What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-02 compared with 2023-05-03 · 192 added, 85 removed, 180 unchanged (61% of the section changed)

2 unchanged sentences

Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (this “Form 10-Q”), including but not limited to:

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

25 unchanged sentences

Consumer Segment Recommerce Activities

We operate a sustainable marketplace for preowned luxury goods.

The Company operates a sustainable marketplace for preowned luxury goods.

We buy and sell coins, diamonds, jewelry, and related accessories and other merchandise.

17 unchanged sentences

Our continued strategy will be to expand the number of locations we operate through opening new (“de novo”) locations in both current markets within DFW and South Carolina.

The Company expects to soon expand into Arizona, see Note 16 – Subsequent Events, to these interim condensed consolidated financial statements.

On May 4, 2023, the Company closed on a building, in Phoenix, Arizona, for $1,231,150 and will begin to prepare the building to house our next retail location.

We continue to search for other locations to expand.

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.

26 unchanged sentences

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.

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 U.S.

GAAP principles.

7 unchanged sentences

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.

The consumer Segment 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.

8 unchanged sentences

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.

For the three and six months ended June 30, 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.

15 unchanged sentences

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.

The following table provides a reconciliation of net income to EBITDA:

For the three months Ended March 31,

The following table provide a reconciliation of net income to EBITDA for the three months ending June 30, 2023 and 2022:

For the three months ended June 30,

EBITDA Reconciliation:

1 unchanged sentence

Depreciation and amortization

Other (income) expense

Interest expense

Income tax expense

The following table provide a reconciliation of net income to EBITDA for the six months ending June 30, 2023 and 2022:

For the six months Ended June 30,

EBITDA Reconciliation:

Add (deduct):

Depreciation and amortization

Interest expense

Income tax expense

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:

Three Months Ended March 31,

Comparison of three months ended March 31, 2023 and 2022

The following disaggregation of total revenue is listed by sales category and segment for the three months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Comparison of three months ended June 30, 2023 and 2022

Resale Revenue

Three Months Ended March 31,

Three Months Ended June 30,

Resale Revenue

$ (1,535,765 )

Resale revenue related to the consumer segment increased by $42,827, or 0.13% during the three months ended March 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 rare coins, increased slightly during the period.

Resale revenue related to the commercial segment decreased by $1,021,767, or 11%, during the three months ended March 31, 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.

Resale revenue related to the consumer segment increased by $8,480,615, or 30%, during the three months ended June 30, 2023, to $36,645,641, as compared to $28,165,026 during the same period in 2022.

Resale revenue, such as bullion, jewelry, watches, and rare coins, increased due to heavy on-line advertising.

Resale revenue related to the commercial segment decreased by $1,535,765, or 17%, during the three months ended June 30, 2023, to $7,566,236, as compared to $9,102,001 during the same period in 2022.

Resale revenue decreased primarily due to a lower than expected volume of inventory purchased for resale during the three months ending June 30, 2023.

Recycled Revenue

Three Months Ended March 31,

Three Months Ended June 30,

Recycled Revenue

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.

Recycled revenue related to the consumer segment increased by $821,692, or 38%, during the three months ended June 30, 2023, to $2,995,793, as compared to $2,174,101 during the same period in 2022.

Recycled revenue increased primarily during the period ending June 30, 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 decreased by $102,733, or 3%, during the three months ended June 30, 2023, to $3,095,857, as compared to $3,198,590 during the same period in 2022.

Recycled revenue slightly decreased primarily due to a decrease of electronic material purchased to be recycled from material not suitable to resale to commercial customers during the three months ending June 30, 2023.

Gross Profit - Resale

Three Months Ended March 31,

Three Months Ended June 30,

Gross Profit - Resale

Resale gross profit related to the consumer operations for the three months ended March 31, 2023, decreased by $437,920, or 12%, to $3,304,932, as compared to resale gross profit of $3,752,852 during the same period in 2022.

The decrease in resale gross profit was due primarily to the need to purchase retail inventory following the 2022 Christmas season;

therefore, in connection with inflationary pressures and rising prices of metals, there was an increase in purchase prices for the three months ended March 31, 2023.

Resale gross profit related to the commercial operations for the three months ended March 31, 2023, increased by $1,224,858, or 27%, to $5,799,126, as compared to resale gross profit of $4,574,268 during the same period in 2022.

The increase in resale gross profit was primarily due to increased sales prices on material sold.

Resale gross profit related to the consumer operations for the three months ended June 30, 2023, decreased by $366,119, or 10%, to $3,353,835, as compared to resale gross profit of $3,719,954 during the same period in 2022.

The decrease in resale gross profit was due primarily to increased competition in the jewelry sector.

Resale gross profit related to the commercial operations for the three months ended June 30, 2023, decreased by $515,170, or 9%, to $5,051,337, as compared to resale gross profit of $5,566,507 during the same period in 2022.

The decrease in resale gross profit was primarily due to the decrease in sales volume in the three months ended June 30, 2023 as compared to the same period in 2022.

Gross Profit - Recycled

Three Months Ended March 31,

Three Months Ended June 30,

Gross Profit - Recycled

Recycled gross profit related to the consumer operations for the three months ended March 31, 2023, increased by $199,426, or 41%, to $680,036, as compared to gross profit of $480,610 during the same period in 2022.

The increase in recycled gross profit was due primarily to 42% increase in recycled sales during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

Recycled gross profit related to the commercial operations for the three months ended March 31, 2023, increased by $712,504, or 78%, to $1,625,808, as compared to gross profit of $913,304 during the same period in 2022.

The increase in recycled gross profit was due primarily to 52% increase in recycled sales during the three months ended March 31, 2023 and an increase in margin percentage to 52% for the three months ended March 31, 2023, as compared to 44%, for the three months ended March 31, 2022.

For The Three Months Ended March 31,

Recycled gross profit related to the consumer operations for the three months ended June 30, 2023, increased by $272,177, or 58%, to $740,807, as compared to gross profit of $468,630 during the same period in 2022.

The increase in recycled gross profit was primarily due to the increase of approximately 38% in recycled sales during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Recycled gross profit related to the commercial operations for the three months ended June 30, 2023, decreased by $106,841, or 6%, to $1,616,068, as compared to gross profit of $1,722,909 during the same period in 2022.

The decrease in recycled gross profit was due primarily to a 3% decrease in recycled sales during the three months ended June 30, 2023, as compared to the same period in 2022.

For The Three Months Ended June 30,

Cost of goods sold

3 unchanged sentences

Other income/expense:

Other income (expense)

Interest expense

2 unchanged sentences

Selling, General and Administrative

Three Months Ended March 31,

Three Months Ended June 30,

Selling, General and Administrative

Selling, General and Administrative Expenses, for the consumer segment, f or the three months ended March 31, 2023, increased by $258,077, or 12%, to $2,396,026, as compared to $2,137,949 during the same period in 2022.

The increase was primarily due to increased expenses related to expanding our footprint into Arizona.

During the three months ended March 31, 2022, 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, f or the three months ended March 31, 2023, increased by $1,087,472, or 25%, to $5,509,278, as compared to $4,421,806 during the same period in 2022.

The increase was primarily due to increased expenses related to expanding the commercial business by increasing the infrastructure.

During the three months ended March 31, 2022, the corporate building overhead expenses were classified as other expenses.

Starting January 1, 2023, those expenses have been classified as operating expenses within selling, general and administrative expenses.

Selling, General and Administrative Expenses, for the consumer segment , for the three months ended June 30, 2023, increased by $220,064, or 10%, to $2,472,973, as compared to $2,252,009 during the same period in 2022.

The increase was primarily due to increased expenses related to expanding our footprint into Arizona and other markets.

Additionally, starting January 1, 2023, expenses previously classified as other expenses related to corporate campus overhead have been classified as operating expenses within the selling, general, and administrative expenses category.

The corporate campus overhead for 2022 initially recorded as other expense has been restated here to be included in selling, general, and administrative expenses for comparison purposes.

During the three-month period ending on June 30, 2023, there was a significant increase in selling, general, and administrative expenses amounting to $941,757 compared to the same period in 2022.

This increase can primarily be attributed to factors such as an increase in staff, higher salaries and related costs, as well as the Company's ongoing expansion in the consumer segment, which includes increased spending on marketing and professional services.

The corporate campus overhead for 2022 initially recorded as other expense has been restated here to be included in selling, general, and administrative expenses for comparison purposes.

Depreciation and Amortization

Three Months Ended March 31,

Three Months Ended June 30,

Depreciation and Amortization

Depreciation and amortization, for the consumer segment, f or the three months ended March 31, 2023, decreased by $8,829, or 8%, to $98,134, as compared to $106,963 during the same period in 2022.

Depreciation and amortization, for the consumer segment, for the three months ended June 30, 2023, decreased by $22,026, or 22%, to $79,408, as compared to $101,434 during the same period in 2022.

The decrease was primarily due to some of the fixed assets being fully depreciated.

Depreciation and amortization, for the commercial segment, f or the three months ended March 31, 2023, increased by $71,233, or 39%, to $256,217, as compared to $184,984 during the same period in 2022.

Depreciation and amortization, for the commercial segment, for the three months ended June 30, 2023, increased by $78,684, or 44%, to $256,766, as compared to $178,082 during the same period in 2022.

The increase was primarily due to the amortization of increased intangible assets added from the Avail Transaction during the latter half of fiscal 2022.

Three Months Ended June 30,

Other income, for the consumer segment, for the three months ended June 30, 2023, increased by $14,532, or 155%, to $23,929, as compared to $9,397 during the same period in 2022.

The increase in other income was primarily due to interest earned from bank accounts for the three months ended June 30, 2023.

The corporate campus overhead for 2022 initially recorded as other expense has been restated to be included in selling, general, and administrative expenses for comparison purposes.

Other income, for the commercial segment, for the three months ended June 30, 2023, increased by $117,719, or 981%, to $129,723, as compared to $12,004 during the same period in 2022.

The increase in other income was primarily due to interest earned from bank accounts of $94,874.

The corporate campus overhead for 2022 initially recorded as other expense has been restated to be included in selling, general, and administrative expenses for comparison purposes.

Interest Expense

Three Months Ended June 30,

Interest Expense

Interest expense, for the consumer segment, for the three months ended June 30, 2023, decreased by $3,454, or 6%, to $58,209, as compared to $61,663 during the same period in 2022.

The decrease was primarily due to reduced loan balances during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Interest expense, for the commercial segment, for the three months ended June 30, 2023, decreased by $2,900, or 5%, to $56,479, as compared to $59,379 during the same period in 2022.

The decrease was primarily due to reduced loan balances during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Income Tax Expense

Three Months Ended June 30,

Income Tax Expense

Income tax expense, for both segments, for the three months ended June 30, 2023, was $498,574, an increase of $448,322, as compared to income tax expense of $50,252 for the three months ended June 30, 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 January 1, 2023, the Company has a federal tax rate of approximately 21%, in addition to other state and local taxes, on net income.

The effective income tax rate was 23.7% and 1.3% for the three months ended June 30, 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 June 30, 2023, compared to the three months ended June 30, 2022.

Three Months Ended June 30,

$ (1,645,874 )

Net income related to the consumer operations for the three months ended June 30, 2023, decreased by $598,272, or 34%, to $1,168,309, as compared to $1,766,584 during the same period in 2022.

The decrease in net income was due primarily to increased income tax expense of $324,281 and an increase in selling, general and administrative expenses of $220,064 due to our increasing footprint in Arizona and other markets during the three months ended June 30, 2023, as compared to the three months ended June 30, 2022.

Net income related to the commercial operations for the three months ended June 30, 2023, decreased by $1,645,874, or 79%, to $435,400, as compared to $2,081,274 during the same period in 2022.

The decrease in net income was due primarily to an increase in income tax expense of $124,041, a decrease in gross profit of $622,011, added to an increase in selling, general and administrative expenses of $941,757.

The increase in selling, general and administrative expenses of $941,757 can primarily be attributed to factors such as an increase in staff, higher salaries and related costs, as well as the Company's ongoing expansion in the consumer segment, which includes increased spending on marketing and professional services.

Earnings Per Share

Three Months Ended June 30,

Earnings Per Share

Earnings per share, for the three months ended June 30, 2023, for net income per basic and diluted shares attributable to holders of our Common Stock was $0.06, compared to $0.14 per basic and diluted shares attributable to holders of our Common Stock for the three months ended June 30, 2022.

The following disaggregation of total revenue is listed by sales category and segment for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

Comparison of six months ended June 30, 2023 and 2022

Resale Revenue

Six Months Ended June 30,

Resale Revenue

$ (2,557,532 )

Resale revenue related to the consumer segment increased by $8,523,442, or 14%, during the six months ended June 30, 2023, to $70,365,601, as compared to $61,842,159 during the same period in 2022.

Resale revenue, such as bullion, jewelry, watches, and rare coins, increased $8,523,442 during the six months ending June 30, 2023 due to heavy on-line advertising, as compared to the same period in 2022.

Resale revenue related to the commercial segment decreased by $2,557,532, or 14%, during the three months ended June 30, 2023, to $16,124,326, as compared to $18,681,858 during the same period in 2022.

Resale revenue decreased primarily due to supply chain issues of purchasing inventory during the six months ending June 30, 2023.

Recycled Revenue

Six Months Ended June 30,

Recycled Revenue

Recycled revenue related to the consumer segment increased by $1,700,390, or 40%, during the six months ended June 30, 2023, to $5,980,230, as compared to $4,279,840 during the same period in 2022.

Recycled revenue increased $1,700,390 during the six months ending June 30, 2023, compared to the six months ended June 30, 2022 primarily due to increased inventory purchased that was not selected to be exhibited in our retail showcases.

Inventory was scrapped for its precious metal content.

Recycled revenue related to the commercial segment increased by $971,451, or 19%, during the six months ended June 30, 2023, to $6,222,410, as compared to $5,250,959 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 six months ending June 30, 2023, compared to the six months ending June 30, 2022.

Gross Profit - Resale

Six Months Ended June 30,

Gross Profit - Resale

Resale gross profit related to the consumer operations for the six months ended June 30, 2023, decreased by $804,039, or 11%, to $6,658,767, as compared to resale gross profit of $7,462,806 during the same period in 2022 due to increased competition in the jewelry sector.

Resale gross profit related to the commercial operations for the six months ended June 30, 2023, increased by $709,688, or 7%, to $10,850,463, as compared to resale gross profit of $10,140,775 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

Six Months Ended June 30,

Gross Profit - Recycled

Recycled gross profit related to the consumer operations for the six months ended June 30, 2023, increased by $471,603, or 50%, to $1,420,843, as compared to gross profit of $949,240 during the same period in 2022.

The increase in recycled gross profit was primarily due to the increase of approximately 40% in recycled sales during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Recycled gross profit related to the commercial operations for the six months ended June 30, 2023, increased by $605,663, or 23%, to $3,241,876, as compared to gross profit of $2,636,213 during the same period in 2022.

The increase in recycled gross profit was due primarily to 19% increase in recycled sales during the six months ended June 30, 2023, as compared to the six months ended June 30, 2022.

For The Six Months Ended June 30,

Cost of goods sold

Selling, general and administrative expenses

Depreciation and amortization

Operating income

Other income/expense:

Three Months Ended March 31,

Interest expense

Income before income taxes

Income tax expense

Selling, General and Administrative

Six Months Ended June 30,

Selling, General and Administrative

Selling, General and Administrative Expenses, for the consumer segment, for the six months ended June 30, 2023, increased by $435,532, or 10%, to $4,868,998, as compared to $4,433,466 during the same period in 2022.

The increase was primarily due to increased expenses related to expanding our footprint into Arizona and other markets.

The corporate campus overhead for 2022 initially recorded as other expense has been restated to be included in selling, general, and administrative expenses for comparison purposes.

Selling, General and Administrative Expenses, for the commercial segment, for the six months ended June 30, 2023, increased by $1,986,621, or 21%, to $11,398,859, as compared to $9,412,238 during the same period in 2022.

The increase was primarily due to increased expenses related to expanding the commercial business by increasing the corporate infrastructure.

The corporate campus overhead for 2022 initially recorded as other expense has been restated to be included in selling, general, and administrative expenses for comparison purposes.

Depreciation and Amortization

Six Months Ended June 30,

Depreciation and Amortization

Depreciation and amortization, for the consumer segment, for the six months ended June 30, 2023, decreased by $30,855, or 15%, to $177,542, as compared to $208,397 during the same period in 2022.

The decrease was primarily due to some of the fixed assets being fully depreciated.

Depreciation and amortization, for the commercial segment, for the six months ended June 30, 2023, increased by $149,917, or 41%, to $512,983, as compared to $363,066 during the same period in 2022.

The increase was primarily due to the amortization of increased intangible assets added from the Avail Transaction during the latter half of fiscal 2022.

Other Income (Expense)

Other income (expense), for the consumer segment, f or the three months ended March 31, 2023, increased by $51,526, or 184%, to $23,534, as compared to a net expense of $(27,992) during the same period in 2022.

The increase in other income was primarily due to interest earned from bank accounts for the three months ended March 31, 2023.

In addition, during the three months ended March 31, 2022, the corporate building overhead expenses were classified as other expenses.

Starting January 1, 2023, those expenses have been classified as operating expenses within selling, general and administrative expenses.

Other income (expense), for the commercial segment, f or the three months ended March 31, 2023, increased by $217,829, or 712%, to $187,245, as compared to a net expense of $(30,584) during the same period in 2022.

The increase in other income was primarily due to interest earned from bank accounts, of $61,378 and notes receivable interest received, of $94,115 from notes receivable formerly written off during fiscal year 2021.

In addition, during the three months ended March 31, 2022, the corporate building overhead expenses were classified as other expenses.

Starting January 1, 2023, those expenses have been classified as operating expenses within selling, general and administrative expenses.

Six Months Ended June 30,

Other income, for the consumer segment, for the six months ended June 30, 2023, was $47,463, as compared to $24,014 during the same period in 2022, an increase of $23,449, or 98%.

The increase in other income was primarily due to increase interest earned from bank accounts for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

The corporate campus overhead for 2022 initially recorded as other expense has been restated to be included in selling, general, and administrative expenses for comparison purposes.

Other income, for the commercial segment, for the six months ended June 30, 2023, was $316,968, as compared to $24,027 during the same period in 2022, an increase of $292,941, or 1219%.

The increase in other income for the six months ended June 30, 2023 was primarily due to interest earned from bank accounts of $156,252, notes receivable interest received of $94,115 from notes receivable formerly written off during fiscal year 2021, and rental income, of $48,000, from third party tenants of the corporate headquarters allocated to the commercial segment, as compared to $24,000 of rental income from third party tenants for the six months ended June 30, 2022.

The corporate campus overhead for 2022 initially recorded as other expense has been restated to be included in selling, general, and administrative expenses for comparison purposes.

Interest Expense

Three Months Ended March 31,

Six Months Ended June 30,

Interest Expense

Interest expense, for the consumer segment, f or the three months ended March 31, 2023, decreased by $1,624, or 3%, to $59,617, as compared to $61,241 during the same period in 2022.

The decrease was primarily due to reduced loan balances during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

Interest expense, for the commercial segment, f or the three months ended March 31, 2023, decreased by $4,552, or 7%, to $57,446, as compared to $61,998 during the same period in 2022.

The decrease was primarily due to reduced loan balances during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

Interest expense, for the consumer segment, for the six months ended June 30, 2023, decreased by $5,077, or 4%, to $117,827, as compared to $122,904 during the same period in 2022.

The decrease was primarily due to reduced loan balances during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Interest expense, for the commercial segment, for the six months ended June 30, 2023, decreased by $7,452, or 6%, to $113,925, as compared to $121,377 during the same period in 2022.

The decrease was primarily due to reduced loan balances during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Income Tax Expense

Three Months Ended March 31,

Six Months Ended June 30,

Income Tax Expense

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.

Income tax expense, for both segments, for the six months ended June 30, 2023, was $1,216,220, an increase of $1,135,676, as compared to income tax expense of $80,544 for the six months ended June 30, 2022.

Currently, the Company has a deferred tax asset reflecting net operating losses brought over from prior years.

1 unchanged sentence

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.

Starting January 1, 2023, the Company has a federal tax rate of approximately 21%, in addition to other state and local taxes, on net income before taxes.

The effective income tax rate was 22.7% and 1.2% for the six months ended June 30, 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.

Three Months Ended March 31,

Net income related to the consumer operations for the three months ended March 31, 2023, decreased by $739,256, or 39%, to $1,136,884, as compared to $1,876,140 during the same period in 2022.

The decrease in net income was due primarily to the increased tax expense of $304,664, and the decrease in resale gross profit of $437,920 for the three months ended March 31, 2023, compared to the three month ended March 31, 2022.

Net income related to the commercial operations for the three months ended March 31, 2023, increased by $618,348, or 80%, to $1,389,433, as compared to $771,085 during the same period in 2022.

The increase in net income was due primarily to an increase in gross profit of $1,937,362, offset by an increase in selling, general and administrative expenses of $787,472 and increased tax expense of $382,690 for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

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 six months ended June 30, 2023, compared to the six months ended June 30, 2022.

Six Months Ended June 30,

$ (1,337,532 )

$ (1,027,525 )

Net income related to the consumer operations for the six months ended June 30, 2023, decreased by $1,337,532, or 37%, to $2,305,193, as compared to $3,642,725 during the same period in 2022.

The decrease in net income was due primarily to the increased tax expense of $628,945, the decrease in gross profit of $332,436 and the increase in selling, general and administrative expenses of $435,532 for the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

Net income related to the commercial operations for the six months ended June 30, 2023, decreased by $1,027,525, or 36%, to $1,824,833, as compared to $2,852,358 during the same period in 2022.

The decrease in net income for the six months ended June 30, 2023 was due primarily to an increase in gross profit of $1,315,351 and an increase in other income of $292,941, offset by an increase in income tax expense of $506,731 and an increase in selling, general and administrative expenses of $1,986,621, compared to the six months ended June 30, 2022.

Earnings Per Share

Three Months Ended March 31,

Six Months Ended June 30,

Earnings Per Share

Earnings per share, for the three months ended March 31, 2023, for net income per basic and diluted shares attributable to holders of our Common Stock was $0.09, compared to $0.10 per basic and diluted shares attributable to holders of our Common Stock for the three months ended March 31, 2022.

Earnings per share, for the six months ended June 30, 2023, for net income per basic and diluted shares attributable to holders of our Common Stock was $0.15, compared to $0.24 per basic and diluted shares attributable to holders of our Common Stock for the six months ended June 30, 2022.

Liquidity and Capital Resources

The following table summarizes our cash flows for the periods indicated.

Three Months Ended March 31,

Six Months Ended June 30,

Net cash provided by (used in):

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Net increase in cash and cash equivalents

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.

During the six months ended June 30, 2023, cash flows provided by operations totaled $2,748,490, and during the six months ended June 30, 2021, cash flows provided by operations totaled $6,362,641, a decrease of $3,614,151.

Cash provided by operations for the six months ended June 30, 2023 was driven primarily by net income added to non-cash items of depreciation and amortization, bad debt and deferred taxes of $5,869,173, a reduction of prepaid expenses of $75,838 and an increase in customer deposits and other liabilities of $65,948, offset by an increase in inventories of $2,762,524, a decrease in accounts payable and accrued expenses of $218,632, an increase in other assets of $202,788 and an increase in trade receivables of $78,053.

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.

During the six months ended June 30, 2023 and 2022, cash flows used in investing activities totaled $722,621 and $420,917, respectively, a period-over-period increase of $301,704.

Cash used in investing activities during the six months ended June 30, 2023 was primarily due to the purchase of property and equipment of $1,300,871, offset by the reduction in note receivable of $578,250.

Cash used 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.

During the six months ended June 30, 2023 and 2022, cash flows used in financing totaled $815,062 and $2,144,396, respectively, a period-over-period decrease of $1,329,334.

Cash used in financing during the six months ended June 30, 2023 was primarily due from payments made against notes payable of $620,242 and the repurchase of Company stock on the open market.

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.

We expect our capital expenditures to total approximately $2,500,000 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.

These expenditures will be driven by the purchase of additional equipment and potential property purchases by both segments seeking to expand the Company into other markets.

The Company has an outstanding capital commitment of $100,000 to build-out the consumer building purchased in Phoenix, Arizona on May 4, 2023.

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 two FSB 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, 2023.

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, 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.

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The Company leases certain of its facilities under operating leases.

The minimum rental commitments, under non-cancellable operating leases, excluding imputed interest, as of March 31, 2023 are as follows:

The minimum rental commitments, under non-cancellable operating leases, excluding imputed interest, as of June 30, 2023 are as follows:

Operating Leases

Consumer (excluding the three months ending March 31, 2023)

Commercial (excluding the three months ending March 31, 2023)

Consumer (excluding the six months ending June 30, 2023)

Commercial (excluding the six months ending June 30, 2023)

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