POLISHED.COM INC. 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 to1847 Goedeker Inc. , aDelaware corporation, and its consolidated subsidiaries,Appliances Connection Inc. , aDelaware corporation ("ACI"),AC Gallery Inc. , aDelaware corporation ("AC Gallery "),1 Stop Electronics Center, Inc. , aNew York corporation ("1 Stop"),Gold Coast Appliances, Inc. , aNew York corporation ("Gold Coast"),Superior Deals Inc. , aNew York corporation ("Superior Deals"), Joe'sAppliances LLC , aNew York limited liability company ("Joe's Appliances"), andYF Logistics LLC , aNew Jersey limited liability company ("YF Logistics"). 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 endedDecember 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 ourJune 2021 acquisition of Appliances Connection, we created one of the largest pure-play online retailers of household appliances inthe United States . With warehouse fulfillment centers in the Northeast and Midwest, as well as showrooms inBrooklyn, New York ,St. Louis, Missouri andLargo, Florida , we offer one-stop shopping for national and global brands. We carry many household name-brands, including Bosch, Cafe, Frigidaire Pro, Whirlpool, LG, and Samsung, and also carry many major luxury appliance brands such asMiele , Thermador, La Cornue,Dacor , Ilve, Jenn-Air and Viking, among others. We also sell furniture, fitness equipment, plumbing fixtures, televisions, outdoor appliances, and patio furniture, as well as commercial appliances for builder and business clients. 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 inthe 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 inMissouri , 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
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
The following table sets forth key components of our results of operations for
the three months ended
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 endedSeptember 30, 2021 , as compared to$13.4 million for the three months endedSeptember 30, 2020 , an increase of$128.4 million , or 956.0%. The increase is primarily due to ourJune 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
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%).
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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 endedSeptember 30, 2021 , as compared to$11.3 million for the three months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2021 was 74.8% compared to 70.1% for the three months endedSeptember 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 endedSeptember 30, 2021 compared to 13.8% for the three months endedSeptember 30, 2020 . Gross profit and gross margin. As a result of the foregoing, our gross profit was$31.4 million for the three months endedSeptember 30, 2021 , as compared to$2.2 million for the three months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2021 , as compared to$2.2 million for the three months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2021 , as compared to$1.4 million for the three months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2021 , as compared to$0.6 million for the three months endedSeptember 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 endedSeptember 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%. OnJuly 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
Depreciation and amortization. Depreciation and amortization was$3.6 million , or 2.5% of net sales, for the three months endedSeptember 30, 2021 , as compared to$0.09 million , or 0.7% of net sales, for the three months endedSeptember 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 endedSeptember 30, 2021 , as compared to$1.5 million for the three months endedSeptember 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 endedSeptember 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 inAugust 2020 . 30 Total other income (expense). We had$1.1 million in total other expense, net, for the three months endedSeptember 30, 2021 , as compared to total other expense, net, of$1.5 million for the three months endedSeptember 30, 2020 . Total other expense, net, for the three months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2021 , as compared to an income tax benefit$0.8 million for the three months endedSeptember 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 endedSeptember 30, 2021 , as compared to a net loss of$4.2 million for the three months endedSeptember 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$7.6 million , or 180.2%.
Comparison of Nine Months Ended
The following table sets forth key components of our results of operations for
the nine months ended
Nine Months Ended Nine Months Ended
September 30, 2021 September 30, 2020
Amount % of Amount % of
(in thousands) Net Sales (in thousands) Net SalesProducts sales, net$ 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 endedSeptember 30, 2021 , which included$177.1 million from Appliances Connection for the period fromJune 2, 2021 (date of acquisition) toSeptember 30, 2021 , as compared to$38.4 million for the nine months endedSeptember 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
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 endedSeptember 30, 2021 , which included$136.7 million from Appliances Connection for the period fromJune 2, 2021 (date of acquisition) toSeptember 30, 2021 , as compared to$32.1 million for the nine months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2021 was 69.3% compared to 71.5% for the nine months endedSeptember 30, 2020 . Freight costs as a percentage of net sales were 15.0% for the for the nine months endedSeptember 30, 2021 compared to 12.0% for the for the nine months endedSeptember 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 endedSeptember 30, 2021 , which included$40.4 million from Appliances Connection for the period fromJune 2, 2021 (date of acquisition) toSeptember 30, 2021 , as compared to$6.3 million for the nine months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2021 , which included$6.8 million from Appliances Connection for the period fromJune 2, 2021 (date of acquisition) toSeptember 30, 2021 , as compared to$4.5 million for the nine months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2021 , which included$3.8 million from Appliances Connection for the period fromJune 2, 2021 (date of acquisition) toSeptember 30, 2021 , as compared to$3.0 million for the nine months endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 30, 2021 , which included$6.4 million from Appliances Connection for the period fromJune 2, 2021 (date of acquisition) toSeptember 30, 2021 , as compared to$1.3 million for the nine months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2021 , which included$0.2 million from Appliances Connection for the period fromJune 2, 2021 (date of acquisition) toSeptember 30, 2021 , as compared to$0.3 million , or 0.7% of net sales, for the nine months endedSeptember 30, 2020 . The increase is the result of amortizing the preliminary estimate of intangible assets acquired in the Appliances Connection acquisition. 32
Acquisition expenses. During the nine months ended
Loss on abandonment of right of use asset. During the nine months endedSeptember 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 endedSeptember 30, 2021 , which included$2.5 million from Appliances Connection for the period fromJune 2, 2021 (date of acquisition) toSeptember 30, 2021 , as compared to$4.4 million for the nine months endedSeptember 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 endedSeptember 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 inAugust 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 endedSeptember 30, 2021 , which included other expense, net, of$0.2 million from Appliances Connection for the period fromJune 2, 2021 (date of acquisition) toSeptember 30, 2021 , as compared to total other expense, net, of$6.2 million for the nine months endedSeptember 30, 2020 . Total other expense, net, for the nine months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2021 , as compared to$2.0 million for the nine months endedSeptember 30, 2020 . The increase primarily arose from the elimination of the allowance for the deferred tax asset. The acquisition of Appliances Connection onJune 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 endedSeptember 30, 2021 , which include a net income of$20.0 million from Appliances Connection for the period fromJune 2, 2021 (date of acquisition) toSeptember 30, 2021 , as compared to a net loss of$11.4 million for the nine months endedSeptember 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 ofSeptember 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 endedSeptember 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 atSeptember 30, 2021 . OnJune 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 endedSeptember 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. 33
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