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

September 30, 2019 December 31, 2018
DGSE
Land $ 55,000 $ -
Building and improvements 1,561,649 1,529,649
Machinery and equipment 1,039,013 1,039,013
Furniture and fixtures 453,699 453,699
3,109,361 3,022,361
Less: accumulated depreciation (1,845,664 ) (1,701,498 )

Sub-Total 1,263,697 1,320,863

Echo Entities
Building and improvements 81,149 -
Machinery and equipment 27,497 -
Furniture and fixtures 93,827 -
202,473 -
Less: accumulated depreciation (34,418 ) -

Sub-Total 168,055 -

$ 1,431,752 $ 1,320,863

~~(6) Acquisition~~

	March 31,	December 31,
	2020	2019
DGSE
Land	$55,000	$55,000
Building and improvements	1,561,649	1,561,649
Machinery and equipment	1,045,200	1,039,013
Furniture and fixtures	453,699	453,699
Vehicles	22,859	-
	3,138,407	3,109,361
Less: accumulated depreciation	(1,965,489)	(1,904,948)

Sub-Total	1,172,918	1,204,413

ECHG
Building and improvements	81,149	81,149
Machinery and equipment	27,497	27,497
Furniture and fixtures	93,827	93,827
	202,473	202,473
Less: accumulated depreciation	(74,635)	(55,847)

Sub-Total	127,838	146,626

	$1,300,756	$1,351,039

NOTE 7 — ACQUISITION

On May 20, 2019, ECHG, LLC (f/k/a Corrent Resources, ~~LLC (“Corrent”)~~LLC), a wholly owned subsidiary of the Company, entered into an asset purchase agreement with each of Echo Environmental, LLC and its wholly owned subsidiary ITAD USA, LLC (collectively, ~~the “Echo Entities”~~“Sellers”), pursuant to which the ~~Echo Entities~~Sellers agreed to sell all of ~~the~~their assets, rights and interests of ~~the~~ Echo ~~Entities~~Environmental, LLC and ITAD USA, LLC the (the “Acquired Assets”) for $6,925,979 (the “Echo Transaction”). The ~~Echo Entities are~~Sellers were wholly owned subsidiaries of Elemetal, LLC (“Elemetal”). John R. Loftus is the Company’s CEO, President and Chairman and owned approximately one-third of the equity interests of Elemetal prior to the Echo Transaction.

The Company also paid a closing fee of $85,756 that was not part of the purchase price allocation. The fee is included in selling, general and administrative expenses.

On the same day, Mr. Loftus became the largest beneficial owner of the Company’s stock by purchasing all of the Company’s stock beneficially owned by Elemetal. As part of the transaction of acquiring the stock from Elemetal, Mr. Loftus no longer owns an equity interest in ~~Elemetal, LLC.~~Elemetal. As an interested party, Mr. Loftus was familiar with ~~the operations of the Echo Entities.~~

Sellers’ operations.

In connection with the Echo Transaction, on May 20, 2019, ~~Corrent~~ECHG, LLC executed and delivered to Mr. Loftus, a promissory note to which ~~Corrent~~ECHG, LLC borrowed from Mr. Loftus $6,925,979, the ~~proceds~~proceeds of which were used to purchase the Acquired Assets.

As part of the Echo Transaction, goodwill was realized of $1,367,109, which is the purchase price less the fair value of the net assets purchased, as shown in the purchase price allocation in the following table. Goodwill is not amortized but evaluated for impairment on an annual basis during the fourth quarter of our fiscal year or earlier if events or circumstances indicate the carrying value may be impaired. The Company’s goodwill is related to ~~the Echo Entities~~ECHG only and not the whole Company. The Echo Entities’ have their own separate financial information to perform goodwill impairment testing going forward. The Company will evaluate goodwill based on cash flows for the Echo Entities’ segment. For federal income tax purposes, goodwill is amortized and deductible over fifteen years.

~~Due to time constraints and other variables, the~~

The purchase price ~~allocation listed below is considered a preliminary allocation~~was allocated to the fair value of assets and ~~is subject to change. We have engaged a third party to conduct an independent valuation of the Echo acquisition to be completed by the end of the year.~~

~~The preliminary purchase price is allocated~~liabilities acquired as follows:

Description Amount

Assets
Cash $ 1,049,462
Account receivables 1,025,615
Inventories 1,209,203
Prepaids 88,366
Fixed assets 191,208
Right-of-use assets 2,350,781
Other assets 88,998

Liabilities
Account payables (723,043 )
Accrued liabilities (721,483 )
Operating lease liabilities (2,350,781 )
Other long-term liabilities (5,457 )

Net assets 2,202,869
Goodwill 4,723,110

Purchase Price $ 6,925,979

9Description	Amount

Assets
Cash	$1,049,462
Account receivables	1,025,615
Inventories	1,209,203
Prepaids	88,367
Fixed assets	191,208
Right-of-use assets	2,350,781
Intangible Assets	3,356,000
Other assets	88,998

Liabilities
Account payables	(723,043)
Accrued liabilities	(721,483)
Operating lease liabilities	(2,350,781)
Other long-term liabilities	(5,457)

Net assets	5,558,870

Goodwill	1,367,109

Total Purchase Price	$6,925,979

The following pro forma combines the results of ~~the Echo Entities~~ECHG and the Company’s results of operations for the three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ as if they were combined the whole quarter:

Combined Pro forma Combined
For the Three Months Ended For the Three Months Ended
September 30, 2019 September 30, 2018
(unaudited) (unaudited)

Revenue $ 22,861,201 $ 19,302,869

Income (loss) from continuing operations $ 1,035,475 $ (1,694,654 )

Net income (loss) $ 1,035,475 $ (1,694,654 )

Basic net income (loss) per common share $ 0.04 $ (0.06 )

Diluted net income (loss) per common share $ 0.04 $ (0.06 )

	Combined	Pro forma Combined
	For the Three Months Ended	For the Three Months Ended
	March 31, 2020	March 31, 2019
	(unaudited)	(unaudited)

Revenue	$25,829,143	$19,302,869

Income (loss) from continuing operations	$1,174,149	$(1,694,654)

Net income (loss)	$1,174,149	$(1,694,654)

Basic net income (loss) per common share	$0.04	$(0.06)

Diluted net income (loss) per common share	$0.04	$(0.06)

NOTE 8 — GOODWILL

The ~~following pro forma combines~~changes in the ~~results~~carrying amount of ~~the Echo Entities and the Company’s results of operations~~goodwill for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018~~are as ~~if they were combined the entire nine months:~~

Pro forma Combined Pro forma Combined
For the Nine Months Ended For the Nine Months Ended
September 30, 2019 September 30, 2018
(unaudited) (unaudited)

Revenue $ 65,715,313 $ 64,685,778

Income (loss) from continuing operations $ 1,130,482 $ 1,633,124

Net income (loss) $ 1,130,482 $ 1,633,124

Basic net income (loss) per common share $ 0.04 $ 0.06

Diluted net income (loss) per common share $ 0.04 $ 0.06

follows:

	March 31,	March 31,
	2020	2019

Opening balance	$1,367,109	$-
Additions	-	-
Acquisition adjustment	-	-
Impairment adjustment	-	-

Goodwill	$1,367,109	$-

NOTE 9 — INTANGIBLE ASSETS

~~(7) Intangible Assets~~

Intangible assets consist of the following:

Septemnber 30, 2019 December 31, 2018
DGSE
Domain names $ 41,352 $ 41,352
Point of sale system 315,000 270,000
356,352 311,352
Less: accumulated amortization (121,252 ) (77,002 )

Subtotal 235,100 234,350

Echo Entities - -

$ 235,100 $ 234,350

	March 31,	December 31,
	2020	2019
DGSE
Domain names	$41,352	$41,352
Point of sale system	330,000	330,000
	371,352	371,352
Less: accumulated amortization	(154,002)	(137,502)

Subtotal	217,350	233,850

ECHG
Trademarks	1,483,000	1,483,000
Customer Contracts	1,873,000	1,873,000
	3,356,000	3,356,000
Less: accumulated amortization	(279,677)	(195,777)

Subtotal	3,076,323	3,160,223

	$3,293,673	$3,394,073

The following table outlines the estimated future amortization expense related to intangible assets held as of March 31, 2020:

	DGSE	ECHG	Total

2020 (excluding the three months ended March 31, 2020)	$49,500	$251,700	$301,200
2021	66,000	335,600	401,600
2022	66,000	335,600	401,600
2023	35,850	335,600	371,450
2024	-	335,600	335,600
Thereafter	-	1,482,223	1,482,223

	$217,350	$3,076,323	$3,293,673

NOTE 10 — ACCRUED EXPENSES

~~(8) Accrued Expenses~~

Accrued expenses consist of the following:

September 30, 2019 December 31, 2018
DGSE
Professional fees $ 69,744 $ 149,000
Advertising - 52,590
Board member fees - 7,500
Employee benefits - 10,383
Insurance 56,669 -
Payroll 99,576 205,112
Property taxes 150,263 -
Sales tax 45,101 111,739
State income tax 59,538 42,879

Subtotal 480,891 579,203

Echo Entities
Payroll 162,235 -
Sales tax 7,095 -
Credit card 29,127 -
State income tax 16,963 -
Material & shipping costs (COGS) 168,826 -

Subtotal 384,246 -

$ 865,137 $ 579,203

~~(9) Segment Information~~

~~We determine our~~

	March 31,	December 31,
	2020	2019
DGSE
Accrued interest	$7,220	$7,374
Professional fees	67,993	125,200
Board member fees	-	7,500
Insurance	43,121	30,508
Payroll	162,361	157,148
Property taxes	51,000	-
Sales tax	76,927	115,451
State income tax	49,995	33,907

Subtotal	458,617	477,088

ECHG
Accrued interest	16,376	16,724
Insurance	11,573	-
Professional fees	94,410	77,900
Payroll	145,423	79,342
Sales tax	11,271	7,852
Credit card	12,952	22,279
State income tax	38,111	27,963
Material & shipping costs (COGS)	140,997	207,361

Subtotal	471,113	439,421

	$929,730	$916,509

NOTE 11 — SEGMENT INFORMATION

During the first quarter of fiscal 2020, Envela revised the way it views its financial information to align more closely with the Company’s strategy to engage in diverse recommerce activities through two principle business units—DGSE and ECHG. DGSE buys hard assets, and ECHG buys consumer electronics and IT equipment, all for either resale or recycling. Envela will continue to report its revenue and operating expenses based on its DGSE and ECHG operating segments, and beginning in fiscal year 2020, Envela will disaggregate its revenue, within the operating segments, based ~~upon an internal reporting structure. We report~~on its resale and recycle presentation basis. The Company’s historical disaggregation of revenue has been recast to conform to our ~~financial performance based on the following segments: DGSE and the Echo Entities.~~

~~Our~~current presentation.

The DGSE segment includes Dallas Gold and Silver Exchange, ~~which has~~having four ~~retail stores in~~locations throughout the Dallas/Ft Worth Metroplex, and Charleston Gold and Diamond Exchange, ~~which has~~with one ~~retail store~~location in Charleston, South Carolina.

~~Our Echo Entities~~

The ECHG segment includes Echo ~~Enrironmental~~Environmental Holdings, ITAD USA Holdings and ~~ITAD USA Holdings.~~Teladvance. These ~~two~~three companies focus on reusing and recycling electronics. Echo and ITAD were added to the Company on May 20, 2019, and ~~are involved in recycling and reusing electronic waste.~~

Teladvance was added on August 2, 2019, therefore there is not a comparison for the three months ending March 31, 2019.

We allocate a portion of certain corporate costs and expenses, including information technology, to our business segments that is included in Selling, ~~general~~General and ~~administrative~~Administrative (“SG&A”) expenses. Our management team evaluates ~~the~~each segment’s operating performance ofand allocates resources based on each ~~segment and makes decisions about the allocation of resources according to each segment profit. The allocations~~segment’s profits. Allocation amounts are generally ~~amounts~~ agreed upon by management, ~~which~~and may differ from an arms-length ~~amount.~~

allocations.

The following ~~segment seperates the results of Dallas Gold~~separates DGSE’s and ~~Silver’s and the Echo Entity’s~~ECHG’s financial results of operations for the three months ending ~~September 30, 2019:~~

For The Three Months Ended
September 30, 2019
DGSE Echo Entities Consolidated

Revenue:
Sales $ 16,652,927 $ 6,208,274 $ 22,861,201
Cost of goods sold 14,634,075 3,040,672 17,674,747

Gross profit 2,018,852 3,167,602 5,186,454

Expenses:
Selling, general and administrative expenses 1,868,144 2,025,474 3,893,618
Depreciation and amortization 44,368 23,518 67,886

1,912,512 2,048,992 3,961,504

Operating income 106,340 1,118,610 1,224,950

Other (income) expense:
Other (income) expense, net (955 ) - (955 )
Interest expense 46,764 101,956 148,720

Income before income taxes 60,531 1,016,654 1,077,185

Income tax expense 30,383 11,327 41,710

Net income $ 30,148 $ 1,005,327 $ 1,035,475

~~The following segment seperates the results of Dallas Gold and Silver’s and the Echo Entity’s financial results of operations for the nine months ending September 30, 2019:~~

For The Nine Months Ended
September 30, 2019
DGSE Echo Entities Consolidated

Revenue:
Sales $ 51,251,094 $ 8,567,074 $ 59,818,168
Cost of goods sold 44,743,932 4,303,985 49,047,917

Gross profit 6,507,162 4,263,089 10,770,251

Expenses:
Selling, general and administrative expenses 5,484,082 2,827,116 8,311,198
Depreciation and amortization 193,141 34,417 227,558

5,677,223 2,861,533 8,538,756

Operating income 829,939 1,401,556 2,231,495

Other (income) expense:
Other (income) expense, net (54,285 ) - (54,285 )
Interest expense 106,970 133,808 240,778

Income before income taxes 777,254 1,267,748 2,045,002

Income tax expense 48,402 16,963 65,365

Net income $ 728,852 $ 1,250,785 $ 1,979,637

~~(10) Revenue Recognition~~

Revenue is recognized when we transfer promised goods, jewelry and watch repair services to customers in an amount that reflects the consideration to which the Company expects to be paid in exchange for those goods and services. The Company’s revenue is primarily generated from the sale of finished goods, recycled goods, recycled raw materials, scrap, jewelry and watch repair services through wholesale contracts, retail and e-commerce. The Company’s performance obligations underlying such revenue, and the timing of revenue recognition, remains substantially unchanged following the adoption of ASC 606.

March 31, 2020:

	For The Three Months Ended
	March 31, 2020
	DGSE	ECHG	Consolidated

Revenue:
Sales	$20,363,584	$5,465,559	$25,829,143
Cost of goods sold	17,999,402	2,528,461	20,527,863

Gross profit	2,364,182	2,937,098	5,301,280

Expenses:
Selling, general and administrative expenses	1,873,006	1,952,194	3,825,200
Depreciation and amortization	77,041	102,688	179,729

	1,950,047	2,054,882	4,004,929

Operating income	414,135	882,216	1,296,351

Other (income) expense:
Other (income) expense, net	(27,368)	(14,322)	(41,690)
Interest expense	44,793	100,522	145,315

Income before income taxes	396,710	796,016	1,192,726

Income tax expense	8,285	10,292	18,577

Net income	$388,425	$785,724	$1,174,149

NOTE 12 — REVENUE RECOGNITION

ASC 606 ~~provides~~provided guidance to identify performance obligations for revenue-generating transactions. The initial ~~guide~~step is to identify the contract with a customer created with the sales invoice or a 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 ~~guide~~step is determining the transaction price of the contract obligation as in the full ticket price, negotiated price or a repair price. The next step is to allocate the transaction price to the performance obligations as we designate a separate price for each item. The final step in the guidance is to recognize revenue as each performance obligation is satisfied.

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

The following disaggregation of total revenue is listed by sales category and segment:

CONSOLIDATED Three Months Ended September 30,
2019 2018
Revenues Gross Profit Margin Revenues Gross Profit Margin
DGSE
Jewelry $ 4,036,825 $ 1,149,134 28.5 % $ 3,694,204 $ 1,223,144 33.1 %
Bullion/Rare Coin 9,621,146 442,573 4.6 % 8,120,071 727,555 9.0 %
Scrap 2,547,912 359,255 14.1 % 1,317,133 226,090 17.2 %
Other 447,044 67,890 15.2 % 527,987 300,380 56.9 %

Subtotal 16,652,927 2,018,852 12.1 % 13,659,395 2,477,169 18.1 %

Echo Entities
Recycle 5,133,181 2,408,416 46.9 % - - -
Reuse 1,075,093 759,186 70.6 % - - -

Subtotal 6,208,274 3,167,602 51.0 % - - -

$ 22,861,201 $ 5,186,454 22.7 % $ 13,659,395 $ 2,477,169 18.1 %

~~The following disaggregation of~~

CONSOLIDATED	Three Months Ended March 31,
	2020			2019
	Revenues	Gross Profit	Margin	Revenues	Gross Profit	Margin
DGSE
Resale	$18,541,897	$2,047,433	11.0%	$14,801,379	$2,033,435	13.7%
Recycled	1,821,687	316,749	17.4%	1,218,151	185,047	15.2%

Subtotal	20,363,584	2,364,182	11.6%	16,019,530	2,218,482	13.8%

ECHG
Resale	3,526,228	1,420,176	40.3%	-	-	-
Recycled	1,939,331	1,516,922	78.2%	-	-	-

Subtotal	5,465,559	2,937,098	53.7%	-	-	-

	$25,829,143	$5,301,280	20.5%	$16,019,530	$2,218,482	13.8%

DGSE recognizes revenue ~~is listed by sales category, segment~~from its over-the-counter retail and ~~state:~~

TEXAS Three Months Ended September 30,
2019 2018
Revenues Gross Profit Margin Revenues Gross Profit Margin
DGSE
Jewelry $ 3,506,998 $ 957,867 27.3 % $ 3,404,889 $ 1,083,550 31.8 %
Bullion/Rare Coin 9,473,024 433,389 4.6 % 8,001,990 711,529 8.9 %
Scrap 2,547,912 359,255 14.1 % 1,317,133 226,090 17.2 %
Other 385,823 54,360 14.1 % 498,409 299,600 60.1 %

Subtotal 15,913,757 1,804,871 11.3 % 13,222,421 2,320,769 17.6 %

Echo Entities
Recycle 5,133,181 2,408,416 46.9 % - - -
Reuse 1,075,094 759,186 70.6 % - - -

Subtotal 6,208,275 3,167,602 51.0 % - - -

$ 22,122,032 $ 4,972,473 22.5 % $ 13,222,421 $ 2,320,769 17.6 %
SOUTH CAROLINA Three Months Ended June 30,
2019 2018
Revenues Gross Profit Margin Revenues Gross Profit Margin
DGSE
Jewelry $ 529,825 $ 191,267 36.1 % $ 289,315 $ 139,594 48.2 %
Bullion/Rare Coin 148,122 9,184 6.2 % 118,081 16,026 13.6 %
Other 61,222 13,530 22.1 % 29,578 780 2.6 %

Subtotal 739,169 213,981 28.9 % 436,974 156,400 35.8 %

Echo Entities - - - - - -

Subtotal - - - - - -

$ 739,169 $ 213,981 28.9 % $ 436,974 $ 156,400 35.8 %

~~The following disaggregation of total revenue is listed by sales category~~resale transactions, and ~~segment:~~

CONSOLIDATED Nine Months Ended September 30,
2019 2018
DGSE Revenues Gross Profit Margin Revenues Gross Profit Margin
Jewelry $ 12,432,060 $ 3,715,091 29.9 % $ 13,519,276 $ 3,840,235 28.4 %
Bullion/Rare Coin 30,543,290 1,468,358 4.8 % 21,828,412 2,128,921 9.8 %
Scrap 5,514,091 801,216 14.5 % 3,782,718 669,461 17.7 %
Other 2,761,652 522,497 18.9 % 1,318,124 531,037 40.3 %

Subtotal 51,251,093 6,507,162 12.7 % 40,448,530 7,169,654 17.7 %

Echo Entities
Recycle 6,721,265 3,156,235 47.0 % - - -
Reuse 1,845,810 1,106,854 60.0 %

Subtotal 8,567,075 4,263,089 49.8 % - - -

$ 59,818,168 $ 10,770,251 18.0 % $ 40,448,530 $ 7,169,654 17.7 %

~~The following disaggregation of revenue is listed by sales category, segment and state:~~

TEXAS Nine Months Ended September 30,
2019 2018
DGSE Revenues Gross Profit Margin Revenues Gross Profit Margin
Jewelry $ 11,264,742 $ 3,224,943 28.6 % $ 12,279,064 $ 3,353,686 27.3 %
Bullion/Rare Coin 30,026,499 1,416,360 4.7 % 21,406,758 2,060,247 9.6 %
Scrap 5,514,091 801,216 14.5 % 3,782,718 669,461 17.7 %
Other 2,357,201 419,387 17.8 % 1,145,752 449,581 39.2 %

Subtotal 49,162,533 5,861,906 11.9 % 38,614,292 6,532,975 16.9 %

Echo Entities
Recycle 6,721,265 3,156,235 47.0 % - - -
Reuse 1,845,810 1,106,854 60.0 %

Subtotal 8,567,075 4,263,089 49.8 % - - -

$ 57,729,608 $ 10,124,995 17.5 % $ 38,614,292 $ 6,532,975 16.9 %

SOUTH CAROLINA Nine Months Ended September 30,
2019 2018
DGSE Revenues Gross Profit Margin Revenues Gross Profit Margin
Jewelry $ 1,167,318 $ 490,148 42.0 % $ 1,240,212 $ 486,549 39.2 %
Bullion/Rare Coin 516,791 51,998 10.1 % 421,654 68,674 16.3 %
Other 404,451 103,110 25.5 % 172,372 81,456 47.3 %

Subtotal 2,088,560 645,256 30.9 % 1,834,238 636,679 34.7 %

Echo Entities

Subtotal - - - - - -

$ 2,088,560 $ 645,256 30.9 % $ 1,834,238 $ 636,679 34.7 %

~~Revenues for monetary~~its wholesale- dealer transactions ~~(i.e., cash and receivables) with commercial dealers and the retail public are recognized~~ when the merchandise is delivered and payment ~~has been~~is made ~~either by~~(whether immediate ~~payment~~ or ~~through a~~via receivable ~~obligation.~~obligation at one of our retail stores). We also recognize revenue upon the shipment of goods when ~~retail or~~resale and wholesale customers have fulfilled their obligation to pay or promise to pay through e-commerce or ~~phone~~telephone sales. We ~~have elected to~~ account for shipping and handling costs as fulfillment costs after ~~the customer obtains~~customers obtain control of the goods. ~~Our scrap~~We recycle material deemed to be past its useful life primarily to recover its precious-metal content. This material is sold to a ~~local~~Dallas-based refiner that was a related party ~~before the purchase of the Echo Entities on~~until May 20, 2019. ~~Since the refiner is local~~We recognize revenue from these recycling sales when we ~~deliver the scrap to the refiner. The metal is assayed, price is determined from the assay~~receive payment.

DGSE offers layaway purchases, requiring a deposit, a 25% payment within two weeks, and ~~payment is made usually in one to two days. Revenue is recognized from the sale once payment is received.~~

~~The retail portion of the Company offers a structured layaway plan. When a retail customer utilizes the layaway plan, we collect a minimum~~full payment of ~~25% of the sales price, establish a payment schedule for~~ the remaining balance within 90 days after the deposit. If customers fail to make either the 25% payment or final-balance payment within 90 days, then the items are returned to inventory, and ~~hold the merchandise as collateral as security against the customer’s deposit until all amounts due are paid in full. Revenue~~such customers forfeit any payments made. We recognize revenue for layaway sales ~~is recognized~~ when the ~~merchandise is~~items are paid in full and delivered to the ~~retail customer. Layaway revenue is also recognized when a customer fails~~customers, or upon payment forfeiture.

Sales of fine watches; bullion; clearance/final-sale items; and custom, sized or engraved items are final. All other purchased items may be returned by customers 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 our retail operations, 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 determine the cost of sale based on the ratio of monetary assets received to monetary and non-monetary assets received multiplied by the cost of the assets surrendered.

The Company offers our retail customers the option of third party financing for customers wishing to borrow money for the purchase. The customer applies on-line with the third party and upon going through the credit check will be approved or denied. If accepted, the customer is allowed to purchase according to the limits set by the financing company. We recognize the revenue of the sale upon the promise of the financing company to pay.

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 purchasedDGSE within 30 days ~~of the receipt of the items~~from purchase 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 makingless 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.10% restocking fee. Returns are accounted for as ~~a reversal~~reversals of the original ~~transaction,~~transactions, 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 ~~2018~~2019 sales ~~which is~~ based on ~~our review of~~ historical returns ~~experience,~~ and ~~reduces~~reduced our reported revenues and cost of sales accordingly. ~~As of September 30,~~Our return allowance for 2019 and ~~December~~as of March 31, ~~2018, our allowance for returns~~2020 remained the same ~~at $28,402~~for both periods, approximately $28,000.

In limited circumstances, for wholesale dealers or resale customers, DGSE exchanges resale items for (a) similar resale items, or (b) similar resale items plus money payment. We recognize revenue for these exchanges in accordance with Accounting Standards Codification (“ASC”) 845, Nonmonetary Transactions. For resale item/resale item exchanges, without payments, we do not recognize any revenue; the basis of the resale items relinquished becomes the basis of the resale items received, less any indicated impairment of value of the resale items relinquished. For resale item/resale item-plus- payment exchanges, we recognize revenue to the extent of payments received, and ~~$28,402, respectively.~~

~~The Echo Entities are large-scale processors~~determine the cost of ~~circuit boards and electronic waste. We are committed~~sale based on the ratio of payments received to ~~fast and cost-efficient service to many different industries that need to recycle electronic components. There are three main~~payments plus items received, multiplied by the cost of items surrendered.

ECHG has several revenue streams ~~within our~~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 customers. The revenue streams are described below.

Resale transactions are recorded when product ~~mix. The first category~~ is recycling fees, whereby we will receive electronic components and other material to process from a vendor. Upon the determination of the makeup of the materials we charge a processing fee to the vendor and also pay them for items we can sell.shipped. Revenue is recognized when ~~service charges~~prices are ~~determined after waste materials~~established, terms agreed, and products shipped (i.e., upon ECHG fulfilling its performance obligations). ECHG typically requires resale customers to make prepayment based on an agreed commodity price. ECHG releases shipments upon confirming payment receipt and recognizes revenue on the shipping date. If payment is received on the last day of a month, and shipment occurs the following day, the payment is deferred revenue, recognized the following month when the shipment is made.

ECHG recycles material deemed to be past its useful life to recover precious and other non-ferrous metals. As part of its recycling operations, ECHG recognizes refining revenue when its performance obligations are ~~sorted~~satisfied, i.e., when its inventory arrives at the agreed destination and ~~processed. The second revenue stream~~control of the contracted goods is ~~outright sales, which is~~transferred to the ~~sale of processed material to a customer after we have sorted material, charged recycling fees and paid our vendors for that material. The sale~~refiner. Our initial invoice is recognized in full when ~~delivery has occurred~~our performance obligation is satisfied, as referenced above. Under the guidance of ASC 606, an estimate of the variable consideration that we expect to receive is included in the transaction price, stated at the current precious-metal spot price and ~~title~~precious-metal weight. We adjust revenue in the period once the underlying metal’s weight and ~~risk~~any movement in metal spot price is resolved, generally within six weeks. Adjustments from resolving the underlying uncertainty is netted with the remaining 40% due under the original contract.

ECHG also provides recycling services under agreed scopes of ~~loss has passed to~~work. It recognizes services based on the ~~buyer upon the notice~~number of ~~bill~~units processed at a preset price per unit. ECHG produces weekly activity reports reflecting numbers of ~~sale ending with a cash transaction or evidence of credit extended producing a trade accounts receivable. The third~~units processed; revenue ~~stream~~ is ~~the settlement of precious metals processed from our recycling services. The precious metal we extract is sent to a refiner and is assayed. We recognize revenue when we receive the settlement~~recognized based on billing from the ~~refiner, except~~weekly reports. ECHG performs recycling services either at ~~quarter~~its facilities or at clients’ facilities, as confirmed in the scope of work, together with the associated costs and ~~year end when we accrue any outstanding settlements received after the end of a quarter or year.~~

~~(11) Leases~~

~~On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842). We adopted~~payment terms.

NOTE 13 — LEASES

When ASC 842 on January 1, 2019, by applying its provisions prospectively. The financial results reported in periods prior to January 1, 2019 are unchanged. Upon adoption, we recognized all of our leases on the balance sheet as right-of-use assets and lease liabilities. For income statement purposes, the FASB retained a duel model, requiring leases to be classified as either operating of finance. Classification is based on certain criteria and we have determined that all of our retail building leases fall into the operating lease category. Our leases are included in our consolidated balance sheet as right-of-use assets along with the the current operating lease liabilities and long-term operating lease liabilities. We have also applied the ASC 842 provisions to the two leases purchased by the Company related to the Echo Transaction.

~~When the~~ provision was first adopted by the Company on January 1, 2019, we recognized $1,994,840 of operating lease right-of-use assets, $446,462 in short-term operating lease liabilities and $1,609,891 in long-term operating lease liabilities on ~~the~~our consolidated balance sheet. ~~The operating~~Operating lease liabilities were determined based on the present value of ~~the~~ remaining minimum rental payments, and ~~the~~ operating lease right-of-use ~~asset was~~assets were determined based on the value of ~~the~~ lease liabilities, adjusted for deferred rent balances of $61,500, which were previously included in other liabilities.

Due to the ~~acquisition, referred~~Echo Transaction referenced in ~~note (6)~~Note (7), we recognized an additional $2,350,781 of operating lease right-of-use assets, $703,523 in short-term operating lease liabilities and $1,647,258 in long-term operating lease liabilities on ~~the~~our consolidated balance sheet. ~~The operating~~Operating lease liabilities were determined based on the present value of ~~the~~ remaining minimum rental payments, and ~~the~~ operating lease right-of-use ~~asset was~~assets were determined based on the value of ~~the~~ lease liabilities.

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

The Company has seven operating ~~leases,~~ leases—six in the Dallas/Fort Worth Metroplex and one in Charleston, South Carolina. ~~We have four~~Two leases ~~expiring next~~expire this year. Our ~~Euless,~~DGSE Southlake, Texas lease ~~expires March 31, 2020, with an option for an additional five years which we are reasonably certain to exercise. Our Southlake, Texas location~~ expires July 31, 2020, ~~and~~ with no ~~current options. We~~renewal options, therefore we will evaluate whether to continue toleasing in this location. DGSE’s flagship-store lease ~~in the present location. Our lease on the main flagship store located~~ at 13022 Preston Road, Dallas, Texas will ~~be expiring~~expire October 31, 2021, with no current ~~lease~~renewal options. ~~The~~DGSE’s Grand Prairie, Texas lease expires June 30, 2022, and has no current ~~lease~~renewal options. ~~On April 19, 2018, we entered into an agreement with the landlord in~~DGSE’s Charleston, South Carolina ~~to increase the rental space by 2,104 square feet by taking over the vacant suite next door. The~~ lease ~~was amended to include the new space and extended to~~expires April 30, ~~2025. Our two new~~2025, with no additional ~~leases were the product of the Echo Tranaction. Both leases are located in Carrollton, Texas. The~~renewal options. We just extended our DGSE Euless, Texas lease through June 30, 2025 with an option for an additional five years. ECHG’s lease on Belt Line ~~Echo lease~~Road in Addison, Texas expires on December 31, 2020, with an initial 24-month renewal option, ~~period of 24 months~~ and a second renewal option ~~period of~~for an additional 60 months. A portion of ~~the~~this building is sublet, and the rent received is applied against the rental expense for the building. ~~The~~ECHG’s lease for ITAD on McKenzie ~~ITAD lease~~Drive in Carrollton, Texas expires July 31, 2021 ~~with~~and has no ~~current lease options.~~renewal option. All of the Company’s seven leases are triple net, ~~leases that we pay our~~for which it pays its proportionate ~~amount~~share of common area maintenance, property taxes and property insurance. Leasing costs for the three months ending ~~September 30,~~March 31, 2020 and 2019 were $306,537 and ~~2018 was $338,402 and $162,719, respectively. Leasing costs for the nine months ending September 30, 2019 and 2018 was $814,572 and $479,096, respectively. These lease costs consist~~$174,347, respectively, comprised of a combination of minimum lease payments and variable lease costs.

As of ~~September 30, 2019,~~March 31, 2020, the weighted average remaining lease term and weighted average discount rate for operating leases was ~~2.1~~2.4 years and 5.5%, respectively. The Company’s future operating lease obligations that have not yet commenced are immaterial. For the three months ending ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company’s cash paid for operating lease liabilities was ~~$348,955~~$335,227 and ~~$162,719,~~$133,791, respectively. ~~For the nine months ending September 30, 2019 and 2018, the Company’s cash paid for operating lease liabilities was $826,745 and $479,096, respectively.~~

Future annual minimum lease payments as of ~~September 30, 2019:~~

Operating
Leases
DGSE
2019 (excluding the nine months ending September 30, 2019) $ 137,187
2020 550,623
2021 491,540
2022 247,040
2023 223,045
2024 and thereafter 289,327

Total minimum lease payments 1,938,762
Less imputed interest (214,833 )

Subtotal 1,723,929

Echo Entities
2019 (excluding the nine months ending September 30, 2019) 198,869
2020 803,661
2021 785,240
2022 582,195

Total minimum lease payments 2,369,965
Less imputed interest (193,514 )

Subtotal 2,176,451

$ 3,900,380

~~(12) Basic and Diluted Average Shares~~

March 31, 2020:

	Operating
	Leases
DGSE
2020 (excluding the three months ending March 31, 2020)	$382,608
2021	479,162
2022	235,674
2023	212,854
2024	213,884
2025 and thereafter	64,087

Total minimum lease payments	1,588,269
Less imputed interest	(163,368)

Subtotal	1,424,901

ECHG
2020 (excluding the three months ending March 31, 2020)	596,190
2021	736,320
2022	644,702

Total minimum lease payments	1,977,212
Less imputed interest	(137,845)

Subtotal	1,839,367

	$3,264,268

NOTE 14 — BASIC AND DILUTED AVERAGE SHARES

A reconciliation of basic and diluted weighted average common shares for the three months ended March 31, 2020 and ~~nine months ended September 30,~~ 2019 ~~and 2018~~ is as follows:

For the Three Months Ended
September 30,
2019 2018

Basic weighted average shares 26,924,381 26,924,381
Effect of potential dilutive securities - -
Diluted weighted average shares 26,924,381 26,924,381

For the Nine Months Ended
September 30,
2019 2018

Basic weighted average shares 26,924,381 26,924,381
Effect of potential dilutive securities - 182,958
Diluted weighted average shares 26,924,381 27,107,339

	For the Three Months Ended
	March 31,
	2020	2019

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

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, there were ~~approximately 15,000 stock~~15,250 and 15,250 Common Stock options, ~~excluded from the earnings per share calculation because their impact is antidilutive. For the three and nine months ended September 30, 2018 there were 1,015,000 of common share option,~~ warrants, and Restricted Stock Units ~~(RSU’s)~~(RSUs) unexercised, respectively.

~~(13) Long-Term Debt~~

Outstanding Balance Current
September 30, 2019 December 31, 2018 Interest Rate Maturity
DGSE
Note payable, related party $ 2,884,684 $ - 6.00 % May 16, 2024

Echo Entities
Note payable, related party 6,545,887 - 6.00 % May 16, 2024

Sub-Total 9,430,571 -

Current portion 276,861 -

$ 9,707,432 $ -

~~(14) Stock-Based Compensation~~

NOTE 15 — LONG-TERM DEBT

	Outstanding Balance
	March 31,	December 31,	Current
	2020	2019	Interest Rate	Maturity
DGSE
Note payable, related party (1)	$2,928,210	$2,949,545	6.00%	May 16, 2024

ECHG
Note payable, related party (1)	6,641,438	6,689,507	6.00%	May 16, 2024

Sub-Total	9,569,648	9,639,052

Current portion	293,779	1,084,072

	$9,275,869	$8,554,980

(1) On May 20, 2019, the Company entered into two loan agreements with John R. Loftus, the Company’s CEO, President and Chairman of the Board. ECHG, LLC (f.k.a. Corrent Resources, LLC) executed a 5-year, $6,925,979 note for the Echo Transaction, amortized over 20 years at a 6% annual interest rate. DGSE, LLC (f.k.a. DGSE Companies, LLC) executed a 5-year, $3,074,021 note to pay off the accounts payable – related party balance to Elemetal, LLC as of May 20, 2019. That promissory note is also amortized over 20 years at a 6% annual interest rate. An error was made on the original promissory loan documents for both DGSE and ECHG notes. Originally, the DGSE note stated the total monthly interest and principal payment due was $41,866 and the monthly ECHG interest and principal payment due was $94,327. The correct total of interest and principal payments due monthly on the revised note for DGSE is $22,203. The correct total of interest and principal payments due monthly on the revised note for ECHG is $49,646. The allocation between short-term and long-term Notes payable, related party was adjusted accordingly starting with the three months ending March 31, 2020.

Future scheduled principal payments of our note payables, related party, as of March 31, 2020 are as follows:

Note payable, related party - DGSE

Year Ending December 31,	Amount

2020 (excluding the three months ended March 31, 2020)	67,184
2021	95,243
2022	101,117
2023	107,354
2024	2,557,312

Subtotal	2,928,210

Note payable, related party - ECHG

Year Ending December 31,	Amount

2020 (excluding the three months ended March 31, 2020)	149,580
2021	212,086
2022	225,167
2023	239,055
2024	5,815,550

Subtotal	6,641,438

	9,569,648

NOTE 16 — STOCK-BASED COMPENSATION

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

~~Stock-based compensation expense for~~

NOTE 17 — RELATED PARTY TRANSACTIONS

The Company has a corporate policy governing the ~~three months~~identification, review, consideration and ~~nine months ended September 30, 2019 and 2018 was $0 and $0, respectively.~~

~~(15)~~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~~

transactions are identified and approved prior to their consummation to ensure they are consistent with the Company’s and the stockholders’ best interests. Among other factors, the Company’s Board considers the size and duration of the transaction, the nature and interest of the of the Related Party in the transaction, whether the transaction may involve a conflict of interest, and if the transaction is on terms that are at least as favorable to the Company as would be available in a comparable transaction with an unaffiliated third party. Envela’s Board reviews all Related Party transactions at least annually to determine if they are in the best interest of the Board and of the Company’s stockholders to continue, modify, or terminate any Related Party transactions. Envela’s Related Person Transaction Policy is available for review in its entirety under the “Investors” menu of the Company’s corporate relations website at www.envela.com.

Through a series of transactions beginning in 2010, Elemetal, NTR Metals, LLC (“NTR”) and Truscott Capital, LLC (“Related Entities”) became the largest shareholders of our ~~common stock, par value $0.01 per share.~~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~~the Company’s primary refiner and bullion trading partner. For the ~~nine~~three months ended ~~September 30,~~March 31, 2019, 3%the certain Related Entity accounted for 4% of sales and 1%6% of ~~purchases~~purchases. For the three months ended March 31, 2020, they were no longer a related party. On May 20, 2019, through a series of transactions, ~~with a certain~~the Related Entity, and in the same period of 2018, these tranactions represented 10% of DGSE’s sales and 3% of DGSE’s purchases. 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 8,536,585Entities sold their shares of ~~its common stock~~the Company to John R. Loftus, the Company’s CEO, President and ~~a warrant to purchase an additional 1,000,000 shares to be exercised within two years after December 9, 2016, in exchange for~~Chairman of 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 for the additional 1,000,000 expired in December 2018.Board. As of ~~September 30,~~May 20, 2019, they were no longer Related Entities. As of March 31, 2020, the Company was obligated to pay $0 to the certain Related Entity as a trade ~~payable.~~payable, and had a $0 receivable from the certain Related Entity. As of ~~September 30, 2018,~~March 31, 2019, the Company was obligated to pay ~~$3,134,227~~$3,075,120 to the certain Related Entity as a trade ~~payable.~~payable and had a $0 receivable from the certain Related Entity. For the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company paid the Related Entities ~~$46,068~~$0 and ~~$130,594~~$34,549, respectively, in interest on the Company’s outstanding payable.

Through a series of transactions reported on Schedule 13D on May ~~20,~~24, 2019, ~~John Loftus, CEO and President~~Truscott sold its 12,814,727 shares, 47.7% of DGSE Companies ~~Inc., became~~Common Stock to John R. Loftus. Mr. Loftus assumed all rights under the ~~largest beneficial shareholder of our common stock, par value $0.01 per share.~~existing registration rights agreements. On the same day, Mr. Loftus ~~loaned a wholly owned subsidiary, Corrent Resource Holdings,~~contributed his 12,814,727 Common Stock shares to N10TR, LLC ~~$6,925,979~~(“N10TR”), which is controlled by Mr. Loftus. Mr. Loftus, by virtue of his relationship with Eduro and N10TR may be deemed to ~~complete~~indirectly beneficially own the ~~Echo Transaction. Interest~~Common Shares that Eduro and ~~principal payments totaling $49,620 are paid monthly and the loan matures May 16, 2024. Also on~~N10TR directly beneficially own. On the same day, ~~Mr. Loftus loaned~~ the Company entered into two loan agreements with John R. Loftus, the Company’s CEO, President and Chairman of the Board. ECHG, LLC (f.k.a. Corrent Resources, LLC) executed a 5-year, $6,925,979 note for the Echo Transaction, amortized over 20 years at a 6% annual interest rate. DGSE, LLC (f.k.a. DGSE Companies, LLC) executed a 5-year, $3,074,021 note to pay off the ~~certain Related Entities outstanding~~accounts payable related party. Interest and principal payments totaling $22,023 are paid monthly and the loan matures May 16, 2024. As of September 30, 2019 and 2018, the Company was obligated to pay Mr. Loftus, as note payable,– related party ~~$9,707,432 and $0 respectively.~~balance to Elemetal, LLC as of May 20, 2019. That promissory note is also amortized over 20 years at a 6% annual interest rate. Both notes are being serviced by operational cash flow. For the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company paid Mr. Loftus ~~$194,081~~$145,315 and $0, respectively, in interest on the Company’s outstanding note ~~payable,~~payables, related party.

~~(16) Subsequent Event~~

NOTE 18 — SUBSEQUENT EVENTS

On February 18, 2020, the ~~Company’s annual stockholder’s meeting, held October~~Company signed an initial agreement for the purchase of a retail building for its next Dallas Gold & Silver Exchange location, in Lewisville, Texas for $1.4 million. We have sought and received an extension of time until May 11, 2020 to complete the associated inspections and due diligence. We expect to close the purchase of the retail building during the second fiscal quarter of 2020. We also expect to obtain a ten-year, approximately 3% mortgage of eighty percent loan to value. There is no assurance that the Company will close the building purchase.

The coronavirus disease 2019 ~~a proposal~~(COVID-19) pandemic has adversely affected global economic business conditions. Future sales on products like ours could decline due to ~~amend~~increased commodities prices, particularly gold. Although we are continuing to monitor and assess the ~~articles~~effects of ~~incorporation was passed, which included changing~~ the ~~corporate name~~coronavirus pandemic, the ultimate impact is highly uncertain and subject to ~~Envela Corporation~~change. The duration of any such impact cannot be predicted, and ~~creating a class~~the Company believes additional liquidity is necessary to support ongoing operations during this period of ~~preferred stock in~~uncertainty. The Company applied and received approval for an approximately $1.67 million, 1% interest, federally backed loan intended to pay employees and cover certain rent and utility-related costs during the ~~amount of 5,000,000 shares.~~

COVID-19 pandemic (the “Federal Loan”). The loan is forgivable to the extent that certain criteria are met.

ITEM 2. ~~MANAGEMENT’S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ~~OPERATIONS.~~OPERATIONS

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2019~~March 31, 2020 (this “Form 10-Q”), including but not limited to: (i) the section of this Form 10-Q entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” (ii) information concerning our business prospects or future financial performance, anticipated revenues, expenses, profitability or other financial items; and, (iii) our strategies, plans and objectives, together with other statements that are not historical facts, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,” “will,” “would,” “expect,” “intend,” “could,” “estimate,” “should,” “anticipate” or “believe.” We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements other than statements of historical information provided herein are forward-looking statements 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-Q entitled “Risk Factors” and elsewhere in this Form 10-Q as well as under the section entitled “Risk Factors” in our Fiscal ~~2018~~2019 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 thereon, including without limitation, changes in our business strategy or planned capital expenditures, store growth plans, or to reflect the occurrence of unanticipated events.

Results of Operations

General

The COVID-19

~~General~~pandemic’s effects, i

ncluding limited

~~Our retail operation buys~~Company operations and sells jewelry, diamonds, fine watches, rare coins and currency, 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. Our new recycling and reusing operations, the Echo Entities, process circuit boards and electronic waste. Our customers are mostly industrial and resellers.

~~Many aspects of our retail business are impacted by~~dramatic changes in ~~precious metals pricing which rise and fall based upon global supply and demand dynamics, with the greatest impact relating~~consumer behavior, led to ~~gold. According to the London PM Fix, the price of gold started Fiscal year 2018 at $1,303 an ounce and climbed to $1,353 by April of 2018. Like the volatility~~a marked decline in recent years, the price receded to $1,175 by August only to rebound to $1,283 an ounce by December 31, 2018. The first two quarters of Fiscal 2019 brought a dramatic increase in Gold prices ending at $1,409 an ounce on June 30, 2019, an increase of 10% since the beginning of 2019. Gold prices continued to rise in the third quarter ending at $1,485 an ounce on September 30, 2019.

The market for buying and selling pre-owned or “scrap” gold has been negative during the past several years. Scrap gold purchases have historically been a critical profit engine for all of our locations, and our marketing strategy will continue to make this a significant impact on our revenue, profitability and long-term growth plans. The velocity of our sales ~~have increased due to the rise in gold prices~~ during the second half of March and ~~third quarters~~significantly affected the Company's first-quarter results.

Although retail investors’ demandfor precious-metal coins appears to have contributed to higher gold prices, jewelry consumption and recycled-gold supply plunged during the first quarter as consumers were confined to their homes for some of ~~2019.~~

~~Following a leadership change~~ the quarter in ~~mid-December 2016, we eschewed~~an effort to stem the ~~unsuccessful strategies~~spread of ~~recent years, for our retail business, and returned~~coronavirus, according to our roots: buying and selling jewelry and timepieces at exceptional prices. Our strategy is to be an information resource for clients, bringing transparency to purchase and sale transactions, and offer value and liquidity to those seeking to buy, sell or trade jewelry, watches, diamonds or coins. For our recycling business, wethe World Gold Council (“WGC”). Over the longer term, the WGC believes that recycled-gold volumes could likely rise once restrictions are ~~pushing for efficiency in processing our recyclable materials and we are also~~lifted, with consumers looking for ~~new applications for our recycled electronic material.~~

liquid assets—such as gold—to help alleviate economic hardship caused by the lockdown.

The following disaggregation of total revenue is listed by sales category and segment:

CONSOLIDATED Three Months Ended September 30,
2019 2018
Revenues Gross Profit Margin Revenues Gross Profit Margin
DGSE
Jewelry $ 4,036,825 $ 300,182 7.4 % $ 3,694,204 $ 1,223,144 33.1 %
Bullion/Rare Coin 9,621,146 1,291,525 13.4 % 8,120,071 727,555 9.0 %
Scrap 2,547,912 384,461 15.1 % 1,317,133 226,090 17.2 %
Other 447,044 42,684 9.5 % 527,987 300,380 56.9 %

Subtotal 16,652,927 2,018,852 12.1 % 13,659,395 2,477,169 18.1 %

Echo Entities
Recycle 5,133,181 2,408,416 46.9 % - - -
Reuse 1,075,093 759,186 70.6 % - - -

Subtotal 6,208,274 3,167,602 51.0 % - - -

$ 22,861,201 $ 5,186,454 22.7 % $ 13,659,395 $ 2,477,169 18.1 %

CONSOLIDATED Nine Months Ended September 30,
2019 2018
DGSE Revenues Gross Profit Margin Revenues Gross Profit Margin
Jewelry $ 12,432,060 $ 2,866,139 23.1 % $ 13,519,276 $ 3,840,235 28.4 %
Bullion/Rare Coin 30,543,290 2,317,310 7.6 % 21,828,412 2,128,921 9.8 %
Scrap 5,514,091 826,422 15.0 % 3,782,718 669,461 17.7 %
Other 2,761,652 497,291 18.0 % 1,318,124 531,037 40.3 %

Subtotal 51,251,093 6,507,162 12.7 % 40,448,530 7,169,654 17.7 %

Echo Entities
Recycle 6,721,265 3,156,235 47.0 % - - -
Reuse 1,845,810 1,106,854 60.0 % - - -

Subtotal 8,567,075 4,263,089 49.8 % - - -

$ 59,818,168 $ 10,770,251 18.0 % $ 40,448,530 $ 7,169,654 17.7 %

CONSOLIDATED

Three Months Ended March 31,

2020

2019

Revenues

Gross Profit

Margin

Revenues

Gross Profit

Margin

DGSE

Resale
$18,541,897
$2,047,433
  11.0%
$14,801,379
$2,033,435
  13.7%
Recycled
  1,821,687
  316,749
  17.4%
  1,218,151
  185,047
  15.2%







     Subtotal
  20,363,584
  2,364,182
  11.6%
  16,019,530
  2,218,482
  13.8%







ECHG






Resale
  3,526,228
  1,420,176
  40.3%
  -
  -
  -
Recycled
  1,939,331
  1,516,922
  78.2%
  -
  -
  -







    Subtotal
  5,465,559
  2,937,098
  53.7%
  -
  -
  -








$25,829,143
$5,301,280
  20.5%
$16,019,530
$2,218,482
  13.8%

Three Months Ended ~~September 30, 2019~~March 31, 2020 compared to Three Months Ended ~~September 30, 2018~~March 31, 2019

Revenues.

~~Revenues.~~Revenues related to DGSE’s ~~retail~~ continuing operations increased by ~~$2,993,532~~$4,344,054 or ~~22%~~27%, during the three months ended ~~September 30, 2019,~~March 31, 2020, to ~~$16,652,927,~~$20,363,584, as compared to ~~$13,659,395~~$16,019,530 during the same period in ~~2018. Jewelry, Bullion/~~2019. Resale revenue, such as bullion, jewelry, watches and rare ~~coin and Scrap sales~~coins, increased 9%$3,740,518, or 25%, ~~18% and 93%, respectively,~~during the three months ended March 31, 2020, to $18,541,897, as compared to the $14,801,379 for the prior ~~year quarter ending September 30, 2018. Other~~three months ended March 31, 2019. Recycled-material sales ~~decreased 15%~~increased 50% to $1,821,687 for the three months ended March 31, 2020, as compared to $1,218,151, for the three months ended March 31, 2019. Revenues increased for resale items for the three months ended March 31, 2020, compared to the ~~prior year quarter. Revenues increased for the quarter ending September 30,~~three months ended March 31, 2019, ~~compared~~primarily due to ~~the quarter ending September 30, 2018,~~higher gold prices. The increase in recycled-materials revenue is primarily due to the increase in gold ~~prices and our stategy to increase our sales velocity.~~

~~Revenues~~prices. Revenue related to ~~the Echo Entities from~~ECHG for the three months ~~ending September 30, 2019~~ended March 31, 2020 was ~~$6,208,274. Recycled material~~$5,465,559. Recycled-material sales accounted for ~~83%~~58% of the total sales at ~~$5,133,181~~$3,173,761, and ~~reused material sales~~resale revenue accounted for ~~17%~~42% of the total sales at ~~$1,075,093.~~

$2,291,798.

Gross Profit.Gross Profit related to DGSE’s operations for the three months ended ~~September 30, 2019, decreased~~March 31, 2020, increased by ~~$458,317~~$145,700 to ~~$2,018,852~~$2,364,182 as compared to ~~$2,477,169~~$2,218,482 during the same period in ~~2018.~~2019. The ~~decrease~~increase in total gross profit ~~dollars~~ was due primarily to the increase in sales velocity ~~across~~for the ~~board, except for scrap.~~resale items and the recycled materials. Even though there ~~was~~were additional revenues for the resale items, there ~~was~~were also lower ~~gross margin~~gross-margin percentages due to ~~changing our strategy for a higher velocity of sales. Our strategy decreased~~ the ~~overall gross profit margin to 12.1% compared to 18.1% during the same period for the prior year.~~change in market conditions.

Gross ~~Profit~~Profits related to ~~the Echo Entities~~ECHG support a larger profit margin compared to the ~~retail~~DGSE segment. ~~The Echo Entities~~ECHG’s profit margin of ~~$3,167,602~~$2,937,098 on ~~$6,208,274~~$5,465,559 sales ~~or an overall percentage of 51.0%.~~

comprises 53.7% overall.

Selling, General and Administrative Expenses.For the three months ended ~~September 30, 2019,~~March 31, 2020, Selling, General and Administrative (“SG&A”) expenses for DGSE ~~decreased by $990,766,~~increased $131,666, or ~~35%~~7.6%, to ~~$1,868,144,~~$1,873,006, as compared to ~~$2,858,911~~$1,741,340 during the same period in ~~2018.~~2019. The ~~decrease~~increase in SG&A was primarily due to ~~a note receivable write off of $644,313~~increased corporate expenses loaded to both the DGSE and ~~additional bad debt write off of $552,347 during the three months ending September 30, 2018.~~ECHG segments.

The SG&A expenses for ~~the Echo Entities~~ECHG totaled ~~$2,025,474~~$1,952,194, which primarily consists of payroll, payroll taxes and employee benefits of ~~$1,364,161,~~$1,104,418; rent and variable rent costs, net of sublet income, of ~~$186,495,~~$136,232; warehouse and office supplies of ~~$89,987,~~$35,803; insurance costs of ~~$46,128,~~$23,068; travel expenses of ~~$50,339,~~$23,772; professional fees of ~~$44,263~~$44,650; and other administrative expenses totaling ~~$244,101.~~

$226,430.

Depreciation and Amortization. For the three months ended ~~September 30, 2019,~~March 31, 2020, depreciation and amortization expense for DGSE was ~~$44,368~~$77,041, compared to ~~$98,237~~$74,324 for the same period in ~~2018, a decrease~~2019, an increase of ~~$53,869,~~$2,717, or ~~55%~~3.6%. The ~~decrease~~increase of ~~$53,869~~$2,717 from the three months ending ~~September 30, 2019~~March 31, 2020 compared to the three months ending ~~September 30, 2018~~March 31, 2019 is primarily due to ~~assets that are being fully depreciated but still in-service.~~a vehicle purchase during the quarter.

The Depreciation and Amortization expense for ~~the Echo Entities~~ECHG consisted of depreciation of ~~$23,518~~$18,788 and amortization of ~~$0,~~$83,900 for the three months ending ~~September 30, 2019.~~

March 31, 2020. Amortization for the three months ended March 31, 2020 is the amortization of intangibles from the Purchase Price Allocation.

Interest Expense. For the three months ended ~~September 30, 2019,~~March 31, 2020, interest expense for DGSE was ~~$46,764,~~$44,793, an increase of ~~$8,664,~~$10,236, or ~~23%~~29%, compared to ~~$38,100~~$34,549 during the same period in ~~2018.~~2019. The increase is primarily due to an increased interest rate on the ~~pay off of the accounts~~note payable - trade, related party, ~~now note~~that paid off the accounts payable, related party, outstanding balance of ~~$2,970,566~~$2,928,210 as of ~~September 30, 2019.~~March 31, 2020.

The interest expense for ~~the Echo Entities~~ECHG was ~~$101,956~~$100,522 for the three months ending ~~September 30, 2019,~~March 31, 2020, which was related to the note payable, related party, with an outstanding balance of ~~$6,736,867~~$6,641,438 as of ~~September 30, 2019.~~

March 31, 2020.

Income Tax Expense.For the three months ending ~~September 30, 2019,~~March 31, 2020, our income tax expense was ~~$41,710,~~$18,577, an increase of $8,341, or 81%, compared to ~~an income tax benefit of $16,646~~$10,236 for the three months ending ~~September 30, 2018, an increase of $58,356.~~March 31, 2019. The effective income tax rate was ~~3.9%~~1.6% and ~~3.3%~~2.9% for the three months ending ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. Differences between our effective income tax rate and the U.S federal statutory rate are the ~~impact~~result of state taxes, ~~non-deductable~~non-deductible expenses, changes in reserves for uncertain tax positions and ~~unutilized~~unused NOL carryforwards.

Net Income. We recorded a net income of $1,174,149 for the three months ended March 31, 2020, compared to a net income of $354,635 for the three months ended March 31, 2019, an increase in net income of $819,514, which is due primarily from the addition of ECHG adding $785,724 of net income for the three months ended March 31, 2020.

Earnings Per ~~Share~~. Share.For the three ~~month~~months ending ~~September 30, 2019,~~March 31, 2020, our net income per basic and diluted shares attributable to common stockholders was $.04, compared to ~~($.02)~~$.01 per basic and diluted shares for the three months ending ~~September 30, 2018,~~March 31, 2019, an increase of ~~$.06~~$.03 per share. The increase is primarily due to the addition of ~~the Echo Entities~~ECHG’s net income for the three months ending ~~September 30, 2019~~March 31, 2020.

Liquidity and ~~the write off of the note receivable of $644,313 and the accounts receivable write off of $552,347 for~~Capital Resources

During the three months ~~ending September 30, 2018.~~

~~Nine Months Ended September 30, 2019 compared to Nine Months Ended September 30, 2018~~

~~Revenues.~~~~Revenues related to DGSE increased by $10,802,563, or 27%,~~ended March 31, 2020, cash flows provided from operating activities totaled $1,031,715, and during the ~~nine~~three months ended ~~September 30,~~March 31, 2019 to $51,251,093, as compared to $40,448,530 during the same period in 2018. Bullion/rare coin, scrap and other sales increased approximately 40%, 46% and 110%, respectively, compared to the nine months ended September 30, 2018. Jewelry sales decreased approximately 8%, compared to the prior year nine months. Revenues increased for the nine months ending September 30, 2019, compared to the nine months ending September 30, 2018, primarily due to the increase in gold prices and our strategy to increase our velocity of sales.

Revenues related to the Echo Entities from for the nine months ending September 30, 2019 was $8,567,075. Recycled material sales accounted for 78% of the total sales at $6,721,265 and reused material sales accounted for 22% of the total sales at $1,845,810.

~~Gross Profit.~~Gross profit for the nine months ended September 30, 2019, related to DGSE decreased by $662,492, or 9%, to $6,507,162, as compared to $7,169,654 during the same period in 2018. The decrease in gross profit was due to a decrease in profit margin across the board except for jewelry which produced a slight increase. As a percentage of revenue, gross margin decreased to 12.7% compared to 17.7% in the same period compared to the prior year. Even though there was additional revenues there was also lower gross margin percentages due to changing our strategy for a higher velocity of sales.

Gross Profit related to the Echo Entities support a larger profit margin compared to the retail segment. The Echo Entities profit margin for the nine months ending September 30, 2019 of $4,263,089 on $8,567,075 sales, or an overall percentage of 50.0%.

~~Selling, General and Administrative Expenses.~~For the nine months ended September 30, 2019, DGSE’s SG&A expenses decreased by $1,188,776, or 18%, to $5,484,082, as compared to $6,672,858 during the same period in 2018. The decrease in SG&A was primarily due to a note receivable write off of $644,313 and additional bad debt write off of $552,347 during the nine months ending September 30, 2018.

The SG&A expenses for the Echo Entities totaled $2,827,117 which primarily consists of payroll, payroll taxes and employee benefits of $1,920,722, rent and variable rent costs, net of sublet income, of $234,034, warehouse and office supplies of $149,787, insurance costs of $46,128, travel expenses of $50,339, professional fees of $44,263 and other administrative expenses totaling 381,844.

~~Depreciation and Amortization~~. For the nine months ended September 30, 2019, DGSE’s depreciation and amortization expense was $193,140 compared to $275,721 for the same period in 2018. The decrease is primarily due to assets that are being fully depreciated but still in service.

~~The Depreciation and Amortization expense for the Echo Entities consisted of depreciation of $34,418 and amortization of $0, for the nine months ending September 30, 2019.~~

~~Interest Expense~~. For the nine months ended September 30, 2019, the interest expense for DGSE was $106,970, a decrease of $23,660, or 18%, compared to $130,630 during the same period in 2018. The decrease is due to the continual pay down of the accounts payable, related party, now note payable, related party, outstanding balance of $2,970,566.

The interest expense for the Echo Entities was $133,808 for the nine months ending September 30, 2019, which was related to the note payable, related party, with an outstanding balance of $6,736,867 as of September 30, 2019.

~~Income Tax Expense.~~For the nine months ending September 30, 2019, our income tax expense was $65,364, compared to an income tax expense of $23,787 for the nine months ending September 30, 2018, an increase of $41,577. The effective income tax rate was 3.2% and 15.9% for the nine months ending September 30, 2019 and 2018, respectively. Differences between our effective income tax rate and the U.S federal statutory rate are the impact of state taxes, non-deductable expenses, changes in reserves for uncertain tax positions and unutilized NOL carryforwards.

~~Earnings Per Share~~. For the nine month ending September 30, 2019, our net income for basic and diluted shares attributable to common stockholders was $.08 per share, compared to $0.00 per share for basic and diluted shares for the nine months ending September 30, 2018, an increase of $.08 per share. The increase is primarily due to the addition of the Echo Entities net income for the nine months ending September 30, 2019 and the write off of the note receivable of $644,313 and the accounts receivable write off of $552,347 for the nine months ending September 30, 2018.

~~Liquidity and Capital Resources~~

~~During the nine months ended September 30, 2019 and 2018,~~ cash flows used in operating activities totaled ~~$2,732,488 and $614,851, respectively,~~$960,206, an increase of ~~$2,117,637.~~$1,991,921. Cash provided from operating activities for the three months ended March 31, 2020, was driven largely by the reduction of trade receivables of $525,519, a reduction of inventories of $111,931 and net income added to non-cash items of depreciation and amortization of $1,353,878, offset by a decrease in accounts payable and accrued expenses of $647,804, an increase in prepaid expenses of $163,312 and a reduction of customer deposits and other liabilities of $118,710. Cash used in operating activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2019, was driven largely by the reduction of accounts payable – trade, related party of $3,074,021, accounts payable – trade and accrued expenses of $627,911, the increase of inventories of $256,103, an increase in trade receivables, net of $920,929 and an increase in prepaid expenses of 212,865, offset by net income, without depreciation and amortization, of $2,207,195. Cash used in operating activities for the nine months ended September 30, 2018, was driven largely by the reduction of accounts payable and accrued expenses of ~~$1,189,542, and~~$564,868, the increase of inventories of ~~$900,750, offset by~~$550,567, the increase in ~~customer deposits and other liabilities of $105,250, the decrease in~~ trade receivables of $105,606 and the increase in prepaid expenses of $185,536, offset by ~~$146,811, and~~ net income, without non-cash items of depreciation, amortization, bad debt expense ~~and accounts payable true-up~~ of ~~$1,129,780.~~

$458,959.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ cash flows used in investing activities totaled ~~$6,024,506~~$1,529,046 and ~~$176,135,~~$14,175, respectively, an increase of ~~$5,848,371.~~$1,514,871. The use of cash in investing activities during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was primarily ~~the result~~due to investing in a note receivable of ~~the Echo Tranaction.~~$1,500,000 to CExchange. The use of cash in investing activities during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 was the result of ~~the continuing buildout expenses related to the Midtown location at 13022 Preston Road, Dallas and the continual building~~purchasing of ~~our POS system.~~

equipment.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, cash flows ~~provided in financing activities totaled $9,858,432 and during the nine months ended September 30, 2018, cash~~ used in financing activities totaled ~~$2,352,~~$69,404 and $0, respectively, an increase of $9,856,080. The cash provided in financing activities during the nine months ended September 30, 2019 was primarily from the acquisition of the Echo Transaction for $6,925,979, financing the payoff of accounts payable – trade, related party of $3,074,021 and a line of credit for short-term financing of $151,000, offset by the use of funds to pay down the note payable, related party, of $292,568.$69,404. The use of cash in financing activities during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2020 was payments made against the ~~result~~notes payable, related party.

The COVID-19 pandemic has adversely affected global economic business conditions. Future sales of ~~paying off~~products like ours could decline due to increased commodities prices, particularly gold. Although we are continuing to monitor and assess the effects of the coronavirus pandemic, the ultimate impact, including the impact on our liquidity and capital ~~lease obligations.~~

resources, is highly uncertain and subject to change. The duration of any such impact cannot be predicted, and the Company believes additional liquidity is necessary to support ongoing operations during this period of uncertainty. We have applied and received approval for the Federal Loan to provide approximately $1.67 million in additional liquidity. On May 17, 2019, the Company secured a one-year, $1,000,000 revolving line of credit loan from Texas Bank and Trust Co. The loan agreement includes a 30-day clean-up provision. Although Texas Bank and Trust Co. has communicated approval of a two-year extension and increased credit limit for this credit line, the Company is awaiting definitive documents reflecting these terms. If not renewed, the existing credit line will expire on May 17, 2020. From time to time we adjust our inventory levels to meet seasonal demand or working-capital requirements. Management believes we have sufficient capital resources (including the Federal Loan) to meet working-capital requirements. If additional working capital is required, we will seek additional loans from individuals or other commercial banks. The availability of such loans on acceptable terms is uncertain.

We expect our capital expenditures to total approximately ~~$85,000~~$50,000 during the next twelve months. These expenditures will be largely driven by ~~the purchase of additional components of our new point-of-sale system and~~ miscellaneous equipment needed ~~in the recycling of~~to recycle electronic waste. ~~The new point-of-sale system was designed and built specifically for DGSE and rolled out April 1, 2018. As of September 30, 2019, there were no commitments outstanding, except for the POS system.~~

From time to time, we have adjusted our inventory levels to meet seasonal demand or in order to meet working capital requirements. Management believes that if additional working capital is required, additional loans can be obtained from individuals or from commercial banks. If necessary, inventory levels may be adjusted in order to meet unforeseen working capital requirements

Off-Balance Sheet Arrangements

We have 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 ~~stockholders.~~

stockholders.

ITEM 3.Q~~QUANTITATIVE~~UANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET ~~RISK.~~RISK

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

ITEM 4.C~~CONTROLS~~ONTROLS AND ~~PROCEDURES.~~PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our principal executive officer and our principal financial officer, conducted an evaluation, as of the end of the period covered by the Quarterly Report on Form 10-Q of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, management has concluded that as of ~~September 30, 2019,~~March 31, 2020, the Company’s disclosure controls and procedures were effective, at a reasonable assurance level, in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in that the reports that we file or submit under the Exchange Act and are effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

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

PART II - OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS~~LEGAL PROCEEDINGS.~~

~~None~~

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 1A.

RISK FACTORS~~RISK FACTORS.~~

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

Although we are not required to address this item, we feel it is prudent to do so.

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

The sweeping nature of the coronavirus pandemic 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 remains a developing situation, any continuing quarantines, interruptions in travel and business disruptions with respect to us, our customers or our supply chain could adversely affect our sales, costs and liquidity position, possibly to a significant degree. We may also become subject to store closures. Although we are continuing to monitor and assess the effects of the coronavirus pandemic on our business, the ultimate impact is highly uncertain and subject to change. The duration of any such impact cannot be predicted.

The coronavirus pandemic is adversely affecting, and is expected to continue to adversely affect, our operations, supply chains and distribution systems, and we have experienced and expect to continue to experience unpredictable reductions in demand for certain of our products and services.

DGSE’s business, similar to the jewelry industry overall, is affected by fluctuations in precious-metals prices. Such fluctuations, particularly with respect to gold, which accounts for the majority of DGSE’s merchandise costs, could adversely impact its earnings and cash availability. Additionally, DGSE depends on purchasing products and materials from secondary markets. At any given time, we may be unable to obtain an adequate supply of products and materials at prices or other terms acceptable to us.

ECHG’s recycling business is affected by precious and other non-ferrous metals’ prices, which fluctuate based upon global supply-and-demand dynamics, among other things, with the greatest impact relating to gold. Additionally, ECHG depends on purchasing products and materials from secondary markets. At any given time, we may be unable to obtain an adequate supply of products and materials at prices and other terms acceptable to us. Compliance with future environmental laws and regulations, or current environmental laws and regulations reinterpreted in the future, could result in costs that have a material adverse effect on our business, results of operations and financial condition.

ITEM 2.U~~UNREGISTERED~~NREGISTERED SALES OF EQUITY SECURITIES AND USE OF ~~PROCEEDS.~~

~~None.~~

PROCEEDS

Not applicable

ITEM 3.D~~DEFAULTS~~EFAULTS UPON SENIOR ~~SECURITIES.~~SECURITIES

~~None.~~

Not applicable

ITEM 4.M~~MINE~~INE SAFETY ~~DISCLOSURES.~~DISCLOSURES

~~None.~~

Not applicable

ITEM 5.OTHER INFORMATION~~OTHER INFORMATION.~~

~~None.~~

Not applicable

ITEM 6.EXHIBITS

Exhibit Number

Description

Filed

Herein

Incorporated by Reference

Form

Date Filed with SEC

Exhibit Number

31.1

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

31.2

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

32.1

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

32.2

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

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Calculation Linkbase Document

101.DEF

XBRL Taxonomy Definition Linkbase Document

101.LAB

XBRL Taxonomy Label Linkbase Document

101.PRE

XBRL Taxonomy Presentation Linkbase Document

S~~EXHIBITS.~~IGNATURES

Exhibit Number Description Filed Herein Incorporated by Reference Form
Date Filed
with SEC
Exhibit Number
3.1 Articles of Incorporation dated September 17, 1965 X 8-A12G June 23, 1999 3.1
3.2 Certificate of Amendment to Articles of Incorporation, dated October 14, 1981 X 8-A12G June 23, 1999 3.2
3.3 Certificate of Resolution, dated October 14, 1981 X 8-A12G June 23, 1999 3.3
3.4 Certificate of Amendment to Articles of Incorporation , dated July 15, 1986 X 8-A12G June 23, 1999 3.4
3.5 Certificate of Amendment to Articles of Incorporation, dated August 23, 1998 X 8-A12G June 23, 1999 3.5
3.6 Certificate of Amendment to Articles of Incorporation, dated June 26, 1992 X 8-A12G June 23, 1999 3.6
3.7 Certificate of Amendment to Articles of Incorporation, dated June 26, 2001 X 8-K July 3, 2001 1.0
3.8 Certificate of Amendment to Articles of Incorporation, dated May 22, 2007 X S-8 May 29, 2007 3.8

Exhibit Number Description Filed Herein Incorporated by Reference Form Date Filed
with SEC Exhibit Number
3.9 Certificate of Amendment to Articles of Incorporation, dated December 7, 2016 X 10-K April 14, 2017 3.9
3.10 By-laws, dated March 2, 1992 X 8-A12G June 23, 1999 3.7
3.11 Amendment to By-laws, dated September 4, 2015 X 8-K September 11, 2015 3.1
3.12 Amendment to By-laws, dated October 9, 2015 X 8-K October 9, 2015 3.9
4.1 Specimen Common Stock Certificate X S-4 February 26, 2007 4.1
4.2 Warrant to Purchase Shares of Common Stock of DGSE Companies, Inc. issued to Elemetal, LLC dated December 9, 2016 X 8-K December 13, 2016 4.1
10.1 Lock-up Agreement, dated September 11, 2012, by and among DGSE Companies, Inc. and certain shareholders X 8-K September 16, 2011 10.2
10.2 Form of Option Grant Agreement X 8-K September 16, 2011 10.4
10.3 Registration Rights Agreement, dated September 12, 2011, by and between DGSE Companies, Inc. and certain shareholders X 8-K September 16, 2011 10.5
10.4 Registration Rights Agreement, dated September 12, 2011, by and between DGSE Companies, Inc. and NTR Metals, LLC X 8-K September 16, 2011 10.7
10.5 Option Grant Agreement, dated October 25, 2011, by and between DGSE Companies, Inc. and NTR Metals, LLC X 8-K October 28, 2011 10.2
10.6 Loan Agreement, dated July 19, 2012, by and between DGSE Companies, Inc. and NTR Metals, LLC X 8-K July 20, 2012 10.1
10.7 Guaranty and Security Agreement, dated July 19, 20123, among DGSE Companies, Inc., its subsidiaries, and NTR Metals, LLC X 8-K July 20, 2012 10.2
10.8 Revolving Credit Note granted in favor of NTR Metals, LLC X 8-K July 20, 2012 10.3

Exhibit Number Description Filed Herein Incorporated by Reference Form Date Filed
with SEC Exhibit Number
10.9 Amendment to Loan Agreement and Revolving Credit Note, dated February 25, 2014, by and between the Company and NTR X 8-K March 5, 2014 10.1
10.10 Office Space Lease, dated January 21, 2013, by and between 15850 Holdings LLC and the Company X 10-K March 27, 2014 10.21
10.11 Separation & Release of Claims Agreement dated April 17, 2014, by and between the Registrant and James Vierling X 8-K April 21, 2014 10.1
10.12 Payment Agreement, dated July 11, 2014 X 8-K July 17, 2014 10.1
10.13 Second Amendment to Loan Agreement and Revolving Credit Note, dated January 26, 2015, by and between the Company and NTR X 8-K February 6, 2015 10.1
10.14 Offer Letter by and between DGSE and Matthew M. Peakes, dated September 4, 2015 X 8-K September 11, 2015 10.1
10.15 Consulting, Separation and Release of Claims Agreement by and between DGSE and James D. Clem, dated September 4, 2015 X 8-K September 11, 2015 10.2
10.16 Offer Letter by and between DGSE and Nabil J. Lopez, dated October 29, 2015 X 8-K October 29, 2015 10.1
10.17 Form of Indemnification Agreement between DGSE Companies, Inc. and each executive officer and director of DGSE X 8-K February 12, 2016 10.1
10.18 Stock Purchase Agreement by and between DGSE Companies, Inc., Elemetal, LLC and NTR Metals, LLC dated June 20, 2016 X 8-K June 22, 2016 10.1
10.19 Registration Rights Agreement by and among DGSE Companies, Inc., Elemetal, LLC, and NTR Metals, LLC dated as of December 9, 2016 X 8-K June 22, 2016 10.3

Exhibit Number Description Filed Herein Incorporated by Reference Form Date Filed
with SEC Exhibit Number
10.20 Purchase Agreement dtd May 20, 2019, by and among Echo Environmental, LLC, ITAD USA, LLC and Corrent Resources, LLC X 8-K May 24, 2019 10.1
10.21
Promissory Note, dtd May 20, 2019, by and between Corrent Resources, LLC and John R. Loftus
X 8-K May 24, 2019 10.2
10.22 Promissory Note, dtd May 20, 2019, by and between DGSE Companies, LLC and John R. Loftus X 8-K May 24, 2019 10.3
14.1 Business Conduct & Ethics Policy X 10-K/A December 19, 2012 14.1
21.1 Subsidiaries of the Registrant X 10-K March 27, 2014 21.1
31.1 Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002 by John R. Loftus X
31.2 Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002 by Bret A. Pedersen X
32.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by John R. Loftus X
32.2 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Bret A. Pedersen X

101.INS XBRL Instance Document X
101.SCH XBRL Taxonomy Extension Schema Document X
101.CAL XBRL Taxonomy Calculation Linkbase Document X
101.DEF XBRL Taxonomy Definition Linkbase Document X
101.LAB XBRL Taxonomy Label Linkbase Document X
101.PRE XBRL Taxonomy Presentation Linkbase Document X

~~SIGNATURES~~

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

	~~DGSE COMPANIES, INC.~~ ENVELA CORPORATION (Registrant)

Date: ~~November 13, 2019~~May 12, 2020	By:	/s/ JOHN R. LOFTUS
		John R. Loftus
		Chief Executive Officer (Principal Executive Officer)

Date: ~~November 13, 2019~~May 12, 2020		/s/ BRET A. PEDERSEN
		Bret A. Pedersen
		Chief Financial Officer (Principal Accounting Officer)

~~Nevada~~NEVADA		88-0097334
(~~State or other jurisdiction of~~STATE OF INCORPORATION)		(I.R.S. ~~Employer~~EMPLOYER IDENTIFICATION NO.)

~~incorporation or organization)~~
Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of exchange on which registered

COMMON STOCK, $0.01 par value per share	ELA	NYSE American
~~Identification No.)~~Securities registered pursuant to Section 12(g) of the Act: NONE

Large accelerated filer ~~[ ]~~☐		Accelerated filer ~~[ ]~~☐
Non-accelerated filer ~~[ ]~~☐		Smaller reporting company ~~[X]~~☒
		Emerging growth company ☐

~~Class~~		~~Outstanding~~
~~Common stock, $0.01 par value per share~~		~~26,924,381~~

		Page No.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated ~~Balance Sheets as~~Statement of ~~September 30,~~Operations for the three months ended March 31, 2020 and 2019 (unaudited) ~~and December 31, 2018~~	1

	Condensed Consolidated ~~Statements~~Balance Sheets as of ~~Operations for the three months~~March 31, 2020 (unaudited) and ~~nine months ended September 30,~~December 31, 2019 ~~and 2018 (unaudited)~~	2

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)	3

	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended ~~September 30, 2018~~March 31, 2019 and ~~2019~~2020 (unaudited)	3

	~~Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2018 and 2019 (unaudited)~~	4

	Notes to Condensed Consolidated Financial Statements ~~of Cash Flows for the nine months ended September 30, 2019 and 2018~~ (unaudited)	5

	~~Notes to Condensed Consolidated Financial Statements (unaudited)~~	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2220

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2623

Item 4.	Controls and Procedures	2623

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	2724

Item 1A.	Risk Factors	2724

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2725

Item 3.	Defaults Upon Senior Securities	2725

Item 4.	Mine Safety Disclosures	2725

Item 5.	Other Information	2725

Item 6.	Exhibits	2725

SIGNATURES		31

	September 30, 2019			December 31, 2018
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	2,555,379		$	1,453,941
Trade receivables, net of allowances		2,040,890			94,345
Inventories		11,230,400			9,765,094
Prepaid expenses		382,325			81,094
Total current assets		16,208,994			11,394,474

Property and equipment, net		1,431,752			1,320,863
Goodwill		4,723,110			-
Intangible assets, net		235,100			234,350
Right-of -use assets from operating leases		3,779,707			-
Other assets		205,294			68,411

Total assets	$	26,583,957		$	13,018,098

LIABILITIES
Current Liabilities:
Accounts payable - trade	$	1,384,258		$	838,624
Accounts payable - trade, related party		-			3,088,973
Notes payable, related party		276,861			-
Line of credit		151,000			-
Current operating lease liabilities		1,158,210			-
Accrued expenses		865,137			579,203
Customer deposits and other liabilities		182,652			97,837
Total current liabilities		4,018,118			4,604,637

Notes payable, related party, less current portion		9,430,571			-
Long-term operating lease liabilities, less current portion		2,742,170			-

Total liabilities		16,190,859			4,604,637

Commitments and contingencies

STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value; 60,000,000 shares authorized; 26,924,381 shares issued and outstanding		269,244			269,244
Additional paid-in capital		40,172,677			40,172,677
Accumulated deficit		(30,048,823	)		(32,028,460	)
Total stockholders’ equity		10,393,098			8,413,461

Total liabilities and stockholders’ equity	$	26,583,957		$	13,018,098

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenue
Sales	$	22,861,201		$	13,659,395		$	59,818,168		$	40,448,530
Cost of goods sold		17,674,747			11,182,226			49,047,917			33,278,876
Gross margin		5,186,454			2,477,169			10,770,251			7,169,654

Expenses:
Selling, general and administrative expenses		3,893,618			2,858,911			8,311,199			6,672,858
Depreciation and amortization		67,886			98,237			227,558			275,721
		3,961,504			2,957,148			8,538,757			6,948,579

Operating income (loss)		1,224,950			(479,979	)		2,231,494			221,075

Other (income) expense:
Other income, net		(955	)		(6,527	)		(54,285	)		(58,822	)
Interest expense		148,720			38,100			240,778			130,630
		147,765			31,573			186,493			71,808

Income (loss) before income taxes		1,077,185			(511,552	)		2,045,001			149,267

Income tax expense (benefit)		41,710			(16,646	)		65,364			23,787

Net income (loss)	$	1,035,475		$	(494,906	)	$	1,979,637		$	125,480

Basic net income (loss) per common share:	$	0.04		$	(0.02	)	$	0.08			0.00

Diluted net income (loss) per common share:	$	0.04		$	(0.02	)	$	0.08			0.00

Weighted-average number of common shares
Basic		26,924,381			26,924,381			26,924,381			26,924,381
Diluted		26,924,381			26,924,381			26,924,381			27,107,339

					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders’
	Shares		Amount		Capital		Deficit			Equity
Balances at June 30, 2018		26,924,381	$	269,244	$	40,172,677	$	(32,065,759	)	$	8,376,162

Net Loss		-		-		-		(494,906	)		(494,906	)

Balances at September 30, 2018		26,924,381	$	269,244	$	40,172,677	$	(32,560,665	)	$	7,881,256

For the Three Months Ended March 31,	2020	2019
	(Unaudited)	(Unaudited)
Operations
Net income	$1,174,149	$354,635
Adjustments to reconcile net income to net cash provided by (used in) operations:
Depreciation, amortization, and other	179,729	74,324
Bad debt expense	-	30,000
Changes in operating assets and liabilities:
Trade receivables	525,519	(105,606)
Inventories	111,931	(550,567)
Prepaid expenses	(163,312)	(185,536)
Intangible Assets	-	(15,000)
Other assets	5,120	(451)
Accounts payable and accrued expenses	(647,804)	(564,868)
Accounts payable, related party	-	(13,853)
Operating leases	(34,907)	59,848
Customer deposits and other liabilities	(118,710)	(43,132)
Net cash provided by (used in) operations	1,031,715	(960,206)

Investing
Investment in note receivable	(1,500,000)	-
Purchase of property and equipment	(29,046)	(14,175)
Net cash used in investing	(1,529,046)	(14,175)

Financing
Payments on notes payable, related party	(69,404)	-
Net cash used in financing	(69,404)	-


Net change in cash and cash equivalents	(566,735)	(960,206)
Cash and cash equivalents, beginning of period	4,510,660	1,453,941
Cash and cash equivalents, end of period	$3,943,925	$493,735

Supplemental Disclosures
Cash paid during the period for:
Interest	$121,718	$34,549
Income taxes	$-	$-

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

Balances at December 31, 2018	26,924,381	$269,244	-	$-	$40,172,677	$(32,028,460)	$8,413,461


Net Income	-	-	-	-	-	354,635	354,635

Balances at March 31, 2019
	26,924,381	$269,244	-	$-	$40,172,677	$(31,673,825)	$8,768,096

	Septemnber 30, 2019			December 31, 2018
DGSE
Domain names	$	41,352		$	41,352
Point of sale system		315,000			270,000
		356,352			311,352
Less: accumulated amortization		(121,252	)		(77,002	)

Subtotal		235,100			234,350

Echo Entities		-			-

	$	235,100		$	234,350

CONSOLIDATED	Three Months Ended September 30,
	2019							2018
	Revenues		Gross Profit		Margin			Revenues		Gross Profit		Margin
DGSE
Jewelry	$	4,036,825	$	1,149,134		28.5	%	$	3,694,204	$	1,223,144		33.1	%
Bullion/Rare Coin		9,621,146		442,573		4.6	%		8,120,071		727,555		9.0	%
Scrap		2,547,912		359,255		14.1	%		1,317,133		226,090		17.2	%
Other		447,044		67,890		15.2	%		527,987		300,380		56.9	%

Subtotal		16,652,927		2,018,852		12.1	%		13,659,395		2,477,169		18.1	%

Echo Entities
Recycle		5,133,181		2,408,416		46.9	%		-		-		-
Reuse		1,075,093		759,186		70.6	%		-		-		-

Subtotal		6,208,274		3,167,602		51.0	%		-		-		-

	$	22,861,201	$	5,186,454		22.7	%	$	13,659,395	$	2,477,169		18.1	%

TEXAS	Three Months Ended September 30,
	2019							2018
	Revenues		Gross Profit		Margin			Revenues		Gross Profit		Margin
DGSE
Jewelry	$	3,506,998	$	957,867		27.3	%	$	3,404,889	$	1,083,550		31.8	%
Bullion/Rare Coin		9,473,024		433,389		4.6	%		8,001,990		711,529		8.9	%
Scrap		2,547,912		359,255		14.1	%		1,317,133		226,090		17.2	%
Other		385,823		54,360		14.1	%		498,409		299,600		60.1	%

Subtotal		15,913,757		1,804,871		11.3	%		13,222,421		2,320,769		17.6	%

Echo Entities
Recycle		5,133,181		2,408,416		46.9	%		-		-		-
Reuse		1,075,094		759,186		70.6	%		-		-		-

Subtotal		6,208,275		3,167,602		51.0	%		-		-		-

	$	22,122,032	$	4,972,473		22.5	%	$	13,222,421	$	2,320,769		17.6	%

SOUTH CAROLINA	Three Months Ended June 30,
	2019							2018
	Revenues		Gross Profit		Margin			Revenues		Gross Profit		Margin
DGSE
Jewelry	$	529,825	$	191,267		36.1	%	$	289,315	$	139,594		48.2	%
Bullion/Rare Coin		148,122		9,184		6.2	%		118,081		16,026		13.6	%
Other		61,222		13,530		22.1	%		29,578		780		2.6	%

Subtotal		739,169		213,981		28.9	%		436,974		156,400		35.8	%

Echo Entities		-		-		-			-		-		-

Subtotal		-		-		-			-		-		-

	$	739,169	$	213,981		28.9	%	$	436,974	$	156,400		35.8	%

CONSOLIDATED	Nine Months Ended September 30,
	2019							2018
DGSE	Revenues		Gross Profit		Margin			Revenues		Gross Profit		Margin
Jewelry	$	12,432,060	$	3,715,091		29.9	%	$	13,519,276	$	3,840,235		28.4	%
Bullion/Rare Coin		30,543,290		1,468,358		4.8	%		21,828,412		2,128,921		9.8	%
Scrap		5,514,091		801,216		14.5	%		3,782,718		669,461		17.7	%
Other		2,761,652		522,497		18.9	%		1,318,124		531,037		40.3	%

Subtotal		51,251,093		6,507,162		12.7	%		40,448,530		7,169,654		17.7	%

Echo Entities
Recycle		6,721,265		3,156,235		47.0	%		-		-		-
Reuse		1,845,810		1,106,854		60.0	%

Subtotal		8,567,075		4,263,089		49.8	%		-		-		-

	$	59,818,168	$	10,770,251		18.0	%	$	40,448,530	$	7,169,654		17.7	%

	March 31,	December 31,
	2020	2019
DGSE
Resale	$8,440,885	$8,213,551
Recycle	147,783	401,468

Subtotal	8,588,668	8,615,019

ECHG
Resale	202,512	351,958
Recycle	606,343	542,477

Subtotal	808,855	894,435

	$9,397,523	$9,509,454

	Operating Leases
DGSE
2019 (excluding the nine months ending September 30, 2019)	$	137,187
2020		550,623
2021		491,540
2022		247,040
2023		223,045
2024 and thereafter		289,327

Total minimum lease payments		1,938,762
Less imputed interest		(214,833	)

Subtotal		1,723,929

Echo Entities
2019 (excluding the nine months ending September 30, 2019)		198,869
2020		803,661
2021		785,240
2022		582,195

Total minimum lease payments		2,369,965
Less imputed interest		(193,514	)

Subtotal		2,176,451

	$	3,900,380