GOED 1847 Goedeker Inc

ITEM 1. FINANCIAL STATEMENTS.

1847 GOEDEKER INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

1847 GOEDEKER INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(UNAUDITED)

(in thousands, except share and per share data)

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

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED) 

NOTE 1—BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of 1847 Goedeker Inc. (the “Company,” “1847 Goedeker,” “we,” “us,” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting and reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the results of the interim periods presented. Certain information and note disclosures normally included in the audited financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The information included in the Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2021. Furthermore, interim results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022 or future periods.

Certain reclassifications within property and equipment have been made to the prior period’s financial statements to conform to the current period financial statement presentation (see Note 6). There is no impact in total net property and equipment, results of operations, and cash flows in all periods presented.

NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS

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

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU amends ASC 805 to require acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in business combinations. The ASU is effective for public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has not completed its assessment of the standard but does not expect the adoption to have a material impact on our unaudited condensed consolidated financial statements.

The Company has evaluated all other recent accounting pronouncements and determined that the adoption of pronouncements applicable to the Company has not had or is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows.

NOTE 3—LIQUIDITY AND GOING CONCERN ASSESSMENT

Management assesses liquidity and going concern uncertainty in the Company’s condensed consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the unaudited condensed consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period. As of March 31, 2022, we had cash and cash equivalents of $25.8 million and restricted cash of $2.6 million. For the three months ended March 31, 2022, the Company incurred operating income of approximately $10.1 million, cash flows used in operations of $3.7 million, and working capital of $24.9 million.

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)

Management has prepared estimates of operations for fiscal years 2022 and 2023 and believes that sufficient funds will be generated from operations to fund its operations, and to service its debt obligations for one year from the date of the filing of these unaudited condensed consolidated financial statements. The impact of COVID-19 on the Company’s business has been considered in these assumptions; however, with new COVID variants still in place it might be too early to know the full impact of COVID-19 or its timing on a return to more normal operations.

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business. Management believes that based on relevant conditions and events that are known and reasonably knowable that its forecasts, for one year from the date of the filing of these unaudited condensed consolidated financial statements, indicate improved operations and the Company’s ability to continue operations as a going concern.

NOTE 4—REVENUES

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

Revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Each customer order generally contains only one performance obligation based on the merchandise sale to be delivered, at which time revenue is recognized.

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

The Company’s disaggregated revenue by product type is as follows (in thousands):

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)

Inventory as March 31, 2022 and December 31, 2021, consisted of the following (in thousands):

Property and equipment at March 31, 2022 and December 31, 2021, consisted of the following (in thousands):

The following provides a breakdown of identifiable intangible assets as of March 31, 2022 and December 31, 2021 (in thousands):

These assets are being amortized on a straight-line basis over their weighted average estimated useful life of 5.0 years.

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)

At March 31, 2022, estimated annual amortization expense for each of the next five years is as follows (in thousands):

Accounts payable and accrued expenses at March 31, 2022 and December 31, 2021, consisted of the following (in thousands):

NOTE 6—LEASES

Operating Leases

On March 15, 2022, the Company entered into a lease agreement by and between the Company and 8780 19th Ave LLC, a New York limited liability company and related party (the “Office Lease”), for the lease of a new office building located in Brooklyn, New York. The Office Lease commenced on March 1, 2022 and shall expire on December 31, 2026. The Company has the option to extend the term of the Office Lease for one additional term of five years. The premises of the Office Lease contain approximately 5,835 rentable square feet. Under the terms of the Office Lease, the Company will lease the premises at the monthly rate of $22,000 for the first year, with scheduled annual increases. The Company received a four-month rent concession so that its first rental payment shall become due on or before July 1, 2022. The lease agreement contains customary events of default, representations, warranties, and covenants. The initial ROU asset and liability associated with this operating lease is $1.1 million.

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)

The following was included in our unaudited condensed consolidated balance sheet at March 31, 2022 and December 31, 2021 (in thousands):

Operating lease expense was $1.0 million and $0.2 million for the three months ended March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022, maturities of operating lease liabilities were as follows, in thousands:

Finance Leases

During the period ending March 31, 2022, the Company entered in an equipment financing lease to purchase eight forklifts totaling $0.3 million, maturing in February 2026.

At March 31, 2022, the outstanding balance of our finance leases is $0.4 million.

NOTE 7—RELATED PARTIES

Management Services Agreement

On April 5, 2019, the Company entered into a management services agreement with 1847 Partners LLC (the “Manager”), a company owned and controlled by the Company’s chairman and prior significant stockholder, which was amended effective on August 4, 2020. Pursuant to the offsetting management services agreement, as amended, the Company appointed the Manager to provide certain services to it for a quarterly management fee equal to $62,500; provided, however, that under certain circumstances specified in the management services agreement, the quarterly fee may be reduced if similar fees payable to the Manager by subsidiaries of the Company’s former parent company, 1847 Holdings LLC, exceed a threshold amount.

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)

The Company shall also reimburse the Manager for all costs and expenses of the Company which are specifically approved by the board of directors of the Company, including all out-of-pocket costs and expenses, that are actually incurred by the Manager or its affiliates on behalf of the Company in connection with performing services under the management services agreement. The Company did not pay any expenses for the three months ended March 31, 2022 and 2021.

The Company expensed management fees of $0.1 million for the three months ended March 31, 2022 and 2021.

DMI

The Company is a member of DMI, an appliance purchasing cooperative. DMI purchases consumer electronics and appliances at wholesale prices from various vendors, and then makes such products available to its members, including the Company, who sell such products to end consumers. DMI’s purchasing group arrangement provides its members, including the Company, with leverage and purchasing power with appliance vendors, and increases the Company’s ability to compete with competitors, including big box appliance and electronics retailers. The Company owns an approximate 5% interest in DMI. Additionally, the Company’s Chief Executive Officer, and director, is on the board of DMI. As such, DMI is deemed to be a related party.

During the three months ended March 31, 2022, total purchases from DMI, net of holdbacks, were $73.4 million, deposits at DMI totaled $18.1 million and the vendor rebate due from DMI was $3.1 million.

Lease Agreements

The Company has lease agreements with 1870 Bath Ave. LLC, 812 5th Ave Realty LLC, 54 Glen Cove Realty, LLC, and 8780 19th Ave LLC respectively. Each of these entities is owned by the Company’s Chief Executive Officer and Chief Operating Officer. In addition, the Company has a sublease agreement with DMI. The total rent expense under these related party leases was $0.5 million for the three months ended March 31, 2022.

NOTE 8—STOCKHOLDERS' EQUITY

As of March 31, 2022, the Company was authorized to issue 250,000,000 shares of common stock, $0.0001 par value per share, and 20,000,000 shares of “blank check” preferred stock, 0.0001 par value per share. On December 17 2021, the board of directors approved an increase to the number of shares of common stock that the Company is authorized to issue from 200,000,000 to 250,000,000 shares. Such increase was approved by the Company’s stockholders effective as of December 21, 2021. See Note 12, “Commitments and Contingencies” for additional discussion of the Share Increase Proposal (as defined below). To date, the Company has not designated or issued any shares of preferred stock.

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)

During the three months ended March 31, 2022, 132,960 stock options were forfeited, as a result of employee terminations.

Stock-based compensation expense of $0.02 million and $0.1 million was recorded during the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the remaining unrecognized compensation cost related to non-vested stock options is $0.3 million and is expected to be recognized over 3.33 years. The outstanding stock options have a weighted average remaining contractual life of 7.79 years and a total intrinsic value of $nil.

As of March 31, 2022, the outstanding warrants have a weighted average remaining contractual life of 4.17 years and a total intrinsic value of $nil.

NOTE 9—BUSINESS COMBINATIONS

Appliances Connection

On October 20, 2020, the Company entered into a securities purchase agreement, which was amended on December 8, 2020 and April 6, 2021 (as amended, the “AC Purchase Agreement”), with ACI, Appliances Connection and the sellers (the “Sellers”), pursuant to which ACI agreed to acquire all of the issued and outstanding capital stock or other equity securities of Appliances Connection from the Sellers (the “Appliances Connection Acquisition”). The Appliances Connection Acquisition was completed on June 2, 2021.

The aggregate purchase price was $224.7 million, consisting of (i) $180.0 million in cash, (ii) 5,895,973 shares of the Company’s common stock valued at $12.3 million, and (iii) $32.4 million as a result of the post-closing net working capital adjustment provision. The Company recorded $0.9 million in acquisition related expenses.

The Company accounted for the Appliances Connection Acquisition using the acquisition method of accounting in accordance with ASC Topic 805, “Business Combinations”. In accordance with ASC 805, the Company assigned fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date.

We are amortizing the customer relationship and tradename intangible assets acquired over 5 years. Goodwill and intangibles recognized for this transaction are not deductible for tax purposes.

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)

Appliance Gallery

On July 6, 2021, AC Gallery entered into an asset purchase agreement, which was amended on July 21, 2021 and July 29, 2021 (as amended, the “AG Purchase Agreement”), with Appliance Gallery, pursuant to which AC Gallery agreed to acquire substantially all the assets and assumed substantially all the liabilities of Appliance Gallery (the “AC Gallery Acquisition”). The AC Gallery Acquisition was completed on July 29, 2021.

Pursuant to the AG Purchase Agreement, the purchase price paid at closing was $1.4 million.

The Company accounted for the Gallery Acquisition using the acquisition method of accounting in accordance with ASC Topic 805, “Business Combinations”. In accordance with ASC 805, the Company assigned fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date.

Goodwill recognized for this transaction is deductible for tax purposes.

Pro Forma Information

The following unaudited pro forma results presented below (in thousands) include the effects of the Appliances Connection and AC Gallery Acquisitions as if they had been consummated as of January 1, 2021, with adjustments to give effect to pro forma events that are directly attributable to the acquisitions.

These unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been if the acquisitions had occurred at the beginning of the period presented, nor are they indicative of future results of operations. The amortization of the identified intangible assets acquired in the Appliances Connection Acquisition included in 2021 Net income was $2.5 million.

NOTE 10—NOTES PAYABLE

M&T Credit Facilities

On June 2, 2021, the Company and ACI, as borrowers, entered into a credit and guaranty agreement (the “M&T Credit Agreement”) with Appliances Connection and certain other subsidiaries of the Company party thereto from time to time as guarantors, the financial institutions party thereto from time to time (“M&T Lenders”), and Manufacturers and Traders Trust Company, as sole lead arranger, sole book runner, administrative agent and collateral agent (“M&T”), pursuant to which the M&T Lenders have agreed to make available to the Company and ACI senior secured credit facilities in the aggregate initial amount of $70.0 million, including (i) a $60.0 million term loan (the “M&T Term Loan”) and (ii) a $10.0 million revolving credit facility (the “M&T Revolving Loan”), which revolving credit facility includes a $2.0 million swingline subfacility (the “M&T Swing Line Loan” and together with the M&T Term Loan and the M&T Revolving Loan, the “M&T Loans”) and a $2.0 million letter of credit subfacility, in each case, on the terms and conditions contained in the M&T Credit Agreement. On June 2, 2021, the Company borrowed the entire amount of the M&T Term Loan and issued term loan notes to the M&T Lenders in the aggregate principal amount of $60.0 million. As of March 31, 2022, the Company has not borrowed any amounts under the M&T Revolving Loan. As of March 31, 2022, the carrying value of the M&T Term Loan was $53.9 million, comprised of principal of $57 million, net of unamortized loan costs of $3.1 million. The Company classified $7.5 million as a current liability and the balance as a long-term liability.

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)

Each of the M&T Loans matures on June 2, 2026. The M&T Loans will bear interest on the unpaid principal amount thereof as follows: (i) if it is a M&T Loan bearing interest at a rate determined by the Base Rate (as defined in the M&T Credit Agreement), then at the Base Rate plus the Applicable Margin (as defined in the M&T Credit Agreement) for such M&T Loan; (ii) if it is a M&T Loan bearing interest at a rate determined by the LIBOR Rate (as defined in the M&T Credit Agreement), then at the LIBOR Rate plus the Applicable Margin for such M&T Loan; and (iii) if it is a M&T Swing Line Loan, then at the rate applicable to M&T Loans bearing interest at a rate determined by the Base Rate. The M&T Term Loan initially bears interest at the LIBOR Rate plus Applicable Margin (3.9%), with an initial interest period of six months. The Company may elect to continue or convert the existing interest rate benchmark for the M&T Term Loan from LIBOR Rate to Base Rate, and may elect the interest rate benchmark for future M&T Revolving Loans as either LIBOR Rate or Base Rate (and, with respect to any M&T Loan made at the LIBOR Rate, may also select the interest period applicable to any such M&T Loan), by notifying M&T and M&T Lenders from time to time in accordance with the provisions of the M&T Credit Agreement. Notwithstanding the foregoing, following an event of default, the M&T Loans will bear interest at a rate that is 2% per annum higher than the interest rate then in effect for the applicable M&T Loan.

The Company must repay the principal amount of the M&T Term Loan in quarterly installments of $1.5 million each, payable on the last business day of each March, June, September and December, commencing on September 30, 2021. The remaining unpaid principal amount of the M&T Term Loan must be repaid on the maturity date, unless payment is sooner required by the M&T Credit Agreement. Mandatory repayments of amounts borrowed under the M&T Revolving Loan facility are required only if the amount borrowed at any time exceeds the commitment amount. Amounts borrowed under M&T Revolving Loans may be repaid and reborrowed at any time until the maturity date.

The Company may voluntarily prepay the M&T Loans from time to time in accordance with the provisions of the M&T Credit Agreement, and will be required to prepay the M&T Loans under certain limited circumstances as set forth in the M&T Credit Agreement, including upon receipt of cash proceeds in connection with certain specified asset sales, receipt of insurance or condemnation proceeds or other cash proceeds received other than in the ordinary course of business or upon receipt of cash proceeds from the incurrence of indebtedness that is not permitted under the M&T Credit Agreement, all as more specifically set forth in the M&T Credit Agreement.

Under the M&T Credit Agreement, the Company is required to pay certain fees to M&T, including a commitment fee of up to 0.5% per annum with respect to the unused portion of the M&T Lenders’ revolving loan commitments, determined as set forth in the M&T Credit Agreement, and certain fees in connection with the issuance of any letters of credit under the M&T Credit Agreement.

The M&T Credit Agreement contains customary representations, warranties, affirmative and negative financial and other covenants, including leverage ratio and fixed charge coverage ratios, and events of default for loans of this type. The M&T Loans are guaranteed by the Guarantors (as defined in the M&T Credit Agreement) and are secured by a first priority security interest in substantially all of the assets of the Company, ACI and the guarantors.

Maturities of the M&T Term Loan are as follows:

M&T Loan was paid in full on May 9, 2022 (see Note 13, “Subsequent Events”).

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)

For the three months ended March 31, 2022, there were 92,694,423 potential common share equivalents from stock options and warrants excluded from the diluted EPS calculations as their effect is anti-dilutive.

For the three months ended March 31, 2021, there were 1,010,560, potential common share equivalents from stock options and warrants excluded from the diluted EPS calculations as their effect is anti-dilutive.

NOTE 12—COMMITMENTS AND CONTINGENCIES

Legal Proceedings

At the Company’s annual meeting on December 21, 2021, the stockholders were asked to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation, dated July 30, 2020 (the “Certificate of Incorporation”), increasing the number of authorized shares of the Company’s common stock, par value $0.0001 per share (“Common Stock” and such proposal, the “Share Increase Proposal”) by 50,000,000 shares of Common Stock. As reported in a Form 8-K filing on December 28, 2021, the Share Increase Proposal was adopted and a Certificate of Amendment to the Certificate of Incorporation setting forth the amendment adopted pursuant to the Share Increase Proposal (the “Certificate of Amendment”) was filed with the Secretary of State of the State of Delaware (the “Delaware Secretary of State”). To date, none of these newly authorized shares has actually been issued.

Three purported beneficial owners of Common Stock subsequently expressed concerns about a statement in the Company’s proxy statement related to the Share Increase Proposal, specifically questioning, in light of the proxy statement, the ability of brokerage firms and other custodians to vote shares of Common Stock held by them for the benefit of their customers in the absence of instructions from the beneficial owners. Based on an examination of the situation performed following receipt of these demands, the Company believes that the vote at the annual meeting was properly tabulated and that the proposed amendment was properly adopted in accordance with Delaware law. In light of the demands, however, and to ensure against any future question as to the validity of these newly authorized shares, the Company elected to seek validation of its Certificate of Amendment through a Petition to the Court of Chancery of the State of Delaware (the “Court of Chancery”) pursuant to Section 205 of the Delaware General Corporation Law (the “205 Petition”). The action, styled In re 1847 Goedeker Inc., C.A. 2022-0219-SG, seeks entry by the Court of Chancery of an order validating and declaring effective the Certificate of Amendment, and validating the additional shares of Common Stock authorized under the Share Increase Proposal.

1847 GOEDEKER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND 2021
(UNAUDITED)

Shortly before the 205 Petition was filed, one of the purported stockholders who had submitted a demand related to adoption of the Share Increase Proposal also has filed a Class Action Complaint in the Court of Chancery against the Company and its Board of Directors. That lawsuit, captioned Scot T. Boden v. 1847 Goedeker Inc., et al., C.A. No. 2022-0196-SG (the “Boden Action”), asserts two claims for relief. The first is against the Company for alleged violation of the Delaware General Corporation Law Section 225(b) for improper tabulation of the stockholder vote on the Share Increase Proposal. The second asserts that the Company’s directors breached their fiduciary duties by incorrectly tabulating the stockholder vote, and by causing a purportedly invalid amendment to our Certificate of Incorporation to be filed with the Delaware Secretary of State. The Boden Action has been consolidated with the 205 Petition; and for reasons set out in the 205 Petition, the Company and its directors believe the Boden Action to be without merit and intend to defend the claims. Mr. Boden and a second purported stockholder, Robert Corwin, have both filed briefs opposing the 205 Petition. Under a scheduling order issued by the Court of Chancery on May 6, 2022, the Company intends to file a reply brief in further support of the 205 Petition by May 20, 2022. The Court of Chancery has scheduled a hearing on the matter for May 27, 2022. The Company cannot predict the outcome of these proceedings, or the timing of any decision from the Court.

Cashflows used in operating activities. Our net cash used in operating activities was $3.7 million for the three months ended March 31, 2022, as compared to net cash used in operating activities of $2.8 million for the three months ended March 31, 2021. Significant changes in operating assets and liabilities affecting cash flows during these periods included:

Cashflows used in investing activities. Our net cash used in investing activities was $0.006 million for the three months ended March 31, 2022, as compared to $0.1 million for the three months ended March 31, 2021.

Cashflows provided by financing activities. Our net cash used in financing activities was $1.6 million for the three months ended March 31, 2022, as compared to net cash provided by financing activities of $4.4 million for the three months ended March 31, 2021. Significant changes in financing activities affecting cash flows during these years included:

Debt

New Credit Agreement

On May 9, 2022, the Company and ACI as borrowers and certain of our subsidiaries as guarantors entered into the New Credit Agreement by and among the borrowers, the guarantors, the Lenders and the Agent, pursuant to which the Lenders have agreed to make available to the Company and ACI senior secured credit facilities in the aggregate initial amount of $140,000,000, including (i) the $100,000,000 New Term Loan and (ii) the $40,000,000 New Revolving Loan, which revolving credit facility includes the $2,000,000 New Swing Line Loan and a $2,000,000 letter of credit subfacility, in each case, on the terms and conditions contained in the New Credit Agreement. The New Loans may from time to time be further evidenced by separate promissory notes issued by the Company and ACI. On May 9, 2022, the Company borrowed the entire amount of the New Term Loan, but no New Revolving Loans have been made as of May 16, 2022.

The proceeds of the New Term Loan were applied, among other uses, to prepay the obligations in full under the Company’s existing M&T Credit Agreement. On May 9, 2022, in connection with prepayment of the obligations under the M&T Credit Agreement, the M&T Credit Agreement was terminated.

Each of the New Loans matures on May 9, 2027 (the “Maturity Date”). The New Loans will bear interest on the unpaid principal amount thereof as follows: (i) if it is a New Loan bearing interest at a rate determined by the Base Rate (as defined in the New Credit Agreement), then at the Base Rate plus the Applicable Rate (as defined in the Credit New Agreement) for such New Loan; (ii) if it is a New Loan bearing interest at a rate determined by Term SOFR (as defined in the New Credit Agreement), then at Term SOFR plus the Applicable Rate for such New Loan; and (iii) if it is a New Swing Line Loan, then at the rate applicable to New Loans bearing interest at a rate determined by the Base Rate plus the Applicable Rate for such New Loan. The New Term Loan initially bears interest at Term SOFR plus Applicable Rate, with an initial interest period of one month. The Company may elect to continue or convert the existing interest rate benchmark for the New Term Loan from Term SOFR to Base Rate, and may elect the interest rate benchmark for future New Revolving Loans as either Term SOFR or Base Rate (and, with respect to any New Loan made using Term SOFR, may also select the interest period applicable to any such New Loan), by notifying the Agent and Lenders from time to time in accordance with the provisions of the New Credit Agreement. Interest is payable in arrears on each Interest Payment Date (as defined in the New Credit Agreement). Notwithstanding the foregoing, following an event of default, the New Loans will bear interest at a rate that is 2% per annum higher than the interest rate then in effect for the applicable New Loan.

Commencing on September 30, 2022, through and including June 30, 2023, the borrowers must repay the principal amount of the New Term Loan in quarterly installments of $1,250,000 each, payable on the last business day of each March, June, September and December. Commencing on September 30, 2023, through and including June 30, 2024, the borrowers must repay the principal amount of the New Term Loan in quarterly installments of $1,875,000 each, payable on the last business day of each March, June, September and December. Commencing on September 30, 2024, through the Maturity Date, the borrowers must repay the principal amount of the New Term Loan in quarterly installments of $2,500,000 each, payable on the last business day of each March, June, September and December. The remaining unpaid principal amount of the New Term Loan must be repaid on the Maturity Date, unless payment is sooner required by the New Credit Agreement. Mandatory prepayments of New Revolving Loans are required if the amount borrowed at any time exceeds the commitment amount. New Revolving Loans may be repaid and reborrowed at any time until the Maturity Date, subject to the terms and conditions set forth in the New Credit Agreement.

The Company may voluntarily prepay the New Loans from time to time in accordance with the provisions of the New Credit Agreement, and will be required to prepay the New Loans under certain limited circumstances as set forth in the New Credit Agreement, including upon receipt of cash proceeds in connection with certain specified asset sales, receipt of loss or condemnation proceeds or other cash proceeds received other than in the ordinary course of business or upon receipt of cash proceeds from the incurrence of indebtedness that is not permitted under the New Credit Agreement, all as more specifically set forth in the New Credit Agreement.

Under the New Credit Agreement, the borrowers are required to pay certain fees to Agent, including, without limitation, a commitment fee of up to 0.25% per annum with respect to the unused portion of the Lenders’ revolving loan commitments, determined as set forth in the New Credit Agreement, and certain fees in connection with the issuance of any letters of credit under the New Credit Agreement.

The New Credit Agreement contains customary events of default, including, among others: (i) for failure to pay principal and interest on any of the New Loans when due, or to pay any fees or other amounts due under the New Credit Agreement; (ii) the occurrence of certain specified defaults under other agreements to which the Company or its subsidiaries is a party; (iii) for the breach of certain specified covenants in the New Credit Agreement: (iv) if any representation, warranty or certification in the New Credit Agreement or any document delivered in connection therewith was incorrect in any material respect as of the date made; (v) in the case of any voluntary or involuntary bankruptcy, insolvency or dissolution; (vi) in the case of the imposition of any money judgment, writ or similar process in an aggregate amount in excess of $4,000,000 (in certain cases, to the extent not covered by insurance); or (vii) if a Change of Control (as defined in the New Credit Agreement) occurs.

The New Credit Agreement contains customary representations, warranties and affirmative and negative financial and other covenants for loans of this type. The closing of the New Loans was subject to customary closing conditions, including delivery of the security documents described below.

The New Loans are guaranteed by the guarantors and are secured by a first priority security interest in substantially all of the assets of the borrowers and the guarantors pursuant to a security and pledge agreement entered into on May 9, 2022 among the borrowers, the guarantors and the Agent, which includes a pledge of all of the outstanding common stock of Appliances Connection and AC Gallery Inc., each of which is held by the Company, and of all of the outstanding equity interests of the remaining guarantors which is held by Appliances Connection.

M&T Credit Agreement - Refinanced

On June 2, 2021, the Company and ACI, as borrowers, entered into a credit and guaranty agreement (the “M&T Credit Agreement”) with Appliances Connection and certain other subsidiaries of the Company party thereto from time to time as guarantors, the financial institutions party thereto from time to time (“M&T Lenders”), and M&T, as sole lead arranger, sole book runner, administrative agent and collateral agent, pursuant to which the M&T Lenders agreed to make available to the Company and ACI senior secured credit facilities in the aggregate initial amount of $70.0 million, including (i) a $60.0 million term loan (the “M&T Term Loan”) and (ii) a $10.0 million revolving credit facility (the “M&T Revolving Loan”), which revolving credit facility includes a $2.0 million swingline subfacility (the “M&T Swing Line Loan” and together with the M&T Term Loan and the M&T Revolving Loan, the “M&T Loans”) and a $2.0 million letter of credit subfacility, in each case, on the terms and conditions contained in the M&T Credit Agreement. On June 2, 2021, the Company borrowed the entire amount of the M&T Term Loan and issued term loan notes to the M&T Lenders in the aggregate principal amount of $60.0 million.

As of March 31, 2022, the Company had not borrowed any amounts under the M&T Revolving Loan. As of March 31, 2022, the carrying value of the M&T Term Loan was $53.9 million, comprised of principal of $57 million, net of unamortized loan costs of $3.1 million. The Company classified $7.5 million as a current liability and the balance as a long-term liability.

The M&T Credit Agreement provided that each of the M&T Loans would mature on June 2, 2026 and would bear interest on the unpaid principal amount thereof as follows: (i) if it is a M&T Loan bearing interest at a rate determined by the Base Rate (as defined in the M&T Credit Agreement), then at the Base Rate plus the Applicable Margin (as defined in the M&T Credit Agreement) for such M&T Loan; (ii) if it is a M&T Loan bearing interest at a rate determined by the LIBOR Rate (as defined in the M&T Credit Agreement), then at the LIBOR Rate plus the Applicable Margin for such M&T Loan; and (iii) if it is a M&T Swing Line Loan, then at the rate applicable to M&T Loans bearing interest at a rate determined by the Base Rate. The M&T Term Loan initially bore interest at the LIBOR Rate plus Applicable Margin (3.9%), with an initial interest period of six months. The Company had the option to elect to continue or convert the existing interest rate benchmark for the M&T Term Loan from LIBOR Rate to Base Rate, and could elect the interest rate benchmark for future M&T Revolving Loans as either LIBOR Rate or Base Rate (and, with respect to any M&T Loan made at the LIBOR Rate, may also select the interest period applicable to any such M&T Loan), by notifying M&T and M&T Lenders from time to time in accordance with the provisions of the M&T Credit Agreement. Notwithstanding the foregoing, following an event of default, the M&T Loans would bear interest at a rate that is 2% per annum higher than the interest rate then in effect for the applicable M&T Loan.

The M&T Credit Agreement also provided that the Company repay the principal amount of the M&T Term Loan in quarterly installments of $1.5 million each, payable on the last business day of each March, June, September, and December, commencing on September 30, 2021 (the March 2022 payment was in April 2022). The remaining unpaid principal amount of the M&T Term Loan must be repaid on the M&T Term Loan Maturity Date (as defined in the M&T Credit Agreement) unless payment is required sooner by the M&T Credit Agreement. M&T Revolving Loans may be repaid and reborrowed at any time until the M&T Revolving Commitment Termination date (as defined in the M&T Credit Agreement).

The M&T Loans provided for voluntary prepayment from time to time in accordance with the provisions of the M&T Credit Agreement, and required prepayment under certain limited circumstances as set forth in the M&T Credit Agreement, including upon receipt of cash proceeds in connection with certain specified asset sales, receipt of insurance or condemnation proceeds or other cash proceeds received other than in the ordinary course of business or upon receipt of cash proceeds from the incurrence of indebtedness that is not permitted under the M&T Credit Agreement, all as more specifically set forth in the M&T Credit Agreement. Additionally, mandatory repayments of amounts borrowed under the M&T Revolving Loan facility are required if the amount borrowed at any time exceeds the commitment amount.

Under the M&T Credit Agreement, the Company was required to pay certain fees to M&T, including a commitment fee of up to 0.5% per annum with respect to the unused portion of the M&T Lenders’ revolving loan commitments, determined as set forth in the M&T Credit Agreement, and certain fees in connection with the issuance of any letters of credit under the M&T Credit Agreement.

The M&T Credit Agreement contained customary representations, warranties, affirmative and negative financial and other covenants, including leverage ratio and fixed charge coverage ratios, and events of default for loans of this type. The M&T Loans are guaranteed by the guarantors and are secured by a first priority security interest in substantially all of the assets of the Company, ACI and the guarantors.

On May 9, 2022, the Company prepaid its obligations in full under the M&T Credit Agreement, and on May 9, 2022, in connection with the prepayment of the obligations under the M&T Credit Agreement, the M&T Credit Agreement was terminated.

Northpoint Loan

On June 3, 2021, we entered into a loan and security agreement with Northpoint Commercial Finance LLC (“Northpoint”), pursuant to which Northpoint may from time-to-time advance funds for the acquisition, financing and/or refinancing by the Company of inventory purchased from Samsung Electronics America, Inc. and/or affiliates and for such other purposes as are acceptable Northpoint. The loan and security agreement provides that Northpoint may establish a credit limit and may adjust such credit limit from time to time; provided that such credit limit does not constitute a commitment or committed line of credit to Northpoint. As of March 31, 2022, such credit limit is $2.0 million, of which $0.3 million was owed and included in accounts payable.

The applicable per annum interest rates for a loan, including any default rates, will be determined at the time of the loan. The loan and security agreement contains customary events of default and is secured by a security interest in all of the Company’s inventory (i) that is manufactured, distributed, or sold by Samsung Electronics America, Inc. and/or its affiliates and/or (ii) that bears any trade names, trademarks, or logos of Samsung Electronics America, Inc. and/or its affiliates; all returns, repossessions, exchanges, substitutions, replacements, attachments, parts, accessories and accessions of any of the foregoing; all price protection payments, discounts, rebates, credits, factory holdbacks and incentive payments related to any of the foregoing; supporting obligations to any of the foregoing; and products and proceeds in whatever form of any of the foregoing.

Vehicle Loans

The Company has financed purchases of transportation vehicles with notes payable, which are secured by the vehicles purchased. These notes have five-year terms and interest rates ranging from 3.59% to 5.74%. As of March 31, 2022, the outstanding balance of these vehicle loans is $1.2 million.

Management Services Agreement

On April 5, 2019, the Company entered into a management services agreement with 1847 Partners LLC (the “Manager”), a company owned and controlled by Ellery W. Roberts, the Company’s chairman and prior significant stockholder, which was amended effective on August 4, 2020. Pursuant to the offsetting management services agreement, as amended, the Company appointed the Manager to provide certain services to it for a quarterly management fee equal to $62,500; provided, however, that under certain circumstances specified in the management services agreement, the quarterly fee may be reduced if similar fees payable to the Manager by subsidiaries of the Company’s former parent company, 1847 Holdings LLC, exceed a threshold amount.

The Company shall also reimburse the Manager for all costs and expenses of the Company which are specifically approved by the board of directors of the Company, including all out-of-pocket costs and expenses, that are actually incurred by the Manager or its affiliates on behalf of the Company in connection with performing services under the management services agreement. The Company did not pay any expenses for the three ended March 31, 2022 and 2021.

The Company expensed management fees of $0.1 million for each of the three months ended March 31, 2022 and 2021, respectively.

Leases

On April 5, 2019, the Company entered into a lease agreement with S.H.J., L.L.C. for its prior principal office in Ballwin, Missouri. The lease is for a term of five years and provides for a base rent of $45,000 per month. In addition, the Company is responsible for all taxes and insurance premiums during the lease term. The lease agreement contains customary events of default, representations, warranties, and covenants.

On May 31, 2019, YF Logistics entered into a sublease agreement with Dynamic Marketing, Inc. (“DMI”) for its warehouse space in Hamilton, NJ. The initial term of the sublease was for a period commencing on June 1, 2019 and terminating on April 30, 2020, with automatic renewals for successive one year terms until the earlier of (i) termination by either upon thirty days’ prior written notice or (ii) April 30, 2024. The sublease provides for a base rent equal to 71.43% of the base rent paid by DMI under its lease for the premises, plus 71.43% of any taxes, operating expenses, additional charges or any other amounts due by DMI, for a total of $56,250 per month. The initial right-of-use (“ROU”) asset and liability associated with this lease is $3.0 million.

On January 13, 2021, the Company entered into a lease agreement with Westgate 200, LLC, which was amended on March 31, 2021, for its new principal office and showroom in St. Charles, Missouri. The lease terminates on April 30, 2027, with two options to renew for additional five year periods. The base rent is $20,977 per month until September 30, 2021, and increases to $31,465 per month until April 30, 2022, after which time the base rent increases at approximately 2.5% per year thereafter. The Company must also pay its 43.4% pro rata portion of the property taxes, operating expenses and insurance costs and is also responsible to pay for the utilities used on the premises. The lease contains customary events of default. The initial ROU asset and liability associated with this lease is $2.0 million.

On June 2, 2021, 1 Stop entered into a new lease agreement with 1870 Bath Ave. LLC, a related party, for the premises located at 1870 Bath Avenue, Brooklyn, New York. The lease is for a term of ten years and provides for a base rent of $74,263 per month during the first year with annual increases to $96,896 during the last year of the term. 1 Stop is also responsible for all property taxes, insurance costs and the utilities used on the premises. The lease contains customary events of default. This lease replaces the prior lease entered into between the parties on September 1, 2018. The initial ROU asset and liability associated with this lease is $8.4 million.

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

On June 30, 2021, the Company closed an old warehouse and retail showroom in anticipation of relocating to a new facility. Accordingly, the Company wrote-off $1.4 million representing the remaining ROU asset and related leasehold improvements as of that date.

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

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

On March 15, 2022, the Company entered into a lease agreement by and between the Company and 8780 19 Ave LLC, a New York limited liability company and related party, for the lease of a new office building located in Brooklyn, New York. The lease commenced on March 1, 2022 and shall expire on December 31, 2026. The Company has the option to extend the term of the lease for one additional term of five years. The premises of the lease contain approximately 5,835 rentable square feet. Under the terms of the lease, the Company will lease the premises at the monthly rate of $22,000 for the first year, with scheduled annual increases. The Company will receive a four-month rent concession so that its first rental payment shall become due on or before July 1, 2022.

Critical Accounting Policies and Estimates

For information regarding the Company’s Critical Accounting Policies and Estimates, see the “Critical Accounting Policies and Estimates” section of Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021.