What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-11 compared with 2021-11-04 · 86 added, 150 removed, 89 unchanged (73% of the section changed)

2 unchanged sentences

Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (this “Form 10-Q”), including but not limited to:

This Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 (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;

9 unchanged sentences

Envela Overview

The Company operates through two recommerce business segments represented by its two direct subsidiaries.

The Company operates through two recommerce business segments represented by its two direct subsidiaries, DGSE and ECHG.

DGSE focuses on the recommercialization of luxury hard assets, and ECHG focuses on the recommercialization of business IT equipment and consumer electronic devices.

Through DGSE, the Company recommercializes luxury hard assets and operates the Dallas Gold and Silver Exchange, Charleston Gold & Diamond Exchange, and Bullion Express brands (collectively, “DGSE”).

Through ECHG, the Company recommercializes business IT equipment and consumer electronic devices and operates Echo, ITAD USA and Teladvance.

Echo focuses on end-of-life electronics recycling and sustainability, ITAD USA provides IT equipment disposition, including compliance and data sanitization services, and Teladvance operates as a value-added reseller by providing offerings and services to companies looking either to upgrade capabilities or dispose of equipment.

Through DGSE, 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 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, 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 DGSE and ECHG, Envela also leases unused space at its Company headquarters in Irving, Texas to commercial tenants.

15 unchanged sentences

Such fluctuations, particularly with respect to gold which accounts for a majority of DGSE’s merchandise costs, can have significant impact on its earnings and cash availability.

Precious metals pricing rises and falls based upon global supply and demand dynamics.

Gold prices surged during the beginnings of the COVID-19 pandemic, starting at $1,523 an ounce, as determined by the London AM Fix on January 1, 2020, and rose strongly during the first half of 2020 peaking at $2,060 an ounce during August.

However, gold prices dipped from the peak to close at $1,891 an ounce, as determined by the London PM Fix on December 31, 2020, registering a 24% increase during fiscal year 2020.

Gold prices declined during the nine months ending September 30, 2021 by 8% to $1,743 an ounce as determined by the London PM Fix.

Gold prices decreased 1% for the three months ending September 30, 2021, from $1,763 an ounce on June 30, 2021, as determined by the London PM Fix.

Because DGSE buys and resells precious metals, it is impacted by 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.

Gold prices surged during the beginnings of the COVID-19 pandemic, rising steeply during Fiscal 2020 but receding somewhat toward the end of Fiscal 2020.

Gold prices started January 1, 2021 at $1,891 an ounce, as determined by the London AM Fix and dipped to a low of $1,683 an ounce on March 30, 2021.

Gold then began to rebound throughout the remainder of the year closing at $1,820 on December 31, 2021, as determined by the London AM Fix.

During fiscal year 2021, gold prices receded 4% from December 31, 2020.

Gold rose 7% to $1,942 during the first three months of Fiscal 2022.

The COVID-19 pandemic continues to affect the recommerce business in unpredictable ways.

Although there are variants of COVID-19 affecting the health of the United States, employment figures improved throughout 2021.

The unemployment rate improved from over six percent (6%) in January of 2021 to four percent (4%), as of January 2022.

When prices rise for gold or other precious metals, DGSE has observed that individual sellers tend to be more likely to sell their unwanted crafted-precious-metal items and at the same time retail customers tend to buy bullion and other gold products so as not to miss out on potential market gains.

6 unchanged sentences

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.

We see opportunity for further expansion through new openings in the United States.

The Company expects capital expenditures over the next twelve months including potential purchase of additional properties by DGSE.

ECHG Business Overview

ECHG owns and operates Echo, ITAD USA and Teladvance, 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 operates as a value-added reseller by providing offerings and services to companies looking to either upgrade capabilities or dispose of equipment.

ECHG owns and operates Echo, ITAD USA, Teladvance, CEX and Avail, through which it primarily buys and resells or recycles consumer electronic components and IT equipment.

Echo focuses on end-of-life electronics recycling and also offers disposal transportation and product tracking, ITAD USA provides IT equipment disposition including compliance and data sanitization services and Teladvance, CEX and Avail operates as value-added resellers by providing offerings and services to companies looking to either upgrade capabilities or dispose of equipment.

In addition, as a result of the CExchange Transaction, Teladvance now offers retail customers a trade-in program to offer their customers the ability to upgrade their old phones through a trade-in program.

15 unchanged sentences

Business—Operating Segments—ECHG Segment.” in the Company’s 2021 Annual Report.

The COVID-19 pandemic continues to affect the U.S.

and global economies, and as disclosed in our 2020 Annual Report on Form 10-K, the pandemic also affected our business in a variety of ways beginning in the second quarter of fiscal 2020 and continuing into fiscal 2021.

The pandemic, together with the recent economic downturn and civil unrest, have affected the recommerce business in unpredictable ways, but Envela experienced that there were fewer customers raising money by selling items, despite higher unemployment.

Government stimulus checks, eviction moratoriums and forbearances on mortgages and student loans may have contributed and may still be contributing to this effect.

For more information, see Note 18 to our interim condensed consolidated financial statements.

To date, this drop has been offset by other areas of our business.

This diversity, combined with ECHG and DGSE’s continued focus on disciplined operations, makes us optimistic for our future success.

The full extent and duration of the COVID-19 impact 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.

The COVID-19 pandemic has adversely affected global economic business conditions.

Future sales on products like ours could decline or fluctuate due to increased or fluctuating commodities prices, particularly gold.

Although we are continuing to monitor and assess the effects of the COVID-19 pandemic, the ultimate impact is highly uncertain and subject to change.

The duration of any such impact cannot be predicted, nor can the timing of the development, distribution and acceptance of effective vaccines, booster shots or other treatments for potential COVID-19 divergent strains, including the Delta and Omnicron variants.

In addition, the effects of the COVID-19 pandemic are subject to, among other things, the effect of government responses to the pandemic on our operations, including vaccine mandates, impacts of the pandemic on global and domestic economic conditions, including with respect to commercial activity, our customers and business partners, as well as consumer preferences and demand.

Critical Accounting Policies and Estimates

1 unchanged sentence

Results of Operations

The following disaggregation of total revenue is listed by sales category and segment for the three months ended September 30, 2021 and 2020:

Three Months Ended September 30,

The following disaggregation of total revenue is listed by sales category and segment for the nine months ended September 30, 2021 and 2020:

Nine Months Ended September 30,

Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020

Revenue related to DGSE’s continuing operations decreased by $2,654,795, or 9%, during the three months ended September 30, 2021, to $25,482,379, as compared to revenue of $28,137,174 during the same period in 2020.

Resale revenue, such as bullion, jewelry, watches and rare coins, decreased by $3,694,382, or 14%, during the three months ended September 30, 2021, to $23,407,095 as compared to resale revenue of $27,101,477 during the same period in 2020.

Recycled-material sales increased 100% to $2,075,284 for the three months ended September 30, 2021, as compared to recycled-material sales of $1,035,697, for the three months ended September 30, 2020.

Revenue decreased for resale items for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, primarily due to the lifting of certain governmental orders to refrain from non-essential items that were effective during the three months ended September 30, 2020, thus releasing pent-up purchasing demand.

Revenue increased for recycled items for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, primarily due to additional refiner capacity and production after the lifting of certain governmental restrictions that were effective during the three months ended September 30, 2020.

Revenue related to ECHG’s continuing operations for the three months ended September 30, 2021 increased by $1,524,680, or 14%, to $12,198,390, as compared to revenue of $10,673,710 during the same period in 2020.

Resale revenue increased by $476,398, or 6%, to $8,288,951, for the three months ended September 30, 2021, as compared to revenue of $7,812,553 during the three months ended September 30, 2020.

Recycled sales increased by $1,048,282 or 37%, to $3,909,439 for the three months ended September 30, 2021, as compared to recycled sales of $2,861,157 for the three months ended September 30, 2020.

Revenue increased for resale and recycled items for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, due to the COVID-19 pandemic slowing wholesale operations during the three months ended September 30, 2020.

The Company has had no layoffs to-date or terminations due to the pandemic, and we continue to exercise the safety protocols established by the Company at the start of the pandemic.

The following disaggregation of total revenue is listed by sales category and segment for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Three Months Ended March 31, 2022 compared to the Three Months Ended March 31, 2021

Revenue related to DGSE’s continuing operations increased by $16,868,371, or 89%, during the three months ended March 31, 2022, to $35,782,872, as compared to revenue of $18,914,501 during the same period in 2021.

Resale revenue, such as bullion, jewelry, watches and rare coins, increased by $16,356,492, or 94%, during the three months ended March 31, 2022, to $33,677,133 as compared to resale revenue of $17,320,641 during the same period in 2021.

Recycled-material sales increased 32% to $2,105,739 for the three months ended March 31, 2022, as compared to recycled-material sales of $1,593,860, for the three months ended March 31, 2021.

Revenue increased for resale and recycled items for the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to the effectiveness of DGSE’s on-line advertising and marketing campaign that saw DGSE increase its advertising budget by 56% during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021.

Revenue related to ECHG’s continuing operations for the three months ended March 31, 2022 increased by $5,056,286, or 77%, to $11,632,226, as compared to revenue of $6,575,940 during the same period in 2021.

Resale revenue increased by $4,838,865, or 102%, to $9,579,857, for the three months ended March 31, 2022, as compared to revenue of $4,740,992 during the three months ended March 31, 2021.

Recycled sales increased by $217,421 or 12%, to $2,052,369 for the three months ended March 31, 2022, as compared to recycled sales of $1,834,948 for the three months ended March 31, 2021.

Revenue increased for resale and recycled items for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, primarily due to the addition of Avail and CEX for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

The Company has had no layoffs to-date or terminations due to the COVID-19 pandemic, and we continue to exercise the safety protocols established by the Company at the start of the pandemic.

The Company continues to operate at full strength and will take measures to keep our employees safe where possible.

Gross Profit.

Gross profit related to DGSE’s operations for the three months ended September 30, 2021, decreased by $373,462 or 11%, to $3,059,498 as compared to gross profit of $3,432,960 during the same period in 2020.

Resale gross profit decreased by $494,439, or 16%, to $2,645,445 for the three month ended September 30, 2021, as compared to resale gross profit of $3,139,884 during the three months ended September 30, 2020.

Recycled gross profit increased by $120,977, or 41%, to $414,053 for the three months ended September 30, 2021, as compared to recycled gross profit of $293,076 during the three months ended September 30, 2020.

The decrease in resale gross profit was due primarily to the decreased sales.

The increase in recycled gross profit for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, was due primarily to increased revenue.

Gross profit related to ECHG for the three months ended September 30, 2021 increased by $1,320,181, or 35%, to $5,050,618 as compared to gross profit of $3,730,437 during the same period in 2020.

Gross profit for resale revenue for the three months ended September 30, 2021 increased by $1,074,246, or 45%, to $3,450,652, as compared to gross profit for resale revenue $2,376,406 during the same period in 2020.

Gross profit for recycled sales for the three months ended September 30, 2021 increased $245,935, or 18%, to $1,599,966, as compared to gross profit for recycled sales of $1,354,031, during the same period in 2020.

The gross profit increase for the resale and recycled items for the three months ended September 30, 2021, compared to the three months ended September 30, 2020 is primarily due to the increased sales in each category.

Gross profit related to DGSE’s operations for the three months ended March 31, 2022, increased by $1,415,827 or 50%, to $4,223,462, as compared to gross profit of $2,807,635 during the same period in 2021.

Resale gross profit increased by $1,285,708, or 52%, to $3,742,852 for the three month ended March 31, 2022, as compared to resale gross profit of $2,457,144 during the three months ended March 31, 2021.

Recycled gross profit increased by $130,119, or 37%, to $480,610 for the three months ended March 31, 2022, as compared to recycled gross profit of $350,491 during the three months ended March 31, 2021.

The increase in resale and recycled gross profit was due primarily to the increase in sales for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021.

Gross profit related to ECHG for the three months ended March 31, 2022 increased by $1,990,943, or 57%, to $5,487,572 as compared to gross profit of $3,496,629 during the same period in 2021.

Gross profit for resale revenue for the three months ended March 31, 2022 increased by $1,962,084, or 75%, to $4,574,268, as compared to gross profit for resale revenue of $2,612,184 during the same period in 2021.

Gross profit for recycled sales for the three months ended March 31, 2022 increased $28,859, or 3%, to $913,304, as compared to gross profit for recycled sales of $884,445, during the same period in 2021.

The gross profit increase for the resale and recycled items for the three months ended March 31, 2022, compared to the three months ended March 31, 2021 is primarily due to the increased sales in each category.

Selling, General and Administrative Expenses.

For the three months ended September 30, 2021, SG&A expenses for DGSE increased by $68,640 or 4%, to $1,772,034, as compared to SG&A expenses of $1,703,394 during the same period in 2020.

The increase in SG&A expenses was primarily due to increased expenses from two new locations in Lewisville and Grapevine Texas that were placed in service during the fourth quarter of the fiscal year ended December 31, 2020.

For the three months ended September 30, 2021, SG&A expenses for ECHG increased by $1,292,160 or 60%, to $3,458,439, as compared to SG&A expenses of $2,166,279 during the same period in 2020.

The increase in SG&A expenses was primarily due to the loss of rent received from the sublet tenant of $95,000 that was netted against rent during the three months ended September 30, 2020 and an increase in wages and employee expenses of approximately $900,000 to prepare for increased business from relaxed restrictions from COVID-19.

For the three months ended March 31, 2022, SG&A expenses for DGSE increased by $355,512, or 20%, to $2,137,949, as compared to SG&A expenses of $1,782,437 during the same period in 2021.

The increase in SG&A expenses was primarily due to increased payroll and related expenses from personnel needed for the increase in business, and for the addition of a new DGSE retail location that opened for business during the quarter ended March 31, 2022, as compared to the three months ended March 31, 2021.

For the three months ended March 31, 2022, SG&A expenses for ECHG increased by $2,051,014 or 87%, to $4,421,806, as compared to SG&A expenses of $2,370,792 during the same period in 2021.

The increase in SG&A expenses was primarily due to the addition of CEX and Avail businesses during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Depreciation and Amortization .

For the three months ended September 30, 2021, depreciation and amortization expense for DGSE was $98,787, compared to an expense of $79,190 for the same period in 2020, an increase of $19,597, or 25%.

The increase of $19,597 from the three months ended September 30, 2021 compared to the three months ended September 30, 2020 is primarily due to the new buildings placed in service during the fourth quarter of the fiscal year ended December 31, 2020.

For the three months ended September 30, 2021, depreciation and amortization expense for ECHG was $117,389, compared to an expense of $100,592 for the same period in 2020, an increase of $16,797, or 17%.

The increase of $16,797 from the three months ended September 30, 2021 compared to the three months ended September 30, 2020, is primarily due to depreciation of the Company’s office building in Irving, Texas, split between the two business segments with one-half of the depreciation allocated to ECHG.

The building was placed in service during the fourth quarter of the fiscal year ended December 31, 2020.

For the three months ended March 31, 2022, depreciation and amortization expense for DGSE was $106,963, compared to an expense of $96,822 for the same period in 2021, an increase of $10,141, or 10%.

The increase of $10,141 from the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, is primarily due to the new retail building purchased during 2021 but not placed into service until January 2022.

For the three months ended March 31, 2022, depreciation and amortization expense for ECHG was $184,984, compared to an expense of $108,090 for the same period in 2021, an increase of $76,894, or 71%.

The increase of $76,894 from the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, is primarily due to the added depreciable assets and intangibles from the purchase of assets from the CExchange and Avail Transactions during Fiscal 2021.

Interest Expense .

For the three months ended September 30, 2021, interest expense for DGSE was $79,563, an increase of $25,632 or 48%, compared to interest expense of $53,931 during the same period in 2020.

This increase was primarily the result of additional DGSE loans to finance recent real estate acquisitions, as discussed above.

For the three months ended September 30, 2021, interest expense for ECHG was $109,290, an increase of $7,422 or 7%, compared to interest expense of $101,868 during the same period in 2020.

This increase was primarily the result of the loan to finance the corporate office building in Irving, Texas where the interest expensed is split between the two business segments.

Gain on Forgiveness of Federal Loan.

For the three months ended September 30, 2021, other income, gain on forgiveness of Federal Loan for DGSE was $675,210, an increase of $675,210, compared to other income, gain on forgiveness of Federal Loan of $0 during the same period in 2020.

The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the total Federal Loan of $1,668,200, of which DGSE’s portion was $675,210 forgiven for the quarter ended September 30, 2021.

For the three months ended September 30, 2021, other income, gain on forgiveness of Federal Loan for ECHG was $992,990, an increase of $992,990, compared to other income, gain on forgiveness of Federal Loan of $0 during the same period in 2020.

The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the total Federal Loan of $1,668,200, of which ECHG’s portion was $992,990 forgiven for the quarter ended September 30, 2021.

Write-off of Note Receivables and Accrued Interest Receivable.

For the three months ended September 30, 2021, other expense, write-off of notes receivables for ECHG was $949,174, an increase of $949,174 compared to other expense, write-off of notes receivables and accrued interest receivable of $0 during the same period in 2020.

The increase was due to two notes receivables due from CExchange of $900,000 and associated accrued interest receivable of $49,174 written-off during the quarter ended September 30, 2021.

For the three months ended September 30, 2021, other expense for DGSE was $37,823, an increase of $39,031, compared to other income of $1,208 during the same period in 2020.

The increase in expense was primarily due to DGSE’s portion of expense of our corporate building operating expenses not being netted to the corporate building’s income in prior quarters and correcting during the quarter ending September 30, 2021.

For the three months ended September 30, 2021, other expense for ECHG was $22,961, an increase of $48,707, compared to other income of $25,746 during the same period in 2020.

The increase in expense was primarily due to ECHG’s portion of expense of our corporate building operating expenses not being netted to the corporate building’s income in prior quarters and correcting during the quarter ending September 30, 2021.

For the three months ended September 30, 2021, interest expense for ECHG was $109,290, an increase of $7,422 or 7%, compared to interest expense of $101,868 during the same period in 2020.

This increase was primarily the result of the loan to finance the corporate office building in Irving, Texas where the interest expensed is split between the two business segments.

For the three months ended March 31, 2022, interest expense for DGSE was $61,241, a decrease of $7,244 or 11%, compared to interest expense of $68,485 during the same period in 2021.

The decrease was primarily the netting effect of additional interest from a new loan to purchase a retail building netted against the reduction of interest expense from refinancing the related party loan by Farmers State Bank of Oakley Kansas, reducing the annual interest rate from 6% to 3.1%.

For the three months ended March 31, 2022, interest expense for ECHG was $61,998, a decrease of $48,539 or 44%, as compared to the interest expense of $110,537, during the same period in 2021.

The decrease was primarily due to refinancing the related party loan by Farmers State Bank of Oakley Kansas, reducing the annual interest rate from 6% to 3.1%.

For the three months ended March 31, 2022, net other expense for DGSE was $27,992, an increase of $139,723, compared to net other income of $111,731 during the same period in 2021.

The increase in net other expense as compared to net other income was primarily due to DGSE’s portion of operating expenses above rental income for the Company’s corporate building.

The corporate building’s rental income and expenses were equally shared between the two segments.

The Company’s corporate building’s largest tenant vacated the property during the fourth quarter of Fiscal 2021.

For the three months ended March 31, 2022, net other expense for ECHG was $30,584, an increase of $190,794, as compared to net other income of $160,210, during the same period in 2021.

The increase in net other expense as compared to net other income was primarily due to ECHG’s portion of operating expenses above rental income for the Company’s corporate building.

The corporate building’s rental income and expenses were equally shared between the two segments.

The Company’s corporate building’s largest tenant vacated the property during the fourth quarter of Fiscal 2021.

Income Tax Expense.

For the three months ended September 30, 2021, income tax expense was $26,455, an increase of $26,182, compared to income tax expense of $273 for the three months ended September 30, 2020.

The effective income tax rate was 1.0% and 0% for the three months ended September 30, 2021 and September 30, 2020, respectively.

For the three months ended March 31, 2022, income tax expense was $30,292, a decrease of $478, as compared to income tax expense of $30,770 for the three months ended March 31, 2021.

The effective income tax rate was 1.1% and 1.5% for the three months ended March 31, 2022 and 2021, 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.

We recorded a net income of $3,106,401 for the three months ended September 30, 2021, compared to a net income of $2,984,824 for the three months ended September 30, 2020, an increase in net income of $121,577, which is due primarily to increased gross profit and an increase in other income, offset with an increase in SG&A expenses.

Earnings Per Share.

For the three months ended September 30, 2021, our net income per basic and diluted shares attributable to holders of our Common Stock was $0.12, compared to $0.11 per basic and diluted shares attributable to holders of our Common Stock for the three months ended September 30, 2020.

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

Revenues related to DGSE’s operations increased by $4,559,417, or 7%, during the nine months ended September 30, 2021, to $67,409,204, as compared to revenue of $62,849,787 during the same period in 2020.

Resale revenue, such as bullion, jewelry, watches and rare coins, increased $2,556,231, to $61,621,574 for the nine months ended September 30, 2021, or 4%, compared to resale revenue of $59,065,343 during the nine months ended September 30, 2020.

Recycled revenue increased $2,003,186 to $5,787,630 for the nine months ended September 30, 2021, or approximately 53%, compared to recycled revenue of $3,784,444 during the nine months ended September 30, 2020.

Revenues increased for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, primarily due to the COVID-19 pandemic, which slowed down the increase in our velocity of sales for the nine months ended September 30, 2020.

Revenue related to ECHG’s continuing operations for the nine months ended September 30, 2021 increased by $7,150,165, or 32%, to $29,486,012, as compared to revenue of $22,335,847 during the same period in 2020.

Resale revenue increased by $6,030,040, or 39%, to $21,625,853, for the nine months ended September 30, 2021, as compared to resale revenue of $15,595,813 during the nine months ended September 30, 2020.

Recycled sales increased by $1,120,125, or 17%, to $7,860,159 for the nine months ended September 30, 2021, as compared to recycled sales of $6,740,034 for the nine months ended September 30, 2020.

Revenue increased for resale and recycled items for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, due to the COVID-19 pandemic slowing during the nine months ended September 30, 2021, as compared to the shutdowns stemming from the pandemic and dampening effect on ECHG’s customers during the nine months ended September 30, 2020.

Gross Profit.

Gross profit related to DGSE’s operations for the nine months ended September 30, 2021, increased by $1,552,222 or 21%, to $8,964,129 as compared to gross profit of $7,411,907 during the same period in 2020.

Resale gross profit increased by $1,149,098, or 17%, to $7,781,229 for the nine month ended September 30, 2021, as compared to resale gross profit of $6,632,131 during the nine months ended September 30, 2020.

Recycled gross profit increased by $403,124, or 52%, to $1,182,900 for the nine months ended September 30, 2021, as compared to recycled gross profit of $779,776 during the nine months ended September 30, 2020.

The increase in resale and recycled gross profit was due primarily to the increased sales in each category plus the increased overall gross-margin percent for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020.

Gross profit related to ECHG for the nine months ended September 30, 2021, increased by $3,054,113, or 32%, to $12,578,141 as compared to gross profit of $9,524,028 during the same period in 2020.

Gross profit for resale revenue for the nine months ended September 30, 2021 increased by $3,263,849, or 56% to $9,082,521, as compared to gross profit for resale revenue of $5,818,672 during the same period in 2020.

Gross profit for recycled sales for the nine months ended September 30, 2021, decreased $209,736, or 6% to $3,495,620, as compared to gross profit for recycle sales of $3,705,356, during the same period in 2020.

The gross profit increase for resale revenue for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020 is primarily due to the increased sales and increase in gross margin percentage.

The gross profit decrease for recycled revenue for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020 is primarily due to the reduced gross profit margin from 55% for the nine months ended September 30, 2020 to 44.5% for the nine months ended September 30, 2021.

Selling, General and Administrative Expenses.

For the nine months ended September 30, 2021, DGSE’s SG&A expenses increased by $322,798, or 6%, to $5,444,366, as compared to SG&A expenses of $5,121,568 during the same period in 2020.

The increase in SG&A expenses was primarily due to the addition of two new retail locations for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020.

For the nine months ended September 30, 2021, SG&A expenses for ECHG increased by $2,580,586 or 42%, to $8,770,561, as compared to SG&A expenses of $6,189,975 during the same period in 2020.

The increase in SG&A expenses was primarily due to the loss of rent received from sublet tenant of $285,000 that was netted against rent during the nine months ended September 30, 2020 and increasing the infrastructure of ECHG to support the drive to increase revenue.

Depreciation and Amortization .

For the nine months ended September 30, 2021, DGSE’s depreciation and amortization expense was $293,044, compared to an expense of $235,471 for the same period in 2020.

The increase is primarily due to adding new buildings placed in service during the fourth quarter of the fiscal year ended December 31, 2020.

For the nine months ended September 30, 2021, depreciation and amortization expense for ECHG was $344,263, compared to an expense of $303,746 for the same period in 2020, an increase of $40,517, or 13%.

The increase of $40,517 from the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, is primarily due to adding the depreciation of the Company’s office building in Irving, Texas, split between the two business segments with one-half of the depreciation allocated to ECHG.

The building was placed in service during the fourth quarter of the fiscal year ended December 31, 2020.

Interest Expense .

For the nine months ended September 30, 2021, the interest expense for DGSE was $216,740, an increase of $73,916, or 52%, compared to interest expense of $142,824 during the same period in 2020.

This increase was primarily the result of additional DGSE loans to finance recent real estate acquisitions, as discussed above.

For the nine months ended September 30, 2021, interest expense for ECHG was $328,839, an increase of $26,252 or 9%, compared to interest expense of $302,587 during the same period in 2020.

This increase was primarily the result of the additional loan to finance the office building acquisition in Irving, Texas where the interest expensed is split between the two business segments.

Gain on Forgiveness of Federal Loan.

For the nine months ended September 30, 2021, other income, gain on forgiveness of Federal Loan for DGSE was $675,210, an increase of $675,210, compared to other income, gain on forgiveness of Federal Loan of $0 during the same period in 2020.

The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the total Federal Loan of $1,668,200, of which DGSE’s portion was $675,210, forgiven during the quarter ended September 30, 2021.

For the nine months ended September 30, 2021, other income, gain on forgiveness of Federal Loan for ECHG was $992,990, an increase of $992,990, compared to other income, gain on forgiveness of Federal Loan of $0 during the same period in 2020.

The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the total Federal Loan of $1,668,200, of which ECHG’s portion was $992,990, forgiven during the quarter ended September 30, 2021.

Write-off of Note Receivables and Accrued Interest Receivable.

For the nine months ended September 30, 2021, other expense, write-off of notes receivables for ECHG was $949,174, an increase of $949,174 compared to other expense, write-off of notes receivables and accrued interest receivable of $0 during the same period in 2020.

The increase was due to two notes receivables due from CExchange of $900,000 and associated accrued interest receivable of $49,174 written-off during the quarter ended September 30, 2021.

For the nine months ended September 30, 2021, other income for DGSE was $193,368, an increase of $155,714, compared to other income of $37,654 during the same period in 2020.

The increase in income was primarily due to DGSE’s portion of income over expenses for our corporate building during the nine months ended September 30, 2021.

For the nine months ended September 30, 2021, other income for ECHG was $300,844, an increase of $217,988, compared to other income of $82,856 during the same period in 2020.

The increase in income was primarily due to DGSE’s portion of income over expenses for our corporate building during the nine months ended September 30, 2021.

Income Tax Expense.

For the nine months ended September 30, 2021, income tax expense was $89,910, an increase of $54,783, or 156%, compared to income tax expense of $35,127 for the nine months ended September 30, 2020.

The effective income tax rate was 1.0% and 1.0% for the nine months ended September 30, 2021 and 2020, respectively.

Differences between our effective income tax rate and the U.S federal statutory rate are the result of state taxes, non-deductible expenses, changes in reserves for uncertain tax positions and unused net operating loss carryforwards.

We recorded a net income of $7,267,785 for the nine months ended September 30, 2021, compared to a net income of $4,275,147 for the nine months ended September 30, 2020, an increase in net income of $2,992,638, which is due primarily from an increase in sales of approximately 14% for the nine months ended September 30, 2021, as compared to sales from the nine months ended September 30, 2020.

We recorded a net income of $2,647,225 for the three months ended March 31, 2022, as compared to a net income of $2,008,272 for the three months ended March 31, 2021, an increase in net income of $638,953.

The increase is due primarily to increased revenue and gross profit for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021.

Earnings Per Share.

For the nine months ended September 30, 2021, the net income per basic and diluted shares attributable to common stockholders was $0.27, compared to $0.18 per basic and diluted shares for the nine months ended September 30, 2020.

For the three months ended March 31, 2022, our net income per basic and diluted shares attributable to holders of our Common Stock was $0.10, compared to $0.07 per basic and diluted shares attributable to holders of our Common Stock for the three months ended March 31, 2021.

Liquidity and Capital Resources

During the nine months ended September 30, 2021, cash flows provided by operations totaled $1,026,457, and during the nine months ended September 30, 2020, cash flows provided by operations totaled $3,234,699, a decrease of $2,208,242.

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 notes receivable and forgiveness of Federal Loan of $7,214,598, an increase in customer deposits and other liabilities of $511,610 and an increase in accounts payable and accrued expenses of $100,952, offset by an 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.

Cash provided by operations for the nine months ended September 30, 2020 was driven largely by the increase in accounts payable and accrued expenses of $1,006,345 and net income added to non-cash item of depreciation and amortization of $5,264,364, offset by the increase of trade receivables of $1,661,332, an increase in inventories of $1,108,062, an increase in prepaid expenses of $155,518 and the increase in other assets of $94,830.

During the nine months ended September 30, 2021 and 2020, cash flows used in investing activities totaled $3,351,141 and $3,382,591, respectively, a period-over-period decrease of $31,450.

The use of cash in investing activities during the nine months ended September 30, 2021 was due to the increase in notes receivable of $300,000, the purchase of additional property and equipment of $3,064,277, offset by the acquisition of CExchange’s assets and liabilities, net of cash acquired for $13,136.

The use of cash in investing activities during the nine months ended September 30, 2020 was due to investing in notes receivable of $1,500,000 to CExchange and the purchase of additional property and equipment of $1,882,591.

During the nine months ended September 30, 2021, cash flows provided by financing totaled $1,429,828 and during the nine months ended September 30, 2020, cash flows provided by financing totaled $2,906,490, a period-over-period decrease of $1,476,662.

The cash provided by financing during the nine months ended September 30, 2021 were proceeds from notes to purchase property of $1,772,000, offset by payments made against the notes payable of $123,352 and notes payable, related party of $218,820.

The cash provided by financing during the nine months ended September 30, 2020 were proceeds from the Federal Loan received of $1,668,200 and proceeds from notes to purchase property of $1,452,000, offset by payments to notes payable of $5,289 and notes payable, related party of $208,421.

We expect our capital expenditures to total approximately $1,000,000 during the next twelve months.

During the three months ended March 31, 2022, cash flows provided by operations totaled $3,358,769, and during the three months ended March 31, 2021, cash flows used in operations totaled $384,912, an increase of $3,743,681.

Cash provided by operations for the three months ended March 31, 2022 was driven largely by net income added to non-cash items of depreciation and amortization totaling $2,939,173, a decrease in trade receivables of $1,809,396, an increase in accounts payable and accrued expenses of $81,088, an increase in customer deposits and other liabilities of $64,969, offset by an increase in inventories of $573,139, an increase in prepaid expenses of $173,436 and an increase in other assets of $794,731.

Cash used in operations for the three months ended March 31, 2021 was driven largely by net income added to non-cash items of depreciation and amortization and bad debt totaling $2,219,433, an increase in customer deposits and other liabilities of $260,615, offset by the increase of trade receivables of $344,103, an increase in inventories of $1,623,485, an increase in prepaid expenses of $576,578, an increase in other assets of $100,000 and a decrease in accounts payable and accrued expenses of $240,410.

During the three months ended March 31, 2022 and 2021, cash used in investing activities totaled $93,384 and $324,035, respectively, a period-over-period decrease of $230,651.

The use of cash in investing activities during the three months ended March 31, 2022 was primarily due to the purchase of additional property and equipment of $93,384.

The use of cash in investing activities during the three months ended March 31, 2021 was primarily due to investing in notes receivable of $123,472 to CExchange and the purchase of additional property and equipment of $200,563.

During the three months ended March 31, 2022 and 2021, cash used in financing totaled $1,906,274 and $112,092, respectively, a period over period increase of $1,794,182.

The cash used in financing during the three months ended March 31, 2022 were payments made against the notes payable of $206,274 and payments made against the line of credit of $1,700,000.

The cash used in financing during the three months ended March 31, 2021 were payments made against the notes payable of $40,239 and notes payable, related party of $71,853.

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 the purchase of potential properties by DGSE for retail locations and the build-out of those purchased properties.

The Company has no capital expenditure commitments as of September 30, 2021.

Our primary source of liquidity and capital resources currently consist of cash generated from our operating results and current borrowings, including the Related Party Loans, the Truist Lewisville Loan, the TB&T Grapevine Loan, the TB&T Irving Loan and the TB&T Frisco Loan.

The Company has no capital expenditure commitments as of March 31, 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 and the two Farmers State Bank of Oakley Kansas loans.

For more information, see Note 14 to our interim condensed financial statements, which is incorporated into this item by reference.

In addition, on May 17, 2019, the Company secured a twelve month line of credit from Texas Bank and Trust for up to $1,000,000 (the “TB&T Facility”).

The TB&T Facility was renewed for an additional 24 months, for a maturity date of May 16, 2022, and the limit of the TB&T Facility was increased to $3,500,000 on May 17, 2020.

We maintain the TB&T 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 TB&T Facility as of September 30, 2021.

In addition, on November 23, 2021, the Company secured a thirty six month line of credit from Farmers State Bank of Oakley Kansas for up to $3,500,000.

The FSB Facility has an annual interest rate of 3.1%.

We maintain the FSB Facility to help fund cash shortfalls that we may have from time to time.

We do not currently anticipate the need of those funds for operations and do not currently have any amounts drawn against the FSB Facility as of Mach 31, 2022.

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.

5 unchanged sentences

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 has adversely affected global economic business conditions.

The COVID-19 pandemic and the war between Ukraine and Russia has adversely affected global economic business conditions.

Future sales of products like ours have and may continue to decline or fluctuate due to increased or fluctuating commodities prices, particularly gold.

Although we are continuing to monitor and assess the effects of the COVID-19 pandemic, the ultimate impact, including the impact on our liquidity and capital resources, is highly uncertain and subject to change.

Although we are continuing to monitor and assess the effects of the COVID-19 pandemic and the war between Ukraine and Russia, the ultimate impact, including the impact on our liquidity and capital resources, is highly uncertain and subject to change.

The duration of any such impact cannot be predicted, and the Company believes additional liquidity may be necessary to support ongoing operations during this period of uncertainty.

1 unchanged sentence

The Company leases certain of its facilities under operating leases.

For more information on the minimum rental commitments under non-cancellable operating leases as of September 30, 2021, see Note 13 to our interim condensed consolidated financial statements.

For more information on the minimum rental commitments under non-cancellable operating leases as of March 31, 2022, see Note 12 to our interim condensed consolidated financial statements.

Off-Balance Sheet Arrangements

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis