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 September 30, 2022March 31, 2023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
| For the Transition Period From to |
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 November 2, 2022,May 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
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
|
| (Unaudited) |
|
| (Unaudited) |
| |||||||||||||
(Unaudited) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||||||
Three Months Ended March 31, |
| 2023 |
|
| 2022 |
| ||||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Sales |
| $ | 45,197,686 |
| $ | 37,680,769 |
| $ | 135,252,502 |
| $ | 96,895,216 |
|
| $ | 48,389,040 |
| $ | 47,415,098 |
| ||||
Cost of goods sold |
|
| 33,342,029 |
|
|
| 29,570,653 |
|
|
| 102,207,811 |
|
|
| 75,352,946 |
|
|
| 36,979,138 |
|
|
| 37,704,064 |
|
|
|
|
|
|
| |||||||||||||||||||
Gross margin |
|
| 11,855,657 |
|
|
| 8,110,116 |
|
|
| 33,044,691 |
|
|
| 21,542,270 |
|
|
| 11,409,902 |
|
|
| 9,711,034 |
|
|
|
|
|
|
| |||||||||||||||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Selling, general & administrative expenses |
| 7,753,702 |
| 5,230,473 |
| 21,397,360 |
| 14,214,927 |
| |||||||||||||||
Depreciation and amortization |
|
| 534,964 |
|
|
| 216,176 |
|
|
| 1,106,427 |
|
|
| 637,307 |
| ||||||||
Selling, General & Administrative Expenses |
| 7,905,303 |
| 6,559,755 |
| |||||||||||||||||||
Depreciation and Amortization |
|
| 354,351 |
|
|
| 291,947 |
| ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total operating expenses |
|
| 8,288,666 |
|
|
| 5,446,649 |
|
|
| 22,503,787 |
|
|
| 14,852,234 |
|
|
| 8,259,654 |
|
|
| 6,851,702 |
|
|
|
|
|
|
| |||||||||||||||||||
Operating income |
| 3,566,991 |
| 2,663,467 |
| 10,540,904 |
| 6,690,036 |
|
| 3,150,248 |
| 2,859,332 |
| ||||||||||
Other income (expense), net |
| 210,779 |
| (58,576 | ) | |||||||||||||||||||
Interest expense |
| 119,957 |
| 188,853 |
| 364,238 |
| 545,579 |
|
|
| 117,064 |
|
|
| 123,239 |
| |||||||
Other income (expense): |
|
|
|
|
|
|
|
|
| |||||||||||||||
Gain on forgiveness of Federal Loan |
| - |
| 1,668,200 |
| - |
| 1,668,200 |
| |||||||||||||||
Write-off of notes receivable and accrued interest receivable |
| - |
| (949,174 | ) |
| - |
| (949,174 | ) | ||||||||||||||
Other income (expense), net |
|
| (65,264 | ) |
|
| (60,784 | ) |
|
| (219,269 | ) |
|
| 494,212 |
| ||||||||
|
|
|
|
|
| |||||||||||||||||||
Income before income taxes |
| 3,381,770 |
| 3,132,856 |
| 9,957,397 |
| 7,357,695 |
|
| 3,243,963 |
| 2,677,517 |
| ||||||||||
Income tax expense |
|
| 64,061 |
|
|
| 26,455 |
|
|
| 144,605 |
|
|
| 89,910 |
|
|
| 717,646 |
|
|
| 30,292 |
|
|
|
|
|
|
| |||||||||||||||||||
Net income |
| $ | 3,317,709 |
|
| $ | 3,106,401 |
|
| $ | 9,812,792 |
|
| $ | 7,267,785 |
|
| $ | 2,526,317 |
|
| $ | 2,647,225 |
|
|
|
|
|
|
| |||||||||||||||||||
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net income |
| $ | 0.12 |
|
| $ | 0.12 |
|
| $ | 0.36 |
|
| $ | 0.27 |
|
| $ | 0.09 |
|
| $ | 0.10 |
|
|
|
|
|
|
| |||||||||||||||||||
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net income |
| $ | 0.12 |
|
| $ | 0.12 |
|
| $ | 0.36 |
|
| $ | 0.27 |
|
| $ | 0.09 |
|
| $ | 0.10 |
|
|
|
|
|
|
| |||||||||||||||||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Basic |
| 26,924,631 |
| 26,924,631 |
| 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 |
|
| 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
|
| September 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||||
|
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| ||||||
Assets |
| (unaudited) |
|
|
| (unaudited) |
|
| ||||||||
Current assets: |
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents |
| $ | 14,968,756 |
| $ | 10,138,148 |
|
| $ | 20,352,709 |
| $ | 17,169,969 |
| ||
Trade receivables, net of allowances |
| 7,191,109 |
| 7,166,533 |
|
| 8,291,353 |
| 7,949,775 |
| ||||||
Notes receivable, net of allowances |
| - |
| 578,250 |
| |||||||||||
Inventories |
| 18,063,063 |
| 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 |
| 1,665,903 |
| 1,604,736 |
|
| 1,700,508 |
| 1,683,060 |
| ||||||
Prepaid expenses |
| 1,652,226 |
| 439,038 |
|
| 1,279,664 |
| 1,231,817 |
| ||||||
Other current assets |
|
| 709,204 |
|
|
| 969,624 |
|
|
| 252,387 |
|
|
| 35,113 |
|
|
|
|
|
|
| |||||||||||
Total current assets |
| 44,250,261 |
| 34,366,515 |
|
| 52,122,461 |
| 48,892,027 |
| ||||||
Property and equipment, net |
| 9,513,382 |
| 9,806,188 |
|
| 9,228,454 |
| 9,393,802 |
| ||||||
Goodwill |
| 3,621,453 |
| 6,140,465 |
|
| 3,621,453 |
| 3,621,453 |
| ||||||
Intangible assets, net |
| 5,189,120 |
| 3,024,245 |
|
| 4,813,270 |
| 4,993,545 |
| ||||||
Operating lease right-of-use assets, less current portion |
| 4,616,902 |
| 5,692,141 |
| |||||||||||
Other long-term assets |
|
| 186,761 |
|
|
| 237,761 |
| ||||||||
Operating lease right-of-use assets |
| 3,757,873 |
| 4,189,621 |
| |||||||||||
Other assets |
|
| 198,447 |
|
|
| 186,761 |
| ||||||||
|
|
|
|
|
| |||||||||||
Total assets |
| $ | 67,377,879 |
|
| $ | 59,267,315 |
|
| $ | 73,741,958 |
|
| $ | 71,277,209 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
| ||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable-trade |
| $ | 4,441,613 |
| $ | 2,488,396 |
|
| $ | 2,746,229 |
| $ | 3,358,881 |
| ||
Line of credit |
| - |
| 1,700,000 |
| |||||||||||
Notes payable |
| 1,246,083 |
| 1,065,794 |
|
| 1,246,961 |
| 1,250,702 |
| ||||||
Current operating lease liabilities |
| 1,658,990 |
| 1,573,824 |
|
| 1,827,285 |
| 1,686,997 |
| ||||||
Accrued expenses |
| 1,760,809 |
| 1,789,366 |
|
| 2,077,832 |
| 2,286,594 |
| ||||||
Customer deposits and other liabilities |
|
| 992,633 |
|
|
| 1,179,224 |
|
|
| 1,767,088 |
|
|
| 282,482 |
|
|
|
|
|
|
| |||||||||||
Total current liabilities |
| 10,100,128 |
| 9,796,604 |
|
| 9,665,395 |
| 8,865,656 |
| ||||||
Notes payable, less current portion |
| 15,039,700 |
| 15,970,337 |
|
| 14,419,637 |
| 14,726,703 |
| ||||||
Long-term operating lease liabilities, less current portion |
|
| 4,797,942 |
|
|
| 5,873,057 |
|
|
| 3,814,159 |
|
|
| 4,368,400 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total liabilities |
|
| 29,937,770 |
|
|
| 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 |
| - |
| - |
| |||||||||||
Common stock, $0.01 par value; 60,000,000 shares authorized; 26,924,631 shares issued and outstanding |
| 269,246 |
| 269,246 |
| |||||||||||
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 |
| |||||||||||
Additional paid-in capital |
| 40,173,000 |
| 40,173,000 |
|
| 40,173,000 |
| 40,173,000 |
| ||||||
Accumulated deficit |
|
| (3,002,137 | ) |
|
| (12,814,929 | ) | ||||||||
Retained earnings |
|
| 5,400,521 |
|
|
| 2,874,204 |
| ||||||||
|
|
|
|
|
| |||||||||||
Total stockholders’ equity |
|
| 37,440,109 |
|
|
| 27,627,317 |
|
|
| 45,842,767 |
|
|
| 43,316,450 |
|
|
|
|
|
|
| |||||||||||
Total liabilities and stockholders’ equity |
| $ | 67,377,879 |
|
| $ | 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 Nine Months Ended September 30, |
| 2022 |
| 2021 |
| |||||||||||
For the Three Months Ended March 31, |
| 2023 |
| 2022 |
| |||||||||||
|
| (Unaudited) |
| (Unaudited) |
|
| (Unaudited) |
| (Unaudited) |
| ||||||
Operations |
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 9,812,792 |
| $ | 7,267,785 |
|
| $ | 2,526,317 |
| $ | 2,647,225 |
| ||
Adjustments to reconcile net income to net cash provided by operations: |
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation, amortization, and other |
| 1,106,427 |
| 637,307 |
|
| 354,351 |
| 291,947 |
| ||||||
Bad debt expense |
| 73,418 |
| 28,532 |
|
| (13,091 | ) |
| - |
| |||||
Gain on forgiveness of Federal Loan |
| - |
| (1,668,200 | ) | |||||||||||
Write-off of note receivables and accrued interest receivable |
| - |
| 949,174 |
| |||||||||||
Deferred Taxes |
| 348,256 |
| - |
| |||||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
Trade receivables |
| (97,994 | ) |
| (2,871,070 | ) |
| (328,487 | ) |
| 1,809,397 |
| ||||
Inventories |
| (4,014,627 | ) |
| (2,647,432 | ) |
| (350,053 | ) |
| (573,139 | ) | ||||
Prepaid expenses |
| (1,213,187 | ) |
| (886,591 | ) |
| (47,847 | ) |
| (173,436 | ) | ||||
Intangible Assets |
| (15,300 | ) |
| - |
| ||||||||||
Other assets |
| 311,420 |
| (417,347 | ) |
| (228,959 | ) |
| (794,731 | ) | |||||
Accounts payable and accrued expenses |
| 1,924,658 |
| 100,952 |
|
| (821,413 | ) |
| 81,088 |
| |||||
Operating leases |
| 24,123 |
| 21,737 |
|
| 346 |
| 5,449 |
| ||||||
Customer deposits and other liabilities |
|
| (186,590 | ) |
|
| 511,610 |
|
|
| 1,484,605 |
|
|
| 64,969 |
|
|
|
|
|
|
| |||||||||||
Net cash provided by operations |
|
| 7,725,140 |
|
|
| 1,026,457 |
|
|
| 2,924,025 |
|
|
| 3,358,769 |
|
|
|
|
|
|
| |||||||||||
Investing |
|
|
|
|
|
|
|
|
|
| ||||||
Investment in note receivable |
| - |
| (300,000 | ) | |||||||||||
Payments from notes receivable |
| 578,250 |
| - |
| |||||||||||
Purchase of property and equipment |
| (227,197 | ) |
| (3,064,277 | ) |
|
| (8,728 | ) |
|
| (93,384 | ) | ||
Acquisition of CExchange assets and liabilities, net of cash acquired |
| - |
| 13,136 |
| |||||||||||
Adjustment to the purchase price of the Avail Transaction |
|
| (216,988 | ) |
|
| - |
| ||||||||
Net cash used in investing |
|
| (444,185 | ) |
|
| (3,351,141 | ) | ||||||||
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) investing |
|
| 569,522 |
|
|
| (93,384 | ) | ||||||||
|
|
|
|
|
| |||||||||||
Financing |
|
|
|
|
|
|
|
|
|
| ||||||
Payments on notes payable, related party |
| - |
| (218,820 | ) | |||||||||||
Payments on notes payable |
| (750,347 | ) |
| (123,352 | ) |
| (310,807 | ) |
| (206,274 | ) | ||||
Proceeds from notes to purchase property |
| - |
| 1,772,000 |
| |||||||||||
Payments on line of credit |
|
| (1,700,000 | ) |
|
| - |
|
|
| - |
|
|
| (1,700,000 | ) |
Net cash provided by (used in) financing |
|
| (2,450,347 | ) |
|
| 1,429,828 |
| ||||||||
|
|
|
|
|
| |||||||||||
Net cash used in financing |
|
| (310,807 | ) |
|
| (1,906,274 | ) | ||||||||
|
|
|
|
|
| |||||||||||
Net change in cash and cash equivalents |
| 4,830,608 |
| (894,856 | ) |
| 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 |
| $ | 14,968,756 |
|
| $ | 8,323,180 |
|
| $ | 20,352,709 |
|
| $ | 11,497,259 |
|
|
|
|
|
|
| |||||||||||
Supplemental Disclosures |
|
|
|
|
|
|
|
|
|
| ||||||
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
| ||||||
Interest |
| $ | 372,819 |
|
| $ | 541,863 |
|
| $ | 116,061 |
|
| $ | 129,989 |
|
Income taxes |
| $ | 133,000 |
|
| $ | 86,000 |
|
| $ | - |
|
| $ | - |
|
Non cash activites: |
|
|
|
|
| |||||||||||
Acquisition of CExchange assets and liabilities |
| $ | - |
|
| $ | 1,555,892 |
| ||||||||
Adjustment to the Avail Transaction purchase price allocation |
| $ | 2,736,000 |
|
| $ | - |
|
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 September 30, 2021March 31, 2022 and 20222023
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Total |
| |||||||
|
| Common Stock |
|
| Preferred Stock |
|
| Paid-in |
|
| Accumulated |
| Stockholders' |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balances at June 30, 2021 |
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | - |
|
| $ | 40,173,000 |
|
| $ | (18,702,420 | ) |
| $ | 21,739,826 |
|
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,106,401 |
|
|
| 3,106,401 |
|
Balances at September 30, 2021 |
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | - |
|
| $ | 40,173,000 |
|
| $ | (15,596,019 | ) |
| $ | 24,846,227 |
|
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Total |
| |||||||
|
| Common Stock |
|
| Preferred Stock |
|
| Paid-in |
|
| Accumulated |
|
| Stockholders' |
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balances at June 30, 2022 |
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | - |
|
| $ | 40,173,000 |
|
| $ | (6,319,846 | ) |
| $ | 34,122,400 |
|
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,317,709 |
|
|
| 3,317,709 |
|
Balances at September 30, 2022 |
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | - |
|
| $ | 40,173,000 |
|
| $ | (3,002,137 | ) |
| $ | 37,440,109 |
|
|
| 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 |
ENVELA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Nine Months ended September 30, 2021 and 2022
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Total |
| |||||||
|
| Common Stock |
|
| Preferred Stock |
|
| Paid-in |
|
| Accumulated |
|
| Stockholders' |
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balances at December 31, 2020 |
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | - |
|
| $ | 40,173,000 |
|
| $ | (22,863,804 | ) |
| $ | 17,578,442 |
|
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,267,785 |
|
|
| 7,267,785 |
|
Balances at September 30, 2021 |
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | - |
|
| $ | 40,173,000 |
|
| $ | (15,596,019 | ) |
| $ | 24,846,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
| Accumulated |
|
| Total |
| |||||||
|
| Common Stock |
|
| Preferred Stock |
|
| Paid-in |
|
|
|
|
| Stockholders' |
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balances at December 31, 2021 |
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | - |
|
| $ | 40,173,000 |
|
| $ | (12,814,929 | ) |
| $ | 27,627,317 |
|
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,812,792 |
|
|
| 9,812,792 |
|
Balances at September 30, 2022 |
|
| 26,924,631 |
|
| $ | 269,246 |
|
|
| - |
|
| $ | - |
|
| $ | 40,173,000 |
|
| $ | (3,002,137 | ) |
| $ | 37,440,109 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
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 fortherefore did not result in any change to the periods presented. historical results. Our operations conducted by each of our segments are more specifically described below.
The resultspreparation of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The information provided as of September 30, 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’snation'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”), the Company 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”), the Company 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”) and Teladvance, LLC (“Teladvance”). 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.comwww.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 electronic 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 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, inventories, prepaid expenses, other current assets, accounts payable, accrued expenses, and 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 the 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 for the three and nine months ended September 30, 2022. The CompanyMarch 31, 2023. 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”). The preliminary goodwill associated with the Avail Transaction was $3,491,285, which was the initial purchase price less the approximate fair value of the net assets purchased. There have been several adjustments made to goodwill concerning the Avail Transaction during the nine months ended September 30,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 the three months ended September 30,fiscal year 2022 a third party valuation companymanagement also identified $2,736,000 of intangibles that were not initially included in the fair value of Avail’s net assets thatassets. 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 September 30, 2022March 31, 2023 and December 31, 2021,2022, goodwill as reported in the condensed consolidated balance sheets was $3,621,453 and $6,140,465, respectively.$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.
There were no other new accounting standards that had a material impact on the Company’s consolidated financial statements during the nine-monththree-month period ended September 30, 2022,March 31, 2023, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of September 30, 2022March 31, 2023 that the Company expects to have a material impact on its consolidated financial statements.
NOTE 4 — INVENTORIES
A summary of inventories is as follows:
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
DGSE |
|
|
|
|
|
| ||
Resale |
| $ | 15,311,602 |
|
| $ | 10,422,072 |
|
Recycle |
|
| 8,484 |
|
|
| 11,995 |
|
Subtotal |
|
| 15,320,086 |
|
|
| 10,434,067 |
|
ECHG |
|
|
|
|
|
|
|
|
Resale |
|
| 1,637,723 |
|
|
| 3,350,159 |
|
Recycle |
|
| 1,105,254 |
|
|
| 264,210 |
|
Subtotal |
|
| 2,742,977 |
|
|
| 3,614,369 |
|
|
| $ | 18,063,063 |
|
| $ | 14,048,436 |
|
NOTE 5 — ACQUISITION
On October 29, 2021, ECHG entered into the Avail Transaction to purchase all of the assets, liabilities and rights and interests of Avail for $4,500,000. The purchase was facilitated by an initial payment of $2,500,000 at closing, with the remaining $2,000,000 represented by an installment note (the “Avail Installment Note”) made by ECHG to the seller to be paid out by 12 quarterly payments starting April 1, 2022, of $166,667 each. See Note 14 to our consolidated financial statements for more information on this loan. The Avail Installment Note for the Avail Transaction does not bear interest but the imputed interest rate was determined to be 3.1%.
As part of the Avail Transaction, goodwill was preliminarily recorded as $3,491,284, which was the purchase price less the approximate fair value of the net assets purchased. On May 31, 2022, an additional cash payment of $216,988 was made due to certain conditions being met concerning the cash balance upon a certain date. The additional cash payment was not part of the Avail Installment Note of $2,000,000 from the initial closing of the Avail Transaction. The additional cash payment increased goodwill and the purchase price amount by $216,988, thereby increasing goodwill for the Avail Transaction to $3,708,273. On September 30, 2022, a third party valuation company identified $2,736,000 of intangibles as part of the Avail Transaction not initially included in the fair value of Avail’s net assets. The intangibles identified of $2,736,000, decreases goodwill by $2,736,000 to $972,272, as shown in the purchase price allocation table below. The Avail Transaction was initially recorded as preliminary, but with the third party valuation complete, the purchase price allocation below is considered final. The Company’s goodwill is related to the ECHG segment. ECHG has its own separate 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.
The purchase price allocation of the Avail Transaction is listed below:
|
| Initial |
|
| Final |
| ||
Description |
| Allocation |
|
| Allocation |
| ||
|
|
|
|
|
|
| ||
Assets |
|
|
|
|
|
| ||
Cash |
| $ | 988,870 |
|
| $ | 988,870 |
|
Account receivables |
|
| 395,144 |
|
|
| 395,144 |
|
Inventories |
|
| 486,736 |
|
|
| 486,736 |
|
Prepaid expenses |
|
| 93,727 |
|
|
| 93,727 |
|
Intangible assets - Trademarks/Tradenames |
|
| - |
|
|
| 1,272,000 |
|
Intangible assets - Customer Relationships |
|
| - |
|
|
| 1,464,000 |
|
Fixed assets - net |
|
| 247,038 |
|
|
| 247,038 |
|
Right-of-use assets |
|
| 609,511 |
|
|
| 609,511 |
|
Other assets |
|
| 13,268 |
|
|
| 13,268 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Account payables |
|
| (562,778 | ) |
|
| (562,778 | ) |
Accrued liabilities |
|
| (653,289 | ) |
|
| (653,289 | ) |
Operating lease liabilities |
|
| (609,511 | ) |
|
| (609,511 | ) |
|
|
|
|
|
|
|
|
|
Net assets |
|
| 1,008,716 |
|
|
| 3,744,716 |
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
| 3,491,284 |
|
|
| 972,272 |
|
|
|
|
|
|
|
|
|
|
Total Purchase Price |
| $ | 4,500,000 |
|
| $ | 4,716,988 |
|
The following table compares the results of Avail as part of Company’s financial results for the three months ended September 30, 2022, and the Company’s results of operations as if they were combined for the three months ended September 30, 2021:
|
| Consolidated Statement of |
|
|
|
| ||
|
| Income |
|
| Proforma Combined |
| ||
|
| For the Three Months Ended |
|
| For the Three Months Ended |
| ||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
|
| (unaudited) |
|
| (unaudited) |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ | 45,197,686 |
|
| $ | 40,057,210 |
|
Income from continuing operations |
| $ | 3,381,770 |
|
| $ | 3,496,441 |
|
Net income |
| $ | 3,317,709 |
|
| $ | 3,432,380 |
|
Basic net income per common share |
| $ | 0.12 |
|
| $ | 0.13 |
|
Diluted net income per common share |
| $ | 0.12 |
|
| $ | 0.13 |
|
The following table compares the results of Avail as part of the Company’s financial results for the nine months ended September 30, 2022, and the Company’s results of operations as if they were combined for the nine months ended September 30, 2021:
|
| Consolidated Statement of |
|
|
|
| ||
|
| Income |
|
| Proforma Combined |
| ||
|
| For the Nine Months Ended |
|
| For the Nine Months Ended |
| ||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
|
| (unaudited) |
|
| (unaudited) |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ | 135,252,502 |
|
| $ | 102,710,504 |
|
Income from continuing operations |
| $ | 9,957,397 |
|
| $ | 8,424,665 |
|
Net income |
| $ | 9,812,792 |
|
| $ | 8,280,060 |
|
Basic net income per common share |
| $ | 0.36 |
|
| $ | 0.31 |
|
Diluted net income per common share |
| $ | 0.36 |
|
| $ | 0.31 |
|
Table of Contents |
NOTE 64 — INVENTORIES
A summary of inventories is 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 changeschange in goodwill is as follows:
|
| September 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Opening balance |
| $ | 6,140,465 |
| $ | 1,367,109 |
|
| $ | 3,621,453 |
| $ | 6,140,465 |
| ||
Additions/(Reductions) (1) |
|
| (2,519,012 | ) |
|
| 4,773,356 |
| ||||||||
Reductions (1) |
|
| - |
|
|
| (2,519,012 | ) | ||||||||
|
|
|
|
|
| |||||||||||
Goodwill |
| $ | 3,621,453 |
|
| $ | 6,140,465 |
|
| $ | 3,621,453 |
|
| $ | 3,621,453 |
|
(1) Additions ending December 31, 2021 totaling $4,773,356 is a combination of the CExchange Transaction on June 9, 2021 of $1,282,072 and the Avail Transaction’s preliminary purchase price allocation on October 29, 2021, of $3,491,284. The reduction in goodwill of $2,519,012 for the nine months ending September 30,fiscal 2022, is a combination of an additional cash payment made on May 31, 2022 of $216,988, which increasedincreasing goodwill for the Avail Transaction, offset by the effect of the third party valuation report identifying $2,736,000 of intangible assets that werewas not initially included in the fair value of Avail’s net assets, reducing goodwill and increasing intangible assets.
NOTE 7 — PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
DGSE |
|
|
|
|
|
| ||
Land |
| $ | 1,640,220 |
|
| $ | 1,640,220 |
|
Building and improvements |
|
| 2,781,904 |
|
|
| 2,764,529 |
|
Leasehold improvements |
|
| 1,450,695 |
|
|
| 1,450,695 |
|
Machinery and equipment |
|
| 1,078,595 |
|
|
| 1,056,315 |
|
Furniture and fixtures |
|
| 603,944 |
|
|
| 526,250 |
|
Vehicles |
|
| 22,859 |
|
|
| 22,859 |
|
|
|
| 7,578,217 |
|
|
| 7,460,868 |
|
Less: accumulated depreciation |
|
| (2,578,405 | ) |
|
| (2,343,923 | ) |
|
|
|
|
|
|
|
|
|
Sub-Total |
|
| 4,999,812 |
|
|
| 5,116,945 |
|
|
|
|
|
|
|
|
|
|
ECHG |
|
|
|
|
|
|
|
|
Building and improvements |
|
| 151,647 |
|
|
| 135,491 |
|
Machinery and equipment |
|
| 1,152,154 |
|
|
| 1,109,306 |
|
Furniture and fixtures |
|
| 145,950 |
|
|
| 145,950 |
|
|
|
| 1,449,751 |
|
|
| 1,390,747 |
|
Less: accumulated depreciation |
|
| (442,793 | ) |
|
| (212,147 | ) |
|
|
|
|
|
|
|
|
|
Sub-Total |
|
| 1,006,958 |
|
|
| 1,178,600 |
|
|
|
|
|
|
|
|
|
|
Envela |
|
|
|
|
|
|
|
|
Land |
|
| 1,106,664 |
|
|
| 1,106,664 |
|
Building and improvements |
|
| 2,502,216 |
|
|
| 2,456,324 |
|
Machinery and equipment |
|
| 28,627 |
|
|
| 23,676 |
|
|
|
|
|
|
|
|
|
|
|
|
| 3,637,507 |
|
|
| 3,586,664 |
|
Less: accumulated depreciation |
|
| (130,895 | ) |
|
| (76,021 | ) |
|
|
|
|
|
|
|
|
|
Sub-Total |
|
| 3,506,612 |
|
|
| 3,510,643 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 9,513,382 |
|
| $ | 9,806,188 |
|
Table of Contents |
NOTE 86 — PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
|
| 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 — INTANGIBLE ASSETS
Intangible assets consist of the following:
|
| September 30, |
| 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 |
|
| (319,002 | ) |
|
| (269,502 | ) |
|
| (352,002 | ) |
|
| (335,502 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Subtotal |
|
| 52,350 |
|
|
| 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 |
| 1,272,000 |
| ||||||
Customer Relationships (3) |
|
| 1,464,000 |
|
|
| - |
|
|
| 1,464,000 |
|
|
| 1,464,000 |
|
|
|
|
|
|
|
| 6,551,000 |
| 6,551,000 |
| ||||||
|
| 6,551,000 |
| 3,815,000 |
| |||||||||||
Less: accumulated amortization |
|
| (1,429,530 | ) |
|
| (892,605 | ) |
|
| (1,757,080 | ) |
|
| (1,593,305 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Subtotal |
|
| 5,121,470 |
|
|
| 2,922,395 |
|
|
| 4,793,920 |
|
|
| 4,957,695 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Envela |
|
|
|
|
| |||||||||||
Software development |
|
| 15,300 |
|
|
| - |
| ||||||||
|
|
|
|
|
|
| $ | 4,813,270 |
|
| $ | 4,993,545 |
| |||
Less: accumulated amortization |
|
| - |
|
|
| - |
| ||||||||
|
|
|
|
|
| |||||||||||
|
| $ | 5,189,120 |
|
| $ | 3,024,245 |
|
(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, 20212021.
The following table outlines the estimated future amortization expense related to intangible assets held as of September 30, 2022:March 31, 2023:
|
| DGSE |
|
| ECHG |
|
| Envela |
|
| Total |
|
| Consumer |
|
| Commercial |
|
| Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
2022 (excluding the nine months ending September 30, 2022) |
| $ | 16,500 |
| $ | 163,775 |
| $ | - |
| $ | 180,275 |
| |||||||||||||||
2023 |
| 30,350 |
| 655,100 |
| 3,060 |
| $ | 688,510 |
| ||||||||||||||||||
2023 (excluding the three months ending March 31, 2023) |
| 13,850 |
| 491,325 |
| 505,175 |
| |||||||||||||||||||||
2024 |
| 5,500 |
| 655,100 |
| 3,060 |
| $ | 663,660 |
|
| 5,500 |
| 655,100 |
| 660,600 |
| |||||||||||
2025 |
| - |
| 655,100 |
| 3,060 |
| $ | 658,160 |
|
| - |
| 655,100 |
| 655,100 |
| |||||||||||
2026 |
| - |
| 655,100 |
| 3,060 |
| $ | 658,160 |
|
| - |
| 655,100 |
| 655,100 |
| |||||||||||
2027 |
| - |
| 655,100 |
| 655,100 |
| |||||||||||||||||||||
Thereafter |
|
| - |
|
|
| 2,337,295 |
|
|
| 3,060 |
|
| $ | 2,340,355 |
|
|
| - |
|
|
| 1,682,195 |
|
|
| 1,682,195 |
|
|
| $ | 52,350 |
|
| $ | 5,121,470 |
|
| $ | 15,300 |
|
| $ | 5,189,120 |
|
|
|
|
|
|
|
| |||||
|
| $ | 19,350 |
|
| $ | 4,793,920 |
|
| $ | 4,813,270 |
|
Table of Contents |
NOTE 9—8— ACCRUED EXPENSES
Accrued expenses consist of the following:
|
| September 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
DGSE |
|
|
|
|
| |||||||||||
Consumer |
|
|
|
|
| |||||||||||
Accrued interest |
| $ | 11,266 |
| $ | 12,627 |
|
| $ | 12,277 |
| $ | 11,624 |
| ||
Payroll |
| 67,706 |
| 131,325 |
|
| 93,548 |
| 146,817 |
| ||||||
Property taxes |
| 179,885 |
| 88,046 |
|
| 66,350 |
| 115,222 |
| ||||||
Sales tax |
| 63,229 |
| 150,070 |
|
| 59,865 |
| 153,039 |
| ||||||
Other administrative expenss |
|
| 424 |
|
|
| - |
|
|
| 30,425 |
|
|
| 424 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Subtotal |
|
| 322,510 |
|
|
| 382,068 |
|
|
| 262,465 |
|
|
| 427,126 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
ECHG |
|
|
|
|
| |||||||||||
Commercial |
|
|
|
|
| |||||||||||
Accrued interest |
| 7,788 |
| 14,547 |
|
| 8,656 |
| 8,228 |
| ||||||
Payroll |
| 162,592 |
| 334,431 |
|
| 178,334 |
| 336,226 |
| ||||||
Unvouchered payables - inventory |
| 619,018 |
| 461,481 |
|
| 146,533 |
| 803,649 |
| ||||||
Material & shipping costs (COGS) |
| 206,200 |
| 78,647 |
| |||||||||||
Material & shipping costs - COGS |
| 770,205 |
| 229,159 |
| |||||||||||
Other accrued expenses |
|
| 35,761 |
|
|
| 51,506 |
|
|
| 11,131 |
|
|
| 7,392 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Subtotal |
|
| 1,031,359 |
|
|
| 940,612 |
|
|
| 1,114,859 |
|
|
| 1,384,654 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Envela |
|
|
|
|
| |||||||||||
Corporate |
|
|
|
|
| |||||||||||
Accrued interest |
| 7,375 |
| 8,355 |
|
| 7,464 |
| 7,543 |
| ||||||
Payroll |
| 12,589 |
| 25,175 |
|
| 12,870 |
| 25,179 |
| ||||||
Professional fees |
| 188,628 |
| 220,101 |
|
| 132,431 |
| 199,508 |
| ||||||
Property Tax |
| 65,100 |
| 84,920 |
|
| 21,900 |
| 87,275 |
| ||||||
Other administrative expenses |
| 11,961 |
| 18,453 |
|
| 1,144 |
| - |
| ||||||
Federal Income tax |
| 332,381 |
| - |
| |||||||||||
State income tax |
|
| 121,287 |
|
|
| 109,682 |
|
|
| 192,318 |
|
|
| 155,309 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Subtotal |
|
| 406,940 |
|
|
| 466,686 |
|
|
| 700,508 |
|
|
| 474,814 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| $ | 1,760,809 |
|
| $ | 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 two 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 DGSEconsumer segment also includesoperates the on-line Bullion Express brand and the bullion-trading operation, which operates out of the DGSE stores.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 DGSE’sthe consumer and ECHG’sthe commercial financial results of operations for the three months ended September 30, 2022March 31, 2023 and 2021:2022:
|
| For The Three Months Ended September 30, |
| |||||||||||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||
|
| DGSE |
|
| ECHG |
|
| Consolidated |
|
| DGSE |
|
| ECHG |
|
| Consolidated |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Sales |
| $ | 30,427,254 |
|
| $ | 14,770,432 |
|
| $ | 45,197,686 |
|
| $ | 25,482,379 |
|
| $ | 12,198,390 |
|
| $ | 37,680,769 |
|
Cost of goods sold |
|
| 26,677,891 |
|
|
| 6,664,138 |
|
|
| 33,342,029 |
|
|
| 22,422,881 |
|
|
| 7,147,772 |
|
|
| 29,570,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
| 3,749,363 |
|
|
| 8,106,294 |
|
|
| 11,855,657 |
|
|
| 3,059,498 |
|
|
| 5,050,618 |
|
|
| 8,110,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 2,369,588 |
|
|
| 5,384,114 |
|
|
| 7,753,702 |
|
|
| 1,772,034 |
|
|
| 3,458,439 |
|
|
| 5,230,473 |
|
Depreciation and amortization |
|
| 103,022 |
|
|
| 431,942 |
|
|
| 534,964 |
|
|
| 98,787 |
|
|
| 117,389 |
|
|
| 216,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
| 2,472,610 |
|
|
| 5,816,056 |
|
|
| 8,288,666 |
|
|
| 1,870,821 |
|
|
| 3,575,828 |
|
|
| 5,446,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 1,276,753 |
|
|
| 2,290,238 |
|
|
| 3,566,991 |
|
|
| 1,188,677 |
|
|
| 1,474,790 |
|
|
| 2,663,467 |
|
Interest expense |
|
| 60,619 |
|
|
| 59,338 |
|
|
| 119,957 |
|
|
| 79,563 |
|
|
| 109,290 |
|
|
| 188,853 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on forgiveness of Federal Loan |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 675,210 |
|
|
| 992,990 |
|
|
| 1,668,200 |
|
Write-off of notes receivable and accrued interest receivable |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (949,174 | ) |
|
| (949,174 | ) |
Other income (expense), net |
|
| 5,957 |
|
|
| (71,221 | ) |
|
| (65,264 | ) |
|
| (37,823 | ) |
|
| (22,961 | ) |
|
| (60,784 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| 1,222,091 |
|
|
| 2,159,679 |
|
|
| 3,381,770 |
|
|
| 1,746,501 |
|
|
| 1,386,355 |
|
|
| 3,132,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| 20,243 |
|
|
| 43,818 |
|
|
| 64,061 |
|
|
| 10,288 |
|
|
| 16,167 |
|
|
| 26,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 1,201,848 |
|
| $ | 2,115,861 |
|
| $ | 3,317,709 |
|
| $ | 1,736,213 |
|
| $ | 1,370,188 |
|
| $ | 3,106,401 |
|
The following separates DGSE’s and ECHG’s financial results of operations for the nine months ended September 30, 2022 and 2021:
|
| For The Nine Months Ended September 30, |
| |||||||||||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||
|
| DGSE |
|
| ECHG |
|
| Consolidated |
|
| DGSE |
|
| ECHG |
|
| Consolidated |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Sales |
| $ | 96,549,253 |
|
| $ | 38,703,249 |
|
| $ | 135,252,502 |
|
| $ | 67,409,204 |
|
| $ | 29,486,012 |
|
| $ | 96,895,216 |
|
Cost of goods sold |
|
| 84,387,844 |
|
|
| 17,819,967 |
|
|
| 102,207,811 |
|
|
| 58,445,075 |
|
|
| 16,907,871 |
|
|
| 75,352,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 12,161,409 |
|
|
| 20,883,282 |
|
|
| 33,044,691 |
|
|
| 8,964,129 |
|
|
| 12,578,141 |
|
|
| 21,542,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 6,702,031 |
|
|
| 14,695,329 |
|
|
| 21,397,360 |
|
|
| 5,444,366 |
|
|
| 8,770,561 |
|
|
| 14,214,927 |
|
Depreciation and amortization |
|
| 311,419 |
|
|
| 795,008 |
|
|
| 1,106,427 |
|
|
| 293,044 |
|
|
| 344,263 |
|
|
| 637,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total opeating expenses |
|
| 7,013,450 |
|
|
| 15,490,337 |
|
|
| 22,503,787 |
|
|
| 5,737,410 |
|
|
| 9,114,824 |
|
|
| 14,852,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 5,147,959 |
|
|
| 5,392,945 |
|
|
| 10,540,904 |
|
|
| 3,226,719 |
|
|
| 3,463,317 |
|
|
| 6,690,036 |
|
Interest expense |
|
| 183,523 |
|
|
| 180,715 |
|
|
| 364,238 |
|
|
| 216,740 |
|
|
| 328,839 |
|
|
| 545,579 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on forgiveness of Federal Loan |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 675,210 |
|
|
| 992,990 |
|
|
| 1,668,200 |
|
Write-off of notes receivable and accrued interest receivable |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (949,174 | ) |
|
| (949,174 | ) |
Other income (expense), net |
|
| (71,053 | ) |
|
| (148,216 | ) |
|
| (219,269 | ) |
|
| 193,368 |
|
|
| 300,844 |
|
|
| 494,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| 4,893,383 |
|
|
| 5,064,014 |
|
|
| 9,957,397 |
|
|
| 3,878,557 |
|
|
| 3,479,138 |
|
|
| 7,357,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| 48,811 |
|
|
| 95,794 |
|
|
| 144,605 |
|
|
| 38,178 |
|
|
| 51,732 |
|
|
| 89,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 4,844,572 |
|
| $ | 4,968,220 |
|
| $ | 9,812,792 |
|
| $ | 3,840,379 |
|
| $ | 3,427,406 |
|
| $ | 7,267,785 |
|
For The Three Months Ended March 31, | ||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
Consumer | Commercial | Consolidated | Consumer | Commercial | Consolidated | |||||||||||||||||||
Revenue: | ||||||||||||||||||||||||
Sales | $ | 36,704,397 | $ | 11,684,643 | $ | 48,389,040 | $ | 35,782,872 | $ | 11,632,226 | $ | 47,415,098 | ||||||||||||
Cost of goods sold | 32,719,429 | 4,259,709 | 36,979,138 | 31,559,410 | 6,144,654 | 37,704,064 | ||||||||||||||||||
Gross profit | 3,984,968 | 7,424,934 | 11,409,902 | 4,223,462 | 5,487,572 | 9,711,034 | ||||||||||||||||||
Expenses: | ||||||||||||||||||||||||
Selling, general and administrative expenses | 2,396,025 | 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 | 8,259,654 | 2,244,912 | 4,606,790 | 6,851,702 | |||||||||||||||||||
Operating income | 1,490,809 | 1,659,439 | 3,150,248 | 1,978,550 | 880,782 | 2,859,332 | ||||||||||||||||||
Other income/expense: | ||||||||||||||||||||||||
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 before income taxes | 1,454,725 | 1,789,238 | 3,243,963 | 1,889,317 | 788,200 | 2,677,517 | ||||||||||||||||||
Income tax expense | 317,841 | 399,805 | 717,646 | 13,177 | 17,115 | 30,292 | ||||||||||||||||||
Net income | $ | 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.
14 |
Table of Contents |
The following disaggregation of total revenue is listed by sales category and segment for the three months ended September 30, 2022March 31, 2023 and 2021:2022:
CONSOLIDATED |
| Three Months Ended September 30, |
|
| 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 |
| $ | 28,172,732 |
| $ | 3,251,153 |
| 11.5 | % |
| $ | 23,407,095 |
| $ | 2,645,445 |
| 11.3 | % |
| $ | 33,719,960 |
| $ | 3,304,932 |
| 9.8 | % |
| $ | 33,677,133 |
| $ | 3,742,852 |
| 11.1 | % | ||||||||||||
Recycled |
|
| 2,254,522 |
|
|
| 498,210 |
|
|
| 22.1 | % |
|
| 2,075,284 |
|
|
| 414,053 |
|
|
| 20.0 | % |
|
| 2,984,437 |
|
|
| 680,036 |
|
|
| 22.8 | % |
|
| 2,105,739 |
|
|
| 480,610 |
|
|
| 22.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Subtotal |
|
| 30,427,254 |
|
|
| 3,749,363 |
|
|
| 12.3 | % |
|
| 25,482,379 |
|
|
| 3,059,498 |
|
|
| 12.0 | % |
|
| 36,704,397 |
|
|
| 3,984,968 |
|
|
| 10.9 | % |
|
| 35,782,872 |
|
|
| 4,223,462 |
|
|
| 11.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
ECHG |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Resale |
| 11,518,168 |
| 6,465,386 |
| 56.1 | % |
| 8,288,951 |
| 3,450,652 |
| 41.6 | % |
| 8,558,090 |
| 5,799,126 |
| 67.8 | % |
| 9,579,857 |
| 4,574,268 |
| 47.7 | % | ||||||||||||||||||||
Recycled |
|
| 3,252,264 |
|
|
| 1,640,908 |
|
|
| 50.5 | % |
|
| 3,909,439 |
|
|
| 1,599,966 |
|
|
| 40.9 | % |
|
| 3,126,553 |
|
|
| 1,625,808 |
|
|
| 52.0 | % |
|
| 2,052,369 |
|
|
| 913,304 |
|
|
| 44.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Subtotal |
|
| 14,770,432 |
|
|
| 8,106,294 |
|
|
| 54.9 | % |
|
| 12,198,390 |
|
|
| 5,050,618 |
|
|
| 41.4 | % |
|
| 11,684,643 |
|
|
| 7,424,934 |
|
|
| 63.5 | % |
|
| 11,632,226 |
|
|
| 5,487,572 |
|
|
| 47.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| $ | 45,197,686 |
|
| $ | 11,855,657 |
|
|
| 26.2 | % |
| $ | 37,680,769 |
|
| $ | 8,110,116 |
|
|
| 21.5 | % |
| $ | 48,389,040 |
|
| $ | 11,409,902 |
|
|
| 23.6 | % |
| $ | 47,415,098 |
|
| $ | 9,711,034 |
|
|
| 20.5 | % |
The following disaggregation of totalFor the consumer segment, revenue is listed by sales categoryfor monetary transactions (i.e., cash and segment for the nine months ended September 30, 2022receivables) with dealers and 2021:
CONSOLIDATED |
| Nine Months Ended September 30, |
| |||||||||||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||
|
| Revenues |
|
| Gross Profit |
|
| Margin |
|
| Revenues |
|
| Gross Profit |
|
| Margin |
| ||||||
DGSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Resale |
| $ | 90,014,891 |
|
| $ | 10,713,959 |
|
|
| 11.9 | % |
| $ | 61,621,574 |
|
| $ | 7,781,229 |
|
|
| 12.6 | % |
Recycled |
|
| 6,534,362 |
|
|
| 1,447,450 |
|
|
| 22.2 | % |
|
| 5,787,630 |
|
|
| 1,182,900 |
|
|
| 20.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
| 96,549,253 |
|
|
| 12,161,409 |
|
|
| 12.6 | % |
|
| 67,409,204 |
|
|
| 8,964,129 |
|
|
| 13.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ECHG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resale |
|
| 30,200,026 |
|
|
| 16,606,161 |
|
|
| 55.0 | % |
|
| 21,625,853 |
|
|
| 9,082,521 |
|
|
| 42.0 | % |
Recycled |
|
| 8,503,223 |
|
|
| 4,277,121 |
|
|
| 50.3 | % |
|
| 7,860,159 |
|
|
| 3,495,620 |
|
|
| 44.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
| 38,703,249 |
|
|
| 20,883,282 |
|
|
| 54.0 | % |
|
| 29,486,012 |
|
|
| 12,578,141 |
|
|
| 42.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 135,252,502 |
|
| $ | 33,044,691 |
|
|
| 24.4 | % |
| $ | 96,895,216 |
|
| $ | 21,542,270 |
|
|
| 22.2 | % |
DGSE’s over-the-counter sales with 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 returnFor the three months ended March 31, 2023 and 2022, our allowance as of September 30, 2022 and December 31, 2021for 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. |
|
Table of Contents |
| ||
| ||
|
Accounts 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 September 30, 2022March 31, 2023 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 September 30, 2022March 31, 2023 and December 31, 20212022 was $75,000$0 and $1,582, respectively.$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 do not believe we have not taken a tax position that, if successfully challenged, would have a material effect on the financial statements or the effective tax rate for the three and nine months ended September 30, 2022March 31, 2023 and 2021.2022.
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 at the time of the lease signing.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 September 30, 2022—March 31, 2023—five in the Dallas/Fort Worth Metroplex, oneDFW, two in 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 the prevailing market rate for comparable space in comparable buildings in the vicinity. The lease for DGSE’svicinity; 2) the Grand Prairie, Texas locationlease which was renewed starting July 1, 2022, expiring June 30, 2027, with an option to extend the lease for an additional five years. The leaseyears; 3) the two leases for DGSE’sthe 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 September 30, 2022March 31, 2023 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 September 30,March 31, 2023 and 2022 was $659,616 and 2021 was $655,669 and $620,829 respectively. Leasing costs for the nine months ended September 30, 2022 and 2021 was $1,938,392 and $1,516,262,$622,863 respectively, comprised of a combination of minimum lease payments and variable lease costs.
As of September 30, 2022, assuming none of the extension options are exercisedMarch 31, 2023, the weighted average remaining lease term and weighted average discount rate for operating leases was 2.53.3 years and 4.4%, respectively. The remaining lease term and discount rate are being averaged compared to the total leases. For the three months ended September 30,March 31, 2023 and 2022, and 2021, the Company’s cash paid for operating lease liabilities was $654,471$656,520 and $619,584,$616,097 respectively. For the nine months ended September 30, 2022 and 2021, the Company’s cash paid for operating lease liabilities was $1,934,791 and $1,496,524, respectively.
Table of Contents |
Future annual minimum lease payments as of September 30, 2022:March 31, 2023:
|
| Operating |
|
| Operating |
| ||
|
| Leases |
|
| Leases |
| ||
DGSE |
|
|
| |||||
2022 (excluding the nine months ending September 30, 2022) |
| $ | 134,498 |
| ||||
2023 |
| 541,984 |
| |||||
Consumer |
|
|
| |||||
2023 (excluding the three months ending March 31, 2023) |
| 406,955 |
| |||||
2024 |
| 552,414 |
|
| 552,414 |
| ||
2025 |
| 412,269 |
|
| 434,274 |
| ||
2026 and thereafter |
|
| 405,114 |
| ||||
2026 |
| 355,000 |
| |||||
2027 and thereafter |
|
| 50,114 |
| ||||
|
|
|
|
|
|
| ||
Total minimum lease payments |
| 2,046,279 |
|
| 1,798,757 |
| ||
Less imputed interest |
|
| (167,168 | ) |
|
| (149,993 | ) |
|
|
|
|
|
|
| ||
DGSE Sub-Total |
|
| 1,879,111 |
| ||||
Consumer Sub-Total |
|
| 1,648,764 |
| ||||
|
|
|
|
|
|
| ||
ECHG |
|
|
| |||||
2022 (excluding the nine months ending September 30, 2022) |
| 330,753 |
| |||||
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 |
| 4,913,340 |
|
| 4,244,112 |
| ||
Less imputed interest |
|
| (335,519 | ) |
|
| (251,432 | ) |
|
|
|
|
|
|
| ||
ECHG Sub-Total |
| 4,577,821 |
| |||||
Commercial Sub-Total |
| 3,992,680 |
| |||||
|
|
|
|
|
|
| ||
Total |
|
| 6,456,932 |
|
|
| 5,641,444 |
|
|
|
|
|
|
|
| ||
Current portion |
|
| 1,658,990 |
|
|
| 1,827,285 |
|
|
|
|
|
|
|
| ||
|
| $ | 4,797,942 |
|
| $ | 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 September 30,March 31, 2023 and 2022 and 2021 is as follows:
|
| For the Three Months Ended |
| |||||
|
|
|
| |||||
|
|
|
|
|
| |||
| ||||||||
| ||||||||
|
|
A reconciliation of basic and diluted weighted average common shares for the nine months ended September 30, 2022 and 2021 is as follows:
| ||||||||
| ||||||||
|
|
| ||||||
|
|
|
|
|
|
| ||
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 |
|
For the three and nine months ended September 30, 2022 and 2021, there were 15,000 common stock options outstanding and unexercised and no warrants or and Restricted Stock Units (RSUs) outstanding and unexercised.
NOTE 14 — LONG-TERM DEBT
Long-term debt consists of the following:
|
| Outstanding Balance |
|
|
|
|
|
| |||||||
|
| September 30, |
|
| December 31, |
|
| Current |
|
|
| ||||
|
| 2022 |
|
| 2021 |
|
| Interest Rate |
|
| Maturity | ||||
DGSE |
|
|
|
|
|
|
|
|
|
|
| ||||
Note payable, Farmers Bank (1) |
| $ | 2,694,427 |
|
| $ | 2,770,729 |
|
|
| 3.10 | % |
| November 15, 2026 | |
Note payable, Truist Bank (2) |
|
| 883,231 |
|
|
| 909,073 |
|
|
| 3.65 | % |
| July 9, 2030 | |
Note payable, Texas Bank & Trust (3) |
|
| 460,717 |
|
|
| 474,009 |
|
|
| 3.75 | % |
| September 14, 2025 | |
Note payable, Texas Bank & Trust (4) |
|
| 1,706,637 |
|
|
| 1,752,446 |
|
|
| 3.75 | % |
| July 30, 2031 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
DGSE Sub-Total |
|
| 5,745,012 |
|
|
| 5,906,257 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
ECHG |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Note payable, Farmers Bank (1) |
|
| 6,113,338 |
|
|
| 6,286,459 |
|
|
| 3.10 | % |
| November 15, 2026 | |
Line of Credit (5) |
|
| - |
|
|
| 1,700,000 |
|
|
| 3.10 | % |
| November 15, 2024 | |
Avail Transaction note payable (6) |
|
| 1,666,667 |
|
|
| 2,000,000 |
|
|
| 0.00 | % |
| April 1, 2025 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
ECHG Sub-Total |
|
| 7,780,005 |
|
|
| 9,986,459 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Envela |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Note payable, Texas Bank & Trust (7) |
|
| 2,760,766 |
|
|
| 2,843,415 |
|
|
| 3.25 | % |
| November 4, 2025 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sub-Total |
|
| 16,285,783 |
|
|
| 18,736,131 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current portion |
|
| 1,246,083 |
|
|
| 2,765,794 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| $ | 15,039,700 |
|
| $ | 15,970,337 |
|
|
|
|
|
|
|
(1) 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 Company’s Board of Directors (the “Board”). ECHG 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. On November 23, 2021, the ECHG and DGSE notes, with remaining principal balances of $6,309,962 and $2,781,087, respectively, were refinanced by Farmers State Bank of Oakley, Kansas with annual interest rates of 3.1%. (the “FSB ECHG Loan” and “FSB DGSE Loan”, respectively). The FSB ECHG Loan and FSB DGSE Loan have monthly interest and principal payments of $35,292 and $15,555, respectively.
Table of Contents |
For the three months ended March 31, 2023 and 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, 2023 and 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 13 — LONG-TERM DEBT
Long-term debt consists of the following:
|
| Outstanding Balance |
|
|
|
| |||||||||
|
| March 31, |
|
| December 31, |
|
| Current |
|
| |||||
|
| 2023 |
|
| 2022 |
|
| Interest Rate |
|
| Maturity | ||||
Consumer |
|
|
|
|
|
|
|
|
|
|
| ||||
Note payable, Farmers Bank (1) |
| $ | 2,642,199 |
|
| $ | 2,668,527 |
|
|
| 3.10% |
| November 15, 2026 | ||
Note payable, Truist Bank (2) |
|
| 865,437 |
|
|
| 874,418 |
|
|
| 3.65% |
| July 9, 2030 | ||
Note payable, Texas Bank & Trust (3) |
|
| 451,569 |
|
|
| 456,187 |
|
|
| 3.75% |
| September 14, 2025 | ||
Note payable, Texas Bank & Trust (4) |
|
| 1,675,086 |
|
|
| 1,691,020 |
|
|
| 3.25% |
| July 30, 2031 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Consumer Sub-Total |
|
| 5,634,291 |
|
|
| 5,690,152 |
|
|
|
|
|
|
| |
| �� |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Note payable, Farmers Bank (1) |
|
| 5,994,831 |
|
|
| 6,054,565 |
|
|
| 3.10% |
| November 15, 2026 | ||
Line of Credit (5) |
|
| - |
|
|
| - |
|
|
| 3.10% |
| November 15, 2024 | ||
Avail Transaction note (6) |
|
| 1,333,333 |
|
|
| 1,500,000 |
|
|
| 0.00% |
| April 1, 2025 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial Sub-Total |
|
| 7,328,164 |
|
|
| 7,554,565 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Note payable, Texas Bank & Trust (7) |
|
| 2,704,143 |
|
|
| 2,732,688 |
|
|
| 3.25% |
| Novemeber 4, 2025 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sub-Total |
|
| 15,666,598 |
|
|
| 15,977,405 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current portion |
|
| 1,246,961 |
|
|
| 1,250,702 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| $ | 14,419,637 |
|
| $ | 14,726,703 |
|
|
|
|
|
|
|
(1) On November 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 a remaining and outstanding balance of $6,309,962, is a five-year promissory note amortized over 20 years at 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 outstanding balance of $2,781,087, is a five-year promissory note amortized over 20 years at 3.1% annual interest rate. The note has monthly principal and interest payments of $15,555.
(2) On July 9, 2020, DGSEthe consumer segment closed the purchase of a 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 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 $4,500,000.$4.5 million. The purchase was facilitated by an initial payment of $2,500,000$2.5 million at closing, and the remaining $2,000,000 represented by the Avail Installment Note$2.0 million to be paid out by 12 quarterly payments starting April 1, 2022, of $166,667 each. The Avail Installment Notenote payable for the Avail Transaction does not bear interest but the purchase price imputed at an annual 3.1% interest.
(7) On November 4, 2020, 1901 Gateway Holdings, LLC, a wholly owned subsidiary of the Company,Envela Corporation, closed on the purchase of anits 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 annual 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 and notes payable, related party, as of September 30, 2022March 31, 2023 are as follows:
Note payable, Farmers State Bank - DGSE |
|
|
| |
|
|
|
| |
Year Ending December 31, |
| Amount |
| |
|
|
|
| |
2022 (excluding the nine months ended September 30, 2022) |
| $ | 25,908 |
|
2023 |
|
| 105,428 |
|
2024 |
|
| 108,743 |
|
2025 |
|
| 112,162 |
|
2026 |
|
| 2,342,186 |
|
Subtotal |
| $ | 2,694,427 |
|
CONSUMER SEGMENT |
Note payable, Farmers State Bank |
|
|
| |
|
|
|
| |
Year Ending December 31, |
| Amount |
| |
|
|
|
| |
2023 (excluding the three months ended March 31, 2023) |
| $ | 79,098 |
|
2024 |
|
| 108,743 |
|
2025 |
|
| 112,162 |
|
2026 |
|
| 2,342,196 |
|
|
|
|
|
|
Subtotal |
| $ | 2,642,199 |
|
Note payable, Truist Bank |
|
|
| |
|
|
|
| |
Year Ending December 31, |
| Amount |
| |
|
|
|
| |
2023 (excluding the three months ended March 31, 2023) |
| $ | 27,006 |
|
2024 |
|
| 37,342 |
|
2025 |
|
| 38,748 |
|
2026 |
|
| 40,206 |
|
2027 |
|
| 42,081 |
|
Thereafter |
|
| 680,054 |
|
|
|
|
|
|
Subtotal |
| $ | 865,437 |
|
Table of Contents |
Note payable, Truist Bank - DGSE |
|
|
| |||||
Note payable, Texas Bank & Trust |
|
|
| |||||
|
|
|
|
|
|
| ||
Year Ending December 31, |
| Amount |
|
| Amount |
| ||
|
|
|
|
|
|
| ||
2022 (excluding the nine months ended September 30, 2022) |
| $ | 8,813 |
| ||||
2023 |
| 35,988 |
| |||||
2023 (excluding the three months ended March 31, 2023) |
| $ | 13,885 |
| ||||
2024 |
| 19,209 |
| |||||
2025 |
|
| 418,475 |
| ||||
|
|
|
| |||||
Subtotal |
| $ | 451,569 |
| ||||
|
|
|
| |||||
Note payable, Texas Bank & Trust |
|
|
| |||||
|
|
|
| |||||
Year Ending December 31, |
| Amount |
| |||||
|
|
|
| |||||
2023 (excluding the three months ended March 31, 2023) |
| $ | 47,852 |
| ||||
2024 |
| 37,342 |
|
| 66,225 |
| ||
2025 |
| 38,748 |
|
| 75,219 |
| ||
2026 |
| 40,206 |
|
| 78,741 |
| ||
2027 |
| 80,717 |
| |||||
Thereafter |
|
| 722,134 |
|
|
| 1,326,332 |
|
|
|
|
| |||||
Subtotal |
| $ | 883,231 |
|
| $ | 1,675,086 |
|
|
|
|
| |||||
Note payable, Texas Bank & Trust - DGSE |
|
|
| |||||
|
|
|
| |||||
Year Ending December 31, |
| Amount |
| |||||
|
|
|
| |||||
2022 (excluding the nine months ended September 30, 2022) |
| $ | 4,531 |
| ||||
2023 |
| 18,503 |
| |||||
2024 |
| 19,209 |
| |||||
2025 |
|
| 418,474 |
| ||||
Subtotal |
| $ | 460,717 |
| ||||
|
|
|
| |||||
Note payable, Texas Bank & Trust - DGSE |
|
|
| |||||
|
|
|
| |||||
Year Ending December 31, |
| Amount |
| |||||
|
|
|
| |||||
2022 (excluding the nine months ended September 30, 2022) |
| $ | 17,595 |
| ||||
2023 |
| 72,291 |
| |||||
2024 |
| 74,676 |
| |||||
2025 |
| 77,139 |
| |||||
2026 |
| 79,432 |
| |||||
Thereafter |
|
| 1,385,504 |
| ||||
Subtotal |
| $ | 1,706,637 |
| ||||
|
|
|
| |||||
Note payable, Farmers Bank - ECHG |
|
|
| |||||
|
|
|
| |||||
Year Ending December 31, |
| Amount |
| |||||
|
|
|
| |||||
2022 (excluding the nine months ended September 30, 2022) |
| $ | 58,779 |
| ||||
2023 |
| 239,204 |
| |||||
2024 |
| 246,725 |
| |||||
2025 |
| 254,484 |
| |||||
2026 |
|
| 5,314,146 |
| ||||
Subtotal |
| $ | 6,113,338 |
|
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 |
|
Table of Contents |
Note payable - Avail Transaction |
|
|
|
|
|
|
|
|
|
Year Ending December 31, |
| Amount |
| |
|
|
|
|
|
2022 (excluding the nine months ended September 30, 2022) |
| $ | 166,667 |
|
2023 |
|
| 666,668 |
|
2024 |
|
| 666,668 |
|
2025 |
|
| 166,664 |
|
Subtotal |
| $ | 1,666,667 |
|
|
|
|
|
|
Note payable, Texas Bank & Trust - Envela |
|
|
|
|
|
|
|
|
|
Year Ending December 31, |
| Amount |
| |
|
|
|
|
|
2022 (excluding the nine months ended September 30, 2022) |
| $ | 27,589 |
|
2023 |
|
| 112,670 |
|
2024 |
|
| 116,459 |
|
2025 |
|
| 2,504,048 |
|
Subtotal |
| $ | 2,760,766 |
|
|
| $ | 16,285,783 |
|
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 September 30, 2022March 31, 2023 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 nine months ended September 30, 2022) |
| $ | 309,882 |
| $ | - |
| $ | 309,882 |
| ||||||||||||||
2023 |
| 1,250,752 |
| - |
| 1,250,752 |
| |||||||||||||||||
2023 (excluding the three months ended March 31, 2023) |
| 932,185 |
| - |
| 932,185 |
| |||||||||||||||||
2024 |
| 1,269,822 |
| - |
| 1,269,822 |
|
| 1,261,412 |
| - |
| 1,261,412 |
| ||||||||||
2025 |
| 595,237 |
| 2,976,482 |
| 3,571,719 |
|
| 772,385 |
| 2,796,129 |
| 3,568,514 |
| ||||||||||
2026 |
| 434,080 |
| 7,341,890 |
| 7,775,970 |
|
| 464,900 |
| 7,310,403 |
| 7,775,303 |
| ||||||||||
2027 and Thereafter |
|
| 560,656 |
|
|
| 1,546,982 |
|
|
| 2,107,638 |
| ||||||||||||
2027 |
| 122,798 |
| - |
| 122,798 |
| |||||||||||||||||
Thereafter |
|
| 428,266 |
|
|
| 1,578,120 |
|
|
| 2,006,386 |
| ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total |
| $ | 4,420,429 |
|
| $ | 11,865,354 |
|
| $ | 16,285,783 |
|
| $ | 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 and nine months ended September 30, 2022March 31, 2023 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(“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.
NOTE 16 — 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 building has approximately 6,000 square feet and we are expecting to close the purchase by Thursday, 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 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 through the FSB ECHG Loan and FSB DGSE Loan. For the three months ended September 30, 2022 and 2021, the Company paid Mr. Loftus $0 and $157,366, respectively, in interest on the Company’s notes payable, related party. For the nine months ended September 30, 2022 and 2021, the Company paid Mr. Loftus $0 and $442,719, respectively, in interest on the Company’s notes payable, related party.4, 2023.
NOTE 17 — CONTINGENCIES
COVID-19 continues to adversely affect global economic business conditions, including but not limited to contributing to surgingSurging inflation and supply chain interruptions which also continue to adversely affect 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 recently statedcontinued raising interest rates to combat inflation and restore price stability and it is expected that rates will continue to rise throughout the remainder of 2022.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, as well as the economic effects of the foregoing, the ultimate impact is highly uncertain and subject to change. In addition, the economic effects of the foregoing are subject to, among other things, the effect of government responses on our operations.
The global tension caused by the conflict between Russia and Ukraine has upset the stability within the region of the former Soviet era block. This could lead to further volatility in global energy and other 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, which have impacted global supply chains. The impact of these measures, as well as 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””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 September 30, 2022March 31, 2023 (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 segment, 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.
Table of Contents |
DGSEConsumer Segment Business Overview
DGSEThe consumer segment is headquartered in Dallas, Texas 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 almost 50 years, making our expert staff among the best in the business.
DGSEDallas Gold & Silver Exchange also maintains a number of related operations, on-site jewelry and watch repair and restoration at its Dallas flagship location, and design of custom bridal and fashion jewelry. In addition, DGSEit 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. DGSEThe 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.
DGSEConsumer 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 DGSE’sthe 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. Our retail sales and gross margin could be materially impacted if prices of diamonds, platinum, gold, 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-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-metal in which we trade. Such fluctuations, particularly with respect to gold, which accounts for a majority of DGSE’sour merchandise costs, can have a significant impact on its earnings and cash availability.
26 |
Table of Contents |
We continue to monitor additional potential impacts of COVID-19 and other macroeconomic factorsthe economic impact on our business, such asoperations from surging inflation and the conflict in Ukraine. Uncertainties exist that could continue to impactaffect our operations or cash flows in the future, such as potential resurgence of COVID-19, further pricing andcontinued inflationary environmental changes (including, but not limited to, labor, materials, and advertising costs). The Company’s ability to recruit and retain qualified team members, organized retail crime, or the consumers’ ability to spend on discretionary categories.
DGSEConsumer Segment Growth and Expansion
Our continued strategy will 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 Mt. Pleasant, 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 de 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 offers its customers the ability to further offer their customers the ability to upgrade their old phones through a trade-in program supported by Teladvance. Like DGSE, ECHGthe consumer segment, the commercial segment also maintains relationships with refiners for which it sells extracted valuable materials from electronics and IT equipment deemed unsuitable for retail or 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 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 are discussed above. As discussed below, ECHG haswe 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-19 and Economic Conditions
The COVID-19 pandemic continues to affect the U.S. and global economies, and as disclosed in our 2021 Annual Report, the COVID-19 pandemic also affected our business in a variety of ways beginning in the second quarter of fiscal 2020, continuing through fiscal 2021 and fiscal 2022.
The COVID-19 pandemic, surgingSurging inflation, supply chain disruptions and the war in Ukraine have affected the recommerce business in unpredictable ways. There have been fewer customers raising money by selling items. For more information, see Note 17 to ourthese interim condensed consolidated financial statements.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our 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 are 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 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.
28 |
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
The following disaggregation of total revenue is listed by sales category and segment for the three months ended March 31, 2023 and 2022:
CONSOLIDATED |
| Three Months Ended March 31, |
| |||||||||||||||||||||
|
| 2023 |
|
| 2022 |
| ||||||||||||||||||
|
| Revenues |
|
| Gross Profit |
|
| Margin |
|
| Revenues |
|
| Gross Profit |
|
| Margin |
| ||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Resale |
| $ | 33,719,960 |
|
| $ | 3,304,932 |
|
|
| 9.8 | % |
| $ | 33,677,133 |
|
| $ | 3,742,852 |
|
|
| 11.1 | % |
Recycled |
|
| 2,984,437 |
|
|
| 680,036 |
|
|
| 22.8 | % |
|
| 2,105,739 |
|
|
| 480,610 |
|
|
| 22.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
| 36,704,397 |
|
|
| 3,984,968 |
|
|
| 10.9 | % |
|
| 35,782,872 |
|
|
| 4,223,462 |
|
|
| 11.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resale |
|
| 8,558,090 |
|
|
| 5,799,126 |
|
|
| 67.8 | % |
|
| 9,579,857 |
|
|
| 4,574,268 |
|
|
| 47.7 | % |
Recycled |
|
| 3,126,553 |
|
|
| 1,625,808 |
|
|
| 52.0 | % |
|
| 2,052,369 |
|
|
| 913,304 |
|
|
| 44.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
| 11,684,643 |
|
|
| 7,424,934 |
|
|
| 63.5 | % |
|
| 11,632,226 |
|
|
| 5,487,572 |
|
|
| 47.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 48,389,040 |
|
| $ | 11,409,902 |
|
|
| 23.6 | % |
| $ | 47,415,098 |
|
| $ | 9,711,034 |
|
|
| 20.5 | % |
Comparison of three months ended March 31, 2023 and 2022
Resale Revenue
|
| 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 | % |
30 |
Table of Contents |
The full extent and duration ofResale revenue related to the impact of the COVID-19 pandemic, surging inflation, supply chain disruptions and the war in Ukraine on the global economy generally, and on our business specifically, is currently unknown. A prolonged pandemic and recovery may have an adverse effect on our results of operations, financial position and liquidity in future periods.
Critical Accounting Policies and Estimates
For a discussion of critical accounting policies, see “Note 1 – Accounting Policies and Nature of Operations” in the Company’s 2021 Annual Report.
Results of Operations
General
The following disaggregation of total revenue is listedconsumer segment increased by sales category and segment for$42,827, or 0.13% during the three months ended September 30, 2022March 31, 2023, to $33,719,960, as compared to $33,677,133 during the same period in 2022. Resale revenue, such as bullion, jewelry, watches, and 2021:rare coins, increased slightly during the period.
CONSOLIDATED |
| Three Months Ended September 30, |
| |||||||||||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||
|
| Revenues |
|
| Gross Profit |
|
| Margin |
|
| Revenues |
|
| Gross Profit |
|
| Margin |
| ||||||
DGSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Resale |
| $ | 28,172,732 |
|
| $ | 3,251,153 |
|
|
| 11.5 | % |
| $ | 23,407,095 |
|
| $ | 2,645,445 |
|
|
| 11.3 | % |
Recycled |
|
| 2,254,522 |
|
|
| 498,210 |
|
|
| 22.1 | % |
|
| 2,075,284 |
|
|
| 414,053 |
|
|
| 20.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
| 30,427,254 |
|
|
| 3,749,363 |
|
|
| 12.3 | % |
|
| 25,482,379 |
|
|
| 3,059,498 |
|
|
| 12.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ECHG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resale |
|
| 11,518,168 |
|
|
| 6,465,386 |
|
|
| 56.1 | % |
|
| 8,288,951 |
|
|
| 3,450,652 |
|
|
| 41.6 | % |
Recycled |
|
| 3,252,264 |
|
|
| 1,640,908 |
|
|
| 50.5 | % |
|
| 3,909,439 |
|
|
| 1,599,966 |
|
|
| 40.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
| 14,770,432 |
|
|
| 8,106,294 |
|
|
| 54.9 | % |
|
| 12,198,390 |
|
|
| 5,050,618 |
|
|
| 41.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 45,197,686 |
|
| $ | 11,855,657 |
|
|
| 26.2 | % |
| $ | 37,680,769 |
|
| $ | 8,110,116 |
|
|
| 21.5 | % |
Resale revenue related to the commercial segment decreased by $1,021,767, or 11%, during the three months ended March 31, 2023, to $8,558,090, as compared to $9,579,857 during the same period in 2022. Resale revenue decreased primarily due to supply chain issues the Company experienced during the three months ending March 31, 2023.
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 $878,698, or 42%, during the three months ended March 31, 2023, 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, 2023, to $3,126,553, as compared to $2,052,369 during the same period in 2022. Recycled revenue increased primarily due to an increase of electronic material to be recycled from material not suitable to resale to commercial customers during the three months ending March 31, 2023.
31 |
Table of Contents |
The following disaggregation of total revenue is listed by sales category and segment for the nine months ended September 30, 2022 and 2021:Gross Profit - Resale
CONSOLIDATED |
| Nine Months Ended September 30, |
| |||||||||||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||
|
| Revenues |
|
| Gross Profit |
|
| Margin |
|
| Revenues |
|
| Gross Profit |
|
| Margin |
| ||||||
DGSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Resale |
| $ | 90,014,891 |
|
| $ | 10,713,959 |
|
|
| 11.9 | % |
| $ | 61,621,574 |
|
| $ | 7,781,229 |
|
|
| 12.6 | % |
Recycled |
|
| 6,534,362 |
|
|
| 1,447,450 |
|
|
| 22.2 | % |
|
| 5,787,630 |
|
|
| 1,182,900 |
|
|
| 20.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
| 96,549,253 |
|
|
| 12,161,409 |
|
|
| 12.6 | % |
|
| 67,409,204 |
|
|
| 8,964,129 |
|
|
| 13.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ECHG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resale |
|
| 30,200,026 |
|
|
| 16,606,161 |
|
|
| 55.0 | % |
|
| 21,625,853 |
|
|
| 9,082,521 |
|
|
| 42.0 | % |
Recycled |
|
| 8,503,223 |
|
|
| 4,277,121 |
|
|
| 50.3 | % |
|
| 7,860,159 |
|
|
| 3,495,620 |
|
|
| 44.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
| 38,703,249 |
|
|
| 20,883,282 |
|
|
| 54.0 | % |
|
| 29,486,012 |
|
|
| 12,578,141 |
|
|
| 42.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 135,252,502 |
|
| $ | 33,044,691 |
|
|
| 24.4 | % |
| $ | 96,895,216 |
|
| $ | 21,542,270 |
|
|
| 22.2 | % |
|
| 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 | % |
Three Months Ended September 30, 2022 as comparedResale gross profit related to the Three Months Ended September 30, 2021
Revenue. Revenue related to DGSE’s continuing operations increased by $4,944,875, or 19.4%, during the three months ended September 30, 2022, to $30,427,254, as compared to revenue of $25,482,379 during the same period in 2021. Resale revenue, such as bullion, jewelry, watches and rare coins, increased by $4,765,637, or 20.4%, during the three months ended September 30, 2022, to $28,172,732 as compared to resale revenue of $23,407,095 during the same period in 2021. Recycled-material sales increased by $179,238, 8.6% to $2,254,522 for the three months ended September 30, 2022, as compared to recycled-material sales of $2,075,284, for the three months ended September 30, 2021. Resale revenue for the DGSE segment increased for the three months ended September 30, 2022, when compared to the same periods in the previous fiscal year. The increases in net sales were primarily due to year-over-year growth in store count, as well as increases in comparable store sales. Recycle revenue increased slightly for the three months ended September 30, 2022, when compared to the same periods in the previous fiscal year, which was primarily due to year-over-year growth in store count.
Revenue related to ECHG’s continuingconsumer operations for the three months ended September 30, 2022 increasedMarch 31, 2023, decreased by $2,572,042,$437,920, or 21.1%12%, to $14,770,432,$3,304,932, as compared to revenueresale gross profit of $12,198,390$3,752,852 during the same period in 2021. Resale revenue increased by $3,229,217, or 39.0%,2022. The decrease in resale gross profit was due primarily to $11,518,168,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 September 30, 2022,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 revenueresale gross profit of $8,288,951$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 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
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 September 30, 2021. Recycled sales decreased by $657,175, or 16.8%, to $3,252,264 for the three months ended September 30, 2022, as compared to recycled sales of $3,909,439 for the three months ended September 30, 2021. Revenue increased for resale items for the three months ended September 30, 2022,March 31, 2023 as compared to the three months ended September 30, 2021, was mainly due to the increased revenue from the Avail Transaction on October 29, 2021. The decrease of recycled items for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, was primarily due to a shifting of product mix.
The Company has had no layoffs to-date or terminations due to the COVID-19 pandemic, and we continue to exercise caution concerning any variants of COVID-19 that may arise. We believe the Company continues to operate at full strength and intend to take measures to keep our employees safe where possible.
Gross Profit. Gross profit related to DGSE’s operations for the three months ended September 30, 2022, increased by $689,865, or 22.5%, to $3,749,363 as compared to gross profit of $3,059,498 during the same period in 2021. Resale gross profit increased by $605,708, or 22.9%, to $3,251,153 for the three month ended September 30, 2022, as compared to resale gross profit of $2,645,445 during the three months ended September 30, 2021. Recycled gross profit increased by $84,157, or 20.3%, to $498,210 for the three months ended September 30, 2022, as compared to recycled gross profit of $414,053 during the three months ended September 30, 2021. The increase in resale and recycled gross profit for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021 was primarily due to an increase in store traffic compared to the same period last year.March 31, 2022.
32 |
Table of Contents |
GrossRecycled gross profit related to ECHGthe commercial operations for the three months ended September 30, 2022March 31, 2023, increased by $3,055,676,$712,504, or 60.5%78%, to $8,106,294$1,625,808, as compared to gross profit of $5,050,618$913,304 during the same period in 2021. Gross2022. The increase in recycled gross profit for resale revenuewas 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 September 30, 2022 increased by $3,014,734, or 87.4%, to $6,465,386,March 31, 2023, as compared to gross profit44%, for resale revenue $3,450,652the three months ended March 31, 2022.
|
| 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 |
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| Commercial |
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| Consolidated |
| ||||||
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| ||||||
Revenue: |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Sales |
| $ | 36,704,397 |
|
| $ | 11,684,643 |
|
| $ | 48,389,040 |
|
| $ | 35,782,872 |
|
| $ | 11,632,226 |
|
| $ | 47,415,098 |
|
Cost of goods sold |
|
| 32,719,429 |
|
|
| 4,259,709 |
|
|
| 36,979,138 |
|
|
| 31,559,410 |
|
|
| 6,144,654 |
|
|
| 37,704,064 |
|
|
|
|
|
|
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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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|
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|
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Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
| 8,259,654 |
|
|
| 2,244,912 |
|
|
| 4,606,790 |
|
|
| 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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|
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Other income/expense: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| 1,454,725 |
|
|
| 1,789,238 |
|
|
| 3,243,963 |
|
|
| 1,889,317 |
|
|
| 788,200 |
|
|
| 2,677,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| 317,841 |
|
|
| 399,805 |
|
|
| 717,646 |
|
|
| 13,177 |
|
|
| 17,115 |
|
|
| 30,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net income |
| $ | 1,136,884 |
|
| $ | 1,389,433 |
|
| $ | 2,526,317 |
|
| $ | 1,876,140 |
|
| $ | 771,085 |
|
| $ | 2,647,225 |
|
Selling, General and Administrative
|
| Three Months Ended March 31, |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| Amount |
|
| % |
| ||||
Selling, General and Administrative |
|
|
|
|
|
|
|
|
|
|
|
| ||||
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 2021. Gross profit for recycled sales for2022. The increase was primarily due to increased expenses related to expanding our footprint into Arizona. During the three months ended September 30,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.
Selling, General and Administrative Expenses, for the commercial segment, for the three months ended March 31, 2023, increased $40,942,by $1,087,472, or 2.6%25%, to $1,640,908,$5,509,278, as compared to gross profit for recycled sales of $1,599,966,$4,421,806 during the same period in 2021.2022. The gross profit increase forwas primarily due to increased expenses related to expanding the resale and recycled items forcommercial business by increasing the infrastructure. During the three months ended September 30,March 31, 2022, the corporate building overhead expenses were classified as compared to the three months ended September 30, 2021 primarily benefiting from the higher volumesother expenses. Starting January 1, 2023, those expenses have been classified as operating expenses within selling, general and an improved product mix with higher pricing power.administrative expenses.
Selling, General and Administrative Expenses. For the three months ended September 30, 2022, SG&A expenses for DGSE increased by $597,554, or 33.7%, to $2,369,588, as compared to SG&A expenses of $1,772,034 during the same period in 2021. The increase in SG&A expenses was driven primarily by increased corporate overhead expenses, mostly related to future growth opportunities, and investments in our technology infrastructure as we continue to invest in our business. Additionally, due to higher advertising expenses and an increase in salary expense for our retail employees due to the growth in our store count.
For the three months ended September 30, 2022, SG&A expenses for ECHG increased by $1,925,675 or 55.7%, to $5,384,114, as compared to SG&A expenses of $3,458,439 during the same period in 2021. The growth in SG&A was primarily due to the Avail Recovery Solutions acquisition.
Depreciation and Amortization. For the three months ended September 30, 2022, depreciation and amortization expense for DGSE was $103,022, as compared to an expense of $98,787 for the same period in 2021, an increase of $4,235, or 4.3%. The increase of $4,235 from the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 is primarily due to the depreciation of the new retail building located in Frisco, Texas.
For the three months ended September 30, 2022, depreciation and amortization expense for ECHG was $431,942 as compared to an expense of $117,389 for the same period in 2021, an increase of $314,553, or 268%. The increase of $314,553 for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, is primarily due to catch-up amortization expense of intangible assets just identified this quarter from the Avail Transaction of October 29, 2021, resulting in additional amortization of $250,800, plus additional amortization of intangible assets and depreciation of assets from the CExchange Transaction.
Interest Expense. For the three months ended September 30, 2022, interest expense for DGSE was $60,619, a decrease of $18,944, or 23.8%, as compared to interest expense of $79,563 during the same period in 2021. The decrease was primarily the combination of an increase from the new loan for the retail building located in Frisco, Texas, offset by a decrease from refinancing the related party loan by Farmers State Bank of Oakley, Kansas on November 23, 2021 through the FSB DGSE Loan.
For the three months ended September 30, 2022, interest expense for ECHG was $59,338, a decrease of $49,952 or 45.7%, as compared to interest expense of $109,290 during the same period in 2021. The decrease was primarily the result of refinancing the related party loan by Farmers State Bank of Oakley, Kansas on November 23, 2021 through the FSB ECHG Loan.
Gain on Forgiveness of Federal Loan. For the three months ended September 30, 2022, other income, gain on forgiveness of Federal Loan (defined below) for DGSE was $0, a decrease of $675,210, as compared to other income, gain on forgiveness of Federal Loan of $675,210 during the same period in 2021. Envela previously applied for and received, on April 20, 2020, a federally backed loan of $1,668,200 with 1% interest (the “Federal Loan”), which was forgivable to the extent that certain criteria were met. The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the Federal Loan during the quarter ended September 30, 2021. DGSE’s portion of the forgiven loan was $675,210 for the quarter ended September 30, 2021.
|
| 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 |
ForDepreciation and amortization, for the consumer segment, for the three months ended September 30, 2022, other income, gain on forgiveness of Federal Loan for ECHG was $0, a decrease of $992,990,March 31, 2023, decreased by $8,829, or 8%, to $98,134, as compared to other income, gain on forgiveness of Federal Loan of $992,900$106,963 during the same period in 2021.2022. The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the Federal Loan of $1,668,200 during the quarter ended September 30, 2021. ECHG’s portiondecrease was primarily due to some of the forgiven loan was $992,990fixed assets being fully depreciated.
Depreciation and amortization, for the quarter ended September 30, 2021
commercial segment, f
Write-off of Note Receivables and Accrued Interest Receivable. Foror the three months ended September 30, 2022, other expense, write-off of notes receivables for ECHG was $0, a decrease of $949,174,March 31, 2023, increased by $71,233, or 39%, to $256,217, as compared to other expense, write-off of notes receivables and accrued interest receivable of $949,174$184,984 during the same period in 2021.2022. The decreaseincrease was primarily due to two notes receivables duethe amortization of increased intangible assets added from CExchange of $900,000 and the associated accrued interest receivable of $49,174 written-offAvail Transaction during the quarter ended September 30, 2021.latter half of fiscal 2022.
Other Income/Expense. Income (Expense)
|
| Three Months Ended March 31, |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| Amount |
|
| % |
| ||||
Other Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consumer |
| $ | 23,534 |
|
| $ | (27,992 | ) |
| $ | 51,526 |
|
|
| 184 | % |
Commercial |
| $ | 187,245 |
|
| $ | (30,584 | ) |
| $ | 217,829 |
|
|
| 712 | % |
Other income (expense), for the consumer segment, fForor the three months ended September 30, 2022, other income for DGSE was $5,957, an increase in income of $43,780,March 31, 2023, increased by $51,526, or 184%, to $23,534, as compared to othera net expense of $37,823$(27,992) during the same period in 2021.2022. The increase in other income was primarily due to DGSE’s portion of corporate overhead expenses, mostly related to additional costs incurred to operate as a public company,interest earned from bank accounts for the three months ended September 30, 2022 as compared to the corporate expenses and rents received, netted forMarch 31, 2023. In addition, during the three months ended September 30, 2021.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, f
Foror the three months ended September 30, 2022, other expense for ECHG was $71,221, an increase in expenses of $48,260,March 31, 2023, increased by $217,829, or 712%, to $187,245, as compared to othera net expense of $22,961$(30,584) during the same period in 2021.2022. The increase in expenseother income was primarily due to ECHG’s portioninterest earned from bank accounts, of corporate overhead expenses, mostly related to additional costs incurred to operate as a public company, for$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 September 30,March 31, 2022, as compared to 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 rents received, nettedadministrative 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 September 30, 2021.
Income Tax Expense. For the three months ended September 30, 2022, income tax expense was $64,061, an increase of $37,606, comparedMarch 31, 2023, decreased by $1,624, or 3%, to income tax expense of $26,455 for the three months ended September 30, 2021. The effective income tax rate was 1.9% and 0.8% for the three months ended September 30, 2022 and September 30, 2021, respectively. Differences between our effective income tax rate and the U.S. federal statutory rate are mainly the result of state taxes, non-deductible expenses, non-taxable income 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 $3,317,709 for the three months ended September 30, 2022,$59,617, as compared to a net income of $3,106,401 for the three months ended September 30, 2021, an increase in net income of $211,308, which is due primarily to an increase in gross profit of $3,745,541, a decrease in interest expense of $68,896, offset by an increase in SG&A expenses of $2,523,229, an increase in depreciation and amortization of 318,788 and a decrease in other income of $723,506.
Earnings Per Share. For the three months ended September 30, 2022, net income per basic and diluted shares attributable to holders of Common Stock was $0.12, as compared to $0.12 per basic and diluted shares attributable to holders of Common Stock for the three months ended September 30, 2021.
Nine Months Ended September 30, 2022 as compared to the Nine Months Ended September 30, 2021
Revenues. Revenues related to DGSE’s operations increased by $29,140,049, or 43.2%, during the nine months ended September 30, 2022, to $96,549,253, as compared to revenue of $67,409,204$61,241 during the same period in 2021. Resale revenue, such as bullion, jewelry, watches and rare coins, increased by $28,393,317,2022. The decrease was primarily due to $90,014,891 forreduced loan balances during the ninethree months ended September 30, 2022, or 46.1%, compared to resale revenue of $61,621,574 during the nine months ended September 30, 2021. Recycled revenue increased by $746,732, or 12.9%, to $6,534,362 for the nine months ended September 30, 2022, as compared to recycled revenue of $5,787,630 during the nine months ended September 30, 2021. The increased resale and recycle revenue for the nine months ended September 30, 2022,March 31, 2023 as compared to the ninethree months ended September 30, 2021,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 year-over-year growth in store count,reduced loan balances during the three months ended March 31, 2023 as well as increases in comparable store sales.compared to the three months ended March 31, 2022.
34 |
Table of Contents |
RevenueIncome 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 $717,646, an increase of $687,354, as compared to income tax expense of $30,292 for the three months ended March 31, 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 22.1% and 1.1% for the three months ended March 31, 2023 and 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, as was the Company’s case for the increase for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.
Net 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 ECHG’sthe consumer operations for the ninethree months ended September 30, 2022 increasedMarch 31, 2023, decreased by $9,217,237,$739,256, or 31.3%39%, to $38,703,249,$1,136,884, as compared to revenue of $29,486,012$1,876,140 during the same period in 2021. Resale revenue2022. 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 $8,574,173,$618,348, or 39.6%80%, to $30,200,026, for the nine months ended September 30, 2022,$1,389,433, as compared to resale revenue of $21,625,853 during the nine months ended September 30, 2021. Recycled revenue increased by $643,064, or 8.2%, to $8,503,223 for the nine months ended September 30, 2022, as compared to recycled revenue of $7,860,159 for the nine months ended September 30, 2021. Revenue increased for resale items for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, primarily due to the Avail Transaction on October 29, 2021. The revenue increase from recycled items for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily due to the Avail Recovery Solutions acquisition and benefiting from the higher volumes and an improved product mix.
Gross Profit. Gross profit related to DGSE’s operations for the nine months ended September 30, 2022, increased by $3,197,280, or 35.7%, to $12,161,409 as compared to gross profit of $8,964,129$771,085 during the same period in 2021. Resale gross profit increased by $2,932,730, or 37.7%,2022. The increase in net income was due primarily to $10,713,959 for the nine month ended September 30, 2022, as compared to resalean increase in gross profit of $7,781,229 during$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 ninethree months ended September 30, 2021. Recycled gross profit increased by $264,550, or 22.4% to $1,447,450 for the nine months ended September 30, 2022, as compared to recycled gross profit of $1,182,900 during the nine months ended September 30, 2021. The increase in resale and recycled gross profit was due primarily due to year-over-year growth in store count, as well as increases in comparable store sales.
Gross profit related to ECHG for the nine months ended September 30, 2022, increased by $8,305,141, or 66%, to $20,883,282 as compared to gross profit of $12,578,141 during the same period in 2021. Gross profit for resale revenue for the nine months ended September 30, 2022 increased by $7,523,640, or 82.8% to $16,606,161, as compared to gross profit for resale revenue of $9,082,521 during the same period in 2021. Gross profit for recycled sales for the nine months ended September 30, 2022, increased $781,501, or 22.4% to $4,277,121, as compared to gross profit for recycle sales of $3,495,620, during the same period in 2021. The gross profit increase for resale and recycle revenue for the nine months ended September 30, 2022, asMarch 31, 2023, compared to the ninethree months ended September 30, 2021, is primarily due to increased sales and benefiting from an improved product mix with higher pricing power.
Selling, General and Administrative Expenses. For the nine months ended September 30, 2022, DGSE’s SG&A expenses increased by $1,257,665, or 23.1%, to $6,702,031, as compared to SG&A expenses of $5,444,366 during the same period in 2021. The increase in SG&A expenses was driven primarily by increased corporate overhead expenses, mostly related to future growth opportunities, and investments in our technology infrastructure as we continue to invest in our business. Additionally, due to higher advertising expenses and an increase in salary expense for our retail employees due to the growth in our store count, compared to the same period last year.
For the nine months ended September 30, 2022, SG&A expenses for ECHG increased by $5,924,768, or 67.6%, to $14,695,329, as compared to SG&A expenses of $8,770,561 during the same period in 2021. The increase in SG&A expenses was primarily due to the added cost of the Avail and CExchange companies during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.
Depreciation and Amortization. For the nine months ended September 30, 2022, DGSE’s depreciation and amortization expense was $311,419, compared to an expense of $293,044 for the same period in 2021. The increase of $18,375, or 6.3% is primarily due to the depreciation of the new Frisco, Texas retail building placed into service during January ofMarch 31, 2022.
For the nine months ended September 30, 2022, depreciation and amortization expense for ECHG was $795,008, as compared to an expense of $344,263 for the same period in 2021, an increase of $450,745, or 130.9%. The increase of $450,745 from the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, is primarily due to catch-up amortization expense of intangible assets just identified this quarter from the Avail Transaction of October 29, 2021, resulting in additional amortization of $250,800, plus additional amortization of intangible assets and depreciation of assets from the CExchange Transaction.
Interest Expense. For the nine months ended September 30, 2022, the interest expense for DGSE was $183,523, a decrease of $33,217, or 15.3%, compared to interest expense of $216,740 during the same period in 2021. The decrease was primarily the combination of an increase from the new loan for the retail building located in Frisco, Texas, offset by a decrease from refinancing the related party loan by Farmers State Bank of Oakley, Kansas on November 23, 2021 through the FSB DGSE Loan.
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Table of Contents |
ForEarnings 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 ninethree months ended September 30, 2022, interest expenseMarch 31, 2023, for ECHG was $180,715, a decrease of $148,124 or 45%, compared to interest expense of $328,839 during the same period in 2021. The decrease was primarily the result of refinancing the related party loan by Farmers State Bank of Oakley, Kansas on November 23, 2021 through the FSB ECHG Loan.
Gain on Forgiveness of Federal Loan. For the nine months ended September 30, 2022, other income, gain on forgiveness of Federal Loan for DGSE was $0, a decrease of $675,210, as compared to other income, gain on forgiveness of Federal Loan of $675,210 during the same period in 2021. The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the Federal Loan of $1,668,200 during the quarter ended September 30, 2021. DGSE’s portion of the forgiven loan was $675,210 for the quarter ended September 30, 2021.
For the nine months ended September 30, 2022, other income, gain on forgiveness of Federal Loan for ECHG was $0, a decrease of $992,990, as compared to other income, gain on forgiveness of Federal Loan of $992,990 during the same period in 2021. The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the Federal Loan of $1,668,200 during the quarter ended September 30, 2021. ECHG’s portion of the forgiven loan was $992,990 for the quarter ended September 30, 2021
Write-off of Note Receivables and Accrued Interest Receivable. For the nine months ended September 30, 2022, other expense, write-off of notes receivables for ECHG was $0, a decrease of $949,174, as compared to other expense, write-off of notes receivables and accrued interest receivable of $949,174 during the same period in 2021. The decrease was due to two notes receivables due from CExchange of $900,000 and the associated accrued interest receivable of $49,174 written-off during the quarter ended September 30, 2021.
Other Income/Expense. For the nine months ended September 30, 2022, other expense for DGSE was $71,053, an increase in expenses of $264,421, compared to other income of $193,368 during the same period in 2021. The increase in expense was primarily due to DGSE’s portion of corporate overhead expenses, mostly related to additional costs incurred to operate as a public company. Other income for the nine months ended September 30, 2021 only included the rental income from corporate tenants in the Company’s corporate building and therefore are not comparable. In subsequent quarters, the Company’s corporate overhead expenses and rental income are netted into other income/expense.
For the nine months ended September 30, 2022, other expense for ECHG was $148,216, an increase in expenses of $449,060, compared to other income of $193,368 during the same period in 2021. The increase in expense was primarily due to ECHG’s portion of corporate overhead expenses, mostly related to additional costs incurred to operate as a public company. Other income for the nine months ended September 30, 2021 only included the rental income from corporate tenants in the Company’s corporate building and therefore are not comparable. In subsequent quarters, the Company’s corporate overhead expenses and rental income are netted into other income/expense.
Income Tax Expense. For the nine months ended September 30, 2022, income tax expense was $144,605, an increase of $54,695, or 60.8%, as compared to income tax expense of $89,910 for the nine months ended September 30, 2021. The effective income tax rate was 1.5% and 1.2% for the nine months ended September 30, 2022 and 2021, respectively. Differences between our effective income tax rate and the U.S federal statutory rate are mainly the result of state taxes, non-deductible expenses, non-taxable income, changes in reserves for uncertain tax positions and unused net operating loss carryforwards.
Net Income. We recorded a net income of $9,812,792 for the nine months ended September 30, 2022, as compared to a net income of $7,267,785 for the nine months ended September 30, 2021, an increase in net income of $2,545,007, which is due primarily to an increase in gross profit of $11,502,421, a decrease in interest expense of $181,341, offset by an increase in SG&A expenses of $7,182,433, an increase in other expense of $1,432,507 and an increase in depreciation and amortization expense of $469,120.
Earnings Per Share. For the nine months ended September 30, 2022, the net income per basic and diluted shares attributable to common stockholders is $0.36, asholders of our Common Stock was $0.09, compared to $0.27$0.10 per basic and diluted shares attributable to holders of our Common Stock for the ninethree months ended September 30, 2021.March 31, 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, 2023, cash provided by operations totaled $2,924,025, which was primarily driven by net income of $2,526,317, reduction from non-cash charges, net of $689,516, and the increase in customer deposits and other liabilities of $1,484,605. In addition, the foregoing was offset by the decrease in accounts payable and accrued expenses of $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, 2023, cash provided by investing totaled $569,522, which primarily consisted of payments received from notes receivable of $578,250, offset by the purchase of property and equipment of $8,728.
During the three months ended March 31, 2023, cash used in financing totaled $310,807, which consisted of principal payments made against the notes payable loans of $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 consumer segment for retail locations and the build-out of those purchased properties. The Company has no capital expenditure commitments as of March 31, 2023. For more information, see Note 16 to our interim condensed consolidated financial statements.
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Table of Contents |
Liquidity and Capital Resources
During the nine months ended September 30, 2022, cash flows provided by operations totaled $7,725,140, and during the nine months ended September 30, 2021, cash flows provided by operations totaled $1,026,457, an increase of $6,698,683. Cash provided by operations for the nine months ended September 30, 2022 was driven largely by net income added to non-cash items of depreciation, amortization and bad debt of $10,992,637, an increase in accounts payable and accrued expenses of $1,924,658, a decrease in other assets of $311,422, offset by an increase in inventories of $4,014,627, an increase in prepaid expenses of $1,213,187, an increase in trade receivables of $97,994 and a decrease in customer deposits and other liabilities of $186,590. Cash provided by operations for the nine months ended September 30, 2021 was driven largely by net income added to non-cash items of depreciation, amortization, bad debt, gain on forgiveness of Federal Loan and write-off of note receivables and accrued interest receivable of $7,214,598, an increase in accounts payable and accrued expenses of $100,952 and an increase in customer deposits and other liabilities of $511,610, offset by the increase in trade receivables of $2,871,070, an increase in inventories of $2,647,432, an increase in prepaid expenses of $886,591 and the increase in other assets of $417,347.
During the nine months ended September 30, 2022 and 2021, cash flows used in investing activities totaled $444,185 and $3,351,141, respectively, a period-over-period decrease of $2,906,956. The use of cash in investing activities during the nine months ended September 30, 2022 was primarily due to the purchase of additional property and equipment of $227,197 and the additional cash payment, as part of the Avail Transaction of $216,988. The use of cash in investing activities during the nine months ended September 30, 2021 was primarily due to the increase in notes receivable of $300,000 and the purchase of additional property and equipment of $3,064,277, offset by acquisition of CExchange’s assets and liabilities, net of cash acquired of $13,136.
During the nine months ended September 30, 2022, cash flows used in financing totaled $2,450,347 and during the nine months ended September 30, 2021, cash flows provided by financing totaled $1,429,828, a period-over-period increase of cash flows used in financing of $3,880,175. Cash used in financing during the nine months ended September 30, 2022 was primarily due from payments made against notes payable of $750,347 and payments made against the line of credit of $1,700,000. Cash provided by financing during the nine months ended September 30, 2021 was primarily due from proceeds from notes to purchase property of $1,772,000, offset by payments made against notes payable of $123,352 and payments made against notes payable, related party of $218,820.
We expect our capital expenditures to total approximately $1,500,000 during the next 12 months. These expenditures will be driven by the purchase of additional equipment and the purchase of potential properties by DGSE for retail locations and for build-out of those purchased properties. The Company has no capital expenditure commitments as of September 30, 2022.
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 theand two FSB ECHG Loan and the FSB DGSE Loan, as well as the financing for the Avail Transaction through borrowings represented by the Avail Installment Note.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 the FSB Facility, which is 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 September 30, 2022.Mach 31, 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, surging inflation, supply chain interruptions 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 prices. Although we are continuing to monitor and assess the effects of the foregoing, 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 September 30, 2022, see Note 12 to our interim condensed consolidated financial statements.March 31, 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.
37 |
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 September 30, 2022.March 31, 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 September 30, 2022,March 31, 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.
38 |
Table of Contents |
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’sCompany'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’sCompany's financial condition, results of operations or cash flow.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in the Company’s 20212022 Annual Report and the Company’s quarterly report on Form 10-Q for the period ended March 31, 2022, filed with the SEC on May 11, 2022.Report.
For additional information on contingencies, see Note 17 to our interim condensed consolidated financial statements.
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
39 |
Table of Contents |
ITEM 6. EXHIBITS
Exhibit Number |
| Description |
| Filed Herein |
| Incorporated by Reference |
| Form |
| Date Filed with SEC |
| Exhibit Number |
|
| X |
|
|
|
|
|
|
|
| ||
|
| 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 John R. Loftus |
| X |
|
|
|
|
|
|
|
| |
| 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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|
40 |
Table of Contents |
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) | ||
|
| ||
Date: | By: | /s/ JOHN R. LOFTUS |
|
|
| John R. Loftus |
|
|
| Chief Executive Officer (Principal Executive Officer) |
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| |
Date: |
| /s/ BRET A. PEDERSEN |
|
|
| Bret A. Pedersen |
|
|
| Chief Financial Officer (Principal Accounting Officer) |
|
41 |