What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-03 compared with 2022-11-02 · 204 added, 191 removed, 61 unchanged (87% of the section changed)

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Forward-Looking Statements

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

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

(i) the section of this Form 10-Q entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” (ii) information concerning our business prospects or future financial performance, anticipated revenues, expenses, profitability or other financial items;

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Envela Overview

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

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

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

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

The Company operates through two recommerce business segments represented by customer designations.

The consumer segment, formerly known as the DGSE segment, focuses on the recommercialization of luxury hard assets, and the commercial segment formerly known as the ECHG segment, focuses on the recommercialization of business IT equipment and electronic devices.

Through the consumer segment, the Company recommercializes luxury hard assets and operates the Dallas Gold and Silver Exchange, Charleston Gold & Diamond Exchange, and Bullion Express brands.

Through the commercial segment, the Company recommercializes business IT equipment and 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, 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 and focuses on sustainable, authenticated recommerce of luxury hard assets, including diamonds.

In addition to its operations through the consumer and commercial segments, Envela also leases unused space at its Company headquarters in Irving, Texas to third-party tenants.

Consumer Segment Business Overview

The consumer segment 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 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.

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

Dallas Gold & Silver Exchange and Charleston Gold & Diamond Exchange have specialized in buying and selling jewelry for almost 50 years, making our expert staff among the best in the business.

Dallas Gold & Silver Exchange 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, it also 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 the consumer segment, see “Item 1.

Business - Operating Segments - DGSE Segment.” in the Company’s 2022 Annual Report.

DGSE Recommerce Activities

Consumer Segment Recommerce Activities

We operate a sustainable marketplace for preowned luxury goods.

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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.

The consumer segment 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.

DGSE Precious Metals Pricing and Business Impact

Consumer Segment Precious Metals Pricing and Business Impact

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.

The nature of the consumer 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.

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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).

Because the consumer segment 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 our merchandise costs, can have a significant impact on its earnings and cash availability.

We continue to monitor the economic impact on our operations from surging inflation and the conflict in Ukraine.

Uncertainties exist that could affect our operations or cash flows in the future, such as continued 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 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.

Consumer Segment Growth and Expansion

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

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

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 the potential purchase of additional properties by DGSE.

ECHG Business Overview

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

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

Commercial Segment Business Overview

The commercial segment operates Echo, ITAD USA, Teladvance, CEX and Avail, through which it primarily buys and resells or recycles electronic components and IT equipment.

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

In addition, as a result of the CExchange Transaction, Teladvance 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.

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

Commercial Segment Recommerce Activities

A portion of the commercial 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 and supply limitations.

ECHG Metals Pricing and Business Impact

ECHG’s recycling business is affected by precious and other non-ferrous metal prices, which fluctuate based upon global supply-and-demand dynamics, among other things, with the greatest impact relating to gold.

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

ECHG’s strategy is to expand both organically and through acquisitions.

As an organization, ECHG strives to deliver value through organic growth, high customer loyalty and retention as well as strategic acquisitions.

ECHG is committed to continuous innovation.

Many of ECHG’s clients have made commitments to going carbon neutral over the next few years and ECHG sees the potential to further expand key relationships as it partners with them in more ways to help them achieve their goal.

With an emphasis on increasing recurring revenues and expanding our margins, ECHG believes its organic strategy will ultimately drive strong financial performance, including cash flow to support our acquisition strategy.

ECHG’s business strategy has always included pursuing synergistic acquisitions, and ECHG’s plans to continue to expand its business by making strategic acquisitions and regularly seeking suitable acquisition targets to enhance its growth.

For additional information regarding ECHG, see “Item 1.

Commercial Segment Metals Pricing and Business Impact

The commercial recycling business is affected by precious and other non-ferrous metal prices, which fluctuate based upon global supply-and-demand dynamics, among other things, with the greatest impact relating to gold.

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

Commercial Segment Growth and Expansion

The commercial strategy is to expand both organically and through acquisitions.

As an organization, we strive to deliver value through organic growth, high customer loyalty and retention as well as strategic acquisitions.

We are committed to continuous innovation.

Many of our clients have made commitments to going carbon neutral over the next few years and we see the potential to further expand key relationships as we partner with them in more ways to help them achieve their goal.

With an emphasis on increasing recurring revenues and expanding our margins, commercially we believe our organic strategy will ultimately drive strong financial performance, including cash flow to support our acquisition strategy.

Commercial’s business strategy has always included pursuing synergistic acquisitions, and we plan to continue to expand the business by making strategic acquisitions and regularly seeking suitable acquisition targets to enhance its growth.

For additional information regarding the commercial segment, see “Item 1.

Business—Operating Segments—ECHG Segment.” in the Company’s 2022 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 fiscal 2022.

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

Economic Conditions

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.

For more information, see Note 17 to our interim condensed consolidated financial statements.

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.

For more information, see Note 17 to these interim condensed consolidated financial statements.

Critical Accounting Policies and Estimates

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

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 — Accounting Policies and Nature of Operations” in the Company’s 2022 Annual Report, we believe that the accounting estimates discussed below relate to the more significant areas involving management’s judgments and estimates.

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

We acquire a majority of our inventory from individual customers, including pre-owned jewelry, watches, bullion, rare coins and monetary collectibles.

We acquire these items based on our own internal estimate of the fair value of the items at the time of purchase.

We consider factors such as the current spot market price of precious metals and current market demand for the items being purchased.

It supplements these purchases from individual customers with inventory purchased from wholesale vendors.

These wholesale purchases can take the form of full asset purchases, or consigned inventory.

Consigned inventory is accounted for on our balance sheet with a fully offsetting contra account so that consigned inventory has a net zero balance.

The majority of our inventory has some component of its value that is based on the spot market price of precious metals.

Because the overall market value for precious metals regularly fluctuates, these fluctuations could have either a positive or negative impact on the value of our inventory and could positively or negatively impact our profitability.

We monitor these fluctuations to evaluate any necessary impairment to inventory.

The Echo inventory principally includes processed and unprocessed electronic scrap materials.

The value of the material is derived from recycling the precious and other scrap metals included in the scrap.

The processed and unprocessed materials are carried at the lower of the average cost of the material during the month of purchase or NRV.

The in-transit material is carried at lower of cost or NRV using the retail method.

Under the retail method the valuation of the inventory at cost and the resulting gross margins are calculated by applying a cost to retail ratio to the retail value of the inventory.

For the three months ended March 31, 2023, we have not identified critical accounting estimates that involve a significant level of estimation uncertainty and would have a material impact on our results.

Refer to our significant accounting policies are more fully described in Note 3 to these interim condensed consolidated financial statements.

Recent Accounting Pronouncements

See Note 3- Accounting Policies and Estimates, to these interim condensed consolidated financial statements for recently adopted accounting pronouncements.

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 interim consolidated financial information, but which are not presented in our interim 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 (defined below), 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 three months Ended March 31,

EBITDA Reconciliation:

Add (deduct):

Depreciation and amortization

Other (income) expense

Interest expense

Income tax expense

Results of Operations

The following disaggregation of total revenue is listed by sales category and segment for the three months ended 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,

The following disaggregation of total revenue is listed by sales category and segment for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

Comparison of three months ended March 31, 2023 and 2022

Resale Revenue

Three Months Ended March 31,

Resale Revenue

$ (1,021,767 )

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.

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 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.

Resale revenue related to the consumer segment increased by $42,827, or 0.13% during the three months ended March 31, 2023, to $33,719,960, as compared to $33,677,133 during the same period in 2022.

Resale revenue, such as bullion, jewelry, watches, and rare coins, increased slightly during the period.

Resale revenue related to the commercial segment decreased by $1,021,767, or 11%, during the three months ended March 31, 2023, to $8,558,090, as compared to $9,579,857 during the same period in 2022.

Resale revenue decreased primarily due to supply chain issues the Company experienced during the three months ending March 31, 2023.

Recycled Revenue

Three Months Ended March 31,

Recycled Revenue

Recycled revenue related to the consumer segment increased by $878,698, or 42%, during the three months ended March 31, 2023, to $2,984,437, as compared to $2,105,739 during the same period in 2022.

Recycled revenue, such as bullion, jewelry, watches, and rare coins, increased primarily during the period ending March 31, 2023 due to increased purchases of non-retail precious metals to be recycled instead of being sold to retail consumers.

Recycled revenue related to the commercial segment increased by $1,074,184, or 52%, during the three months ended March 31, 2023, to $3,126,553, as compared to $2,052,369 during the same period in 2022.

Recycled revenue increased primarily due to an increase of electronic material to be recycled from material not suitable to resale to commercial customers during the three months ending March 31, 2023.

Gross Profit - Resale

Three Months Ended March 31,

Gross Profit - Resale

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

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

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

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

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

Gross Profit - Recycled

Three Months Ended March 31,

Gross Profit - Recycled

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

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

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

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

For The Three Months Ended March 31,

Cost of goods sold

Selling, general and administrative expenses

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 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 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.

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 through the FSB DGSE Loan.

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.

Operating income

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.

Other income (expense)

Interest expense

Income before income taxes

Income tax expense

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, 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 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 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 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.

Selling, General and Administrative

Three Months Ended March 31,

Selling, General and Administrative

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

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

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

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

Selling, General and Administrative Expenses, for the commercial segment, f or the three months ended March 31, 2023, increased by $1,087,472, or 25%, to $5,509,278, as compared to $4,421,806 during the same period in 2022.

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

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

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

Depreciation and Amortization

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 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.

Three Months Ended March 31,

Depreciation and Amortization

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

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

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

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

Other Income (Expense)

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.

Three Months Ended March 31,

Other Income (Expense)

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

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

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

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

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

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

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

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

Interest Expense

Three Months Ended March 31,

Interest Expense

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

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

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

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

Income Tax Expense

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.

Three Months Ended March 31,

Income Tax Expense

Income tax expense, for both segments, for the three months ended March 31, 2023, was $717,646, an increase of $687,354, as compared to income tax expense of $30,292 for the three months ended March 31, 2022.

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

Through fiscal 2022, there was an off-setting valuation allowance associated with the deferred tax asset.

The valuation allowance was written off as of December 31, 2022.

Starting with the three months ended March 31, 2023, the Company will have a federal tax rate of approximately 21%, in addition to other state and local taxes, on net income.

The effective income tax rate was 22.1% and 1.1% for the three months ended March 31, 2023 and 2022, respectively.

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

federal statutory rate are the result of state taxes, non-deductible expenses and changes in the valuation allowance in relation to the deferred tax asset for net operating loss carryforwards, as was the Company’s case for the increase for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

Three Months Ended March 31,

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

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

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

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

Earnings Per Share

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.

Three Months Ended March 31,

Earnings Per Share

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

Liquidity and Capital Resources

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.

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

Three Months Ended March 31,

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Net increase in cash and cash equivalents

During the three months ended March 31, 2023, cash provided by operations totaled $2,924,025, which was primarily driven by net income of $2,526,317, reduction from non-cash charges, net of $689,516, and the increase in customer deposits and other liabilities of $1,484,605.

In addition, the foregoing was offset by the decrease in accounts payable and accrued expenses of $821,413, an increase in other assets of $228,959, an increase of trade receivables of $328,487, the increase in inventories of $350,053 and the increase in prepaid expenses of $47,847.

During the three months ended March 31, 2023, cash provided by investing totaled $569,522, which primarily consisted of payments received from notes receivable of $578,250, offset by the purchase of property and equipment of $8,728.

During the three months ended March 31, 2023, cash used in financing totaled $310,807, which consisted of principal payments made against the notes payable loans of $310,807.

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

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

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.

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

The Company has no capital expenditure commitments as of March 31, 2023.

For more information, see Note 16 to our interim condensed consolidated financial statements.

For more information, see Note 13 to our interim condensed financial statements, which is incorporated into this item by reference.

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.

In addition, on November 23, 2021, the Company secured a thirty six month line of credit from Farmers State Bank of Oakley Kansas (the “FSB Facility”) 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 September 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 Mach 31, 2023.

From time to time, we have adjusted and may further adjust our inventory levels to meet seasonal demand or in order to meet working capital requirements.

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Historically we have funded these activities through operations.

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

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

If necessary, inventory levels may be adjusted in order to meet unforeseen working-capital requirements.

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, 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 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.

For more information, see Note 17 to our interim condensed consolidated financial statements.

The Company leases certain of its facilities under operating leases.

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

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

Operating Leases

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

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

Off-Balance Sheet Arrangements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis