As filed with the Securities and Exchange Commission on February 13, 2024

Registration Statement No. 333-            

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

POLISHED.COM INC.

(Exact name of registrant as specified in its charter)

 

Delaware   5700   83-3713938
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

 

1870 Bath Avenue

Brooklyn, NY 11214

(800) 299-9470

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Robert D. Barry

Interim Chief Financial Officer and Secretary

1870 Bath Avenue

Brooklyn, NY 11214

(800) 299-9470

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Robert Cohen   Mitchell S. Nussbaum
Richard Bass   Norwood P. Beveridge
McDermott Will & Emery LLP   Lili Taheri
One Vanderbilt Avenue   Loeb & Loeb LLP
New York, NY 10017   345 Park Avenue
Telephone: (212) 547-5885   New York, New York 10154
    Tel: (212) 407-4000

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement is declared effective.

 

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

 

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

 

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

 

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

 

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

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller Reporting Company
    Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.

 

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

 

 

 

 

 

 

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

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED FEBRUARY 13, 2024

 

Shares of Common Stock 

Pre-Funded Warrants to purchase Common Stock

 

 

Polished.com Inc.

 

 

 

This is a firm commitment public offering of                      shares of common stock, par value $0.0001 per share, of Polished.com Inc. based on an assumed public offering price of $      per share (which is based on the last reported sales price of our common stock of $       on                    , 2024). The actual public offering price per share of common stock will be determined between us and the representative of the underwriters at the time of pricing, and may be at a discount to the current market price. Therefore, the assumed public offering price used throughout this prospectus may not be indicative of the final offering price.

 

We are also offering                 pre-funded warrants (each a “Pre-funded Warrant”) to purchase                       shares of our common stock, exercisable at an exercise price of $0.001 per share, to those purchasers whose purchase of common stock in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding common stock immediately following the consummation of this offering. The purchase price of each Pre-funded Warrant is equal to the price per share of common stock being sold to the public in this offering, minus $0.001. The Pre-funded Warrants will be immediately exercisable and may be exercised at any time until all of the Pre-funded Warrants are exercised in full. For each Pre-Funded Warrant we sell, the number of shares of common stock that we are offering will be decreased on a one-for-one basis.

 

Our common stock is listed on the NYSE American under the symbol “POL.” On February 12, 2024, the closing price of our common stock on the NYSE American was $4.86 per share. There is no established trading market for the Pre-funded Warrants and we do not intend to list the Pre-funded Warrants on any securities exchange or nationally recognized trading system.

 

We are an “emerging growth company” and a “smaller reporting company,” each as defined under the federal securities laws, and, as such, have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings. See the section titled “Implications of Being an Emerging Growth Company and a Smaller Reporting Company.”

 

Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 11 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.

 

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

 

   Per Share   Per Pre-Funded Warrant   Total 
Public offering price  $          $             $         
Underwriting discounts and commissions(1)  $   $   $ 
Proceeds to us, before expenses  $   $   $ 

 

(1) Assumes no exercise of the underwriters’ option to purchase additional shares of our common stock as described below. See “Underwriting” beginning on page 90 for a description of compensation payable to the underwriters.

 

We have granted a 45-day option to the representative of the underwriters to purchase up to            additional shares of common stock and/or Pre-Funded Warrants solely to cover over-allotments, if any, at the public offering price, less underwriting discounts and commissions.

 

The underwriters expect to deliver the securities to purchasers on or about          , 2024, subject to customary closing conditions.

 

ThinkEquity

 

The date of this prospectus is         , 2024

 

 

 

 

TABLE OF CONTENTS

 

  Page
About This Prospectus ii
Prospectus Summary 1
Risk Factors 11
Cautionary Note Concerning Forward-Looking Statements 37
Use of Proceeds 39
Market Price of Our Common Stock and Related Stockholder Matters 40
Capitalization 41
Dilution 42
Management’s Discussion and Analysis of Financial Condition and Results of Operations 43
Business 62
Management 72
Executive Compensation 77
Principal Stockholders 82
Certain Relationships and Related Persons Transactions 84
Description of Securities 87
Underwriting 90
Legal Matters 95
Experts 95
Where You Can Find More Information 95
Index to Financial Statements F-1

 

i

 

 

ABOUT THIS PROSPECTUS

 

We and the underwriters have not authorized anyone to give any information or to make any representations other than those contained in this prospectus. You must not rely on any information or representations not contained in this prospectus. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

This prospectus contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty. We caution you not to give undue weight to such projections, assumptions and estimates.  

 

Neither we nor the underwriters have authorized anyone to provide you with additional information or information different from that contained or incorporated by reference in this prospectus filed with the Securities and Exchange Commission (the “SEC”). We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are not making an offer to sell, nor seeking offers to buy, our securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of those respective documents, regardless of the time of delivery of this prospectus or any sale of our securities. Our business, financial condition, results of operations and prospects may have changed since that date.

 

For investors outside the United States (“U.S.”): We and the underwriters have not done anything that would permit this offering or the possession or distribution of this prospectus in any jurisdiction where action for those purposes is required, other than in the U.S. Persons outside the U.S. who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities and the distribution of this prospectus outside of the U.S.

 

ii

 

 

PROSPECTUS SUMMARY

 

The following information is a summary of the prospectus and does not contain all of the information you should consider before investing in our securities. You should read the entire prospectus carefully, including the matters set forth under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the notes relating to the consolidated financial statements, included elsewhere in this prospectus. Unless the context requires otherwise, references to “Polished,” “Company,” “we,” “us” or “our” refer to Polished.com Inc., a Delaware corporation and its subsidiaries.

 

Overview

 

Our Company is a content-driven and technology-enabled shopping destination for appliances, furniture and home goods.

 

Our goal is to give customers a wide array of choices and a premium experience through details regarding the best brands, volume purchasing options, and rebates with manufacturer discounts, supported by human customer service agents.

 

Corporate Information

 

Our Company was incorporated in the State of Delaware on January 10, 2019, to form an acquisition platform. In April 2019, we acquired substantially all of the assets of Goedeker Television, a brick and mortar operation with an online presence serving the St. Louis metro area. Since that acquisition, we have grown into a nationwide omnichannel retailer. Through our June 2021 acquisition of Appliances Connection, we have evolved into a growth-oriented e-commerce platform, offering an expansive selection of household appliances throughout the United States. In July 2021, we added to our platform by acquiring Appliances Gallery. On July 20, 2022, we changed our corporate name from 1847 Goedeker Inc. to Polished.com Inc. With warehouse fulfillment centers in the Northeast and Midwest, as well as showrooms in Brooklyn, New York, Largo, Florida and St. Louis, Missouri, 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 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.

 

Recent Developments

 

In our third quarter earnings release we reported that we expected 2023 net sales between $330 million and $350 million and low single digit EBITDA margins. Based on currently available information, we now expect 2023 net sales between $315 million and $325 million, with EBITDA below our previous estimate.  

 

Our cash and cash equivalents were approximately $10.1 million as of February 2, 2024, of which approximately $5.0 million was unrestricted. We will need to obtain financing in order to continue to fund our operations on or before March 30, 2024. Any failure or delay to secure such financing could force us to delay, limit or terminate our operations, make reductions in our workforce, liquidate all or a portion of our assets and/or seek protection under Chapters 7 or 11 of the United States Bankruptcy Code. There can be no assurance that our implementation of these contingency plans will not have a material adverse effect on our business.

 

If the net proceeds from this offering are $13.6 million (assuming an offering with gross proceeds of $15 million), we believe we will be able to fund our operations until June 22, 2024 under our current business plan. This date assumes we receive a requested tax refund of approximately $3.0 million on March 2, 2023 and that our bank will defer certain payments due under our credit facilities until we receive proceeds of this offering.

 

The closing of this offering is contingent on the Company reaching an agreement with its lenders to waive the outstanding events of default and the prepayment of equity proceeds requirement under the Credit Agreement and permit the Company to use a substantial portion of the net proceeds from this offering for general working capital purposes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Amendment of Bank of America Credit Agreement; Notice of Acceleration.”

 

Credit Swap Termination

 

In December 2023, the Company and Bank of America, N.A. (“Bank of America”) agreed to terminate the Company’s outstanding interest rate swap, which had an original effective date of May 31, 2022 and an original maturity date of May 31, 2027 (such termination, the “Credit Swap Termination”). The Credit Swap Termination resulted in a termination payment from Bank of America to the Company of $2.175 million.

 

1

 

 

SEC Investigation

 

The SEC is conducting an investigation (the “SEC Investigation”) related to issues disclosed in the Company’s Form 8-K filed on December 27, 2022, including the findings of the Audit Committee investigation, as described under the heading “Business – Audit Committee Investigation” and elsewhere herein, and the subsequent restatement of the Company’s previously issued consolidated financial statements as of and for the year ended December 31, 2021 and for the quarter ended March 31, 2022. The SEC staff has subpoenaed documents and information, including documents and information related to the Audit Committee’s investigation and restated financials. The SEC Investigation is a non-public, fact-finding inquiry to determine whether there were any violations of the federal securities laws. The Company is fully cooperating and will continue to cooperate with the SEC.

 

Amendment of Bank of America Credit Agreement; Notice of Acceleration

 

On May 9, 2022, the Company and Appliances Connection Inc. (collectively, the “Borrowers”) entered into a Credit Agreement (as amended from time to time, the “Credit Agreement”) with the lenders identified therein and Bank of America, N.A. (“Bank of America”), as administrative agent, swingline lender and letter of credit issuer. On July 25, 2023, the Company and Bank of America amended the Credit Agreement (the “First Amendment”), in part, to require the Company maintain liquidity, which includes cash and certain qualifying customer and credit card account receivables, of $8.0 million. The Company and Bank of America amended the Credit Agreement on November 20, 2023 (the “Second Amendment”), which requires the Company to establish a Bank of America cash collateral account where cash and cash equivalents deposited in the cash collateral account do not constitute Liquidity for purposes of the Credit Agreement. Further, the Second Amendment requires that (i) at least $3.0 million of Liquidity be comprised of unrestricted cash and cash equivalents and (ii) more than $5.0 million of Liquidity be comprised of certain qualifying customer and credit card accounts receivable.

 

The Company entered into the Second Amendment, in part, to waive events of defaults on its existing Credit Agreement. The Term Loan Lenders, as part of the Second Amendment, agreed to defer the principal installment of the Term Loans in the amount of $937,500 required to be made on December 31, 2023 until the earliest to occur of (i) January 31, 2024, (ii) the date on which a subordinated Term Loan or an equity contribution, as applicable, is consummated (even if the date of such consummation precedes December 31, 2023) and (iii) an event of default. The Second Amendment requires the Company to pay the existing Term Facility and Revolving Facility by November 30, 2024 (the “Maturity Date”).

 

On February 6, 2024, the Company received a Notice of Additional Events of Default and Acceleration, Imposition of Default Rate, Set-Off and Termination of Commitments (the “Notice of Acceleration”) from Bank of America, regarding the Credit Agreement. The Notice of Acceleration asserts certain events of default relating to non-payment of certain principal and interest amounts and fees due and payable under the Credit Agreement on January 31, 2024. Pursuant to the Notice of Acceleration, Bank of America demanded immediate repayment of all principal and accrued interest, as well as immediate repayment of all additional fees, costs, charges and other Obligations (as defined in the Credit Agreement) owing under the Credit Agreement and each other Loan Document (as defined in the Credit Agreement).

 

The Notice of Acceleration declares that the Company’s outstanding obligations under the Credit Agreement bear interest at the Default Rate (as defined in the Credit Agreement) and that the commitments of the lenders to make loans and obligations of Bank of America, as the L/C Issuer, to make certain credit extensions pursuant to the Credit Agreement be immediately terminated. In addition, Bank of America, as Administrative Agent, has exercised its rights of set-off as described in the Credit Agreement against certain deposits contained in the accounts of certain of the Company’s subsidiaries maintained at Bank of America in the aggregate amount of $1,989,754.83 and applied such amounts towards the repayment of a portion of the Company’s outstanding liabilities and other obligations under the Credit Agreement.

 

The Company is seeking to reach a resolution with Bank of America and the other lenders and will pursue a defense to any enforcement action taken by Bank of America, but the Company cannot guarantee a resolution on a timely basis, on favorable terms, or at all. If the Company is unable to reach a resolution, it would have a material adverse effect on the Company’s liquidity, financial condition and results of operations and could lead the Company to seek relief under bankruptcy or insolvency laws. Additionally, the closing of this offering is contingent on the Company reaching an agreement with Bank of America and the other lenders to waive the outstanding events of default and the prepayment of equity proceeds requirement under the Credit Agreement and permit the Company to use a substantial portion of the net proceeds from this offering for general working capital purposes.

 

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

 

2

 

 

After giving effect to the Second Amendment, the Borrowers must make scheduled principal installments payments in respect of the Term Loan on December 31, 2023 and January 31, 2024, each in an amount equal to $937,500, and on the last day of each fiscal quarter ending thereafter through and including September 30, 2024, each in an amount equal to $1,875,000. Revolving Loans may be repaid and reborrowed at any time until the Maturity Date, subject to the terms and conditions set forth in the Credit Agreement. Mandatory prepayments of Revolving Loans are required if the amount borrowed at any time exceeds the commitment amount. The Company may voluntarily prepay the Loans from time to time in accordance with the provisions of the Credit Agreement, and will be required to prepay the Loans under certain limited circumstances as set forth in the Credit Agreement, including upon receipt of cash proceeds in connection with certain specified asset sales, receipt of loss or condemnation proceeds or other cash proceeds received other than in the ordinary course of business (including receipt of the net proceeds of this offering) or upon receipt of cash proceeds from the incurrence of indebtedness that is not permitted under the Credit Agreement, all as more specifically set forth in the Credit Agreement. The Loans may from time to time be further evidenced by separate promissory notes issued by the Borrowers.

 

The Company may not be able to meet the conditions set forth in the Credit Agreement on future dates. The failure to meet these conditions would likely cause the Company to file for bankruptcy.

 

Reverse Stock Split

 

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

 

Key Acquisitions

 

Acquisition of Goedeker Television

 

On April 5, 2019, we acquired substantially all of the assets of Goedeker Television (the “Goedeker Television Acquisition”). As a result of this transaction, we acquired the former business of Goedeker Television, which was founded in 1951, and continue to operate this business. Prior to the Goedeker Television Acquisition, we had no operations other than operations relating to our incorporation and organization.

 

Acquisition of Appliances Connection

 

Appliances Connection was founded in 1998 and is one of the leading retailers of household appliances. In addition to selling appliances, it also sells furniture, fitness equipment, plumbing fixtures, televisions, outdoor appliances, and patio furniture, as well as commercial-grade appliances for builder and business clients. It also provides appliance installation services and appliance removal services. Appliances Connection serves retail customers, builders, architects, interior designers, restaurants, schools and other businesses. We completed the acquisition of Appliances Connection on June 2, 2021, for an aggregate purchase price of $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 (such acquisition, the “Appliances Connection Acquisition”). We recorded $0.9 million in acquisition-related expenses.

 

Acquisition of AC Gallery

 

On July 29, 2021, we acquired substantially all of the assets of, and assumed substantially all of the liabilities of, Appliance Gallery, Inc., a retail appliance store in Largo, Florida (“Appliance Gallery”), for a total purchase price of $1.4 million (such acquisition, the “Appliance Gallery Acquisition”).

 

Name Change

 

On July 20, 2022, we changed our corporate name from 1847 Goedeker Inc. to Polished.com Inc., pursuant to a Certificate of Amendment to the Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”) filed with the Delaware Secretary of State on July 20, 2022 (the “Name Change”). Pursuant to Delaware law, a shareholder vote was not necessary to effectuate the Name Change and the Name Change does not affect the rights of the Company’s stockholders. The only change in the Certificate of Amendment was the change of the Company’s corporate name. We also amended and restated our Bylaws on July 20, 2022 to reflect the Name Change and to make other minor cleanup and conforming changes thereto.

 

In connection with the Name Change, our common stock and warrants to purchase common stock ceased trading under the ticker symbols “GOED” and “GOED WS,” respectively, and began trading on the NYSE American under the new ticker symbols “POL” and “POL WS,” respectively.

 

3

 

 

Audit Committee Investigation

 

On August 15, 2022, the Company filed a Form 12b-25 with the Securities and Exchange Commission related to its 10-Q for the six months ended June 30, 2022 reporting that the Audit Committee had begun an independent investigation regarding certain allegations made by certain former employees related to the Company’s business operations.

 

On December 22, 2022, the Company issued a press release stating that the Audit Committee of the Board had completed its assessment of the results of the Investigation. The Investigation, which was supported by independent legal counsel and advisors, produced the following key findings pertaining to the Company’s business operations under former management during the 2021-2022 period:

 

The Company was charged by its former Chief Executive Officer approximately $800,000 for expenses unrelated to the Company and its operations.

 

The Company appears to not have had in place all the necessary documentation for all of its employees and, in turn, may have failed to comply with certain legal requirements. The Company subsequently put in place enhanced controls to remedy any labor issues, including but not limited to hiring a controller with significant relevant experience, hiring a new human resources director who is leading an overhaul of certain employee policies and initiating the installation of enhanced payroll software that requires all new employees to provide I-9 information and verifies the validity of key information, and believes it is now in full compliance with legal requirements.

 

The Company’s controls, software and procedures for managing and tracking inventory, including damaged inventory, were insufficient. The Company subsequently put in place enhanced controls to remedy such issues, including but not limited to initiating the installation of enhanced software and systems for inventory management, ensuring the implementation of standardized policies for the handling and sale of damaged inventory and developing a plan to convert the Company to a new ERP and system for accounting.

 

The Company entered into a settlement agreement with Albert Fouerti, our former Chief Executive Officer, regarding matters relating to the Investigation. Among other things, Mr. Fouerti agreed not to compete for a period of two years following the execution of the settlement agreement.

 

Stockholder Matters

 

In October 2023, we received a letter from Jerald Hammann (“Mr. Hammann”) dated September 26, 2023 stating his intent to nominate himself for election as a director of the Company at our annual meeting of stockholders. On December 19, 2023, Mr. Hammann filed a notice of exempt solicitation with the SEC regarding his views regarding the Company and seeking collaboration among stockholders of the Company concerned about their investment. Mr. Hammann did not receive sufficient votes at our annual meeting of stockholders held on January 30, 2024 to be elected to the Board.

 

In addition, following the annual meeting of stockholders held on December 21, 2021 (the “2021 Meeting”), certain purported beneficial owners of the Company’s common stock expressed concerns about a statement in the Company’s proxy statement related to the 2021 Meeting, 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 on a proposal to approve an amendment (the “Charter 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 Common Stock by 50,000,000 shares of Common Stock (such proposal, the “Share Increase Proposal”). In light of the demands and to ensure against any future question as to the validity of the newly authorized shares following stockholder approval of the Share Increase Proposal at the 2021 Meeting, the Company elected to seek validation of the Charter Amendment through a Petition to the Court of Chancery of the State of Delaware (the “Court”) pursuant to Section 205 of the Delaware General Corporation Law (the “205 Petition”). The action, styled In re 1847 Goedeker Inc., C.A. 2022-0219-SG (the “Action”), sought entry by the Court of an order validating and declaring effective the Charter Amendment, and validating the additional shares of Common Stock authorized under the Share Increase Proposal. Two purported stockholders objected to the 205 Petition. One such objecting, purported stockholder (the “Stockholder Plaintiff”) filed his own lawsuit (which was then consolidated with the 205 Petition) requesting that such relief not be granted and asserting two claims for relief: first, against the Company for alleged violation of the Delaware General Corporation Law Section 225(b) for improper tabulation of the stockholder vote on the Share Increase Proposal; and second, asserting that the Company’s directors breached their fiduciary duties by incorrectly tabulating the stockholder vote, and by causing a purportedly invalid amendment to the Certificate of Incorporation to be filed with the Delaware Secretary of State. The Court held a hearing on May 27, 2022, to consider the Company’s motion for entry of an order under Section 205 and subsequently entered an order denying the motion without prejudice on June 30, 2022. On July 7, 2022, the Company filed a Certificate of Correction with the Secretary of State of the State of Delaware, voiding the Charter Amendment and causing the number of authorized shares of Common Stock to remain at 200,000,000.

 

On June 12, 2023, the Company submitted to the Court a Stipulation and [Proposed] Order Regarding Notice and Closing of the Case regarding the Action (the “Dismissal Order”). As stated in the Dismissal Order, the Company and the other parties to the Action negotiated at arm’s length and resolved the stockholders’ claims to entitlement to a mootness fee award, and the Company agreed to pay $475,000 for attorneys’ fees and expenses to the stockholders’ counsel (the “Attorneys’ Fees”). Pursuant to Court of Chancery Rules 23(e) and 41(a), the parties to the Action stipulated to voluntary dismissal of the Action with prejudice as to the Stockholder Plaintiff and without prejudice as to any actual or potential claims of any other members of the putative class, and such dismissal was granted by the Court on June 13, 2023. As stipulated in the Dismissal Order, the Company was required to file with the Court an affidavit that the Company has filed a Current Report on Form 8-K providing the Company’s stockholders with the notice required by the Dismissal Order and pay or cause to be paid the Attorneys’ Fee to the stockholders’ counsel to an account designated by the stockholders’ counsel. Such payment fully satisfied and resolved the stockholders’ and the stockholders’ counsel’s entitlement to any fees or expenses in the Action.

 

4

 

 

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

 

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

 

On February 13, 2023, a derivative stockholder complaint was filed against certain of the Company’s current and former officers and directors as well as the Company’s external manager, naming the Company as a nominal defendant. The action was commenced in the United States District Court for the Eastern District of New York and is captioned Gossett v. Moore, et al., No. 1:23-cv-1168. The complaint asserts claims for breach of fiduciary duty against the former officers and directors and aiding and abetting breaches of fiduciary of duty against the external manager, arising from alleged misstatements and omissions made in certain of the Company’s SEC filings made in connection with our initial public offering (the “IPO”) and certain of the Company’s SEC filings after the IPO. On or about April 24, 2023, plaintiffs filed a joint stipulation and proposed order consolidating this action with a related derivative action, Wong v. Moore et al., No. 1:23-cv-0559, appointing co-lead counsel, and applying the stay in the Wong action to the consolidated action, pending resolution of any motions to dismiss in a related action Maschhoff v. Polished.com Inc. et al, No. 22-CV-06606, pending in the United States District Court for the Eastern District of New York. To date, the stipulation has yet to be ordered.

 

On October 4, 2023, another derivative stockholder complaint was filed, also against the same defendants in the Gossett action above. This action was commenced in the Supreme Court of the State of New York for Kings County and is captioned Dong v. Moore et al., No. 528769/2023. That complaint asserts claims for breach of fiduciary duty, aiding and abetting breaches of fiduciary duty, waste of corporate assets, unjust enrichment, and gross mismanagement. The parties are discussing staying this action pending resolution of the related Maschhoff action.

 

On December 29, 2023, defendants in the Maschoff action filed a letter regarding a proposed motion to dismiss the Complaint for failure to state a claim under Federal Rules of Civil Procedure 12(b)(6) and 9(b) and the Private Securities Litigation Reform Act of 1995, 15 U.S.C. §§ 78u-4, et seq. A pre-motion conference has been set for February 27, 2024. The Company believes that the allegations lack merit and intends to defend against the action vigorously.

 

Resignation of Auditors

 

On December 20, 2022, the Company received a letter (the “Letter”) from the Company’s independent registered public accounting firm, Friedman LLP (“Friedman”), informing the Company of its decision to resign effective December 20, 2022 as the auditors of the Company.

 

In the Letter, Friedman advised the Company that based on the results of the Investigation as reported to Friedman, it appeared there may be material adjustments and/or disclosures necessary to previously reported financial information. Additionally, the Investigation identified facts, that if further investigated by Friedman, might cause Friedman to no longer to be able to rely on the representations of (i) management that was in place at the time Friedman issued its audit report for the year ended December 31, 2021, or (ii) management that was in place at the time of Friedman’s association with the quarterly financial statements for the periods ended June 30, 2021, September 30, 2021 and March 31, 2022. Prior to the Letter, in the past two years, the Company had not received from Friedman an adverse opinion or a disclaimer of opinion, and Friedman’s opinion was not qualified or modified as to uncertainty, audit scope, or accounting principles. The resignation by Friedman was neither recommended nor approved by the Audit Committee or the Board and there were no disagreements with management and Friedman. Friedman had previously reported a material weakness to the Audit Committee, which was included on the Company’s Form 10-K for the year ended December 31, 2021, filed on March 31, 2022, regarding the ineffectiveness of the Company’s internal controls over financial reporting.

 

In connection with the Letter, Friedman advised the Company that it was withdrawing its previously issued audit opinion on our December 31, 2021 consolidated financial statements, issued on March 31, 2022, and declined to be associated with the quarterly financial statements for the periods ended June 30, 2021, September 30, 2021, and March 31, 2022, filed on August 8, 2021, November 16, 2021 and May 12, 2022, respectively.

 

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Engagement of New Independent Registered Public Accounting Firm

 

On December 26, 2022, the Audit Committee approved the engagement of Sadler as the Company’s independent registered public accounting firm for the fiscal years ended December 31, 2022 and 2021.

 

Cybersecurity Incident

 

On March 16, 2023, we experienced a hacking attack that impacted the check-out page on the Company’s e-commerce website. In response, the Company deployed containment measures, launched an investigation with assistance from third-party cybersecurity experts and notified appropriate law enforcement authorities (the “Cybersecurity Investigation”). The Company considers the matter remediated. The Cybersecurity Investigation determined that certain personal information, including names, addresses, zip codes, payment card numbers, expiration dates, and CVVs, was extracted from the Company’s systems as part of this incident. The Cybersecurity Investigation could not determine with precision which payment card data was included in the timeframe of exposure. Out of an abundance of caution, the Company notified all payment card users who made transactions on the Company’s e-commerce website within the window of exposure. As of May 24, 2023, the Company provided appropriate notice to approximately 9,290 individuals, as well as to regulatory authorities in accordance with applicable law. The Company has incurred, and may continue to incur, certain expenses related to this attack. Further, the Company remains subject to risks and uncertainties as a result of the incident, including as a result of the data that was extracted from the Company’s network as noted above. Additionally, security and privacy incidents have led to, and may continue to lead to, additional regulatory scrutiny. Although we are unable to predict the full impact of this incident, including how it could negatively impact our operations or results of operations on an ongoing basis, we presently do not expect that it will have a material effect on the Company’s operations.

 

The Company has engaged outside consultants through its outside counsel to help assess and expand the Company’s cyber defenses and payment card protections and policies.

 

Implications of Being an Emerging Growth Company and a Smaller Reporting Company

 

As a company with less than $1.235 billion in revenues during our last fiscal year, we qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act (“JOBS Act”) enacted in 2012. As an emerging growth company, we expect to take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

 

being permitted to present only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this prospectus;

 

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley Act”);

 

reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

 

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

We may use these provisions until the last day of our fiscal year following the fifth anniversary of the completion of our initial public offering. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

 

The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. As an emerging growth company, we intend to take advantage of an extended transition period for complying with new or revised accounting standards as permitted by The JOBS Act.

 

We are also a “smaller reporting company” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act, and have elected to take advantage of certain of the scaled disclosures available to smaller reporting companies. To the extent that we continue to qualify as a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the “Exchange Act”), after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company, including: (i) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act; (ii) scaled executive compensation disclosures; and (iii) the requirement to provide only two years of audited financial statements, instead of three years. We may continue to be a smaller reporting company after this offering if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million, in either case measured as of the last business day of our most recently completed second fiscal quarter.

 

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THE OFFERING

 

Common stock being offered  

                shares of common stock (or                shares of common stock if the underwriters exercise in full their option to purchase additional shares to cover over-allotments, if any).

     
Pre-Funded Warrants being offered  

We are also offering Pre-Funded Warrants to purchase shares of our common stock, exercisable at an exercise price of $0.001 per share, to those purchasers whose purchase of common stock in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding common stock immediately following the consummation of this offering. The purchase price of each Pre-Funded Warrant is equal to the price per share of common stock being sold to the public in this offering minus $0.001. The Pre-Funded Warrants will be immediately exercisable and may be exercised at any time until exercised in full.

 

This prospectus also relates to the offering of common stock issuable upon exercise of the Pre-funded Warrants.

 

For each Pre-Funded Warrant we sell, the number of shares of common stock that we are offering will be decreased on a one-for-one basis.

 

For additional information regarding the terms of the Pre-Funded Warrants, see “Description of Securities We Are Offering.”

     
Common stock outstanding after this offering                    shares (or                  shares of common stock if the underwriters exercise in full their option to purchase additional shares to cover over-allotments, if any) of common stock, in each case, assuming no sales of Pre-Funded Warrants offered by us, which, to the extent Pre-Funded Warrants are sold, will reduce the number of shares of common stock that we are offering on a one-for-one basis.
     
Underwriters’ over-allotment option   We have granted the underwriters a 45 day option from the date of this prospectus, exercisable one or more times in whole or in part, to purchase up to an additional          shares of common stock and/or up to an additional Pre-Funded Warrants (15% of the total number of shares of common stock and/or Pre-Funded Warrants to be offered by us in the offering), solely to cover over-allotments, if any.
     
Assumed offering price   $          per share (which was the last reported sale price of our common stock on the NYSE American on                  , 2024).
     
Use of proceeds   We estimate that the net proceeds from this offering will be approximately $         million, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us and assuming we sell only shares of common stock and no Pre-Funded Warrants. If the representative of the underwriters exercises its option to purchase additional shares in full to cover over-allotments, if any, we estimate that our net proceeds will be approximately $         million. We intend to use the net proceeds for general working capital purposes and for a mandatory principal payment on our term loan of $         million (or $         million if the representative of the underwriters exercises its option to purchase additional shares in full to cover over-allotments, if any). See “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.

 

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Lock Up   We and our directors and officers have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of any shares of our common stock, or securities convertible into or exercisable for our common stock, for a period of four months, in the case of our officers and directors, or three months, in the case of us, after the date of this prospectus. See “Underwriting” for more information.
     
Risk Factors   You should read the “Risk Factors” section starting on page 11 for a discussion of factors to consider carefully before deciding to invest in our securities.
     
NYSE American listing symbol  

“POL”

 

There is no established trading market for the Pre-Funded Warrants, and we do not expect a trading market to develop. We do not intend to list the Pre-Funded Warrants on any securities exchange or nationally recognized trading system

 

The number of shares of our common stock that will be outstanding after this offering is based on 2,109,398 shares of our common stock outstanding as of September 30, 2023, and excludes:

  

  1,731 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of September 30, 2023, with a weighted-average exercise price of $28.89 per share;

 

  1,871,333 shares of our common stock issuable upon the exercise of warrants to purchase common stock outstanding as of September 30, 2023, with a weighted-average exercise price of $114.85 per share;

 

  10,998,269 shares of our common stock reserved for future issuance under our stock incentive plans; and
     
                shares of common stock (or                shares if the representative exercises its over-allotment option in full) issuable upon exercise of warrants to be issued to the representative of the underwriters as part of this offering at an exercise price of $        (assuming a public offering price of $        per share, the last reported sale price of our common stock as reported on the NYSE American on               , 2024).

 

Unless otherwise indicated, this prospectus reflects and assumes the following:

 

  no exercise of outstanding options or warrants;
     
  no issuance of Pre-Funded Warrants in this offering;

 

  no exercise of the representative’s warrants to be issued upon consummation of this offering at an exercise price equal to 125% of the offering price of the common stock; and

 

 

no exercise by the underwriters of their option to purchase up to          additional shares of our common stock from us to cover over-allotments, if any.

 

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SUMMARY OF RISK FACTORS

 

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

 

Even if the sales of our common stock pursuant to this offering are completed, we may not be successful in implementing our business plan, which primarily requires increasing customer sales, and we are considering all strategic alternatives, including the restructuring or refinancing of our debt, seeking additional debt or equity capital, reducing or delaying our business activities and strategic initiatives, selling assets, other strategic transactions and/or other measures, including obtaining relief under the U.S. Bankruptcy Code, and may be forced to seek additional strategic alternatives in the future.

 

Under former management, we were not always in compliance with applicable laws and regulations relating to the collection and remittance of sales taxes in the various states in which we do business, which has led to unexpected costs, expenses, penalties and fees as a result of our non-compliance. We may not have sufficient liquidity to pay the total amounts that we currently estimate are due as sales tax obligations and there can be no guarantee that we will not be exposed to further costs, expenses, penalties and fees associated with these obligations, which could harm our business.

 

  We need the proceeds from the proposed offering to improve our liquidity position, pay our obligations and resolve certain events of default under our credit facilities, meet certain liquidity requirements pursuant to the Credit Agreement, pay certain sales tax obligations, and operate our business, and we expect that we will likely file for bankruptcy protection if the expected gross proceeds of our sales from this offering are not received or if we are unable to secure a waiver of the prepayment of equity proceeds requirement under the Credit Agreement.

 

The Audit Committee Investigation and subsequent restatement of our financial statements has consumed a significant amount of our time and resources, has led to the SEC Investigation and may lead to, among other things, shareholder litigation, loss of investor confidence, negative impacts on our stock price, a material adverse effect on our reputation, business and stock price and certain other risks.

 

  The closing of this offering is contingent on the Company reaching an agreement with Bank of America and the other lenders to waive the outstanding events of default and the prepayment of equity proceeds requirement under the Credit Agreement and permit the Company to use a substantial portion of the net proceeds from this offering for general working capital purposes, but the Company cannot guarantee a resolution on a timely basis, on favorable terms, or at all.

 

Macroeconomic trends including inflation and rising interest rates may adversely affect our financial condition and results of operations.

 

Our internal information technology system has suffered a significant security breach and may in the future suffer further breaches, loss or leakage of data, and other disruptions, which could disrupt our business or result in the loss of critical and confidential information. If we fail to maintain adequate cybersecurity with respect to our systems and ensure that our third-party service providers do the same with respect to their systems, our business may be harmed.

 

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

 

Our success depends in part on our ability to increase our net revenue, which will depend upon, among other factors, our ability to acquire more customers, build our brands and launch new brands, introduce new products or offerings, improve existing products and control costs.

 

We have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or cause us to fail to meet our reporting obligations or fail to prevent fraud, which would harm our business and could negatively impact the price of our common stock.

 

9

 

 

Despite following previously issued SEC Staff guidance, the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 may not make us “current” in our Exchange Act filing obligations, which means we may not be eligible to use certain forms or rely on certain rules of the SEC.

 

Our recurring losses and negative cash flow from operations, as well as current cash and liquidity projections, raise substantial doubt about our ability to continue as a going concern.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

We are subject to the continued listing requirements of the NYSE American. If we are unable to comply with such requirements, our common stock would be delisted from the NYSE American, which would limit investors’ ability to effect transactions in our common stock and subject us to additional trading restrictions.

 

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

 

  An active, liquid trading market for our common stock may not be sustained, which may make it difficult for you to sell our common stock. There is no established public trading market for the Pre-funded Warrants being offered in this offering, and we do not expect a market to develop for the Pre-funded Warrants.

 

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

 

You will experience immediate and substantial dilution in the net tangible book value per share of the common stock you purchase in the offering.

 

10

 

 

RISK FACTORS

 

An investment in our securities involves a high degree of risk. You should carefully consider the following risk factors, together with the other information contained in this report, before purchasing our securities. We have listed below (not necessarily in order of importance or probability of occurrence) what we believe to be the most significant risk factors, but additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business. Any of the following factors could harm our business, financial condition, results of operations or prospects, and could result in a partial or complete loss of your investment. Some statements in this report, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section titled “Cautionary Statement Concerning Forward-Looking Statements.”

 

Risks Related to our Business and Industry

 

Even if the sales of our common stock pursuant to this offering are completed, we may not be successful in implementing our business plan, which primarily requires increasing customer sales, and we are considering all strategic alternatives, including the restructuring or refinancing of our debt, seeking additional debt or equity capital, reducing or delaying our business activities and strategic initiatives, selling assets, other strategic transactions and/or other measures, including obtaining relief under the U.S. Bankruptcy Code, and may be forced to seek additional strategic alternatives in the future.

 

Even if the sales of our common stock pursuant to the proposed offering are completed, we may not be successful in implementing our business plan. We have undertaken a number of actions to support our ongoing transition, including but not limited to, terminating the interest rate swap agreement to generate liquidity from the mark-to-market value (which increases our risk if market interest rates increase), reducing costs and capital expenditures and reducing our property footprint including warehouses, and continue to evaluate further actions, but these actions may not be sufficient, combined with the proposed offering and other capital raising efforts, to ensure we are successful in implementing our business plan. The timely achievement of our business plan as well as our ability to maintain an adequate level of liquidity are subject to various risks, many of which are outside of our control. We have failed to timely make payments of sales taxes collected from customers that are due to certain taxing jurisdictions, and similar other business partners, which may be unduly burdensome and prevent the Company from executing its business plan. Further, we may not have sufficient liquidity to pay the total amounts that we currently estimate are due as sales tax obligations or any additional amounts determined to be due. See “Under former management, we were not always in compliance with applicable laws and regulations relating to the collection and remittance of sales taxes in the various states in which we do business, which has led to unexpected costs, expenses, penalties and fees as a result of our non-compliance. We may not have sufficient liquidity to pay the total amounts that we currently estimate are due as sales tax obligations and there can be no guarantee that we will not be exposed to further costs, expenses, penalties and fees associated with these obligations, which could harm our business.

 

Our ability to achieve expected results depends on, among other things, our ability to attract customers to our sales channels and increase customer sales. Our efforts to attract customers and to increase customer sales may be further challenged by current economic conditions, including an inflationary environment and the potential for increasing interest rates, which may affect customers’ willingness and ability to spend. Further, our ability to achieve expected results assumes we are able to maintain commercial relationships with our business partners, including maintaining existing payment terms with vendors or reserve amounts with credit card companies. A material change in payment terms or reserve amounts could adversely impact liquidity and prevent the Company from executing on its business plan.

 

Furthermore, we do not expect the proceeds pursuant to the proposed offering will be adequate to fully implement our plan and repay our borrowings under our existing credit facilities or meet the liquidity conditions of the Credit Agreement without an extension of the November 30, 2024 maturity date. In the event that we fail to obtain all of the anticipated proceeds under this offering and fail to meet the liquidity requirements of the Credit Agreement, we expect that we will likely file for bankruptcy protection. Additionally, an important part of our strategy involves an effort to increase revenue through higher advertising spending. If we are unable to successfully implement our strategy, we may not achieve the revenue or margin improvements we anticipate and our business, results of operations, financial condition and financial performance could be materially adversely affected.

 

In addition, we continue to consider other strategic alternatives, including restructuring or refinancing our debt (including pursuing a waiver from the lenders party to our Credit Agreement with respect to the prepayment requirement of equity proceeds), seeking additional debt or equity capital, repricing of our warrants, reducing or delaying our business activities and strategic initiatives, or selling assets, other strategic transactions and/or other measures, including obtaining relief under the U.S. Bankruptcy Code. We may not be able to successfully execute any strategic alternatives we are currently considering or any others, and our ability to do so could be adversely affected by numerous factors, including changes in the economic or business environment, financial market volatility and the performance of our business. We caution that trading in our common stock is highly speculative and poses substantial risks relating to the potential of bankruptcy proceedings. Trading prices for our common stock may bear little or no relationship to the actual recovery, if any, by holders of our common stock in bankruptcy proceedings, if any.

 

11

 

 

Under former management, we were not always in compliance with applicable laws and regulations relating to the collection and remittance of sales taxes in the various states in which we do business, which has led to unexpected costs, expenses, penalties and fees as a result of our non-compliance. We may not have sufficient liquidity to pay the total amounts that we currently estimate are due as sales tax obligations and there can be no guarantee that we will not be exposed to further costs, expenses, penalties and fees associated with these obligations, which could harm our business.

 

We are subject to various state laws and regulations, including requirements to collect sales tax from sales within the states in which we operate, and the payment of income taxes on revenue generated from activities in those states. As a result of sales tax audits conducted by four separate taxing authorities, one of which has been completed and three of which are ongoing as of the date hereof, we have determined that, under the Company’s former management during the period from August 2022 through November 2022, there were instances in which sales taxes were collected from our customers but not fully remitted to the taxing jurisdictions as required by applicable law. Additionally, our former sales tax service provider did not file all required sales taxes for certain states and for certain periods. The Company has made payment on some, but not all, of the sales taxes due and outlined above and the amounts due have already been accrued. However, we may not have sufficient liquidity to pay the total amounts that we currently estimate are due and there can be no guarantee that our estimates are accurate or that we will not be subject to additional sales tax obligations in the future.

 

In addition, as a result of the sales tax audits, we have determined that the Company’s former management at times did not collect sales taxes from customers treated as exempt from sales taxes without adequate documentation supporting such customers’ exemption status. Pursuant to the sales tax audit that has been completed, we will owe $142,000 for failing to have adequate documentation supporting sales tax exemptions and such amount will be an expense for the Company in the fourth quarter of fiscal year 2023. We cannot estimate the amount that might be due under the ongoing sales tax audits or the probability of additional amounts owed under any future audits and have not accrued any amounts for these obligations, which are considered contingent liabilities. Any additional amounts determined to be due as a result of the lack of exempt certificates would be considered expense during the applicable audit period and, based on current circumstances, we may not have sufficient liquidity to pay such expense.

 

A successful assertion by one or more states that we were required to collect or remit sales or other taxes where we did not could result in substantial tax liabilities, fees and expenses, including substantial interest and penalty charges and may subject the Company to sanctions and penalties from the states in which we operate, including denying us the right to operate in such state or states. Further, we may not have sufficient liquidity to pay the total amounts that we currently estimate are due as sales tax obligations or any additional amounts determined to be due.

 

We need the proceeds from the proposed offering to improve our liquidity position, pay our obligations and resolve certain events of default under our credit facilities, meet certain liquidity requirements pursuant to the Credit Agreement, pay certain sales tax obligations, and operate our business, and we expect that we will likely file for bankruptcy protection if the expected gross proceeds of our sales from this offering are not received or if we are unable to secure a waiver of the prepayment of equity proceeds requirement under the Credit Agreement.

 

On July 25, 2023, the Company and Bank of America entered into the First Amendment to the Credit Agreement, in part, to require the Company maintain liquidity, which includes cash and certain qualifying customer and credit card account receivables, of $8.0 million. The Company and Bank of America entered into the Second Amendment to the Credit Agreement on November 20, 2023. The Second Amendment requires that (i) at least $3.0 million of liquidity be comprised of unrestricted cash and cash equivalents and (ii) more than $5.0 million of Liquidity be comprised of certain qualifying customer and credit card accounts receivable.

 

The Company entered into the Second Amendment, in part, to waive events of defaults on its existing Credit Agreement. The Company must repay the principal amount of the Term Loan in installments of $937,500 each, payable on December 31, 2023 and January 31, 2024, and quarterly installments of $1,875,000 each, payable on the last business day of each March, June, September and December. The Term Loan Lenders, as part of the Second Amendment, agreed to defer half of the originally scheduled principal $1,875,000 payment of Term Loans required to be made on December 31, 2023. The Company is required to pay the remaining $937,500 until the earliest to occur of (i) January 31, 2024, (ii) the date on which a subordinated Term Loan or an equity contribution, as applicable, is consummated (even if the date of such consummation precedes December 31, 2023) and (iii) an event of default. The Second Amendment requires the Company to pay the existing Term Facility and Revolving Facility by November 30, 2024.

 

12

 

 

On February 6, 2024, the Company received a Notice of Additional Events of Default and Acceleration, Imposition of Default Rate, Set-Off and Termination of Commitments (the “Notice of Acceleration”) from Bank of America, regarding the Credit Agreement. The Notice of Acceleration asserts certain events of default relating to non-payment of certain principal and interest amounts and fees due and payable under the Credit Agreement on January 31, 2024. Pursuant to the Notice of Acceleration, Bank of America demanded immediate repayment of all principal and accrued interest, as well as immediate repayment of all additional fees, costs, charges and other Obligations (as defined in the Credit Agreement) owing under the Credit Agreement and each other Loan Document (as defined in the Credit Agreement).

 

The Notice of Acceleration declares that the Company’s outstanding obligations under the Credit Agreement bear interest at the Default Rate (as defined in the Credit Agreement) and that the commitments of the lenders to make loans and obligations of Bank of America, as the L/C Issuer, to make certain credit extensions pursuant to the Credit Agreement be immediately terminated. In addition, Bank of America, as Administrative Agent, has exercised its rights of set-off as described in the Credit Agreement against certain deposits contained in the accounts of certain of the Company’s subsidiaries maintained at Bank of America in the approximate aggregate amount of $1,989,754.83 and applied such amounts towards the repayment of a portion of the Company’s outstanding liabilities and other obligations under the Credit Agreement.

 

The Company is seeking to reach a resolution with Bank of America and the other lenders and will pursue a defense to any enforcement action taken by Bank of America, but the Company cannot guarantee a resolution on a timely basis, on favorable terms, or at all. If the Company is unable to reach a resolution, it would have a material adverse effect on the Company’s liquidity, financial condition and results of operations and could lead the Company to seek relief under bankruptcy or insolvency laws. The closing of this offering is contingent on the Company reaching an agreement with Bank of America and the other lenders to waive the outstanding events of default and the prepayment of equity proceeds requirement under the Credit Agreement and permit the Company to use a substantial portion of the net proceeds from this offering for general working capital purposes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Amendment of Bank of America Credit Agreement; Notice of Acceleration.”

 

The Company may not be able to meet the conditions set forth in the Credit Agreement on future dates. In particular, we are pursuing a waiver from the lenders in our Credit Agreement with respect to the prepayment requirement of equity proceeds and we likely would be required to file for bankruptcy protection if the Company fails to meet the liquidity conditions contained in the Second Amendment, including as a result of failing to generate sufficient gross proceeds pursuant to the proposed offering described herein. The Company has engaged advisors to explore strategic alternatives, including, if needed, filing for bankruptcy protection. See “Risks Related to Our Business and Industry.”

 

Additionally, we have failed to timely make payments of sales taxes collected from customers that are due to certain taxing jurisdictions and we may not have sufficient liquidity to pay the total amounts that we currently estimate are due as sales tax obligations or any additional amounts determined to be due. See “Under former management, we were not always in compliance with applicable laws and regulations relating to the collection and remittance of sales taxes in the various states in which we do business, which has led to unexpected costs, expenses, penalties and fees as a result of our non-compliance. We may not have sufficient liquidity to pay the total amounts that we currently estimate are due as sales tax obligations and there can be no guarantee that we will not be exposed to further costs, expenses, penalties and fees associated with these obligations, which could harm our business.” Holders of our common stock would not receive any recovery at all in a bankruptcy scenario. The failure to meet these conditions would likely cause the Company to file for bankruptcy.

 

The Audit Committee Investigation and subsequent restatement of our financial statements has consumed a significant amount of our time and resources, has led to the SEC Investigation and may lead to, among other things, shareholder litigation, loss of investor confidence, negative impacts on our stock price, a material adverse effect on our reputation, business and stock price and certain other risks.

 

As described under the heading “Business – Investigation” and elsewhere herein, the Company launched an investigation (the “Investigation”) due to certain of the Company’s business operations under former management during the 2021-2022 period, which resulted in our former auditor withdrawing its previously issued audit opinion on our December 31, 2021 consolidated financial statements, issued on March 31, 2022, and declining to be associated with the quarterly financial statements for the periods ended June 30, 2021, September 30, 2021, and March 31, 2022, filed on August 8, 2021, November 16, 2021 and May 12, 2022, respectively. We have restated our previously issued consolidated financial statements as of and for the year ended December 31, 2021 and for the quarter ended March 31, 2022. See “Management’s Discussion And Analysis Of Financial Condition And Results Of Operations – Restatement,” for additional information.

 

The Investigation and subsequent restatement process was highly time and resource-intensive and involved substantial attention from management and significant legal and accounting costs. Furthermore, as a result of the circumstances giving rise to the restatement, we have become subject to a number of additional risks and uncertainties, including unanticipated costs for accounting and legal fees in connection with or related to the restatement, shareholder litigation and government investigations, including the ongoing SEC Investigation described under the heading “Recent Developments – SEC Investigation” and elsewhere herein or matters relating thereto. Any such proceeding could result in substantial defense costs regardless of the outcome of the litigation or investigation and any future inquiries from the SEC as a result of our historical financial statements will, regardless of the outcome, likely consume a significant amount of our resources in addition to those resources already consumed in connection with the Investigation, restatement itself and the SEC Investigation. The Company cannot predict the ultimate outcome or timing of the SEC investigation, what if any actions may be taken by the SEC, or the effect that such actions may have on the business, prospects, operating results and financial condition. Management believes that the ultimate outcome and timing of the SEC investigation, including any potential monetary payment as part of a consensual resolution, if one is reached, remains uncertain and is not estimable given the broad range of potential outcomes. The resolution of the SEC investigation may result in substantial monetary penalties or settlement costs. In addition, the restatement and related matters could impair our reputation and could cause our counterparties to lose confidence in us. Each of these occurrences could have an adverse effect on our business, results of operations, financial condition and stock price.

 

13

 

 

Macroeconomic trends including inflation and rising interest rates may adversely affect our financial condition and results of operations.

 

Macroeconomic trends, including increases in inflation and rising interest rates, may adversely impact our business, financial condition and results of operations. Inflation in the United States has recently accelerated and is currently expected to continue at an elevated level in the near-term. Rising inflation could have an adverse impact on our operating expenses and our credit facilities. There is no guarantee we will be able to mitigate the impact of rising inflation. The Federal Reserve has raised interest rates to combat inflation and restore price stability and there can be no guarantee that rates will not continue to rise in the future. Increases in interest rates on any of our debt would result in higher debt service costs, which would adversely affect our cash flows. We cannot assure you that our access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings. Such future constraints could increase our borrowing costs, which would make it more difficult or expensive to obtain additional financing or refinance existing obligations and commitments, which could slow or deter future growth.

 

Our business is dependent on general economic conditions and consumer discretionary spending, and reductions in such spending might adversely affect the Company’s business, operations, liquidity, financial results and stock price.

 

Our business depends on consumer discretionary spending, and our results are highly dependent on U.S. consumer confidence and the health of the U.S. economy. Consumer spending may be affected by many factors outside of the Company’s control, including general economic conditions; consumer disposable income; consumer confidence and perception of economic conditions; the threat or outbreak of war, terrorism or public unrest (including, without limitation, the conflict in Ukraine) which may cause supply chain disruptions, increase fuel costs and transportation costs, and create general economic instability; wage and unemployment levels; consumer debt and inflationary pressures; the costs of basic necessities and other goods; effects of weather and natural disasters caused by climate change or otherwise; and epidemics, contagious disease outbreaks, and other public health concerns including the COVID-19 pandemic. Adverse economic changes in any of the regions in which we sell our products could reduce consumer confidence and could negatively affect net revenue and have a material adverse effect on our operating results.

 

Consumers may view a substantial portion of the products we offer as discretionary items rather than necessities. As a result, our results of operations are sensitive to changes in macro-economic conditions that impact consumer spending, including discretionary spending. Decreases in consumer discretionary spending may result in a decrease in comparable sales, and average value per transaction, which might cause us to increase promotional activities, which will have a negative impact on our gross margins, all of which could negatively affect the Company’s business, operations, liquidity, financial results and stock price, particularly if consumer spending levels are depressed for a prolonged period of time.

 

Our business model and growth strategy depend on our marketing efforts and ability to maintain our brand and attract customers to our platform in a cost-effective manner, including our ability to develop new features to enhance the consumer experience on our websites, mobile-optimized websites and mobile applications.

 

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

 

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

 

14

 

 

Our success depends in part on our ability to increase our net revenue, which will depend upon, among other factors, our ability to acquire more customers, build our brands and launch new brands, introduce new products or offerings, improve existing products and control costs.

 

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

 

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

 

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

 

We may be unsuccessful in launching or marketing new products or services, or launching existing products and services into new markets, or may be unable to successfully integrate new offerings into our existing platform, which would result in significant expense and may not achieve desired results, including generating increased revenue.

 

Our business success depends to some extent on our ability to expand our customer offerings by launching new brands, products and services and by expanding our existing offerings into new markets. Launching new brands and services or expanding geographically requires significant upfront investments, including investments in marketing, information technology and additional personnel. We may not be able to generate satisfactory revenue from these efforts to offset these costs. Any lack of market acceptance of our efforts to launch new brands, products and services or to expand our existing offerings, or failure to successfully integrate new offerings into our existing offerings, platforms, and markets, could have a material adverse effect on our business, prospects, financial condition and results of operations. Further, as we continue to expand our fulfillment capability or add new businesses with different requirements, our logistics networks become increasingly complex and operating them becomes more challenging. There can be no assurance that we will be able to operate our networks effectively.

 

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

 

We have experienced rapid growth since inception, which may not be indicative of future growth. If we fail to manage our growth effectively, we may experience difficulties in expanding our operations and service offerings and our business, financial condition and operating results could be harmed.

 

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

 

Additionally, the growth of our business places significant demands on our operations, as well as our management and other employees. Surges in online traffic and orders associated with any promotional activities or new brand or product offerings could place increased strain on our operations, including our logistics network, and may cause or exacerbate slowdowns or interruptions. The growth of our business may require significant additional resources to meet these daily requirements, which may not scale in a cost-effective manner or may negatively affect the quality of our sites and customer experience. We are also required to manage relationships with a growing number of suppliers, customers and other third parties. Our information technology systems and our internal controls and procedures may not be adequate to support future growth of our supplier and employee base. If we are unable to manage the growth of our organization effectively, our business, financial condition and operating results may be materially adversely affected.

 

15

 

 

Our business, and e-commerce generally, is highly competitive. Competition presents an ongoing threat to the success of our business.

 

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

 

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

 

the size and composition of our customer base;

 

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

 

our selling and marketing efforts;

 

the quality, price and reliability of products we offer;

 

the convenience of the shopping experience that we provide;

 

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

 

our reputation and brand strength.

 

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

 

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

 

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

 

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

 

16

 

 

Our internal information technology system has suffered a significant security breach and may in the future suffer further breaches, loss or leakage of data, and other disruptions, which could disrupt our business or result in the loss of critical and confidential information.

 

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

 

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

 

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

 

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

 

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

 

On March 16, 2023, we experienced a cybersecurity incident. See “Business – Cybersecurity Incident.” 

 

If we fail to maintain adequate cybersecurity with respect to our systems and ensure that our third-party service providers do the same with respect to their systems, our business may be harmed.

 

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

 

17

 

 

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

 

On March 16, 2023, we experienced a cybersecurity incident. See “Business – Cybersecurity Incident.” 

 

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

 

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

 

We may be unable to source new suppliers or source additional, or strengthen our existing relationships with, suppliers, negotiate acceptable pricing and other terms with third-party service providers, suppliers and outsourcing partners and maintain our relationships with such entities.

 

We have relationships with numerous suppliers. Our agreements with suppliers are generally terminable at will by either party upon short notice. If we do not maintain our existing relationships or build new relationships with suppliers on acceptable commercial terms, we may not be able to maintain a broad selection of merchandise, and our business and prospects would suffer severely. Part of our business with our suppliers is conducted through our participation in DMI’s purchasing group arrangement. For the years ended December 31, 2022 and 2021, we purchased a substantial portion of finished goods from DMI, representing 69.2% and 72.1% of purchases, respectively. Our participation in this consortium provides us with leverage and purchasing power with appliance vendors, and increases our ability to compete with competitors. If the relationship between DMI and suppliers materially changes, or if we are unable to participate in DMI on materially the same terms as we currently participate, then there is a risk that the prices of finished goods may increase or the availability of finished goods to the Company would decrease.

 

18

 

 

In order to attract quality suppliers, we must:

 

demonstrate our ability to help our suppliers increase their sales;

 

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

 

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

 

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

 

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

 

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

 

Moreover, we depend on our ability to provide our customers with a wide range of products from qualified suppliers in a timely and efficient manner. Political and economic instability, the financial stability of suppliers, suppliers’ ability to meet our standards, labor problems experienced by suppliers, the availability or cost of raw materials, merchandise quality issues, currency exchange rates, trade tariff developments, transport availability and cost, transport security, inflation, the COVID-19 pandemic and other factors relating to our suppliers are beyond our control. For example, the COVID-19 pandemic adversely affected supplier facilities and operations due to factory closures, raw material and labor inflation and risks of labor shortages, among other things. Similar disruptions may materially and adversely affect our business, financial condition and operating results.

 

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

 

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

 

19

 

 

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

 

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

 

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

 

We rely on third parties to operate certain elements of our business. For example, we rely on a variety of regional and national carriers for our larger shipping services and small parcel products. Shipping vendors have from time to time imposed shipping surcharges. In addition, our ability to receive inbound inventory efficiently and ship products to customers may be negatively affected by shipping delays or disruptions caused by factors beyond our and our carriers’ control, including inclement weather, natural disasters, system interruptions and technology failures, labor shortages, increased fuel costs, health epidemics or bioterrorism. We are also subject to risks of breakage or other damage during delivery by any of these third parties. We also use and rely on other services from third parties, such as retail partner services, telecommunications services, customs, consolidation and shipping services, as well as warranty, installation and design services.

 

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

 

We may be unable to optimize, operate and manage the expansion of the capacity of our fulfillment centers, and our plans to expand capacity and develop new facilities may be adversely affected by global events.

 

If we do not optimize and operate our fulfillment centers successfully and efficiently, it could result in excess or insufficient fulfillment capacity, an increase in costs or impairment charges or harm our business in other ways. In addition, if we do not have sufficient fulfillment capacity or experience a problem fulfilling orders in a timely manner, our customers may experience delays in receiving their purchases, which could harm our reputation and our relationship with our customers. For example, the COVID-19 pandemic has disrupted and strained our fulfillment center labor pool and may continue to do so. Any unanticipated occurrences with respect to the COVID-19 pandemic, including any potential outbreak of cases or the development of a vaccine-resistant strain during the reopening of the U.S. economy by state and local governments, or certain other global events could cause us to experience disruptions to the operations of our fulfillment centers, including an insufficient and strained labor pool from time to time, which may negatively impact our ability to fulfill orders in a timely manner, which could harm our reputation, relationship with customers and results of operations. Failure to successfully address such challenges in a cost-effective and expedient manner could impair our ability to timely deliver our customers’ purchases and could harm our reputation and ultimately, our business, financial condition, and results of operations.

 

We anticipate the need to add additional fulfillment centers as our business continues to grow. We cannot assure you that we will be able to locate suitable facilities on commercially acceptable terms in accordance with our expansion plans, nor can we assure you that we will be able to recruit qualified managerial and operational personnel to support our expansion plans. If we are unable to secure new or expanded facilities for the expansion of our fulfillment operations, recruit qualified personnel to support any such facilities, or effectively control expansion-related expenses, our business, financial condition, and results of operations could be materially and adversely affected. If demand for our product offerings grow faster than we anticipate, we may exceed our fulfillment center capacity sooner than we anticipate, we may experience problems fulfilling orders in a timely manner or our customers may experience delays in receiving their purchases, which could harm our reputation and our relationship with our customers, and we would need to increase our capital expenditures more than anticipated and in a shorter time frame than we currently anticipate. Our ability to expand our fulfillment center capacity, including our ability to secure suitable facilities and recruit qualified employees, may be substantially affected by global events such as the spread of COVID-19. Many of the expenses and investments with respect to our fulfillment centers are fixed, and any expansion of such fulfillment centers will require additional capital investment. We expect to incur higher capital expenditures in the future for our fulfillment center operations as our business continues to grow. We would incur such expenses and make such investments in advance of expected sales, and such expected sales may not occur. Any of these factors could materially and adversely affect our business, financial condition, and results of operations.

 

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Our business is dependent upon our ability to acquire, accurately value and manage inventory.

 

We purchase inventory to stock both current sales and future sales to satisfy consumer demand more quickly. Our purchases of inventory consist of products for resale and are based in large part on our estimates of projected demand. If actual sales are materially less than our forecasts, we would experience an over-supply of inventory. An over-supply of inventory will generally cause downward pressure on our liquidity, sales prices and margins and increase our average days to sale. If we have excess inventory or our average days to sale increases, our liquidity and the results of our operations may be adversely affected because we may be unable to sell such inventory at prices that allow us to meet margin targets or to recover our costs. Inventory valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, liquidations and expected recoverable values of each disposition category.

 

Supply chain disruptions and shortages, disruptions in the availability of labor, and increased transportation costs can also significantly impair our ability to accurately manage inventory. As a result of these factors, we may be unable to acquire or sell inventory at attractive prices or to manage inventory effectively, and accordingly our revenue, gross margins and results of operations would be affected, which could have a material adverse effect on our business, financial condition and results of operations.

 

Seasonal trends in our business create variability in our financial and operating results and place increased strain on our operations.

 

Historically, we have experienced surges in online traffic and orders associated with promotional activities and seasonal trends, primarily during holidays such as Presidents Day, Memorial Day, July 4th, Labor Day, Thanksgiving Day, Christmas, Black Friday, and Cyber Monday. This activity may place additional demands on our technology systems and logistics network and could cause or exacerbate slowdowns or interruptions. Any such system, site or service interruptions could prevent us from efficiently receiving or fulfilling orders, which may reduce the volume or quality of goods or services we sell and may cause customer dissatisfaction and harm our reputation and brand. For example, the COVID-19 pandemic disrupted the historical seasonality of our business and created additional variability in our financial and operating results. There can be no assurance that a similar disruption will not occur again in the future.

 

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

 

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

 

Significant merchandise returns could harm our business.

 

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

 

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We are subject to risks related to online payment methods.

 

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

 

Furthermore, as our business changes, we may be subject to different rules under existing standards, which may require new assessments that involve costs above what we currently pay for compliance. As we offer new payment options to consumers, including by way of integrating emerging mobile and other payment methods, we may be subject to additional regulations, compliance requirements and fraud. If we fail to comply with the rules or requirements of any provider of a payment method we accept, if the volume of fraud in our transactions limits or terminates our rights to use payment methods we currently accept, or if a data breach occurs relating to our payment systems, we may, among other things, be subject to fines or higher transaction fees and may lose, or face restrictions placed upon, our ability to accept credit card payments from consumers or facilitate other types of online payments.

 

We also occasionally receive orders placed with fraudulent data and we may ultimately be held liable for the unauthorized use of a cardholder’s card number in an illegal activity and be required by card issuers to pay charge-back fees. Charge-backs result not only in our loss of fees earned with respect to the payment, but also leave us liable for the underlying money transfer amount. If our charge-back rate becomes excessive, card associations also may require us to pay fines or refuse to process our transactions. To mitigate credit card fraud, we use a third-party fraud prevention provider to score all credit card orders for risk of fraud. In addition, we may be subject to additional fraud risk if third-party service providers or our employees fraudulently use consumer information for their own gain or facilitate the fraudulent use of such information. Overall, we may have little recourse if we process a criminally fraudulent transaction. If we are unable to detect or control credit card fraud, our liability for these transactions could harm our business, financial condition and results of operations.

 

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

 

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

 

Our limited operating history makes it difficult to evaluate our current business and future prospects and the risk of your investment.

 

We were incorporated in 2019, and, as such, have a limited operating history. We have limited historical financial data upon which to base our projected revenue, planned operating expenses or upon which to evaluate our commercial prospects. Our operating results are not predictable and our historical results may not be indicative of our future results as our business expands. Our limited operating history makes it difficult for potential investors to evaluate our prospective operations and business prospects. Investors should consider our future prospects in light of the risks and uncertainties of early-stage companies operating in a competitive environment. We may encounter unanticipated problems as we continue to refine our business model and may be forced to make significant changes to our anticipated sales and revenue models to compete with our competitors’ offerings, which may adversely affect our results of operations and profitability.

 

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We have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or cause us to fail to meet our reporting obligations or fail to prevent fraud, which would harm our business and could negatively impact the price of our common stock.

 

Effective internal control over financial reporting is necessary for us to provide reliable financial reports and prevent or detect fraud. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. In connection with management’s evaluation of the effectiveness of our internal control over financial reporting and the audit of our consolidated financial statements for the year ended December 31, 2022, we identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

The following material weaknesses, which were discovered to be material during 2022, were present at December 31, 2022: lack of structure and responsibility, insufficient number of qualified resources and inadequate oversight and accountability over the performance of controls; ineffective assessment and identification of changes in risk impacting internal control over financial reporting; inadequate selection and development of effective control activities, general controls over technology and effective policies and procedures; and ineffective evaluation and determination as to whether the components of internal control were present and functioning. The material weaknesses described or any newly identified material weakness could result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected. To remediate the material weaknesses identified above, we have implemented the following measures: implemented an ERP replacing an inadequate accounting system, added accounting personnel to improve our internal accounting procedures and practices and began implementing procedures to monitor areas that have an impact on internal control.

 

In addition, our independent registered public accounting firm has not performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act because no such evaluation has been required. Had our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses may have been identified. If we are unable to successfully remediate our existing or any future material weakness in our internal control over financial reporting, or identify any additional material weaknesses that may exist, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, we may be unable to prevent fraud, our business could be harmed, investors may lose confidence in our financial reporting and the trading price of our common stock may decline as a result. Additionally, our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future and may cause us to fail to timely achieve and maintain the adequacy of our internal control over financial reporting. The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act, and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

 

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

 

Our Executive Chairman, Ellery W. Roberts, is the controlling principal of 1847 Partners LLC (our “Manager”), which provides certain services to us, including administrative supervision and oversight of our day-to-day business operations, for a quarterly management fee equal to $62,500. He may obtain compensation and other benefits in transactions relating to us that involve our Manager. Consequently, Mr. Roberts may be in a position of conflict. Additionally, Edward J. Tobin, a member of our board of directors, also serves as a director of our Manager.

 

These conflicts may not be resolved in our favor. Such conflicts of interest could have a material adverse effect on our business and operations. Further, the appearance of conflicts of interest created by related party transactions could impair the confidence of our investors. In the case of transactions with affiliates, there may be an absence of arms’ length negotiations with respect to the terms, conditions and consideration with respect to goods and services provided to or by us.

 

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Despite following previously issued SEC Staff guidance, the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 may not make us “current” in our Exchange Act filing obligations, which means we may not be eligible to use certain forms or rely on certain rules of the SEC.

 

On July 31, 2023, we filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which constituted a “comprehensive” Annual Report on Form 10-K, or “Super 10-K,” and which contained our audited financial statements for the fiscal year ended December 31, 2022 and select, unaudited quarterly financial information for the periods ended June 30, 2022, September 30, 2022 and March 31, 2023. Our comprehensive Annual Report on Form 10-K also restated our previously issued consolidated financial statements as of and for the fiscal year ended December 31, 2021 (see “Management’s Discussion And Analysis Of Financial Condition And Results Of Operations – Restatement” for additional information), which were re-audited by our new independent registered public accounting firm, Sadler, Gibb & Associates, LLC (“Sadler”). On August 14, 2023, we filed our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023 and on November 20, 2023, we filed our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023. We followed previously issued guidance from the staff of the SEC’s Division of Corporation Finance (the “Staff”) with respect to filing a comprehensive Annual Report on Form 10-K where issuers have been delinquent in meeting their periodic reporting requirements with the SEC. In accordance with such guidance, the filing of our comprehensive Annual Report on Form 10-K does not necessarily mean that the Staff will conclude that we have complied with all applicable financial statement requirements or complied with all reporting requirements of the Exchange Act, nor does it foreclose any enforcement action by the SEC with respect to our disclosure, filings or failures to file reports under the Exchange Act. We do not intend to file a separate Annual Report on Form 10-K for the fiscal year ended December 31, 2021 or Quarterly Reports on Form 10-Q for the quarterly periods ended June 30, 2022, September 30, 2022 and March 31, 2023. Without the missing reports, investors may not be able to review certain financial and other disclosures that would have been contained in those reports.

 

Our business, financial condition and results of operations could be adversely affected by disruptions in the global economy resulting from military conflicts, including the ongoing conflicts between Russia and Ukraine and between Israel and Hamas.

 

The global economy has been negatively impacted by increasing tension, uncertainty and tragedy resulting from ongoing military conflicts, including the conflicts between Russia and Ukraine and between Israel and Hamas. The adverse and uncertain economic conditions resulting therefrom have impacted and may further negatively impact global demand, cause supply chain disruptions and increase costs for transportation, energy and other raw materials. Furthermore, governments in the United States, the European Union, the United Kingdom, Canada and others have imposed financial and economic sanctions on certain industry segments and various parties in Russia and Belarus. We are monitoring the conflicts including the potential impact of financial and economic sanctions on the global economy. Increased trade barriers, sanctions and other restrictions on global or regional trade could adversely affect our business, financial condition and results of operations. The length and impact of the ongoing military conflicts are highly unpredictable, and have resulted in market disruptions, including significant volatility in commodity prices, credit and capital markets, an increase in cyber security incidents as well as supply chain disruptions. Further escalation of geopolitical tensions related to these military conflicts and/or their expansion or other military conflicts could result in increased volatility and disruption to the global economy and the markets in which we operate adversely impacting our business, financial condition or results of operations.

 

The ongoing COVID-19 pandemic, and any future outbreaks or other public health emergencies, may cause a material adverse effect on our results of operations, financial position and liquidity.

 

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

 

While the COVID-19 pandemic recently appeared to be trending downward, new variants of COVID-19 continue to emerge and spread throughout the U.S. and globally. The global economy, our employees, patients, centers, communities, and business operations have been, and may continue to be, significantly affected by the COVID-19 pandemic and new variants. As new variants continue to emerge, the full extent to which the COVID-19 pandemic will impact our business, results of operations, financial condition and liquidity will depend on future developments that are highly uncertain and cannot be accurately predicted.

 

The COVID-19 pandemic has also significantly increased economic uncertainty and has led to disruption and volatility in the global capital markets, which could increase the cost of and accessibility to capital. If we need to access the capital markets, there can be no assurance that financing may be available on attractive terms, if at all. The COVID-19 pandemic has caused and could continue to cause periods of significant economic slowdown, which could lead to reduced discretionary consumer spending and a corresponding reduction in demand for our products and could result in a material adverse effect on our business, financial condition and operating results.

 

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To counteract the effects of COVID-19, governments around the world have implemented fiscal stimulus measures and vaccination rollouts, however, the magnitude and overall effectiveness of these actions remain uncertain and certain U.S. federal and state laws and regulations intended to reduce the spread of COVID-19 are in direct conflict, which means we may be unable to comply with all applicable laws and regulations in some of the jurisdictions in which we operate. Further, the full extent of the impact of COVID-19, including the extent of its impact on our business and financial condition, will depend on numerous evolving factors that we may not be able to accurately predict, including, but not limited to: the length of time that the pandemic continues; the availability, distribution and continued efficacy of available treatments and vaccines; vaccination rates among the general public and our employees; its effect on our suppliers, logistics providers and the demand for our products; the effect of governmental regulations imposed in response to the pandemic; the effect on our customers, their communities and customer demand and ability to pay for our products and services, which may be affected by increased consumer debt levels, changes in net worth due to market conditions and other factors that impact consumer confidence; disruptions or restrictions on our employees’ ability to work and travel, as well as uncertainty regarding all of the foregoing.

 

While the home industry has fared much better during the COVID-19 pandemic than other sectors of the economy, periodic surges in COVID-19 cases due to new variants and the resurgence of inflation brought on by labor and supply shortages have had and may continue to have an adverse impact upon our business. Much is still unknown, including the duration and severity of the COVID-19 pandemic, the emergence of variants of COVID-19 that may continue to prolong the pandemic, the amount of time it will take for normal economic activity to resume, and future government actions that may be taken. Accordingly, the situation remains dynamic and subject to rapid and possibly material change, including but not limited to changes that may materially affect the operations of our suppliers, logistics providers and customers, which ultimately could result in material adverse effects on our business, financial condition and operating results. We cannot at this time predict the full impact of the COVID-19 pandemic, but it could have a larger material adverse effect on our business, liquidity, financial condition and operating results beyond what is discussed within this report. We will continue to actively monitor the COVID-19 situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our customers, employees, suppliers, partners, stockholders and communities. We cannot predict with any certainty whether and to what degree the disruption caused by the COVID-19 pandemic and reactions thereto will continue, and we expect to face difficulty in accurately forecasting our financial condition and operational results.

 

Additionally, to the extent the COVID-19 pandemic adversely affects our business, results of operations or financial condition, it may heighten other risks described in this “Risk Factors” section.

 

Risks Related to Our Indebtedness and Liquidity

 

Our business would be adversely affected if we are unable to service our debt obligations.

 

We have incurred substantial indebtedness under our credit facilities. Our ability to pay interest and principal when due, and comply with debt covenants, will depend upon, among other things, sales and cash flow levels and other factors that affect our future financial and operating performance, including prevailing economic conditions and financial and business factors, many of which are beyond our control. Given the current economic environment, and ongoing challenges to our business, we may be unable to service our debt obligations, maintain compliance with the minimum liquidity covenant under the Credit Agreement or comply with the other terms of the Credit Agreement, which would among other things, result in an event of default under the Credit Agreement.

 

The principal sources of our liquidity are funds generated from operating activities and available cash and cash equivalents. We have incurred net losses in our fiscal years 2022 and 2021, and for the nine months ended September 30, 2023. We may continue to incur net losses in future periods, which would adversely affect our business, financial condition and ability to service our debt obligations, and due to the risks inherent in our operations, our future net losses may be greater than our past net losses. Our ability to achieve our business and cash flow plans is based on a number of assumptions which involve significant judgments and estimates of future performance, borrowing capacity and credit availability, which cannot at all times be assured. Accordingly, there is no assurance that cash flows from operations and other internal and external sources of liquidity will at all times be sufficient for our cash requirements. If necessary, we may need to consider actions and steps to improve our cash position and mitigate any potential liquidity shortfall, such as modifying our business plan, pursuing additional financing to the extent available, reducing costs and capital expenditures, pursuing and evaluating other alternatives and opportunities to obtain additional sources of liquidity and other potential actions to reduce costs. See “Risks Related to Our Business and Industry.” There can be no assurance that any of these actions would be successful, sufficient or available on favorable terms. Any inability to generate or obtain sufficient levels of liquidity to meet our cash requirements at the level and times needed would have a material adverse impact on our business and financial position.

 

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If we become unable in the future to generate sufficient cash flow to meet our debt service requirements, we may be forced to take remedial actions such as restructuring or refinancing our debt, seeking additional debt or equity capital, reducing or delaying our business activities and strategic initiatives, selling assets, or other strategic transactions and/or measures, including filing for bankruptcy protection. There can be no assurance that any such measures would be successful.

 

Our ability to obtain any additional financing or any refinancing of our debt, if needed at any time, depends upon many factors, including our existing level of indebtedness and restrictions in the agreements governing our indebtedness, historical business performance, financial projections, the value and sufficiency of collateral, prospects and creditworthiness, external economic conditions and general liquidity in the credit and capital markets. Any additional debt, equity or equity-linked financing may require modification of our existing debt agreements, which there is no assurance would be obtainable. Any additional financing or refinancing that may be available to the Company could include could also be extended only at higher costs and require us to satisfy more restrictive covenants, which could further limit or restrict our business and results of operations or be dilutive to our shareholders.

 

Our recurring losses and negative cash flow from operations, as well as current cash and liquidity projections, raise substantial doubt about our ability to continue as a going concern.

 

Based on recurring losses from operations and current cash and liquidity projections, we have concluded that there is substantial doubt about our ability to continue as a going concern for the next twelve months. Our consolidated financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result if we do not continue as a going concern. You should not rely on our consolidated balance sheet as an indication of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to holders of our common stock, in the event of liquidation.

 

The additional financing required for us to continue operating as a going concern may not be available on reasonable terms or at all.

 

Our ability to continue to operate as a going concern requires additional capital. We will consider raising additional funds through various financing sources, including the procurement of additional commercial debt financing. However, there can be no assurance that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be forced to obtain relief under the U.S. Bankruptcy Code as noted above . Any additional debt financing will increase expenses and must be repaid regardless of operating results and may involve restrictions limiting our operating flexibility.

 

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

 

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

 

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

 

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Our debt and our ability to increase future leverage could limit our operating flexibility and ability to grow, and adversely affect our financial condition and cash flows.

 

We currently have and have in the past had periods of significant leverage and any future increased leverage could adversely affect our ability to fund our operations, limit our ability to react to changes in the economy or our industry (placing us at a competitive disadvantage compared to competitors that are less highly leveraged), reduce our ability to use cash flows for operating, investing and financing opportunities (including working capital, capital expenditures, mergers and acquisitions and equity or debt repurchases), and prevent us from meeting our obligations under the agreements governing our indebtedness. Our ability to make scheduled payments on our debt obligations will depend on our ability to generate sufficient cash flows. We cannot assure you that our business will generate cash flow from operations, or that additional capital will be available to us, in an amount sufficient to enable us to meet our payment obligations under the Term Loan and Revolving Loan and to fund other liquidity needs. Failure to generate sufficient cash flow would require us to refinance or restructure our debt or seek to raise additional capital (which could be dilutive to stockholders). If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under the Term Loan and Revolving Loan. Furthermore, the Term Loan and Revolving Loan contain covenants that may restrict our ability to implement our business plan, finance future operations, pay dividends, respond to changing business and economic conditions, secure additional financing, and engage in certain transactions (including mergers, acquisitions and dispositions).

 

If we experience another default under the Term Loan and Revolving Loan because of an inability to meet our payment obligations, a covenant breach or otherwise, all outstanding amounts thereunder could become immediately due and payable. We cannot assure you that we would have sufficient funds to repay all the outstanding amounts under the Term Loan and Revolving Loan, and any acceleration of amounts due would have a material adverse effect on our business, growth strategy, liquidity, financial condition and ability to continue as a going concern. We and our subsidiaries also may be able to incur substantial additional indebtedness in the future, subject to the foregoing restrictions, which could exacerbate the leverage risks noted above.

 

From time to time, based on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors and subject to compliance with applicable laws and regulations, we may seek to utilize cash on hand, borrowings or raise capital to retire, repurchase or redeem our notes, repay debt, repurchase shares of our common stock or otherwise enter into similar transactions to support our capital structure and business or utilize excess cash flow on a strategic basis.

 

The delayed filing of some of our periodic SEC reports has made us currently ineligible to use a registration statement on Form S-3 to register the offer and sale of securities, which could adversely affect our ability to raise future capital. 

 

As a result of the delayed filing of some of our periodic reports with the SEC, we are not currently eligible to register the offer and sale of our securities using a registration statement on Form S-3. To regain eligibility to use Form S-3, we must be timely and current in our public reporting for a period of 12 full calendar months preceding our intended S-3 filing. Should we wish to register the offer and sale of our securities to the public prior to the time we are eligible to use Form S-3, both our transaction costs and the amount of time required to complete the transaction could increase, making it more difficult to execute any such transaction successfully and potentially harming our financial condition.

 

Risks Related to Laws and Regulations

 

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

 

We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and e-commerce. Existing and future regulations and laws could impede the growth of the Internet, e- commerce or mobile commerce. These regulations and laws may involve taxes, tariffs, privacy and data security, anti-spam, content protection, electronic contracts and communications, consumer protection, Internet neutrality and gift cards. It is not clear how existing laws governing issues such as property ownership, sales and other taxes and consumer privacy apply to the Internet as the vast majority of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised by the Internet or e-commerce. It is possible that general business regulations and laws, or those specifically governing the Internet or e-commerce, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. We cannot be sure that our practices have complied, comply or will comply fully with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business and proceedings or actions against us by governmental entities or others. Any such proceeding or action could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, decrease the use of our sites by consumers and suppliers and may result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any such laws or regulations. Adverse legal or regulatory developments could substantially harm our business. Further, if we enter into new market segments or geographical areas and expand the products and services we offer, we may be subject to additional laws and regulatory requirements or prohibited from conducting our business, or certain aspects of it, in certain jurisdictions. We will incur additional costs complying with these additional obligations and any failure or perceived failure to comply would adversely affect our business and reputation.

 

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

 

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

 

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

 

If the use of “cookie” tracking technologies is further restricted, regulated, or blocked, or if changes in technology cause cookies to become less reliable or acceptable as a means of tracking consumer behavior, the amount or accuracy of Internet user information we collect would decrease, which could harm our business and operating results.

 

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

 

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

 

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

 

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Changes to applicable tax laws and regulations or exposure to additional income tax liabilities could adversely affect our results of business, financial condition and operating results.

 

We are subject to various complex and evolving U.S. federal, state and local taxes. U.S. federal, state and local tax laws, policies, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us, possibly with retroactive effect, and may have an adverse effect on our business and future profitability. For example, several tax proposals have been set forth that would, if enacted, make significant changes to U.S. tax laws. Such proposals have included an increase in the U.S. federal income tax rate applicable to corporations (such as us) from 21%, the imposition of a minimum tax on book income for certain corporations, and the imposition of an excise tax on certain corporate stock repurchases that would be borne by the corporation repurchasing such stock. Congress could consider, and could include some or all of these proposals in connection with tax reform that may be undertaken. It is unclear whether these or similar changes will be enacted and, if enacted, how soon any such changes could take effect. The passage of any legislation as a result of these proposals and other similar changes in U.S. federal income tax laws could adversely affect us, which, in turn, could adversely affect our business, financial condition and operating results.

 

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

 

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

  

The protection of our intellectual property rights may require the expenditure of significant financial, managerial and operational resources. We may initiate claims or litigation against others for infringement, misappropriation or violation of our intellectual property rights or proprietary rights or to establish the validity of such rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel, which may materially adversely affect our business, financial condition and operating results. Moreover, the steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing or misappropriating our proprietary rights, and we may not be able to broadly enforce all of our intellectual property rights. Any of our intellectual property rights may be challenged by others or invalidated through administrative process or litigation. Additionally, the process of obtaining intellectual property protections is expensive and time-consuming, and we may not be able to pursue all necessary or desirable actions at a reasonable cost or in a timely manner. Even if issued, there can be no assurance that these protections will adequately safeguard our intellectual property, as the legal standards relating to the validity, enforceability and scope of protection of patent and other intellectual property rights are uncertain. We also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior technology or intellectual property rights. We may also be exposed to claims from third parties claiming infringement of their intellectual property rights, or demanding the release or license of open source software or derivative works that we developed using such software (which could include our proprietary code) or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to purchase a costly license, publicly release the affected portions of our source code, be limited in or cease using the implicated software unless and until we can re-engineer such software to avoid infringement or change the use of the implicated open source software.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Following the annual meeting of stockholders held on December 21, 2021 (the “2021 Meeting”), certain purported beneficial owners of the Company’s common stock expressed concerns about a statement in the Company’s proxy statement related to the 2021 Meeting, 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 on a proposal to approve an amendment (the “Charter 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 Common Stock by 50,000,000 shares of Common Stock (such proposal, the “Share Increase Proposal”). In light of the demands and to ensure against any future question as to the validity of the newly authorized shares following stockholder approval of the Share Increase Proposal at the 2021 Meeting, the Company elected to seek validation of the Charter Amendment through a Petition to the Court of Chancery of the State of Delaware (the “Court”) pursuant to Section 205 of the Delaware General Corporation Law (the “205 Petition”). The action, styled In re 1847 Goedeker Inc., C.A. 2022-0219-SG (the “Action”), sought entry by the Court of an order validating and declaring effective the Charter Amendment, and validating the additional shares of Common Stock authorized under the Share Increase Proposal. Two purported stockholders objected to the 205 Petition. One such objecting, purported stockholder (the “Stockholder Plaintiff”) filed his own lawsuit (which was then consolidated with the 205 Petition) requesting that such relief not be granted and asserting two claims for relief: first, against the Company for alleged violation of the Delaware General Corporation Law Section 225(b) for improper tabulation of the stockholder vote on the Share Increase Proposal; and second, asserting that the Company’s directors breached their fiduciary duties by incorrectly tabulating the stockholder vote, and by causing a purportedly invalid amendment to the Certificate of Incorporation to be filed with the Delaware Secretary of State. The Court held a hearing on May 27, 2022, to consider the Company’s motion for entry of an order under Section 205 and subsequently entered an order denying the motion without prejudice on June 30, 2022. On July 7, 2022, the Company filed a Certificate of Correction with the Secretary of State of the State of Delaware, voiding the Charter Amendment and causing the number of authorized shares of Common Stock to remain at 200,000,000.

 

On June 12, 2023, the Company submitted to the Court a Stipulation and [Proposed] Order Regarding Notice and Closing of the Case regarding the Action (the “Dismissal Order”). As stated in the Dismissal Order, the Company and the other parties to the Action negotiated at arm’s length and resolved the stockholders’ claims to entitlement to a mootness fee award, and the Company agreed to pay $475,000 for attorneys’ fees and expenses to the stockholders’ counsel (the “Attorneys’ Fees”). Pursuant to Court of Chancery Rules 23(e) and 41(a), the parties to the Action stipulated to voluntary dismissal of the Action with prejudice as to the Stockholder Plaintiff and without prejudice as to any actual or potential claims of any other members of the putative class, and such dismissal was granted by the Court on June 13, 2023. As stipulated in the Dismissal Order, the Company was required to file with the Court an affidavit that the Company has filed a Current Report on Form 8-K providing the Company’s stockholders with the notice required by the Dismissal Order and pay or cause to be paid the Attorneys’ Fee to the stockholders’ counsel to an account designated by the stockholders’ counsel. Such payment fully satisfied and resolved the stockholders’ and the stockholders’ counsel’s entitlement to any fees or expenses in the Action.

 

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

 

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

 

On February 13, 2023, a derivative stockholder complaint was filed against certain of the Company’s current and former officers and directors as well as the Company’s external manager, naming the Company as a nominal defendant. The action was commenced in the United States District Court for the Eastern District of New York and is captioned Gossett v. Moore, et al., No. 1:23-cv-1168. The complaint asserts claims for breach of fiduciary duty against the former officers and directors and aiding and abetting breaches of fiduciary of duty against the external manager, arising from alleged misstatements and omissions made in certain of the Company’s SEC filings made in connection with our initial public offering (the “IPO”) and certain of the Company’s SEC filings after the IPO. On or about April 24, 2023, plaintiffs filed a joint stipulation and proposed order consolidating this action with a related derivative action, Wong v. Moore et al., No. 1:23-cv-0559, appointing co-lead counsel, and applying the stay in the Wong action to the consolidated action, pending resolution of any motions to dismiss in a related action Maschhoff v. Polished.com Inc. et al, No. 22-CV-06606, pending in the United States District Court for the Eastern District of New York. To date, the stipulation has yet to be ordered.

 

On October 4, 2023, another derivative stockholder complaint was filed, also against the same defendants in the Gossett action above. This action was commenced in the Supreme Court of the State of New York for Kings County and is captioned Dong v. Moore et al., No. 528769/2023. That complaint asserts claims for breach of fiduciary duty, aiding and abetting breaches of fiduciary duty, waste of corporate assets, unjust enrichment, and gross mismanagement. The parties are discussing staying this action pending resolution of the related Maschhoff action.

 

On December 29, 2023, defendants in the Maschoff action filed a letter regarding a proposed motion to dismiss the Complaint for failure to state a claim under Federal Rules of Civil Procedure 12(b)(6) and 9(b) and the Private Securities Litigation Reform Act of 1995, 15 U.S.C. §§ 78u-4, et seq. A pre-motion conference has been set for February 27, 2024. The Company believes that the allegations lack merit and intends to defend against the action vigorously.

 

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

 

Risks Related to this Offering and Ownership of Our Securities

 

The closing of this offering is contingent on the Company reaching an agreement with Bank of America and the other lenders to resolve the outstanding events of default under the Credit Agreement, waive the prepayment of equity proceeds requirement under the Credit Agreement and permit the Company to use a substantial portion of the net proceeds from this offering for general working capital purposes, but the Company cannot guarantee a resolution on a timely basis, on favorable terms, or at all.

 

On February 6, 2024, the Company received a Notice of Additional Events of Default and Acceleration, Imposition of Default Rate, Set-Off and Termination of Commitments (the “Notice of Acceleration”) from Bank of America, regarding the Credit Agreement. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Amendment of Bank of America Credit Agreement; Notice of Acceleration.” The Company is seeking to reach a resolution with Bank of America and the other lenders and will pursue a defense to any enforcement action taken by Bank of America, but the Company cannot guarantee a resolution on a timely basis, on favorable terms, or at all. If the Company is unable to reach a resolution, it would have a material adverse effect on the Company’s liquidity, financial condition and results of operations and could lead the Company to seek relief under bankruptcy or insolvency laws. Additionally, the closing of this offering is contingent on the Company reaching an agreement with Bank of America and the other lenders to waive the outstanding events of default and the prepayment of equity proceeds requirement under the Credit Agreement and permit the Company to use a substantial portion of the net proceeds from this offering for general working capital purposes.

 

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We are subject to the continued listing requirements of the NYSE American. If we are unable to comply with such requirements, our common stock would be delisted from the NYSE American, which would limit investors’ ability to effect transactions in our common stock and subject us to additional trading restrictions.

 

Shares of our common stock are currently listed on the NYSE American. In order to maintain our listing, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of stockholders’ equity and a minimum number of public stockholders. In addition to these objective standards, the NYSE American may delist the securities of any issuer if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; if the issuer sells or disposes of principal operating assets or ceases to be an operating company; if an issuer fails to comply with the NYSE American’s listing requirements; if an issuer’s common stock sells at what the NYSE American considers a “low selling price” (generally trading below $0.20 per share for an extended period of time); or if any other event occurs or any condition exists which makes continued listing on the NYSE American, in its opinion, inadvisable. On September 13, 2023, we received a deficiency letter from the NYSE American indicating that we are not in compliance with Section 1003(f)(v) of the NYSE American Company Guide, because shares of our common stock had been selling for a low price per share for a substantial period time. On October 20, 2023, we effected a 1-for-50 reverse stock split of our common stock. The closing price of our common stock on                  , 2024 was $        per share. If we fail to regain compliance with the NYSE American continued listing standards by March 13, 2024, the NYSE American will commence delisting proceedings.

 

If the NYSE American delists our shares of common stock from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our common stock would qualify to be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:

 

a limited availability of market quotations for our securities;

 

reduced liquidity for our securities;

 

a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

 

a limited amount of news and analyst coverage; and

 

a decreased ability to issue additional securities or obtain additional financing in the future.

 

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our shares of common stock are listed on the NYSE American, our shares of common stock qualify as covered securities under such statute. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. If we were no longer listed on the NYSE American, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities. As a result, we could incur additional expenses related to complying with such regulations, or incur costs associated with fines, penalties, or litigation to the extent that we become the subject of an administrative enforcement action associated with the application of such state regulations.

 

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

 

You should consider an investment in our securities to be risky, and you should only invest in our securities if you can withstand a significant loss and wide fluctuations in the market value of your investment. The market price and trading volume of our common stock may fluctuate significantly. Many factors that are beyond our control may materially adversely affect the market price of your common stock, the marketability of your common stock and our ability to raise capital through equity financings. In addition to the other risks mentioned in this “Risk Factors” section, these factors include the following:

 

actual or anticipated variations in our periodic operating results;

 

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

 

changes in earnings estimates or financial projections we may provide to the public and any changes in these estimates or projections or our failure to meet these estimates or projections; failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates or ratings by any securities analysts who follow us or our failure to meet these estimates or the expectations of investors;

 

changes in market valuations of similar companies;

 

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actions or announcements by us or our competitors of new businesses, services or products, significant technical innovations, acquisitions, strategic partnerships, joint ventures, operating results or capital commitments;

 

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

 

changes in operating performance and stock market valuations of other technology or retail companies generally, or those in our industry in particular;

 

price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;

 

changes in laws or regulations applicable to our business;

 

additions or departures of key personnel;

 

actions by stockholders, including sales of large blocks of our common stock;

 

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

 

our ability to maintain the listing of our common stock on NYSE American.

 

In addition, stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies, including e-commerce companies. Stock prices of many technology companies, including e-commerce companies, have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. Volatility in our stock price could adversely affect our business and financing opportunities and expose us to litigation. Securities litigation can subject us to substantial costs, divert resources and the attention of management from our business and materially adversely affect our business, financial condition and operating results.

 

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

 

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

 

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

 

We have not paid in the past and do not expect to declare or pay dividends in the foreseeable future, as we anticipate that we will invest future earnings in the development and growth of our business. In addition, under our Credit Agreement, we are restricted from paying cash dividends, and we expect these restrictions to continue in the future, which may in turn limit our ability to pay cash dividends on our common stock. Our ability to pay cash dividends may also be restricted by the terms of any future credit agreement or any future debt or preferred equity securities that we or our subsidiaries may issue. Therefore, holders of our common stock may not receive any return on their investment unless they sell their securities, and holders may be unable to sell their securities on favorable terms or at all.

 

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

 

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

 

Future issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock could cause the market price of our common stock to decline and would result in the dilution of our stockholders’ holdings.

 

Future issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock, could cause the market price of our common stock to decline. We cannot predict the effect, if any, of future issuances of our securities on the price of our common stock. In all events, future issuances of our common stock would result in the dilution of our stockholders’ holdings. In addition, the perception that new issuances of our securities could occur could adversely affect the market price of our common stock.

 

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

 

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

 

For as long as we are an “emerging growth company,” or a “smaller reporting company” we will not be required to comply with certain reporting requirements that apply to some other public companies, and such reduced disclosures requirement may make our common stock less attractive.

 

As an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”), we may take advantage of exemptions from certain disclosure requirements applicable to other public companies that are not emerging growth companies. We are an emerging growth company until the earliest of (i) the last day of the fiscal year during which we have total annual gross revenues of $1.235 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the first sale of common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”); (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC.

 

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For so long as we remain an “emerging growth company,” we will not be required to, among other things:

 

have an auditor report on our internal control over financial reporting pursuant to Sarbanes-Oxley;

 

comply with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about our audit and our financial statements;

 

include detailed compensation discussion and analysis in our filings under the Exchange Act and instead may provide a reduced level of disclosure concerning executive compensation; and

 

hold a non-binding stockholder advisory vote on executive compensation and stockholder approval of any “golden parachute” payments not previously approved.

 

Notwithstanding the above, we are also currently a “smaller reporting company”, meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have either: (i) a public float of less than $250 million, or (ii) annual revenues of less than $100 million during the most recently completed fiscal year and: (A) no public float, or (B) a public float of less than $700 million. In the event that we are still considered a smaller reporting company, at such time we cease being an emerging growth company, the disclosure we will be required to provide in our SEC filings will increase but will still be less than it would be if we were not considered either an “emerging growth company” or a smaller reporting company. Specifically, similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as an emerging growth company or smaller reporting company may make it harder for investors to analyze the Company’s results of operations and financial prospects.

 

Because of these exemptions, some investors may find our common shares less attractive, which may result in a less active trading market for our common stock, and our share price may be more volatile.

 

Our management will have broad discretion in the use of the net proceeds from this offering and may invest or spend the proceeds in ways with which you do not agree and in ways that may not yield a return.

 

Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section titled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary from their currently intended use. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in investment-grade, interest-bearing securities. These investments may not yield a favorable return to our securityholders.

 

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You will experience immediate and substantial dilution in the net tangible book value per share of the common stock you purchase in the offering.

 

The offering price per share in this offering may exceed the net tangible book value per share of our common stock outstanding prior to this offering. After giving effect to the sale by us of                shares of common stock at a price of $        per share, at an assumed public offering price of $        per share, the last reported sale price of our common stock as reported on the NYSE American on               , 2024, and Pre-Funded Warrants at a price of $        per Pre-Funded Warrant, and after deducting commissions and estimated offering expenses payable by us, and assuming full exercise of the Pre-funded Warrants, you will experience immediate dilution of $        per share, representing the difference between our net tangible book value per share as of September 30, 2023 after giving effect to this offering and the offering price. The exercise of outstanding warrants and stock options may also result in further dilution of your investment. See the section entitled “Dilution” on page 42 below for a more detailed illustration of the dilution you will incur if you participate in this offering.

 

The Pre-Funded Warrants are speculative in nature.

 

Except as otherwise provided in the Pre-Funded Warrants, until holders of Pre-Funded Warrants acquire our common stock upon exercise of the Pre-Funded Warrants, holders of Pre-Funded Warrants will have no rights with respect to our common stock underlying such Pre-Funded Warrants. Upon exercise of the Pre-Funded Warrants, the holders will be entitled to exercise the rights of a stockholder of our common stock only as to matters for which the record date occurs after the exercise date.

 

Moreover, following this offering, the market value of the Pre-funded Warrants is uncertain. There can be no assurance that the market price of our common stock will ever equal or exceed the price of the Pre-Funded Warrants, and, consequently, whether it will ever be profitable for investors to exercise their Pre-funded Warrants.

 

There is no established public trading market for the Pre-funded Warrants being offered in this offering, and we do not expect a market to develop for the Pre-funded Warrants.

 

There is no established public trading market for the Pre-funded Warrants being offered in this offering, and we do not expect a market to develop. In addition, we do not intend to apply to list the Pre-funded Warrants on any national securities exchange or other nationally recognized trading system. Without an active market, the liquidity of the Pre-funded Warrants will be limited. Further, the existence of the Pre-funded Warrants may act to reduce both the trading volume and the trading price of our common stock.

 

Upon our dissolution, you may not recoup all or any portion of your investment.

 

In the event of a liquidation, dissolution or winding-up of us, whether voluntary or involuntary, the proceeds and/or our assets may not be sufficient to repay the aggregate investment you purchased in our company. In this event, you could lose some or all of your investment.

 

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

 

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

 

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

 

provide that the Board is expressly authorized to adopt, amend or repeal our bylaws;

 

providing indemnification to our directors and officers;

 

controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings;

 

do not give the holders of our common stock cumulative voting rights with respect to the election of directors;

 

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

 

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

 

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

 

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

 

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CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements that involve risks and uncertainties. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in our “Prospectus Summary,” “Use of Proceeds,” “Risk Factors,” “Management Discussion and Analysis of Financial Condition and Result of Operations,” and “Business” sections. In some cases, you can identify these forward-looking statements by terms such as “anticipate,” “believe,” “continue,” “could,” “depends,” “estimate,” “expects,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms or other similar expressions, although not all forward-looking statements contain those words.

 

Our operations and business prospects are always subject to risks and uncertainties including, among others:

 

our ability to generate proceeds from this offering to pay down our outstanding obligations under our existing credit facilities, meet the liquidity conditions pursuant to the Credit Agreement and operate our business;

 

risks related to the failure to receive the expected gross proceeds from this offering, which we expect will likely force us to file for bankruptcy protection;

 

our continued ability to access our existing credit facilities;

 

our ability to deliver and execute on our turnaround plan, to finalize or fully execute actions and steps that would be probable of mitigating the existence of “substantial doubt” regarding our ability to continue as a going concern, including our ability to establish and maintain profitability;

 

our potential need to seek additional strategic alternatives, including restructuring or refinancing of our debt, seeking additional debt or equity capital, reducing or delaying our business activities and strategic initiatives, or selling assets, other strategic transactions and/or other measures, including obtaining relief under the U.S. Bankruptcy Code, and the terms, value and timing of any transaction resulting from that process, which we expect will likely force us to file for bankruptcy protection;

 

our ability to increase cash flow to support our operating activities and fund our obligations and working capital needs;

 

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

 

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

 

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

 

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our goals and strategies;

 

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

 

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

 

expected changes in our revenue, costs or expenditures;

 

growth of and competition trends in our industry;

 

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

 

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

 

the risk of an enforcement action by the SEC with respect to our disclosure, filings or previous failures to file reports under the Exchange Act;

 

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

 

relevant government policies and regulations relating to our industry.

 

The forward-looking statements in this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus.

 

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USE OF PROCEEDS

 

We estimate that the net proceeds from this offering will be approximately $        million, based on an assumed offering price of $        and gross proceeds of $        million after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and assuming we sell only shares of common stock and no Pre-Funded Warrants. If the representative of the underwriters exercises its over-allotment option in full, we estimate that our net proceeds will be approximately $        million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

A $1.00 increase (decrease) in the assumed public offering price of $        per share (the closing price of our common stock as quoted on the NYSE American on               , 2024) would increase (decrease) the aggregate net proceeds to us from this offering by approximately $        million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 500,000 shares in the number of shares offered by us would increase (decrease) the net proceeds to us from this offering by approximately $        million, assuming that the assumed public offering price remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

We intend to use the net proceeds for general working capital purposes and for a mandatory principal payment on our term loan of $       million (or $       million if the representative of the underwriters exercises its option to purchase additional shares in full to cover over-allotments, if any).

 

In the ordinary course of our business, we expect to from time to time evaluate the acquisition of, investment in or in-license of complementary products, technologies or businesses, and we could use a portion of the net proceeds from this offering for such activities. We currently do not have any agreements, arrangements or commitments with respect to any potential acquisition, investment or license.

 

This expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds from this offering.

 

Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.

 

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MARKET PRICE OF OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

Our common stock is listed on the NYSE American under the symbol “POL.” A description of the common stock that we are issuing in this offering is set forth under the heading “Description of Securities” beginning on page 87 of this prospectus.

 

The last reported sale price for our common stock on               , 2024 was $        per share.

 

Holders

 

As of February 2, 2024, we had 44 record holders of our common stock and no preferred stock issued and outstanding. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent and registrar of our common stock is Equiniti Trust Company, LLC. The transfer agent and registrar’s address is 48 Wall Street, 22nd Floor, New York, NY 10005.

 

Dividend Policy

 

We have not declared or paid any cash dividends on our capital stock since our inception. We intend to retain future earnings, if any, to finance the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Payment of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, the requirements and contractual restrictions of then-existing debt instruments and other factors that our board of directors deems relevant.

 

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CAPITALIZATION

 

The following table sets forth our cash and capitalization as of September 30, 2023, as follows:

 

  on an actual basis; and

 

 

on an as adjusted basis to give further effect to our issuance and sale of                shares of our common stock in this offering at the assumed public offering price of $        per share (the closing price of our common stock as quoted on the NYSE American on               , 2024), after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, totaling $1.4 million, and assuming we sell only shares of common stock and no Pre-Funded Warrants.

 

The as adjusted information below is illustrative only, and our capitalization following the closing of this offering will change based on the actual public offering price and other terms of this offering determined at pricing. You should read the information in this table, together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus by us.

 

 

   September 30, 2023 
   Actual   As Adjusted(1) 
Cash  $9,811   $             
Notes payable   93,019     
Stockholders’ equity          
Common stock, par value $0.0001 per share; 200,000,000 shares authorized; 2,109,398 shares issued and outstanding, actual; 200,000,000 shares authorized, 5,115,410 shares issued and outstanding, as adjusted   1     
Additional paid-in capital   223,029     
Accumulated deficit   (168,664)   
Total stockholders’ equity  $54,366   $ 
Total capitalization  $157,196   $ 
Total liabilities and stockholders’ equity  $238,817   $ 

 

 

(1) The as adjusted balance sheet data in the table above reflects the sale and issuance by us of shares of our common stock in this offering, at the assumed public offering price of $        per share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, totaling $1.4 million.

 

Each $1.00 increase (decrease) in the assumed offering price of $        per share (the closing price of our common stock as quoted on the NYSE American on               , 2024), would increase (decrease) our as adjusted cash, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by approximately $        million, assuming the number of shares offered by us, as set forth on the cover page of this offering remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 500,000 shares in the number of shares of common stock offered by us would increase (decrease) our as adjusted cash, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by approximately $        million, assuming the assumed offering price of $        per share (the closing price of our common stock as quoted on the NYSE American on               , 2024), remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

 

The number of shares of our common stock that will be outstanding after this offering is based on 2,109,398 shares of our common stock outstanding as of September 30, 2023, assumes no exercise by the underwriters of their over-allotment option and excludes:

 

  1,731 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of September 30, 2023, with a weighted-average exercise price of $28.89 per share;

 

  1,871,333 shares of our common stock issuable upon the exercise of warrants to purchase common stock outstanding as of September 30, 2023, with a weighted-average exercise price of $114.85 per share;

 

  10,998,269 shares of our common stock reserved for future issuance under our stock incentive plans; and

 

                shares of common stock (or                shares if the representative exercises its over-allotment option in full) issuable upon exercise of warrants to be issued to the representative of the underwriters as part of this offering at an exercise price of $        (assuming a public offering price of $        per share, the last reported sale price of our common stock as reported on the NYSE American on               , 2024).

 

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DILUTION

 

If you invest in our securities, your interest in our securities will be diluted immediately to the extent of the difference between the public offering price per share and the adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value on September 30, 2023 was $(51,807,000), or $(24.56) per share. “Net tangible book value” is total assets minus the sum of liabilities and intangible assets. “Net tangible book value per share” is net tangible book value divided by the total number of shares outstanding.

 

After giving effect to the sale by us in this offering of                shares of common stock at an assumed public offering price of $        per share (the closing price of our common stock as quoted on the NYSE American on               , 2024), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses that we will pay, and assuming we sell only shares of common stock and no Pre-Funded Warrants, our as adjusted net tangible book value as of September 30, 2023 would have been approximately $              , or $        per share of common stock. This amount represents an immediate increase in net tangible book value of $        per share to existing stockholders and an immediate dilution of $        per share to purchasers in this offering. 

 

The following table illustrates this dilution on a per share basis:

 

Assumed public offering price per share         $  
Net tangible book value per share as of September 30, 2023   $ (24.56 )      
Increase in net tangible book value per share attributable to new investors purchasing shares in this offering   $        
As adjusted tangible book value per share after this offering         $
Dilution per share to new investors purchasing shares in this offering         $

 

A $1.00 increase or decrease in the assumed public offering price of our common stock would change our as adjusted net tangible book value per share after this offering by $       , assuming the number of shares of common stock offered by us remains the same and after deducting the estimated underwriting discounts and commissions. Similarly, each aggregate increase or decrease of 500,000 shares of common stock would increase or decrease the dilution to new investors by $        per share, assuming that the assumed public offering price of shares of common stock remains the same and after deducting the estimated underwriting discounts and commissions.

 

To the extent that stock options or warrants are exercised, new stock options are issued under our equity incentive plan, or we issue additional common stock in the future, there will be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

If the representative of the underwriters exercises its option to purchase                additional shares of common stock in this offering in full at the assumed public offering price of $        per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, the net tangible book value per share after this offering would be $        per share, and the dilution in net tangible book value per share to new investors purchasing common stock in this offering would be $        per share.

 

The number of shares of our common stock to be outstanding after this offering is based on 2,109,398 shares of our common stock outstanding as of September 30, 2023, assumes no exercise by the underwriters of their over-allotment option and excludes:

 

  1,731 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of September 30, 2023, with a weighted-average exercise price of $28.89 per share;

 

  1,871,333 shares of our common stock issuable upon the exercise of warrants to purchase common stock outstanding as of September 30, 2023, with a weighted-average exercise price of $114.85 per share;

 

  10,998,269 shares of our common stock reserved for future issuance under our stock incentive plans; and

 

                shares of common stock (or                shares if the representative exercises its over-allotment option in full) issuable upon exercise of warrants to be issued to the representative of the underwriters as part of this offering at an exercise price of $        (assuming a public offering price of $        per share, the last reported sale price of our common stock as reported on the NYSE American on               , 2024).

 

The information discussed above is illustrative only and will adjust based on the actual public offering price, the actual number of shares that we offer in this offering, and other terms of this offering determined at pricing. In addition, the information discussed above assumes no exercise of the over-allotment option.

 

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

 

The following discussion and analysis provide information which our management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read together with the consolidated financial statements as of and for the years ended December 31, 2022 and 2021 and the related notes, and the interim condensed consolidated financial statements as of and for the nine months ended September 30, 2023 and 2022 and related notes. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. The Company’s actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this prospectus.

 

The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement adjustments made to consolidated financial statements as of and for the year ended and December 31, 2021. For additional information and a detailed discussion of the Restatement, see Note 2, “Restatement.”

 

Overview

 

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

 

Recent Developments

 

In our third quarter earnings release we reported that we expected 2023 net sales between $330 million and $350 million and low single digit EBITDA margins. Based on currently available information, we now expect 2023 net sales between $315 million and $325 million, with EBITDA below our previous estimate.

 

Our cash and cash equivalents were approximately $10.1 million as of February 2, 2024, of which approximately $5.0 million was unrestricted. We will need to obtain financing in order to continue to fund our operations on or before March 30, 2024. Any failure or delay to secure such financing could force us to delay, limit or terminate our operations, make reductions in our workforce, liquidate all or a portion of our assets and/or seek protection under Chapters 7 or 11 of the United States Bankruptcy Code. There can be no assurance that our implementation of these contingency plans will not have a material adverse effect on our business.

 

If the net proceeds from this offering are $13.6 million (assuming an offering with gross proceeds of $15 million), we believe we will be able to fund our operations until June 22, 2024 under our current business plan. This date assumes we receive a requested tax refund of approximately $3.0 million on March 2, 2023 and that our bank will defer certain payments due under our credit facilities until we receive proceeds of this offering.

 

The closing of this offering is contingent on the Company reaching an agreement with Bank of America and the other lenders to waive the outstanding events of default and the prepayment of equity proceeds requirement under the Credit Agreement and permit the Company to use a substantial portion of the net proceeds from this offering for general working capital purposes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Amendment of Bank of America Credit Agreement; Notice of Acceleration.”

 

Credit Swap Termination

 

In December 2023, the Company and Bank of America agreed to terminate the Company’s outstanding interest rate swap, which had an original effective date of May 31, 2022 and an original maturity date of May 9, 2027 (such termination, the “Credit Swap Termination”). The Credit Swap Termination resulted in a termination payment from Bank of America to the Company of $2.175 million.

 

Amendment of Bank of America Credit Agreement; Notice of Acceleration

 

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

 

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The Company entered into the Second Amendment, in part, to waive events of defaults on its existing Credit Agreement. The Term Loan Lenders, as part of the Second Amendment, agreed to defer the principal installment of the Term Loans in the amount of $937,500 required to be made on December 31, 2023 until the earliest to occur of (i) January 31, 2024, (ii) the date on which a subordinated Term Loan or an equity contribution, as applicable, is consummated (even if the date of such consummation precedes December 31, 2023) and (iii) an event of default. The Second Amendment requires the Company to pay the existing Term Facility and Revolving Facility by November 30, 2024 (the “Maturity Date”).

 

On February 6, 2024, the Company received a Notice of Additional Events of Default and Acceleration, Imposition of Default Rate, Set-Off and Termination of Commitments (the “Notice of Acceleration”) from Bank of America, regarding the Credit Agreement. The Notice of Acceleration asserts certain events of default relating to non-payment of certain principal and interest amounts and fees due and payable under the Credit Agreement on January 31, 2024. Pursuant to the Notice of Acceleration, Bank of America demanded immediate repayment of all principal and accrued interest, as well as immediate repayment of all additional fees, costs, charges and other Obligations (as defined in the Credit Agreement) owing under the Credit Agreement and each other Loan Document (as defined in the Credit Agreement).

 

The Notice of Acceleration declares that the Company’s outstanding obligations under the Credit Agreement bear interest at the Default Rate (as defined in the Credit Agreement) and that the commitments of the lenders to make loans and obligations of Bank of America, as the L/C Issuer, to make certain credit extensions pursuant to the Credit Agreement be immediately terminated. In addition, Bank of America, as Administrative Agent, has exercised its rights of set-off as described in the Credit Agreement against certain deposits contained in the accounts of certain of the Company’s subsidiaries maintained at Bank of America in the aggregate amount of $1,989,754.83 and applied such amounts towards the repayment of a portion of the Company’s outstanding liabilities and other obligations under the Credit Agreement.

 

The Company is seeking to reach a resolution with Bank of America and the other lenders and will pursue a defense to any enforcement action taken by Bank of America, but the Company cannot guarantee a resolution on a timely basis, on favorable terms, or at all. If the Company is unable to reach a resolution, it would have a material adverse effect on the Company’s liquidity, financial condition and results of operations and could lead the Company to seek relief under bankruptcy or insolvency laws. The closing of this offering is contingent on the Company reaching an agreement with Bank of America and the other lenders to waive the outstanding events of default and the prepayment of equity proceeds requirement under the Credit Agreement and permit the Company to use a substantial portion of the net proceeds from this offering for general working capital purposes.

 

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

 

After giving effect to the Second Amendment, the Borrowers must make scheduled principal installments payments in respect of the Term Loan on December 31, 2023 and January 31, 2024, each in an amount equal to $937,500, and on the last day of each fiscal quarter ending thereafter through and including September 30, 2024, each in an amount equal to $1,875,000. Revolving Loans may be repaid and reborrowed at any time until the Maturity Date, subject to the terms and conditions set forth in the Credit Agreement. Mandatory prepayments of Revolving Loans are required if the amount borrowed at any time exceeds the commitment amount. The Company may voluntarily prepay the Loans from time to time in accordance with the provisions of the Credit Agreement, and will be required to prepay the Loans under certain limited circumstances as set forth in the Credit Agreement, including upon receipt of cash proceeds in connection with certain specified asset sales, receipt of loss or condemnation proceeds or other cash proceeds received other than in the ordinary course of business (including receipt of the net proceeds of this offering) or upon receipt of cash proceeds from the incurrence of indebtedness that is not permitted under the Credit Agreement, all as more specifically set forth in the Credit Agreement. The Loans may from time to time be further evidenced by separate promissory notes issued by the Borrowers.

 

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

 

Reverse Stock Split

 

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

 

44

 

 

Trends and Principal Factors Affecting Our Financial Performance

 

Our operating results are primarily affected by the following factors:

 

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

 

our ability to offer competitive product pricing;

 

our ability to broaden product offerings;

 

industry demand and competition;

 

market conditions and our market position; and

 

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

 

Results of Operations

 

Comparison of Three Months Ended September 30, 2023 and 2022

 

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

 

   Three Months Ended   Three Months Ended 
   September 30, 2023   September 30, 2022 
   Amount   % of Sales   Amount   % of Sales 
Product sales, net  $77,818    100.0%  $143,566    100.0%
Cost of goods sold   62,513    80.3%   122,431    85.3%
Gross profit   15,305    19.7%   21,135    14.7%
                     
Operating Expenses                    
Personnel   5,874    7.5%   8,348    5.8%
Advertising   5,061    6.5%   7,534    5.2%
Bank and credit card fees   2,557    3.3%   5,932    4.1%
Depreciation and amortization   1,061    1.4%   2,882    2.0%
General and administrative   6,747    8.7%   7,260    5.1%
                     
Total Operating Expenses   21,300    27.4%   31,956    22.3%
                     
INCOME (LOSS) FROM OPERATIONS   (5,995)   -7.7%   (10,821)   -7.5%
                     
Other Income (Expenses)                    
Interest income   407    0.5%   174    0.1%
Interest expense   (1,886)   -2.4%   (1,351)   -0.9%
Gain (loss) on change in fair value of derivative instruments   446    0.6%   4,476    3.1%
Other income (expense)   227    0.3%   (50)   0.0%
                     
Total Other Income (Expenses)   (806)   -1.0%   3,249    2.3%
                     
NET INCOME (LOSS) BEFORE INCOME TAXES   (6,801)   -8.7%   (7,572)   -5.3%
                     
INCOME TAX (EXPENSE) BENEFIT   167    0.2%   2,388    1.7%
                     
NET INCOME (LOSS)  $(6,634)   -8.5%  $(5,184)   -3.6%

 

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

 

45

 

 

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

 

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

 

Personnel expenses. Personnel expenses include employee salaries and bonuses plus related payroll taxes. It also includes health insurance premiums, training costs and stock compensation expense. Our personnel expenses were $5.9 million for the three months ended September 30, 2023, as compared to $8.3 million for the three months ended September 30, 2022, a decrease of $2.5 million, or 29.6%. As a percentage of net sales, personnel expenses were 7.5% and 5.8% for the three months ended September 30, 2023 and 2022, respectively. In the current quarter, we affected a reduction in force to align headcount to declines in revenue. As a result, personnel costs include $0.2 million of severance costs.

 

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

 

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

 

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

 

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

 

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

 

   Three Months Ended
September 30
 
   2023   2022 
Professional Fees  $2,237   $3,029 
Insurance   1,341    1,641 
Loss on Disposal of Fixed Assets   1,094    - 
Rent   1,045    988 
All Other   1,030    1,602 
           
Total  $6,747   $7,260 

 

46

 

 

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

 

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

 

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

 

Comparison of the Nine Months ended September 30, 2023 and 2022

 

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

 

   Nine Months Ended   Nine Months Ended 
   September 30, 2023   September 30, 2022 
   Amount   % of Sales   Amount   % of Sales 
Product sales, net  $261,018    100.0%  $430,710    100.0%
Cost of goods sold   204,987    78.5%   355,788    82.6%
Gross profit   56,031    21.5%   74,922    17.4%
                     
Operating Expenses                    
Personnel   18,379    7.0%   22,396    5.2%
Advertising   14,694    5.6%   18,475    4.3%
Bank and credit card fees   8,935    3.4%   15,121    3.5%
Depreciation and amortization   3,199    1.2%   8,588    2.0%
General and administrative   16,619    6.4%   15,078    3.5%
                     
Total Operating Expenses   61,826    23.7%   79,658    18.5%
                     
INCOME (LOSS) FROM OPERATIONS   (5,795)   -2.2%   (4,736)   -1.1%
                     
Other Income (Expenses)                    
Interest income   1,139    0.4%   282    0.1%
Adjustment in value of contingency   -    0.0%   (2)   0.0%
Interest expense   (4,821)   -1.8%   (2,594)   -0.6%
Gain (loss) on change in fair value of derivative instruments   1,020    0.4%   3,540    0.8%
Loss on extinguishment of debt   -    0.0%   (3,241)   -0.8%
Other income (expense)   331    0.1%   (140)   0.0%
                     
Total Other Income (Expenses)   (2,331)   -0.9%   (2,155)   -0.5%
                     
NET INCOME (LOSS) BEFORE INCOME TAXES   (8,126)   -3.1%   (6,891)   -1.6%
                     
INCOME TAX (EXPENSE) BENEFIT   (265)   -0.1%   3,234    0.8%
                     
NET INCOME (LOSS)  $(8,391)   -3.2%  $(3,657)   -0.8%

 

47

 

 

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

 

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

 

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

 

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

 

In 2023, we affected a reduction in force to align headcount to declines in revenue. As a result, personnel costs include $0.3 million of severance costs.

 

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

 

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

 

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

 

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

 

48

 

 

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

 

   Nine Months Ended
September 30
 
   2023   2022 
Professional Fees  $5,421   $5,625 
Insurance   3,864    3,324 
Rent   3,237    3,045 
Loss on Disposal of Fixed Assets   1,094    - 
All Other   3,003    3,084 
           
Total  $16,619   $15,078 

 

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

 

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

 

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

 

Comparison of Years Ended December 31, 2022 and 2021

 

Restatement

 

The Company restated its previously issued financial statements as of and for the year ended December 31, 2021, to reflect the following adjustments:

 

Consolidated Statement of Operations 

 

  1. Reduction in revenue of $16.6 million, which comprised the following: (1) an increase in the allowance for sales returns of $7.4 million, (2) revenue of $8.1 million that should be recognized in 2022, and (3) sales tax collections of $1.1 million improperly recognized as revenue.

 

  2. Net reduction in cost of goods of $6.7 million, which comprised of the following: (1) reduction in product cost of sales due to an increase in the allowance for sales returns of $4.0 million, (2) reduction in product cost of sales of $6.0 million relating to revenue cutoff that should be recognized in 2022, and (3) an offsetting increase in cost of goods sold from an over accrual of vendor rebates ($0.4 million), under accrual of vendor purchases ($1.5 million), and an error in inventory cutoff ($1.4 million).

  

  3. Increase in general and administrative expenses of $0.9 million, resulting from an increase in bad debt expense of $0.6 million in accordance with the Company’s policy for allowance for doubtful accounts, and an over accrual of sales tax receivable of $0.3 million.

 

  4. As a result of the changes above, income tax changed from a tax benefit of $4.4 million to a tax expense of $0.1 million.

 

Consolidated Balance Sheet

 

  5. Net increase in current assets of $6.6 million, which comprised the following: (1) increase in inventory of $7.7 million, resulting from the reduction in cost of goods sold attributable to the allowance for sales returns, revenue cutoff, and inventory cutoff, offset by a reduction in showroom inventory of $1.0 million that was reclassified as property and equipment, (2) reduction in receivables of $1.1 million, resulting from an increase to the allowance for doubtful accounts of $0.6 million, and an over accrual of vendor rebates (as detailed in Nos. 1-4 above).

 

  6. Net increase in current liabilities of $18.3 million, which comprised the following: (1) increase in accounts payable of $10.3 million, as a result of the increase in the allowance for sales returns, and an under accrual of sales tax refund receivable (netted with the sales tax liability), and (2) increase in customer deposits related to revenue cutoff (as detailed in Nos. 1-4 above).

 

  7. Increase in long-term liabilities of $4.5 million, relating to an increase to the deferred tax liability as a result of the changes described above.

 

49

 

 

POLISHED.COM INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2021
(in thousands)

 

   As
Originally
         As 
   Reported     Adjustments   Restated 
Current assets  $121,318  (5)  $6,577   $127,895 
Property and equipment   3,554  (5)   1,031    4,585 
Total assets  $375,984     $7,608   $383,592 
                  
Current liabilities  $105,341  (6)   18,320   $123,661 
Deferred tax liability   3,867  (7)   4,540    8,407 
Total liabilities   170,381      22,860    193,241 
Accumulated deficit   (19,056)     (15,252)   (34,308)
Total liabilities and stockholders’ equity  $375,984     $7,608   $383,592 

 

POLISHED.COM INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2021

(in thousands)

 

   As
Originally
         As 
   Reported     Adjustments   Restated 
Product sales, net  $362,314  (1)  $(16,589)  $345,725 
Cost of goods sold   282,655  (2)   (6,733)   275,922 
Operating expense   71,339  (3)   918    72,257 
Income taxes   4,376  (4)   (4,478)   (102)
Net income (loss)  $7,670     $(15,252)  $(7,582)
                  
Net income (loss) per common share                 
BASIC  $5.94          $(5.87)
DILUTED  $5.02          $(5.87)
                  
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                 
BASIC   1,290,566           1,290,566 
DILUTED   1,529,209           1,290,566 

 

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POLISHED.COM INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2021

(in thousands)

 

   Common Stock   Additional
Paid-Inc
   Accumulated   Stockholders’ 
   Shares   Amount   Capital   Deficit   Equity 
Balance at December 31, 2021 as originally filed   106,387,322   $11   $224,658   $(19,056)  $205,603 
Adjustments to result of operations for the year ended December 31, 2021   -    -    -    (15,252)   (15,252)
Balance at December 31, 2021 as restated   106,387,322   $11   $224,658   $(34,308)  $190,351 

 

POLISHED.COM INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2021

(in thousands)

 

   As
Originally
Reported
      Adjustments   As
Restated
 
Cash Flows from Operating Activities               
Net income (loss)  $7,670  (1-4)   $(15,252)  $(7,582)
Receivables   (5,603) (5)    444    (5,159)
Inventory   (18,459) (5)    (8,121)   (26,580)
Accounts payable and accrued expenses   14,178  (6)    10,207    24,385 
Customer deposits   (18,968) (6)    8,113    (10,855)
Deferred tax expense (benefit)   (4,908) (7)    4,540    (368)
Miscellaneous other accounts   1,116       69    1,185 
                   
Net cash used in operating activities   (18,328)      -    (18,328)
                   
Net cash used in investing activities   (204,834)      -    (204,834)
                   
Net cash provided by financing activities   247,041       -    247,041 
                   
Net change in cash and restricted cash   23,879            23,879 
Cash and restricted cash at beginning of year   9,912       -    9,912 
                   
Cash and restricted cash at end of year  $33,791      $-   $33,791 

 

51

 

 

The following table sets forth key components of our results of operations for the years ended December 31, 2022 and 2021 in thousands and as a percentage of our revenue.

 

   For the Year Ended   (As Restated)
For the Year Ended
 
   December 31, 2022   December 31, 2021 
   Amount   % of  
Net Sales
   Amount   % of  
Net Sales
 
Product sales, net  $534,474    100.0%  $345,725    100.0%
Cost of goods sold   444,957    83.3%   275,922    79.8%
Gross profit   89,517    16.7%   69,803    20.2%
                     
Operating Expenses                    
Personnel   28,800    5.4%   21,745    6.3%
Advertising   25,461    4.8%   11,961    3.5%
Bank and credit card fees   18,776    3.5%   13,599    3.9%
Depreciation and amortization   11,456    2.1%   6,557    1.9%
Impairment of goodwill and intangible assets   109,140    20.4%   -    - 
Loss on abandonment of right-of-use asset   -    -%   1,437    0.4%
General and administrative   24,226    4.5%   16,958    4.9%
                     
Total Operating Expenses   217,859    40.8%   72,257    20.9%
                     
LOSS FROM OPERATIONS   (128,342)   (24.0)%   (2,454)   (0.7)%
                     
Other Income (Expenses)                    
Interest income   518    0.1%   95    0.0%
Adjustment in value of contingency   (2)   (0.0)%   (9)   (0.0)%
Interest expense   (3,940)   (0.7)%   (3,682)   (1.1)%
Gain on change in fair value of derivative instruments   3,178    0.6%   -    - 
Loss on settlement of debt   (3,240)   (0.6)%   (1,748)   (0.5)%
Other income (expense)   (2,546)   (0.5)%   318