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 ~~September 30, 2022~~March 31, 2023

☐	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~~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 ~~November 2, 2022,~~May 3, 2023, 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 ended March 31, 2023 and ~~nine months ended September 30,~~ 2022 ~~and 2021~~ (unaudited)	3

	Condensed Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021~~2022.	4

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended ~~September 30, 2021~~March 31, 2022 and ~~2022~~2023 (unaudited)	6

	~~Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2021 and 2022 (unaudited)~~	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	87

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2825

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3828

Item 4.	Controls and Procedures	38

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	39

Item 6.	Exhibits	40

SIGNATURES		41

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended September 30,						Nine Months Ended September 30,						(Unaudited)		(Unaudited)
(Unaudited)	2022			2021			2022			2021
Three Months Ended March 31,													2023		2022
Revenue:
Sales	$	45,197,686		$	37,680,769		$	135,252,502		$	96,895,216		$	48,389,040	$	47,415,098
Cost of goods sold		33,342,029			29,570,653			102,207,811			75,352,946			36,979,138		37,704,064

Gross margin		11,855,657			8,110,116			33,044,691			21,542,270			11,409,902		9,711,034

Expenses:
Selling, general & administrative expenses		7,753,702			5,230,473			21,397,360			14,214,927
Depreciation and amortization		534,964			216,176			1,106,427			637,307
Selling, General & Administrative Expenses														7,905,303		6,559,755
Depreciation and Amortization														354,351		291,947

Total operating expenses		8,288,666			5,446,649			22,503,787			14,852,234			8,259,654		6,851,702

Operating income		3,566,991			2,663,467			10,540,904			6,690,036			3,150,248		2,859,332
Other income (expense), net														210,779		(58,576	)
Interest expense		119,957			188,853			364,238			545,579			117,064		123,239
Other income (expense):
Gain on forgiveness of Federal Loan		-			1,668,200			-			1,668,200
Write-off of notes receivable and accrued interest receivable		-			(949,174	)		-			(949,174	)
Other income (expense), net		(65,264	)		(60,784	)		(219,269	)		494,212

Income before income taxes		3,381,770			3,132,856			9,957,397			7,357,695			3,243,963		2,677,517
Income tax expense		64,061			26,455			144,605			89,910			717,646		30,292

Net income	$	3,317,709		$	3,106,401		$	9,812,792		$	7,267,785		$	2,526,317	$	2,647,225

Basic earnings per share:
Net income	$	0.12		$	0.12		$	0.36		$	0.27		$	0.09	$	0.10

Diluted earnings per share:
Net income	$	0.12		$	0.12		$	0.36		$	0.27		$	0.09	$	0.10

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

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ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,			March 31,		December 31,
	2022			2021			2023		2022
Assets	(unaudited)						(unaudited)
Current assets:
Cash and cash equivalents	$	14,968,756		$	10,138,148		$	20,352,709	$	17,169,969
Trade receivables, net of allowances		7,191,109			7,166,533			8,291,353		7,949,775
Notes receivable, net of allowances								-		578,250
Inventories		18,063,063			14,048,436			19,105,838		18,755,785
Deferred tax asset								1,140,002		1,488,258
Current right-of-use assets from operating leases		1,665,903			1,604,736			1,700,508		1,683,060
Prepaid expenses		1,652,226			439,038			1,279,664		1,231,817
Other current assets		709,204			969,624			252,387		35,113

Total current assets		44,250,261			34,366,515			52,122,461		48,892,027
Property and equipment, net		9,513,382			9,806,188			9,228,454		9,393,802
Goodwill		3,621,453			6,140,465			3,621,453		3,621,453
Intangible assets, net		5,189,120			3,024,245			4,813,270		4,993,545
Operating lease right-of-use assets, less current portion		4,616,902			5,692,141
Other long-term assets		186,761			237,761
Operating lease right-of-use assets								3,757,873		4,189,621
Other assets								198,447		186,761

Total assets	$	67,377,879		$	59,267,315		$	73,741,958	$	71,277,209

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable-trade	$	4,441,613		$	2,488,396		$	2,746,229	$	3,358,881
Line of credit		-			1,700,000
Notes payable		1,246,083			1,065,794			1,246,961		1,250,702
Current operating lease liabilities		1,658,990			1,573,824			1,827,285		1,686,997
Accrued expenses		1,760,809			1,789,366			2,077,832		2,286,594
Customer deposits and other liabilities		992,633			1,179,224			1,767,088		282,482

Total current liabilities		10,100,128			9,796,604			9,665,395		8,865,656
Notes payable, less current portion		15,039,700			15,970,337			14,419,637		14,726,703
Long-term operating lease liabilities, less current portion		4,797,942			5,873,057			3,814,159		4,368,400

Total liabilities		29,937,770			31,639,998			27,899,191		27,960,759

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued and outstanding		-			-
Common stock, $0.01 par value; 60,000,000 shares authorized; 26,924,631 shares issued and outstanding		269,246			269,246
Preferred stock, $0.01 par value; 5,000,000 shares authorized;
no shares issued and outstanding								-		-
Common stock, $0.01 par value; 60,000,000 shares authorized;
26,924,631 shares issued and outstanding								269,246		269,246
Additional paid-in capital		40,173,000			40,173,000			40,173,000		40,173,000
Accumulated deficit		(3,002,137	)		(12,814,929	)
Retained earnings								5,400,521		2,874,204

Total stockholders’ equity		37,440,109			27,627,317			45,842,767		43,316,450

Total liabilities and stockholders’ equity	$	67,377,879		$	59,267,315		$	73,741,958	$	71,277,209

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 Nine Months Ended September 30,	2022			2021
For the Three Months Ended March 31,							2023			2022
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Operations
Net income	$	9,812,792		$	7,267,785		$	2,526,317		$	2,647,225
Adjustments to reconcile net income to net cash provided by operations:
Depreciation, amortization, and other		1,106,427			637,307			354,351			291,947
Bad debt expense		73,418			28,532			(13,091	)		-
Gain on forgiveness of Federal Loan		-			(1,668,200	)
Write-off of note receivables and accrued interest receivable		-			949,174
Deferred Taxes								348,256			-
Changes in operating assets and liabilities:
Trade receivables		(97,994	)		(2,871,070	)		(328,487	)		1,809,397
Inventories		(4,014,627	)		(2,647,432	)		(350,053	)		(573,139	)
Prepaid expenses		(1,213,187	)		(886,591	)		(47,847	)		(173,436	)
Intangible Assets		(15,300	)		-
Other assets		311,420			(417,347	)		(228,959	)		(794,731	)
Accounts payable and accrued expenses		1,924,658			100,952			(821,413	)		81,088
Operating leases		24,123			21,737			346			5,449
Customer deposits and other liabilities		(186,590	)		511,610			1,484,605			64,969

Net cash provided by operations		7,725,140			1,026,457			2,924,025			3,358,769

Investing
Investment in note receivable		-			(300,000	)
Payments from notes receivable								578,250			-
Purchase of property and equipment		(227,197	)		(3,064,277	)		(8,728	)		(93,384	)
Acquisition of CExchange assets and liabilities, net of cash acquired		-			13,136
Adjustment to the purchase price of the Avail Transaction		(216,988	)		-
Net cash used in investing		(444,185	)		(3,351,141	)

Net cash provided by (used in) investing								569,522			(93,384	)

Financing
Payments on notes payable, related party		-			(218,820	)
Payments on notes payable		(750,347	)		(123,352	)		(310,807	)		(206,274	)
Proceeds from notes to purchase property		-			1,772,000
Payments on line of credit		(1,700,000	)		-			-			(1,700,000	)
Net cash provided by (used in) financing		(2,450,347	)		1,429,828

Net cash used in financing								(310,807	)		(1,906,274	)

Net change in cash and cash equivalents		4,830,608			(894,856	)		3,182,740			1,359,111
Cash and cash equivalents, beginning of period		10,138,148			9,218,036			17,169,969			10,138,148

Cash and cash equivalents, end of period	$	14,968,756		$	8,323,180		$	20,352,709		$	11,497,259

Supplemental Disclosures
Cash paid during the period for:
Interest	$	372,819		$	541,863		$	116,061		$	129,989
Income taxes	$	133,000		$	86,000		$	-		$	-
Non cash activites:
Acquisition of CExchange assets and liabilities	$	-		$	1,555,892
Adjustment to the Avail Transaction purchase price allocation	$	2,736,000		$	-

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

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ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months ended ~~September 30, 2021~~March 31, 2022 and ~~2022~~2023

(Unaudited)

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

-

$ -

$ 40,173,000

$ (18,702,420 )

$ 21,739,826

Net Income

-

-

-

-

-

3,106,401

3,106,401

Balances at September 30, 2021

26,924,631

$ 269,246

-

$ -

$ 40,173,000

$ (15,596,019 )

$ 24,846,227

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

Balances at January 1, 2022		26,924,631	$	269,246		-	$	-	$	40,173,000	$	(12,814,929	)	$	27,627,317

Net Income		-		-		-		-		-		2,647,225			2,647,225

Balances at March 31, 2022		26,924,631	$	269,246		-	$	-	$	40,173,000	$	(10,167,704	)	$	30,274,542

Additional

Total

Common Stock

Preferred Stock

Paid-in

Accumulated

Stockholders'

Shares

Amount

Shares

Amount

Capital

Deficit

Equity

Balances at June 30, 2022

26,924,631

$ 269,246

-

$ -

$ 40,173,000

$ (6,319,846 )

$ 34,122,400

Net Income

-

-

-

-

-

3,317,709

3,317,709

Balances at September 30, 2022

26,924,631

$ 269,246

-

$ -

$ 40,173,000

$ (3,002,137 )

$ 37,440,109

	Common Stock				Preferred Stock				Additional Paid-in		Retained		Total Stockholders'
	Shares		Amount		Shares		Amount		Capital		Earnings		Equity

Balances at January 1, 2023		26,924,631	$	269,246		-	$	-	$	40,173,000	$	2,874,204	$	43,316,450

Net Income		-		-		-		-		-		2,526,317		2,526,317

Balances at March 31, 2023		26,924,631	$	269,246		-	$	-	$	40,173,000	$	5,400,521	$	45,842,767

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 Nine Months ended September 30, 2021 and 2022~~

~~(Unaudited)~~

Additional

Total

Common Stock

Preferred Stock

Paid-in

Accumulated

Stockholders'

Shares

Amount

Shares

Amount

Capital

Deficit

Equity

Balances at December 31, 2020

26,924,631

$ 269,246

-

$ -

$ 40,173,000

$ (22,863,804 )

$ 17,578,442

Net Income

-

-

-

-

-

7,267,785

7,267,785

Balances at September 30, 2021

26,924,631

$ 269,246

-

$ -

$ 40,173,000

$ (15,596,019 )

$ 24,846,227

Additional

Accumulated

Total

Common Stock

Preferred Stock

Paid-in

Stockholders'

Shares

Amount

Shares

Amount

Capital

Deficit

Equity

Balances at December 31, 2021

26,924,631

$ 269,246

-

$ -

$ 40,173,000

$ (12,814,929 )

$ 27,627,317

Net Income

-

-

-

-

-

9,812,792

9,812,792

Balances at September 30, 2022

26,924,631

$ 269,246

-

$ -

$ 40,173,000

$ (3,002,137 )

$ 37,440,109

~~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~~These unaudited interim condensed consolidated financial statements of Envela ~~Corporation,~~Corproration, 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~~U.S. for interim financial information and with the instructions to Quarterly Reports on Form 10-Q and Article 10 of ~~America (“U.S. GAAP”~~Regulation S-X prescribed by the Securities and Exchange Commission (the “SEC”) ~~have been condensed or omitted pursuant~~. Pursuant to the SEC’s rules and regulations, ~~although the Company believes that the disclosures are adequate to make~~they do not include all of the information ~~presented not misleading. The Company suggests that these~~and notes required by accounting principles generally accepted in the U.S. (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments, which are of a normal and recurring nature except those which have been disclosed elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”), necessary for a fair presentation of the consolidated financial statements for these interim periods, have been included. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be ~~read in conjunction with~~expected for the fiscal year ending December 31, 2023 (“fiscal 2023”). For further information, refer to the consolidated financial statements and notes thereto included in the ~~Company’s~~ Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021~~2022 (“fiscal 2022”) of Envela filed with the SEC on March 16, ~~2022~~2023 (the ~~“2021~~“2022 Annual Report”). In

Contemporaneously with filing this Form 10-Q, we updated our two reportable segments by renaming the ~~opinion~~ECHG segment the “Commercial” segment and the DGSE segment the “Consumer” segment. The segment name changes did not result in any change to the composition 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 ofCompany’s operations and ~~cash flows for~~therefore did not result in any change to the ~~periods presented.~~ historical results. Our operations conducted by each of our segments are more specifically described below.

The ~~results~~preparation of ~~operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The information provided as of September 30, 2022 in these notes to the~~ interim condensed consolidated financial statements ~~is unaudited.~~in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

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~~Our consumer segment, formerly known as the DGSE segment, operates DGSE, LLC (“DGSE”), ~~the Company operates~~ Dallas Gold & Silver Exchange, Charleston Gold & Diamond Exchange, and Bullion Express brands. ~~Through~~Our commercial segment, formerly known as the ECHG segment, operates ECHG, LLC (“ECHG”), ~~the Company operates~~ Echo Environmental Holdings, LLC (“Echo”), ITAD USA Holdings, LLC (“ITAD USA”), Teladvance, LLC (“Teladvance”), CEX Holdings, LLC (“CEX”), and Avail Recovery Solutions, LLC (“Avail”~~) and Teladvance, LLC (“Teladvance”~~). Envela is a Nevada corporation, headquartered in Irving, Texas.

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~~DGSE~~

Our consumer segment 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~~We operate seven jewelry stores at both the retail and wholesale levels throughout the United States via its facilities in Texas and South Carolina. The Company expects to expand soon to Arizona, see Note 16 – Subsequent Events, to these interim condensed consolidated financial statements. The consumer segment is currently promoting and building their Bullion Express brand into a leading on-line seller of bullion. Buying and selling items for their precious-metals content is a major method by which ~~DGSE markets itself. DGSE~~we are marketed. The consumer segment 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~~We also ~~maintains~~maintain a presence in the retail market through ~~its~~ websites, www.dgse.com, www.cgdeinc.com and ~~www.cgdeinc.com~~www.bullionexpress.com.

~~ECHG, through its subsidiaries,~~Our commercial segment, 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. ~~ECHG~~We also ~~conducts~~conduct such recycling and resale at the retail level. ~~Echo focuses~~We focus on end-of-life electronics recycling and sustainability and ITAD USA provides IT equipment disposition, including compliance and data sanitization services. Teladvance, CEX and Avail operate as value-added resellers by providing offerings and services to companies looking either to upgrade capabilities or dispose of ~~electronic~~ equipment. Like ~~DGSE, ECHG~~the consumer segment, the commercial segment 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~~The commercial segment’s customers are companies and organizations that are based domestically and internationally.

~~Table of Contents~~

For additional information on the businesses of both ~~DGSE~~the consumer and ~~ECHG,~~commercial segments, see “Item 1. Business – Operating Segments” in the Company’s ~~2021~~2022 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, ~~inventories,~~ prepaid expenses, other current assets, accounts payable, accrued expenses, ~~and~~ customer deposits and other liabilities approximate fair value because of the immediate or short-term nature of these financial instruments. Notes payable and line of credit 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.

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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~~the commercial segment only and not the entire Company. ~~ECHG~~The commercial segment 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 ~~the coronavirus pandemic (“COVID-19”),~~ surging inflation and the war between Ukraine and Russia, in accordance with step 1 of the guidelines set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 350-20-35-3A, ~~the Company~~management concluded there were no impairments of goodwill that resulted from those triggering events for the three ~~and nine~~ months ended ~~September 30, 2022. The Company~~March 31, 2023. Management will continue to evaluate goodwill for the ~~ECHG~~commercial segment. For tax purposes, goodwill is amortized and deductible over fifteen years.

~~ECHG goodwill~~Goodwill was allocated in connection with three acquisitions of the assets now held by Echo on May 20, 2019 (the “Echo Transaction”), of the assets now held by Teladvance on June 9, 2021 (the “CExchange Transaction”) and of the assets now held by Avail on October 29, 2021 (the “Avail Transaction”). The preliminary goodwill associated with the Avail Transaction was $3,491,285, which was the initial purchase price less the approximate fair value of the net assets purchased. There have been several adjustments made to goodwill concerning the Avail Transaction during ~~the nine months ended September 30,~~fiscal year 2022. On May 31, 2022, an additional cash payment was made of $216,988 due to certain conditions being met concerning the cash balance upon a certain date. The cash payment increased goodwill for the Avail Transaction to $3,708,273. During ~~the three months ended September 30,~~fiscal year 2022 ~~a third party valuation company~~management also identified $2,736,000 of intangibles that were not initially included in the fair value of Avail’s net ~~assets that~~assets. The separation of intangibles reduced the Avail Transaction goodwill to $972,272. There have been no other adjustments or impairment charges to goodwill. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, goodwill as reported in the condensed consolidated balance sheets was ~~$3,621,453 and $6,140,465, respectively.~~$3,621,453.

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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~~ASU is effective for the fiscal years beginning after December 15, 2022. We adopted ~~upon the effective date for us beginning~~this ASU as of January 1, 2023, which includes interim periods within the reporting period. ASU 2016-13 was adopted by using a modified retrospective transition approach to align our credit loss methodology with the new standard. ~~The Company is evaluating the~~There were no effects of this standard on our financial ~~statement implications~~position, results of ~~ASU 2016-13.~~operations or cash flows.

There were no other new accounting standards that had a material impact on the Company’s consolidated financial statements during the ~~nine-month~~three-month period ended ~~September 30, 2022,~~March 31, 2023, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of ~~September 30, 2022~~March 31, 2023 that the Company expects to have a material impact on its consolidated financial statements.

~~NOTE 4 — INVENTORIES~~

~~A summary of inventories is as follows:~~

September 30,

December 31,

2022

2021

DGSE

Resale

$ 15,311,602

$ 10,422,072

Recycle

8,484

11,995

Subtotal

15,320,086

10,434,067

ECHG

Resale

1,637,723

3,350,159

Recycle

1,105,254

264,210

Subtotal

2,742,977

3,614,369

$ 18,063,063

$ 14,048,436

~~NOTE 5 — ACQUISITION~~

On October 29, 2021, ECHG entered into the Avail Transaction to purchase all of the assets, liabilities and rights and interests of Avail for $4,500,000. The purchase was facilitated by an initial payment of $2,500,000 at closing, with the remaining $2,000,000 represented by an installment note (the “Avail Installment Note”) made by ECHG to the seller to be paid out by 12 quarterly payments starting April 1, 2022, of $166,667 each. See Note 14 to our consolidated financial statements for more information on this loan. The Avail Installment Note for the Avail Transaction does not bear interest but the imputed interest rate was determined to be 3.1%.

As part of the Avail Transaction, goodwill was preliminarily recorded as $3,491,284, which was the purchase price less the approximate fair value of the net assets purchased. On May 31, 2022, an additional cash payment of $216,988 was made due to certain conditions being met concerning the cash balance upon a certain date. The additional cash payment was not part of the Avail Installment Note of $2,000,000 from the initial closing of the Avail Transaction. The additional cash payment increased goodwill and the purchase price amount by $216,988, thereby increasing goodwill for the Avail Transaction to $3,708,273. On September 30, 2022, a third party valuation company identified $2,736,000 of intangibles as part of the Avail Transaction not initially included in the fair value of Avail’s net assets. The intangibles identified of $2,736,000, decreases goodwill by $2,736,000 to $972,272, as shown in the purchase price allocation table below. The Avail Transaction was initially recorded as preliminary, but with the third party valuation complete, the purchase price allocation below is considered final. The Company’s goodwill is related to the ECHG segment. ECHG has its own separate financial information to perform goodwill impairment testing. The Company will evaluate goodwill based on cash flows for the ECHG segment. For tax purposes, goodwill is amortized and deductible over 15 years.

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~~The purchase price allocation of the Avail Transaction is listed below:~~

Initial

Final

Description

Allocation

Allocation

Assets

Cash

$ 988,870

$ 988,870

Account receivables

395,144

395,144

Inventories

486,736

486,736

Prepaid expenses

93,727

93,727

Intangible assets - Trademarks/Tradenames

-

1,272,000

Intangible assets - Customer Relationships

-

1,464,000

Fixed assets - net

247,038

247,038

Right-of-use assets

609,511

609,511

Other assets

13,268

13,268

Liabilities

Account payables

(562,778 )

(562,778 )
Accrued liabilities

(653,289 )

(653,289 )
Operating lease liabilities

(609,511 )

(609,511 )

Net assets

1,008,716

3,744,716

Goodwill

3,491,284

972,272

Total Purchase Price

$ 4,500,000

$ 4,716,988

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The following table compares the results of Avail as part of Company’s financial results for the three months ended September 30, 2022, and the Company’s results of operations as if they were combined for the three months ended September 30, 2021:

Consolidated Statement of

Income

Proforma Combined

For the Three Months Ended

For the Three Months Ended

September 30, 2022

September 30, 2021

(unaudited)

(unaudited)

Revenue

$ 45,197,686

$ 40,057,210

Income from continuing operations

$ 3,381,770

$ 3,496,441

Net income

$ 3,317,709

$ 3,432,380

Basic net income per common share

$ 0.12

$ 0.13

Diluted net income per common share

$ 0.12

$ 0.13

The following table compares the results of Avail as part of the Company’s financial results for the nine months ended September 30, 2022, and the Company’s results of operations as if they were combined for the nine months ended September 30, 2021:

Consolidated Statement of

Income

Proforma Combined

For the Nine Months Ended

For the Nine Months Ended

September 30, 2022

September 30, 2021

(unaudited)

(unaudited)

Revenue

$ 135,252,502

$ 102,710,504

Income from continuing operations

$ 9,957,397

$ 8,424,665

Net income

$ 9,812,792

$ 8,280,060

Basic net income per common share

$ 0.36

$ 0.31

Diluted net income per common share

$ 0.36

$ 0.31

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NOTE 64 — INVENTORIES

A summary of inventories is as follows:

	March 31,		December 31,
	2023		2022
Consumer
Resale	$	18,151,841	$	16,462,749
Recycle		20,313		46,697

Subtotal		18,172,154		16,509,446

Commercial
Resale		623,041		1,858,519
Recycle		310,643		387,820

Subtotal		933,684		2,246,339

	$	19,105,838	$	18,755,785

NOTE 5 — GOODWILL

The ~~changes~~change in goodwill is as follows:

	September 30,			December 31,		March 31,		December 31,
	2022			2021		2023		2022

Opening balance	$	6,140,465		$	1,367,109	$	3,621,453	$	6,140,465
Additions/(Reductions) (1)		(2,519,012	)		4,773,356
Reductions (1)							-		(2,519,012	)

Goodwill	$	3,621,453		$	6,140,465	$	3,621,453	$	3,621,453

(1) Additions ending December 31, 2021 totaling $4,773,356 is a combination of the CExchange Transaction on June 9, 2021 of $1,282,072 and the Avail Transaction’s preliminary purchase price allocation on October 29, 2021, of $3,491,284. The reduction in goodwill of $2,519,012 for ~~the nine months ending September 30,~~fiscal 2022, is a combination of an additional cash payment made on May 31, 2022 of $216,988, ~~which increased~~increasing goodwill for the Avail Transaction, offset by the effect of ~~the third party valuation report~~ identifying $2,736,000 of intangible assets that ~~were~~was not initially included in the fair value of Avail’s net assets, reducing goodwill and increasing intangible assets.

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~~NOTE 7 — PROPERTY AND EQUIPMENT~~

~~Property and equipment consist of the following:~~

September 30,

December 31,

2022

2021

DGSE

Land

$ 1,640,220

$ 1,640,220

Building and improvements

2,781,904

2,764,529

Leasehold improvements

1,450,695

1,450,695

Machinery and equipment

1,078,595

1,056,315

Furniture and fixtures

603,944

526,250

Vehicles

22,859

22,859

7,578,217

7,460,868

Less: accumulated depreciation

(2,578,405 )

(2,343,923 )

Sub-Total

4,999,812

5,116,945

ECHG

Building and improvements

151,647

135,491

Machinery and equipment

1,152,154

1,109,306

Furniture and fixtures

145,950

145,950

1,449,751

1,390,747

Less: accumulated depreciation

(442,793 )

(212,147 )

Sub-Total

1,006,958

1,178,600

Envela

Land

1,106,664

1,106,664

Building and improvements

2,502,216

2,456,324

Machinery and equipment

28,627

23,676

3,637,507

3,586,664

Less: accumulated depreciation

(130,895 )

(76,021 )

Sub-Total

3,506,612

3,510,643

$ 9,513,382

$ 9,806,188

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NOTE 86 — PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	March 31,			December 31,
	2023			2022
Consumer
Land	$	1,640,220		$	1,640,219
Building and improvements		2,798,975			2,798,975
Leasehold improvements		1,450,695			1,450,695
Machinery and equipment		1,094,940			1,078,595
Furniture and fixtures		603,943			603,944
Vehicles		22,859			22,859
		7,611,632			7,595,287
Less: accumulated depreciation		(2,733,466	)		(2,651,832	)

Sub-Total		4,878,166			4,943,455

Commercial
Building and improvements		151,647			151,647
Machinery and equipment		1,173,019			1,180,636
Furniture and fixtures		145,950			145,950
		1,470,616			1,478,233
Less: accumulated depreciation		(589,289	)		(515,673	)

Sub-Total		881,327			962,560

Corporate
Land		1,106,664			1,106,664
Building and improvements		2,502,216			2,502,216
Machinery and equipment		28,627			28,627

		3,637,507			3,637,507
Less: accumulated depreciation		(168,546	)		(149,720	)

Sub-Total		3,468,961			3,487,787

	$	9,228,454		$	9,393,802

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NOTE 7 — INTANGIBLE ASSETS

Intangible assets consist of the following:

	September 30,			December 31,			March 31,			December 31,
	2022			2021			2023			2022
DGSE
Consumer
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		(319,002	)		(269,502	)		(352,002	)		(335,502	)

Subtotal		52,350			101,850			19,350			35,850

ECHG
Commercial
Trademarks (1)		1,483,000			1,483,000			1,483,000			1,483,000
Customer Contracts (1)		1,873,000			1,873,000			1,873,000			1,873,000
Trademarks/Tradenames (2)		114,000			114,000			114,000			114,000
Customer Relationships (2)		345,000			345,000			345,000			345,000
Trademarks/Tradenames (3)		1,272,000			-			1,272,000			1,272,000
Customer Relationships (3)		1,464,000			-			1,464,000			1,464,000
								6,551,000			6,551,000
		6,551,000			3,815,000
Less: accumulated amortization		(1,429,530	)		(892,605	)		(1,757,080	)		(1,593,305	)

Subtotal		5,121,470			2,922,395			4,793,920			4,957,695

Envela
Software development		15,300			-
							$	4,813,270		$	4,993,545
Less: accumulated amortization		-			-

	$	5,189,120		$	3,024,245

(1) Intangibles relate to the Echo Transaction on May 20, 2019.

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

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

The following table outlines the estimated future amortization expense related to intangible assets held as of ~~September 30, 2022:~~March 31, 2023:

	DGSE		ECHG		Envela		Total		Consumer		Commercial		Total

2022 (excluding the nine months ending September 30, 2022)	$	16,500	$	163,775	$	-	$	180,275
2023		30,350		655,100		3,060	$	688,510
2023 (excluding the three months ending March 31, 2023)										13,850		491,325		505,175
2024		5,500		655,100		3,060	$	663,660		5,500		655,100		660,600
2025		-		655,100		3,060	$	658,160		-		655,100		655,100
2026		-		655,100		3,060	$	658,160		-		655,100		655,100
2027										-		655,100		655,100
Thereafter		-		2,337,295		3,060	$	2,340,355		-		1,682,195		1,682,195
	$	52,350	$	5,121,470	$	15,300	$	5,189,120
									$	19,350	$	4,793,920	$	4,813,270

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NOTE 9—8— ACCRUED EXPENSES

Accrued expenses consist of the following:

	September 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
DGSE
Consumer
Accrued interest	$	11,266	$	12,627	$	12,277	$	11,624
Payroll		67,706		131,325		93,548		146,817
Property taxes		179,885		88,046		66,350		115,222
Sales tax		63,229		150,070		59,865		153,039
Other administrative expenss		424		-		30,425		424

Subtotal		322,510		382,068		262,465		427,126

ECHG
Commercial
Accrued interest		7,788		14,547		8,656		8,228
Payroll		162,592		334,431		178,334		336,226
Unvouchered payables - inventory		619,018		461,481		146,533		803,649
Material & shipping costs (COGS)		206,200		78,647
Material & shipping costs - COGS						770,205		229,159
Other accrued expenses		35,761		51,506		11,131		7,392

Subtotal		1,031,359		940,612		1,114,859		1,384,654

Envela
Corporate
Accrued interest		7,375		8,355		7,464		7,543
Payroll		12,589		25,175		12,870		25,179
Professional fees		188,628		220,101		132,431		199,508
Property Tax		65,100		84,920		21,900		87,275
Other administrative expenses		11,961		18,453		1,144		-
Federal Income tax						332,381		-
State income tax		121,287		109,682		192,318		155,309

Subtotal		406,940		466,686		700,508		474,814

	$	1,760,809	$	1,789,366	$	2,077,832	$	2,286,594

NOTE 109 — SEGMENT INFORMATION

As stated in Note 1 – Basis of Presentation, we updated our two reportable segments by renaming the ECHG segment to the “Commercial” segment and the DGSE segment to the “Consumer” segment. The segment name changes did not result in any change to the composition of the Company’s operations and therefore did not result in any change to the historical results. Our operations conducted by each of our segments are more specifically described below.

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

The ~~DGSE~~consumer segment includes Dallas Gold & Silver Exchange, which has six retail stores in the Dallas/Fort Worth Metroplex (“DFW”), and Charleston Gold & Diamond Exchange, which has one retail store in Mt. Pleasant, South Carolina. The ~~DGSE~~consumer segment also ~~includes~~operates the on-line Bullion Express ~~brand and the bullion-trading operation, which operates out of the DGSE stores.~~brand.

The ~~ECHG~~commercial segment includes Echo, ITAD USA, Teladvance, CEX and Avail. These five companies are involved in recycling and the reuse of electronic components.

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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’s~~the consumer and ~~ECHG’s~~the commercial financial results of operations for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:

For The Three Months Ended September 30,

2022

2021

DGSE

ECHG

Consolidated

DGSE

ECHG

Consolidated

Revenue:

Sales

$ 30,427,254

$ 14,770,432

$ 45,197,686

$ 25,482,379

$ 12,198,390

$ 37,680,769

Cost of goods sold

26,677,891

6,664,138

33,342,029

22,422,881

7,147,772

29,570,653

Gross margin

3,749,363

8,106,294

11,855,657

3,059,498

5,050,618

8,110,116

Expenses:

Selling, general and administrative expenses

2,369,588

5,384,114

7,753,702

1,772,034

3,458,439

5,230,473

Depreciation and amortization

103,022

431,942

534,964

98,787

117,389

216,176

Total operating expenses

2,472,610

5,816,056

8,288,666

1,870,821

3,575,828

5,446,649

Operating income

1,276,753

2,290,238

3,566,991

1,188,677

1,474,790

2,663,467

Interest expense

60,619

59,338

119,957

79,563

109,290

188,853

Other income (expense):

Gain on forgiveness of Federal Loan

-

-

-

675,210

992,990

1,668,200

Write-off of notes receivable and accrued interest receivable

-

-

-

-

(949,174 )

(949,174 )
Other income (expense), net

5,957

(71,221 )

(65,264 )

(37,823 )

(22,961 )

(60,784 )

Income before income taxes

1,222,091

2,159,679

3,381,770

1,746,501

1,386,355

3,132,856

Income tax expense

20,243

43,818

64,061

10,288

16,167

26,455

Net income

$ 1,201,848

$ 2,115,861

$ 3,317,709

$ 1,736,213

$ 1,370,188

$ 3,106,401

~~The following separates DGSE’s and ECHG’s financial results of operations for the nine months ended September 30, 2022 and 2021:~~

For The Nine Months Ended September 30,

2022

2021

DGSE

ECHG

Consolidated

DGSE

ECHG

Consolidated

Revenue:

Sales

$ 96,549,253

$ 38,703,249

$ 135,252,502

$ 67,409,204

$ 29,486,012

$ 96,895,216

Cost of goods sold

84,387,844

17,819,967

102,207,811

58,445,075

16,907,871

75,352,946

Gross profit

12,161,409

20,883,282

33,044,691

8,964,129

12,578,141

21,542,270

Expenses:

Selling, general and administrative expenses

6,702,031

14,695,329

21,397,360

5,444,366

8,770,561

14,214,927

Depreciation and amortization

311,419

795,008

1,106,427

293,044

344,263

637,307

Total opeating expenses

7,013,450

15,490,337

22,503,787

5,737,410

9,114,824

14,852,234

Operating income

5,147,959

5,392,945

10,540,904

3,226,719

3,463,317

6,690,036

Interest expense

183,523

180,715

364,238

216,740

328,839

545,579

Other income (expense):

Gain on forgiveness of Federal Loan

-

-

-

675,210

992,990

1,668,200

Write-off of notes receivable and accrued interest receivable

-

-

-

-

(949,174 )

(949,174 )
Other income (expense), net

(71,053 )

(148,216 )

(219,269 )

193,368

300,844

494,212

Income before income taxes

4,893,383

5,064,014

9,957,397

3,878,557

3,479,138

7,357,695

Income tax expense

48,811

95,794

144,605

38,178

51,732

89,910

Net income

$ 4,844,572

$ 4,968,220

$ 9,812,792

$ 3,840,379

$ 3,427,406

$ 7,267,785

~~Table of Contents~~

	For The Three Months Ended March 31,
	2023						2022
	Consumer		Commercial		Consolidated		Consumer			Commercial			Consolidated

Revenue:
Sales	$	36,704,397	$	11,684,643	$	48,389,040	$	35,782,872		$	11,632,226		$	47,415,098
Cost of goods sold		32,719,429		4,259,709		36,979,138		31,559,410			6,144,654			37,704,064

Gross profit		3,984,968		7,424,934		11,409,902		4,223,462			5,487,572			9,711,034

Expenses:
Selling, general and administrative expenses		2,396,025		5,509,278		7,905,303		2,137,949			4,421,806			6,559,755
Depreciation and amortization		98,134		256,217		354,351		106,963			184,984			291,947

		2,494,159		5,765,495		8,259,654		2,244,912			4,606,790			6,851,702

Operating income		1,490,809		1,659,439		3,150,248		1,978,550			880,782			2,859,332

Other income/expense:
Other income (expense)		23,534		187,245		210,779		(27,992	)		(30,584	)		(58,576	)
Interest expense		59,618		57,446		117,064		61,241			61,998			123,239

Income before income taxes		1,454,725		1,789,238		3,243,963		1,889,317			788,200			2,677,517

Income tax expense		317,841		399,805		717,646		13,177			17,115			30,292

Net income	$	1,136,884	$	1,389,433	$	2,526,317	$	1,876,140		$	771,085		$	2,647,225

NOTE 1110 — REVENUE RECOGNITION

Accounting Standards Codification (“ASC ~~606~~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, weto 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.

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The following disaggregation of total revenue is listed by sales category and segment for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:

CONSOLIDATED	Three Months Ended September 30,														Three Months Ended March 31,
	2022							2021							2023							2022
	Revenues		Gross Profit		Margin			Revenues		Gross Profit		Margin			Revenues		Gross Profit		Margin			Revenues		Gross Profit		Margin
DGSE
Consumer
Resale	$	28,172,732	$	3,251,153		11.5	%	$	23,407,095	$	2,645,445		11.3	%	$	33,719,960	$	3,304,932		9.8	%	$	33,677,133	$	3,742,852		11.1	%
Recycled		2,254,522		498,210		22.1	%		2,075,284		414,053		20.0	%		2,984,437		680,036		22.8	%		2,105,739		480,610		22.8	%

Subtotal		30,427,254		3,749,363		12.3	%		25,482,379		3,059,498		12.0	%		36,704,397		3,984,968		10.9	%		35,782,872		4,223,462		11.8	%

ECHG
Commercial
Resale		11,518,168		6,465,386		56.1	%		8,288,951		3,450,652		41.6	%		8,558,090		5,799,126		67.8	%		9,579,857		4,574,268		47.7	%
Recycled		3,252,264		1,640,908		50.5	%		3,909,439		1,599,966		40.9	%		3,126,553		1,625,808		52.0	%		2,052,369		913,304		44.5	%

Subtotal		14,770,432		8,106,294		54.9	%		12,198,390		5,050,618		41.4	%		11,684,643		7,424,934		63.5	%		11,632,226		5,487,572		47.2	%

	$	45,197,686	$	11,855,657		26.2	%	$	37,680,769	$	8,110,116		21.5	%	$	48,389,040	$	11,409,902		23.6	%	$	47,415,098	$	9,711,034		20.5	%

~~The following disaggregation of total~~For the consumer segment, revenue ~~is listed by sales category~~for monetary transactions (i.e., cash and ~~segment for the nine months ended September 30, 2022~~receivables) with dealers and ~~2021:~~

CONSOLIDATED

Nine Months Ended September 30,

2022

2021

Revenues

Gross Profit

Margin

Revenues

Gross Profit

Margin

DGSE

Resale

$ 90,014,891

$ 10,713,959

11.9 %

$ 61,621,574

$ 7,781,229

12.6 %
Recycled

6,534,362

1,447,450

22.2 %

5,787,630

1,182,900

20.4 %

Subtotal

96,549,253

12,161,409

12.6 %

67,409,204

8,964,129

13.3 %

ECHG

Resale

30,200,026

16,606,161

55.0 %

21,625,853

9,082,521

42.0 %
Recycled

8,503,223

4,277,121

50.3 %

7,860,159

3,495,620

44.5 %

Subtotal

38,703,249

20,883,282

54.0 %

29,486,012

12,578,141

42.7 %

$ 135,252,502

$ 33,044,691

24.4 %

$ 96,895,216

$ 21,542,270

22.2 %

~~Table of Contents~~

~~DGSE’s over-the-counter sales with~~ the retail public ~~and wholesale dealers~~ are recognized when the merchandise is delivered, and payment has been made either by immediate payment or through a receivable obligation at one of our over-the-counter retail ~~locations. We also recognize revenue~~stores. Revenue is recognized upon the shipment of goods when retail and wholesale customers have fulfilled their obligation to pay, or promise to pay, through e-commerce or phone sales. ~~We have elected to account for shipping~~Shipping and handling costs are accounted for as fulfillment costs after the customer obtains control of the goods.

Crafted-precious-metal items at the end of their useful lives are sold ~~to a refiner. Since the local refiner is located in the Dallas/Fort Worth area, we deliver the~~for its precious metal ~~to the refiner.~~contained. The metal is ~~melted and~~ assayed to determine the precious metal content, a price is ~~determined from the assay~~agreed upon and payment is made usually ~~in a day or two.~~within two days. Revenue is recognized from the sale once ~~payment~~the performance obligation 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.satisfied.

In limited circumstances, ~~we exchange~~ merchandise is exchanged for similar merchandise and/or monetary consideration with both dealers and retail customers, for which ~~we recognize~~ revenue is recognized in accordance with ~~ASC~~Accounting Standards Codification (“ASC”) 845, Nonmonetary Transactions. When ~~we exchange~~ merchandise is exchanged for similar merchandise and there is no monetary component to the exchange, ~~we do not recognize any revenue.~~there is no revenue recognized. Instead, the basis of the merchandise relinquished becomes the basis of the merchandise received, less any indicated impairment of value of the merchandise relinquished. When ~~we exchange~~ merchandise is exchanged for similar merchandise and there is a monetary component to the exchange, ~~we recognize~~ revenue is recognized to the extent of the monetary assets received ~~and~~that determines the cost of sale based on the ratio of monetary assets received to monetary and non-monetary assets received multiplied by the cost of the assets surrendered.

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The Company offers the option of third-party financing tofor customers wishing to borrow money for the purchase. The customer applies on-line with the ~~financing company~~third party and upon going through the credit check will be approved or denied. If accepted, the customer is allowed to purchase according to the limits set by the ~~financing~~finance company. ~~Once the customer does purchase merchandise, based on their financing agreement, we record and recognize~~Revenue is recognized from the sale ~~at that point, based on~~upon the promise of the financing company to ~~pay by the finance company up to the customer’s approved limit.~~pay.

~~We have a~~Our return ~~policy (money-back guarantee). The~~ policy covers retail ~~transactions involving jewelry, graded rare coins and currency only. Customers~~transactions. In some cases, customers may return ~~jewelry, graded rare coins and currency~~a product purchased within 30 days of the receipt of the items for a full ~~refund as long as the items are returned~~refund. Also, in ~~exactly the same condition as they were delivered. In the case of jewelry, graded rare coins and currency sales on account,~~some cases customers may cancel the sale within 30 days of making a commitment to purchase the items. ~~The receipt of~~Additionally, a ~~deposit and a signed purchase order evidences the commitment. Any~~ customer may return ~~a jewelry~~an item ~~or graded rare coins and currency~~for full refund if they can demonstrate that the item is not authentic, or there was an error in the description of ~~a graded coin or currency~~the piece. Returns are accounted for as a reversal of the original transaction, with the effect of reducing revenues, and cost of sales, and returning the merchandise to inventory. ~~We have~~DGSE has established an allowance for estimated returns ~~related to sales~~ based on our review of historical returns experience and ~~reduced~~reduces our reported revenues and cost of sales accordingly. ~~Our return~~For the three months ended March 31, 2023 and 2022, our allowance ~~as of September 30, 2022 and December 31, 2021~~for returns remained the same at approximately $28,000 for both ~~periods, at approximately $28,000.~~years.

~~ECHG~~A significant amount of revenue stems from sales to two precious metal partners. One partner constitutes 24.5%, and the second partner constitutes 23.7%, of the revenues for the three months ended March 31, 2023. However, the Company believes that the products it sells is marketable to numerous sources at competitive prices.

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

Outright sales are recorded when product is shipped and title transferred. Once the price is established and the terms are agreed to and the product is shipped and title is transferred, the revenue is recognized. The commercial segment has fulfilled its performance obligation with an agreed upon transaction price, payment terms and shipping the product.

We recognize refining revenue when our inventory arrives at the destination port and the performance obligation is satisfied by transferring the control of the promised goods that are identified in the customer contract. The initial invoice is recognized in full when our performance obligation is satisfied, as stated in the first sentence. Under the guidance of ASC 606, an estimate of the variable consideration that are expected to be entitled is included in the transaction price stated at the current precious metal spot price and weight of the precious metal. An adjustment to revenue is made in the period once the underlying weight and any precious metal spot price movement is resolved, which is usually around six (6) weeks. Any adjustment from the resolution of the underlying uncertainty is netted with the settlement due from the original contract.

The commercial segment also provides recycling services according to a Scope of Work (“SOW”). Services are recognized based on the number of units processed by a preset price per unit. Activity reports are produced weekly with the counts and revenue is recognized based on the billing from the weekly reports. Recycling services can be conducted at our facility, or the recycling services can be performed at the client’s facility. The SOW will determine the charges and whether the service will be completed at our facility or at the client’s facility. Payment terms are also dictated in the SOW.

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. Echo and ITAD USA (collectively, the “Echo Entities”) have fulfilled their performance obligation with an agreed upon transaction price, payment terms and shipping the product.

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	·	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 our Invoice within five working days upon the receipt of the Ocean Bill of Lading issued by the Ocean Carrier. Refining revenue from an invoice is recognized in full when our performance obligation is satisfied when the inventory arrives at the destination. 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 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.

	·	Echolso provides recycling services according to a Scope of Work where services are recognized when promised services are rendered. We conduct recycling services at our Echo facility or at a 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~~The new accounting standard introduces a new expected credit losses methodology for estimating allowances for credit losses which is based on expected losses rather than incurred losses. We are required to use a forward-looking expected credit loss methodology for accounts receivable. This new methodology is effective for the fiscal years beginning January 1, 2023. We will record an allowance for doubtful accounts, which is primarily determined by an analysis of our trade receivables ~~aging.~~aging, using the new expected losses methodology. 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~~considered and expected to be uncollectable 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~~The consumer segment had no allowance for doubtful accounts balance as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. Some of ~~ECHG’s~~commercial segment’s customers are on payment terms, and although low risk, occasionally the need ~~arises~~may arise to record an allowance for receivables that are deemed high risk ~~to collect. We established an~~using the new expected loss methodology. The commercial segment’s allowance for ~~estimated uncollectable receivables related to sales based on historical collections. Our allowance~~doubtful accounts, as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 was ~~$75,000~~$0 and ~~$1,582, respectively.~~$51,734.

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. During fiscal 2022, management determined that it was more likely than not the tax asset would be reduced by future taxable income, therefore, the remaining valuation allowance at December 31, 2022, was released. As of March 31, 2023, we had a tax deferred asset of $1,140,002 with $0 offsetting valuation allowance. As of March 31, 2022, the Company had a deferred tax asset of $3,928,134 with an offsetting valuation allowance of $3,928,134, netting the tax asset to $0.

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 ~~do not believe we~~ have not taken a tax position that, if ~~successfully~~ challenged, would have a material effect on the financial statements or the effective tax rate for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

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NOTE 1211 — 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 at the time of the lease signing.~~environment. If we cannot readily determine the discount rate implicit in lease agreements, we utilize our incremental borrowing rate.

The Company has ~~seven~~nine operating leases as of ~~September 30, 2022—~~March 31, 2023—five in ~~the Dallas/Fort Worth Metroplex, one~~DFW, two in Mt. Pleasant, South Carolina and ~~one~~two in Chandler, Arizona. The ~~lease~~leases for ~~DGSE’s~~the consumer segment are: 1) the flagship store located at 13022 Preston Road, Dallas, Texas ~~expires~~expiring on January 31, 2027, with an option to extend the lease for an additional five years, at the prevailing market rate for comparable space in comparable buildings in the ~~vicinity. The lease for DGSE’s~~vicinity; 2) the Grand Prairie, Texas ~~location~~lease which was renewed starting July 1, 2022, expiring June 30, 2027, with an option to extend the lease for an additional five ~~years. The lease~~years; 3) the two leases for ~~DGSE’s~~the Mt. Pleasant, South Carolina location ~~expires~~expiring on April 30, 2025, with no additional renewal ~~options. The~~options; and 4) the lease for ~~DGSE’s~~the Euless, Texas location ~~expires~~expiring June 30, 2025, with an option to extend the lease for an additional five years. The ~~lease~~leases for ~~ECHG’s~~the commercial segment are: 1) the Echo location on W. Belt Line Road, in Carrollton, Texas, ~~expires~~expiring January 31, ~~2026. The~~2026, with an option to extend the lease an additional five years: 2) the lease for ~~ECHG’s~~the Teladvance location, which also houses ITAD USA and CEX, on Realty Road in Carrollton, Texas ~~expires~~expiring January 31, ~~2027. The lease~~2027, with no additional renewal options; and 3) the two leases for ~~ECHG’s~~the Avail location in Chandler, Arizona ~~expires~~expiring on May 31, ~~2025.~~2025, with no additional renewal options. All of the Company’s ~~seven~~nine leases as of ~~September 30, 2022~~March 31, 2023 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 ~~September 30,~~March 31, 2023 and 2022 was $659,616 and ~~2021 was $655,669 and $620,829 respectively. Leasing costs for the nine months ended September 30, 2022 and 2021 was $1,938,392 and $1,516,262,~~$622,863 respectively, comprised of a combination of minimum lease payments and variable lease costs.

As of ~~September 30, 2022, assuming none of the extension options are exercised~~March 31, 2023, the weighted average remaining lease term and weighted average discount rate for operating leases was ~~2.5~~3.3 years and 4.4%, respectively. ~~The remaining lease term and discount rate are being averaged compared to the total leases.~~ For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the Company’s cash paid for operating lease liabilities was ~~$654,471~~$656,520 and ~~$619,584,~~$616,097 respectively. ~~For the nine months ended September 30, 2022 and 2021, the Company’s cash paid for operating lease liabilities was $1,934,791 and $1,496,524, respectively.~~

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Future annual minimum lease payments as of ~~September 30, 2022:~~March 31, 2023:

	Operating			Operating
	Leases			Leases
DGSE
2022 (excluding the nine months ending September 30, 2022)	$	134,498
2023		541,984
Consumer
2023 (excluding the three months ending March 31, 2023)					406,955
2024		552,414			552,414
2025		412,269			434,274
2026 and thereafter		405,114
2026					355,000
2027 and thereafter					50,114

Total minimum lease payments		2,046,279			1,798,757
Less imputed interest		(167,168	)		(149,993	)

DGSE Sub-Total		1,879,111
Consumer Sub-Total					1,648,764

ECHG
2022 (excluding the nine months ending September 30, 2022)		330,753
2023		1,357,381
Commercial
2023 (excluding the three months ending March 31, 2023)					1,018,905
2024		1,396,129			1,396,129
2025		1,321,297			1,321,297
2026 and thereafter		507,780
2026					474,326
2027 and thereafter					33,455

Total minimum lease payments		4,913,340			4,244,112
Less imputed interest		(335,519	)		(251,432	)

ECHG Sub-Total		4,577,821
Commercial Sub-Total					3,992,680

Total		6,456,932			5,641,444

Current portion		1,658,990			1,827,285

	$	4,797,942		$	3,814,159

NOTE 1312 — BASIC AND DILUTED AVERAGE SHARES

A reconciliation of basic and diluted weighted average common shares for the three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ is as follows:

	For the Three Months Ended
	~~September 30,~~March 31,
	~~2022~~2023			~~2021~~

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

~~Table of Contents~~

~~A reconciliation of basic and diluted weighted average common shares for the nine months ended September 30,~~ 2022 ~~and 2021 is as follows:~~

	~~For the Nine Months Ended~~
	~~September 30,~~
	~~2022~~		~~2021~~

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

For the three and nine months ended September 30, 2022 and 2021, there were 15,000 common stock options outstanding and unexercised and no warrants or and Restricted Stock Units (RSUs) outstanding and unexercised.

~~NOTE 14 — LONG-TERM DEBT~~

~~Long-term debt consists of the following:~~

Outstanding Balance

September 30,

December 31,

Current

2022

2021

Interest Rate

Maturity

DGSE

Note payable, Farmers Bank (1)

$ 2,694,427

$ 2,770,729

3.10 %

November 15, 2026

Note payable, Truist Bank (2)

883,231

909,073

3.65 %

July 9, 2030

Note payable, Texas Bank & Trust (3)

460,717

474,009

3.75 %

September 14, 2025

Note payable, Texas Bank & Trust (4)

1,706,637

1,752,446

3.75 %

July 30, 2031

DGSE Sub-Total

5,745,012

5,906,257

ECHG

Note payable, Farmers Bank (1)

6,113,338

6,286,459

3.10 %

November 15, 2026

Line of Credit (5)

-

1,700,000

3.10 %

November 15, 2024

Avail Transaction note payable (6)

1,666,667

2,000,000

0.00 %

April 1, 2025

ECHG Sub-Total

7,780,005

9,986,459

Envela

Note payable, Texas Bank & Trust (7)

2,760,766

2,843,415

3.25 %

November 4, 2025

Sub-Total

16,285,783

18,736,131

Current portion

1,246,083

2,765,794

$ 15,039,700

$ 15,970,337

(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 Company’s Board of Directors (the “Board”). ECHG executed a five-year, $6,925,979 note for the Echo Transaction, amortized over 20 years at a 6% annual interest rate. The interest and principal payment due monthly was $49,646. DGSE executed a five-year, $3,074,021 note to pay off the accounts payable – related party balance to a former Related Party as of May 20, 2019. That promissory note was also amortized over 20 years at a 6% annual interest rate. The interest and principal payment due monthly on the note for DGSE was $22,203. On November 23, 2021, the ECHG and DGSE notes, with remaining principal balances of $6,309,962 and $2,781,087, respectively, were refinanced by Farmers State Bank of Oakley, Kansas with annual interest rates of 3.1%. (the “FSB ECHG Loan” and “FSB DGSE Loan”, respectively). The FSB ECHG Loan and FSB DGSE Loan have monthly interest and principal payments of $35,292 and $15,555, respectively.

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For the three months ended March 31, 2023 and 2022, there was a total of 15,000 common stock options, warrants, and Restricted Stock Units (RSUs) unexercised, respectively. For the three months ended March 31, 2023 and 2022, there were no anti-dilutive shares.

On March 14, 2023, a stock repurchase program was unanimously approved by the Company’s Board of Directors, with gives management authorization to purchase up to one million (1,000,000) shares of the Company’s stock, of a per-share price not to exceed $9, on the open market.

NOTE 13 — LONG-TERM DEBT

Long-term debt consists of the following:

Outstanding Balance

March 31,

December 31,

Current

2023

2022

Interest Rate

Maturity

Consumer

Note payable, Farmers Bank (1)

2,642,199

2,668,527

3.10%

November 15, 2026

Note payable, Truist Bank (2)

865,437

874,418

3.65%

July 9, 2030

Note payable, Texas Bank & Trust (3)

451,569

456,187

3.75%

September 14, 2025

Note payable, Texas Bank & Trust (4)

1,675,086

1,691,020

3.25%

July 30, 2031

Consumer Sub-Total

5,634,291

5,690,152

��

Commercial

Note payable, Farmers Bank (1)

5,994,831

6,054,565

3.10%

November 15, 2026

Line of Credit (5)

3.10%

November 15, 2024

Avail Transaction note (6)

1,333,333

1,500,000

0.00%

April 1, 2025

Commercial Sub-Total

7,328,164

7,554,565

Corporate

Note payable, Texas Bank & Trust (7)

2,704,143

2,732,688

3.25%

Novemeber 4, 2025

Sub-Total

15,666,598

15,977,405

Current portion

1,246,961

1,250,702

14,419,637

14,726,703

(1) On November 23, 2021, Farmers State Bank of Oakley, Kansas (“FSB”) refinanced prior related party notes held by the consumer segment and the commercial segment. The commercial segment note was refinanced with a remaining and outstanding balance of $6,309,962, is a five-year promissory note amortized over 20 years at 3.1% annual interest rate. The note has monthly principal and interest payments of $35,292. The consumer segment note was refinanced with a remaining and outstanding balance of $2,781,087, is a five-year promissory note amortized over 20 years at 3.1% annual interest rate. The note has monthly principal and interest payments of $15,555.

(2) On July 9, 2020, ~~DGSE~~the consumer segment closed the purchase of a retail building located at 610 E. Round Grove Road in Lewisville, Texas for ~~$1,195,000.~~$1.195 million. The purchase was partly financed through a $956,000, ~~10 year~~ten-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,~~the consumer segment closed on the purchase of a retail building located at 1106 W. Northwest Highway in Grapevine, Texas for $620,000. The purchase was partly financed through a $496,000, five-year loan, ~~(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.

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(4) On July 30, 2021, ~~9166 Gaylord Holdings, LLC, a wholly owned subsidiary of DGSE,~~the consumer segment closed the purchase of a new retail building located at 9166 Gaylord Parkway in Frisco, Texas for $2,215,500. The purchase was partly financed through a $1,772,000, five-year loan (the “TB&T Frisco Loan”), bearing an annual interest rate of 3.75%, amortized over 20 years, payable to Texas Bank and Trust. The note has monthly interest and principal payments of $10,509.

(5) On November 23, 2021, the Company secured a 36-month line of credit from ~~Farmers State Bank of Oakley, Kansas (“~~FSB ~~Facility”)~~ for $3,500,000 at a 3.1% annual interest rate. As of March 31, 2023 and December 31, 2022, the outstanding balance of the line of credit was $0.

(6) On October 29, 2021, ~~ECHG~~the commercial segment entered into the Avail Transaction to purchase all of the assets, liabilities and rights and interests of Avail AZ, for ~~$4,500,000.~~$4.5 million. The purchase was facilitated by an initial payment of ~~$2,500,000~~$2.5 million at closing, and the remaining ~~$2,000,000 represented by the Avail Installment Note~~$2.0 million to be paid out by 12 quarterly payments starting April 1, 2022, of $166,667 each. The ~~Avail~~ Installment ~~Note~~note payable for the Avail Transaction ~~does not bear interest but the purchase price~~ imputed at ~~an annual~~ 3.1% ~~interest.~~

(7) On November 4, 2020, 1901 Gateway Holdings, LLC, a wholly owned subsidiary of ~~the Company,~~Envela Corporation, closed on the purchase of anits new corporate office building located at 1901 Gateway Drive, Irving, Texas for $3.521 million. The building was partially financed through a ~~$2,960,000, 5-year~~$2.96 million, five-year loan, ~~(the “TB&T Irving Loan”),~~ bearing an ~~annual~~ 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.

Future scheduled principal payments of our notes payable ~~and notes payable, related party,~~ as of ~~September 30, 2022~~March 31, 2023 are as follows:

Note payable, Farmers State Bank - DGSE

Year Ending December 31,

Amount

2022 (excluding the nine months ended September 30, 2022)

$ 25,908

2023

105,428

2024

108,743

2025

112,162

2026

2,342,186

Subtotal

$ 2,694,427

CONSUMER SEGMENT

Note payable, Farmers State Bank

Year Ending December 31,	Amount

2023 (excluding the three months ended March 31, 2023)	$	79,098
2024		108,743
2025		112,162
2026		2,342,196

Subtotal	$	2,642,199

Note payable, Truist Bank

Year Ending December 31,	Amount

2023 (excluding the three months ended March 31, 2023)	$	27,006
2024		37,342
2025		38,748
2026		40,206
2027		42,081
Thereafter		680,054

Subtotal	$	865,437

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Note payable, Truist Bank - DGSE
Note payable, Texas Bank & Trust

Year Ending December 31,	Amount		Amount

2022 (excluding the nine months ended September 30, 2022)	$	8,813
2023		35,988
2023 (excluding the three months ended March 31, 2023)			$	13,885
2024				19,209
2025				418,475

Subtotal			$	451,569

Note payable, Texas Bank & Trust

Year Ending December 31,				Amount

2023 (excluding the three months ended March 31, 2023)			$	47,852
2024		37,342		66,225
2025		38,748		75,219
2026		40,206		78,741
2027				80,717
Thereafter		722,134		1,326,332

Subtotal	$	883,231	$	1,675,086

Note payable, Texas Bank & Trust - DGSE

Year Ending December 31,	Amount

2022 (excluding the nine months ended September 30, 2022)	$	4,531
2023		18,503
2024		19,209
2025		418,474
Subtotal	$	460,717

Note payable, Texas Bank & Trust - DGSE

Year Ending December 31,	Amount

2022 (excluding the nine months ended September 30, 2022)	$	17,595
2023		72,291
2024		74,676
2025		77,139
2026		79,432
Thereafter		1,385,504
Subtotal	$	1,706,637

Note payable, Farmers Bank - ECHG

Year Ending December 31,	Amount

2022 (excluding the nine months ended September 30, 2022)	$	58,779
2023		239,204
2024		246,725
2025		254,484
2026		5,314,146
Subtotal	$	6,113,338

COMMERCIAL SEGMENT

Note payable, Farmers Bank

Year Ending December 31,	Amount

2023 (excluding the three months ended March 31, 2023)	$	179,463
2024		246,725
2025		254,483
2026		5,314,160

Subtotal	$	5,994,831

Note payable, Avail Transaction

Year Ending December 31,	Amount

2023 (excluding the three months ended March 31, 2023)	$	500,000
2024		666,667
2025		166,666

Subtotal	$	1,333,333

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Note payable - Avail Transaction

Year Ending December 31,

Amount

2022 (excluding the nine months ended September 30, 2022)

$ 166,667

2023

666,668

2024

666,668

2025

166,664

Subtotal

$ 1,666,667

Note payable, Texas Bank & Trust - Envela

Year Ending December 31,

Amount

2022 (excluding the nine months ended September 30, 2022)

$ 27,589

2023

112,670

2024

116,459

2025

2,504,048

Subtotal

$ 2,760,766

$ 16,285,783

CORPORATE

Note payable, Texas Bank & Trust - Envela

Year Ending December 31,	Amount

2023 (excluding the three months ended March 31, 2023)	$	84,881
2024		116,501
2025		2,502,761

Subtotal		2,704,143

	$	15,666,598

Future scheduled aggregate amount of principal payments and maturities of our notes payable as of ~~September 30, 2022~~March 31, 2023 are as follows:

	Scheduled						Scheduled
	Principal		Loan				Principal		Loan
Scheduled Principal Payments and Maturities by Year:	Payments		Maturities		Total		Payments		Maturities		Total
2022 (excluding the nine months ended September 30, 2022)	$	309,882	$	-	$	309,882
2023		1,250,752		-		1,250,752
2023 (excluding the three months ended March 31, 2023)								932,185		-		932,185
2024		1,269,822		-		1,269,822		1,261,412		-		1,261,412
2025		595,237		2,976,482		3,571,719		772,385		2,796,129		3,568,514
2026		434,080		7,341,890		7,775,970		464,900		7,310,403		7,775,303
2027 and Thereafter		560,656		1,546,982		2,107,638
2027								122,798		-		122,798
Thereafter								428,266		1,578,120		2,006,386

Total	$	4,420,429	$	11,865,354	$	16,285,783	$	3,981,946	$	11,684,652	$	15,666,598

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NOTE 1514 — 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 three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

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NOTE 1615 — 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~~(“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.~~shareholders. 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~~Envela’s Board reviews all Related Party transactions at least annually to determine if it is in the Board’s best ~~interest~~interests and the best interests of the ~~Company and the~~ Company’s ~~stockholders~~shareholders to continue, modify, or terminate any of the Related Party transactions. Envela’s Related Person Transaction Policy is available for review in its entirety under the “Investors” menu of the Company’s corporate relations website at www.envela.com.

NOTE 16 — SUBSEQUENT EVENTS

On April 3, 2023, by means of an auction, the consumer segment placed under contract a stand-alone retail building in Phoenix, Arizona, for $1.2 million as part of their expansion into other markets. The building has approximately 6,000 square feet and we are expecting to close the purchase by Thursday, May 20, 2019, in connection with the Echo Transaction, the Company entered into two loan agreements with John R. Loftus, the Company’s CEO, President and Chairman of the Board. ECHG executed a five-year, $6,925,979 note for the Echo Transaction, amortized over 20 years at a 6% annual interest rate. The interest and principal payment due monthly was $49,646. DGSE executed a five-year, $3,074,021 note to pay off the accounts payable – related party balance to a former Related Party as of May 20, 2019. That promissory note was also amortized over 20 years at a 6% annual interest rate. The interest and principal payment due monthly on the note for DGSE was $22,203. Both notes were being serviced by operational cash flow. On November 23, 2021, both notes were refinanced by Farmers State Bank of Oakley, Kansas through the FSB ECHG Loan and FSB DGSE Loan. For the three months ended September 30, 2022 and 2021, the Company paid Mr. Loftus $0 and $157,366, respectively, in interest on the Company’s notes payable, related party. For the nine months ended September 30, 2022 and 2021, the Company paid Mr. Loftus $0 and $442,719, respectively, in interest on the Company’s notes payable, related party.4, 2023.

NOTE 17 — CONTINGENCIES

~~COVID-19 continues to adversely affect global economic business conditions, including but not limited to contributing to surging~~Surging inflation and supply chain interruptions ~~which also~~ continue to adversely affect global economic business conditions. Future sales on products like ours could decline or fluctuate due to increased or fluctuating commodities prices, particularly gold. The Federal Reserve has ~~recently stated~~continued raising interest rates to combat inflation and restore price stability and it is expected that rates will continue to rise ~~throughout the remainder of 2022.~~at a slower and more deliberate pace through fiscal 2023. Although we are continuing to monitor and assess the economic effects of ~~the COVID-19 pandemic,~~ inflation levels and supply chain interruptions, ~~as well as the economic effects of the foregoing,~~ the ultimate impact is highly uncertain and subject to change. In addition, the economic effects of the foregoing are subject to, among other things, the effect of government responses on our operations.

The global tension caused by the conflict between Russia and Ukraine has upset the stability within the region of the former Soviet era block. This could lead to further volatility in global energy and other industries that could negatively impact our operations. The U.S. government has imposed sanctions and export controls against Russia and Russian interests and threatened additional sanctions and controls, which have impacted global supply chains. The impact of these measures, as well as other measures taken, as it concerns our operations is currently unknown.

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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”~~”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 ~~September 30, 2022~~March 31, 2023 (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 ~~2021~~2022 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 two recommerce business segments represented by ~~its two direct subsidiaries.~~customer designations. The consumer segment, formerly known as the DGSE segment, focuses on the recommercialization of luxury hard assets, and the commercial segment formerly known as the ECHG segment, focuses on the recommercialization of business IT equipment and ~~consumer~~ electronic devices.

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

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~~DGSE~~Consumer Segment Business Overview

~~DGSE~~The consumer segment is headquartered in Dallas, Texas and 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~~The Company wholesales and retails these items through its Charleston Gold & Diamond Exchange and Dallas Gold & Silver Exchange operations. ~~DGSE has~~Dallas Gold & Silver Exchange and Charleston Gold & Diamond Exchange have specialized in buying and selling jewelry for almost 50 years, making our expert staff among the best in the business.

~~DGSE~~Dallas Gold & Silver Exchange also maintains a number of related operations, on-site jewelry and watch repair and restoration at its Dallas flagship location, and design of custom bridal and fashion jewelry. In addition, ~~DGSE~~it also has a precious-metal bullion-trading operation that buys and sells all forms of gold, silver, platinum and palladium products, including United States and other government-issue coins, private-mint medallions, art bars and trade unit bars.

For additional information regarding ~~DGSE,~~the consumer segment, see “Item 1. Business - Operating Segments - DGSE Segment.” in the Company’s ~~2021~~2022 Annual Report.

~~DGSE~~Consumer Segment Recommerce Activities

We operate a sustainable marketplace for preowned luxury goods. We buy and sell coins, diamonds, jewelry, and related accessories and other merchandise. Our ability to offer quality pre-owned goods at prices significantly lower than original retail prices attracts value-conscious customers. ~~DGSE~~The consumer segment 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 us. 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.

~~DGSE~~Consumer Segment Precious Metals Pricing and Business Impact

We are exposed to various market risks. Market risk is the potential loss arising from the adverse changes in market prices and rates. The nature of ~~DGSE’s~~the consumer operations results in exposure to fluctuations in commodity prices, specifically diamonds, platinum, gold and silver. We do not currently use derivatives to hedge these risks.

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. Our retail sales and gross margin could be materially impacted if prices of diamonds, platinum, gold, or silver rise so significantly that our consumers’ behavior changes or if price increases cannot be passed onto our customers.

Because ~~DGSE~~the consumer segment buys and resells precious metals, it is impacted by fluctuations and changes in precious-metal pricing which rises and falls based upon global supply and demand dynamics, with the greatest impact on us relating to gold as it represents a significant portion of the precious-metal in which we trade. Such fluctuations, particularly with respect to gold, which accounts for a majority of ~~DGSE’s~~our merchandise costs, can have a significant impact on its earnings and cash availability.

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We continue to monitor ~~additional potential impacts of COVID-19 and other macroeconomic factors~~the economic impact on our ~~business, such as~~operations from surging inflation and the conflict in Ukraine. Uncertainties exist that could ~~continue to impact~~affect our operations or cash flows in the future, such as ~~potential resurgence of COVID-19, further pricing and~~continued inflationary environmental changes (including, but not limited to, labor, materials, and advertising costs). The Company’s ability to recruit and retain qualified team members, organized retail crime, or the consumers’ ability to spend on discretionary categories.

~~DGSE~~Consumer Segment Growth and Expansion

Our continued strategy will be to expand the number of locations we operate through opening new (“de novo”) locations in both current markets ~~of Dallas/Fort Worth, Texas~~within DFW and ~~Mt. Pleasant,~~ South ~~Carolina and potential new markets.~~Carolina. The Company expects to soon expand into Arizona, see Note 16 – Subsequent Events, to these interim condensed consolidated financial statements. 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 the potential purchase of additional ~~properties by DGSE.~~properties.

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~~ECHG~~Commercial Segment Business Overview

~~ECHG owns and~~The commercial segment operates Echo, ITAD USA, Teladvance, CEX and Avail, 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, CEX and Avail operates as value-added resellers 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 offers its customers the ability to further offer their customers the ability to upgrade their old phones through a trade-in program supported by Teladvance. Like ~~DGSE, ECHG~~the consumer segment, the commercial segment also maintains relationships with refiners for which it sells extracted valuable materials from electronics and IT equipment deemed unsuitable for retail or wholesale customers.

~~ECHG~~Commercial Segment Recommerce Activities

A portion of ~~ECHG’s~~the commercial 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 and supply limitations.

~~ECHG~~Commercial Segment Metals Pricing and Business Impact

~~ECHG’s~~The commercial 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.~~ As discussed below, ~~ECHG has~~we have seen a recent decrease of recycled items, which we believe is primarily due to the supply chain problems downstream with our customers.

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~~ECHG~~Commercial Segment Growth and Expansion

~~ECHG’s~~The commercial strategy is to expand both organically and through acquisitions. As an organization, ~~ECHG strives~~we strive to deliver value through organic growth, high customer loyalty and retention as well as strategic acquisitions. ~~ECHG is~~We are committed to continuous innovation. Many of ~~ECHG’s~~our clients have made commitments to going carbon neutral over the next few years and ~~ECHG sees~~we see the potential to further expand key relationships as ~~it partners~~we partner 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~~commercially we believe our organic strategy will ultimately drive strong financial performance, including cash flow to support our acquisition strategy. ~~ECHG’s~~Commercial’s business strategy has always included pursuing synergistic acquisitions, and ~~ECHG’s plans~~we plan to continue to expand ~~its~~the business by making strategic acquisitions and regularly seeking suitable acquisition targets to enhance its growth.

For additional information regarding ~~ECHG,~~the commercial segment, see “Item 1. Business—Operating Segments—ECHG Segment.” in the Company’s ~~2021~~2022 Annual Report.

~~COVID-19 and~~ Economic Conditions

The COVID-19 pandemic continues to affect the U.S. and global economies, and as disclosed in our 2021 Annual Report, the COVID-19 pandemic also affected our business in a variety of ways beginning in the second quarter of fiscal 2020, continuing through fiscal 2021 and fiscal 2022.

~~The COVID-19 pandemic, surging~~Surging inflation, supply chain disruptions and the war in Ukraine have affected the recommerce business in unpredictable ways. There have been fewer customers raising money by selling items. For more information, see Note 17 to ~~our~~these interim condensed consolidated financial statements.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting (“U.S. GAAP”) principles. The preparation of these financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material.

While our significant accounting policies are more fully described in “Note 1 — Accounting Policies and Nature of Operations” in the Company’s 2022 Annual Report, we believe that the accounting estimates discussed below relate to the more significant areas involving management’s judgments and estimates.

Inventories

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

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The Echo inventory principally includes processed and unprocessed electronic scrap materials. The value of the material is derived from recycling the precious and other scrap metals included in the scrap. The processed and unprocessed materials are carried at the lower of the average cost of the material during the month of purchase or NRV. The in-transit material is carried at lower of cost or NRV using the retail method. Under the retail method the valuation of the inventory at cost and the resulting gross margins are calculated by applying a cost to retail ratio to the retail value of the inventory.

For the three months ended March 31, 2023, we have not identified critical accounting estimates that involve a significant level of estimation uncertainty and would have a material impact on our results. Refer to our significant accounting policies are more fully described in Note 3 to these interim condensed consolidated financial statements.

Recent Accounting Pronouncements

See Note 3- Accounting Policies and Estimates, to these interim condensed consolidated financial statements for recently adopted accounting pronouncements.

Use of Non-U.S. GAAP Financial Measures

In this management’s discussion and analysis, we use supplemental measures of our performance, which are derived from our interim consolidated financial information, but which are not presented in our interim consolidated financial statements prepared in accordance with U.S. GAAP. We believe that providing these non-U.S. GAAP financial measures adds a meaningful presentation of our operating and financial performance. See the reconciliation of net income to EBITDA (defined below), in Non-U.S. GAAP Financial Measures below.

Non-U.S. GAAP Financial Measures

EBITDA is a key performance measure that our management uses to assess our operating performance. Because EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure as an overall assessment of our performance, to evaluate the effectiveness of our business strategies and for business planning purposes. EBITDA may not be comparable to similarly titled metrics of other companies. EBITDA means earnings before interest expense, other (income) expense, net, income tax expense, and depreciation and amortization. EBITDA is a non-U.S. GAAP measure and should not be considered as an alternative to the presentation of net income or any other measure of financial performance calculated and presented in accordance with U.S. GAAP.

The following table provides a reconciliation of net income to EBITDA:

	For the three months Ended March 31,
	2023									2022
	Consumer			Commercial			Consolidated			Consumer		Commercial		Consolidated

EBITDA Reconciliation:
Net Income	$	1,136,884		$	1,389,433		$	2,526,317		$	1,876,140	$	771,085	$	2,647,225
Add (deduct):
Depreciation and amortization		98,134			256,217			354,351			106,963		184,984		291,947
Other (income) expense		(23,534	)		(187,245	)		(210,779	)		27,992		30,584		58,576
Interest expense		59,618			57,446			117,064			61,241		61,998		123,239
Income tax expense		317,841			399,805			717,646			13,177		17,115		30,292

EBITDA	$	1,588,943		$	1,915,656		$	3,504,599		$	2,085,513	$	1,065,766	$	3,151,279

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Results of Operations

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

CONSOLIDATED	Three Months Ended March 31,
	2023							2022
	Revenues		Gross Profit		Margin			Revenues		Gross Profit		Margin
Consumer
Resale	$	33,719,960	$	3,304,932		9.8	%	$	33,677,133	$	3,742,852		11.1	%
Recycled		2,984,437		680,036		22.8	%		2,105,739		480,610		22.8	%

Subtotal		36,704,397		3,984,968		10.9	%		35,782,872		4,223,462		11.8	%

Commercial
Resale		8,558,090		5,799,126		67.8	%		9,579,857		4,574,268		47.7	%
Recycled		3,126,553		1,625,808		52.0	%		2,052,369		913,304		44.5	%

Subtotal		11,684,643		7,424,934		63.5	%		11,632,226		5,487,572		47.2	%

	$	48,389,040	$	11,409,902		23.6	%	$	47,415,098	$	9,711,034		20.5	%

Comparison of three months ended March 31, 2023 and 2022

Resale Revenue

	Three Months Ended March 31,				Change
	2023		2022		Amount			%
Resale Revenue
Consumer	$	33,719,960	$	33,677,133	$	42,827			0	%
Commercial	$	8,558,090	$	9,579,857	$	(1,021,767	)		-11	%

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~~The full extent and duration of~~Resale revenue related to the impact of the COVID-19 pandemic, surging inflation, supply chain disruptions and the war in Ukraine 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.

~~Critical Accounting Policies and Estimates~~

~~For a discussion of critical accounting policies, see “Note 1 – Accounting Policies and Nature of Operations” in the Company’s 2021 Annual Report.~~

~~Results of Operations~~

~~General~~

~~The following disaggregation of total revenue is listed~~consumer segment increased by ~~sales category and segment for~~$42,827, or 0.13% during the three months ended ~~September 30, 2022~~March 31, 2023, to $33,719,960, as compared to $33,677,133 during the same period in 2022. Resale revenue, such as bullion, jewelry, watches, and ~~2021:~~rare coins, increased slightly during the period.

CONSOLIDATED

Three Months Ended September 30,

2022

2021

Revenues

Gross Profit

Margin

Revenues

Gross Profit

Margin

DGSE

Resale

$ 28,172,732

$ 3,251,153

11.5 %

$ 23,407,095

$ 2,645,445

11.3 %
Recycled

2,254,522

498,210

22.1 %

2,075,284

414,053

20.0 %

Subtotal

30,427,254

3,749,363

12.3 %

25,482,379

3,059,498

12.0 %

ECHG

Resale

11,518,168

6,465,386

56.1 %

8,288,951

3,450,652

41.6 %
Recycled

3,252,264

1,640,908

50.5 %

3,909,439

1,599,966

40.9 %

Subtotal

14,770,432

8,106,294

54.9 %

12,198,390

5,050,618

41.4 %

$ 45,197,686

$ 11,855,657

26.2 %

$ 37,680,769

$ 8,110,116

21.5 %

Resale revenue related to the commercial segment decreased by $1,021,767, or 11%, during the three months ended March 31, 2023, to $8,558,090, as compared to $9,579,857 during the same period in 2022. Resale revenue decreased primarily due to supply chain issues the Company experienced during the three months ending March 31, 2023.

Recycled Revenue

	Three Months Ended March 31,				Change
	2023		2022		Amount		%
Recycled Revenue
Consumer	$	2,984,437	$	2,105,739	$	878,698		42	%
Commercial	$	3,126,553	$	2,052,369	$	1,074,184		52	%

Recycled revenue related to the consumer segment increased by $878,698, or 42%, during the three months ended March 31, 2023, to $2,984,437, as compared to $2,105,739 during the same period in 2022. Recycled revenue, such as bullion, jewelry, watches, and rare coins, increased primarily during the period ending March 31, 2023 due to increased purchases of non-retail precious metals to be recycled instead of being sold to retail consumers.

Recycled revenue related to the commercial segment increased by $1,074,184, or 52%, during the three months ended March 31, 2023, to $3,126,553, as compared to $2,052,369 during the same period in 2022. Recycled revenue increased primarily due to an increase of electronic material to be recycled from material not suitable to resale to commercial customers during the three months ending March 31, 2023.

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~~The following disaggregation of total revenue is listed by sales category and segment for the nine months ended September 30, 2022 and 2021:~~Gross Profit - Resale

	Three Months Ended March 31,				Change
	2023		2022		Amount			%
Gross Profit - Resale
Consumer	$	3,304,932	$	3,742,852	$	(437,920	)		-12	%
Commercial	$	5,799,126	$	4,574,268	$	1,224,858			27	%

~~Three Months Ended September 30, 2022 as compared~~Resale gross profit related to the ~~Three Months Ended September 30, 2021~~

~~Revenue.~~ Revenue related to DGSE’s continuing operations increased by $4,944,875, or 19.4%, during the three months ended September 30, 2022, to $30,427,254, as compared to revenue of $25,482,379 during the same period in 2021. Resale revenue, such as bullion, jewelry, watches and rare coins, increased by $4,765,637, or 20.4%, during the three months ended September 30, 2022, to $28,172,732 as compared to resale revenue of $23,407,095 during the same period in 2021. Recycled-material sales increased by $179,238, 8.6% to $2,254,522 for the three months ended September 30, 2022, as compared to recycled-material sales of $2,075,284, for the three months ended September 30, 2021. Resale revenue for the DGSE segment increased for the three months ended September 30, 2022, when compared to the same periods in the previous fiscal year. The increases in net sales were primarily due to year-over-year growth in store count, as well as increases in comparable store sales. Recycle revenue increased slightly for the three months ended September 30, 2022, when compared to the same periods in the previous fiscal year, which was primarily due to year-over-year growth in store count.

~~Revenue related to ECHG’s continuing~~consumer operations for the three months ended ~~September 30, 2022 increased~~March 31, 2023, decreased by ~~$2,572,042,~~$437,920, or ~~21.1%~~12%, to ~~$14,770,432,~~$3,304,932, as compared to ~~revenue~~resale gross profit of ~~$12,198,390~~$3,752,852 during the same period in ~~2021. Resale revenue increased by $3,229,217, or 39.0%,~~2022. The decrease in resale gross profit was due primarily to ~~$11,518,168,~~the need to purchase retail inventory following the 2022 Christmas season; therefore, in connection with inflationary pressures and rising prices of metals, there was an increase in purchase prices for the three months ended ~~September 30, 2022,~~March 31, 2023.

Resale gross profit related to the commercial operations for the three months ended March 31, 2023, increased by $1,224,858, or 27%, to $5,799,126, as compared to ~~revenue~~resale gross profit of ~~$8,288,951~~$4,574,268 during the same period in 2022. The increase in resale gross profit was primarily due to increased sales prices on material sold.

Gross Profit - Recycled

	Three Months Ended March 31,				Change
	2023		2022		Amount		%
Gross Profit - Recycled
Consumer	$	680,036	$	480,610	$	199,426		41	%
Commercial	$	1,625,808	$	913,304	$	712,504		78	%

Recycled gross profit related to the consumer operations for the three months ended March 31, 2023, increased by $199,426, or 41%, to $680,036, as compared to gross profit of $480,610 during the same period in 2022. The increase in recycled gross profit was due primarily to 42% increase in recycled sales during the three months ended September 30, 2021. Recycled sales decreased by $657,175, or 16.8%, to $3,252,264 for the three months ended September 30, 2022, as compared to recycled sales of $3,909,439 for the three months ended September 30, 2021. Revenue increased for resale items for the three months ended September 30, 2022,March 31, 2023 as compared to the three months ended September 30, 2021, was mainly due to the increased revenue from the Avail Transaction on October 29, 2021. The decrease of recycled items for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, was primarily due to a shifting of product mix.

The Company has had no layoffs to-date or terminations due to the COVID-19 pandemic, and we continue to exercise caution concerning any variants of COVID-19 that may arise. We believe the Company continues to operate at full strength and intend to take measures to keep our employees safe where possible.

~~Gross Profit.~~ Gross profit related to DGSE’s operations for the three months ended September 30, 2022, increased by $689,865, or 22.5%, to $3,749,363 as compared to gross profit of $3,059,498 during the same period in 2021. Resale gross profit increased by $605,708, or 22.9%, to $3,251,153 for the three month ended September 30, 2022, as compared to resale gross profit of $2,645,445 during the three months ended September 30, 2021. Recycled gross profit increased by $84,157, or 20.3%, to $498,210 for the three months ended September 30, 2022, as compared to recycled gross profit of $414,053 during the three months ended September 30, 2021. The increase in resale and recycled gross profit for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021 was primarily due to an increase in store traffic compared to the same period last year.March 31, 2022.

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~~Gross~~Recycled gross profit related to ~~ECHG~~the commercial operations for the three months ended ~~September 30, 2022~~March 31, 2023, increased by ~~$3,055,676,~~$712,504, or ~~60.5%~~78%, to ~~$8,106,294~~$1,625,808, as compared to gross profit of ~~$5,050,618~~$913,304 during the same period in ~~2021. Gross~~2022. The increase in recycled gross profit ~~for resale revenue~~was due primarily to 52% increase in recycled sales during the three months ended March 31, 2023 and an increase in margin percentage to 52% for the three months ended ~~September 30, 2022 increased by $3,014,734, or 87.4%, to $6,465,386,~~March 31, 2023, as compared to ~~gross profit~~44%, for ~~resale revenue $3,450,652~~the three months ended March 31, 2022.

	For The Three Months Ended March 31,
	2023						2022
	Consumer		Commercial		Consolidated		Consumer			Commercial			Consolidated

Revenue:
Sales	$	36,704,397	$	11,684,643	$	48,389,040	$	35,782,872		$	11,632,226		$	47,415,098
Cost of goods sold		32,719,429		4,259,709		36,979,138		31,559,410			6,144,654			37,704,064

Gross profit		3,984,968		7,424,934		11,409,902		4,223,462			5,487,572			9,711,034

Expenses:
Selling, general and administrative expenses		2,396,025		5,509,278		7,905,303		2,137,949			4,421,806			6,559,755
Depreciation and amortization		98,134		256,217		354,351		106,963			184,984			291,947

		2,494,159		5,765,495		8,259,654		2,244,912			4,606,790			6,851,702

Operating income		1,490,809		1,659,439		3,150,248		1,978,550			880,782			2,859,332

Other income/expense:
Other income (expense)		23,534		187,245		210,779		(27,992	)		(30,584	)		(58,576	)
Interest expense		59,618		57,446		117,064		61,241			61,998			123,239

Income before income taxes		1,454,725		1,789,238		3,243,963		1,889,317			788,200			2,677,517

Income tax expense		317,841		399,805		717,646		13,177			17,115			30,292

Net income	$	1,136,884	$	1,389,433	$	2,526,317	$	1,876,140		$	771,085		$	2,647,225

Selling, General and Administrative

	Three Months Ended March 31,				Change
	2023		2022		Amount		%
Selling, General and Administrative
Consumer	$	2,396,026	$	2,137,949	$	258,077		12	%
Commercial	$	5,509,278	$	4,421,806	$	1,087,472		25	%

Selling, General and Administrative Expenses, for the consumer segment, for the three months ended March 31, 2023, increased by $258,077, or 12%, to $2,396,026, as compared to $2,137,949 during the same period in ~~2021. Gross profit for recycled sales for~~2022. The increase was primarily due to increased expenses related to expanding our footprint into Arizona. During the three months ended ~~September 30,~~March 31, 2022, the corporate building overhead expenses were classified as other expenses. Starting January 1, 2023, those expenses have been classified as operating expenses within selling, general and administrative expenses.

Selling, General and Administrative Expenses, for the commercial segment, for the three months ended March 31, 2023, increased ~~$40,942,~~by $1,087,472, or ~~2.6%~~25%, to ~~$1,640,908,~~$5,509,278, as compared to ~~gross profit for recycled sales of $1,599,966,~~$4,421,806 during the same period in ~~2021.~~2022. The ~~gross profit~~ increase ~~for~~was primarily due to increased expenses related to expanding the ~~resale and recycled items for~~commercial business by increasing the infrastructure. During the three months ended ~~September 30,~~March 31, 2022, the corporate building overhead expenses were classified as ~~compared to the three months ended September 30, 2021 primarily benefiting from the higher volumes~~other expenses. Starting January 1, 2023, those expenses have been classified as operating expenses within selling, general and ~~an improved product mix with higher pricing power.~~administrative expenses.

~~Selling, General and Administrative Expenses.~~ For the three months ended September 30, 2022, SG&A expenses for DGSE increased by $597,554, or 33.7%, to $2,369,588, as compared to SG&A expenses of $1,772,034 during the same period in 2021. The increase in SG&A expenses was driven primarily by increased corporate overhead expenses, mostly related to future growth opportunities, and investments in our technology infrastructure as we continue to invest in our business. Additionally, due to higher advertising expenses and an increase in salary expense for our retail employees due to the growth in our store count.

For the three months ended September 30, 2022, SG&A expenses for ECHG increased by $1,925,675 or 55.7%, to $5,384,114, as compared to SG&A expenses of $3,458,439 during the same period in 2021. The growth in SG&A was primarily due to the Avail Recovery Solutions acquisition.

Depreciation and Amortization. For the three months ended September 30, 2022, depreciation and amortization expense for DGSE was $103,022, as compared to an expense of $98,787 for the same period in 2021, an increase of $4,235, or 4.3%. The increase of $4,235 from the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 is primarily due to the depreciation of the new retail building located in Frisco, Texas.

For the three months ended September 30, 2022, depreciation and amortization expense for ECHG was $431,942 as compared to an expense of $117,389 for the same period in 2021, an increase of $314,553, or 268%. The increase of $314,553 for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, is primarily due to catch-up amortization expense of intangible assets just identified this quarter from the Avail Transaction of October 29, 2021, resulting in additional amortization of $250,800, plus additional amortization of intangible assets and depreciation of assets from the CExchange Transaction.

~~Interest Expense~~. For the three months ended September 30, 2022, interest expense for DGSE was $60,619, a decrease of $18,944, or 23.8%, as compared to interest expense of $79,563 during the same period in 2021. The decrease was primarily the combination of an increase from the new loan for the retail building located in Frisco, Texas, offset by a decrease from refinancing the related party loan by Farmers State Bank of Oakley, Kansas on November 23, 2021 through the FSB DGSE Loan.

For the three months ended September 30, 2022, interest expense for ECHG was $59,338, a decrease of $49,952 or 45.7%, as compared to interest expense of $109,290 during the same period in 2021. The decrease was primarily the result of refinancing the related party loan by Farmers State Bank of Oakley, Kansas on November 23, 2021 through the FSB ECHG Loan.

~~Gain on Forgiveness of Federal Loan.~~ For the three months ended September 30, 2022, other income, gain on forgiveness of Federal Loan (defined below) for DGSE was $0, a decrease of $675,210, as compared to other income, gain on forgiveness of Federal Loan of $675,210 during the same period in 2021. Envela previously applied for and received, on April 20, 2020, a federally backed loan of $1,668,200 with 1% interest (the “Federal Loan”), which was forgivable to the extent that certain criteria were met. The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the Federal Loan during the quarter ended September 30, 2021. DGSE’s portion of the forgiven loan was $675,210 for the quarter ended September 30, 2021.

	Three Months Ended March 31,				Change
	2023		2022		Amount			%
Depreciation and Amortization
Consumer	$	98,134	$	106,963	$	(8,829	)		-8	%
Commercial	$	256,217	$	184,984	$	71,233			39	%

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~~For~~Depreciation and amortization, for the consumer segment, for the three months ended ~~September 30, 2022, other income, gain on forgiveness of Federal Loan for ECHG was $0, a decrease of $992,990,~~March 31, 2023, decreased by $8,829, or 8%, to $98,134, as compared to ~~other income, gain on forgiveness of Federal Loan of $992,900~~$106,963 during the same period in ~~2021.~~2022. The ~~Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the Federal Loan of $1,668,200 during the quarter ended September 30, 2021. ECHG’s portion~~decrease was primarily due to some of the ~~forgiven loan was $992,990~~fixed assets being fully depreciated.

Depreciation and amortization, for the ~~quarter ended September 30, 2021~~

commercial segment, f

~~Write-off of Note Receivables and Accrued Interest Receivable.~~ ~~For~~or the three months ended ~~September 30, 2022, other expense, write-off of notes receivables for ECHG was $0, a decrease of $949,174,~~March 31, 2023, increased by $71,233, or 39%, to $256,217, as compared to ~~other expense, write-off of notes receivables and accrued interest receivable of $949,174~~$184,984 during the same period in ~~2021.~~2022. The ~~decrease~~increase was primarily due to ~~two notes receivables due~~the amortization of increased intangible assets added from ~~CExchange of $900,000 and~~ the ~~associated accrued interest receivable of $49,174 written-off~~Avail Transaction during the ~~quarter ended September 30, 2021.~~latter half of fiscal 2022.

Other ~~Income/Expense.~~ Income (Expense)

Three Months Ended March 31,

Change

2023

2022

Amount

%

Other Income (Expense)

Consumer

$ 23,534

$ (27,992 )

$ 51,526

184 %
Commercial

$ 187,245

$ (30,584 )

$ 217,829

712 %
Other income (expense), for the consumer segment, f~~For~~or the three months ended ~~September 30, 2022, other income for DGSE was $5,957, an increase in income of $43,780,~~March 31, 2023, increased by $51,526, or 184%, to $23,534, as compared to ~~other~~a net expense of ~~$37,823~~$(27,992) during the same period in ~~2021.~~2022. The increase in other income was primarily due to ~~DGSE’s portion of corporate overhead expenses, mostly related to additional costs incurred to operate as a public company,~~interest earned from bank accounts for the three months ended ~~September 30, 2022 as compared to the corporate expenses and rents received, netted for~~March 31, 2023. In addition, during the three months ended ~~September 30, 2021.~~March 31, 2022, the corporate building overhead expenses were classified as other expenses. Starting January 1, 2023, those expenses have been classified as operating expenses within selling, general and administrative expenses.
Other income (expense), for the commercial segment, f
~~For~~or the three months ended ~~September 30, 2022, other expense for ECHG was $71,221, an increase in expenses of $48,260,~~March 31, 2023, increased by $217,829, or 712%, to $187,245, as compared to ~~other~~a net expense of ~~$22,961~~$(30,584) during the same period in ~~2021.~~2022. The increase in ~~expense~~other income was primarily due to ~~ECHG’s portion~~interest earned from bank accounts, of ~~corporate overhead expenses, mostly related to additional costs incurred to operate as a public company, for~~$61,378 and notes receivable interest received, of $94,115 from notes receivable formerly written off during fiscal year 2021. In addition, during the three months ended ~~September 30,~~March 31, 2022, ~~as compared to~~ the corporate building overhead expenses were classified as other expenses. Starting January 1, 2023, those expenses have been classified as operating expenses within selling, general and ~~rents received, netted~~administrative expenses.
Interest Expense

Three Months Ended March 31,

Change

2023

2022

Amount

%

Interest Expense

Consumer

$ 59,617

$ 61,241

$ (1,624 )

-3 %
Commercial

$ 57,446

$ 61,998

$ (4,552 )

-7 %
Interest expense, for the consumer segment, for the three months ended ~~September 30, 2021.~~
~~Income Tax Expense.~~ ~~For the three months ended September 30, 2022, income tax expense was $64,061, an increase of $37,606, compared~~March 31, 2023, decreased by $1,624, or 3%, to income tax expense of $26,455 for the three months ended September 30, 2021. The effective income tax rate was 1.9% and 0.8% for the three months ended September 30, 2022 and September 30, 2021, respectively. Differences between our effective income tax rate and the U.S. federal statutory rate are mainly the result of state taxes, non-deductible expenses, non-taxable income 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 $3,317,709 for the three months ended September 30, 2022,~~$59,617, as compared to a net income of $3,106,401 for the three months ended September 30, 2021, an increase in net income of $211,308, which is due primarily to an increase in gross profit of $3,745,541, a decrease in interest expense of $68,896, offset by an increase in SG&A expenses of $2,523,229, an increase in depreciation and amortization of 318,788 and a decrease in other income of $723,506.
~~Earnings Per Share.~~ For the three months ended September 30, 2022, net income per basic and diluted shares attributable to holders of Common Stock was $0.12, as compared to $0.12 per basic and diluted shares attributable to holders of Common Stock for the three months ended September 30, 2021.
~~Nine Months Ended September 30, 2022 as compared to the Nine Months Ended September 30, 2021~~
~~Revenues.~~ ~~Revenues related to DGSE’s operations increased by $29,140,049, or 43.2%, during the nine months ended September 30, 2022, to $96,549,253, as compared to revenue of $67,409,204~~$61,241 during the same period in ~~2021. Resale revenue, such as bullion, jewelry, watches and rare coins, increased by $28,393,317,~~2022. The decrease was primarily due to ~~$90,014,891 for~~reduced loan balances during the ~~nine~~three months ended September 30, 2022, or 46.1%, compared to resale revenue of $61,621,574 during the nine months ended September 30, 2021. Recycled revenue increased by $746,732, or 12.9%, to $6,534,362 for the nine months ended September 30, 2022, as compared to recycled revenue of $5,787,630 during the nine months ended September 30, 2021. The increased resale and recycle revenue for the nine months ended September 30, 2022,March 31, 2023 as compared to the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022.
Interest expense, for the commercial segment, for the three months ended March 31, 2023, decreased by $4,552, or 7%, to $57,446, as compared to $61,998 during the same period in 2022. The decrease was primarily due to ~~year-over-year growth in store count,~~reduced loan balances during the three months ended March 31, 2023 as ~~well as increases in comparable store sales.~~compared to the three months ended March 31, 2022.

34
Table of Contents

~~Revenue~~Income Tax Expense

Three Months Ended March 31,

Change

2023

2022

Amount

%

Income Tax Expense

Consumer

$ 317,841

$ 13,177

$ 304,664

2312
%
Commercial

$ 399,805

$ 17,115

$ 382,690

2236
%
Income tax expense, for both segments,for the three months ended March 31, 2023, was $717,646, an increase of $687,354, as compared to income tax expense of $30,292 for the three months ended March 31, 2022. Currently, the Company has a deferred tax asset reflecting net operating losses brought over from prior years. Through fiscal 2022, there was an off-setting valuation allowance associated with the deferred tax asset. The valuation allowance was written off as of December 31, 2022. Starting with the three months ended March 31, 2023, the Company will have a federal tax rate of approximately 21%, in addition to other state and local taxes, on net income. The effective income tax rate was 22.1% and 1.1% for the three months ended March 31, 2023 and 2022, 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, as was the Company’s case for the increase for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.
Net Income

Three Months Ended March 31,

Change

2023

2022

Amount

%

Net Income

Consumer

$ 1,136,884

$ 1,876,140

$ (739,256 )

-39 %
Commercial

$ 1,389,433

$ 771,085

$ 618,348

80 %
Net income related to ~~ECHG’s~~the consumer operations for the ~~nine~~three months ended ~~September 30, 2022 increased~~March 31, 2023, decreased by ~~$9,217,237,~~$739,256, or ~~31.3%~~39%, to ~~$38,703,249,~~$1,136,884, as compared to ~~revenue of $29,486,012~~$1,876,140 during the same period in ~~2021. Resale revenue~~2022. The decrease in net income was due primarily to the increased tax expense of $304,664, and the decrease in resale gross profit of $437,920 for the three months ended March 31, 2023, compared to the three month ended March 31, 2022.
Net income related to the commercial operations for the three months ended March 31, 2023, increased by ~~$8,574,173,~~$618,348, or ~~39.6%~~80%, to ~~$30,200,026, for the nine months ended September 30, 2022,~~$1,389,433, as compared to resale revenue of $21,625,853 during the nine months ended September 30, 2021. Recycled revenue increased by $643,064, or 8.2%, to $8,503,223 for the nine months ended September 30, 2022, as compared to recycled revenue of $7,860,159 for the nine months ended September 30, 2021. Revenue increased for resale items for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, primarily due to the Avail Transaction on October 29, 2021. The revenue increase from recycled items for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily due to the Avail Recovery Solutions acquisition and benefiting from the higher volumes and an improved product mix.
~~Gross Profit.~~ ~~Gross profit related to DGSE’s operations for the nine months ended September 30, 2022, increased by $3,197,280, or 35.7%, to $12,161,409 as compared to gross profit of $8,964,129~~$771,085 during the same period in ~~2021. Resale gross profit increased by $2,932,730, or 37.7%,~~2022. The increase in net income was due primarily to ~~$10,713,959 for the nine month ended September 30, 2022, as compared to resale~~an increase in gross profit of ~~$7,781,229 during~~$1,937,362, offset by an increase in selling, general and administrative expenses of $787,472 and increased tax expense of $382,690 for the ~~nine~~three months ended September 30, 2021. Recycled gross profit increased by $264,550, or 22.4% to $1,447,450 for the nine months ended September 30, 2022, as compared to recycled gross profit of $1,182,900 during the nine months ended September 30, 2021. The increase in resale and recycled gross profit was due primarily due to year-over-year growth in store count, as well as increases in comparable store sales.
Gross profit related to ECHG for the nine months ended September 30, 2022, increased by $8,305,141, or 66%, to $20,883,282 as compared to gross profit of $12,578,141 during the same period in 2021. Gross profit for resale revenue for the nine months ended September 30, 2022 increased by $7,523,640, or 82.8% to $16,606,161, as compared to gross profit for resale revenue of $9,082,521 during the same period in 2021. Gross profit for recycled sales for the nine months ended September 30, 2022, increased $781,501, or 22.4% to $4,277,121, as compared to gross profit for recycle sales of $3,495,620, during the same period in 2021. The gross profit increase for resale and recycle revenue for the nine months ended September 30, 2022, asMarch 31, 2023, compared to the ~~nine~~three months ended ~~September 30, 2021, is primarily due to increased sales and benefiting from an improved product mix with higher pricing power.~~
~~Selling, General and Administrative Expenses.~~ For the nine months ended September 30, 2022, DGSE’s SG&A expenses increased by $1,257,665, or 23.1%, to $6,702,031, as compared to SG&A expenses of $5,444,366 during the same period in 2021. The increase in SG&A expenses was driven primarily by increased corporate overhead expenses, mostly related to future growth opportunities, and investments in our technology infrastructure as we continue to invest in our business. Additionally, due to higher advertising expenses and an increase in salary expense for our retail employees due to the growth in our store count, compared to the same period last year.
For the nine months ended September 30, 2022, SG&A expenses for ECHG increased by $5,924,768, or 67.6%, to $14,695,329, as compared to SG&A expenses of $8,770,561 during the same period in 2021. The increase in SG&A expenses was primarily due to the added cost of the Avail and CExchange companies during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.
~~Depreciation and Amortization~~. For the nine months ended September 30, 2022, DGSE’s depreciation and amortization expense was $311,419, compared to an expense of $293,044 for the same period in 2021. The increase of $18,375, or 6.3% is primarily due to the depreciation of the new Frisco, Texas retail building placed into service during January ofMarch 31, 2022.
For the nine months ended September 30, 2022, depreciation and amortization expense for ECHG was $795,008, as compared to an expense of $344,263 for the same period in 2021, an increase of $450,745, or 130.9%. The increase of $450,745 from the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, is primarily due to catch-up amortization expense of intangible assets just identified this quarter from the Avail Transaction of October 29, 2021, resulting in additional amortization of $250,800, plus additional amortization of intangible assets and depreciation of assets from the CExchange Transaction.
~~Interest Expense~~. For the nine months ended September 30, 2022, the interest expense for DGSE was $183,523, a decrease of $33,217, or 15.3%, compared to interest expense of $216,740 during the same period in 2021. The decrease was primarily the combination of an increase from the new loan for the retail building located in Frisco, Texas, offset by a decrease from refinancing the related party loan by Farmers State Bank of Oakley, Kansas on November 23, 2021 through the FSB DGSE Loan.

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Table of Contents

~~For~~Earnings Per Share

Three Months Ended March 31,

Change

2023

2022

Amount

%

Earnings Per Share

$ 0.09

$ 0.10

$ (0.01 )

-10 %
Earnings per share, for the ~~nine~~three months ended ~~September 30, 2022, interest expense~~March 31, 2023, for ECHG was $180,715, a decrease of $148,124 or 45%, compared to interest expense of $328,839 during the same period in 2021. The decrease was primarily the result of refinancing the related party loan by Farmers State Bank of Oakley, Kansas on November 23, 2021 through the FSB ECHG Loan.
~~Gain on Forgiveness of Federal Loan.~~ For the nine months ended September 30, 2022, other income, gain on forgiveness of Federal Loan for DGSE was $0, a decrease of $675,210, as compared to other income, gain on forgiveness of Federal Loan of $675,210 during the same period in 2021. The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the Federal Loan of $1,668,200 during the quarter ended September 30, 2021. DGSE’s portion of the forgiven loan was $675,210 for the quarter ended September 30, 2021.
For the nine months ended September 30, 2022, other income, gain on forgiveness of Federal Loan for ECHG was $0, a decrease of $992,990, as compared to other income, gain on forgiveness of Federal Loan of $992,990 during the same period in 2021. The Small Business Administration, through Truist Bank (f/k/a BB&T), forgave the Federal Loan of $1,668,200 during the quarter ended September 30, 2021. ECHG’s portion of the forgiven loan was $992,990 for the quarter ended September 30, 2021
~~Write-off of Note Receivables and Accrued Interest Receivable.~~ For the nine months ended September 30, 2022, other expense, write-off of notes receivables for ECHG was $0, a decrease of $949,174, as compared to other expense, write-off of notes receivables and accrued interest receivable of $949,174 during the same period in 2021. The decrease was due to two notes receivables due from CExchange of $900,000 and the associated accrued interest receivable of $49,174 written-off during the quarter ended September 30, 2021.
~~Other Income/Expense.~~ For the nine months ended September 30, 2022, other expense for DGSE was $71,053, an increase in expenses of $264,421, compared to other income of $193,368 during the same period in 2021. The increase in expense was primarily due to DGSE’s portion of corporate overhead expenses, mostly related to additional costs incurred to operate as a public company. Other income for the nine months ended September 30, 2021 only included the rental income from corporate tenants in the Company’s corporate building and therefore are not comparable. In subsequent quarters, the Company’s corporate overhead expenses and rental income are netted into other income/expense.
For the nine months ended September 30, 2022, other expense for ECHG was $148,216, an increase in expenses of $449,060, compared to other income of $193,368 during the same period in 2021. The increase in expense was primarily due to ECHG’s portion of corporate overhead expenses, mostly related to additional costs incurred to operate as a public company. Other income for the nine months ended September 30, 2021 only included the rental income from corporate tenants in the Company’s corporate building and therefore are not comparable. In subsequent quarters, the Company’s corporate overhead expenses and rental income are netted into other income/expense.
~~Income Tax Expense.~~ For the nine months ended September 30, 2022, income tax expense was $144,605, an increase of $54,695, or 60.8%, as compared to income tax expense of $89,910 for the nine months ended September 30, 2021. The effective income tax rate was 1.5% and 1.2% for the nine months ended September 30, 2022 and 2021, respectively. Differences between our effective income tax rate and the U.S federal statutory rate are mainly the result of state taxes, non-deductible expenses, non-taxable income, changes in reserves for uncertain tax positions and unused net operating loss carryforwards.
~~Net Income~~. We recorded a net income of $9,812,792 for the nine months ended September 30, 2022, as compared to a net income of $7,267,785 for the nine months ended September 30, 2021, an increase in net income of $2,545,007, which is due primarily to an increase in gross profit of $11,502,421, a decrease in interest expense of $181,341, offset by an increase in SG&A expenses of $7,182,433, an increase in other expense of $1,432,507 and an increase in depreciation and amortization expense of $469,120.
~~Earnings Per Share.~~ ~~For the nine months ended September 30, 2022, the~~ net income per basic and diluted shares attributable to ~~common stockholders is $0.36, as~~holders of our Common Stock was $0.09, compared to ~~$0.27~~$0.10 per basic and diluted shares attributable to holders of our Common Stock for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022.
Liquidity and Capital Resources
The following table summarizes our cash flows for the periods indicated.

Three Months Ended March 31,

2023

2022

Net cash provided by (used in):

Operating activities

$ 2,924,025

$ 3,358,769

Investing activities

569,522

(93,384 )
Financing activities

(310,807 )

(1,906,274 )

Net increase in cash and cash equivalents

$ 3,182,740

$ 1,359,111

During the three months ended March 31, 2023, cash provided by operations totaled $2,924,025, which was primarily driven by net income of $2,526,317, reduction from non-cash charges, net of $689,516, and the increase in customer deposits and other liabilities of $1,484,605. In addition, the foregoing was offset by the decrease in accounts payable and accrued expenses of $821,413, an increase in other assets of $228,959, an increase of trade receivables of $328,487, the increase in inventories of $350,053 and the increase in prepaid expenses of $47,847.
During the three months ended March 31, 2023, cash provided by investing totaled $569,522, which primarily consisted of payments received from notes receivable of $578,250, offset by the purchase of property and equipment of $8,728.
During the three months ended March 31, 2023, cash used in financing totaled $310,807, which consisted of principal payments made against the notes payable loans of $310,807.
We expect our capital expenditures to total approximately $1,000,000 during the next 12 months. These expenditures will be driven by the purchase of additional equipment and potential property purchases by the consumer segment for retail locations and the build-out of those purchased properties. The Company has no capital expenditure commitments as of March 31, 2023. For more information, see Note 16 to our interim condensed consolidated financial statements.

36
Table of Contents
~~Liquidity and Capital Resources~~
During the nine months ended September 30, 2022, cash flows provided by operations totaled $7,725,140, and during the nine months ended September 30, 2021, cash flows provided by operations totaled $1,026,457, an increase of $6,698,683. Cash provided by operations for the nine months ended September 30, 2022 was driven largely by net income added to non-cash items of depreciation, amortization and bad debt of $10,992,637, an increase in accounts payable and accrued expenses of $1,924,658, a decrease in other assets of $311,422, offset by an increase in inventories of $4,014,627, an increase in prepaid expenses of $1,213,187, an increase in trade receivables of $97,994 and a decrease in customer deposits and other liabilities of $186,590. Cash provided by operations for the nine months ended September 30, 2021 was driven largely by net income added to non-cash items of depreciation, amortization, bad debt, gain on forgiveness of Federal Loan and write-off of note receivables and accrued interest receivable of $7,214,598, an increase in accounts payable and accrued expenses of $100,952 and an increase in customer deposits and other liabilities of $511,610, offset by the increase in 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 assets of $417,347.
During the nine months ended September 30, 2022 and 2021, cash flows used in investing activities totaled $444,185 and $3,351,141, respectively, a period-over-period decrease of $2,906,956. The use of cash in investing activities during the nine months ended September 30, 2022 was primarily due to the purchase of additional property and equipment of $227,197 and the additional cash payment, as part of the Avail Transaction of $216,988. The use of cash in investing activities during the nine months ended September 30, 2021 was primarily due to the increase in notes receivable of $300,000 and the purchase of additional property and equipment of $3,064,277, offset by acquisition of CExchange’s assets and liabilities, net of cash acquired of $13,136.
During the nine months ended September 30, 2022, cash flows used in financing totaled $2,450,347 and during the nine months ended September 30, 2021, cash flows provided by financing totaled $1,429,828, a period-over-period increase of cash flows used in financing of $3,880,175. Cash used in financing during the nine months ended September 30, 2022 was primarily due from payments made against notes payable of $750,347 and payments made against the line of credit of $1,700,000. Cash provided by financing during the nine months ended September 30, 2021 was primarily due from proceeds from notes to purchase property of $1,772,000, offset by payments made against notes payable of $123,352 and payments made against notes payable, related party of $218,820.
We expect our capital expenditures to total approximately $1,500,000 during the next 12 months. These expenditures will be driven by the purchase of additional equipment and the purchase of potential properties by DGSE for retail locations and for build-out of those purchased properties. The Company has no capital expenditure commitments as of September 30, 2022.

Our primary source of liquidity and capital resources currently consist of cash generated from our operating results and current borrowings, including the Truist Lewisville Loan, the TB&T Grapevine Loan, the TB&T Irving Loan, the TB&T Frisco Loan ~~the~~and two FSB ~~ECHG Loan and the FSB DGSE Loan, as well as the financing for the Avail Transaction through borrowings represented by the Avail Installment Note.~~loans. For more information, see Note 1413 to our interim condensed financial statements, which is incorporated into this item by reference. In addition, on November 23, 2021, the Company secured ~~the FSB Facility, which is~~ a thirty six month line of credit from Farmers State Bank of Oakley Kansas (the “FSB Facility”) for up to $3,500,000. The FSB Facility has an annual interest rate of 3.1%. We maintain the FSB 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 FSB Facility as of ~~September 30, 2022.~~Mach 31, 2023.

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.

37
~~Table of Contents~~
The COVID-19 pandemic, surging inflation, supply chain interruptions and the war between Ukraine and Russia 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 prices. Although we are continuing to monitor and assess the effects of the foregoing, 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 17 to our interim condensed consolidated financial statements.
The Company leases certain of its facilities under operating leases. ~~For more information on the~~The minimum rental commitments, under non-cancellable operating leases, excluding imputed interest, as of ~~September 30, 2022, see Note 12 to our interim condensed consolidated financial statements.~~March 31, 2023 are as follows:
Operating Leases

Total

2023

2024

2025

2026

Thereafter

Consumer (excluding the three months ending March 31, 2023)

$ 1,798,757

$ 406,955

$ 552,414

$ 434,274

$ 355,000

$ 50,114

Commercial (excluding the three months ending March 31, 2023)

4,244,112

1,018,905

1,396,129

1,321,297

474,326

33,455

Total

$ 6,042,869

$ 1,425,860

$ 1,948,543

$ 1,755,571

$ 829,326

$ 83,569

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.
37
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 ~~September 30, 2022.~~March 31, 2023. 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 ~~September 30, 2022,~~March 31, 2023, 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.

38
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~~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~~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 ~~2021~~2022 Annual ~~Report and the Company’s quarterly report on Form 10-Q for the period ended March 31, 2022, filed with the SEC on May 11, 2022.~~Report.

~~For additional information on contingencies, see Note 17 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
None

39
Table of Contents

ITEM 6. EXHIBITS
Exhibit
Number

Description

Filed
Herein

Incorporated by Reference

Form

Date Filed with SEC

Exhibit
Number
31.1

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

X

31.2

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

X

32.1

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

X

32.2

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

X

101.INS

XBRL Instance Document

X

101.SCH

XBRL Taxonomy Extension Schema Document

X

101.CAL

XBRL Taxonomy Calculation Linkbase Document

X

101.DEF

XBRL Taxonomy Definition Linkbase Document

X

101.LAB

XBRL Taxonomy Label Linkbase Document

X

101.PRE

XBRL Taxonomy Presentation Linkbase Document

X

104*

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

X

40
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: ~~November 2, 2022~~May 3, 2023
By:
/s/ JOHN R. LOFTUS

John R. Loftus

Chief Executive Officer
(Principal Executive Officer)

Date: ~~November 2, 2022~~May 3, 2023

/s/ BRET A. PEDERSEN

Bret A. Pedersen

Chief Financial Officer
(Principal Accounting Officer)

41

									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		-	$	-	$	40,173,000	$	(18,702,420	)	$	21,739,826
Net Income		-		-		-		-		-		3,106,401			3,106,401
Balances at September 30, 2021		26,924,631	$	269,246		-	$	-	$	40,173,000	$	(15,596,019	)	$	24,846,227

	Initial			Final
Description	Allocation			Allocation

Assets
Cash	$	988,870		$	988,870
Account receivables		395,144			395,144
Inventories		486,736			486,736
Prepaid expenses		93,727			93,727
Intangible assets - Trademarks/Tradenames		-			1,272,000
Intangible assets - Customer Relationships		-			1,464,000
Fixed assets - net		247,038			247,038
Right-of-use assets		609,511			609,511
Other assets		13,268			13,268

Liabilities
Account payables		(562,778	)		(562,778	)
Accrued liabilities		(653,289	)		(653,289	)
Operating lease liabilities		(609,511	)		(609,511	)

Net assets		1,008,716			3,744,716

Goodwill		3,491,284			972,272

Total Purchase Price	$	4,500,000		$	4,716,988

	Consolidated Statement of
	Income		Proforma Combined
	For the Three Months Ended		For the Three Months Ended
	September 30, 2022		September 30, 2021
	(unaudited)		(unaudited)

Revenue	$	45,197,686	$	40,057,210
Income from continuing operations	$	3,381,770	$	3,496,441
Net income	$	3,317,709	$	3,432,380
Basic net income per common share	$	0.12	$	0.13
Diluted net income per common share	$	0.12	$	0.13

Note payable - Avail Transaction

Year Ending December 31,	Amount

2022 (excluding the nine months ended September 30, 2022)	$	166,667
2023		666,668
2024		666,668
2025		166,664
Subtotal	$	1,666,667

Note payable, Texas Bank & Trust - Envela

Year Ending December 31,	Amount

2022 (excluding the nine months ended September 30, 2022)	$	27,589
2023		112,670
2024		116,459
2025		2,504,048
Subtotal	$	2,760,766
	$	16,285,783

	Three Months Ended March 31,				Change
	2023		2022		Amount		%
Income Tax Expense
Consumer	$	317,841	$	13,177	$	304,664	2312	%
Commercial	$	399,805	$	17,115	$	382,690	2236	%

	ENVELA CORPORATION (Registrant)

Date: ~~November 2, 2022~~May 3, 2023	By:	/s/ JOHN R. LOFTUS
		John R. Loftus
		Chief Executive Officer (Principal Executive Officer)

Date: ~~November 2, 2022~~May 3, 2023		/s/ BRET A. PEDERSEN
		Bret A. Pedersen
		Chief Financial Officer (Principal Accounting Officer)