Envela Corp 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures As required by rule 13a-15(b) and Rule 15d-15(b) under the Exchange Ace, our management, with the participation of our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2022. We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of December 31, 2022, the Company’s principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective to be provide the reasonable assurance of the foregoing. We believe, however, that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving their objectives, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected. Management’s Annual Report on Internal Control Over Financial Reporting Our management has the responsibility for establishing and maintaining adequate internal control over financial reporting and for our assessment of the effectiveness of internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, and with respect to us as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officer and effected by the Board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles that achieve certain specified controls over the records of business transactions. Because of its inherent limitations, internal control over financial reporting only provides reasonable assurance with respect to financial statement presentation and preparation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on its assessments, management has concluded that, as of December 31, 2022, the internal control over financial reporting is effective. The Company is not required to provide an attestation report of our registered public accounting firm pursuant to rules promulgated by the SEC. Changes in Internal Control Over Financial Reporting During the fiscal year ended December 31, 2022, no changes occurred that the Company’s management believes have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting. 55 Table of Contents PART II Item 9B, 9C ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None. 56 Table of Contents PART II Item 9B, 9C REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Envela Corporation and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Envela Corporation and subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 57 Table of Contents PART II Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Realizability of Deferred Tax Assets Description of the Matter As discussed in Note 14 to the consolidated financial statements, the Company considers the need for a valuation allowance based on their assessment of the realizability of the Company’s deferred tax assets. As of December 31, 2022, the balance of the Company’s net deferred tax assets was approximately $1.5 million. A significant portion of the deferred tax assets are subject to future expiration. Management performs an analysis to determine whether sufficient future taxable income will be generated to support the realization of deferred tax assets prior to expiration in order to determine the need for a valuation allowance adjustment. This analysis involves a high degree of subjectivity and significant judgment. The principal considerations for our procedures relating to the realizability of deferred tax assets as a critical audit matter is that there was significant judgment by management in evaluating how the current economic environment could impact management’s projections of future taxable income. This required significant auditor judgment to evaluate management’s analysis of the overall realizability of deferred tax assets. How We Addressed the Matter in Our Audit The primary procedures we performed included evaluating the quantitative and qualitative analysis management prepares to determine realizability of deferred tax assets. This analysis includes consideration of past years income, taxable income as well as management’s consideration of how the current economic environment could impact future operating results. /s/ Whitley Penn LLP We have served as the Company’s auditor since 2012. Dallas, Texas March 16, 2023 58 Table of Contents PART III Items 10, 11, 12, 13, 14 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information with respect to this Item will be included in our definitive Proxy Statement with respect to our 2023 Annual Meeting, which we intend to file with the SEC no later than 120 days after the end of the fiscal year covered by this annual report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Information with respect to this Item will be included in our definitive Proxy Statement with respect to our 2023 Annual Meeting, which we intend to file with the SEC no later than 120 days after the end of the fiscal year covered by this annual report on Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information with respect to this Item will be included in our definitive Proxy Statement with respect to our 2023 Annual Meeting, which we intend to file with the SEC no later than 120 days after the end of the fiscal year covered by this annual report on Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information with respect to this Item will be included in our definitive Proxy Statement with respect to our 2023 Annual Meeting, which we intend to file with the SEC no later than 120 days after the end of the fiscal year covered by this annual report on Form 10-K. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information with respect to this Item will be included in our definitive Proxy Statement with respect to our 2023 Annual Meeting, which we intend to file with the SEC no later than 120 days after the end of the fiscal year covered by this annual report on Form 10-K. 59 Table of Contents Part IV Item 15 PART IV ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES Documents filed as part of this report Index to Financial Statements Note: All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto. The information required by this Item pursuant to Item 601 of Regulation S-K is set forth on the financial statement index and exhibit index that follows the signature page of this report. Index to Exhibits Index to Financial Statements Page Consolidated Income Statements 30 Consolidated Balance Sheets 31 Consolidated Cash Flows Statements 32 Consolidated Stockholders’ Equity Statements 33 Notes to Consolidated Financial Statements 34 Report of Independent Registered Public Accounting Firm (PCAOB ID 726 ) 57 60 Table of Contents PART IV Item 15 Exhibit Number Description Filed Herein Incorporated by Reference Form Date Filed with SEC Exhibit Number 3.1 Amended and Restated By-laws, dated March 23, 2021 X 10-Q May 5, 2021 3.1 3.2 Certificate of Amendment to Articles of Incorporation, Dated December 12, 2019 X 8-K December 16, 2019 3.1 4.1 Specimen Common Stock Certificate X S-4 February 26, 2007 4.1 4.2 Description of Capital Stock X 10.1 Registration Rights Agreement, dated September 12, 2011, by and between DGSE Companies, Inc. and certain shareholders X 8-K September 16, 2011 10.5 10.2 Registration Rights Agreement, dated September 12, 2011, by and between DGSE Companies, Inc. and NTR Metals, LLC X 8-K September 16, 2011 10.7 10.3 Option Grant Agreement, dated October 25, 2011, by and between DGSE Companies, Inc. and NTR Metals, LLC X 8-K October 28, 2011 10.2 10.4 Form of Indemnification Agreement between DGSE Companies, Inc. and each Officer and director of DGSE X 8-K February 12, 2016 10.1 10.5 Registration Rights Agreement by and among DGSE Companies, Inc., Elemetal, LLC, and NTR Metals, LLC dated as of December 9, 2016 X 8-K December 9, 2016 10.1 10.6 Purchase agreement, dated September 14, 2020, for the Irving, Texas office building purchased by Envela Corporation X 10-Q October 5, 2020 10.3 10.7 Purchase Agreement Dated May 6, 2021, for The Frisco, Texas location, by and between DGSE, LLC and KMTHT Holding, LLC X 10-Q August 4, 2021 10.1 10.8 2016 Long-Term Incentive Plan X 10-K/ March 27, 2014 21.1 21.1 Subsidiaries of the Registrant X 10-K March 16, 2023 21.1 23.1 Consent of Whitley Penn LLP X 31.1 Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002 by John R. Loftus X 31.2 Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002 by Bret A. Pedersen X 32.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by John R. Loftus X 32.2 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Bret A. Pedersen X 101.INS XBRL Instance Document X 101.SCH XBRL Taxonomy Extension Schema Document X 101.CAL XBRL Taxonomy Calculation Linkbase Document X 101.DEF XBRL Taxonomy Definition Linkbase Document X 101.LAB XBRL Taxonomy Label Linkbase Document X 101.PRE XBRL Taxonomy Presentation Linkbase Document X 61 Table of Contents PART IV Item 16 ITEM 16. FORM 10-K SUMMARY None. 62 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ENVELA CORPORATION By: /s/ JOHN R. LOFTUS Dated: March 16, 2023 John R. Loftus Chairman of the Board, Chief Executive Officer, President (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ JOHN R. LOFTUS Dated: March 16, 2023 John R. Loftus Chairman of the Board, Chief Executive Officer, President (Principal Executive Officer) By: /s/ BRET A. PEDERSEN Dated: March 16, 2023 Bret A. Pedersen Chief Financial Officer (Principal Accounting Officer) By: /s/ RICHARD D. SCHEPP Dated: March 16, 2023 Richard D. Schepp Director By: /s/ ALEXANDRA C. GRIFFIN Dated: March 16, 2023 Alexandra C. Griffin Director By: /s/ JIM R. RUTH Dated: March 16, 2023 Jim R. Ruth Director By: /s/ ALLISON M. DeSTEFANO Dated: March 16, 2023 Allison M. DeStefano Director 63