UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 10-Q

_________________________

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Transition Period From ~~_____________~~ to ~~_____________~~

Commission File Number 001-11048

_________________________

ENVELA CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

_________________________

Nevada		88-0097334
(STATE OF INCORPORATION)		(I.R.S. EMPLOYER IDENTIFICATION NO.)

1901 GATEWAY DRIVE, STE 100, IRVING, TX 75038

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(972) 587-4049

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

www.envela.com

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of exchange on which registered
COMMON STOCK, par value $0.01 per share		ELA		NYSE American

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.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~August 3,~~November 2, 2021, the registrant had 26,924,631 shares of common stock outstanding.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION		Page No.

Item 1.	Financial Statements		3

	Condensed Consolidated Statements of Income for the three months and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 (unaudited)		3

	Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2021 (unaudited) and December 31, 2020		4

	Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 (unaudited)		5

	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended ~~June~~September 30, 2020 and 2021 (unaudited)		6

	Condensed Consolidated Statements of Stockholders’ Equity for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2021 (unaudited)		7

	Notes to Condensed Consolidated Financial Statements (unaudited)		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		3537

Item 4.	Controls and Procedures		3537

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		3638

Item 1A.	Risk Factors		3638

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		3638

Item 3.	Defaults Upon Senior Securities		3638

Item 4.	Mine Safety Disclosures		3638

Item 5.	Other Information		3638

Item 6.	Exhibits		3739

SIGNATURES		38	40

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,					Nine Months Ended September 30,
(Unaudited)	2021		2020		2021		2020		2021			2020		2021			2020
Revenue:
Sales	$	33,724,006	$	20,545,607	$	59,214,447	$	46,374,750	$	37,680,769		$	38,810,884	$	96,895,216		$	85,185,634
Cost of goods sold		26,596,116		16,074,349		45,782,293		36,602,212		29,570,653			31,647,487		75,352,946			68,249,699

Gross margin		7,127,890		4,471,258		13,432,154		9,772,538		8,110,116			7,163,397		21,542,270			16,935,935

Expenses:
Selling, General & Administrative Expenses		4,831,225		3,616,670		8,984,454		7,441,870
Depreciation and Amortization		216,219		179,706		421,131		359,435
Selling, general & administrative expenses										5,230,473			3,869,673		14,214,927			11,311,543
Depreciation and amortization										216,176			179,782		637,307			539,217

Total operating expenses		5,047,444		3,796,376		9,405,585		7,801,305		5,446,649			4,049,455		14,852,234			11,850,760

Operating income		2,080,446		674,882		4,026,569		1,971,233		2,663,467			3,113,942		6,690,036			5,085,175
Other income, net		283,055		51,866		554,996		93,556
Interest expense		177,704		144,297		356,726		289,612		188,853			155,799		545,579			445,411
Other income (expense):
Gain on forgiveness of Federal Loan										1,668,200			0		1,668,200			0
Write-off of notes receivable and accrued interest receivable										(949,174	)		0		(949,174	)		0
Other, net										(60,784	)		26,954		494,212			120,510

Income before income taxes		2,185,797		582,451		4,224,839		1,775,177		3,132,856			2,985,097		7,357,695			4,760,274
Income tax expense		32,685		16,277		63,455		34,854		26,455			273		89,910			35,127

Net income	$	2,153,112	$	566,174	$	4,161,384	$	1,740,323	$	3,106,401		$	2,984,824	$	7,267,785		$	4,725,147

Basic earnings per share:
Net income	$	0.08	$	0.02	$	0.15	$	0.06	$	0.12		$	0.11	$	0.27		$	0.18

Diluted earnings per share:
Net income	$	0.08	$	0.02	$	0.15	$	0.06	$	0.12		$	0.11	$	0.27		$	0.18

Weighted average shares outstanding:
Basic		26,924,631		26,924,381		26,924,631		26,924,381		26,924,631			26,924,381		26,924,631			26,924,381
Diluted		26,939,631		26,924,381		26,939,631		26,924,381		26,939,631			26,939,631		26,939,631			26,939,631

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

Table of Contents

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,			September 30,			December 31,
	2021			2020			2021			2020
Assets	(unaudited)						(unaudited)
Current assets:
Cash and cash equivalents	$	8,131,112		$	9,218,036		$	8,323,180		$	9,218,036
Trade receivables, net of allowances		6,244,445			2,846,619			5,678,060			2,846,619
Notes receivable		1,254,958			0
Inventories		12,586,889			10,006,897			12,654,329			10,006,897
Current right-of-use assets from operating leases		962,907			1,157,077			1,104,576			1,157,077
Prepaid expenses		453,688			281,719			1,170,905			281,719

Total current assets		29,633,999			23,510,348			28,931,050			23,510,348
Notes receivable, less current portion		0			2,100,000			0			2,100,000
Property and equipment, net		7,183,559			6,888,601			9,647,470			6,888,601
Goodwill		3,258,586			1,367,109			3,258,586			1,367,109
Intangible assets, net		2,791,673			2,992,473			2,691,273			2,992,473
Operating lease right-of-use assets		3,124,608			3,522,923			4,083,560			3,522,923
Other long-term assets		343,680			197,638			614,986			197,638

Total assets	$	46,336,105		$	40,579,092		$	49,226,925		$	40,579,092


Liabilities and stockholders equity
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable-Trade	$	3,612,320		$	1,510,697		$	1,683,294		$	1,510,697
Notes payable, related party		315,672			307,032			320,347			307,032
Notes payable		1,832,646			1,813,425			229,909			1,813,425
Current operating lease liabilities		961,873			1,148,309			1,092,996			1,148,309
Accrued expenses		793,202			844,324			1,248,662			844,324
Customer deposits and other liabilities		770,236			428,976			940,586			428,976

Total current liabilities		8,285,949			6,052,763			5,515,794			6,052,763
Notes payable, related party, less current portion		8,899,383			9,052,810			8,820,675			9,052,810
Notes payable, less current portion		4,142,084			4,240,658			5,804,622			4,240,658
Long-term operating lease liabilities, less current portion		3,268,863			3,654,419			4,239,607			3,654,419

Total liabilities		24,596,279			23,000,650			24,380,698			23,000,650

Commitments and contingencies

Stockholders equity:
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued and outstanding		0			0			0			0
Common stock, $0.01 par value; 60,000,000 shares authorized; 26,924,631 shares issued and outstanding		269,246			269,246			269,246			269,246
Additional paid-in capital		40,173,000			40,173,000			40,173,000			40,173,000
Accumulated deficit		(18,702,420	)		(22,863,804	)		(15,596,019	)		(22,863,804	)

Total stockholders equity		21,739,826			17,578,442
Total stockholders’ equity								24,846,227			17,578,442

Total liabilities and stockholders equity	$	46,336,105		$	40,579,092
Total liabilities and stockholders’ equity							$	49,226,925		$	40,579,092

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

Table of Contents

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30,	2021			2020
For the Nine Months Ended September 30,							2021			2020
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Operations
Net income	$	4,161,384		$	1,740,323		$	7,267,785		$	4,725,147
Adjustments to reconcile net income to net cash provided by operations:
Depreciation, amortization, and other		421,131			359,435			637,307			539,217
Bad debt expense		6,249			0			28,532			0
Gain on forgiveness of Federal Loan								(1,668,200	)		0
Write-off of note receivables and accrued interest receivable								949,174			0
Changes in operating assets and liabilities:
Trade receivables		(3,365,999	)		140,228			(2,871,070	)		(1,661,332	)
Inventories		(2,579,991	)		145,381			(2,647,432	)		(1,108,062	)
Prepaid expenses		(169,373	)		(1,269,517	)		(886,591	)		(155,518	)
Other assets		(146,042	)		(95,695	)		(417,347	)		(94,830	)
Accounts payable and accrued expenses		1,574,520			(831,398	)		100,952			1,006,345
Operating leases		20,493			(16,782	)		21,737			(40,179	)
Customer deposits and other liabilities		341,260			369,511			511,610			23,911

Net cash provided by operations		263,632			541,486			1,026,457			3,234,699

Investing
Investment in note receivable		(654,958	)		(1,500,000	)		(300,000	)		(1,500,000	)
Purchase of property and equipment		(484,594	)		(29,046	)		(3,064,277	)		(1,882,591	)
Acquisition of CExchange assets and liabilities, net of cash acquired		13,136			0			13,136			0

Net cash used in investing		(1,126,416	)		(1,529,046	)		(3,351,141	)		(3,382,591	)

Financing
Payments on notes payable, related party		(144,787	)		(138,683	)		(218,820	)		(208,421	)
Payments on notes payable		(79,353	)		0
Payments on notes payable, retail buildings								(44,017	)		(5,289	)
Payments on notes payable, office building								(79,335	)		0
Proceeds from notes to purchase property								1,772,000			1,452,000
Proceeds from Paycheck Protection Program Note		0			1,668,200			0			1,668,200

Net cash provided by (used in) financing		(224,140	)		1,529,517
Net cash provided by financing								1,429,828			2,906,490


Net change in cash and cash equivalents		(1,086,924	)		541,957			(894,856	)		2,758,598
Cash and cash equivalents, beginning of period		9,218,036			4,510,660			9,218,036			4,510,660

Cash and cash equivalents, end of period	$	8,131,112		$	5,052,617		$	8,323,180		$	7,269,258

Supplemental Disclosures
Cash paid during the period for:
Interest	$	359,253		$	291,845		$	541,863		$	443,415
Income taxes	$	56,900		$	0		$	86,000		$	30,025

Non cash activites:
Acquisition of CExchange assets and liabilities	$	1,555,892		$	0		$	1,555,892		$	0

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

Table of Contents

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months ended ~~June~~September 30, 2020 and 2021

(Unaudited)

Additional

Total

Common Stock

Preferred Stock

Paid-in

Accumulated

Stockholders'

Shares

Amount

Shares

Amount

Capital

Deficit

Equity

Balances at March 31, 2020

26,924,381

$ 269,244

-

$ 0

$ 40,172,677

$ (28,073,598 )

$ 12,368,323

Net Income

-

0

-

0

0

566,174

566,174

Balances at June 30, 2020

26,924,381

$ 269,244

-

$ 0

$ 40,172,677

$ (27,507,424 )

$ 12,934,497

									Additional					Total										Additional					Total
	Common Stock				Preferred Stock				Paid-in		Accumulated			Stockholders'		Common Stock				Preferred Stock				Paid-in		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Equity		Shares		Amount		Shares		Amount		Capital		Deficit			Equity

Balances at March 31, 2021		26,924,631	$	269,246		-	$	0	$	40,173,000	$	(20,855,532	)	$	19,586,714
Balances at June 30, 2020																	26,924,381	$	269,244		-	$	0	$	40,172,677	$	(27,507,424	)	$	12,934,497

Net Income		-		0		-		0		0		2,153,112			2,153,112		-		0		-		0		0		2,984,824			2,984,824

Balances at September 30, 2020																	26,924,381	$	269,244		-	$	0	$	40,172,677	$	(24,522,600	)	$	15,919,321

																								Additional					Total
																Common Stock				Preferred Stock				Paid-in		Accumulated			Stockholders
																Shares		Amount		Shares		Amount		Capital		Deficit			Equity

Balances at June 30, 2021		26,924,631	$	269,246		-	$	0	$	40,173,000	$	(18,702,420	)	$	21,739,826		26,924,631	$	269,246		-	$	-	$	40,173,000	$	(18,702,420	)	$	21,739,826

Net Income																	-		-		-		0		-		3,106,401			3,106,401

Balances at September 30, 2021																	26,924,631	$	269,246		-	$	0	$	40,173,000	$	(15,596,019	)	$	24,846,227

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

Table of Contents

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the ~~Six~~Nine Months ended ~~June~~September 30, 2020 and 2021

(Unaudited)

Additional

Total

Common Stock

Preferred Stock

Paid-in

Accumulated

Stockholders'

Shares

Amount

Shares

Amount

Capital

Deficit

Equity

Balances at December 31, 2019

26,924,381

$ 269,244

-

$ 0

$ 40,172,677

$ (29,247,747 )

$ 11,194,174

Net Income

-

0

-

0

0

1,740,323

1,740,323

Balances at June 30, 2020

26,924,381

$ 269,244

-

$ 0

$ 40,172,677

$ (27,507,424 )

$ 12,934,497

																								Additional					Total
																Common Stock				Preferred Stock				Paid-in		Accumulated			Stockholders’
																Shares		Amount		Shares		Amount		Capital		Deficit			Equity

Balances at December 31, 2019																	26,924,381	$	269,244		-	$	0	$	40,172,677	$	(29,247,747	)	$	11,194,174

Net Income																	-		0		-		0		0		4,725,147			4,725,147

Balances at September 30, 2020																	26,924,381	$	269,244		-	$	0	$	40,172,677	$	(24,522,600	)	$	15,919,321

									Additional					Total										Additional					Total
	Common Stock				Preferred Stock				Paid-in		Accumulated			Stockholders'		Common Stock				Preferred Stock				Paid-in		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Equity		Shares		Amount		Shares		Amount		Capital		Deficit			Equity

Balances at December 31, 2020		26,924,631	$	269,246		-	$	0	$	40,173,000	$	(22,863,804	)	$	17,578,442		26,924,631	$	269,246		-	$	-	$	40,173,000	$	(22,863,804	)	$	17,578,442

Net Income		-		0		-		0		0		4,161,384			4,161,384		-		0		-		-		0		7,267,785			7,267,785

Balances at June 30, 2021		26,924,631	$	269,246		-	$	0	$	40,173,000	$	(18,702,420	)	$	21,739,826
Balances at September 30, 2021																	26,924,631	$	269,246		-	$	0	$	40,173,000	$	(15,596,019	)	$	24,846,227

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

Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

The interim condensed consolidated financial statements of Envela Corporation, a Nevada corporation, and its subsidiaries (together with its subsidiaries, the “Company” or “Envela”), included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), including under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the SEC’s rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The Company suggests that these financial statements be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 23, 2021 (as amended, the “2020 Annual Report”). In the opinion of the management of the Company, the accompanying unaudited interim financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary to present fairly its results of operations and cash flows for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. Certain reclassifications were made to the prior ~~year's~~year’s consolidated financial statements to conform to the current year presentation. The information provided as of ~~June~~September 30, 2021 in these notes to the interim condensed consolidated financial statements is unaudited.

NOTE 2 — PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS

Envela and its subsidiaries engage in diverse business activities within the recommerce sector. These activities include being one of the ~~nation's~~nation’s premier authenticated recommerce retailers of luxury hard assets; providing end-of-life asset recycling and resale to businesses, organization and retail consumers; offering data destruction and IT asset management; and providing products, services and solutions to industrial and commercial companies. Envela operates primarily via two operating and reportable segments. Through DGSE, LLC (“DGSE”), it operates Dallas Gold & Silver Exchange, Charleston Gold & Diamond Exchange, and Bullion Express brands. Through ECHG, LLC (“ECHG”), it operates Echo Environmental Holdings, LLC (“Echo”), ITAD USA Holdings, LLC (“ITAD USA”) and Teladvance, LLC (“Teladvance”). Envela is a Nevada corporation, headquartered in Irving, Texas.

DGSE primarily buys and resells or recycles luxury hard assets like jewelry, diamonds, gemstones, fine watches, rare coins and related collectibles, precious-metal bullion products, gold, silver and other precious-metals. DGSE operates six jewelry stores at both the retail and wholesale levels throughout the United States via its facilities in Texas and South Carolina. Buying and selling items for their precious-metals 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. The Company also maintains a presence in the retail market through its websites, www.dgse.com and www.cgdeinc.com.

ECHG owns and operates Echo, ITAD USA and Teladvance. ECHG, through its wholly owned holding company CEX Holdings, LLC (“CEX”), purchased substantially all the assets, together with certain liabilities which exceeded the purchased assets by $335,585, of CExchange LLC (“CExchange”) pursuant to an asset purchase agreement (the “CExchange Asset Purchase Agreement”) on June 9, 2021 (the “CExchange Transaction”) in exchange for forgiving $1,500,000 in debt plus accrued interest owed to ECHG. Following the CExchange ~~Tranaction,~~Transaction, the purchased assets and liabilities were then transferred and assigned to Teladvance. CExchange was a leader in electronics-trade-in services for retailers, providing in-store and online solutions for many of the major consumer electronics retailers in the United States. CExchange helped retailers provide in-store trade-in programs designed to allow retail consumers to exchange their old technology for cash in minutes. The Company believes the acquisition of CExchange’s business fits well with ECHG’s existing core business of refurbishing and reusing electronics, particularly cellular telephones.

Table of Contents

Based on the terms of the purchase, ECHG has concluded the CExchange Transaction represents a business combination pursuant to Financial Accounting Standards Board (“FASB”). Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). ECHG has determined that the assets purchased and the liabilities assumed, through the ~~CExchnage~~CExchange Transaction, have an approximate fair value due to the their ~~short-term nature.~~carrying value.

ECHG, through its subsidiaries, primarily buys electronic components from business and other organizations, such as school districts, for end-of-life recycling and resale, or to add life to electronic devices by data destruction and refurbishment for reuse. In addition, following the ~~Cexchange~~CExchange Transaction, ECHG also conducts such recycling and resale at the retail level. Echo focuses on end-of-life electronics recycling and sustainability and ITAD USA provides IT equipment disposition, including compliance and data sanitization services. Teladvance operates as a value-added reseller 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. ECHG’s customers are companies and organizations that are based domestically and internationally.

For additional information on the businesses of both DGSE and ECHG, see “Item 1. Business – Operating Segments” in the Company’s 2020 Annual Report.

The interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its subsidiaries. All material intercompany transactions and balances have been eliminated.

NOTE 3 — ACCOUNTING POLICIES AND ESTIMATES

Financial Instruments

The carrying amounts reported in the condensed consolidated balance sheets for cash equivalents, trade receivables, accounts payable, accrued expenses and notes payable approximate fair value because of the immediate or short-term nature of these financial instruments. Notes receivable, notes payable and notes payable, related party approximate fair value due to the market interest rate charged.

Earnings Per Share

Basic earnings per share of our common stock, par value $0.01 per share (our “Common Stock”), is computed by dividing net earnings available to holders of the Company’s Common Stock by the weighted average number of shares of Common Stock outstanding for the reporting period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts requiring the Company to issue Common Stock were exercised or converted into Common Stock. For the calculation of diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect of stock options and warrants outstanding determined using the treasury stock method.

Goodwill

Goodwill is not amortized but evaluated for impairment on an annual basis during the fourth quarter of our fiscal year, or earlier if events or circumstances indicate the carrying value may be impaired. The Company’s goodwill is related to ECHG only and not the entire Company. ECHG has its own, separate financial information to perform goodwill impairment testing at least annually or if events indicate that those assets may be impaired. As a result of the current market and economic conditions related to COVID-19, in accordance with step 1 of the guidelines set forth in ASC 350-20-35-3A, the Company concluded there were no impairments of goodwill that resulted from triggering events due to COVID-19 as of ~~June~~September 30, 2021. The Company will continue to evaluate goodwill for the ECHG segment. For tax purposes, goodwill is amortized and deductible over fifteen years.

Table of Contents

ECHG goodwill was allocated in connection with the two acquisitions (the “Echo Transaction”) of the assets now held by Echo and ITAD USA (the “Echo Entities”) on May 20, 2019 and the CExchange Transaction on June 9, 2021. There has been a preliminary addition to goodwill with the CExchange Transaction of $1,891,477. There have been no other adjustments or impairment charges to goodwill, other than the CExchange Transaction, since the allocation on May 20, 2019. As of ~~June~~Septemeber 30, 2021 and 2020, goodwill was $3,258,586 and $1,367,109, respectively.

~~Table of Contents~~

Recent Accounting Pronouncements

In June 2016, the FASB issued a new credit loss accounting standard ASU 2016-13. The new accounting standard introduces the current expected credit losses methodology for estimating allowances for credit losses which will be based on expected losses rather than incurred losses. We will be required to use a forward-looking expected credit loss methodology for accounts receivable, loans and other financial instruments. The standard will be adopted upon the effective date for us beginning January 1, 2023 by using a modified retrospective transition approach to align our credit loss methodology with the new standard. The Company is evaluating the financial statement implications of ASU 2016-13.

NOTE 4 — INVENTORIES

A summary of inventories is as follows:

	June 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
DGSE
Resale	$	9,700,829	$	8,971,815	$	10,253,433	$	8,971,815
Recycle		0		191,677		0		191,677

Subtotal		9,700,829		9,163,492		10,253,433		9,163,492

ECHG
Resale		2,655,776		557,959		2,095,981		557,959
Recycle		230,284		285,446		304,915		285,446

Subtotal		2,886,060		843,405		2,400,896		843,405

	$	12,586,889	$	10,006,897	$	12,654,329	$	10,006,897

NOTE 5 — NOTES RECEIVABLE

ECHG entered into an agreement with CExchange on February 15, 2020, to lend $1,500,000 bearing interest at eight and one-half percent (8.5%) per annum with interest only payments due quarterly. The loan matures on February 20, 2023. The parties also agreed to warrant and call-option agreements to acquire all of CExchange’s equity interests upon the occurrence of certain events and on certain conditions. On November 7, 2020, ECHG entered into an amended agreement to increase the loan from $1,500,000 to $2,100,000. On April 14, 2021, ECHG entered into a second agreement with CExchange to lend an additional $300,000 bearing interest at four percent (4%) per annum with interest only payments due quarterly, to be repaid, principal and accrued interest, upon the occurrence of certain events or upon demand by ECHG. On June 9, 2021, ECHG, through CEX, exercised their rights under the warrant and call-option agreements and purchased substantially all of the assets and certain liabilities of CExchange in exchange for ECHG’s cancellation and forgiveness of $1,500,000 of the outstanding principal amount under the loan agreement originally dated February 15, 2020 and accrued and unpaid interest thereunder of $55,892. ~~The remaining~~We subsequently performed impairment evaluations on the two notes after management learned that the two notes may not be recoverable. Using the guidance provided, management has concluded that ECHG should reserve the full amount of the outstanding and unpaid ~~principal amount~~notes receivable of $900,000, and ~~accrued~~write-off the outstanding and unpaid accrued interest ~~under~~associated with the ~~loans, collectively, remain as~~notes receivable totaling $49,174. The notes receivable of $900,000 and $49,174 of accrued interest receivable were written-off to other expense, write-off of notes receivable and accrued interest ~~receivable. We expect to collect the remaining balance during the third or fourth fiscal quarters~~receivable as of ~~2021, and therefore ECHG is classifying the balance as a current asset.~~September 30, 2021.

Table of Contents

ECHG entered into an agreement with Committed Agency, LLC (“Committed Agency”) on February 4, 2021, pursuant to which it agreed (the “CA Facility Agreement”) to provide Committed Agency a line-of-credit not to exceed $1,000,000 (the “CA Facility”). Committed Agency ~~intends~~intended to, directly or indirectly, sell or dispose of electronic devices previously owned by major electronic carriers. In addition to the CA Facility Agreement, ECHG ~~has~~ contracted with Committed Agency beginning February 4, 2021 to exclusively facilitate their sales through the Company’s warehousing and cleaning of electronic devices, wiping of existing data, and inspecting, packaging and shipping of devices to purchasers, in exchange for which ECHG ~~will receive~~received a per unit service fee (the “CA Service Agreement”). The CA Service Agreement ~~will terminate no later than~~terminated and the CA Facility matured on July 30, 2021. Under the terms of the agreement, the borrower ~~cannot~~could not borrow any additional funds, under this facility, after May 31, 2021. Committed Agency ~~is required to pay~~paid back ~~any~~all principal and accrued interest ~~no later than 60 days after withdrawing funds.~~as of September 30, 2021. Amounts borrowed under the CA Facility ~~bears~~bore an interest rate of 6% per annum. Principal and accrued interest are due and payable no later than 60 days after such advance and the CA Facility has a current maturity of July 30, 2021. As of June 30, 2021, Committed Agency has drawn $354,958 on the CA Facility.

~~Table of Contents~~

NOTE 6 — ACQUISITION

On June 9, 2021, ECHG, entered into the CExchange Asset Purchase Agreement with CExchange, pursuant to which the seller agreed to sell the assets and certain liabilities of CExchange for ECHG’s cancellation and forgiveness of $1,500,000 of the outstanding principal amount under the loan agreement between ECHG and CExchange originally dated February 15, 2020 and accrued and unpaid interest thereunder of $55,892. The remaining $900,000 principal owed to ECHG by CExchange is not a part of the purchase price listed below and is expected to be repaid with any accrued and unpaid interest during the third or fourth fiscal ~~quarter~~quarters of 2021. As mentioned in Note 5 -- Notes Receivable, we subsequently performed impairment evaluations on the remaining $900,000 principal owed after management learned that the $900,000 may not be recoverable. Using the guidance provided, management has concluded that ECHG should reserve the full amount of the outstanding and unpaid notes receivable of $900,000, and write-off the outstanding and unpaid accrued interest associated with the notes receivable totaling $49,174. The notes receivable of $900,000 and $49,174 of accrued interest receivable were written-off to other expense, write-off of notes receivable and accrued interest receivable as of September 30, 2021.

As part of the CExchange Transaction, goodwill was preliminarily recorded as $1,891,477, which is the purchase price less the approximate fair value of the net assets purchased, as shown in the purchase price allocation in the following table. Goodwill is not amortized but evaluated for impairment on an annual basis during the fourth quarter of our fiscal year or earlier if events or circumstances indicate the carrying value may be impaired. The Company’s goodwill is related to the ECHG segment only and not the whole Company. ECHG has its own separate financial information to perform goodwill impairment testing. The Company will evaluate goodwill based on cash flows for the ECHG segment. For tax purposes, goodwill is amortized and deductible over fifteen (15) years.

Table of Contents

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

The preliminary purchase price is allocated as follows:

Description	Amount

Assets
Cash	$	13,136
Account receivables		93,970
Prepaids		2,594
Fixed assets - net		30,697

Liabilities
Account payables		(474,043	)
Accrued liabilities		(1,939	)

Net assets		(335,585	)

Goodwill		1,891,477

Total Purchase Price	$	1,555,892

~~Table of Contents~~

NOTE 7 — GOODWILL

The changes in goodwill is as follows:

	June 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020

Opening balance	$	1,367,109	$	1,367,109	$	1,367,109	$	1,367,109
Additions (1)		1,891,477		0		1,891,477		0
Impairment adjustment		0		0		0		0

Goodwill	$	3,258,586	$	1,367,109	$	3,258,586	$	1,367,109

(1) Addition is in the connection with the CExchange Transaction on June 9, 2021.

Table of Contents

NOTE 8 — PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	June 30,			December 31,			September 30,			December 31,
	2021			2020			2021			2020
DGSE
Land	$	720,786		$	720,786		$	1,640,219		$	720,786
Building and improvements		1,331,887			1,317,906			2,702,292			1,317,906
Leasehold improvements		1,450,694			1,435,742			1,450,694			1,435,742
Machinery and equipment		1,056,315			1,056,315			1,056,315			1,056,315
Furniture and fixtures		526,249			504,430			526,249			504,430
Vehicles		22,859			22,859			22,859			22,859
		5,108,790			5,058,038			7,398,628			5,058,038
Less: accumulated depreciation		(2,199,287	)		(2,054,294	)		(2,272,620	)		(2,054,294	)

Sub-Total		2,909,503			3,003,744			5,126,008			3,003,744

ECHG
Building and improvements		74,162			81,149			74,162			81,149
Machinery and equipment		588,120			220,417			869,244			220,417
Furniture and fixtures		101,494			93,827			101,494			93,827
Vehicles		86,609			0			86,609			0
		850,385			395,393			1,131,509			395,393
Less: accumulated depreciation		(113,869	)		(71,058	)		(138,404	)		(71,058	)

Sub-Total		736,516			324,335			993,105			324,335

Envela
Land		1,106,664			1,106,664			1,106,664			1,106,664
Building and improvements		2,456,324			2,456,324			2,456,324			2,456,324
Machinery and equipment		14,951			5,407			23,676			5,407

		3,577,939			3,568,395			3,586,664			3,568,395
Less: accumulated depreciation		(40,399	)		(7,873	)		(58,307	)		(7,873	)

Sub-Total		3,537,540			3,560,522			3,528,357			3,560,522

	$	7,183,559		$	6,888,601		$	9,647,470		$	6,888,601

On July 30, 2021, DGSE closed the purchase of a new retail building located at 9166 Gaylord Parkway in Frisco, Texas for ~~$2,215,500, pursuant to a purchase agreement entered into on May 6, 2021.~~$2,215,500. The purchase was partly financed through a $1.772 million, 5 year loan, bearing an annual interest rate of 3.75%, amortized over 20 years, payable to Texas Bank and Trust. The note has monthly interest and principal payments of ~~$10,507.~~$10,509.

Table of Contents

NOTE 9 — INTANGIBLE ASSETS

Intangible assets consist of the following:

	June 30,			December 31,			September 30,			December 31,
	2021			2020			2021			2020
DGSE
Domain names	$	41,352		$	41,352		$	41,352		$	41,352
Point of sale system		330,000			330,000			330,000			330,000
		371,352			371,352			371,352			371,352
Less: accumulated amortization		(236,502	)		(203,502	)		(253,002	)		(203,502	)

Subtotal		134,850			167,850			118,350			167,850

ECHG
Trademarks		1,483,000			1,483,000			1,483,000			1,483,000
Customer Contracts		1,873,000			1,873,000			1,873,000			1,873,000
		3,356,000			3,356,000			3,356,000			3,356,000
Less: accumulated amortization		(699,177	)		(531,377	)		(783,077	)		(531,377	)

Subtotal		2,656,823			2,824,623			2,572,923			2,824,623

	$	2,791,673		$	2,992,473		$	2,691,273		$	2,992,473

The following table outlines the estimated future amortization expense related to intangible assets held as of ~~June~~September 30, 2021:

	DGSE		ECHG		Total		DGSE		ECHG		Total

2021 (excluding the six months ending June 30, 2021)	$	33,000	$	167,800	$	200,800
2021 (excluding the nine months ending September 30, 2021)							$	16,500	$	83,900	$	100,400
2022		66,000		335,600		401,600		66,000		335,600		401,600
2023		30,350		335,600		365,950		30,350		335,600		365,950
2024		5,500		335,600		341,100		5,500		335,600		341,100
2025		0		335,600		335,600		0		335,600		335,600
Thereafter		0		1,146,623		1,146,623		0		1,146,623		1,146,623
	$	134,850	$	2,656,823	$	2,791,673
							$	118,350	$	2,572,923	$	2,691,273

Table of Contents

NOTE 10— ACCRUED EXPENSES

Accrued expenses consist of the following:

	June 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
DGSE
Accrued interest	$	10,291	$	10,057	$	16,963	$	10,057
Board member fees		0		7,500		0		7,500
Payroll		78,132		155,635		164,129		155,635
Property taxes		117,032		26,435		175,173		26,435
Sales tax		63,376		180,609		66,135		180,609
Other administrative expenss		8,537		13,525		8,537		13,525

Subtotal		277,368		393,761		430,937		393,761

ECHG
Accrued interest		15,771		17,086		15,644		17,086
Payroll		134,780		119,327		375,398		119,327
Property tax		20,500		20,500		20,500		20,500
Other accrued expenses		67,418		10,574		51,199		10,574

Subtotal		238,469		167,487		462,741		167,487

Envela
Accrued interest		7,482		7,884		6,138		7,884
Payroll		23,495		10,745		35,250		10,745
Professional fees		112,654		142,635		159,712		142,635
Property Tax		43,800		0		65,700		0
Other administrative expenses		0		8,433		1,400		8,433
State income tax		89,934		113,379		86,784		113,379

Subtotal		277,365		283,076		354,984		283,076

	$	793,202	$	844,324	$	1,248,662	$	844,324

NOTE 11 — SEGMENT INFORMATION

We determine our business segments based upon an internal reporting structure. Our financial performance is based on the following segments: DGSE and ECHG.

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

The ECHG segment includes Echo, ITAD USA and Teladvance. These three companies were added during 2019 and are involved in recycling and the reuse of electronic components.

Table of Contents

We allocate a portion of certain corporate costs and expenses, including information technology as well as rental income and expenses relating to our corporate headquarters, to our business segments. These income and expenses are included in selling, general and administrative (“SG&A”) expenses, depreciation and amortization, other income, interest expense and income tax expense. Our management team evaluates each segment and makes decisions about the allocation of resources according to each segment’s profit. Allocation amounts are generally agreed upon by management and may differ from arms-length allocations.

The following separates DGSE and ECHG’s financial results of operations for the three months ended ~~June~~September 30, 2021 and 2020:

	For The Three Months Ended June 30,													For The Three Months Ended September 30,
	2021						2020							2021									2020
	DGSE		ECHG		Consolidated		DGSE			ECHG		Consolidated		DGSE			ECHG			Consolidated			DGSE		ECHG		Consolidated

Revenue:
Sales	$	23,012,324	$	10,711,682	$	33,724,006	$	14,349,029		$	6,196,578	$	20,545,607	$	25,482,379		$	12,198,390		$	37,680,769		$	28,137,174	$	10,673,710	$	38,810,884
Cost of goods sold		19,915,328		6,680,788		26,596,116		12,734,264			3,340,085		16,074,349		22,422,881			7,147,772			29,570,653			24,704,214		6,943,273		31,647,487

Gross profit		3,096,996		4,030,894		7,127,890		1,614,765			2,856,493		4,471,258		3,059,498			5,050,618			8,110,116			3,432,960		3,730,437		7,163,397

Expenses:
Selling, general and administrative expenses		1,889,895		2,941,330		4,831,225		1,545,168			2,071,502		3,616,670		1,772,034			3,458,439			5,230,473			1,703,394		2,166,279		3,869,673
Depreciation and amortization		97,435		118,784		216,219		79,240			100,466		179,706		98,787			117,389			216,176			79,190		100,592		179,782
		1,987,330		3,060,114		5,047,444		1,624,408			2,171,968		3,796,376
															1,870,821			3,575,828			5,446,649			1,782,584		2,266,871		4,049,455
Operating income (loss)		1,109,666		970,780		2,080,446		(9,643	)		684,525		674,882

Other income/expense:
Other income, net		119,460		163,595		283,055		9,078			42,788		51,866
Operating income															1,188,677			1,474,790			2,663,467			1,650,376		1,463,566		3,113,942

Interest expense		68,692		109,012		177,704		44,100			100,197		144,297		79,563			109,290			188,853			53,931		101,868		155,799
Other income (expense):
Gain on forgiveness of Federal Loan															675,210			992,990			1,668,200			0		0		0
Write-off of notes receivable and accrued interest receivable															0			(949,174	)		(949,174	)		0		0		0
Other, net															(37,823	)		(22,961	)		(60,784	)		1,208		25,746		26,954

Income before income taxes		1,160,434		1,025,363		2,185,797		(44,665	)		627,116		582,451		1,746,501			1,386,355			3,132,856			1,597,653		1,387,444		2,985,097

Income tax expense		14,185		18,500		32,685		4,262			12,015		16,277		10,288			16,167			26,455			167		106		273

Net income (loss)	$	1,146,249	$	1,006,863	$	2,153,112	$	(48,927	)	$	615,101	$	566,174
Net income														$	1,736,213		$	1,370,188		$	3,106,401		$	1,597,486	$	1,387,338	$	2,984,824

The following separates DGSE’s and ECHG’s financial results of operations for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020:

	For The Six Months Ended June 30,												For The Nine Months Ended September 30,
	2021						2020						2021								2020
	DGSE		ECHG		Consolidated		DGSE		ECHG		Consolidated		DGSE		ECHG			Consolidated			DGSE		ECHG		Consolidated

Revenue:
Sales	$	41,926,825	$	17,287,622	$	59,214,447	$	34,712,613	$	11,662,137	$	46,374,750	$	67,409,204	$	29,486,012		$	96,895,216		$	62,849,787	$	22,335,847	$	85,185,634
Cost of goods sold		36,022,194		9,760,099		45,782,293		30,733,666		5,868,546		36,602,212		58,445,075		16,907,871			75,352,946			55,437,880		12,811,819		68,249,699

Gross profit		5,904,631		7,527,523		13,432,154		3,978,947		5,793,591		9,772,538		8,964,129		12,578,141			21,542,270			7,411,907		9,524,028		16,935,935

Expenses:
Selling, general and administrative expenses		3,672,332		5,312,122		8,984,454		3,418,174		4,023,696		7,441,870		5,444,366		8,770,561			14,214,927			5,121,568		6,189,975		11,311,543
Depreciation and amortization		194,257		226,874		421,131		156,281		203,154		359,435		293,044		344,263			637,307			235,471		303,746		539,217
		3,866,589		5,538,996		9,405,585		3,574,455		4,226,850		7,801,305
														5,737,410		9,114,824			14,852,234			5,357,039		6,493,721		11,850,760

Operating income		2,038,042		1,988,527		4,026,569		404,492		1,566,741		1,971,233		3,226,719		3,463,317			6,690,036			2,054,868		3,030,307		5,085,175

Other income/expense:
Other income, net		231,191		323,805		554,996		36,446		57,110		93,556
Interest expense		137,177		219,549		356,726		88,893		200,719		289,612		216,740		328,839			545,579			142,824		302,587		445,411
Other income (expense):
Gain on forgiveness of Federal Loan														675,210		992,990			1,668,200			0		0		0
Write-off of notes receivable and accrued interest receivable														0		(949,174	)		(949,174	)		0		0		0
Other, net														193,368		300,844			494,212			37,654		82,856		120,510

Income before income taxes		2,132,056		2,092,783		4,224,839		352,045		1,423,132		1,775,177		3,878,557		3,479,138			7,357,695			1,949,698		2,810,576		4,760,274

Income tax expense		27,890		35,565		63,455		12,547		22,307		34,854		38,178		51,732			89,910			12,714		22,413		35,127

Net income	$	2,104,166	$	2,057,218	$	4,161,384	$	339,498	$	1,400,825	$	1,740,323	$	3,840,379	$	3,427,406		$	7,267,785		$	1,936,984	$	2,788,163	$	4,725,147

Table of Contents

NOTE 12 — REVENUE RECOGNITION

ASC 606 provides guidance to identify performance obligations for revenue-generating transactions. The initial step is to identify the contract with a customer created with the sales invoice or a repair ticket. Secondly, we 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 is to recognize revenue as each performance obligation is satisfied.

Beginning in fiscal year 2020, Envela disaggregated its revenue, within the operating segments, based on its resale and recycle presentation basis to more closely align with the Company’s activities. The Company’s historical disaggregation of revenue has been recast to conform to our current presentation.

The following disaggregation of total revenue is listed by sales category and segment for the three months ended ~~June~~September 30, 2021 and 2020:

CONSOLIDATED

Three Months Ended June 30,

Three Months Ended September 30,

2021

2020

2021

2020

Revenues

Gross Profit

Margin

Revenues

Gross Profit

Margin

Revenues

Gross Profit

Margin

Revenues

Gross Profit

Margin

DGSE

Resale

20,893,838

2,678,640

12.8

13,421,969

1,444,814

10.8

23,407,095

2,645,445

11.3

27,101,477

3,139,884

11.6

Recycled

2,118,486

418,356

19.7

927,060

169,951

18.3

2,075,284

414,053

20.0

1,035,697

293,076

28.3

Subtotal

23,012,324

3,096,996

13.5

14,349,029

1,614,765

11.3

25,482,379

3,059,498

12.0

28,137,174

3,432,960

12.2

ECHG

Resale

8,595,910

3,019,685

35.1

4,257,032

2,022,090

47.5

8,288,951

3,450,652

41.6

7,812,553

2,376,406

30.4

Recycled

2,115,772

1,011,209

47.8

1,939,546

834,403

43.0

3,909,439

1,599,966

40.9

2,861,157

1,354,031

47.3

Subtotal

10,711,682

4,030,894

37.6

6,196,578

2,856,493

46.1

12,198,390

5,050,618

41.4

10,673,710

3,730,437

34.9

33,724,006

7,127,890

21.1

20,545,607

4,471,258

21.8

37,680,769

8,110,116

21.5

38,810,884

7,163,397

18.5

Table of Contents

The following disaggregation of total revenue is listed by sales category and segment for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020:

CONSOLIDATED

Six Months Ended June 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Revenues

Gross Profit

Margin

Revenues

Gross Profit

Margin

Revenues

Gross Profit

Margin

Revenues

Gross Profit

Margin

DGSE

Resale

38,214,479

5,135,784

13.4

31,963,866

3,492,247

10.9

61,621,574

7,781,229

12.6

59,065,343

6,632,131

11.2

Recycled

3,712,346

768,847

20.7

2,748,747

486,700

17.7

5,787,630

1,182,900

20.4

3,784,444

779,776

20.6

Subtotal

41,926,825

5,904,631

14.1

34,712,613

3,978,947

11.5

67,409,204

8,964,129

13.3

62,849,787

7,411,907

11.8

ECHG

Resale

13,336,902

5,631,869

42.2

7,783,260

3,442,266

44.2

21,625,853

9,082,521

42.0

15,595,813

5,818,672

37.3

Recycled

3,950,720

1,895,654

48.0

3,878,877

2,351,325

60.6

7,860,159

3,495,620

44.5

6,740,034

3,705,356

55.0

Subtotal

17,287,622

7,527,523

43.5

11,662,137

5,793,591

49.7

29,486,012

12,578,141

42.7

22,335,847

9,524,028

42.6

59,214,447

13,432,154

22.7

46,374,750

9,772,538

21.1

96,895,216

21,542,270

22.2

85,185,634

16,935,935

19.9

DGSE’s over-the-counter sales with the retail public and wholesale dealers are recognized when 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 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.

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.

Table of Contents

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 sales based on historical returns and reduced our reported revenues and cost of sales accordingly. Our return allowance as of ~~June~~September 30, 2021 and 2020 remained the same for both periods, at approximately $28,000.

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

	·	Outright sales are recorded when product is shipped. Once the price is established and the terms are agreed to and the product is shipped, the revenue is recognized. The Echo Entities have fulfilled their performance obligation with an agreed upon transaction price, payment terms and shipping the product.

	·	Echo recognizes refining revenue when our inventory arrives at the destination port and the performance obligation is satisfied by transferring the control of the promised goods that are identified in the customer contract. Ninety percent (90%) of our refining revenue is generated from one refining partner that has an international refining facility. This refining partner pays us sixty percent (60%) of an Invoice within five working days upon the receipt of the Ocean Bill of Lading issued by the Ocean Carrier. Our initial Invoice is recognized in full when our performance obligation is satisfied, as stated in the first sentence. Under the guidance of ASC 606, an estimate of the variable consideration that we expect to be entitled is included in the transaction price stated at the current precious metal spot price and weight of the precious metal. An adjustment to revenue is made in the period once the underlying weight and any precious metal spot price movement is resolved, which is usually around six (6) weeks. Any adjustment from the resolution of the underlying uncertainty is netted with the remaining forty percent (40%) due from the original contract.

	·	Hard drive sales by the Echo Entities are limited to customers who are required to prepay shipments. Once the commodity price is established and agreed upon by both parties, customers send payment in advance. The Company releases the shipment on the same day when payment receipt is confirmed, and revenue is recognized on day of shipment. If payment is received on the last day of the month and shipment goes out the following day the payment received is deferred revenue and recognized the following month when the shipment is made.

	·	Echo also provides recycling services according to a Scope of Work and services are recognized when promised services are rendered. We have recycling services conducted at the Echo facility and another type of service is conducted at the client’s facility. The Scope of Work will determine the charges and whether it is completed on campus or off campus. Payment terms are also dictated in the Scope of Work.

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 determined 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 quarter ended ~~June~~September 30, 2021 and 2020. Some of ECHG’s customers are on payment terms, and although low risk, occasionally the need arises to record an allowance for receivables that are deemed high risk to collect. We have established an allowance for estimated uncollectable receivables related to sales based on historical collections. Our allowance as of ~~June~~September 30, 2021 and 2020 was ~~$6,249~~$0 and $0, respectively.

Table of Contents

Notes Receivable: ~~The First Amendment to the original loan agreement between CExchange and ECHG, dated February 20, 2020, of which $600,000 remained outstanding~~We originally recorded ECHG’s notes receivable as current assets as of June 30, 2021 is expected to be paid during the third or fourth fiscal quarters of 2021, and therefore ECHG is classifying the balance as a current asset. The second note of $300,000, dated April 14, 2021, is a demand payment note or if certain events happen is classified as a current asset. Amounts drawn under the CA Facility is listed as a current loan due to the ~~CA Facility’s~~CExchange notes maturity ~~of July 30, 2021. As of June 30, 2021, Committed Agency has drawn $354,958 on the CA Facility.~~dates. See Note 5 above for additional information. We perform impairment evaluations on the note on December 31of each year, or whenever business conditions or events indicate that the ~~note~~notes receivable may be impaired. As of December 31, 2020, based on our evaluation, no impairment was required. We subsequently performed impairment evaluations on the two notes totaling $900,000, as of September 30, 2021, after management learned that the two notes may not be recoverable. Using the guidance provided, management has concluded that ECHG should reserve the full amount of the outstanding and unpaid notes receivable of $900,000, and write-off the outstanding and unpaid accrued interest associated with the notes receivable totaling $49,174. The notes receivable of $900,000 and $49,174 of accrued interest receivable were written-off to other expense, write-off of notes receivable and accrued interest receivable as of September 30, 2021.

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 years ended December 31, 2021 and 2020.

NOTE 13 — LEASES

In determining our right-of-use assets and lease liabilities, we apply a discount rate to the minimum lease payments within each lease agreement. ASC 842 requires us to use the interest rate that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. If we cannot readily determine the discount rate implicit in lease agreements, we utilize our incremental borrowing rate.

The Company has ~~seven~~six operating leases as of ~~June~~September 30, 2021—~~six~~five in the Dallas/Fort Worth Metroplex and one in Charleston, South Carolina. ~~The~~In anticipation of the expiration of the new lease for DGSE’s ~~flagship-store~~flagship store at 13022 Preston Road, Dallas, Texas ~~will expire~~on October 31, 2021, a new lease has been executed and will commence on November 1, 2021. The new lease will expire on January 31, 2027, with ~~no current renewal options. This location is under review~~an option for DGSE to extend the lease for an additional five years, at market rate as ~~to whether to pursue a lease renewal.~~determined by the prevailing market rate for comparable space in comparable buildings in the vicinity. The lease for DGSE’s Grand Prairie, Texas location expires June 30, 2022, and has no current renewal options. The lease for DGSE’s Mt Pleasant, South Carolina location expires April 30, 2025, with no additional renewal options. The lease for DGSE’s Euless, Texas location expires June 30, 2025, with an option for an additional five years. ECHG’s Echo, located on W. Belt Line Road, in Carrollton, Texas, renewed their lease starting January 1, 2021 for 61 months, expiring January 31, 2026. ECHG’s lease for ITAD USA’s location on McKenzie Drive in Carrollton, Texas ~~was in effect on June 30, 2021 but~~ expired July 31, ~~2021.~~2021 and was not renewed. ITAD USA ~~has recently~~ moved its operations to the new CEX location on Realty Road in Carrollton, Texas, the lease offor which was assigned to CEX effective June 8, 2021 as part of the CExchange Transaction and under which ITAD USA is permitted to utilize the space. The lease expires December 31, 2021, and this location is under review as to whether to pursue a lease renewal. Pursuant to the assignment of the CExchange lease to CEX, the lease is considered short-term and therefore does not fall under the rules to be reported as a Right of Use asset. As such, it will be reported as an operating lease. All of the Company’s seven leases as of ~~June~~September 30, 2021 are triple net, for which it pays its proportionate share of common area maintenance, property taxes and property insurance. Leasing costs for the three months ended ~~June~~September 30, 2021 and 2020 were ~~$588,896~~$620,829 and ~~$342,740,~~$421,790, respectively. Leasing costs for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 were ~~$895,433~~$1,516,262 and ~~$649,276,~~$1,071,066, respectively, comprised of a combination of minimum lease payments and variable lease costs.

Table of Contents

As of ~~June~~September 30, 2021, the weighted average remaining lease term and weighted average discount rate for operating leases was ~~2.1~~3.5 years and 5.5%, respectively. For the three months ended ~~June~~September 30, 2021 and 2020, the Company’s cash paid for operating lease liabilities was ~~$588,026~~$619,584 and ~~$327,608~~$428,241 respectively. For the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, the Company’s cash paid for operating lease liabilities was ~~$923,253~~$1,496,524 and ~~$672,039,~~$1,100,280, respectively.

Future annual minimum lease payments as of ~~June~~September 30, 2021:

	Operating			Operating
	Leases			Leases
DGSE
2021 (excluding the six months ending June 30, 2021)	$	217,670
2021 (excluding the nini months ending September 30, 2021)				$	133,407
2022		235,677			516,458
2023		212,855			499,984
2024		213,855			507,414
2025		64,087			364,269
2026 and thereafter		0			333,114

Total minimum lease payments		944,144			2,354,646
Less imputed interest		(82,953	)		(223,086	)

DGSE Subtotal		861,191			2,131,560

ECHG
2021 (excluding the six months ending June 30, 2021)		398,386
2021 (excluding the nine months ending September 30, 2021)					192,649
2022		784,599			784,599
2023		806,175			806,175
2024		828,345			828,345
2025		851,125			851,125
2026 and thereafter		72,878			72,878

Total minimum lease payments		3,741,508			3,535,771
Less imputed interest		(371,963	)		(334,728	)

ECHG Subtotal		3,369,545			3,201,043

Total		4,230,736			5,332,603

Less current portion		(961,873	)		(1,092,996	)

Long-term operating lease liability	$	3,268,863		$	4,239,607

Table of Contents

NOTE 14 — BASIC AND DILUTED AVERAGE SHARES

A reconciliation of basic and diluted weighted average common shares for the three months ended ~~June~~September 30, 2021 and 2020 is as follows:

	For the Three Months Ended
	~~June~~September 30,
	2021		2020

Basic weighted average shares		26,924,631		26,924,381
Effect of potential dilutive securities		15,000		15,250
Diluted weighted average shares		26,939,631		26,939,631

A reconciliation of basic and diluted weighted average common shares for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 is as follows:

	For the ~~Six~~Nine Months Ended
	~~June~~September 30,
	2021		2020

Basic weighted average shares		26,924,631		26,924,381
Effect of potential dilutive securities		15,000		15,250
Diluted weighted average shares		26,939,631		26,939,631

For the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, there were ~~15,000and~~15,000 and 15,250 common stock options, warrants, and Restricted Stock Units (RSUs) unexercised, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, there were no anti-dilutive shares.

Table of Contents

NOTE 15 — LONG-TERM DEBT

Long-term debt consists of the following:

	Outstanding Balance								Outstanding Balance
	June 30,		December 31,		Current				September 30,		December 31,		Current
	2021		2020		Interest Rate			Maturity	2021		2020		Interest Rate			Maturity
DGSE
Note payable, related party (1)	$	2,819,206	$	2,863,715		6.00	%	May 16, 2024	$	2,796,449	$	2,863,715		6.00	%	May 16, 2024
Note payable, Truist Bank (2)		925,927		942,652		3.65	%	July 9, 2030		917,595		942,652		3.65	%	July 9, 2030
Note payable, Texas Bank & Trust (3)		483,036		491,852		3.75	%	September 14, 2025		478,668		491,852		3.75	%	September 14, 2025
Note payable, Texas Bank & Trust (6)										1,766,225		-		3.75	%	July 31, 2026

DGSE Sub-Total		4,228,169		4,298,219						5,958,937		4,298,219

ECHG
Note payable, related party (1)		6,395,849		6,496,127		6.00	%	May 16, 2024		6,344,572		6,496,127		6.00	%	May 16, 2024

Envela
Note payable, Texas Bank & Trust (4)		2,897,567		2,951,379		3.25	%	November 4, 2025		2,872,044		2,951,379		3.25	%	Novemeber 4, 2025
Note payable (5)		1,668,200		1,668,200		1.00	%	April 20, 2025		0		1,668,200

Envela Sub-Total		4,565,767		4,619,579						2,872,044		4,619,579

Sub-Total		15,189,785		15,413,925						15,175,553		15,413,925

Current portion		2,148,318		2,120,457						550,256		2,120,457

	$	13,041,467	$	13,293,468					$	14,625,297	$	13,293,468

(1) On May 20, 2019, in connection with the Echo Transaction, the Company entered into two loan agreements with John R. Loftus, the Company’s CEO, President and Chairman of the Board of Directors of the Company (the “Board”), pursuant to which Mr. Loftus made two loans (the “Related Party Loans”) to the Company. ECHG executed a 5-year, $6,925,979 note for the Echo Transaction, amortized over 20 years at a 6% annual interest rate. DGSE executed a 5-year, $3,074,021 note to pay off the accounts payable – related party balance to a related person to the Company, as that term is defined in the instructions to item 404(a) of Regulation S-K, promulgated under the Securities Act (each such person, a “Related Party”). Such person was no longer a Related Party as of May 20, 2019. That promissory note is also amortized over 20 years at a 6% annual interest rate. On January 1, 2020, revisions were made on the original documents for both DGSE and ECHG notes. Originally, the DGSE note stated that the monthly interest and principal payment due was $41,866 and the ECHG note stated that the monthly interest and principal payment due was $94,327. The revised interest and principal payment due monthly on the note for DGSE is $22,203. The revised interest and principal payment due monthly on the note for ECHG is $49,646. The allocation between short-term and long-term notes payable, related party was revised accordingly starting with the three months ended March 31, 2020.

(2) On July 9, 2020, DGSE closed the purchase of a new retail building located at 610 E. Round Grove Road in Lewisville, Texas for $1.195 million. The purchase was partly financed through a $956,000, 10 year loan (the “Truist Lewisville Loan”), bearing an annual interest rate of 3.65%, amortized over 20 years, payable to Truist Bank (f/k/a BB&T Bank). The note has monthly interest and principal payments of $5,645.

(3) On September 14, 2020, 1106 NWH Holdings, LLC, a wholly owned subsidiary of DGSE, closed on the purchase of a new retail building located at 1106 W. Northwest Highway in Grapevine, Texas for $620,000. The purchase was partly financed through a $496,000, 5 year loan (the “TB&T Grapevine Loan”), bearing an annual interest rate of 3.75%, amortized over 20 years, payable to Texas Bank &and Trust. The note has monthly interest and principal payments of $2,941.

(4) On November 4, 2020, 1901 Gateway Holdings, LLC, a wholly owned subsidiary of the Company, closed on the purchase of a new office building located at 1901 Gateway Drive, Irving, Texas for $3.521 million. The building was partially financed through a $2.96 million, 5 year loan (the “TB&T Irving Loan”), bearing an interest rate of 3.25%, amortized over 20 years, payable to Texas Bank &and Trust. The note has monthly interest and principal payments of $16,792.

Table of Contents

(5) The Company applied for and received, on April 20, 2020, approximately $1.67 million, 1% interest, federally backed loan intended to pay employees and cover certain rent and utility-related costs during the COVID-19 pandemic (the “Federal Loan”), with Truist Bank (f/k/a BB&T Bank) as lender. The Federal Loan iswas forgivable to the extent that certain criteria are met. We applied to the Small Business Administration for the forgiveness of the Federal Loan during the fourth quarter ended December 31, 2020. ~~Our application~~The Federal Loan was forgiven effective April 1, 2021 but notification was not sent to the Company until the third quarter of 2021.

(6) On July 30, 2021, 9166 Gaylord Holdings, LLC, a wholly owned subsidiary of DGSE, closed the purchase of a new retail building located at 9166 Gaylord Parkway in Frisco, Texas for ~~forgiveness is pending final approval from the Small Business Administration. We are classifying the~~$2,215,500. The purchase was partly financed through a $1,772,000, 5 year loan ~~as short-term.~~(the “TB&T Frisco Loan”), bearing an annual interest rate of 3.75%, amortized over 20 years, payable to Texas Bank and Trust. The note has monthly interest and principal payments of $10,509.

Future scheduled principal payments of our notes payable and notes payable, related party, as of ~~June~~September 30, 2021 are as follows:

Note payable, related party - DGSE

Year Ending December 31,	Amount		Amount

2021 (excluding the six months ended June 30, 2021)	$	47,927
2021 (excluding the nine months ended September 30, 2021)			$	24,359
2022		100,752		100,702
2023		106,966		106,913
2024		2,563,561		2,564,475

Subtotal	$	2,819,206	$	2,796,449

Note payable, Truist Bank - DGSE

Year Ending December 31,	Amount		Amount

2021 (excluding the six months ended June 30, 2021)	$	16,819
2021 (excluding the nine months ended September 30, 2021)			$	8,495
2022		34,682		34,682
2023		35,988		35,988
2024		37,342		37,342
2025		38,748		38,748
Thereafter		762,348		762,340

Subtotal	$	925,927	$	917,595

Note payable, Texas Bank & Trust - DGSE

Year Ending December 31,	Amount		Amount

2021 (excluding the six months ended June 30, 2021)	$	8,632
2021 (excluding the nine months ended September 30, 2021)			$	4,362
2022		17,808		17,812
2023		18,488		18,492
2024		19,193		19,197
2025		418,915		418,805

Subtotal	$	483,036	$	478,668

Table of Contents

Note payable, related party - ECHG

Year Ending December 31,

Amount

2021 (excluding the six months ended June 30, 2021)

$ 106,801

2022

224,536

2023

238,385

2024

5,826,127

Subtotal

$ 6,395,849

Note payable, Texas Bank & Trust - Envela

Year Ending December 31,

Amount

2021 (excluding the six months ended June 30, 2021)

$ 53,128

2022

108,928

2023

112,591

2024

116,378

2025

2,506,542

Subtotal

$ 2,897,567

Note payable - Envela Corporation

Year Ending December 31,

Amount

2021

$ 1,668,200

Subtotal

$ 1,668,200

$ 15,189,785

Note payable, Texas Bank & Trust - DGSE

Year Ending December 31,

Amount

2021 (excluding the nine months ended September 30, 2021)

$ 17,263

2022

70,314

2023

72,634

2024

75,030

2025

77,505

Thereafter

1,453,479

Subtotal

$ 1,766,225

Note payable, related party - ECHG

Year Ending December 31,

Amount

2021 (excluding the nine months ended September 30, 2021)

$ 54,300

2022

224,460

2023

238,305

2024

5,827,507

Subtotal

$ 6,344,572

Note payable, Texas Bank & Trust - Envela

Year Ending December 31,

Amount

2021 (excluding the nine months ended September 30, 2021)

$ 26,666

2022

108,896

2023

112,558

2024

116,344

2025

2,507,580

Subtotal

$ 2,872,044

$ 15,175,553

25
Table of Contents

NOTE 16 — STOCK-BASED COMPENSATION

The Company accounts for share-based compensation by measuring the cost of employee services received in exchange for an award of equity instruments, including grants of stock options, based on the fair value of the award at the date of grant. In addition, to the extent that the Company receives an excess tax benefit upon exercise of an award, such benefit is reflected as cash flow from financing activities in the consolidated statement of cash flows.

There was no stock-based compensation expense for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.
25
~~Table of Contents~~

NOTE 17 — RELATED PARTY TRANSACTIONS

The Company has a corporate policy governing the identification, review, consideration and approval or ratification of transactions with related persons, as that term is defined in the Instructions to Item 404(a) of Regulation S-K, promulgated under the Securities Act (each such person a Related Party”). Under this policy, all Related Party transactions are identified and approved prior to consummation of the transaction to ensure they are consistent with the Company’s best interests and the best interests of its stockholders. Among other factors, the Company’s Board considers the size and duration of the transaction, the nature and interest of the of the Related Party in the transaction, whether the transaction may involve a conflict of interest, and if the transaction is on terms that are at least as favorable to the Company as would be available in a comparable transaction with an unaffiliated third party. The Company’s Board reviews all Related Party transactions at least annually to determine if it is in the best interest of the Company and the Company’s stockholders to continue, modify, or terminate any of the Related Party transactions. Envela’s Related Person Transaction Policy is available for review in its entirety under the “Investors” menu of the Company’s corporate relations website at www.envela.com.

On May 20, 2019, the Company entered into two loan agreements with John R. Loftus, the Company’s CEO, President and Chairman of the Board. ECHG executed a 5-year, $6,925,979 note in connection with the Echo Transaction, amortized over 20 years at a 6% annual interest rate. DGSE executed a 5-year, $3,074,021 note to pay off the accounts payable – related party balance to a former Related Party as of May 20, 2019. That promissory note is also amortized over 20 years at a 6% annual interest rate. Both notes are being serviced by operational cash flow. On January 1, 2020, revisions were made on the original documents for both DGSE and ECHG notes. Originally, the DGSE note stated the monthly interest and principal payment due was $41,866 and the ECHG note stated the monthly interest and principal payment due was $94,327. The revised interest and principal payment due monthly on the note for DGSE is $22,203. The revised interest and principal payment due monthly on the note for ECHG is $49,646.

For the three months ended ~~June~~September 30, 2021 and 2020, the Company paid Mr. Loftus ~~$142,144~~$157,366 and ~~$143,852,~~$158,748 respectively, in interest on the Company’s outstanding notes payable, related party. For the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, the Company paid Mr. Loftus ~~$285,353~~$442,719 and ~~$289,167,~~$442,550, respectively, in interest on the Company’s outstanding notes payable, related party.

NOTE 18 — SUBSEQUENT EVENTS
On November 1, 2021, ECHG purchased the assets and liabilities of Avail Recovery Solutions, LLC, an Arizona limited liability company pursuant to an Asset Purchase Agreement dated November 1, 2021 for $4.5 million. The purchase closed with an initial payment of $2.5 million and $2.0 million to be paid by twelve (12) payments of $166,666.67 starting after 90 days after November 1, 2021.

The coronavirus disease 2019 (COVID-19) pandemic has adversely affected global economic business conditions. Future sales on products like ours could decline or fluctuate due to increased or fluctuating commodities prices, particularly gold. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic, the ultimate impact is highly uncertain and subject to change. The duration of any such impact cannot be predicted, nor can the timing of the development, distribution and ~~distribution~~acceptance of an effective ~~vaccine~~vaccines, booster shots or other treatments for potential COVID-19 divergent strains, including the Delta variant.
~~The CA Service Agreement terminated~~ In addition, the effects of the COVID-19 pandemic are subject to, among other things, the effect of government responses to the pandemic on our operations, including vaccine mandates, impacts of the pandemic on global and ~~the CA Facility matured on July 30, 2021. As of that date, Committed Agency had drawn $778,883 on the CA Facility. Committed Agency has repaid $423,925 plus accrued interest~~domestic economic conditions, including with respect to commercial activity, our customers and business partners, as ~~of June 30, 2021. They paid an additional $234,250 against the principal, plus accrued interest on July 22, 2021, leaving an outstanding principal balance of $120,708 plus accrued interest.~~well as consumer preferences and demand.

26
Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context indicates otherwise for one of our specific operating segments, references to “we,” “us,” “our,” the “Company” and “Envela” refer to the consolidated business operations of Envela Corporation, and all of its direct and indirect subsidiaries.

Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, 2021 (this “Form 10-Q”), including but not limited to: (i) the section of this Form 10-Q entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” (ii) information concerning our business prospects or future financial performance, anticipated revenues, expenses, profitability or other financial items; and (iii) 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” or “believe.” 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 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 the section entitled “Risk Factors” in the Company’s 2020 Annual Report and any material updates are described under the section of this Form 10-Q entitled “Risk Factors” and elsewhere in this Form 10-Q. 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 thereon, including without limitation, changes in our business strategy or planned capital expenditures, or store growth plans, or to reflect the occurrence of unanticipated events.
Envela Overview

The Company operates through ~~via~~ two recommerce business segments represented by its two direct subsidiaries. DGSE focuses on the recommercialization of luxury hard assets, and ECHG focuses on the recommercialization of business IT equipment and consumer electronic devices.

Through DGSE, the Company recommercializes luxury hard assets and operates the Dallas Gold and Silver Exchange, Charleston Gold & Diamond Exchange, and Bullion Express brands (collectively, “DGSE”). Through ECHG, the Company recommercializes business IT equipment and consumer electronic devices and operates Echo, ITAD USA and Teladvance. Echo focuses on end-of-life electronics recycling and sustainability, ITAD USA provides IT equipment disposition, including compliance and data sanitization services, and Teladvance operates as a value-added reseller by providing offerings and services to companies looking either to upgrade capabilities or dispose of equipment. In addition to its operations through DGSE and ECHG, Envela also leases unused space at its Company headquarters in Irving, Texas to commercial tenants.

27
Table of Contents

DGSE Business Overview

DGSE is headquartered in Dallas, Texas. DGSE focuses on sustainable, authenticated recommerce of luxury hard assets, including diamonds. Its retail strategy is anchored in being an information resource for clients, bringing transparency to purchase and sale transactions, and offering value and liquidity to those seeking to buy, sell or trade jewelry, fine watches, diamonds, rare coins and currency as well as other valuables. DGSE wholesales and retails these items through its Charleston Gold & Diamond Exchange and Dallas Gold & Silver Exchange operations. DGSE has specialized in buying and selling jewelry for over 40 years, making our expert staff among the best in the business. DGSE also maintains a number of related operations, including precious-metal bullion exchange and refiner partnerships, on-site jewelry and watch repair and restoration at its Dallas flagship location, consignment offerings and partnerships, and design of custom bridal and fashion jewelry.

For additional information regarding DGSE, see “Item ~~1, Business-Operating Segments-DGSE~~1. Business - Operating Segments - DGSE Segment.” Inin the Company’s 2020 Annual Report.

DGSE Recommerce Activities

Our ability to offer quality pre-owned goods at prices significantly lower than original retail prices attracts value-conscious customers. The gross profit on sales of inventory depends primarily on our assessment of the purchase value at the time the property is purchased and our ability to sell that merchandise in a timely manner. As a significant portion of our inventory and sales involve gold and jewelry, our results can be influenced by the market price of gold and diamonds.

DGSE Precious Metals Pricing and Business Impact
DGSE’s business, similar to the jewelry industry overall, is effected by fluctuations in precious-metals pricing. Such fluctuations, particularly with respect to gold which accounts for a majority of DGSE’s merchandise costs, can have significant impact on its earnings and cash availability.
Precious metals pricing rises and falls based upon global supply and demand dynamics. 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, registering a 24% increase during fiscal year 2020. Gold prices ~~dipped further~~declined during the ~~quarter ended March 31,~~nine months ending September 30, 2021 by 8% to ~~$1,691~~$1,743 an ounce as determined by the London PM ~~Fix on March 31,~~Fix. Gold prices decreased 1% for the three months ending September 30, 2021, ~~registering an 11% decline during the quarter. Gold increased slightly to~~from $1,763 an ounce on June 30, 2021, as determined by the London PM ~~Fix on June 30, 2021, registering a 4% increase during the three months ending June 30, 2021 and a 7% decline for the six months ending June 30, 2021.~~Fix.

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. When prices decline for gold or other precious metals, DGSE has observed that individual buyers tend to buy due to the decrease in gold prices. While the precious-metals industry has slowed, our focus will be 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.

In addition, DGSE depends on purchasing products and materials from secondary markets. We are reliant on our ability to obtain an adequate supply of products and material at prices or other terms acceptable to it.
DGSE Growth and Expansion

Our strategy is to expand the number of locations we operate through opening new (“de novo”) locations in both current markets of Dallas/Fort Worth, Texas and Charleston, South Carolina and potential new markets. Our ability to add new stores is dependent on several variables, such as projected achievement of internal investment hurdles, the availability of acceptable sites, the regulatory environment, local zoning ordinances, access to capital and the availability of qualified personnel. We see opportunity for further expansion through de novo openings in the United States. The Company expects capital expenditures over the next twelve months including potential purchase of additional properties by DGSE.
28
Table of Contents

ECHG Business Overview
ECHG owns and operates Echo, ITAD USA 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 operates as a value-added reseller by providing offerings and services to companies looking to either upgrade capabilities or dispose of equipment. In addition, as a result of the CExchange Transaction, Teladvance now offers retail customers a trade-in program to offer their customers the ability to upgrade their old phones through a trade-in program. 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.

ECHG Recommerce Activities
A portion of ECHG’s business depends on obtaining products and material from secondary markets and is reliant on its ability to obtain an adequate supply of products and material at prices and other items acceptable to it. Although we believe that the long-term prospects for the industry remain bright, but because we do not have unlimited backlogs, our business can be promptly affected by short-term market fluctuations.
ECHG Metals Pricing and Business Impact

ECHG’s recycling business is affected by precious and other non-ferrous metal prices, which fluctuate based upon global supply-and-demand dynamics, among other things, with the greatest impact relating to gold. Recent fluctuations in gold prices are discussed above
28
~~Table of Contents~~

ECHG Growth and Expansion

ECHG’s strategy is to expand both organically and through acquisitions. As an organization, ECHG strives to deliver value through organic growth, high customer loyalty and retention as well as strategic acquisitions. ECHG is committed to continuous innovation. Many of ECHG’s clients have made commitments to going carbon neutral over the next few years and ECHG sees the potential to further expand key relationships as it partners with them in more ways to help them achieve their goal. With an emphasis on increasing recurring revenues and expanding our margins, ECHG believes its organic strategy will ultimately drive strong financial performance, including cash flow to support our acquisition strategy. ECHG’s business strategy has always included pursuing synergistic acquisitions, and ECHG’s plans to continue to expand its business by making strategic acquisitions and regularly seeking suitable acquisition targets to enhance its growth.

For additional information regarding ECHG, see “Item 1. Business—Operating Segments—ECHG Segment.” in the Company’s 2020 Annual Report.

COVID-19

The COVID-19 pandemic continues to affect the U.S. and global economies, and as disclosed in our 2020 Annual Report on Form 10-K, the pandemic also affected our business in a variety of ways beginning in the second quarter of fiscal 2020 and continuing into fiscal 2021.

The pandemic, together with the recent economic downturn and civil unrest, have affected the recommerce business in unpredictable ways, but Envela experienced that there were fewer customers raising money by selling items, despite higher unemployment. Government stimulus checks, eviction moratoriums and forbearances on mortgages and student loans may have contributed and may still be contributing to this effect. For more information, see Note 18 to our interim condensed consolidated financial statements. To date, this drop has been offset by other areas of our business. This diversity, combined with ECHG and DGSE’s continued focus on disciplined operations, makes us optimistic for our future success.

The full extent and duration of the COVID-19 impact on the global economy generally, and on our business specifically, is currently unknown. A prolonged pandemic and recovery may have an adverse effect on our results of operations, financial position and liquidity in future periods.

29
Table of Contents
Critical Accounting Policies and Estimates

For a discussion of critical accounting policies, see Note 3 to the interim condensed consolidated financial statements included herein.

Results of Operations

General

The following disaggregation of total revenue is listed by sales category and segment for the three months ended ~~June~~September 30, 2021 and 2020:

CONSOLIDATED

Three Months Ended June 30,

Three Months Ended September 30,

2021

2020

2021

2020

Revenues

Gross Profit

Margin

Revenues

Gross Profit

Margin

Revenues

Gross Profit

Margin

Revenues

Gross Profit

Margin

DGSE

Resale

$ 20,893,838

$ 2,678,640

12.8 %

$ 13,421,969

$ 1,444,814

10.8 %

$ 23,407,095

$ 2,645,445

11.3 %

$ 27,101,477

$ 3,139,884

11.6 %
Recycled

2,118,486

418,356

19.7 %

927,060

169,951

18.3 %

2,075,284

414,053

20.0 %

1,035,697

293,076

28.3 %

Subtotal

23,012,324

3,096,996

13.5 %

14,349,029

1,614,765

11.3 %

25,482,379

3,059,498

12.0 %

28,137,174

3,432,960

12.2 %

ECHG

Resale

8,595,910

3,019,685

35.1 %

4,257,032

2,022,090

47.5 %

8,288,951

3,450,652

41.6 %

7,812,553

2,376,406

30.4 %
Recycled

2,115,772

1,011,209

47.8 %

1,939,546

834,403

43.0 %

3,909,439

1,599,966

40.9 %

2,861,157

1,354,031

47.3 %

Subtotal

10,711,682

4,030,894

37.6 %

6,196,578

2,856,493

46.1 %

12,198,390

5,050,618

41.4 %

10,673,710

3,730,437

34.9 %

$ 33,724,006

$ 7,127,890

21.1 %

$ 20,545,607

$ 4,471,258

21.8 %

$ 37,680,769

$ 8,110,116

21.5 %

$ 38,810,884

$ 7,163,397

18.5 %

2930
Table of Contents

The following disaggregation of total revenue is listed by sales category and segment for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020:

CONSOLIDATED

Six Months Ended June 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Revenues

Gross Profit

Margin

Revenues

Gross Profit

Margin

Revenues

Gross Profit

Margin

Revenues

Gross Profit

Margin

DGSE

Resale

$ 38,214,479

$ 5,135,784

13.4 %

$ 31,963,866

$ 3,492,247

10.9 %

$ 61,621,574

$ 7,781,229

12.6 %

$ 59,065,343

$ 6,632,131

11.2 %
Recycled

3,712,346

768,847

20.7 %

2,748,747

486,700

17.7 %

5,787,630

1,182,900

20.4 %

3,784,444

779,776

20.6 %

Subtotal

41,926,825

5,904,631

14.1 %

34,712,613

3,978,947

11.5 %

67,409,204

8,964,129

13.3 %

62,849,787

7,411,907

11.8 %

ECHG

Resale

13,336,902

5,631,869

42.2 %

7,783,260

3,442,266

44.2 %

21,625,853

9,082,521

42.0 %

15,595,813

5,818,672

37.3 %
Recycled

3,950,720

1,895,654

48.0 %

3,878,877

2,351,325

60.6 %

7,860,159

3,495,620

44.5 %

6,740,034

3,705,356

55.0 %

Subtotal

17,287,622

7,527,523

43.5 %

11,662,137

5,793,591

49.7 %

29,486,012

12,578,141

42.7 %

22,335,847

9,524,028

42.6 %

$ 59,214,447

$ 13,432,154

22.7 %

$ 46,374,750

$ 9,772,538

21.1 %

$ 96,895,216

$ 21,542,270

22.2 %

$ 85,185,634

$ 16,935,935

19.9 %

Three Months Ended ~~June~~September 30, 2021 compared to the Three Months Ended ~~June~~September 30, 2020

Revenue. Revenue related to DGSE’s continuing operations ~~increased~~decreased by ~~$8,663,295,~~$2,654,795, or ~~60%~~9%, during the three months ended ~~June~~September 30, 2021, to ~~$23,012,324,~~$25,482,379, as compared to revenue of ~~$14,349,029~~$28,137,174 during the same period in 2020. Resale revenue, such as bullion, jewelry, watches and rare coins, ~~increased~~decreased by ~~$7,471,869,~~$3,694,382, or ~~56%~~14%, during the three months ended ~~June~~September 30, 2021, to ~~$20,893,838~~$23,407,095 as compared to resale revenue of ~~$13,421,969~~$27,101,477 during the same period in 2020. Recycled-material sales increased ~~129%~~100% to ~~$2,118,486~~$2,075,284 for the three months ended ~~June~~September 30, 2021, as compared to recycled-material sales of ~~$927,060,~~$1,035,697, for the three months ended ~~June~~September 30, 2020. Revenue decreased for resale items for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, primarily due to the lifting of certain governmental orders to refrain from non-essential items that were effective during the three months ended September 30, 2020, thus releasing pent-up purchasing demand. Revenue increased for recycled items for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, primarily due to additional refiner capacity and production after the lifting of certain governmental restrictions that were effective during the three months ended September 30, 2020.
Revenue related to ECHG’s continuing operations for the three months ended September 30, 2021 increased by $1,524,680, or 14%, to $12,198,390, as compared to revenue of $10,673,710 during the same period in 2020. Resale revenue increased by $476,398, or 6%, to $8,288,951, for the three months ended September 30, 2021, as compared to revenue of $7,812,553 during the three months ended September 30, 2020. Recycled sales increased by $1,048,282 or 37%, to $3,909,439 for the three months ended September 30, 2021, as compared to recycled sales of $2,861,157 for the three months ended September 30, 2020. Revenue increased for resale and recycled items for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, primarily due to DGSE opening two new retail locations in Lewisville and Grapevine, Texas, during the latter part of fiscal 2020. The COVID-19 pandemic also shut down DGSE’s retail locations during the three months ended June 30, 2020, except for the governmentally deemed essential portion of the business.
Revenue related to ECHG’s continuing operations for the three months ended June 30, 2021 increased by $4,515,104, or 73%, to $10,711,682, as compared to revenue of $6,196,578 during the same period in 2020. Resale revenue increased by $4,338,878, or 102%, to $8,595,910, for the three months ended June 30, 2021, as compared to revenue of $4,257,032 during the three months ended June 30, 2020. Recycled sales increased by $176,226 or 9%, to $2,115,772 for the three months ended June 30, 2021, as compared to recycled sales of $1,939,546 for the three months ended June 30, 2020. Revenue increased for resale and recycled items for the three months ended JuneSeptember 30, 2021, as compared to the three months ended ~~June~~September 30, 2020, due to the COVID-19 pandemic slowing wholesale operations during the three months ended ~~June 30, 2021, as compared to the shutdowns stemming from the pandemic and the dampening effect on ECHG’s customers during the three months ended June~~September 30, 2020.

The Company has had no layoffs to-date or terminations due to the pandemic, and we continue to exercise the safety protocols established by the Company at the start of the pandemic. The Company continues to operate at full strength and will take measures to keep our employees safe where possible.

Gross Profit. Gross profit related to DGSE’s operations for the three months ended ~~June~~September 30, 2021, ~~increased~~decreased by ~~$1,482,231~~$373,462 or ~~92%~~11%, to ~~$3,096,996~~$3,059,498 as compared to gross profit of ~~$1,614,765~~$3,432,960 during the same period in 2020. Resale gross profit ~~increased~~decreased by ~~$1,233,826,~~$494,439, or ~~85%~~16%, to ~~$2,678,640~~$2,645,445 for the three month ended ~~June~~September 30, 2021, as compared to resale gross profit of ~~$1,444,814~~$3,139,884 during the three months ended ~~June~~September 30, 2020. Recycled gross profit increased by ~~$248,405,~~$120,977, or ~~146%~~41%, to ~~$418,356~~$414,053 for the three ~~month~~months ended ~~June~~September 30, 2021, as compared to recycled gross profit of ~~$169,951~~$293,076 during the three months ended ~~June~~September 30, 2020. The ~~increase~~decrease in resale ~~and recycled~~ gross profit was due primarily to the ~~increased sales~~decreased sales. The increase in ~~each category plus the increased gross-margin percent of both resale and~~ recycled ~~items~~gross profit for the three months ended ~~June~~September 30, 2021 compared to the three months ended ~~June~~September 30, ~~2020.~~2020, was due primarily to increased revenue.

3031
Table of Contents

Gross profit related to ECHG for the three months ended ~~June~~September 30, 2021 increased by ~~$1,174,401,~~$1,320,181, or ~~41%~~35%, to ~~$4,030,894~~$5,050,618 as compared to gross profit of ~~$2,856,493~~$3,730,437 during the same period in 2020. Gross profit for resale revenue for the three months ended ~~June~~September 30, 2021 increased by ~~$997,595,~~$1,074,246, or ~~49%~~45%, to ~~$3,019,685,~~$3,450,652, as compared to gross profit for resale revenue ~~$2,022,090~~$2,376,406 during the same period in 2020. Gross profit for recycled sales for the three months ended ~~June~~September 30, 2021 increased ~~$176,806,~~$245,935, or ~~21%~~18%, to ~~$1,011,209,~~$1,599,966, as compared to gross profit for recycled sales of ~~$834,403,~~$1,354,031, during the same period in 2020. The gross profit increase for the resale and recycled items for the three months ended ~~June~~September 30, 2021, compared to the three months ended ~~June~~September 30, 2020 is primarily due to the increased sales in each ~~category as well as the slowing of COVID-19 pandemic.~~category.

Selling, General and Administrative Expenses. For the three months ended ~~June~~September 30, 2021, SG&A expenses for DGSE increased by ~~$344,727,~~$68,640 or ~~22%~~4%, to ~~$1,889,895,~~$1,772,034, as compared to SG&A expenses of ~~$1,545,168~~$1,703,394 during the same period in 2020. The increase in SG&A expenses was primarily due to increased expenses from two new locations in Lewisville and Grapevine Texas that were placed in ~~addition, DGSE’s retail stores were fully open for the three months ended June 30, 2021 as only governmentally deemed essential portions of DGSE’s operations were open~~service during the ~~three months~~fourth quarter of the fiscal year ended ~~June 30,~~December 31, 2020.

For the three months ended ~~June~~September 30, 2021, SG&A expenses for ECHG increased by ~~$869,828~~$1,292,160 or ~~42%~~60%, to ~~$2,941,330,~~$3,458,439, as compared to SG&A expenses of ~~$2,071,502~~$2,166,279 during the same period in 2020. The increase in SG&A expenses was primarily due to the loss of rent received from the sublet tenant of $95,000 that was netted against rent during the three months ended ~~June~~September 30, 2020 and an increase ofin wages and employee expenses of approximately ~~$700,000~~$900,000 to prepare for increased business from relaxed restrictions from COVID-19.

Depreciation and Amortization. For the three months ended ~~June~~September 30, 2021, depreciation and amortization expense for DGSE was ~~$97,435,~~$98,787, compared to an expense of ~~$79,240~~$79,190 for the same period in 2020, an increase of ~~$18,195,~~$19,597, or ~~23%~~25%. The increase of ~~$18,195~~$19,597 from the three months ended ~~June~~September 30, 2021 compared to the three months ended ~~June~~September 30, 2020 is primarily due to the new buildings placed in service during the fourth quarter of the fiscal year ended December 31, 2020.

For the three months ended ~~June~~September 30, 2021, depreciation and amortization expense for ECHG was ~~$118,784,~~$117,389, compared to an expense of ~~$100,466~~$100,592 for the same period in 2020, an increase of ~~$18,318,~~$16,797, or ~~18%~~17%. The increase of ~~$18,319~~$16,797 from the three months ended ~~June~~September 30, 2021 compared to the three months ended ~~June~~September 30, 2020, is primarily due to depreciation of the Company’s office building in Irving, Texas, split between the two business segments with one-half of the depreciation allocated to ECHG. The building was placed in service during the fourth quarter of the fiscal year ended December 31, 2020.

~~Other Income.~~ For the three months ended June 30, 2021, other income for DGSE was $119,460, an increase of $110,382 or 1,216%, compared to other income of $9,078 during the same period in 2020. The increase was primarily due to rental income allocated from the corporate headquarters during the three months ended June 30, 2021.
For the three months ended June 30, 2021, other income for ECHG was $163,595, an increase of $120,807 or 282%, compared to other income of $42,788 during the same period in 2020. The increase was primarily due to rental income allocated from the corporate headquarters.
Interest Expense. For the three months ended ~~June~~September 30, 2021, interest expense for DGSE was ~~$68,692,~~$79,563, an increase of ~~$24,592~~$25,632 or ~~56%~~48%, compared to interest expense of ~~$44,100~~$53,931 during the same period in 2020. This increase was primarily the result of additional DGSE loans to finance recent real estate acquisitions, as discussed above.

For the three months ended ~~June~~September 30, 2021, interest expense for ECHG was ~~$109,012,~~$109,290, an increase of ~~$8,815~~$7,422 or 9%7%, compared to interest expense of ~~$100,197~~$101,868 during the same period in 2020. This increase was primarily the result of the loan to finance the corporate office building in Irving, Texas where the interest expensed is split between the two business segments.
Gain on Forgiveness of Federal Loan. For the three months ended September 30, 2021, other income, gain on forgiveness of Federal Loan for DGSE was $675,210, an increase of $675,210, compared to other income, gain on forgiveness of Federal Loan of $0 during the same period in 2020. The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the total Federal Loan of $1,668,200, of which DGSE’s portion was $675,210 forgiven for the quarter ended September 30, 2021.
For the three months ended September 30, 2021, other income, gain on forgiveness of Federal Loan for ECHG was $992,990, an increase of $992,990, compared to other income, gain on forgiveness of Federal Loan of $0 during the same period in 2020. The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the total Federal Loan of $1,668,200, of which ECHG’s portion was $992,990 forgiven for the quarter ended September 30, 2021.
Write-off of Note Receivables and Accrued Interest Receivable. For the three months ended September 30, 2021, other expense, write-off of notes receivables for ECHG was $949,174, an increase of $949,174 compared to other expense, write-off of notes receivables and accrued interest receivable of $0 during the same period in 2020. The increase was due to two notes receivables due from CExchange of $900,000 and associated accrued interest receivable of $49,174 written-off during the quarter ended September 30, 2021.
Other. For the three months ended September 30, 2021, other expense for DGSE was $37,823, an increase of $39,031, compared to other income of $1,208 during the same period in 2020. The increase in expense was primarily due to DGSE’s portion of expense of our corporate building operating expenses not being netted to the corporate building’s income in prior quarters and correcting during the quarter ending September 30, 2021.
For the three months ended September 30, 2021, other expense for ECHG was $22,961, an increase of $48,707, compared to other income of $25,746 during the same period in 2020. The increase in expense was primarily due to ECHG’s portion of expense of our corporate building operating expenses not being netted to the corporate building’s income in prior quarters and correcting during the quarter ending September 30, 2021.
32
Table of Contents
For the three months ended September 30, 2021, interest expense for ECHG was $109,290, an increase of $7,422 or 7%, compared to interest expense of $101,868 during the same period in 2020. This increase was primarily the result of the loan to finance the corporate office building in Irving, Texas where the interest expensed is split between the two business segments.

31
~~Table of Contents~~
Income Tax Expense. For the three months ended ~~June~~September 30, 2021, income tax expense was ~~$32,685,~~$26,455, an increase of ~~$16,408,~~$26,182, compared to income tax expense of ~~$16,277~~$273 for the three months ended ~~June~~September 30, 2020. The effective income tax rate was ~~1.5%~~1.0% and ~~2.8%~~0% for the three months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020, respectively. Differences between our effective income tax rate and the U.S. federal statutory rate are the result of state taxes, non-deductible expenses and changes in the valuation allowance in relation to the deferred tax asset for net operating loss carryforwards.

Net Income. We recorded a net income of ~~$2,153,112~~$3,106,401 for the three months ended ~~June~~September 30, 2021, compared to a net income of ~~$566,174~~$2,984,824 for the three months ended ~~June~~September 30, 2020, an increase in net income of ~~$1,586,938,~~$121,577, which is due primarily to increased gross profit and an increase in ~~sales of approximately $13.0 million.~~other income, offset with an increase in SG&A expenses.

Earnings Per Share. For the three months ended ~~June~~September 30, 2021, our net income per basic and diluted shares attributable to holders of our Common Stock was ~~$0.08,~~$0.12, compared to ~~$0.02~~$0.11 per basic and diluted shares attributable to holders of our Common Stock for the three months ended ~~June~~September 30, 2020. ~~This increase is due primarily to an increase in sales between the two periods.~~

~~Six~~Nine Months Ended ~~June~~September 30, 2021 compared to ~~Six~~the Nine Months Ended ~~June~~September 30, 2020

Revenues. Revenues related to DGSE’s operations increased by ~~$7,214,212,~~$4,559,417, or ~~21%~~7%, during the ~~six~~nine months ended ~~June~~September 30, 2021, to ~~$41,926,825,~~$67,409,204, as compared to revenue of ~~$34,712,613~~$62,849,787 during the same period in 2020. Resale revenue, such as bullion, jewelry, watches and rare coins, increased ~~$6,250,613,~~$2,556,231, to ~~$38,214,479~~$61,621,574 for the ~~six~~nine months ended ~~June~~September 30, 2021, or ~~20%~~4%, compared to resale revenue of ~~$31,963,866~~$59,065,343 during the ~~six~~nine months ended ~~June~~September 30, 2020. Recycled revenue increased ~~$963,599~~$2,003,186 to ~~$3,712,346~~$5,787,630 for the ~~six~~nine months ended ~~June~~September 30, 2021, or approximately ~~35%~~53%, compared to recycled revenue of ~~$2,748,747~~$3,784,444 during the ~~six~~nine months ended ~~June~~September 30, 2020. Revenues increased for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to the ~~six~~nine months ended ~~June~~September 30, 2020, primarily due to the COVID-19 pandemic, which slowed down the increase in our velocity of sales for the ~~six~~nine months ended ~~June~~September 30, 2020.

Revenue related to ECHG’s continuing operations for the ~~six~~nine months ended ~~June~~September 30, 2021 increased by ~~$5,625,485,~~$7,150,165, or ~~48%~~32%, to ~~$17,287,622,~~$29,486,012, as compared to revenue of ~~$11,662,137~~$22,335,847 during the same period in 2020. Resale revenue increased by ~~$5,553,642,~~$6,030,040, or ~~71%~~39%, to ~~$13,336,902,~~$21,625,853, for the ~~six~~nine months ended ~~June~~September 30, 2021, as compared to resale revenue of ~~$7,783,260~~$15,595,813 during the ~~six~~nine months ended ~~June~~September 30, 2020. Recycled sales increased by ~~$71,843,~~$1,120,125, or 2%17%, to ~~$3,950,720~~$7,860,159 for the ~~six~~nine months ended ~~June~~September 30, 2021, as compared to recycled sales of ~~$3,878,877~~$6,740,034 for the ~~six~~nine months ended ~~June~~September 30, 2020. Revenue increased for resale and recycled items for the ~~six~~nine months ended ~~June~~September 30, 2021, as compared to the ~~six~~nine months ended ~~June~~September 30, 2020, due to the COVID-19 pandemic slowing during the ~~six~~nine months ended ~~June~~September 30, 2021, as compared to the shutdowns stemming from the pandemic and dampening effect on ECHG’s customers during the ~~six~~nine months ended ~~June~~September 30, 2020.

Gross Profit. Gross profit related to DGSE’s operations for the ~~six~~nine months ended ~~June~~September 30, 2021, increased by ~~$1,925,684~~$1,552,222 or ~~48%~~21%, to ~~$5,904,631~~$8,964,129 as compared to gross profit of ~~$3,978,947~~$7,411,907 during the same period in 2020. Resale gross profit increased by ~~$1,643,537,~~$1,149,098, or ~~47%~~17%, to ~~$5,135,784~~$7,781,229 for the ~~six~~nine month ended ~~June~~September 30, 2021, as compared to resale gross profit of ~~$3,492,247~~$6,632,131 during the ~~six~~nine months ended ~~June~~September 30, 2020. Recycled gross profit increased by ~~$282,147,~~$403,124, or ~~58%~~52%, to ~~$768,847~~$1,182,900 for the ~~six~~nine months ended ~~June~~September 30, 2021, as compared to recycled gross profit of ~~$486,700~~$779,776 during the ~~six~~nine months ended ~~June~~September 30, 2020. The increase in resale and recycled gross profit was due primarily to the increased sales in each category plus the increased overall gross-margin percent ~~of both resale and recycled items~~ for the ~~six~~nine months ended ~~June~~September 30, 2021, as compared to the ~~six~~nine months ended ~~June~~September 30, 2020.
33
Table of Contents

Gross profit related to ECHG for the ~~six~~nine months ended ~~June~~September 30, 2021, increased by ~~$1,733,932,~~$3,054,113, or ~~30%~~32%, to ~~$7,527,523~~$12,578,141 as compared to gross profit of ~~$5,793,591~~$9,524,028 during the same period in 2020. Gross profit for resale revenue for the ~~six~~nine months ended ~~June~~September 30, 2021 increased by ~~$2,189,603,~~$3,263,849, or ~~64%~~56% to ~~$5,631,869,~~$9,082,521, as compared to gross profit for resale revenue of ~~$3,442,266~~$5,818,672 during the same period in 2020. Gross profit for recycled sales for the ~~six~~nine months ended ~~June~~September 30, 2021, decreased ~~$455,671,~~$209,736, or ~~19%~~6% to ~~$1,895,654,~~$3,495,620, as compared to gross profit for recycle sales of ~~$2,351,325,~~$3,705,356, during the same period in 2020. The gross profit increase for resale revenue for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to the ~~six~~nine months ended ~~June~~September 30, 2020 is primarily due to the increased ~~sales.~~sales and increase in gross margin percentage. The gross profit decrease for recycled revenue for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to the ~~six~~nine months ended ~~June~~September 30, 2020 is primarily due to the reduced gross profit margin from ~~60.6%~~55% for the ~~six~~nine months ended ~~June~~September 30, 2020 to ~~48.0%~~44.5% for the ~~six~~nine months ended ~~June~~September 30, 2021.
32
~~Table of Contents~~

Selling, General and Administrative Expenses. For the ~~six~~nine months ended ~~June~~September 30, 2021, DGSE’s SG&A expenses increased by ~~$254,157,~~$322,798, or 7%6%, to ~~$3,672,332,~~$5,444,366, as compared to SG&A expenses of ~~$3,418,174~~$5,121,568 during the same period in 2020. The increase in SG&A expenses was primarily due to the addition of two new retail locations for the ~~six~~nine months ended ~~June~~September 30, 2021, as compared to the ~~six~~nine months ended ~~June~~September 30, 2020.

For the ~~six~~nine months ended ~~June~~September 30, 2021, SG&A expenses for ECHG increased by ~~$1,288,426~~$2,580,586 or ~~32%~~42%, to ~~$5,312,122,~~$8,770,561, as compared to SG&A expenses of ~~$4,023,696~~$6,189,975 during the same period in 2020. The increase in SG&A expenses was primarily due to the loss of rent received from sublet tenant of ~~$190,000~~$285,000 that was netted against rent during the ~~six~~nine months ended ~~June~~September 30, 2020 anand increasing the infrastructure of ECHG to support the drive to increase ~~of wages of approximately $600,000 and other administrative expenses to prepare for increased business from the market starting to regain some normalcy from the COVID-19 pandemic.~~revenue.

Depreciation and Amortization. For the ~~six~~nine months ended ~~June~~September 30, 2021, DGSE’s depreciation and amortization expense was ~~$194,257,~~$293,044, compared to an expense of ~~$156,281~~$235,471 for the same period in 2020. The increase is primarily due to adding new buildings placed in service during the fourth quarter of the fiscal year ended December 31, 2020.

For the ~~six~~nine months ended ~~June~~September 30, 2021, depreciation and amortization expense for ECHG was ~~$226,874,~~$344,263, compared to an expense of ~~$203,154~~$303,746 for the same period in 2020, an increase of ~~$23,721,~~$40,517, or ~~12%~~13%. The increase of ~~$23,720~~$40,517 from the ~~six~~nine months ended ~~June~~September 30, 2021 compared to the ~~six~~nine months ended ~~June~~September 30, 2020, is primarily due to adding the depreciation of the Company’s office building in Irving, Texas, split between the two business segments with one-half of the depreciation allocated to ECHG. The building was placed in service during the fourth quarter of the fiscal year ended December 31, 2020.

~~Other Income.~~ For the six months ended June 30, 2021, other income for DGSE was $231,191, an increase of $194,745 or 534%, compared to other income of $36,446 during the same period in 2020. The increase was primarily due to rental income allocated from the corporate headquarters during the six months ended June 30, 2021.
For the six months ended June 30, 2021, other income for ECHG was $323,805, an increase of $266,695 or 467%, compared to other income of $57,110 during the same period in 2020. The increase was primarily due to rental income allocated from the corporate headquarters and increased interest income from an increase in notes receivable during the six months ended June 30, 2021.
Interest Expense. For the ~~six~~nine months ended ~~June~~September 30, 2021, the interest expense for DGSE was ~~$137,177,~~$216,740, an increase of ~~$48,284,~~$73,916, or ~~54%~~52%, compared to interest expense of ~~$88,693~~$142,824 during the same period in 2020. This increase was primarily the result of additional DGSE loans to finance recent real estate acquisitions, as discussed above.

For the ~~six~~nine months ended ~~June~~September 30, 2021, interest expense for ECHG was ~~$219,549,~~$328,839, an increase of ~~$18,830~~$26,252 or 9%, compared to interest expense of ~~$200,719~~$302,587 during the same period in 2020. This increase was primarily the result of the additional loan to finance the ~~recent~~ office building acquisition in Irving, Texas where the interest expensed is split between the two business segments.
Gain on Forgiveness of Federal Loan. For the nine months ended September 30, 2021, other income, gain on forgiveness of Federal Loan for DGSE was $675,210, an increase of $675,210, compared to other income, gain on forgiveness of Federal Loan of $0 during the same period in 2020. The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the total Federal Loan of $1,668,200, of which DGSE’s portion was $675,210, forgiven during the quarter ended September 30, 2021.
For the nine months ended September 30, 2021, other income, gain on forgiveness of Federal Loan for ECHG was $992,990, an increase of $992,990, compared to other income, gain on forgiveness of Federal Loan of $0 during the same period in 2020. The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the total Federal Loan of $1,668,200, of which ECHG’s portion was $992,990, forgiven during the quarter ended September 30, 2021.
Write-off of Note Receivables and Accrued Interest Receivable. For the nine months ended September 30, 2021, other expense, write-off of notes receivables for ECHG was $949,174, an increase of $949,174 compared to other expense, write-off of notes receivables and accrued interest receivable of $0 during the same period in 2020. The increase was due to two notes receivables due from CExchange of $900,000 and associated accrued interest receivable of $49,174 written-off during the quarter ended September 30, 2021.
Other. For the nine months ended September 30, 2021, other income for DGSE was $193,368, an increase of $155,714, compared to other income of $37,654 during the same period in 2020. The increase in income was primarily due to DGSE’s portion of income over expenses for our corporate building during the nine months ended September 30, 2021.
For the nine months ended September 30, 2021, other income for ECHG was $300,844, an increase of $217,988, compared to other income of $82,856 during the same period in 2020. The increase in income was primarily due to DGSE’s portion of income over expenses for our corporate building during the nine months ended September 30, 2021.
34
Table of Contents

Income Tax Expense. For the ~~six~~nine months ended ~~June~~September 30, 2021, income tax expense was ~~$63,455,~~$89,910, an increase of ~~$28,601,~~$54,783, or ~~82%~~156%, compared to income tax expense of ~~$34,854~~$35,127 for the ~~six~~nine months ended ~~June~~September 30, 2020. The effective income tax rate was ~~1.5%~~1.0% and ~~2.0%~~1.0% for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. Differences between our effective income tax rate and the U.S federal statutory rate are the result of state taxes, non-deductible expenses, changes in reserves for uncertain tax positions and unused net operating loss carryforwards.

Net Income. We recorded a net income of ~~$4,161,384~~$7,267,785 for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to a net income of ~~$1,740,323~~$4,275,147 for the ~~six~~nine months ended ~~June~~September 30, 2020, an increase in net income of ~~$2,421,061,~~$2,992,638, which is due primarily from an increase in sales of approximately ~~21%~~14% for the ~~six~~nine months ended ~~June~~September 30, 2021, as compared to sales from the ~~six~~nine months ended ~~June~~September 30, 2020.

Earnings Per Share. For the ~~six~~nine months ended ~~June~~September 30, 2021, the net income per basic and diluted shares attributable to common stockholders was ~~$.15,~~$0.27, compared to ~~$.06~~$0.18 per basic and diluted shares for the ~~six~~nine months ended ~~June~~September 30, 2020.
33
~~Table of Contents~~

Liquidity and Capital Resources

During the ~~six~~nine months ended ~~June~~September 30, 2021, cash flows provided by operations totaled ~~$263,632,~~$1,026,457, and during the ~~six~~nine months ended ~~June~~September 30, 2020, cash flows provided by operations totaled ~~$541,486,~~$3,234,699, a decrease of ~~$257,854.~~$2,208,242. Cash provided by operations for the ~~six~~nine months ended ~~June~~September 30, 2021 was driven largely by net income added to non-cash items of depreciation, amortization, ~~and~~ bad debt, gain on forgiveness of ~~$4,588,764,~~notes receivable and forgiveness of Federal Loan of $7,214,598, an increase in customer deposits and other liabilities of $511,610 and an increase in accounts payable and accrued expenses of ~~$1,574,520,~~$100,952, offset by an increase in ~~customer deposits~~trade receivables of $2,871,070, an increase in inventories of $2,647,432, an increase in prepaid expenses of $886,591 and the increase in other ~~liabilities~~assets of ~~$341,260,~~$417,347. Cash provided by operations for the nine months ended September 30, 2020 was driven largely by the increase in accounts payable and accrued expenses of $1,006,345 and net income added to non-cash item of depreciation and amortization of $5,264,364, offset by the increase of trade receivables of ~~$3,365,999,~~$1,661,332, an increase in inventories of ~~$2,579,991,~~$1,108,062, an increase in prepaid expenses of ~~$169,373~~$155,518 and anthe increase in other assets of $146,042. Cash provided by operations for the six months ended June 30, 2020 was driven largely by the reduction of trade receivables of $140,228, a reduction of inventories of $145,381, an increase of customer deposits and other liabilities of $369,511, net income added to non-cash items of depreciation and amortization of $2,099,758, offset by a decrease in accounts payable and accrued expenses of $831,398 and an increase in prepaid expenses of $1,269,517.$94,830.

During the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, cash flows used in investing activities totaled ~~$1,126,416~~$3,351,141 and ~~$1,529,046,~~$3,382,591, respectively, a period-over-period decrease of ~~$402,630.~~$31,450. The use of cash in investing activities during the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~primarily~~ due to the increase in notes receivable of ~~$654,958,~~$300,000, the purchase of additional property and equipment of ~~$484,594,~~$3,064,277, offset by the acquisition of CExchange’s assets and liabilities, net of cash acquired offor $13,136. The use of cash in investing activities during the ~~six~~nine months ended ~~June~~September 30, 2020 was ~~primarily~~ due to investing in ~~note receivables~~notes receivable of $1,500,000 to ~~CExchange.~~CExchange and the purchase of additional property and equipment of $1,882,591.

During the ~~six~~nine months ended ~~June~~September 30, 2021, cash flows ~~used in~~provided by financing totaled ~~$224,140~~$1,429,828 and during the ~~six~~nine months ended ~~June~~September 30, 2020, cash flows provided by financing totaled ~~$1,529,517,~~$2,906,490, a period-over-period decrease of ~~$1,753,657.~~$1,476,662. The cash ~~used in~~provided by financing during the ~~six~~nine months ended ~~June~~September 30, 2021 were proceeds from notes to purchase property of $1,772,000, offset by payments made against the notes payable of ~~$79,353~~$123,352 and notes payable, related party of ~~$144,787.~~$218,820. The cash provided by financing during the ~~six~~nine months ended ~~June~~September 30, 2020 were proceeds from the Federal Loan received of $1,668,200 and proceeds from notes to purchase property of $1,452,000, offset by payments ~~made against the~~to notes payable of $5,289 and notes payable, related party of ~~$138,683, offset by the Federal Loan received of $1,668,200.~~$208,421.

We expect our capital expenditures to total approximately $1,000,000 during the next twelve months. These expenditures will be driven by the purchase of additional equipment and the purchase of ~~the new DGSE retail Frisco, Texas location, build-out expenses for that property and other~~ potential properties ~~purchased~~ by DGSE for retail ~~locations. As~~locations and the build-out of ~~June 30, 2021, DGSE had a commitment of a 20% down payment of approximately $450,000 for the purchase of the new retail location in Frisco, Texas.~~those purchased properties. The Company has no ~~other~~ capital expenditure commitments as of ~~June~~September 30, 2021.

Our primary source of liquidity and capital resources currently consist of cash generated from our operating results and current borrowings, including the Related Party Loans, the Truist Lewisville Loan, the TB&T Grapevine Loan, the TB&T Irving Loan and the ~~Federal~~TB&T Frisco Loan. For more information, see Note 15 to our interim condensed financial statements, which is incorporated into this item by reference. In addition, on May 17, 2019, the Company secured a twelve month line of credit from Texas Bank and Trust for up to $1,000,000 (the “TB&T Facility”). The TB&T Facility was renewed for an additional 24 months, for a maturity date of May 16, 2022, and the limit of the TB&T Facility was increased to $3,500,000 on May 17, 2020. We maintain the TB&T Facility to help fund cash shortfalls that we may have from time to time. We do not currently anticipate the need of those funds for operations and do not currently have any amounts drawn against the TB&T Facility as of ~~June~~September 30, 2021.
35
Table of Contents

From time to time, we have adjusted and may further adjust our inventory levels to meet seasonal demand or in order to meet working capital requirements. Management believes we have sufficient capital resources to meet working capital requirements. 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. If additional working capital is required, we will seek additional loans from individuals or other commercial banks. If necessary, inventory levels may be adjusted in order to meet unforeseen working-capital requirements.

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.

The COVID-19 pandemic has adversely affected global economic business conditions. Future sales of products like ours have and may continue to decline or fluctuate due to increased or fluctuating commodities prices, particularly gold. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic, the ultimate impact, including the impact on our liquidity and capital resources, is highly uncertain and subject to change. The duration of any such impact cannot be predicted, and the Company believes additional liquidity may be necessary to support ongoing operations during this period of uncertainty. For more information, see Note 18 to our interim condensed consolidated financial statements.

The Company leases certain of its facilities under operating leases. For more information on the minimum rental commitments under non-cancellable operating leases as of ~~June~~September 30, 2021, see Note 13 to our interim condensed consolidated financial statements.
34
~~Table of Contents~~

Off-Balance Sheet Arrangements

We do not have any 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.
36
Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Because we are a “smaller reporting company,” we are not required to disclose the information required by this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~June~~September 30, 2021. We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of ~~June~~September 30, 2021, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective to provide reasonable assurance of the foregoing.

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance of achieving their objectives, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

3537
Table of Contents

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are various claims, lawsuits and pending actions against the Company arising in the normal course of the Company’s business. It is the opinion of management that the ultimate resolution of these matters will not have a material adverse effect on the Company’s financial condition, results of operations or cash flow. Management is also not aware of any legal proceedings contemplated by government agencies of which the outcome is reasonable likely to have a material adverse effect on the Company’s financial condition, results of operations or cash flow.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in the Company’s 2020 Annual Report.

For additional information on the COVID-19 pandemic, see Note 18 to our interim condensed consolidated financial statements.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

On July 30, 2021, DGSE closed the purchase of a new retail building located at 9166 Gaylord Parkway in Frisco, Texas for $2,215,500, pursuant to a purchase agreement entered into on May 6, 2021. The purchase was partly financed through a $1,772,000, 5 year loan, bearing an annual interest rate of 3.75%, amortized over 20 years, payable to Texas Bank and Trust. The note has monthly interest and principal payments of $10,507.None

3638
Table of Contents

ITEM 6. EXHIBITS

Exhibit
Number

Description

Filed
Herein

Incorporated by Reference

Form

Date Filed with SEC

Exhibit Number
~~10.1~~
~~Purchase Agreement, dated May 6, 2021, for the Frisco, Texas location, by and between DGSE, LLC and KMTHT Holding, LLC~~
X
31.1

Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002 by John R. Loftus

X

31.2

Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002 by Bret A. Pedersen

Xx

32.1

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by John R. Loftus

Xx

32.2

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Bret A. Pedersen

Xx

101.INS

XBRL Instance Document

Xx

101.SCH

XBRL Taxonomy Extension Schema Document

Xx

101.CAL

XBRL Taxonomy Calculation Linkbase Document

Xx

101.DEF

XBRL Taxonomy Definition Linkbase Document

Xx

101.LAB

XBRL Taxonomy Label Linkbase Document

Xx

101.PRE

XBRL Taxonomy Presentation Linkbase Document

Xx

104*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101)

Xx



3739
Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ENVELA CORPORATION
(Registrant)

Date: ~~August~~November 4, 2021
By:
/s/ JOHN R. LOFTUS

John R. Loftus

Chief Executive Officer
(Principal Executive Officer)

Date: ~~August~~November 4, 2021

/s/ BRET A. PEDERSEN

Bret A. Pedersen

Chief Financial Officer
(Principal Accounting Officer)

3840

Note payable, related party - ECHG

Year Ending December 31,	Amount

2021 (excluding the six months ended June 30, 2021)	$	106,801
2022		224,536
2023		238,385
2024		5,826,127

Subtotal	$	6,395,849

Note payable, Texas Bank & Trust - Envela

Year Ending December 31,	Amount

2021 (excluding the six months ended June 30, 2021)	$	53,128
2022		108,928
2023		112,591
2024		116,378
2025		2,506,542

Subtotal	$	2,897,567

Note payable - Envela Corporation

Year Ending December 31,	Amount

2021	$	1,668,200

Subtotal	$	1,668,200

	$	15,189,785

	ENVELA CORPORATION (Registrant)
Date: ~~August~~November 4, 2021	By:	/s/ JOHN R. LOFTUS
		John R. Loftus
		Chief Executive Officer (Principal Executive Officer)

Date: ~~August~~November 4, 2021		/s/ BRET A. PEDERSEN
		Bret A. Pedersen
		Chief Financial Officer (Principal Accounting Officer)