UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10-Q
__________________________
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
|
For the quarterly period ended March 31, 2023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
| For the Transition Period From |
Commission File Number 001-11048
__________________________
ENVELA CORPORATION |
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) |
__________________________
Nevada | 88-0097334 | |
(STATE OF INCORPORATION) | (I.R.S. EMPLOYER IDENTIFICATION NO.) |
1901 GATEWAY DRIVE, STE 100, IRVING, TX 75038
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(972) 587-4049
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)
www.envela.com
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of exchange on which registered | ||
COMMON STOCK, par value $0.01 per share |
| ELA |
| NYSE American |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
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 | ☒ | 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 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 11, 2022,3, 2023, the registrant had 26,924,631 shares of common stock outstanding.
TABLE OF CONTENTS
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| Notes to Condensed Consolidated Financial Statements (unaudited) |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2 |
Table of Contents |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENVELA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
| ||||
Three Months Ended March 31, |
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
| ||||||
Sales |
| $ | 47,415,098 |
| $ | 25,490,441 |
|
| $ | 48,389,040 |
| $ | 47,415,098 |
| ||
Cost of goods sold |
|
| 37,704,064 |
|
|
| 19,186,177 |
|
|
| 36,979,138 |
|
|
| 37,704,064 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gross margin |
|
| 9,711,034 |
|
|
| 6,304,264 |
|
|
| 11,409,902 |
|
|
| 9,711,034 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Expenses: |
|
|
|
|
|
|
|
|
|
| ||||||
Selling, General & Administrative Expenses |
| 6,559,755 |
| 4,153,229 |
|
| 7,905,303 |
| 6,559,755 |
| ||||||
Depreciation and Amortization |
|
| 291,947 |
|
|
| 204,912 |
|
|
| 354,351 |
|
|
| 291,947 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total operating expenses |
|
| 6,851,702 |
|
|
| 4,358,141 |
|
|
| 8,259,654 |
|
|
| 6,851,702 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income |
| 2,859,332 |
| 1,946,123 |
|
| 3,150,248 |
| 2,859,332 |
| ||||||
Other income (expense), net |
| (58,576 | ) |
| 271,941 |
|
| 210,779 |
| (58,576 | ) | |||||
Interest expense |
|
| 123,239 |
|
|
| 179,022 |
|
|
| 117,064 |
|
|
| 123,239 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income before income taxes |
| 2,677,517 |
| 2,039,042 |
|
| 3,243,963 |
| 2,677,517 |
| ||||||
Income tax expense |
|
| 30,292 |
|
|
| 30,770 |
|
|
| 717,646 |
|
|
| 30,292 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 2,647,225 |
|
| $ | 2,008,272 |
|
| $ | 2,526,317 |
|
| $ | 2,647,225 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 0.10 |
|
| $ | 0.07 |
|
| $ | 0.09 |
|
| $ | 0.10 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 0.10 |
|
| $ | 0.07 |
|
| $ | 0.09 |
|
| $ | 0.10 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
| ||||||
Basic |
| 26,924,631 |
| 26,924,631 |
|
| 26,924,631 |
| 26,924,631 |
| ||||||
Diluted |
| 26,939,631 |
| 26,939,631 |
|
| 26,939,631 |
| 26,939,631 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3 |
Table of Contents |
ENVELA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
| March 31, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||||
|
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| ||||||
Assets |
| (unaudited) |
|
|
|
| (unaudited) |
|
| |||||||
Current assets: |
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents |
| $ | 11,497,259 |
| $ | 10,138,148 |
|
| $ | 20,352,709 |
| $ | 17,169,969 |
| ||
Trade receivables, net of allowances |
| 5,357,137 |
| 7,166,533 |
|
| 8,291,353 |
| 7,949,775 |
| ||||||
Notes receivable, net of allowances |
| - |
| 578,250 |
| |||||||||||
Inventories |
| 14,621,575 |
| 14,048,436 |
|
| 19,105,838 |
| 18,755,785 |
| ||||||
Deferred tax asset |
| 1,140,002 |
| 1,488,258 |
| |||||||||||
Current right-of-use assets from operating leases |
| 1,609,077 |
| 1,604,736 |
|
| 1,700,508 |
| 1,683,060 |
| ||||||
Prepaid expenses |
| 612,475 |
| 439,038 |
|
| 1,279,664 |
| 1,231,817 |
| ||||||
Other current assets |
|
| 1,765,355 |
|
|
| 969,624 |
|
|
| 252,387 |
|
|
| 35,113 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total current assets |
| 35,462,878 |
| 34,366,515 |
|
| 52,122,461 |
| 48,892,027 |
| ||||||
Property and equipment, net |
| 9,719,499 |
| 9,806,188 |
|
| 9,228,454 |
| 9,393,802 |
| ||||||
Goodwill |
| 6,140,465 |
| 6,140,465 |
|
| 3,621,453 |
| 3,621,453 |
| ||||||
Intangible assets, net |
| 2,912,370 |
| 3,024,245 |
|
| 4,813,270 |
| 4,993,545 |
| ||||||
Operating lease right-of-use assets |
| 5,286,770 |
| 5,692,141 |
|
| 3,757,873 |
| 4,189,621 |
| ||||||
Other assets |
|
| 236,761 |
|
|
| 237,761 |
|
|
| 198,447 |
|
|
| 186,761 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total assets |
| $ | 59,758,743 |
|
| $ | 59,267,315 |
|
| $ | 73,741,958 |
|
| $ | 71,277,209 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
| ||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable-trade |
| $ | 2,857,674 |
| $ | 2,488,396 |
|
| $ | 2,746,229 |
| $ | 3,358,881 |
| ||
Line of credit |
| 0 |
| 1,700,000 |
| |||||||||||
Notes payable |
| 1,003,592 |
| 1,065,794 |
|
| 1,246,961 |
| 1,250,702 |
| ||||||
Current operating lease liabilities |
| 1,584,169 |
| 1,573,824 |
|
| 1,827,285 |
| 1,686,997 |
| ||||||
Accrued expenses |
| 1,501,178 |
| 1,789,366 |
|
| 2,077,832 |
| 2,286,594 |
| ||||||
Customer deposits and other liabilities |
|
| 1,244,193 |
|
|
| 1,179,224 |
|
|
| 1,767,088 |
|
|
| 282,482 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total current liabilities |
| 8,190,806 |
| 9,796,604 |
|
| 9,665,395 |
| 8,865,656 |
| ||||||
Notes payable, less current portion |
| 15,826,264 |
| 15,970,337 |
|
| 14,419,637 |
| 14,726,703 |
| ||||||
Long-term operating lease liabilities, less current portion |
|
| 5,467,131 |
|
|
| 5,873,057 |
|
|
| 3,814,159 |
|
|
| 4,368,400 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total liabilities |
|
| 29,484,201 |
|
|
| 31,639,998 |
|
|
| 27,899,191 |
|
|
| 27,960,759 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
| ||||||
Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued and outstanding |
| 0 |
| 0 |
| |||||||||||
Preferred stock, $0.01 par value; 5,000,000 shares authorized; |
|
|
|
|
| |||||||||||
no shares issued and outstanding |
| - |
| - |
| |||||||||||
Common stock, $0.01 par value; 60,000,000 shares authorized; |
|
|
|
|
|
|
|
|
|
| ||||||
26,924,631 shares issued and outstanding |
| 269,246 |
| 269,246 |
|
| 269,246 |
| 269,246 |
| ||||||
Additional paid-in capital |
| 40,173,000 |
| 40,173,000 |
|
| 40,173,000 |
| 40,173,000 |
| ||||||
Accumulated deficit |
|
| (10,167,704 | ) |
|
| (12,814,929 | ) | ||||||||
Retained earnings |
|
| 5,400,521 |
|
|
| 2,874,204 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Total stockholders’ equity |
|
| 30,274,542 |
|
|
| 27,627,317 |
|
|
| 45,842,767 |
|
|
| 43,316,450 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total liabilities and stockholders’ equity |
| $ | 59,758,743 |
|
| $ | 59,267,315 |
|
| $ | 73,741,958 |
|
| $ | 71,277,209 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4 |
Table of Contents |
ENVELA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, |
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| ||||||
|
| (Unaudited) |
| (Unaudited) |
|
| (Unaudited) |
| (Unaudited) |
| ||||||
Operations |
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 2,647,225 |
| $ | 2,008,272 |
|
| $ | 2,526,317 |
| $ | 2,647,225 |
| ||
Adjustments to reconcile net income to net cash provided by (used in) operations: |
|
|
|
|
| |||||||||||
Adjustments to reconcile net income to net cash provided by operations: |
|
|
|
|
| |||||||||||
Depreciation, amortization, and other |
| 291,947 |
| 204,912 |
|
| 354,351 |
| 291,947 |
| ||||||
Bad debt expense |
| 0 |
| 6,249 |
|
| (13,091 | ) |
| - |
| |||||
Deferred Taxes |
| 348,256 |
| - |
| |||||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
Trade receivables |
| 1,809,397 |
| (344,103 | ) |
| (328,487 | ) |
| 1,809,397 |
| |||||
Inventories |
| (573,139 | ) |
| (1,623,485 | ) |
| (350,053 | ) |
| (573,139 | ) | ||||
Prepaid expenses |
| (173,436 | ) |
| (576,578 | ) |
| (47,847 | ) |
| (173,436 | ) | ||||
Other assets |
| (794,731 | ) |
| (100,000 | ) |
| (228,959 | ) |
| (794,731 | ) | ||||
Accounts payable and accrued expenses |
| 81,088 |
| (240,410 | ) |
| (821,413 | ) |
| 81,088 |
| |||||
Operating leases |
| 5,449 |
| 19,616 |
|
| 346 |
| 5,449 |
| ||||||
Customer deposits and other liabilities |
|
| 64,969 |
|
|
| 260,615 |
|
|
| 1,484,605 |
|
|
| 64,969 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net cash provided by (used in) operations |
|
| 3,358,769 |
|
|
| (384,912 | ) | ||||||||
Net cash provided by operations |
|
| 2,924,025 |
|
|
| 3,358,769 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Investing |
|
|
|
|
|
|
|
|
|
| ||||||
Investment in note receivable |
| 0 |
| (123,472 | ) | |||||||||||
Payments from notes receivable |
| 578,250 |
| - |
| |||||||||||
Purchase of property and equipment |
|
| (93,384 | ) |
|
| (200,563 | ) |
|
| (8,728 | ) |
|
| (93,384 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net cash used in investing |
|
| (93,384 | ) |
|
| (324,035 | ) | ||||||||
Net cash provided by (used in) investing |
|
| 569,522 |
|
|
| (93,384 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Financing |
|
|
|
|
|
|
|
|
|
| ||||||
Payments on notes payable, related party |
| 0 |
| (71,853 | ) | |||||||||||
Payments on notes payable |
| (206,274 | ) |
| (40,239 | ) |
| (310,807 | ) |
| (206,274 | ) | ||||
Payments on line of credit |
|
| (1,700,000 | ) |
|
| 0 |
|
|
| - |
|
|
| (1,700,000 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net cash used in financing |
|
| (1,906,274 | ) |
|
| (112,092 | ) |
|
| (310,807 | ) |
|
| (1,906,274 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net change in cash and cash equivalents |
| 1,359,111 |
| (821,039 | ) |
| 3,182,740 |
| 1,359,111 |
| ||||||
Cash and cash equivalents, beginning of period |
|
| 10,138,148 |
|
|
| 9,218,036 |
|
|
| 17,169,969 |
|
|
| 10,138,148 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents, end of period |
| $ | 11,497,259 |
|
| $ | 8,396,997 |
|
| $ | 20,352,709 |
|
| $ | 11,497,259 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Supplemental Disclosures |
|
|
|
|
|
|
|
|
|
| ||||||
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
| ||||||
Interest |
| $ | 129,989 |
|
| $ | 179,082 |
|
| $ | 116,061 |
|
| $ | 129,989 |
|
Income taxes |
| $ | 0 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5 |
Table of Contents |
ENVELA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three Months ended March 31, 20212022 and 20222023
(Unaudited)
|
| Common Stock |
|
| Preferred Stock |
|
| Additional Paid-in |
|
| Accumulated |
|
| Total Stockholders' |
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balances at January 1, 2021 |
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | 0 |
|
| $ | 40,173,000 |
|
| $ | (22,863,804 | ) |
| $ | 17,578,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,008,272 |
|
|
| 2,008,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | 0 |
|
| $ | 40,173,000 |
|
| $ | (20,855,532 | ) |
| $ | 19,586,714 |
|
|
| Common Stock |
|
| Preferred Stock |
|
| Additional Paid-in |
|
| Accumulated |
|
| Total Stockholders' |
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balances at January 1, 2022 |
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | - |
|
| $ | 40,173,000 |
|
| $ | (12,814,929 | ) |
| $ | 27,627,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,647,225 |
|
|
| 2,647,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2022 |
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | - |
|
| $ | 40,173,000 |
|
| $ | (10,167,704 | ) |
| $ | 30,274,542 |
|
|
| Common Stock |
|
| Preferred Stock |
|
| Additional Paid-in |
|
| Accumulated |
|
| Total Stockholders' |
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balances at January 1, 2022 |
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | 0 |
|
| $ | 40,173,000 |
|
| $ | (12,814,929 | ) |
| $ | 27,627,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,647,225 |
|
|
| 2,647,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | 0 |
|
| $ | 40,173,000 |
|
| $ | (10,167,704 | ) |
| $ | 30,274,542 |
|
|
| Common Stock |
|
| Preferred Stock |
|
| Additional Paid-in |
|
| Retained |
|
| Total Stockholders' |
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| Equity |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balances at January 1, 2023 |
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | - |
|
| $ | 40,173,000 |
|
| $ | 2,874,204 |
|
| $ | 43,316,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,526,317 |
|
|
| 2,526,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2023 |
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | - |
|
| $ | 40,173,000 |
|
| $ | 5,400,521 |
|
| $ | 45,842,767 |
|
.
The accompanying notes are an integral part of these condensed consolidated financial statements.
6 |
Table of Contents |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — BASIS OF PRESENTATION
TheThese unaudited interim condensed consolidated financial statements of Envela Corporation,Corproration, a Nevada corporation, and its subsidiaries (together with its subsidiaries, the “Company” or “Envela”), included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), including under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United StatesU.S. for interim financial information and with the instructions to Quarterly Reports on Form 10-Q and Article 10 of America (“U.S. GAAP”Regulation S-X prescribed by the Securities and Exchange Commission (the “SEC”) have been condensed or omitted pursuant. Pursuant to the SEC’s rules and regulations, although the Company believes that the disclosures are adequate to makethey do not include all of the information presented not misleading. The Company suggests that theseand notes required by accounting principles generally accepted in the U.S. (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments, which are of a normal and recurring nature except those which have been disclosed elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”), necessary for a fair presentation of the consolidated financial statements for these interim periods, have been included. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be read in conjunction withexpected for the fiscal year ending December 31, 2023 (“fiscal 2023”). For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 (“fiscal 2022”) of Envela filed with the SEC on March 16, 20222023 (the “2021“2022 Annual Report”). In
Contemporaneously with filing this Form 10-Q, we updated our two reportable segments by renaming the opinionECHG segment the “Commercial” segment and the DGSE segment the “Consumer” segment. The segment name changes did not result in any change to the composition of the management of the Company, the accompanying unaudited interim financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary to present fairly its results ofCompany’s operations and cash flows for the periods presented. The results of operations for the periods presented aretherefore did not necessarily indicative of the results to be expected for the full year. Certain reclassifications were maderesult in any change to the prior year's consolidated financial statements to conform to the current year presentation. historical results. Our operations conducted by each of our segments are more specifically described below.
The information provided aspreparation of March 31, 2022 in these notes to the interim condensed consolidated financial statements is unaudited.in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
NOTE 2 — PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS
Envela and its subsidiaries engage in diverse business activities within the recommerce sector. These activities include being one of the nation's premier authenticated recommerce retailers of luxury hard assets; providing end-of-life asset recycling and resale to businesses, organization and retail consumers; offering data destruction and IT asset management; and providing products, services and solutions to industrial and commercial companies. Envela operates primarily via two operating and reportable segments. ThroughOur consumer segment, formerly known as the DGSE segment, operates DGSE, LLC (“DGSE”), it operates Dallas Gold & Silver Exchange, Charleston Gold & Diamond Exchange, and Bullion Express brands. ThroughOur commercial segment, formerly known as the ECHG segment, operates ECHG, LLC (“ECHG”), it operates Echo Environmental Holdings, LLC (“Echo”), ITAD USA Holdings, LLC (“ITAD USA”), Teladvance, LLC (“Teladvance”), CEX Holdings, LLC (“CEX”) and Avail Recovery Solutions, LLC (“Avail”). Envela is a Nevada corporation, headquartered in Irving, Texas.
7 |
Table of Contents |
DGSE
Our consumer segment primarily buys and resells or recycles luxury hard assets like jewelry, diamonds, gemstones, fine watches, rare coins and related collectibles, precious-metal bullion products, gold, silver and other precious-metals. DGSE operatesWe operate seven jewelry stores at both the retail and wholesale levels throughout the United States via its facilities in Texas and South Carolina. The Company expects to expand soon to Arizona, see Note 16 – Subsequent Events, to these interim condensed consolidated financial statements. The consumer segment is currently promoting and building their Bullion Express brand into a leading on-line seller of bullion. Buying and selling items for their precious-metals content is a major method by which DGSE markets itself. DGSEwe are marketed. The consumer segment also offers jewelry repair services, custom-made jewelry and consignment items, and maintains relationships with refiners for precious-metal items that are not appropriate for resale. The CompanyWe also maintainsmaintain a presence in the retail market through its websites, www.dgse.com, www.cgdeinc.com and www.cgdeinc.com.www.bullionexpress.com.
ECHG, through its subsidiaries,Our commercial segment, primarily buys electronic components from business and other organizations, such as school districts, for end-of-life recycling and resale, or to add life to electronic devices by data destruction and refurbishment for reuse. ECHGWe also conductsconduct such recycling and resale at the retail level. Echo focusesWe focus on end-of-life electronics recycling and sustainability and ITAD USA provides IT equipment disposition, including compliance and data sanitization services. Teladvance, CEX and Avail operate as value-added resellers by providing offerings and services to companies looking either to upgrade capabilities or dispose of equipment. Like DGSE, ECHGthe consumer segment, the commercial segment also maintains relationships with refiners or recyclers to which it sells valuable materials it extracts from electronics and IT equipment that are not appropriate for resale or reuse. ECHG’sThe commercial segment’s customers are companies and organizations that are based domestically and internationally.
For additional information on the businesses of both DGSEthe consumer and ECHG,commercial segments, see “Item 1. Business – Operating Segments” in the Company’s 20212022 Annual Report.
The escalating war between Russia and Ukraine presents instability and volatility in global markets. Although there has been, and will be volatility, management feels the impact has been minimal to our operations to this point. The U.S. government has imposed sanctions and export controls against Russia and Russian interests and threatened additional sanctions and controls. The impact of these sanctions are difficult to measure concerning DGSE and ECHG. The price and supply of precious metals along with supply-chain issues will undoubtedly cause the Company concern if the war broadens beyond the borders of Ukraine.
The interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its subsidiaries. All material intercompany transactions and balances have been eliminated.
NOTE 3 — ACCOUNTING POLICIES AND ESTIMATES
Financial Instruments
The carrying amounts reported in the condensed consolidated balance sheets for cash equivalents, trade receivables, prepaid expenses, other current assets, accounts payable, accrued expenses, customer deposits and other liabilities approximate fair value because of the immediate or short-term nature of these financial instruments. Notes payable and line of credit approximate fair value due to the market interest rate charged.
Earnings Per Share
Basic earnings per share of our common stock, par value $0.01 per share (our “Common Stock”), is computed by dividing net earnings available to holders of the Company’s Common Stock by the weighted average number of shares of Common Stock outstanding for the reporting period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts requiring the Company to issue Common Stock were exercised or converted into Common Stock. For the calculation of diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect of stock options and warrants outstanding determined using the treasury stock method.
8 |
Table of Contents |
Goodwill
Goodwill is not amortized but evaluated for impairment on an annual basis during the fourth quarter of our fiscal year, or earlier if events or circumstances indicate the carrying value may be impaired. The Company’s goodwill is related to ECHGthe commercial segment only and not the entire Company. ECHGThe commercial segment has its own, separate financial information to perform goodwill impairment testing at least annually or if events indicate that those assets may be impaired. As a result of the current market and economic conditions related to the coronavirus pandemic (“COVID-19”)surging inflation and the war between Ukraine and Russia, in accordance with step 1 of the guidelines set forth in ASCthe Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 350-20-35-3A, the Companymanagement concluded there were no impairments of goodwill that resulted from those triggering events due to COVID-19 andfor the war between Ukraine and Russia as ofthree months ended March 31, 2022. The Company2023. Management will continue to evaluate goodwill for the ECHGcommercial segment. For tax purposes, goodwill is amortized and deductible over fifteen years.
ECHG goodwillGoodwill was allocated in connection with three acquisitions of the assets now held by Echo on May 20, 2019 (the “Echo Transaction”), of the assets now held by Teladvance on June 9, 2021 (the “CExchange Transaction”) and of the assets now held by Avail on October 29, 2021 (the “Avail Transaction”). There was aThe preliminary addition to goodwill associated with the Avail Transaction was $3,491,285, which was the initial purchase price less the approximate fair value of $3,491,285.the net assets purchased. There hashave been several adjustments made to goodwill concerning the Avail Transaction during fiscal year 2022. On May 31, 2022, an additional cash payment was made of $216,988 due to certain conditions being met concerning the cash balance upon a certain date. The cash payment increased goodwill for the Avail Transaction to $3,708,273. During fiscal year 2022 management also identified $2,736,000 of intangibles that were not initially included in the fair value of Avail’s net assets. The separation of intangibles reduced the Avail Transaction goodwill to $972,272. There have been no other adjustments or impairment charges to goodwill. As of March 31, 20222023 and December 31, 2021,2022, goodwill as reported in the condensed consolidated balance sheets was $6,140,465.$3,621,453.
Recent Accounting Pronouncements
In June 2016, the FASB issued a new credit loss accounting standard ASU 2016-13. The new accounting standard introduces the current expected credit losses methodology for estimating allowances for credit losses which will be based on expected losses rather than incurred losses. We will be required to use a forward-looking expected credit loss methodology for accounts receivable, loans and other financial instruments. The standard will beASU is effective for the fiscal years beginning after December 15, 2022. We adopted upon the effective date for us beginningthis ASU as of January 1, 2023, which includes interim periods within the reporting period. ASU 2016-13 was adopted by using a modified retrospective transition approach to align our credit loss methodology with the new standard. The Company is evaluating theThere were no effects of this standard on our financial statement implicationsposition, results of ASU 2016-13.operations or cash flows.
NOTE 4 — INVENTORIES
A summary of inventories is as follows:
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
DGSE | ||||||||
Resale | $ | 12,282,472 | $ | 10,422,072 | ||||
Recycle | 30,071 | 11,995 | ||||||
Subtotal | 12,312,543 | 10,434,067 | ||||||
ECHG | ||||||||
Resale | 2,044,911 | 3,350,159 | ||||||
Recycle | 264,121 | 264,210 | ||||||
Subtotal | 2,309,032 | 3,614,369 | ||||||
$ | 14,621,575 | $ | 14,048,436 |
NOTE 5 — ACQUISITION
On October 29, 2021, ECHG entered intoThere were no other new accounting standards that had a material impact on the Avail Transaction to purchase all of the assets, liabilities and rights and interests for $4,500,000 of Avail Recovery Solutions, an Arizona company. The purchase was facilitated by an initial payment of $2,500,000 at closing, and the remaining $2,000,000 to be paid out by 12 quarterly payments starting April 1, 2022, of $166,667 each. See Note 14 to ourCompany’s consolidated financial statements for more informationduring the three-month period ended March 31, 2023, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of March 31, 2023 that the Company expects to have a material impact on this loan. The installment note payable for the Avail Transaction imputed at 3.1% interest.
As part of the Avail Transaction, goodwill was preliminarily recorded as $3,491,284, which is the purchase price less the approximate fair value of the net assets and liabilities purchased, as shown in the purchase price allocation in the following table. The Company’s goodwill is related to the ECHG segment. ECHG has its own separateconsolidated financial information to perform goodwill impairment testing. The Company will evaluate goodwill based on cash flows for the ECHG segment. For tax purposes, goodwill is amortized and deductible over 15 years.statements.
9 |
Table of Contents |
The purchase price allocation listed belowNOTE 4 — INVENTORIES
A summary of inventories is considered to be a preliminary allocation and is subject to change.as follows:
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Consumer |
|
|
|
|
|
| ||
Resale |
| $ | 18,151,841 |
|
| $ | 16,462,749 |
|
Recycle |
|
| 20,313 |
|
|
| 46,697 |
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
| 18,172,154 |
|
|
| 16,509,446 |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
Resale |
|
| 623,041 |
|
|
| 1,858,519 |
|
Recycle |
|
| 310,643 |
|
|
| 387,820 |
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
| 933,684 |
|
|
| 2,246,339 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 19,105,838 |
|
| $ | 18,755,785 |
|
NOTE 5 — GOODWILL
The preliminary purchase pricechange in goodwill is as follows:
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Opening balance |
| $ | 3,621,453 |
|
| $ | 6,140,465 |
|
Reductions (1) |
|
| - |
|
|
| (2,519,012 | ) |
|
|
|
|
|
|
|
|
|
Goodwill |
| $ | 3,621,453 |
|
| $ | 3,621,453 |
|
(1) The reduction in goodwill of $2,519,012 for fiscal 2022, is a combination of an additional cash payment made on May 31, 2022 of $216,988, increasing goodwill for the Avail Transaction, is allocated as follows:
Description |
| Amount |
| |
|
|
|
| |
Assets |
|
|
| |
Cash |
| $ | 988,870 |
|
Account receivables |
|
| 395,144 |
|
Inventories |
|
| 486,736 |
|
Prepaid expenses |
|
| 93,727 |
|
Fixed assets - net |
|
| 247,038 |
|
Right-of-use assets |
|
| 609,511 |
|
Other assets |
|
| 13,268 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Account payables |
|
| (562,778 | ) |
Accrued liabilities |
|
| (653,289 | ) |
Operating lease liabilities |
|
| (609,511 | ) |
|
|
|
|
|
Net assets |
|
| 1,008,716 |
|
|
|
|
|
|
Goodwill |
|
| 3,491,284 |
|
|
|
|
|
|
Total Purchase Price |
| $ | 4,500,000 |
|
The following table comparesoffset by the resultseffect of Avail as partidentifying $2,736,000 of intangible assets that was not initially included in the Company’s financial results for the three months ended March 31, 2022,fair value of Avail’s net assets, reducing goodwill and the Company’s results of operations as if they were combined for the three months ended March 31, 2021:increasing intangible assets.
|
| Consolidated Statement of Income |
|
| Proforma Combined |
| ||
|
| For the Three Months Ended |
|
| For the Three Months Ended |
| ||
|
| March 31, 2022 |
|
| March 31, 2021 |
| ||
|
| (unaudited) |
|
| (unaudited) |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ | 47,415,098 |
|
| $ | 27,110,216 |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
| $ | 2,647,225 |
|
| $ | 2,354,895 |
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 2,647,225 |
|
| $ | 2,354,895 |
|
|
|
|
|
|
|
|
|
|
Basic net income per common share |
| $ | 0.10 |
|
| $ | 0.09 |
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share |
| $ | 0.10 |
|
| $ | 0.09 |
|
10 |
Table of Contents |
NOTE 6 — GOODWILLPROPERTY AND EQUIPMENT
The change in goodwill is as follows:Property and equipment consist of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Opening balance |
| $ | 6,140,465 |
|
| $ | 1,367,109 |
|
Additions (1) |
|
| 0 |
|
|
| 4,773,356 |
|
|
|
|
|
|
|
|
|
|
Goodwill |
| $ | 6,140,465 |
|
| $ | 6,140,465 |
|
(1) Addition is in connection with the CExchange Transaction on June 9, 2021 of $1,282,072 and the preliminary purchase price allocation of the Avail Transaction of $3,491,284.
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Consumer |
|
|
|
|
|
| ||
Land |
| $ | 1,640,220 |
|
| $ | 1,640,219 |
|
Building and improvements |
|
| 2,798,975 |
|
|
| 2,798,975 |
|
Leasehold improvements |
|
| 1,450,695 |
|
|
| 1,450,695 |
|
Machinery and equipment |
|
| 1,094,940 |
|
|
| 1,078,595 |
|
Furniture and fixtures |
|
| 603,943 |
|
|
| 603,944 |
|
Vehicles |
|
| 22,859 |
|
|
| 22,859 |
|
|
|
| 7,611,632 |
|
|
| 7,595,287 |
|
Less: accumulated depreciation |
|
| (2,733,466 | ) |
|
| (2,651,832 | ) |
|
|
|
|
|
|
|
|
|
Sub-Total |
|
| 4,878,166 |
|
|
| 4,943,455 |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
Building and improvements |
|
| 151,647 |
|
|
| 151,647 |
|
Machinery and equipment |
|
| 1,173,019 |
|
|
| 1,180,636 |
|
Furniture and fixtures |
|
| 145,950 |
|
|
| 145,950 |
|
|
|
| 1,470,616 |
|
|
| 1,478,233 |
|
Less: accumulated depreciation |
|
| (589,289 | ) |
|
| (515,673 | ) |
|
|
|
|
|
|
|
|
|
Sub-Total |
|
| 881,327 |
|
|
| 962,560 |
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
Land |
|
| 1,106,664 |
|
|
| 1,106,664 |
|
Building and improvements |
|
| 2,502,216 |
|
|
| 2,502,216 |
|
Machinery and equipment |
|
| 28,627 |
|
|
| 28,627 |
|
|
|
|
|
|
|
|
|
|
|
|
| 3,637,507 |
|
|
| 3,637,507 |
|
Less: accumulated depreciation |
|
| (168,546 | ) |
|
| (149,720 | ) |
|
|
|
|
|
|
|
|
|
Sub-Total |
|
| 3,468,961 |
|
|
| 3,487,787 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 9,228,454 |
|
| $ | 9,393,802 |
|
11 |
Table of Contents |
NOTE 7 — PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
DGSE |
|
|
|
|
|
| ||
Land |
| $ | 1,640,220 |
|
| $ | 1,640,220 |
|
Building and improvements |
|
| 2,781,903 |
|
|
| 2,764,529 |
|
Leasehold improvements |
|
| 1,450,695 |
|
|
| 1,450,695 |
|
Machinery and equipment |
|
| 1,056,315 |
|
|
| 1,056,315 |
|
Furniture and fixtures |
|
| 554,881 |
|
|
| 526,250 |
|
Vehicles |
|
| 22,859 |
|
|
| 22,859 |
|
|
|
| 7,506,873 |
|
|
| 7,460,868 |
|
Less: accumulated depreciation |
|
| (2,422,573 | ) |
|
| (2,343,923 | ) |
|
|
|
|
|
|
|
|
|
Sub-Total |
|
| 5,084,300 |
|
|
| 5,116,945 |
|
|
|
|
|
|
|
|
|
|
ECHG |
|
|
|
|
|
|
|
|
Building and improvements |
|
| 135,491 |
|
|
| 135,491 |
|
Machinery and equipment |
|
| 1,145,832 |
|
|
| 1,109,306 |
|
Furniture and fixtures |
|
| 145,950 |
|
|
| 145,950 |
|
|
|
| 1,427,273 |
|
|
| 1,390,747 |
|
Less: accumulated depreciation |
|
| (289,945 | ) |
|
| (212,147 | ) |
|
|
|
|
|
|
|
|
|
Sub-Total |
|
| 1,137,328 |
|
|
| 1,178,600 |
|
|
|
|
|
|
|
|
|
|
Envela |
|
|
|
|
|
|
|
|
Land |
|
| 1,106,664 |
|
|
| 1,106,664 |
|
Building and improvements |
|
| 2,456,324 |
|
|
| 2,456,324 |
|
Machinery and equipment |
|
| 34,528 |
|
|
| 23,676 |
|
|
|
|
|
|
|
|
|
|
|
|
| 3,597,516 |
|
|
| 3,586,664 |
|
Less: accumulated depreciation |
|
| (99,645 | ) |
|
| (76,021 | ) |
|
|
|
|
|
|
|
|
|
Sub-Total |
|
| 3,497,871 |
|
|
| 3,510,643 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 9,719,499 |
|
| $ | 9,806,188 |
|
NOTE 8 — INTANGIBLE ASSETS
Intangible assets consist of the following:
|
| March 31, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
DGSE |
|
|
|
|
| |||||||||||
Consumer |
|
|
|
|
| |||||||||||
Domain names |
| $ | 41,352 |
| $ | 41,352 |
|
| $ | 41,352 |
| $ | 41,352 |
| ||
Point of sale system |
|
| 330,000 |
|
|
| 330,000 |
|
|
| 330,000 |
|
|
| 330,000 |
|
|
| 371,352 |
| 371,352 |
|
| 371,352 |
| 371,352 |
| ||||||
Less: accumulated amortization |
|
| (286,002 | ) |
|
| (269,502 | ) |
|
| (352,002 | ) |
|
| (335,502 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Subtotal |
|
| 85,350 |
|
|
| 101,850 |
|
|
| 19,350 |
|
|
| 35,850 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
ECHG |
|
|
|
|
| |||||||||||
Commercial |
|
|
|
|
| |||||||||||
Trademarks (1) |
| 1,483,000 |
| 1,483,000 |
|
| 1,483,000 |
| 1,483,000 |
| ||||||
Customer Contracts (1) |
| 1,873,000 |
| 1,873,000 |
|
| 1,873,000 |
| 1,873,000 |
| ||||||
Trademarks/Tradenames (2) |
| 114,000 |
| 114,000 |
|
| 114,000 |
| 114,000 |
| ||||||
Customer Relationships (2) |
|
| 345,000 |
|
|
| 345,000 |
|
| 345,000 |
| 345,000 |
| |||
Trademarks/Tradenames (3) |
| 1,272,000 |
| 1,272,000 |
| |||||||||||
Customer Relationships (3) |
|
| 1,464,000 |
|
|
| 1,464,000 |
| ||||||||
|
| 3,815,000 |
| 3,815,000 |
|
| 6,551,000 |
| 6,551,000 |
| ||||||
Less: accumulated amortization |
|
| (987,980 | ) |
|
| (892,605 | ) |
|
| (1,757,080 | ) |
|
| (1,593,305 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Subtotal |
|
| 2,827,020 |
|
|
| 2,922,395 |
|
|
| 4,793,920 |
|
|
| 4,957,695 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| $ | 2,912,370 |
|
| $ | 3,024,245 |
|
| $ | 4,813,270 |
|
| $ | 4,993,545 |
|
(1) Intangibles relate to the Echo Transaction on May 20, 2019.
(2) Intangibles relate to the CExchange Transaction on June 9, 2021.
(3) Intangibles relate to the Avail Transaction on October 29, 2021.
The following table outlines the estimated future amortization expense related to intangible assets held as of March 31, 2022:2023:
|
| DGSE |
| ECHG |
| Total |
|
| Consumer |
|
| Commercial |
|
| Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
2022 (excluding the three months ending March 31, 2022) |
| 49,500 |
| 286,125 |
| 335,625 |
| |||||||||||||||||
2023 |
| 30,350 |
| 381,500 |
| 411,850 |
| |||||||||||||||||
2023 (excluding the three months ending March 31, 2023) |
| 13,850 |
| 491,325 |
| 505,175 |
| |||||||||||||||||
2024 |
| 5,500 |
| 381,500 |
| 387,000 |
|
| 5,500 |
| 655,100 |
| 660,600 |
| ||||||||||
2025 |
| 0 |
| 381,500 |
| 381,500 |
|
| - |
| 655,100 |
| 655,100 |
| ||||||||||
2026 |
| 0 |
| 381,500 |
| 381,500 |
|
| - |
| 655,100 |
| 655,100 |
| ||||||||||
2027 |
| - |
| 655,100 |
| 655,100 |
| |||||||||||||||||
Thereafter |
|
| 0 |
|
| 1,014,895 |
|
| 1,014,895 |
|
|
| - |
|
|
| 1,682,195 |
|
|
| 1,682,195 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| $ | 85,350 |
| $ | 2,827,020 |
| $ | 2,912,370 |
|
| $ | 19,350 |
|
| $ | 4,793,920 |
|
| $ | 4,813,270 |
|
Table of Contents |
NOTE 9—8— ACCRUED EXPENSES
Accrued expenses consist of the following:
|
| March 31, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
DGSE |
|
|
|
|
| |||||||||||
Consumer |
|
|
|
|
| |||||||||||
Accrued interest |
| $ | 12,793 |
| $ | 12,627 |
|
| $ | 12,277 |
| $ | 11,624 |
| ||
Payroll |
| 157,349 |
| 131,325 |
|
| 93,548 |
| 146,817 |
| ||||||
Property taxes |
| 61,014 |
| 88,046 |
|
| 66,350 |
| 115,222 |
| ||||||
Sales tax |
| 70,006 |
| 150,070 |
|
| 59,865 |
| 153,039 |
| ||||||
Other administrative expenss |
|
| 3,449 |
|
|
| 0 |
|
|
| 30,425 |
|
|
| 424 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Subtotal |
|
| 304,611 |
|
|
| 382,068 |
|
|
| 262,465 |
|
|
| 427,126 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
ECHG |
|
|
|
|
| |||||||||||
Commercial |
|
|
|
|
| |||||||||||
Accrued interest |
| 8,464 |
| 14,547 |
|
| 8,656 |
| 8,228 |
| ||||||
Payroll |
| 192,625 |
| 334,431 |
|
| 178,334 |
| 336,226 |
| ||||||
Unvouchered payables - inventory |
| 480,866 |
| 461,481 |
|
| 146,533 |
| 803,649 |
| ||||||
Material & shipping costs (COGS) |
| 118,445 |
| 78,647 |
| |||||||||||
Material & shipping costs - COGS |
| 770,205 |
| 229,159 |
| |||||||||||
Other accrued expenses |
|
| 0 |
|
|
| 51,506 |
|
|
| 11,131 |
|
|
| 7,392 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Subtotal |
|
| 800,400 |
|
|
| 940,612 |
|
|
| 1,114,859 |
|
|
| 1,384,654 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Envela |
|
|
|
|
| |||||||||||
Corporate |
|
|
|
|
| |||||||||||
Accrued interest |
| 7,522 |
| 8,355 |
|
| 7,464 |
| 7,543 |
| ||||||
Payroll |
| 11,128 |
| 25,175 |
|
| 12,870 |
| 25,179 |
| ||||||
Professional fees |
| 203,743 |
| 220,101 |
|
| 132,431 |
| 199,508 |
| ||||||
Property Tax |
| 21,300 |
| 84,920 |
|
| 21,900 |
| 87,275 |
| ||||||
Other administrative expenses |
| 12,500 |
| 18,453 |
|
| 1,144 |
| - |
| ||||||
Federal Income tax |
| 332,381 |
| - |
| |||||||||||
State income tax |
|
| 139,974 |
|
|
| 109,682 |
|
|
| 192,318 |
|
|
| 155,309 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Subtotal |
|
| 396,167 |
|
|
| 466,686 |
|
|
| 700,508 |
|
|
| 474,814 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| $ | 1,501,178 |
|
| $ | 1,789,366 |
|
| $ | 2,077,832 |
|
| $ | 2,286,594 |
|
NOTE 109 — SEGMENT INFORMATION
As stated in Note 1 – Basis of Presentation, we updated our two reportable segments by renaming the ECHG segment to the “Commercial” segment and the DGSE segment to the “Consumer” segment. The segment name changes did not result in any change to the composition of the Company’s operations and therefore did not result in any change to the historical results. Our operations conducted by each of our segments are more specifically described below.
We determine our business segments based upon an internal reporting structure. Our financial performance is based on the following segments: DGSEconsumer and ECHG.commercial.
The DGSEconsumer segment includes Dallas Gold & Silver Exchange, which has six retail stores in the Dallas/Fort Worth Metroplex (“DFW”), and Charleston Gold & Diamond Exchange, which has one retail store in Mt. Pleasant, South Carolina. The consumer segment also operates the on-line Bullion Express brand.
The ECHGcommercial segment includes Echo, ITAD USA, Teladvance, CEX and Avail. These five companies are involved in recycling and the reuse of electronic components.
Table of Contents |
We allocate a portion of certain corporate costs and expenses, including information technology as well as rental income and expenses relating to our corporate headquarters, to our business segments. These income and expenses are included in selling, general and administrative (“SG&A”) expenses, depreciation and amortization, other income, interest expense and income tax expense. Our management team evaluates each segment and makes decisions about the allocation of resources according to each segment’s profit. Allocation amounts are generally agreed upon by management and may differ from arms-length allocations.
The following separates DGSEthe consumer and ECHG’sthe commercial financial results of operations for the three months ended March 31, 20222023 and 2021:2022:
|
| For The Three Months Ended March 31, |
| For The Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||
|
| 2022 |
| 2021 |
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||
|
| DGSE |
|
| ECHG |
|
| Consolidated |
|
| DGSE |
|
| ECHG |
|
| Consolidated |
| Consumer | Commercial | Consolidated | Consumer | Commercial | Consolidated | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Sales |
| $ | 35,782,872 |
| $ | 11,632,226 |
| $ | 47,415,098 |
| $ | 18,914,501 |
| $ | 6,575,940 |
| $ | 25,490,441 |
| $ | 36,704,397 | $ | 11,684,643 | $ | 48,389,040 | $ | 35,782,872 | $ | 11,632,226 | $ | 47,415,098 | |||||||||||||||||
Cost of goods sold |
|
| 31,559,410 |
|
|
| 6,144,654 |
|
|
| 37,704,064 |
|
|
| 16,106,866 |
|
|
| 3,079,311 |
|
|
| 19,186,177 |
| 32,719,429 | 4,259,709 | 36,979,138 | 31,559,410 | 6,144,654 | 37,704,064 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Gross profit |
| 4,223,462 |
| 5,487,572 |
| 9,711,034 |
| 2,807,635 |
| 3,496,629 |
| 6,304,264 |
| 3,984,968 | 7,424,934 | 11,409,902 | 4,223,462 | 5,487,572 | 9,711,034 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses |
| 2,137,949 |
| 4,421,806 |
| 6,559,755 |
| 1,782,437 |
| 2,370,792 |
| 4,153,229 |
| 2,396,025 | 5,509,278 | 7,905,303 | 2,137,949 | 4,421,806 | 6,559,755 | |||||||||||||||||||||||||||||
Depreciation and amortization |
|
| 106,963 |
|
|
| 184,984 |
|
|
| 291,947 |
|
|
| 96,822 |
|
|
| 108,090 |
|
|
| 204,912 |
| 98,134 | 256,217 | 354,351 | 106,963 | 184,984 | 291,947 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
|
|
| 2,244,912 |
|
|
| 4,606,790 |
|
|
| 6,851,702 |
|
|
| 1,879,259 |
|
|
| 2,478,882 |
|
|
| 4,358,141 |
| 2,494,159 | 5,765,495 | 8,259,654 | 2,244,912 | 4,606,790 | 6,851,702 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Operating income |
|
| 1,978,550 |
|
|
| 880,782 |
|
|
| 2,859,332 |
|
|
| 928,376 |
|
|
| 1,017,747 |
|
|
| 1,946,123 |
| 1,490,809 | 1,659,439 | 3,150,248 | 1,978,550 | 880,782 | 2,859,332 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Other income/expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Other income (expense) |
| (27,992 | ) |
| (30,584 | ) |
| (58,576 | ) |
| 111,731 |
| 160,210 |
| 271,941 |
| 23,534 | 187,245 | 210,779 | (27,992 | ) | (30,584 | ) | (58,576 | ) | |||||||||||||||||||||||
Interest expense |
|
| 61,241 |
|
|
| 61,998 |
|
|
| 123,239 |
|
|
| 68,485 |
|
|
| 110,537 |
|
|
| 179,022 |
| 59,618 | 57,446 | 117,064 | 61,241 | 61,998 | 123,239 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Income before income taxes |
| 1,889,317 |
| 788,200 |
| 2,677,517 |
| 971,622 |
| 1,067,420 |
| 2,039,042 |
| 1,454,725 | 1,789,238 | 3,243,963 | 1,889,317 | 788,200 | 2,677,517 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Income tax expense |
|
| 13,177 |
|
|
| 17,115 |
|
|
| 30,292 |
|
|
| 13,705 |
|
|
| 17,065 |
|
|
| 30,770 |
| 317,841 | 399,805 | 717,646 | 13,177 | 17,115 | 30,292 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Net income |
| $ | 1,876,140 |
|
| $ | 771,085 |
|
| $ | 2,647,225 |
|
| $ | 957,917 |
|
| $ | 1,050,355 |
|
| $ | 2,008,272 |
| $ | 1,136,884 | $ | 1,389,433 | $ | 2,526,317 | $ | 1,876,140 | $ | 771,085 | $ | 2,647,225 |
NOTE 1110 — REVENUE RECOGNITION
Accounting Standards Codification (“ASC 606606”) provides guidance to identify performance obligations for revenue-generating transactions. The initial step is to identify the contract with a customer created with the sales invoice or a repair ticket. Secondly, weto identify the performance obligations in the contract as we promise to deliver the purchased item or promised repairs in return for payment or future payment as a receivable. The third step is determining the transaction price of the contract obligation as in the full ticket price, negotiated price or a repair price. The next step is to allocate the transaction price to the performance obligations as we designate a separate price for each item. The final step in the guidance is to recognize revenue as each performance obligation is satisfied.
Table of Contents |
The following disaggregation of total revenue is listed by sales category and segment for the three months ended March 31, 20222023 and 2021:2022:
CONSOLIDATED |
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| ||||||||||||||||||||||||||||||||||||||
|
| Revenues |
|
| Gross Profit |
|
| Margin |
|
| Revenues |
|
| Gross Profit |
|
| Margin |
|
| Revenues |
|
| Gross Profit |
|
| Margin |
|
| Revenues |
|
| Gross Profit |
|
| Margin |
| ||||||||||||
DGSE |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Resale |
| $ | 33,677,133 |
| $ | 3,742,852 |
| 11.1 | % |
| $ | 17,320,641 |
| $ | 2,457,144 |
| 14.2 | % |
| $ | 33,719,960 |
| $ | 3,304,932 |
| 9.8 | % |
| $ | 33,677,133 |
| $ | 3,742,852 |
| 11.1 | % | ||||||||||||
Recycled |
|
| 2,105,739 |
|
|
| 480,610 |
|
|
| 22.8 | % |
|
| 1,593,860 |
|
|
| 350,491 |
|
|
| 22.0 | % |
|
| 2,984,437 |
|
|
| 680,036 |
|
|
| 22.8 | % |
|
| 2,105,739 |
|
|
| 480,610 |
|
|
| 22.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Subtotal |
|
| 35,782,872 |
|
|
| 4,223,462 |
|
|
| 11.8 | % |
|
| 18,914,501 |
|
|
| 2,807,635 |
|
|
| 14.8 | % |
|
| 36,704,397 |
|
|
| 3,984,968 |
|
|
| 10.9 | % |
|
| 35,782,872 |
|
|
| 4,223,462 |
|
|
| 11.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
ECHG |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Resale |
| 9,579,857 |
| 4,574,268 |
| 47.7 | % |
| 4,740,992 |
| 2,612,184 |
| 55.1 | % |
| 8,558,090 |
| 5,799,126 |
| 67.8 | % |
| 9,579,857 |
| 4,574,268 |
| 47.7 | % | ||||||||||||||||||||
Recycled |
|
| 2,052,369 |
|
|
| 913,304 |
|
|
| 44.5 | % |
|
| 1,834,948 |
|
|
| 884,445 |
|
|
| 48.2 | % |
|
| 3,126,553 |
|
|
| 1,625,808 |
|
|
| 52.0 | % |
|
| 2,052,369 |
|
|
| 913,304 |
|
|
| 44.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Subtotal |
|
| 11,632,226 |
|
|
| 5,487,572 |
|
|
| 47.2 | % |
|
| 6,575,940 |
|
|
| 3,496,629 |
|
|
| 53.2 | % |
|
| 11,684,643 |
|
|
| 7,424,934 |
|
|
| 63.5 | % |
|
| 11,632,226 |
|
|
| 5,487,572 |
|
|
| 47.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| $ | 47,415,098 |
|
| $ | 9,711,034 |
|
|
| 20.5 | % |
| $ | 25,490,441 |
|
| $ | 6,304,264 |
|
|
| 24.7 | % |
| $ | 48,389,040 |
|
| $ | 11,409,902 |
|
|
| 23.6 | % |
| $ | 47,415,098 |
|
| $ | 9,711,034 |
|
|
| 20.5 | % |
DGSE’s over-the-counter salesFor the consumer segment, revenue for monetary transactions (i.e., cash and receivables) with dealers and the retail public and wholesale dealers are recognized when the merchandise is delivered, and payment has been made either by immediate payment or through a receivable obligation at one of our over-the-counter retail locations. We also recognize revenuestores. Revenue is recognized upon the shipment of goods when retail and wholesale customers have fulfilled their obligation to pay, or promise to pay, through e-commerce or phone sales. We have elected to account for shippingShipping and handling costs are accounted for as fulfillment costs after the customer obtains control of the goods.
Crafted-precious-metal items at the end of their useful lives are sold to a refiner. Since the local refiner is located in the Dallas/Fort Worth area, we deliver thefor its precious metal to the refiner.contained. The metal is melted and assayed to determine the precious metal content, a price is determined from the assayagreed upon and payment is made usually in a day or two.within two days. Revenue is recognized from the sale once paymentthe performance obligation is received.
DGSE also offers a structured layaway plan. When a retail customer utilizes the layaway plan, we collect a minimum payment of 25% of the sales price, establish a payment schedule for the remaining balance and hold the merchandise as collateral as security against the customer’s deposit until all amounts due are paid in full. Revenue for layaway sales is recognized when the merchandise is paid in full and delivered to the retail customer. Layaway revenue is also recognized when a customer fails to pay in accordance with the sales contract and the sales item is returned to inventory with the forfeit of deposited funds, typically after 90 days.satisfied.
In limited circumstances, we exchange merchandise is exchanged for similar merchandise and/or monetary consideration with both dealers and retail customers, for which we recognize revenue is recognized in accordance with ASCAccounting Standards Codification (“ASC”) 845, Nonmonetary Transactions. When we exchange merchandise is exchanged for similar merchandise and there is no monetary component to the exchange, we do not recognize any revenue.there is no revenue recognized. Instead, the basis of the merchandise relinquished becomes the basis of the merchandise received, less any indicated impairment of value of the merchandise relinquished. When we exchange merchandise is exchanged for similar merchandise and there is a monetary component to the exchange, we recognize revenue is recognized to the extent of the monetary assets received andthat determines the cost of sale based on the ratio of monetary assets received to monetary and non-monetary assets received multiplied by the cost of the assets surrendered.
15 |
Table of Contents |
The Company offers the option of third-party financing tofor customers wishing to borrow money for the purchase. The customer applies on-line with the financing companythird party and upon going through the credit check will be approved or denied. If accepted, the customer is allowed to purchase according to the limits set by the financingfinance company. Once the customer does purchase merchandise, based on their financing agreement, we record and recognizeRevenue is recognized from the sale at that point, based onupon the promise of the financing company to pay by the finance company up to the customer’s approved limit. pay.
We have aOur return policy (money-back guarantee). The policy covers retail transactions involving jewelry, graded rare coins and currency only. Customerstransactions. In some cases, customers may return jewelry, graded rare coins and currencya product purchased within 30 days of the receipt of the items for a full refund as long as the items are returnedrefund. Also, in exactly the same condition as they were delivered. In the case of jewelry, graded rare coins and currency sales on account,some cases customers may cancel the sale within 30 days of making a commitment to purchase the items. The receipt ofAdditionally, a deposit and a signed purchase order evidences the commitment. Any customer may return a jewelryan item or graded rare coins and currencyfor full refund if they can demonstrate that the item is not authentic, or there was an error in the description of a graded coin or currencythe piece. Returns are accounted for as a reversal of the original transaction, with the effect of reducing revenues, and cost of sales, and returning the merchandise to inventory. We haveDGSE has established an allowance for estimated returns related to sales based on our review of historical returns experience and reducedreduces our reported revenues and cost of sales accordingly. Our return allowance as ofFor the three months ended March 31, 2023 and 2022, and December 31, 2021our allowance for returns remained the same at approximately $28,000 for both periods, at approximately $28,000.years.
ECHGA significant amount of revenue stems from sales to two precious metal partners. One partner constitutes 24.5%, and the second partner constitutes 23.7%, of the revenues for the three months ended March 31, 2023. However, the Company believes that the products it sells is marketable to numerous sources at competitive prices.
The commercial segment has several revenue streams and recognize revenue according to ASC 606 at an amount that reflects the consideration to which the entities expect to be entitled in exchange for transferring goods or services to the customer. The revenue streams are as follows.follows:
Outright sales are recorded when product is shipped and title transferred. Once the price is established and the terms are agreed to and the product is shipped and title is transferred, the revenue is recognized. The commercial segment has fulfilled its performance obligation with an agreed upon transaction price, payment terms and shipping the product.
We recognize refining revenue when our inventory arrives at the destination port and the performance obligation is satisfied by transferring the control of the promised goods that are identified in the customer contract. The initial invoice is recognized in full when our performance obligation is satisfied, as stated in the first sentence. Under the guidance of ASC 606, an estimate of the variable consideration that are expected to be entitled is included in the transaction price stated at the current precious metal spot price and weight of the precious metal. An adjustment to revenue is made in the period once the underlying weight and any precious metal spot price movement is resolved, which is usually around six (6) weeks. Any adjustment from the resolution of the underlying uncertainty is netted with the settlement due from the original contract.
The commercial segment also provides recycling services according to a Scope of Work (“SOW”). Services are recognized based on the number of units processed by a preset price per unit. Activity reports are produced weekly with the counts and revenue is recognized based on the billing from the weekly reports. Recycling services can be conducted at our facility, or the recycling services can be performed at the client’s facility. The SOW will determine the charges and whether the service will be completed at our facility or at the client’s facility. Payment terms are also dictated in the SOW.
| ||
| ||
| ||
|
Accounts Receivable:Receivable
: We record trade receivables when revenue is recognized. When appropriate, weThe new accounting standard introduces a new expected credit losses methodology for estimating allowances for credit losses which is based on expected losses rather than incurred losses. We are required to use a forward-looking expected credit loss methodology for accounts receivable. This new methodology is effective for the fiscal years beginning January 1, 2023. We will record an allowance for doubtful accounts, which is primarily determined by an analysis of our trade receivables aging.aging, using the new expected losses methodology. The allowance is determined based on historical experience of collecting past due amounts, based on the degree of their aging. In addition, specific accounts that are doubtful of collectionconsidered and expected to be uncollectable are included in the allowance. These provisions are reviewed to determine the adequacy of the allowance for doubtful accounts. Trade receivables are charged off when there is certainty as to their being uncollectible. Trade receivables are considered delinquent when payment has not been made within contract terms. DGSEThe consumer segment had no allowance for doubtful accounts balance as of March 31, 20222023 and December 31, 2021.2022. Some of ECHG’scommercial segment’s customers are on payment terms, and although low risk, occasionally the need arisesmay arise to record an allowance for receivables that are deemed high risk to collect. We established anusing the new expected loss methodology. The commercial segment’s allowance for estimated uncollectable receivables related to sales based on historical collections. Our allowancedoubtful accounts, as of March 31, 20222023 and December 31, 20212022 was $1,582.$0 and $51,734.
Income Taxes: Income taxes are accounted for under the asset and liability method prescribed by ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not such assets will be realized. During fiscal 2022, management determined that it was more likely than not the tax asset would be reduced by future taxable income, therefore, the remaining valuation allowance at December 31, 2022, was released. As of March 31, 2023, we had a tax deferred asset of $1,140,002 with $0 offsetting valuation allowance. As of March 31, 2022, the Company had a deferred tax asset of $3,928,134 with an offsetting valuation allowance of $3,928,134, netting the tax asset to $0.
We account for our position in tax uncertainties in accordance with ASC 740, Income Taxes. The guidance establishes standards for accounting for uncertainty in income taxes. The guidance provides several clarifications related to uncertain tax positions. Most notably, a “more likely-than-not” standard for initial recognition of tax positions, a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization. The guidance applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements. First, we must determine whether any amount of the tax benefit may be recognized. Second, we determine how much of the tax benefit should be recognized (this would only apply to tax positions that qualify for recognition.) No additional liabilities have been recognized as a result of the implementation.. We have not taken a tax position that, if challenged, would have a material effect on the financial statements or the effective tax rate for the three months ended March 31, 20222023 and 2021.2022.
17 |
Table of Contents |
NOTE 1211 — LEASES
In determining our right-of-use assets and lease liabilities, we apply a discount rate to the minimum lease payments within each lease agreement. ASC 842 requires us to use the interest rate that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. If we cannot readily determine the discount rate implicit in lease agreements, we utilize our incremental borrowing rate.
The Company has sevennine operating leases as of March 31, 2022—2023—five in the Dallas/Fort Worth Metroplex, oneDFW, two in Charleston,Mt. Pleasant, South Carolina and onetwo in Chandler, Arizona. The leaseleases for DGSE’sthe consumer segment are: 1) the flagship store located at 13022 Preston Road, Dallas, Texas expiresexpiring on January 31, 2027, with an option to extend the lease for an additional five years, at market rate as determined by the prevailing market rate for comparable space in comparable buildings in the vicinity. The lease for DGSE’svicinity; 2) the Grand Prairie, Texas location expireslease which was renewed starting July 1, 2022, expiring June 30, 2022, and has no current renewal options. The2027, with an option to extend the lease for DGSE’s Mtan additional five years; 3) the two leases for the Mt. Pleasant, South Carolina location expiresexpiring on April 30, 2025, with no additional renewal options. Theoptions; and 4) the lease for DGSE’sthe Euless, Texas location expiresexpiring June 30, 2025, with an option to extend the lease for an additional five years. The leaseleases for ECHG’sthe commercial segment are: 1) the Echo location on W. Belt Line Road, in Carrollton, Texas, expiresexpiring January 31, 2026. The2026, with an option to extend the lease an additional five years: 2) the lease for ECHG’sthe Teladvance location, which also houses ITAD USA and CEX, on Realty Road in Carrollton, Texas expiresexpiring January 31, 2027. The lease2027, with no additional renewal options; and 3) the two leases for ECHG’sthe Avail location in Chandler, Arizona expiresexpiring on May 31, 2025.2025, with no additional renewal options. All of the Company’s sevennine leases as of March 31, 20222023 are triple net, for which it pays its proportionate share of common area maintenance, property taxes and property insurance. Leasing costs for the three months ended March 31, 2023 and 2022 was $659,616 and 2021 was $622,863 and $449,486, respectively, comprised of a combination of minimum lease payments and variable lease costs.
As of March 31, 2022,2023, the weighted average remaining lease term and weighted average discount rate for operating leases was 3.3 years and 4.4%, respectively. For the three months ended March 31, 20222023 and 2021,2022, the Company’s cash paid for operating lease liabilities was $616,097$656,520 and $501,907$616,097 respectively.
18 |
Table of Contents |
Future annual minimum lease payments as of March 31, 2022:2023:
|
| Operating |
|
| Operating |
| ||
|
| Leases |
|
| Leases |
| ||
DGSE |
|
|
| |||||
2022 (excluding the three months ending March 31, 2022) |
| $ | 381,790 |
| ||||
2023 |
| 499,984 |
| |||||
Consumer |
|
|
| |||||
2023 (excluding the three months ending March 31, 2023) |
| 406,955 |
| |||||
2024 |
| 507,414 |
|
| 552,414 |
| ||
2025 |
| 364,269 |
|
| 434,274 |
| ||
2026 and thereafter |
|
| 333,114 |
| ||||
2026 |
| 355,000 |
| |||||
2027 and thereafter |
|
| 50,114 |
| ||||
|
|
|
|
|
|
| ||
Total minimum lease payments |
| 2,086,571 |
|
| 1,798,757 |
| ||
Less imputed interest |
|
| (178,906 | ) |
|
| (149,993 | ) |
|
|
|
|
|
|
| ||
DGSE Sub-Total |
|
| 1,907,665 |
| ||||
Consumer Sub-Total |
|
| 1,648,764 |
| ||||
|
|
|
|
|
|
| ||
ECHG |
|
|
| |||||
2022 (excluding the three months ending March 31, 2022) |
| 991,870 |
| |||||
2023 |
| 1,357,381 |
| |||||
Commercial |
|
|
| |||||
2023 (excluding the three months ending March 31, 2023) |
| 1,018,905 |
| |||||
2024 |
| 1,396,129 |
|
| 1,396,129 |
| ||
2025 |
| 1,321,297 |
|
| 1,321,297 |
| ||
2026 and thereafter |
|
| 507,780 |
| ||||
2026 |
| 474,326 |
| |||||
2027 and thereafter |
|
| 33,455 |
| ||||
|
|
|
|
|
|
| ||
Total minimum lease payments |
| 5,574,457 |
|
| 4,244,112 |
| ||
Less imputed interest |
|
| (430,822 | ) |
|
| (251,432 | ) |
|
|
|
|
|
|
| ||
ECHG Sub-Total |
| 5,143,635 |
| |||||
Commercial Sub-Total |
| 3,992,680 |
| |||||
|
|
|
|
|
|
| ||
Total |
|
| 7,051,300 |
|
|
| 5,641,444 |
|
|
|
|
|
|
|
| ||
Current portion |
|
| 1,584,169 |
|
|
| 1,827,285 |
|
|
|
|
|
|
|
| ||
|
| $ | 5,467,131 |
|
| $ | 3,814,159 |
|
NOTE 1312 — BASIC AND DILUTED AVERAGE SHARES
A reconciliation of basic and diluted weighted average common shares for the three months ended March 31, 20222023 and 20212022 is as follows:
|
| For the Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Basic weighted average shares |
|
| 26,924,631 |
|
|
| 26,924,631 |
|
Effect of potential dilutive securities |
|
| 15,000 |
|
|
| 15,000 |
|
Diluted weighted average shares |
|
| 26,939,631 |
|
|
| 26,939,631 |
|
19 |
Table of Contents |
For the three months ended March 31, 20222023 and 2021,2022, there was a total of 15,000 common stock options, warrants, and Restricted Stock Units (RSUs) unexercised, respectively. For the three months ended March 31, 20222023 and 2021,2022, there were no anti-dilutive shares.
On March 14, 2023, a stock repurchase program was unanimously approved by the Company’s Board of Directors, with gives management authorization to purchase up to one million (1,000,000) shares of the Company’s stock, of a per-share price not to exceed $9, on the open market.
NOTE 1413 — LONG-TERM DEBT
Long-term debt consists of the following:
|
| Outstanding Balance |
|
|
|
|
| Outstanding Balance |
|
| ||||||||||||||||||||
|
| March 31, |
| December 31, |
| Current |
|
|
| March 31, |
| December 31, |
| Current |
| |||||||||||||||
|
| 2022 |
| 2021 |
| Interest Rate |
|
| Maturity |
| 2023 |
| 2022 |
| Interest Rate |
|
| Maturity | ||||||||||||
DGSE |
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Consumer |
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Note payable, Farmers Bank (1) |
| $ | 2,745,186 |
| $ | 2,770,729 |
| 3.10 | % |
| November 15, 2026 |
| $ | 2,642,199 |
| $ | 2,668,527 |
| 3.10% |
| November 15, 2026 | |||||||||
Note payable, Truist Bank (2) |
| 900,436 |
| 909,073 |
| 3.65 | % |
| July 9, 2030 |
| 865,437 |
| 874,418 |
| 3.65% |
| July 9, 2030 | |||||||||||||
Note payable, Texas Bank & Trust (3) |
| 469,556 |
| 474,009 |
| 3.75 | % |
| September 14, 2025 |
| 451,569 |
| 456,187 |
| 3.75% |
| September 14, 2025 | |||||||||||||
Note payable, Texas Bank & Trust (4) |
|
| 1,737,081 |
|
|
| 1,752,446 |
|
| 3.25 | % |
| July 30, 2031 |
|
| 1,675,086 |
|
|
| 1,691,020 |
|
| 3.25% |
| July 30, 2031 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
DGSE Sub-Total |
|
| 5,852,259 |
|
|
| 5,906,257 |
|
|
|
|
| ||||||||||||||||||
Consumer Sub-Total |
|
| 5,634,291 |
|
|
| 5,690,152 |
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
| �� |
|
|
|
|
|
|
|
| |||||||||||||
ECHG |
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Commercial |
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Note payable, Farmers Bank (1) |
| 6,228,505 |
| 6,286,459 |
| 3.10 | % |
| November 15, 2026 |
| 5,994,831 |
| 6,054,565 |
| 3.10% |
| November 15, 2026 | |||||||||||||
Line of Credit (5) |
| 0 |
| 1,700,000 |
| 3.10 | % |
| November 15, 2024 |
| - |
| - |
| 3.10% |
| November 15, 2024 | |||||||||||||
Avail Transaction note (6) |
|
| 1,933,333 |
|
|
| 2,000,000 |
|
| 0.00 | % |
| April 1, 2025 |
|
| 1,333,333 |
|
|
| 1,500,000 |
|
| 0.00% |
| April 1, 2025 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
ECHG Sub-Total |
|
| 8,161,838 |
|
|
| 9,986,459 |
|
|
|
|
| ||||||||||||||||||
Commercial Sub-Total |
|
| 7,328,164 |
|
|
| 7,554,565 |
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Envela |
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Corporate |
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Note payable, Texas Bank & Trust (7) |
|
| 2,815,759 |
|
|
| 2,843,415 |
|
| 3.25 | % |
| November 4, 2025 |
|
| 2,704,143 |
|
|
| 2,732,688 |
|
| 3.25% |
| Novemeber 4, 2025 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Sub-Total |
| 16,829,856 |
| 18,736,131 |
|
|
|
|
| 15,666,598 |
| 15,977,405 |
|
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Current portion |
|
| 1,003,592 |
|
|
| 2,120,457 |
|
|
|
|
|
|
| 1,246,961 |
|
|
| 1,250,702 |
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| $ | 15,826,264 |
|
| $ | 16,615,674 |
|
|
|
|
|
| $ | 14,419,637 |
|
| $ | 14,726,703 |
|
|
|
|
|
(1) On May 20, 2019, in connectionNovember 23, 2021, Farmers State Bank of Oakley, Kansas (“FSB”) refinanced prior related party notes held by the consumer segment and the commercial segment. The commercial segment note was refinanced with the Echo Transaction, the Company entered into two loan agreements with John R. Loftus, the Company’s CEO, Presidenta remaining and Chairmanoutstanding balance of the Board. ECHG, LLC executed$6,309,962, is a five-year $6,925,979promissory note for the Echo Transaction, amortized over 20 years at a 6%3.1% annual interest rate. The note has monthly principal and interest payments of $35,292. The consumer segment note was refinanced with a remaining and principal payment due monthly was $49,646. DGSE executedoutstanding balance of $2,781,087, is a five-year $3,074,021 note to pay off the accounts payable – related party balance to a former Related Party as of May 20, 2019. That promissory note was also amortized over 20 years at a 6%3.1% annual interest rate. The note has monthly principal and interest and principal payment due monthly on the note for DGSE was $22,203. On November 23, 2021, both notes were refinanced by Farmers State Bankpayments of Oakley Kansas. $15,555.
(2) On July 9, 2020, DGSEthe consumer segment closed the purchase of a new retail building located at 610 E. Round Grove Road in Lewisville, Texas for $1,195,000.$1.195 million. The purchase was partly financed through a $956,000, 10 yearten-year loan, (the “Truist Lewisville Loan”), bearing an annual interest rate of 3.65%, amortized over 20 years, payable to Truist Bank (f/k/a BB&T Bank). The note has monthly interest and principal payments of $5,645.
(3) On September 14, 2020, 1106 NWH Holdings, LLC, a wholly owned subsidiary of DGSE,the consumer segment closed on the purchase of a new retail building located at 1106 W. Northwest Highway in Grapevine, Texas for $620,000. The purchase was partly financed through a $496,000, five-year loan, (the “TB&T Grapevine Loan”), bearing an annual interest rate of 3.75%, amortized over 20 years, payable to Texas Bank and& Trust. The note has monthly interest and principal payments of $2,941.
20 |
Table of Contents |
(4) On July 30, 2021, 9166 Gaylord Holdings, LLC, a wholly owned subsidiary of DGSE,the consumer segment closed the purchase of a new retail building located at 9166 Gaylord Parkway in Frisco, Texas for $2,215,500. The purchase was partly financed through a $1,772,000, five-year loan (the “TB&T Frisco Loan”), bearing an annual interest rate of 3.75%, amortized over 20 years, payable to Texas Bank and Trust. The note has monthly interest and principal payments of $10,509.
(5) On November 23, 2021, the Company secured a 36-month line of credit from Farmers State Bank of Oakley Kansas (“FSB Facility”) for $3,500,000 at a 3.1% annual interest rate. As of March 31, 2023 and December 31, 2022, the outstanding balance of the line of credit was $0.
(6) On October 29, 2021, ECHGthe commercial segment entered into the Avail Transaction to purchase all of the assets, liabilities and rights and interests of Avail AZ, for $4.5 million. The purchase was facilitated by an initial payment of $2.5 million at closing, and the remaining $2.0 million to be paid out by 12 quarterly payments starting April 1, 2022, of $166,667 each. The Installment note payable for the Avail Transaction imputed at 3.1%
(7) On November 4, 2020, 1901 Gateway Holdings, LLC, a wholly owned subsidiary of the Company,Envela Corporation, closed on the purchase of aits new corporate office building located at 1901 Gateway Drive, Irving, Texas for $3.521 million. The building was partially financed through a $2,960,000, 5-year$2.96 million, five-year loan, (the “TB&T Irving Loan”), bearing an interest rate of 3.25%, amortized over 20 years, payable to Texas Bank and& Trust. The note has monthly interest and principal payments of $16,792.
Future scheduled principal payments of our notes payable as of March 31, 20222023 are as follows:
Note payable, Farmers State Bank - DGSE |
|
|
| |
|
|
|
| |
Year Ending December 31, |
| Amount |
| |
|
|
|
| |
2022 (excluding the three months ended March 31, 2022) |
| $ | 76,667 |
|
2023 |
|
| 105,428 |
|
2024 |
|
| 108,743 |
|
2025 |
|
| 112,163 |
|
2026 |
|
| 2,342,185 |
|
|
|
|
|
|
Subtotal |
| $ | 2,745,186 |
|
Note payable, Truist Bank - DGSE |
|
|
|
|
|
|
|
|
|
Year Ending December 31, |
| Amount |
| |
|
|
|
|
|
2022 (excluding the three months ended March 31, 2022) |
| $ | 26,018 |
|
2023 |
|
| 35,988 |
|
2024 |
|
| 37,342 |
|
2025 |
|
| 38,748 |
|
2026 |
|
| 40,206 |
|
Thereafter |
|
| 722,134 |
|
|
|
|
|
|
Subtotal |
| $ | 900,436 |
|
CONSUMER SEGMENT | ||||
Note payable, Texas Bank & Trust - DGSE |
|
|
| |||||
Note payable, Farmers State Bank |
|
|
| |||||
|
|
|
|
|
|
| ||
Year Ending December 31, |
| Amount |
|
| Amount |
| ||
|
|
|
|
|
|
| ||
2022 (excluding the three months ended March 31, 2022) |
| $ | 13,370 |
| ||||
2023 |
| 18,503 |
| |||||
2023 (excluding the three months ended March 31, 2023) |
| $ | 79,098 |
| ||||
2024 |
| 19,209 |
|
| 108,743 |
| ||
2025 |
|
| 418,474 |
|
| 112,162 |
| |
2026 |
|
| 2,342,196 |
| ||||
|
|
|
|
|
|
| ||
Subtotal |
| $ | 469,556 |
|
| $ | 2,642,199 |
|
Note payable, Texas Bank & Trust - DGSE |
|
|
|
|
|
|
|
|
|
Year Ending December 31, |
| Amount |
| |
|
|
|
|
|
2022 (excluding the three months ended March 31, 2022) |
| $ | 52,616 |
|
2023 |
|
| 72,442 |
|
2024 |
|
| 74,832 |
|
2025 |
|
| 77,300 |
|
2026 |
|
| 79,600 |
|
Thereafter |
|
| 1,380,291 |
|
|
|
|
|
|
Subtotal |
| $ | 1,737,081 |
|
Note payable, Farmers Bank - ECHG |
|
|
|
|
|
|
|
|
|
Year Ending December 31, |
| Amount |
| |
|
|
|
|
|
2022 (excluding the three months ended March 31, 2022) |
| $ | 173,949 |
|
2023 |
|
| 239,204 |
|
2024 |
|
| 246,725 |
|
2025 |
|
| 254,484 |
|
2026 |
|
| 5,314,143 |
|
|
|
|
|
|
Subtotal |
| $ | 6,228,505 |
|
Note payable - Avail Transaction |
|
|
| |||||
Note payable, Truist Bank |
|
|
| |||||
|
|
|
|
|
|
| ||
Year Ending December 31, |
| Amount |
|
| Amount |
| ||
|
|
|
|
|
|
| ||
2022 (excluding the three months ended March 31, 2022) |
| $ | 433,333 |
| ||||
2023 |
| 666,667 |
| |||||
2023 (excluding the three months ended March 31, 2023) |
| $ | 27,006 |
| ||||
2024 |
| 666,667 |
|
| 37,342 |
| ||
2025 |
|
| 166,666 |
|
| 38,748 |
| |
2026 |
| 40,206 |
| |||||
2027 |
| 42,081 |
| |||||
Thereafter |
|
| 680,054 |
| ||||
|
|
|
|
|
|
| ||
Subtotal |
| $ | 1,933,333 |
|
| $ | 865,437 |
|
21 |
Table of Contents |
Note payable, Texas Bank & Trust - Envela |
|
|
| |||||
Note payable, Texas Bank & Trust |
|
|
| |||||
|
|
|
|
|
|
| ||
Year Ending December 31, |
| Amount |
|
| Amount |
| ||
|
|
|
|
|
|
| ||
2022 (excluding the three months ended March 31, 2022) |
| $ | 82,078 |
| ||||
2023 |
| 112,653 |
| |||||
2023 (excluding the three months ended March 31, 2023) |
| $ | 13,885 |
| ||||
2024 |
| 116,441 |
|
| 19,209 |
| ||
2025 |
|
| 2,504,587 |
|
|
| 418,475 |
|
|
|
|
|
|
|
| ||
Subtotal |
| $ | 2,815,759 |
|
| $ | 451,569 |
|
|
|
|
|
|
|
| ||
Note payable, Texas Bank & Trust |
|
|
| |||||
|
| $ | 16,829,856 |
|
|
|
| |
Year Ending December 31, |
| Amount |
| |||||
|
|
|
| |||||
2023 (excluding the three months ended March 31, 2023) |
| $ | 47,852 |
| ||||
2024 |
| 66,225 |
| |||||
2025 |
| 75,219 |
| |||||
2026 |
| 78,741 |
| |||||
2027 |
| 80,717 |
| |||||
Thereafter |
|
| 1,326,332 |
| ||||
|
|
|
| |||||
Subtotal |
| $ | 1,675,086 |
|
COMMERCIAL SEGMENT |
Note payable, Farmers Bank |
|
|
| |
|
|
|
| |
Year Ending December 31, |
| Amount |
| |
|
|
|
| |
2023 (excluding the three months ended March 31, 2023) |
| $ | 179,463 |
|
2024 |
|
| 246,725 |
|
2025 |
|
| 254,483 |
|
2026 |
|
| 5,314,160 |
|
|
|
|
|
|
Subtotal |
| $ | 5,994,831 |
|
|
|
|
|
|
Note payable, Avail Transaction |
|
|
|
|
|
|
|
|
|
Year Ending December 31, |
| Amount |
| |
|
|
|
|
|
2023 (excluding the three months ended March 31, 2023) |
| $ | 500,000 |
|
2024 |
|
| 666,667 |
|
2025 |
|
| 166,666 |
|
|
|
|
|
|
Subtotal |
| $ | 1,333,333 |
|
22 |
Table of Contents |
CORPORATE |
Note payable, Texas Bank & Trust - Envela |
|
|
| |
|
|
|
| |
Year Ending December 31, |
| Amount |
| |
|
|
|
| |
2023 (excluding the three months ended March 31, 2023) |
| $ | 84,881 |
|
2024 |
|
| 116,501 |
|
2025 |
|
| 2,502,761 |
|
|
|
|
|
|
Subtotal |
|
| 2,704,143 |
|
|
|
|
|
|
|
| $ | 15,666,598 |
|
Future scheduled aggregate amount of principal payments and maturities of our notes payable as of March 31, 20222023 are as follows:
|
| Scheduled |
|
|
|
|
|
| Scheduled |
|
|
|
|
| ||||||||||
|
| Principal |
| Loan |
|
|
|
| Principal |
| Loan |
|
|
| ||||||||||
Scheduled Principal Payments and Maturities by Year: |
| Payments |
|
| Maturities |
|
| Total |
|
| Payments |
|
| Maturities |
|
| Total |
| ||||||
2022 (excluding the three months ended March 31, 2022) |
| $ | 858,031 |
| $ | 0 |
| $ | 858,031 |
| ||||||||||||||
2023 |
| 1,250,885 |
| 0 |
| 1,250,885 |
| |||||||||||||||||
2023 (excluding the three months ended March 31, 2023) |
| 932,185 |
| - |
| 932,185 |
| |||||||||||||||||
2024 |
| 1,269,959 |
| 0 |
| 1,269,959 |
|
| 1,261,412 |
| - |
| 1,261,412 |
| ||||||||||
2025 |
| 595,940 |
| 2,976,482 |
| 3,572,422 |
|
| 772,385 |
| 2,796,129 |
| 3,568,514 |
| ||||||||||
2026 |
| 434,243 |
| 7,341,891 |
| 7,776,134 |
|
| 464,900 |
| 7,310,403 |
| 7,775,303 |
| ||||||||||
2027 and Thereafter |
|
| 555,443 |
|
|
| 1,546,982 |
|
|
| 2,102,425 |
| ||||||||||||
2027 |
| 122,798 |
| - |
| 122,798 |
| |||||||||||||||||
Thereafter |
|
| 428,266 |
|
|
| 1,578,120 |
|
|
| 2,006,386 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Total |
| $ | 4,964,501 |
|
| $ | 11,865,355 |
|
| $ | 16,829,856 |
|
| $ | 3,981,946 |
|
| $ | 11,684,652 |
|
| $ | 15,666,598 |
|
23 |
Table of Contents |
NOTE 1514 — STOCK-BASED COMPENSATION
The Company accounts for share-based compensation by measuring the cost of employee services received in exchange for an award of equity instruments, including grants of stock options, based on the fair value of the award at the date of grant. In addition, to the extent that the Company receives an excess tax benefit upon exercise of an award, such benefit is reflected as cash flow from financing activities in the consolidated statement of cash flows.
There was no stock-based compensation expense for the three months ended March 31, 20222023 and 2021.2022.
NOTE 1615 — RELATED PARTY TRANSACTIONS
The Company has a corporate policy governing the identification, review, consideration and approval or ratification of transactions with related persons, as that term is defined in the Instructions to Item 404(a) of Regulation S-K, promulgated under the Securities Act (each such person a (“Related Party”). Under this policy, all Related Party transactions are identified and approved prior to consummation of the transaction to ensure they are consistent with the Company’s best interests and the best interests of its stockholders.shareholders. Among other factors, the Company’s Board considers the size and duration of the transaction, the nature and interest of the of the Related Party in the transaction, whether the transaction may involve a conflict of interest and if the transaction is on terms that are at least as favorable to the Company as would be available in a comparable transaction with an unaffiliated third party. The Company’sEnvela’s Board reviews all Related Party transactions at least annually to determine if it is in the Board’s best interestinterests and the best interests of the Company and the Company’s stockholdersshareholders to continue, modify, or terminate any of the Related Party transactions. Envela’s Related Person Transaction Policy is available for review in its entirety under the “Investors” menu of the Company’s corporate relations website at www.envela.com.
On May 20, 2019, in connection with the Echo Transaction, the Company entered into two loan agreements with John R. Loftus, the Company’s CEO, President and Chairman of the Board. ECHG, LLC executed a five-year, $6,925,979 note for the Echo Transaction, amortized over 20 years at a 6% annual interest rate. The interest and principal payment due monthly was $49,646. DGSE executed a five-year, $3,074,021 note to pay off the accounts payable – related party balance to a former Related Party as of May 20, 2019. That promissory note was also amortized over 20 years at a 6% annual interest rate. The interest and principal payment due monthly on the note for DGSE was $22,203. Both notes were being serviced by operational cash flow. On November 23, 2021, both notes were refinanced by Farmers State Bank of Oakley Kansas. For the three months ended March 31, 2022 and 2021, the Company paid Mr. Loftus $0 and $143,189, respectively, in interest on the Company’s notes payable, related party.
NOTE 1716 — SUBSEQUENT EVENTS
On April 3, 2023, by means of an auction, the consumer segment placed under contract a stand-alone retail building in Phoenix, Arizona, for $1.2 million as part of their expansion into other markets. The COVID-19 pandemicbuilding has approximately 6,000 square feet and we are expecting to close the purchase by Thursday, May 4, 2023.
NOTE 17 — CONTINGENCIES
Surging inflation and supply chain interruptions continue to adversely affectedaffect global economic business conditions. Future sales on products like ours could decline or fluctuate due to increased or fluctuating commodities prices, particularly gold. The Federal Reserve has continued raising interest rates to combat inflation and restore price stability and it is expected that rates will continue to rise at a slower and more deliberate pace through fiscal 2023. Although we are continuing to monitor and assess the economic effects of the COVID-19 pandemic,inflation levels and supply chain interruptions, the ultimate impact is highly uncertain and subject to change. The duration of any such impact cannot be predicted, nor can the timing of the development, distribution and acceptance of effective vaccines, booster shots or other treatments for potential COVID-19 divergent strains, including the Delta variant. In addition, the economic effects of the COVID-19 pandemicforegoing are subject to, among other things, the effect of government responses to the pandemic on our operations, including vaccine mandates, impactsoperations.
The global tension caused by the conflict between Russia and Ukraine has upset the stability within the region of the pandemic onformer Soviet era block. This could lead to further volatility in global energy and domestic economic conditions, including with respect to commercial activity,other industries that could negatively impact our customersoperations. The U.S. government has imposed sanctions and business partners,export controls against Russia and Russian interests and threatened additional sanctions and controls, which have impacted global supply chains. The impact of these measures, as well as consumer preferences and demand.other measures taken, as it concerns our operations is currently unknown.
Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context indicates otherwise for one of our specific operating segments, references to “we,” “us,” “our,” the ”Company” and “Envela” refer to the consolidated business operations of Envela Corporation, and all of its direct and indirect subsidiaries.
Forward-Looking Statements
This Quarterly Report on Form 10-Q for the quarter ended March 31, 20222023 (this “Form 10-Q”), including but not limited to: (i) the section of this Form 10-Q entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” (ii) information concerning our business prospects or future financial performance, anticipated revenues, expenses, profitability or other financial items; and (iii) our strategies, plans and objectives, together with other statements that are not historical facts, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,” “will,” “would,” “expect,” “intend,” “could,” “estimate,” “should,” “anticipate” or “believe.” We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements other than statements of historical information provided herein are forward-looking based on current expectations regarding important risk factors. Many of these risks and uncertainties are beyond our ability to control, and, in many cases, we cannot predict all of the risks and uncertainties that could cause our actual results to differ materially from those expressed in the forward-looking statements. Actual results could differ materially from those expressed in the forward-looking statements, and readers should not regard those statements as a representation by us or any other person that the results expressed in the statements will be achieved. Important risk factors that could cause results or events to differ from current expectations are described under the section entitled “Risk Factors” in the Company’s 20212022 Annual Report and any material updates are described under the section of this Form 10-Q entitled “Risk Factors” and elsewhere in this Form 10-Q. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the operations, performance, development and results of our business. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date thereon, including without limitation, changes in our business strategy or planned capital expenditures, or store growth plans, or to reflect the occurrence of unanticipated events.
Envela Overview
The Company operates through two recommerce business segments represented by its two direct subsidiaries,customer designations. The consumer segment, formerly known as the DGSE and ECHG. DGSEsegment, focuses on the recommercialization of luxury hard assets, and the commercial segment formerly known as the ECHG segment, focuses on the recommercialization of business IT equipment and consumer electronic devices.
Through DGSE,the consumer segment, the Company recommercializes luxury hard assets and operates the Dallas Gold and Silver Exchange, Charleston Gold & Diamond Exchange, and Bullion Express brands. Through ECHG,the commercial segment, the Company recommercializes business IT equipment and consumer electronic devices and operates Echo, ITAD USA, Teladvance, CEX and Avail. Echo focuses on end-of-life electronics recycling and sustainability, ITAD USA provides IT equipment disposition, including compliance and data sanitization services, and Teladvance, CEX and Avail operate as value-added resellers by providing offerings and services to companies looking either to upgrade capabilities or dispose of equipment. In addition to its operations through DGSEthe consumer and ECHG,commercial segments, Envela also leases unused space at its Company headquarters in Irving, Texas to commercialthird-party tenants.
25 |
Table of Contents |
DGSEConsumer Segment Business Overview
DGSEThe consumer segment is headquartered in Dallas, Texas. DGSETexas and focuses on sustainable, authenticated recommerce of luxury hard assets, including diamonds. Its retail strategy is anchored in being an information resource for clients, bringing transparency to purchase and sale transactions, and offering value and liquidity to those seeking to buy, sell or trade jewelry, fine watches, diamonds, rare coins and currency as well as other valuables. DGSEThe Company wholesales and retails these items through its Charleston Gold & Diamond Exchange and Dallas Gold & Silver Exchange operations. DGSE hasDallas Gold & Silver Exchange and Charleston Gold & Diamond Exchange have specialized in buying and selling jewelry for over 40almost 50 years, making our expert staff among the best in the business. DGSE
Dallas Gold & Silver Exchange also maintains a number of related operations, including precious-metal bullion exchange and refiner partnerships, on-site jewelry and watch repair and restoration at its Dallas flagship location, consignment offerings and partnerships, and design of custom bridal and fashion jewelry. In addition, it also has a precious-metal bullion-trading operation that buys and sells all forms of gold, silver, platinum and palladium products, including United States and other government-issue coins, private-mint medallions, art bars and trade unit bars.
For additional information regarding DGSE,the consumer segment, see “Item 1. Business - Operating Segments - DGSE Segment.” in the Company’s 20212022 Annual Report.
DGSEConsumer Segment Recommerce Activities
We operate a sustainable marketplace for preowned luxury goods. We buy and sell coins, diamonds, jewelry, and related accessories and other merchandise. Our ability to offer quality pre-owned goods at prices significantly lower than original retail prices attracts value-conscious customers. The consumer segment depends on purchasing products and materials from secondary markets. We are reliant on our ability to obtain an adequate supply of products and material at prices or other terms acceptable to us. The gross profit on sales of inventory depends primarily on our assessment of the purchase value at the time the property is purchased and our ability to sell that merchandise in a timely manner.
Consumer Segment Precious Metals Pricing and Business Impact
We are exposed to various market risks. Market risk is the potential loss arising from the adverse changes in market prices and rates. The nature of the consumer operations results in exposure to fluctuations in commodity prices, specifically diamonds, platinum, gold and silver. We do not currently use derivatives to hedge these risks.
As a significant portion of our inventory and sales involve gold and jewelry, our results can be influenced by the market price of gold and diamonds.
DGSE Precious Metals Pricing Our retail sales and Business Impact
DGSE’s business, similar to the jewelry industry overall, is effected by fluctuations in precious-metals pricing. Such fluctuations, particularly with respect togross margin could be materially impacted if prices of diamonds, platinum, gold, which accounts for a majority of DGSE’s merchandise costs, can have significant impact on its earnings and cash availability.or silver rise so significantly that our consumers’ behavior changes or if price increases cannot be passed onto our customers.
Because DGSEthe consumer segment buys and resells precious metals, it is impacted by fluctuations and changes in precious metalprecious-metal pricing which rises and falls based upon global supply and demand dynamics, with the greatest impact on us relating to gold as it represents a significant portion of the precious metalprecious-metal in which we trade. Gold prices surged during the beginningsSuch fluctuations, particularly with respect to gold, which accounts for a majority of the COVID-19 pandemic, rising steeply during Fiscal 2020 but receding somewhat toward the end of Fiscal 2020. Gold prices started January 1, 2021 at $1,891 an ounce, as determined by the London AM Fixour merchandise costs, can have a significant impact on its earnings and dipped to a low of $1,683 an ounce on March 30, 2021. Gold then began to rebound throughout the remainder of the year closing at $1,820 on December 31, 2021, as determined by the London AM Fix. During fiscal year 2021, gold prices receded 4% from December 31, 2020. Gold rose 7% to $1,942 during the first three months of Fiscal 2022.cash availability.
26 |
|
Table of Contents |
When prices rise for gold or other precious metals, DGSE has observed that individual sellers tend to be more likely to sell their unwanted crafted-precious-metal items and at the same time retail customers tend to buy bullion and other gold products so as not to miss out on potential market gains. When prices decline for gold or other precious metals, DGSE has observed that individual buyers tend to buy due to the decrease in gold prices. While the precious-metals industry has slowed, our focus will be to grow our jewelry, diamond and fine watch business, as well as maintain our business of purchasing crafted-precious-metal items, a diversified strategy which we believe willWe continue to growmonitor the economic impact on our operations from surging inflation and be a profit enginethe conflict in Ukraine. Uncertainties exist that could affect our operations or cash flows in the future.
In addition, DGSE depends on purchasing productsfuture, such as continued inflationary environmental changes (including, but not limited to, labor, materials, and materials from secondary markets. We are reliant on ouradvertising costs). The Company’s ability to obtain an adequate supply of productsrecruit and material at pricesretain qualified team members, organized retail crime, or other terms acceptablethe consumers’ ability to it.spend on discretionary categories.
DGSEConsumer Segment Growth and Expansion
Our continued strategy iswill be to expand the number of locations we operate through opening new (“de novo”) locations in both current markets of Dallas/Fort Worth, Texaswithin DFW and Charleston, South Carolina and potential new markets.Carolina. The Company expects to soon expand into Arizona, see Note 16 – Subsequent Events, to these interim condensed consolidated financial statements. Our ability to add new stores is dependent on several variables, such as projected achievement of internal investment hurdles, the availability of acceptable sites, the regulatory environment, local zoning ordinances, access to capital and the availability of qualified personnel. We see opportunity for further expansion through newde novo openings in the United States. The Company expects capital expenditures over the next twelve months including the potential purchase of additional properties by DGSE.properties.
ECHGCommercial Segment Business Overview
ECHG owns andThe commercial segment operates Echo, ITAD USA, Teladvance, CEX and Avail, through which it primarily buys and resells or recycles consumer electronic components and IT equipment. Echo focuses on end-of-life electronics recycling and also offers disposal transportation and product tracking, ITAD USA provides IT equipment disposition including compliance and data sanitization services and Teladvance, CEX and Avail operates as value-added resellers by providing offerings and services to companies looking to either upgrade capabilities or dispose of equipment. In addition, as a result of the CExchange Transaction, Teladvance now offers retailits customers a trade-in programthe ability to further offer their customers the ability to upgrade their old phones through a trade-in program.program supported by Teladvance. Like DGSE, ECHGthe consumer segment, the commercial segment also maintains relationships with refiners or recyclers tofor which it sells extracted valuable materials from electronics and IT equipment that are not appropriatedeemed unsuitable for resaleretail or reuse.wholesale customers.
ECHGCommercial Segment Recommerce Activities
A portion of ECHG’sthe commercial business depends on obtaining products and material from secondary markets and is reliant on its ability to obtain an adequate supply of products and material at prices and other items acceptable to it. Although we believe that the long-term prospects for the industry remain bright, but because we do not have unlimited backlogs, our business can be promptly affected by short-term market fluctuations.fluctuations and supply limitations.
ECHGCommercial Segment Metals Pricing and Business Impact
ECHG’sThe commercial recycling business is affected by precious and other non-ferrous metal prices, which fluctuate based upon global supply-and-demand dynamics, among other things, with the greatest impact relating to gold. Recent fluctuations in gold prices areAs discussed above.below, we have seen a recent decrease of recycled items, which we believe is primarily due to the supply chain problems downstream with our customers.
27 |
Table of Contents |
ECHGCommercial Segment Growth and Expansion
ECHG’sThe commercial strategy is to expand both organically and through acquisitions. As an organization, ECHG striveswe strive to deliver value through organic growth, high customer loyalty and retention as well as strategic acquisitions. ECHG isWe are committed to continuous innovation. Many of ECHG’sour clients have made commitments to going carbon neutral over the next few years and ECHG seeswe see the potential to further expand key relationships as it partnerswe partner with them in more ways to help them achieve their goal. With an emphasis on increasing recurring revenues and expanding our margins, ECHG believes itscommercially we believe our organic strategy will ultimately drive strong financial performance, including cash flow to support our acquisition strategy. ECHG’sCommercial’s business strategy has always included pursuing synergistic acquisitions, and ECHG’s planswe plan to continue to expand itsthe business by making strategic acquisitions and regularly seeking suitable acquisition targets to enhance its growth.
For additional information regarding ECHG,the commercial segment, see “Item 1. Business—Operating Segments—ECHG Segment.” in the Company’s 20212022 Annual Report.
COVID-19Economic Conditions
The COVID-19 pandemic has adverselySurging inflation, supply chain disruptions and the war in Ukraine have affected global economicthe recommerce business conditions. Future sales on products like ours could decline or fluctuate duein unpredictable ways. There have been fewer customers raising money by selling items. For more information, see Note 17 to increased or fluctuating commodities prices, particularly gold. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic, the ultimate impact is highly uncertain and subject to change. The duration of any such impact cannot be predicted, nor can the timing of the development, distribution and acceptance of effective vaccines, booster shots or other treatments for potential COVID-19 divergent strains, including the Delta and Omnicron variants. In addition, the effects of the COVID-19 pandemic are subject to, among other things, the effect of government responses to the pandemic on our operations, including vaccine mandates, impacts of the pandemic on global and domestic economic conditions, including with respect to commercial activity, our customers and business partners, as well as consumer preferences and demand.these interim condensed consolidated financial statements.
Critical Accounting Policies and Estimates
For aOur management’s discussion and analysis of criticalour financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting (“U.S. GAAP”) principles. The preparation of these financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material.
While our significant accounting policies see Note 3are more fully described in “Note 1 — Accounting Policies and Nature of Operations” in the Company’s 2022 Annual Report, we believe that the accounting estimates discussed below relate to the interim condensed consolidated financial statements included herein.more significant areas involving management’s judgments and estimates.
Inventories
The consumer Segment inventory is valued at the lower of cost or net realizable value (“NRV”). We acquire a majority of our inventory from individual customers, including pre-owned jewelry, watches, bullion, rare coins and monetary collectibles. We acquire these items based on our own internal estimate of the fair value of the items at the time of purchase. We consider factors such as the current spot market price of precious metals and current market demand for the items being purchased. It supplements these purchases from individual customers with inventory purchased from wholesale vendors. These wholesale purchases can take the form of full asset purchases, or consigned inventory. Consigned inventory is accounted for on our balance sheet with a fully offsetting contra account so that consigned inventory has a net zero balance. The majority of our inventory has some component of its value that is based on the spot market price of precious metals. Because the overall market value for precious metals regularly fluctuates, these fluctuations could have either a positive or negative impact on the value of our inventory and could positively or negatively impact our profitability. We monitor these fluctuations to evaluate any necessary impairment to inventory.
Table of Contents |
The Echo inventory principally includes processed and unprocessed electronic scrap materials. The value of the material is derived from recycling the precious and other scrap metals included in the scrap. The processed and unprocessed materials are carried at the lower of the average cost of the material during the month of purchase or NRV. The in-transit material is carried at lower of cost or NRV using the retail method. Under the retail method the valuation of the inventory at cost and the resulting gross margins are calculated by applying a cost to retail ratio to the retail value of the inventory.
For the three months ended March 31, 2023, we have not identified critical accounting estimates that involve a significant level of estimation uncertainty and would have a material impact on our results. Refer to our significant accounting policies are more fully described in Note 3 to these interim condensed consolidated financial statements.
Recent Accounting Pronouncements
See Note 3- Accounting Policies and Estimates, to these interim condensed consolidated financial statements for recently adopted accounting pronouncements.
Use of Non-U.S. GAAP Financial Measures
In this management’s discussion and analysis, we use supplemental measures of our performance, which are derived from our interim consolidated financial information, but which are not presented in our interim consolidated financial statements prepared in accordance with U.S. GAAP. We believe that providing these non-U.S. GAAP financial measures adds a meaningful presentation of our operating and financial performance. See the reconciliation of net income to EBITDA (defined below), in Non-U.S. GAAP Financial Measures below.
Non-U.S. GAAP Financial Measures
EBITDA is a key performance measure that our management uses to assess our operating performance. Because EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure as an overall assessment of our performance, to evaluate the effectiveness of our business strategies and for business planning purposes. EBITDA may not be comparable to similarly titled metrics of other companies. EBITDA means earnings before interest expense, other (income) expense, net, income tax expense, and depreciation and amortization. EBITDA is a non-U.S. GAAP measure and should not be considered as an alternative to the presentation of net income or any other measure of financial performance calculated and presented in accordance with U.S. GAAP.
The following table provides a reconciliation of net income to EBITDA:
|
| For the three months Ended March 31, |
| |||||||||||||||||||||
|
| 2023 |
|
| 2022 |
| ||||||||||||||||||
|
| Consumer |
|
| Commercial |
|
| Consolidated |
|
| Consumer |
|
| Commercial |
|
| Consolidated |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
EBITDA Reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net Income |
| $ | 1,136,884 |
|
| $ | 1,389,433 |
|
| $ | 2,526,317 |
|
| $ | 1,876,140 |
|
| $ | 771,085 |
|
| $ | 2,647,225 |
|
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 98,134 |
|
|
| 256,217 |
|
|
| 354,351 |
|
|
| 106,963 |
|
|
| 184,984 |
|
|
| 291,947 |
|
Other (income) expense |
|
| (23,534 | ) |
|
| (187,245 | ) |
|
| (210,779 | ) |
|
| 27,992 |
|
|
| 30,584 |
|
|
| 58,576 |
|
Interest expense |
|
| 59,618 |
|
|
| 57,446 |
|
|
| 117,064 |
|
|
| 61,241 |
|
|
| 61,998 |
|
|
| 123,239 |
|
Income tax expense |
|
| 317,841 |
|
|
| 399,805 |
|
|
| 717,646 |
|
|
| 13,177 |
|
|
| 17,115 |
|
|
| 30,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
| $ | 1,588,943 |
|
| $ | 1,915,656 |
|
| $ | 3,504,599 |
|
| $ | 2,085,513 |
|
| $ | 1,065,766 |
|
| $ | 3,151,279 |
|
29 |
Table of Contents |
Results of Operations
General
The following disaggregation of total revenue is listed by sales category and segment for the three months ended March 31, 20222023 and 2021:2022:
CONSOLIDATED |
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| ||||||||||||||||||||||||||||||||||||||
|
| Revenues |
|
| Gross Profit |
|
| Margin |
|
| Revenues |
|
| Gross Profit |
|
| Margin |
|
| Revenues |
|
| Gross Profit |
|
| Margin |
|
| Revenues |
|
| Gross Profit |
|
| Margin |
| ||||||||||||
DGSE |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Resale |
| $ | 33,677,133 |
| $ | 3,742,852 |
| 11.1 | % |
| $ | 17,320,641 |
| $ | 2,457,144 |
| 14.2 | % |
| $ | 33,719,960 |
| $ | 3,304,932 |
| 9.8 | % |
| $ | 33,677,133 |
| $ | 3,742,852 |
| 11.1 | % | ||||||||||||
Recycled |
|
| 2,105,739 |
|
|
| 480,610 |
|
|
| 22.8 | % |
|
| 1,593,860 |
|
|
| 350,491 |
|
|
| 22.0 | % |
|
| 2,984,437 |
|
|
| 680,036 |
|
|
| 22.8 | % |
|
| 2,105,739 |
|
|
| 480,610 |
|
|
| 22.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Subtotal |
|
| 35,782,872 |
|
|
| 4,223,462 |
|
|
| 11.8 | % |
|
| 18,914,501 |
|
|
| 2,807,635 |
|
|
| 14.8 | % |
|
| 36,704,397 |
|
|
| 3,984,968 |
|
|
| 10.9 | % |
|
| 35,782,872 |
|
|
| 4,223,462 |
|
|
| 11.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
ECHG |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Resale |
| 9,579,857 |
| 4,574,268 |
| 47.7 | % |
| 4,740,992 |
| 2,612,184 |
| 55.1 | % |
| 8,558,090 |
| 5,799,126 |
| 67.8 | % |
| 9,579,857 |
| 4,574,268 |
| 47.7 | % | ||||||||||||||||||||
Recycled |
|
| 2,052,369 |
|
|
| 913,304 |
|
|
| 44.5 | % |
|
| 1,834,948 |
|
|
| 884,445 |
|
|
| 48.2 | % |
|
| 3,126,553 |
|
|
| 1,625,808 |
|
|
| 52.0 | % |
|
| 2,052,369 |
|
|
| 913,304 |
|
|
| 44.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Subtotal |
|
| 11,632,226 |
|
|
| 5,487,572 |
|
|
| 47.2 | % |
|
| 6,575,940 |
|
|
| 3,496,629 |
|
|
| 53.2 | % |
|
| 11,684,643 |
|
|
| 7,424,934 |
|
|
| 63.5 | % |
|
| 11,632,226 |
|
|
| 5,487,572 |
|
|
| 47.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| $ | 47,415,098 |
|
| $ | 9,711,034 |
|
|
| 20.5 | % |
| $ | 25,490,441 |
|
| $ | 6,304,264 |
|
|
| 24.7 | % |
| $ | 48,389,040 |
|
| $ | 11,409,902 |
|
|
| 23.6 | % |
| $ | 47,415,098 |
|
| $ | 9,711,034 |
|
|
| 20.5 | % |
Three Months Ended March 31, 2022 compared to the Three Months Ended March 31, 2021
Revenue. Revenue related to DGSE’s continuing operations increased by $16,868,371, or 89%, during theComparison of three months ended March 31, 2022, to $35,782,872, as compared to revenue of $18,914,501 during the same period in 2021. Resale revenue, such as bullion, jewelry, watches2023 and rare coins, increased by $16,356,492, or 94%, during the three months ended March 31, 2022 to $33,677,133 as compared to resale revenue of $17,320,641 during the same period in 2021. Recycled-material sales increased 32% to $2,105,739 for the three months ended March 31, 2022, as compared to recycled-material sales of $1,593,860, for the three months ended March 31, 2021. Revenue increased for resale and recycled items for the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to the effectiveness of DGSE’s on-line advertising and marketing campaign that saw DGSE increase its advertising budget by 56% during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021.
Revenue related to ECHG’s continuing operations for the three months ended March 31, 2022 increased by $5,056,286, or 77%, to $11,632,226, as compared to revenue of $6,575,940 during the same period in 2021. Resale revenue increased by $4,838,865, or 102%, to $9,579,857, for the three months ended March 31, 2022, as compared to revenue of $4,740,992 during the three months ended March 31, 2021. Recycled sales increased by $217,421 or 12%, to $2,052,369 for the three months ended March 31, 2022, as compared to recycled sales of $1,834,948 for the three months ended March 31, 2021. Revenue increased for resale and recycled items for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, primarily due to the addition of Avail and CEX for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.
The Company has had no layoffs to-date or terminations due to the COVID-19 pandemic, and we continue to exercise the safety protocols established by the Company at the start of the pandemic. The Company continues to operate at full strength and will take measures to keep our employees safe where possible.
|
| Three Months Ended March 31, |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| Amount |
|
| % |
| ||||
Resale Revenue |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consumer |
| $ | 33,719,960 |
|
| $ | 33,677,133 |
|
| $ | 42,827 |
|
|
| 0 | % |
Commercial |
| $ | 8,558,090 |
|
| $ | 9,579,857 |
|
| $ | (1,021,767 | ) |
|
| -11 | % |
Table of Contents |
Gross Profit. Gross profitResale revenue related to DGSE’s operations for the three months ended March 31, 2022,consumer segment increased by $1,415,827$42,827, or 50%, to $4,223,462, as compared to gross profit of $2,807,635 during the same period in 2021. Resale gross profit increased by $1,285,708, or 52%, to $3,742,852 for the three month ended March 31, 2022, as compared to resale gross profit of $2,457,1440.13% during the three months ended March 31, 2021. Recycled gross profit increased by $130,119, or 37%,2023, to $480,610 for the three months ended March 31, 2022,$33,719,960, as compared to recycled gross profit of $350,491$33,677,133 during the same period in 2022. Resale revenue, such as bullion, jewelry, watches, and rare coins, increased slightly during the period.
Resale revenue related to the commercial segment decreased by $1,021,767, or 11%, during the three months ended March 31, 2021. The increase in resale and recycled gross profit was due primarily2023, to the increase in sales for the three months ended March 31, 2022,$8,558,090, as compared to the three months ended March 31, 2021.
Gross profit related to ECHG for the three months ended March 31, 2022 increased by $1,990,943, or 57%, to $5,487,572 as compared to gross profit of $3,496,629$9,579,857 during the same period in 2021. Gross profit for resale2022. Resale revenue fordecreased primarily due to supply chain issues the Company experienced during the three months endedending March 31, 20222023.
Recycled Revenue
|
| Three Months Ended March 31, |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| Amount |
|
| % |
| ||||
Recycled Revenue |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consumer |
| $ | 2,984,437 |
|
| $ | 2,105,739 |
|
| $ | 878,698 |
|
|
| 42 | % |
Commercial |
| $ | 3,126,553 |
|
| $ | 2,052,369 |
|
| $ | 1,074,184 |
|
|
| 52 | % |
Recycled revenue related to the consumer segment increased by $1,962,084,$878,698, or 75%42%, to $4,574,268, as compared to gross profit for resale revenue of $2,612,184 during the same period in 2021. Gross profit for recycled sales for the three months ended March 31, 2022 increased $28,859, or 3%, to $913,304, as compared to gross profit for recycled sales of $884,445, during the same period in 2021. The gross profit increase for the resale and recycled items for the three months ended March 31, 2022, compared to the three months ended March 31, 2021 is primarily due to the increased sales in each category.
Selling, General and Administrative Expenses. For the three months ended March 31, 2022, SG&A expenses for DGSE increased by $355,512, or 20%, to $2,137,949, as compared to SG&A expenses of $1,782,437 during the same period in 2021. The increase in SG&A expenses was primarily due to increased payroll and related expenses from personnel needed for the increase in business, and for the addition of a new DGSE retail location that opened for business during the quarter ended March 31, 2022, as compared to the three months ended March 31, 2021.
For the three months ended March 31, 2022, SG&A expenses for ECHG increased by $2,051,014 or 87%, to $4,421,806, as compared to SG&A expenses of $2,370,792 during the same period in 2021. The increase in SG&A expenses was primarily due to the addition of CEX and Avail businesses during the three months ended March 31, 20222023, to $2,984,437, as compared to $2,105,739 during the same period in 2022. Recycled revenue, such as bullion, jewelry, watches, and rare coins, increased primarily during the period ending March 31, 2023 due to increased purchases of non-retail precious metals to be recycled instead of being sold to retail consumers.
Recycled revenue related to the commercial segment increased by $1,074,184, or 52%, during the three months ended March 31, 2021.
Depreciation and Amortization. For the three months ended March 31, 2022, depreciation and amortization expense for DGSE was $106,963, compared2023, to an expense of $96,822 for the same period in 2021, an increase of $10,141, or 10%. The increase of $10,141 from the three months ended March 31, 2022,$3,126,553, as compared to the three months ended March 31, 2021, is primarily due to the new retail building purchased during 2021 but not placed into service until January 2022.
For the three months ended March 31, 2022, depreciation and amortization expense for ECHG was $184,984, compared to an expense of $108,090 for the same period in 2021, an increase of $76,894, or 71%. The increase of $76,894 from the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, is primarily due to the added depreciable assets and intangibles from the purchase of assets from the CExchange and Avail Transactions during Fiscal 2021.
Interest Expense. For the three months ended March 31, 2022, interest expense for DGSE was $61,241, a decrease of $7,244 or 11%, compared to interest expense of $68,485$2,052,369 during the same period in 2021. The decrease was2022. Recycled revenue increased primarily the netting effectdue to an increase of additional interestelectronic material to be recycled from a new loanmaterial not suitable to purchase a retail building netted against the reduction of interest expense from refinancing the related party loan by Farmers State Bank of Oakley Kansas, reducing the annual interest rate from 6%resale to 3.1%.
Forcommercial customers during the three months endedending March 31, 2022, interest expense for ECHG was $61,998, a decrease of $48,539 or 44%, as compared to the interest expense of $110,537, during the same period in 2021. The decrease was primarily due to refinancing the related party loan by Farmers State Bank of Oakley Kansas, reducing the annual interest rate from 6% to 3.1%.
Other. For the three months ended March 31, 2022, net other expense for DGSE was $27,992, an increase of $139,723, compared to net other income of $111,731 during the same period in 2021. The increase in net other expense as compared to net other income was primarily due to DGSE’s portion of operating expenses above rental income for the Company’s corporate building. The corporate building’s rental income and expenses were equally shared between the two segments. The Company’s corporate building’s largest tenant vacated the property during the fourth quarter of Fiscal 2021.2023.
Table of Contents |
ForGross Profit - Resale
|
| Three Months Ended March 31, |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| Amount |
|
| % |
| ||||
Gross Profit - Resale |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consumer |
| $ | 3,304,932 |
|
| $ | 3,742,852 |
|
| $ | (437,920 | ) |
|
| -12 | % |
Commercial |
| $ | 5,799,126 |
|
| $ | 4,574,268 |
|
| $ | 1,224,858 |
|
|
| 27 | % |
Resale gross profit related to the consumer operations for the three months ended March 31, 2023, decreased by $437,920, or 12%, to $3,304,932, as compared to resale gross profit of $3,752,852 during the same period in 2022. The decrease in resale gross profit was due primarily to the need to purchase retail inventory following the 2022 Christmas season; therefore, in connection with inflationary pressures and rising prices of metals, there was an increase in purchase prices for the three months ended March 31, 2023.
Resale gross profit related to the commercial operations for the three months ended March 31, 2023, increased by $1,224,858, or 27%, to $5,799,126, as compared to resale gross profit of $4,574,268 during the same period in 2022. The increase in resale gross profit was primarily due to increased sales prices on material sold.
Gross Profit - Recycled
|
| Three Months Ended March 31, |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| Amount |
|
| % |
| ||||
Gross Profit - Recycled |
|
|
|
|
|
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|
|
|
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| ||||
Consumer |
| $ | 680,036 |
|
| $ | 480,610 |
|
| $ | 199,426 |
|
|
| 41 | % |
Commercial |
| $ | 1,625,808 |
|
| $ | 913,304 |
|
| $ | 712,504 |
|
|
| 78 | % |
Recycled gross profit related to the consumer operations for the three months ended March 31, 2023, increased by $199,426, or 41%, to $680,036, as compared to gross profit of $480,610 during the same period in 2022. The increase in recycled gross profit was due primarily to 42% increase in recycled sales during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.
32 |
Table of Contents |
Recycled gross profit related to the commercial operations for the three months ended March 31, 2023, increased by $712,504, or 78%, to $1,625,808, as compared to gross profit of $913,304 during the same period in 2022. The increase in recycled gross profit was due primarily to 52% increase in recycled sales during the three months ended March 31, 2023 and an increase in margin percentage to 52% for the three months ended March 31, 2023, as compared to 44%, for the three months ended March 31, 2022.
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| For The Three Months Ended March 31, |
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| 2023 |
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| 2022 |
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|
| Consumer |
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| Commercial |
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| Consolidated |
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| Consumer |
|
| Commercial |
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| Consolidated |
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| ||||||
Revenue: |
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| ||||||
Sales |
| $ | 36,704,397 |
|
| $ | 11,684,643 |
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| $ | 48,389,040 |
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| $ | 35,782,872 |
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| $ | 11,632,226 |
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| $ | 47,415,098 |
|
Cost of goods sold |
|
| 32,719,429 |
|
|
| 4,259,709 |
|
|
| 36,979,138 |
|
|
| 31,559,410 |
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|
| 6,144,654 |
|
|
| 37,704,064 |
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|
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|
|
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|
|
|
|
|
|
|
|
|
Gross profit |
|
| 3,984,968 |
|
|
| 7,424,934 |
|
|
| 11,409,902 |
|
|
| 4,223,462 |
|
|
| 5,487,572 |
|
|
| 9,711,034 |
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Expenses: |
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 2,396,025 |
|
|
| 5,509,278 |
|
|
| 7,905,303 |
|
|
| 2,137,949 |
|
|
| 4,421,806 |
|
|
| 6,559,755 |
|
Depreciation and amortization |
|
| 98,134 |
|
|
| 256,217 |
|
|
| 354,351 |
|
|
| 106,963 |
|
|
| 184,984 |
|
|
| 291,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,494,159 |
|
|
| 5,765,495 |
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|
| 8,259,654 |
|
|
| 2,244,912 |
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|
| 4,606,790 |
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|
| 6,851,702 |
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 1,490,809 |
|
|
| 1,659,439 |
|
|
| 3,150,248 |
|
|
| 1,978,550 |
|
|
| 880,782 |
|
|
| 2,859,332 |
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Other income/expense: |
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Other income (expense) |
|
| 23,534 |
|
|
| 187,245 |
|
|
| 210,779 |
|
|
| (27,992 | ) |
|
| (30,584 | ) |
|
| (58,576 | ) |
Interest expense |
|
| 59,618 |
|
|
| 57,446 |
|
|
| 117,064 |
|
|
| 61,241 |
|
|
| 61,998 |
|
|
| 123,239 |
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|
|
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|
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Income before income taxes |
|
| 1,454,725 |
|
|
| 1,789,238 |
|
|
| 3,243,963 |
|
|
| 1,889,317 |
|
|
| 788,200 |
|
|
| 2,677,517 |
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|
|
|
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|
|
|
|
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|
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|
|
|
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|
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Income tax expense |
|
| 317,841 |
|
|
| 399,805 |
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|
| 717,646 |
|
|
| 13,177 |
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|
| 17,115 |
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|
| 30,292 |
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|
|
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|
|
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Net income |
| $ | 1,136,884 |
|
| $ | 1,389,433 |
|
| $ | 2,526,317 |
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| $ | 1,876,140 |
|
| $ | 771,085 |
|
| $ | 2,647,225 |
|
Selling, General and Administrative
|
| Three Months Ended March 31, |
|
| Change |
| ||||||||||
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| 2023 |
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| 2022 |
|
| Amount |
|
| % |
| ||||
Selling, General and Administrative |
|
|
|
|
|
|
|
|
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| ||||
Consumer |
| $ | 2,396,026 |
|
| $ | 2,137,949 |
|
| $ | 258,077 |
|
|
| 12 | % |
Commercial |
| $ | 5,509,278 |
|
| $ | 4,421,806 |
|
| $ | 1,087,472 |
|
|
| 25 | % |
Selling, General and Administrative Expenses, for the consumer segment, for the three months ended March 31, 2023, increased by $258,077, or 12%, to $2,396,026, as compared to $2,137,949 during the same period in 2022. The increase was primarily due to increased expenses related to expanding our footprint into Arizona. During the three months ended March 31, 2022, netthe corporate building overhead expenses were classified as other expenseexpenses. Starting January 1, 2023, those expenses have been classified as operating expenses within selling, general and administrative expenses.
Selling, General and Administrative Expenses, for ECHG was $30,584, an increase of $190,794,the commercial segment, for the three months ended March 31, 2023, increased by $1,087,472, or 25%, to $5,509,278, as compared to net other income of $160,210,$4,421,806 during the same period in 2021.2022. The increase in net other expense as compared to net other income was primarily due to ECHG’s portion of operatingincreased expenses above rental income forrelated to expanding the Company’s corporate building. The corporate building’s rental income and expenses were equally shared betweencommercial business by increasing the two segments. The Company’s corporate building’s largest tenant vacated the property during the fourth quarter of Fiscal 2021.
Income Tax Expense. Forinfrastructure. During the three months ended March 31, 2022, the corporate building overhead expenses were classified as other expenses. Starting January 1, 2023, those expenses have been classified as operating expenses within selling, general and administrative expenses.
Depreciation and Amortization
|
| Three Months Ended March 31, |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| Amount |
|
| % |
| ||||
Depreciation and Amortization |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consumer |
| $ | 98,134 |
|
| $ | 106,963 |
|
| $ | (8,829 | ) |
|
| -8 | % |
Commercial |
| $ | 256,217 |
|
| $ | 184,984 |
|
| $ | 71,233 |
|
|
| 39 | % |
33 |
Table of Contents |
Depreciation and amortization, for the consumer segment, for the three months ended March 31, 2023, decreased by $8,829, or 8%, to $98,134, as compared to $106,963 during the same period in 2022. The decrease was primarily due to some of the fixed assets being fully depreciated.
Depreciation and amortization, for the commercial segment, for the three months ended March 31, 2023, increased by $71,233, or 39%, to $256,217, as compared to $184,984 during the same period in 2022. The increase was primarily due to the amortization of increased intangible assets added from the Avail Transaction during the latter half of fiscal 2022.
Other Income (Expense)
|
| Three Months Ended March 31, |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| Amount |
|
| % |
| ||||
Other Income (Expense) |
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|
|
|
|
|
|
|
|
|
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| ||||
Consumer |
| $ | 23,534 |
|
| $ | (27,992 | ) |
| $ | 51,526 |
|
|
| 184 | % |
Commercial |
| $ | 187,245 |
|
| $ | (30,584 | ) |
| $ | 217,829 |
|
|
| 712 | % |
Other income (expense), for the consumer segment, for the three months ended March 31, 2023, increased by $51,526, or 184%, to $23,534, as compared to a net expense of $(27,992) during the same period in 2022. The increase in other income was primarily due to interest earned from bank accounts for the three months ended March 31, 2023. In addition, during the three months ended March 31, 2022, the corporate building overhead expenses were classified as other expenses. Starting January 1, 2023, those expenses have been classified as operating expenses within selling, general and administrative expenses.
Other income (expense), for the commercial segment, for the three months ended March 31, 2023, increased by $217,829, or 712%, to $187,245, as compared to a net expense of $(30,584) during the same period in 2022. The increase in other income was primarily due to interest earned from bank accounts, of $61,378 and notes receivable interest received, of $94,115 from notes receivable formerly written off during fiscal year 2021. In addition, during the three months ended March 31, 2022, the corporate building overhead expenses were classified as other expenses. Starting January 1, 2023, those expenses have been classified as operating expenses within selling, general and administrative expenses.
Interest Expense
|
| Three Months Ended March 31, |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| Amount |
|
| % |
| ||||
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consumer |
| $ | 59,617 |
|
| $ | 61,241 |
|
| $ | (1,624 | ) |
|
| -3 | % |
Commercial |
| $ | 57,446 |
|
| $ | 61,998 |
|
| $ | (4,552 | ) |
|
| -7 | % |
Interest expense, for the consumer segment, for the three months ended March 31, 2023, decreased by $1,624, or 3%, to $59,617, as compared to $61,241 during the same period in 2022. The decrease was primarily due to reduced loan balances during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.
Interest expense, for the commercial segment, for the three months ended March 31, 2023, decreased by $4,552, or 7%, to $57,446, as compared to $61,998 during the same period in 2022. The decrease was primarily due to reduced loan balances during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.
34 |
Table of Contents |
Income Tax Expense
|
| Three Months Ended March 31, |
|
| Change | ||||||||||
|
| 2023 |
|
| 2022 |
|
| Amount |
|
| % | ||||
Income Tax Expense |
|
|
|
|
|
|
|
|
|
|
| ||||
Consumer |
| $ | 317,841 |
|
| $ | 13,177 |
|
| $ | 304,664 |
|
| 2312 | % |
Commercial |
| $ | 399,805 |
|
| $ | 17,115 |
|
| $ | 382,690 |
|
| 2236 | % |
Income tax expense, for both segments,for the three months ended March 31, 2023, was $30,292, a decrease$717,646, an increase of $478,$687,354, as compared to income tax expense of $30,770$30,292 for the three months ended March 31, 2021.2022. Currently, the Company has a deferred tax asset reflecting net operating losses brought over from prior years. Through fiscal 2022, there was an off-setting valuation allowance associated with the deferred tax asset. The valuation allowance was written off as of December 31, 2022. Starting with the three months ended March 31, 2023, the Company will have a federal tax rate of approximately 21%, in addition to other state and local taxes, on net income. The effective income tax rate was 1.1%22.1% and 1.5%1.1% for the three months ended March 31, 20222023 and 2021,2022, respectively. Differences between our effective income tax rate and the U.S. federal statutory rate are the result of state taxes, non-deductible expenses and changes in the valuation allowance in relation to the deferred tax asset for net operating loss carryforwards.
Net Income.We recorded a net income of $2,647,225carryforwards, as was the Company’s case for the increase for the three months ended March 31, 2022, as compared to a net income of $2,008,272 for the three months ended March 31, 2021, an increase in net income of $638,953. The increase is due primarily to increased revenue and gross profit for the three months ended March 31, 2022, as2023, compared to the three months ended March 31, 2021.2022.
Earnings Per Share. ForNet Income
|
| Three Months Ended March 31, |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| Amount |
|
| % |
| ||||
Net Income |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consumer |
| $ | 1,136,884 |
|
| $ | 1,876,140 |
|
| $ | (739,256 | ) |
|
| -39 | % |
Commercial |
| $ | 1,389,433 |
|
| $ | 771,085 |
|
| $ | 618,348 |
|
|
| 80 | % |
Net income related to the consumer operations for the three months ended March 31, 2022, our2023, decreased by $739,256, or 39%, to $1,136,884, as compared to $1,876,140 during the same period in 2022. The decrease in net income was due primarily to the increased tax expense of $304,664, and the decrease in resale gross profit of $437,920 for the three months ended March 31, 2023, compared to the three month ended March 31, 2022.
Net income related to the commercial operations for the three months ended March 31, 2023, increased by $618,348, or 80%, to $1,389,433, as compared to $771,085 during the same period in 2022. The increase in net income was due primarily to an increase in gross profit of $1,937,362, offset by an increase in selling, general and administrative expenses of $787,472 and increased tax expense of $382,690 for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.
35 |
Table of Contents |
Earnings Per Share
|
| Three Months Ended March 31, |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| Amount |
|
| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings Per Share |
| $ | 0.09 |
|
| $ | 0.10 |
|
| $ | (0.01 | ) |
|
| -10 | % |
Earnings per share, for the three months ended March 31, 2023, for net income per basic and diluted shares attributable to holders of our Common Stock was $0.10,$0.09, compared to $0.07$0.10 per basic and diluted shares attributable to holders of our Common Stock for the three months ended March 31, 2021.2022.
Liquidity and Capital Resources
The following table summarizes our cash flows for the periods indicated.
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net cash provided by (used in): |
|
|
|
|
|
| ||
Operating activities |
| $ | 2,924,025 |
|
| $ | 3,358,769 |
|
Investing activities |
|
| 569,522 |
|
|
| (93,384 | ) |
Financing activities |
|
| (310,807 | ) |
|
| (1,906,274 | ) |
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
| $ | 3,182,740 |
|
| $ | 1,359,111 |
|
During the three months ended March 31, 2022,2023, cash flows provided by operations totaled $3,358,769, and during the three months ended March 31, 2021, cash flows used in operations totaled $384,912, an increase of $3,743,681. Cash provided by operations for the three months ended March 31, 2022$2,924,025, which was primarily driven largely by net income added toof $2,526,317, reduction from non-cash itemscharges, net of depreciation$689,516, and amortization totaling $2,939,173, a decrease in trade receivables of $1,809,396, an increase in accounts payable and accrued expenses of $81,088, anthe increase in customer deposits and other liabilities of $64,969,$1,484,605. In addition, the foregoing was offset by an increase in inventories of $573,139, an increase in prepaid expenses of $173,436 and an increase in other assets of $794,731. Cash used in operations for the three months ended March 31, 2021 was driven largely by net income added to non-cash items of depreciation and amortization and bad debt totaling $2,219,433, an increase in customer deposits and other liabilities of $260,615, offset by the increase of trade receivables of $344,103, an increase in inventories of $1,623,485, an increase in prepaid expenses of $576,578, an increase in other assets of $100,000 and a decrease in accounts payable and accrued expenses of $240,410.$821,413, an increase in other assets of $228,959, an increase of trade receivables of $328,487, the increase in inventories of $350,053 and the increase in prepaid expenses of $47,847.
During the three months ended March 31, 2022 and 2021,2023, cash used inprovided by investing activities totaled $93,384 and $324,035, respectively, a period-over-period decrease$569,522, which primarily consisted of $230,651. The usepayments received from notes receivable of cash in investing activities during the three months ended March 31, 2022 was primarily due to$578,250, offset by the purchase of additional property and equipment of $93,384. The use of cash in investing activities during the three months ended March 31, 2021 was primarily due to investing in notes receivable of $123,472 to CExchange and the purchase of additional property and equipment of $200,563. $8,728.
During the three months ended March 31, 2022 and 2021,2023, cash used in financing totaled $1,906,274 and $112,092, respectively, a period over period increase$310,807, which consisted of $1,794,182. The cash used in financing during the three months ended March 31, 2022 wereprincipal payments made against the notes payable loans of $206,274 and payments made against the line of credit of $1,700,000. The cash used in financing during the three months ended March 31, 2021 were payments made against the notes payable of $40,239 and notes payable, related party of $71,853. $310,807.
We expect our capital expenditures to total approximately $1,000,000 during the next 12 months. These expenditures will be driven by the purchase of additional equipment and potential property purchases by the purchase of potential properties by DGSEconsumer segment for retail locations and the build-out of those purchased properties. The Company has no capital expenditure commitments as of March 31, 2022.2023. For more information, see Note 16 to our interim condensed consolidated financial statements.
Table of Contents |
Our primary source of liquidity and capital resources currently consist of cash generated from our operating results and current borrowings, including the Truist Lewisville Loan, the TB&T Grapevine Loan, the TB&T Irving Loan, the TB&T Frisco Loan and the two Farmers State Bank of Oakley KansasFSB loans. For more information, see Note 1413 to our interim condensed financial statements, which is incorporated into this item by reference. In addition, on November 23, 2021, the Company secured a thirty six month line of credit from Farmers State Bank of Oakley Kansas (the “FSB Facility”) for up to $3,500,000. The FSB Facility has an annual interest rate of 3.1%. We maintain the FSB Facility to help fund cash shortfalls that we may have from time to time. We do not currently anticipate the need of those funds for operations and do not currently have any amounts drawn against the FSB Facility as of Mach 31, 2022.2023.
From time to time, we have adjusted and may further adjust our inventory levels to meet seasonal demand or in order to meet working capital requirements. Management believes we have sufficient capital resources to meet working capital requirements. In the event of significant growth in retail and wholesale jewelry sales and recycling demand, whether purchases or services, our demand for additional working capital will increase due to a related need to stock additional jewelry inventory, increases in wholesale accounts receivable and the purchasing of recycled material. Historically we have funded these activities through operations. If additional working capital is required, we will seek additional loans from individuals or other commercial banks. If necessary, inventory levels may be adjusted in order to meet unforeseen working-capital requirements.
We have historically renewed, extended or replaced short-term debt as it matures, and management believes that we will be able to continue to do so in the near future.
The COVID-19 pandemic and the war between Ukraine and Russia has adversely affected global economic business conditions. Future sales of products like ours have and may continue to decline or fluctuate due to increased or fluctuating commodities prices, particularly gold. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic and the war between Ukraine and Russia, the ultimate impact, including the impact on our liquidity and capital resources, is highly uncertain and subject to change. The duration of any such impact cannot be predicted, and the Company believes additional liquidity may be necessary to support ongoing operations during this period of uncertainty. For more information, see Note 17 to our interim condensed consolidated financial statements.
The Company leases certain of its facilities under operating leases. For more information on theThe minimum rental commitments, under non-cancellable operating leases, excluding imputed interest, as of March 31, 2022, see Note 12 to our interim condensed consolidated financial statements.2023 are as follows:
Operating Leases |
| Total |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| Thereafter |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Consumer (excluding the three months ending March 31, 2023) |
| $ | 1,798,757 |
|
| $ | 406,955 |
|
| $ | 552,414 |
|
| $ | 434,274 |
|
| $ | 355,000 |
|
| $ | 50,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial (excluding the three months ending March 31, 2023) |
|
| 4,244,112 |
|
|
| 1,018,905 |
|
|
| 1,396,129 |
|
|
| 1,321,297 |
|
|
| 474,326 |
|
|
| 33,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 6,042,869 |
|
| $ | 1,425,860 |
|
| $ | 1,948,543 |
|
| $ | 1,755,571 |
|
| $ | 829,326 |
|
| $ | 83,569 |
|
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.
Table of Contents |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Because we are a “smaller reporting company,” we are not required to disclose the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2022.2023. We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of March 31, 2022,2023, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective to provide reasonable assurance of the foregoing.
We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance of achieving their objectives, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are various claims, lawsuits and pending actions against the Company arising in the normal course of the Company's business. It is the opinion of management that the ultimate resolution of these matters will not have a material adverse effect on the Company’s financial condition, results of operations or cash flow. Management is also not aware of any legal proceedings contemplated by government agencies of which the outcome is reasonable likely to have a material adverse effect on the Company's financial condition, results of operations or cash flow.
ITEM 1A. RISK FACTORS
The risk factor set forth below includes additional information relatingThere have been no material changes to the Russian invasion of Ukraine and should be read together with the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in the Company’s 2021 Form 10-K.
Escalating global tensions, including the conflict between Russia and Ukraine, could negatively impact us.
Escalating global tensions, including the ongoing conflict between Russia and Ukraine, could lead to disruption, instability and volatility in global markets and industries that could negatively impact our operations. The U.S. government has imposed sanctions and export controls against Russia and Russian interests and threatened additional sanctions and controls. The impact of these measures, as well as other changes in diplomatic relations and trade policy, including between the United States and Russia (or the United States and other countries that may support Russia or take similar actions) is currently unknown and they could adversely affect our business.
For additional information on the COVID-19 pandemic, see Note 17 to our interim condensed consolidated financial statements.2022 Annual Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3.\ DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS
Exhibit Number |
| Description |
| Filed Herein |
| Incorporated by Reference |
| Form |
| Date Filed with SEC |
| Exhibit Number |
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| X
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| ||
|
| X |
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| Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by John R. Loftus |
| X |
|
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|
|
|
|
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| Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Bret A. Pedersen |
| X |
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| |
101.INS |
| XBRL Instance Document |
| X |
|
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101.SCH |
| XBRL Taxonomy Extension Schema Document |
| X |
|
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101.CAL |
| XBRL Taxonomy Calculation Linkbase Document |
| X |
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101.DEF |
| XBRL Taxonomy Definition Linkbase Document |
| X |
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101.LAB |
| XBRL Taxonomy Label Linkbase Document |
| X |
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101.PRE |
| XBRL Taxonomy Presentation Linkbase Document |
| X |
|
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104* |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101) |
| X |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ENVELA CORPORATION (Registrant) |
| |
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Date: May | By: | /s/ JOHN R. LOFTUS |
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| John R. Loftus |
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| Chief Executive Officer (Principal Executive Officer) |
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Date: May |
| /s/ BRET A. PEDERSEN |
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| Bret A. Pedersen |
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| Chief Financial Officer (Principal Accounting Officer) |
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