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GOED 1847 Goedeker

Filed: 3 May 21, 8:34am

As filed with the Securities and Exchange Commission on May 3, 2021

Registration No. 333-          

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________

FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

_______________________

1847 GOEDEKER INC.
(Exact name of registrant as specified in its charter)

_______________________

Delaware

 

5700

 

83-3713938

(State or other jurisdiction of
incorporation or organization)

 

(Primary Standard Industrial
Classification Code Number)

 

(I.R.S. Employer
Identification Number)

_______________________

13850 Manchester Rd.
Ballwin, MO 63011
888
-768-1710
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

_______________________

Douglas T. Moore
Chief Executive Officer
13850 Manchester Rd.
Ballwin, MO 63011
888
-768-1710
(Names, address, including zip code, and telephone number, including area code, of agent for service)

_______________________

Copies to:

Louis A. Bevilacqua, Esq.
Bevilacqua PLLC
1050 Connecticut Avenue, NW
Suite 500
Washington, DC 20036
(202) 869-0888

 

James W. McLaughlin, Esq.
Murtha Cullina LLP
One Century Tower
265 Church Street
New Haven, CT 06510
(203) 772-7790

 

Marc D. Jaffe, Esq.
Erika Weinberg, Esq.
Latham & Watkins, LLP
885 Third Avenue
New York, NY 10022
(212) 906-1200

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 comply with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. 

 

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CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered

 

Proposed
maximum
aggregate
offering price
(1)

 

Amount of
registration fee

Common Stock, par value $0.0001 per share(2)

 

$

235,750,000

 

$

25,720.33

____________

(1)      Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2)      Includes shares that may be purchased by the underwriters pursuant to their over-allotment option.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

 

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

 

SUBJECT TO COMPLETION

 

DATED MAY 3, 2021

$205,000,000

1847 Goedeker Inc.
Common Stock

_______________________

We are offering $205,000,000 of our common stock, par value $0.0001 per share, in connection with our simultaneous acquisition of all of the issued and outstanding capital stock or other equity securities of 1 Stop Electronics Center, Inc., Gold Coast Appliances, Inc., Superior Deals Inc., Joe’s Appliances LLC and YF Logistics LLC (commonly known as Appliances Connection) as described in more detail in this prospectus.

Our common stock trades on the NYSE American under the symbol “GOED.” On April 28, 2021, the last reported sale price for our common stock was $7.38 per share. In connection with this offering, we intend to apply for the listing of our common stock on the New York Stock Exchange, or the NYSE.

We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, and are subject to reduced public company reporting requirements.

Investing in our securities involves risks that are described in the “Risk Factors” section beginning on page 23 of this prospectus.

 

Per Share

 

Total

Public offering price

 

$

  

$

 

Underwriting discounts and commissions(1)

 

$

  

$

 

Proceeds, before expenses, to us

 

$

  

$

____________

(1)      See “Underwriting” beginning on page 113 for additional information regarding underwriting compensation.

The underwriters may also exercise their option to purchase up to an additional $30,750,000 of common stock from us at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus solely to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Certain of our existing stockholders and certain of our officers, directors, employees and related persons, have indicated an interest in purchasing an aggregate of approximately $            in shares of our common stock in this offering at the public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, fewer or no shares in this offering to these persons, and any of these persons may determine to purchase more, fewer or no shares in this offering. The underwriters will receive the same underwriting discount on any shares purchased by these persons as they will on any other shares sold to the public in this offering.

The shares of common stock will be ready for delivery on or about                       , 2021.

 

BofA Securities

 

ThinkEquity

    

a division of Fordham Financial Management, Inc.

The date of this prospectus is           , 2021

 

Table of Contents

 

Table of Contents

TABLE OF CONTENTS

 

Page

Prospectus Summary

 

1

Risk Factors

 

23

Cautionary Statement Regarding Forward-Looking Statements

 

44

Use of Proceeds

 

46

Dividend Policy

 

47

Capitalization

 

48

Dilution

 

49

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

51

Corporate History and Structure

 

72

Proposed Acquisition of Appliances Connection

 

73

Business

 

77

Management

 

90

Executive Compensation

 

97

Current Relationships and Related Party Transactions

 

102

Principal Stockholders

 

105

Description of Capital Stock

 

106

Shares Eligible For Future Sale

 

108

Material United States Federal Income Tax Considerations For Non-United States Holders of Our Common Stock

 

109

Underwriting

 

113

Legal Matters

 

120

Experts

 

120

Interests of Named Experts and Counsel

 

120

Where You Can Find More Information

 

120

Financial Statements

 

F-1

Please read this prospectus carefully. It describes our business, financial condition, results of operations and prospects, among other things. We are responsible for the information contained in this prospectus and in any free-writing prospectus we have authorized. Neither we nor the underwriters have authorized anyone to provide you with different information, and neither we nor the underwriters take responsibility for any other information others may give you. Neither we nor the underwriters are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before deciding whether to invest in our common stock. You should carefully read the entire prospectus, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Some of the statements in this prospectus are forward-looking statements. See the section titled “Cautionary Statement Regarding Forward-Looking Statements.”

In this prospectus, “we,” “us,” “our,” “our company” and “Goedeker” and similar references refer to 1847 Goedeker Inc. and references to “the combined company” are references to Goedeker after the consummation of its acquisition of Appliances Connection.

Our Company

Overview

Our company operates a technology-driven e-commerce platform for appliances and furniture, offering a combination of selection, service and value we believe to be unmatched in the $22.9 billion United States household major appliance industry. Since our founding in 1951, we have evolved from a local brick and mortar operation serving the St. Louis metro area to a nationwide omni-channel retailer offering over 141,000 stock-keeping units, or SKUs, across all major appliance brands with competitive pricing. Our relentless focus on customer experience encompasses our easy to navigate websites, highly trained call center representatives and sophisticated fulfillment ecosystem.

Our customers span a wide range of demographics, style and budget, which we attract with our efficient digital marketing capabilities and match with our broad product selection. We have invested considerably in our scalable logistics infrastructure, purpose built for the unique demands of the appliance market and see it as a competitive advantage, strengthening as we grow. Our tightly-integrated vendor relationships and order management tools allow us to offer our vast selection of products while holding limited inventory, contributing to strong and improving operating metrics.

On October 20, 2020, we entered into a securities purchase agreement to acquire Appliances Connection, a leading retailer of household appliances based in Brooklyn, New York. We expect the closing of the proposed acquisition to occur simultaneously with the closing of this offering. We intend to enter into a senior secured credit facility involving a term loan in the expected principal amount of $60 million, which we intend to use to pay a portion of the purchase price to acquire Appliances Connection. The proceeds of this offering will be used to pay the remainder of the purchase price and related acquisition fees and expenses. On a pro forma basis, the combined company had total sales of $368 million for the year ended December 31, 2020. See “— Proposed Acquisition of Appliances Connection” below.

The Large and Growing United States Appliance Market

The United States household major appliances market is highly fragmented with big box retailers, online retailers, and thousands of local and regional retailers competing for share in what has historically been a high touch sale process. According to Statista, revenue in the United States household major appliances market (excluding small appliances) is projected to reach $22.9 billion in 2021 and is expected to grow at an annual growth rate of 1.68% from 2021 to 2025.

According to the United States Census Bureau, there are approximately 100 million households in the United States with annual incomes between $25,000 and $250,000 and approximately 193 million individuals between the ages of 20 and 64 in the United States, many of whom are accustomed to purchasing goods online. As younger generations age, start new families and move into new homes, we expect online sales of household appliances to increase. In addition, we believe the online household appliances market will further grow as older generations of consumers become increasingly comfortable purchasing online, particularly if the process is easy and efficient.

When shopping for appliances their homes, consumers bring their own unique combination of style and budget, requiring vast selection to garner broad appeal.  Brick and mortar retailers must balance selection with the challenges of high inventory carrying costs, complex vendor requirements and limited showroom and storage space. As a result, consumers are faced with a decision between shopping in multiple stores, or settling for what is available. Just

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as e-commerce has changed the landscape of other retail sectors, we believe an easy-to-browse, online shopping experience with massive selection and excellent customer service has the potential to change the way people buy household appliances.

Logistics, fulfillment and customer service for household appliances are challenging given the myriad vendors and product specifications, and the cumbersome size and weight of items. Household appliances often have a low dollar value to weight ratio compared to other categories of retail, therefore requiring a logistics network that is optimized for items with those characteristics. Many consumers also seek first-rate customer service so they are not burdened with managing delivery, shipping and return logistics on their own. However, we believe big box retailers that serve the mass market for home goods are often unable or unwilling to provide this level of service.

Our Solution — Key Benefits for Our Customers

The combined company will offer broad selection and choice. We believe that the combined company will offer the largest online selection of household appliances, with over 51,000 household appliance SKUs. The combined company’s easy to use websites make it easy for customers to discover products, styles and price points that appeal to them. Convenience and value are central to our offering. The combined company will offer a one-stop shop for consumers in the appliance category, with competitive pricing reflecting the many vendors on its platform and a differentiated and robust merchandising experience.

The combined company will offer consumers an engaging shopping journey through the combination of its technology-rich platform and its experienced customer support personnel, available via chat, email, text and phone. Superior customer service will be a core part of the experience that the combined company will offer shoppers. The combined company’s customer service organization will help consumers navigate its sites, answer questions and complete orders, staffed with specialists focused on specific product classes. This team will help the combined company build trust with consumers, enhance its reputation and drive sales.

Competitive Strengths

We believe that the combined company will be a leading e-commerce appliance retailer due to its following key strengths:

•        Name and reputation.    We believe that the combined company will enjoy a long-standing (50+ years) reputation with vendors and customers for its focus on offering a full line of appliances and other home furnishings with competitive pricing and superior customer service.

•        Product selection and pricing.    We believe that the combined company’s broad product selection and attractive pricing model will create a sustainable competitive advantage. The combined company will strive to offer consumers the broadest choice in the market and review pricing by other retailers on a daily basis to ensure its product offerings are competitively priced. Goedeker and Appliances Connection have negotiated attractive terms with their respective vendor partners, allowing them to pass through savings and selection to customers.

•        Website ease of use.    The combined company’s purpose-built technology platform will be designed to provide consumers with a compelling user experience as they browse, research and purchase its products. The combined company will use personalization, based on past browsing and shopping patterns, to create a more engaging consumer experience.

•        Best in class customer service and marketing technology.    We believe that the investments that Goedeker and Appliances Connection have made in their respective call center tools and shopping platforms, combined with digital marketing optimization, will allow the combined company to offer an unmatched customer journey.

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•        Logistics technology and efficiency.    The combined company’s proprietary technology will eliminate manual steps and reduce order processing time, allowing it to provide faster services to customers.

Our Growth Strategies

Our mission is to change the way consumers buy appliances and, in doing so, become the leading online retailer of home appliances. The strategies of the combined company to achieve this mission, while increasing value for our shareholders, will include:

•        Grow our brand.    Increasing brand awareness and growing favorable brand equity among consumers is central to the growth, of the combined company following the proposed acquisition. The combined company plans to drive brand awareness through a combination of sophisticated, multi-layered marketing programs and word-of-mouth referrals. The combined company will continue to invest in marketing initiatives to efficiently attract consumers.

•        Expand in the commercial market.    To date, Goedeker and Appliances Connection have directed all marketing efforts toward the consumer. With remodels and new home construction, there is opportunity to market to home builders, real estate developers, contractors and interior designers who are making or influencing the purchasing decision for many consumers. We believe that the combined company’s low price business model will be received well by this market, creating substantial revenue opportunities and more repeat business. Evidence of unmet demand and market need is ongoing with large commercial sales occurring organically each week through Goedeker and Appliances Connection’s websites and contact centers.

•        Drive continued operational excellence.    Goedeker and Appliances Connection are committed to improving productivity and profitability through several operational initiatives designed to grow revenue and expand margins. Some of the key initiatives for operational excellence for the combined company include:

•        Logistics and shipping optimization.    The combined company will implement a series of initiatives with key vendors to increase shipping speed to customers, cut costs and increase margins. The combined company plans to pick up product from manufacturers’ warehouses and selectively use inventory buys to reduce costs. With access to vendor warehouse operations, we expect to take advantage of buying opportunities and capture time-sensitive customers more frequently. The combined company will also explore options to use a showroom, warehousing and cross dock model in other key markets.

•        Optimize price.    The combined company will continue building a data-based understanding of price elasticity dynamics, promotional strategies and other price management tools to drive optimized pricing for our products.

•        Drive marketing efficiencies.    As the combined company continues to grow and scale, we believe that the combined company will continue to improve the efficiency of its marketing investments. We believe that with larger budgets and deeper experience, the combined company will benefit from lower media rates and increased data that will improve its customer targeting capabilities.

•        Opportunistically pursue strategic acquisitions. The combined company may continue to expand its business through opportunistic acquisitions that allow it to enhance its customer offering, build its multi-brand portfolio, enter new geographies or enhance its operational infrastructure.

Our Products and Services

Appliances

The appliance category will be the largest revenue source of the combined company. Goedeker and Appliances Connection have a long history of selling these products and serving the distinct needs of consumers looking to replace or add to their home appliances. The combined company will offer over 51,000 appliance SKUs from all mainline original equipment manufacturers, including Bosch, Whirlpool, GE, Maytag, LG, Samsung, Sharp, Frigidaire and

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Kitchen Aid, among others, as well as from luxury brands like Viking, Miele, Thermador, Sub-Zero, Wolf, Forte and Ilve. The combined company will sell all major home appliances, including refrigerators, ranges, ovens, dishwashers, microwaves, freezers, washers and dryers.

Furniture

The combined company will offer over 247,700 furniture SKUs from over 240 furniture vendors and will sell a full line of furniture for every room in the home. The combined company will utilize sophisticated websites that include organization of product by type and characteristics that make for a complete shopping experience in a complicated product category.

Other Products

The combined company will also offer a broad assortment of products in the décor, bed & bath, lighting, outdoor living and electronics categories. It will also sell fitness equipment, plumbing fixtures, air conditioners, fireplaces, fans, dehumidifiers, humidifiers, air purifiers, televisions and commercial appliances for our builder and business clients. While these are not individually high-volume categories, they complement the appliance and furniture categories to produce a one-stop home goods offering for customers.

Installation and Other Services

The combined company will offer installation and removal services within the continental United States. A full-service install involves hooking up the appliance, testing it to ensure proper operation, and removing packing materials from customer’s home, office or other delivery location. The combined company will primarily fulfill such installation services internally through YF Logistics and utilize third-party logistics service provider partners to provide these services to delivery points in remote areas within the continental United States where YF Logistics may not be available.

The combined company will also have outside business partners such as Scavolini, a leader in kitchen cabinetry and design, and an in-house design team trained by the experts at Scavolini that will help customers remodel and reinvent their kitchens, living rooms, bathrooms and laundry rooms.

Our Corporate History

Goedeker was incorporated in the State of Delaware on January 10, 2019 for the sole purpose of acquiring substantially all of the assets of Goedeker Television Co., or Goedeker Television. On April 5, 2019, Goedeker acquired substantially all of the assets of Goedeker Television. As a result of this transaction, Goedeker acquired the former business of Goedeker Television, which was established in 1951, and continues to operate this business. All discussions in this prospectus regarding our business prior to the acquisition of Goedeker Television reflect the business of Goedeker Television, our predecessor company. Prior to our acquisition of substantially all of the assets of Goedeker Television, we had no operations other than operations relating to our incorporation and organization.

On October 20, 2020, we formed Appliances Connection Inc., or ACI, as our wholly owned subsidiary in the State of Delaware for the sole purpose of completing the proposed acquisition described below. As of the date of this prospectus, we do not have any other subsidiaries.

Proposed Acquisition of Appliances Connection

On October 20, 2020, we entered into a securities purchase agreement, which was amended on December 8, 2020 and April 6, 2021 (we refer to this agreement, as amended, as the purchase agreement), to acquire the following five household appliances companies through ACI: (1) 1 Stop Electronics Center, Inc., or 1 Stop, a New York corporation; (2) Gold Coast Appliances, Inc., or Gold Coast, a New York corporation; (3) Superior Deals Inc., or Superior Deals, a New York corporation; (4) Joe’s Appliances LLC, or Joe’s Appliances, a New York limited liability company; and (5) YF Logistics LLC, or YF Logistics, a New Jersey limited liability company (we collectively refer to these companies as Appliances Connection).

Pursuant to the purchase agreement, ACI agreed to acquire all of the issued and outstanding capital stock or other equity securities of Appliances Connection for an aggregate purchase price of $222,000,000, subject to adjustment. The purchase price consists of (i) $180,000,000 in cash, (ii) 2,333,333 shares of our common stock having a stated

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value that is equal to $21,000,000 and (iii) a number of shares of our common stock that is equal to (A) $21,000,000 divided by (B) the average of the closing price of our shares of common stock (as reported on NYSE American) for the 20 trading days immediately preceding the 3rd trading day prior to the closing date of the acquisition. We refer to this proposed acquisition of Appliances Connection in this prospectus as the proposed acquisition.

We have entered into a non-binding engagement letter with a commercial bank for the provision of a senior secured credit facility involving a term loan in the expected principal amount of $60 million, which will be used to pay a portion of the cash portion of the purchase price to acquire Appliances Connection. We intend to use all of the proceeds of the term loan to pay a portion of the purchase price, and the proceeds of this offering will be used to pay the remainder of the purchase price and related acquisition fees and expenses.

See “Proposed Acquisition of Appliances Connection” for more information regarding the terms of the proposed acquisition.

The purchase agreement contains a number of conditions that must be fulfilled to complete the proposed acquisition. There can be no assurance that the conditions to the closing will be satisfied or that the proposed acquisition will be completed. In that event, any investment in our common stock in this offering will represent an investment in Goedeker’s historical business only. See “Risk Factors — Risks Related to the Proposed Acquisition.”

About Appliances Connection

Headquartered in Brooklyn, New York and founded in 1998, Appliances Connection is one of the leading retailers of household appliances with a 200,000 square foot warehouse in Hamilton, New Jersey and a 23,000 square foot showroom in Brooklyn, New York. In addition to selling appliances, it also sells furniture, fitness equipment, plumbing fixtures, televisions, outdoor appliances, and patio furniture, as well as commercial appliances for builder and business clients. It also provides appliance installation services and old appliance removal services. Appliances Connection serves retail customers, builders, architects, interior designers, restaurants, schools and other large corporations. It ships to 48 states in the Continental United States and offers nearly 300,000 products, from luxury brands like Viking, Miele, Thermador, Sub-Zero, Wolf, Forte, Ilve, and Bosch, to household favorites like GE, LG, Frigidaire and Whirlpool.

1 Stop, founded in 2000, specializes in the sale of appliances and consumer electronics, including laundry, refrigeration, and air conditioning appliances, ranges, dishwashers, plumbing fixtures, televisions and video monitors, home and office furniture, as well as home décor, fireplaces, generators and small appliances. 1 Stop operates out of its Brooklyn, New York showroom as well as through its website 1stopcamera.com.

Gold Coast, which has been in business since 2015, is primarily engaged in the retail sale of outdoor, cooking, air conditioning, refrigeration and laundry appliances and operates out of its Brooklyn, New York showroom as well as online at goldcoastappliances.com.

Joe’s Appliance, which was formed in 2018, is also primarily engaged in retail sale offerings of a comprehensive suite of major appliances, including outdoor, cooking, air conditioning, refrigeration and laundry appliances, and appliance services. Joe’s Appliances operates out if it’s Brooklyn, New York store location as well as online at its website, joesappliances.com.

Superior Deals is in the electrical appliances, television and radio sets industry, while also providing a full line of appliance accessories including power cords, hoses, connections, brackets, and water and air filters. Superior Deals has been in business since 2000, primarily serving customers in the New York metro area, as well as nationally through Appliances Connection’s retail website www.appliancesconnection.com.

YF Logistics, formed in 2014, is a full-service logistics company that fulfills customer orders for 1 Stop, Gold Coast, Superior Deals and Joe’s Appliances, utilizing its own in-house logistics team to ship, install, and service appliances and other products across the continental United States from its 200,000 square foot warehouse located in Hamilton, New Jersey.

Appliances Connection has built powerful home-grown logistics technology that can help reduce cycle time and efficiencies for the combined company’s operations. Appliances Connection will bring the relationships, network, and technology necessary to continue economies of scale for the entire business of the combined company throughout the United States e-commerce market. We intend to leverage Appliances Connection’s powerful platform to increase speed, reduce costs and increase margins across our entire business.

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Impact of COVID-19 Pandemic

Starting in late 2019, a novel strain of the coronavirus, or COVID-19, began to rapidly spread around the world and every state in the United States. Most states and cities have at various times instituted quarantines, restrictions on travel, “stay at home” rules, social distancing measures and restrictions on the types of businesses that could continue to operate, as well as guidance in response to the pandemic and the need to contain it. Pursuant to restrictions in Missouri, Goedeker’s showroom was closed from April through June of 2020, but its call center and warehouse continued to operate. Appliances Connection’s retail facilities and warehouse were deemed essential businesses that were not subject to restrictions in New York and New Jersey, so they remained open and continued to operate. Since over 95% of Goedeker’s sales are completed online and its call center and warehouse and distribution operations continued to operate, and Appliances Connection continued to operate, the restrictions put in place in response to the pandemic have not had a materially negative impact on either company’s operations. However, the situation surrounding COVID-19 remains fluid, and either company may be required to close or limit service offerings in its retail facilities or warehouses in response to guidance from applicable government and public health officials, which could adversely affect the combined company’s operations and revenues.

In addition, Goedeker and Appliances Connection are dependent upon suppliers to provide them with all of the products that they sell. The pandemic has impacted and may continue to impact suppliers and manufacturers of certain products. As a result, both companies have faced and may continue to face delays or difficulty sourcing certain products, which could negatively affect their respective business and financial results. Even if Goedeker and Appliances Connection are able to find alternate sources for such products, they may cost more, which could adversely impact their profitability and financial condition.

The global deterioration in economic conditions, which may have an adverse impact on discretionary consumer spending, could also impact the businesses of Goedeker and Appliances Connection. For instance, consumer spending may be negatively impacted by general macroeconomic conditions, including a rise in unemployment, and decreased consumer confidence resulting from the pandemic. Changing consumer behaviors as a result of the pandemic may also have a material impact on revenue.

Furthermore, the spread of COVID-19 has adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The pandemic has resulted, and may continue to result, in a significant disruption of global financial markets, which may reduce the ability of the combined company to access capital in the future, which could negatively affect its liquidity.

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

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

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Implications of Being an Emerging Growth Company

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

•        have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;

•        comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

•        submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

•        disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

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

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

Corporate Information

Our principal executive offices are located at 13850 Manchester Rd., Ballwin, MO 63011, and our telephone number is 888-768-1710. We maintain a website at www.goedekers.com. Information available on our website is not incorporated by reference in and is not deemed a part of this prospectus.

Appliances Connection’s executive offices are located at 1870 Bath Avenue, Brooklyn, NY 11214, and its telephone number is 800-299-9470. It maintains a website at www.appliancesconnection.com. Information available on the website is not incorporated by reference in and is not deemed a part of this prospectus.

Stock Split

On July 30, 2020, we completed a 4,750-for-1 forward stock split of our outstanding common stock. As a result of this stock split, our issued and outstanding common stock was increased from 1,000 shares to 4,750,000 shares. Accordingly, all share and per share information contained in this prospectus has been restated to retroactively show the effect of this stock split.

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Table of Contents

The Offering

Common stock offered by us:

 

$205,000,000 of our common stock (or $235,750,000 if the underwriters exercise the over-allotment option in full).

Common stock to be outstanding after this offering(1):

 


33,888,978 shares of common stock (or 38,055,644 shares if the underwriters exercise the over-allotment option in full).

Over-allotment option:

 

We have granted to the underwriters a 30-day option to purchase from us up to an additional 15% of the shares of common stock sold in the offering ($30,750,000 of common stock) at the public offering price, less the underwriting discounts and commissions.

Use of proceeds:

 

We expect to receive net proceeds of approximately $190.2 million from this offering (or $218.7 million if the underwriters exercise their option to purchase additional shares of common stock in full), based on an assumed public offering price of $7.38 per share, the last reported sale price of our common stock on NYSE American on April 28, 2021, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds from this offering to pay part of the cash portion of the purchase price for the proposed acquisition and related acquisition fees and expenses. Any remaining proceeds will be used working capital and general corporate purposes. See “Use of Proceeds.”

Dividend policy:

 

We have not paid or declared dividends on our common stock. See “Dividend Policy” for more information.

Risk factors:

 

Investing in our common stock involves a high degree of risk. As an investor, you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 23.

Lock-up:

 

We and all of our directors, officers and stockholders holding 5% or more of our outstanding common stock have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of, directly or indirectly, any of our common stock or securities convertible into or exercisable or exchangeable for our common stock for a period of 90 days from the date of this prospectus. See “Underwriting” for more information.

Trading symbol and market:

 

Our common stock is traded on NYSE American under the symbol “GOED.” In connection with this offering, we intend to apply for the listing of our common stock on the NYSE.

The number of shares of common stock outstanding immediately following this offering is based on 6,111,200 shares outstanding as of April 28, 2021 and excludes:

•        555,000 shares of common stock issuable upon exercise of outstanding options at an exercise price of $9.00 per share;

•        up to 445,000 additional shares of common stock that are reserved for issuance under our 2020 Equity Incentive Plan;

•        455,560 shares of common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $11.91 per share; and

•        shares of common stock to be issued in connection with the proposed acquisition.

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Table of Contents

Summary of Risk Factors

An investment in our common stock involves a high degree of risk. You should carefully consider the risks summarized below. These risks are discussed more fully in the “Risk Factors” section immediately following this Prospectus Summary. These risks include, but are not limited to, the following:

•        The proposed acquisition is subject to a number of conditions, and may not close at all, in which case an investment in our common stock in this offering will represent an investment in Goedeker’s historical business only.

•        If the benefits of the proposed acquisition do not meet the expectations of investors, stockholders or financial analysts, the market price of our common stock may decline.

•        Failure or delay to complete the proposed acquisition could negatively impact our business, financial condition, results of operations or stock price.

•        The integration of Appliances Connection with Goedeker may not be as successful as anticipated.

•        We have incurred and expect to continue to incur substantial transaction-related costs in connection with the proposed acquisition.

•        Our future results following proposed acquisition may differ materially from the unaudited pro forma financial information included in this prospectus.

•        As a result of the proposed acquisition, our company may have undisclosed liabilities and any such liabilities could harm our revenues, business, prospects, financial condition and results of operations.

•        The COVID-19 pandemic may cause a material adverse effect on our business.

•        If we fail to acquire new customers or retain existing customers, or fail to do so in a cost-effective manner, we may not be able to achieve profitability.

•        Our success depends in part on our ability to increase our net revenue per active customer. If our efforts to increase customer loyalty and repeat purchasing as well as maintain high levels of customer engagement are not successful, our growth prospects and revenue will be materially adversely affected.

•        Our business depends on our ability to build and maintain strong brands. We may not be able to maintain and enhance our brands if we receive unfavorable customer complaints, negative publicity or otherwise fail to live up to consumers’ expectations, which could materially adversely affect our business, results of operations and growth prospects.

•        Our efforts to expand our business into new brands, products, services, technologies, and geographic regions will subject us to additional business, legal, financial, and competitive risks and may not be successful.

•        Risks associated with the suppliers from whom our products are sourced could materially adversely affect our financial performance as well as our reputation and brand.

•        Our ability to obtain continued financing is critical to the growth of our business. We will need additional financing to fund operations, which additional financing may not be available on reasonable terms or at all.

•        Our third-party loans contain certain terms that could materially adversely affect our financial condition.

•        Our business is highly competitive. Competition presents an ongoing threat to the success of our business.

•        We depend on our relationships with third parties, and changes in our relationships with these parties could adversely impact our revenue and profits.

•        Uncertainties in economic conditions and their impact on consumer spending patterns, particularly in the home goods segment, could adversely impact our operating results.

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•        Government regulation of the internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.

•        We may not be able to satisfy listing requirements of the NYSE or maintain a listing of our common stock on the NYSE or NYSE American.

•        The market price, trading volume and marketability of our common stock may, from time to time, be significantly affected by numerous factors beyond our control, which may materially adversely affect the market price of your common stock, the marketability of your common stock and our ability to raise capital through future equity financings.

•        An active, liquid trading market for our common stock may not be sustained, which may make it difficult for you to sell the common stock you purchase.

•        We have not paid in the past and do not expect to declare or pay dividends in the foreseeable future.

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Table of Contents

Summary Financial Information

The following tables summarize certain financial data for Goedeker and Appliances Connection and should be read in conjunction with their respective financial statements and related notes contained elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The following summary financial data for Goedeker as of December 31, 2020 and 2019, for the year ended December 31, 2020, for the period from January 1, 2019 through April 5, 2019 (Predecessor) and for the period from April 6, 2019 through December 31, 2019 (Successor) are derived from the audited consolidated financial statements of Goedeker and the unaudited pro forma combined financial statements included elsewhere in this prospectus. The following summary financial data for Appliances Connection as of December 31, 2020 and 2019 and for the years then ended are derived from the audited combined financial statements of Appliances Connection included elsewhere in this prospectus.

All financial statements included in this prospectus are prepared and presented in accordance with generally accepted accounting principles in the United States, or GAAP. The summary financial information is only a summary and should be read in conjunction with the historical financial statements and related notes contained elsewhere herein. The financial statements contained elsewhere fully represent financial condition and operations of Goedeker and Appliances Connection; however, they are not indicative of future performance.

Goedeker

 

Successor

 

Predecessor

Statements of Operations Data

 

Year Ended December 31, 2020
(Pro Forma)

 

Year Ended December 31, 2020
(Actual)

 

Period from April 6,
2019
through December 31,
2019
(As Restated)

 

Period from
January 1,
2019
through
April 5,
2019

Products sales, net

 

$

367,742,181

 

 

$

55,133,653

 

 

$

34,668,112

 

 

$

12,946,901

 

Cost of goods sold

 

 

295,257,938

 

 

 

47,878,541

 

 

 

28,596,129

 

 

 

11,004,842

 

Gross profit

 

 

72,484,243

 

 

 

7,255,112

 

 

 

6,071,983

 

 

 

1,942,059

 

Total operating expenses

 

 

67,509,472

 

 

 

21,687,639

 

 

 

10,776,742

 

 

 

2,418,331

 

Net income (loss) from operations

 

 

4,974,771

 

 

 

(14,432,527

)

 

 

(4,704,759

)

 

 

(476,272

)

Total other income (expense)

 

 

(10,631,815

)

 

 

(6,437,007

)

 

 

(1,151,415

)

 

 

31,007

 

Net loss before income taxes

 

 

(5,657,044

)

 

 

(20,869,534

)

 

 

(5,856,174

)

 

 

(445,265

)

Income tax benefit (expense)

 

 

(698,303

)

 

 

(698,303

)

 

 

698,303

 

 

 

 

Net loss

 

$

(6,355,347

)

 

$

(21,567,837

)

 

$

(5,157,871

)

 

$

(445,265

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Financial Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA(1)

 

$

14,394,924

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA Margin(1)

 

 

3.91

%

 

 

 

 

 

 

 

 

 

____________

(1)      See “— Non-GAAP Financial Measures below” for a full reconciliation.

 

Successor

Balance Sheet Data

 

As of
December 31,
2020
(Pro Forma)

 

As of
December 31,
2020
(Actual)

 

As of
December 31,
2019
(As Restated)

Cash and cash equivalents

 

$

42,830,663

 

$

934,729

 

 

$

471,308

 

Restricted cash

 

 

5,791,818

 

 

8,977,187

 

 

 

 

Total current assets

 

 

88,464,745

 

 

18,240,121

 

 

 

4,494,402

 

Total assets

 

 

345,481,001

 

 

26,216,930

 

 

 

13,906,863

 

Total current liabilities

 

 

72,072,026

 

 

35,694,976

 

 

 

14,125,228

 

Total liabilities

 

 

131,670,085

 

 

39,532,699

 

 

 

17,985,080

 

Total stockholders’ equity (deficit)

 

 

213,810,915

 

 

(13,315,769

)

 

 

(4,078,217

)

Total liabilities and stockholders’ equity (deficit)

 

$

345,481,001

 

$

26,216,930

 

 

$

13,906,863

 

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Table of Contents

Appliances Connection

 

Years Ended December 31,

Statements of Operations Data

 

2020

 

2019

Net sales

 

$

312,608,528

 

$

219,333,461

Cost of sales

 

 

247,379,397

 

 

176,771,632

Gross profit

 

 

65,229,131

 

 

42,561,829

Total operating expenses

 

 

45,821,833

 

 

33,055,976

Income from operations

 

 

19,407,298

 

 

9,505,853

Total other income (expense)

 

 

672,441

 

 

1,632,743

Net income

 

$

20,079,739

 

$

11,138,596

 

As of December 31,

Balance Sheet Data

 

2020

 

2019

Cash and cash equivalents

 

$

14,842,912

 

$

5,912,043

Total current assets

 

 

78,190,386

 

 

53,514,272

Total assets

 

 

84,979,244

 

 

61,195,270

Total current liabilities

 

 

32,040,390

 

 

20,181,242

Total liabilities

 

 

38,872,755

 

 

25,530,704

Owners’ capital

 

 

46,106,489

 

 

35,664,566

Total liabilities and owners’ equity

 

$

84,979,244

 

$

61,195,270

Financial Information for First Quarter of 2021

We have not yet completed our closing procedures for the first quarter of 2021. Presented below are estimated projections. These ranges are based on the information available to us at the time. Except for order information, we have provided ranges, rather than specific amounts, because these results are preliminary estimates. As such, our actual results may vary from the estimated projections and will not be finalized until after we close this offering and complete our normal quarter end accounting procedures. These results reflect management’s best estimate of the impact of events during the quarter.

These estimates should not be viewed as a substitute for our financial statements prepared in accordance with GAAP. Accordingly, you should not place undue reliance on these projections. These projections should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections and the audited consolidated financial statements of Goedeker and audited combined financial statements of Appliances Connection, including the notes thereto, included herein.

Management expects significant improvements in orders and revenue for the combined company (on a pro forma basis) for the first quarter 2021.

The combined company’s orders for the three months ended March 31, 2021 were $199.3 million, which when compared to the combined company’s orders for the three months ended March 31, 2020 of $97.2 million is an increase of 105.0%. Order information is available immediately, so we have not provided estimated ranges for this information.

Similarly, we expect that the combined company’s revenues for the three months ended March 31, 2021 will be between $110.0 million and $122.0 million, an increase of between 67.0% and 85.2% when compared against the combined company’s revenues of $65.9 million for the three months ended March 31, 2020. The expected revenues reflect a fill rate of between 55.2% and 61.2% for the combined company for three months ended March 31, 2021 compared to a fill rate of 67.8% for the three months ended March 31, 2020 and 85.0% for the year ended December 31, 2019. Vendor supply was constrained throughout the quarter and led to fill rates below the same time period a year ago. Fill rate refers to the percentage of the combined company’s customer demand that is met by immediately available inventory, without backorders, items being out of stock or cancelled orders.

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We expect that the combined company’s gross profit for the three months ended March 31, 2021 will be between $21.0 million and $24.0 million.

We expect that the combined company’s operating income, excluding non-recurring expenses, for the three months ended March 31, 2021 will be between $5.2 million and $5.8. In computing operating income for the three months ended March 31, 2021, we excluded $695,000 of non-recurring expenses directly related to the acquisition and the reaudit of 2019.

The following table sets forth the high and low range of orders, fill rate, revenue, gross profit and operating income that we expect for the three months ended March 31, 2021.

 

Goedeker

 

Appliances Connection

 

Combined Company

  

Low End of Range

 

High End of Range

 

Low End of Range

 

High End of Range

 

Low End of Range

 

High End of Range

Orders

 

$

30,700,000

 

 

$

30,700,000

 

 

$

168,600,000

 

 

$

168,600,000

 

 

$

199,300,000

 

 

$

199,300,000

 

Fill rate

 

 

40.7

%

 

 

44.6

%

 

 

58.2

%

 

 

64.2

%

 

 

55.2

%

 

 

61.2

%

Revenue

 

$

12,500,000

 

 

$

13,700,000

 

 

$

97,500,000

 

 

$

108,300,000

 

 

$

110,000,000

 

 

$

122,000,000

 

Gross profit

 

$

1,100,000

 

 

$

1,200,000

 

 

$

19,900,000

 

 

$

22,800,000

 

 

$

21,000,000

 

 

$

24,000,000

 

Operating income (loss)

 

$

(4,400,000

)

 

$

(4,100,000

)

 

$

9,600,000

 

 

$

9,900,000

 

 

$

5,200,000

 

 

$

5,800,000

 

In making these estimates, we considered a number of factors, including:

•        our manufacturers’ availability to produce product in a COVID-19 environment;

•        the timing of our manufacturers’ return to normal production levels;

•        our expectation that the level of order cancellations will be reduced as the result of our increased working capital from this offering, which reduction may be somewhat offset by delivery delays due to reduced product availability from manufacturers as the result of COVID-19-related issues;

•        the change in gross margin as we move to vendors who have availability; and

•        the change in marketing expenses that drive traffic to our website.

Quarterly Revenue Information

The following table sets forth 2020 revenue information and estimated 2021 Q1 revenue information by quarter for Goedeker, Appliances Connection and the combined company (on a pro forma basis). Appliances Connection has not historically prepared quarterly financial statements. Management has prepared the following information from their sales records and believe they present a reasonable estimate of results for the periods shown.

(all amounts, other than percentages, in millions of U.S. dollars)

 

Goedeker

 

Appliances
Connection

 

Combined
Company

 

% of
Total
For Year

March 31, 2020

 

$

9.6

 

$

56.2

 

$

65.8

 

17.9

%

June 30, 2020

 

 

15.3

 

 

76.2

 

 

91.5

 

24.9

%

September 30, 2020

 

 

13.5

 

 

88.7

 

 

102.2

 

27.8

%

December 31, 2020

 

 

16.7

 

 

91.5

 

 

108.2

 

29.4

%

Year Ended December 31, 2020

 

$

55.1

 

$

312.6

 

$

367.7

 

100.0

%

March 31, 2021

 

$

13.0

 

$

103.0

 

$

116.0

  

 

As the chart illustrates, revenue for the combined company grew rapidly during the year ended 2020, a trend which continued into the first quarter of 2021.

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Non-GAAP Financial Measures

We believe the non-GAAP financial measures presented in this prospectus will help investors understand the financial condition and operating results of the combined company and assess our future prospects. We believe these non-GAAP financial measures, each of which is discussed in greater detail below, are important supplemental measures because they exclude unusual or non-recurring items as well as non-cash items that are unrelated to or may not be indicative of our ongoing operating results. Further, when read in conjunction with GAAP results, these non-GAAP financial measures provide a baseline for analyzing trends in our underlying businesses and can be used by management as a tool to help make financial, operational and planning decisions. Finally, these measures are often used by analysts and other interested parties to evaluate companies in our industry by providing more comparable measures that are less affected by factors such as capital structure.

We recognize that these non-GAAP financial measures have limitations, including that they may be calculated differently by other companies or may be used under different circumstances or for different purposes, thereby affecting their comparability from company to company. In order to compensate for these and the other limitations discussed below, management does not consider these measures in isolation from or as alternatives to the comparable financial measures determined in accordance with GAAP. Readers should review the reconciliations below and should not rely on any single financial measure to evaluate our business.

The non-GAAP financial measures used in this prospectus include Adjusted EBITDA and Adjusted EBITDA Margin. We define Adjusted EBITDA as net loss before income taxes, depreciation and amortization, financing costs, interest expense, sales tax accrual and one-time non-operational events. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by revenue. Adjusted EBITDA and Adjusted EBITDA Margin are not measures calculated in accordance with GAAP, and they should not be considered an alternative to any financial measures that were calculated under U.S. GAAP. Adjusted EBITDA and Adjusted EBITDA Margin are used to facilitate a comparison of the ordinary, ongoing and customary course of the operations of the combined company on a consistent basis from period to period and provide an additional understanding of factors and trends affecting the business of the combined company. Adjusted EBITDA and Adjusted EBITDA Margin may not be comparable to similarly titled non-GAAP measures used by other companies as other companies may have calculated the measures differently.

The reconciliation of Adjusted EBITDA to net loss for the combined company (on a pro forma basis) is provided below:

 

Year Ended December 31, 2020

Net loss

 

$

(6,355,347

)

Income tax expense

 

 

698,303

 

Depreciation and amortization

 

 

1,332,485

 

Financing costs

 

 

762,911

 

Interest expense

 

 

5,424,521

 

Sales tax accrual

 

 

7,700,378

 

One-time non-operational events:

 

 

 

 

Loss on extinguishment of debt

 

 

1,756,095

 

Write-off of acquisition receivable

 

 

809,000

 

Adjustment in value of contingency

 

 

138,922

 

Change on fair value of warrant liability

 

 

2,127,656

 

Adjusted EBITDA

 

$

14,394,924

 

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Unaudited Pro Forma Combined Financial Information

The unaudited pro forma combined financial information presented below sets forth the financial position and results of operations of Goedeker after giving effect to the proposed acquisition and this offering. The following unaudited pro forma combined financial statements give effect to the proposed acquisition and related transactions and were prepared in accordance with the regulations of the Securities and Exchange Commission, or the SEC.

The pro forma financial information is presented for informational purposes only and is not necessarily indicative of what the combined company’s financial position actually would have been had the proposed acquisition been completed on the dates indicated or what the combined company’s results of operations actually would have been had the proposed acquisition been completed as of the beginning of the periods indicated. In addition, the combined pro forma financial statements do not purport to project the future financial position or operating results of the combined company. The pro forma combined financial statements include adjustments for events that are (1) directly attributable to the proposed acquisition, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results.

It should be noted that there have been no material transactions between Goedeker and Appliances Connection prior to and during the periods presented in the unaudited pro forma combined financial statements. In addition, these statements do not reflect any cost or growth synergies that the combined company may achieve as a result of the proposed acquisition, or the costs to combine the operations of Goedeker and Appliances Connection.

The pro forma financial information has been derived from and should be read in conjunction with the following:

(a)     The consolidated financial statements and related notes of Goedeker for the year ended December 31, 2020, for the period from January 1, 2019 through April 5, 2019 (Predecessor) and for the period from April 6, 2019 through December 31, 2019 (Successor) (which are included elsewhere in this prospectus); and

(b)    The combined financial statements and related notes of Appliances Connection for the years ended December 31, 2020 and 2019 (which are included elsewhere in this prospectus).

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1847 GOEDEKER INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2020

 

Goedeker

 

Appliances Connection

 

Pro Forma Adjustments

 

Notes

 

Pro Forma Combined

ASSETS

 

 

  

 

  

 

 

 

   

 

 

Current Assets

 

 

  

 

  

 

 

 

   

 

 

Cash and cash equivalents

 

$

934,729

 

$

14,842,912

 

$

190,150,000

 

 

(a)

 

$

42,830,663

  

 

  

 

  

 

(180,000,000

)

 

(b)

 

 

 
  

 

  

 

  

 

56,450,000

 

 

(c)

 

 

 
  

 

  

 

  

 

(12,680,161

)

 

(d)

 

 

 
  

 

  

 

  

 

(26,866,817

)

 

(e)

 

 

 

Restricted cash

 

 

8,977,187

 

 

 

 

(3,185,369

)

 

(f)

 

 

5,791,818

Receivables

 

 

1,998,232

 

 

19,392,582

 

 

 

   

 

21,390,814

Vendor deposits

 

 

547,648

 

 

31,733,415

 

 

(31,733,415

)

 

(g)

 

 

547,648

Merchandise inventory, net

 

 

5,147,241

 

 

12,004,038

 

 

 

   

 

17,151,279

Prepaid expenses and other current assets

 

 

635,084

 

 

217,439

 

 

(100,000

)

 

(d)

 

 

752,523

Total Current Assets

 

 

18,240,121

 

 

78,190,386

 

 

(7,965,762

)

   

 

88,464,745

Property and equipment, net

 

 

245,948

 

 

1,997,822

 

 

 

   

 

2,243,770

Operating lease right-of-use assets

 

 

1,578,235

 

 

4,646,508

 

 

 

   

 

6,224,743

Goodwill

 

 

4,725,689

 

 

 

 

242,250,589

 

 

(h)

 

 

246,976,278

Intangible assets, net

 

 

1,381,937

 

 

 

 

 

   

 

1,381,937

Other long-term assets

 

 

45,000

 

 

144,528

 

 

 

   

 

189,528

TOTAL ASSETS

 

$

26,216,930

 

$

84,979,244

 

$

234,284,827

 

   

$

345,481,001

  

 

  

 

  

 

 

 

   

 

 

LIABILITIES, OWNERS’ EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

  

 

  

 

 

 

   

 

 

Current Liabilities

 

 

  

 

  

 

 

 

   

 

 

Accounts payable and accrued expenses

 

$

12,701,715

 

$

21,179,975

 

$

 

   

$

33,881,690

Customer deposits

 

 

21,879,210

 

 

8,853,214

 

 

 

   

 

30,732,424

Current portion of notes payable

 

 

663,339

 

 

466,235

 

 

(663,339

)

 

(f)

 

 

466,235

Current portion of acquisition note payable

 

 

 

 

 

 

6,000,000

 

 

(c)

 

 

6,000,000

Current portion of financing lease liability

 

 

 

 

23,576

 

 

 

   

 

23,576

Current portion of operating lease liabilities

 

 

450,712

 

 

1,517,390

 

 

 

   

 

1,968,102

Total Current Liabilities

 

 

35,694,976

 

 

32,040,390

 

 

5,336,661

 

   

 

72,072,027

Notes payable, net of current portion

 

 

2,522,030

 

 

3,505,620

 

 

(2,522,030

)

 

(f)

 

 

3,505,620

Acquisition note payable, net of current potion

 

 

 

 

 

 

50,450,000

 

 

(c)

 

 

50,450,000

Financing lease liabilities, net of current portion

 

 

 

 

47,665

 

 

 

   

 

47,665

Operating lease liabilities, net of current portion

 

 

1,127,523

 

 

3,279,080

 

 

 

   

 

4,406,603

Contingent note payable

 

 

188,170

 

 

 

 

 

   

 

188,170

TOTAL LIABILITIES

 

 

39,532,699

 

 

38,872,755

 

 

53,264,631

 

   

 

131,670,085

Owners’ Equity

 

 

 

 

46,103,489

 

 

(46,103,489

)

 

(i)

 

 

Stockholders’ Equity (Deficit)

 

 

  

 

  

 

 

 

   

 

 

Preferred stock, $.0001 par value, 20,000,000 shares authorized; none issued and outstanding at December 31, 2020

 

 

 

 

 

 

 

   

 

Common stock, $.0001 par value, 200,000,000 shares authorized; 6,111,200 and 4,750,000 shares issued and outstanding as of December 31, 2020 (38,899,369 on a pro-forma basis)

 

 

611

 

 

  

 

2,778

 

 

(a)

 

 

3,890

  

 

  

 

  

 

233

 

 

(j)

 

 

 
  

 

  

 

  

 

268

 

 

(j)

 

 

 

16

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1847 GOEDEKER INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET — Continued
AS OF DECEMBER 31, 2020

 

Goedeker

 

Appliances Connection

 

Pro Forma Adjustments

 

Notes

 

Pro Forma Combined

Additional paid-in capital

 

 

13,409,328

 

 

 

 

 

190,147,222

 

(a)

 

 

240,532,734

 

  

 

 

 

 

 

  

 

17,219,764

 

(j)

 

 

 

 

  

 

 

 

 

 

  

 

19,756,420

 

(j)

 

 

 

 

Accumulated deficit

 

 

(26,725,708

)

 

 

 

 

   

 

(26,725,708

)

Total Owners’ Equity, Stockholders’ Equity (Deficit)

 

 

(13,315,769

)

 

 

46,106,489

 

 

181,020,196

   

 

213,810,916

 

TOTAL LIABILITIES, OWNERS’ EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

$

26,216,930

 

 

$

84,979,244

 

$

234,284,827

   

$

345,481,001

 

17

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1847 GOEDEKER INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2020

 

Goedeker

 

Appliances Connection

 

Pro Forma Adjustments

 

Notes

 

Pro Forma Combined

Product sales, net

 

$

55,133,653

 

 

$

312,608,528

 

 

$

 

   

$

367,742,181

 

Cost of goods sold

 

 

47,878,541

 

 

 

247,379,397

 

 

 

 

   

 

295,257,938

 

Gross Profit

 

 

7,255,112

 

 

 

65,229,131

 

 

 

 

   

 

72,484,243

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

Personnel

 

 

6,565,380

 

 

 

13,563,628

 

 

 

 

   

 

20,129,008

 

Advertising

 

 

4,865,361

 

 

 

9,164,242

 

 

 

 

   

 

14,029,603

 

Bank and credit card fees

 

 

1,806,620

 

 

 

12,361,428

 

 

 

 

   

 

14,168,048

 

Depreciation and amortization

 

 

549,712

 

 

 

782,773

 

 

 

 

   

 

1,332,485

 

General and administrative

 

 

7,900,566

 

 

 

9,949,762

 

 

 

 

   

 

17,850,328

 

Total Operating Expenses

 

 

21,687,639

 

 

 

45,821,833

 

 

 

 

   

 

67,509,472

 

Income (Loss) From Operations

 

 

(14,432,527

)

 

 

19,407,298

 

 

 

 

   

 

4,974,771

 

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

Interest income

 

 

2,479

 

 

 

977,249

 

 

 

(977,249

)

 

(k)

 

 

2,479

 

Financing costs

 

 

(762,911

)

 

 

 

 

 

 

   

 

(762,911

)

Interest expense

 

 

(870,847

)

 

 

(663,674

)

 

 

(4,010,000

)

 

(l)

 

 

(5,424,521

)

  

 

 

 

 

 

 

 

 

 

120,000

 

 

(m)

 

 

 

 

Loss on extinguishment of debt

 

 

(1,756,095

)

 

 

 

 

 

 

   

 

(1,756,095

)

Write-off of acquisition receivable

 

 

(809,000

)

 

 

 

 

 

 

   

 

(809,000

)

Adjustment in value of contingency

 

 

(138,922

)

 

 

 

 

 

 

   

 

(138,922

)

Change on fair value of warrant liability

 

 

(2,127,656

)

 

 

 

 

 

 

   

 

(2,127,656

)

Other income

 

 

25,945

 

 

 

358,866

 

 

 

 

   

 

384,811

 

Total Other Income (Expense)

 

 

(6,437,007

)

 

 

672,441

 

 

 

(4,867,249

)

   

 

(10,631,815

)

Net Income (Loss) Before Income Taxes

 

 

(20,869,534

)

 

 

20,079,739

 

 

 

(4,867,249

)

   

 

(5,237,044

)

Income tax expense

 

 

(698,303

)

 

 

 

 

 

*

 

   

 

(698,303

)

Net Income (Loss)

 

$

(21,567,837

)

 

$

20,079,739

 

 

$

(4,867,249

)

   

$

(6,355,347

)

  

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

Income (Loss) Per Common Share – Basic and Diluted

 

$

(3.95

)

 

 

 

 

 

 

 

 

   

$

(0.17

)

Weighted-Average Number of Common Shares Outstanding – Basic and Diluted

 

 

5,463,603

 

 

 

 

 

 

 

 

 

   

 

38,251,772

 

____________

*        The Company determined that there is no tax effect in the acquisition. Taxable income, if any, would be offset by the Company’s available net loss carryforwards.

18

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1847 GOEDEKER INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

NOTE 1 — DESCRIPTION OF THE TRANSACTIONS

On October 20, 2020, we entered into the purchase agreement, which was amended on December 8, 2020 and April 6, 2021, to acquire Appliances Connection. Pursuant to the purchase agreement, ACI agreed to acquire all of the issued and outstanding capital stock or other equity securities of Appliances Connection for an aggregate purchase price of $222,000,000, subject to adjustment. The purchase price consists of (i) $180,000,000 in cash, (ii) 1,222,239 shares of our common stock and 1,111,094 shares of our series A preferred stock, collectively having a stated value that is equal to $21,000,000, and (iii) a number of shares of our series A-1 preferred stock that is equal to (A) $21,000,000 divided by (B) the average of the closing price of our shares of common stock (as reported on NYSE American) for the 20 trading days immediately preceding the 3rd trading day prior to the closing date of the proposed acquisition; provided, that if we have obtained stockholder approval prior to closing, then we will issue the same number of shares of common stock in lieu of the series A preferred stock and series A-1 preferred stock. We have obtained such stockholder approval, so all shares will be issued as common stock.

The purchase price is subject to a closing net working capital adjustment provision.  Under this provision, the sellers shall deliver to ACI at least one day prior to the closing of the proposed acquisition a statement setting forth their good faith estimate of the net working capital of Appliances Connection (which excludes accruals for sales tax liabilities). If such estimated net working capital exceeds a target net working capital of ($15,476,941), then within five (5) days ACI shall make a cash payment to the sellers that is equal to such excess. If such target net working capital exceeds such estimated net working capital, then either (i) if finally determined at the closing, the cash portion of the purchase price shall be decreased by such excess or (ii) within 5 days of the closing, the sellers shall make a cash payment to ACI that is equal to such excess.

The purchase price is also subject to a post-closing net working capital adjustment provision. On or before the 75th day following the closing of the proposed acquisition, ACI shall deliver to the sellers a statement setting forth its calculation of the net working capital. If such net working capital exceeds the estimated net working capital referred to above, then within five (5) days after the final determination of such net working capital ACI shall send payment by wire transfer of immediately available funds to the sellers in an amount equal to such excess. If the estimated net working capital exceeds such net working capital, then within five (5) days the sellers shall pay to ACI in cash an amount equal to such excess.

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

Upon execution of the purchase agreement, ACI paid a deposit in the amount of $100,000, and upon execution of the first amendment to the purchase agreement, ACI paid an additional deposit in the amount of $75,000, all of which will be credited towards the cash portion of the purchase price at closing.

We intend to pay the cash portion of the purchase price for the proposed acquisition with (i) the proceeds from this offering and (ii) the proceeds of a term loan from a commercial bank. We have entered into a non-binding engagement letter with a commercial bank for the provision of a senior secured credit facility involving a term loan in the expected principal amount of $60 million.

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1847 GOEDEKER INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

NOTE 2 — BASIS OF PRO FORMA PRESENTATION

The unaudited pro forma combined balance sheet as of December 31, 2020 combines the historical consolidated balance sheet of Goedeker with the historical combined balance sheet of Appliances Connection and was prepared as if the proposed acquisition had occurred on December 31, 2020.

The unaudited pro forma combined statement of operations for the year ended December 31, 2020 combines the historical consolidated statement of operations of Goedeker with the historical combined statement of operations of Appliances Connection and was prepared as if the proposed acquisition had occurred on January 1, 2020.

The historical financial information is adjusted in the unaudited pro forma combined financial information to give effect to pro forma events that are (1) directly attributable to the proposed acquisition, (2) factually supportable, and (3) with respect to the combined statement of operations, expected to have a continuing impact on the combined results.

We accounted for the proposed acquisition in the unaudited pro forma combined financial information using the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805 “Business Combinations”, or ASC 805. In accordance with ASC 805, we used our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. Goodwill of Appliances Connection is measured as the excess of the purchase consideration over the fair value of the net tangible assets and identifiable assets acquired. The preliminary fair value of the net assets to be acquired is $1,592,913. The excess of the aggregate estimated fair value of the net tangible assets, $242,250,589, has been allocated to provisional goodwill.

The pro forma adjustments described below were developed based on management’s assumptions and estimates, including assumptions relating to the consideration paid and the allocation thereof to the assets acquired and liabilities assumed from Appliances Connection based on preliminary estimates to fair value.  The final purchase consideration and allocation of the purchase consideration will differ from that reflected in the unaudited pro forma combined financial information after the final valuation procedures are performed and the amounts are finalized.

The unaudited pro forma combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of the combined company would have been had the acquisition occurred on the dates assumed, nor are the necessarily indicative of future consolidated results of operations or financial position.

We expect to incur costs and realize benefits associated with integrating the operations of Goedeker and Appliances Connection.  The unaudited pro forma combined financial statements do not reflect the costs of any integration activities or any benefits that may result from operating efficiencies or revenue synergies.  The unaudited pro forma combined statement of operations does not reflect any non-recurring charges directly related to the proposed acquisition that the combined company may incur upon completion of the proposed acquisition.

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1847 GOEDEKER INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

NOTE 3 — PURCHASE PRICE ALLOCATION

The table below represents the estimated preliminary purchase price allocation to the net assets acquired based on their estimated fair values, as well as the associated estimated useful lives of the acquired intangible assets. Such amounts were estimated using the most recent balance sheet of Appliances Connection as of December 31, 2020. Upon closing of the proposed acquisition, final valuations will be performed, whereby increases or decreases in the fair value of relevant balance sheet accounts will result in adjustments, which may result in material differences from the information presented herein.

Provisional purchase consideration at preliminary fair value:

 

 

 

 

Cash consideration

 

$

180,000,000

 

Share issuance

 

 

36,976,685

 

Working capital adjustment paid to sellers

 

 

26,866,817

 

Amount of consideration (excluding potential gross-up):

 

$

243,843,502

 

  

 

 

 

Assets acquired and liabilities assumed at preliminary fair value

 

 

 

 

Cash

 

$

2,062,751

 

Accounts receivable

 

 

19,392,582

 

Inventories

 

 

12,004,038

 

Other assets

 

 

361,967

 

Property and equipment

 

 

1,997,822

 

Operating lease right-of-use asset

 

 

4,646,508

 

Accounts payable and accrued expenses

 

 

(21,179,975

)

Customer deposits

 

 

(8,853,214

)

Current portion of notes payable

 

 

(466,235

)

Long term portion of notes payable

 

 

(3,505,620

)

Current portion of operating and finance lease liabilities

 

 

(1,540,966

)

Operating and finance lease liabilities, net of current portions

 

 

(3,326,745

)

Net tangible assets acquired

 

$

1,592,913

 

  

 

 

 

Total net assets acquired

 

$

1,592,913

 

Consideration paid

 

 

243,843,502

 

Preliminary goodwill

 

$

242,250,589

 

Estimated working capital adjustment:

 

 

 

 

Working capital on preliminary statement

 

$

(11,389,876

)

Target working capital

 

 

(15,476,941

)

Net estimated working capital adjustment

 

$

(26,866,817

)

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1847 GOEDEKER INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

NOTE 4 — PRO FORMA ADJUSTMENTS

The pro forma adjustments included in the unaudited pro forma condensed combined financial statements are as follows:

(a)

 

Net proceeds from common stock offering as follows:

 

 

 

 

  

Sale of 27,777,778 shares of $.0001 par value common stock at $7.38, the April 28, 2021 closing price

 

$

205,000,000

 

  

Underwriting discount

 

 

(14,350,000

)

  

Estimated cash expenses

 

 

(500,000

)

  

Net proceeds

 

$

190,150,000

 

    

 

 

 

(b)

 

Disbursed to sellers in cash

 

$

180,000,000

 

    

 

 

 

(c)

 

Proceeds of acquisition note payable (term loan), net of a $1,450,000 discount and $2,100,000 placement agent fee

 

$

56,450,000

 

    

 

 

 

(d)

 

Pay sellers’ for cash, net of (i) $100,000 deposit paid at signing of purchase agreement, (ii) long-term debt of $3,505,620, and (iii) cash threshold of $850,000

 

$

12,680,161

 

    

 

 

 

(e)

 

Estimated working capital adjustment paid to sellers

 

$

26,866,817

 

    

 

 

 

(f)

 

Payoff of debt in accordance with terms of acquisition note payable

 

$

3,185,369

 

    

 

 

 

(g)

 

Appliances Connection vendor deposits not acquired in transaction

 

$

31,733,415

 

    

 

 

 

(h)

 

Preliminary goodwill as the difference between consideration paid and net assets acquired

 

$

242,250,589

 

    

 

 

 

(i)

 

Members’ equity eliminated in consolidation

 

$

46,103,489

 

    

 

 

 

(j)

 

Shares issued to sellers

 

 

 

 

  

2,333,333 at fixed price of $9.00 per share

 

$

17,219,764

 

  

2,677,058 at the weighted average price of $7.84 for the 20 trading days ended
April 28, 2021

 

$

19,756,420

 

    

 

 

 

(k)

 

Eliminate interest income earned on vendor deposits that do not transfer to the combined company

 

$

977,249

 

    

 

 

 

(l)

 

Interest expense and amortization of loan discount on acquisition note payable

 

$

4,010,000

 

    

 

 

 

(m)

 

Estimated reduction in interest expense on loans paid off in accordance with terms of acquisition note payable

 

$

120,000

 

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RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors, together with the other information contained in this prospectus, before purchasing our common stock. We have listed below (not necessarily in order of importance or probability of occurrence) what we believe to be the most significant risk factors applicable to the proposed acquisition and the combined company, but they do not constitute all of the risks that may be applicable. Any of the following factors could harm our business, financial condition, results of operations or prospects, and could result in a partial or complete loss of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section titled “Cautionary Statement Regarding Forward-Looking Statements.” For purposes of this “Risk Factors” section, references to “we,” “us,” “our” or “our company” are to the combined company resulting from the proposed acquisition unless the context requires otherwise.

Risks Related to the Proposed Acquisition

The proposed acquisition is subject to a number of conditions, and may not close at all, in which case an investment in our common stock in this offering will represent an investment in Goedeker’s historical business only.

The purchase agreement contains a number of conditions that must be fulfilled to complete the proposed acquisition, including, without limitation: the receipt of all authorizations, consents, permits, licenses or approvals of all governmental authorities or other third parties; the expiration or termination of any waiting period applicable to the consummation of the transaction under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended; the absence of any temporary, preliminary or permanent restraining order preventing the consummation of the proposed acquisition; the release of any security interests related to Appliances Connection; the execution of new leases for certain properties; the execution of certain employment agreements between certain officers of Appliances Connection and ACI; the receipt of an opinion of the sellers’ counsel; and the receipt of documents required for the transfer of the securities of Appliances Connection to ACI. In addition, ACI shall have obtained on terms and conditions reasonably satisfactory to it all of the financing necessary to pay the cash portion of the purchase price and pay related fees and expenses to consummate the proposed acquisition and provide reasonably adequate working capital for the combined company after the closing, which includes the term loan in the expected principal amount of $60 million to pay a portion of the cash portion of the purchase price for the proposed acquisition.

The required satisfaction of the foregoing conditions could delay the completion of the proposed acquisition for a significant period of time or prevent it from occurring. Any delay in completing the proposed acquisition could cause our company not to realize some or all of the benefits that the parties expect our company to achieve. Further, there can be no assurance that the conditions to the closing of the proposed acquisition will be satisfied or waived or that the proposed acquisition will be completed. The completion of this offering is not contingent upon the completion of the proposed acquisition. We can provide no assurance that the proposed acquisition will be consummated in a timely manner, or at all. If the proposed acquisition is not completed, then we intend to use all of the net proceeds for general corporate purposes, which could include other acquisitions. In that event, your investment in our common stock will represent an investment in Goedeker’s historical business only.

If the benefits of the proposed acquisition do not meet the expectations of investors, stockholders or financial analysts, the market price of our common stock may decline.

If the benefits of the proposed acquisition do not meet the expectations of investors or securities analysts, the market price of our common stock prior to the closing of the proposed acquisition may decline. The market values of our common stock at the time of the proposed acquisition may vary significantly from their prices on the date the acquisition target was identified.

In addition, broad market and industry factors may materially harm the market price of our common stock irrespective of our operating performance. The stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.

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Table of Contents

Failure or delay to complete the proposed acquisition could negatively impact our business, financial condition, results of operations or stock price.

Completion of the proposed acquisition is conditioned upon the satisfaction of certain closing conditions, including those discussed above, and other closing conditions customary for a transaction of this size and type. The required conditions to closing may not be satisfied in a timely manner, if at all. If the proposed acquisition is not consummated for these or any other reasons, we may be subject to a number of adverse effects, including:

•        the price of our common stock may decline to the extent that the current market price reflects a market assumption that the proposed acquisition will be completed;

•        our operations may continue to incur loss; and

•        costs related to the proposed acquisition, such as legal, accounting, financial advisory and printing fees, must be paid even if the proposed acquisition is not completed.

Furthermore, if the proposed acquisition is not completed, there can be no assurance that we will be able to find another target business on terms as favorable as those of the proposed acquisition.

The integration of Appliances Connection with Goedeker may not be as successful as anticipated.

The proposed acquisition of Appliances Connection, a company that is significantly larger than Goedeker, involves numerous operational, strategic, financial, accounting, legal, tax and other risks; potential liabilities associated with the acquired business; and uncertainties related to design, operation and integration of Appliances Connection’s internal control over financial reporting. Difficulties in integrating Appliances Connection with Goedeker may result in the combined company performing differently than expected, in operational challenges or in the failure to realize anticipated expense-related efficiencies. Goedeker’s and Appliances Connection’s existing businesses could also be negatively impacted by the proposed acquisition. Potential difficulties that may be encountered in the integration process include, among other factors:

•        the inability to successfully integrate the business of Appliances Connection with Goedeker in a manner that permits the combined company to achieve the full revenue and cost savings anticipated from the proposed acquisition;

•        complexities associated with managing the larger, more complex, integrated business;

•        not realizing anticipated operating synergies or incurring unexpected costs to realize such synergies;

•        integrating personnel from the two companies while maintaining focus on providing consistent, high-quality products and services;

•        potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the proposed acquisition;

•        loss of key employees and need to hire new employees to accommodate the larger business and expected growth of the combined company;

•        integrating relationships with customers, vendors and business partners;

•        performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the proposed acquisition and integrating Appliances Connection’s operations with Goedeker; and

•        the disruption of, or the loss of momentum in each, company’s ongoing business or inconsistencies in standards, controls, procedures and policies.

We have incurred and expect to continue to incur substantial transaction-related costs in connection with the proposed acquisition.

We have incurred, and expect to continue to incur, a number of non-recurring transaction-related costs associated with completing the proposed acquisition. These fees and costs have been, and will continue to be, substantial. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, filing fees and printing costs. Additional unanticipated costs may be incurred, which may be higher than expected and could have a material adverse effect on the combined company financial condition and operating results.

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Table of Contents

Our future results following proposed acquisition may differ materially from the unaudited pro forma financial information included in this prospectus.

The unaudited pro forma financial information contained in this prospectus is presented for purposes of presenting our historical consolidated financial statements with the historical combined financial statements of Appliances Connection, as adjusted to give effect to the proposed acquisition, and is not necessarily indicative of the financial condition or results of operations of the business following the proposed acquisition. The assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect our financial condition and results of operations following the proposed acquisition. Any change in our financial condition or results of operations may cause significant variations in the price of our common stock.

As a result of the proposed acquisition, our company may have undisclosed liabilities and any such liabilities could harm our revenues, business, prospects, financial condition and results of operations.

The due diligence process that we conducted on Appliances Connection may not reveal all material liabilities of Appliances Connection currently existing or which may be asserted in the future against our company relating to its activities before the consummation of the proposed acquisition transaction. There can be no assurance that our company will not have any liabilities in connection with the closing of the proposed acquisition that we are unaware of or that we will be successful in enforcing any indemnification provisions or that such indemnification provisions will be adequate to reimburse us. Any such liabilities of Appliances Connection that survive the proposed acquisition could harm our revenues, business, prospects, financial condition and results of operations.

Risks Related to the Business and Industry of the Combined Company

The COVID-19 pandemic may cause a material adverse effect on our business.

The COVID-19 pandemic continues to rapidly evolve. At this time, there continues to be significant volatility and uncertainty relating to the full extent to which the COVID-19 pandemic and the various responses to it will impact our business, operations and financial results.

Most states and cities have at various times instituted quarantines, restrictions on travel, “stay at home” rules, social distancing measures and restrictions on the types of businesses that could continue to operate, as well as guidance in response to the pandemic and the need to contain it. Pursuant to restrictions in Missouri, Goedeker’s showroom was closed from April through June of 2020, but its call center and warehouse continued to operate. Appliances Connection’s retail facilities and warehouse were deemed essential businesses that were not subject to restrictions in New York and New Jersey, so they remained open and continued to operate. Since over 95% of Goedeker’s sales are completed online and its call center and warehouse and distribution operations continued to operate, and Appliances Connection continued to operate, the restrictions put in place have not had a materially negative impact on our operations. However, the situation surrounding COVID-19 remains fluid, and we may be required to close or limit service offerings in our retail facilities or warehouse in response to guidance from applicable government and public health officials, which could adversely affect our operations and revenues.

In addition, we are dependent upon suppliers to provide us with all of the products that we sell. We source, and sell products from domestic and international vendors, and their ability to reliably and efficiently fulfill our orders is critical to our business success. The COVID-19 pandemic has impacted and may continue to impact suppliers and manufacturers of certain of our products. As a result, we have faced and may continue to face delays or difficulty sourcing certain products, which could negatively affect our business and financial results. For example, late in the second quarter of 2020 and through the remainder of 2020, Goedeker experienced delays in getting products from manufacturers whose production facilities were closed or operating at reduced capacity because of the COVID-19 pandemic, which resulted in some cancellations of customer orders. We estimate that cancellations caused by shipping delays approximated $39.7 million in the year ended December 31, 2020, based on the historical ratio of shipped sales to customer orders of approximately 79% to the actual ratio of approximately 45% in the year ended December 31, 2020. Even if we are able to find alternate sources for such products, they may cost more, which could adversely impact our profitability and financial condition.

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The global deterioration in economic conditions, which may have an adverse impact on discretionary consumer spending, could also impact our business and demand for our products. For instance, consumer spending may be negatively impacted by general macroeconomic conditions, including a rise in unemployment, and decreased consumer confidence resulting from the pandemic. Changing consumer behaviors as a result of the pandemic may also have a material impact on our revenue.

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

If the COVID-19 pandemic does not continue to slow and the spread of COVID-19 is not contained, our business operations, including those of our suppliers, could be further delayed or interrupted. We expect that government and health authorities may announce new or extend existing restrictions, which could require us to make further adjustments to our operations in order to comply with any such restrictions. We may also experience limitations in employee resources. In addition, our operations could be disrupted if any of our employees were suspected of having COVID-19, which could require quarantine of some or all such employees or closure of our facilities for disinfection. We may also delay or reduce certain capital spending and related projects until the travel and logistical impacts of the pandemic are lifted, which will delay the completion of such projects. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs.

The extent to which the COVID-19 pandemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this prospectus, including the effectiveness of vaccines and other treatments for COVID-19, and other new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment, and future developments in the global supply chain and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.

If we fail to acquire new customers or retain existing customers, or fail to do so in a cost-effective manner, our net revenue may decrease, and our business, financial condition and operating results may be materially adversely affected.

Our success depends on our ability to acquire and retain customers in a cost-effective manner. In order to expand our customer base, we must appeal to and acquire customers who have historically used other means of commerce to purchase home goods and may prefer alternatives to our offerings, such as the websites of our competitors or our suppliers’ own websites. We have made significant investments related to customer acquisition and expect to continue to spend significant amounts to acquire additional customers. Goedeker’s advertising efforts consist primarily of email marketing, affiliate marketing, and to a lesser extent, social media. Appliances Connection’s advertising efforts including online advertisements and promotions, digital marketing, and to a lesser degree, more traditional forms of marketing like television and radio advertisements in the New York City media market. These efforts are expensive and may not result in the cost-effective acquisition of customers. We cannot assure you that the net profit from new customers we acquire will ultimately exceed the cost of acquiring those customers. If we fail to deliver a quality shopping experience, or if consumers do not perceive the products we offer to be of high value and quality, we may not be able to acquire new customers. If we are unable to acquire new customers who purchase products in numbers sufficient to grow our business, we may not be able to generate the scale necessary to drive beneficial network effects with our suppliers or efficiencies in our logistics network, our net revenue may decrease, and our business, financial condition and operating results may be materially adversely affected.

We believe that many of our new customers originate from word-of-mouth and other non-paid referrals from existing customers. Therefore, we must ensure that our existing customers remain loyal to us in order to continue receiving those referrals. If our efforts to satisfy our existing customers are not successful, we may not be able to acquire new customers in sufficient numbers to continue to grow our business, or we may be required to incur significantly higher marketing expenses in order to acquire new customers.

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Our success depends in part on our ability to increase our net revenue per active customer. If our efforts to increase customer loyalty and repeat purchasing as well as maintain high levels of customer engagement are not successful, our growth prospects and revenue will be materially adversely affected.

Our ability to grow our business depends on our ability to retain our existing customer base and generate increased revenue and repeat purchases from this customer base, and maintain high levels of customer engagement. To do this, we must continue to provide our customers and potential customers with a unified, convenient, efficient and differentiated shopping experience by:

•        providing imagery, tools and technology that attract customers who historically would have bought elsewhere;

•        maintaining a high-quality and diverse portfolio of products;

•        delivering products on time and without damage; and

•        maintaining and further developing our online platforms.

If we fail to increase net revenue per active customer, generate repeat purchases or maintain high levels of customer engagement, our growth prospects, operating results and financial condition could be materially adversely affected.

Our business depends on our ability to build and maintain strong brands. We may not be able to maintain and enhance our brands if we receive unfavorable customer complaints, negative publicity or otherwise fail to live up to consumers’ expectations, which could materially adversely affect our business, results of operations and growth prospects.

Maintaining and enhancing our brands is critical to expanding our base of customers and suppliers. Our ability to maintain and enhance our brand depends largely on our ability to maintain customer confidence in our product and service offerings, including by delivering products on time and without damage. If customers do not have a satisfactory shopping experience, they may seek out alternative offerings from our competitors and may not return to our sites as often in the future, or at all. In addition, unfavorable publicity regarding, for example, our practices relating to privacy and data protection, product quality, delivery problems, competitive pressures, litigation or regulatory activity, could seriously harm our reputation. Such negative publicity also could have an adverse effect on the size, engagement, and loyalty of our customer base and result in decreased revenue, which could adversely affect our business and financial results. A significant portion of our customers’ brand experience also depends on third parties outside of our control, including suppliers and logistics providers such as R+L Carriers, AM Home Delivery and other third-party delivery agents. If these third parties do not meet our or our customers’ expectations, our brands may suffer irreparable damage.

In addition, maintaining and enhancing these brands may require us to make substantial investments, and these investments may not be successful. If we fail to promote and maintain our brands, or if we incur excessive expenses in this effort, our business, operating results and financial condition may be materially adversely affected. We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brands may become increasingly difficult and expensive. Maintaining and enhancing our brands will depend largely on our ability to provide high quality products to our customers and a reliable, trustworthy and profitable sales channel to our suppliers, which we may not be able to do successfully.

Customer complaints or negative publicity about our sites, products, delivery times, customer data handling and security practices or customer support, especially on blogs, social media websites and our sites, could rapidly and severely diminish consumer use of our sites and consumer and supplier confidence in us and result in harm to our brands.

Our efforts to expand our business into new brands, products, services, technologies, and geographic regions will subject us to additional business, legal, financial, and competitive risks and may not be successful.

Our business success depends to some extent on our ability to expand our customer offerings by launching new brands and services and by expanding our existing offerings into new geographies. Launching new brands and services or expanding geographically requires significant upfront investments, including investments in marketing, information technology, and additional personnel. We may not be able to generate satisfactory revenue from these efforts to offset these costs. Any lack of market acceptance of our efforts to launch new brands and services or to expand our existing offerings could have a material adverse effect on our business, prospects, financial condition and results of operations.

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Further, as we continue to expand our fulfillment capability or add new businesses with different requirements, our logistics networks become increasingly complex and operating them becomes more challenging. There can be no assurance that we will be able to operate our networks effectively.

We have also entered and may continue to enter into new markets in which we have limited or no experience, which may not be successful or appealing to our customers. These activities may present new and difficult technological and logistical challenges, and resulting service disruptions, failures or other quality issues may cause customer dissatisfaction and harm our reputation and brand. Further, our current and potential competitors in new market segments may have greater brand recognition, financial resources, longer operating histories and larger customer bases than we do in these areas. As a result, we may not be successful enough in these newer areas to recoup our investments in them. If this occurs, our business, financial condition and operating results may be materially adversely affected.

Risks associated with the suppliers from whom our products are sourced could materially adversely affect our financial performance as well as our reputation and brand.

We depend on our ability to provide our customers with a wide range of products from qualified suppliers in a timely and efficient manner. Political and economic instability, the financial stability of suppliers, suppliers’ ability to meet our standards, labor problems experienced by suppliers, the availability or cost of raw materials, merchandise quality issues, currency exchange rates, trade tariff developments, transport availability and cost, transport security, inflation, the COVID-19 pandemic and other factors relating to our suppliers are beyond our control.

Our agreements with most of our suppliers do not provide for the long-term availability of merchandise or the continuation of particular pricing practices, nor do they usually restrict such suppliers from selling products to other buyers. There can be no assurance that our current suppliers will continue to seek to sell us products on current terms or that we will be able to establish new or otherwise extend current supply relationships to ensure product acquisitions in a timely and efficient manner and on acceptable commercial terms. Our ability to develop and maintain relationships with reputable suppliers and offer high quality merchandise to our customers is critical to our success. If we are unable to develop and maintain relationships with suppliers that would allow us to offer a sufficient amount and variety of quality merchandise on acceptable commercial terms, our ability to satisfy our customers’ needs, and therefore our long-term growth prospects, would be materially adversely affected.

Further, we rely on our suppliers’ representations of product quality, safety and compliance with applicable laws and standards. If our suppliers or other vendors violate applicable laws, regulations or our supplier code of conduct, or implement practices regarded as unethical, unsafe, or hazardous to the environment, it could damage our reputation and negatively affect our operating results. Further, concerns regarding the safety and quality of products provided by our suppliers could cause our customers to avoid purchasing those products from us, or avoid purchasing products from us altogether, even if the basis for the concern is outside of our control. As such, any issue, or perceived issue, regarding the quality and safety of any items we sell, regardless of the cause, could adversely affect our brand, reputation, operations and financial results.

We also are unable to predict whether any of the countries in which our suppliers’ products are currently manufactured or may be manufactured in the future will be subject to new, different, or additional trade restrictions imposed by the United States or foreign governments or the likelihood, type or effect of any such restrictions. Any event causing a disruption or delay of imports from suppliers with international manufacturing operations, including the imposition of additional import restrictions, restrictions on the transfer of funds or increased tariffs or quotas, could increase the cost or reduce the supply of merchandise available to our customers and materially adversely affect our financial performance as well as our reputation and brand. Furthermore, some or all of our suppliers’ foreign operations may be adversely affected by political and financial instability, resulting in the disruption of trade from exporting countries, restrictions on the transfer of funds or other trade disruptions.

In addition, our business with foreign suppliers may be affected by changes in the value of the United States dollar relative to other foreign currencies. For example, any movement by any other foreign currency against the United States dollar may result in higher costs to us for those goods. Declines in foreign currencies and currency exchange rates might negatively affect the profitability and business prospects of one or more of our foreign suppliers. This, in turn, might cause such foreign suppliers to demand higher prices for merchandise in their effort to offset any lost profits associated with any currency devaluation, delay merchandise shipments, or discontinue selling to us altogether, any of which could ultimately reduce our sales or increase our costs.

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Our suppliers have imposed conditions in our business arrangements with them. If we are unable to continue satisfying these conditions, or such suppliers impose additional restrictions with which we cannot comply, it could have a material adverse effect on our business, financial condition and operating results.

Our suppliers have strict conditions for doing business with them. Several are sizeable such as General Electric, Whirlpool and DMI. If we cannot satisfy these conditions or if they impose additional or more restrictive conditions that we cannot satisfy, our business would be materially adversely affected. It would be materially detrimental to our business if these suppliers decided to no longer do business with us, increased the pricing at which they allow us to purchase their goods or impose other restrictions or conditions that make it more difficult for us to work with them. Any of these events could have a material adverse effect on our business, financial condition and operating results.

Our dependence on one supplier for a substantial portion of our purchases makes us vulnerable to a disruption in the supply of its products.

Goedeker relies on Whirlpool for a substantial portion of product purchases. For the years ended December 31, 2020 and 2019, approximately 38.0% and 44.1%, respectively, of its total purchases were from Whirlpool. As a result, any of the following could have a material adverse effect on our business, financial condition and results of operations:

•        termination of the supply agreement;

•        an adverse change in the financial condition of Whirlpool; or

•        an adverse change in the Whirlpool’s ability to manufacture and/or deliver desired products on a timely basis.

Our agreement with Whirlpool is terminable at will by either party upon short notice, so does not provide for the long-term availability of products, nor does it provide for the continuation of particular pricing practices. There can be no assurance that Whirlpool will continue to sell us products or that we will be able to establish new supply relationships to ensure similar product acquisitions in a timely and efficient manner and on acceptable commercial terms.

Successful performance of these supply agreement is critical to our success. If the supply relationship is affected adversely, we may be unable to replace quickly or effectively the products sold to us by Whirlpool. Significant disruptions could have a dramatic effect on our performance.

We may be unable to source new suppliers or strengthen our relationships with current suppliers.

Goedeker and Appliances Connection have relationships with over 240 and nearly 2,000 suppliers, respectively. Our agreements with suppliers are generally terminable at will by either party upon short notice. If we do not maintain our existing relationships or build new relationships with suppliers on acceptable commercial terms, we may not be able to maintain a broad selection of merchandise, and our business and prospects would suffer severely.

In order to attract quality suppliers, we must:

•        demonstrate our ability to help our suppliers increase their sales;

•        offer suppliers a high quality, cost-effective fulfillment process; and

•        continue to provide suppliers with a dynamic and real-time view of our demand and inventory needs.

If we are unable to provide our suppliers with a compelling return on investment and an ability to increase their sales, we may be unable to maintain and/or expand our supplier network, which would negatively impact our business.

We depend on our suppliers to perform certain services regarding the products that we offer.

As part of offering our suppliers’ products for sale on our sites, suppliers are often responsible for conducting a number of traditional retail operations with respect to their respective products, including maintaining inventory and preparing merchandise for shipment to our customers. In these instances, we may be unable to ensure that suppliers will perform these services to our or our customers’ satisfaction in a manner that provides our customer with a unified brand experience or on commercially reasonable terms. If our customers become dissatisfied with the services provided by our suppliers, our business, reputation and brands could suffer.

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If we fail to manage our growth effectively, our business, financial condition and operating results could be harmed.

To manage our growth effectively, we must continue to implement our operational plans and strategies, improve and expand our infrastructure of people and information systems and expand, train and manage our employee base. We have rapidly increased employee headcount since our inception to support the growth in our business. To support continued growth, we must effectively integrate, develop and motivate a large number of new employees. We face significant competition for personnel. Failure to manage our hiring needs effectively or successfully integrate our new hires may have a material adverse effect on our business, financial condition and operating results.

Additionally, the growth of our business places significant demands on our operations, as well as our management and other employees. For example, we typically launch hundreds of promotional events across thousands of products each month on our sites via emails and personalized displays. These events require us to produce updates of our sites and emails to our customers on a daily basis with different products, photos and text. Any surge in online traffic and orders associated with such promotional activities places increased strain on our operations, including our logistics network, and may cause or exacerbate slowdowns or interruptions. The growth of our business may require significant additional resources to meet these daily requirements, which may not scale in a cost-effective manner or may negatively affect the quality of our sites and customer experience. We are also required to manage relationships with a growing number of suppliers, customers and other third parties. Our information technology systems and our internal controls and procedures may not be adequate to support future growth of our supplier and employee base. If we are unable to manage the growth of our organization effectively, our business, financial condition and operating results may be materially adversely affected.

Our ability to obtain continued financing is critical to the growth of our business. We will need additional financing to fund operations, which additional financing may not be available on reasonable terms or at all.

Our future growth, including the potential for future market expansion will require additional capital. We will consider raising additional funds through various financing sources, including the procurement of additional commercial debt financing. For example, completion of the proposed acquisition depends on us securing a term loan to pay a portion of the cash portion of the purchase price to acquire Appliances Connection. However, there can be no assurance that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to execute our growth strategy, and operating results may be adversely affected. Any additional debt financing will increase expenses and must be repaid regardless of operating results and may involve restrictions limiting our operating flexibility.

Our ability to obtain financing may be impaired by such factors as the capital markets, both generally and specifically in our industry, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, are not sufficient to satisfy our capital needs, we may be required to decrease the pace of, or eliminate, our future product offerings and market expansion opportunities and potentially curtail operations.

Our third-party loans contain certain terms that could materially adversely affect our financial condition.

We are party to third party loans that are secured by our assets. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and “— Recent Developments” for a description of these loans. The loan documents contain customary representations, warranties and affirmative and negative covenants. If an event of default were to occur under these loans, the lenders thereto may pursue all remedies available to them, including declaring the obligations under the loans immediately due and payable, which could materially adversely affect our financial condition. 

Our business is highly competitive. Competition presents an ongoing threat to the success of our business.

Our business is rapidly evolving and intensely competitive, and we have many competitors in different industries. Our competition includes furniture stores, big box retailers, department stores, specialty retailers, and online retailers and marketplaces in the United States, including:

•        Furniture Stores:    Ashley Furniture, Bob’s Discount Furniture, Havertys, Raymour & Flanagan and Rooms To Go

•        Big Box Retailers:    Bed Bath & Beyond, Home Depot, IKEA, Lowe’s, Target, Best Buy and Walmart

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•        Department Stores:    JCPenney and Macy’s

•        Specialty Retailers:    Crate and Barrel, Ethan Allen, TJX, At Home, Williams Sonoma, Restoration Hardware, Arhaus, Horchow, Room & Board and Mitchell Gold + Bob Williams

•        Online Retailers and Marketplaces:    Amazon, Wayfair, Houzz and eBay

•        Other:    AJ Madison and US Appliance

We expect competition in e-commerce generally to continue to increase. We believe that our ability to compete successfully depends upon many factors both within and beyond our control, including:

•        the size and composition of our customer base;

•        the number of suppliers and products we feature on our sites;

•        our selling and marketing efforts;

•        the quality, price and reliability of products we offer;

•        the convenience of the shopping experience that we provide;

•        our ability to distribute our products and manage our operations; and

•        our reputation and brand strength.

Many of our current competitors have, and potential competitors may have, longer operating histories, greater brand recognition, larger fulfillment infrastructures, greater technical capabilities, faster and less costly shipping, significantly greater financial, marketing and other resources and larger customer bases than we do. These factors may allow our competitors to derive greater net revenue and profits from their existing customer base, acquire customers at lower costs or respond more quickly than we can to new or emerging technologies and changes in consumer habits. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies, which may allow them to build larger customer bases or generate net revenue from their customer bases more effectively than we do.

Our success depends, in substantial part, on our continued ability to market our products through search engines and social media platforms.

The marketing of our products depends on our ability to cultivate and maintain cost-effective and otherwise satisfactory relationships with search engines and social media platforms, including those operated by Google, Facebook, Bing and Yahoo! These platforms could decide to change their terms and conditions of use at any time (and without notice) and/or significantly increase their fees. No assurances can be provided that we will be able to maintain cost-effective and otherwise satisfactory relationships with these platforms and our inability to do so in the case of one or more of these platforms could have a material adverse effect on our business, financial condition and results of operations.

We obtain a significant number of visits via search engines such as Google, Bing and Yahoo! Search engines frequently change the algorithms that determine the ranking and display of results of a user’s search and may make other changes to the way results are displayed, which can negatively affect the placement of links and, therefore, reduce the number of visits to our website. The growing use of online ad-blocking software may also impact the success of our marketing efforts because we may reach a smaller audience and fail to bring more customers to our website, which could have a material adverse effect on our business, financial condition and results of operations.

System interruptions that impair customer access to our sites or other performance failures or incidents involving our logistics network, our technology infrastructure or our critical technology partners could damage our business, reputation and brand and substantially harm our business and results of operations.

The satisfactory performance, reliability and availability of our sites, transaction processing systems, logistics network, and technology infrastructure are critical to our reputation and our ability to acquire and retain customers, as well as maintain adequate customer service levels.

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For example, if one of our data centers fails or suffers an interruption or degradation of services, we could lose customer data and miss order fulfillment deadlines, which could harm our business. Our systems and operations, including our ability to fulfill customer orders through our logistics network, are also vulnerable to damage or interruption from inclement weather, fire, flood, power loss, telecommunications failure, terrorist attacks, labor disputes, cyber-attacks, data loss, acts of war, break-ins, earthquake and similar events. In the event of a data center failure, the failover to a back-up could take substantial time, during which time our sites could be completely shut down. Further, our back-up services may not effectively process spikes in demand, may process transactions more slowly and may not support all of our site’s functionality.

We use complex proprietary software in our technology infrastructure, which we seek to continually update and improve. We may not always be successful in executing these upgrades and improvements, and the operation of our systems may be subject to failure. In particular, we have in the past and may in the future experience slowdowns or interruptions on some or all of our sites when we are updating them, and new technologies or infrastructures may not be fully integrated with existing systems on a timely basis, or at all. Additionally, if we expand our use of third-party services, including cloud-based services, our technology infrastructure may be subject to increased risk of slowdown or interruption as a result of integration with such services and/or failures by such third parties, which are out of our control. Our net revenue depends on the number of visitors who shop on our sites and the volume of orders we can handle. Unavailability of our sites or reduced order fulfillment performance would reduce the volume of goods sold and could also materially adversely affect consumer perception of our brand.

We may experience periodic system interruptions from time to time. In addition, continued growth in our transaction volume, as well as surges in online traffic and orders associated with promotional activities or seasonal trends in our business, place additional demands on our technology platform and could cause or exacerbate slowdowns or interruptions. If there is a substantial increase in the volume of traffic on our sites or the number of orders placed by customers, we may be required to further expand and upgrade our technology, logistics network, transaction processing systems and network infrastructure. There can be no assurance that we will be able to accurately project the rate or timing of increases, if any, in the use of our sites or expand and upgrade our systems and infrastructure to accommodate such increases on a timely basis. In order to remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our sites, which is particularly challenging given the rapid rate at which new technologies, customer preferences and expectations and industry standards and practices are evolving in the e-commerce industry. Accordingly, we redesign and enhance various functions on our sites on a regular basis, and we may experience instability and performance issues as a result of these changes.

Any slowdown, interruption or performance failure of our sites and the underlying technology and logistics infrastructure could harm our business, reputation and our ability to acquire, retain and serve our customers, which could materially adversely affect our results of operations.

Our failure or the failure of third-party service providers to protect our sites, networks and systems against security breaches, or otherwise to protect our confidential information, could damage our reputation and brand and substantially harm our business and operating results.

We collect, maintain, transmit and store data about our customers, employees, contractors, suppliers, vendors and others, including credit card information and personally identifiable information, as well as other confidential and proprietary information. We also employ third-party service providers that store, process and transmit certain proprietary, personal and confidential information on our behalf. We rely on encryption and authentication technology licensed from third parties in an effort to securely transmit, encrypt, anonymize or pseudonymize certain confidential and sensitive information, including credit card numbers. Advances in computer capabilities, new technological discoveries or other developments may result in the whole or partial failure of this technology to protect transaction and personal data or other confidential and sensitive information from being breached or compromised. Our security measures, and those of our third-party service providers, may not detect or prevent all attempts to hack our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in or transmitted by our sites, networks and systems or that we or our third-party service providers otherwise maintain, including payment card systems and human resources management platforms. We and our service providers may not anticipate or prevent all types of attacks until after they have already been launched, and techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against

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us or our third-party service providers. In addition, security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by persons with whom we have commercial relationships.

Breaches of our security measures or those of our third-party service providers or cyber security incidents could result in unauthorized access to our sites, networks and systems; unauthorized access to and misappropriation of personal information, including consumers’ and employees’ personally identifiable information, or other confidential or proprietary information of ourselves or third parties; limited or terminated access to certain payment methods or fines or higher transaction fees to use such methods; viruses, worms, spyware or other malware being served from our sites, networks or systems; deletion or modification of content or the display of unauthorized content on our sites; interruption, disruption or malfunction of operations; costs relating to breach remediation, deployment or training of additional personnel and protection technologies, responses to governmental investigations and media inquiries and coverage; engagement of third party experts and consultants; litigation, regulatory action and other potential liabilities. If any of these breaches of security occur, our reputation and brand could be damaged, our business may suffer, we could be required to expend significant capital and other resources to alleviate problems caused by such breaches and we could be exposed to a risk of loss, litigation or regulatory action and possible liability. In addition, any party who is able to illicitly obtain a customer’s password could access that customer’s transaction data or personal information. Any compromise or breach of our security measures, or those of our third-party service providers, could violate applicable privacy, data security and other laws, and cause significant legal and financial exposure, adverse publicity and a loss of confidence in our security measures, which could have a material adverse effect on our business, financial condition and operating results. We may need to devote significant resources to protect against security breaches or to address problems caused by breaches, diverting resources from the growth and expansion of our business.

We may be subject to product liability and other similar claims if people or property are harmed by the products we sell.

Some of the products we sell may expose us to product liability and other claims and litigation (including class actions) or regulatory action relating to safety, personal injury, death or environmental or property damage. Some of our agreements with members of our supply chain may not indemnify us from product liability for a particular product, and some members of our supply chain may not have sufficient resources or insurance to satisfy their indemnity and defense obligations. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.

We depend on our relationships with third parties, and changes in our relationships with these parties could adversely impact our revenue and profits.

We rely on third parties to operate certain elements of our business. For example, Goedeker primarily uses R+L Carriers for most of its larger shipping services and AM Home Delivery for furniture deliveries, and both companies use carriers such as FedEx, UPS, DHL and the United States Postal Service to deliver small parcel products. As a result, we may be subject to shipping delays or disruptions caused by inclement weather, natural disasters, system interruptions and technology failures, labor activism, health epidemics or bioterrorism. We are also subject to risks of breakage or other damage during delivery by any of these third parties. We also use and rely on other services from third parties, such as retail partner services, telecommunications services, customs, consolidation and shipping services, as well as warranty, installation and design services.

We may be unable to maintain these relationships, and these services may also be subject to outages and interruptions that are not within our control. For example, failures by our telecommunications providers have in the past and may in the future interrupt our ability to provide phone support to our customers. Third parties may in the future determine they no longer wish to do business with us or may decide to take other actions or make changes to their practices that could harm our business. We may also determine that we no longer want to do business with them. If products are not delivered in a timely fashion or are damaged during the delivery process, or if we are not able to provide adequate customer support or other services or offerings, our customers could become dissatisfied and cease buying products through our sites, which would adversely affect our operating results.

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Certain trends in our business place increased strain on our operations.

We experience surges in orders associated with promotional activities. This activity may place additional demands on our technology systems and logistics network and could cause or exacerbate slowdowns or interruptions. Any such system, site or service interruptions could prevent us from efficiently receiving or fulfilling orders, which may reduce the volume or quality of goods or services we sell and may cause customer dissatisfaction and harm our reputation and brand. These activities are primarily during holidays such as Presidents Day, Memorial Day, July 4th, Labor Day, Thanksgiving Day, and Christmas and Black Friday and Cyber Monday.

Our business may be adversely affected if we are unable to provide our customers a cost-effective shopping platform that is able to respond and adapt to rapid changes in technology.

The number of people who access the Internet through devices other than personal computers, including mobile phones, smartphones, handheld computers such as notebooks and tablets, video game consoles, and television set-top devices, has increased dramatically in the past few years. We continually upgrade existing technologies and business applications to keep pace with these rapidly changing and continuously evolving technologies, and we may be required to implement new technologies or business applications in the future. The implementation of these upgrades and changes requires significant investments and as new devices and platforms are released, it is difficult to predict the problems we may encounter in developing applications for these alternative devices and platforms. Additionally, we may need to devote significant resources to the support and maintenance of such applications once created. Our results of operations may be affected by the timing, effectiveness and costs associated with the successful implementation of any upgrades or changes to our systems and infrastructure to accommodate such alternative devices and platforms. Further, in the event that it is more difficult or less compelling for our customers to buy products from us on their mobile or other devices, or if our customers choose not to buy products from us on such devices or to use mobile or other products that do not offer access to our sites, our customer growth could be harmed and our business, financial condition and operating results may be materially adversely affected.

Significant merchandise returns could harm our business.

We allow our customers to return products, subject to our return policy. If merchandise returns are significant, our business, prospects, financial condition and results of operations could be harmed. Further, we modify our policies relating to returns from time to time, which may result in customer dissatisfaction or an increase in the number of product returns. Many of our products are large and require special handling and delivery. From time to time our products are damaged in transit, which can increase return rates and harm our brand.

Uncertainties in economic conditions and their impact on consumer spending patterns, particularly in the home goods segment, could adversely impact our operating results.

Consumers may view a substantial portion of the products we offer as discretionary items rather than necessities. As a result, our results of operations are sensitive to changes in macro-economic conditions that impact consumer spending, including discretionary spending. Some of the factors adversely affecting consumer spending include levels of unemployment; consumer debt levels; changes in net worth based on market changes and uncertainty; home foreclosures and changes in home values or the overall housing, residential construction or home improvement markets; fluctuating interest rates; credit availability, including mortgages, home equity loans and consumer credit; government actions; fluctuating fuel and other energy costs; fluctuating commodity prices and general uncertainty regarding the overall future economic environment. Adverse economic changes in any of the regions in which we sell our products could reduce consumer confidence and could negatively affect net revenue and have a material adverse effect on our operating results.

Our business relies heavily on email and other messaging services, and any restrictions on the sending of emails or messages or an inability to timely deliver such communications could materially adversely affect our net revenue and business.

Our business is highly dependent upon email and other messaging services for promoting our sites and products. Daily promotions offered through emails and other messages sent by us, or on our behalf by our vendors, generate a significant portion of our net revenue. We provide daily emails to customers and other visitors informing them of what is available for purchase on our sites that day, and we believe these messages are an important part of our customer

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experience and help generate a substantial portion of our net revenue. If we are unable to successfully deliver emails or other messages to our subscribers, or if subscribers decline to open our emails or other messages, our net revenue and profitability would be materially adversely affected. Changes in how webmail applications organize and prioritize email may also reduce the number of subscribers opening our emails. For example, in 2013 Google Inc.’s Gmail service began offering a feature that organizes incoming emails into categories (for example, primary, social and promotions). Such categorization or similar inbox organizational features may result in our emails being delivered in a less prominent location in a subscriber’s inbox or viewed as “spam” by our subscribers and may reduce the likelihood of that subscriber opening our emails. Actions by third parties to block, impose restrictions on or charge for the delivery of emails or other messages could also adversely impact our business. From time to time, Internet service providers or other third parties may block bulk email transmissions or otherwise experience technical difficulties that result in our inability to successfully deliver emails or other messages to third parties. Changes in the laws or regulations that limit our ability to send such communications or impose additional requirements upon us in connection with sending such communications would also materially adversely impact our business. Our use of email and other messaging services to send communications about our sites or other matters may also result in legal claims against us, which may cause us increased expenses, and if successful might result in fines and orders with costly reporting and compliance obligations or might limit or prohibit our ability to send emails or other messages. We also rely on social networking messaging services to send communications and to encourage customers to send communications. Changes to the terms of these social networking services to limit promotional communications, any restrictions that would limit our ability or our customers’ ability to send communications through their services, disruptions or downtime experienced by these social networking services or decline in the use of or engagement with social networking services by customers and potential customers could materially adversely affect our business, financial condition and operating results.

We are subject to risks related to online payment methods.

We accept payments using a variety of methods, including credit card, debit card, PayPal, credit accounts and gift cards. As we offer new payment options to consumers, we may be subject to additional regulations, compliance requirements and fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We are also subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. As our business changes, we may also be subject to different rules under existing standards, which may require new assessments that involve costs above what we currently pay for compliance. If we fail to comply with the rules or requirements of any provider of a payment method we accept, if the volume of fraud in our transactions limits or terminates our rights to use payment methods we currently accept, or if a data breach occurs relating to our payment systems, we may, among other things, be subject to fines or higher transaction fees and may lose, or face restrictions placed upon, our ability to accept credit card and debit card payments from consumers or to facilitate other types of online payments. If any of these events were to occur, our business, financial condition and operating results could be materially adversely affected.

We occasionally receive orders placed with fraudulent credit card data. We may suffer losses as a result of orders placed with fraudulent credit card data even if the associated financial institution approved payment of the orders. Under current credit card practices, we may be liable for fraudulent credit card transactions. If we are unable to detect or control credit card fraud, our liability for these transactions could harm our business, financial condition and results of operations.

Government regulation of the internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.

We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and e-commerce. Existing and future regulations and laws could impede the growth of the Internet, e-commerce or mobile commerce. These regulations and laws may involve taxes, tariffs, privacy and data security, anti-spam, content protection, electronic contracts and communications, consumer protection, Internet neutrality and gift cards. It is not clear how existing laws governing issues such as property ownership, sales and other taxes and consumer privacy apply to the Internet as the vast majority of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised by the Internet or e-commerce. It is possible that general business regulations and laws, or those specifically governing the

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Internet or e-commerce, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. We cannot be sure that our practices have complied, comply or will comply fully with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business and proceedings or actions against us by governmental entities or others. Any such proceeding or action could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, decrease the use of our sites by consumers and suppliers and may result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any such laws or regulations. Adverse legal or regulatory developments could substantially harm our business. Further, if we enter into new market segments or geographical areas and expand the products and services we offer, we may be subject to additional laws and regulatory requirements or prohibited from conducting our business, or certain aspects of it, in certain jurisdictions. We will incur additional costs complying with these additional obligations and any failure or perceived failure to comply would adversely affect our business and reputation.

Failure to comply with applicable laws and regulations relating to privacy, data protection and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection and consumer protection, could adversely affect our business and our financial condition.

A variety of laws and regulations govern the collection, use, retention, sharing, export and security of personal information. Laws and regulations relating to privacy, data protection and consumer protection are evolving and subject to potentially differing interpretations. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices. As a result, our practices may not comply, or may not comply in the future with all such laws, regulations, requirements and obligations. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any applicable privacy or consumer protection- related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject or other legal obligations relating to privacy or consumer protection could adversely affect our reputation, brand and business, and may result in claims, proceedings or actions against us by governmental entities or others or other liabilities or require us to change our operations and/or cease using certain data sets. Any such claim, proceeding or action could hurt our reputation, brand and business, force us to incur significant expenses in defense of such proceedings, distract our management, increase our costs of doing business, result in a loss of customers and suppliers and may result in the imposition of monetary penalties. We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to privacy or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business.

Federal, state and international governmental authorities continue to evaluate the privacy implications inherent in the use of proprietary or third-party “cookies” and other methods of online tracking for behavioral advertising and other purposes. United States and foreign governments have enacted, have considered or are considering legislation or regulations that could significantly restrict the ability of companies and individuals to engage in these activities, such as by regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tracking tools or the use of data gathered with such tools. Additionally, some providers of consumer devices and web browsers have implemented, or announced plans to implement, means to make it easier for Internet users to prevent the placement of cookies or to block other tracking technologies, which could if widely adopted significantly reduce the effectiveness of such practices and technologies. The regulation of the use of cookies and other current online tracking and advertising practices or a loss in our ability to make effective use of services that employ such technologies could increase our costs of operations and limit our ability to acquire new customers on cost-effective terms and consequently, materially adversely affect our business, financial condition and operating results.

In addition, various federal, state and foreign legislative and regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised rules or guidance regarding privacy, data protection and consumer protection. Any such changes may force us to incur substantial costs or require us to change our business practices. This could compromise our ability to pursue our growth strategy effectively and may adversely affect our ability to acquire customers or otherwise harm our business, financial condition and operating results.

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Changes in tax treatment of companies engaged in e-commerce may adversely affect the commercial use of our sites and our financial results.

Due to the global nature of the Internet, it is possible that various states or foreign countries might attempt to impose additional or new regulation on our business or levy additional or new sales, income or other taxes relating to our activities. Tax authorities at the international, federal, state and local levels are currently reviewing the appropriate treatment of companies engaged in e-commerce. New or revised international, federal, state or local tax regulations or court decisions may subject us or our customers to additional sales, income and other taxes. For example, on June 21, 2018, the United States Supreme Court rendered a 5-4 majority decision in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018) where the Court held, among other things, that a state may require an out-of-state seller with no physical presence in the state to collect and remit sales taxes on goods the seller ships to consumers in the state, overturning existing court precedent. Other new or revised taxes and, in particular, sales taxes, value added tax and similar taxes could increase the cost of doing business online and decrease the attractiveness of selling products over the Internet. New taxes and rulings could also create significant increases in internal costs necessary to capture data and collect and remit taxes. In addition, we may charge sales taxes in jurisdictions where our competitors do not, resulting in our product prices potentially being higher than those of our competitors. As a result, we may lose sales to our competitors in these jurisdictions. Any of these events could have a material adverse effect on our business, financial condition and operating results.

We rely on the performance of members of management and highly skilled personnel, and if we are unable to attract, develop, motivate and retain well-qualified employees, our business could be harmed.

We believe our success has depended, and continues to depend, on the members of our senior management team. The loss of any of our senior management or other key employees could materially harm our business. Our future success also depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees, particularly mid-level managers and merchandising and technology personnel. The market for such positions is competitive. Qualified individuals are in high demand, and we may incur significant costs to attract them. Our inability to recruit and develop mid-level managers could materially adversely affect our ability to execute our business plan, and we may not be able to find adequate replacements. All of our officers and other United States employees are at-will employees, meaning that they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our business, financial condition and operating results may be materially adversely affected.

We may not be able to adequately protect our intellectual property rights.

We regard our customer lists, domain names, trademarks, trade dress, trade secrets, proprietary technology and similar intellectual property as critical to our success, and we rely on trade secret protection, agreements and other methods with our employees and others to protect our proprietary rights. We might not be able to obtain broad protection for all of our intellectual property. For example, we are the registrant of the Internet domain names for our websites. However, we might not be able to prevent third parties from registering, using or retaining domain names that interfere with our consumer communications or infringe or otherwise decrease the value of our marks, domain names and other proprietary rights.

The protection of our intellectual property rights may require the expenditure of significant financial, managerial and operational resources. We may initiate claims or litigation against others for infringement, misappropriation or violation of our intellectual property rights or proprietary rights or to establish the validity of such rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel, which may materially adversely affect our business, financial condition and operating results. Moreover, the steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing or misappropriating our proprietary rights, and we may not be able to broadly enforce all of our intellectual property rights. Any of our intellectual property rights may be challenged by others or invalidated through administrative process or litigation. Additionally, the process of obtaining intellectual property protections is expensive and time-consuming, and we may not be able to pursue all necessary or desirable actions at a reasonable cost or in a timely manner. Even if issued, there can be no assurance that these protections will adequately safeguard our intellectual property, as the legal standards relating to the validity, enforceability and scope of protection of patent and other intellectual property rights are uncertain. We also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior technology or intellectual property rights. We may also be exposed

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to claims from third parties claiming infringement of their intellectual property rights, or demanding the release or license of open source software or derivative works that we developed using such software (which could include our proprietary code) or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to purchase a costly license, publicly release the affected portions of our source code, be limited in or cease using the implicated software unless and until we can re-engineer such software to avoid infringement or change the use of the implicated open source software.

We may be accused of infringing intellectual property rights of third parties.

The e-commerce industry is characterized by vigorous protection and pursuit of intellectual property rights, which has resulted in protracted and expensive litigation for many companies. We may be subject to claims and litigation by third parties that we infringe their intellectual property rights. The costs of supporting such litigation and disputes are considerable, and there can be no assurances that favorable outcomes will be obtained. As our business expands and the number of competitors in our market increases and overlaps occur, we expect that infringement claims may increase in number and significance. Any claims or proceedings against us, whether meritorious or not, could be time-consuming, result in considerable litigation costs, require significant amounts of management time or result in the diversion of significant operational resources, any of which could materially adversely affect our business, financial condition and operating results.

We have received in the past, and we may receive in the future, communications alleging that certain items posted on or sold through our sites violate third-party copyrights, designs, marks and trade names or other intellectual property rights or other proprietary rights. Brand and content owners and other proprietary rights owners have actively asserted their purported rights against online companies. In addition to litigation from rights owners, we may be subject to regulatory, civil or criminal proceedings and penalties if governmental authorities believe we have aided and abetted in the sale of counterfeit or infringing products.

Such claims, whether or not meritorious, may result in the expenditure of significant financial, managerial and operational resources, injunctions against us or the payment of damages by us. We may need to obtain licenses from third parties who allege that we have violated their rights, but such licenses may not be available on terms acceptable to us, or at all. These risks have been amplified by the increase in third parties whose sole or primary business is to assert such claims.

We are engaged in legal proceedings that could cause us to incur unforeseen expenses and could occupy a significant amount of our management’s time and attention.

From time to time, we are subject to litigation or claims that could negatively affect our business operations and financial position. Litigation disputes could cause us to incur unforeseen expenses, result in site unavailability, service disruptions, and otherwise occupy a significant amount of our management’s time and attention, any of which could negatively affect our business operations and financial position. We also from time to time receive inquiries and subpoenas and other types of information requests from government authorities and we may become subject to related claims and other actions related to our business activities. While the ultimate outcome of investigations, inquiries, information requests and related legal proceedings is difficult to predict, such matters can be expensive, time-consuming and distracting, and adverse resolutions or settlements of those matters may result in, among other things, modification of our business practices, reputational harm or costs and significant payments, any of which could negatively affect our business operations and financial position.

We have identified material weaknesses in our disclosure controls and procedures. If we fail to develop or maintain an effective system of controls, we may not be able to accurately report our financial results and prevent fraud. As a result, current and potential stockholders could lose confidence in our financial statements, which would harm the trading price of our common stock.

We have adopted and maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, our management, including our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of disclosure

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controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2020, have concluded that, due to a material weakness identified in our evaluation, our disclosure controls and procedures were ineffective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Subject to receipt of additional financing, we intend to retain additional individuals and resources to remedy the ineffective controls. We are also undertaking remedial measures, which measures will take time to implement and test, to address these deficiencies. There can be no assurance that such measures will be sufficient to remedy the deficiencies identified or that additional deficiencies will not be identified in the future. If we continue to experience deficiencies or fail to maintain or implement required new or improved controls, such circumstances could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements, or adversely affect the results of periodic management evaluations. Each of the foregoing results could cause investors to lose confidence in our reported financial information and lead to a decline in our stock price.

We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective.

We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in the second annual report we file with the SEC. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. However, our auditors will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer a non-accelerated filer or no longer an emerging growth company if we take advantage of the exemptions available to us through the JOBS Act.

We are in the very early stages of the costly and challenging process of compiling the system and process documentation necessary to perform the evaluation needed to comply with Section 404. In this regard, we will need to continue to dedicate internal resources, engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. As we transition to the requirements of reporting as a public company, we may need to add additional finance staff. We may not be able to remediate any future material weaknesses, or to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls when they are required to issue such opinion, investors could lose confidence in the accuracy and completeness of our financial reports, which could harm our stock price.

Risks Related to This Offering and Ownership of Our Common Stock

We may not be able to satisfy listing requirements of the NYSE or maintain a listing of our common stock on the NYSE or NYSE American.

Our common stock is currently traded on NYSE American. In connection with this offering, we intend to apply for the listing of our common stock on the NYSE. There is no guarantee that the NYSE will permit our common stock to be listed and traded. In addition, we must meet certain financial and liquidity criteria to maintain the listing of our common stock on the NYSE (if we are approved) or on NYSE American. If we fail to meet any listing standards or if we violate any listing requirements, our common stock may be delisted. In addition, our board of directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our common stock from the NYSE or NYSE American may materially impair our stockholders’ ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. The delisting of our common stock could significantly impair our ability to raise capital and the value of your investment.

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The market price, trading volume and marketability of our common stock may, from time to time, be significantly affected by numerous factors beyond our control, which may materially adversely affect the market price of your common stock, the marketability of your common stock and our ability to raise capital through future equity financings.

The market price and trading volume of our common stock may fluctuate significantly. Many factors that are beyond our control may materially adversely affect the market price of your common stock, the marketability of your common stock and our ability to raise capital through equity financings. These factors include the following

•        actual or anticipated variations in our periodic operating results;

•        increases in market interest rates that lead investors of our common stock to demand a higher investment return;

•        changes in earnings estimates;

•        changes in market valuations of similar companies;

•        actions or announcements by our competitors;

•        adverse market reaction to any increased indebtedness we may incur in the future;

•        additions or departures of key personnel;

•        actions by stockholders;

•        speculation in the media, online forums, or investment community; and

•        our intentions and ability to list our common stock on the NYSE and our subsequent ability to maintain such listing, or our ability to maintain the listing of our common stock on NYSE American if our common stock is not approved for listing on the NYSE.

An active, liquid trading market for our common stock may not be sustained, which may cause our common stock to trade at a discount from the public offering price and make it difficult for you to sell the common stock you purchase.

We cannot predict the extent to which investor interest in us will sustain a trading market or how active and liquid that market may remain. If an active and liquid trading market is not sustained, you may have difficulty selling any of our common stock that you purchase at a price above the price you purchase it or at all. The failure of an active and liquid trading market to continue would likely have a material adverse effect on the value of our common stock. The market price of our common stock may decline below the public offering price, and you may not be able to sell your shares of our common stock at or above the price you paid or at all. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

Certain of our directors could be in a position of conflict of interest.

Our Chairman, Ellery W. Roberts, is the controlling principal of 1847 Partners LLC, or our manager, which provides certain services to us, including administrative supervision and oversight of our day-to-day business operations, for a quarterly management fee equal to $62,500. He may obtain compensation and other benefits in transactions relating to us that involve our manager. Consequently, there exists the possibility for Mr. Roberts to be in a position of conflict. These conflicts may not be resolved in our favor. Such conflicts of interest could have a material adverse effect on our business and operations. Further, the appearance of conflicts of interest created by related party transactions could impair the confidence of our investors. In the case of transactions with these affiliates, there may be an absence of arms’ length negotiations with respect to the terms, conditions and consideration with respect to goods and services provided to or by us.

Our management has broad discretion as to the use of the net proceeds from this offering allocated to working capital and general corporate purposes.

Our management will have broad discretion in the application of the net proceeds that are allocated to working capital and general corporate purposes. Accordingly, you will have to rely upon the judgment of our management with respect

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to the use of these proceeds. If we complete the proposed acquisition, we intend to use a portion of the net proceeds of this offering to fund part of the cost of the proposed acquisition, and the remainder, if any, for general corporate purposes, which could include future acquisitions, capital expenditures and working capital. The completion of this offering is not contingent upon the completion of the proposed acquisition. We can provide no assurance that the proposed acquisition will be consummated in a timely manner, or at all. If the proposed acquisition is not completed, then we intend to use all of the net proceeds for general corporate purposes, which could include other acquisitions. Our management may spend a portion or all of the net proceeds from this offering that are allocated to working capital and general corporate purposes in ways that holders of our common stock may not desire or that may not yield a significant return or any return at all. Our management not applying these funds effectively could harm our business. Pending their use, we may also invest the net proceeds from this offering that are allocated to working capital and general corporate purposes in a manner that does not produce income or that loses value. See “Use of Proceeds” for more information.

You will experience immediate and substantial dilution as a result of this offering.

As of December 31, 2020, our net tangible book value was approximately $(19,423,395), or approximately $(3.18) per share. Since the effective price per share of our common stock being offered in this offering is substantially higher than the net tangible book value per share of our common stock, you will suffer substantial dilution with respect to the net tangible book value of the common stock you purchase in this offering. Based on the assumed public offering price of $7.38 per share of common stock being sold in this offering, which is the last reported sale price of our common stock on April 28, 2021, and our net tangible book value per share as of December 31, 2020, if you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of $8.27 per share (or $7.52 per share if the underwriters exercise the over-allotment option in full) with respect to the net tangible book value of the common stock. See “Dilution” for a more detailed discussion of the dilution you will incur if you purchase securities in this offering.

We have not paid in the past and do not expect to declare or pay dividends in the foreseeable future.

We have not paid in the past and do not expect to declare or pay dividends in the foreseeable future, as we anticipate that we will invest future earnings in the development and growth of our business. Therefore, holders of our common stock will not receive any return on their investment unless they sell their securities, and holders may be unable to sell their securities on favorable terms or at all.

If securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our common stock could be negatively affected.

Any trading market for our common stock may be influenced in part by any research reports that securities industry analysts publish about us. We do not currently have and may never obtain research coverage by securities industry analysts. If no securities industry analysts commence coverage of us, the market price and market trading volume of our common stock could be negatively affected. In the event we are covered by analysts, and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage of us, the market price and market trading volume of our common stock could be negatively affected.

Future issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock, or the expiration of lock-up agreements that restrict the issuance of new common stock or the trading of outstanding common stock, could cause the market price of our common stock to decline and would result in the dilution of your holdings.

Future issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock, or the expiration of lock-up agreements that restrict the issuance of new common stock or the trading of outstanding common stock, could cause the market price of our common stock to decline. We cannot predict the effect, if any, of future issuances of our securities, or the future expirations of lock-up agreements, on the price of our common stock. In all events, future issuances of our common stock would result in the dilution of your holdings. In addition, the perception that new issuances of our securities could occur, or the perception that locked-up parties will sell their securities when the lock-ups expire, could adversely affect the market price of our common stock. In connection with this offering, we will enter into a lock-up agreement that prevents us, subject to certain exceptions, from offering additional shares of capital stock for up to 90 days after the date of this prospectus, as further described

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in the section titled “Underwriting.” In addition to any adverse effects that may arise upon the expiration of these lock-up agreements, the lock-up provisions in these agreements may be waived, at any time and without notice. If the restrictions under the lock-up agreements are waived, our common stock may become available for resale, subject to applicable law, including without notice, which could reduce the market price for our common stock.

Future issuances of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future issuances of preferred stock, which could rank senior to our common stock for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our common stock.

In the future, we may attempt to increase our capital resources by offering debt securities. Upon bankruptcy or liquidation, holders of our debt securities, and lenders with respect to other borrowings we may make, would receive distributions of our available assets prior to any distributions being made to holders of our common stock. Moreover, if we issue preferred stock, the holders of such preferred stock could be entitled to preferences over holders of common stock in respect of the payment of dividends and the payment of liquidating distributions. Because our decision to issue debt or preferred stock in any future offering, or borrow money from lenders, will depend in part on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any such future offerings or borrowings. Holders of our common stock must bear the risk that any future offerings we conduct or borrowings we make may adversely affect the level of return, if any, they may be able to achieve from an investment in our common stock.

If our shares of common stock become subject to the penny stock rules, it would become more difficult to trade our shares.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on NYSE American or another national securities exchange and if the price of our common stock is less than $5.00, our common stock could be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.

We are subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not emerging growth companies and our stockholders could receive less information than they might expect to receive from more mature public companies.

We are required to publicly report on an ongoing basis as an “emerging growth company” (as defined in the JOBS Act) under the reporting rules set forth under the Exchange Act. For so long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other Exchange Act reporting companies that are not emerging growth companies, including but not limited to:

•        not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;

•        being permitted to comply with reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and

•        being exempt from the requirement to hold a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

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

We expect to take advantage of these reporting exemptions until we are no longer an emerging growth company. We would remain an emerging growth company for up to five years, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would cease to be an emerging growth company as of the following December 31.

Because we will be subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not emerging growth companies, our stockholders could receive less information than they might expect to receive from more mature public companies. We cannot predict if investors will find our common stock less attractive if we elect to rely on these exemptions, or if taking advantage of these exemptions would result in less active trading or more volatility in the price of our common stock.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, and limit attempts by our stockholders to replace or remove our current management.

Certain provisions of Delaware law and our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our certificate of incorporation and bylaws include provisions that:

•        permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships;

•        provide that directors may only be removed by the majority of the shares of voting stock then outstanding; and

•        establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. They may also make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares.

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus 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. The forward-looking statements are contained principally in, but not limited to, the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” 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:

•        our ability to consummate the proposed acquisition;

•        the synergies that we expect to experience resulting from the proposed acquisition;

•        our ability to successfully integrate Appliances Connection’s business with our existing business;

•        the impact of the COVID-19 pandemic on our operations and financial condition;

•        our goals and strategies;

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

•        expected changes in our revenue, costs or expenditures;

•        growth of and competition trends in our industry;

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

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

•        our expectation regarding the use of proceeds from this offering;

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

•        relevant government policies and regulations relating to our industry.

In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the heading “Risk Factors” and elsewhere in this prospectus. 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.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus forms a part with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Although we have ongoing disclosure obligations under United States federal securities laws, we do not intend to update or otherwise revise the forward-looking statements in this prospectus, whether as a result of new information, future events or otherwise.

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USE OF PROCEEDS

After deducting the estimated underwriters’ commissions and offering expenses payable by us, we expect to receive net proceeds of approximately $190.2 million from this offering (or approximately $218.7 million if the underwriters exercise the over-allotment option in full), based on an assumed public offering price of $7.38 per share, which is the last reported sale price of our common stock on April 28, 2021.

We intend to use the net proceeds from this offering to pay part of the cash portion of the purchase price for the proposed acquisition and related acquisition fees and expenses. The cash portion of the purchase price for the proposed acquisition is $180 million. We have entered into a non-binding engagement letter with a commercial bank for the provision of a senior secured credit facility involving a term loan in the expected principal amount of $60 million, which will be used to pay a portion of the cash portion of the purchase price, and a revolving loan in the expected principal amount of $10 million, which will be used for general corporate and working capital purposes. We intend to use all of the proceeds of the term loan to pay a portion of the purchase price and the proceeds of this offering will be used to pay the remainder of the purchase price and related acquisition fees and expenses. Any remaining proceeds will be used working capital and general purposes.

Pending use of the net proceeds from this offering described above, we may invest the net proceeds in short- and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States government.

Our management will retain broad discretion over the allocation of the net proceeds from this offering with respect to working capital and general corporate uses. If the proposed acquisition is not completed, then we intend to use all of the net proceeds for general corporate purposes, which could include other acquisitions. See “Risk Factors — Risks Related to this Offering and the Ownership of Our Common Stock — Our management has broad discretion as to the use of the net proceeds from this offering allocated to working capital and general corporate purposes.”

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DIVIDEND POLICY

We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends on our common stock in the near future.

On March 19, 2021, we entered into a securities purchase agreement with two institutional investors, pursuant to which we issued to each investor (i) a 10% OID senior secured promissory note in the principal amount of $2,750,000 and (ii) a four-year warrant to purchase 200,000 shares of our common stock at an exercise price of $12.00, subject to adjustments. Pursuant to this securities purchase agreement, we agreed that, so long as any of the notes remain outstanding, we will not without each investor’s written consent, (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of common stock solely in the form of additional shares of common stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of our capital stock. We may enter into other credit agreements or borrowing arrangements in the future that will restrict our ability to declare or pay cash dividends on our common stock, including in connection with the new term loan described in “Use of Proceeds” above.

Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant. See also “Risk Factors — Risks Related to This Offering and Ownership of Our Common Stock — We have not paid in the past and do not expect to declare or pay dividends in the foreseeable future.”

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CAPITALIZATION

The following table sets forth our capitalization as of December 31, 2020:

•        on an actual basis; and

•        on an as adjusted basis to reflect this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and after giving effect to the use of proceeds to complete the proposed acquisition. The table below assumes no exercise by the underwriters of their option to purchase additional shares of common stock from us.

The as adjusted information below is illustrative only and our capitalization following the completion of this offering is subject to adjustment based on the public offering price of our common stock and other terms of this offering determined at pricing. You should read this table together with our financial statements and the related notes included elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

As of December 31, 2020

  

Actual

 

As Adjusted

Cash and cash equivalents and restricted cash     

 

$

9, 911,916

 

 

$

48,622,481

 

Long-term debt

 

 

 

 

 

 

 

 

Notes payable

 

$

3,185,369

 

 

$

60,421,855

 

Contingent note payable

 

 

188,170

 

 

 

188,170

 

Total long-term debt

 

 

3,373,539

 

 

 

60,610,025

 

  

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 20,000,000 shares authorized, no shares issued and outstanding, actual and as adjusted basis

 

 

 

 

 

 

Common stock, $0.0001 par value, 200,000,000 shares authorized, 6,111,200 shares issued and outstanding, actual; 38,899,369 shares issued and outstanding, as adjusted

 

 

611

 

 

 

3,890

 

Additional paid-in capital

 

 

13,409,328

 

 

 

240,532,735

 

Accumulated deficit

 

 

(26,725,708

)

 

 

(26,725,708

)

Total stockholders’ equity (deficit)

 

 

(13,315,769

)

 

 

213,810,917

 

Total capitalization

 

$

(9,942,230

)

 

$

274,420,942

 

Each $1.00 increase or decrease in the assumed offering price per share of $7.38 (which is the last reported sale price of our common stock on April 28, 2021), assuming no change in the number of shares to be sold, would increase or decrease the as-adjusted cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $25.8 million (or $29.7 million if the underwriters exercise the over-allotment option in full), after deducting (i) estimated underwriting discounts and commissions and (ii) estimated offering expenses, in each case, payable by us.

The number of shares of our common stock outstanding after this offering is based on 6,111,200 shares of our common stock outstanding as of December 31, 2020, and excludes:

•        555,000 shares of common stock issuable upon exercise of outstanding options at an exercise price of $9.00 per share;

•        up to 445,000 additional shares of common stock that are reserved for issuance under our 2020 Equity Incentive Plan; and

•        455,560 shares of common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $11.91 per share.

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DILUTION

If you invest in our common stock in this offering, your ownership will be diluted immediately to the extent of the difference between the public offering price per share of common stock and the pro forma as adjusted net tangible book value per share of common stock immediately after this offering. Dilution in net tangible book value per share to new investors is the amount by which the offering price paid by the purchasers of the shares of our common stock sold in this offering exceeds the pro forma as adjusted net tangible book value per share of common stock after this offering. Net tangible book value per share is determined at any date by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of common stock deemed to be outstanding at that date.

The net tangible book value (deficit) of our common stock as of December 31, 2020 was approximately $(19,423,395), or approximately $(3.18) per share.

Pro forma as adjusted net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of our common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock immediately after completion of this offering and after giving effect to the proposed acquisition. Investors participating in this offering will incur immediate, substantial dilution. After giving effect to our sale of $205,000,000 of our common stock in this offering at an assumed public offering price of $7.38 per share, which is the last reported sale price of our common stock on April 28, 2021, and after deducting the underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value (deficit) as of December 31, 2020 (assuming completion of the proposed acquisition and the issuance of 5,010,391 shares of our common stock in connection therewith) would have been approximately $(34,547,299), or approximately $(0.89) per share. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $2.29 per share to existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of $8.27 per share to purchasers of our common stock in this offering, as illustrated in the following table.

Assumed public offering price per share

 

 

 

 

 

$

7.38

 

Historical net tangible book value (deficit) per share as of December 31, 2020

 

$

(3.18

)

 

 

 

 

Increase in pro forma as adjusted net tangible book value per share to existing stockholders

 

 

2.29

 

 

 

 

 

Pro forma as-adjusted net tangible book value per share after this offering

 

 

 

 

 

 

(0.89

)

Dilution per share to new investors purchasing shares in this offering

 

 

 

 

 

$

8.27 

 

A $1.00 increase or decrease in the assumed public offering price of $7.38 per share, which is the last reported sale price of our common stock on April 28, 2021, would increase or decrease the pro forma as adjusted net tangible book value per share after this offering by approximately $0.66, and dilution in pro forma as adjusted net tangible book value per share to new investors by approximately $0.34, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their over-allotment option in full, the pro forma as adjusted net tangible book value (deficit) per share of our common stock, as adjusted to give effect to this offering and the proposed acquisition, would be $(0.14) per share, and the dilution in pro forma net tangible book value per share to new investors purchasing shares of common stock in this offering would be $7.52 per share.

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The following table sets forth the total number of shares of common stock previously issued and sold to existing investors, the total consideration paid for the foregoing and the average price per share of common stock paid, or to be paid, by existing owners and by the new investors. The calculation below is based on the assumed public offering price of $7.38 per share, which is the last reported sale price of our common stock on April 28, 2021, before deducting estimated underwriter commissions and offering expenses, in each case payable by us.

 

Share Purchased

 

Total Consideration

 

Average
Price
Per Share

  

Number

 

Percent

 

Amount

 

Percent

 

Existing stockholders

 

6,111,200

 

18.03

%

 

$

10,000,901

 

4.65

%

 

$

1.64

New investors

 

27,777,778

 

81.97

%

 

$

205,000,000

 

95.35

%

 

$

7.38

Total

 

33,888,978

 

100.00

%

 

$

215,000,901

 

100.00

%

 

 

 

The number of shares of our common stock outstanding after this offering is based on 6,111,200 shares of our common stock outstanding as of December 31, 2020, and excludes:

•        555,000 shares of common stock issuable upon exercise of outstanding options at an exercise price of $9.00 per share;

•        up to 445,000 additional shares of common stock that are reserved for issuance under our 2020 Equity Incentive Plan;

•        455,560 shares of common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $11.91 per share; and

•        shares of common stock to be issued in connection with the proposed acquisition.

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

The following discussion and analysis summarizes the significant factors affecting the operating results, financial condition, liquidity and cash flows of each of Goedeker and Appliances Connection as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this prospectus. 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 prospectus, particularly in the sections titled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

Goedeker

All periods presented on or prior to April 5, 2019 represent the operations of Goedeker Television, our predecessor. Unless otherwise specified, all results of operations information for the year ended December 31, 2019 reflects the full year.

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

Overview

Our company operates a technology-driven e-commerce platform for appliances and furniture, offering a combination of selection, service and value we believe to be unmatched in the $22.9 billion United States household major appliance industry. Since our founding in 1951, we have evolved from a local brick and mortar operation serving the St. Louis metro area to a nationwide omni-channel retailer offering over 141,000 SKUs across all major appliance brands with competitive pricing. Our relentless focus on customer experience encompasses our easy to navigate websites, highly trained call center representatives and sophisticated fulfillment ecosystem.

Our customers span a wide range of demographics, style and budget, which we attract with our efficient digital marketing capabilities and match with our broad product selection. We have invested considerably in our scalable logistics infrastructure, purpose built for the unique demands of the appliance market and see it as a competitive advantage, strengthening as we grow. Our tightly-integrated vendor relationships and order management tools allow us to offer our vast selection of products while holding limited inventory, contributing to strong and improving operating metrics.

Recent Developments

Impact of Coronavirus Pandemic

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

Most states and cities, including in markets in which we operate, reacted by instituting quarantines, restrictions on travel, “stay at home” rules, social distancing measures and restrictions on the types of businesses that could continue to operate, as well as guidance in response to the pandemic and the need to contain it. Pursuant to restrictions in Missouri, our showroom was closed from April through June of 2020, but our call center and warehouse continued to operate. Since over 95% of our sales are completed online and our call center and warehouse and distribution operations continued to operate, the restrictions put in place have not had a materially negative impact on our operations. However, the situation surrounding COVID-19 remains fluid, and we may be required to close or limit service offerings in our retail facility or warehouse in response to guidance from applicable government and public health officials, which could adversely affect our operations and revenues.

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In addition, we are dependent upon suppliers to provide us with all of the products that we sell. The pandemic has impacted and may continue to impact suppliers and manufacturers of certain of our products. As a result, we have faced and may continue to face delays or difficulty sourcing certain products, which could negatively affect our business and financial results. Even if we are able to find alternate sources for such products, they may cost more, which could adversely impact our profitability and financial condition.

The global deterioration in economic conditions, which may have an adverse impact on discretionary consumer spending, could also impact our business. For instance, consumer spending may be negatively impacted by general macroeconomic conditions, including a rise in unemployment, and decreased consumer confidence resulting from the pandemic. Changing consumer behaviors as a result of the pandemic may also have a material impact on our revenue.

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

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

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

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

Lease Agreement

On January 13, 2021, we entered into a lease agreement with Westgate 200, LLC, which was amended on March 30, 2021, for a new location totaling approximately 86,800 square feet of office, showroom and warehouse space in St. Charles, Missouri. The initial term of the lease expires on April 30, 2027 with two (2) options to renew for additional five (5) year periods. The base rent is initially $20,976.79 per month and increases to $31,465 on October 1, 2021, with annual increases thereafter to a base rent during the sixth year of $35,558 per month. We will also pay our 43.4% pro rata portion of the property taxes, operating expenses and insurance costs and are also responsible to pay for the utilities used on the premises.

Securities Purchase Agreement

On March 19, 2021, we entered into a securities purchase agreement with two institutional investors, pursuant to which we issued to each investor (i) a 10% OID senior secured promissory note in the principal amount of $2,750,000 and (ii) a four-year warrant to purchase 200,000 shares of our common stock at an exercise price of $12.00, subject to adjustments, which may be exercised on a cashless basis, for a purchase price of $2,500,000 each, or $5,000,000 in the aggregate. After deducting a placement fee and other expenses, we received net proceeds of $4,590,000.

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

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

Notwithstanding the foregoing, we shall not effect any conversion of a note, and a holder shall not have the right to convert any principal and/or interest of a note, to the extent that after giving effect to the conversion the holder (together with the holder’s affiliates and any persons acting as a group together with the holder or any of the holder’s affiliates) would beneficially own over 4.99% of the number of shares of our common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the note. The holder may, upon not less than 61 days’ prior notice to us, increase or decrease such limitation, provided that such limitation in no event exceeds 9.99% of the number of shares of our common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the note. The warrants also contain this beneficial ownership limitation.

The securities purchase agreement contains customary representations, warranties and covenants for a transaction of this type. Pursuant to the securities purchase agreement, the investors were granted piggy-back registration rights with respect to the shares issuable upon conversion of the notes and exercise of the warrants. We also agreed that, until the date that no investor own any securities, we will timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by us pursuant to the Exchange Act even if we are not then subject to the reporting requirements of the Exchange Act. In addition, we agreed that, so long as any of the notes remain outstanding, neither our company, nor any subsidiary of our company, shall, without each investor’s written consent and subject to certain exceptions set forth in the securities purchase agreement:

•        sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business;

•        incur, create, assume or suffer to exist any lien on any of its property or assets, except for certain liens set forth in the Purchase Agreement;

•        incur or suffer to exist or guarantee any indebtedness that is senior to or pari passu with (in priority of payment and performance) our obligations under the securities purchase agreement except for non-equity linked indebtedness relating to the acquisition of inventory secured by certain liens;

•        pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock, other than dividends on shares of common stock solely in the form of additional shares of common stock, or directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock;

•        redeem, repurchase or otherwise acquire in any one transaction or series of related transactions any shares of our capital stock or any warrants, rights or options to purchase or acquire any such shares, or repay any pari passu or subordinated indebtedness other than non-equity linked indebtedness relating to the acquisition of inventory secured by certain liens;

•        lend money, give credit, make advances to or enter into any transaction with any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of our company, except loans, credits or advances (i) in existence or committed on the closing date and which

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we have informed each investor in writing prior to the closing date, (ii) in regard to transactions with unaffiliated third parties, made in the ordinary course of business, or (iii) in regard to transactions with unaffiliated third parties, not in excess of $50,000; or

•        repay any affiliate (as defined in Rule 144) of our company in connection with any indebtedness or accrued amounts owed to any such party.

We expect to repay these notes from the proceeds of the term loan described in the “Use of Proceeds” section above.

Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following factors:

•        our ability to acquire new customers or retain existing customers;

•        our ability to offer competitive product pricing;

•        our ability to broaden product offerings;

•        industry demand and competition; and

•        market conditions and our market position.

Key Financial Operating Metrics

 

Years Ended December 31,

  

2020

 

2019

Site Sessions (in millions)

 

 

9.9

 

 

6.3

Order History (in millions)

 

$

123.2

 

$

61.8

A site session occurs when a person visits our website. An order occurs when a customer has visited our website and ordered one or more items and has paid for them. An order is paid for by our customer when the order is placed and booked as revenue by us when the order is shipped.

Total revenues and total orders for any given month may not be equal for two primary reasons: (1) normal customer cancellations and (2) the time required to ship an order and recognize revenue. When there are no supply chain issues, the time from order to shipping is between 20 and 25 days. Thus, an order made after the 10th of the current month will become revenue in the succeeding month, distorting the comparison between a months’ orders and its sales. In 2020, supply chain issues related to COVID-19 increased the time up to 44 days from order to delivery.

Our site sessions increased to approximately 9.9 million in the year ended December 31, 2020, as compared to approximately 6.3 million in the year ended December 31, 2019. These increased site sessions resulted in three-year highs for orders in the year ended December 31, 2020.

Emerging Growth Company

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

•        have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

•        comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

•        submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

•        disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

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

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

Results of Operations

Comparison of Years Ended December 31, 2020 and 2019

The following table sets forth key components of our results of operations for the year ended December 31, 2020 (Successor), for the period from April 6 to December 31, 2019 (Successor), and for the period from January 1 to April 5, 2019 (Predecessor), in dollars and as a percentage of our revenue.

 

Successor

 

Predecessor

  

Year Ended
December 31, 2020

 

Period April 6 to
December 31, 2019
(As Restated)

 

Period January 1 to
April 5, 2019

  

Amount

 

% of Net
Sales

 

Amount

 

% of Net
Sales

 

Amount

 

% of Net
Sales

Product sales, net

 

$

55,133,653

 

 

100.00

%

 

$

34,668,112

 

 

100.0

%

 

$

12,946,901

 

 

100.0

%

Cost of goods sold

 

 

47,878,541

 

 

86.84

%

 

 

28,596,129

 

 

82.49

%

 

 

11,004,842

 

 

85.00

%

Gross profit

 

 

7,255,112

 

 

13.16

%

 

 

6,071,983

 

 

17.51

%

 

 

1,942,059

 

 

15.00

%

Operating expenses

 

 

 

 

  

 

 

 

 

 

  

 

 

 

 

 

  

 

Personnel

 

 

6,565,380

 

 

11.91

%

 

 

2,909,751

 

 

8.39

%

 

 

913,919

 

 

7.06

%

Advertising

 

 

4,865,361

 

 

8.82

%

 

 

1,996,507

 

 

5.76

%

 

 

714,276

 

 

5.52

%

Bank and credit card fees

 

 

1,806,620

 

 

3.28

%

 

 

870,877

 

 

2.51

%

 

 

329,247

 

 

2.54

%

Depreciation and amortization

 

 

549,712

 

 

1.00

%

 

 

271,036

 

 

0.78

%

 

 

9,675

 

 

0.07

%

General and administrative

 

 

7,900,566

 

 

14.33

%

 

 

4,728,571

 

 

13.64

%

 

 

451,214

 

 

3.49

%

Total operating expenses

 

 

21,687,639

 

 

39.37

%

 

 

10,776,742

 

 

31.09

%

 

 

2,418,331

 

 

18.68

%

Loss from operations

 

 

(14,432,527

)

 

(26.18

)%

 

 

(4,704,759

)

 

(13.57

)%

 

 

(476,272

)

 

(3.68

)%

Other income (expense)

 

 

 

 

  

 

 

 

 

 

  

 

 

 

 

 

  

 

Interest income

 

 

2,479

 

 

 

 

 

 

 

 

 

 

23,807

 

 

0.18

%

Financing costs

 

 

(762,911

)

 

(1.38

)%

 

 

(520,160

)

 

(1.50

)%

 

 

 

 

 

Adjustment in value of contingency

 

 

(138,922

)

 

(0.25

)%

 

 

32,246

 

 

0.09

%

 

 

 

 

 

Interest expense

 

 

(870,847

)

 

(1.58

)%

 

 

(785,411

)

 

(2.27

)%

 

 

 

 

 

Loss on extinguishment of debt

 

 

(1,756,095

)

 

(3.19

)%

 

 

 

 

 

 

 

 

 

 

Write-off of acquisition
receivable

 

 

(809,000

)

 

(1.47

)%

 

 

 

 

 

 

 

 

 

 

Change in fair value of warrant liability

 

 

(2,127,656

)

 

(3.86

)%

 

 

106,900

 

 

0.31

%

 

 

 

 

 

Other income

 

 

25,945

 

 

0.05

%

 

 

15,010

 

 

0.04

%

 

 

7,200

 

 

0.06

%

Total other income (expense)

 

 

(6,437,007

)

 

(11.68

)%

 

 

(1,151,415

)

 

(3.32

)%

 

 

31,007

 

 

0.24

%

Net loss before income taxes

 

 

(20,869,534

)

 

(37.85

)%

 

 

(5,856,174

)

 

(16.89

)%

 

 

(445,265

)

 

(3.44

)%

Income tax benefit (expense)

 

 

(698,303

)

 

(1.27

)%

 

 

698,303

 

 

2.01

%

 

 

 

 

 

Net loss

 

$

(21,567,837

)

 

(39.12

)%

 

$

(5,157,871

)

 

(14.88

)%

 

$

(445,265

)

 

(3.44

)%

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Table of Contents

We believe that reviewing our operating results for the year ended December 31, 2019 by combining the results of the 2019 successor period (April 6, 2019 through December 31, 2019) and 2019 predecessor period (January 1, 2019 through April 5, 2019) with the pro forma adjustment related to the acquisition described below, is more useful in discussing our overall operating performance compared to the results of the year ended December 31, 2020 (successor). We do not see any potential risks associated with utilizing this pro forma presentation.

Following are the year ended December 31, 2020 and the combined period for 2019:

 

Year Ended
December 31,
2020

 

Period
April 6 to
December 31,
2019
Successor
(As Restated)

 

Period
January 1 to
April 5,
2019
Predecessor

 

Pro Forma
Combined
Year Ended
December 31,
2019

 

Increase
(Decrease)

Product sales, net

 

$

55,133,653

 

 

$

34,668,112

 

 

$

12,946,901

 

 

$

47,615,013

 

 

$

7,518,640

 

Cost of goods sold

 

 

47,878,541

 

 

 

28,596,129

 

 

 

11,004,842

 

 

 

39,600,971

 

 

 

8,277,570

 

Gross profit

 

 

7,255,112

 

 

 

6,071,983

 

 

 

1,942,059

 

 

 

8,014,042

 

 

 

(758,930

)

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel

 

 

6,565,380

 

 

 

2,909,751

 

 

 

913,919

 

 

 

3,823,670

 

 

 

2,741,710

 

Advertising

 

 

4,865,361

 

 

 

1,996,507

 

 

 

714,276

 

 

 

2,710,783

 

 

 

2,154,578

 

Bank and credit card fees

 

 

1,806,620

 

 

 

870,877

 

 

 

329,247

 

 

 

1,200,124

 

 

 

606,496

 

Depreciation and amortization

 

 

549,712

 

 

 

271,036

 

 

 

9,675

 

 

 

280,711

 

 

 

269,001

 

General and administrative

 

 

7,900,566

 

 

 

4,728,571

 

 

 

451,214

 

 

 

5,246,045

*

 

 

2,654,521

 

Total operating expenses

 

 

21,687,639

 

 

 

10,776,742

 

 

 

2,418,331

 

 

 

13,261,333

 

 

 

8,426,306

 

Loss from operations

 

 

(14,432,527

)

 

 

(4,704,759

)

 

 

(476,272

)

 

 

(5,247,291

)

 

 

9,185,236

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2,479

 

 

 

 

 

 

23,807

 

 

 

23,807

 

 

 

(21,328

)

Financing costs

 

 

(762,911

)

 

 

(520,160

)

 

 

 

 

 

(520,160

)

 

 

242,751

 

Adjustment in value of contingency

 

 

(138,922

)

 

 

32,246

 

 

 

 

 

 

32,246

 

 

 

(171,168

)

Interest expense

 

 

(870,847

)

 

 

(785,411

)

 

 

 

 

 

(785,411

)

 

 

85,436

 

Loss on extinguishment of debt

 

 

(1,756,095

)

 

 

 

 

 

 

 

 

 

 

 

1,756,095

 

Write-off of acquisition
receivable

 

 

(809,000

)

 

 

 

 

 

 

 

 

 

 

 

809,000

 

Change in fair value of warrant liability

 

 

(2,127,656

)

 

 

106,900

 

 

 

 

 

 

106,900

 

 

 

(2,234,556

)

Other income

 

 

25,945

 

 

 

15,010

 

 

 

7,200

 

 

 

22,210

 

 

 

3,735

 

Total other income (expense)

 

 

(6,437,007

)

 

 

(1,151,415

)

 

 

31,007

 

 

 

(1,120,408

)

 

 

5,316,599

 

Net loss before income taxes

 

 

(20,869,534

)

 

 

(5,856,174

)

 

 

(445,265

)

 

 

(6,367,699

)*

 

 

14,501,835

 

Income tax benefit (expense)

 

 

(698,303

)

 

 

698,303

 

 

 

 

 

 

698,303

 

 

 

(1,396,606

)

Net loss

 

$

(21,567,837

)

 

$

(5,157,871

)

 

$

(445,265

)

 

$

(5,669,396

)*

 

$

15,898,441

 

____________

*        Includes a pro forma adjustment of $66,260 for the management fee to our manager.

Product sales, net.    We generate revenue from the retail sale of home furnishings, including appliances, furniture, home goods and related products. Our product sales increased by $7,518,640, or 15.79%, to $55,133,653 for the year ended December 31, 2020 from $47,615,013 for the combined year ended December 31, 2019, which included $12,946,901 for our predecessor from January 1, 2019 to April 5, 2019 and $34,668,112 for our successor from April 6, 2019 to December 31, 2019.

The increase is due to increased sales volume to meet appliance and furniture demand resulting from increased advertising, which has a direct impact on customer orders and shipped sales. In the first three months of 2020, sales were affected by working capital issues, which delayed the timing of ordering product to fulfill customer orders resulting in increased order cancellations. Late in the second quarter of 2020 and through the remainder of 2020, we experienced delays in getting products from manufacturers whose production facilities were closed or operating at reduced capacity because of the COVID-19 pandemic, which resulted in some cancellations of customer orders. We estimate that cancellations caused by shipping delays approximated $39.7 million in the year ended December 31, 2020, based on the historical ratio of shipped sales to customer orders of approximately 79% to the actual ratio of approximately 45% in the year ended December 31, 2020.

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Our net sales by sales type is as follows:

 

2020 Successor

     

2019 Total

  

Amount

 

% of Net
Sales

 

2019
Successor

 

2019
Predecessor

 

Amount

 

% of Net
Sales

Appliance sales

 

$

40,113,568

 

72.76

%

 

$

28,487,053

 

$

9,784,525

 

$

38,271,578

 

80.38

%

Furniture sales

 

 

11,800,277

 

21.40

%

 

 

4,405,866

 

 

2,456,085

 

 

6,861,951

 

14.41

%

Other sales

 

 

3,219,808

 

5.84

%

 

 

1,775,193

 

 

706,291

 

 

2,481,484

 

5.21

%

Total

 

$

55,133,653

 

100.00

%

 

$

34,668,112

 

$

12,946,901

 

$

47,615,013

 

100.00

%

The percentage of furniture sales increased in 2020 as compared to 2019 as furniture was more readily available from manufacturers than appliances.

Cost of goods sold.    Our cost of goods sold consists of the cost of purchased merchandise plus the cost of delivering merchandise and, where applicable, installation, net of promotional rebates and other incentives received from vendors. Our cost of goods sold increased by $8,277,570, or 20.90%, to $47,878,541 for the year ended December 31, 2020 from $39,600,971 for the combined year ended December 31, 2019, which included $11,004,842 for our predecessor from January 1, 2019 to April 5, 2019 and $28,596,129 for our successor from April 6, 2019 to December 31, 2019. As a percentage of net sales, cost of goods sold increased from 83.17% in 2019 to 86.84% in 2020. Such increase was due to COVID-19 related supply chain issues reducing the volume we purchased, which resulted in decreased manufacturer rebates, as well as due to the change in product mix, with furniture sales, which have lower margins, accounting for a larger portion of our total sales in 2020.

Personnel expenses.    Personnel expenses include employee salaries and bonuses plus related payroll taxes. It also includes health insurance premiums, 401(k) contributions, training costs and stock compensation expense. Our personnel expenses increased by $2,741,710, or 71.70%, to $6,565,380 for the year ended December 31, 2020 from $3,823,670 for the combined year ended December 31, 2019, which included $913,919 for our predecessor from January 1, 2019 to April 5, 2019 and $2,909,751 for our successor from April 6, 2019 to December 31, 2019. As a percentage of net sales, personnel expenses increased from 8.03% in 2019 to 11.91% in 2020. The increase is the result of hiring additional senior management and other staff needed for increased customer demand for our products, the accrual of $359,216 as the present value of a severance contract payable to our former president and $398,908 in stock compensation expense. Beginning in the second quarter of 2020, there was a dramatic increase in cancellations of customer orders, which were primarily related to the lack of product availability. We hired a number of temporary employees to process cancellations and address the related customer service issues. As a percentage of orders, our personnel expense declined to 5.8% in 2020 from 6.2% in 2019.

Advertising expenses.    Advertising expenses include the cost of marketing our products and primarily include online search engine expenses. Our advertising expenses increased by $2,154,578, or 79.48%, to $4,865,361 for the year ended December 31, 2020 from $2,710,783 for the combined year ended December 31, 2019, which included $714,276 for our predecessor from January 1, 2019 to April 5, 2019 and $1,996,507 for our successor from April 6, 2019 to December 31, 2019. As a percentage of net sales, advertising expenses increased from 5.69% in 2019 to 8.82% in 2020. The increase relates to an increase in advertising spending to drive traffic to our website. Measuring our advertising expense as a percentage of orders, we had a decline in 2020 of 3.9% compared to 4.4% in 2019.

Bank and credit card fees.    Bank and credit card fees are primarily the fees we pay credit card processors for processing credit card payments made by customers. Our bank and credit card fees increased by $606,496, or 50.54%, to $1,806,620 for the year ended December 31, 2020 from $1,200,124 for the combined year ended December 31, 2019, which included $329,247 for our predecessor from January 1, 2019 to April 5, 2019 and $870,877 for our successor from April 6, 2019 to December 31, 2019. As a percentage of net sales, bank and credit card fees increased from 2.52% in 2019 to 3.28% in 2020. These fees are based on customer orders that are paid with a credit card (substantially all orders), so the increase was largely due to the increase in customer orders. We pay a credit card fee for each order, regardless of whether that order is shipped or cancelled by customer. Comparing bank and credit card fees as a percentage orders shows a reduction from 1.9% of orders in 2019 to 1.5% in 2020.

Depreciation and amortization.    Depreciation and amortization was $549,712, or 1.00% of net sales, for the year ended December 31, 2020, as compared to $280,711, or 0.59% of net sales, for the combined year ended December 31, 2019.

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General and administrative expenses.    Our general and administrative expenses consist primarily of professional advisor fees, bad debts, rent expense, insurance, unremitted sales tax, and other expenses incurred in connection with general operations. Our general and administrative expenses increased by $2,654,521, or 50.60%, to $7,900,566 for the year ended December 31, 2020 from $5,246,045 for the combined year ended December 31, 2019, which included $451,214 for our predecessor from January 1, 2019 to April 5, 2019, $4,728,571 for our successor from April 6, 2019 to December 31, 2019 and a pro forma adjustment of $66,260 for the management fee to our manager. As a percentage of net sales, general and administrative expenses increased from 11.02% in 2019 to 14.33% in 2020. The increase was largely due to increased directors and officers insurance expenses, fees to our board of directors, and legal, audit and other professional fees in connection with becoming a public company, as well as consulting fees to upgrade our online shopping cart, fees to our manager under the offsetting management services agreement described below, fees for our Electronic Data Interchange initiative, and other consulting fees. Comparing general and administrative expenses as a percentage orders shows a reduction from 8.4% of orders in 2019 to 6.4% in 2020.

Total other income (expense).    We had $6,437,007 in total other expense, net, for the year ended December 31, 2020, as compared to total other expense, net, of $1,120,408 for the combined year ended December 31, 2019, which included income of $31,007 for our predecessor from January 1, 2019 to April 5, 2019 and expenses of $1,151,415 for our successor from April 6, 2019 to December 31, 2019. Total other expense, net, for the year ended December 31, 2020 consisted of financing costs of $762,911, interest expense of $870,847, adjustment in value of contingency of $138,922, loss on debt modification and extinguishment of $1,756,095, write-off of acquisition receivable of $809,000, and change in the warrant liability of $2,127,656, offset by interest income of $2,479 and other income of $25,945, while total other expense, net, for the year ended December 31, 2019 consisted of financing costs of $520,160 and interest expense of $785,411, offset by a gain on write-down of contingency of $32,246, a change in fair value of warrant liability of $106,900, interest income of $23,807 and other income of $22,210.

Income tax benefit (expense).    We had an income tax expense of $698,303 for the year ended December 31, 2020, as compared to an income tax benefit of $698,303 for the combined year ended December 31, 2019. In the fourth quarter of 2020, we determined that we should establish a valuation allowance for the deferred tax asset, resulting in an income tax expense of $698,303.

Net loss.    As a result of the cumulative effect of the factors described above, our net loss increased by $15,898,441, or 280.43%, to $21,567,837 for the year ended December 31, 2020 from $5,669,396 for the combined year ended December 31, 2019, which included $445,265 for our predecessor from January 1, 2019 to April 5, 2019 and $5,856,174 for our successor from April 6, 2019 to December 31, 2019 and a pro forma adjustment of $66,260 for the management fee to our manager. The net loss for the year ended December 31, 2020 was also affected by certain non-cash charges described below equal to $4,831,673 in the aggregate.

Non-GAAP to GAAP Reconciliation

This prospectus contains financial measures that are not calculated in accordance with generally accepted accounting principles in the United States of America, or GAAP. The non-GAAP financial measures are net loss before taxes for the year ended December 31, 2020 excluding the following non-cash charges (i) an adjustment in value of contingency of $138,922, (ii) a loss on extinguishment of debt of $1,756,095, (iii) a write-off of acquisition receivable of $809,000 and (iv) a non-cash charge to change in warrant liability expense of $2,127,656.

The non-GAAP financial information should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Management, however, believes that these non-GAAP financial measures, when used in conjunction with the results presented in accordance with GAAP, may provide a more complete understanding of our results and may facilitate a fuller analysis of our results, particularly in evaluating performance from one period to another. Management has chosen to provide this supplemental information to investors, analysts, and other interested parties to enable them to perform additional analyses of results and to illustrate the results giving effect to the non-GAAP adjustments shown in the reconciliation described in the next paragraph. Furthermore, the economic substance behind our decision to use such non-GAAP measures is that such measures approximate our controllable operating performance more closely than the most directly comparable GAAP financial measures. Management strongly encourages investors to review our consolidated financial statements and publicly filed reports in their entirety and cautions investors that the non-GAAP measures used by us may differ from similar measures used by other companies, even when similar terms are used to identify such measures.

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The following tables provides a reconciliation of the non-GAAP net loss before taxes to the comparable GAAP measure.

 

Year Ended December 31, 2020

  

GAAP

 

Elimination of
Non-Cash
Charges

 

Non-GAAP

Loss from operations

 

$

(14,432,527

)

 

$

 

 

$

(14,432,527

)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2,479

 

 

 

 

 

 

2,479

 

Financing costs

 

 

(762,911

)

 

 

 

 

 

(762,911

)

Adjustment in value of contingency

 

 

(138,922

)

 

 

(138,922

)

 

 

 

Interest expense

 

 

(870,847

)

 

 

 

 

 

(870,847

)

Loss on extinguishment of debt

 

 

(1,756,095

)

 

 

(1,756,095

)

 

 

 

Write-off of acquisition receivable

 

 

(809,000

)

 

 

(809,000

)

 

 

 

Change in fair value of warrant liability

 

 

(2,127,656

)

 

 

(2,127,656

)

 

 

 

Other income

 

 

25,945

 

 

 

 

 

 

25,945

 

Total other income (expense)

 

 

(6,437,007

)

 

 

(4,831,673

)

 

 

(1,605,334

)

Net loss before income taxes

 

$

(20,869,534

)

 

 

 

 

 

$

(16,037,861

)

Liquidity and Capital Resources

As of December 31, 2020, we had cash and cash equivalents of $934,729 and restricted cash of $8,977,187. We have generated significant losses since our acquisition of Goedeker Television and have relied on cash on hand, external bank lines of credit, proceeds from our initial public offering described below, issuance of third party and related party debt and the issuance of a note to support cashflow from operations. For the year ended December 31, 2020, we incurred operating losses of approximately $14.4 million, cash flows from operations of $5.4 million, and negative working capital of $17.5 million.

On August 4, 2020, we completed an initial public offering of our common stock, pursuant to which we sold 1,111,200 shares of common stock, at a purchase price of $9.00 per share, for total gross proceeds of $10,000,800. After deducting the underwriting commission and offering expenses, we received net proceeds of $8,602,166. We used a portion of the proceeds from the initial public offering to pay off certain debt.

As noted above, we received net proceeds of $4,590,000 from the sale of notes and warrants on March 19, 2021. These proceeds will supplement our cash flow from operations and provide additional liquidity.

Management has prepared estimates of operations for fiscal years 2021 and 2022 and believes that sufficient funds will be generated from operations to fund our operations and to service our debt obligations for one year from the date of the filing of this prospectus. We may, however, in the future require additional cash resources due to changing business conditions, implementation of our strategy to expand our business, or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

The impact of COVID-19 on our business has been considered in these assumptions; however, it is too early to know the full impact of COVID-19 or its timing on a return to more normal operations.

The accompanying consolidated financial statements have been prepared on a going concern basis under which we are expected to be able to realize our assets and satisfy our liabilities in the normal course of business.

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Summary of Cash Flow

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

 

Year Ended
December 31,
2020
Successor

 

Year Ended December 31, 2019

2019
Successor
(As Restated)

 

2019
Predecessor

 

2019
Total
(As Restated)

Net cash provided by (used in) operating activities

 

$

5,408,883

 

 

$

(2,299,215

)

 

$

611,268

 

$

(1,687,947

)

Net cash used in investing activities

 

 

(113,147

)

 

 

(2,200

)

 

 

 

 

(2,200

)

Net cash provided by financing activities

 

 

4,144,872

 

 

 

2,772,723

 

 

 

 

 

2,772,723

 

Net change in cash

 

$

9,440,608

 

 

$

471,308

 

 

$

611,268

 

$

1,082,576

 

Our net cash provided by operating activities was $5,408,883 for the year ended December 31, 2020, as compared to net cash used in operating activities of $1,687,947 for the combined year ended December 31, 2019, which included net cash used in operating activities of $2,299,215 for our successor from April 6, 2019 to December 31, 2019 and net cash provided by operating activities of $611,268 for our predecessor from January 1, 2019 to April 5, 2019. For the year ended December 31, 2020, our net loss of $21,567,837 and an increase in merchandise inventory of $3,767,151, offset by an increase in customer deposits of $17,714,914, an increase in accounts payable and accrued expenses of $7,337,081, a change in fair value of warrant liability of $2,127,656 and a loss on extinguishment of debt of $1,756,095, were the primary drivers of the net cash provided by operating activities. For the combined year ended December 31, 2019, our net loss of $5,603,136, offset by increases in accounts payable and accrued expenses of $1,821,629 and merchandise inventory of $1,066,627, were the primary drivers of the net cash used in operating activities.

Our net cash used in investing activities was $113,147 for the year ended December 31, 2020, as compared to $2,200 for the year ended December 31, 2019, all of which was during the period from April 6, 2019 to December 31, 2019. The net cash used in investing activities for both years consisted entirely of purchases of property and equipment.

Our net cash provided by financing activities was $4,144,872 for the year ended December 31, 2020, as compared to $2,772,723 for the combined year ended December 31, 2019, all of which was during the period from April 6, 2019 to December 31, 2019. Net cash provided by financing activities for the year ended December 31, 2020 consisted of net proceeds of $8,602,166 from our initial public offering and $642,600 in proceeds from our Paycheck Protection Program loan, offset by payments of $2,883,754 on our notes payable (including repayment of our Paycheck Protection Program loan), payments of $771,431 on our convertible notes payable, net payments on lines of credit of $1,339,430 and $105,279 in loan financing costs. For the combined year ended December 31, 2019, net cash provided by financing activities consisted of proceeds from note payable of $1,500,000, net borrowings from lines of credit of $1,339,430 and proceeds from convertible notes payable of $650,000, offset by repayments on notes payable $357,207 and cash paid for financing costs of $359,500.

Initial Public Offering

On August 4, 2020, we sold 1,111,200 shares of common stock in connection with our initial public offering to the underwriters at a purchase price per share of $8.325 (the offering price to the public of $9.00 per share minus the underwriters’ discount) for total gross proceeds of $10,000,800. After deducting the underwriting commission and expenses, we received net proceeds of approximately $8,602,166. We also issued warrants for the purchase of 55,560 shares of common stock to affiliates of ThinkEquity, a division of Fordham Financial Management, Inc. The warrants are exercisable at any time and from time to time, in whole or in part, beginning on January 26, 2021 until July 30, 2025, at a per share exercise price equal to $11.25 (125% of the public offering price per share).

Term Loan

On August 25, 2020, we entered into a promissory note and security agreement with Arvest Bank for a loan in the principal amount of $3,500,000. As of December 31, 2020, the outstanding balance of this loan is $3,185,369, comprised of principal of $3,283,628, net of unamortized loan costs of $98,259.

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

Contractual Obligations

Our principal commitments consist mostly of obligations under the loan described above, the operating leases described under “Business — Facilities” and other contractual commitments described below.

Management Services Agreement

On April 5, 2019, we entered into a management services agreement with our manager, pursuant to which we appointed our manager to provide certain services to us for a quarterly management fee equal to $62,500. Under certain circumstances specified in the management services agreement, our quarterly fee may be reduced if similar fees payable to our manager by subsidiaries of our former parent company, 1847 Holdings LLC, or 1847 Holdings, exceed a threshold amount.

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

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

We expensed $250,000 and $183,790 in management fees for the years ended December 31, 2020 and 2019, respectively.

Earn Out Payments

Pursuant to the asset purchase agreement with Goedeker Television, it is entitled to receive the following earn out payments to the extent that our business achieves the applicable EBITDA (as defined in the asset purchase agreement) targets:

1.      An earn out payment of $200,000 if the EBITDA of our business for the trailing twelve (12) month period from the closing date is $2,500,000 or greater, which target was not met;

2.      An earn out payment of $200,000 if the EBITDA of our business for the trailing twelve (12) month period from the first anniversary of closing date is $2,500,000 or greater, which target we do not expect to meet; and

3.      An earn out payment of $200,000 if the EBITDA of our business for the trailing twelve (12) month period from the second anniversary of the closing date is $2,500,000 or greater. We expect to meet this target and adjusted the contingent note payable in the consolidated balance sheet to the present value of the amount due.

To the extent the EBITDA of our business for any applicable period is less than $2,500,000 but greater than $1,500,000, we must pay a partial earn out payment to Goedeker Television in an amount equal to the product determined by multiplying (i) the EBITDA Achievement Percentage by (ii) the applicable earn out payment for such period, where the “Achievement Percentage” is the percentage determined by dividing (A) the amount of (i) the EBITDA of our

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business for the applicable period less (ii) $1,500,000, by (B) $1,000,000. For avoidance of doubt, no partial earn out payments shall be earned or paid to the extent the EBITDA of our business for any applicable period is equal or less than $1,500,000.

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

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

The following discussion relates to critical accounting policies for our company. The preparation of consolidated financial statements in conformity with GAAP requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our consolidated financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to our consolidated financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our consolidated financial statements:

Revenue Recognition and Cost of Revenue

We record revenue in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 606. 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. ASC 606 also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer purchase orders, including significant judgments.

We collect the full sales price from the customer at the time the order is placed, which is recorded as customer deposits on the accompanying consolidated balance sheet. We do not incur incremental costs obtaining purchase orders from customers, however, if we did, because all our contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized.

The revenue that we recognize arises from orders we receive from our customers. Our performance obligations under the customer orders correspond to each sale of merchandise that we make to customers under the purchase orders; as a result, each purchase order generally contains only one performance obligation based on the merchandise sale to be completed.

Control of the delivery transfers to customers when the customer can direct the use of, and obtain substantially all the benefits from, our products, which generally occurs when the customer assumes the risk of loss. The risk of loss shifts to the customer at different times depending on the method of delivery. We deliver products to our customers in three possible ways. The first way is through a shipment of the products through a third-party carrier from our warehouse to the customer (which we refer to as a company shipment). The second way is through a shipment of the products through a third-party carrier from a warehouse other than our warehouse to the customer (which we refer to as a drop shipment) and the third way is where we deliver the products to the customer and often also install the product (which we refer to as a local delivery). In the case of a local delivery, we load the product on to our own truck and deliver and install the product at the customer’s location. When a product is delivered through a local delivery, risk of loss passes

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to the customer at the time of installation and revenue is recognized upon installation at the customer’s location. In the case of a company shipment and a drop shipment, the delivery to the customer is made free on board, or FOB, shipping point (whether from our warehouse or a third party’s warehouse). Therefore, risk of loss and title transfers to the customer once the products are shipped (i.e., leaves our warehouse or a third-party’s warehouse). After shipment and prior to delivery, the customer is able to redirect the product to a different destination, which demonstrates the customer’s control over the product once shipped. Once the risk of loss has shifted to the customer, we have satisfied our performance obligation and we recognize revenue.

We agree with customers on the selling price of each transaction. This transaction price is generally based on the agreed upon sales price. In our contracts with customers, we allocate the entire transaction price to the sales price, which is the basis for the determination of the relative standalone selling price allocated to each performance obligation. Any sales tax, value added tax, and other tax we collect concurrently with revenue-producing activities are excluded from revenue.

Cost of revenue includes the cost of purchased merchandise plus the cost of shipping merchandise and where applicable installation, net of promotional rebates and other incentives received from vendors.

Substantially all our sales are to individual retail consumers.

Shipping and Handling — We bill our customers for shipping and handling charges, which are included in net sales for the applicable period, and the corresponding shipping and handling expense is reported in cost of sales.

Disaggregated Revenue — We disaggregate revenue from contracts with customers by product type, as we believe it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

We also sell extended warranty contracts. We are an agent for the warranty company and earn a commission on the warranty contracts purchased by customers; therefore, the cost of the warranty contracts is netted against warranty revenue in the our consolidated statement of operations. We assume no liability for repairs to products on which we have sold a warranty contract.

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

Receivables

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

Merchandise Inventory

Inventory consists of finished products acquired for resale and is valued at the lower-of-cost-or-market with cost determined on an average item basis. We periodically evaluate the value of items in inventory and provide write-downs to inventory based on our estimate of market conditions.

Goodwill

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

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We test goodwill by estimating fair value using a discounted cash flow model. The key assumptions used in the discounted cash flow model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were no impairment charges during the years ended December 31, 2020 and 2019.

Intangible Assets

As of December 31, 2020 and 2019, definite-lived intangible assets primarily consisted of tradenames and customer relationships which are being amortized over their estimated useful lives, or 5 years.

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

In applying the acquisition method of accounting, amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition, with the remainder recorded as goodwill. Identifiable intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Identifiable intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. Intangible assets with indefinite lives are tested for impairment within one year of acquisitions or annually as of December 1, and whenever indicators of impairment exist. The fair values of intangible assets are compared against their carrying values, and an impairment loss would be recognized for the amount by which a carrying amount exceeds its fair value.

Long-Lived Assets

We review our property and equipment and any identifiable intangibles (including ROU asset) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management upon triggering events. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Lease Liabilities

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

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

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

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Appliances Connection

Overview

Headquartered in Brooklyn, New York and founded in 1998, Appliances Connection is one of the leading retailers of household appliances with a 200,000 square foot warehouse in Hamilton, New Jersey and a 23,000 square foot showroom in Brooklyn, New York. In addition to selling appliances, it also sells furniture, fitness equipment, plumbing fixtures, televisions, outdoor appliances, and patio furniture, as well as commercial appliances for builder and business clients. It also provides appliance installation services and old appliance removal services. Appliances Connection serves retail customers, builders, architects, interior designers, restaurants, schools and other large corporations. It ships to 48 states in the Continental United States and offers nearly 300,000 products, from luxury brands like Viking, Miele, Thermador, Sub-Zero, Wolf, Forte, Ilve, and Bosch, to household favorites like GE, LG, Frigidaire and Whirlpool.

1 Stop, founded in 2000, specializes in the sale of appliances and consumer electronics, including laundry, refrigeration, and air conditioning appliances, ranges, dishwashers, plumbing fixtures, televisions and video monitors, home and office furniture, as well as home décor, fireplaces, generators and small appliances. 1 Stop operates out of its Brooklyn, New York showroom as well as through its website 1stopcamera.com.

Gold Coast, which has been in business since 2015, is primarily engaged in the retail sale of outdoor, cooking, air conditioning, refrigeration and laundry appliances and operates out of its Brooklyn, New York showroom as well as online at goldcoastappliances.com.

Joe’s Appliances, which was formed in 2018, is also primarily engaged in retail sale offerings of a comprehensive suite of major appliances, including outdoor, cooking, air conditioning, refrigeration and laundry appliances, and appliance services. Joe’s Appliances operates out if it’s Brooklyn, New York store location as well as online at its website, joesappliances.com.

Superior Deals is in the electrical appliances, television and radio sets industry, while also providing a full line of appliance accessories including power cords, hoses, connections, brackets, and water and air filters. Superior Deals has been in business since 2000, primarily serving customers in the New York metro area, as well as nationally through Appliances Connection’s retail website www.appliancesconnection.com.

YF Logistics, formed in 2014, is a full-service logistics company that fulfills customer orders for 1 Stop, Gold Coast, Superior Deals and Joe’s Appliances, utilizing its own in-house logistics team to ship, install, and service appliances and other products across the continental United States from its 200,000 square foot warehouse located in Hamilton, New Jersey.

Recent Developments

Impact of Coronavirus Pandemic

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

Most states and cities reacted by instituting quarantines, restrictions on travel, “stay at home” rules and restrictions on the types of businesses that could continue to operate, as well as guidance in response to the pandemic and the need to contain it. Appliances Connection’s retail facilities and warehouse were deemed essential businesses that were not subject to restrictions in New York and New Jersey, so they remained open and continued to operate. Therefore, the restrictions put in place have not had a materially negative impact on the operations Appliances Connection. However, the situation surrounding COVID-19 remains fluid, and we may be required to close or limit service offerings in our retail facilities or warehouse in response to guidance from applicable government and public health officials, which could adversely affect our operations and revenues.

In addition, Appliances Connection is dependent upon suppliers to provide it with all of the products that its sells. The pandemic has impacted and may continue to impact suppliers and manufacturers of certain products. As a result, Appliances Connection has faced and may continue to face delays or difficulty sourcing certain products, which could negatively affect its business and financial results. Even if Appliances Connection is able to find alternate sources for such products, they may cost more, which could adversely impact its profitability and financial condition.

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The global deterioration in economic conditions, which may have an adverse impact on discretionary consumer spending, could also impact Appliances Connection’s business. For instance, consumer spending may be negatively impacted by general macroeconomic conditions, including a rise in unemployment, and decreased consumer confidence resulting from the pandemic. Changing consumer behaviors as a result of the pandemic may also have a material impact on Appliances Connection’s revenue.

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

If the current pace of the pandemic cannot be slowed and the spread of the virus is not contained, Appliances Connection’s business operations could be further delayed or interrupted. It is expected that government and health authorities may announce new or extend existing restrictions, which could require Appliances Connection to make further adjustments to its operations in order to comply with any such restrictions. In addition, Appliances Connection’s operations could be disrupted if any of its employees were suspected of having the virus, which could require quarantine of some or all such employees or closure of its facilities for disinfection. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect Appliances Connection’s ability to operate its business and result in additional costs.

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

Principal Factors Affecting Financial Performance

Appliances Connection’s operating results are primarily affected by the following factors:

•        its ability to acquire new customers or retain existing customers;

•        its ability to offer competitive product pricing;

•        its ability to broaden product offerings;

•        industry demand and competition; and

•        market conditions and its market position.

Key Financial Operating Metrics

 

Years Ended December 31,

  

2020

 

2019

Site Sessions (in millions)

 

 

31.0

 

 

17.6

Order History (in millions)

 

$

466.9

 

$

252.3

A site session occurs when a person visits Appliances Connection’s website. An order occurs when a customer has visited the website and ordered one or more items and has paid for them. An order is paid for by the customer when the order is placed and booked as revenue by when the order is shipped.

Appliances Connection’s site sessions increased to approximately 31.0 million in the year ended December 31, 2020, as compared to approximately 17.6 million in the year ended December 31, 2019. These increased site sessions resulted in record orders in the year ended December 31, 2020.

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Results of Operations

Comparison of Years Ended December 31, 2020 and 2019

The following table sets forth key components of the results of operations of Appliances Connection for the years ended December 31, 2020 and 2019, in dollars and as a percentage of net sales.

 

Year Ended
December 31, 2020

 

Year Ended
December 31, 2019

  

Amount

 

% of Net
Sales

 

Amount

 

% of Net
Sales

Net sales

 

$

312,608,528

 

 

100.00

%

 

$

219,333,461

 

 

100.00

%

Cost of sales

 

 

247,379,397

 

 

79.13

%

 

 

176,771,632

 

 

80.59

%

Gross profit

 

 

65,229,131

 

 

20.87

%

 

 

42,561,829

 

 

19.41

%

Operating expenses

 

 

 

 

  

 

 

 

 

 

  

 

Personnel

 

 

13,563,628

 

 

4.34

%

 

 

10,919,298

 

 

4.98

%

Advertising

 

 

9,164,242

 

 

2.93

%

 

 

5,073,731

 

 

2.31

%

Bank and credit card fees

 

 

12,361,428

 

 

3.95

%

 

 

9,413,611

 

 

4.29

%

Depreciation and amortization

 

 

782,773

 

 

0.25

%

 

 

553,357

 

 

0.25

%

General and administrative

 

 

9,949,762

 

 

3.18

%

 

 

7,095,979

 

 

3.24

%

Total operating expenses

 

 

45,821,833

 

 

14.66

%

 

 

33,055,976

 

 

15.07

%

Income from operations

 

 

19,407,298

 

 

6.21

%

 

 

9,505,853

 

 

4.33

%

Other income (expense)

 

 

 

 

  

 

 

 

 

 

  

 

Other income

 

 

1,336,115

 

 

0.43

%

 

 

1,880,282

 

 

0.86

%

Other expense

 

 

(663,674

)

 

(0.21

)%

 

 

(247,539

)

 

(0.11

)%

Total other income (expense)

 

 

672,441

 

 

0.22

%

 

 

1,632,743

 

 

0.74

%

Net Income

 

$

20,079,739

 

 

6.42

%

 

$

11,138,596

 

 

5.08

%

Net sales.    Appliances Connection generates revenue from the retail sale of home furnishings, including appliances, furniture, home goods, and related products. Its net sales increased by $93,275,067, or 42.53%, to $312,608,528 for the year ended December 31, 2020 from $219,333,461 for the year ended December 31, 2019. Such increase is due to increased demand for its home furnishings, appliances, furniture, home goods and related products due to increased advertising, as well as customers spending more time at their homes as a result of the ongoing COVID-19 pandemic, combined with governmental and enhanced unemployment benefits, and its position as an “essential business”. Additionally, management believes its net sales in the year ended December 31, 2020 were favorably impacted by a strong alignment of its technologically advanced online sales and infrastructure platform with current customer trends for online and phone-based shopping and decreased competition from certain of its competitors that are relatively more reliant on showroom and in-person sales that were closed for a portion of such period due to the pandemic.

Cost of sales.    Cost of sales includes the cost of purchased merchandise plus freight and any applicable delivery charges from the vendors. Cost of sales increased by $70,607,765, or 39.94%, to $247,379,397 for the year ended December 31, 2020 from $176,771,632 for the year ended December 31, 2019. Such increase was generally in line with the increase in net sales. As a percentage of net sales, cost of sales decreased slightly from 80.59% in 2019 to 79.13% in 2020.

Personnel expenses.    Personnel expenses include employee salaries and bonuses plus related payroll taxes as well as health insurance premiums. Personnel expenses increased by $2,644,330, or 24.22%, to $13,563,628 for the year ended December 31, 2020 from $10,919,298 for the year ended December 31, 2019. Such increase was due to additional payroll hours to support the increased sales in 2020, as well as increases in the minimum wage in New Jersey and Long Island. As a percentage of net sales, personnel expenses were 4.34% and 4.98% for the years ended December 31, 2020 and 2019, respectively.

Advertising expenses.    Advertising expenses include the cost of marketing products and primarily include online search engine, digital, social media, television and radio advertising expenses. Advertising expenses increased by $4,090,511, or 80.62%, to $9,164,242 for the year ended December 31, 2020 from $5,073,731 for the year ended December 31, 2019. Such increase was due to increased investments in digital and social media engagement to capitalize on current customer trends for online shopping, as well as increased investment on television and radio to promote additional brand recognition. As a percentage of net sales, advertising expenses were 2.93% and 2.31% for the years ended December 31, 2020 and 2019, respectively.

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Bank and credit card fees.    Bank and credit card fees are primarily the fees paid to credit card processors for processing credit card payments made by customers. Bank and credit card fees increased by $2,947,817, or 31.31%, to $12,361,428 for the year ended December 31, 2020 from $9,413,611 for the year ended December 31, 2019. These fees are based on customer orders that are paid with a credit card (substantially all orders), so the increase was primarily due to the increase in customer orders as well as recent increases in interchange rates charged by credit card networks. As a percentage of net sales, bank and credit card fees were 3.95% and 4.29% for the years ended December 31, 2020 and 2019, respectively.

Depreciation and amortization.    Depreciation and amortization was $782,773, or 0.25% of net sales, for the year ended December 31, 2020, as compared to $553,357, or 0.25% of net sales, for the year ended December 31, 2019.

General and administrative expenses.    General and administrative expenses consist primarily of professional advisor fees, bad debts, rent expense, sales tax expense, insurance, and other expenses incurred in connection with general operations. General and administrative expenses increased by $2,853,783, or 40.22%, to $9,949,762 for the year ended December 31, 2020 from $7,095,979 for the year ended December 31, 2019. The primary increases are were increases in insurance, rent, and telephone service expenses and payments on notes payable used to finance purchases of transportation vehicles. As a percentage of net sales, general and administrative expenses were 3.18% and 3.24% for the years ended December 31, 2020 and 2019, respectively.

Total other income (expense).    Total other income, net, was $672,441 for the for the year ended December 31, 2020, which included other income of $1,336,115 and other expense of $663,674. For the for the year ended December 31, 2019, total other income, net, was $1,632,743, which included other income of $1,880,282 and other expense of $247,539. Other income includes interest income on bank and vendor deposits and other expense includes interest expense on financed equipment.

Net income.    As a result of the cumulative effect of the factors described above, net income was $20,079,739 for the year ended December 31, 2020, as compared to $11,138,596 for the year ended December 31, 2019, an increase of $8,941,143, or 80.27%. As a percentage of net sales, net income was 6.42% and 5.08% for the years ended December 31, 2020 and 2019, respectively.

Liquidity and Capital Resources

As of December 31, 2020, Appliances Connection had cash and cash equivalents of $14,842,912. To date, Appliances Connection has financed its operations primarily through revenue generated from operations.

Summary of Cash Flow

The following table provides detailed information about Appliances Connection’s net cash flow for all financial statement periods presented in this prospectus.

 

Year Ended December 31,

  

2020

 

2019

Net cash provided by operating activities

 

$

16,594,919

 

 

 

2,125,205

 

Net cash provided by (used in) investing activities

 

 

2,610

 

 

 

(68,636

)

Net cash used in financing activities

 

 

(7,666,660

)

 

 

(1,577,959

)

Net change in cash

 

 

8,930,869

 

 

 

478,610

 

Cash at beginning of year

 

 

5,912,043

 

 

 

5,433,433

 

Cash at end of year

 

$

14,842,912

 

 

$

5,912,043

 

Net cash provided by operating activities was $16,594,919 and $2,125,205 for the years ended December 31, 2020 and 2019, respectively. For the year ended December 31, 2020, the primary drivers of the net cash provided by operating activities were net income of $20,079,739, an increase in accounts payable and accrued expenses of $5,959,575, an increase in customer deposits of $5,611,683 and operating lease right-of-use assets of $1,442,621, offset by a decrease in deposits with vendors of $9,728,097, a decrease in accounts receivable of $5,674,584 and operating lease liabilities of $1,363,066. For the year ended December 31, 2019, the primary drivers of the net cash provided by operating activities were net income of $11,138,596 and an increase in accounts payable and accrued expenses of $6,768,230, offset by decreases in customer deposits of $7,612,046, inventory of $3,934,936 and deposits with vendors of $3,236,141.

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Net cash provided by investing activities was $2,610 for the year ended December 31, 2020, compared with net cash used in investing activities of $68,636 for the year ended December 31, 2019. The net cash provided by investing activities for the year ended December 31, 2020 consisted of proceeds from disposal of assets of $33,444, offset by purchases of property and equipment of $30,834, while the net cash used in investing activities for the year ended December 31, 2019 consisted entirely of purchases of property and equipment.

Net cash used in financing activities was $7,666,660 and $1,577,959 for the years ended December 31, 2020 and 2019, respectively. Net cash used in financing activities for the year ended December 31, 2020 consisted of distributions of $9,637,816, repayments on notes payable of $318,457 and repayments of financing lease liabilities of $19,978, offset by proceeds from PPP and EIDL (as defined below) loans of $2,309,591, while net cash used in financing activities for the year ended December 31, 2019 consisted of distributions of $1,318,549, repayments on notes payable of $241,647 and repayments of financing lease liabilities of $17,763.

Notes Payable

Appliances Connection 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 3.09% to 5.74%. As of December 31, 2020, the outstanding balance of these notes is $1,687,285.

During the year ended December 31, 2020, Appliances Connection received Paycheck Protection Program, or PPP, loans pursuant to the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, in an aggregate principal amount of $1,872,470, which have two-year maturities and bear interest at 1.0% per annum. The PPP loans may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP loans. The interest accrued during the initial six-month period is due and payable, together with the principal, on the maturity date. Appliances Connection intends to use all proceeds from the PPP loans to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions of the CARES Act. As of December 31, 2020, the outstanding balance of the PPP loans is $1,872,470. Subsequent to December 31, 2020, Appliances Connection was notified by its bank that its application for forgiveness of the PPP loans had been approved and that the loans had been forgiven in their entirety.

Additionally, during the year ended December 31, 2020, pursuant to the Economic Injury Disaster Loan, or EIDL, program under the CARES Act, Appliances Connection entered into three promissory notes with the U.S. Small Business Administration with an aggregate principal amount of $412,200. The EIDL loans have thirty-year maturities and bear interest at 3.75% per annum. The EIDL loans are secured by all of the assets of 1 Stop, Gold Coast and YF Logistics. Installment payments, including principal and interest, will begin one-year from the origination date. The EIDL loans may be prepaid at any time prior to maturity with no prepayment penalties. As of December 31, 2020, the outstanding balance of the EIDL loans is $412,200.

Financing Leases

On March 3, 2018, Appliances Connection entered in an equipment financing lease to purchase a forklift for $59,326, maturing on March 2, 2023. As of December 31, 2020, the balance payable was $33,346.

On January 23, 2019, Appliances Connection entered in an equipment financing lease to purchase a forklift for $55,510, maturing on January 23, 2024. As of December 31, 2020, the balance payable was $36,828.

Contractual Obligations

Appliances Connection’s principal commitments consist mostly of obligations under the notes and financing leases described above and the operating leases described under “Business — Facilities” below.

Off-Balance Sheet Arrangements

Appliances Connection has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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Critical Accounting Policies

The following discussion relates to critical accounting policies for Appliances Connection. The preparation of the combined financial statements in conformity with GAAP requires management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. Appliances Connection has identified certain accounting policies that are significant to the preparation of its combined financial statements. These accounting policies are important for an understanding of its financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of its financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to the combined financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of Appliances Connection’s combined financial statements:

Revenue Recognition and Cost of Revenue

Appliances Connection records revenue in accordance with FASB ASC Topic 606. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer purchase orders, including significant judgments. Appliances Connection’s adoption of this ASU resulted in no change to the Company’s results of operations or balance sheet.

Appliances Connection collects 100 percent of the payment for internet and phone orders, including tax in certain jurisdictions, from the customer at the time the order is placed. Customers placing orders with a purchase order are allowed to purchase on credit and make payment after receipt of product. Appliances Connection does not incur incremental costs obtaining purchase orders from customers; however, if Appliances Connection did, because all Appliances Connection’s contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized.

Performance Obligations — The revenue that Appliances Connection recognizes arises from orders it receives from contracts with customers. Appliances Connection’s performance obligations under the customer orders correspond to each sale of merchandise that it makes to customers and each order generally contains only one performance obligation based on the merchandise sale to be completed. Control of the delivery transfers to customers when the customer can direct the use of, and obtain substantially all the benefits from, Appliances Connection’s products, which generally occurs when the customer assumes the risk of loss. The transfer of control generally occurs at the point of pickup, shipment, or installation, depending on the type of order. Once this occurs, Appliances Connection has satisfied its performance obligation and Appliances Connection’s recognizes revenue.

Transaction Price — Appliances Connection agrees with customers on the selling price of each transaction. This transaction price is generally based on the agreed upon sales price. In Appliances Connection’s contracts with customers, it allocates the entire transaction price to the sales price, which is the basis for the determination of the relative standalone selling price allocated to each performance obligation. Any sales tax that Appliances Connection collects concurrently with revenue-producing activities are excluded from revenue.

Cost of sales includes the cost of purchased merchandise plus freight and any applicable delivery charges from the vendor to Appliances Connection.

Substantially all Appliances Connection’s sales are to individual retail consumers (homeowners), builders, and designers. The large majority of customers are homeowners and their contractors, with the homeowner being key in the final decisions. Appliances Connection has a diverse customer base with no one customer accounting for more than five percent of total revenue.

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Receivables

Receivables consists of customer’s balance payments for which Appliances Connection extends credit to certain homebuilders and designers based on prior business relationship, and vendor rebate receivables. Vendor rebates receivable represent amounts due from manufactures from whom Appliances Connection purchases products. Rebates receivable are stated at the amount that management expects to collect from manufacturers (vendors). Rebates are calculated on product and model sales programs from specific vendors. The rebates are paid at intermittent periods either in cash or through issuance of vendor credit memos, which can be applied against vendor accounts payable. Based on Appliances Connection’s assessment of the credit history with its manufacturers, it has concluded that there should be no allowance for uncollectible accounts.

Appliances Connection historically collects substantially all its trade receivables from customers and bad debt expense has been historically immaterial to the combined financial statements. Uncollectible balances are expensed in the period it is determined to be uncollectible. Appliances Connection had no significant concentrations of receivables balances as of December 31, 2020 and 2019.

Inventory

Inventory mainly consists of finished goods acquired for resale and is valued at the average cost determined on a specific item basis. Appliances Connection periodically evaluates the value of items in inventory and provides write-downs to inventory based on estimate of its ability to sell the item as well as general market conditions.

Property and Equipment

Property and equipment is stated at the historical cost. Maintenance and repairs of property and equipment are charged to operations as incurred. Leasehold improvements are amortized over the lesser of the base term of the lease or estimated life of the leasehold improvements.

Depreciation is computed using the straight-line method over estimated useful lives as follows:

 

Useful Life (Years)

Furniture and fixtures

 

7

Transportation equipment

 

5

Machinery and equipment

 

5 – 7

Office equipment

 

5 – 7

Leasehold improvements

 

Shorter of lease term of
estimated useful life

Long-lived Assets

Appliances Connection reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management if triggering events occur. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Fair Value of Financial Instruments

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

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

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

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

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CORPORATE HISTORY AND STRUCTURE

History of Goedeker

Our company was incorporated in the State of Delaware on January 10, 2019 for the sole purpose of acquiring substantially all of the assets of Goedeker Television. On April 5, 2019, we acquired substantially all of the assets of Goedeker Television for an aggregate purchase price of $4,175,373, consisting of: (i) the issuance of a promissory note in the principal amount of $4,100,000 and a deemed fair value of $3,637,898; (ii) up to $600,000 in earn out payments with a deemed fair value of $81,494; (iii) a 22.5% ownership interest in our parent company at the time, 1847 Goedeker Holdco Inc., with a deemed fair value of $786,981, (iv) cash of $478,000, and (v) net of a working capital adjustment of $809,000. As a result of this transaction, we acquired the former business of Goedeker Television and continue to operate this business. Prior to our acquisition of substantially all of the assets of Goedeker Television, we had no operations other than operations relating to our incorporation and organization.

On October 20, 2020, we formed ACI as a wholly owned subsidiary in the State of Delaware for the sole purpose of completing the proposed acquisition. As of the date of this prospectus, we do not have any other subsidiaries.

History of Appliances Connection

1 Stop was incorporated in the State of New York on February 2, 2000. It specializes in the sale of appliances and consumer electronics. 1 Stop operates under the assumed name appliancesconnection.com.

Gold Coast is a family-owned appliance business originally incorporated in New York in 1971 and located in Brooklyn, New York. Appliances Connection acquired Gold Coast in 2015.

Superior Deals was incorporated in the State of New York on September 21, 2000. It is in the electrical appliances, television and radio sets industry. Super Deals also operates under the assumed name appliancesconnection.com.

Joe’s Appliances is a family-owned discount appliances and electronics business originally incorporated in New York in 1942 and based in Brooklyn, NY. Appliances Connection acquired Joe’s Appliances in 2018.

YF Logistics was incorporated in the State of New Jersey on January 24, 2014. It is a full-service logistics company that fulfills customer orders for 1 Stop, Gold Coast, Superior Deals and Joe’s Appliances.

Corporate Structure

The following chart depicts our pro forma organization structure following completion of the proposed acquisition.

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PROPOSED ACQUISITION OF APPLIANCES CONNECTION

On October 20, 2020, we entered into the purchase agreement with ACI, Appliances Connection and the holders of all of the issued and outstanding capital stock or other equity securities of Appliances Connection (which we refer to as the sellers) to acquire Appliances Connection, which was amended on December 8, 2020 and April 6, 2021. The following is a summary of the material terms and conditions of the purchase agreement. This summary may not contain all the information about the purchase agreement that may be important to you. This summary is qualified in its entirety by reference to the purchase agreement, a copy of which has been filed as an exhibit to the registration statement of which this prospectus forms a part. You are encouraged to read the purchase agreement in its entirety because it is the legal document that governs the proposed acquisition.

Reasons for the Proposed Acquisition

In evaluating the purchase agreement and the proposed acquisition, our board of directors consulted with our management and its advisors and, in reaching its decision to approve the purchase agreement and the transactions contemplated by the purchase agreement, our board of directors considered a variety of factors, including the following (which are not necessarily in order of relative importance):

•        the accretive nature of Appliances Connection’s earnings when combined with our earnings;

•        the relatively stable nature of Appliances Connection’s revenue and earnings year to year;

•        the expected synergies that would result from the business combination in the areas of product ordering, marketing, cost of goods sold and third-party logistics;

•        the location and demographic mix of Appliances Connection;

•        Appliances Connection’s foothold in the country’s largest market, New York, which immediately provides a model of how to be more effective in similar large urban markets throughout the United States and their demonstrated success in providing appliances at the premium and super premium part of the industry’s product offerings which will allow more access to the upper end of the business model where margins are higher and less prone to swings in consumer demand;

•        the diversity of brand name product offerings of Appliances Connection, which are both complimentary and similar to our brand name product offerings;

•        the extensive assortments of global appliance brands offered by Appliances Connection; and

•        Appliances Connection’s ability to provide “last mile” customer services through its large warehouse, its acquisition of inventory at discounted rates and its expertise in delivering, hooking up and hauling away of old appliances, which puts them in a top of class position for the logistics required to compete across the country on a low cost distribution model.

Our board of directors also considered the risks and potentially negative factors relating to the proposed acquisition, including:

•        the potential inability to quickly integrate the business of Appliances Connection with our own business;

•        the potential underestimation of time and resources necessary for integration and to achieve expected synergies;

•        information technology and infrastructure capability and transition costs;

•        unforeseen costs and expenses relating to the combination of the two companies;

•        supply interruptions continuing beyond the first quarter of 2021, which would impact both businesses;

•        the possibility of an economic downturn affecting demand for appliances; and

•        other risks described under the section “Risk Factors — Risks Related to Proposed Acquisition.”

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Our board of directors believed that, overall, the potential benefits of the proposed acquisition to our stockholders outweighed the risks and uncertainties of the proposed acquisition. The foregoing discussion of factors considered by our board of directors is not intended to be exhaustive and is not provided in any specific order or ranking, but includes material factors considered by our board. In reaching its decision regarding the proposed acquisition, our board did not quantify or otherwise assign relative weights to the specific factors. Moreover, each member of our board applied his or her own personal business judgment and may have given different weights to different factors. Our board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. Our board based its decision to approve the purchase agreement on the totality of the information presented.

The factors, potential risks and uncertainties contained in this explanation of our reasons for the proposed acquisition and other information presented in this section contain information that is forward-looking in nature and, therefore, should be read in light of the factors discussed in “Cautionary Statement Regarding Forward-Looking Statements.”

Structure of the Proposed Acquisition

Pursuant to the purchase agreement, we, through ACI, will acquire all of the issued and outstanding capital stock or other equity securities of Appliances Connection, which includes 1 Stop, Gold Coast, Superior Deals, Joe’s Appliances and YF Logistics. Each of these companies will become a wholly owned subsidiary of ACI.

Consideration

The aggregate purchase price for our acquisition of Appliances Connection is $222,000,000, subject to adjustment as described below. The purchase agreement provides that the purchase price consists of (i) $180,000,000 in cash, (ii) 1,222,239 shares of our common stock and 1,111,094 shares of our series A preferred stock, collectively having a stated value that is equal to $21,000,000, and (iii) a number of shares of our series A-1 preferred stock that is equal to (A) $21,000,000 divided by (B) the average of the closing price of our shares of common stock (as reported on NYSE American) for the 20 trading days immediately preceding the 3rd trading day prior to the closing date of the acquisition; provided, that if we have obtained stockholder approval prior to closing, then we will issue the same number of shares of common stock in lieu of the series A preferred stock and series A-1 preferred stock.

Under Section 712 of the NYSE American Company Guide, with certain exceptions, we are required to obtain stockholder approval prior to increasing our outstanding common stock by 20% or more. We obtained such stockholder approval by written consent on April 9, 2021 and thereafter filed an information statement on Schedule 14C with the SEC and mailed it to our stockholders on April 23, 2021. Pursuant to Rule 14c-2 promulgated under the Exchange Act, such stockholder approval will become effective on May 13, 2021, which is 20 calendar days following the date on which the information statement was first mailed to our stockholders. Therefore, we will issue common stock in lieu of the series A preferred stock and series A-1 preferred stock.

The purchase price is subject to a closing net working capital adjustment provision. Under this provision, the sellers shall deliver to ACI at least one day prior to the closing of the proposed acquisition a statement setting forth their good faith estimate of the net working capital of Appliances Connection (which excludes accruals for sales tax liabilities). If such estimated net working capital exceeds a target net working capital of ($15,476,941), then within five (5) days ACI shall make a cash payment to the sellers that is equal to such excess. If such target net working capital exceeds such estimated net working capital, then either (i) if finally determined at the closing, the cash portion of the purchase price shall be decreased by such excess or (ii) within 5 days of the closing, the sellers shall make a cash payment to ACI that is equal to such excess.

The purchase price is also subject to a post-closing net working capital adjustment provision. On or before the 75th day following the closing of the proposed acquisition, ACI shall deliver to the sellers a statement setting forth its calculation of the net working capital. If such net working capital exceeds the estimated net working capital referred to above, then within five (5) days after the final determination of such net working capital ACI shall send payment by wire transfer of immediately available funds to the sellers in an amount equal to such excess. If the estimated net working capital exceeds such net working capital, then within five (5) days the sellers shall pay to ACI in cash an amount equal to such excess.

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

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Upon execution of the purchase agreement, ACI paid a deposit in the amount of $100,000 and upon execution of the first amendment to the purchase agreement, ACI paid an additional deposit in the amount of $75,000, all of which will be credited towards the cash portion of the purchase price at closing.

We have entered into a non-binding engagement letter with a commercial bank for the provision of a senior secured credit facility involving a term loan in the expected principal amount of $60 million, which will be used to pay a portion of the cash portion of the purchase price, and a revolving loan in the expected principal amount of $10 million, which will be used for general corporate and working capital purposes. We intend to use all of the proceeds of the term loan to pay a portion of the purchase price and the proceeds of this offering will be used to pay the remainder of the purchase price and related acquisition fees and expenses.

Representations, Warranties and Covenants

The purchase agreement contains customary representations, warranties and covenants, including those related to the operation of Appliances Connection’s business prior to the closing, a customary non-solicitation covenant during the period prior to closing, and a covenant that the sellers will not compete with the business of 1 Stop as of the closing date for a period of two (2) years following closing.

The purchase agreement also contains customary demand and “piggy-back” registration rights with respect to the shares to be issued to the sellers.

Conditions to Closing

The closing of the purchase agreement is subject to customary closing conditions, including, without limitation:

•        the receipt of all authorizations, consents, permits, licenses or approvals of all governmental authorities or other third parties;

•        the expiration or termination of any waiting period applicable to the consummation of the transaction under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended, which has been completed;

•        the absence of any temporary, preliminary or permanent restraining order preventing the consummation of the proposed acquisition;

•        the release of any security interests related to Appliances Connection;

•        the execution of new leases for properties leased by 1 Stop and Joe’s Appliances;

•        the execution of certain employment agreements between certain officers of Appliances Connection and ACI;

•        the receipt of an opinion of the sellers’ counsel; and

•        the receipt of documents required for the transfer of the securities of Appliances Connection to ACI.

In addition, ACI shall have obtained on terms and conditions reasonably satisfactory to it all of the financing necessary to pay the cash portion of the purchase price and pay related fees and expenses to consummate the proposed acquisition and provide reasonably adequate working capital for Appliances Connection after the closing.

The purchase agreement contains a number of conditions that must be fulfilled to complete the proposed acquisition. There can be no assurance that the conditions to the closing will be satisfied or that the proposed acquisition will be completed. See “Risk Factors — Risks Related to the Proposed Acquisition.”

Other Agreements

In connection with closing of the proposed acquisition, we agreed to use commercially reasonable efforts to cause each holder of 10% or more of our voting power to enter into a voting agreement requiring such persons to vote in favor all proposals coming before stockholders at the meeting referred to above. The voting agreement will also contain certain transfer restrictions for our securities owned by them.

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In addition, each seller agreed to enter into a lock-up agreement which will provide that the seller may not transfer or assign or otherwise dispose of the shares that will be issued to such seller at closing for a period of 180 days after the closing, and thereafter the seller will only be permitted to sell shares at a rate of no more than one percent of our outstanding stock per quarter until the one year anniversary of the closing.

Indemnification

The purchase agreement contains mutual indemnification for breaches of representations or warranties and failure to perform covenants or obligations contained in the purchase agreement. In the case of the indemnification provided by the sellers with respect to breaches of certain non-fundamental representations and warranties, the sellers will only become liable for indemnified losses if the amount exceeds an aggregate of $2,100,000, whereupon the sellers will be liable for all losses relating back to the first dollar, provided that the liability of the sellers for breaches of certain non-fundamental representations and warranties shall not exceed $21,000,000.

Termination

The purchase agreement may be terminated as follows:

•        by mutual written consent of ACI, our company and the sellers at any time prior to the closing;

•        by either ACI and our company or the sellers if any governmental entity will have issued an order or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by the purchase agreement;

•        by either ACI and our company or the sellers if the closing does not occur on or before June 30, 2021; provided, that the right to terminate shall not be available to any party that has breached in any material respect its obligations under the purchase agreement in any manner that shall have caused the failure of a condition to the consummation of the proposed acquisition;

•        by ACI and our company if any seller or Appliances Connection has breached its respective representations and warranties or any covenant or other agreement to be performed by it in a manner such that the closing conditions related to such representations, warranties or covenants of such party would not be satisfied; or

•        by the sellers if ACI or our company has breached its representations and warranties or any covenant or other agreement to be performed by it in a manner such that the closing conditions related to such representations, warranties or covenants of such party would not be satisfied.

In the event that the purchase agreement is terminated in accordance with the circumstances described in the first, second or fourth bullets set forth above, the deposit referred to above shall be returned to ACI with two (2) business days. In the event that the purchase agreement is terminated by the sellers in accordance with the circumstances described in the third or fifth bullets set forth above, the sellers shall retain the deposit.

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BUSINESS

Overview

About Goedeker

Our company operates a technology-driven e-commerce platform for appliances and furniture, offering a combination of selection, service and value we believe to be unmatched in the $22.9 billion United States household major appliance industry. Since our founding in 1951, we have evolved from a local brick and mortar operation serving the St. Louis metro area to a nationwide omni-channel retailer offering over 141,000 SKUs across all major appliance brands with competitive pricing. Our relentless focus on customer experience encompasses our easy to navigate websites, highly trained call center representatives and sophisticated fulfillment ecosystem.

Our customers span a wide range of demographics, style and budget, which we attract with our efficient digital marketing capabilities and match with our broad product selection. We have invested considerably in our scalable logistics infrastructure, purpose built for the unique demands of the appliance market and see it as a competitive advantage, strengthening as we grow. Our tightly-integrated vendor relationships and order management tools allow us to offer our vast selection of products while holding limited inventory, contributing to strong and improving operating metrics.

About Appliances Connection

Headquartered in Brooklyn, New York and founded in 1998, Appliances Connection is one of the leading retailers of household appliances with a 200,000 square foot warehouse in Hamilton, New Jersey and a 23,000 square foot showroom in Brooklyn, New York. In addition to selling appliances, it also sells furniture, fitness equipment, plumbing fixtures, televisions, outdoor appliances, and patio furniture, as well as commercial appliances for builder and business clients. It also provides appliance installation services and old appliance removal services. Appliances Connection serves retail customers, builders, architects, interior designers, restaurants, schools and other large corporations. It ships to 48 states in the Continental United States and offers nearly 300,000 products, from luxury brands like Viking, Miele, Thermador, Sub-Zero, Wolf, Forte, Ilve, and Bosch, to household favorites like GE, LG, Frigidaire and Whirlpool.

1 Stop, founded in 2000, specializes in the sale of appliances and consumer electronics, including laundry, refrigeration, and air conditioning appliances, ranges, dishwashers, plumbing fixtures, televisions and video monitors, home and office furniture, as well as home décor, fireplaces, generators and small appliances. 1 Stop operates out of its Brooklyn, New York showroom as well as through its website 1stopcamera.com.

Gold Coast, which has been in business since 2015, is primarily engaged in the retail sale of outdoor, cooking, air conditioning, refrigeration and laundry appliances and operates out of its Brooklyn, New York showroom as well as online at goldcoastappliances.com.

Joe’s Appliances, which was formed in 2018, is also primarily engaged in retail sale offerings of a comprehensive suite of major appliances, including outdoor, cooking, air conditioning, refrigeration and laundry appliances, and appliance services. Joe’s Appliances operates out if it’s Brooklyn, New York store location as well as online at its website, joesappliances.com.

Superior Deals is in the electrical appliances, television and radio sets industry, while also providing a full line of appliance accessories including power cords, hoses, connections, brackets, and water and air filters. Superior Deals has been in business since 2000, primarily serving customers in the New York metro area, as well as nationally through Appliances Connection’s retail website www.appliancesconnection.com.

YF Logistics, formed in 2014, is a full-service logistics company that fulfills customer orders for 1 Stop, Gold Coast, Superior Deals and Joe’s Appliances, utilizing its own in-house logistics team to ship, install, and service appliances and other products across the continental United States from its 200,000 square foot warehouse located in Hamilton, New Jersey.

Appliances Connection has built powerful home-grown logistics technology that can help reduce cycle time and efficiencies for the combined company’s operations. Appliances Connection will bring the relationships, network, and technology necessary to continue economies of scale for the entire business of the combined company throughout the United States e-commerce market. The combined company will leverage Appliances Connection’s powerful platform to increase speed, reduce costs and increase margins across our entire business.

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On a combined (pro forma) basis, the combined company had total sales of $368 million for the year ended December 31, 2020.

The Large and Growing United States Appliance Market

The United States household major appliances market is highly fragmented with big box retailers, online retailers, and thousands of local and regional retailers competing for share in what has historically been a high touch sale process. According to Statista, revenue in the United States household major appliances market (excluding small appliances) is projected to reach $22.9 billion in 2021 and is expected to grow at an annual growth rate of 1.68% from 2021 to 2025.

According to the United States Census Bureau, there are approximately 100 million households in the United States with annual incomes between $25,000 and $250,000 and approximately 193 million individuals between the ages of 20 and 64 in the United States, many of whom are accustomed to purchasing goods online. As younger generations age, start new families and move into new homes, we expect online sales of household appliances to increase. In addition, we believe the online household appliances market will further grow as older generations of consumers become increasingly comfortable purchasing online, particularly if the process is easy and efficient.

When shopping for appliances their homes, consumers bring their own unique combination of style and budget, requiring vast selection to garner broad appeal. Brick and mortar retailers must balance selection with the challenges of high inventory carrying costs, complex vendor requirements and limited showroom and storage space. As a result, consumers are faced with a decision between shopping in multiple stores, or settling for what is available. Just as e-commerce has changed the landscape of other retail sectors, we believe an easy-to-browse, online shopping experience with massive selection and excellent customer service has the potential to change the way people buy household appliances.

Logistics, fulfillment and customer service for household appliances are challenging given the myriad vendors and product specifications, and the cumbersome size and weight of items. Household appliances often have a low dollar value to weight ratio compared to other categories of retail, therefore requiring a logistics network that is optimized for items with those characteristics. Many consumers also seek first-rate customer service so they are not burdened with managing delivery, shipping and return logistics on their own. However, we believe big box retailers that serve the mass market for home goods are often unable or unwilling to provide this level of service.

Our Solution — Key Benefits for Our Customers

The combined company will offer broad selection and choice. We believe that the combined company will offer the largest online selection of household appliances, with over 51,000 household appliance SKUs. The combined company’s easy to use websites make it easy for customers to discover products, styles and price points that appeal to them. Convenience and value are central to our offering. The combined company will offer a one-stop shop for consumers in the appliance category, with competitive pricing reflecting the many vendors on its platform and a differentiated and robust merchandising experience.

The combined company will offer consumers an engaging shopping journey through the combination of its technology-rich platform and its experienced customer support personnel, available via chat, email, text and phone. Superior customer service will be a core part of the experience that the combined company will offer shoppers. The combined company’s customer service organization will help consumers navigate its sites, answer questions and complete orders, staffed with specialists focused on specific product classes. This team will help the combined company build trust with consumers, enhance its reputation and drive sales.

Competitive Strengths

We believe that the combined company will be a leading e-commerce appliance retailer due to its following key strengths:

•        Name and reputation.    We believe that the combined company will enjoy a long-standing (50+ years) reputation with vendors and customers for its focus on offering a full line of appliances and other home furnishings with competitive pricing and superior customer service.

•        Product selection and pricing.    We believe that the combined company’s broad product selection and attractive pricing model will create a sustainable competitive advantage. The combined company will

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strive to offer consumers the broadest choice in the market and review pricing by other retailers on a daily basis to ensure its product offerings are competitively priced. Goedeker and Appliances Connection have negotiated attractive terms with their respective vendor partners, allowing them to pass through savings and selection to customers.

•        Website ease of use.    The combined company’s purpose-built technology platform will be designed to provide consumers with a compelling user experience as they browse, research and purchase its products. The combined company will use personalization, based on past browsing and shopping patterns, to create a more engaging consumer experience.

•        Best in class customer service and marketing technology.    We believe that the investments that Goedeker and Appliances Connection have made in their respective call center tools and shopping platforms, combined with digital marketing optimization, will allow the combined company to offer an unmatched customer journey.

•        Logistics technology and efficiency.    The combined company’s proprietary technology will eliminate manual steps and reduce order processing time, allowing it to provide faster services to customers.

Our Growth Strategies

Our mission is to change the way consumers buy appliances and, in doing so, become the leading online retailer of home appliances. The strategies of the combined company to achieve this mission, while increasing value for our shareholders, will include:

•        Grow our brand.    Increasing brand awareness and growing favorable brand equity among consumers is central to the growth, of the combined company following the proposed acquisition. The combined company plans to drive brand awareness through a combination of sophisticated, multi-layered marketing programs and word-of-mouth referrals. The combined company will continue to invest in marketing initiatives to efficiently attract consumers.

•        Expand in the commercial market.    To date, Goedeker and Appliances Connection have directed all marketing efforts toward the consumer. With remodels and new home construction, there is opportunity to market to home builders, real estate developers, contractors and interior designers who are making or influencing the purchasing decision for many consumers. We believe that the combined company’s low price business model will be received well by this market, creating substantial revenue opportunities and more repeat business. Evidence of unmet demand and market need is ongoing with large commercial sales occurring organically each week through Goedeker and Appliances Connection’s websites and contact centers.

•        Drive continued operational excellence.    Goedeker and Appliances Connection are committed to improving productivity and profitability through several operational initiatives designed to grow revenue and expand margins. Some of the key initiatives for operational excellence for the combined company include:

•        Logistics and shipping optimization.    The combined company will implement a series of initiatives with key vendors to increase shipping speed to customers, cut costs and increase margins. The combined company plans to pick up product from manufacturers’ warehouses and selectively use inventory buys to reduce costs. With access to vendor warehouse operations, we expect to take advantage of buying opportunities and capture time-sensitive customers more frequently. The combined company will also explore options to use a showroom, warehousing and cross dock model in other key markets.

•        Optimize price.    The combined company will continue building a data-based understanding of price elasticity dynamics, promotional strategies and other price management tools to drive optimized pricing for our products.

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•        Drive marketing efficiencies.    As the combined company continues to grow and scale, we believe that the combined company will continue to improve the efficiency of its marketing investments. We believe that with larger budgets and deeper experience, the combined company will benefit from lower media rates and increased data that will improve its customer targeting capabilities.

•        Opportunistically pursue strategic acquisitions.    The combined company may continue to expand its business through opportunistic acquisitions that allow it to enhance its customer offering, build its multi-brand portfolio, enter new geographies or enhance its operational infrastructure.

Products and Services

Appliances

The appliance category is our largest revenue source. We have a long history of selling these products and serving the distinct needs of consumers looking to replace or add to their home appliances. We offer nearly 22,000 appliance SKUs from all mainline original equipment manufacturers, including Bosch, Whirlpool, GE, Maytag, LG, Samsung, Sharp, and Kitchen Aid, among others. We sell all major home appliances, including refrigerators, ranges, ovens, dishwashers, microwaves, freezers, washers and dryers.

Appliances Connection is an authorized dealer of most major appliance brands, from luxury brands like Viking, Miele, Thermador, Sub-Zero, Wolf, Forte, Ilve and Bosch, to household favorites like GE, LG, Frigidaire and Whirlpool. It offers approximately 51,000 appliance SKUs. It sells all major home appliances, including refrigerators, ranges, ovens, dishwashers, microwaves, freezers, washers and dryers, and air conditioners.

Furniture

We began selling furniture online in 2015 and currently offer approximately 63,000 SKUs from approximately 150 furniture vendors. Appliances Connection also sells a full line of furniture for every room in the home and currently offers approximately 247,700 SKUs from approximately 240 furniture vendors.

Both companies utilize sophisticated websites that include organization of product by type and characteristics that make for a complete shopping experience in a complicated product category.

Other Products

We also offer a broad assortment of products in the décor, bed & bath, lighting, outdoor living and electronics categories. While these are not individually high-volume categories, they complement the appliance and furniture categories to produce a one-stop home goods offering for our customers.

Appliances Connection also sells outdoor living products, fitness equipment, plumbing fixtures, air conditioners, fireplaces, fans, dehumidifiers, humidifiers, air purifiers and televisions. Appliances Connection also sells commercial appliances for its builder and business clients.

Appliances Connection is an authorized dealer of most major outdoor appliance and furniture brands. It sells all major outdoor living appliances and furniture including various types of electronic, charcoal, and gas grills, barbeques, and smokers. Appliances Connection also offers anything a customer would need to create a fully functioning outdoor kitchen, including outdoor refrigerators, sinks, ranges, kitchen islands, ice makers, and warming drawers. Appliances Connection’s patio and lawn furniture selection include umbrellas, lounge chairs, outdoor beds, outdoor fireplaces and fire pits, swings, patio sets, and patio sofas.

We also offer customers the opportunity to purchase warranties that protect their appliances beyond the manufacturers’ warranty period. These warranties are offered through third party vendors. We remit the cost of the warranty to the warranty company, net of our commission. The warranty company assumes all costs of the warrantied product.

Installation and Other Services

We and Appliances Connection offer installation and removal services within the continental United States. A full-service install involves hooking up the appliance, testing it to ensure proper operation, and removing packing materials from customer’s home, office or other delivery location. We fulfill such installation services through third-party logistics

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service provider partners. Appliances Connection primarily fulfills such installation services internally through YF Logistics, utilizing third-party logistics service provider partners provide these services to delivery points in remote areas within the continental United States where YF Logistics may not be available.

Appliances Connection also has outside business partners such as Scavolini, a leader in kitchen cabinetry and design, and an in-house design team trained by the experts at Scavolini that will help customers remodel and reinvent their kitchens, living rooms, bathrooms and laundry rooms.

Pricing

We believe that our pricing model creates a competitive advantage as we strive to sell at the lowest possible price in the market. Our team tracks pricing daily on more than 15,000 appliance SKUs, comparing prices with all major resellers. Adjustments are made daily to ensure the success this strategy. Our business model emphasizes value added products up to and including super premium products. As a result, we believe that our average selling price by product category is higher than industry norms.

Appliances Connection provides the customer with a full suite of appliance and furniture options, from familiar household names up to luxury and premium brands, utilizing a pricing model intended to offer customers the lowest prices available in the market. This allows the customer to easily find the appliance they are looking for within their budget. Appliances Connection’s team tracks the manufacturer minimum advertised price, or MAP, daily on more than 51,000 appliance SKUs, comparing prices across all major resellers. Price adjustments are made monthly or more frequent basis to ensure product offerings are competitively priced, maximizing value for customers.

Vendor/Supplier Relationships

We offer more than 240 vendors and over 141,000 SKUs available for purchase through our website. During the year ended December 31, 2020, we purchased a substantial portion of products from Whirlpool (38%) and General Electric brands (12.3%). Whirlpool brands accounted for 44.1% of product purchases during the year ended December 31, 2019. No other supplier accounted for more than 10% of our purchases in the years ended December 31, 2020 or 2019.

Appliances Connection offers more nearly 2,000 vendors and nearly 300,000 SKUs available for purchase through its website. Appliances Connection is a member of Dynamic Marketing, Inc., or DMI, a 60-member appliance purchasing cooperative. DMI purchases consumer electronics and appliances at wholesale prices from various vendors, and them make such products available to its members, including Appliances Connection, who sell such products to end consumers. DMI’s purchasing group arrangement provides its members, including Appliances Connection, with leverage and purchasing power with appliance vendors, and increases Appliances Connection’s ability to compete with competitors, including big box appliance and electronics retailers. Appliances Connection owns an approximate 5% equity interest in DMI. Additionally, Albert Fouerti, one of the owners of Appliances Connection who will also become a member of our board of directors upon closing of the proposed acquisition, is on the Board of DMI. During the years ended December 31, 2020 and 2019, Appliances Connection purchased a substantial portion of products (75.2% and 70.7%, respectively) from DMI. The other largest vendors include the following: Ashley Furniture, Sub-Zero, Miele, BSH Home Appliances, Ilve, and ALMO Distributing. Appliances Connection’s business model allows it to constantly review and evaluate each supplier relationship and it is are always open to building new supplier/vendor relationships.

As noted above, we are substantially dependent on Whirlpool for a large portion of our product purchases and Appliances Connection utilizes DMI for a large portion of its product purchases. Products are purchased from all suppliers, including any purchases made from Whirlpool or through DMI, on an at-will basis. Neither our company nor Appliances Connection has any long-term purchase agreements with Whirlpool or DMI, as applicable, or any other suppliers. Relationships with suppliers are subject to change from time to time. Changes in relationships with suppliers occur periodically and could positively or negatively impact net sales and operating profits. We believe that both companies can be successful in mitigating negative effects resulting from unfavorable changes in the relationships with suppliers through, among other things, the development of new or expanded supplier relationships. Please see “Risk Factors” for a description of the risks related to supplier relationships, including our dependence on Whirlpool.

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Sales and Marketing

Goedeker

We market our products through a variety of methods, including through paid shopping and paid searches, display marketing, affiliate marketing, organic marketing, paid social media marketing and email marketing. The diagram below sets forth some of our key marketing statistics for 2020.

This chart shows results from our marketing efforts. The revenue shown exceeds total revenue as a customer may visit the site more than once before making a purchase, causing revenue attribution in multiple channels.

Paid Shopping and Paid Search

Our most effective channel is paid shopping and paid search. We utilize multiple search platforms (primarily Google) to put our products in front of consumers that are searching for products online. We have engaged a “best in class” agency and continually monitor and optimize campaigns in order to create more efficient and profitable campaign results. We specialize in a “bottom of the funnel” approach, meaning our campaigns are designed to spend more liberally with those at the end of the purchase cycle, and more conservatively with those in the beginning of the purchase journey.

Display Marketing

The majority of our display efforts are in the form of remarketing across the Google ad network. At this time, we are not focused on major branding efforts as much as we are on capitalizing on consumers who have begun their buying journey. With high average order values, we find that remarketing works effectively at bringing consumers back on the website or the phone to place an order.

Affiliate Marketing

Keeping a keen eye on nexus laws, we have scaled back our affiliate marketing in order to protect the interests of our company. We have found that the administrative burden and tax impact or revenue generated by many of the affiliates outweighed the benefits. As of the date of this prospectus, we have only one affiliate marketing relationship remaining with 169 affiliate partners.

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Organic Marketing

Organic marketing continues to be a strong channel for our company. While we are not heavily invested in organic at this time, the channel resulted in approximately 1.1 million users coming to our website in 2020. We understand best practices in technology, programming, copywriting, link acquisition as well as many other strategies to ensure we are in a strong position with the largest search engines.

Paid Social Media

Social media is utilized sparingly to drive traffic and manage brand perception. It is our goal to not look irrelevant to consumers viewing us on social media, while at the same time minimizing spending on these channels. We have found awareness campaigns on social media to be ineffective with products at our price point. We do take advantage of the remarketing opportunities on Facebook, which work well for us by driving highly qualified traffic back to our website where that traffic is converted to customers.

Email

Using email marketing, we put relevant products and offers in front our of a growing email database of approximately 259,000 opted-in consumers multiple times per week. Our marketing team produces email content by utilizing in-house design, copy and programming resources. Messages are sent using an enterprise-level email service provider and metrics such as deliverability, open rates and click rates are constantly monitored. Messages are targeted to individuals based on numerous factors including what time they are most likely to read emails, past purchase behavior and frequency of interaction.

Additionally, we utilize a multitude of triggered email programs, such as cart and browse abandonment, to entice customers back into the funnel. We continue to pursue best practices such as offer modals and scraping the checkout in order to facilitate continued list growth. Below is a diagram representing key performance metrics for the period from July to December 2020.

Appliances Connection

Appliances Connection markets its products through a variety of methods, including through online advertisements and promotions and digital marketing, including through Appliances Connection’s retail website, www.appliancesconnection.com. To a lesser degree, it also utilizes more traditional forms of marketing like television and radio advertisements in the New York City media market.

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Online Advertisement and Promotions

Appliances Connection’s major marketing channel is its website located at www.appliancesconnection.com. The website is key to new product launches as consumers can view product features and specifications. The website is up to date with all promotional MAP pricing, falling in line with expectations from the manufacturers and taking advantage of buyer holidays. The website facilitates sales of products to markets not reached by Appliances Connection’s brick and mortar store.

Digital Marketing

Appliances Connection has more than 12,100 followers on Twitter, 28,700 fans on Facebook and 2,000 subscribers on YouTube. It has been using digital marketing media with engaging posts to promote its products.

Television and Radio Marketing

Appliances Connection utilizes television and radio marketing as a more traditional means to reach customers who may not be as active online or on social media, primarily targeting the New York City media audience.

Showrooms

Appliances Connection maintains two showrooms in Brooklyn, New York where customers can fully visualize their renovations by touching and seeing the products in the showroom. The showrooms also allow customers to access factory-trained staff’s knowledge and experience to assist customers with their product selections.

Customers and Markets

Based on a study that we commissioned in 2019, our average shopper is between 35 and 64 years old and lives in a single-family home, which they own. Most of our customers are not reluctant to buy at a premium price for top quality as long as we and our products provide good value. Our most popular brands tend to be middle to upper market brands that are not found in the stores of many large retailers. A significant percentage of our customers have household income above $100,000.

Our physical store presence and warehouse is located in St Louis, Missouri, and third-party distribution, delivery and installation agreements allow us to serve, sell and ship to customers nationwide. We plan to expand our agreements directly with manufacturers to pick up and deliver from their warehouse to reach more customers, more quickly at reduced costs. In fact, while we started many years ago as a brick and mortar only business, about 78% of our sales originate from outside the Midwest market. The diagram below represents our sales by region for 2020:

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Most of Appliances Connection’s customers are not reluctant to buy at a premium price for top quality as long as Appliances Connection and its products provide good value. The most popular brands tend to be middle to upper market brands that are not found in the stores of many large retailers. Customers demand variety and Appliances Connection has successfully been able to provide them with an abundance of options when it comes to choosing their household appliances and furniture.

While Appliances Connection’s physical showrooms are located in Brooklyn, New York and its warehouse is located in New Jersey, the combination of YF Logistics and third-party distribution, delivery and installation agreements allow Appliances Connection to serve, sell and ship to customers nationwide. Its proprietary logistical technology has allowed it to expand its presence outside of the Northeast region and Appliances Connection is able to provide customers all over the country with the top-notch level of support that the original Northeastern customers have always enjoyed. While about one-third of Appliances Connection’s sales are still in the Northeast market, it has successfully been expanding its footprint into the rest of the Continental United States The diagram below represents Appliances Connection’s sales by region for 2020:

Customer Support

Our customer support team exists to sell and service customers at all parts of the buying and ownership cycle. We believe that by integrating phone support with marketing efforts, we differentiate ourselves from big box and independent retailers. Leading edge contact center technology and management is in early stage deployment and promises to increase sales close rates, decrease cancellations, increase average ticket size and create customers that purchase within the next twelve months. Current repeat purchasing is roughly 11% within a year, which demonstrates a reasonable satisfaction with the current model. We have a customer service team of 29 members and call center sales team of 22 members.

Our call center is now available to field inbound customer calls from 8:00 am to 6:00 pm CT, Monday through Saturday and Sunday from 12:00pm to 6:00 pm CT. Approximately 36% of all sales involve an order that was placed with a sales representative. This percentage should increase in 2021 as chat becomes a more deployed resource for our shoppers and customers.

Appliances Connection’s in-house customer support team facilitates sales and support for its products at each stage of the purchasing process as well as ongoing post-sale technical support. Appliances Connection’s customer care staff, which includes approximately 54 employees, includes a highly-trained and knowledgably call center sales team that also provides customer support over the phone, via email, or via online chat on its website. Additionally, the customer care staff provides technical support to customers, offering additional information with respect to product features and manufacturer warranties to increase customer satisfaction and return business.

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Appliances Connection’s call center is now available to field inbound customer calls from 9:00 am to 9:00 pm ET, Monday through Thursday, Friday from 9:00 am to 4:00 pm ET and Sunday from 10:00 am to 5:00 pm ET. Approximately 50% of all sales involve an order that was placed with a sales representative. Appliances Connection expects this percentage to increase in 2021 as online chat becomes a more deployed resource for shoppers and customers.

Logistics

Purchasing and Inventory Management

We primarily purchase inventory only after a sale has been made through our website, which allows us to tightly manage our inventory and warehouse space while still providing customers quick delivery times and control over the entire process. However, we do also make some strategic inventory buys to take advantage of lower costs and to satisfy consumer demand more quickly. About 64% of appliances flow through our warehouse while almost all furniture is drop shipped to the customer. All inventory is managed with a barcode system and is automatically tracked through our Microsoft Dynamics GP ERP system. As described above, initiatives are underway that will allow us to pick up products closer and more quickly directly from our manufacturers’ warehouses.

Appliances Connection carefully monitors and manages its inventory levels in an effort to match quantities on hand with customer demand as closely as possible by tracking historical and projected consumer demand, as well as continuous monitoring and adjustment of inventory receipt levels. In some instances, Appliances Connection purchases inventory only after a sale has been made through its website. Nearly all of Appliances Connection’s appliances flow through its Hamilton, New Jersey warehouse. All inventory is managed with a barcode system and is automatically tracked through its proprietary in-house inventory management system.

Shipping and Delivery

We take ownership of inventory when it is delivered to our warehouse. At this point, warehouse staff unloads the product, determines the delivery location, picks a carrier and ultimately ships the product. We primarily use R+L Carriers for most of our larger shipping services. We also use AM Home Delivery for furniture deliveries. If a customer is outside of their service zones or requires faster delivery times, we will use one of our three or four specialty carriers to get the job done.

Appliances Connection takes ownership of inventory when it is delivered to its warehouse in New Jersey. At this point, warehouse staff unloads the product, determines the delivery location, picks a carrier and ultimately ships the product. Appliances Connection primarily uses YF Logistics for its shipping and logistics services; however, if the shipment is outside of YF Logistics’ service zone, it utilizes other third party carriers for shipping and installation services to get the job done.

Appliances Connection plans to implement a series of initiatives with key vendors to increase shipping speed to customers, cut costs and increase margins. Appliances Connection plans to pick up product from manufacturers’ warehouses and selectively use inventory buys to reduce costs. With access to vendor warehouse operations, Appliances Connection expects to take advantage of buying opportunities and capture time-sensitive customers more frequently. The combined entity will explore options to use a showroom, warehousing and cross dock model in other key markets.

Returns and Exchanges

We offer a 30-day money back, 100% satisfaction guarantee. If a customer is not satisfied with his or her order, we will exchange or refund the full purchase price, minus all shipping costs, within 30 days of delivery. We do not charge a restocking fee when items are returned or exchanged, which we believe differentiates us from other retailers. We will not take returns of, or exchange, products that are damaged, installed, assembled, or used after the customer has taken delivery.

Appliances Connection offers a 30-day return policy that allows customers to return merchandise if, for any reason, they are not 100% satisfied with their purchase. If a customer is not satisfied with his or her order, Appliances Connection will exchange or refund the full purchase price within 30 days of delivery.

Each company’s return and exchange policy is designed to be as worry-free and customer-friendly as possible.

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Competition

Both companies compete with big box retailers, independent appliance and furniture retailers, hybrid retail and direct-to-consumer companies and web only companies. As hybrid retail and direct-to-consumer companies, they have the ability to navigate the competitive offerings of each competitor, utilizing online marketing, their customer service expertise and large curated assortments to attract and retain new customers.

Appliances

The United States appliance market in general is highly fragmented with thousands of local and regional retailers competing for share. The primary competitors in the appliance market include:

•        Big Box Retailers:    Home Depot, Lowe’s, Best Buy and Walmart

•        Online Retailers and Marketplaces:    Amazon and Wayfair

•        Specialty Retailers:    AJ Madison and US Appliance

•        Regional Retailers:    P.C. Richards & Sons

The shifting landscape to online sales in the segment is providing a significant market share capture and positioning opportunity for companies. Both companies are continuing to capitalize on this market shift.

Furniture and Homewares

Although consolidation in the United States furniture and homeware market continues to progress, the industry is still relatively fragmented compared to other retail subsectors of similar market value. The main competitors in the furniture and homewares market include:

•        Furniture Stores:    Ashley Furniture, Bob’s Discount Furniture, Havertys, Raymour & Flanagan and Rooms To Go

•        Big Box Retailers:    Bed Bath & Beyond, IKEA, Target and Walmart

•        Department Stores:    JCPenney and Macy’s

•        Specialty Retailers:    Crate and Barrel, Ethan Allen, TJX, At Home, Williams Sonoma, Restoration Hardware, Arhaus, Horchow, Room & Board and Mitchell Gold + Bob Williams

•        Online Retailers and Marketplaces:    Amazon, Wayfair and eBay

Much like the appliance market, the shifting landscape to online sales in the segment is providing a significant market share capture and positioning opportunity for companies. Both companies are continuing to capitalize on this market shift. We believe there may be opportunities for nationally distributed niche products, like sleeper sofas, where we could benefit from not inventorying product but marketing and then ordering on demand after payment. Similar opportunities are even more broadly available in the appliance market.

Intellectual Property

We own several domain names, including for our www.goedekers.com website.

1 Stop operates under the registered trademark “CONNECT TO GOOD.” Superior Deals owns four registered trademarks, “Forté,” “SUPERIORBRANDS,” “MILO ITALIA” and “SUPERIORBRANDS.” 1 Stop and Gold Coast own numerous domain names, including the www.appliancesconnection.com website, as well as 1stopcamera.com, goldcoastappliances.com, and joesappliances.com.

The agreements with suppliers generally provide us and Appliances Connection with limited, non-exclusive licenses to use the supplier’s trademarks, service marks and trade names for the sole purpose of promoting and selling their products.

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To protect intellectual property, both companies rely on a combination of laws and regulations, as well as contractual restrictions. They also rely on the protection of laws regarding unregistered copyrights for certain content they create. They also rely on trade secret laws to protect proprietary technology and other intellectual property. To further protect intellectual property, we enter into confidentiality agreements with our executive officers and directors.

Facilities

We are headquartered at 13850 Manchester Rd., St. Louis, Missouri 63011. This facility totals 50,000 square feet of office, showroom and warehouse space. We lease this facility pursuant to a lease agreement entered into with S.H.J., L.L.C., a Missouri limited liability company and affiliate of Goedeker Television, on April 5, 2019. The lease is for a term of five (5) years and provides for a base rent of $45,000 per month. In addition, we are responsible for all taxes and insurance premiums during the lease term.

On January 13, 2021, we entered into a lease agreement with Westgate 200, LLC, which was amended on March 30, 2021, for a new location totaling approximately 86,800 square feet of office, showroom and warehouse space in St. Charles, Missouri. The initial term of the lease expires on April 30, 2027 with two (2) options to renew for additional five (5) year periods. The base rent is initially $20,976.79 per month and increases to $31,465 on October 1, 2021, with annual increases thereafter to a base rent during the sixth year of $35,558 per month. We will also pay our 43.4% pro rata portion of the property taxes, operating expenses and insurance costs and are also responsible to pay for the utilities used on the premises.

Appliances Connection is headquartered at 1870 Bath Avenue, Brooklyn, NY 11214. It has a 200,000 square foot warehouse in Hamilton, New Jersey and a 23,000 square foot showroom in Brooklyn, New York.

Appliances Connection leases two facilities pursuant to lease agreements entered into between 1 Stop and Joe’s Appliances and 1870 Bath Ave. LLC and 7812 5th Ave Realty LLC, respectively, which are entities owned and controlled by Albert Fouerti and Elie Fouerti, the principal officers and owners of 1 Stop and Joe’s Appliances. The leases are for a term of ten (10) years and provide for different monthly fixed rent from $5,300 per month to $74,000 per month for the first year of the term. In addition, Appliances Connection is responsible for all taxes and insurance premiums during the lease term.

YF Logistics subleases the warehouse space from DMI for a 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. 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 (30) days’ prior written notice or (ii) April 30, 2024.

We believe that all properties have been adequately maintained, are generally in good condition, and are suitable and adequate for the businesses of Goedeker and Appliances Connection.

Employees

As of December 31, 2020, we employed 102 full-time employees, 1 Stop employed 154 full-time employees, YF Logistics employed 135 full-time employees, Superior Deals employed 5 full-time employees and Joe’s Appliances employed 1 full-time employee. Gold Coast did not have any full-time employees. None of the employees are represented by labor unions, and we believe that Goedeker and Appliances Connection have excellent relationships with their respective employees.

Legal Proceedings

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

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Regulation

Our combined business is subject a variety of laws and regulations applicable to companies conducting business on the Internet. Jurisdictions vary as to how, or whether, existing laws governing areas such as personal privacy and data security, consumer protection or sales and other taxes, among other areas, apply to the Internet and e-commerce, and these laws are continually evolving. For example, certain applicable privacy laws and regulations require us to provide customers with our policies on sharing information with third parties, and advance notice of any changes to these policies. Related laws may govern the manner in which we store or transfer sensitive information or impose obligations on us in the event of a security breach or inadvertent disclosure of such information. Additionally, tax regulations in jurisdictions where we do not currently collect state or local taxes may subject us to the obligation to collect and remit such taxes, or to additional taxes, or to requirements intended to assist jurisdictions with their tax collection efforts. New legislation or regulation, the application of laws from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and e-commerce generally could result in significant additional taxes on our business. Further, we could be subject to fines or other payments for any past failures to comply with these requirements. The continued growth and demand for e-commerce is likely to result in more laws and regulations that impose additional compliance burdens on e-commerce companies.

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MANAGEMENT

Directors and Executive Officers

Set forth below is information regarding our directors, executive officers and significant employees as of the date of this prospectus.

Name

 

Age

 

Position

Douglas T. Moore

 

64

 

Chief Executive Officer and Director

Robert D. Barry

 

77

 

Chief Financial Officer

Thomas S. Harcum

 

38

 

Chief Marketing Officer and Chief Technology Officer

Jacob Guilhas

 

42

 

Vice President of Logistics

Michael K. Hargrave

 

55

 

Chief Merchant

Albert Fouerti

 

41

 

President of ACI and Director Nominee(1)

Elie Fouerti

 

42

 

Vice President of ACI(2)

Ellery W. Roberts

 

50

 

Chairman of the Board

Edward J. Tobin

 

64

 

Director

Ellette A. Anderson

 

44

 

Director

Clark R. Crosnoe

 

52

 

Director

Paul A. Froning

 

50

 

Director

Glyn C. Milburn

 

50

 

Director

Alan P. Shor

 

62

 

Director Nominee(3)

____________

(1)      Albert Fouerti will become the President of ACI and a member of our board of directors upon closing of the proposed acquisition.

(2)      Elie Fouerti will become the Vice President of ACI upon closing of the proposed acquisition.

(3)      Alan P. Shor will become a member of our board of directors upon closing of the proposed acquisition.

Douglas T. Moore.    Mr. Moore has served as our Chief Executive Officer since August 2019 and as a director since April 2020. Through his more than 25 years of retail experience, Mr. Moore has developed an understanding of strategic and tactical business issues that include store operations, merchandising, supply chain, sourcing and human resource planning. He also possesses senior management, marketing, risk assessment and retail knowledge. Prior to joining us, Mr. Moore was President and Chief Executive Officer of Med-Air Homecare, a home healthcare equipment and service provider, from November 2013 until May 2019, Principal of First Street Consulting, LLC, a retail consulting firm, from January 2011 until October 2017, and Senior Vice President of FirstSTREET for Boomers and Beyond, Inc., a leading direct marketer of products for baby boomers, from October 2017 until August 2019. From February 2012 through June 2012, Mr. Moore served as the Chief Merchandising and Marketing Officer at hhgregg, Inc., a consumer electronics retail chain. Mr. Moore has served on the board of directors of Lumber Liquidators Holdings, Inc., one of the leading specialty retailers of hard-surface flooring in North America, since April 2006. Mr. Moore received his undergraduate degree and M.B.A. from the University of Virginia. We believe Mr. Moore is qualified to serve on our board of directors due to his extensive experience in the retail industry and public company board experience.

Robert D. Barry.    Mr. Barry has served as our Chief Financial Officer since our inception and as a director from inception until April 2020. He has served on the board of directors of our former parent company, 1847 Holdings LLC, or 1847 Holdings, since January 2014 and has served as Controller of 1847 Holdings’ subsidiary Neese, Inc., since July 2017. From April 2013 until August 2016, Mr. Barry was Chief Executive Officer and Chief Financial Officer of Pawn Plus Inc., a chain of five retail pawn stores in suburban Philadelphia and one pawn store in northeastern Ohio. Prior to that, Mr. Barry served as Executive Vice President and Chief Financial Officer of Regional Management Corp., a consumer loan company based in Greenville, South Carolina, from March 2007 to January 2013. Prior to joining Regional Management Corp., Mr. Barry was the Managing Member of AccessOne Mortgage Company, LLC in Raleigh, North Carolina, from 1997 to 2007. During this time, he also served as part-time Chief Financial Officer for Patriot State Bank, in Fuquay-Varina, North Carolina, from March 2006 to March 2007 and Nuestro Banco, Raleigh, North Carolina, from July 2006 to March 2007. Prior to his time at AccessOne, Mr. Barry was Executive Vice President and Chief Financial Officer for Regional Acceptance Corporation, a consumer finance company based in Greenville, North Carolina and prior to that he was a financial institutions partner in the Raleigh, North Carolina office of KPMG LLP. Mr. Barry is a Certified Public Accountant licensed in North Carolina and Georgia.

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Thomas S. Harcum.    Mr. Harcum has served as our Chief Marketing Officer and Chief Technology Officer since January 2020. He has almost 20 years of experience in marketing and technology in several fields, including pharmaceuticals and publishing. Particularly, Mr. Harcum’s expertise includes direct to consumer e-commerce, lead generation and cost center management and P&L responsibilities for marketing funnel management, customer acquisition, telephony, product development, technology management, project management, development lifecycle and brand management. Previously, he was the Senior Director of Marketing for firstSTREET from October 2012 to December 2019. Mr. Harcum has a B.A. from Virginia Commonwealth University.

Jacob Guilhas.    Mr. Guilhas has served as our Vice President of Logistics since October 2020. In his 20 years of retail logistics experience, he has vast experience in leading a full spectrum of multi-site business operations in highly competitive, fast-paced, and complex environments. Prior to joining us, Mr. Guilhas served as Managing Director at FedEx Supply Chain from March 2016 to October 2019, Head of Logistics and Fulfillment for Groupon from October 2014 to March 2016, facility General Manager with Exel (nowDP-DHL) from September 2013 to October 2014, and Regional Operations Director for Walmart eCommerce from September 2003 to September 2013. Mr. Guilhas has served in leadership positions for multiple large-scale distribution and fulfillment centers, and has led a variety of projects including multiple distribution center “greenfield” start-ups, international operations start-ups, and long-term strategic planning. Mr. Guilhas brings specialized experience in coordinating multi-channel operations, complex systems integrations, safety controls, and continuous improvement. Mr. Guilhas holds multiple advanced degrees including a Doctorate of Management from Colorado Tech.

Michael K. Hargrave.    Mr. Hargrave has served as our Chief Merchant since May 2020. He has almost 34 years of experience in retail merchandising and management across multiple product categories, especially hardlines segments including appliances, hardware and lawn and garden. Mr. Hargrave has developed an understanding of strategic and tactical business issues that include sales management, merchandising, marketing, product development, strategic sourcing and online content management. He also possesses store operation, supply chain management, website development and affiliate marketing knowledge. Prior to joining us, Mr. Hargrave held roles for Sears Holdings Corporation as Senior Director, Online Hardlines Merchandising from June 2017 until April 2020, Divisional Merchandise Manager Online Tools, from July 2014 until June 2017, and Director, Online Merchandising Lawn & Garden, from March 2009 until July 2014. Mr. Hargrave serves as a founding member of the Advisory Council for the Home Improvement e-Retailer Summit and has been named to the Home Improvement Executive Magazine’s “Top 100 Retail Executives.” Mr. Hargrave received his undergraduate degree from the University of Michigan.

Albert Fouerti.    Mr. A. Fouerti will become the President of ACI and a member of our board of directors upon closing of the proposed acquisition. He has served as the Chief Executive Officer of 1 Stop since 1999. With over 20 years of experience in retail, he has made Appliances Connection into a household name for kitchen appliances. With 1 Stop starting out as a small camera and computer shop in Great Neck, NY, Mr. A. Fouerti was a pioneer for online shopping. Driven by technology, he entered the appliance business in 2008, and has contributed in taking the appliance industry into to the digital age. Along with his brother, Elie Fouerti, they developed a process of delivering bulky items across the United States. We believe Mr. A. Fouerti is qualified to serve as a member of our board because of his extensive experience building and leading the Appliances Connection business from its founding and his insight into our industry and business as Appliances Connection’s co-founder and Chief Executive Officer.

Elie Fouerti.    Mr. E. Fouerti will become the Vice President of ACI upon closing of the proposed acquisition. He has served as both the Chief Financial Officer and Vice President of 1 Stop for over 20 years. Along with his brother, Mr. A. Fouerti, they have created a successful independent online retailer of appliances. Mr. E. Fouerti helped his brother in developing a process for delivering bulky items across the United States, paving the way for a new era of ordering appliances online. We believe Mr. E. Fouerti is qualified to serve as a member of ACI’s management team because of his extensive experience building and leading the Appliances Connection business from its founding and his insight into our industry and business as Appliances Connection’s co-founder and Chief Financial Officer.

Ellery W. Roberts.    Mr. Roberts has served as the Chairman of our board of directors since our inception. Mr. Roberts brings over 20 years of private equity investing experience to our company. Mr. Roberts has been the Chairman, Chief Executive Officer, President and Chief Financial Officer of 1847 Holdings since its inception on January 22, 2013 and is also the sole manager of our manager. Mr. Roberts has also been a director of Western Capital Resources, Inc., a public company, since May 2010.  In July 2011, Mr. Roberts formed The 1847 Companies LLC, a company that is no longer active, where he began investing his own personal capital and capital of high net worth individuals in select transactions. Prior to forming The 1847 Companies LLC, Mr. Roberts was the co-founder and was co-managing

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principal from October 2009 to June 2011 of RW Capital Partners LLC, the recipient of a “Green Light” letter from the United States Small Business Administration permitting RW Capital Partners LLC to raise capital in pursuit of the Small Business Investment Company license with the preliminary support of the Small Business Administration. Mr. Roberts was a founding member of Parallel Investment Partners, LP (formerly SKM Growth Investors, LP), a Dallas-based private equity fund focused on re-capitalizations, buyouts and growth capital investments in lower middle market companies throughout the United States. Previously, Mr. Roberts served as Principal with Lazard Group LLC, a Senior Financial Analyst at Colony Capital, Inc., and a Financial Analyst with the Corporate Finance Division of Smith Barney Inc. (now known as Morgan Stanley Smith Barney LLC).  Mr. Roberts received his B.A. degree in English from Stanford University. We believe Mr. Roberts is qualified to serve on our board of directors due to his extensive investment experience.

Edward J. Tobin.    Mr. Tobin has served on our board of directors since April 2020. Mr. Tobin has served as Managing Director of our manager since January 2014. From 1997 until November 2014, Mr. Tobin was a Director of Global Emerging Markets North America, Inc., where he managed Special Situations and Venture investing. In this role, he oversaw structured finance transactions in industries such as clean tech, media, telecommunications, manufacturing, real estate and life sciences. Prior to that, Mr. Tobin was Managing Director of Lincklaen Partners, a private family investment office. Previously, he had been a portfolio manager with Neuberger and Berman and a Vice President of Nordberg Capital, Inc. Mr. Tobin received his MBA from the Wharton School, as well as a Master of Science in Engineering and a Bachelor of Science in Economics from the University of Pennsylvania. We believe Mr. Tobin is qualified to serve on our board of directors due to his extensive investment experience.

Ellette A. Anderson.    Ms. Anderson has served on our board of directors since July 2020. In 2013, Ms. Anderson founded Griffin Archer LLC, a full-service advertising agency that offers a comprehensive range of services addressing both the traditional and digital marking aspects of business. As the Chief Executive Officer of Griffin Archer, Ms. Anderson is responsible for overseeing new business acquisitions, strategic planning, and creative direction for their entire client portfolio. From April 2004 to August 2013, she served as a Writer and Associate Creative Director at Carmichael Lynch Advertising in Minneapolis where she received multiple industry awards for her creative work on several iconic brands. She holds a B.A. degree in English Literature from the University of Kansas. We believe Ms. Anderson is qualified to serve on our board of directors due to her deep experience in the advertising and marketing industry.

Clark R. Crosnoe.    Mr. Crosnoe has served on our board of directors since July 2020. In 2009, Mr. Crosnoe founded CRC Capital LLC, a registered investment advisor and manager of the CRC Investment Fund LP, a private investment partnership focused on publicly-traded equity securities. As managing member of CRC Capital LLC, Mr. Crosnoe is responsible for strategy, oversight and the day-to-day investment decisions of the fund. The portfolio typically includes investments in the consumer, financial, healthcare, industrial and energy sectors. In 1999, Mr. Crosnoe was a founding employee of Parallel Investment Partners where he was named partner in 2003. As a partner, he was responsible for sourcing, evaluating, structuring, executing and monitoring investments, and also dedicated a substantial portion of his time to marketing activities for the firm. Mr. Crosnoe began his career in investment banking at Wasserstein Perella & Co. and also gained valuable experience at multi-billion dollar hedge fund HBK Investments. Mr. Crosnoe holds undergraduate degrees from the University of Texas at Austin and earned an MBA from Harvard Business School in 1996. We believe Mr. Crosnoe is qualified to serve on our board due to his approximately 24 years of private and public investment and advisory experience.

Paul A. Froning.    Mr. Froning has served on our board of directors since July 2020. He has served on the board of directors of 1847 Holdings since April 2013. In 2009, Mr. Froning co-founded Focus Healthcare Partners LLC, a Chicago-based private equity investment, advisory and asset management firm targeting the senior housing and healthcare sectors. Prior to that, from February 2008 to October 2009, Mr. Froning was a Managing Director in the private equity department of Fortress Investment Group LLC, a publicly-traded New York-based private investment firm.  Prior to that, Mr. Froning was the Chief Investment Officer and Executive Vice President of Brookdale Senior Living Inc., a publicly-traded affiliate of Fortress Investment Group LLC, from 2005 to 2008.  Previously, Mr. Froning held senior investment positions at the private equity investment arms of Lazard Group LLC and Security Capital Group, prior to its acquisition by GE Capital Corp., in addition to investment banking experience at Salomon Brothers, prior to its acquisition by Travelers Group, and the securities subsidiary of Principal Financial Group. Mr. Froning has a B.A. degree from the University of Notre Dame. We believe Mr. Froning is qualified to serve on our board of directors due to his twenty years of private equity, investment and advisory experience.

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Glyn C. Milburn.    Mr. Milburn has served on our board of directors since July 2020.  Since February 2016, Mr. Milburn has served as a Partner at Jimmy Blackman & Associates, a full-service Government and Public Affairs firm, where he is responsible for business strategy, client management, communications and campaign management for a client portfolio comprised of large public safety labor unions, banking/finance companies, and hotel operators across the State of California. From April 2013 to January 2016, Mr. Milburn served as a Special Assistant in the City of Los Angeles where he held two positions in the City of Los Angeles, one in the Office of Los Angeles Mayor Eric Garcetti’s Office of Economic Development and another in the Office of Los Angeles Councilman Dennis Zine.  From August 2012 to March 2013, Mr. Milburn co-Founded Provident Investment Advisors LLC, a special investment vehicle for energy, technology and healthcare ventures, where he served as Managing Member.  Mr. Milburn holds a B.A. degree in Public Policy from Stanford University.  We believe Mr. Milburn is qualified to serve on our board of directors due to his valuable background in policy development, regulatory and strategic planning experience.

Alan P. Shor.    Mr. Shor will become a member of our board of directors upon closing of the proposed acquisition. Mr. Shor is a co-founder of The Retail Connection, L.P., a retail real estate company, and has served as its President and Co-Chairman of the Board of Directors since its launch in January 2004. Mr. Shor is deeply involved in the strategic direction and day-to-day operations of the company and also leads its investment and merchant banking business. He has served as an operating partner with leading private equity firms which have deep experience in consumer and multi-unit based investments. He is an investor in and a Board member of four high-growth retail chains: Diamonds Direct (since 2015), WSS (since 2015), Neighborhood Goods (since 2017) and Obsession Fragrance (since 2019). Prior to launching The Retail Connection, Mr. Shor served as President, Chief Operating Officer and a member of the Board of Zale Corporation, a publicly-held specialty retailer of fine jewelry. Prior to joining Zale, he spent 12 years with Troutman Sanders, an international law firm, where he built a strong track record of advising senior management teams of Fortune 1000 companies. Mr. Shor is also active in a number of professional and charitable organizations. Mr. Shor graduated with honors from both the University of Georgia and University of Georgia School of Law. We believe Mr. Shor is qualified to serve on our board of directors due to his valuable background in the retail and investment industries.

Our directors currently have terms which will end at our next annual meeting of the stockholders or until their successors are elected and qualify, subject to their prior death, resignation or removal. Officers serve at the discretion of the board of directors. There is no arrangement or understanding between any director or executive officer and any other person pursuant to which he was or is to be selected as a director, nominee or officer.

Family Relationships

There are no family relationships among any of our executive officers or directors.

Involvement in Certain Legal Proceedings

To the best of our knowledge, except as described below, none of our directors or executive officers has, during the past ten years:

•        been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

•        had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

•        been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

•        been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

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•        been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

•        been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Corporate Governance

Governance Structure

We chose to appoint a separate Chairman of the Board who is not our Chief Executive Officer. Our board of directors has made this decision based on their belief that a separate Chairman of the Board can act as a balance to the Chief Executive Officer, who also serves as a non-independent director.

The Board’s Role in Risk Oversight

The board of directors oversees that the assets of our company are properly safeguarded, that the appropriate financial and other controls are maintained, and that our business is conducted wisely and in compliance with applicable laws and regulations and proper governance. Included in these responsibilities is the board’s oversight of the various risks facing our company. In this regard, our board seeks to understand and oversee critical business risks. Our board does not view risk in isolation. Risks are considered in virtually every business decision and as part of our business strategy. Our board recognizes that it is neither possible nor prudent to eliminate all risk. Indeed, purposeful and appropriate risk-taking is essential for our company to be competitive on a global basis and to achieve its objectives.

While the board oversees risk management, company management is charged with managing risk. Management communicates routinely with the board and individual directors on the significant risks identified and how they are being managed. Directors are free to, and indeed often do, communicate directly with senior management.

Our board administers its risk oversight function as a whole by making risk oversight a matter of collective consideration. Much of this work has been delegated to committees, which will meet regularly and report back to the full board. The audit committee oversees risks related to our consolidated financial statements, the financial reporting process, accounting and legal matters, the compensation committee evaluates the risks and rewards associated with our compensation philosophy and programs, and the nominating and corporate governance committee evaluates risk associated with management decisions and strategic direction.

Independent Directors

The rules of NYSE American and the NYSE generally require that a majority of an issuer’s board of directors must consist of independent directors. Our board of directors currently consists of seven (7) directors, four (4) of whom, Ellette A. Anderson, Clark R. Crosnoe, Paul A. Froning and Glyn C. Milburn, are independent within the meaning of the rules of NYSE American and the NYSE.

In connection with the proposed acquisition, Albert Fouerti, who is not independent, will be appointed to our board. In addition, we have appointed Alan P. Shor, who is independent, to our board effective upon closing of the proposed acquisition. As a result, our board of directors will consist of nine (9) directors, five (5) of whom will be independent within the meaning of the rules of NYSE American and the NYSE.

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Committees of the Board of Directors

Our board has established an audit committee, a compensation and nominating and corporate governance committee, each with its own charter approved by the board. Each committee’s charter is available on our website at www.goedekers.com.

In addition, our board of directors may, from time to time, designate one or more additional committees, which shall have the duties and powers granted to it by our board of directors.

Audit Committee

Paul A. Froning, Clark R. Crosnoe and Glyn C. Milburn, each of whom satisfies the “independence” requirements of Rule 10A-3 under the Exchange Act and the rules of NYSE American and the NYSE, serve on our audit committee, with Mr. Froning serving as the chairman. Our board has determined that Messrs. Froning and Crosnoe qualify as “audit committee financial experts.” The audit committee oversees our accounting and financial reporting processes and the audits of the consolidated financial statements of our company.

The audit committee is responsible for, among other things: (i) retaining and overseeing our independent accountants; (ii) assisting the board in its oversight of the integrity of our consolidated financial statements, the qualifications, independence and performance of our independent auditors and our compliance with legal and regulatory requirements; (iii) reviewing and approving the plan and scope of the internal and external audit; (iv) pre-approving any audit and non-audit services provided by our independent auditors; (v) approving the fees to be paid to our independent auditors; (vi) reviewing with our chief executive officer and chief financial officer and independent auditors the adequacy and effectiveness of our internal controls; (vii) reviewing hedging transactions; and (viii) reviewing and assessing annually the audit committee’s performance and the adequacy of its charter.

Compensation Committee

Paul A. Froning, Clark R. Crosnoe and Ellette A. Anderson, each of whom satisfies the “independence” requirements of Rule 10A-3 under the Exchange Act and the rules of NYSE American and the NYSE, serve on our compensation committee, with Mr. Crosnoe serving as the chairman. The members of the compensation committee are also “outside directors” as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, and “non-employee directors” within the meaning of Section 16 of the Exchange Act. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers.

The compensation committee is responsible for, among other things: (i) reviewing and approving the remuneration of our executive officers; (ii) making recommendations to the board regarding the compensation of our independent directors; (iii) making recommendations to the board regarding equity-based and incentive compensation plans, policies and programs; and (iv) reviewing and assessing annually the compensation committee’s performance and the adequacy of its charter.

Nominating and Corporate Governance Committee

Paul A. Froning, Clark R. Crosnoe and Glyn C. Milburn, each of whom satisfies the “independence” requirements of Rule 10A-3 under the Exchange Act and the rules of NYSE American and the NYSE, serve on our nominating and corporate governance committee, with Mr. Milburn serving as the chairman. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees.

The nominating and corporate governance committee will be responsible for, among other things: (i) identifying and evaluating individuals qualified to become members of the board by reviewing nominees for election to the board submitted by stockholders and recommending to the board director nominees for each annual meeting of stockholders and for election to fill any vacancies on the board; (ii) advising the board with respect to board organization, desired qualifications of board members, the membership, function, operation, structure and composition of committees (including any committee authority to delegate to subcommittees), and self-evaluation and policies; (iii) advising on matters relating to corporate governance and monitoring developments in the law and practice of corporate governance; (iv) overseeing compliance with the our code of ethics; and (v) approving any related party transactions.

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The nominating and corporate governance committee’s methods for identifying candidates for election to our board of directors (other than those proposed by our stockholders, as discussed below) will include the solicitation of ideas for possible candidates from a number of sources — members of our board of directors, our executives, individuals personally known to the members of our board of directors, and other research. The nominating and corporate governance committee may also, from time-to-time, retain one or more third-party search firms to identify suitable candidates.

In making director recommendations, the nominating and corporate governance committee may consider some or all of the following factors: (i) the candidate’s judgment, skill, experience with other organizations of comparable purpose, complexity and size, and subject to similar legal restrictions and oversight; (ii) the interplay of the candidate’s experience with the experience of other board members; (iii) the extent to which the candidate would be a desirable addition to the board and any committee thereof; (iv) whether or not the person has any relationships that might impair his or her independence; and (v) the candidate’s ability to contribute to the effective management of our company, taking into account the needs of our company and such factors as the individual’s experience, perspective, skills and knowledge of the industry in which we operate.

A stockholder may nominate one or more persons for election as a director at an annual meeting of stockholders if the stockholder complies with the notice and information provisions contained in our bylaws. Such notice must be in writing to our company not less than 120 days and not more than 150 days prior to the anniversary date of the preceding year’s annual meeting of stockholders or as otherwise required by requirements of the Exchange Act. In addition, stockholders furnishing such notice must be a holder of record on both (i) the date of delivering such notice and (ii) the record date for the determination of stockholders entitled to vote at such meeting.

Code of Ethics

We have adopted a code of ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. Such code of ethics addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, and reporting of violations of the code.

We are required to disclose any amendment to, or waiver from, a provision of our code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions. We intend to use our website as a method of disseminating this disclosure, as permitted by applicable SEC rules. Any such disclosure will be posted to our website within four (4) business days following the date of any such amendment to, or waiver from, a provision of our code of ethics.

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EXECUTIVE COMPENSATION

Summary Compensation Table — Years Ended December 31, 2020 and 2019

The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons for services rendered in all capacities during the noted periods. No other executive officers received total annual salary and bonus compensation in excess of $100,000.

Name and Principal Position

 

Year

 

Salary
($)

 

Bonus
($)

 

Option
Awards
($)
(1)

 

All Other
Compensation
($)
(2)

 

Total
($)

Douglas T. Moore,

 

2020

 

341,923

 

130,000

 

910,264

 

16,965

 

1,399,152

Chief Executive Officer

 

2019

 

133,727

 

35,000

 

 

9,465

 

178,192

             

Robert D. Barry,

 

2020

 

149,077

 

 

376,800

 

 

525,877

Chief Financial Officer(3)

 

2019

 

61,762

 

 

 

 

61,762

             

Thomas S. Harcum,

 

2020

 

131,923

 

 

157,000

 

17,470

 

306,393

Chief Marketing and Technology Officer

 

2019

 

 

   

 

____________

(1)      The amount is equal to the aggregate grant-date fair value with respect to the awards, computed in accordance with FASB ASC Topic 718.

(2)      The amounts included for Mr. Moore for 2019 include reimbursement for accommodations in the amount of $6,955, reimbursement for airline tickets in the amount of $1,640, and reimbursement for car rental expenses in the amount of $870. In 2020, the amounts represent reimbursement for accommodations of $14,630 and $2,335 for 401(k) plan matches. For Mr. Harcum, the amount represents reimbursement for accommodations.

(3)      Mr. Barry was a part-time employee in 2019 following the acquisition of Goedeker Television until our initial public offering on July 31, 2020, at which time he became a full-time employee. Compensation for 2020 includes $55,385 as a part-time employee.

Employment Agreements

On August 15, 2019, we entered into an employment letter agreement with Mr. Moore setting forth the terms of the compensation for his services as Chief Executive Officer of our company. On April 21, 2020, we amended the employment letter agreement, which became effective upon closing of our initial public offering on August 4, 2020.  Pursuant to the employment letter agreement, as amended, Mr. Moore is entitled to an annual base salary of $400,000 and an annual incentive bonus of up to 100% of base to the extent that we achieve certain annual EBITDA objectives to be established by our compensation committee.  On August 19, 2020, we also granted Mr. Moore a special bonus of up to $125,000 to the extent that we achieve certain milestones. We also agreed to grant to Mr. Moore an option to purchase 263,158 shares of our common stock immediately following the closing of the initial public offering with an exercise price of $9.00, equal to the public offering price per share paid in the initial public offering. Vesting of the options will occur annually over a 4-year period in increments of 25% per year beginning on August 15, 2020.  Mr. Moore also received relocation compensation, including a signing bonus of $35,000, reimbursement of living and accommodations in the St. Louis area for up to six months, car rental expenses for up to two months, and reimbursement of once monthly round trip airline tickets to St. Louis for either Mr. Moore or his spouse until April 2020. Mr. Moore is also entitled to a 15% discount on all purchases from our company. He is also eligible to participate in all employee benefit plans, including health insurance, commensurate with his position.  Mr. Moore’s employment is at-will and may be terminated by us at any time. Mr. Moore may terminate his employment upon 90 days’ notice. If we terminate Mr. Moore’s employment without cause, he is entitled to six months of base compensation, which will be paid in a lump sum upon termination. The employment letter agreement contains restrictive covenants prohibiting Mr. Moore from (i) owning or operating a business that competes with our company during the term of his employment and for a period of one year following the termination of his employment or (ii) soliciting our employees for a period of two years following the termination of his employment.

On April 21, 2020, we entered into an employment letter agreement with Robert D. Barry setting forth the terms of the compensation for his services as Chief Financial Officer of our company.  This employment letter agreement became effective upon closing of our initial public offering on August 4, 2020.  Pursuant to the employment letter agreement,

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Mr. Barry is entitled to an annual base salary of $250,000 and an annual incentive bonus of up to 50% of base to the extent that we achieve certain annual EBITDA objectives to be established by our compensation committee.  Mr. Barry is also entitled to a 15% discount on all purchases from our company. He is also eligible to participate in all employee benefit plans, including health insurance, commensurate with his position.  Mr. Barry’s employment is at-will and may be terminated by us at any time. Mr. Barry may terminate his employment upon 90 days’ notice. If we terminate Mr. Barry’s employment without cause, he is entitled to six months of base compensation, which will be paid in a lump sum upon termination. The employment letter agreement contains restrictive covenants prohibiting Mr. Barry from (i) owning or operating a business that competes with our company during the term of his employment and for a period of one year following the termination of his employment or (ii) soliciting our employees for a period of two years following the termination of his employment.

On December 13, 2019, we entered into an employment offer letter with Thomas S. Harcum setting forth the terms of the compensation for his services as Chief Marketing Officer and Chief Technology Officer of our company, effective as of January 6, 2020.  Pursuant to the employment offer letter, Mr. Harcum is entitled to an annual base salary of $140,000 and an annual incentive bonus of up to 20% of base to the extent that we achieve certain annual EBITDA objectives to be established by our compensation committee. He is also eligible to participate in all employee benefit plans, including health insurance, commensurate with his position.  Mr. Harcum’s employment is at-will and may be terminated by us at any time.

Outstanding Equity Awards at Fiscal Year-End

The following table includes certain information with respect to the value of all unexercised options and unvested shares of restricted stock previously awarded to the executive officers named above at the fiscal year ended December 31, 2020.

Name

 

Option Awards

Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable

 

Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable

 

Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)

 

Option
Exercise
Price
($)

 

Option
Expiration
Date

Douglas T. Moore

 

65,790

 

197,368

 

 

$

9.00

 

08/04/2030

Robert D. Barry

 

 

120,000

 

 

$

9.00

 

09/10/2030

Thomas S. Harcum

 

 

50,000

 

 

$

9.00

 

09/10/2030

Additional Narrative Disclosure

Retirement Benefits

We have not maintained, and do not currently maintain, a defined benefit pension plan or nonqualified deferred compensation plan. We currently make available a retirement plan intended to provide benefits under Section 401(k) of the Code, pursuant to which employees, including the executive officers named above, can make voluntary pre-tax contributions. We currently match 100% of elective deferrals up to 3% of compensation and 50% of elective deferrals for next 2% of compensation. These matching contributions vest 100% following 60 days of the participant’s employment. All contributions under the plan are subject to certain annual dollar limitations, which are periodically adjusted for changes in the cost of living. See “— Summary Compensation Table — Years Ended December 31, 2020 and 2019” for matches made for the executive officers named above.

Potential Payments Upon Termination or Change in Control

As described under “— Employment Agreements” above, Messrs. Moore and Barry are entitled severance if their employment is terminated without cause.

In the event of a change in control (as defined in our 2020 Equity Incentive Plan), all options issued to the executive officers named above shall become immediately vested and exercisable with respect to 100% of the shares subject to the option.

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Director Compensation

We have agreed to pay our independent directors a fee of $35,000 per year, which is payable monthly commencing in the first month following the closing of the of our initial public offering in August 2020. We also agreed to reimburse the independent directors for pre-approved reasonable business expenses incurred in good faith in connection with the performance of their duties for us.

The table below sets forth the compensation to our independent directors during the fiscal year ended December 31, 2020.

Name

 

Fees Earned or
Paid in Cash
($)

 

Total
($)

Ellette A. Anderson

 

14,583

 

14,583

Clark R. Crosnoe

 

14,583

 

14,583

Paul A. Froning

 

14,583

 

14,583

Glyn C. Milburn

 

14,583

 

14,583

2020 Equity Incentive Plan

On July 30, 2020, we established the 1847 Goedeker Inc. 2020 Equity Incentive Plan, or the Plan. The purpose of the Plan is to grant restricted stock, stock options and other forms of incentive compensation to our officers, employees, directors and consultants. The maximum number of shares of common stock that may be issued pursuant to awards granted under the Plan is 1,000,000 shares. Cancelled and forfeited stock options and stock awards may again become available for grant under the Plan. As of the date of this prospectus, 445,000 shares remain available for issuance under the Plan.

The following summary briefly describes the principal features of the Plan and is qualified in its entirety by reference to the full text of the Plan.

Awards that may be granted include: (a) incentive stock options, (b) non-qualified stock options, (c) stock appreciation rights, (d) restricted awards, (e) performance share awards, and (f) performance compensation awards. These awards offer our officers, employees, consultants and directors the possibility of future value, depending on the long-term price appreciation of our common stock and the award holder’s continuing service with our company.

Stock options give the option holder the right to acquire from us a designated number of shares of common stock at a purchase price that is fixed upon the grant of the option. The exercise price will not be less than the market price of the common stock on the date of grant. Stock options granted may be either tax-qualified stock options (so-called “incentive stock options”) or non-qualified stock options.

Stock appreciation rights, or SARs, which may be granted alone or in tandem with options, have an economic value similar to that of options. When a SAR for a particular number of shares is exercised, the holder receives a payment equal to the difference between the market price of the shares on the date of exercise and the exercise price of the shares under the SAR. Again, the exercise price for SARs normally is the market price of the shares on the date the SAR is granted. Under the Plan, holders of SARs may receive this payment — the appreciation value — either in cash or shares of common stock valued at the fair market value on the date of exercise. The form of payment will be determined by us.

Restricted shares are shares of common stock awarded to participants at no cost. Restricted shares can take the form of awards of restricted stock, which represent issued and outstanding shares of our common stock subject to vesting criteria, or restricted stock units, which represent the right to receive shares of our common stock subject to satisfaction of the vesting criteria. Restricted shares are forfeitable and non-transferable until the shares vest. The vesting date or dates and other conditions for vesting are established when the shares are awarded.

The Plan also provides for performance compensation awards, representing the right to receive a payment, which may be in the form of cash, shares of common stock, or a combination, based on the attainment of pre-established goals.

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All of the permissible types of awards under the Plan are described in more detail as follows:

Purposes of Plan:    The purposes of the Plan are to attract and retain officers, employees and directors for our company and its subsidiaries; motivate them by means of appropriate incentives to achieve long-range goals; provide incentive compensation opportunities; and further align their interests with those of our stockholders through compensation that is based on our common stock.

Administration of the Plan:    The Plan is administered by our compensation committee (which we refer to as the administrator). Among other things, the administrator has the authority to select persons who will receive awards, determine the types of awards and the number of shares to be covered by awards, and to establish the terms, conditions, performance criteria, restrictions and other provisions of awards. The administrator has authority to establish, amend and rescind rules and regulations relating to the Plan.

Eligible Recipients:    Persons eligible to receive awards under the Plan will be those officers, employees, consultants, and directors of our company and its subsidiaries who are selected by the administrator.

Shares Available Under the Plan:    The maximum number of shares of our common stock that may be delivered to participants under the Plan is 1,000,000, subject to adjustment for certain corporate changes affecting the shares, such as stock splits. Shares subject to an award under the Plan for which the award is canceled, forfeited or expires again become available for grants under the Plan. Shares subject to an award that is settled in cash will not again be made available for grants under the Plan.

Stock Options:

General.    Subject to the provisions of the Plan, the administrator has the authority to determine all grants of stock options. That determination will include: (i) the number of shares subject to any option; (ii) the exercise price per share; (iii) the expiration date of the option; (iv) the manner, time and date of permitted exercise; (v) other restrictions, if any, on the option or the shares underlying the option; and (vi) any other terms and conditions as the administrator may determine.

Option Price.    The exercise price for stock options will be determined at the time of grant. Normally, the exercise price will not be less than the fair market value on the date of grant. As a matter of tax law, the exercise price for any incentive stock option awarded may not be less than the fair market value of the shares on the date of grant. However, incentive stock option grants to any person owning more than 10% of our voting stock must have an exercise price of not less than 110% of the fair market value on the grant date.

Exercise of Options.    An option may be exercised only in accordance with the terms and conditions for the option agreement as established by the administrator at the time of the grant. The option must be exercised by notice to us, accompanied by payment of the exercise price. Payments may be made in cash or, at the option of the administrator, by actual or constructive delivery of shares of common stock to the holder of the option based upon the fair market value of the shares on the date of exercise.

Expiration or Termination.    Options, if not previously exercised, will expire on the expiration date established by the administrator at the time of grant. In the case of incentive stock options, such term cannot exceed ten years provided that in the case of holders of more than 10% of our voting stock, such term cannot exceed five years. Options will terminate before their expiration date if the holder’s service with our company or a subsidiary terminates before the expiration date. The option may remain exercisable for specified periods after certain terminations of employment, including terminations as a result of death, disability or retirement, with the precise period during which the option may be exercised to be established by the administrator and reflected in the grant evidencing the award.

Incentive and Non-Qualified Options.    As described elsewhere in this summary, an incentive stock option is an option that is intended to qualify under certain provisions of the Code, for more favorable tax treatment than applies to non-qualified stock options. Any option that does not qualify as an incentive stock option will be a non-qualified stock option. Under the Code, certain restrictions apply to incentive stock options. For example, the exercise price for incentive stock options may not be less than the fair market value of the shares on the grant date and the term of the option may not exceed ten years. In addition, an incentive stock option may not be transferred, other than by will or the laws of descent and distribution, and is exercisable during the holder’s lifetime only by the holder. In addition, no incentive stock options may be granted to a holder that is first exercisable in a single year if that option, together with all incentive stock options previously granted to the holder that also first become exercisable in that year, relate to shares having an aggregate fair market value in excess of $100,000, measured at the grant date.

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Stock Appreciation Rights:    Awards of SARs may be granted alone or in tandem with stock options. SARs provide the holder with the right, upon exercise, to receive a payment, in cash or shares of stock, having a value equal to the excess of the fair market value on the exercise date of the shares covered by the award over the exercise price of those shares. Essentially, a holder of a SAR benefits when the market price of the common stock increases, to the same extent that the holder of an option does, but, unlike an option holder, the SAR holder need not pay an exercise price upon exercise of the award.

Stock Awards:    Stock awards can also be granted under the Plan. A stock award is a grant of shares of common stock or of a right to receive shares in the future. These awards will be subject to such conditions, restrictions and contingencies as the administrator shall determine at the date of grant. Those may include requirements for continuous service and/or the achievement of specified performance goals.

Cash Awards:    A cash award is an award that may be in the form of cash or shares of common stock or a combination, based on the attainment of pre-established performance goals and other conditions, restrictions and contingencies identified by the administrator.

Section 162(m) of the Code:    Section 162(m) of the Code limits publicly-held companies to an annual deduction for United States federal income tax purposes of $1.0 million for compensation paid to each of their chief executive officer and their three highest compensated executive officers (other than the chief executive officer) determined at the end of each year, referred to as covered employees.

Performance Criteria:    Under the Plan, one or more performance criteria will be used by the administrator in establishing performance goals. Any one or more of the performance criteria may be used on an absolute or relative basis to measure the performance of our company, as the administrator may deem appropriate, or as compared to the performance of a group of comparable companies, or published or special index that the administrator deems appropriate. In determining the actual size of an individual performance compensation award, the administrator may reduce or eliminate the amount of the award through the use of negative discretion if, in its sole judgment, such reduction or elimination is appropriate. The administrator shall not have the discretion to (i) grant or provide payment in respect of performance compensation awards if the performance goals have not been attained or (ii) increase a performance compensation award above the maximum amount payable under the Plan.

Other Material Provisions:    Awards will be evidenced by a written agreement, in such form as may be approved by the administrator. In the event of various changes to the capitalization of our company, such as stock splits, stock dividends and similar re-capitalizations, an appropriate adjustment will be made by the administrator to the number of shares covered by outstanding awards or to the exercise price of such awards. The administrator is also permitted to include in the written agreement provisions that provide for certain changes in the award in the event of a change of control of our company, including acceleration of vesting. Except as otherwise determined by the administrator at the date of grant, awards will not be transferable, other than by will or the laws of descent and distribution. Prior to any award distribution, we are permitted to deduct or withhold amounts sufficient to satisfy any employee withholding tax requirements. Our board also has the authority, at any time, to discontinue the granting of awards. The board also has the authority to alter or amend the Plan or any outstanding award or may terminate the Plan as to further grants, provided that no amendment will, without the approval of our stockholders, to the extent that such approval is required by law or the rules of an applicable exchange, increase the number of shares available under the Plan, change the persons eligible for awards under the Plan, extend the time within which awards may be made, or amend the provisions of the Plan related to amendments. No amendment that would adversely affect any outstanding award made under the Plan can be made without the consent of the holder of such award.

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CURRENT RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Transactions with Related Persons

The following includes a summary of transactions since the beginning of our 2019 fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under “Executive Compensation”). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.

Management Services Agreement

On April 5, 2019, we entered into the management services agreement with our manager, which is owned and controlled by Ellery W. Roberts, our Chairman. Pursuant to the management services agreement, we expensed $250,000 and $183,790 in management fees for the years ended December 31, 2020 and 2019, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Goedeker — Contractual Obligations” for a description of this agreement. See also Item 1A “Risks Related to this Offering and Ownership of Our Common Stock — Certain of our directors could be in a position of conflict of interest.”

Advances

As of December 31, 2019, our manager had funded $33,738 to us in related party advances. These advances were unsecured, bore no interest, and did not have formal repayment terms or arrangements. These advances were repaid from the proceeds of our initial public offering in August 2020.

Related Party Note

A portion of the purchase price for the acquisition of Goedeker Television was paid by our issuance to Steve Goedeker, as representative of Goedeker Television, of a 9% subordinated promissory note in the principal amount of $4,100,000. Michael Goedeker, our director, President and Chief Operating Officer until March 2020 and a significant stockholder, was also a director, officer and principal stockholder of Goedeker Television.

As of December 31, 2019, the balance of the note was $3,300,444. On June 2, 2020, the parties entered into an amendment and restatement of the note that became effective as of the closing of our initial public offering on August 4, 2020, pursuant to which (i) the principal amount of the existing note was increased by $250,000, (ii) upon the closing of the initial public offering, we agreed to make all payments of principal and interest due under the note through the date of the closing, and (iii) from and after the closing, the interest rate of the note was increased from 9% to 12%. In accordance with the terms of the amended and restated note, we used a portion of the proceeds from the initial public offering to pay $1,083,842 of the balance of the note representing a $696,204 reduction in the principal balance and interest accrued through August 4, 2020 of $387,638. We repaid this note in August 2020.

Securities Purchase Agreement