UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 ________________________

FORM 10-K

  ________________________

For the Fiscal Year Ended December 31, 2019

OR

For the Transition Period From to

Commission File Number 001-11048

  ________________________

ENVELA CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

  ________________________

13022 PRESTON ROAD, DALLAS, TEXAS 75240-52021901 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:

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

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

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

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 [X]☒ 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 [X]☒ No [  ]☐

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

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

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

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

As of December 31, 2019,June 30, 2021, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $10.341$36.217 million based on the closing sale price as reported on the NYSE American. As of December 31, 2019,March 15, 2022, there were 26,924,38126,924,631 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the registrant’s definitive proxy statement for the 20202022 Annual Meeting of Stockholders, which definitive proxy statement will be filed by the registrant with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2019.2021.

ENVELA CORPORATION

FORM 10-K

For the Fiscal Year Ended December 31, 20192021

INDEX

PART I

Item 1

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

Note About Forward-Looking Statements

This Annual Reportannual report on Form 10-K for the fiscal year ended December 31, 20192021 (this “Form 10-K”), including but not limited to the section of this Form 10-K entitled “Management’s“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,”Operations” below, information concerning our business prospects or future financial performance, anticipated revenues, expenses, profitability or other financial items, and our strategies, plans and objectives, together with other statements that are not historical facts, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,” “will,” “would,” “expect,” “intend,” “could,” “estimate,” “should,” “anticipate”“anticipate,” “typical,” “projection,” “plan,” “target,” “mission,” “intend,” “believe” or “believe.”similar words. We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements other than statements of historical information provided herein are forward-looking and may contain information about financial results, economic conditions, trends, and known uncertainties. All forward-looking statements are based on current expectations regarding important risk factors. Many of these risks and uncertainties are beyond our ability to control, and, in many cases, we cannot predict all of the risks and uncertainties that could cause our actual results to differ materially from those expressed in the forward-looking statements. Actual results could differ materially from those expressed in the forward-looking statements, and readers should not regard those statements as a representation by us or any other person that the results expressed in the statements will be achieved. Important risk factors that could cause results or events to differ from current expectations are described under the section of this Form 10-K entitled “Risk“Item 1A. Risk Factors” below and elsewhere in this Form 10-K. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the operations, performance, development and results of our business. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereon, including without limitation, changes in our business strategy or planned capital expenditures, store growth plans, or to reflect the occurrence of unanticipated events.

PART I

Item 1

PART I

ITEM 1. BUSINESS

OUR MISSION

OurEnvela’s mission is to empower bothrecommerce buyers and sellers to extend the useful life of goods through recommerceby reselling previously owned or used goods, or recycling goods’ materials, elements or components for sale and offer true end-of-life recycling opportunities to consumers nationwide.reuse.

OVERVIEW

Envela is a holding company owning subsidiaries engaged in a numberthe recommercialization of diverse business activities. The most important of these aregoods. Envela’s recommerce operations in each subsidiary reconditions previously owned or used goods for resale, or recycles products’ value by extracting materials, elements or components that can be sold. Envela’s recommerce businesses are conducted on both a retail basis and a wholesale basis through distributors, resellers, brick-and-mortar stores and a e-recycling business. Envelaonline. Envela’s subsidiaries also owns and operatesoperate a number of other related businesses and brands engaged in a variety of activities, as identified herein. Envela is domiciled in the state of Nevada, and its corporate headquarters are located in Dallas,Irving, Texas.

On May 20, 2019, the Company, through an asset purchase (the “Echo Transaction”), as initially reported on Form 8-K filed May 24, 2019, purchased the assets of Echo Environmental, LLC and ITAD USA, LLC. A subsequent 8-K/A filed August 5, 2019, announced the formation of two new companies, Echo Environmental Holdings, LLC (“Echo”) and ITAD USA Holdings, LLC (“ITAD” and together with Echo, the “Echo Entities”), to process, recycle and resell electronic waste.

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OPERATING SEGMENTS

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

DGSE operates itsthe Dallas Gold and& Silver Exchange, Charleston Gold & Diamond Exchange and Bullion Express brands and primarily buyingbuys and sellingresells or recycles luxury hard assets like jewelry, diamonds, gemstones, fine watches, rare coins precious metaland related collectibles, precious-metal bullion products, gold, silver and scrap goldother precious-metals. Buying and silver. Under selling items for their precious-metal content is a major method by which DGSE markets itself. DGSE also offers jewelry repair services, custom-made jewelry and consignment items, and maintains relationships with refiners for precious-metal items that are not appropriate for resale.

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

The CompanyDuring the first quarter of fiscal year 2020, Envela revised the way it reviews its financial information to align more closely with its strategy to engage in diverse recommerce activities through the two principal business segments mentioned above—DGSE and ECHG. Although our Company’s overall strategy is recommerce, we feel there are distinct segments within recommerce. DGSE buys luxury hard assets, and ECHG buys consumer electronics and IT equipment, either for resale or recycling. Envela will continue to report its revenue and operating expenses based on its DGSE and ECHG operating segments.

Envela includes segment information in the notes to the financial statements. The objectobjective of segment reporting is to provide a management approach that identifies different types of businesses within the CompanyEnvela and how we haveit has organized the segments to make financial decisions. We consider the Company in the recommerce business and have organized two different segments within our business and presented the performance of each separately.

PART I

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DGSE SEGMENT

DGSE operates five retail locations: 4 Dallas Gold and Silver Exchange stores throughout the Dallas/Fort Worth Metroplex and a Charleston Gold & Diamond Exchange in Charleston, SC. The Company’s Dallas flagship and its Charleston, S.C. location offer on-site jewelry-restoration service.

DGSE buys and sellsto resell or recycle luxury hard assets, including jewelry, diamonds, fine watches, rare coins and currency, precious-metal bullion as well as items for their precious-metals content, and other valuables. DGSE reconditions items for resale as a whole good or component parts, or recycles them by selling recovered precious metal bullion products, scrapmetals to refiners. These metals include gold, silver, platinum and palladium, with gold constituting the majority of our purchases and resales. DGSE resells through its retail locations or wholesale contacts. Where resale or wholesale is not appropriate, such as well as collectiblesfor crafted precious-metal items at the end of their useful lives, the items are sent to a third-party refiner and other valuables. Our customers include individual consumers, dealersanalyzed for metal content, after which they can be recycled and institutions throughout the United States. The operations are organized around retaileither sold or recrafted into new jewelry or bullion products. In addition to purchase and wholesale customers. The flagship store also includes anresale, DGSE offers on-site state-of-the-art Swissjewelry and watch repair serviceand restoration services at its Dallas flagship location, located at 13022 Preston Road, Dallas, Texas 75240, and also partners with dedicated technicians who testa number of consignment vendors which expands offerings at DGSE’s retail locations. DGSE also designs and service fine mechanical timepieces to ensure they’re operating at optimum levels.offers custom bridal and fashion jewelry. As referenced above, DGSE also purchases items for their precious-metal content. Buying and selling precious metal is a major method by which DGSE markets itself.

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

ECHG SEGMENT

ECHGDGSE operates seven retail locations: six Dallas Gold & Silver Exchange stores throughout the Dallas/Fort Worth Metroplex and one Charleston Gold & Diamond Exchange store in Mt Pleasant, South Carolina. In the fourth quarter of 2020, DGSE moved its subsidiaries engageSouthlake, Texas location to Grapevine, Texas, and opened a new location in full-service electronic recyclingLewisville, Texas—both suburbs of Dallas. DGSE purchased its Grapevine and IT-asset disposition. ECHG helps customers maintain absolute data integrityLewisville buildings. During 2021, DGSE purchased and exceed their compliancerenovated its newest retail location in Frisco, Texas—also a suburb of Dallas. The Frisco location was opened during the first quarter of Fiscal 2022. DGSE leases its store in Charleston, South Carolina and revenue goals. Used electronics vary widely, from last year’s mobile telephone, tabletthree other locations in the Dallas/Fort Worth Metroplex. DGSE’s Dallas flagship location offers on-site jewelry-repair and wearable technology to server and networking systems and data-center components. Many of these products can be repaired and reused. The others are recycled for their scrap materials.watch-restoration services.

Approximately 15 pounds of used electronics are generated per capita worldwide, but it is estimatedWe believe that less than 20% is recycled. The volume of used electronics is expected to increase over 33% by the end of the decade. Reuse is widely recognized as the most environmentally beneficial formsuccessful DGSE locations will be those that can sustain our full retail “exchange” model: engaging in both buying and selling luxury hard assets and maintaining a robust and diverse inventory across all jewelry categories, fine watches and monetary collectibles. Helping to extend the life of materials management. Repairingluxury goods, our stores offer repair and reusing electronics extends their useful liferestoration services for jewelry and keeps them outwatches. Examples of waste streams.luxury hard assets that we buy and sell are estate and designer jewelry, fine timepieces, rare and numismatic coins, diamonds, gold, silver and other precious metals. See “Item 7. Management’s Discussion and Analysis—DGSE Precious Metals Pricing and Business Impact” for more information.

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

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

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

PART I

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ECHG SEGMENT

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

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

CUSTOMER TYPESCEX was formed in connection with the purchase of the assets of CExchange, LLC a Texas limited liability company (“CExchange”), on June 9, 2021 (the “CExchange Transaction”). Avail DE was formed in connection with the purchase of the assets of Avail Recovery Solutions, LLC, an Arizona limited liability company (“Avail AZ”) on October 29, 2021 (the “Avail Transaction”).

Echo operates out of a leased warehouse in Carrollton, Texas. Teladvance, ITAD and CEX operate out of a separate warehouse in Carrollton, TX that was originally assigned in connection with the CExchange Transaction. Avail DE operates in a leased warehouse in Chandler, Arizona. This lease was assigned in connection with the Avail Transaction.

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

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

CUSTOMER TYPES

DGSE Retail Business

DGSE’s products and services are marketed through fiveseven retail locations in Texas and South Carolina. Our retail footprint has remained steady in recent years. TheAs noted above, the brick-and-mortar retail locations operate under several banners, includingthe Dallas Gold & Silver Exchange and Charleston Gold & Diamond Exchange.Exchange brands. DGSE markets bullion products online under the Bullion Express brand.

We have entered into a contract to purchase a retail stand-alone building in Lewisville, Texas, as a potential new retail location.

PART I

Item 1

DGSE Wholesale Business

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

ECHG Business

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

PART I

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PRODUCTS AND SERVICES

DGSE Buy Sell Trade

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

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

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

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

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

DGSE Bullion

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

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

PART I

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DGSE Other Products & Services

We maintain a jewelry-repair center at our Dallas flagship location on Preston Road in Dallas, Texas. And welocation. Our stores accept repair, polishing and service orders through all of our retail locations.locations which are routed to our Dallas flagship location for service.

PART I

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ECHG Electronic Recycling

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

ECHGIT Asset Disposition

ECHG, through its wholly owned subsidiary ITAD USA, Holdings, offers wide-ranging IT-assetIT equipment disposition services for companiesdiverse clients that want to replace and remarket their IT equipment. ITAD USA helps companies carefully navigate the maze of local compliance and regulations associated with technology disposition. From secure logistics and transportation to comprehensive reporting tools and data sanitization services, ITAD USA’s solutions cover all enterprise technology types.

Depending on assets’an IT asset’s condition, theyit can be refurbished and redeployed within costumers’ organizations,the customer’s business, remarketed and sold, or donated to charity. When assets are being sold, and ITAD USA’s in-house, global-commodity experts help determine market value, and its remarketing network helps ensure clients get maximum value.

ECHG Hardware & Cloud Solutions

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

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

CORPORATE INFORMATION

Corporate Information

We incorporated in the State of Nevada on September 16, 1965, asCanyon State Mining Corporation of Nevada. During the ensuing 5557 years, the Company transformed its business to meet its customers’ needs and changed its name to reflect thosethis transformation, including to the following:Canyon State Corporation (October 13, 1981),The American Pacific Mint, Inc. (July 15, 1986),Dallas Gold & Silver Exchange, Inc. (June 22, 1992), andDGSE Companies, Inc. (June 26, 2001).

By acquiringpursuing diversified business opportunities in the recommerce sector that havehas potential long-term rewards, we continued to evolve, and on December 12, 2019, we changed our name toEnvela Corporation to better reflect our current business operations and diversified recommerce portfolio. These diversified business opportunities include one of the nation’s premier authenticated recommerce retailersretail of luxury hard assets; end-of-life IT asset recycling; data destruction and IT-asset management;disposition; and providersprovision of products, services and solutions to industrial and commercial companies. Information contained on, or accessible through, our website is not incorporated by reference into and does not constitute a part of this annual report or any other report or documents we file with or furnish to the Securities and Exchange Commission (the “SEC”).

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

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

DGSE; Dallas Gold & Silver Exchange; Charleston Gold & Diamond Exchange; Bullion Express

Express; ECHG; ITAD USA,USA; Echo Environmental; Teladvance and TeladvanceAvail.

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

PART I

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RELATIONSHIPS

DGSEEnvela 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 (“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 DGSE’sthe Company’s best interests and the best interests of its stockholders. Among other factors, DGSE’s BoardEnvela’s board of directors (its “Board”) considers the size and duration of the transaction, the nature and interest 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 DGSEthe Company as would be available in a comparable transaction with an unaffiliated third party. DGSE’sEnvela’s Board reviews all Related Party transactions at least annually to determine if it is in DGSE’sthe Company’s best interests and the best interests of DGSE’sthe stockholders to continue, modify, or terminate any of the Related Party transactions. DGSE’sEnvela’s Related PersonParty Transaction Policy is available for review in its entirety under the “Investors” menu of the Company’s corporate relations website at www.envela.com.envela.com.

Through a series of transactions beginning in 2010, Elemetal, NTR and Truscott (“Related Entities”) became the largest shareholders of our Common Stock. NTR transferred all of its Common Stock to Eduro Holdings, LLC (“Eduro”) on August 29, 2018. A certain Related Entity has been DGSE’s primary refiner and bullion trading partner. From January 1, 2019 through May 20, 2019 a certain Related Entity accounted for 4% of sales and 6% of purchases. Fiscal 2018, these transactions represented 11% of DGSE’s sales and 2% of DGSE’s purchases. On May 20, 2019, through a series of transactions, the Related Entity sold their shares of the Company to John R. Loftus, The Company’s CEO, President and Chairman of the Board. As of May 20, 2019, they were no longer a Related Entity. On December 9, 2016, DGSE and a certain Related Entity closed the transactions contemplated by the Debt Exchange Agreement whereby DGSE issued a certain Related Entity 8,536,585 shares of its common stock and a warrant to purchase an additional 1,000,000 shares to be exercised within two years after December 9, 2016, in exchange for the cancellation and forgiveness of $3,500,000 of trade payables owed to a certain Related Entity as a result of bullion-related transactions. The warrant to purchase an additional 1,000,000 shares expired in December 2018 and was not exercised. As of December 31, 2019, the Company had no trade payable to or trade receivable from the certain Related Entity. As of December 31, 2018, the Company was obligated to pay $3,088,973 to the certain Related Entity as a trade payable and had a $0 receivable from the certain Related Entity. For the year ended December 31, 2019 and 2018, the Company paid the Related Entities $61,869 and $149,540, respectively, in interest on the Company’s outstanding payable.

Through a series of transactions reported on Schedule 13D on May 24, 2019, Truscott sold their 12,814,727 shares, 47.7% of DGSE Companies Common Stock to John R. Loftus. Mr. Loftus assumed all rights under the existing registration rights agreements. On the same day, Mr. Loftus contributed his 12,814,727 Common Stock shares to N10TR, LLC (“N10TR”) which is wholly owned by Mr. Loftus. Mr. Loftus, by virtue of his relationship with Eduro and N10TR may be deemed to indirectly beneficially own the Common Shares that Eduro and N10TR directly beneficially own. On the same day the Company entered into two (2) loan agreements with John R. Loftus, the Company’s CEO and President of the Company and Chairman of the Board. The first note with a principal balance of $6,925,979, pursuantproceeds of which were used to the Echo Entities purchase agreement, isfinance an asset acquisition, was a 5-yearfive-year promissory note amortized over 20 years at 6% annual interest rate. The second note with a principal balance of $3,074,021, paidproceeds of which were used to pay off thean accounts payable – related party balance to Elemetala previous Related Party as of May 20, 2019. The promissory note is2019, was a 5-yearfive-year note amortized over 20 years at 6% annual interest rate. Both notes arewere being serviced by operational cash flow. On November 23, 2021, Farmers State Bank of Oakley, Kansas refinanced both of the loans from Mr. Loftus, therefore, paying-off all note payables, related party loans from Mr. Loftus. For the year ended December 31, 20192021 and 2018,2020, the Company paid the Mr. Loftus $325,749$495,490 and $0,$580,957, respectively, in interest on the Company’s outstanding note payables, related party.

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SALES AND MARKETING

In Fiscal 2019,fiscal year 2021, DGSE’s advertising activities continued to rely heavily on digital media, radio print and digital media.print. Marketing activities centered on each of the major business categories, emphasizing our broad array of products, expertise, and price advantages compared to our local and regional competition. In Fiscal 2019,fiscal year 2021, we spent approximately $393,000$407,000 on advertising and marketing in our operations, a 6%61% year-over-year decrease.increase. Our advertising and marketing spending represent costs for traditional and digital media, in-store displays, brochures and informational pamphlets, production fees, and other related items.

In 2020, DGSE anticipatesfiscal year 2022, we anticipate our radio, digital and social media presence to remain an integral part of ourDGSE’s marketing strategy. OurThe website for the Dallas Gold & Silver Exchange has been redesigned to be viewed on a variety of platforms across a multitude of digital devices. We believe our enhanced web platform also facilitates a personalized shopping experience, including recommending inventory, and delivers a seamless digital experience for product research and social sharing. Additionally, we anticipate that social-mediasocial media will continue to play an increasingly larger role in our overall advertising mix. We anticipate that digitalDigital advertising will continue to allow us to target specific customer groups on a wider scale.

The Echo Entities’ECHG’s advertising activities focus primarily on regional and national trade shows. For the period of May 20, 2019 to December 31, 2019,In fiscal year 2021, we spent approximately $20,000$53,000 on advertising and marketing.

marketing, a significant portion of which was spent at regional and national trade shows. In 2020, the Echo Entities expect2022, ECHG expects trade shows will continue to be the largest portion of their advertising budget since downstream recyclers frequent such trade shows to evaluate who can meet their needs or service their projects. Also, at trade shows, representatives of ITAD makesUSA make many contacts with decision makers seeking either to purchase refurbished electronics for their employees or to sell their older electronic devisesdevices for recycling and reuse.

SEASONALITY

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

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

PART I

Item 1

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

EXECUTIVE OFFICERS OF THE REGISTRANT

Our Executive Officers as of March 23, 2020 were as follows:

John R. Loftus has served as Chief Executive Officer, President and Chairman of the Board since December 12, 2016. Prior to joining DGSE, Loftus was the CEO of a precious metals company until the end of 2014. In 2015 and 2016 he acted primarily as an efficiency consultant focusing on optimizing existing operations and cutting waste for the purpose of increasing value. He also managed his personal real estate holdings during this time. Mr. Loftus holds an M.B.A. from the SMU Cox School of Business. The board concluded that Mr. Loftus should serve as a director based on his previous leadership of the Company and industry knowledge.

Bret A. Pedersenwas elected as Chief Financial Officer on January 17, 2017. Mr. Pedersen has a bachelor’s degree in Accounting from Southwest Texas State University. Having been a CPA for over twenty years, he has extensive experience in reporting, analyzing, and financially controlling companies. He has been serving in the capacity as a financial controller for various companies during the past twenty years. Two years prior to being elected as Chief Financial Officer for DGSE, Mr. Pedersen was the financial controller, from 2014 to 2016, for Payson Petroleum, Inc., which is the parent company of Payson Operating, LLC. Prior to Payson Petroleum, Mr. Pedersen was the financial controller, from 2009 to 2014, for Iron Creek Ventures, Inc.

PART I

Item 1A

EMPLOYEES

As of December 31, 2019,2021, we employed 135256 people, all full-time employees. None of our employees are represented by a labor union. We believe that our current employee relations are good.in good condition. Our management policy is to keep employees informed of material decisions that affect them, encourage employee suggestions, and implement them whenever practicable.

GOVERNMENT REGULATIONS, ENVIRONMENTAL MATTERS AND IMPACT OF CLIMATE CHANGE

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

Envela recognizes that climate change is a major risk to society and therefore continues to take steps to reduce its climatic impact. Nevertheless, management believes that climate change has only a limited influence on Envela’s performance and is of limited significance directly to the business.

However, as a significant portion of Envela’s business relies on the availability of disposable income for its customers, a change in fuel prices could have a material impact on Envela’s business. See “Item 1A. Risk Factors—Adverse economic conditions in the U.S. or in other key markets, and the resulting declines in consumer confidence and spending, could have a material adverse effect on our operating results” for more information.

Envela applied for and received, on April 20, 2020, an approximately $1.67 million federally backed loan with 1% interest, the proceeds of which were intended to pay employees and cover certain rent and utility-related costs during the COVID-19 pandemic (the “Federal Loan”). The Federal Loan was forgivable to the extent that certain criteria were met. We applied for the forgiveness of the Federal Loan during Fiscal 2020, and received notification during Fiscal 2021 that the loan had been forgiven.The forgiveness of the Federal Loan is included in Other income from loan forgiveness on our consolidated income statements.

AVAILABLE INFORMATION

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

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

PART I

Item 1A

ITEM 1A. RISK FACTORS

Our operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of shares of our common stock.stock, par value $0.01 per share (our “Common Stock”).

You should carefully review and consider the risks described below and the forward-looking statements contained in this Form 10-K before evaluating our business or making an investment decision. Our business, financial condition or results of operations could be materially adversely affected by these risks. The trading price of our Common Stock could decline due to any of these risks, and you may lose all or part of your investment. You should also refer to the other information included or incorporated by reference in this report, including our consolidated financial statements and the related notes thereto. These risks and uncertainties could cause actual results and events to differ materially from those anticipated. Additional risks which we do not presently consider material, or of which we are not currently aware, may also have an adverse impact on our business. Please also see the section of this Form 10-K entitled “Special Note Regarding“Note About Forward-Looking Statements” on page 1.2.

The voting power in our company is substantially controlled by a small number of stockholders, which may, among other things, delay or frustrate the removal of incumbent directors or a takeover attempt, even if such events may be beneficial to our stockholders.

N10TR, LLC (“N10TR”) purchased all of the outstanding shares owned by Truscott Capital on May 20, 2019 and is now our largest shareholder, owning 12,814,727 shares of our Common Stock, representing 47.7% of our total outstanding shares of Common Stock. Eduro Holdings, LLC (“Eduro”) owns 6,365,460 shares of our Common Stock, representing 23.7% of our total outstanding shares of Common Stock. Both N10TR and Eduro are under the common control of John R. Loftus, our CEO, President the Chairman of the Board. Consequently, Mr. Loftus, N10TR and Eduro are in a position to significantly influence any matters that are brought to a vote of the shareholders, including, but not limited to, the election of members of our Board and any action requiring the approval of shareholders, including any amendments to our governing documents, mergers or sales of all or substantially all of our assets. This concentration of ownership also may delay, defer or even prevent a change in control of our company and make some transactions more difficult or impossible without the support of Mr. Loftus, N10TR and Eduro. These transactions might include proxy contests, tender offers, mergers or other purchases of Common Stock that could give stockholders the opportunity to realize a premium over the then-prevailing market price for shares of our Common Stock.

PART I

Item 1A

In Fiscalfiscal year 2014, we came to an agreed settlement with the SEC, stemming from an investigation of accounting irregularities. As part of this settlement we agreed to a series of corporate governance reforms, which were independently verified in Fiscalfiscal year 2015. If we do not comply with the corporate governance reforms, we could face additional enforcement actions by the SEC or other governmental or regulatory bodies, as well as additional shareholder lawsuits, all of which could have significant negative financial or operational implications.

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

PART I

Item 1A

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

In the past, our internal controls over financial reporting and procedures related thereto have been deficient. Although we have taken significant remedial measures, our previous deficiencies could have a material adverse effect on our business and on our investors’ confidence in our reported financial information, and there is no guarantee that our internal controls over financial reporting and procedures will not fail in the future.

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

PART I

Item 1A

The market for precious metals is inherently unpredictable.

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

Adverse economic conditions in the U.S. or in other key markets, and the resulting declines in consumer confidence and spending, could have a material adverse effect on our operating results.

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

PART I

Item 1A

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

The coronavirus pandemic is an emergingcontinues to be serious threat to health and economic wellbeing affecting our business, customers and supply chain.

On March 11, 2020, the World Health Organization announced that infections of the coronavirus COVID-19 had become pandemic, and on March 13, 2020, the U.S. President announced a National Emergency relating to the disease. There is a possibility ofhas been widespread infection in the United States and abroad. National, state and local authorities have recommendedimplemented social distancing and imposed or are considering quarantine and isolation measures on large portions of the population, including temporary mandatory business closures. These measures, while intended to protect human life, are expected to havehaving a serious adverse impactsimpact on domestic and foreign economies of uncertain severity andwith unknown duration. The effectiveness of economic stabilization efforts, including proposed government payments to affected citizens and industries, isand vaccine distribution and development efforts are uncertain. Some economists are predicting the United States will soon enter a recession.

The sweeping nature of the coronavirus pandemicCOVID-19, and any future variants, makes it extremely difficult to predict how our business and operations will be affected in the long term, though the likely overall economic impact of the pandemic is viewed as highly negative to the general economy. While it remainsThe pandemic continues to be a developing situation,threat, and any continuing quarantines,potential variant strain that may mutate can cause continued interruptions in travel and business disruptions with respect to us, our customers or our supply chainchain. This could adversely affect our sales, costs and liquidity position, possibly to a significant degree. We may alsoagain become subject to store closures. Although weWe are continuing to monitor and assess the progress of vaccines concerning our employees and the public. The effects of the coronavirus pandemic on our business, the ultimate impact is highlyremains uncertain and subject to change. The duration of any such impact cannot be predicted.

PART I

Item 1AWe continue to monitor the impact of the COVID-19 pandemic on all aspects of our business. See “Item 7. Management’s Discussion and Analysis—DGSE Precious Metals Pricing and Business Impact” for more information.

We face intense competition across all markets for our products and services, which may lead to lower revenue or operating margins.

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

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

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

PART I

Item 1A

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

Our DGSE wholesale and jewelry business is seasonal, with sales traditionally greater during certain holiday seasons, so events and circumstances that adversely affect holiday consumer spending will have a disproportionately adverse effect on our operational results.

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

If we misjudge the demand for our products, high inventory levels could adversely affect future operating results and profitability.

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

Changes in our liquidity and capital requirements and our ability to secure financing and credit could materially adversely affect our financial condition and results of operations.

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

PART I

Item 1A

Interest-rate fluctuations could increase our interest expense.

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

A failure in our information systems could prevent us from effectively managing and controlling our business or serving our customers.

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

PART I

Item 1A

Our success depends on our ability to attract, retain and motivate qualified directors, management and other skilled employees.

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

The Company is expanding to geographical regions that we are unfamiliar.

Both of the Company’s segments now have portions of their business located in areas other than the Dallas/Ft. Worth Metroplex (the “DFW Metroplex”). Our ability to manage and control growth in new areas is vital to sustaining our success. The Company has a solid footprint in the DFW Metroplex, but it is not guaranteed that we will be able find staff, train and supervise new employees away from the Company’s base of operations for both DGSE and ECHG.

We have not paid dividends on our Common Stock in the past and do not anticipate paying dividends on our Common Stock in the foreseeable future.

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

We are subject to new and existing corporate-governance and internal-control reporting requirements, and our costs related to compliance with, or our failure to comply with, existing and future requirements could adversely affect our business.

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

PART I

Item 1A

Our websites may be vulnerable to security breaches and similar threats, which could result in our liability for damages and harm to our reputation.

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

PART I

Item 1A

Fluctuations in the availability and pricing of commodities, particularly gold, which accounts for the majority of our merchandise costs, could adversely impact our earnings and cash availability.

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

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

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

The conflict-mineral diligence process, the results from that process and the related reporting obligations could increase costs, adversely affect our reputation and adversely affect our ability to obtain merchandise.

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

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

PART I

Item 1A

Our customer and vendor concentration in one significant customer and vendorentity could have an adverse impact on our business.

A significant amount of DGSE’s revenue is sourcedand expenses stems from sales to and purchases from one customer,Dallas refining partner, which wasrelationship constitutes Envela’s single largest source of revenues and expenses.In addition, a related party through May 20, 2019. This related party accounted for 4% of our sales and 6% of our purchases in Fiscal 2019 prior to May 20, 2019, and for 11% of our sales and 2% of our purchases in Fiscal 2018. No other retail or wholesale customers accounted for more than 10% of our revenues as of December 31, 2019 and 2018, respectively. During Fiscal 2017, we decided start doing business with two separate parties who buy and sell our excess bullion. This reduced our dependency on the related party and lowered our transactional risk. On May 20, 2019, the related party became a regular customer and vendor due to the series of transactions described in Relationships paragraph on page 4.

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

PART I

Item 1B, 2 3, 4

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

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

Our principal corporate offices are located at 1901 Gateway Drive, Suite 100, Irving, Texas 75038.

We consider whether to renew or renegotiate our leases based on a variety of factors, including whether current lease options are available. On September 9, 2020, we entered into a new lease for Echo’s Carrollton warehouse location, the initial term for the new lease began January 1, 2021 and will expire on January 31, 2026. The new lease omits provisions in the DGSE flagship store locatedprevious lease requiring a sublet of a portion of the warehouse to a third party and provides us an optional extension of an additional 60 months. On August 24, 2021, we entered into a new lease for DGSE’s Dallas Flagship location, the initial term for which began October 1, 2021, and will expire January 31, 2027. The new lease offers one renewal extension for an additional 60 months at 13022 Preston Road, Dallas, TX 75240. This location is large enoughmarket rate upon exercising the option. ITAD’s Carrollton warehouse lease expired on July 31, 2021, and was not renewed. A new ECHG warehouse lease was assigned to facilitate our large retail showroomCEX in connection with the CExchange Transaction on June 9, 2021. ITAD moved its operations to the building with Teladvance when ITAD’s lease expired on July 31, 2021. Teladvance’s new assigned lease was set to expire December 31, 2021, but on October 31, 2021, we entered into an amended lease for Teladvance’s new Carrollton warehouse location. The amended lease began January 1, 2022 and house our corporate offices.will expire January 31, 2027. A new ECHG warehouse lease was assigned to Avail DE in connection with the Avail Transaction. The new assigned warehouse lease expires on May 31, 2025. We continue to evaluate options with respect to renegotiating leases or moving operations conducted at or centrally routed to these locations.

PART I

Item 2, 3, 4

The following table provides a summary of all materially significant locations out of which we and our subsidiaries operate as of December 31, 2019:2021:

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

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

Item 5, 6

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND

ISSUER PURCHASES OF EQUITY SECURITIES

MARKET AND STOCKHOLDERS

Our Common Stock is traded on the NYSE American (the “Exchange”),Exchange, under the symbol “ELA”.“ELA.” As of February 28, 2020,March 11, 2022, we had 412283 record holders of our Common Stock.

The following table sets forth for the periods indicated, the per share high and low sales prices for our Common Stock as reported on the Exchange.

SHARE REPURCHASES AND DIVIDENDS

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

Securities authorized for issuance under equity compensation plans.

On June 21, 2004, our shareholders approved the adoption of the 2004 Stock Option Plan (the “2004 Plan”) which reserved 1,700,000 shares of our Common Stock for issuance upon exercise of options to purchase our Common Stock. We granted options to purchase an aggregate of 1,459,634 shares of our Common Stock under the 2004 Plan to certain of our officers, directors, key employees and certain other individuals who provided us with goods and services. Each option vested on either January 1, 2004 or immediately upon issuance thereafter. The exercise price of each option issued pursuant to the 2004 Plan is equal to the market value of our Common Stock on the date of grant, as determined by the closing bid price for our Common Stock on the Exchange on the date of grant or, if no trading occurred on the date of grant, on the last day prior to the date of grant on which our securities were listed and traded on the Exchange. Of the options issued under the 2004 Plan, as of December 31, 2019, 845,634 have been exercised, 599,000 have expired, and 15,000 remain outstanding. No further issuances can be made pursuant to the 2004 Plan.

On June 27, 2006, our shareholders approved the adoption of the 2006 Equity Incentive Plan (the “2006 Plan”), which reserved 750,000 shares for issuance upon exercise of options to purchase our Common Stock or other stock awards. We subsequently granted options to purchase 150,000 shares of our Common Stock pursuant to the 2006 Plan, of which 100,000 have been exercised, 50,000 have expired, and none remain outstanding as of December 31, 2019.

In January 2014, we granted 112,000 Restricted Stock Units (“RSUs”) to management and key employees, subject to the 2006 Plan. Under the terms of the RSU Award Agreements from January 2014, 25% of these RSUs vested immediately, with the remaining 75% to vest ratably over the next three years, pending each recipient’s continued employment by DGSE. On September 24, 2014, the Board awarded the three independent directors a total of 42,600 RSUs as compensation for their Board service. 100% of these RSUs vested on the day prior to DGSE’s 2015 Annual Meeting of Stockholders. On December 10, 2014, the Board awarded DGSE’s former Chief Executive Officer, James D. Clem, 75,000 RSUs as part of his compensation package. 100% of these RSUs vested immediately, and pursuant to this vesting, 75,000 shares of DGSE common stock were issued to Mr. Clem on December 18, 2014. On February 18, 2015, the Company issued 15,000 shares of DGSE’s common stock to management and key employees pursuant to the RSU Award Agreements.

PART II

Item 5

On March 24, 2016, the Board awarded the three independent directors on the Board at that time a total of 122,040 RSUs as compensation for their Board service. One-fourth (or 30,510) of the RSUs vested and were issued on March 31, 2016. The remaining RSUs vested ratably and were exercisable at the end of every quarter (June 30, September 30, and December 31, 2016). Each vested RSU converted into one share of our Common Stock, par value $0.01, without additional consideration, on the applicable vesting date. On April 27, 2016, the Board awarded Matthew Peakes, the Company’s former Chief Executive Officer and Nabil J. Lopez, the Company’s former Chief Financial Officer a total of 75,000 and 50,000 RSUs, respectively, as compensation for their service as executives of the Company. For Mr. Peakes, one-fourth (or 18,750), and for Mr. Lopez, one-fourth (or 12,500) of the RSUs were to vest ratably in equal annual installments over a four year period beginning on April 27, 2017, subject to a continued status as an employee on each such date and other terms and conditions set forth in the RSU Award Agreement, dated April 27, 2016. Each vested RSU is convertible into one share of our Common Stock, par value $0.01, without additional consideration. Upon termination of service of the employee, other than by death or disability, any RSUs that have not vested will be forfeited and the award of such units shall terminate. As a result of his resignation effective August 15, 2016, 50,000 RSUs awarded to Mr. Lopez were forfeited. In addition to the RSU grant above for Matthew Peakes and Nabil Lopez, the compensation committee granted an additional 75,000 and 50,000, respectively, performance based RSUs to the executives that were to vest ratably over a four-year period beginning April 27, 2017 if certain financial performance criteria were achieved. As a result of his resignation effective August 15, 2016, 50,000 RSUs awarded to Mr. Lopez were forfeited.

On April 27, 2017, 18,750 RSUs, one-fourth of the original 75,000 RSU grant for service, were vested and exercised by Matthew Peakes due to his continued employment on April 27, 2017, as dictated by the terms and conditions set forth in the RSU Agreement dated April 27, 2016. However, 18,750 RSUs, one-fourth of the original 75,000 RSU performance grant dated April 27, 2016, was forfeited by Matthew Peakes for not reaching certain financial performance criteria. As a result of his resignation effective June 30, 2017, 112,500 RSUs awarded to Matthew Peakes, 56,250 for his continued employment and 56,250 for performance grant were forfeited.

Subsequent to such grants, the 2006 Plan expired, as a result, no further issuances can be made pursuant to the 2006 Plan. As of December 31, 2019, there are 250 RSUs unexercised.

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

The following table summarizes options to purchase shares of Common Stock, Restricted Stock Units (“RSUs”), and Warrants outstandingour equity compensation plan information as of December 31, 2019:2021:

Purchases of equity securities by the issuer and affiliates purchases.

There have been no purchases made by or on behalf of the issuer or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act of any of our equity securities during the years ended December 31, 2021 and December 31, 2020.

ITEM 6. [RESERVED]

PART II

Items 6,7Item 7

ITEM 6. SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS

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

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS

Forward-Looking StatementsThis Form 10-K, including but not limited to this Item 7, information concerning our business prospects or future financial performance, anticipated revenues, expenses, profitability or other financial items, and our strategies, plans and objectives, together with other statements that are not historical facts, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of 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 and may contain information about financial results, economic conditions, trends, and known uncertainties. All forward-looking statements are based on current expectations regarding important risk factors. Many of these risks and uncertainties are beyond our ability to control, and, in many cases, we cannot predict all of the risks and uncertainties that could cause our actual results to differ materially from those expressed in the forward-looking statements. Actual results could differ materially from those expressed in the forward-looking statements, and readers should not regard those statements as a representation by us or any other person that the results expressed in the statements will be achieved. Important risk factors that could cause results or events to differ from current expectations are described underPlease see the section of this Form 10-K entitled “Risk Factors” and elsewhere in this Form 10-K. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the operations, performance, development and results of our business. Readers are cautioned not to place undue reliance“Note About Forward-Looking Statements” on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereon, including without limitation, changes in our business strategy or planned capital expenditures, store growth plans, or to reflect the occurrence of unanticipated events.

Overview of Fiscal 2019

On May 20, 2019, Envela, through an asset purchase, accounted for as a business combination (the “Echo Transaction”), as initially reported on Form 8-K filed May 24, 2019, purchased the assets of Echo Environmental, LLC and ITAD USA, LLC. A subsequent 8-K/A filed August 5, 2019, announced the formation of two new companies, Echo Environmental Holdings, LLC (“Echo”) and ITAD USA, LLC (“ITAD” and together with Echo, the “Echo Entities”), to process, recycle and resell electronic components from the assets purchased from the Echo Transaction.page 2.

The Company now includes segment information, dividing DGSEcoronavirus disease 2019 (COVID-19) pandemic has adversely affected global economic business conditions. Future sales on products like ours could decline, and the Echo Entities, inultimate impact is uncertain and subject to change. We took steps during Fiscal 2020 to have as many employees work from home as possible. We also followed governmental directives to wear masks and adopt the notessocial distance guidelines where possible. The duration of this pandemic and the impact, either direct or indirect cannot be predicted. The Company believed additional liquidity was necessary to support ongoing operations during this period of uncertainty. We applied for and received approximately $1.67 million, 1% interest, federally backed loan to pay employees and cover certain rent and utility-related costs during the COVID-19 pandemic. The Federal Loan was forgivable to the financialextent that certain criteria were met. We applied for the forgiveness of the Federal Loan during Fiscal 2020, and received notification during Fiscal 2021 that the loan had been forgiven.The forgiveness of the Federal Loan is included in Other income from loan forgiveness on our consolidated income statements. The object of segment reporting is to provide a management approach that identifies different types of businesses within the Company and how we have organized the segments to make financial decisions. We consider the Company in the recommerce business and have organized two different segments within our business and presented the performance of each separately.

PART II

Item 7

Changes in Financial Presentation During Fiscal Year 2020

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

DGSE Precious Metals Pricing and Business Impact

Because DGSE buys and sells jewelry, diamonds, fine watches, rare coins and currency,resells precious metal bullion products, scrap gold, silver, platinum and palladium as well as collectibles and other valuables. Our customers include individual consumers, dealers and institutions throughout the United States.

DGSEmetals, it is impacted by changes in precious metalsmetal pricing which rises and falls based upon global supply and demand dynamics, with the greatest impact on us relating to gold.gold as it represents a significant portion of the precious metal in which we trade. Gold prices showed volatilitysurged during the beginnings of the COVID-19 pandemic, starting at $1,523 an ounce, as determined by the London AM Fix on January 1, 2020, and rose strongly during the first half of 2020 peaking at $2,060 an ounce during August. However, gold prices dipped from the peak to close at $1,891 an ounce, as determined by the London PM Fix on December 31, 2020. Although gold dipped during the second half of Fiscal 2020, it still registered a 24% increase during Fiscal 2018. The price per ounce started the year at $1,303 an ounce but dipped down2020. Gold prices continued to $1,177dip to a low of $1,683 an ounce on August 17, 2018March 30, 2021, and then began to rebound slightly,throughout the remainder of the year closing at $1,238 an ounce$1,820 on December 31, 2018,2021, as measureddetermined by the London PMAM Fix. The overallDuring fiscal year 2021, gold price trending down in Fiscal 2018 produced a net loss of 5%prices receded 4% from December 31, 2017 to December 31, 2018. Gold became more stable during Fiscal 2019, steadily rising throughout the year ending at $1,523 per ounce on December 31, 2019. An increase of 19% during Fiscal 2019.2020.

The gold scrap market, accordingAccording to the World Gold Council (“WGC”), was a roller-coaster ride during Fiscal 2018. The WGC noted thatCouncil’s press release dated January 28, 2022, the use of gold demand improved greatly during 2019 due to uncertainty in the global financial marketstechnology sector in 2021 increased 9% to reach a three year high. While technology demand is comparatively smaller than other sectors, its uses are far reaching and rising geopolitical unrest. Investor demand should continue to support the higher prices through 2020, accordingprevalent in a variety of electronics, from mobile devices to the WGC. Withsophisticated James Webb telescope recently put into orbit.

According to the same press release, gold is expected to face similar dynamics in 2022 to those seen last year, with competing forces supporting and curtailing its performance. Near term, the gold price of gold stabilizing over $1,500 an ounce,will likely react to real rates, which in turn will respond to the buyingspeed at which global central banks tighten monetary supply and selling of pre-owned or “scrap” gold has picked up significantly and we are confident that the future looks bright for our purchasing model at DGSE.their effectiveness in controlling inflation.

PART II

Item 7 

The pandemic seems to continue to affect the recommerce business in unpredictable ways. Although there are variants of COVID-19 affecting the health of the United States, the employment figures through 2021 suggest people were heading back to work during 2021. The unemployment rate has gone from over six percent (6%), in January of 2021, to four percent (4%), as of January 2022. This is the opposite of what one might expect during a pandemic that is still considered a threat and when a social phenomenon labeled as the Great Resignation threatens the country’s ability to retain workers. Government stimulus checks, eviction moratoriums, forbearances on mortgages and student loans have all been stopped or curtailed during 2021. During these uncertain times, DGSE has shown our continuing devotion to provide our customers what they need.

When prices rise for gold or other precious metals, DGSE has observed that individual sellers tend to be more likely to sell their unwanted crafted-precious-metal items and at the same time retail customers tend to buy bullion and other gold products so as not to miss out on potential market gains. Tracking the decrease in gold prices during 2021, DGSE’s crafted-precious-metal purchases decreased slightly by 5% in fiscal year 2021. In fiscal year 2020, DGSE experienced a decrease in crafted-precious-metal purchases by 21%. The Company attributes the slight decrease to the impact of the precious metals market on DGSE mirrors much of what the WGC reports on a macroeconomic level during prior years, DGSE scrap purchases fell in Fiscal 2018. During Fiscal 2019 our scrap purchases increased 45% over that of Fiscal 2018.COVID-19, which impacted foot traffic and its retail locations. While the precious metalsprecious-metals industry has improved,stabalized, our focus will be to continue in growingto grow our jewelry, diamond and fine watch and scrap business, as well as maintain our business of purchasing crafted-precious-metal items, a diversified strategy which we believe will continue to grow and be a profit engine in the future.

Three years ago, we went back to our roots: buying and selling jewelry and timepieces at exceptional prices. Scrap buying is a major source of how we market ourselves. The focus of our marketing and merchandising efforts starting in Fiscal 2017 was growing our jewelry, diamond and watch businesses, and we had not seen the results that were anticipated. At the beginning of Fiscal 2017, we began our marketing campaign to retell our story. We continue to believe that the most successful locations will be those that can sustain our full retail “exchange” model: engaging in both buying and selling of precious metals and related merchandise, while maintaining a robust and diverse inventory across all jewelry categories and providing critical services such as watch and jewelry repair. The locations that have historically been primarily scrap buying centers are once again flourishing with the increased price of gold. In recent years,For additional information regarding DGSE, has had many smaller locations spread across the Dallas-Ft Worth area in order to provide multiple scrap collection sites. We are now focusing on developing larger, full-service stores, with broad inventory offerings across all categories, while also providing value-added services that help drive retail traffic. We will continue to focus on evolving our business across all of our markets, in an effort to drive efficiency across our geographical footprint and maximize profitability.see “Item 1. Business—Operating Segments—DGSE Segment.”

As stated earlier in the first paragraph in the overview, theECHG Business Drivers and Impacts

ECHG owns and operates Echo, Transaction allows us to play a larger role in environmental sustainability. It is our mission to solve problems for our clientsITAD USA, CEX, Avail DE and leave the planet a better place than we found it. The world is quickly shifting its priorities to better manage our global resourcesTeladvance, through which it primarily buys and it is our drive to work with our customers to design a flexible, convenient, hassle-free program that accommodates their specific needs. We provideresells or recycles consumer electronic components and IT equipment. Echo focuses on end-of-life electronics recycling and also offers disposal transportation and product tracking, and comprehensive end-of-life recycling for their individual commodity components. Recycling electronics is good for business and good for the planet. Of the top twenty-five recycling countries in the world, the U.S. is twenty-fifth, according to a 2017 report developed by the environmental consultancy Eunomia.

Echo Environmental buys all forms electronic components from businesses and other organizations such as school districts for end-of-life processing. The components are sorted, stripped of precious metals, and processed further for our customers downstream. We sell to downstream recycling companies who further process our material for insertion back into our world as recycled products or material used in roads or other building projects.

PART II

Item 7

ITAD USA provides secure collection, transportation, refurbishment, repairIT equipment disposition including compliance and data destructionsanitization services, and Teladvance, CEX and Avail DE operate as value-added resellers by providing offerings and services to companies looking to either upgrade capabilities or dispose of equipment. Like DGSE, ECHG also maintains relationships with refiners or recyclers to which it sells extracted valuable materials from electronics and IT equipment that are not appropriate for companies seeking to replace and remarket their IT equipment. Electronic devices with remaining value are scrubbed of data that remain on the devise then refurbished and sold thereby extending the remaining life and value. Our customers include domestic- and international-based companies and organizations.resale or reuse.

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

Critical Accounting Policies and Estimates

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

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

PART II

Item 7 

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

Impairment of Long-Lived and Amortized Intangible Assets: We perform impairment evaluations of our long-lived assets, including property, plant and equipment and intangible assets with finite lives whenever business conditions or events indicate that those assets may be impaired. When the estimated future undiscounted cash flows to be generated by the assets are less than the carrying value of the long-lived assets, the assets are written down to fair market value and a charge is recorded to current operations. Based on our evaluations, no impairment was required as of December 31, 20192021 or 2018.2020.

Business Combinations: Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. Accounting for business acquisitions requires management to make judgments as to whether a purchase transaction is a multiple element contract, meaning that it includes other transaction components such as a settlement of a preexisting relationship. This judgment and determination affects the amount of consideration paid that is allocable to assets and liabilities acquired in the business purchase transaction.

Revenue Recognition: In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards update (ASU) No. 2014-09,Revenue from Contracts with Customers (Topic 606), which superseded revenue recognition requirements in Topic 605, Revenue Recognition. The ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgements and changes in judgements and assets recognized from cost incurred to obtain or fulfill a contract.

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

PART II

Item 7

Our over-the-counter sales with the retail public and wholesale dealers are recognized when the merchandise is delivered, and payment has been made either by immediate payment or through a receivable obligation at one of our retail locations. We also recognize revenue upon the shipment of goods when retail and wholesale customers have fulfilled their obligation to pay, or promise to pay, through e-commerce or phone sales. We have elected to account for shipping and handling costs as fulfillment costs after the customer obtains control of the goods. Our scrap isCrafted-precious-metal items at the end of their useful lives are sold to a refiner. Since the local refiner Elemetal, who was a related party until May 20, 2019. Since Elemetal is located in the Dallas/FtFort Worth area we deliver the scrapmetal to the refiner. The metal is melted and assayed, price is determined from the assay and payment is made usually in a day or two. Revenue is recognized from the sale once payment is received.

WeDGSE also offeroffers a structured layaway plan. When a retail customer utilizes the layaway plan, we collect a minimum payment of 25% of the sales price, establish a payment schedule for the remaining balance and hold the merchandise as collateral as security against the customer’s deposit until all amounts due are paid in full. Revenue for layaway sales is recognized when the merchandise is paid in full and delivered to the retail customer. Layaway revenue is also recognized when a customer fails to pay in accordance with the sales contract and the sales item is returned to inventory with the forfeit of deposited funds, typically after 90 days.

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

PART II

Item 7 

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

We have a return policy (money-back guarantee). The policy covers retail transactions involving jewelry, graded rare coins and currency only. Customers may return jewelry, graded rare coins and currency purchased within 30 days of the receipt of the items for a full refund as long as the items are returned in exactly the same condition as they were delivered. In the case of jewelry, graded rare coins and currency sales on account, customers may cancel the sale within 30 days of making a commitment to purchase the items. The receipt of a deposit and a signed purchase order evidences the commitment. Any customer may return a jewelry item or graded rare coins and currency if they can demonstrate that the item is not authentic, or there was an error in the description of a graded coin or currency piece. Returns are accounted for as a reversal of the original transaction, with the effect of reducing revenues, and cost of sales, and returning the merchandise to inventory. We have established an allowance for estimated returns related to Fiscal 2019years ended December 31, 2021 and Fiscal 20182020 sales, which is based on our review of historical returns experience and reduces our reported revenues and cost of sales accordingly. As of December 31, 2019,2021 and 2018,2020, our allowance for returns remained the same at approximately $28,000 for both years.

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

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

PART II

Item 7

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 customer, Hanwa American Corp., that has a refining facility in Japan. Hanwa pays us sixty percent (60%) of an Invoice within five working days upon the receipt of the Ocean Bill of Lading issued by the Ocean Carrier. Our initial Invoice is recognized in full when our performance obligation is satisfied, as stated in the first sentence. Under the guidance of ASC 606, an estimate of the variable consideration that we expect to be entitled is included in the transaction price stated at the current precious metal spot price and weight of the precious metal. An adjustment to revenue is made in the period once the underlying weight and any precious metal spot price movement is resolved, which is usually around six (6) weeks once our performance obligation is met. 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.

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

Accounts Receivable: We record trade receivables when revenue is recognized. When appropriate, we will record an allowance for doubtful accounts, which is primarily determined by an analysis of our trade receivables aging. The allowance is determinedaging using a percentage of past due invoices by categories for DGSE and Avail DE. ECHG, excluding Avail DE, uses a different analysis process based on historical experience of collecting past due amounts, based on the degree of their aging. In addition, specific accounts that are doubtful of collection are included in the allowance. These provisions are reviewed to determine the adequacy of the allowance for doubtful accounts. Trade receivables are charged off when there is certainty as to their being uncollectible. Trade receivables are considered delinquent when payment has not been made within contract terms. DGSE had no allowance for doubtful accounts balance for the years ending December 31, 20192021 and December 31, 2018. The Echo Entities also had no2020. ECHG has allowance for doubtful accounts balance atof $1,583 and $0 for the years ended December 31, 2019.2021 and 2020.

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Item 7 

Note Receivable: ECHG entered into an agreement with CExchange on February 15, 2020, to lend $1.5 million bearing interest at eight and one-half percent (8.5%) per annum with interest only payments due quarterly. The loan was set to mature on February 20, 2023. The parties also agreed to warrant and call-option agreements to acquire all of CExchange’s equity interests upon the occurrence of certain events and on certain conditions. On November 7, 2020, ECHG entered into an amended agreement to increase the loan from $1.5 to $2.1 million.  On April 14, 2021, ECHG entered into a second agreement with CExchange to lend an additional $300,000 bearing interest at four percent (4%) per annum with interest only payments due quarterly, to be repaid, principal and accrued interest, upon the occurrence of certain events or upon demand by ECHG. On June 9, 2021, ECHG, through CEX, exercised their rights under the warrant and call-option agreements and purchased substantially all of the assets and certain liabilities of CExchange in exchange for ECHG’s cancellation and forgiveness of $1.5 million of the outstanding principal amount under the loan agreement originally dated February 15, 2020 and accrued and unpaid interest thereunder of $55,892. We subsequently performed impairment evaluations on the two remaining notes after management learned that the two notes may not be recoverable. Using the guidance provided, management reserved the full amount of the outstanding and unpaid notes receivable of $900,000, and write-off the outstanding and unpaid accrued interest associated with the notes receivable totaling $49,174. The notes receivable of $900,000 and $49,174 of accrued interest receivable were charged to other expense, as of September 30, 2021. Subsequent to reserving the note of $900,000, as of September 30, 2021, a partial payment was received of $61,353, reducing the amount of the reserve to $838,647, as of December 31, 2021.

ECHG entered into an agreement with Committed Agency, LLC (“Committed Agency”) on February 4, 2021, pursuant to which it agreed (the “CA Facility Agreement”) to provide Committed Agency a line-of-credit not to exceed $1,000,000 (the “CA Facility”). Committed Agency intended to, directly or indirectly, sell or dispose of electronic devices previously owned by major electronic carriers. In addition to the CA Facility Agreement, ECHG contracted with Committed Agency beginning February 4, 2021 to exclusively facilitate their sales through the Company’s warehousing and cleaning of electronic devices, wiping of existing data, and inspecting, packaging and shipping of devices to purchasers, in exchange for which ECHG received a per unit service fee (the “CA Service Agreement”). The CA Service Agreement terminated and the CA Facility matured on July 30, 2021. Under the terms of the agreement, the borrower could not borrow any additional funds, under this facility, after May 31, 2021. Committed Agency paid back all principal and accrued interest as of December 31, 2021. Amounts borrowed under the CA Facility bore an interest rate of 6% per annum.

Income Taxes: Income taxes are accounted for under the asset and liability method prescribed by ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not such assets will be realized.

We account for our position in tax uncertainties in accordance with ASC 740, Income Taxes. The guidance establishes standards for accounting for uncertainty in income taxes. The guidance provides several clarifications related to uncertain tax positions. Most notably, a “more likely-than-not” standard for initial recognition of tax positions, a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization. The guidance applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements. First, we must determine whether any amount of the tax benefit may be recognized. Second, we determine how much of the tax benefit should be recognized (this would only apply to tax positions that qualify for recognition.) No additional liabilities have been recognized as a result of the implementation. We have not taken a tax position that, if challenged, would have a material effect on the financial statements or the effective tax rate during Fiscal 20192021 and Fiscal 2018,2020, respectively.

PART II

Item 7

Results of Operations

Year Ended December 31, 20192021 Compared to Year Ended December 31, 20182020

Revenues:Revenue. Revenue related to DGSE’s Revenue from continuing operations increased by $13,463,811$11,057,868, or 24.9%13%, during Fiscal 2021, to $96,719,259, as compared to $85,661,391 during Fiscal 2020. Resale revenue, such as bullion, jewelry, watches and rare coins, increased by $9,356,364, in Fiscal 2019,2021, or 12%, to $67,520,154$89,146,783 as compared to $54,056,343 in the prior year. Jewelry sales decreased 4.3%$79,790,419 during Fiscal 2020. Recycled-material revenue increased 29% to $7,572,476 for Fiscal 2021, as compared to $5,870,972 for Fiscal 2020, an increase of $1,701,504. Revenue increased for resale items for Fiscal 2021, compared to Fiscal 2018. Bullion/Rare Coin sales2020 primarily due to the apparent increase in consumer demand following the lifting of governmental orders to refrain from selling non-essential items in our retail stores due to the COVID-19 pandemic during Fiscal 2020 and the increased approximately 36.5%retail locations for DGSE during Fiscal 2021, whereas, the new locations were only operating for a part of Fiscal 2020. The increase in recycled-materials revenue, for Fiscal 2021, as compared to Fiscal 2018. Scrap sales increased 44.6% compared to Fiscal 2018. Other sales, which includes jewelry and watch repair increased 72.7%. The increase in revenue from Fiscal 2018 to Fiscal 20192020, is primarily due to the increaseadditional retail locations purchasing inventory over the counter. Increased purchasing from over the counter customers increased our gold and stabilizationsilver pieces that did not make the level of gold prices increasing 19% in value during Fiscal 2019 compared to a decrease of 5% during Fiscal 2018.quality for retail display and was therefore recycled.

Revenue related to ECHG continuing operations increased by $15,986,195, or 57%, during Fiscal 2021, to $44,246,819, as compared to $28,260,624 during Fiscal 2020. Resale revenue increased by $13,144,532, or 68%, during Fiscal 2021, to $32,540,366, as compared to $19,395,834 during Fiscal 2020. Recycled revenue increased by $2,841,663, or 32%, during Fiscal 2021, to $11,706,453, as compared to $8,864,790 during Fiscal 2020. The increase in both resale and recycled revenue, for Fiscal 2021 as compared to Fiscal 2020 is primarily due to the Echo Entities for the period beginning May 20, 2019 through December 31, 2019 was $14,504,343. Recycled material sales of $4,441,347 accounted for 31%opening-up of the total. Reuse sales of $4,280,934 accountedeconomy and COVID-19 vaccines approved and administered during Fiscal year 2021, as compared to Fiscal year 2020 when COVID-19 began and governmental measures were issued forcing many businesses to close in-person commerce and for 29% of the total. Refining revenue of $3,417,872 accounted for 24% of the total and Services of $2,364,190 accounted for the remaining 16%.employees to stay at home.

Gross Margin:Margin: Gross margin,profit related to DGSE, decreasedincreased in Fiscal 20192021 by $761,899$2,238,292 to $8,917,824,$12,608,162, or 22%, as compared to $9,679,723$10,369,870 during Fiscal 2018.2020. The decrease in gross profit wasfor resale revenue increased by $1,806,668, or 20%, during Fiscal 2021, to $11,022,162, as compared to $9,215,494 during Fiscal 2020. The gross profit for recycled sales increased by $431,624, or 37%, during Fiscal 2021 to $1,586,000, as compared to $1,154,376 during Fiscal 2020. The resale gross profit increased during Fiscal 2021 as compared to Fiscal 2020 primarily due to a decrease12% increase in gross margin across the board, decreasing in total from 17.9% in Fiscal 2018 to 13.2% in Fiscal 2019. Even though there wasresale revenue and a decrease in every margin percentage increase from 11.5% during Fiscal 2019, the2020 to 12.4% during Fiscal 2021. The recycled gross profit increased sales of Scrapduring Fiscal 2021 as compared to Fiscal 2020 primarily due to a 29% increase in recycled revenue and Other Sales helped in narrowing the overall decline in gross margin. The decrease in the grossa margin was due primarily in changing our strategy for a higher velocity of sales.percentage increase from 19.7% during Fiscal 2020 to 20.9% during Fiscal 2021.

The Echo Entitiesgross profit related to ECHG, increased in Fiscal 2021 by $5,913,904 to $18,612,997, or 47%, as compared to $12,699,093 during Fiscal 2020. The gross profit for resale revenue increased by $5,065,485, or 53%, during Fiscal 2021, to $14,570,092, as compared to $9,504,607 during Fiscal 2020. The gross profit for recycled sales increased by $848,419, or 27%, during Fiscal 2021 to $4,042,905, as compared to $3,194,486 during Fiscal 2020. The resale gross profit increased during Fiscal 2021 as compared to Fiscal 2020 primarily due to a 68% increase in resale revenue even though the margin forpercentage decreased from 49.0% during Fiscal 2020 to 44.8% during Fiscal 2021. The recycled gross profit increased during Fiscal 2021 as compared to Fiscal 2020 primarily due to a 32% increase in recycled revenue even though the period beginning May 20, 2019 through December 31, 2019 was $7,338,018 on $14,504,343 of sales, or an overallmargin percentage of 50.6%. Recycling’s gross margin of 57.0% accounted for $2,533,416 of the total. Reuse’s gross margin of 50.4% accounted for $2,158,698 of the total. Refining’s gross margin of 16% accounted for $546,860 of the total and Services’ gross margin of 88.8% accounted for $2,099,044 of the total gross margin.decreased from 36.0% during Fiscal 2020 to 34.5% during Fiscal 2021.

PART II

Item 7

The following table represents our historical operating revenue and gross profit results by category:

Selling, General and Administrative: Selling, general and administrative expenses for DGSE decreased $1,216,265increased $695,118, or 14%10% in Fiscal 2019,2021, to $7,485,234$7,628,377, as compared to $8,701,499 in the prior year.$6,933,259 during Fiscal 2020. The overall decreaseincrease in SG&A was primarily through the reduction of bad debt expense of $1,244,461 from Fiscal 2018 to Fiscal 2019. Bad debt expense in Fiscal 2018 was due primarily to the write-offadditional expenses of the Larson Group note receivablenew Lewisville and consignment write-offs.Grapevine retail locations during all of Fiscal 2021 as compared to only a portion of Fiscal 2020. 

Selling, general and administrative expenses for the Echo Entities totaled $5,009,276 for the period beginning May 20, 2019 through December 31, 2019. TheECHG increased by $4,549,703, or 53% during Fiscal 2021, to $13,169,718, as compared to $8,620,015 during Fiscal 2020. Fiscal 2021 expenses consist primarily of payroll, payroll taxes and employee benefits of $2,786,387,$7,936,190, rent and variable rent costs, net of sublet income, of $402,975,$1,397,869, warehouse and office supplies of $209,574, insurance costs of $77,053,$307,176, travel expenses of $55,277, accounting and$72,548, professional fees of $155,388,$202,680, Utilities of $159,489$355,279 and otheroverhead administrative expenses totaling $100,867.of $1,177,037. The assets from the CExchange Transaction and the Avail Transaction were acquired on June 9, 2021 and October 29, 2021, respectively; therefore, Fiscal 2021 is not comparable to Fiscal 2020.

Depreciation and Amortization: Depreciation and amortization for DGSE decreasedincreased by $18,074$67,870, or 6% in21%, during Fiscal 20192021, to $268,673$389,703 as compared to $286,747 in$321,833 during Fiscal 2018.2020. The decreaseincrease is primarily due to assetsthe added depreciation from two buildings purchased, associated build-out costs and added building furnishings that are being fully depreciated but still in service.were placed into service during the fourth quarter of Fiscal 2020.

The Depreciation and Amortization expense for ECHG increased by $129,599, or 32%, during Fiscal 2021, to $536,392 as compared to $406,793 during Fiscal 2020. The increase is primarily due to added equipment to Echo’s warehouse during Fiscal 2021 and the Echo Entities totaled $251,625 for the period beginning May 20, 2019 through December 31, 2019. The balance is made upadditional depreciation of fixed assets and the amortization of intangibles acquiredadded intangible assets from the EchoCExchange Transaction on May 20, 2019.and the Avail Transaction.   

Other Income/Expense:income from loan forgiveness: Other income fromloan forgiveness is due from the Federal Loan being forgiven during Fiscal 2021 and allocated to both segments in accordance to the use of the funds. The total amount forgiven of $1,668,200 was allocated to DGSE in the amount of $675,210, and $992,990 was allocated to ECHG.  

Other Income (expense), net: Other income for DGSE decreasedincreased by $161,081$124,611 in Fiscal 2019,2021, to $55,384$238,585, as compared to $216,465 in$113,974 during Fiscal 2018.2020.  During Fiscal 2019,2021, other income of $55,384,$238,585, consists primarily of DGSE’s portion of the net rental income in excess of the SG&A expenses from space leased at the Company’s corporate headquarters of $230,364. Fiscal 2020, other income of $113,974, was primarily the write upcombination of a small plot of land owned by the Company for many years. Fiscal 2018, other income of $216,465, was primarily writing off old store creditsvendor checks of approximately $45,000 and enforcing our lay-a-way policy to return unclaimed lay-a-ways back to inventory after ninety days when payments are forfeited.half of the rent income allocated from tenants at the new Company headquarters’ of $67,632. 

PART II

Item 7

Other expense for ECHG increased by $731,043 during Fiscal 2021, to $538,020, as compared to other income of $193,023 during Fiscal 2020. Other expense during Fiscal 2021, of $538,020, consists primarily of interest income from notes receivables of $113,606, net rental income in excess of the Echo Entities totaled $5,628SG&A expenses from the space leased at the Company’s corporate headquarters of $230,364, offset by the write-off of the CExchange note receivable accrued interest of $49,174 and the reserve set for the period beginning May 20, 2019 through December 31, 2019. The other expense amountCExchange note receivable of $5,628$838,647. Other income during Fiscal 2020, of $193,024 is combined with otherprimarily a combination of interest income from DGSEnote receivable of $55,384 netting to $49,756 as other$114,297 and half of the rent income net onallocated from tenants at the Consolidated Income Statements.new Company headquarters’ of $67,632.

Interest Expense: Interest expense for DGSE increased by $12,701$78,941 or 8%38%, in Fiscal 2019,2021, to $162,241$288,236 as compared to $149,540$209,295 in Fiscal 2018.2020. The slight increase is due fromconsists primarily of two additional DGSE notes payable and half the promissory note issued by John R. LoftusCompany’s corporate headquarters’ notes payable interest for all of Fiscal 2021 as compared to pay off an accounts payable – related party balance on May 20, 2019, that hasonly a slightly higher interest rate than the accounts payable – related party had as an imputed rate.portion of Fiscal 2020.

The interest expense for the Echo Entities was $252,720 for the period beginning May 20, 2019 through, December 31, 2019.ECHG increased by $4,610 during Fiscal 2021, to $415,814 as compared to $411,204 during Fiscal 2020. The interestincrease is primarily related to the note payable, related party, with an outstanding balancerevolving line of $6,689,507credit interest of $6,005 during Fiscal 2021 as compared to $0 interest for the revolving line of December 31, 2019.credit during Fiscal 2020. 

Income Tax Expense: Income tax expense for DGSEthe Company increased $17,625by $23,190, or 29%26%, in Fiscal 2019,2021, to $78,297$112,808 as compared to $60,672$89,618 in Fiscal 2018. The increase is primarily due to state and local income taxes from an increase in revenue.2020.  See Note 1415 for Federal Income Taxes.

Net Income: WeThe Company recorded a net income of $2,780,713$10,048,875 in Fiscal 2019,2021, as compared to a net income of $657,685$6,383,943 in Fiscal 2018, an2020. An increase in net income of $2,123,028$3,664,932 is due primarily to an increase of revenue of approximately $27.0 million and the purchaseforgiveness of the Echo Entities adding $1,801,950 in Fiscal 2019 and the bad debt write offFederal Loan of $1,241,919 in Fiscal 2018.approximately $1.67 million.

Earnings Per Share: Our net income per basic and diluted shares attributable to common stockholdersholders of our Common Stock was $0.10, for$0.37, during Fiscal 2019,2021, as compared to $0.02$0.24 per basic and diluted shares forduring Fiscal 2018,2020, an increase of $0.08$0.13 per share.  The increase is due primarily from the revenue increase of approximately $27.0 million from Fiscal 2020 to Fiscal 2021 and the additionforgiveness of the Echo Entities net incomeFederal Loan of $0.06 per basic and diluted shares for the period May 20, 2019 through December 31, 2019, and an additional $0.02 income per basic and diluted shares from DGSE for Fiscal 2019 over Fiscal 2018.approximately $1.67 million.

Liquidity and Capital Resources:During Fiscal 2019,2021, cash flows used in operating activitiesprovided by operations totaled $542,828$2,805,063, as compared to cash flows provided in operating activitiesby operations totaling $375,217$6,897,091 in Fiscal 2018, an increased2020, a decrease in cash flows used in operating activitiesprovided by operations of $918,045.$4,092,028. Cash used inprovided by operating activities for the year ended December 31, 2019,2021, was primarily driven by the increase in accounts payable and accrued expenses of $752,379, an increase in customer deposits and other liabilities of $357,548 and net income, adding depreciation and amortization, bad debt expense, Other income from forgiveness of the Federal Loan and write off of note receivables accrued interest and to reserve the notes receivable of $10,277,594. Offset by the increase of trade receivables of $3,969,701, the increase of inventories of $3,554,802, and the increase in other assets of $1,024,234. Cash provided by operating activities for the year ended December 31, 2020, was primarily driven by the increase in trade accounts receivable of $1,877,783,$151,124, an increase in customer deposits and other liabilities of $263,572 and net income, adding depreciation, amortization and stock based compensation to employees of $7,112,894. Offset by the increase of inventories of $497,444, the increase of prepaid expenses of $108,884 and the reduction of accounts payable and accrued accounts payable of $492,952, the reduction of the accounts payable – related party of $3,074,021. Offset by the reduction of inventories of $1,464,843, the increase in operating leases of 124,713 and net income, with depreciation and amortization of $3,301,011. Cash provided by operating activities for the year ended December 31, 2018, was driven largely by a decrease in net trade receivables and net trade receivables, related party of $115,025, a decrease in prepaid expenses of $100,297 and net income of $2,226,396 before non-cash expenses of bad debt expense, depreciation and amortization and loss on disposal of equipment. Offset by cash used in operating activities with an increase in inventories of $1,167,404, a decrease in accounts payable and accrued expenses of $163,660 and a decrease in accounts payable, related party of $813,320

PART II

Item 7$29,332. 

During Fiscal 20192021 and Fiscal 2018,2020, cash used in investing activities totaled $6,039,505$4,875,356 and $191,132,$7,964,588, respectively, an increasea decrease of $5,848,373. The cash$3,089,232. Cash used in investing during Fiscal 2021 was primarily due to investing in a note receivable of $300,000, purchasing a new building for 2019,DGSE’s retail operations totaling $2,352,075 and associated build out costs, of which $526,169 were cash payments applied against the purchase of the retail location and the remainder of the balance of the purchase was financed through notes payable, the combination of property and equipment purchases of $102,989, the continual upgrading our point-of-sale system in the amount of $60,000 and acquisition of the Echo Entities,assets from the CExchange Transaction and the Avail Transaction, net of cash acquired, in the amount of $5,876,516.$1,497,994 and equipment purchases totaling $786,640, offset by payments from note receivable of $61,353. The cash used in the amount of $191,132 for 2018,investing during Fiscal 2020 was thea combination of equipmentinvesting in a note receivable of $2,100,000 to CExchange, purchasing two new retail locations for DGSE totaling $1,815,000 and associated build out costs, of which $363,000 was cash payments applied against the purchases of the retail locations and the continued buildingremainder of the balance from the purchases was financed through notes payable, and the purchase of our new point-of-sale system.corporate headquarters totaling $3,521,021, of which $561,021 was cash payments applied against the office building and the remainder of the balance from the purchase was financed through notes payable. 

PART II

Item 7

During Fiscal 2019,2021 and Fiscal 2020, cash provided by financing activities totaled $9,639,052,$2,990,405 and Fiscal 2018, cash used in financing activities totaled $2,352, an increase in cash$5,774,873, respectively, a decrease of $2,784,468. Cash provided by financing activities of $9,641,404. The increase in cash provided by financing activities during 2019Fiscal 2021 is primarily due to the funds provided to purchaseproceeds from the Echo Entities through a promissory note from John R. Loftus dated May 20, 2019 for $6,925,979. Additionally, funds provided to pay off an accounts payable – related party balance of $3,074,021, evidenced by a promissory note dated May 20, 2019 by John R. Loftus and the drawing on a short-termCompany’s line of credit fromof $1,700,000 and funds provided by a loan made by Texas Bank and& Trust of $150,000.for a retail building in Frisco, Texas, totaling $1,772,000. Offset by principal payments made against the two promissoryrelated party notes Frompayable from Mr. Loftus in the amount of $360,948$268,793 and principal payments made against the notes payable loans issued for the corporate and DGSE’s retail buildings of $212,802. Cash provided by financing during Fiscal 2020 is primarily due to funds provided by loans made by Texas Bank & Trust for the corporate office building in Irving, Texas and the pay downretail building in Grapevine, Texas, both totaling $3,456,000, a loan made by Truist Bank (f/k/a BB&T Bank) for the retail building located in Lewisville, Texas for $956,000 and the proceeds from the Federal Loan of $1,668,200. Offset by principal payments made against the short-term linetwo related party notes from Mr. Loftus in the amount of credit from Texas Bank$279,210 and Trustprincipal payments made against the notes payable loans issued for $150,000.the corporate and DGSE’s retail buildings of approximately $26,000.    

On May 17, 2019, the Company secured a Line12 month line of Creditcredit from Texas Bank and Trust for $1,000,000. The Lineline of Creditcredit was renewed for an additional 24 months and increased to $3,500,000 on May 17, 2020. On November 23, 2021, the Company secured a 36 month line of credit from Farmers State Bank of Oakley Kansas for $3,500,000 at 3.1% annual interest rate. The line of credit with Texas Bank and Trust was immediately closed with a $0 outstanding balance. Our line of credit is to fund any cash shortfalls that we may have from time-to-time during the next twelve months. We don’t anticipatelife of the needline of those funds for operations.credit. Also, from time to time,time-to-time, we have adjusted our inventory levels to meet seasonal demand or in order to meet working capital requirements. Management believes we have enough capital resources to meet working capital requirements. If additional working capital is required, additional loans can be obtained from individuals or from other commercial banks. If necessary, inventory levels may be adjusted in order to meet unforeseen working-capital requirements.

We expect our capital expenditures to total approximately $150,000$300,000 during the next twelve12 months. These expenditures will be largely driven by the purchase of miscellaneous piecesequipment, build-out of equipmentcorporate space in our office building for tenants and the continued additions to our point-of-sale system.potential purchase and build-out of any additional DGSE retail buildings. As of December 31, 2019,2021, there were no commitments outstanding for capital expenditures.

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

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

On May 20, 2019, we entered into two (2) loan agreements with John R. Loftus, the Company’s CEO, President and Chairman of the Board. The first note of $6,925,979, pursuant to the Echo Legacy Entities asset purchase agreement, iswas a 5-yearfive-year promissory note amortized over 20 years at 6% annual interest rate. The second note of $3,074,021 paid off the accounts payable – related party balance to Elemetala former Related Party on May 20, 2019. The promissory note iswas a 5-yearfive-year note amortized over 20 years at 6% annual interest rate. On November 23, 2021, both notes were refinanced by Farmers State Bank of Oakley Kansas. The first note was refinanced for the remaining and unpaid balance of $6,309,962, is a five-year promissory note amortized over 20 years at 3.1% annual interest rate. The second note was refinanced for the remaining and unpaid balance of $2,781,087, is a five-year promissory note amortized over 20 years at 3.1% annual interest rate. Both notes are being serviced by operational cash flow.

The Texas Comptroller conducted acoronavirus disease 2019 (COVID-19) pandemic has adversely affected global economic business conditions. Future sales on products like ours could decline, and use tax auditthe ultimate impact is uncertain and subject to change. The duration of our Texasthis pandemic and the impact, either direct or indirect cannot be predicted. The Company believed additional liquidity was necessary to support ongoing operations with respectduring this period of uncertainty. We applied for and received approximately $1.67 million, 1% interest, Federal Loan to pay employees and cover certain rent and utility-related costs during the COVID-19 pandemic. The loan was forgivable to the period July 1, 2013 through December 31, 2016.extent that certain criteria were met.  We applied for forgiveness during Fiscal 2020 and received notification of forgiveness of the Federal Loan during Fiscal 2021. The audit was finalized, and a determination was madeforgiveness of the Federal Loan is included in Other income from loan forgiveness on April 2, 2018, that we owed a total of $17,294, which included interest and penalties. An initial reserve of $70,000 was established at December 31, 2017 to cover any liability. That reserve was reduced to the amount owed of $17,294 for the accompanyingour consolidated balance sheet as of March 31, 2018. The balance due of $17,294 was paid in full on April 4, 2018.income statements.

PART II

Item 7, 7A

The Company leases certain of its facilities under operating leases. The minimum rental commitments under non-cancellable operating leases as of December 31, 20192021 are as follows:

Off-Balance Sheet Arrangements.

Off-Balance Sheet Arrangements.

We do not have anyThere are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.

STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

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

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

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

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

PART II

Item 7A

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

PART II

Item 8

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ENVELA CORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

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

PART II

Item 8

ENVELA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS