What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-16 compared with 2022-03-16 · 206 added, 249 removed, 470 unchanged (49% of the section changed)

14 unchanged sentences

Income before income taxes

Income tax expense

Income tax expense (benefit)

( 1,309,606 )

Earnings per share:

1 unchanged sentence

The accompanying notes are an integral part of these consolidated financial statements.

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ENVELA CORPORATION AND SUBSIDIARIES

3 unchanged sentences

Trade receivables, net of allowances

Notes receivable, net of allowance

Deferred tax asset

Current right-of-use assets from operating leases

2 unchanged sentences

Total current assets

Note receivable

Property and equipment, net

Intangible assets, net

Long-term operating lease right-of-use assets, less current portion

Operating lease right-of-use assets, less current portion

Other assets, less current portion

2 unchanged sentences

Accounts payable-trade

Notes payable, related party

Line of credit

4 unchanged sentences

Total current liabilities

Notes payable, related party, less current portion

Notes payable, less current portion

Long-term operating lease liabilities, less current portion

Operating lease liabilities, less current portion

Total liabilities

8 unchanged sentences

Additional paid-in capital

Accumulated deficit

( 12,814,929 )

Retained earnings (accumulated deficit)

( 12,814,929 )

2 unchanged sentences

The accompanying notes are an integral part of these consolidated financial statements.

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ENVELA CORPORATION AND SUBSIDIARIES

1 unchanged sentence

Year Ended December 31,

Adjustments to reconcile net income to net cash from (used in) operations:

Adjustments to reconcile net income to net cash provided by operations:

Depreciation, amortization, and other

Stock based compensation to employees, officers and directors

Bad debt expense

Gain on forgiveness of Federal Loan

Other income from forgiveness of Federal Loan

( 1,668,200 )

Write-off of note receivables and accrued interest receivable

Income tax valuation allowance reduction

( 1,488,258 )

Write-off (reserve reduction) of notes receivable and accrued interest receivable

Changes in operating assets and liabilities:

2 unchanged sentences

( 4,707,349 )

( 3,554,802 )

Prepaid expenses

5 unchanged sentences

Investment in note receivable

( 2,100,000 )

Payments from note receivable

1 unchanged sentence

( 3,138,715 )

( 5,864,588 )

Acquisition of Avail Recovery Solutions' assets, net of cash acquired

( 1,511,130 )

Additional cash payment for Avail Recovery Solutions' assets

Acquisition of Cexchange assets, net of cash acquired

1 unchanged sentence

( 4,875,356 )

( 7,964,588 )

Payments on notes payable, related party

Payments on notes payable

( 1,058,725 )

Proceeds from line of credit

Proceeds from Federal Loan

Payments on line of credit

( 1,700,000 )

Proceeds from notes payable for retail and office buildings

Net cash provided by financing

Net cash provided by (used in) financing

( 2,758,725 )

Net change in cash and cash equivalents

4 unchanged sentences

Non-cash activities:

Transfer Avail goodwill to intangibles

Acquisition of Cexchange assets and liabilities through forgiveness of debt

1 unchanged sentence

The accompanying notes are an integral part of these consolidated financial statements.

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ENVELA CORPORATION AND SBDISIARIES

CONSOLIDATED STOCKHOLDERS’ EQUITY STATEMENTS

Retained Earnings

Stockholders'

Balance at December 31, 2019

Balance at January 1, 2021

$ ( 22,863,804 )

Stock issued to employees, officers and directors

Balance at December 31, 2021

1 unchanged sentence

Balance at December 31, 2022

$ ( 12,814,929 )

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO CONSOLIDATED FINANCI AL STATEMENTS

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ACCOUNTING POLICIES AND NATURE OF OPERATIONS

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Principles of Consolidation and Nature of Operations

Envela and its subsidiaries engage in diverse business activities within the recommerce sector.

These activities include being one of the nation’s premier authenticated recommerce retailers of luxury hard assets;

Envela and its subsidiaries engage in diverse business activities within the re-commerce sector.

These activities include being one of the nation’s premier authenticated re-commerce retailers of luxury hard assets;

providing end-of-life asset recycling;

1 unchanged sentence

and providing products, services, and solutions to industrial and commercial companies.

Envela operates primarily via two business segments.

Through DGSE, we operate Dallas Gold & Silver Exchange, Charleston Gold & Diamond Exchange, and Bullion Express brands.

Through ECHG, we operate Echo Environmental, ITAD USA, CEX, Teladvance and Avail DE.

Envela operates primarily via two segments.

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

Envela reports its revenue and operating expenses based on these two operating segments.

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

Envela is a Nevada corporation, headquartered in Irving, Texas.

DGSE primarily buys and resells or recycles luxury hard assets like jewelry, diamonds, gemstones, fine watches, rare coins and related collectibles, precious-metal bullion products, gold, silver and other precious-metals.

DGSE operates seven jewelry stores at both the retail and wholesale levels throughout the United States via its facilities in Texas and South Carolina.

The Company also maintains a presence in the retail market through our web sites, www.dgse.com and www.cgdeinc.com.

ECHG buys electronic components from businesses and other organizations, such as school districts, for end-of-life recycling or to add life to electronic devices by data destruction and refurbishment for reuse.

For end-of–life recycling, we sell to downstream recycling companies who further process our material for end users.

The electronic devices saved for reuse are cleaned of prior data, refurbished and sold to businesses or organizations wanting to extend the remaining life and value of recycled electronics.

Our customers are companies and organizations that are based domestically and internationally.

For additional business operations for both DGSE and ECHG, see “Item 1.

Business—Operating Segments” in this annual report on Form 10-K.

Envela primarily makes a resale marketplace for previously-owned products via its two business segments, a direct-to-consumer business (DGSE) and a commercial services business (ECHG).

Our direct-to-consumer portfolio primarily operates multiple brick-and-mortar and online marketplaces.

Where our commercial services portfolio offers custom re-commerce solutions to meet the needs of diverse clients, including Fortune 500 companies.

For additional business operations for both DGSE and ECHG, see Note 10 – Segment Information..

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

1 unchanged sentence

All material intercompany transactions and balances have been eliminated.

The Company operates the business as two operating and reportable segments under a variety of banners.

DGSE includes Charleston Gold & Diamond Exchange and Dallas Gold & Silver Exchange.

ECHG includes Echo Environmental, ITAD USA, CEX, Teladvance and Avail DE.

Cash and Cash Equivalents

1 unchanged sentence

The carrying amounts reported in the consolidated balance sheets approximate fair value.

DGSE’s inventory is valued at the lower of cost or NRV.

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

The Company acquires a majority of its inventory from individual customers, including pre-owned jewelry, watches, bullion, rare coins and collectibles.

12 unchanged sentences

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

The inventory listed in Note 3, and for the time period until November 15, 2026, is pledged as collateral against our $ 3,500,000 line of credit with Farmers State Bank of Oakley, Kansas.

The inventory listed in Note 3, and for the time period until November 15, 2026, is pledged as collateral against the $ 3,500,000 FSB line of credit and the FSB notes with DGSE and ECHG.

For the FSB notes, see Note 9 – Long-Term Debt.

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Property and Equipment

13 unchanged sentences

Based on the Company’s evaluations, no impairment was required as of December 31, 2022 or 2021.

We evaluate goodwill for impairment annually in the fourth quarter, or when there is reason to believe that the value has been diminished or impaired.

Goodwill is evaluated for impairment annually in the fourth quarter, or when there is reason to believe that the value has been diminished or impaired.

Evaluations for possible impairment are based upon a comparison of the estimated fair value of the reporting segment to which the goodwill has been assigned, versus the sum of the carrying value of the assets and liabilities of that segment including the assigned goodwill value.

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The carrying amounts reported in the consolidated balance sheets for cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments.

The carrying amounts reported for the note receivable and notes payable approximate fair value because the underlying instruments have an interest rate that reflects current market rates.

The carrying amounts reported for the notes receivable and notes payable approximate fair value because the underlying instruments have an interest rate that reflects current market rates.

None of these instruments are held for trading purposes.

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We revisit the reserve periodically, but no less than annually, with the same analytical approach in order to determine if the reserve needs to be increased or decreased, based on the risk profile of open accounts receivable at that point.

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ECHG has a more sizable accounts receivable balance of $ 7,110,535 at December 31, 2022 and $ 6,661,042 as of December 31, 2021.

We use a different approach for allowance for doubtful accounts for ECHG, excluding Avail DE, because customers are generally larger and payable terms are farther out.

Once we determine that a balance is uncollectable we reserve that balance but still pursue payment.

On the rare occasion we determine a balance is uncollectable we will write off the balance against the reserve.

Excluding Avail DE, we reserved $ 0 for both Fiscal 2021 and Fiscal 2020.

Avail DE uses the DGSE simplified approach to calculate a general bad debt reserve.

As of December 31, 2021, we reserved $ 1,583 .

Collectability of accounts receivable are viewed on an ongoing basis which includes historical payment rates.

Upon evaluating the trade receivables balance for historical payment rates, we follow the simplified approach allowance methodology, as mentioned above.

We reserved $ 51,735 for Fiscal 2022 and $ 1,583 for Fiscal 2021.

A summary of the Allowance for Doubtful Accounts is presented below:

3 unchanged sentences

Ending Balance

Note Receivable

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

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

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

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

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

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

Due to the CExchange Transaction, the ability of CExchange to pay down the remaining notes payable, totaling $900,000 was compromised.

We subsequently performed impairment evaluations on the two notes after management learned that it is more likely than not that the two notes may not be recoverable.

Using the guidance provided, management reserved the full amount of the outstanding and unpaid notes receivable of $ 900,000 , less a portion received of $ 61,353 during the quarter ended December 31, 2021, totaling $ 838,647 , and write-off the outstanding and unpaid accrued interest associated with the notes receivable totaling $49,174.

The notes receivable of $ 838,647 and $ 49,174 of accrued interest receivable were charged to other expense for Fiscal 2021.

Notes Receivable

ECHG holds two notes receivable from CExchange as of December 31, 2022 and 2021.

During Fiscal 2021, management learned the two notes may not have been recoverable.

Management reserved the full amount of the outstanding and unpaid notes receivable of $ 900,000 and wrote-off the outstanding and unpaid accrued interest associated with the notes receivable of $ 49,174 .

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

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

On October 25, 2022, ECHG received $260,397 of the reserved $ 838,647 notes receivable.

Upon receipt of the partial payment, management believed, from the information available, that the remaining and unpaid notes receivable of $578,250, would probably be received in full.

The reserve was reduced to $ 0 , recording $ 838,647 as other income, thereby restoring the balance of the notes receivable, net to $ 578,250 , as of December 31, 2022.

The full payment of the remaining $ 578,250 was received on January 17, 2023.

Interest receivable was written off against the reserve in Fiscal 2021.

See Note 18 – Subsequent Events for interest received.

Short-Term Financing

Envela established a short-term line of credit with Texas Bank and Trust to cover emergency cash needs for $1,000,000 on May 17, 2019.

The line of credit was renewed for an additional 24 months and increased to $3,500,000 on May 17 2020 and was set to expire on May 16, 2022.

On November 23, 2021, the Company secured a 36 month line of credit from Farmers State Bank of Oakley Kansas for $3,500,000 at 3.1% annual interest rate with a maturity date of November 23, 2024.

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

As of December 31, 2021, the line of credit had a principal and outstanding balance of $ 1,700,000 with accrued and unpaid interest balance of $ 6,005 .

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 with a maturity date of November 23, 2024 .

As of December 31, 2022, and December 31, 2021, the line of credit had a principal and outstanding balance of $ 0 and $ 1,700,000 , respectively, with accrued and unpaid interest balance of $ 0 as of December 31, 2022 and $ 6,005 as of December 31, 2021.

Income taxes are accounted for under the asset and liability method prescribed by U.S.

3 unchanged sentences

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

Table of Cntents

The Company accounts for its position in tax uncertainties in accordance with U.S.

11 unchanged sentences

Revenue Recognition

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

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

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

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

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

Accounting Standards Codification (“ASC 606”) provides guidance to identify performance obligations for revenue-generating transactions.

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

3 unchanged sentences

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

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The following disaggregation of total revenue is listed by sales category and segment for the years ended December 31, 2022 and 2021:

4 unchanged sentences

$ 182,685,854

$ 140,966,078

For DGSE, revenue for monetary transactions (i.e., cash and receivables) with dealers and the retail public are recognized when the merchandise is delivered, and payment has been made either by immediate payment or through a receivable obligation at one of our over-the-counter retail stores.

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

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

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

Since this refiner is located in the Dallas area, we deliver the metal to the refiner.

The metal is assayed, price is determined from the assay and payment is made usually within two days.

Revenue is recognized from the sale once payment is received.

We also offer a structured layaway plan.

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

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

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

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

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

Revenue is recognized upon the shipment of goods when retail and wholesale customers have fulfilled their obligation to pay, or promise to pay, through e-commerce or phone sales.

Shipping and handling costs are accounted for as fulfillment costs after the customer obtains control of the goods.

Crafted-precious-metal items at the end of their useful lives are sold for its precious metal contained.

The metal is assayed to determine the precious metal content, a price is agreed upon and payment is made usually within two days.

Revenue is recognized from the sale once the performance obligation is satisfied.

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

When merchandise is exchanged for similar merchandise and there is no monetary component to the exchange, there is no revenue recognized.

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

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

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

Table of Cntents

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

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

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

We recognize the revenue of the sale upon the promise of the financing company to pay.

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

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

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

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

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

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

Revenue is recognized from the sale upon the promise of the financing company to pay.

DGSE’s return policy covers retail transactions.

In some cases, customers may return a product purchased within 30 days of the receipt of the items for a full refund.

Also, in some cases customers may cancel the sale within 30 days of making a commitment to purchase the items.

Additionally, a customer may return an item for full refund if they can demonstrate that the item is not authentic, or there was an error in the description of the piece.

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

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

DGSE has established an allowance for estimated returns related to Fiscal 2022 sales, which is based on our review of historical returns experience and reduces our reported revenues and cost of sales accordingly.

As of December 31, 2022 and 2021, our allowance for returns remained the same at approximately $ 28,000 for both years.

A significant amount of revenue (17.9%) stems from sales to one precious metals partner, which relationship constitutes Envela’s single largest source of revenues for Fiscal 2022.

However, the Company believes that the products it sells is marketable to numerous sources at competitive prices.

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

The revenue streams are as follows;

Outright sales are recorded when product is shipped.

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

Outright sales are recorded when product is shipped and title transferred.

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

ECHG has fulfilled its performance obligation with an agreed upon transaction price, payment terms and shipping the product.

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

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

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

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

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

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

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

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

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

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

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

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

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

ECHG also provides recycling services according to a Scope of Work.

Any adjustment from the resolution of the underlying uncertainty is netted with the settlement due from the original contract.

ECHG also provides recycling services according to a Scope of Work (“SOW”).

Services are recognized based on the number of units processed by a preset price per unit.

Activity reports are produced weekly with the counts and revenue is recognized based on the billing from the weekly reports.

Recycling services can be conducted at our ECHG facility or we can design and perform the recycling service at the client’s facility.

The Scope of Work will determine the charges and whether the service will be completed at ECHG or at the client’s facility.

Payment terms are also dictated in the Scope of Work.

Recycling services can be conducted at the ECHG facility, or the recycling services can be performed at the client’s facility.

The SOW will determine the charges and whether the service will be completed at the ECHG facility or at the client’s facility.

Payment terms are also dictated in the SOW.

Shipping and Handling Costs

Shipping and handling costs amounted to $ 3,193,742 and $ 1,367,944 , for 2022 and 2021, respectively.

We have determined that shipping and handling costs should be included in cost of goods sold since inventory is what is shipped to and from store locations or to and from vendors.

Management has determined that shipping and handling costs should be included in cost of goods sold since inventory is what is shipped to and from store locations or to and from vendors.

Taxes Collected from Customers

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Earnings Per Share

Basic earnings per share of our Common Stock is computed by dividing net earnings available to holders of our Common Stock by the weighted average number of common shares outstanding for the reporting period.

Basic earnings per share of Common Stock is computed by dividing net earnings available to holders of our Common Stock by the weighted average number of common shares outstanding for the reporting period.

Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock.

For the calculation of diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect of stock options and warrants outstanding determined using the treasury stock method.

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Stock-Based Compensation

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In addition, to the extent that the Company receives an excess tax benefit upon exercise of an award, such benefit is reflected as cash flow from financing activities in the consolidated statement of cash flows.

Stock-based compensation expense for Fiscal 2021 and Fiscal 2020 amounted to $ 0 and $ 325 respectively.

No stock awards remained unexercised as of December 31, 2021 and 2020.

Stock-based compensation expense for Fiscal 2022 and Fiscal 2021 amounted to $ 0 for both years.

There were 15,000 stock options that remained unexercised as of December 31, 2022 and 2021.

Use of Estimates

3 unchanged sentences

loss contingencies;

the fair value of and/or potential impairment of goodwill and intangible assets for our reporting units;

the fair value of and/or potential impairment of goodwill and intangible assets for the reporting units;

useful lives of our tangible and intangible assets;

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The new accounting standard introduces the current expected credit losses methodology for estimating allowances for credit losses which will be based on expected losses rather than incurred losses.

We will be required to use a forward-looking expected credit loss methodology for accounts receivable, loans and other financial instruments.

The standard will be adopted upon the effective date for us beginning January 1, 2023 by using a modified retrospective transition approach to align our credit loss methodology with the new standard.

The Company is evaluating the financial statement implications of ASU 2016-13.

We will be required to use a forward-looking expected credit loss methodology for accounts receivable, loans and other financial instruments, requiring immediate recognition of management’s estimates of current expected credit losses.

The Company completed its review of its methodology based on expected losses and determined that there was no impact to its consolidated financial statements, results of operations or liquidity.

The standard will be adopted upon the effective date for us beginning January 1, 2023 by using a modified retrospective transition approach to align the Company’s credit loss methodology with the new standard.

Management is evaluating the financial statement implications of ASU 2016-13.

No other recently issued or effective ASU’s had, or are expected to have, a material impact on the Company’s results of operations, financial condition or liquidity.

NOTE 2 — CONCENTRATION OF CREDIT RISK

The Company maintains cash balances in financial institutions in excess of federally insured limits.

A significant amount of DGSE’s revenue and expenses stem from sales to and purchases from one Dallas refining partner, which relationship constitutes Envela’s single largest source of revenues and expenses.

In addition, a significant amount of ECHG’s refining revenue comes from one refining partner with an international refining facility.

Any adverse break in either relationship could reduce the flow of refining materials and revenue.

While the pandemic continues to be a global threat, any potential interruptions in travel and business disruptions with respect to us, our customers or our supply chain could adversely affect our sales, costs and liquidity position, possibly to a significant degree.

The effects of the coronavirus pandemic on our business, the ultimate impact remains uncertain and subject to change.

The duration of any such impact cannot be predicted.

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable.

At times, such amounts exceed federally-insured limits.

A significant amount of revenue (17.9%) stems from sales to one precious metals partner, which relationship constitutes Envela’s single largest source of revenues for Fiscal 2022.

However, the Company believes that the products it sells is marketable to numerous sources at competitive prices.

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NOTE 3 — INVENTORIES

Inventories consist of the following:

NOTE 4 — NOTE RECEIVABLE

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

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

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

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

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

We subsequently performed impairment evaluations on the two notes after management learned that it is more likely than not that the two notes may not be recoverable.

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

The note receivable of $ 900,000 was reserved and the $ 49,174 of accrued interest receivable was written-off.

Both amounts were charged to other expense during Fiscal 2021.

Subsequent to the note receivable being reserved for $900,000 during the quarter ended September 30, 2021, ECHG received a payment during the quarter ended December 31, 2021 in the amount of $ 61,353 as a partial payoff of the note receivable.

The payment was used to reduce the reserve as of December 31, 2021.

Management still believes that it is more likely than not that the two notes are unrecoverable.

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

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

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

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

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

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

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

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NOTE 4 — PROPERTY AND EQUIPMENT

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On June 9, 2021, ECHG, entered into the CExchange Transaction, pursuant to which the seller agreed to sell the assets and certain liabilities of CExchange for ECHG’s cancellation and forgiveness of $ 1,500,000 of the outstanding principal amount under the loan agreement between ECHG and CExchange originally dated February 15, 2020 and accrued and unpaid interest thereunder of $ 55,892 .

The remaining $ 900,000 principal owed to ECHG by CExchange is not a part of the purchase price listed below and was expected to be repaid with any accrued and unpaid interest during the third or fourth fiscal quarters of 2021.

As mentioned in Note 4 -- Notes Receivable, we subsequently performed impairment evaluations on the remaining $900,000 principal owed after management learned that it is more likely than not that the $900,000 may not be recoverable.

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

The remaining $900,000, which represents two notes of $600,000 and $300,000, principal owed to ECHG by CExchange is not a part of the purchase price listed below and was expected to be repaid with any accrued and unpaid interest during the third or fourth fiscal quarters of 2021 .

We subsequently performed impairment evaluations on the remaining $900,000 principal owed after management learned that it is more likely than not that the $900,000 may not be recoverable.

Management concluded that ECHG should reserve the full amount of the outstanding and unpaid notes receivable of $ 900,000 and wrote-off the outstanding and unpaid accrued interest associated with the notes receivable totaling $49,174.

Subsequent to the reserve established for the notes receivable, the Company received $61,353 as partial payment against the notes receivable.

This payment was used to reduce the notes receivable reserved amount to $838,647.

Management still believes it is more likely than not that the remaining balance is uncollectable.

Management still believed that it was more likely than not that the remaining balance was uncollectable.

The remaining notes receivable of $ 838,647 and $ 49,174 of accrued interest receivable were charged to other expense during Fiscal 2021.

On October 25, 2022, ECHG received $260,397 of the reserved $838,647 notes receivable.

Upon receipt of the partial payment, management believed the remaining and unpaid notes receivable of $578,250 would probably be received in full.

The reserve was reduced to $0, recording $838,647 as other income, thereby restoring the balance of the notes receivable, net to $578,250, as of December 31, 2022.

The full payment of the remaining $ 578,250 was received on January 17, 2023.

Interest receivable was written off against the reserve in Fiscal 2021.

See Note 18 – Subsequent Events for interest received.

Table of Cntents

As part of the CExchange Transaction, goodwill was originally recorded as $ 1,891,477 , which is the purchase price less the approximate fair value of the net assets and liabilities purchased.

4 unchanged sentences

For tax purposes, goodwill is amortized and deductible over fifteen (15) years.

The purchase price is allocated as follows:

The purchase price allocation of the CExchange Transaction is as follows:

Account receivables

6 unchanged sentences

On October 29, 2021, ECHG entered into the Avail Transaction to purchase all of the assets, liabilities and rights and interests for $ 4,500,000 .

The purchase was facilitated by an initial payment of $ 2,500,000 at closing, and the remaining $ 2,000,000 to be paid out by 12 quarterly payments starting April 1, 2022, of $ 166,667 each.

The purchase was facilitated by an initial payment of $ 2,500,000 at closing, with the remaining $ 2,000,000 represented by the installment note (the “Avail Installment Note”) made by ECHG to the seller to be paid out by 12 quarterly payments starting April 1, 2022, of $ 166,667 each.

See Note 9 to our consolidated financial statements for more information on this loan.

The Installment note payable for the Avail transaction imputed at 3.1 %.

As part of the Avail Transaction, goodwill was preliminarily recorded as $ 3,491,284 , which is the purchase price less the approximate fair value of the net assets and liabilities purchased, as shown in the purchase price allocation in the following table.

The Avail Installment Note for the Avail transaction does not bear interest, but imputed interest rate was determined to be 3.1 %.

Table of Cntents

As part of the Avail Transaction, goodwill was preliminarily recorded as $ 3,491,284 , which was the purchase price less the approximate fair value of the net assets and liabilities purchased.

On May 31, 2022, an additional cash payment of $216,988 was made due to certain conditions being met concerning the cash balance upon a certain date.

The additional cash payment was not part of the Avail Installment Note of $2,000,000 from the initial closing of the Avail Transaction.

The additional cash payment increased goodwill and the purchase price amount by $216,988, thereby increasing goodwill for the Avail Transaction to $3,708,273.

On September 30, 2022, management identified $2,736,000 of intangibles as part of the Avail Transaction not initially included in the fair value of Avail’s net assets.

The intangibles identified of $2,736,000, decreases goodwill by $2,736,000 to $972,272, as shown in the purchase price allocation table below.

The Avail Transaction was initially recorded as preliminary, but with the third-party valuation complete, the purchase price allocation below is considered final.

The Company’s goodwill is related to the ECHG segment.

1 unchanged sentence

The Company will evaluate goodwill based on cash flows for the ECHG segment.

For tax purposes, goodwill is amortized and deductible over fifteen (15) years.

The purchase price allocation listed below is considered to be a preliminary allocation and is subject to change.

The preliminary purchase price is allocated as follows:

For tax purposes, goodwill is amortized and deductible over 15 years.

The purchase price allocation of the Avail Transaction is as follows:

Account receivables

Prepaid expenses

Intangible assets - Trademarks/Tradenames

Intangible assets - Customer Relationships

Fixed assets - net

4 unchanged sentences

Total Purchase Price

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NOTE 6 — GOODWILL

2 unchanged sentences

Opening balance

Additions (reductions) (1)

( 2,519,012 )

(1) Additions for Fiscal 2021 totaling $ 4,773,356 is a combination of the CExchange Transaction on June 9, 2021 of $ 1,282,072 and the Avail Transaction’s preliminary purchase price allocation on October 29, 2021, of $ 3,491,284 .

The reduction in goodwill of $ 2,519,012 for Fiscal 2022, is a combination of an additional cash payment made on May 31, 2022 of $ 216,988 , which increased goodwill for the Avail Transaction, offset by the reduction of goodwill related to the Avail Transaction by management identifying $ 2,736,000 of intangible assets that were not initially included in the fair value of Avail’s net assets, reducing goodwill and increasing intangible assets.

The Company’s goodwill is related to the ECHG segment.

We evaluate goodwill for impairment annually in the fourth quarter, or when there is reason to believe that the value has been diminished or impaired.

Goodwill is evaluated for impairment annually in the fourth quarter, or when there is reason to believe that the value has been diminished or impaired.

Based on the Company’s evaluations, no impairment was required as of December 31, 2022 and 2021.

Table of Cntents

NOTE 7 — INTANGIBLE ASSETS

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Customer Relationships (2)

Trademarks/Tradenames (3)

Customer Relationships (3)

accumulated amortization

( 1,593,305 )

(1) Intangibles relate to the asset purchase agreement of the Echo Legacy Entities on May 20, 2019.

(2) Intangibles relate to the CExchange Transaction on June 9, 2021.

Amortization expense was $ 427,228 and $ 401,600 for Fiscal 2021 and Fiscal 2020, respectively.

(3) Intangibles relate to the Avail Transaction on October 29, 2021.

Amortization expense was $ 766,700 and $ 427,228 for Fiscal years 2022 and 2021, respectively.

The estimated aggregate amortization expense for each of the five succeeding fiscal years follows:

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NOTE 8 – ACCRUED EXPENSES

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Accrued Interest

Board member fees

Other administrative expenses

7 unchanged sentences

State income tax

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NOTE 9 — LONG-TERM DEBT

2 unchanged sentences

Interest Rate

Note payable, related party (1)

Paid off by third party

Note payable, Farmers Bank (2)

Note payable, FSB (1)

November 15, 2026

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DGSE Sub-Total

Note payable, related party (1)

Paid off by third party

Note payable, Farmers Bank (2)

Note payable, FSB (1)

November 15, 2026

Revolving Line of Credit (6)

Line of Credit (5)

November 15, 2024

Avail Transaction note (7)

Avail Transaction note payable (6)

April 1, 2025

2 unchanged sentences

November 4, 2025

Note payable (9)

Federal Loan Forgiven

Envela Sub-Total

Current portion

(1) On May 20, 2019, in connection with the Echo Transaction, the Company entered into two loan agreements with John R.

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

ECHG, LLC executed a five-year, $ 6,925,979 note for the Echo Transaction, amortized over 20 years at a 6 % annual interest rate.

The interest and principal payment due monthly was $ 49,646 .

DGSE executed a five-year, $ 3,074,021 note to pay off the accounts payable – related party balance to a former Related Party as of May 20, 2019.

That promissory note was also amortized over 20 years at a 6 % annual interest rate.

The interest and principal payment due monthly on the note for DGSE was $ 22,203 .

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

(2) On November 23, 2021, both notes listed in item (1) above were refinanced by Farmers State Bank of Oakley Kansas.

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

(1) On November 23, 2021, FSB refinanced prior related party notes held by DGSE and ECHG.

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

The note has monthly principal and interest payments of $ 35,292 .

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

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

The note has monthly principal and interest payments of $ 15,555 .

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The note has monthly interest and principal payments of $ 10,509 .

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

(5) 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.

(6) On October 29, 2021, ECHG entered into the Avail Transaction to purchase all of the assets, liabilities and rights and interests of Avail AZ, for $ 4.5 million.

4 unchanged sentences

The note has monthly interest and principal payments of $ 16,792 .

(9) The Company applied for and received, on April 20, 2020, approximately $ 1.67 million, 1 % interest, federally backed loan intended to pay employees and cover certain rent and utility-related costs during the COVID-19 pandemic with Truist Bank (f/k/a BB&T Bank) as the lender.

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

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

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

Table of Cntents

Future scheduled principal payments of our note payables and note payables, related party, as of December 31, 2022 are as follows:

5 unchanged sentences

Year Ending December 31,

Table of Cntents

Note payable, Texas Bank & Trust - DGSE

2 unchanged sentences

Year Ending December 31,

Note payable - Revolving Line of Credit

Year Ending December 31,

Note payable - Justin and Tami Tinkle

2 unchanged sentences

Year Ending December 31,

Table of Cntents

Future scheduled aggregate amount of principal payments and maturities of our notes payable as of December 31, 2022 are as follows:

Scheduled Principal Payments and Maturities by Year:

2028 and thereafter

NOTE 10 — SEGMENT INFORMATION

We determine our business segments based upon an internal reporting structure.

Our financial performance is based on the following segments:

The financial results are based on the following segments:

DGSE and ECHG.

The DGSE segment includes Dallas Gold & Silver Exchange, which has six retail stores in the Dallas/Fort Worth Metroplex, and Charleston Gold & Diamond Exchange, which has one retail store in Charleston, South Carolina.

The ECHG segment includes Echo, ITAD USA, CEX, Teladvance and Avail DE.

These five companies were added during Fiscal 2019 and Fiscal 2021, and are involved in recycling and the reuse of electronic waste.

We allocate our corporate costs and expenses, including rental income and expenses relating to our corporate headquarters, to our business segments.

The corporate building’s income and expenses are included in selling, general and administrative expenses, depreciation and amortization, other income, interest expense and income tax expense.

The Company’s management team evaluates the operating performance of each segment and makes decisions about the allocation of resources according to each segment profit.

The DGSE segment includes Dallas Gold & Silver Exchange, which has six retail stores in DFW, and Charleston Gold & Diamond Exchange, which has one retail store in Mt.

Pleasant, South Carolina.

The ECHG segment includes Echo, ITAD USA, CEX, Teladvance and Avail.

These five companies are involved in recycling and the reuse of electronic waste.

The Company’s corporate costs and expenses are allocated to the business segments.

The corporate building’s expenses are included in selling, general and administrative expenses since the building is part of the Company’s operations.

Depreciation and amortization, other income from rental income, interest expense and income tax expense are also allocated to the Company’s business segments.

Management evaluates the operating performance of each segment and makes decisions about the allocation of resources to each segment.

The allocations are generally amounts agreed upon by management, which may differ from an arms-length transaction.

Table of Cntents

The following table segments the financial results of DGSE and ECHG for the years ended December 31, 2022 and 2021:

4 unchanged sentences

$ 182,685,854

$ 140,966,078

Cost of goods sold

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Operating income

Other income :

Other income/expense :

Other income from loan forgiveness

2 unchanged sentences

Income before income taxes

Income tax expense

Income tax expense (benefit)

( 1,426,697 )

( 1,309,606 )

Income from continuing operations

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As of December 31, 2022, no RSUs remain unexercised.

Table of Cntents

NOTE 13 — STOCK OPTIONS AND RESTRICTED STOCK UNITS

On June 21, 2004, our shareholders approved the adoption of the 2004 Employee Stock Option Plan (the “2004 Employee Stock Option Plan”) that provided for incentive stock options and nonqualified stock options to be granted to key employee and certain directors.

On June 21, 2004, our Stockholders approved the adoption of the 2004 Employee Stock Option Plan (the “2004 Employee Stock Option Plan”) that provided for incentive stock options and nonqualified stock options to be granted to key employee and certain directors.

Each option vested on either January 1, 2004 or immediately upon issuance thereafter.

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The Company previously determined there will be no additional grants under the 2004 Employee Stock Option Plan.

On December 7, 2016, our shareholders approved the adoption of the 2016 Equity Incentive Plan (the “2016 Plan”), which reserved 1,100,000 shares for issuance pursuant to awards issued thereunder.

On December 7, 2016, Stockholders of the Company approved the adoption of the 2016 Equity Incentive Plan (the “2016 Plan”), which reserved 1,100,000 shares for issuance pursuant to awards issued thereunder.

As of December 31, 2022, no awards had been made under the 2016 Plan.

12 unchanged sentences

Exercise price

Number outstanding

exercise price

1 unchanged sentence

The aggregate intrinsic values in the above table were based on the closing price of our Common Stock of $ 5.26 as of December 31, 2022.

A summary of the status of our non-vested RSU grants issued under our 2006 Plan is presented below:

Year Ended December 31,

average exercise

Nonvested at beginning or year

Outstanding at end of year

As a result of the expiration of the 2006 Plan, as of December 31, 2019, no further shares could be issued under the 2006 Plan.

As of January 1, 2020, the remaining 250 RSU grants have vested and were exercised during Fiscal 2020.

A total of 1,100,000 shares remain available for future grants pursuant to the 2016 Plan.

During Fiscal years 2021 and 2020, we recognized $ 0 in stock-based compensation expense.

During Fiscal years 2022 and 2021, there was $ 0 recognized in stock-based compensation expense.

Table of Cntents

NOTE 14 — INCOME TAXES

7 unchanged sentences

State Taxes, Net of Federal Benefit

Income tax expense

Income tax expense (benefit)

$ ( 1,309,606 )

Deferred benefit

( 1,488,258 )

$ ( 1,309,606 )

Deferred income taxes are comprised of the following at December 31, 2022 and 2021:

8 unchanged sentences

( 4,513,493 )

$ ( 6,356,604 )

Net Deferred tax asset

As of December 31, 2021, the Company had $ 2,729,636 of net operating loss carry-forwards, related to the Superior Galleries acquisition which may be available to reduce taxable income in future years, subject to the applicable Internal Revenue Code Section 382 limitations.

A valuation allowance of $ 4,513,493 was recorded against the net deferred tax asset balance as of December 31, 2021.

For the year ended December 31, 2022 a release of the valuation allowance of $ 4,513,493 is recorded.

Management considers both positive and negative evidence that could effect the future realization of deferred tax assets.

As of December 31, 2022, in part due to 3 years of cumulative pretax income, management has determined that there is sufficient evidence to conclude it is more likely than not that net deferred taxes of $ 1,488,258 are realizable and therefore reduced the valuation allowance accordingly.

As of December 31, 2022, the Company had approximately $ 8,224,409 of net operating loss carry-forwards related to Superior Galleries’ post acquisition operating losses and other operating losses incurred by the Company’s other operations.

These carry-forwards will expire starting in 2034 if not utilized.

As of December 31, 2021, the Company has approximately $ 4.5 million in net deferred tax assets relating to approximately $ 21.4 million of net operating losses that will begin to expire in 2026 if not used.

Due to uncertain current market conditions arising from the COVID-19 pandemic and various strains, the rising threat of inflation, rising interest rates, stock market volatility and the threat of a regional war conflict in Europe spreading, it is unfeasible, with any degree of accuracy, to predict the future results of Company operations.

Due to the reasons listed above, a full valuation allowance was recorded against our net deferred tax assets.

Table of Cntents

NOTE 15 — LEASES

The Company has seven operating leases, five in the Dallas/Fort Worth Metroplex, one in Charleston, South Carolina and one in Chandler, Arizona.

We have one lease expiring during Fiscal 2022.

DGSE leases – The Grand Prairie, Texas lease expires June 30, 2022, and has no current lease options.

We are currently evaluating whether to continue to lease in the present location.

The Charleston, South Carolina lease expires April 30, 2025, and has no current lease options.

The Euless, Texas lease expires June 30, 2025, with an option for an additional five (5) year term.

On August 24, 2021, we entered into a new lease agreement with the landlord of DGSE’s main flagship store located at 13022 Preston Road, Dallas, Texas.

The new lease commenced on November 1, 2021 and expires January 31, 2027, with an option for an additional five (5) year term.

ECHG leases - The McKenzie, Carrollton ITAD lease expired July 31, 2021 with no current options.

We evaluated the lease in the present location and decided to vacate the property as of July 31, 2021.

The Echo Belt Line lease expires January 31, 2026, with one option period of an additional 60 months.

ECHG was assigned CExchange’s lease, located at 2727 Realty Road, Carrollton, Texas, due to the CExchange Transaction on June 9, 2021, and expired December 31, 2021.

The lease was amended on October 31, 2021, that commenced on January 1, 2022 and expires January 31, 2027.

ECHG was also assigned Avail AZ’s lease, located at 120 E.

Corporate Pl, Chandler, Arizona, due to the Avail Transaction, and expires on May 31, 2025.

All seven leases are triple net leases that we pay our proportionate amount of common area maintenance, property taxes and property insurance.

The Company has nine operating leases, five in DFW, two in Mount Pleasant, South Carolina and two in Chandler, Arizona.

ECHG has two leases in Chandler, Arizona and two leases in DFW, with a total of approximately 246,000 square feet under lease.

DGSE has two leases in Charleston, South Carolina and three leases in DFW, with a total of approximately 26,000 square feet under lease.

All nine leases are triple net leases that pay their proportionate amount of common area maintenance, property taxes and property insurance.

Leasing costs for Fiscal 2022 and Fiscal 2021 was $ 2,597,528 and $ 2,109,104 , respectively.

13 unchanged sentences

Current portion

Table of Cntents

NOTE 16 — RELATED-PARTY TRANSACTIONS

The Company has a corporate policy governing the identification, review, consideration and approval or ratification of transactions with related persons, as that term is defined in the Instructions to Item 404(a) of Regulation S-K, promulgated under the Securities Act (“Related Party”).

Under this policy, all Related Party transactions are identified and approved prior to consummation of the transaction to ensure they are consistent with the Company’s best interests and the best interests of its stockholders.

Among other factors, the Company’s Board considers the size and duration of the transaction, the nature and interest of the of the Related Party in the transaction, whether the transaction may involve a conflict of interest and if the transaction is on terms that are at least as favorable to the Company as would be available in a comparable transaction with an unaffiliated third party.

Envela’s Board reviews all Related Party transactions at least annually to determine if it is in the Board’s best interests and the best interests of the Company’s stockholders to continue, modify, or terminate any of the Related Party transactions.

Envela’s Board reviews all Related Party transactions at least annually to determine if it is in the Board’s best interests and the best interests of the Company’s shareholders to continue, modify, or terminate any of the Related Party transactions.

Envela’s Related Person Transaction Policy is available for review in its entirety under the “Investors” menu of the Company’s corporate relations website at www.envela.com.

On May 24, 2019, Company entered into two (2) loan agreements with John R.

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

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

As of December 31, 2021 and 2020, ECHG was obligated to pay $ 0 and $ 6,496,127 , respectively, to Mr.

Loftus as a note payable, related party.

The second note of $ 3,074,021 paid off the accounts payable – related party balance to Elemetal as of May 20, 2019.

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

As of December 31, 2021 and 2020, DGSE was obligated to pay $ 0 and $ 2,863,715 , respectively, to Mr.

Loftus as a note payable, related party.

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

The ECHG note was refinanced for the remaining and outstanding balance of $ 6,309,962 .

The DGSE note was refinanced for the remaining and outstanding balance of $ 2,781,087 .

For the year ended December 31, 2021 and 2020, the Company paid Mr.

Loftus $ 519,713 and $ 580,957 , respectively, in interest on the Company’s outstanding note payables, related party.

NOTE 17 — DEFINED CONTRIBUTION PLAN

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NOTE 18 — SUBSEQUENT EVENTS

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

Future sales on products like ours could decline or fluctuate due to increased or fluctuating commodities prices, particularly gold.

Although we are continuing to monitor and assess the effects of the COVID-19 pandemic, the ultimate impact is highly uncertain and subject to change.

The duration of any such impact cannot be predicted, nor can the timing of the development, distribution and acceptance of effective vaccines, booster shots or other treatments for potential COVID-19 divergent strains, including the Delta and Omnicron variants.

In addition, the effects of the COVID-19 pandemic are subject to, among other things, the effect of government responses to the pandemic on our operations, including vaccine mandates, impacts of the pandemic on global and domestic economic conditions, including with respect to commercial activity, our customers and business partners, as well as consumer preferences and demand.

On January 17, 2023, the remaining balance of the notes receivable from the CExchange Transaction, of $ 578,250 , was received.

With the receipt of these funds, an additional amount of $ 94,115 was received, representing interest receivable on the notes.

Interest receivable was written off against the reserve in Fiscal 2021.

Since the interest receivable was written-off against the reserve in Fiscal 2021, they are to be recognized when they are received.

Therefore, the additional interest received of $94,115 will be recognized in Fiscal 2023.

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data