What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-16 · 190 added, 250 removed, 56 unchanged (89% of the section changed)

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Please see the section of this Form 10-K entitled “Note About Forward-Looking Statements” on page 3.

The coronavirus disease 2019 (COVID-19) pandemic has adversely affected global economic business conditions.

Future sales on products like ours could decline, and the ultimate impact is uncertain and subject to change.

We took steps during Fiscal 2020 to have as many employees work from home as possible.

We also followed governmental directives to wear masks and adopt the social distance guidelines where possible.

The duration of this pandemic and the impact, either direct or indirect cannot be predicted.

The Company believed additional liquidity was necessary to support ongoing operations during this period of uncertainty.

We applied for and received approximately $1.67 million, 1% interest, federally backed loan to pay employees and cover certain rent and utility-related costs during the COVID-19 pandemic.

The Federal Loan was forgivable to the extent that certain criteria were met.

We applied for the forgiveness of the Federal Loan during Fiscal 2020, and received notification during Fiscal 2021 that the loan had been forgiven.

The forgiveness of the Federal Loan is included in Other income from loan forgiveness on our consolidated income statements.

Changes in Financial Presentation During Fiscal Year 2020

During the first quarter of fiscal year 2020, we revised the way we review and report our financial information to align more closely with the Company’s strategy to engage in diverse recommerce activities through two principle business segments—DGSE and ECHG.

Envela continues to report its revenue and operating expenses based on its DGSE and ECHG operating segments, and beginning in fiscal year 2020, disaggregated its revenue, within the operating segments, based on its resale and recycle presentation basis.

The following discussion of our financial condition and results of operations should be read together with our financial statements and related notes and other financial information included in this Annual Report.

The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.

Our actual results could differ materially from those discussed in the forward-looking statements.

Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in the section titled “Risk Factors.” Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

We are enabling a better world through the circular economy;

by empowering buyers and sellers to extend the useful lives of specialty and durable goods;

and by seizing retail, recycling, and reverse-logistics supply-chain opportunities.

Envela is a diverse re-commerce company that manages its business through two segments.

Its commercial-services segment is led by subsidiary ECHG, and its direct-to-consumer segment is led by subsidiary DGSE.

Envela reports its revenue and operating expenses based on these two operating segments, with revenue for each operating segment, being presented as resale and recycle.

We also include segment information in the notes to our financial statements.

For more information, see “Item 1.

Business—Operating Segments” above.

DGSE Precious Metals Pricing and Business Impact

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, starting at $1,523 an ounce, as determined by the London AM Fix on January 1, 2020, and rose strongly during the first half of 2020 peaking at $2,060 an ounce during August.

However, gold prices dipped from the peak to close at $1,891 an ounce, as determined by the London PM Fix on December 31, 2020.

Although gold dipped during the second half of Fiscal 2020, it still registered a 24% increase during Fiscal 2020.

Gold prices continued to dip to a low of $1,683 an ounce on March 30, 2021, and then began to rebound throughout the remainder of the year closing at $1,820 on December 31, 2021, as determined by the London AM Fix.

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

According to the World Gold Council’s press release dated January 28, 2022, the use of gold in the technology sector in 2021 increased 9% to reach a three year high.

While technology demand is comparatively smaller than other sectors, its uses are far reaching and prevalent in a variety of electronics, from mobile devices to the sophisticated James Webb telescope recently put into orbit.

According to the same press release, gold is expected to face similar dynamics in 2022 to those seen last year, with competing forces supporting and curtailing its performance.

Near term, the gold price will likely react to real rates, which in turn will respond to the speed at which global central banks tighten monetary supply and their effectiveness in controlling inflation.

The pandemic seems to continue to affect the recommerce business in unpredictable ways.

Although there are variants of COVID-19 affecting the health of the United States, the employment figures through 2021 suggest people were heading back to work during 2021.

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

This is the opposite of what one might expect during a pandemic that is still considered a threat and when a social phenomenon labeled as the Great Resignation threatens the country’s ability to retain workers.

Government stimulus checks, eviction moratoriums, forbearances on mortgages and student loans have all been stopped or curtailed during 2021.

During these uncertain times, DGSE has shown our continuing devotion to provide our customers what they need.

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.

Tracking the decrease in gold prices during 2021, DGSE’s crafted-precious-metal purchases decreased slightly by 5% in fiscal year 2021.

In fiscal year 2020, DGSE experienced a decrease in crafted-precious-metal purchases by 21%.

The Company attributes the slight decrease to the impact of COVID-19, which impacted foot traffic and its retail locations.

While the precious-metals industry has stabalized, our focus will be to continue 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.

For additional information regarding DGSE, see “Item 1.

Business—Operating Segments—DGSE Segment.”

A list of the company’s significant subsidiaries is presented in Exhibit 21.1.

Key Economic Factors and Trends Affecting the Markets in Which We Operate

ECHG Business Drivers and Impacts

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

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

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

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

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.

The electronic disposition and recycling industry is fragmented in the United States.

Certain parts of ECHG’s business comes from a limited number of partners.

The used electronics processing business is subject to cyclical fluctuations based upon product availability, promotions, seasonality, and supply chain constraints.

In our ECHG segment, we compete primarily on price and on the services, we provide to clients.

The price offered for devices is the principle competitive factor in acquiring material from generators.

Generators of material may also consider factors other than price, such as logistics costs, timely removal, customized reports, the ability to service multiple locations, insurance coverage, and the buyer’s financial strength.

For additional information regarding ECHG, see “Item 1.

Business—Operating Segments—ECHG Segment.”

Business—Operating Segments—ECHG Segment” and See “Item 1A.

Risk Factors—unable to maintain relationships with significant clients”.

DGSE Precious Metals Pricing and Business Impact

The Company is 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.

The Company does not currently use derivatives to hedge these risks.

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

The retail sales and gross margin could be materially impacted if prices of diamonds, platinum, gold, or silver rise so significantly that consumer behavior changes or if price increases cannot be passed onto 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 relating to gold as it represents a significant portion of the precious-metal in which DGSE trades.

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

Impact of COVID-19 and Macroeconomic Conditions on Our Business

The ongoing impact of the COVID-19 pandemic continues to affect our business and results of operations, although to a lesser extent than the prior years.

Throughout the pandemic, our top priority has been to protect the health and safety of our employees and our customers.

Macroeconomic uncertainty and inflationary pressure may drive lower demand for the end consumer and increase operating costs and costs of borrowing.

Critical Accounting Policies and Estimates

Our significant accounting policies are disclosed in Note 1 of our consolidated financial statements.

The following discussion addresses our most critical accounting policies, which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates.

References to fiscal years below are denoted with the word “Fiscal” and the associated year.

Inventories :

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting (“U.S.

GAAP”) principles.

The preparation of these financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods.

Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material.

While our significant accounting policies are more fully described in Note 1—Summary of Significant Accounting Policies, we believe that the accounting estimates discussed below relate to the more significant areas involving management’s judgments and estimates.

DGSE inventory is valued at the lower of cost or net realizable value (“NRV”).

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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.

Impairment of Long-Lived and Amortized Intangible Assets :

We perform impairment evaluations of our long-lived assets, including property, plant and equipment and intangible assets with finite lives whenever business conditions or events indicate that those assets may be impaired.

When the estimated future undiscounted cash flows to be generated by the assets are less than the carrying value of the long-lived assets, the assets are written down to fair market value and a charge is recorded to current operations.

Based on our evaluations, no impairment was required as of December 31, 2021 or 2020.

Business Combinations:

Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition.

The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill.

Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset.

Accounting for business acquisitions requires management to make judgments as to whether a purchase transaction is a multiple element contract, meaning that it includes other transaction components such as a settlement of a preexisting relationship.

This judgment and determination affects the amount of consideration paid that is allocable to assets and liabilities acquired in the business purchase transaction.

Revenue Recognition :

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards update (ASU) No.

2014-09, Revenue from Contracts with Customers (Topic 606), which superseded revenue recognition requirements in Topic 605, Revenue Recognition.

The ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgements and changes in judgements and assets recognized from cost incurred to obtain or fulfill a contract.

ASC 606 provides guidance to identify performance obligations for revenue-generating transactions.

The initial step is to identify the contract with a customer created with the sales invoice or repair ticket.

Secondly, to identify the performance obligations in the contract as we promise to deliver the purchased item or promised repairs in return for payment or future payment as a receivable.

The third step is determining the transaction price of the contract obligation as in the full ticket price, negotiated price or a repair price.

The next step is to allocate the transaction price to the performance obligations as we designate a separate price for each item.

The final step in the guidance of ASC 606 is to recognize revenue as each performance obligation is satisfied.

Our over-the-counter sales with the retail public and wholesale dealers are recognized when the merchandise is delivered, and payment has been made either by immediate payment or through a receivable obligation at one of our retail locations.

We also recognize revenue upon the shipment of goods when retail and wholesale customers have fulfilled their obligation to pay, or promise to pay, through e-commerce or phone sales.

We have elected to account for shipping and handling costs as fulfillment costs after the customer obtains control of the goods.

Crafted-precious-metal items at the end of their useful lives are sold to a refiner.

Since the local refiner is located in the Dallas/Fort Worth area we deliver the metal to the refiner.

The metal is melted and assayed, price is determined from the assay and payment is made usually in a day or two.

Revenue is recognized from the sale once payment is received.

DGSE also offers a structured layaway plan.

When a retail customer utilizes the layaway plan, we collect a minimum payment of 25% of the sales price, establish a payment schedule for the remaining balance and hold the merchandise as collateral as security against the customer’s deposit until all amounts due are paid in full.

Revenue for layaway sales is recognized when the merchandise is paid in full and delivered to the retail customer.

Layaway revenue is also recognized when a customer fails to pay in accordance with the sales contract and the sales item is returned to inventory with the forfeit of deposited funds, typically after 90 days.

In limited circumstances, we exchange merchandise for similar merchandise and/or monetary consideration with both dealers and retail customers, for which we recognize revenue in accordance with Accounting Standards Codification (“ASC”) 845, Nonmonetary Transactions.

When we exchange merchandise for similar merchandise and there is no monetary component to the exchange, we do not recognize any revenue.

Instead, the basis of the merchandise relinquished becomes the basis of the merchandise received, less any indicated impairment of value of the merchandise relinquished.

When we exchange merchandise for similar merchandise and there is a monetary component to the exchange, we recognize revenue to the extent of the monetary assets received and determines the cost of sale based on the ratio of monetary assets received to monetary and non-monetary assets received multiplied by the cost of the assets surrendered.

The Company offers the option of third-party financing to customers wishing to borrow money for the purchase.

The customer applies on-line with the financing company and upon going through the credit check will be approved or denied.

If accepted, the customer is allowed to purchase according to the limits set by the financing company.

Once the customer does purchase merchandise, based on their financing agreement, we record and recognize the sale at that point, based on the promise to pay by the finance company up to the customer’s approved limit.

We have a return policy (money-back guarantee).

The policy covers retail transactions involving jewelry, graded rare coins and currency only.

Customers may return jewelry, graded rare coins and currency purchased within 30 days of the receipt of the items for a full refund as long as the items are returned in exactly the same condition as they were delivered.

In the case of jewelry, graded rare coins and currency sales on account, customers may cancel the sale within 30 days of making a commitment to purchase the items.

The receipt of a deposit and a signed purchase order evidences the commitment.

Any customer may return a jewelry item or graded rare coins and currency if they can demonstrate that the item is not authentic, or there was an error in the description of a graded coin or currency piece.

Returns are accounted for as a reversal of the original transaction, with the effect of reducing revenues, and cost of sales, and returning the merchandise to inventory.

We have established an allowance for estimated returns related to years ended December 31, 2021 and 2020 sales, which is based on our review of historical returns experience and reduces our reported revenues and cost of sales accordingly.

As of December 31, 2021 and 2020, our allowance for returns remained the same at approximately $28,000 for both years.

The ECHG entities have several revenue streams and recognize revenue according to ASC 606 at an amount that reflects the consideration to which the entities expect to be entitled in exchange for transferring goods or services to the customer.

The revenue streams are as follows.

Outright sales are recorded when product is shipped.

Once the price is established and the terms are agreed to and the product is shipped, the revenue is recognized.

The Echo Entities have fulfilled their performance obligation with an agreed upon transaction price, payment terms and shipping the product.

Echo recognizes refining revenue when our inventory arrives at the destination port and the performance obligation is satisfied by transferring the control of the promised goods that are identified in the customer contract.

Ninety percent (90%) of our refining revenue is generated from one refining partner that has an international refining facility.

This refining partner pays us sixty percent (60%) of an Invoice within five working days upon the receipt of the Ocean Bill of Lading issued by the Ocean Carrier.

Our initial Invoice is recognized in full when our performance obligation is satisfied, as stated in the first sentence.

Under the guidance of ASC 606, an estimate of the variable consideration that we expect to be entitled is included in the transaction price stated at the current precious metal spot price and weight of the precious metal.

An adjustment to revenue is made in the period once the underlying weight and any precious metal spot price movement is resolved, which is usually around six (6) weeks.

Any adjustment from the resolution of the underlying uncertainty is netted with the remaining forty percent (40%) due from the original contract.

Hard drive sales by the ECHG entities are limited to customers who are required to prepay shipments.

Once the commodity price is established and agreed upon by both parties, customers send payment in advance.

The Company releases the shipment on the same day when payment receipt is confirmed, and revenue is recognized on day of shipment.

If payment is received on the last day of the month and shipment goes out the following day the payment received is deferred revenue and recognized the following month when the shipment is made.

The Echo Entities also provide recycling services according to a Scope of Work and services are recognized when promised services are rendered.

We have recycling services conducted at the Echo facility and another type of service is conducted at the client’s facility.

The Scope of Work will determine the charges and whether it is completed on campus or off campus.

Payment terms are also dictated in the Scope of Work.

Accounts Receivable :

We record trade receivables when revenue is recognized.

When appropriate, we will record an allowance for doubtful accounts, which is primarily determined by an analysis of our trade receivables aging using a percentage of past due invoices by categories for DGSE and Avail DE.

ECHG, excluding Avail DE, uses a different analysis process based on historical experience of collecting past due amounts, based on the degree of their aging.

In addition, specific accounts that are doubtful of collection are included in the allowance.

These provisions are reviewed to determine the adequacy of the allowance for doubtful accounts.

Trade receivables are charged off when there is certainty as to their being uncollectible.

Trade receivables are considered delinquent when payment has not been made within contract terms.

DGSE had no allowance for doubtful accounts balance for the years ending December 31, 2021 and 2020.

ECHG has allowance for doubtful accounts balance of $1,583 and $0 for the years ended December 31, 2021 and 2020.

Note Receivable:

ECHG entered into an agreement with CExchange on February 15, 2020, to lend $1.5 million bearing interest at eight and one-half percent (8.5%) per annum with interest only payments due quarterly.

The loan was set to mature on February 20, 2023.

The parties also agreed to warrant and call-option agreements to acquire all of CExchange’s equity interests upon the occurrence of certain events and on certain conditions.

On November 7, 2020, ECHG entered into an amended agreement to increase the loan from $1.5 to $2.1 million.

On April 14, 2021, ECHG entered into a second agreement with CExchange to lend an additional $300,000 bearing interest at four percent (4%) per annum with interest only payments due quarterly, to be repaid, principal and accrued interest, upon the occurrence of certain events or upon demand by ECHG.

On June 9, 2021, ECHG, through CEX, exercised their rights under the warrant and call-option agreements and purchased substantially all of the assets and certain liabilities of CExchange in exchange for ECHG’s cancellation and forgiveness of $1.5 million of the outstanding principal amount under the loan agreement originally dated February 15, 2020 and accrued and unpaid interest thereunder of $55,892.

We subsequently performed impairment evaluations on the two remaining notes after management learned that the two notes may not be recoverable.

Using the guidance provided, management reserved the full amount of the outstanding and unpaid notes receivable of $900,000, and write-off the outstanding and unpaid accrued interest associated with the notes receivable totaling $49,174.

The notes receivable of $900,000 and $49,174 of accrued interest receivable were charged to other expense, as of September 30, 2021.

Subsequent to reserving the note of $900,000, as of September 30, 2021, a partial payment was received of $61,353, reducing the amount of the reserve to $838,647, as of December 31, 2021.

ECHG entered into an agreement with Committed Agency, LLC (“Committed Agency”) on February 4, 2021, pursuant to which it agreed (the “CA Facility Agreement”) to provide Committed Agency a line-of-credit not to exceed $1,000,000 (the “CA Facility”).

Committed Agency intended to, directly or indirectly, sell or dispose of electronic devices previously owned by major electronic carriers.

In addition to the CA Facility Agreement, ECHG contracted with Committed Agency beginning February 4, 2021 to exclusively facilitate their sales through the Company’s warehousing and cleaning of electronic devices, wiping of existing data, and inspecting, packaging and shipping of devices to purchasers, in exchange for which ECHG received a per unit service fee (the “CA Service Agreement”).

The CA Service Agreement terminated and the CA Facility matured on July 30, 2021.

Under the terms of the agreement, the borrower could not borrow any additional funds, under this facility, after May 31, 2021.

Committed Agency paid back all principal and accrued interest as of December 31, 2021.

Amounts borrowed under the CA Facility bore an interest rate of 6% per annum.

Income Taxes :

Income taxes are accounted for under the asset and liability method prescribed by ASC 740, Income Taxes.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not such assets will be realized.

We account for our position in tax uncertainties in accordance with ASC 740, Income Taxes.

The guidance establishes standards for accounting for uncertainty in income taxes.

The guidance provides several clarifications related to uncertain tax positions.

Most notably, a “more likely-than-not” standard for initial recognition of tax positions, a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization.

The guidance applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements.

First, we must determine whether any amount of the tax benefit may be recognized.

Second, we determine how much of the tax benefit should be recognized (this would only apply to tax positions that qualify for recognition.) No additional liabilities have been recognized as a result of the implementation.

We have not taken a tax position that, if challenged, would have a material effect on the financial statements or the effective tax rate during Fiscal 2021 and Fiscal 2020, respectively.

For the year ended December 31, 2022, 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 1—Summary of Significant Accounting Policies.

Recent Accounting Pronouncements

See Note 1, “Accounting Policies and Nature of Operations” to our financial statements included this Annual Report on Form 10-K for recently issued accounting pronouncements not yet adopted as of the date of this Annual Report on Form 10-K.

Use of Non-U.S.

GAAP Financial Measures

In this management’s discussion and analysis, we use supplemental measures of our performance, which are derived from our consolidated financial information, but which are not presented in our consolidated financial statements prepared in accordance with U.S.

We believe that providing these Non-U.S.

GAAP financial measures adds a meaningful presentation of our operating and financial performance.

See the reconciliation of net income to EBITDA, in Non-U.S.

GAAP Financial Measures below.

GAAP Financial Measures

EBITDA is a key performance measure that our management uses to assess our operating performance.

Because EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure as an overall assessment of our performance, to evaluate the effectiveness of our business strategies and for business planning purposes.

EBITDA may not be comparable to similarly titled metrics of other companies.

EBITDA means earnings before interest expense, other (income) expense, net, income tax expense, and depreciation and amortization.

EBITDA is a non-U.S.

GAAP measure and should not be considered as an alternative to the presentation of net income or any other measure of financial performance calculated and presented in accordance with U.S.

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

For the Years Ended December 31,

EBITA Reconciliation:

Add (deduct):

Depreciation and amortization

Other income from loan forgiveness

Other (income) expense

Interest expense

Income tax expense (benefit)

Results of Operations

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Revenue related to DGSE’s continuing operations increased by $11,057,868, or 13%, during Fiscal 2021, to $96,719,259, as compared to $85,661,391 during Fiscal 2020.

Resale revenue, such as bullion, jewelry, watches and rare coins, increased by $9,356,364, in Fiscal 2021, or 12%, to $89,146,783 as compared to $79,790,419 during Fiscal 2020.

Recycled-material revenue increased 29% to $7,572,476 for Fiscal 2021, as compared to $5,870,972 for Fiscal 2020, an increase of $1,701,504.

Revenue increased for resale items for Fiscal 2021, compared to Fiscal 2020 primarily due to the apparent increase in consumer demand following the lifting of governmental orders to refrain from selling non-essential items in our retail stores due to the COVID-19 pandemic during Fiscal 2020 and the increased retail locations for DGSE during Fiscal 2021, whereas, the new locations were only operating for a part of Fiscal 2020.

The increase in recycled-materials revenue, for Fiscal 2021, as compared to Fiscal 2020, is primarily due to the additional retail locations purchasing inventory over the counter.

Increased purchasing from over the counter customers increased our gold and silver pieces that did not make the level of quality for retail display and was therefore recycled.

Revenue related to ECHG continuing operations increased by $15,986,195, or 57%, during Fiscal 2021, to $44,246,819, as compared to $28,260,624 during Fiscal 2020.

Resale revenue increased by $13,144,532, or 68%, during Fiscal 2021, to $32,540,366, as compared to $19,395,834 during Fiscal 2020.

Recycled revenue increased by $2,841,663, or 32%, during Fiscal 2021, to $11,706,453, as compared to $8,864,790 during Fiscal 2020.

The increase in both resale and recycled revenue, for Fiscal 2021 as compared to Fiscal 2020 is primarily due to the opening-up of the economy and COVID-19 vaccines approved and administered during Fiscal year 2021, as compared to Fiscal year 2020 when COVID-19 began and governmental measures were issued forcing many businesses to close in-person commerce and for employees to stay at home.

Gross Margin:

Gross profit related to DGSE, increased in Fiscal 2021 by $2,238,292 to $12,608,162, or 22%, as compared to $10,369,870 during Fiscal 2020.

The gross profit for resale revenue increased by $1,806,668, or 20%, during Fiscal 2021, to $11,022,162, as compared to $9,215,494 during Fiscal 2020.

The gross profit for recycled sales increased by $431,624, or 37%, during Fiscal 2021 to $1,586,000, as compared to $1,154,376 during Fiscal 2020.

The resale gross profit increased during Fiscal 2021 as compared to Fiscal 2020 primarily due to a 12% increase in resale revenue and a margin percentage increase from 11.5% during Fiscal 2020 to 12.4% during Fiscal 2021.

The recycled gross profit increased during Fiscal 2021 as compared to Fiscal 2020 primarily due to a 29% increase in recycled revenue and a margin percentage increase from 19.7% during Fiscal 2020 to 20.9% during Fiscal 2021.

The gross profit related to ECHG, increased in Fiscal 2021 by $5,913,904 to $18,612,997, or 47%, as compared to $12,699,093 during Fiscal 2020.

The gross profit for resale revenue increased by $5,065,485, or 53%, during Fiscal 2021, to $14,570,092, as compared to $9,504,607 during Fiscal 2020.

The gross profit for recycled sales increased by $848,419, or 27%, during Fiscal 2021 to $4,042,905, as compared to $3,194,486 during Fiscal 2020.

The resale gross profit increased during Fiscal 2021 as compared to Fiscal 2020 primarily due to a 68% increase in resale revenue even though the margin percentage decreased from 49.0% during Fiscal 2020 to 44.8% during Fiscal 2021.

The recycled gross profit increased during Fiscal 2021 as compared to Fiscal 2020 primarily due to a 32% increase in recycled revenue even though the margin percentage decreased from 36.0% during Fiscal 2020 to 34.5% during Fiscal 2021.

The following table represents our historical operating revenue and gross profit results by category:

The results of operations presented below should be reviewed in conjunction with the financial statements and notes included elsewhere in the Annual Report.

Prior year comparisons for 2022 and 2021, are included in “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal years ended December 31, 2022 and 2021.

Year-over-year discussion and analysis of the line-item revenue and expenses within the consolidated income statement are included below for 2022 and 2021.

The following tables set forth our results of operations and such data as a percentage of revenue and gross profit for the periods presented:

For the Years Ended

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$ 182,685,854

$ 140,966,078

Comparison of 2022 and 2021

Resale Revenue

Year Ended December 31,

Resale Revenue

$ 122,468,154

Resale revenue related to DGSE increased by $33,321,371, or 37% in Fiscal 2022 compared to Fiscal 2021.

Resale revenue, such as bullion, jewelry, watches, and rare coins, increased primarily due to increased traction in DGSE’s new retail locations added to increased consumer demand with increased foot traffic from an increase in advertising.

Resale revenue related to ECHG increased by $7,207,265, or 22%, in Fiscal 2022 compared to Fiscal 2021.

Resale revenue increased primarily due to the economy beginning to stabilize during Fiscal 2022 from the COVID-19 pandemic.

Recycled-Material Revenue

Year Ended December 31,

Recycled Revenue

Recycled-material revenue related to DGSE increased by $1,066,803, or 14% in Fiscal 2022 compared to Fiscal 2021.

The increase in recycled-material revenue is primarily due to DGSE’s retail locations purchasing additional inventory over the counter from increased foot traffic.

Recycled-material revenue related to ECHG increased by $124,337, or 1% in Fiscal 2022 compared to Fiscal 2021.

The increase in recycled-material revenue is primarily due to the increase of down-stream recycling activity beginning to come back from the COVID-19 pandemic.

Resale Gross Profit

Year Ended December 31,

Gross Margin - Resale

Resale gross profit related to DGSE, increased by $3,218,633, or 29% in Fiscal 2022 compared to Fiscal 2021.

The increase in resale gross profit is primarily due to the 37% increase in resale revenue even though the margin percentage decreased from 12.4% during Fiscal 2021 to 11.6% during Fiscal 2022.

The resale gross profit related to ECHG, increased $7,549,761, or 52% in Fiscal 2022 compared to Fiscal 2021.

The resale gross profit increase is primarily due to a 22% increase in resale revenue and the margin percentage increasing from 44.8% during Fiscal 2021 to 55.7% during Fiscal 2022.

Recycled-Material Gross Profit

Year Ended December 31,

Gross Margin - Recycled

Recycled-material gross profit related to DGSE, increased by $407,644, or 26% in Fiscal 2022 compared to Fiscal 2021.

The recycled-material gross profit increase is primarily due to a 14% increase in recycled revenue and a margin percentage increase from 20.9% during Fiscal 2021 to 23.1% during Fiscal 2022.

Recycled-material gross profit related to ECHG, increased by $2,429,889, or 60% in Fiscal 2022 compared to Fiscal 2021.

The recycled-material gross profit increase is primarily due to a slight increase in recycled-material revenue and the margin percentage increasing from 34.5% during Fiscal 2021 to 54.7% during Fiscal 2022

For the Years Ended

December 31, 2022

December 31, 2021

$ 131,107,433

$ 182,685,854

$ 140,966,078

Cost of goods sold

Selling, general and administrative expenses

Depreciation and amortization

Operating income

Other income/expense :

Other income from loan forgiveness

Other income (expense)

Interest expense

Income before income taxes

Income tax expense (benefit)

Income from continuing operations

Selling, General and Administrative

Selling, general and administrative expenses for DGSE increased $695,118, or 10% in Fiscal 2021, to $7,628,377, as compared to $6,933,259 during Fiscal 2020.

The increase in SG&A was primarily due to the additional expenses of the new Lewisville and Grapevine retail locations during all of Fiscal 2021 as compared to only a portion of Fiscal 2020.

Selling, general and administrative expenses for ECHG increased by $4,549,703, or 53% during Fiscal 2021, to $13,169,718, as compared to $8,620,015 during Fiscal 2020.

Fiscal 2021 expenses consist primarily of payroll, payroll taxes and employee benefits of $7,936,190, rent and variable rent costs, net of sublet income, of $1,397,869, warehouse and office supplies of $307,176, travel expenses of $72,548, professional fees of $202,680, Utilities of $355,279 and overhead administrative expenses of $1,177,037.

The assets from the CExchange Transaction and the Avail Transaction were acquired on June 9, 2021 and October 29, 2021, respectively;

therefore, Fiscal 2021 is not comparable to Fiscal 2020.

Year Ended December 31,

Selling, General and Administrative

Selling, general and administrative expenses for DGSE increased $1,134,055, or 15% in Fiscal 2022 compared to Fiscal 2021.

The increase in SG&A was primarily due to an increase in advertising of approximately $312,000, and payroll and payroll related expenses of approximately $900,000.

Selling, general and administrative expenses for ECHG increased by $7,498,574, or 57% in Fiscal 2022 compared to Fiscal 2021.

The CExchange Transaction and the Avail Transaction closed in June and October 2021, respectively.

The added companies are primarily the reason for the increase in selling, general and administrative expenses.

Depreciation and Amortization

Depreciation and amortization for DGSE increased by $67,870, or 21%, during Fiscal 2021, to $389,703 as compared to $321,833 during Fiscal 2020.

The increase is primarily due to the added depreciation from two buildings purchased, associated build-out costs and added building furnishings that were placed into service during the fourth quarter of Fiscal 2020.

Depreciation and Amortization expense for ECHG increased by $129,599, or 32%, during Fiscal 2021, to $536,392 as compared to $406,793 during Fiscal 2020.

The increase is primarily due to added equipment to Echo’s warehouse during Fiscal 2021 and the additional depreciation of fixed assets and the amortization of added intangible assets from the CExchange Transaction and the Avail Transaction.

Year Ended December 31,

Depreciation and Amortization

Depreciation and amortization for DGSE increased by $21,056, or 5% in Fiscal 2022 compared to Fiscal 2021.

The increase is primarily due to the added depreciation from additional furniture and fixtures, new equipment and building improvements added during Fiscal 2022.

Depreciation and Amortization expense for ECHG increased by $504,683, or 94% in Fiscal 2022 compared to Fiscal 2021.

The CExchange Transaction and the Avail Transaction closed in June and October 2021, respectively.

Added amortization expense from new intangible assets produced by the two transactions is primarily the increase in depreciation and amortization expense for ECHG.

Other Income from Loan Forgiveness

Other income from loan forgiveness is due from the Federal Loan being forgiven during Fiscal 2021 and allocated to both segments in accordance to the use of the funds.

Year Ended December 31,

Other Income from Loan Forgiveness

Other income from loan forgiveness, in Fiscal 2021, is due from the Federal Loan being forgiven and allocated to both segments in accordance with the use of the funds.

The total amount forgiven of $1,668,200 was allocated to DGSE in the amount of $675,210, and $992,990 was allocated to ECHG.

Other Income (expense), net:

Other income for DGSE increased by $124,611 in Fiscal 2021, to $238,585, as compared to $113,974 during Fiscal 2020.

During Fiscal 2021, other income of $238,585, consists primarily of DGSE’s portion of the net rental income in excess of the SG&A expenses from space leased at the Company’s corporate headquarters of $230,364.

Fiscal 2020, other income of $113,974, was primarily the combination of writing off old vendor checks of approximately $45,000 and half of the rent income allocated from tenants at the new Company headquarters’ of $67,632.

Other expense for ECHG increased by $731,043 during Fiscal 2021, to $538,020, as compared to other income of $193,023 during Fiscal 2020.

Other expense during Fiscal 2021, of $538,020, consists primarily of interest income from notes receivables of $113,606, net rental income in excess of the SG&A expenses from the space leased at the Company’s corporate headquarters of $230,364, offset by the write-off of the CExchange note receivable accrued interest of $49,174 and the reserve set for the CExchange note receivable of $838,647.

Other income during Fiscal 2020, of $193,024 is primarily a combination of interest income from note receivable of $114,297 and half of the rent income allocated from tenants at the new Company headquarters’ of $67,632.

Other Income/Expense

Year Ended December 31,

Other Income/(Expense)

Other income for DGSE decreased by $176,899, or 74% in Fiscal 2022 compared to Fiscal 2021.

During Fiscal 2022, other income consists of $48,000 of DGSE’s portion of the rental income generated from the Company’s corporate headquarters and approximately $13,700 of other miscellaneous income.

During Fiscal 2021, other income of $238,585, consisted primarily of DGSE’s portion of the net rental income in excess of the SG&A expenses from space leased at the Company’s corporate headquarters of $230,364.

Other income for ECHG increased by $1,395,025 in Fiscal 2022, or 259%, to other income, net of $857,005, as compared to other expense, net of $538,020 during Fiscal 2021.

Other income, net during Fiscal 2022, of $857,005 consists primarily of reducing the notes receivable reserve from $838,647 to $0, and bank account interest income of $11,720.

Other expense during Fiscal 2021, of $538,020, consists primarily of interest income from notes receivables of $113,606, net rental income in excess of the SG&A expenses from the space leased at the Company’s corporate headquarters of $230,364, offset by the write-off of the CExchange notes receivable accrued interest of $49,174 and the reserve set for the CExchange notes receivable of $838,647.

Interest Expense

Interest expense for DGSE increased by $78,941 or 38%, in Fiscal 2021, to $288,236 as compared to $209,295 in Fiscal 2020.

The increase consists primarily of two additional DGSE notes payable and half the Company’s corporate headquarters’ notes payable interest for all of Fiscal 2021 as compared to only a portion of Fiscal 2020.

The interest expense for ECHG increased by $4,610 during Fiscal 2021, to $415,814 as compared to $411,204 during Fiscal 2020.

The increase is primarily related to the revolving line of credit interest of $6,005 during Fiscal 2021 as compared to $0 interest for the revolving line of credit during Fiscal 2020.

Year Ended December 31,

Interest Expense

Interest expense for DGSE decreased by $44,034 or 15%, in Fiscal 2022 compared to Fiscal 2021.

The decrease is primarily due to Farmers State Banks of Oakley Kansas (“FSB”) refinancing of a DGSE loan on November 23, 2021.

The refinancing reduced the interest rate from 6.0% to 3.1% annualized.

The interest expense for ECHG decreased by $176,324 or 42%, in Fiscal 2022 compared to Fiscal 2021.

The decrease is primarily due to FSB refinancing an ECHG loan on November 23, 2021.

The refinancing reduced the interest rate from 6.0% to 3.1% annualized.

Income Tax Expense

Income tax expense for the Company increased by $23,190, or 26%, in Fiscal 2021, to $112,808 as compared to $89,618 in Fiscal 2020.

Year Ended December 31,

Income Tax Expense (Benefit)

$ (1,426,697 )

$ (1,471,821 )

Income tax benefit for Fiscal 2022 totaled $1,309,606 as compared to an income tax expense of $112,808 for Fiscal 2021.

See Note 14 for Federal Income Taxes.

The Company recorded a net income of $10,048,875 in Fiscal 2021, as compared to net income of $6,383,943 in Fiscal 2020.

An increase in net income of $3,664,932 is due primarily to an increase of revenue of approximately $27.0 million and the forgiveness of the Federal Loan of approximately $1.67 million.

Year Ended December 31,

The Company recorded an increase in net income of $5,640,258, or 56% in Fiscal 2022 compared to Fiscal 2021.

The increase in net income is due primarily to an increase of revenue of approximately $41.7 million, the reduction of the reserve against the notes receivable of $838,647 during Fiscal 2022 and the valuation allowance reduction of $1,488,258 against the deferred tax benefit during Fiscal 2022.

Earnings Per Share

Our net income per basic and diluted shares attributable to holders of our Common Stock was $0.37, during Fiscal 2021, as compared to $0.24 per basic and diluted shares during Fiscal 2020, an increase of $0.13 per share.

The increase is due primarily from the revenue increase of approximately $27.0 million from Fiscal 2020 to Fiscal 2021 and the forgiveness of the Federal Loan of approximately $1.67 million.

Year Ended December 31,

Earnings Per Share

Our net income per basic and diluted shares attributable to holders of our Common Stock increased by $0.21 per share, or 57% in Fiscal 2022 compared to Fiscal 2021.

The increase is due primarily from the revenue increase of approximately $41.7 million from Fiscal 2021 to Fiscal 2022, the removal of the reserve against the notes receivable of $838,647 during Fiscal 2022 and the valuation allowance reduction of $1,488,258 against the deferred tax benefit, during Fiscal 2022.

Liquidity and Capital Resources

During Fiscal 2021, cash provided by operations totaled $2,805,063, as compared to cash provided by operations totaling $6,897,091 in Fiscal 2020, a decrease in cash provided by operations of $4,092,028.

Cash provided by operating activities for the year ended December 31, 2021, was primarily driven by the increase in accounts payable and accrued expenses of $752,379, an increase in customer deposits and other liabilities of $357,548 and net income, adding depreciation and amortization, bad debt expense, Other income from forgiveness of the Federal Loan and write off of note receivables accrued interest and to reserve the notes receivable of $10,277,594.

Offset by the increase of trade receivables of $3,969,701, the increase of inventories of $3,554,802, and the increase in other assets of $1,024,234.

Cash provided by operating activities for the year ended December 31, 2020, was primarily driven by the increase in trade accounts receivable of $151,124, an increase in customer deposits and other liabilities of $263,572 and net income, adding depreciation, amortization and stock based compensation to employees of $7,112,894.

Offset by the increase of inventories of $497,444, the increase of prepaid expenses of $108,884 and the reduction of accounts payable and accrued accounts payable of $29,332.

During Fiscal 2021 and Fiscal 2020, cash used in investing totaled $4,875,356 and $7,964,588, respectively, a decrease of $3,089,232.

Cash used in investing during Fiscal 2021 was primarily due to investing in a note receivable of $300,000, purchasing a new building for DGSE’s retail operations totaling $2,352,075 and associated build out costs, of which $526,169 were cash payments applied against the purchase of the retail location and the remainder of the balance of the purchase was financed through notes payable, the acquisition of the assets from the CExchange Transaction and the Avail Transaction, net of cash acquired, in the amount of $1,497,994 and equipment purchases totaling $786,640, offset by payments from note receivable of $61,353.

The cash used in investing during Fiscal 2020 was a combination of investing in a note receivable of $2,100,000 to CExchange, purchasing two new retail locations for DGSE totaling $1,815,000 and associated build out costs, of which $363,000 was cash payments applied against the purchases of the retail locations and the remainder of the balance from the purchases was financed through notes payable, and the purchase of our corporate headquarters totaling $3,521,021, of which $561,021 was cash payments applied against the office building and the remainder of the balance from the purchase was financed through notes payable.

During Fiscal 2021 and Fiscal 2020, cash provided by financing totaled $2,990,405 and $5,774,873, respectively, a decrease of $2,784,468.

Cash provided by financing during Fiscal 2021 is primarily due to the proceeds from the Company’s line of credit of $1,700,000 and funds provided by a loan made by Texas Bank & Trust for a retail building in Frisco, Texas, totaling $1,772,000.

Offset by principal payments made against the two related party notes payable from Mr.

Loftus in the amount of $268,793 and principal payments made against the notes payable loans issued for the corporate and DGSE’s retail buildings of $212,802.

Cash provided by financing during Fiscal 2020 is primarily due to funds provided by loans made by Texas Bank & Trust for the corporate office building in Irving, Texas and the retail building in Grapevine, Texas, both totaling $3,456,000, a loan made by Truist Bank (f/k/a BB&T Bank) for the retail building located in Lewisville, Texas for $956,000 and the proceeds from the Federal Loan of $1,668,200.

Offset by principal payments made against the two related party notes from Mr.

Loftus in the amount of $279,210 and principal payments made against the notes payable loans issued for the corporate and DGSE’s retail buildings of approximately $26,000.

On May 17, 2019, the Company secured a 12 month line of credit from Texas Bank and Trust for $1,000,000.

The line of credit was renewed for an additional 24 months and increased to $3,500,000 on May 17, 2020.

On November 23, 2021, the Company secured a 36 month line of credit from Farmers State Bank of Oakley Kansas for $3,500,000 at 3.1% annual interest rate.

The line of credit with Texas Bank and Trust was immediately closed with a $0 outstanding balance.

Our line of credit is to fund any cash shortfalls that we may have from time-to-time during the life of the line of credit.

Also, from time-to-time, we have adjusted our inventory levels to meet seasonal demand or in order to meet working capital requirements.

Management believes we have enough capital resources to meet working capital requirements.

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

Prior year comparisons are included in “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for Fiscal 2022.

Year Ended December 31,

Net cash (used in) provided by:

Operating activities

Investing activities

Financing activities

Net increase in cash and cash equivalents

During Fiscal 2022, cash provided by operations totaled $10,019,885, which was primarily driven by net income of $15,689,133, reduction from non-cash charges, net of $801,653, the increase in accounts payable and accrued expenses of $1,367,713 and a decrease in other assets of $985,509.

In addition, the foregoing was further offset by the increase of trade receivables of $856,660, the increase in inventories of $4,707,349, the increase in prepaid expenses of $792,778 and the reduction of customer deposits and other liabilities of $896,742.

During Fiscal 2022, cash used in investing totaled $229,339 which primarily consisted of the purchase of equipment and additional property build-out of $272,748 and the additional net cash payment concerning the Avail Transaction of $216,988, offset by the receipt of $260,397 from notes receivable.

During Fiscal 2022, cash used in financing totaled $2,758,725 which primarily consisted of principal payments made against the notes payable loans of $1,058,725 and payments made against the Company’s line of credit of $1,700,000.

On November 23, 2021, the Company secured a 36-month line of credit from FSB for $3,500,000 at 3.1% annual interest rate.

A line of credit of up to $3,500,000 with Texas Bank and Trust was immediately closed with a $0 outstanding balance.

Our line of credit with FSB is to fund any cash shortfalls that the Company may have from time-to-time during the life of the line of credit.

Also, from time-to-time, inventory levels have been adjusted to meet seasonal demand or in order to meet working capital requirements.

Management believes there are enough capital resources to meet working capital requirements.

If additional working capital is required, additional loans can be obtained from individuals or from other commercial banks.

We expect our capital expenditures to total approximately $300,000 during the next 12 months.

These expenditures will be largely driven by the purchase of equipment, build-out of corporate space in our office building for tenants and the potential purchase and build-out of any additional DGSE retail buildings.

Management expects our capital expenditures to total approximately $750,000 during the next 12 months.

These expenditures will be largely driven by the purchase of equipment, the build-out of corporate office space in the Company headquarters and the potential purchase and build-out of any additional DGSE retail buildings.

As of December 31, 2022, there were no commitments outstanding for capital expenditures.

In the event of significant growth in retail and wholesale jewelry sales and recycling demand, whether purchases or services, our demand for additional working capital will increase due to a related need to stock additional jewelry inventory, increases in wholesale accounts receivable and the purchasing of recycled material.

Historically we have funded these activities through operations.

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.

On May 20, 2019, we entered into two loan agreements with John R.

Loftus, the Company’s CEO, President and Chairman of the Board.

The first note of $6,925,979, pursuant to the Echo Legacy Entities asset purchase agreement, was a five-year promissory note amortized over 20 years at 6% annual interest rate.

The second note of $3,074,021 paid off the accounts payable – related party balance to a former Related Party on May 20, 2019.

The promissory note was a five-year note amortized over 20 years at 6% annual interest rate.

On November 23, 2021, both notes were refinanced by Farmers State Bank of Oakley Kansas.

The first note was refinanced for the remaining and unpaid balance of $6,309,962, is a five-year promissory note amortized over 20 years at 3.1% annual interest rate.

The second note was refinanced for the remaining and unpaid balance of $2,781,087, is a five-year promissory note amortized over 20 years at 3.1% annual interest rate.

Both notes are being serviced by operational cash flow.

The coronavirus disease 2019 (COVID-19) pandemic has adversely affected global economic business conditions.

Future sales on products like ours could decline, and the ultimate impact is uncertain and subject to change.

The duration of this pandemic and the impact, either direct or indirect cannot be predicted.

The Company believed additional liquidity was necessary to support ongoing operations during this period of uncertainty.

We applied for and received approximately $1.67 million, 1% interest, Federal Loan to pay employees and cover certain rent and utility-related costs during the COVID-19 pandemic.

The loan was forgivable to the extent that certain criteria were met.

We applied for forgiveness during Fiscal 2020 and received notification of forgiveness of the Federal Loan during Fiscal 2021.

The forgiveness of the Federal Loan is included in Other income from loan forgiveness on our consolidated income statements.

In the event of significant growth in retail and wholesale jewelry sales and recycling demand, whether purchases or services, the demand for additional working capital will increase due to a related need to stock additional jewelry inventory, increases in wholesale accounts receivable and the purchasing of recycled material.

Historically, operations has funded these activities.

The Company has 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 Company leases certain of its facilities under operating leases.

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Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.

STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

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

What changed 10-K

Item 7. Management’s Discussion and Analysis