1847 GOEDEKER INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

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



Use of Terms



Except as otherwise indicated by the context and for the purposes of this report
only, references in this report to "we," "us," "our" and the "Company" are to
1847 Goedeker Inc., a Delaware corporation, and its consolidated subsidiaries,
Appliances Connection Inc., a Delaware corporation ("ACI"), AC Gallery Inc., a
Delaware corporation ("AC Gallery"), 1 Stop Electronics Center, Inc., a New York
corporation ("1 Stop"), Gold Coast Appliances, Inc., a New York corporation
("Gold Coast"), Superior Deals Inc., a New York corporation ("Superior Deals"),
Joe's Appliances LLC, a New York limited liability company ("Joe's Appliances"),
and YF Logistics LLC, a New Jersey limited liability company ("YF Logistics"). 1
Stop, Gold Coast, Superior Deals, Joe's Appliances and YF Logistics are
sometimes referred to herein as "Appliances Connection."



Special Note Regarding Forward Looking Statements



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



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



  ? our goals and strategies;



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



  ? expected changes in our revenue, costs or expenditures;



  ? growth of and competition trends in our industry;


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

? our expectations regarding our relationships with investors, institutional

    funding partners and other parties we collaborate with;


? fluctuations in general economic and business conditions in the markets in

    which we operate; and



? relevant government policies and regulations relating to our industry.

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



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


Overview



We operate an industry leading e-commerce destination for appliances, furniture,
and home goods. Through our June 2021 acquisition of Appliances Connection, we
created one of the largest pure-play online retailers of household appliances in
the United States. With warehouse fulfillment centers in the Northeast and
Midwest, as well as showrooms in Brooklyn, New York, St. Louis, Missouri and
Largo, Florida, we offer one-stop shopping for national and global brands. We
carry many household name-brands, including Bosch, Cafe, Frigidaire Pro,
Whirlpool, LG, and Samsung, and also carry many major luxury appliance brands
such as Miele, Thermador, La Cornue, Dacor, Ilve, Jenn-Air and Viking, among
others. We also sell furniture, fitness equipment, plumbing fixtures,
televisions, outdoor appliances, and patio furniture, as well as commercial
appliances for builder and business clients.



                                       26




Impact of Coronavirus 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, our showroom was closed from April through June of 2020, but our call
center and warehouse continued to operate. Since most of our sales are completed
online and our call center and warehouse and distribution operations continued
to operate, the restrictions put in place in response to the pandemic did not
had a materially negative impact on our operations.



However, 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 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 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 liquidity.



The extent to which the pandemic may impact our results will depend on future
developments, which are highly uncertain and cannot be predicted as of the date
of this report, 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.



Emerging Growth Company


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



? have an auditor report on our internal controls over financial reporting

pursuant to Section 404(b) of the Sarbanes-Oxley Act;

? comply with any requirement that may be adopted by the Public Company

Accounting Oversight Board regarding mandatory audit firm rotation or a

supplement to the auditor’s report providing additional information about the

audit and the financial statements (i.e., an auditor discussion and analysis);

? submit certain executive compensation matters to stockholder advisory votes,

such as “say-on-pay” and “say-on-frequency;” and

? disclose certain executive compensation related items such as the correlation

between executive compensation and performance and comparisons of the chief

   executive officer's compensation to median employee compensation.




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



                                       27





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, (ii) the date that we become a "large
accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), which would occur if the market value of
our common stock that is held by non-affiliates exceeds $700 million as of the
last business day of our most recently completed second fiscal quarter or (iv)
the date on which we have issued more than $1 billion in non-convertible debt
during the preceding three year period.



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;

? market conditions and our market position; and

? our ability to successfully integrate the operations of Appliances Connection

   with our business.




Notably, due to the impact of the global pandemic and associated supply chain
crisis, our freight costs have increased materially as a proportion of sales,
putting downward pressure on our gross margins. Over the course of 2021, our
freight costs as percentage of sales increased from 7.4% to 8.9%, or 150 bps, on
a consolidated proforma basis, and from 13.7% to 16.6%, or 290 bps, excluding
Appliance Connection. Management believes that this situation is temporary in
nature and will revert once the supply chain situation improves.



                                       28





Results of Operations


Comparison of Three Months Ended September 30, 2021 and 2020

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



                                                  Three Months Ended                    Three Months Ended
                                                  September 30, 2021                    September 30, 2020
                                                Amount             % of               Amount             % of
                                            (in thousands)       Net Sales        (in thousands)       Net Sales
Products sales, net                        $        141,867           100.0 %    $         13,435           100.0 %
Cost of goods sold                                  110,495            77.9 %              11,265            83.8 %
Gross profit                                         31,372            22.1 %               2,170            16.2 %
Operating expenses
Personnel                                             8,547             6.0 %               2,162            16.1 %
Advertising                                           3,715             2.6 %               1,433            10.7 %
Bank and credit card fees                             4,918             3.5 %                 575             4.3 %
Depreciation and amortization                         3,610             2.5
%                  93             0.7 %
Acquisition expenses                                     62               -                     -               -
General and administrative                            4,018             2.8 %               1,451            10.8 %
Total operating expenses                             24,870            17.5 %               5,714            42.5 %
Income (loss) from operations                         6,502             4.6
%              (3,544 )         (26.4 )%
Other income (expense)
Interest income                                          34               -                     1               -
Financing costs                                        (200 )          (0.1 )%               (488 )          (3.6 )%
Interest expense                                       (899 )          (0.6 )%               (229 )          (1.7 )%
Loss on extinguishment of debt                            -               -
                 (807 )          (6.0 )%
Other income                                              8               -                     2               -
Total other income (expense)                         (1,057 )          (0.7 )%             (1,521 )         (11.3 )%
Net income (loss) before income taxes                 5,445             3.8
%              (5,065 )         (37.7 )%
Income tax benefit (expense)                         (2,129 )          (1.5 )%                838             6.2 %
Net income (loss)                          $          3,316             2.3 %    $         (4,227 )         (31.5 )%




Product sales, net. We generate revenue from the retail sale of home
furnishings, including appliances, furniture, home goods and related products.
Our product sales were $141.9 million for the three months ended September 30,
2021, as compared to $13.4 million for the three months ended September 30,
2020, an increase of $128.4 million, or 956.0%. The increase is primarily due to
our June 2021 acquisition of Appliances Connection. Excluding Appliances
Connection, our product sales decreased by $0.9 million, or 6.7%. This decrease
is the result of reduced advertising spend to drive traffic to the Goedeker
website as we develop a company-wide advertising program.



During the three months ended September 30, 2021, we experienced delays in
getting products from manufacturers due to continued supply chain issues related
to the COVID-19 pandemic, which resulted in cancellations of some customer
orders.

Our revenue by sales type is as follows (in thousands):


                    Three Months Ended          Three Months Ended
                    September 30, 2021          September 30, 2020
                    Amount           %          Amount           %
Appliance sales   $   130,837        92.2 %   $     8,992        66.9 %
Furniture sales         5,880         4.2 %         3,555        26.5 %
Other sales             5,150         3.6 %           888         6.6 %
Total             $   141,867       100.0 %   $    13,435       100.0 %



The percentage of furniture sales declined in the 2021 period as compared to the
2020 period as furniture sales comprised a lower percentage of Appliances
Connection’s sales (2.9%) as compared to the total Company’s (4.1%).


                                       29




Cost of goods sold. Our costs of goods sold are comprised of product costs and
freight costs. Product costs represent the amount we pay the manufacturer for
their product.  We negotiate special terms and pricing with the manufacturer,
which are generally based on the amount of products we purchase.  Periodically,
manufacturers offer special pricing for purchasing a certain volume of products
at one time.  Funding might also be offered to support our marketing and
advertising efforts.  Freight is the cost of delivering products to customers..
Our cost of goods sold was $110.5 million for the three months ended September
30, 2021, as compared to $11.3 million for the three months ended September 30,
2020, an increase of $99.2 million, or 880.9%. Excluding Appliances Connection,
our cost of goods sold increased by $0.2 million, or 1.8%, driven by a $0.2
million, or 12.5%, increase in freight costs as the result of the nationwide
shortage of shipping capacity, resulting in higher rates. As a percentage of net
sales, cost of goods sold was 77.9% and 83.8% for the three months ended
September 30, 2021 and 2020, respectively. Such decrease was due to impact of
the acquisition of Appliances Connection, which has a lower cost of goods sold
as a percentage of revenue than the Company. Excluding Appliances Connection,
our cost of goods sold as a percentage of net sales increased from 83.8% to
91.4%. Product costs as a percentage of net sales for the three months ended
September 30, 2021 was 74.8% compared to 70.1% for the three months ended
September 30, 2020.  The increase in product cost is the result of reduced
vendor rebates because of reduced volume. Freight costs as a percentage of net
sales was 16.6% for the three months ended September 30, 2021 compared to 13.8%
for the three months ended September 30, 2020.



Gross profit and gross margin. As a result of the foregoing, our gross profit
was $31.4 million for the three months ended September 30, 2021, as compared to
$2.2 million for the three months ended September 30, 2020, an increase of $29.2
million, or 1,345.7%. Our gross margin (gross profit as a percentage of net
sales) was 22.1% and 16.2% for the three months ended September 30, 2021 and
2020, respectively. Such increases were primarily due to the impact of the
acquisition of Appliances Connection. Excluding Appliances Connection, our gross
profit decreased by $1.1 million, or 50.4%, and our gross margin declined 16.2%
to 8.6%, or 760 bps, driven by a reduced vendor rebates and a significant
increase in shipping costs.



Personnel expenses. Personnel expenses include employee salaries and bonuses
plus related payroll taxes. It also includes health insurance premiums, 401(k)
contributions, training costs and stock compensation expense. Our personnel
expenses were $8.5 million for the three months ended September 30, 2021, as
compared to $2.2 million for the three months ended September 30, 2020, an
increase of $6.4 million, or 295.3%. As a percentage of net sales, personnel
expenses were 6.0% and 16.1% for the three months ended September 30, 2021 and
2020, respectively. Such increases were primarily due to the impact of the
acquisition of Appliances Connection. Excluding Appliances Connection, our
personnel expenses increased by $1.6 million, or 71.9%, and our personnel
expenses as a percentage of net sales increased to 29.6%. Such increase is the
result of accruing the severance payments due a former officer and accruals
for
a management bonus.



Advertising expenses. Advertising expenses include the cost of marketing our
products and primarily include online search engine expenses. Our advertising
expenses were $3.7 million for the three months ended September 30, 2021, as
compared to $1.4 million for the three months ended September 30, 2020, an
increase of $2.3 million, or 159.2%. As a percentage of net sales, advertising
expenses were 2.6% and 10.7% for the three months ended September 30, 2021 and
2020, respectively. Such increases were primarily due to the impact of the
acquisition of Appliances Connection. Excluding Appliances Connection, our
advertising expenses decreased by $0.6 million, or 40.8%, and our advertising
expenses as a percentage of net sales decreased from 10.7% in the 2020 period to
6.8% in the 2021 period. The decrease relates to our efforts at improving the
efficiency of our company-wide advertising program.



Bank and credit card fees. Bank and credit card fees are primarily the fees we
pay credit card processors for processing credit card payments made by customers
and to third party sellers on whose websites we sell parts and other small
items. Our bank and credit card fees were $4.9 million for the three months
ended September 30, 2021, as compared to $0.6 million for the three months ended
September 30, 2020, an increase of $4.3 million, or 755.3%. As a percentage of
net sales, bank and credit card fees were 3.5% and 4.3% for the three months
ended September 30, 2021 and 2020, respectively. 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. Excluding Appliances Connection, our bank and credit card
fees decreased by $0.5 million, or 87.1%, and our bank and credit card fees as a
percentage of net sales decreased to 0.6%. On July 29, 2021, we adopted an
authorization model for charging customer credit cards rather than charging at
the time of purchase. This change resulted in lower credit fees.



Acquisition Expenses. During the three months ended September 30, 2021, we
incurred expenses related to the acquisitions of Appliances Connection and
Appliance Gallery
in the amount of $0.06 million.



Depreciation and amortization. Depreciation and amortization was $3.6 million,
or 2.5% of net sales, for the three months ended September 30, 2021, as compared
to $0.09 million, or 0.7% of net sales, for the three months ended September 30,
2020. The increase is the result of amortizing the preliminary estimate of
intangible assets acquired in the Appliances Connection acquisition.



General and administrative expenses. Our general and administrative expenses
consist primarily of professional advisor fees, rent expense, insurance,
unremitted sales tax, and other expenses incurred in connection with general
operations. Our general and administrative expenses were $4.0 million for the
three months ended September 30, 2021, as compared to $1.5 million for the three
months ended September 30, 2020, an increase of $2.6 million, or 176.9%. As a
percentage of net sales, general and administrative expenses were 2.8% and 10.8%
for the three months ended September 30, 2021 and 2020, respectively. Such
increases were primarily due to the impact of the acquisition of Appliances
Connection. Excluding Appliances Connection, our general and administrative
expenses increased by $0.8 million, or 55.6%. The increase was largely due to
increased directors and officers insurance expenses, fees to our independent
directors, and legal, audit and other professional fees in connection with
becoming a public company in August 2020.



                                       30





Total other income (expense). We had $1.1 million in total other expense, net,
for the three months ended September 30, 2021, as compared to total other
expense, net, of $1.5 million for the three months ended September 30, 2020.
Total other expense, net, for the three months ended September 30, 2021
consisted primarily of interest expense of $0.9 million and financing costs of
$0.2 million. Total other expense, net, for the three months ended September 30,
2020 consisted primarily of financing costs of $0.5 million, interest expense of
$0.2 million and loss on extinguishment of debt of $0.8 million.



Income tax benefit (expense). We had an income tax expense of $2.1 million for
the three months ended September 30, 2021, as compared to an income tax benefit
$0.8 million for the three months ended September 30, 2020.



Net income (loss). As a result of the cumulative effect of the factors described
above, we had net income of $3.3 million for the three months ended September
30, 2021, as compared to a net loss of $4.2 million for the three months ended
September 30, 2020, a net increase of $7.5 million. Such increase was primarily
due to the impact of the acquisition of Appliances Connection. Excluding
Appliances Connection, net loss increased by $7.6 million, or 180.2%.



Comparison of Nine Months Ended September 30, 2021 and 2020

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


                                                   Nine Months Ended                     Nine Months Ended
                                                   September 30, 2021                    September 30, 2020
                                                 Amount             % of               Amount             % of
                                             (in thousands)       Net Sales        (in thousands)       Net Sales
Products sales, net                         $        219,637           100.0 %    $         38,397           100.0 %
Cost of goods sold                                   172,581            78.6 %              32,061            83.5 %
Gross profit                                          47,056            21.4 %               6,336            16.5 %
Operating expenses
Personnel                                             15,300             7.0 %               4,514            11.8 %
Advertising                                            7,730             3.5 %               2,991             7.8 %
Bank and credit card fees                              7,546             3.4 %               1,274             3.3 %
Depreciation and amortization                          3,908             1.8 %                 277             0.7 %
Acquisition expenses                                     865             0.4 %                   -               -
Loss on abandonment of right of use asset              1,437             0.7 %                   -               -
General and administrative                             8,311             3.8 %               4,400            11.5 %
Total operating expenses                              45,097            20.5 %              13,456            35.0 %
Income (loss) from operations                          1,959             0.9 %              (7,120 )         (18.5 )%
Other income (expense)
Interest income                                           57               -                     2               -
Financing costs                                         (280 )          (0.1 )%               (758 )          (0.2 )%
Interest expense                                      (2,070 )          (0.9 )%               (787 )          (2.0 )%
Loss on extinguishment of debt                        (1,748 )          (0.8 )%             (1,756 )          (4.6 )%
Write-off of acquisition receivable                        -               -                  (809 )          (2.1 )%
Change in fair value of warrant liability                  -              
-                (2,128 )          (5.5 )%
Other income                                              19               -                     7               -
Total other income (expense)                          (4,022 )          (1.8 )%             (6,229 )         (16.2 )%
Net loss before income taxes                          (2,063 )          (0.9 )%            (13,349 )         (34.8 )%
Income tax benefit                                     5,919             2.7 %               1,962             5.1 %
Net income (loss)                           $          3,856             1.8 %    $        (11,387 )         (29.7 )%




Product sales, net. Our product sales were $219.6 million for the nine months
ended September 30, 2021, which included $177.1 million from Appliances
Connection for the period from June 2, 2021 (date of acquisition) to September
30, 2021, as compared to $38.4 million for the nine months ended September 30,
2020, an increase of $181.2 million, or 472.0%. Excluding Appliances Connection,
our product sales increased by $4.1 million, or 10.8%. This increase is due to
increased advertising is the first six months that drove traffic to our website.



During the nine months ended September 30, 2021, we experienced delays in
getting products from manufacturers due to continued supply chain issues related
to the COVID-19 pandemic, which resulted in cancellations of some customer
orders.


                                       31




Our revenue by sales type is as follows (in thousands):


                     Nine Months Ended           Nine Months Ended
                    September 30, 2021          September 30, 2020
                    Amount          %           Amount          %
Appliance sales   $  197,416         89.9 %   $   28,327         73.8 %
Furniture sales       14,393          6.5 %        7,605         19.8 %
Other sales            7,828          3.6 %        2,465          6.4 %
Total             $  219,637       100.00 %   $   38,397       100.00 %



The percentage of furniture sales declined in the 2021 period as compared to the
2020 period as furniture sales comprised a lower percentage of Appliances
Connection’s sales (3.0%) compared to the Company’s (6.6%).

Cost of goods sold. Our cost of goods sold was $172.6 million for the nine
months ended September 30, 2021, which included $136.7 million from Appliances
Connection for the period from June 2, 2021 (date of acquisition) to September
30, 2021, as compared to $32.1 million for the nine months ended September 30,
2020, an increase of $140.5 million, or 438.3%. Excluding Appliances Connection,
our cost of goods sold increased by $3.8 million, or 11.9%, as a result of an
increase in product costs of $2.0 million, or 7.4%, and an increase in freight
costs of $1.8 million, or 38.9%. As a percentage of net sales, cost of goods
sold was 78.6% and 83.5% for the nine months ended September 30, 2021 and 2020,
respectively. Such decrease was due to impact of the acquisition of Appliances
Connection, which has a lower cost of goods sold than the Company. Excluding
Appliances Connection, our cost of goods sold as a percentage of net sales
increased from 83.5% to 84.4%. Product cost as a percentage of net sales for the
for the nine months ended September 30, 2021 was 69.3% compared to 71.5% for the
nine months ended September 30, 2020. Freight costs as a percentage of net sales
were 15.0% for the for the nine months ended September 30, 2021 compared to
12.0% for the for the nine months ended September 30, 2020.  The increase in
freight costs is the result of the aforementioned nationwide shortage of
shipping capacity.



Gross profit and gross margin. As a result of the foregoing, our gross profit
was $47.1 million for the nine months ended September 30, 2021, which included
$40.4 million from Appliances Connection for the period from June 2, 2021 (date
of acquisition) to September 30, 2021, as compared to $6.3 million for the nine
months ended September 30, 2020, an increase of $40.7 million, or 642.7%. Our
gross margin (gross profit as a percentage of net sales) was 21.4% (or 15.6%
excluding Appliances Connection) and 16.5% for the nine months ended September
30, 2021 and 2020, respectively. Such increase was primarily due to the impact
of the acquisition of Appliances Connection. Excluding Appliances Connection,
our gross profit increased by $0.3 million, or 4.8%, and our gross margin
declined from 16.5% to 15.6% or 90 bps driven by an increase in shipping costs.



Personnel expenses. Our personnel expenses were $15.3 million for the nine
months ended September 30, 2021, which included $6.8 million from Appliances
Connection for the period from June 2, 2021 (date of acquisition) to September
30, 2021, as compared to $4.5 million for the nine months ended September 30,
2020, an increase of $10.8 million, or 238.9%. Excluding Appliances Connection,
our personnel expenses increased by $4.0 million, or 88.7%. As a percentage of
net sales, personnel expenses were 7.0% (or 20.0% excluding Appliances
Connection) and 11.8% for the nine months ended September 30, 2021 and 2020,
respectively. Such increase is the result of accruing the severance payments due
a former officer and accruals for a management bonus plan. Additionally, during
the 2021 period, we incurred stock compensation expenses of $0.9 million as
compared to $0.3 million in the 2020 period.



Advertising expenses. Our advertising expenses were $7.7 million for the nine
months ended September 30, 2021, which included $3.8 million from Appliances
Connection for the period from June 2, 2021 (date of acquisition) to September
30, 2021, as compared to $3.0 million for the nine months ended September 30,
2020, an increase of $4.7 million, or 158.4%. Excluding Appliances Connection,
our advertising expenses increased by $1.0 million, or 32.1%. As a percentage of
net sales, advertising expenses were 3.5% (or 9.3% excluding Appliances
Connection) and 7.8% for the nine months ended September 30, 2021 and 2020,
respectively. The increase relates to an increase in advertising spending to
drive traffic to our website during the first six months of the period, which
declined in the three months ended September 30, 2021 as we reduced the Goedeker
only advertising as part of our efforts at improving the efficiency of our
company-wide advertising program.



Bank and credit card fees. Our bank and credit card fees were $7.5 million for
the nine months ended September 30, 2021, which included $6.4 million from
Appliances Connection for the period from June 2, 2021 (date of acquisition) to
September 30, 2021, as compared to $1.3 million for the nine months ended
September 30, 2020, an increase of $6.3 million, or 492.3%. Excluding Appliances
Connection, our bank and credit card fees decreased by $0.1 million, or 11.4%.
As a percentage of net sales, bank and credit card fees were 3.4% (or 2.7%
excluding Appliances Connection) and 3.3% for the nine months ended September
30, 2021 and 2020, respectively. 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.



Depreciation and amortization. Depreciation and amortization was $3.9 million,
or 1.8% of net sales, for the nine months ended September 30, 2021, which
included $0.2 million from Appliances Connection for the period from June 2,
2021 (date of acquisition) to September 30, 2021, as compared to $0.3 million,
or 0.7% of net sales, for the nine months ended September 30, 2020. The increase
is the result of amortizing the preliminary estimate of intangible assets
acquired in the Appliances Connection acquisition.



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Acquisition expenses. During the nine months ended September 30, 2021, we
incurred expenses related to the acquisitions of Appliances Connection and
Appliance Gallery
in the amount of $0.9 million.



Loss on abandonment of right of use asset. During the nine months ended
September 30, 2021, we incurred a loss in the amount of $1.4 million related to
the closure of our old warehouse and showroom and write-off of related leasehold
improvements.



General and administrative expenses. Our general and administrative expenses
were $8.3 million for the nine months ended September 30, 2021, which included
$2.5 million from Appliances Connection for the period from June 2, 2021 (date
of acquisition) to September 30, 2021, as compared to $4.4 million for the nine
months ended September 30, 2020, an increase of $3.9 million, or 88.9%.
Excluding Appliances Connection, our general and administrative expenses
increased by $1.4 million, or 32.9%. As a percentage of net sales, general and
administrative expenses were 3.8% (or 13.8% excluding Appliances Connection) and
11.5% for the nine months ended September 30, 2021 and 2020, respectively. The
increase was largely due to increased directors and officers insurance expenses,
fees to our independent directors, and legal, audit and other professional fees
in connection with becoming a public company in August 2020, as well as
consulting fees to upgrade our online shopping cart, fees for our Electronic
Data Interchange initiative, and other consulting fees.



Total other income (expense). We had $4.0 million in total other expense, net,
for the nine months ended September 30, 2021, which included other expense, net,
of $0.2 million from Appliances Connection for the period from June 2, 2021
(date of acquisition) to September 30, 2021, as compared to total other expense,
net, of $6.2 million for the nine months ended September 30, 2020. Total other
expense, net, for the nine months ended September 30, 2021 consisted primarily
of interest expense of $2.1 million, financing costs of $0.3 million and a loss
on extinguishment of debt of $1.7 million. Total other expense, net, for the
nine months ended September 30, 2020 consisted primarily of interest expense of
$0.8 million, loss on debt modification and extinguishment of $1.8 million, loss
on acquisition working capital receivable of $0.8 million and change in the
warrant liability of $2.1 million.



Income tax benefit. We had an income tax net benefit of $5.9 million for the
nine months ended September 30, 2021, as compared to $2.0 million for the nine
months ended September 30, 2020. The increase primarily arose from the
elimination of the allowance for the deferred tax asset. The acquisition of
Appliances Connection on June 2, 2021 makes it more likely than not that the
Company will be profitable, and will be able to utilize previously derived
net
operating losses.



Net income (loss). As a result of the cumulative effect of the factors described
above, we had net income of $3.9 million for the nine months ended September 30,
2021, which include a net income of $20.0 million from Appliances Connection for
the period from June 2, 2021 (date of acquisition) to September 30, 2021, as
compared to a net loss of $11.4 million for the nine months ended September 30,
2020, an increase of $15.2 million, or 133.9%. Excluding Appliances Connection,
net loss increased by $4.8 million, or 41.9%.



Liquidity and Capital Resources

As of September 30, 2021, we had cash and cash equivalents of $27.2 million and
restricted cash of $8.0 million. We have relied on cash on hand, external bank
lines of credit, proceeds from our public offerings described below, issuance of
third party and related party debt and the issuance of notes to support cashflow
from operations.



For the nine months ended September 30, 2021, we had operating profit of $2.0
million, $18.3 million of cash flow used in operations, and working capital of
$20.0 million. Additionally, we had $27.2 million of unrestricted cash at
September 30, 2021. On June 2, 2021, we completed the acquisition of Appliances
Connection. Appliances Connection has historically been profitable; however,
less than 4 months of their operations are included in results for the nine
months ended September 30, 2021.



Management has prepared estimates of operations for fiscal years 2021 and 2022
and believes that sufficient funds will be generated from operations to fund its
operations, and to service its debt obligations for at least one year from the
date of the filing of these unaudited condensed consolidated financial
statements.



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



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



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