What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-03 compared with 2022-05-11 · 128 added, 74 removed, 101 unchanged (67% of the section changed)

2 unchanged sentences

Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 (this “Form 10-Q”), including but not limited to:

This Quarterly Report on Form 10-Q for the quarter ended June 30, 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;

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Envela Overview

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

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

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

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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 surged during the beginnings of the COVID-19 pandemic.

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.

Gold then began to rebound throughout the remainder of 2021 closing at $1,820 an ounce 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.

Gold rose 7% during the first three months of 2022, ending at $1,942 an ounce, only to give back the 7% gain from the first fiscal quarter of 2022 to recede to $1,814 an ounce at June 30, 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.

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

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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 new openings in the United States.

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 potential purchase of additional properties by DGSE.

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

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.

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 into fiscal 2022.

The COVID-19 pandemic, recent economic trends, civil unrest and the war in Ukraine have affected the recommerce business in unpredictable ways.

There have been fewer customers raising money by selling items.

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 17 to our interim condensed consolidated financial statements.

The full extent and duration of the COVID-19 pandemic’s 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.

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 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 following disaggregation of total revenue is listed by sales category and segment for the three months ended June 30, 2022 and 2021:

Three Months Ended June 30,

The following disaggregation of total revenue is listed by sales category and segment for the six months ended June 30, 2022 and 2021:

Six Months Ended June 30,

Three Months Ended June 30, 2022 as compared to the Three Months Ended June 30, 2021

Revenue related to DGSE’s continuing operations increased by $7,326,803, or 32%, during the three months ended June 30, 2022, to $30,339,127, as compared to revenue of $23,012,324 during the same period in 2021.

Resale revenue, such as bullion, jewelry, watches and rare coins, increased by $7,271,188, or 35%, during the three months ended June 30, 2022, to $28,165,026 as compared to resale revenue of $20,893,838 during the same period in 2021.

Recycled-material sales increased 3% to $2,174,101 for the three months ended June 30, 2022, as compared to recycled-material sales of $2,118,486, for the three months ended June 30, 2021.

The increased resale revenue for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, was primarily due to the addition of the new Frisco, Texas retail location in January of 2022 and the maturation of the Lewisville and Grapevine locations which were added during the latter half of fiscal 2020.

Revenue increased slightly for recycled items for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, which was primarily due to the addition of the new Frisco, Texas retail location in January of 2022.

Revenue related to ECHG’s continuing operations for the three months ended June 30, 2022 increased by $1,588,909, or 15%, to $12,300,591, as compared to revenue of $10,711,682 during the same period in 2021.

Resale revenue increased by $506,091, or 6%, to $9,102,001, for the three months ended June 30, 2022, as compared to revenue of $8,595,910 during the three months ended June 30, 2021.

Recycled sales increased by $1,082,818 or 51%, to $3,198,590 for the three months ended June 30, 2022, as compared to recycled sales of $2,115,772 for the three months ended June 30, 2021.

Revenue increased for resale and recycled items for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, mainly due to the COVID-19 pandemic slowing wholesale operations during the three months ended June 30, 2021.

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.

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 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.

Gross profit related to DGSE’s operations for the three months ended June 30, 2022, increased by $1,091,588 or 35%, to $4,188,584 as compared to gross profit of $3,096,996 during the same period in 2021.

Resale gross profit increased by $1,041,314, or 39%, to $3,719,954 for the three month ended June 30, 2022, as compared to resale gross profit of $2,678,640 during the three months ended June 30, 2021.

Recycled gross profit increased by $50,274, or 12%, to $468,630 for the three months ended June 30, 2022, as compared to recycled gross profit of $418,356 during the three months ended June 30, 2021.

The increase in resale and recycled gross profit for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021 was primarily due to increased sales.

Gross profit related to ECHG for the three months ended June 30, 2022 increased by $3,258,522, or 81%, to $7,289,416 as compared to gross profit of $4,030,894 during the same period in 2021.

Gross profit for resale revenue for the three months ended June 30, 2022 increased by $2,546,822, or 84%, to $5,566,507, as compared to gross profit for resale revenue $3,019,685 during the same period in 2021.

Gross profit for recycled sales for the three months ended June 30, 2022 increased $711,700, or 70%, to $1,722,909, as compared to gross profit for recycled sales of $1,011,209, during the same period in 2021.

The gross profit increase for the resale and recycled items for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021 was primarily due to increased sales.

Selling, General and Administrative Expenses.

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

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

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

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

For the three months ended June 30, 2022, SG&A expenses for DGSE increased by $304,599, or 16%, to $2,194,495, as compared to SG&A expenses of $1,889,894 during the same period in 2021.

The increase in SG&A expenses was primarily due to increased expenses from the new retail location in Frisco, Texas placed into service during January 2022, and an increase in advertising during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

For the three months ended June 30, 2022, SG&A expenses for ECHG increased by $1,948,079 or 66%, to $4,889,409, as compared to SG&A expenses of $2,941,330 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 three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Depreciation and Amortization .

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.

For the three months ended June 30, 2022, depreciation and amortization expense for DGSE was $101,434, as compared to an expense of $97,435 for the same period in 2021, an increase of $3,999, or 4%.

The increase of $3,999 from the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 is primarily due to the depreciation of the new retail building located in Frisco, Texas.

For the three months ended June 30, 2022, depreciation and amortization expense for ECHG was $178,082 as compared to an expense of $118,784 for the same period in 2021, an increase of $59,298, or 50%.

The increase of $59,298 from the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, is primarily due to additional amortization expense of intangible assets and depreciation of equipment from the CExchange transaction.

Interest Expense .

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

For the three months ended June 30, 2022, interest expense for DGSE was $61,663, a decrease of $7,029 or 10%, as compared to interest expense of $68,692 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.

For the three months ended June 30, 2022, interest expense for ECHG was $59,379, a decrease of $49,633 or 46%, as compared to interest expense of $109,012 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.

Other Income/Expense.

For the three months ended June 30, 2022, other expense for DGSE was $49,018, an increase of $168,478, as compared to other income of $119,460 during the same period in 2021.

The increase in expense was primarily due to DGSE’s portion of the Company’s corporate building’s operating expenses for the three months ended June 30, 2022.

Other income for the three months ended June 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 building’s operating expenses and rental income are netted into other income/expense.

For the three months ended June 30, 2022, other expense for ECHG was $46,411, an increase of $210,006, as compared to other income of $163,595 during the same period in 2021.

The increase in expense was primarily due to ECHG’s portion of the Company’s corporate building’s operating expenses for the three months ended June 30, 2022.

Other income for the three months ended June 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 building’s operating expenses and rental income are netted into other income/expense.

Income Tax Expense.

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.

For the three months ended June 30, 2022, income tax expense was $50,252, an increase of $17,567, compared to income tax expense of $32,685 for the three months ended June 30, 2021.

The effective income tax rate was 1.3% and 1.5% for the three months ended June 30, 2022 and June 30, 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 $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.

federal statutory rate are mainly 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 $3,847,858 for the three months ended June 30, 2022, compared to a net income of $2,153,112 for the three months ended June 30, 2021, an increase in net income of $1,694,746, which is due primarily to an increase in gross profit of $4,350,110 offset by an increase in SG&A of $2,252,678.

Earnings Per Share.

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.

For the three months ended June 30, 2022, our net income per basic and diluted shares attributable to holders of our Common Stock was $0.14, as compared to $0.08 per basic and diluted shares attributable to holders of our Common Stock for the three months ended June 30, 2021.

Six Months Ended June 30, 2022 as compared to the Six Months Ended June 30, 2021

Revenues related to DGSE’s operations increased by $24,195,174, or 58%, during the six months ended June 30, 2022, to $66,121,999, as compared to revenue of $41,926,825 during the same period in 2021.

Resale revenue, such as bullion, jewelry, watches and rare coins, increased by $23,627,680, to $61,842,159 for the six months ended June 30, 2022, or 62%, compared to resale revenue of $38,214,479 during the six months ended June 30, 2021.

Recycled revenue increased by $567,494 to $4,279,840 for the six months ended June 30, 2022, or 15%, compared to recycled revenue of $3,712,346 during the six months ended June 30, 2021.

The increased resale and recycle revenue for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was primarily due to the addition of the new retail location in Frisco, Texas in January of 2022 and the maturation of the Lewisville and Grapevine retail locations which were added during the latter half of fiscal 2020.

Revenue related to ECHG’s continuing operations for the six months ended June 30, 2022 increased by $6,645,195, or 38%, to $23,932,817, as compared to revenue of $17,287,622 during the same period in 2021.

Resale revenue increased by $5,344,956, or 40%, to $18,681,858, for the six months ended June 30, 2022, as compared to resale revenue of $13,336,902 during the six months ended June 30, 2021.

Recycled revenue increased by $1,300,239, or 33%, to $5,250,959 for the six months ended June 30, 2022, as compared to recycled revenue of $3,950,720 for the six months ended June 30, 2021.

Revenue increased for resale and recycled items for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, primarily due to the COVID-19 pandemic slowing wholesale operations during the six months ended June 30, 2021.

Gross Profit.

Gross profit related to DGSE’s operations for the six months ended June 30, 2022, increased by $2,507,415 or 42%, to $8,412,046 as compared to gross profit of $5,904,631 during the same period in 2021.

Resale gross profit increased by $2,327,022, or 45%, to $7,462,806 for the six month ended June 30, 2022, as compared to resale gross profit of $5,135,784 during the six months ended June 30, 2021.

Recycled gross profit increased by $180,393, or 23%, to $949,240 for the six months ended June 30, 2022, as compared to recycled gross profit of $768,847 during the six months ended June 30, 2021.

The increase in resale and recycled gross profit was due primarily to increased sales.

Gross profit related to ECHG for the six months ended June 30, 2022, increased by $5,249,465, or 70%, to $12,776,988 as compared to gross profit of $7,527,523 during the same period in 2021.

Gross profit for resale revenue for the six months ended June 30, 2022 increased by $4,508,906, or 80% to $10,140,775, as compared to gross profit for resale revenue of $5,631,869 during the same period in 2021.

Gross profit for recycled sales for the six months ended June 30, 2022, increased $740,559, or 39% to $2,636,213, as compared to gross profit for recycle sales of $1,895,654, during the same period in 2021.

The gross profit increase for resale and recycle revenue for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021 is primarily due to increased sales and an increase in gross margin percentages.

Selling, General and Administrative Expenses.

For the six months ended June 30, 2022, DGSE’s SG&A expenses increased by $660,111, or 18%, to $4,332,443, as compared to SG&A expenses of $3,672,332 during the same period in 2021.

The increase in SG&A expenses was primarily due to increased expenses from the new retail location in Frisco, Texas placed into service during January 2022, and an increase in advertising during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

For the six months ended June 30, 2022, SG&A expenses for ECHG increased by $3,999,093 or 75%, to $9,311,215, as compared to SG&A expenses of $5,312,122 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 six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Depreciation and Amortization .

For the six months ended June 30, 2022, DGSE’s depreciation and amortization expense was $208,397, compared to an expense of $194,257 for the same period in 2021.

The increase is primarily due to the depreciation of the new retail building in Frisco, Texas in January of 2022.

For the six months ended June 30, 2022, depreciation and amortization expense for ECHG was $363,066, as compared to an expense of $226,874 for the same period in 2021, an increase of $136,192, or 60%.

The increase of $136,192 from the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, is primarily due to additional amortization expense of intangible assets and depreciation of equipment from the CExchange transaction.

Interest Expense .

For the six months ended June 30, 2022, the interest expense for DGSE was $122,904, a decrease of $14,273, or 10%, compared to interest expense of $137,177 during the same period in 2021.

For the six months ended June 30, 2022, interest expense for ECHG was $121,377, a decrease of $98,172 or 45%, compared to interest expense of $219,549 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.

Other Income/Expense.

For the six months ended June 30, 2022, other expense for DGSE was $77,009, an increase of $308,200, compared to other income of $231,191 during the same period in 2021.

The increase in expense was primarily due to DGSE’s portion of the Company’s corporate building’s operating expenses for the six months ended June 30, 2022.

Other income for the three months ended June 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 building’s operating expenses and rental income are netted into other income/expense.

For the six months ended June 30, 2022, other expense for ECHG was $76,996, an increase of $400,801, compared to other income of $323,805 during the same period in 2021.

The increase in expense was primarily due to ECHG’s portion of the Company’s corporate building’s operating expenses for the three months ended June 30, 2022.

Other income for the three months ended June 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 building’s operating expenses and rental income are netted into other income/expense.

Income Tax Expense.

For the six months ended June 30, 2022, income tax expense was $80,544, an increase of $17,089, or 27%, as compared to income tax expense of $63,455 for the six months ended June 30, 2021.

The effective income tax rate was 1.2% and 1.5% for the six months ended June 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, changes in reserves for uncertain tax positions and unused net operating loss carryforwards.

We recorded a net income of $6,495,083 for the six months ended June 30, 2022, as compared to a net income of $4,161,384 for the six months ended June 30, 2021, an increase in net income of $2,333,699, which is due primarily to an increase in gross profit of $7,756,880 offset by an increase in SG&A of $4,659,204.

Earnings Per Share.

For the six months ended June 30, 2022, the net income per basic and diluted shares attributable to common stockholders is $0.24, as compared to $0.15 per basic and diluted shares for the six months ended June 30, 2021.

Liquidity and Capital Resources

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.

During the six months ended June 30, 2022, cash flows provided by operations totaled $6,362,641, and during the six months ended June 30, 2021, cash flows provided by operations totaled $263,632, an increase of $6,099,009.

Cash provided by operations for the six months ended June 30, 2022 was driven largely by net income added to non-cash items of depreciation, amortization and bad debt of $7,091,546, a decrease in trade receivables of $1,452,651, an increase in customer deposits and other liabilities of $1,019,363, a decrease in other assets of $754,759 and an increase in accounts payable and accrued expenses of $767,122, offset by an increase in inventories of $3,755,662 and the increase in prepaid expenses of $981,616.

Cash provided by operations for the six months ended June 30, 2021 was driven largely by net income added to non-cash items of depreciation, amortization and bad debt of $4,588,764, an increase in accounts payable and accrued expenses of $1,574,520 and an increase in customer deposits and other liabilities of $341,260, offset by the increase in trade receivables of $3,365,999, an increase in inventories of $2,579,991, an increase in prepaid expenses of $169,373 and the increase in other assets of $146,042.

During the six months ended June 30, 2022 and 2021, cash flows used in investing activities totaled $420,917 and $1,126,416, respectively, a period-over-period decrease of $705,499.

The use of cash in investing activities during the six months ended June 30, 2022 was primarily due to the purchase of additional property and equipment of $203,929 and the addition to the acquisition of Avail assets and liabilities of $216,988.

The use of cash in investing activities during the six months ended June 30, 2021 was primarily due to the increase in notes receivable of $654,958 and the purchase of additional property and equipment of $484,494, offset by acquisition of CExchange’s assets and liabilities, net of cash acquired of $13,136.

During the six months ended June 30, 2022 and 2021, cash flows used in financing totaled $2,144,396 and $224,140, respectively, a period-over-period increase of $1,920,256.

Cash used in financing during the six months ended June 30, 2022 was primarily due from payments made against notes payable of $444,396 and payments made against the line of credit of $1,700,000.

Cash used in financing during the six months ended June 30, 2021 was primarily due from payments made against notes payable of $79,353 and payments made against notes payable, related party of $144,787.

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 March 31, 2022.

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 June 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 and the two Farmers State Bank of Oakley, Kansas loans.

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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.

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 June 30, 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.

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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.

If additional working capital is required, we will seek additional loans from other commercial banks.

We have historically renewed, extended or replaced short-term debt as it matures, and management believes that we will be able to continue to do so in the near future.

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

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

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 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.

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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 March 31, 2022, see Note 12 to our interim condensed consolidated financial statements.

For more information on the minimum rental commitments under non-cancellable operating leases as of June 30, 2022, see Note 12 to our interim condensed consolidated financial statements.

Off-Balance Sheet Arrangements

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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