What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-21 compared with 2023-03-16 · 205 added, 221 removed, 455 unchanged (48% of the section changed)

4 unchanged sentences

$ 182,685,854

$ 140,966,078

Cost of goods sold

1 unchanged sentence

Depreciation and Amortization

Total cost of revenue

Total operating expenses

Operating income

Other income from loan forgiveness

Other income (expense), net

Interest expense

5 unchanged sentences

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

Table of Cntents

ENVELA CORPORATION AND SUBSIDIARIES

4 unchanged sentences

Notes receivable, net of allowance

Deferred tax asset

Current right-of-use assets from operating leases

Prepaid expenses

3 unchanged sentences

Intangible assets, net

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

Deferred tax asset

Operating lease right-of-use assets

Other assets, less current portion

2 unchanged sentences

Accounts payable-trade

Line of credit

Notes payable

3 unchanged sentences

Total current liabilities

Deferred tax liability

Notes payable, less current portion

3 unchanged sentences

Stockholders’ equity:

Common stock, $ 0.01 par value;

60,000,000 shares authorized;

26,924,631 shares issued and outstanding

Preferred stock, $ 0.01 par value;

1 unchanged sentence

0 shares issued and outstanding

Additional paid-in capital

Retained earnings (accumulated deficit)

Common stock, $ 0.01 par value;

60,000,000 shares authorized;

26,924,631 shares issued;

26,508,658 and 26,924,631 shares outstanding, respectively

Treasury stock at cost, 415,973 and 0 shares, respectively

( 2,155,049 )

Additional paid-in capital

Retained earnings

Total stockholders’ equity

1 unchanged sentence

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

Table of Cntents

ENVELA CORPORATION AND SUBSIDIARIES

2 unchanged sentences

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

Depreciation, amortization, and other

Bad debt expense

Other income from forgiveness of Federal Loan

( 1,668,200 )

Depreciation and amortization

Provision for credit losses

Deferred taxes

Non-cash lease expense

Income tax valuation allowance reduction

( 1,488,258 )

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

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

( 1,024,234 )

Accounts payable and accrued expenses

Operating leases

( 1,899,365 )

( 1,834,808 )

Customer deposits and other liabilities

Net cash provided by operations

Investment in note receivable

Payments from note receivable

1 unchanged sentence

( 2,238,111 )

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

( 1,511,130 )

Acquisition of Kretchmer Inc's stock

Additional cash payment for Avail Recovery Solutions' assets

Acquisition of Cexchange assets, net of cash acquired

Net cash used in investing

( 1,759,861 )

Payments on notes payable, related party

Payments on notes payable

( 1,243,914 )

Proceeds from line of credit

( 1,058,725 )

Payments on line of credit

( 1,700,000 )

Proceeds from notes payable for retail and office buildings

Net cash provided by (used in) financing

Acquisition of treasury stock

( 2,155,049 )

Net cash used in financing

( 3,398,963 )

( 2,758,725 )

Net change in cash and cash equivalents

5 unchanged sentences

Transfer Avail goodwill to intangibles

Acquisition of Cexchange assets and liabilities through forgiveness of debt

Notes payable, related party refinanced directly by Farmers State Bank

Finance acqusition of Kretchmer Inc's stock

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

Table of Cntents

ENVELA CORPORATION AND SBDISIARIES

ENVELA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STOCKHOLDERS’ EQUITY STATEMENTS

Retained Earnings

Treasury Stock

Preferred Stock

Stockholders'

2 unchanged sentences

Balance at December 31, 2022

Shares repurchased

( 2,155,049 )

Balance at December 31, 2023

$ ( 2,155,049 )

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

Table of Cntents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9 unchanged sentences

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.

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

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

3 unchanged sentences

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..

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 the consumer and commercial segments, 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.

4 unchanged sentences

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

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

The consumer segment’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.

The Company acquires these items based on its own internal estimate of the fair market value of the items at the time of purchase.

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

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

The consumer segment considers factors such as the current spot market price of precious metals and current market demand for the items being purchased.

The consumer segment supplements these purchases from individual customers with inventory purchased from wholesale vendors.

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

3 unchanged sentences

The Company regularly monitors these fluctuations to evaluate any necessary impairment to its inventory.

ECHG’s inventory principally includes processed and unprocessed electronic scrap materials.

The commercial segment’s inventory principally includes processed and unprocessed electronic scrap materials.

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

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

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

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

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

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.

The inventory listed in Note 3, and for the time period until November 15, 2026, is pledged as collateral against the available $ 3,500,000 Farmers State Bank of Oakley Kansas ("FSB") line of credit and the FSB notes with the consumer and commercial segments.

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

Table of Cntents

Property and Equipment

1 unchanged sentence

Depreciation on property and equipment is provided for using the straight-line method over the anticipated economic useful lives of the related property.

The Company uses the following standard useful life for our property and equipment;

39 years for buildings, 7 years for furniture and fixtures, 3 years for computer equipment, 5 years for vehicles and 5 years for warehouse equipment.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

2 unchanged sentences

Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.

There were no impairments recorded during Fiscal 2022 and Fiscal 2021.

There were no impairments recorded as of December 31, 2023 and 2022.

Expenditures for maintenance and repairs are charged against income as incurred;

7 unchanged sentences

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.

Goodwill is tested at the segment level and is the only intangible asset with an indefinite life on the balance sheet.

Goodwill is tested at the segment level and is the only intangible asset with an indefinite life on the consolidated balance sheets.

Financial Instruments

3 unchanged sentences

Advertising Costs

DGSE’s advertising costs are expensed as incurred and amounted to $ 723,889 and $ 406,775 for Fiscal 2022 and Fiscal 2021, respectively.

ECHG’s advertising costs are expensed as incurred and amounted to $ 49,977 and $ 52,617 For Fiscal 2022 and Fiscal 2021, respectively.

Accounts Receivable

Given the generally low level of accounts receivable for DGSE, the Company uses a simplified approach to calculate a general bad debt reserve.

The consumer segment’s advertising costs are expensed as incurred and amounted to $ 945,340 and $ 723,889 for Fiscal 2023 and Fiscal 2022, respectively.

The commercial segment’s advertising costs are expensed as incurred and amounted to $ 37,110 and $ 49,977 for Fiscal 2023 and Fiscal 2022, respectively.

Accounts Receivable and Allowance for Credit Losses

The consumer segment generally has a low risk level of accounts receivable.

Given the generally low level of the consumer segment’s accounts receivables, the company uses a simplified approach to calculate a general provision for credit losses.

An allowance is calculated for each aging “bucket,” based on the risk profile of that bucket.

For example, based on our historical experience, we have chosen not to place any reserve on amounts that are less than 60 days past due.

For example, based on our historical experience, we have chosen to not place any reserve on amounts that are less than 60 days past due.

From there the reserve amount escalates:

10% reserve on amounts over 60 but less than 90 days past due, 25% on amounts over 90 but less than 120 past due, and 75% on amounts over 120 days past due.

The account receivables past 120 days past due are reviewed quarterly and if they are deemed uncollectable will be written off against the reserve.

For Fiscal 2022 and 2021, besides the normal timing to clear credit cards and financing collections, DGSE’s accounts receivable balance consisted of wholesale dealers that are current, therefore no reserve was established as of December 31, 2022 and 2021.

10% reserve on amounts over 60 but less than 90 days past due, 25% on amounts over 90 but less than 120 days past due, and 75% on amounts over 120 days past due .

No accounts receivable was determined to be uncollectable, therefore there were no write offs against the allowance for bad debt.

Managing bad debt risk for the consumer segment is based on accounts that are expected to be past due.

The consumer’s wholesale customer base is small, and we have a good relationship and history with each one.

Based on the new ASU 2016-13 guideline established by the Financial Accounting Standards Board ("FASB"), an allowance adjustment is based on the current expected credit losses methodology for estimating allowances for credit losses.

The new methodology is based on expected losses rather than incurred losses.

The reserve warranted, based on the new expected credit losses methodology, as of December 31, 2023 is $0.

For Fiscal 2023 and 2022, besides the normal timing to clear credit cards and financing collections, the consumer’s accounts receivable balance consisted of wholesale dealers that are current and expected to be collected.

Once a reserve is established, and an amount is considered to be uncollectable it is to be written off against the reserve.

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.

Table of Cntents

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.

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:

The commercial segment has a more sizable accounts receivable balance of $ 4,399,658 on December 31, 2023 and $ 7,110,535 as of December 31, 2022.

The commercial segment uses a different methodology for expected credit losses, except for Avail who uses the same methodology as the consumer segment.

For the commercial segment, excluding Avail, customers are generally larger and terms are farther out.

Once we determine that a balance is an expected credit loss, we reserve that balance but still pursue payment.

Percentages were developed based on management’s historical knowledge of past companies, the industry and the location in which the company operates.

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

During Fiscal 2023, $ 91,307 of accounts receivables was determined to be uncollectable, therefore written off against the allowance for bad debt.

As of December 31, 2023, management considered $ 111,656 , of accounts receivables, excluding Avail, is expected to be uncollectable, but still under pursuit, as warranted by the current expected credit losses methodology (“CECL”) guidelines to be reserved, as compared to a reserve balance, excluding Avail, of $ 51,734 as of December 31, 2022.

Avail has more customers with smaller balances that occasionally become delinquent more in relation to the consumer segment’s accounts receivables, and they are analyzed in accordance with the consumer segment’s delinquency approach.

Avail’s expected reserve as of December 31, 2023, according to the expected credit losses guidelines and using the consumer’s segment’s methodology approach, was determined to be $ 149,202 , as compared to Avail’s reserve balance of $ 0 as of December 31, 2022.

A summary of the Allowance for Credit Losses is presented below:

Beginning Balance

Bad debt expense (+)

Provision for credit losses (+)

Receivables written off (-)

Ending Balance

We record leases, which consist primarily of operating leases, on the Consolidated Balance Sheets as operating lease ROU assets and operating lease liabilities.

The operating lease liabilities include Current and Noncurrent Portions, whereas, the ROU assets are listed as Noncurrent.

Operating lease liabilities are initially recognized based on the net present value of the fixed portion of our lease payments from lease commencement through the lease term.

To calculate the net present value, we apply an incremental borrowing rate.

The incremental borrowing rate is determined using a portfolio approach based on the rate of interest we would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term.

We use quoted interest rates obtained from financial institutions as an input to derive our incremental borrowing rate as the discount rate for the lease.

We recognize ROU assets based on operating lease liabilities reduced by property incentives received from landlords.

We lease the land and buildings for many of our consumer stores and land and warehouse facilities for our commercial segment.

Notes Receivable

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

The commercial segment held two notes receivable from CExchange as of December 31, 2022.

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

2 unchanged sentences

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.

On October 25, 2022, the commercial segment 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.

1 unchanged sentence

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.

Interest receivable, in the amount of $ 49,174 , that was written off against the reserve in Fiscal 2021 was received plus we received additional interest, in the amount of $ 44,941 .

The total interest received, in 2023 of $ 94,115 , was recorded as other income for the commercial segment.

Short-Term Financing

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.

As of December 31, 2023, and December 31, 2022, the line of credit had a principal and outstanding balance of $ 0 , with accrued and unpaid interest balance of $ 0 as of December 31, 2023 and 2022.

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

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

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Topic 606 - Revenue from Contracts with Customers.

Topic 606 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.

It also requires additional disclosures 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.

Topic 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.

Table of Cntents

The Company has no contract assets, and the only contract liability is customer deposits.

The following table lists the opening and closing balances of our contract assets and liabilities.

Accounts Receivable

Contract Assets

Contract Liabilities

Opening balance - 1/1/2022

Closing balance - 12/31/2022

Opening balance - 1/1/2022

Closing balance - 12/31/2022

Accounts Receivable

Contract Assets

Contract Liabilities

Opening balance - 1/1/2023

Closing balance - 12/31/2023

Opening balance - 1/1/2023

Closing balance - 12/31/2023

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

5 unchanged sentences

$ 171,674,088

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.

$ 182,685,854

For the consumer segment, 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.

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.

7 unchanged sentences

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.

1 unchanged sentence

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.

Revenue is recognized from the sale upon the promise of the financing company to pay and delivery or shipment of the product.

The consumer segment’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.

2 unchanged sentences

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.

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.

The consumer segment has established an allowance for estimated returns related to 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, 2023 and 2022, our allowance for returns remained the same at approximately $ 28,000 for both years.

1 unchanged sentence

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 commercial segment 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 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.

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

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

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

The commercial segment 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.

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

2 unchanged sentences

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”).

Historically, these amounts have been insignificant.

The commercial segment 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.

1 unchanged sentence

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.

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

Payment terms are also dictated in the SOW.

1 unchanged sentence

Shipping and handling costs amounted to $ 2,109,574 and $ 3,193,742 , for 2023 and 2022, respectively.

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.

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

Taxes Collected from Customers

5 unchanged sentences

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.

Table of Cntents

Stock-Based Compensation

4 unchanged sentences

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses.

The preparation of consolidated financial statements in conformity with U.S.

GAAP which requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses.

Examples of estimates and assumptions include:

for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price of performance obligations, variable consideration, and other obligations such as product returns and refunds;

for revenue recognition, determining the nature and timing of satisfaction of performance obligations, variable consideration, and other obligations such as product returns and refunds;

loss contingencies;

1 unchanged sentence

useful lives of our tangible and intangible assets;

allowances for doubtful accounts;

valuation allowance;

allowances for credit losses valuation allowance;

the market value of, and demand for, our inventory and the potential outcome of uncertain tax positions that have been recognized on our consolidated financial statements or tax returns.

1 unchanged sentence

New Accounting Pronouncements

In June 2016, the FASB issued a new credit loss accounting standard ASU 2016-13.

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, 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.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

The ASU significantly changes how we will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

The most significant change in this standard is the shift from the incurred credit losses to expected credit losses which will be based on an estimate of current expected credit losses.

We are 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 on our consolidated financial statements, results of operations or liquidity.

The standard was adopted beginning January 1, 2023 by using a modified retrospective transition approach to align the Company’s credit loss methodology with the new standard.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which will require the Company to disclose segment expenses that are significant and regularly provided to the Company’s chief operating decision maker (“CODM”).

In addition, ASU 2023-07 will require the Company to disclose the title and position of its CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources.

Topic 280 will be effective for fiscal years beginning January 1, 2024, Form 10-K, and interim periods within fiscal years beginning on January 1, 2025.

The standard will be adopted beginning January 1, 2024, for the fiscal year and adopted for the interim periods beginning January 1, 2025, by using a modified retrospective transition approach.

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.

2 unchanged sentences

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.

Table of Cntents

A significant amount of revenue stems from sales to one precious metals partner, which relationship constitutes Envela’s single largest source of revenues of 16.5% and 17.9% during Fiscal years 2023 and 2022, respectively.

However, the Company believes that the products we sell are marketable to numerous sources at competitive prices.

NOTE 3 — INVENTORIES

Inventories consist of the following:

Table of Cntents

NOTE 4 — PROPERTY AND EQUIPMENT

13 unchanged sentences

Machinery and equipment

Software development

accumulated depreciation

1 unchanged sentence

NOTE 5 — ACQUISITIONS

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, 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 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.

Adjustments were made to the acquiring assets and liabilities of the CExchange Transaction through management evaluation and a third-party valuation.

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

ECHG has its own separate financial information to perform goodwill impairment testing.

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 of the CExchange Transaction is as follows:

Account receivables

Intangible assets, trademarks/tradenames

Intangible assets, customer relationships

Fixed assets - net

Account payables

Accrued liabilities

Total Purchase Price

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, 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 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.

ECHG has its own separate financial information to perform goodwill impairment testing.

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

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

Right-of-use assets

Account payables

Accrued liabilities

Operating lease liabilities

Total Purchase Price

Table of Cntents

On September 12, 2023, the consumer segment purchased all of the issued and outstanding stock of Steven Kretchmer, Inc., an Arizona corporation for $300,000 (the “Kretchmer Transaction”).

Based on the terms of the purchase, the Company has concluded the Kretchmer Transaction represents a business combination pursuant to FASB ASC Topic 805, Business Combinations.

The Kretchmer Transaction was incorporated into the consumer segment.

The full purchase price of the Kretchmer Transaction, $300,000, was allocated to goodwill and the assessment of identified assets and liabilities has not been finalized as of December 31, 2023 .

NOTE 6 — GOODWILL

4 unchanged sentences

( 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.

The increase in goodwill of $ 300,000 for Fiscal 2023 is the purchase price of the Kretchmer Transaction.

The Company’s goodwill is related to both the consumer and commercial segments.

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, 2023 and 2022.

Table of Cntents

There have been no other adjustments or impairment charges to goodwill.

As of December 31, 2023, and December 31, 2022, goodwill as reported in the consolidated balance sheets was $ 3,921,453 and $ 3,621,453 , respectively.

NOTE 7 — INTANGIBLE ASSETS

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( 2,248,405 )

( 1,593,305 )

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.

Intangibles relate to the purchase of the assets of CExchange, LLC a Texas limited liability company, on June 9, 2021 (the “CExchange Transaction”).

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

1 unchanged sentence

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

Table of Cntents

NOTE 8 – ACCRUED EXPENSES

8 unchanged sentences

Professional fees

Other administrative expenses

Federal income tax

State income tax

Table of Cntents

NOTE 9 — LONG-TERM DEBT

4 unchanged sentences

November 15, 2026

Note payable, Truist Bank (2)

Note payable, Trust Bank (2)

Note payable, Texas Bank & Trust (3)

2 unchanged sentences

July 30, 2031

Kretchmer Transaction note payable (5)

October 1, 2025

DGSE Sub-Total

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Current portion

(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.

On November 23, 2021, FSB refinanced prior related party notes held by both Company segments.

The commercial segment 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 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 consumer segment note was refinanced with a remaining and outstanding balance of $ 2,781,087 , is a five-year promissory note at 3.1 % annual interest rate.

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

(2) On July 9, 2020, DGSE closed the purchase of a retail building located at 610 E.

On July 9, 2020, the consumer segment closed the purchase of a retail building located at 610 E.

Round Grove Road in Lewisville, Texas for $ 1.195 million.

The purchase was partly financed through a $ 956,000 , ten-year loan, bearing an annual interest rate of 3.65 %, amortized over 20 years, payable to Truist Bank (f/k/a BB&T Bank).

The purchase was partly financed through a $ 956,000 , ten-year loan, bearing an annual interest rate of 3.65 %, payable to Truist Bank (f/k/a BB&T Bank).

The note has monthly interest and principal payments of $ 5,645 .

(3) On September 14, 2020, 1106 NWH Holdings, LLC, a wholly owned subsidiary of DGSE, closed on the purchase of a retail building located at 1106 W.

On September 14, 2020, the consumer segment closed on the purchase of a retail building located at 1106 W.

Northwest Highway in Grapevine, Texas for $ 620,000 .

The purchase was partly financed through a $ 496,000 , five-year loan, bearing an annual interest rate of 3.75 %, amortized over 20 years, payable to Texas Bank & Trust.

The purchase was partly financed through a $ 496,000 , five-year loan, bearing an annual interest rate of 3.75 %, payable to Texas Bank & Trust.

The note has monthly interest and principal payments of $ 2,941 .

(4) On July 30, 2021, 9166 Gaylord Holdings, LLC, a wholly owned subsidiary of DGSE, closed the purchase of a new retail building located at 9166 Gaylord Parkway in Frisco, Texas for $ 2,215,500 .

The purchase was partly financed through a $ 1,772,000 , five-year loan (the “TB&T Frisco Loan”), bearing an annual interest rate of 3.75 %, amortized over 20 years, payable to Texas Bank and Trust.

On July 30, 2021, the consumer segment closed the purchase of a new retail building located at 9166 Gaylord Parkway in Frisco, Texas for $ 2,215,500 .

The purchase was partly financed through a $ 1,772,000 , ten-year loan (the “TB&T Frisco Loan”), bearing an annual interest rate of 3.75 %, payable to Texas Bank and Trust.

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

On September 12, 2023, the consumer segment entered into the Kretchmer Transaction to purchase all of the issued and outstanding common stock for $ 300,000 .

The purchase was facilitated by an initial payment of $100,000 at closing, and the remaining $200,000 to be paid out by eight quarterly payments starting January 1, 2024, of $25,000 each .

The installment note payable for the Kretchmer Transaction is imputed at 3.1 %.

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.

The purchase was facilitated by an initial payment of $2.5 million at closing, and the remaining $2.0 million to be paid out by 12 quarterly payments starting April 1, 2022, of $166,667 each.

The Installment note payable for the Avail Transaction imputed at 3.1%

(7) On November 4, 2020, 1901 Gateway Holdings, LLC, a wholly owned subsidiary of Envela Corporation, closed on the purchase of its new corporate office building located at 1901 Gateway Drive, Irving, Texas for $ 3.521 million.

The building was partially financed through a $ 2.96 million, five-year loan, bearing an interest rate of 3.25 %, amortized over 20 years, payable to Texas Bank & Trust.

On October 29, 2021, the commercial segment entered into the Avail Transaction to purchase all of the assets, liabilities and rights and interests of Avail AZ, 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 installment note payable for the Avail Transaction is imputed at 3.1%

On November 4, 2020, 1901 Gateway Holdings, LLC, a wholly owned subsidiary of Envela Corporation, closed on the purchase of its corporate office building located at 1901 Gateway Drive, Irving, Texas for approximately $ 3,521,000 million.

The building was partially financed through a $ 2,960,000 , five-year loan, bearing an interest rate of 3.25 %, payable to Texas Bank & Trust.

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

Table of Cntents

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

Future scheduled principal payments of our note payables as of December 31, 2023 are as follows:

Note payable, Farmers State Bank - DGSE

4 unchanged sentences

Year Ending December 31,

Table of Cntents

Note payable, Texas Bank & Trust - DGSE

4 unchanged sentences

Year Ending December 31,

Note payable - Kretchmer

Year Ending December 31,

Note payable, Texas Bank & Trust - Envela

Year Ending December 31,

Table of Cntents

Future scheduled aggregate amount of principal payments and maturities of our notes payable as of December 31, 2023 are as follows:

4 unchanged sentences

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 DFW, and Charleston Gold & Diamond Exchange, which has one retail store in Mt.

consumer and commercial.

The consumer segment operates Dallas Gold & Silver Exchange, which has six retail stores in DFW, Steven Kretchmer, Inc.

has one retail location in Scottsdale, Arizona and Charleston Gold & Diamond Exchange, has one retail store in Mt.

Pleasant, South Carolina.

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

The consumer segment has total assets of $ 38,897,373 as of December 31, 2023, and $ 36,966,711 as of December 31,2022.

During Fiscal 2023, the consumer segment had $ 1,856,507 of capital expenditures, of which $ 1,327,532 was for building and building improvements, $ 184,673 was for land, $ 146,188 was to purchase machinery and equipment and $ 198,114 was to purchase furniture and fixtures.

During Fiscal 2022, the consumer segment had $ 134,419 of capital expenditures, of which $ 34,446 was for building improvements, $ 22,280 purchased machinery and equipment and $ 77,693 purchased furniture and fixtures.

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

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

The commercial segment has total assets of $ 34,576,856 as of December 31, 2023, and $ 34,310,498 as of December 31, 2022.

During Fiscal 2023, the commercial segment had $ 184,327 of capital expenditures, of which $ 60,705 purchased machinery and equipment and $ 123,622 was to purchase vehicles.

During Fiscal 2022, the commercial segment had capital expenditures of $ 87,486 , of which $ 16,156 was for leasehold improvements and $ 71,330 was to purchase machinery and equipment.

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

1 unchanged sentence

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

Although the company’s depreciation expense is allocated to the segments, the capital expenditures are not.

The corporate capital expenditures, for Fiscal 2023 was $ 197,277 , of which $ 3,500 was for building improvements and $ 193,777 was software development.

The capital expenditures for Fiscal 2022, totaled $ 50,843 , all of which was to purchase equipment.

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:

The following table segments the financial results of the consumer and commercial groups for the years ended December 31, 2023 and 2022:

For the Years Ended

4 unchanged sentences

$ 131,107,433

$ 182,685,854

Cost of goods sold

3 unchanged sentences

Other income/expense :

Other income from loan forgiveness

Other income (expense)

Interest expense

15 unchanged sentences

As of December 31, 2023, no RSUs remain unexercised.

Table of Cntents

NOTE 13 — STOCK OPTIONS AND RESTRICTED STOCK UNITS

20 unchanged sentences

Exercise price

Number outstanding

exercise price

2 unchanged sentences

During Fiscal years 2023 and 2022, there was $ 0 recognized in stock-based compensation expense.

Table of Cntents

NOTE 14 — INCOME TAXES

The income tax provision reconciled to the tax computed at the statutory from continuing operations Federal rate follows:

The income tax provision reconciled to the tax computed at the statutory from continuing operations Federal Statutory rate follows:

Tax Expense at Statutory Rate

1 unchanged sentence

( 4,513,493 )

( 1,787,132 )

Correction to Deferreds

Non-Deductible Expenses and Other

PPP Loan Forgiveness

State Taxes, Net of Federal Benefit

1 unchanged sentence

$ ( 1,309,606 )

Deferred benefit

( 1,488,258 )

7 unchanged sentences

Goodwill and intangibles

Total deferred tax assets, net

Total deferred tax assets (liabilities), net

Valuation allowance

( 4,513,493 )

Net Deferred tax asset

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.

Table of Cntents

Net Deferred tax asset (liability)

No valuation allowance was recorded against the net deferred tax asset (liability) balance as of December 31, 2023 and December 31, 2022.

NOTE 15 — LEASES

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.

These lease costs consist of a combination of minimum lease payments and variable lease costs.

The Company has ten operating leases, five in DFW, two in Mt.

Pleasant, South Carolina, two in Chandler, Arizona and one in Scottsdale, Arizona.

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

The consumer segment has two leases in Mt.

Pleasant, South Carolina, three leases in DFW, and one lease in Scottsdale, Arizona, with a total of approximately 28,000 square feet under lease.

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

Leasing costs for Fiscal 2023 included minimum lease costs of $ 1,911,766 and variable lease costs of $ 834,793 , totaling $ 2,751,559 .

Leasing costs for Fiscal 2022 included minimum lease costs of $ 1,830,175 and variable lease costs of $ 767,353 , totaling 2,597,528 .

As of December 31, 2023, the weighted average remaining lease term and weighted average discount rate for operating leases was 2.00 years and 4.4 %, respectively.

5 unchanged sentences

Less imputed interest

DGSE Sub-Total

Consumer Sub-Total

2028 and thereafter

1 unchanged sentence

Less imputed interest

ECHG Sub-Total

Commercial Sub-Total

Current portion

Table of Cntents

NOTE 16 — RELATED-PARTY TRANSACTIONS

4 unchanged sentences

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.

There were no related party transactions for Fiscal years 2023 and 2022.

NOTE 17 — DEFINED CONTRIBUTION PLAN

4 unchanged sentences

NOTE 18 — SUBSEQUENT EVENTS

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.

Table of Cntents

Items 9, 9A, 9B, 9C

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