What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-03 · 162 added, 139 removed, 90 unchanged (77% of the section changed)

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Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 (this “Form 10-Q”), including but not limited to:

This Quarterly Report on Form 10-Q for the quarter ended September 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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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.

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

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

DGSE Business Overview

DGSE is headquartered in Dallas, Texas.

DGSE focuses on sustainable, authenticated recommerce of luxury hard assets, including diamonds.

DGSE is headquartered in Dallas, Texas and focuses on sustainable, authenticated recommerce of luxury hard assets, including diamonds.

Its retail strategy is anchored in being an information resource for clients, bringing transparency to purchase and sale transactions, and offering value and liquidity to those seeking to buy, sell or trade jewelry, fine watches, diamonds, rare coins and currency as well as other valuables.

DGSE wholesales and retails these items through its Charleston Gold & Diamond Exchange and Dallas Gold & Silver Exchange operations.

DGSE has specialized in buying and selling jewelry for over 40 years, making our expert staff among the best in the business.

DGSE also maintains a number of related operations, including precious-metal bullion exchange and refiner partnerships, on-site jewelry and watch repair and restoration at its Dallas flagship location, consignment offerings and partnerships, and design of custom bridal and fashion jewelry.

DGSE has specialized in buying and selling jewelry for almost 50 years, making our expert staff among the best in the business.

DGSE also maintains a number of related operations, on-site jewelry and watch repair and restoration at its Dallas flagship location, and design of custom bridal and fashion jewelry.

In addition, DGSE has a precious-metal bullion-trading operation that buys and sells all forms of gold, silver, platinum and palladium products, including United States and other government-issue coins, private-mint medallions, art bars and trade unit bars.

For additional information regarding DGSE, see “Item 1.

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DGSE Recommerce Activities

We operate a sustainable marketplace for preowned luxury goods.

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

Our ability to offer quality pre-owned goods at prices significantly lower than original retail prices attracts value-conscious customers.

DGSE depends on purchasing products and materials from secondary markets.

We are reliant on our ability to obtain an adequate supply of products and material at prices or other terms acceptable to us.

The gross profit on sales of inventory depends primarily on our assessment of the purchase value at the time the property is purchased and our ability to sell that merchandise in a timely manner.

As a significant portion of our inventory and sales involve gold and jewelry, our results can be influenced by the market price of gold and diamonds.

DGSE Precious Metals Pricing and Business Impact

DGSE’s business, similar to the jewelry industry overall, is effected by fluctuations in precious-metals pricing.

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

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.

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 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% 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 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.

When prices decline for gold or other precious metals, DGSE has observed that individual buyers tend to buy due to the decrease in gold prices.

While the precious-metals industry has slowed, our focus will be to grow our jewelry, diamond and fine watch business, as well as maintain our business of purchasing crafted-precious-metal items, a diversified strategy which we believe will continue to grow and be a profit engine in the future.

In addition, DGSE depends on purchasing products and materials from secondary markets.

We are reliant on our ability to obtain an adequate supply of products and material at prices or other terms acceptable to it.

We are exposed to various market risks.

Market risk is the potential loss arising from the adverse changes in market prices and rates.

The nature of DGSE’s operations results in exposure to fluctuations in commodity prices, specifically diamonds, platinum, gold and silver.

We do not currently use derivatives to hedge these risks.

As a significant portion of our inventory and sales involve gold and jewelry, our results can be influenced by the market price of gold and diamonds.

Our retail sales and gross margin could be materially impacted if prices of diamonds, platinum, gold, or silver rise so significantly that our consumers’ behavior changes or if price increases cannot be passed onto our customers.

Because DGSE buys and resells precious metals, it is impacted by fluctuations and changes in precious-metal pricing which rises and falls based upon global supply and demand dynamics, with the greatest impact on us relating to gold as it represents a significant portion of the precious-metal in which we trade.

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

We continue to monitor additional potential impacts of COVID-19 and other macroeconomic factors on our business, such as inflation and the conflict in Ukraine.

Uncertainties exist that could continue to impact our operations or cash flows in the future, such as potential resurgence of COVID-19, further pricing and inflationary environmental changes (including, but not limited to, labor, materials, and advertising costs).

The Company’s ability to recruit and retain qualified team members, organized retail crime, or the consumers’ ability to spend on discretionary categories.

DGSE Growth and Expansion

Our strategy is to expand the number of locations we operate through opening new (“de novo”) locations in both current markets of Dallas/Fort Worth, Texas and Charleston, South Carolina and potential new markets.

Our continued strategy will be to expand the number of locations we operate through opening new (“de novo”) locations in both current markets of Dallas/Fort Worth, Texas and Mt.

Pleasant, South Carolina and potential new markets.

Our ability to add new stores is dependent on several variables, such as projected achievement of internal investment hurdles, the availability of acceptable sites, the regulatory environment, local zoning ordinances, access to capital and the availability of qualified personnel.

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

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

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

ECHG Business Overview

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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.

Like DGSE, ECHG also maintains relationships with refiners or recyclers to which it sells extracted valuable materials from electronics and IT equipment that are not appropriate for resale or reuse.

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

Like DGSE, ECHG also maintains relationships with refiners for which it sells extracted valuable materials from electronics and IT equipment deemed unsuitable for retail or wholesale customers.

ECHG Recommerce Activities

A portion of ECHG’s business depends on obtaining products and material from secondary markets and is reliant on its ability to obtain an adequate supply of products and material at prices and other items acceptable to it.

Although we believe that the long-term prospects for the industry remain bright, but because we do not have unlimited backlogs, our business can be promptly affected by short-term market fluctuations.

ECHG Metals Pricing and Business Impact

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Recent fluctuations in gold prices are discussed above.

As discussed below, ECHG has seen a recent decrease of recycled items, which we believe is primarily due to the supply chain problems downstream with our customers.

ECHG Growth and Expansion

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

COVID-19 and Economic Conditions

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

and global economies, and as disclosed in our 2021 Annual Report, the COVID-19 pandemic also affected our business in a variety of ways beginning in the second quarter of fiscal 2020, continuing through fiscal 2021 and 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.

The COVID-19 pandemic, surging inflation, supply chain disruptions and the war in Ukraine have affected the recommerce business in unpredictable ways.

There have been fewer customers raising money by selling items.

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.

The full extent and duration of the impact of the COVID-19 pandemic, surging inflation, supply chain disruptions and the war in Ukraine on the global economy generally, and on our business specifically, is currently unknown.

A prolonged pandemic and recovery may have an adverse effect on our results of operations, financial position and liquidity in future periods.

Critical Accounting Policies and Estimates

For a discussion of critical accounting policies, see Note 3 to the interim condensed consolidated financial statements included herein.

For a discussion of critical accounting policies, see “Note 1 – Accounting Policies and Nature of Operations” in the Company’s 2021 Annual Report.

Results of Operations

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

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, 2022 and 2021:

Nine Months Ended September 30,

$ 135,252,502

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

Revenue related to DGSE’s continuing operations increased by $4,944,875, or 19.4%, during the three months ended September 30, 2022, to $30,427,254, as compared to revenue of $25,482,379 during the same period in 2021.

Resale revenue, such as bullion, jewelry, watches and rare coins, increased by $4,765,637, or 20.4%, during the three months ended September 30, 2022, to $28,172,732 as compared to resale revenue of $23,407,095 during the same period in 2021.

Recycled-material sales increased by $179,238, 8.6% to $2,254,522 for the three months ended September 30, 2022, as compared to recycled-material sales of $2,075,284, for the three months ended September 30, 2021.

Resale revenue for the DGSE segment increased for the three months ended September 30, 2022, when compared to the same periods in the previous fiscal year.

The increases in net sales were primarily due to year-over-year growth in store count, as well as increases in comparable store sales.

Recycle revenue increased slightly for the three months ended September 30, 2022, when compared to the same periods in the previous fiscal year, which was primarily due to year-over-year growth in store count.

Revenue related to ECHG’s continuing operations for the three months ended September 30, 2022 increased by $2,572,042, or 21.1%, to $14,770,432, as compared to revenue of $12,198,390 during the same period in 2021.

Resale revenue increased by $3,229,217, or 39.0%, to $11,518,168, for the three months ended September 30, 2022, as compared to revenue of $8,288,951 during the three months ended September 30, 2021.

Recycled sales decreased by $657,175, or 16.8%, to $3,252,264 for the three months ended September 30, 2022, as compared to recycled sales of $3,909,439 for the three months ended September 30, 2021.

Revenue increased for resale items for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, was mainly due to the increased revenue from the Avail Transaction on October 29, 2021.

The decrease of recycled items for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, was primarily due to a shifting of product mix.

The Company has had no layoffs to-date or terminations due to the COVID-19 pandemic, and we continue to exercise caution concerning any variants of COVID-19 that may arise.

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

We believe the Company continues to operate at full strength and intend to take measures to keep our employees safe where possible.

Gross Profit.

Gross profit related to DGSE’s operations for the three months ended 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.

Gross profit related to DGSE’s operations for the three months ended September 30, 2022, increased by $689,865, or 22.5%, to $3,749,363 as compared to gross profit of $3,059,498 during the same period in 2021.

Resale gross profit increased by $605,708, or 22.9%, to $3,251,153 for the three month ended September 30, 2022, as compared to resale gross profit of $2,645,445 during the three months ended September 30, 2021.

Recycled gross profit increased by $84,157, or 20.3%, to $498,210 for the three months ended September 30, 2022, as compared to recycled gross profit of $414,053 during the three months ended September 30, 2021.

The increase in resale and recycled gross profit for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021 was primarily due to an increase in store traffic compared to the same period last year.

Gross profit related to ECHG for the three months ended September 30, 2022 increased by $3,055,676, or 60.5%, to $8,106,294 as compared to gross profit of $5,050,618 during the same period in 2021.

Gross profit for resale revenue for the three months ended September 30, 2022 increased by $3,014,734, or 87.4%, to $6,465,386, as compared to gross profit for resale revenue $3,450,652 during the same period in 2021.

Gross profit for recycled sales for the three months ended September 30, 2022 increased $40,942, or 2.6%, to $1,640,908, as compared to gross profit for recycled sales of $1,599,966, during the same period in 2021.

The gross profit increase for the resale and recycled items for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021 primarily benefiting from the higher volumes and an improved product mix with higher pricing power.

Selling, General and Administrative Expenses.

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.

For the three months ended September 30, 2022, SG&A expenses for DGSE increased by $597,554, or 33.7%, to $2,369,588, as compared to SG&A expenses of $1,772,034 during the same period in 2021.

The increase in SG&A expenses was driven primarily by increased corporate overhead expenses, mostly related to future growth opportunities, and investments in our technology infrastructure as we continue to invest in our business.

Additionally, due to higher advertising expenses and an increase in salary expense for our retail employees due to the growth in our store count.

For the three months ended September 30, 2022, SG&A expenses for ECHG increased by $1,925,675 or 55.7%, to $5,384,114, as compared to SG&A expenses of $3,458,439 during the same period in 2021.

The growth in SG&A was primarily due to the Avail Recovery Solutions acquisition.

Depreciation and Amortization .

For the three months ended 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.

For the three months ended September 30, 2022, depreciation and amortization expense for DGSE was $103,022, as compared to an expense of $98,787 for the same period in 2021, an increase of $4,235, or 4.3%.

The increase of $4,235 from the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 is primarily due to the depreciation of the new retail building located in Frisco, Texas.

For the three months ended September 30, 2022, depreciation and amortization expense for ECHG was $431,942 as compared to an expense of $117,389 for the same period in 2021, an increase of $314,553, or 268%.

The increase of $314,553 for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, is primarily due to catch-up amortization expense of intangible assets just identified this quarter from the Avail Transaction of October 29, 2021, resulting in additional amortization of $250,800, plus additional amortization of intangible assets and depreciation of assets from the CExchange Transaction.

Interest Expense .

For the three months ended 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.

For the three months ended September 30, 2022, interest expense for DGSE was $60,619, a decrease of $18,944, or 23.8%, as compared to interest expense of $79,563 during the same period in 2021.

For the three months ended September 30, 2022, interest expense for ECHG was $59,338, a decrease of $49,952 or 45.7%, as compared to interest expense of $109,290 during the same period in 2021.

The decrease was primarily the result of refinancing the related party loan by Farmers State Bank of Oakley, Kansas on November 23, 2021 through the FSB ECHG Loan.

Gain on Forgiveness of Federal Loan.

For the three months ended September 30, 2022, other income, gain on forgiveness of Federal Loan (defined below) for DGSE was $0, a decrease of $675,210, as compared to other income, gain on forgiveness of Federal Loan of $675,210 during the same period in 2021.

Envela previously applied for and received, on April 20, 2020, a federally backed loan of $1,668,200 with 1% interest (the “Federal Loan”), which was forgivable to the extent that certain criteria were met.

The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the Federal Loan during the quarter ended September 30, 2021.

DGSE’s portion of the forgiven loan was $675,210 for the quarter ended September 30, 2021.

For the three months ended September 30, 2022, other income, gain on forgiveness of Federal Loan for ECHG was $0, a decrease of $992,990, as compared to other income, gain on forgiveness of Federal Loan of $992,900 during the same period in 2021.

The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the Federal Loan of $1,668,200 during the quarter ended September 30, 2021.

ECHG’s portion of the forgiven loan was $992,990 for the quarter ended September 30, 2021

Write-off of Note Receivables and Accrued Interest Receivable.

For the three months ended September 30, 2022, other expense, write-off of notes receivables for ECHG was $0, a decrease of $949,174, as compared to other expense, write-off of notes receivables and accrued interest receivable of $949,174 during the same period in 2021.

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

Other Income/Expense.

For the 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.

For the three months ended September 30, 2022, other income for DGSE was $5,957, an increase in income of $43,780, as compared to other expense of $37,823 during the same period in 2021.

The increase in income was primarily due to DGSE’s portion of corporate overhead expenses, mostly related to additional costs incurred to operate as a public company, for the three months ended September 30, 2022 as compared to the corporate expenses and rents received, netted for the three months ended September 30, 2021.

For the three months ended September 30, 2022, other expense for ECHG was $71,221, an increase in expenses of $48,260, as compared to other expense of $22,961 during the same period in 2021.

The increase in expense was primarily due to ECHG’s portion of corporate overhead expenses, mostly related to additional costs incurred to operate as a public company, for the three months ended September 30, 2022 as compared to the corporate expenses and rents received, netted for the three months ended September 30, 2021.

Income Tax Expense.

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.

For the three months ended September 30, 2022, income tax expense was $64,061, an increase of $37,606, compared to income tax expense of $26,455 for the three months ended September 30, 2021.

The effective income tax rate was 1.9% and 0.8% for the three months ended September 30, 2022 and September 30, 2021, respectively.

Differences between our effective income tax rate and the U.S.

federal statutory rate are mainly the result of state taxes, non-deductible expenses 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.

federal statutory rate are mainly the result of state taxes, non-deductible expenses, non-taxable income and changes in the valuation allowance in relation to the deferred tax asset for net operating loss carryforwards.

We recorded a net income of $3,317,709 for the three months ended September 30, 2022, as compared to a net income of $3,106,401 for the three months ended September 30, 2021, an increase in net income of $211,308, which is due primarily to an increase in gross profit of $3,745,541, a decrease in interest expense of $68,896, offset by an increase in SG&A expenses of $2,523,229, an increase in depreciation and amortization of 318,788 and a decrease in other income of $723,506.

Earnings Per Share.

For the three months ended 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.

For the three months ended September 30, 2022, net income per basic and diluted shares attributable to holders of Common Stock was $0.12, as compared to $0.12 per basic and diluted shares attributable to holders of Common Stock for the three months ended September 30, 2021.

Nine Months Ended September 30, 2022 as compared to the Nine Months Ended September 30, 2021

Revenues related to DGSE’s operations increased by $29,140,049, or 43.2%, during the nine months ended September 30, 2022, to $96,549,253, as compared to revenue of $67,409,204 during the same period in 2021.

Resale revenue, such as bullion, jewelry, watches and rare coins, increased by $28,393,317, to $90,014,891 for the nine months ended September 30, 2022, or 46.1%, compared to resale revenue of $61,621,574 during the nine months ended September 30, 2021.

Recycled revenue increased by $746,732, or 12.9%, to $6,534,362 for the nine months ended September 30, 2022, as compared to recycled revenue of $5,787,630 during the nine months ended September 30, 2021.

The increased resale and recycle revenue for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily due to year-over-year growth in store count, as well as increases in comparable store sales.

Revenue related to ECHG’s operations for the nine months ended September 30, 2022 increased by $9,217,237, or 31.3%, to $38,703,249, as compared to revenue of $29,486,012 during the same period in 2021.

Resale revenue increased by $8,574,173, or 39.6%, to $30,200,026, for the nine months ended September 30, 2022, as compared to resale revenue of $21,625,853 during the nine months ended September 30, 2021.

Recycled revenue increased by $643,064, or 8.2%, to $8,503,223 for the nine months ended September 30, 2022, as compared to recycled revenue of $7,860,159 for the nine months ended September 30, 2021.

Revenue increased for resale items for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, primarily due to the Avail Transaction on October 29, 2021.

The revenue increase from recycled items for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily due to the Avail Recovery Solutions acquisition and benefiting from the higher volumes and an improved product mix.

Gross Profit.

Gross profit related to DGSE’s operations for the 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.

Gross profit related to DGSE’s operations for the nine months ended September 30, 2022, increased by $3,197,280, or 35.7%, to $12,161,409 as compared to gross profit of $8,964,129 during the same period in 2021.

Resale gross profit increased by $2,932,730, or 37.7%, to $10,713,959 for the nine month ended September 30, 2022, as compared to resale gross profit of $7,781,229 during the nine months ended September 30, 2021.

Recycled gross profit increased by $264,550, or 22.4% to $1,447,450 for the nine months ended September 30, 2022, as compared to recycled gross profit of $1,182,900 during the nine months ended September 30, 2021.

The increase in resale and recycled gross profit was due primarily due to year-over-year growth in store count, as well as increases in comparable store sales.

Gross profit related to ECHG for the nine months ended September 30, 2022, increased by $8,305,141, or 66%, to $20,883,282 as compared to gross profit of $12,578,141 during the same period in 2021.

Gross profit for resale revenue for the nine months ended September 30, 2022 increased by $7,523,640, or 82.8% to $16,606,161, as compared to gross profit for resale revenue of $9,082,521 during the same period in 2021.

Gross profit for recycled sales for the nine months ended September 30, 2022, increased $781,501, or 22.4% to $4,277,121, as compared to gross profit for recycle sales of $3,495,620, during the same period in 2021.

The gross profit increase for resale and recycle revenue for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, is primarily due to increased sales and benefiting from an improved product mix with higher pricing power.

Selling, General and Administrative Expenses.

For the 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.

For the nine months ended September 30, 2022, DGSE’s SG&A expenses increased by $1,257,665, or 23.1%, to $6,702,031, as compared to SG&A expenses of $5,444,366 during the same period in 2021.

Additionally, due to higher advertising expenses and an increase in salary expense for our retail employees due to the growth in our store count, compared to the same period last year.

For the nine months ended September 30, 2022, SG&A expenses for ECHG increased by $5,924,768, or 67.6%, to $14,695,329, as compared to SG&A expenses of $8,770,561 during the same period in 2021.

The increase in SG&A expenses was primarily due to the added cost of the Avail and CExchange companies during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

Depreciation and Amortization .

For the 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.

For the nine months ended September 30, 2022, DGSE’s depreciation and amortization expense was $311,419, compared to an expense of $293,044 for the same period in 2021.

The increase of $18,375, or 6.3% is primarily due to the depreciation of the new Frisco, Texas retail building placed into service during January of 2022.

For the nine months ended September 30, 2022, depreciation and amortization expense for ECHG was $795,008, as compared to an expense of $344,263 for the same period in 2021, an increase of $450,745, or 130.9%.

The increase of $450,745 from the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, is primarily due to catch-up amortization expense of intangible assets just identified this quarter from the Avail Transaction of October 29, 2021, resulting in additional amortization of $250,800, plus additional amortization of intangible assets and depreciation of assets from the CExchange Transaction.

Interest Expense .

For the 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.

For the nine months ended September 30, 2022, the interest expense for DGSE was $183,523, a decrease of $33,217, or 15.3%, compared to interest expense of $216,740 during the same period in 2021.

For the nine months ended September 30, 2022, interest expense for ECHG was $180,715, a decrease of $148,124 or 45%, compared to interest expense of $328,839 during the same period in 2021.

The decrease was primarily the result of refinancing the related party loan by Farmers State Bank of Oakley, Kansas on November 23, 2021 through the FSB ECHG Loan.

Gain on Forgiveness of Federal Loan.

For the nine months ended September 30, 2022, other income, gain on forgiveness of Federal Loan for DGSE was $0, a decrease of $675,210, as compared to other income, gain on forgiveness of Federal Loan of $675,210 during the same period in 2021.

The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the Federal Loan of $1,668,200 during the quarter ended September 30, 2021.

DGSE’s portion of the forgiven loan was $675,210 for the quarter ended September 30, 2021.

For the nine months ended September 30, 2022, other income, gain on forgiveness of Federal Loan for ECHG was $0, a decrease of $992,990, as compared to other income, gain on forgiveness of Federal Loan of $992,990 during the same period in 2021.

The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the Federal Loan of $1,668,200 during the quarter ended September 30, 2021.

ECHG’s portion of the forgiven loan was $992,990 for the quarter ended September 30, 2021

Write-off of Note Receivables and Accrued Interest Receivable.

For the nine months ended September 30, 2022, other expense, write-off of notes receivables for ECHG was $0, a decrease of $949,174, as compared to other expense, write-off of notes receivables and accrued interest receivable of $949,174 during the same period in 2021.

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

Other Income/Expense.

For the 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.

For the nine months ended September 30, 2022, other expense for DGSE was $71,053, an increase in expenses of $264,421, compared to other income of $193,368 during the same period in 2021.

The increase in expense was primarily due to DGSE’s portion of corporate overhead expenses, mostly related to additional costs incurred to operate as a public company.

Other income for the nine months ended September 30, 2021 only included the rental income from corporate tenants in the Company’s corporate building and therefore are not comparable.

In subsequent quarters, the Company’s corporate overhead expenses and rental income are netted into other income/expense.

For the nine months ended September 30, 2022, other expense for ECHG was $148,216, an increase in expenses of $449,060, compared to other income of $193,368 during the same period in 2021.

The increase in expense was primarily due to ECHG’s portion of corporate overhead expenses, mostly related to additional costs incurred to operate as a public company.

Other income for the nine months ended September 30, 2021 only included the rental income from corporate tenants in the Company’s corporate building and therefore are not comparable.

In subsequent quarters, the Company’s corporate overhead expenses and rental income are netted into other income/expense.

Income Tax Expense.

For the 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.

For the nine months ended September 30, 2022, income tax expense was $144,605, an increase of $54,695, or 60.8%, as compared to income tax expense of $89,910 for the nine months ended September 30, 2021.

The effective income tax rate was 1.5% and 1.2% for the nine months ended September 30, 2022 and 2021, respectively.

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

We recorded a net income of $9,812,792 for the nine months ended September 30, 2022, as compared to a net income of $7,267,785 for the nine months ended September 30, 2021, an increase in net income of $2,545,007, which is due primarily to an increase in gross profit of $11,502,421, a decrease in interest expense of $181,341, offset by an increase in SG&A expenses of $7,182,433, an increase in other expense of $1,432,507 and an increase in depreciation and amortization expense of $469,120.

Earnings Per Share.

For the 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.

For the nine months ended September 30, 2022, the net income per basic and diluted shares attributable to common stockholders is $0.36, as compared to $0.27 per basic and diluted shares for the nine months ended September 30, 2021.

Liquidity and Capital Resources

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.

During the nine months ended September 30, 2022, cash flows provided by operations totaled $7,725,140, and during the nine months ended September 30, 2021, cash flows provided by operations totaled $1,026,457, an increase of $6,698,683.

Cash provided by operations for the nine months ended September 30, 2022 was driven largely by net income added to non-cash items of depreciation, amortization and bad debt of $10,992,637, an increase in accounts payable and accrued expenses of $1,924,658, a decrease in other assets of $311,422, offset by an increase in inventories of $4,014,627, an increase in prepaid expenses of $1,213,187, an increase in trade receivables of $97,994 and a decrease in customer deposits and other liabilities of $186,590.

Cash provided by operations for the nine months ended September 30, 2021 was driven largely by net income added to non-cash items of depreciation, amortization, bad debt, gain on forgiveness of Federal Loan and write-off of note receivables and accrued interest receivable of $7,214,598, an increase in accounts payable and accrued expenses of $100,952 and an increase in customer deposits and other liabilities of $511,610, offset by the increase in trade receivables of $2,871,070, an increase in inventories of $2,647,432, an increase in prepaid expenses of $886,591 and the increase in other assets of $417,347.

During the nine months ended September 30, 2022 and 2021, cash flows used in investing activities totaled $444,185 and $3,351,141, respectively, a period-over-period decrease of $2,906,956.

The use of cash in investing activities during the nine months ended September 30, 2022 was primarily due to the purchase of additional property and equipment of $227,197 and the additional cash payment, as part of the Avail Transaction of $216,988.

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

During the nine months ended September 30, 2022, cash flows used in financing totaled $2,450,347 and during the nine months ended September 30, 2021, cash flows provided by financing totaled $1,429,828, a period-over-period increase of cash flows used in financing of $3,880,175.

Cash used in financing during the nine months ended September 30, 2022 was primarily due from payments made against notes payable of $750,347 and payments made against the line of credit of $1,700,000.

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

We expect our capital expenditures to total approximately $1,500,000 during the next 12 months.

These expenditures will be driven by the purchase of additional equipment and the purchase of potential properties by DGSE for retail locations and for build-out of those purchased properties.

The Company has no capital expenditure commitments as of 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.

The Company has no capital expenditure commitments as of September 30, 2022.

Our primary source of liquidity and capital resources currently consist of cash generated from our operating results and current borrowings, including the Truist Lewisville Loan, the TB&T Grapevine Loan, the TB&T Irving Loan, the TB&T Frisco Loan, the FSB ECHG Loan and the FSB DGSE Loan, as well as the financing for the Avail Transaction through borrowings represented by the Avail Installment Note.

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

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

In addition, on November 23, 2021, the Company secured the FSB Facility, which is a thirty six month line of credit from Farmers State Bank of Oakley Kansas 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 June 30, 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 September 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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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.

The COVID-19 pandemic, surging inflation, supply chain interruptions and the war between Ukraine and Russia has adversely affected global economic business conditions.

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

Although we are continuing to monitor and assess the effects of the 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.

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

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

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 June 30, 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 September 30, 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