UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 ________________________

FORM 10-K

Commission File Number 001-11048

1901 GATEWAY DRIVE, STE 100. IRVING, TX 75038

(972) 587-4049

www.envela.com

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ��☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of June 30, 2020,2021, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $45.132$36.217 million based on the closing sale price as reported on the NYSE American. As of March 22, 2021,15, 2022, there were 26,924,631 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the registrant’s definitive proxy statement for the 20212022 Annual Meeting of Stockholders, which definitive proxy statement will be filed by the registrant with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2020.

ENVELA CORPORATION

FORM 10-K

For the Fiscal Year Ended December 31, 2020

Unless the context indicates otherwise for one of our specific operating segments, references to “we,” “us,” “our,” the “Company”, “Envela” refer to the consolidated business operations of Envela Corporation, the parent, and all of its direct and indirect subsidiaries.

Note About Forward-Looking Statements

This annual report on Form 10-K for the fiscal year ended December 31, 20202021 (this “Form 10-K”), including but not limited to “Item 7. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations” below, information concerning our business prospects or future financial performance, anticipated revenues, expenses, profitability or other financial items, and our strategies, plans and objectives, together with other statements that are not historical facts, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,” “will,” “would,” “expect,” “intend,” “could,” “estimate,” “should,” “anticipate,” “typical,” “projection,” “plan,” “target,” “mission,” “intend,” “believe” or similar words. We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements other than statements of historical information provided herein are forward-looking and may contain information about financial results, economic conditions, trends, and known uncertainties. All forward-looking statements are based on current expectations regarding important risk factors. Many of these risks and uncertainties are beyond our ability to control, and, in many cases, we cannot predict all of the risks and uncertainties that could cause our actual results to differ materially from those expressed in the forward-looking statements. Actual results could differ materially from those expressed in the forward-looking statements, and readers should not regard those statements as a representation by us or any other person that the results expressed in the statements will be achieved. Important risk factors that could cause results or events to differ from current expectations are described under “Item 1A. Risk Factors” below and elsewhere in this Form 10-K. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the operations, performance, development and results of our business. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereon, including without limitation, changes in our business strategy or planned capital expenditures, store growth plans, or to reflect the occurrence of unanticipated events.

OUR MISSION

Envela’s mission is to empower recommerce buyers and sellers to extend the useful life of goods by reselling previously owned or used goods, or recycling goods’ materials, elements or components for sale and reuse.

OVERVIEW

Envela is a holding company owning subsidiaries engaged in the recommercialization of goods. Envela’s recommerce operations in each subsidysubsidiary reconditions previously owned or used goods for resale, or recycles products’ value by extracting materials, elements or components that can be sold. Envela’s recommerce businesses isare conducted on both a retail basis and a wholesale basis through distributors, resellers, dedicatedbrick-and-mortar stores and online. Envela’s subsidiaries also operate a number of other related businesses and brands engaged in a variety of activities, as identified herein. Envela is domiciled in the state of Nevada, and its corporate headquarters are located in Irving, Texas.

OPERATING SEGMENTS

Envela operates through two recommerce business segments represented by its two direct subsidiaries. DGSE, LLC (“DGSE”) focuses on the recommercialization of luxury hard assets, and ECHG, LLC (“ECHG”) focuses on the recommercialization of business IT equipment and consumer electronic devices.

DGSE operates the Dallas Gold & Silver Exchange, Charleston Gold & Diamond Exchange and Bullion Express brands and 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. Buying and selling items for their precious-metalsprecious-metal content is a major method by which DGSE markets itself. DGSE also offers jewelry repair services, custom-made jewelry and consignment items, and maintains relationships with refiners for precious-metal items that are not appropriate for resale.

ECHG owns and operates Echo Environmental Holdings, LLC (“Echo”), ITAD USA Holdings, LLC (“ITAD USA”) and, Teladvance, LLC (“Teladvance”), CEX Holdings, LLC (“CEX”) and Avail Recovery Solutions, LLC, a Delaware limited liability company (“Avail DE”), through which it primarily buys and resells or recycles consumer electronic components and IT equipment. Echo focuses on end-of-life electronics recycling and sustainability, ITAD USA provides IT equipment disposition, including compliance and data sanitization services, Teladvance, CEX and Teladvance operatesAvail DE operate as a value-added resellerresellers by providing offerings and services to companies looking either to upgrade capabilities or dispose of equipment. Like DGSE, ECHG also maintains relationships with refiners or recyclers to which it sells valuable materials it extracts from electronics and IT equipment that are not appropriate for resale or reuse.

Envela disaggregated its revenue, within the operating segments, based on its resale and recycle presentation basis. The Company’s historical disaggregation of revenue has been recast to conform to our current presentation.

PART I

Item 1

DGSE SEGMENT

DGSE buys to resell or recycle luxury hard assets, including jewelry, diamonds, fine watches, rare coins and currency, precious-metal bullion as well as items for their precious-metals content, and other valuables. DGSE reconditions items for resale as a whole good or component parts, or recycles them by selling recovered precious metals to refiners. These metals include gold, silver, platinum and palladium, with gold constituting the majority of our purchases and resales. DGSE resells through its retail locations or wholesale contacts. Where resale or wholesale is not appropriate, such as for crafted-precious-metalcrafted precious-metal items at the end of their useful lives, the items are sent to a third-party refiner and analyzed for metal content, after which they can be recycled and either sold or recrafted into new jewelry or bullion products. In addition to purchase and resale, DGSE offers on-site jewelry and watch repair and restoration services at its Dallas flagship location, located at 13022 Preston Road, Dallas, Texas 75240, and also partners with a number of consignment vendors which expands offerings at DGSE’s retail locations. DGSE also designs and offers custom bridal and fashion jewelry. As referenced above, DGSE also purchases items for their precious-metal content. Buying and selling precious metal is a major method by which DGSE markets itself.

For over 40 years, DGSE has been a destination location for those seeking value and liquidity in reselling or trading jewelry, and in recycling the precious metals of items it determines are not appropriate to sell as a whole good or as component parts. DGSE’s in-house staff of experts, including horologists, gemologists and authenticators, inspect items for authenticity and value, and share their market knowledge with its customers.

DGSE operates sixseven retail locations: fivesix Dallas Gold & Silver Exchange stores throughout the Dallas/Fort Worth Metroplex and theone Charleston Gold & Diamond Exchange store in Mt Pleasant, South Carolina. In the fourth quarter of 2020, DGSE moved its Southlake, Texas location to Grapevine, Texas, and opened a new location in Lewisville, Texas—both suburbs of Dallas. DGSE purchased its Grapevine and Lewisville buildings; itbuildings. During 2021, DGSE purchased and renovated its newest retail location in Frisco, Texas—also a suburb of Dallas. The Frisco location was opened during the first quarter of Fiscal 2022. DGSE leases its storesstore in Charleston, South Carolina and the three other locations in the Dallas/Fort Worth Metroplex. DGSE’s Dallas flagship location offers on-site jewelry-repair and watch-restoration services.

We believe that the most successful DGSE locations will be those that can sustain our full retail “exchange” model: engaging in both buying and selling luxury hard assets and maintaining a robust and diverse inventory across all jewelry categories, fine watches and monetary collectibles. Also,Helping to help extend the life of luxury goods, our stores offer repair and restoration services for jewelry and watches. Examples of luxury hard assets that we buy and sell are estate and designer jewelry, fine timepieces, rare and numismatic coins, diamonds, gold, silver and other precious metals. See “Item 7. Management’s Discussion and Analysis—Analysis—DGSE Precious Metals Pricing and Business Impact” for more information.

In recent years, DGSE has maintained several brick-and-mortar stores throughout Dallas/Fort Worth Metroplex,making our experts accessible to provide our customers guidance and insight. We are now focusing on bringing the DGSE experience to a wider customer base through an expanded footprint. Brick-and-mortar expansion remains a top priority and strong growth opportunity for DGSE. Purchasing the Lewisville, Grapevine and GrapevineFrisco stores wereare part of that focus. We want to continue adding new merchandise daily to an already inviting product selection and providing omnichannel and immersive consumer experiences to customers in existing and new locations.

We will continue to focus on evolving our business across the Dallas/Fort Worth Metroplex and in Charleston, South Carolina in an effort to drive efficiency across our geographical footprint and maximize profitability.

DGSE views e-commerce as a supplement, but not a replacement, to its retail locations and other operations. For more information, see “—Sales and Marketing” below.

PART I

Item 1

ECHG SEGMENT

ECHG owns and operates Echo, ITAD USA, Teladvance and Teladvance,now through two asset purchases during Fiscal 2021, CEX Holdings, LLC (“CEX”) and Avail Recovery Solutions, LLC, a Delaware limited liability company (“Avail DE”). through which it buys to resell or recycle consumer electronics and IT equipment from businesses and other organizations, such as school districts. Items designated for resale as a whole or as component parts get extended operational life by first having any existing data erased and then being refurbished before resale. ECHG recycles goods by removing usable components for resale as components, or by extracting the valuable metals (or other materials) for sale to downstream recycling and refining companies that further process the metal or other materials for subsequent resale. Our customers include companies and organizations that are based both domestically and internationally. A significant amount of ECHG’s refining revenue comes through Echo from a refining partner with an international refining facility.

ECHG’s goal is to extend the useful life of electronics through recommerce whenever possible. Resale and reuse conserves energy and raw materials required to make new products and turns obsolete IT assets into revenue.

CEX was formed in connection with the purchases on May 20, 2019purchase of the assets of Echo Environmental,CExchange, LLC and ITAD USA, LLCa Texas limited liability company (“CExchange”), on June 9, 2021 (the “Echo Legacy Entities”“CExchange Transaction”). TeladvanceAvail DE was subsequently acquiredformed in connection with the purchase of the assets of Avail Recovery Solutions, LLC, an Arizona limited liability company (“Avail AZ”) on August 2, 2019.

Echo and ITAD USA each operate in separateoperates out of a leased warehouseswarehouse in Carrollton, Texas. These leases wereTeladvance, ITAD and CEX operate out of a separate warehouse in Carrollton, TX that was originally assigned in connection with the asset acquisition fromCExchange Transaction. Avail DE operates in a leased warehouse in Chandler, Arizona. This lease was assigned in connection with the Echo Legacy Entities. Teladvance also primarily operates out of the same Carrollton location as Echo.

Through ECHG and its subsidiaries, Envela plays a larger role in environmental sustainability. It is our mission to solve problems for our clients and leave the planet a better place than we found it. The world is quickly shifting its priorities to better manage our global resources, and it is our drive to work with our customers to design a flexible, convenient, hassle-free recycling solution that accommodates their specific needs.

For more information about ECHG’s business drivers, see “Item 7. Management’s Discussion and Analysis—Analysis—DGSE Business Drivers and Impacts.”

DGSE’s products and services are marketed through sixseven retail locations in Texas and South Carolina. As noted above, the brick-and-mortar retail locations operate under the Dallas Gold & Silver Exchange and Charleston Gold & Diamond Exchange brands. DGSE markets bullion products online under the Bullion Express brand.

DGSE transacts a significant amount of business with wholesalers in its industry. These wholesale transactions occur at industry-specific trade shows held periodically throughout the year, during in-person and telephonic sales calls, and through industry-trade websites.

ECHG provides custom electronics recycling solutions to meet the needs of diverse clients, including Fortune 500 companies, municipalities, school districts, individual consumers and other organizations. ECHG helpsECHG’s goal is to help consumers realize maximum value for their used electronics and in the process helpshelp protect the environment through responsible recycling.

PART I

Item 1

PRODUCTS AND SERVICES

DGSE provides a marketplace that delivers what we believe to be unparalleled value and liquidity for those seeking to buy, sell or trade luxury hard assets like jewelry, watches and diamonds, as well as most numismatic items, discussed below. DGSE buys and sells merchandise in every major jewelry category, including bridal jewelry, fashion jewelry, custom-made jewelry, diamonds and other gemstones, findings (jewelry components) and fine watches.

Much of our jewelry and fine-watch inventory is purchased directly from individual and wholesale customers at our retail locations. We process these purchased items at a central location where expert jewelers, gemologists, precious metal dealers and watchmakers sort them into three main resale categories: retail appropriate, wholesale appropriate and refiner appropriate. Following a determination of retail appropriateness, jewelry and fine watches are cleaned, serviced and repaired by our experienced jewelers and watchmakers so they’re in like-new condition and suitable for resale. Most of these items are then individually tagged and sent to one of our retail locations for sale. Items determined to be not appropriate for our retail locations but suitable for wholesale are grouped into wholesale lots and liquidated through either wholesale contacts or viain-person dealer-to-dealer sales. Items that are not appropriate for retail or wholesale are sold to a third-party refiner.

The higher-quality diamonds and gemstones that we purchase are typically submitted for independent assessment and certification by the Gemological Institute of America (“GIA”) and other third-party certifying authorities. This process helps us resell the diamonds and gemstones individually or as components of our custom bridal and fashion jewelry. Mid-quality diamonds and gemstones are often also utilized in our custom fashion jewelry or packaged with lower-quality stones and sold to wholesalers across the country. DGSE utilizes jewelry makers to design and create custom fashion jewelry for sale at its locations, including to customer specifications.

In addition to our own inventory of reconditioned luxury hard assets that we offer for sale, we maintain relationships with numerous commercial consignment vendors across the country who supply us with new and pre-owned jewelry on consignment. This supplements our over-the-counter jewelry purchases and enhances our overall jewelry offering. Sales of this consignment jewelry are settled with our consignment vendors on a weekly or monthly basis.

DGSE also buys and sells most numismatic items, including rare coins, currency, medals, tokens and other monetary collectibles. Most of our rare coins, currency and monetary collectibles are purchased directly from individual customers. We then resell them through our retail activities or wholesale contacts.

Our bullion-trading operation buys and sells all forms of gold, silver, platinum and palladium products, including United States and other government-issue coins, private-mint medallions, art bars and trade unit bars. All of our store locations conduct retail bullion transactions. Wholesale bullion transactions are conducted through our main bullion-trading operation in Dallas, Texas, through which DGSE maintains numerous vendor relationships with major industry wholesalers, mints and institutions.

We purchase bullion products from a variety of vendors and sell them based on current precious-metal market pricing. Bullion inventory is subject to market-value changes created by underlying commodity markets. While we believe that we effectively manage commodity risk associated with our bullion business, including by periodically entering into futures contracts to hedge our exposure against market-price changes, there are national and international factors beyond our control that may affect margins, customer demand and transactional volume. These factors include, but are not limited to, U.S. Federal Reserve policies, inflation rates, global economic uncertainty, and government and private-mint supply.

We maintain a jewelry-repair center at our Dallas flagship location. WeOur stores accept repair, polishing and service orders through all of our retail locations which are routed to our Dallas flagship location for service.

ECHG, through its wholly owned subsidiary Echo, offers comprehensive end-of-life electronics recycling. ECHG works with customers to design a flexible, convenient, hassle-free program that accommodates specific customer needs. It offers comprehensive turnkey solutions that include transportation and product tracking.

ECHG, through its wholly owned subsidiary ITAD USA, offers wide-ranging IT equipment disposition services for diverse clients that want to replace and remarket their IT equipment. ITAD USA helps companies carefully navigate the maze of local compliance and regulations associated with technology disposition. From secure logistics and transportation to comprehensive reporting tools and data sanitization services, ITAD USA’s solutions cover all enterprise technology types. Depending on an IT asset’s condition, it can be refurbished and redeployed within the customer’s business, remarketed and sold, or donated to charity. When assets are being sold, ITAD USA’s in-house, global-commodity experts help determine market value, and its remarketing network helps ensure clients get maximum value.

ECHG, through its wholly owned subsidiarysubsidiaries Teladvance, operatesCEX and Avail DE, operate as a value-added reseller, providing IT equipment offerings and services to companies looking to upgrade their software, hardware or networking capabilities, or dispose of IT equipment during the process of moving to cloud services. ECHG delivers a diverse portfolio of latest-technology products and services for clients’ specific business and technology needs.

Moreover, helping new cloud customers recover value from their existing datacenter components, ECHG offers true cradle-to-grave technology solutions.

We incorporated in the State of Nevada on September 16, 1965, as Canyon State Mining Corporation of Nevada. During the ensuing 5657 years, the Company transformed its business to meet its customers’ needs and changed its name to reflect thosethis transformation, including to the following: Canyon State Corporation (October 13, 1981), The American Pacific Mint, Inc. (July 15, 1986), Dallas Gold & Silver Exchange, Inc. (June 22, 1992), and DGSE Companies, Inc. (June 26, 2001). By pursuing diversified business opportunities in the recommerce sector that havehas potential long-term rewards, we continued to evolve, and on December 12, 2019, we changed our name to Envela Corporation to better reflect our current business operations and diversified recommerce portfolio. These diversified business opportunities include authenticated recommerce retail of luxury hard assets; end-of-life IT asset recycling; data destruction and IT-asset disposition; and provision of products, services and solutions to industrial and commercial companies. Information contained on, or accessible through, our website is not incorporated by reference into and does not constitute a part of this annual report or any other report or documents we file with or furnish to the Securities and Exchange Commission (the “SEC”).

Our principal executive offices’ address and telephone number are shown on the cover of this document. Our website address, envela.com, reflects corporate information and is intended primarily for investors. Many of our subsidiaries and brands maintain their own websites for commercial purposes, including primarily the following: DGSE.com, CGDEinc.com, echoenvironmental.com, ITADUSA.com, teladvance.com and teladvance.comAvailRecovery.com.

Envela and its subsidiaries hold well-established trademarks and trade names, including the following:

DGSE; Dallas Gold & Silver Exchange; Charleston Gold & Diamond Exchange; Bullion Express;ECHG; ITAD USA; Echo Environmental; Teladvance and Teladvance.

Envela and other trade names, trademarks and service marks of the Company are the property of Envela. Solely for convenience, the trademarks, service marks, logos and trade names referred to in this document are without the “®” and “™” symbols, but such references are not intended to indicate that we waive or will not assert our rights in them.

In fiscal year 2020,2021, DGSE’s advertising activities continued to rely heavily on digital media, radio and print. Marketing activities centered on each of the major business categories, emphasizing our broad array of products, expertise, and price advantages compared to our local and regional competition. In fiscal year 2020,2021, we spent approximately $253,000$407,000 on advertising and marketing in our operations, a 36%61% year-over-year decrease.increase. Our advertising and marketing spending represent costs for traditional and digital media, in-store displays, brochures and informational pamphlets, production fees, and other related items.

In fiscal year 2021,2022, we anticipate our radio, digital and social media presence to remain an integral part of DGSE’s marketing strategy. The website for the Dallas Gold & Silver Exchange has been redesigned to be viewed on a variety of platforms across a multitude of digital devices. We believe our enhanced web platform also facilitates a personalized shopping experience, including recommending inventory, and delivers a seamless digital experience for product research and social sharing. Additionally, we anticipate that social media will continue to play an increasingly larger role in our overall advertising mix. The digitalDigital advertising will continue to allow us to target specific customer groups on a wider scale.

ECHG’s advertising activities focus primarily on regional and national trade shows. In fiscal year 2020,2021, we spent approximately $27,000$53,000 on advertising and marketing, a significant portion of which was spent at regional and national trade shows. In 2021,2022, ECHG expects trade shows will continue to be the largest portion of their advertising budget since downstream recyclers frequent such trade shows to evaluate who can meet their needs or service their projects. Also, at trade shows, representatives of ITAD USA make many contacts with decision makers seeking either to purchase refurbished electronics for their employees or to sell their older electronic devices for recycling and reuse.

DGSE’s retail and wholesale jewelry business is generally seasonal. The time periods around Christmas, Valentine’s Day and Mother’s Day are typically the main seasons for jewelry sales.

DGSE’s business of buying and selling bullion, precious metal, and rare-coins are less seasonal, though we believe they are directly impacted by several factors outside of our control, including U.S. Federal Reserve policies, inflation rates, global economic uncertainty, governmental and private-mint supply. These factors may affect margins, customer demand and transactional volume.

PART I

Item 1

Seasonal swings are rarely sustained or noticed in ECHG’s business of recycling end-of-life assets and refurbishing value-sustaining electronic components.

As of December 31, 2020,2021, we employed 152256 people, all full-time employees. None of our employees are represented by a labor union. We believe that our current employee relations are in good condition. Our management policy is to keep employees informed of material decisions that affect them, encourage employee suggestions, and implement them whenever practicable.

Envela buys and resells precious metals, which are generally subject to regulation including conflict mineral tracing. However, in conjunction with legal counsel, we have determined that we do not have sufficient control over manufacturing of any of our products to be included in the group of companies required to provide conflict-minerals disclosure and reporting. If our sourcing processes should change, or if there is a determination that our current practices should be covered by the conflict-minerals reporting and disclosure guidelines, we would need to implement significant additional measures to comply with these rules. See “Item 1A. Risk Factors—The conflict-mineral diligence process, the results from that process and the related reporting obligations could increase costs, adversely affect our reputation and adversely affect our ability to obtain merchandise” for additionalmore information. In addition, Envela partners with refiners for certainportion of its sales. These refiners are subject to increasingly stringent governmental regulation in their refining operations, and a change or increase in such regulations in the United States or abroad may have an adverse impact on our business.

Envela recognizes that climate change is a major risk to society and therefore continues to take steps to reduce its climatic impact. Nevertheless, management believes that climate change has only a limited influence on Envela’s performance and is of limited significance directly to the business. However, as a significant portion of Envela’s business relies on the availability of disposable income for its customers, a change in fuel prices could have a material impact on Envela’s business. See “Item 1A. Risk Factors—Adverse economic conditions in the U.S. or in other key markets, and the resulting declines in consumer confidence and spending, could have a material adverse effect on our operating results” for more information.

Envela applied for and received, on April 20, 2020, an approximately $1.67 million federally backed loan with 1% interest, the proceeds of which were intended to pay employees and cover certain rent and utility-related costs during the COVID-19 pandemic (the “Federal Loan”). The Federal Loan iswas forgivable to the extent that certain criteria arewere met. We applied for the forgiveness of the Federal Loan during the fourth quarter ending December 31,Fiscal 2020, and are pendingreceived notification during Fiscal 2021 that the resultsloan had been forgiven.The forgiveness of such application. 

Envela files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information with the US Securities and Exchange Commission (“SEC”). Such information, and amendments to reports previously filed or furnished, is available free of charge from our corporate website, envela.com, as soon as reasonably practicable after such materials are filed with or furnished to the SEC. The SEC also maintains an internet site at sec.gov that contains the Company’s filings.

Additionally, there are complete copies of our policies (Business Code of Conduct & Ethics; Related Party Transaction Policy; and Whistleblower, committee charters (Audit; Compliance, Governance and Nominating; and Compensation), and information about how to communicate with our Board.

N10TR, LLC (“N10TR”) is our largest shareholder, owning 12,814,727 shares of our Common Stock, representing 47.7% of our total outstanding shares of Common Stock. Eduro Holdings, LLC (“Eduro”) owns 6,365,460 shares of our Common Stock, representing 23.7% of our total outstanding shares of Common Stock. Both N10TR and Eduro are under the common control of John R. Loftus, our CEO, President the Chairman of the Board. Consequently, Mr. Loftus, N10TR and Eduro are in a position to significantly influence any matters that are brought to a vote of the shareholders, including, but not limited to, the election of members of our Board and any action requiring the approval of shareholders, including any amendments to our governing documents, mergers or sales of all or substantially all of our assets. This concentration of ownership also may delay, defer or even prevent a change in control of our company and make some transactions more difficult or impossible without the support of Mr. Loftus, N10TR and Eduro. These transactions might include proxy contests, tender offers, mergers or other purchases of Common Stock that could give stockholders the opportunity to realize a premium over the then-prevailing market price for shares of our Common Stock.

On April 16, 2012, we filed a Current Report on Form 8-K disclosing that our Board had determined the existence of certain accounting irregularities beginning approximately during the second calendar quarter of 2007 and continuing in periods subsequent thereto (the “Accounting Irregularities”). We brought the Accounting Irregularities to the attention of the SEC in a letter dated April 16, 2012. On June 18, 2012, we received written notice that the SEC had initiated a private investigation into the Accounting Irregularities, to determine whether any persons or entities had engaged in any possible violations of the federal securities laws. On June 2, 2014, we received notice of the entry of an agreed final judgment by the Honorable Judge Jane Boyle (the “Agreed Final Judgment”) in Civil Action No. 3:14-cv-01909-B, entitled Securities and Exchange Commission v. DGSE Companies Inc., et. al., filed on May 27, 2014 in Federal District Court for the Northern District of Texas (the “Civil Action”). We consented to the Agreed Final Judgment prior to the filing of the Civil Action by the SEC. The Agreed Final Judgment was entered in connection with the conclusion of the investigation against DGSE by the SEC regarding the Accounting Irregularities.

In connection with the Agreed Final Judgment and as remedial measures in connection with the Accounting Irregularities, we agreed to undertake certain corporate governance reforms, all of which we believe to be complete at this time (the “Corporate Governance Reforms”). The Corporate Governance Reforms include the appointment of two new independent directors to the Board, establishing the position of a Lead Independent Director on the Board and establishing reasonable term limits for members of the Board, among other reforms. We engaged a consultant satisfactory to the SEC to confirm implementation of the Corporate Governance Reforms. Due to Board member resignations in the latter half of fiscal year 2015, we were unable to complete our confirmation with the consultant by the initial deadline; however, with the addition of new independent directors, we regained compliance with the Corporate Governance Reforms. If we fall out of compliance with the Corporate Governance Reforms, we may be the subject of additional enforcement actions and further lawsuits, which could be debilitating. The costs of such investigations and of defending lawsuits could be significant and could exceed the amount of any available insurance coverage we have, and we may not have sufficient resources in the future to satisfy such costs. These matters may continue for some time, and we have no way of anticipating when or how they may be resolved. As a result of the investigation and settlement, as well as any future investigations or lawsuits, we could face loss of reputation, decline in confidence from investors, fall in the market price for our shares, inability to acquire capital and failure to continue as a going concern.

Effective internal controls over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial reports and to detect and prevent fraud. In the past, our internal controls and procedures have failed. The remedial measures taken by us may not be sufficient to regain the confidence of investors or any loss of reputation, which could in turn affect our finances and operations. Our disclosure controls and internal controls over financial reporting may not prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our business have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected. If there is a failure in any of our internal controls and procedures, we could face investigation or enforcement actions by the SEC and other governmental and regulatory bodies, litigation, loss of reputation and investor confidence, inability to acquire capital and other material adverse effects on our finances and business operations.

Bullion, crafted precious metal, and other precious metal products are purchased and sold based on current market pricing for precious metals. Bullion and precious metal inventories are subject to market-value changes created by their underlying commodity markets. We periodically enter into futures contracts to hedge our exposure against market-price changes. There are several national and international factors which are beyond our control, but which may affect margins, customer demand and transactional volume in our bullion business. These factors include, but are not limited to, the policies of the U.S. Federal Reserve, inflation rates, global economic uncertainty, and governmental and private mint supply. If we misjudge the commodity markets underlying the bullion inventory, our bullion business could suffer adverse consequences. Substantially lower precious-metal prices could negatively affect our ability to continue purchasing significant volumes of bullion, crafted precious metal,precious-metal, and other precious-metalprecious metal products, which could negatively affect our profitability.

Our results are dependent on a number of factors impacting consumer confidence and spending, including, but not limited to, the following: general economic and business conditions; wages and employment levels; volatility in the stock market; home values; inflation; consumer-debt levels; availability and cost of consumer credit; economic uncertainty; solvency concerns of major financial institutions; fluctuations in foreign-currency exchange rates; fuel and energy costs and/or shortages; tax issues; and general political conditions, both domestic and abroad.

PART I

Item 1A

Adverse economic conditions, including declines in employment levels, disposable income, consumer confidence and economic growth, could result in decreased consumer spending that would adversely affect sales of consumer goods, particularly those viewed as discretionary items like many of our products. Adverse economic conditions may arise from general economic factors as well as events such as war, terrorism, natural disasters or outbreaks of disease, as in the case of the coronavirus pandemic which has already adversely affected global economic business conditions. In addition, if any of these events should occur, future sales on products like ours could decline due to increased commodities prices, particularly gold.

On March 11, 2020, the World Health Organization announced that infections of the coronavirus COVID-19 had become pandemic, and on March 13, 2020, the U.S. President announced a National Emergency relating to the disease. There has been widespread infection in the United States and abroad. National, state and local authorities have implemented social distancing and imposed quarantine and isolation measures on large portions of the population, including temporary mandatory business closures. These measures, while intended to protect human life, are having a serious adverse impact on domestic and foreign economies with unknown duration. The effectiveness of economic stabilization efforts, including government payments to affected citizens and industries, and vaccine distribution and development efforts are uncertain.

The sweeping nature of the coronavirus pandemicCOVID-19, and any future variants, makes it extremely difficult to predict how our business and operations will be affected in the long term, though the likely overall economic impact of the pandemic is viewed as highly negative to the general economy. The pandemic continues to be a threat, and any potential variant strain that may mutate can cause continued interruptions in travel and business disruptions with respect to us, our customers or our supply chain. This could adversely affect our sales, costs and liquidity position, possibly to a significant degree. We may again become subject to store closures. We are continuing to monitor and assess the progress of vaccines concerning our employees and the public. 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.

We continue to monitor the impact of the COVID-19 pandemic on all aspects of our business. One impact has been, despite the usual correlation of increasing gold prices with precious-metal-recycling revenues for our DGSE business, our revenues in that area are down year over year. See “Item 7. Management’s Discussion and Analysis—DGSE Precious Metals Pricing and Business Impact” for more information.

The industries in which we operate are highly competitive, and we compete with numerous other companies, a number of which are larger and have significantly greater financial, distribution, advertising and marketing resources. Our products compete on a number of bases, including attractiveness of brand and category assortments as well as pricing competitiveness. Significant increases in these competitive influences could adversely affect our operations through a decrease in the number and dollar volume of sales.

For all of our products and services, we compete with a number of comparably sized and smaller firms, as well as a number of larger firms throughout the United States. Many of our competitors attract customers with their reputation and through their industry connections. Additionally, other reputable companies may decide to enter our markets to compete with us. These companies may have greater name recognition and have greater financial and marketing resources than we do. If these companies are successful in entering the markets in which we participate, or if customers choose to go to our competition, we may attract fewer buyers or sellers and our revenue could decrease.

Jewelry and watch retailing is highly fragmented and competitive. We competeDGSE competes for jewelry sales primarily against specialty jewelers such as Zales, Jared, and Kay’s, as well as other retailers that sell jewelry and watches including department stores, discount stores, apparel outlets, and internet retailers. Participants in the jewelry and watch category compete for a share of our customers’ disposable income with other consumer sectors such as electronics, clothing, furniture, travel and restaurants. This competition for consumers’ discretionary spending is particularly relevant to gift giving, and somewhat to bridal jewelry (e.g. engagement, wedding, and anniversary).

PART I

Item 1A

Consumers are increasingly shopping for jewelry or starting their jewelry-buying experience online, which makes it easier for them to compare prices with other jewelry retailers. If DGSE’s brands do not offer the same or similar items at the lowest prices, consumers may purchase their jewelry from competitors, which would adversely impact the Company’s sales and results of operations.

Our DGSE wholesale and jewelry sales are seasonal by nature. The time periods around Christmas, Valentine’s Day and Mother’s Day are typically the main seasons for jewelry sales. OurDGSE’s sales are traditionally greater during significant holidays that occur in late fall, winter or early spring. The amount of net sales and operating income generated during these seasons depends upon the general level of retail sales at such times, as well as economic conditions and other factors beyond our control. Given the timing of our annual seasonality, inclement weather can at times pose a substantial barrier to consumer retail activity and have a material negative impact on our store traffic. If events or circumstances were to occur that negatively impact consumer spending during such holiday seasons, it could have a material adverse effect on our sales, profitability and operating results.

Consumer demand for our products can affect inventory levels. If consumer demand is lower than expected, inventory levels can rise, causing a strain on operating cash flow. If the inventory cannot be sold through our retail outlets or wholesale contacts, additional write-downs or write-offs to future earnings could be necessary. Conversely, if consumer demand is higher than expected, insufficient inventory levels could result in unfulfilled customer orders, loss of revenue and an unfavorable impact on customer relationships. In particular, volatility and uncertainty related to macro-economic factors make it more difficult for us to forecast customer demand in our various markets. Failure to properly judge consumer demand and properly manage inventory could have a material adverse effect on profitability and liquidity.

We require continued access to capital, and a significant reduction in cash flows from operations or the availability of credit could materially and adversely affect our ability to achieve our planned growth and operating results. Similarly, if actual costs to build or acquire and build-out new retail stores significantly exceed planned costs, could hinder our ability to build or acquire new stores or to operate the same profitably could be materially restricted.those profitably. Credit and equity markets remain sensitive to world events and macro-economic developments. Therefore, our cost of borrowing may increase, and it may be more difficult to obtain financing for our operations or to refinance long-term obligations as they become payable. Additionally, our borrowing costs can be affected by independent rating agencies’ short- and long-term debt ratings which are based largely on our performance as measured by credit metrics including interest coverage and leverage ratios. A decrease in these ratings would likely increase our borrowing cost and make it more difficult for us to obtain financing. A significant increase in our costs to finance operations may have a material adverse impact on our business results and financial condition.

Interest rates could rise, which would increase our borrowing cost, or could make it difficult or impossible to secure financing.

We rely on our information systems to manage and operate our stores and business. These include our telephone phone system, website, point-of-sale application, accounting package and other systems. Each store is part of an information network that permits us to maintain adequate cash inventory, daily reconcile cash balances, and timely report revenues and expenses. Any disruption in the availability of our information systems could adversely affect our operation, the ability to serve our customers and our results of operations.

Our future success and growth depend on the continued services of our directors, key management and employees. Losing services of any of these individuals or any other key employee or contractor could materially affect our business. OurThe Company’s future success also depends on our ability to identify, attract and retain additional qualified personnel. Competition for employees in our industries is intense, and we may not be successfulunsuccessful in attracting or retaining them. There are a limited number of people with knowledge of, and experience in, our industries. We do not have employment agreements with many of our key employees. We do not maintain life insurance policies on any of our employees. The loss of key personnel, especially without advance notice, or the inability to hire or retain qualified personnel, could have a material adverse effect on sales and operations. We cannot guarantee that we will continue to retain our key management and skilled personnel, or that we will be able to attract, assimilate and retain other highly qualified personnel in the future.

We have not paid Common Stock dividends since our inception and do not anticipate paying dividends in the foreseeable future. Our current business plan provides for reinvesting earnings in an effort to complete development of our technologies, inventories and expansion, with the goal of increasing sales and long-term profitability and value.

In addition to the Corporate Governance Reforms, we face corporate-governance requirements under the Sarbanes-Oxley Act of 2002, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the ”Dodd-Frank“Dodd-Frank Act”), as well as new rules and regulations subsequently adopted by the SEC, the Public Company Accounting Oversight Board and the NYSE American (the “Exchange”). These laws, rules and regulations continue to evolve and may become increasingly stringent in the future. We cannot ensure that we will be able to comply fully with these laws, rules and regulations that address corporate governance, internal control reporting and similar matters. Failure to comply with these laws, rules and regulations could subject us to investigation and enforcement actions, and could materially adversely affect our reputation, financial condition and the value and liquidity of our securities.

Despite the implementation of network security measures, our websites are vulnerable to computer viruses, break-ins and similar disruptive problems caused by internet users. These occurrences could result in our liability for damages, and our reputation could suffer. Circumvention of our security measures may result in the misappropriation of customer or other confidential information. Any such security breach could lead to interruptions, delays and cessation of service to our customers and could result in a decline in revenue and income.

While jewelry manufacturing is a major driver of demand for gold, management believes that the cost of gold is predominantly driven by investment transactions which have resulted in significant changes in that cost over the past decade. Our cost of merchandise and potentially our earnings may be adversely impacted by investment-market considerations that cause the price of gold to significantly increase or decrease.

An inability to increase retail prices to reflect higher commodity costs would result in lower profitability. Historically, jewelry retailers have been able, over time, to increase prices to reflect changes in commodity costs. However, in general, particularly sharp increases in commodity costs may result in a time lag before increased commodity costs are fully reflected in retail prices. There is no certainty that such price increases will be sustainable, so downward pressure on gross margins and earnings may occur. Moreover, any sustained increases in the cost of commodities could result in the need to fund a higher level of inventory or to make changes in the merchandise available to customers.

A significant portion of our profit is generated from buying and selling pre-owned jewelry or other precious-metal-based products. Significant price fluctuations in precious metals, especially downward, can have a severe impact on this part of our business, as people are less likely to sell these products to us if they believe their merchandise is being undervalued, or if they believe the value is uncertain.

In August 2012, the SEC, pursuant to the Dodd-Frank Act, issued final rules which require annual disclosure and reporting on the source and use of certain minerals, including gold, from the Democratic Republic of Congo and adjoining countries. The gold supply chain is complex, and while our management believes that the rules only cover less than 1% of annual worldwide gold production based upon current estimates,the final rules require certain jewelry retailers and manufacturers that file with the SEC to exercise reasonable due diligence in determining the country of origin of the statutorily designated minerals that are used in kinds of products we sell. Jewelry retailers or manufacturers who meet certain criteria were required to file certain reports with the SEC beginning in May 2014, disclosing their due-diligence measures related to country of origin, the results of those activities, and related determinations. In conjunction with legal counsel, we have determined that we do not have sufficient control over manufacturing of any of our products to be included in the group of companies required to provide conflict-minerals disclosure and reporting.

If our sourcing processes should change, or if there is a determination that our current practices should be covered by the conflict-minerals reporting and disclosure guidelines, we would need to implement significant additional measures to comply with these rules. We cannot be certain of the costs that might be associated with such regulatory compliance. The final rules also cover tungsten, which is contained in a small portion of items that we sell. Other minerals, such as diamonds, could be added to those currently covered by these rules. We may incur reputational risks with customers and other stakeholders if, due to the complexity of the global supply chain, we are unable to sufficiently verify the origin of the relevant metals. Also, if the responses of parts of our supply chain to verification requests were adverse, it could harm our ability to obtain merchandise and add to compliance costs

A significant amount of DGSE’s revenue and expenses stems 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 through Echo from one refining partner with an international refining facility. Any adverse break in either relationship could reduce the flow of refining materials to them and revenue to us. While it remains a developing situation, the coronavirus pandemic and any continuing quarantines, interruptions in travel and business disruptions with respect to us or either refining partner could cause such an adverse break in the relationship and reduce refining revenue to us, possibly to a significant degree. Although we are continuing to monitor and assess the effects of the coronavirus pandemic, including the development and distribution of vaccine, the ultimate impact of COVID-19 and such efforts is highly uncertain and subject to change. The duration of any such impact cannot be predicted.

None.

We lease and own various properties across the twothree markets in which DGSE and ECHG currently operate. EightNine leased and owned properties are in the Dallas/Fort WorthDFW Metroplex, one in Charleston, South Carolina and one in Charleston, South Carolina.Chandler, Arizona, a suburb of Phoenix. The leases have a wide variety of terms, rents and expiration dates. See Note 16 to our consolidated financial statements for more information regarding our leases. DGSE purchased two stand-alone retail buildings in Lewisville, Texas and Grapevine, Texas, both suburbs of Dallas, during fiscal year 2020, and DGSE purchased one stand-alone retail building in Frisco, Texas, also a suburb of Dallas, in Fiscal year 2021. DGSE closed the Southlake, Texas retail location during fiscal year 2020 due to an expiring lease. Envela alsoECHG was assigned two leases through the assets purchased from the CExchange Transaction and the Avail Transaction. During Fiscal 2020, the Company purchased an office building for the CompanyEnvela’s headquarters in Irving, Texas during fiscal year 2020. WeTexas. For a majority of Fiscal 2021, the Company had a third party tenant. The tenant decided not to renew and currently Envela is looking to lease unused spacea portion of our Companythe corporate headquarters to other corporate tenants. The Lewisville, Grapevine, Frisco and Irving locations were purchased with financing from long term debt.using long-term financing. For more information on this financing, see Note 10 to our consolidated financial statements. We are constantly evaluating each of our locations in terms of profitability, effectiveness and fit with long-term strategy.

Our principal corporate offices have moved from the Dallas location, with an address of 13022 Preston Road, Dallas, Texas 75240, to our newly purchased office buildingare located at 1901 Gateway Drive, SteSuite 100, Irving, Texas 75038. The Dallas location remains open as DGSE’s flagship retail store.

We consider whether to renew or renegotiate our leases based on a variety of factors, including whether current lease options are available. On September 9, 2020, we entered into a new lease for Echo’s Carrollton warehouse location, the initial term for whichthe new lease began January 1, 2021 and will expire on January 31, 2026. The new lease omits provisions in the previous lease requiring a sublet of a portion of the warehouse to a third party and provides us an optional extension of an additional 60 months. On August 24, 2021, we entered into a new lease for DGSE’s Dallas Flagship location, the initial term for which began October 1, 2021, and will expire January 31, 2027. The leasesnew lease offers one renewal extension for our Dallas flagship location andan additional 60 months at market rate upon exercising the option. ITAD’s Carrollton location willwarehouse lease expired on July 31, 2021, and was not renewed. A new ECHG warehouse lease was assigned to CEX in connection with the CExchange Transaction on June 9, 2021. ITAD moved its operations to the building with Teladvance when ITAD’s lease expired on July 31, 2021. Teladvance’s new assigned lease was set to expire with no current lease options,December 31, 2021, but on October 31, 2021, we entered into an amended lease for Teladvance’s new Carrollton warehouse location. The amended lease began January 1, 2022 and Julywill expire January 31, 2021, respectively.2027. A new ECHG warehouse lease was assigned to Avail DE in connection with the Avail Transaction. The new assigned warehouse lease expires on May 31, 2025. We continue to evaluate options with respect to renegotiating leases or moving operations conducted at or centrally routed to these locations.

PART I

Item 2, 3, 4

The following table provides a summary of all materially significant locations out of which we and our subsidiaries operate as of December 31, 2020:

In our opinion, these properties have been well maintained, are in good operating condition and contain all necessary equipment and facilities for their intended purposes.

There are various claims, lawsuits and pending actions against the Company arising in the normal course of the Company'sCompany’s business. It is the opinion of management that the ultimate resolution of these matters will not have a material effect on the Company'sCompany’s financial condition, results of operations or cash flows.

MARKET AND STOCKHOLDERS

Our Common Stock is traded on the Exchange, under the symbol “ELA.” As of March 17, 2021,11, 2022, we had 326283 record holders of our Common Stock.

SHARE REPURCHASES AND DIVIDENDS

We have not declared any dividends with respect to our Common Stock. We intendOur intent is to retain all earnings to finance future growth; accordingly, it is not anticipated that cash or other dividends will be paid to holders of Common Stock in the foreseeable future.

On December 7, 2016, our shareholders approved the adoption of the 2016 Equity Incentive Plan (the “2016 Plan”), which reserved 1,100,000 shares of our Common Stock for issuance pursuant to awards issued thereunder. As of December 31, 2020,2021, no awards had been made under the 2016 Plan. The Company’s prior 2006 Equity Incentive Plan (the “2006 Plan”) expired according to its terms on December 31, 2019, and as a result no further shares may be issued under the 2006 Plan. No securities issued pursuant to the 2006 Plan remain issuable upon the exercise of any option, warrants or rights. However, 15,000 options issued pursuant to the Company’s 2004 Employee Stock Option Plan (the “2004 Employee Stock Option Plan”) remain unexercised and have no expiration date. For more information, see Note 14 to our consolidated financial statements.

 The following table summarizes our equity compensation plan information as of December 31, 2020:

Please see the section of this Form 10-K entitled “Note About Forward-Looking Statements” on page 2.

The coronavirus disease 2019 (COVID-19) pandemic has adversely affected global economic business conditions. Future sales on products like ours could decline, and the ultimate impact is uncertain and subject to change. We took steps during Fiscal 2020 to have as many employees work from home as possible. We also followed governmental directives to wear masks and adopt the social distance guidelines where possible. The duration of this pandemic and the impact, either direct or indirect cannot be predicted. The Company believed additional liquidity was necessary to support ongoing operations during this period of uncertainty. We applied for and received approximately $1.67 million, 1% interest, federally backed loan to pay employees and cover certain rent and utility-related costs during the COVID-19 pandemic (the “Federal Loan”).pandemic. The loan isFederal Loan was forgivable to the extent that certain criteria arewere met. We have 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 applicationof the Federal Loan is currently under review by the SBA.

During the first quarter of fiscal year 2020, we revised the way we review and report our financial information to align more closely with the Company’s strategy to engage in diverse recommerce activities through two principle business segments—DGSE and ECHG. Envela continues to report its revenue and operating expenses based on its DGSE and ECHG operating segments,, and beginning in fiscal year 2020, disaggregated its revenue, within the operating segments, based on its resale and recycle presentation basis. The Company’s historical disaggregation of revenue has been recast to conform to our current presentation. For more information, see “Item 1. Business—Operating Segments” above.

Because DGSE buys and resells precious metals, it is impacted by changes in precious metalsmetal pricing which rises and falls based upon global supply and demand dynamics, with the greatest impact on us relating to gold as it represents a significant portion of the precious metalsmetal in which we trade. Gold prices stabilized during fiscal year 2019 starting at $1,238 an ounce, as determined by the London AM Fix on January 1, 2019, climbing to $1,523 an ounce, as determined by the London PM Fix on December 31, 2019, representing an increase of 19% during fiscal year 2019. Gold prices surged during the beginnings of the COVID-19 pandemic, starting at $1,523 an ounce, as determined by the London AM Fix on January 1, 2020, and rose strongly during the first half of 2020 peaking at $2,060 an ounce during August. However, gold prices dipped from the peak to close at $1,891 an ounce, as determined by the London PM Fix on December 31, 2020. Although gold dipped during the second half of Fiscal 2020, registeringit still registered a 24% increase during Fiscal 2020. Gold prices continued to dip to a low of $1,683 an ounce on March 30, 2021, and then began to rebound throughout the remainder of the year closing at $1,820 on December 31, 2021, as determined by the London AM Fix. During fiscal year 2021, gold prices receded 4% from December 31, 2020.

According to Stuart Burns of the Industry News, physical demand could pick up during 2021 duesame press release, gold is expected to China’s forecasted double-digit growthface similar dynamics in 2022 to those seen last year, with competing forces supporting and world recovery fromcurtailing its performance. Near term, the pandemic. The WGC has projectedgold price will likely react to real rates, which in turn will respond to the price of gold to remain over $1,800 an ounce this year.

When prices rise for gold or other precious metals, DGSE has observed that individual sellers tend to be more likely to sell their unwanted crafted-precious-metal items and at the same time retail customers tend to buy bullion and other gold products so as not to miss out on potential market gains. Tracking the risedecrease in gold prices during 2021, DGSE’s crafted-precious-metal purchases increased 45%decreased slightly by 5% in fiscal year 2019.2021. In fiscal year 2020, however, DGSE experienced a dipdecrease in crafted-precious-metal purchases by 21%. The Company attributes this dipthe slight decrease to the impact of the COVID-19, and various shutdown orders, which impacted foot traffic and its retail locations. While the precious metalsprecious-metals industry has improved,stabalized, our focus will be to continue to grow our jewelry, diamond and fine watch business, as well as maintain our business of purchasing crafted-precious-metal items, a diversified strategy which we believe will continue to grow and be a profit engine in the future.

For additional information regarding DGSE, see “Item 1. Business—Operating Segments—DGSE Segment.”

ECHG owns and operates Echo, ITAD USA, CEX, Avail DE and Teladvance, through which it primarily buys and resells or recycles consumer electronic components and IT equipment. Echo focuses on end-of-life electronics recycling and also offers disposal transportation and product tracking, ITAD USA provides IT equipment disposition including compliance and data sanitization services, and Teladvance, operatesCEX and Avail DE operate as a value-added resellerresellers by providing offerings and services to companies looking to either upgrade capabilities or dispose of equipment. Like DGSE, ECHG also maintains relationships with refiners or recyclers to which it sells extracted valuable materials from electronics and IT equipment that are not appropriate for resale or reuse.

For additional information regarding DGSE,ECHG, see “Item 1. Business—Operating Segments—ECHG Segment.”

Our significant accounting policies are disclosed in Note 1 of our consolidated financial statements. The following discussion addresses our most critical accounting policies, which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates. References to fiscal years below are denoted with the word “Fiscal” and the associated year.

Inventories:  DGSE inventory is valued at the lower of cost or net realizable value (“NRV”). We acquire a majority of our inventory from individual customers, including pre-owned jewelry, watches, bullion, rare coins and monetary collectibles. We acquire these items based on our own internal estimate of the fair market value of the items at the time of purchase. We consider factors such as the current spot market price of precious metals and current market demand for the items being purchased. We supplementDGSE supplements these purchases from individual customers with inventory purchased from wholesale vendors. These wholesale purchases can take the form of full asset purchases, or consigned inventory. Consigned inventory is accounted for on our balance sheet with a fully offsetting contra account so that consigned inventory has a net zero balance. The majority of our inventory has some component of its value that is based on the spot market price of precious metals. Because the overall market value for precious metals regularly fluctuates, these fluctuations could have either a positive or negative impact on the value of our inventory and could positively or negatively impact our profitability. We monitor these fluctuations to evaluate any necessary impairment to inventory.

PART II

Item 7 

The Echo inventory principally includes processed and unprocessed electronic scrap materials. The value of the material is derived from recycling the precious and other scrap metals included in the scrap. The processed and unprocessed materials are carried at the lower of the average cost of the material during the month of purchase or NRV. The in-transit material is carried at lower of cost or marketNRV 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.

Impairment of Long-Lived and Amortized Intangible Assets: We perform impairment evaluations of our long-lived assets, including property, plant and equipment and intangible assets with finite lives whenever business conditions or events indicate that those assets may be impaired. When the estimated future undiscounted cash flows to be generated by the assets are less than the carrying value of the long-lived assets, the assets are written down to fair market value and a charge is recorded to current operations. Based on our evaluations, no impairment was required as of December 31, 20202021 or 2019.

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. The initial step is to identify the contract with a customer created with the sales invoice or repair ticket. Secondly, to identify the performance obligations in the contract as we promise to deliver the purchased item or promised repairs in return for payment or future payment as a receivable. The third step is determining the transaction price of the contract obligation as in the full ticket price, negotiated price or a repair price. The next step is to allocate the transaction price to the performance obligations as we designate a separate price for each item. The final step in the guidance of ASC 606 is to recognize revenue as each performance obligation is satisfied.

Our over-the-counter sales with the retail public and wholesale dealers 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 retail locations. 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 refiner. Since the local refiner is located in the Dallas/Fort Worth area we deliver the metal to the refiner. The metal is melted and assayed, price is determined from the assay and payment is made usually in a day or two. Revenue is recognized from the sale once payment is received.

DGSE also offers 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. 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.

PART II

Item 7 

The Company offers the option of third-party financing to customers wishing to borrow money for the purchase. The customer applies on-line with the financing company 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. Once the customer does purchase merchandise, based on their financing agreement, we record and recognize the sale at that point, based on the promise to pay by the finance company up to the customer’s approved limit.

We have a return policy (money-back guarantee). The 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. 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 yearyears ended December 31, 2020 (“Fiscal 2020”)2021 and year ended December 31, 2019 (“Fiscal 2019”)2020 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, 20202021 and 2019,2020, our allowance for returns remained the same at approximately $28,000 for both years.

The Echo EntitiesECHG entities have 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.

Accounts Receivable: We record trade receivables when revenue is recognized. When appropriate, we will record an allowance for doubtful accounts, which is primarily determined by an analysis of our trade receivables aging. The allowance is determinedaging using a percentage of past due invoices by categories for DGSE and Avail DE. ECHG, excluding Avail DE, uses a different analysis process based on historical experience of collecting past due amounts, based on the degree of their aging. In addition, specific accounts that are doubtful of collection are included in the allowance. These provisions are reviewed to determine the adequacy of the allowance for doubtful accounts. Trade receivables are charged off when there is certainty as to their being uncollectible. Trade receivables are considered delinquent when payment has not been made within contract terms. DGSE had no allowance for doubtful accounts balance for the years ending December 31, 20202021 and 2019. The Echo Entities also had no2020. ECHG has allowance for doubtful accounts balance of $1,583 and $0 for the years endingended December 31, 20202021 and 2019.

ECHG entered into an agreement with Committed Agency, LLC (“Committed Agency”) on our evaluation, no impairment was required.

Income Taxes: Income taxes are accounted for under the asset and liability method prescribed by ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 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.

We account for our position in tax uncertainties in accordance with ASC 740, Income Taxes. The guidance establishes standards for accounting for uncertainty in income taxes. The guidance provides several clarifications related to uncertain tax positions. Most notably, a “more likely-than-not” standard for initial recognition of tax positions, a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization. The guidance applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements. First, we must determine whether any amount of the tax benefit may be recognized. Second, we determine how much of the tax benefit should be recognized (this would only apply to tax positions that qualify for recognition.) No additional liabilities have been recognized as a result of the implementation. We have not taken a tax position that, if challenged, would have a material effect on the financial statements or the effective tax rate during Fiscal 20202021 and Fiscal 2019,2020, respectively.

Revenue. Revenue related to DGSE’s continuing operations increased by $18,141,237,$11,057,868, or 27%13%, during fiscal 2020,Fiscal 2021, to $85,661,391,$96,719,259, as compared to $67,520,154$85,661,391 during Fiscal 2019.2020. Resale revenue, such as bullion, jewelry, watches and rare coins, increased by $19,702,014$9,356,364, in Fiscal 2020,2021, or 33%12%, to $79,790,419$89,146,783 as compared to $60,088,405$79,790,419 during Fiscal 2019.2020. Recycled-material sales decreased 21%revenue increased 29% to $7,572,476 for Fiscal 2021, as compared to $5,870,972 for Fiscal 2020, as compared to $7,431,749 for Fiscal 2019.an increase of $1,701,504. Revenue increased for resale items for Fiscal 2020,2021, compared to Fiscal 20192020 primarily due to the apparent increase in consumer demand following the lifting of governmental orders to refrain from selling non-essential items in our retail stores due to the COVID-19 pandemic during Fiscal 2020 and the related spikingincreased retail locations for DGSE during Fiscal 2021, whereas, the new locations were only operating for a part of gold prices due to the pandemic.Fiscal 2020. The decreaseincrease in recycled-materials revenue, for Fiscal 2021, as compared to Fiscal 2020, is primarily due to the spikeadditional retail locations purchasing inventory over the counter. Increased purchasing from over the counter customers increased our gold and silver pieces that did not make the level of quality for retail display and was therefore recycled.

Revenue related to ECHG continuing operations increased by $15,986,195, or 57%, during Fiscal 2021, to $44,246,819, as compared to $28,260,624 during Fiscal 2020. Resale revenue increased by $13,144,532, or 68%, during Fiscal 2021, to $32,540,366, as compared to $19,395,834 during Fiscal 2020. Recycled revenue increased by $2,841,663, or 32%, during Fiscal 2021, to $11,706,453, as compared to $8,864,790 during Fiscal 2020. The increase in both resale and recycled revenue, stemming from the COVID-19 pandemic, as we purchased inventory for Fiscal 2020, more inventory was kept for our retail stores2021 as compared to Fiscal 2019, and recycled less.

The gross profit related to ECHG, increased in Fiscal 20192021 by $5,913,904 to 19.7% in$18,612,997, or 47%, as compared to $12,699,093 during Fiscal 2020.

Selling, General and Administrative: Selling, general and administrative expenses for DGSE decreased $551,975increased $695,118, or 7%10% in Fiscal 2020,2021, to $7,628,377, as compared to $6,933,259 compared to $7,485,234 in the prior year.during Fiscal 2020. The overall decreaseincrease in SG&A was primarily throughdue to the abilityadditional expenses of the new Lewisville and Grapevine retail locations during all of Fiscal 2021 as compared to apply corporate overhead expenses to two reporting segments.

Selling, general and administrative expenses for ECHG totaledincreased by $4,549,703, or 53% during Fiscal 2021, to $13,169,718, as compared to $8,620,015 forduring Fiscal 2020. TheFiscal 2021 expenses consist primarily of payroll, payroll taxes and employee benefits of $5,192,492,$7,936,190, rent and variable rent costs, net of sublet income, of $813,220,$1,397,869, warehouse and office supplies of $202,728, insurance costs of $97,490,$307,176, travel expenses of $29,623,$72,548, professional fees of $91,327,$202,680, Utilities of $228,620$355,279 and overhead administrative expenses of $979,767.$1,177,037. The assets offrom the Echo Legacy EntitiesCExchange Transaction and the Avail Transaction were acquired on May 20, 2019June 9, 2021 and the Echo Entities were formed in connection therewith, and Teladvance was acquired on August 2, 2019;October 29, 2021, respectively; therefore, Fiscal 20192021 is not comparable to Fiscal 2020.

Depreciation and Amortization: Depreciation and amortization for DGSE increased by $53,160$67,870, or 20% in21%, during Fiscal 20202021, to $321,833$389,703 as compared to $268,673 in$321,833 during Fiscal 2019.2020. The increase is primarily due to the added depreciation from two buildings purchased, and associated build-out costs and added building furnishings that were putplaced into service during the fourth quarter of Fiscal 2020.

Depreciation and Amortization expense for ECHG totaledincreased by $129,599, or 32%, during Fiscal 2021, to $536,392 as compared to $406,793 forduring Fiscal 2020. The balanceincrease is made upprimarily due to added equipment to Echo’s warehouse during Fiscal 2021 and the additional depreciation of fixed assets and the amortization of intangibles acquiredadded intangible assets from the EchoCExchange Transaction on May 20, 2019 of $335,600 and depreciation expense of $71,193. The assetsthe Avail Transaction.   

Other income from loan forgiveness: Other income fromloan forgiveness is due from the Federal Loan being forgiven during Fiscal 2021 and allocated to both segments in accordance to the use of the Echo Legacy Entities were acquired on May 20, 2019funds. The total amount forgiven of $1,668,200 was allocated to DGSE in the amount of $675,210, and the Echo Entities were formed in connection therewith, and Teladvance$992,990 was acquired on August 2, 2019; therefore, Fiscal 2019 is not comparableallocated to Fiscal 2020.

Other expense for ECHG increased by $731,043 during Fiscal 2019,2021, to $538,020, as compared to other income of $55,384 was$193,023 during Fiscal 2020. Other expense during Fiscal 2021, of $538,020, consists primarily of interest income from notes receivables of $113,606, net rental income in excess of the write upSG&A expenses from the space leased at the Company’s corporate headquarters of a small plot of land owned$230,364, offset by the Companywrite-off of the CExchange note receivable accrued interest of $49,174 and the reserve set for many years.

Interest Expense: Interest expense for DGSE increased by $47,054$78,941 or 29%38%, in Fiscal 2020,2021, to $288,236 as compared to $209,295 in Fiscal 2020. The increase consists primarily of two additional DGSE notes payable and half the Company’s corporate headquarters’ notes payable interest for all of Fiscal 2021 as compared to $162,241 inonly a portion of Fiscal 2019. The increase is due from the promissory note issued by John R. Loftus to pay off an accounts payable – related party balance on May 20, 2019, that has a slightly higher interest rate than the accounts payable – related party had as an imputed rate and the two notes payable associated with the new stand-alone buildings purchased during the second half of 2020.

The interest expense for ECHG wasincreased by $4,610 during Fiscal 2021, to $415,814 as compared to $411,204 induring Fiscal 2020. The interestincrease is primarily related to the note payable, related party, with an outstanding balancerevolving line of $6,496,128credit interest of $6,005 during Fiscal 2021 as compared to $0 interest for the revolving line of December 31, 2020. The assets of the Echo Legacy Entities were acquired on May 20, 2019 and the Echo Entities were formed in connection therewith, and Teladvance was acquired on August 2, 2019; therefore, Fiscal 2019 is not comparable tocredit during Fiscal 2020.

Income Tax Expense: Income tax expense for DGSE decreased $5,498the Company increased by $23,190, or 6%26%, in Fiscal 2020,2021, to $112,808 as compared to $89,618 compared to $95,116 in Fiscal 2019.2020.  See Note 15 for Federal Income Taxes.

Net Income: WeThe Company recorded a net income of $10,048,875 in Fiscal 2021, as compared to net income of $6,383,943 in Fiscal 2020, compared to a net income of $2,780,713 in Fiscal 2019, an2020. An increase in net income of $3,603,230$3,664,932 is due primarily to an increase of revenue of approximately $32.0$27.0 million and the purchaseforgiveness of the assetsFederal Loan of the Echo Legacy Entities on May 20, 2019.

Earnings Per Share: Our net income per basic and diluted shares attributable to holders of our Common Stock was $0.24, for$0.37, during Fiscal 2020,2021, as compared to $0.10$0.24 per basic and diluted shares forduring Fiscal 2019,2020, an increase of $0.14$0.13 per share.  The increase is due primarily from the revenue increase of approximately $32.0$27.0 million from Fiscal 20192020 to Fiscal 20202021 and the purchaseforgiveness of the assetsFederal Loan of the Echo Legacy Entities on May 20, 2019.

Liquidity and Capital Resources:During Fiscal 2021, cash provided by operations totaled $2,805,063, as compared to cash provided by operations totaling $6,897,091 in Fiscal 2020, a decrease in cash flowsprovided by operations of $4,092,028. Cash provided by operating activities totaled $6,897,091 comparedfor the year ended December 31, 2021, was primarily driven by the increase in accounts payable and accrued expenses of $752,379, an increase in customer deposits and other liabilities of $357,548 and net income, adding depreciation and amortization, bad debt expense, Other income from forgiveness of the Federal Loan and write off of note receivables accrued interest and to cash flows usedreserve the notes receivable of $10,277,594. Offset by the increase of trade receivables of $3,969,701, the increase of inventories of $3,554,802, and the increase in operating activities totaling $542,828 in Fiscal 2019, an increased cash flows provided by operating activitiesother assets of $7,439,919.$1,024,234. Cash provided by operating activities for the year ended December 31, 2020, was primarily driven by the increase in trade accounts receivable of $151,124, an increase in customer deposits and other liabilities of $263,572 and net income, withadding depreciation, amortization and stock based compensation to employees of $7,112,894. Offset by the increase of inventories of $497,444, the increase of prepaid expenses of $108,884 and the reduction of accounts payable and accrued accounts payable of $29,332. Cash used in operating activities for the year ended December 31, 2019, was primarily driven by the increase in trade accounts receivable of $1,877,783, the reduction of accounts payable and accrued accounts payable of $492,952, the reduction of the accounts payable – related party of $3,074,021. Offset by the reduction of inventories of $1,464,843, the increase in operating leases of 124,713 and net income, with depreciation and amortization of $3,301,011.

During Fiscal 20202021 and Fiscal 2019,2020, cash used in investing activities totaled $4,875,356 and $7,964,588, respectively, a decrease of $3,089,232. Cash used in investing during Fiscal 2021 was primarily due to investing in a note receivable of $300,000, purchasing a new building for DGSE’s retail operations totaling $2,352,075 and $6,039,505, respectively, an increaseassociated build out costs, of $1,925,083.which $526,169 were cash payments applied against the purchase of the retail location and the remainder of the balance of the purchase was financed through notes payable, the acquisition of the assets from the CExchange Transaction and the Avail Transaction, net of cash acquired, in the amount of $1,497,994 and equipment purchases totaling $786,640, offset by payments from note receivable of $61,353. The cash used in investing forduring Fiscal 2020 was a combination of investing in a note receivable of $2,100,000 to CExchange, LLC (“CExchange”), purchasing two new retail locations for DGSE totaling $1,815,000 and associated build out costs, of which $363,000 was cash payments applied against the purchases of the retail locations and the remainder of the balance from the purchases was financed through notes payable, and the purchase of our corporate headquarters totaling $3,521,021, of which $561,021 was cash payments applied against the office building and the remainder of the balance from the purchase was financed through notes payable. The cash used in investing for 2019, was the combination of property

PART II

Item 7

During Fiscal 2021 and equipment purchases of $102,989, the continual upgrading our point-of-sale system in the amount of $60,000 and acquisition of the assets of the Echo Legacy Entities, net of cash acquired, in the amount of $5,876,516.

On May 17, 2019, is funds provided to purchase the assets of the Echo Legacy Entities throughCompany secured a promissory note from John R. Loftus dated May 20, 2019 for $6,925,979. Additionally, funds provided to pay off an accounts payable – related party balance of $3,074,021, evidenced by a promissory note dated May 20, 2019 by John R. Loftus and the drawing on a short-term line of credit from Texas Bank and Trust of $150,000. Offset by principal payments made against the two promissory notes From Mr. Loftus in the amount of $360,948 and the pay down of the short-term12 month line of credit from Texas Bank and Trust for $150,000.

We expect our capital expenditures to total approximately $100,000$300,000 during the next twelve12 months. These expenditures will be largely driven by the purchase of equipment, and the build-out of corporate space in our office building for tenants and the potential purchase and build-out of any additional DGSE retail buildings. As of December 31, 2020,2021, there were no commitments outstanding for capital expenditures.

In the event of significant growth in retail and wholesale jewelry sales and recycling demand, whether purchases or services, our demand for additional working capital will increase due to a related need to stock additional jewelry inventory, increases in wholesale accounts receivable and the purchasing of recycled material. Historically we have funded these activities through operations.

We have historically renewed, extended or replaced short-term debt as it matures, and management believes that we will be able to continue to do so in the near future.

On May 20, 2019, we 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 Legacy Entities asset purchase agreement, iswas a 5-yearfive-year promissory note amortized over 20 years at 6% annual interest rate. The second note of $3,074,021 paid off the accounts payable – related party balance to a former Related Party on May 20, 2019. The promissory note iswas a 5-yearfive-year note amortized over 20 years at 6% annual interest rate. On November 23, 2021, both notes were refinanced by Farmers State Bank of Oakley Kansas. The first note was refinanced for the remaining and unpaid balance of $6,309,962, is a five-year promissory note amortized over 20 years at 3.1% annual interest rate. The second note was refinanced for the remaining and unpaid balance of $2,781,087, is a five-year promissory note amortized over 20 years at 3.1% annual interest rate. Both notes are being serviced by operational cash flow.

The coronavirus disease 2019 (COVID-19) pandemic has adversely affected global economic business conditions. Future sales on products like ours could decline, and the ultimate impact is uncertain and subject to change. The duration of this pandemic and the impact, either direct or indirect cannot be predicted. The Company believed additional liquidity was necessary to support ongoing operations during this period of uncertainty. We applied for and received approximately $1.67 million, 1% interest, Federal Loan to pay employees and cover certain rent and utility-related costs during the COVID-19 pandemic. The loan iswas forgivable to the extent that certain criteria arewere met.  We have applied for forgiveness during Fiscal 2020 and thatreceived notification of forgiveness applicationof the Federal Loan during Fiscal 2021. The forgiveness of the Federal Loan is currently under review by the SBA.

PART II

Item 7, 7A

The Company leases certain of its facilities under operating leases. The minimum rental commitments under non-cancellable operating leases as of December 31, 20202021 are as follows:

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.

Management is responsible for the preparation of the consolidated financial statements and related information that are presented in this report. The consolidated financial statements, which include amounts based on management’s estimates and judgments, have been prepared in conformity with accounting principles generally accepted in the United States of America.

The Company designs and maintains accounting and internal control systems to provide reasonable assurance at reasonable cost that assets are safeguarded against loss from unauthorized use or disposition, and that the financial records are reliable for preparing consolidated financial statements and maintaining accountability for assets. These systems are augmented by written policies, an organizational structure providing division of responsibilities and careful selection and training of qualified personnel.

The Company engaged Whitley Penn LLP, an independent registered public accounting firm, to audit and render an opinion on the consolidated financial statements in accordance with the standards of the Public Accounting Oversight Board (United States). Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit the company to provide only management’s report in this annual report.

The Board, through its Audit Committee, consisting solely of independent directors of the Company, meets periodically with management and our independent registered public accounting firm to ensure that the Company is meeting its responsibilities and to discuss matters concerning internal controls and financial reporting. Whitley Penn LLP and our management team each have full and free access to the Audit Committee.

Not required because we are a “Smaller Reporting Company” as that term is defined in Rule 12b-2 promulgated under the Exchange Act.

ENVELA CORPORATION AND SUBSIDIARIES