What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-03-21 compared with 2023-03-16 · 156 added, 85 removed, 161 unchanged (60% of the section changed)

10 unchanged sentences

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.

Its commercial-services segment, and its direct-to-consumer segment.

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.

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

For more information, see “Item 1.

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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 and Teladvance, through which it primarily buys and resells or recycles consumer electronic components and IT equipment.

Commercial Business Drivers and Impacts

The commercial segment includes 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.

Like the consumer segment, the commercial segment 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.

Certain parts of the commercial segment 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.

In our commercial 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.

1 unchanged sentence

For additional information regarding ECHG, see “Item 1.

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

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

Risk Factors—Our revenues and profits may decline if we are unable to maintain relationships with significant clients or renew contracts with them on favorable terms”.

Consumer 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 nature of the consumer segment 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.

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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.

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 relating to gold as it represents a significant portion of the precious-metal in which it trades.

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

Critical Accounting Policies and Estimates

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

Our significant accounting policies are fully described in Note 1 of the consolidated financial statements.

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

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.

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For the Years Ended December 31,

EBITA Reconciliation:

EBITDA Reconciliation:

Add (deduct):

Depreciation and amortization

Other income from loan forgiveness

Other (income) expense

Interest expense

Income tax expense (benefit)

Starting December 31, 2023, the EBITDA Reconciliation presentation has been revised to align with the Company’s performance.

Results of Operations

9 unchanged sentences

$ 171,674,088

$ 182,685,854

Comparison of 2023 and 2022

3 unchanged sentences

$ 149,533,829

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

$ 162,215,785

$ (12,681,956 )

Consumer ( f/k/a DGSE)

$ 117,918,242

$ 122,468,154

$ (4,549,912 )

Commercial (f/k/a ECHG)

$ (8,132,044 )

Resale revenue decreased by $12,681,956, or 8%, in Fiscal 2023 to $149,533,829, as compared to $162,215,785 during Fiscal 2022.

The individual segments reported the following:

Resale revenue related to the consumer segment, decreased by $4,549,912, or 4% in Fiscal 2023 as compared to Fiscal 2022.

Resale revenue, such as bullion, jewelry, watches and rare coins, decreased primarily due to a general volatility in precious metal commodity prices during 2023 as compared to 2022.

Resale revenue related to the commercial segment, decreased by $8,132,044, or 20%, in Fiscal 2023 as compared to Fiscal 2022.

Resale revenue decreased primarily due to the reduced demand of our hard drives.

Recycled 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.

Consumer ( f/k/a DGSE)

Commercial (f/k/a ECHG)

$ (1,185,958 )

Recycled revenue increased by $1,670,190 or 8%, in Fiscal 2023 to $22,140,259, as compared to $20,470,069 during Fiscal 2022.

The individual segments reported the following:

Recycled revenue related to the consumer segment, increased by $2,856,148, or 33% in Fiscal 2023 as compared to Fiscal 2022.

The increase in recycled revenue is primarily due to the volatility in commodity prices that forced the scaping of inventory that would have usually been sold in the retail stores.

Recycled revenue related to the commercial segment, decreased by $1,185,958, or 10% in Fiscal 2023 as compared to Fiscal 2022.

The decrease in recycled revenue is primarily due to a reduced level of inventory purchased.

Resale-Cost of Goods Sold

Year Ended December 31,

COGS - Resale

$ 116,774,364

$ 125,855,137

$ (9,080,773 )

Consumer ( f/k/a DGSE)

$ 105,226,933

$ 108,227,359

$ (3,000,426 )

Commercial (f/k/a ECHG)

$ (6,080,347 )

Starting December 31, 2023, the cost of goods sold, for both resale and recycled revenue, is added to our results of operations for comparison purposes.

Resale cost of goods sold decreased by $9,080,773, or 7%, in Fiscal 2023 to $116,774,364, as compared to $125,855,137 during Fiscal 2022.

The individual segments reported the following:

Resale cost of goods sold related to the consumer segment, decreased by $3,000,426, or 3% in Fiscal 2023 as compared to Fiscal 2022.

The decrease in the resale cost of goods sold is primarily due to the decrease in resale revenue of 3% in Fiscal 2023 as compared to Fiscal 2022.

Resale cost of goods sold related to the commercial segment decreased by $6,080,347, or 34% in Fiscal 2023 as compared to Fiscal 2022.

The decrease in the resale cost of goods sold is primarily due to the decrease in resale revenue of 20% in Fiscal 2023 as compared to Fiscal 2022.

Recycled-Cost of Goods Sold

Year Ended December 31,

COGS - Recycled

Consumer ( f/k/a DGSE)

Commercial (f/k/a ECHG)

Recycled cost of goods sold increased by $1,239,563, or 10%, in Fiscal 2023 to13,243,194, as compared to $12,003,631 during Fiscal 2022.

The individual segments reported the following:

Recycled cost of goods sold related to the consumer segment, increased by $1,892,543, or 28% in Fiscal 2023 as compared to Fiscal 2022.

The increase in the recycled cost of goods sold is primarily due to the increase in recycled revenue of 33% in Fiscal 2023 as compared to Fiscal 2022.

Recycled cost of goods sold related to the commercial segment decreased by $652,980, or 12% in Fiscal 2023 as compared to Fiscal 2022.

The decrease in the recycled cost of goods sold is primarily due to the decrease in the recycled revenue of 10% in Fiscal 2023 as compared to Fiscal 2022.

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

Gross Profit - Resale

$ (3,601,183 )

Consumer ( f/k/a DGSE)

$ (1,549,486 )

Commercial (f/k/a ECHG)

$ (2,051,697 )

Resale gross profit decreased by $3,601,183, or 10%, in Fiscal 2023 to $32,759,465, as compared to $36,360,648 during Fiscal 2022.

The individual segments reported the following:

Resale gross profit related to the consumer segment, decreased by $1,549,486, or 11% in Fiscal 2023 as compared to Fiscal 2022.

The decrease in resale gross profit is primarily due to the decrease in resale revenue of 4% during Fiscal 2023 as compared to Fiscal 2022, added to the drop in gross profit margin from 11.6% during Fiscal 2022 as compared to 10.8% in Fiscal 2023.

The resale gross profit related to the commercial segment, decreased $2,051,697, or 9% in Fiscal 2023 as compared to Fiscal 2022.

The resale gross profit decreased is primarily due to a 20% decrease in resale revenue during Fiscal 2023 as compared to Fiscal 2022, offset by an increase in the margin percentage from 63.5% during Fiscal 2023 as compared to 55.7% during Fiscal 2022.

Recycled-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

Gross Profit - Recycled

Consumer ( f/k/a DGSE)

Commercial (f/k/a ECHG)

Recycled gross profit increased by $430,627, or 5%, in Fiscal 2023 to $8,897,065, as compared to $8,466,438 during Fiscal 2022.

The individual segments reported the following:

Recycled gross profit related to the consumer segment, increased by $963,605, or 48% in Fiscal 2023 as compared to Fiscal 2022.

The recycled gross profit increase is primarily due to the 33% increase in recycled revenue and a margin percentage increase to 25.7% during Fiscal 2023 from 23.1% during Fiscal 2022.

Recycled gross profit related to the commercial segment, decreased by $532,978, or 8% in Fiscal 2023 as compared to Fiscal 2022.

The recycled gross profit for the commercial segment decrease is primarily due to a 10% decrease in recycled revenue for Fiscal 2023 as compared to Fiscal 2022.

For the Years Ended

4 unchanged sentences

$ 131,107,433

$ 182,685,854

Cost of goods sold

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Other income/expense :

Other income from loan forgiveness

Other income (expense)

Interest expense

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Selling, General and Administrative

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

Consumer ( f/k/a DGSE)

Commercial (f/k/a ECHG)

SG&A expenses increased by $2,106,953, or 7%, in Fiscal 2023 to $31,537,677, as compared to $29,430,724 during Fiscal 2022.

The individual segments reported the following:

Selling, general and administrative expenses for the consumer segment, increased $1,878,408, or 21% in Fiscal 2023 as compared to Fiscal 2022.

The increase in SG&A was primarily due to an increase in advertising of approximately $221,000 and payroll and payroll related expenses of approximately $1,700,000.

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.

Selling, general and administrative expenses for the commercial segment, increased by $228,545, or 1% in Fiscal 2023 compared to Fiscal 2022.

The increase in SG&A was primarily due to an increase in payroll and payroll related expenses of approximately $217,000.

Depreciation and Amortization

1 unchanged sentence

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

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

Consumer ( f/k/a DGSE)

Commercial (f/k/a ECHG)

Depreciation and amortization expense decreased by $89,770, or 6%, in Fiscal 2023 to $1,362,064, as compared to $1,451,834 during Fiscal 2022.

The individual segments reported the following:

Depreciation and amortization for the consumer segment, decreased by 85,532, or 21% in Fiscal 2023 as compared to Fiscal 2022.

The decrease is primarily due to fixed and intangible assets being fully depreciated and amortized during Fiscal 2023 not yet fully depreciated or amortized during Fiscal 2022.

Depreciation and Amortization expense for the Commercial segment decreased by $4,238, or less than 1% in Fiscal 2023 as compared to Fiscal 2022.

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.

Consumer ( f/k/a DGSE)

Commercial (f/k/a ECHG)

Other income decreased by $190,909, or 21%, in Fiscal 2023 to $727,782, as compared to $918,691 during Fiscal 2022.

The individual segments reported the following:

Other income for the consumer segment increased by $22,120, or 36% in Fiscal 2023 as compared to Fiscal 2022.

During Fiscal 2023, other income consisted of approximately $78,000 and approximately $6,000 of other miscellaneous receipts.

During Fiscal 2023, all of the corporate rental income was allocated to the commercial segment.

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

Other income for the commercial segment decreased by $213,029 in Fiscal 2023, or 25%, to $643,976, as compared to $857,005 during Fiscal 2022.

During Fiscal 2023, other income consisted of approximately $456,000 in bank account interest income, approximately $94,000 in written off notes receivable in prior years and $88,000 in the Company’s corporate headquarters being leased to a third party.

During Fiscal 2022, other income of $857,005 was the result from reducing the notes receivable reserve from $838,647 to $0, and bank account interest income of $11,720.

Interest Expense

1 unchanged sentence

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.

Consumer ( f/k/a DGSE)

Commercial (f/k/a ECHG)

Interest expense decreased by $20,492, or 4%, in Fiscal 2023 to $463,201, as compared to $483,693 during Fiscal 2022.

The individual segments reported the following:

Interest expense for the consumer segment decreased by $51,809 or 21%, in Fiscal 2023 as compared to Fiscal 2022.

The decrease is primarily due to the interest expense on the note for the corporate headquarters was fully allocated to the commercial segment during Fiscal 2023.

The interest expense for the commercial segment increased by $31,317 or 13%, in Fiscal 2023 as compared to Fiscal 2022.

The increase is primarily due to the interest expense on the note for the corporate headquarters was fully allocated to the commercial segment during Fiscal 2023.

Income Tax Expense

2 unchanged sentences

$ (1,309,606 )

Consumer ( f/k/a DGSE)

$ (1,426,697 )

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

Commercial (f/k/a ECHG)

Income tax expense for the Company increased by $3,183,524 or 243%, to $1,873,918 in Fiscal 2023 as compared to a tax benefit of $1,309,606 in Fiscal 2022.

The income tax expense increase was partially due from the valuation allowance being reduced in the amount of $1,490,000 against the deferred tax benefit during Fiscal 2022.

See Note 14 for Federal Income Taxes.

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.

$ (8,541,681 )

Consumer ( f/k/a DGSE)

$ (4,658,682 )

Commercial (f/k/a ECHG)

$ (3,882,999 )

The Company’s net income decreased by $8,541,681, or 54% in Fiscal 2023 as compared to Fiscal 2022.

The decrease is due primarily from the revenue decrease of approximately $11,000,000 from Fiscal 2022 to Fiscal 2023, the increase of SG&A expenses of approximately $2,100,000 and the increase in income tax expense of approximately $3,200,000 during Fiscal 2023 as compared to Fiscal 2022.

The income tax expense increase was partially due from the valuation allowance being released in the amount of $1,490,000 million against the deferred tax benefit during Fiscal 2022

Earnings Per Share

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.

Earnings Per Share - Consolidated

Our net income per basic and diluted shares attributable to holders of our Common Stock decreased by $0.31 per share, or 53% in Fiscal 2023 compared to Fiscal 2022.

The income tax expense increase was partially due from the valuation allowance being released in the amount of $1,490.000 against the deferred tax benefit during Fiscal 2022.

Liquidity and Capital Resources

2 unchanged sentences

Year Ended December 31,

Net cash (used in) provided by:

Net cash provided by (used in):

Operating activities

2 unchanged sentences

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.

During Fiscal 2023, cash provided by operations totaled $5,842,708, which was primarily driven by net income of $7,147,452, adding in non-cash charges, net of $5,084,849.

Offset by the increase of trade receivables of $161,815, the increase in inventories of $4,390,392, the decrease in operating leases of $1,899,365, and the decrease in accounts payable and accrued expenses of $32,310.

During Fiscal 2023, cash used in investing totaled $1,759,861 which consisted of the purchase of property and equipment of $2,238,111 and the acquisition of the Steven Kretchmer, Inc.

stock of $100,000.

Offset by the receipt of $578,250 from notes receivable.

During Fiscal 2023, cash used in financing totaled $3,398,963 which consisted of principal payments made against notes payable loans of $1,243,914 and the acquisition of Company treasury stock of $2,155,049.

Starting December 31, 2023, certain amounts within the Consolidated Cash Flow Statements have been reclassified for presentation purposes.

The reclassification did not impact the overall operating activities.

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

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.

3 unchanged sentences

Management expects our capital expenditures to total approximately $2,700,000 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.

These expenditures will be largely driven by the build-out of six properties, included in this is the build-out of corporate office space in the Company headquarters and the potential purchase and build-out of an additional consumer segment retail building.

As of December 31, 2023, there are commitments of approximately $150,000 to build-out space at the Company’s headquarters located at 1901 Gateway Dr., Irving, Texas 75038.

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.

18 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis