles with notes payable, which are secured by the vehicles purchased. These notes have five-year terms and interest rates ranging from 3.8% to 5.7%. As of ~~June~~September 30, 2023, the outstanding balance of these vehicle loans is ~~$0.8~~$0.7 million.

Maturities of Notes Payable are as follows:

	September 30,
For the years ended December 31,	2023
2023 (Remainder of year)	$	1,033
2024		92,531
2025		201
2026		29
2027		21
Thereafter		-
Total		93,815
Less: Loan costs		(796	)
Total	$	93,019
Amount classified as a current liability	$	7,859
Amount classified as long-term liability		85,160

Total	$	93,019

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~June~~September 30, 2023 and 2022 (UNAUDITED)

~~Maturities of Notes Payable are as follows:~~

June 30,
For the years ended December 31, 2023
2023 (Remainder of year) $ 3,946
2024 91,584
2025 201
2026 29
2027 21
Thereafter -
Total 95,781
Less: Loan costs (850 )
Total $ 94,931
Amount classified as a current liability $ 7,866
Amount classified as long-term liability 87,065

Total $
94,931

NOTE 9—DERIVATIVE INSTRUMENTS (INTEREST RATE SWAP):

On May 9, 2022, the Company entered into a Term Loan agreement with Bank of America, N.A. (See Note 11). On the same day, the Company entered into an interest rate swap agreement to reduce its exposure to fluctuations in the floating interest rate tied to SOFR under the Term Loan with a notional amount of $100 million. The interest rate swap became effective on May 9, 2022, and was to terminate on May 31, 2029. The swap agreement was modified in the current period and will now terminate on May 31, 2027. The Company receives variable interest payments monthly based on a one-month SOFR and pays a fixed rate of 2.93% to the counterparty.

As of ~~June~~September 30, 2023, the fair value of the interest rate swap agreement was ~~$3.8~~$4.2 million and was classified as a derivative asset in our consolidated balance sheet. During the three and ~~six~~nine months ended ~~June~~September 30, 2023 the Company recognized a ~~$1.9~~$0.4 million and ~~$0.6~~$1.0 million gain, respectively on the change in fair value of the interest rate swap.

The Company classified the interest rate swap in Level 2 of the fair value hierarchy.

NOTE 10—~~STOCKHOLDERS'~~STOCKHOLDERS’ EQUITY

As of ~~June~~September 30, 2023, 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. ~~At June~~On September 30, 2023 and December 31, 2022, there were ~~105,469,878~~2,109,398 and ~~105,227,876~~2,104,558 shares of common stock outstanding, respectively.

Stock Options

Below is a table summarizing the changes in stock options outstanding during the ~~six~~nine months ended ~~June~~September 30, 2023:

				Weighted -Average					Weighted- Average
	Options			Exercise Price		Options			Exercise Price

Outstanding at December 31, 2022		37,500		$	3.10		750		$	155.00

Granted		86,550		$	0.58		1,731		$	28.89
Exercised
Forfeited		(37,500	)		3.10		(750	)		155.00

Outstanding at June 30, 2023		86,550		$	0.58
Outstanding at September 30, 2023							1,731		$	28.89

Exercisable at June 30, 2023		-			-
Exercisable at September 30, 2023							-			-

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JuneThe number of options has been restated to reflect the impact of the reverse stock split that occurred on October 20, 2023. During the nine months ended September 30, 2023, ~~and 2022 (UNAUDITED)~~

~~During the six months ended June 30, 2023, 37,500~~750 stock options were forfeited, as a result of employee terminations.

Stock-based compensation expense of $0.2 million was recorded during the ~~Six~~nine months ended ~~June~~September 30, 2023. As of ~~June~~September 30, 2023, the remaining unrecognized compensation cost related to non-vested stock options is $0.03 million and is expected to be recognized over ~~3.5~~3.3 years. The outstanding stock options have a weighted average remaining contractual life of ~~9.5~~9.26 years and a total intrinsic value of $nil.

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 and 2022 (UNAUDITED)

Warrants

Below is a table summarizing the changes in warrants outstanding during the ~~six~~nine months ended ~~June~~September 30, 2023

			Weighted- Average				Weighted- Average
	Warrants		Exercise Price		Warrants		Exercise Price

Outstanding at December 31, 2022		92,514,423	$	2.30		1,871,333	$	114.85

Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited		-		-		-		-

Outstanding at June 30, 2023		92,514,423	$	2.30
Outstanding at September 30, 2023						1,871,333	$	114.85

Exercisable at June 30, 2023		92,514,423	$	2.30
Exercisable at September 30, 2023						1,871,333	$	114.85

The number of options has been restated to reflect the impact of the reverse stock split that occurred on October 20, 2023. As of ~~June~~September 30, 2023, the outstanding warrants have a weighted average remaining contractual life of ~~2.9~~2.67 years and a total intrinsic value of $nil.

NOTE 11—EARNINGS (LOSS) PER SHARE

The computation of weighted average shares outstanding and the basic and diluted earnings (loss) per common share for the following periods consisted of the following (in thousands, except share and per share amounts):

	For the Three Months Ended						For the Six Months Ended						For the Three Months Ended						For the Nine Months Ended
	June 30,			June 30,			June 30,			June 30,			September 30,			September 30,			September 30,			September 30,
	2023			2022			2023			2022			2023			2022			2023			2022
Basic Earnings (Loss) Per Share

Net income (loss)	$	1,004		$	(4,292	)	$	(1,757	)	$	1,527		$	(6,634	)	$	(5,184	)	$	(8,391	)	$	(3,657	)
Basic weighted average common shares outstanding		105,469,878			105,774,197			105,425,640			106,080,764			2,109,398			2,104,558			2,108,811			2,115,846
Basic earnings (loss) per share	$	0.01	$		(0.04	)	$	(0.02	)	$	(0.01	)	$	(3.14	)	$	(2.46	)	$	(3.98	)	$	(1.73	)

Effect of dilutive stock options and warrants		-			-			-			-			-			-			-			-
Diluted weighted average common shares outstanding		105,469,878			105,774,197			105,425,640			106,080,764			2,109,398			2,104,558			2,108,811			2,115,846

Diluted earnings (loss) per share	$	0.01		$	(0.04	)	$	(0.02	)	$	(0.01	)	$	(3.14	)	$	(2.46	)	$	(3.98	)	$	(1.73	)

For the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, there were ~~92,600,973~~1,852,015 and ~~92,664,423,~~1,871,333, respectively, potentially diluted options and warrants were excluded from the diluted EPS calculations as their effect is anti-dilutive.

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~June~~September 30, 2023 and 2022 (UNAUDITED)

NOTE 12—COMMITMENTS AND CONTINGENCIES

Legal Proceedings

At the Company’s annual meeting on December 21, 2021, the stockholders were asked to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation, dated July 30, 2020 (the “Certificate of Incorporation”), increasing the number of authorized shares of the Company’s common stock, par value $0.0001 per share (“Common Stock” and such proposal, the “Share Increase Proposal”) by 50,000,000 shares of Common Stock. As reported in a Form 8-K filing on December 28, 2021, the Share Increase Proposal was adopted and a Certificate of Amendment to the Certificate of Incorporation setting forth the amendment adopted pursuant to the Share Increase Proposal (the “Certificate of Amendment”) was filed with the Secretary of State of the State of Delaware (the “Delaware Secretary of State”). To date, none of these newly authorized shares has actually been issued. Three purported beneficial owners of Common Stock subsequently expressed concerns about a statement in the Company’s proxy statement related to the Share Increase Proposal, specifically questioning, in light of the proxy statement, the ability of brokerage firms and other custodians to vote shares of Common Stock held by them for the benefit of their customers in the absence of instructions from the beneficial owners. Based on an examination of the situation performed following receipt of these demands, the Company believes that the vote at the annual meeting was properly tabulated and that the proposed amendment was properly adopted in accordance with Delaware law. In light of the demands, however, and to ensure against any future question as to the validity of these newly authorized shares, the Company elected to seek validation of its Certificate of Amendment through a Petition to the Court of Chancery of the State of Delaware (the “Court of Chancery”) pursuant to Section 205 of the Delaware General Corporation Law (the “205 Petition”). The action, styled In re 1847 Goedeker Inc., C.A. 2022-0219-SG (the “Action”), sought entry by the Court of Chancery of an order validating and declaring effective the Certificate of Amendment, and validating the additional shares of Common Stock authorized under the Share Increase Proposal.

Two purported stockholders objected to the 205 Petition. One such objecting, purported stockholder (the “Stockholder Plaintiff”) filed his own lawsuit (which was then consolidated with the 205 Petition) requesting that such relief not be granted and asserting two claims for relief: first, against the Company for alleged violation of the Delaware General Corporation Law Section 225(b) for improper tabulation of the stockholder vote on the Share Increase Proposal; and second, asserting that the Company’s directors breached their fiduciary duties by incorrectly tabulating the stockholder vote, and by causing a purportedly invalid amendment to our Certificate of Incorporation to be filed with the Delaware Secretary of State. The Court of Chancery held a hearing on May 27, 2022, to consider the Company’s motion for entry of an order under Section 205 and subsequently entered an order denying the motion without prejudice on ~~June~~September 30, 2022. On July 7, 2022, the Company filed a Certificate of Correction with the Secretary of State of the State of Delaware, voiding the Charter Amendment and causing the number of authorized shares of Common Stock to remain at 200,000,000.

On June 12, 2023, the Company submitted to the Court of Chancery a Stipulation and [Proposed] Order Regarding Notice and Closing of the Case regarding the Action (the “Dismissal Order”). As stated in the Dismissal Order, the Company and the other parties to the Action negotiated at arm’s length and resolved the stockholders’ claims to entitlement to a mootness fee award, and the Company agreed to pay $475,000 for attorneys’ fees and expenses to the stockholders’ counsel (the “Attorneys’ Fees”). Pursuant to Court of Chancery Rules 23(e) and 41(a), the parties to the Action stipulated to voluntary dismissal of the Action with prejudice as to the Stockholder Plaintiff and without prejudice as to any actual or potential claims of any other members of the putative class, and such dismissal was granted by the Court on June 13, 2023. As stipulated in the Dismissal Order, the Company paid the Attorneys’ Fees to the stockholders’ counsel on June 28, 2023 and such payment fully satisfied and resolved the stockholders’ and the stockholders’ counsel’s entitlement to any fees or expenses in the Action.

On October 31, 2022, a putative shareholder class action was filed against Polished.com Inc. (the “Company”) and certain of its current and former officers and directors, as well as certain underwriters of the Company’s 2020 initial public offering (the “IPO”). The action was commenced in the United States District Court for the Eastern District of New York court and is captioned Maschhof v. Polished.com Inc., et al., No. 1:22-cv-06606. The complaint asserts violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as well as Sections 10(b) and Rule 10b-5 promulgated thereunder, and 20(a) of the Securities Exchange Act of 1934 arising from alleged misstatements and omissions made in certain of the Company’s SEC filings made in connection with the IPO. On or about ~~December 20, 2022, plaintiffs filed a motion for~~September 8, 2023, the ~~appointment of~~Court appointed lead plaintiff and lead counsel. ~~Although that motion is fully briefed, to date, oral argument has yet to be scheduled.~~An amended complaint was filed on or before October 31, 2023.

POLISHED.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~June~~September 30, 2023 and 2022 (UNAUDITED)

On January 26, 2023, a derivative stockholder complaint was filed against certain of the Company’s current and former officers and directors, naming the Company as a nominal defendant. The action was commenced in the United States District Court for the Eastern District of New York court and is captioned Wong v. Moore et al., No. 1:23-cv-00559. The complaint asserts violations of Section 14(a) of the Exchange Act, breaches of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets, arising from alleged misstatements and omissions made in certain of the Company’s SEC filings made in connection with the IPO. On or about March 7, 2023, plaintiff filed a stipulation and proposed order to stay proceedings until any motions to dismiss in the related class action (captioned Maschhoff v. Polished.com Inc. et al., No. 1:22-cv-06606) are decided. On March 23, 2023, the stipulation was so-ordered.

On February 13, 2023, a derivative stockholder complaint was filed against certain of the Company’s current and former officers and directors as well as the Company’s external manager, naming the Company as a nominal defendant. The action was commenced in the United States District Court for the Eastern District of New York court and is captioned Gossett v. Moore, et al., No. 1:23-cv-1168. The complaint asserts claims for breach of fiduciary duty against the former officers and directors and aiding and abetting breaches of fiduciary of duty against the external manager, arising from alleged misstatements and omissions made in certain of the Company’s SEC filings made in connection with the IPO. On or about April 24, 2023, plaintiffs filed a joint stipulation and proposed order consolidating the related derivative actions and appointing co-lead counsel. To date, the stipulation has yet to be ordered.

NOTE 13—SUPPLIER CONCENTRATION

Significant customers and suppliers are those that account for greater than ten percent of the Company’s revenues and purchases.

For the ~~six~~nine months ~~June~~September 30, 2023, the Company approximately 65% of purchases were made from DMI.

The Company believes there are numerous other suppliers that could be substituted should the supplier become unavailable or non-competitive.

NOTE 14—SUBSEQUENT EVENTS

Subsequent to December 31, 2022, the Company signed a letter of intent for a sublease from DMI, a related party for a new warehouse in a building being leased by DMI. The new lease will allow the Company to close its two existing New Jersey warehouses and consolidate operations into one new warehouse. The lease, which is expected to be finalized in the fourth quarter of 2023 or the first quarter of ~~2025~~2024 is for ~~228,000~~232,640 square feet for seven years at a cost of approximately $15 per square foot, including common area charges with annual increases of 3.75%.

On October 19, 2023, the Company’s shareholders approved a reverse stock split between 1-for-25 and not more than 1-for-75 at any time on or prior to ~~$10,000,000 from and after July 25,~~October 19, 2023. The ~~Letter~~directors of ~~Credit commitments decreased to $2,000,000 and the Swing Line Loan was eliminated. The Amendment also establishes a new EBITDA covenant and requires~~ the Company determined on a ratio of 1-for-50 for the Reverse Stock Split. On October 20, 2023, the Reverse Stock Split became effective. All references in these financial statements to ~~maintain minimum liquidity~~number of ~~$8.0 million including restricted cash~~common shares, price per share and ~~$3.0 million excluding restricted cash. Liquidity~~weighted average number of shares outstanding prior to the 1 for 50 reverse split have been adjusted to reflect the stock split on a retroactive basis as ~~defined in~~of the ~~Amendment includes Cash and certain qualifying customer and credit card accounts receivable.~~earliest period presented, unless otherwise noted.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Except as otherwise indicated by the context and for the purposes of this Quarterly Report on Form 10-Q, the terms “Company,” “we,” “us,” or “our” refer to Polished.com Inc., a Delaware corporation, and its consolidated subsidiaries, including but not limited to, 1 Stop Electronics Center, Inc., a New York corporation (“1 Stop”), Gold Coast Appliances, Inc., a New York corporation (“Gold Coast”), Superior Deals Inc., a New York corporation (“Superior Deals”), Joe’s Appliances LLC, a New York limited liability company (“Joe’s Appliances”), and YF Logistics LLC, a New Jersey limited liability company (“YF Logistics” and together with 1 Stop, Gold Coast, Superior Deals, and Joe’s Appliances, “Appliances Connection”), and AC Gallery Inc., a Delaware corporation (“AC Gallery”). The following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this report. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly in the section “Cautionary Statement Regarding Forward-Looking Statements” and in our Annual Report on Form 10-K for the year ended December 31, 2022 under the heading Item 1A “Risk Factors.”

Overview

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes thereto, which are included in Part I, Item 1 of this Form 10-Q.

We operate a content-driven and technology-enabled shopping destination for appliances, furniture and home goods. With warehouse fulfillment centers in the Northeast and Midwest, as well as showrooms in Brooklyn, New York, and Largo, Florida. We offer one-stop shopping for national and global brands. We carry many household name-brands, including Bosch, Cafe, Frigidaire Pro, Whirlpool, LG, and Samsung, and also carry many major luxury appliance brands such as Miele, Thermador, La Cornue, Dacor, Ilve, Jenn-Air, and Viking, among others. We also sell furniture, fitness equipment, plumbing fixtures, televisions, outdoor appliances, and patio furniture, as well as commercial appliances for ~~builder~~builders and business clients.

Recent Developments

Amendment of Bank of America Credit Agreement

On July 25, 2023, the Company and Bank of America amended ~~their~~the Credit Agreement (the ~~“Amendment”~~“First Amendment”), in part, to require the Company maintain liquidity, which includes cash and certain qualifying customer and credit card account receivables, of $8.0 million. The Company and Bank of America amended the Credit Agreement on November 20, 2023 (the “Second Amendment”), which requires the Company to establish a Bank of America cash collateral account where cash and cash equivalents deposited in the cash collateral account do not constitute Liquidity for purposes of the Credit Agreement. Further, the Second Amendment requires that (i) at least $3.0 million of Liquidity be comprised of unrestricted cash and cash equivalents and (ii) more than $5.0 million of Liquidity be comprised of certain qualifying customer and credit card accounts receivable.

Concurrent with closing of the Bank of America loan, the Company purchased a fixed rate loan swap (See Note 9) capping its interest rate at 2.9%, plus applicable margins.

Commencing on ~~September 30,~~December 31, 2023, through and including ~~June 30,~~January 31, 2024, the Borrowers must repay the principal amount of the Term Loan in installments of $937,500, and quarterly installments of $1,875,000 each, payable on the last business day of each March, June, September and December. Revolving Loans may be repaid and reborrowed at any time until the Maturity Date, subject to the terms and conditions set forth in the Credit Agreement. Mandatory prepayments of Revolving Loans are required if the amount borrowed at any time exceeds the commitment amount. The Company may voluntarily prepay the Loans from time to time in accordance with the provisions of the Credit Agreement, and will be required to prepay the Loans under certain limited circumstances as set forth in the Credit Agreement, including upon receipt of cash proceeds in connection with certain specified asset sales, receipt of loss or condemnation proceeds or other cash proceeds received other than in the ordinary course of business or upon receipt of cash proceeds from the incurrence of indebtedness that is not permitted under the Credit Agreement, all as more specifically set forth in the Credit Agreement. The Loans may from time to time be further evidenced by separate promissory notes issued by the Borrowers.

As a result of the reduced term, the Company has begun discussions with investment bankers to place financing to replace the existing credit agreement by August 31, 2024.

Reverse Stock Split

On October 19, 2023, the Company filed with the Secretary of State of the State of Delaware the Certificate of Amendment to affect a reverse stock split (the “Reverse Split”) of the Company’s common stock at an exchange ratio of 1 for 50, which was approved by the board of directors. The Reverse Split was effective at 12:01 a.m. Eastern Time on October 20, 2023 (the “Effective Time”). At the Effective Time, every 50 shares of the Company’s issued and outstanding common stock were automatically converted into one share of common stock, without any change in the par value per share. In addition, proportionate adjustments were made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding stock options, warrants and convertible securities, and to the number of shares issued and issuable under the Company’s stock incentive plans. Any stockholder who would otherwise be entitled to a fractional share of common stock created as a result of the Reverse Split will be entitled to receive a cash payment in lieu thereof equal to the fractional share to which the stockholder would otherwise be entitled multiplied by the closing sales price of a share of common stock on October 19, 2023, as adjusted for the Reverse Split.

Trends and Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following factors:

●

our ability to acquire new customers or retain existing customers, including those shopping online

●

our ability to offer competitive product pricing;

●

our ability to broaden product offerings;

●

industry demand and competition;

●

market conditions and our market position; and

●

our ability to successfully integrate the operations of Appliances Connection with our business.

Results of Operations

Comparison of Three Months Ended ~~June~~September 30, 2023 and 2022

The following table sets forth key components of our results of operations for the three months ended ~~June~~September 30, 2023 and 2022, in thousands and as a percentage of our revenue.

	For the Three Months Ended						For the Three Months Ended						Three Months Ended						Three Months Ended
	June 30, 2023						June 30, 2022						September 30, 2023						September 30, 2022
	Amount			% of Net Sales			Amount			% of Net Sales			Amount			% of Sales			Amount			% of Sales
Product sales, net	$	87,761			100.0	%	$	138,463			100.0	%	$	77,818			100.0	%	$	143,566			100.0	%
Cost of goods sold		68,181			77.7	%		115,438			83.4	%		62,513			80.3	%		122,431			85.3	%
Gross profit		19,580			22.3	%		23,025			16.6	%		15,305			19.7	%		21,135			14.7	%

Operating Expenses
Personnel		6,021			6.9	%		7,402			5.3	%		5,874			7.5	%		8,348			5.8	%
Advertising		4,512			5.1	%		5,363			3.9	%		5,061			6.5	%		7,534			5.2	%
Bank and credit card fees		3,005			3.4	%		4,600			3.3	%		2,557			3.3	%		5,932			4.1	%
Depreciation and amortization		1,068			1.2	%		2,887			2.1	%		1,061			1.4	%		2,882			2.0	%
General and administrative		4,885			5.6	%		3,563			2.6	%		6,747			8.7	%		7,260			5.1	%

Total Operating Expenses		19,491			22.2	%		23,815			17.2	%		21,300			27.4	%		31,956			22.3	%

INCOME (LOSS) FROM OPERATIONS		89			0.1	%		(790	)		(0.6	)%		(5,995	)		-7.7	%		(10,821	)		-7.5	%

Other Income (Expenses)
Interest income		375			0.4	%		64			0.1	%		407			0.5	%		174			0.1	%
Interest expense		(1,053	)		(1.2	)%		(302	)		(0.3	)%		(1,886	)		-2.4	%		(1,351	)		-0.9	%

Gain (loss) on change in fair value of derivative instruments		1,899			2.2	%		(936	)		(0.7)	%		446			0.6	%		4,476			3.1	%

Loss on settlement of debt		-			-			(3,241	)		(2.3	)%
Other income (expense)		22			-	%		(41	)		-	%		227			0.3	%		(50	)		0.0	%

Total Other Income (Expenses)		1,243			1.4	%		(4,456	)		(3.2	)%		(806	)		-1.0	%		3,249			2.3	%

NET INCOME (LOSS) BEFORE INCOME TAXES		1,332			1.5	%		(5,246	)		(3.8	)%		(6,801	)		-8.7	%		(7,572	)		-5.3	%

INCOME TAX EXPENSE (BENEFIT)		(328	)		(0.4	)		954			0.7	%
INCOME TAX (EXPENSE) BENEFIT														167			0.2	%		2,388			1.7	%

NET INCOME (LOSS)	$	1,004			1.1	%	$	(4,292	)		(3.1	)%	$	(6,634	)		-8.5	%	$	(5,184	)		-3.6	%

Product sales, net. We generate revenue from the retail sale of appliances, furniture, home goods and related products. Our product sales were ~~$87.8~~$77.8 million for the three months ended ~~June~~September 30, 2023, as compared to ~~$138.5~~$143.6 million for the three months ended ~~June~~September 30, 2022, a decrease of ~~$50.7~~$65.7 million, or ~~36.6%~~45.8%. The decrease in sales is attributable to several factors including a general slowdown in the economy, inflation, an increase in interest rates which affects the mass market, housing and ~~a decline in the luxury market, particularly~~ the remodeling business. Also, in ~~2022,~~2023, the Company ~~pursued~~emphasized higher-margin sales instead of pursuing a policy of revenue growth with less emphasis on profitability.

Cost of goods sold. Our costs of goods sold are comprised of product costs and freight costs. Product costs represent the amount we pay the manufacturer for their product. We negotiate special terms and pricing with the manufacturer, which are generally based on the number of products we purchase. Periodically, manufacturers offer special pricing for purchasing a certain volume of products at one time. Funding might also be offered to support our marketing and advertising efforts. Freight is the cost of delivering products to customers. Our cost of goods sold was ~~$68.2~~$62.5 million for the three months ended ~~June~~September 30, 2023, as compared to ~~$115.4~~$122.4 million for the three months ended ~~June~~September 30, 2022, a decrease of ~~$47.3~~$59.9 million, or ~~40.9%~~48.9%. The decrease is related to reduced sales for the three months ended ~~June~~September 30, 2023.

Gross profit and gross margin. As a result of the foregoing, our gross profit was ~~$19.6~~$15.3 million for the three months ended ~~June~~September 30, 2023, as compared to ~~$23.0~~$21.1 million for the three months ended ~~June~~September 30, 2022, a decrease of ~~$3.4~~$5.8 million, or ~~15.0%~~27.6%. Our gross margin (gross profit as a percentage of net sales) was ~~22.3%~~19.7% for the three months ended ~~June~~September 30, ~~2023and 16.6%~~2023 and 14.7% for the three months ended ~~June~~September 30, 2022. The improvement in the gross profit percentage is the result of management’s emphasis on profitability as opposed to revenue growth.

Personnel expenses. Personnel expenses include employee salaries and bonuses plus related payroll taxes. It also includes health insurance premiums, ~~401(k) contributions,~~ training costs and stock compensation expense. Our personnel expenses were ~~$6.0~~$5.9 million for the three months ended ~~June~~September 30, 2023, as compared to ~~$7.4~~$8.3 million for the three months ended ~~June~~September 30, 2022, a decrease of ~~$1.4~~$2.5 million, or ~~18.7%~~29.6%. As a percentage of net sales, personnel expenses were ~~6.9%~~7.5% and ~~5.3%~~5.8% for the three months ended ~~June~~September 30, 2023 and 2022, respectively. In ~~2023, management made~~the current quarter, we affected a ~~conscious decision~~reduction in force to ~~adjust~~align headcount to ~~match~~declines in revenue. As a result, personnel costs include $0.2 million of severance costs.

Advertising expenses. Advertising expenses include the cost of marketing our products and primarily include online search engine expenses. Our advertising expenses were ~~$4.5~~$5.1 million for the three months ended ~~June~~September 30, 2023, as compared to ~~$5.4~~$7.5 million for the three months ended ~~June~~September 30, 2022, a decrease of ~~$0.9~~$2.5 million, or ~~15.9%~~32.8%. As a percentage of net sales, advertising expenses were ~~5.1%~~6.5% and ~~3.9%~~5.2% for the three months ended ~~June~~September 30, 2023 and 2022, respectively.

Bank and credit card fees. Bank and credit card fees are primarily the fees we pay credit card processors for processing credit card purchases made by customers and to third party sellers on whose websites we sell parts and other small items. Our bank and credit card fees were ~~$3.0~~$2.6 million for the three months ended ~~June~~September 30, 2023, as compared to ~~$4.6~~$5.9 million for the three months ended ~~June~~September 30, 2022, a decrease of ~~$1.6~~$3.3 million, or ~~34.7%~~56.9%. As a percentage of net sales, bank and credit card fees were ~~3.4%~~3.3% and ~~3.3%~~4.1% for the three months ended ~~June~~September 30, 2023 and 2022, respectively. Bank and credit card fees are based on customer orders that are paid with a credit card (substantially all orders), so the decrease was largely due to the decline in sales.

Depreciation and amortization. Depreciation and amortization was $1.1 million, or ~~1.2%~~1.4% of net sales, for the three months ended ~~June~~September 30, 2023, as compared to $2.9 million, or ~~2.1%~~2.0% of net sales, for the three months ended ~~June~~September 30, 2022. The decrease is the result of the 2022 impairment charge that reduced the amount of intangible assets to be amortized.

General and administrative expenses. Our general and administrative expenses consist primarily of professional advisor fees, rent expense, insurance, and other expenses incurred in connection with general operations. Our general and administrative expenses were ~~$4.9~~$6.7 million for the three months ended ~~June~~September 30, 2023, as compared to ~~$3.6~~$7.3 million for the three months ended ~~June~~September 30, 2022, ~~an increase~~a decrease of ~~$1.3~~$0.5 million, or ~~37.1%~~7.1%. As a percentage of net sales, general and administrative expenses were ~~5.6%~~8.7% and ~~2.6%~~5.1% for the three months ended ~~June 30,2023~~September 30, 2023 and 2022, respectively. The ~~increase~~decrease results from ~~higher~~lower insurance premiums and professional fees ~~including~~partially offset by the ~~necessity to reaudit and restate 2021.~~write-off of fixed assets associated with the terminated lease of 8780 19^th Avenue.

Following is a summary of general and administrative expenses for the three months ended ~~June~~September 30, 2023 and 2022

	Three Months Ended June 30				Three Months Ended September 30
	2023		2022		2023		2022
Professional fees	$	1,798	$	1,172
Professional Fees					$	2,237	$	3,029
Insurance		1,153		513		1,341		1,641
Loss on Disposal of Fixed Assets						1,094		-
Rent		1,109		1,010		1,045		988
All other		825		868
All Other						1,030		1,602

Total	$	4,885	$	3,563	$	6,747	$	7,260

Total other income (expense). We had ~~$1.2~~$0.8 million in total other ~~income,~~expense, net, for the three months ended ~~June~~September 30, 2023, as compared to total other ~~expense,~~income, net, of ~~$4.5~~$3.2 million for the three months ended ~~June~~September 30, 2022. Total other income, net, for the three months ended ~~June~~September 30, 2023 consisted primarily of a gain on the change in fair value of a derivative of ~~$1.9~~$0.4 million and interest income of $0.4 million, offset by interest expense of ~~$1.1~~$1.9 million. Total other expense, net, for the three months ended ~~June~~September 30, 2022 consisted of ~~a loss of $3.2 million on the settlement of a debt obligation,~~ a change in the fair value of a derivative of ~~$0.9~~$4.5 million and interest ~~expense~~income of ~~$0.3~~$0.2 million offset by interest ~~income~~expense of ~~$0.06~~$1.4 million.

Income tax benefit (expense). We had an income tax ~~expense~~benefit of ~~$0.3~~$0.2 million for the three months ended ~~June~~September 30, 2023, as compared to an income tax benefit of ~~$1.0~~$2.4 million for the three months ended ~~June~~September 30, 2022.

Net income (loss). As a result of the cumulative effect of the factors described above, we had net ~~income~~losses of ~~$1.0~~$6.6 million and $5.2 million for the three months ended ~~June~~September 30, 2023 ~~as compared to a net loss of $4.3 million for the three months ended June~~and September 30, 2022, respectively, an increase of ~~$5.3~~$1.5 million or ~~123.4%~~28.0%.

Comparison of the ~~six months~~Nine Months ended ~~June~~September 30, 2023 and 2022

The following table sets forth key components of our results of operations for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, in thousands and as a percentage of our revenue.

	Nine Months Ended						Nine Months Ended
	September 30, 2023						September 30, 2022
	Amount			% of Sales			Amount			% of Sales
Product sales, net	$	261,018			100.0	%	$	430,710			100.0	%
Cost of goods sold		204,987			78.5	%		355,788			82.6	%
Gross profit		56,031			21.5	%		74,922			17.4	%

Operating Expenses
Personnel		18,379			7.0	%		22,396			5.2	%
Advertising		14,694			5.6	%		18,475			4.3	%
Bank and credit card fees		8,935			3.4	%		15,121			3.5	%
Depreciation and amortization		3,199			1.2	%		8,588			2.0	%
General and administrative		16,619			6.4	%		15,078			3.5	%

Total Operating Expenses		61,826			23.7	%		79,658			18.5	%

INCOME (LOSS) FROM OPERATIONS		(5,795	)		-2.2	%		(4,736	)		-1.1	%

Other Income (Expenses)
Interest income		1,139			0.4	%		282			0.1	%
Adjustment in value of contingency		-			0.0	%		(2	)		0.0	%
Interest expense		(4,821	)		-1.8	%		(2,594	)		-0.6	%
Gain (loss) on change in fair value of derivative instruments		1,020			0.4	%		3,540			0.8	%
Loss on extinguishment of debt		-			0.0	%		(3,241	)		-0.8	%
Other income (expense)		331			0.1	%		(140	)		0.0	%

Total Other Income (Expenses)		(2,331	)		-0.9	%		(2,155	)		-0.5	%

NET INCOME (LOSS) BEFORE INCOME TAXES		(8,126	)		-3.1	%		(6,891	)		-1.6	%

INCOME TAX (EXPENSE) BENEFIT		(265	)		-0.1	%		3,234			0.8	%

NET INCOME (LOSS)	$	(8,391	)		-3.2	%	$	(3,657	)		-0.8	%

Six Months Ended Six Months Ended
June 30, 2023 June 30, 2022
Amount % of Net
Sales Amount % of Net
Sales
Product sales, net $ 183,200 100.0 % $ 287,144 100.0 %
Cost of goods sold 142,474 77.8 % 233,357 81.3 %
Gross profit 40,726 22.2 % 53,787 18.7 %

Operating Expenses
Personnel 12,505 6.8 % 14,048 4.9 %
Advertising 9,633 5.3 % 10,941 3.8 %
Bank and credit card fees 6,378 3.4 % 9,189 3.2 %
Depreciation and amortization 2,138 1.2 % 5,706 2.0 %
General and administrative 9,872 5.4 % 7,818 2.7 %

Total Operating Expenses 40,526 22.1 % 47,702 16.6 %

INCOME FROM OPERATIONS 200 0.1 % 6,085 2.1 %

Other Income (Expenses)
Interest income 732 0.4 % 108 (0.0 )%
Adjustment in value of contingency - - (2 ) (0.0 )%
Interest expense (2,935 ) (1.6 )% (1,243 ) (0.4 )%
Gain (loss) on change in fair value of derivative instruments 574 0.3 % (936 ) (0.3 )%
Loss on settlement of debt - - (3,241 ) (1.1 )%
Other income (expense) 104 0.1 % (90 ) (0.0 )%

Total Other Expenses (1,525 ) (0.8 )% (5,404 ) (1.9 )%

NET INCOME (LOSS) BEFORE INCOME TAXES (1,325 ) (0.7 )% 681 0.2 %

INCOME TAX (EXPENSE) BENEFIT (432 ) (0.3 )% 846 0.3 %

NET INCOME (LOSS) $ (1,757 ) (1.0 )% $ 1,527 0.5 %

Product sales, net. We generate revenue from the retail sale of appliances, furniture, home goods and related products. Our product sales were ~~$183.2~~$261.0 million for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to ~~$287.1~~$430.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022, a decrease of ~~$103.9~~$169.7 million, or ~~36.2%~~39.4%. The decrease in sales is attributable to several factors including a general slowdown in the economy, inflation, an increase in interest rates which affects the mass market, housing and ~~a decline in the luxury market, particularly~~ the remodeling business. Also, in ~~2022,~~2023, the Company ~~pursued~~emphasized higher-margin sales instead of pursuing a policy of revenue growth with less emphasis on profitability.

Cost of goods sold. Our costs of goods sold are comprised of product costs and freight costs. Product costs represent the amount we pay the manufacturer for their product. We negotiate special terms and pricing with the manufacturer, which are generally based on the number of products we purchase. Periodically, manufacturers offer special pricing for purchasing a certain volume of products at one time. Funding might also be offered to support our marketing and advertising efforts. Freight is the cost of delivering products to customers. Our cost of goods sold was ~~$142.5~~$205.0 million for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to ~~$233.4~~$355.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022, a decrease of ~~$90.9~~$150.8 million, or ~~39.0%~~42.4%.

Gross profit and gross margin. As a result of the foregoing, our gross profit was ~~$40.7~~$56.0 million for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to ~~$53.8~~$74.9 million for the ~~six~~nine months ended ~~June~~September 30, 2022, a decrease of ~~$13.1~~$18.9 million, or ~~24.3%~~26.0%. Our gross margin (gross profit as a percentage of net sales) was ~~22.2%~~21.5% for the ~~six~~nine months ended ~~June~~September 30, 2023 and ~~18.7%~~17.4% for the ~~six~~nine months ended ~~June~~September 30, 2022. The improvement in the gross profit percentage is the result of management’s emphasis on profitability as opposed to revenue growth. The decrease in gross profit results from reduced sales. The increase in gross margin results from management’s emphasis on profitability in the current period.

Personnel expenses. Personnel expenses include employee salaries and bonuses plus related payroll taxes. It also includes health insurance premiums, 401(k) contributions, training costs and stock compensation expense. Our personnel expenses were ~~$12.5~~$18.4 million for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to ~~$14.0~~$22.4 million for the ~~six~~nine months ended ~~June~~September 30, 2022, a decrease of ~~$1.5~~$4.0 million, or ~~11.0%~~17.9%. As a percentage of net sales, personnel expenses were ~~6.8%~~7.0% and ~~4.9%~~5.2% for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively.

In 2023, ~~management made~~we affected a ~~conscious decision~~reduction in force to ~~adjust~~align headcount to ~~match~~declines in revenue. As a result, personnel costs include $0.3 million of severance costs.

Advertising expenses. Advertising expenses include the cost of marketing our products and primarily include online search engine expenses. Our advertising expenses were ~~$9.6~~$14.7 million for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to ~~$10.9~~$18.5 million for the ~~six~~nine months ended ~~June~~September 30, 2022, a decrease of ~~$1.3~~$3.8 million, or ~~12.0%~~20.5%. As a percentage of net sales, advertising expenses were ~~5.3%~~5.6% and ~~3.8%~~4.3% for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively.

Bank and credit card fees. Bank and credit card fees are primarily the fees we pay credit card processors for processing credit card purchases made by customers and to third party sellers on whose websites we sell parts and other small items. Our bank and credit card fees were ~~$6.4~~$8.9 million for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to ~~$9.2~~$15.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022, a decrease of ~~$2.8~~$6.2 million, or ~~30.5%~~40.9%. As a percentage of net sales, bank and credit card fees were ~~3.5%~~3.4% and ~~3.2%~~3.5% for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. Bank and credit card fees are based on customer orders that are paid with a credit card (substantially all orders), so the decrease was largely due to the decline in sales.

Depreciation and amortization. Depreciation and amortization was ~~$2.1~~$3.2 million, or 1.2% of net sales, for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to ~~$5.7~~$8.6 million, or 2.0% of net sales, for the ~~six~~nine months ended ~~June~~September 30, 2022. The decrease is the result of the 2022 impairment charge that reduced the amount of intangible assets to be amortized.

General and administrative expenses. Our general and administrative expenses consist primarily of professional advisor fees, rent expense, insurance, and other expenses incurred in connection with general operations. Our general and administrative expenses were ~~$9.9~~$16.6 million for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to ~~$7.8~~$15.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022, an increase of ~~$2.1~~$1.5 million, or ~~26.3%~~10.2%. As a percentage of net sales, general and administrative expenses were ~~5.4%~~6.4% and ~~2.7%~~3.5% for the ~~six~~nine months ended ~~June 30,2023~~September 30, 2023 and 2022, respectively. The increase results from higher insurance premiums and ~~professional fees, including~~a write-off of fixed assets associated with the ~~necessity to reaudit 2021.~~terminated lease of 8780 19^th Avenue.

Following is a summary of general and administrative expenses for the three months ended ~~June~~September 30, 2023 and 2022

Six Months Ended June 30
2023 2022
Professional fees $ 3,184 $ 2,596
Insurance 2,523 1,682
Rent 2,192 2,056
All other 1,973 1,484

Total $ 9,872 $ 7,818

	Nine Months Ended September 30
	2023		2022
Professional Fees	$	5,421	$	5,625
Insurance		3,864		3,324
Rent		3,237		3,045
Loss on Disposal of Fixed Assets		1,094		-
All Other		3,003		3,084

Total	$	16,619	$	15,078

Total other income (expense). We had ~~$1.5~~$2.3 million in total other expense, net, for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to total other expense, net, of ~~$5.4~~$2.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022. Total other expense, net, for the ~~six~~nine months ended ~~June~~September 30, 2023 consisted primarily of interest expense of ~~$2.9~~$4.8 million, a gain on the change in fair value of a derivative of ~~$0.6~~$1.0 million and interest income of ~~$0.7~~$1.1 million. Total other expense, net, for the ~~six~~nine months ended ~~June~~September 30, 2022 consisted of a $3.2 million loss on settlement of a debt obligation and interest expense of $2.6 million offset by a ~~loss~~gain on the fair value of a derivative of ~~$0.9~~$3.5 million and interest ~~expense of $1.2 million offset by interest~~ income of ~~$0.1~~$0.3 million.

Income tax benefit (expense). We had an income tax expense of ~~$0.4~~$0.3 million for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to an income tax benefit of ~~$1.0~~$3.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022.

Net income (loss). As a result of the cumulative effect of the factors described above, we had a net loss of ~~$1.8~~$8.4 million for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to a net ~~income~~loss of ~~$1.5~~$3.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022, ~~a decrease~~an increase of ~~$3.3~~$4.7 million, or ~~215.1%~~129.5%.

Liquidity and Capital Resources

As of ~~June~~September 30, 2023, we had cash and cash equivalents of ~~$13.7~~$15.2 million including restricted cash of ~~$4.7~~$5.4 million. For the ~~six~~nine months ended ~~June~~September 30, 2023, we had an operating ~~income~~loss of approximately ~~$0.2~~$8.4 million, cash flows used in operations of ~~$3.9~~$0.4 million and working capital of ~~$22.9~~$15.9 million. As of and for the year ended December 31, 2022, we had an operating loss of $128.3 million (including a non-cash impairment charge of $109.1 million), cash used in operations of $46.7 million, cash and cash equivalents of $20.5 million including restricted cash of $0.95 million and working capital of $25.9 million.

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.

Summary of Cash Flow

The following table provides detailed information about our net cash flow for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 (in thousands).

	Six Months Ended						Nine Months Ended
	June 30,						September 30,
	2023			2022			2023			2022
Net cash used in operating activities	$	(3,928	)	$	(22,190	)	$	(390	)	$	(38,693	)
Net cash used in investing activities		(134	)		(256	)		(140	)		(1,318	)
Net cash (used in) provided by financing activities		(2,773	)		37,774			(4,767	)		36,386

Net change in cash, cash equivalents, and restricted cash	$	(6,835	)	$	15,328		$	(5,297	)	$	(3,625	)

Cashflows used in operating activities. Our net cash used in operating activities was ~~$3.9~~$0.4 million for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to net cash used in operating activities of ~~$22.2~~$38.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022. Significant changes in operating assets and liabilities affecting cash flows during these periods included:

●

Net loss was ~~$1.8~~$8.4 million for the ~~six~~nine months ended ~~June~~September 30, 2023 compared to a net ~~income~~loss of ~~$1.5~~$3.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022,

●

Cash ~~provided (used)~~used by receivables was ~~$4.6~~$7.0 million and ~~($2.3)~~$1.8 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively,

●

Cash used by vendor deposits was ~~$5.4~~$5.8 million and ~~$5.9~~$12.6 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively

●

Cash provided by ~~(used in)~~ inventories was ~~$2.8~~$12.9 million and ~~($4.5)~~$7.3 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively, due to efforts to manage inventory levels to support revenue levels in the respective years,

●

Cash used by accounts payable and accrued expenses was ~~$3.2~~$4.9 million and ~~$10.7~~$12.1 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively, and

●

Cash used by customer deposits was ~~$3.3~~$2.8 million and ~~$12.1~~$20.9 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. Prior to July 2022, on certain sales transactions, the Company charged a customer’s card when an order was placed. After July 2022, the customer’s card was charged when the order shipped. The large decline in customer deposits results from shipping or refunding customer orders that had previously been paid.

Cashflows provided by investing activities. Our net cash used in investing activities was $0.1 million for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to ~~$0.3~~$1.3 million for the ~~six~~nine months ended ~~June~~September 30, 2022. The cash used in both years was for purchases of property and equipment.

Cashflows (used in) provided by financing activities. Our net cash used in financing activities was ($~~2.8)~~4.8) million for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to net cash provided by financing activities of ~~$37.8~~$36.4 million for the ~~six~~nine months ended ~~June~~September 30, 2022.

Significant changes in financing activities affecting cash flows during these years included:

●

Net cash received from notes payable proceeds of $43.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022,

●

Repayments of notes payable of ~~$2.7~~$4.7 million and ~~$3.2~~$4.6 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively, and

	●	Stock repurchases of $2.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022.

Credit Facilities

Bank of America Credit Agreement

As of ~~June~~September 30, 2023, the carrying value of the Term Loan was ~~$94.1~~$92.3 million, comprised of principal of ~~$95.0~~$93.7 million, net of unamortized loan costs of ~~$0.9~~$0.8 million.

As a result of the reduced term, the Company has begun discussions with investment bankers to place financing to replace the existing credit agreement by August 31, 2024.

Management Services Agreement

On April 5, 2019, the Company entered into a management services agreement with 1847 Partners LLC (the “Manager”), a company owned and controlled by Ellery W. Roberts, the Company’s chairman and prior significant stockholder, which was amended effective on August 4, 2020. 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 under certain circumstances specified in the management services agreement, the quarterly fee may be reduced if similar fees payable to the Manager by subsidiaries of the Company’s former parent company, 1847 Holdings LLC, exceed a threshold amount.

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 the Company in connection with performing services under the management services agreement.

The Company expensed management fees of $0.06 and ~~$0.13million~~$0.18 million for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively.

Leases

On April 5, 2019, the Company entered into a lease agreement with S.H.J., L.L.C. for its prior principal office in Ballwin, Missouri. The lease is for a term of five 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. The lease agreement contains customary events of default, representations, warranties, and covenants. The termination date of this lease agreement is April 4, 2024.

On May 31, 2019, YF Logistics entered into a sublease agreement with Dynamic Marketing, Inc. (“DMI”) for its warehouse space in Hamilton, NJ. The initial term of the sublease was for a period commencing on June 1, 2019 and terminating on April 30, 2020, with automatic renewals for successive one-year terms until the earlier of (i) termination by either upon thirty days’ prior written notice or (ii) April 30, 2024. The sublease provides for a base rent equal to 71.43% of the base rent paid by DMI under its lease for the premises, plus 71.43% of any taxes, operating expenses, additional charges or any other amounts due by DMI, for a total of $56,250 per month.

On January 13, 2021, the Company entered into a lease agreement with Westgate 200, LLC, which was amended on March 31, 2021, for its new principal office and showroom in St. Charles, Missouri. The lease terminates on April 30, 2027, with two options to renew for an additional five-year period. The base rent is $20,977 per month until September 30, 2021, and increases to $31,465 per month until April 30, 2022, after which time the base rent increases at approximately 2.5% per year thereafter. The Company must also pay its 43.4% pro rata portion of the property taxes, operating expenses and insurance costs and is also responsible to pay for the utilities used on the premises. The lease contains customary events of default.

On June 2, 2021, 1 Stop entered into a new lease agreement with 1870 Bath Ave. LLC, a related party, for the premises located at 1870 Bath Avenue, Brooklyn, New York. The lease is for a term of ten years and provides for a base rent of $74,263 per month during the first year with annual increases to $96,896 during the last year of the term. 1 Stop is also responsible for all property taxes, insurance costs and the utilities used on the premises. The lease contains customary events of default. This lease replaces the prior lease entered into between the parties on September 1, 2018.

On June 2, 2021, Joe’s Appliances entered into a new lease agreement with ~~812~~7812 5th Ave Realty LLC, a related party, for the premises located at 7812 5th Avenue, Brooklyn, New York. The lease is for a term of ten years and provides for a base rent of $6,365 per month during the first year with annual increases to $8,305 during the last year of the term. Joe’s Appliances is also responsible for all property taxes, insurance costs and the utilities used on the premises. The lease contains customary events of default. This lease replaces the prior lease entered into between the parties on September 1, 2018. The initial ROU asset and liability associated with this lease is $0.7 million.

On July 29, 2021, AC Gallery entered into a lease agreement with Tom’s Flooring, LLC for the showroom and warehouse located in Largo, Florida. The lease is for a term of four months commencing on September 1, 2021 and ending on December 31, 2021 and provides for a base rent of $6,500 per month. The lease is currently month-to-month. AC Gallery must also pay its one-third pro rata portion of the common area maintenance charges, utilities and sales taxes. The lease contains customary events of default. The lease is short term and therefore not recorded as a ROU asset and liability.

On September 9, 2021, the Company entered into a warehouse agreement for a new warehouse in Somerset, New Jersey. The warehouse agreement is for a term of 26 months commencing on October 1, 2021, and ending November 29, 2023, unless the master lease for the premises is terminated earlier. The monthly storage fee is $136,274 for the first year, $140,362 for the second year, and $144,573 for the last two months. The Company also paid a security deposit of $272,549. The lease agreement contains customary events of default, representations, warranties, and covenants. The initial ROU and liability associated with this operating lease is $3.4 million.

On March 15, 2022, the Company entered into a lease for additional office space with 8780 19th Ave LLC (“Landlord”), an entity owned by Albert and Elie Fouerti, the Company’s former Chief Executive and Chief Operating Officer, respectively. The Company contends that the lease required the Landlord do certain work at Landlord’s expense to improve the building at a cost of approximately $1.2 million. Landlord has refused to pay for this work, contending that this expense was the Company’s responsibility. In addition, the total remaining amount due on the lease at ~~June~~September 30, 2023 is also approximately $1.2 million. Landlord contends that the Company is in default of the lease for failing to pay rent. The Company ~~disagrees~~disagreed that its rent obligations have been triggered and further ~~contends~~contended that Landlord has violated the lease by failing to pay for the work. AsOn August 23, 2023, the Company entered into a lease termination agreement with the Landlord. Under the terms of the ~~date of this report,~~termination agreement, the Company was relieved of its obligations under the lease and agreed to terminate its claims for reimbursement of the ~~Landlord remain in dispute over these issues.~~improvements it made to the building and to pay $100,000.

Critical Accounting Policies and Estimates

For information regarding the Company’s Critical Accounting Policies and Estimates, see the “Critical Accounting Policies and Estimates” section of Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a smaller reporting company, we are not required to disclose information under this item.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

The Company maintains “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, designed to ensure that information required to be disclosed by a company in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Management, with the participation of our Interim Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~June~~September 30, 2023.

Based on the evaluation performed as of ~~June~~September 30, 2023, as a result of the material weaknesses in internal control over financial reporting that are described below, and as further described in Item 9A of our Annual Report on Form 10-K filed with the SEC on July 31, 2023, our Interim Chief Executive Officer and Interim Chief Financial Officer determined that our disclosure controls and procedures were not effective as of such date.

Material Weaknesses in Internal Control over Financial Reporting

Management has determined that the Company’s ineffective internal control over financial reporting and resulting material weaknesses, stem primarily from management’s inability to maintain appropriately designed controls, which impacts the control environment, risk assessment procedures and ability to detect or prevent material misstatements to the financial statements. The material weaknesses were attributed to:

●

Lack of structure and responsibility, insufficient number of qualified resources and inadequate oversight and accountability over the performance of controls;

●

Ineffective assessment and identification of changes in risk impacting internal control over financial reporting;

●

Inadequate selection and development of effective control activities, general controls over technology and effective policies and procedures;

●

Ineffective evaluation and determination as to whether the components of internal control were present and functioning; and

●

The lack of an accounting system that is required for a company or our size.

Management’s Remediation Plans

Management is actively engaged in the implementation of remediation plans to address the controls contributing to the material weaknesses. The Company has taken, and continues to take, the following remediation actions:

●

Enhance reporting structure and increase the number of qualified resources in roles over internal control over financial reporting;

●

Establish formal risk assessment procedures to identify and monitor changes in the organization that could have an impact on internal control over financial reporting;

●

Develop and document policies and procedures, including related business process and technology controls, assess their effectiveness and establish a program for continuous assessment of their effectiveness; and

●

Implementation of a new ERP

We believe these measures will remediate the control deficiencies, but management is assessing the need for any additional steps to remediate the underlying causes that give rise to these material weaknesses. The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. There is no assurance that additional remediation steps will not be necessary.

Changes in Internal Control Over Financial Reporting

Except as set forth above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended ~~June~~September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Derivative Actions

On October 31, 2022, a putative shareholder class action was filed against Polished.com Inc. (the “Company”) and certain of its current and former officers and directors, as well as certain underwriters of the Company’s 2020 initial public offering (the “IPO”). The action was commenced in the United States District Court for the Eastern District of New York court and is captioned Maschhof v. Polished.com Inc., et al., No. 1:22-cv-06606. The complaint asserts violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as well as Sections 10(b) and Rule 10b-5 promulgated thereunder, and 20(a) of the Securities Exchange Act of 1934 arising from alleged misstatements and omissions made in certain of the Company’s SEC filings made in connection with the IPO. On or about ~~December 20, 2022, plaintiffs filed a motion for~~September 8, 2023, the ~~appointment of~~Court appointed lead plaintiff and lead counsel. ~~Although that motion is fully briefed, to date, oral argument has yet to be scheduled.~~An amended complaint was filed on or before October 31, 2023.

Action Against Former Employee

On February 22, 2023, the Company filed an action against a former employee asserting a claim for conversion based on the individual’s retention of profits from sales to the Company’s customers. The action was commenced in the Supreme Court of the State of New York, County of Kings and is captioned Polished.com, Inc. v. Naoulo, No. 505712/2023. On March 5, 2023, the defendant filed an answer and asserted counterclaims for breach of contract, breach of implied contract and defamation. On May 25, 2023, the defendant filed an amended answer and added a counterclaim for tortious interference with prospective business relations. On June 14, 2023, the Company moved to dismiss the amended counterclaims. On October 10, 2023, the Court dismissed all of the amended counterclaims except for breach of implied contract.

On September 19, 2023, the Company filed an action against a former employee and certain entities under that former employee’s control, asserting claims for fraud and conversion based on the individual’s misappropriation of Company inventory. The ~~opposition has not been filed yet.~~action was commenced in the Superior Court of New Jersey, Monmouth County and is captioned Polished.com, Inc. v. Irmiyayev et al., No. MON-L-002942-23. The defendant’s response is due on or before November 9, 2023.

From time to time, we may be subject to various legal proceedings and claims arising in the ordinary course of business. All other litigation currently pending against the Company relates to matters that have arisen in the ordinary course of business and we believe that such matters will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

ITEM 1A. RISK FACTORS.

Factors that could cause our actual results to differ materially from those in this report include the risk factors described in our Annual Report on Form 10-K filed with the SEC on July 31, 2023. Any of those factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on July 31, 2023. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

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

We have not sold any equity securities during the ~~six~~nine months ended ~~June~~September 30, 2023 that were not previously disclosed in a current report on Form 8-K that was filed during the quarter.

We did not repurchase any shares of our common stock during the ~~six~~nine months ended ~~June~~September 30, 2023

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Exhibit No.		Description
3.1		Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Polished.com Inc., dated October 19, 2023 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on October 20, 2023).
10.1		First Amendment to Credit Agreement, dated as of July 25, 2023, by and among Polished.com Inc., Appliances Connection Inc., certain guarantors party thereto, certain lenders party thereto and Bank of America, ~~N.A~~N.A. (incorporated by reference to Exhibit 10.56 to the Annual Report on Form 10-K filed on July 31, 2023)
10.2		Settlement and Termination Agreement, dated August 23, 2023, by and between Polished.com Inc. and 8780 19 Ave LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on August 25, 2023).
10.3*		Second Amendment to Credit Agreement, dated as of November 20, 2023, by and among Polished.com Inc., Appliances Connection Inc., certain guarantors party thereto, certain lenders party thereto and Bank of America, N.A.
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		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

	*	Filed herewith
	**	Furnished 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: ~~August 14,~~November 20, 2023	Polished.com Inc.

	/s/ J. E. “Rick” Bunka
	Name:	J. E. “Rick” Bunka
	Title:	Interim Chief Executive Officer
		(Principal Executive Officer)

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

~~iso4217:USD xbrli:shares~~false --12-31 Q3 0001810140

	Six Months Ended June 30
	2023		2022
Professional fees	$	3,184	$	2,596
Insurance		2,523		1,682
Rent		2,192		2,056
All other		1,973		1,484

Total	$	9,872	$	7,818