# EDGAR Filing Document

**Accession Number:** 0000701719
**File Stem:** 0001654954-23-003057
**Filing Date:** 2023-3
**Character Count:** 197789
**Document Hash:** 16d7f7d629212efe93bf2146359d7659
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001654954-23-003057.hdr.sgml**: 20230316

**ACCESSION NUMBER**: 0001654954-23-003057

**CONFORMED SUBMISSION TYPE**: 10-K

**PUBLIC DOCUMENT COUNT**: 92

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230316

**DATE AS OF CHANGE**: 20230316

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Envela Corp
- **CENTRAL INDEX KEY:** 0000701719
- **STANDARD INDUSTRIAL CLASSIFICATION:** RETAIL-JEWELRY STORES [5944]
- **IRS NUMBER:** 880097334
- **STATE OF INCORPORATION:** NV
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-11048
- **FILM NUMBER:** 23739895

**BUSINESS ADDRESS:**
- **STREET 1:** 1901 GATEWAY DRIVE
- **STREET 2:** SUITE 100
- **CITY:** IRVING
- **STATE:** TX
- **ZIP:** 75038
- **BUSINESS PHONE:** 9725874049

**MAIL ADDRESS:**
- **STREET 1:** 1901 GATEWAY DRIVE
- **STREET 2:** SUITE 100
- **CITY:** IRVING
- **STATE:** TX
- **ZIP:** 75038

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** DGSE COMPANIES INC
- **DATE OF NAME CHANGE:** 20030703

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** DALLAS GOLD & SILVER EXCHANGE INC /NV/
- **DATE OF NAME CHANGE:** 19930114

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** AMERICAN PACIFIC MINT INC
- **DATE OF NAME CHANGE:** 19920703

?xml version="1.0" encoding="utf-8"?ela_10k.htm

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

_______________________

**FORM 10-K**

---

| | |
|:---|:---|
| **☒** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|  | **For the Fiscal Year Ended December 31, 2022**  |

---

**OR**

---

| | |
|:---|:---|
| **☐** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|  | **For the Transition Period From to**  |

---

**Commission File Number 001-11048**

_______________________

![ela_10kimg44.jpg](ela_10kimg44.jpg)

**ENVELA CORPORATION**<br>

_______________________

---

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

---

**1901 GATEWAY DRIVE, STE 100. IRVING, TX 75038**

**(972) 587-4049**

**www.envela.com**

---

| | | |
|:---|:---|:---|
| Securities registered pursuant to Section 12(b) of the Act: |  |  |
| Title of each class | Trading Symbol | Name of exchange on which registered |
| **COMMON STOCK, par value $0.01 per share** | **ELA** | **NYSE American** |
| Securities registered pursuant to Section 12(g) of the Act: **NONE** |  |  |

---

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

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

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

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

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

---

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

---

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

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

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

As of June 30, 2022, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $53.683 million based on the closing sale price as reported on the NYSE American. As of March 14, 2023, there were 26,924,631 shares of common stock outstanding.

**DOCUMENTS INCORPORATED BY REFERENCE**

Part III incorporates certain information by reference from the registrant's definitive proxy statement for the 2023 Annual Meeting of, Shareholders which definitive proxy statement will be filed by the registrant with the Securities and Exchange Commission within 120 days after the end of the registrant's fiscal year ended December 31, 2022.

**ENVELA CORPORATION**

**FORM 10-K**

**For the Fiscal Year Ended December 31, 2022**

**INDEX**

---

| | | | |
|:---|:---|:---|:---|
|  |  |  | **Page** |
| **[PART I](#P1)** |  |  |  |
|  | [Item 1.](#I1) | [Business](#I1) | 4 |
|  | [Item 1A.](#I1A) | [Risk Factors](#I1A) | 8 |
|  | [Item 1B.](#I1B) | [Unresolved Staff Comments](#I1B) | 15 |
|  | [Item 2.](#I2) | [Properties](#I2) | 15 |
|  | [Item 3.](#I3) | [Legal Proceedings](#I3) | 15 |
|  | [Item 4.](#I4) | [Mine Safety Disclosures](#I4) | 15 |
| **[PART II](#P2)** |  |  |  |
|  | [Item 5.](#I5) | [Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](#I5) | 16 |
|  | [Item 6.](#I6) | [\[Reserved\]](#I6) | 16 |
|  | [Item 7.](#I7) | [Management's Discussion and Analysis of Financial Condition and Results of Operations](#I7) | 17 |
|  | [Item 7A.](#I7A) | [Quantitative and Qualitative Disclosures about Market Risk](#I7A) | 27 |
|  | [Item 8.](#I8) | [Financial Statements and Supplementary Data](#I8) | 28 |
|  | [Item 9.](#I9) | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#I9) | 55 |
|  | [Item 9A.](#I9A) | [Controls and Procedures](#I9A) | 55 |
|  | [Item 9B.](#I9B) | [Other Information](#I9B) | 56 |
|  | [Item 9C](#I9C) | [Disclosure Regarding Foreign Jurisdiction That Prevent Inspections](#I9C) | 56 |
| **[PART III](#P3)** |  |  |  |
|  | [Item 10.](#I10) | [Directors, Executive Officers and Corporate Governance](#I10) | 59 |
|  | [Item 11.](#I11) | [Executive Compensation](#I11) | 59 |
|  | [Item 12.](#I12) | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#I12) | 59 |
|  | [Item 13.](#I13) | [Certain Relationships and Related Transactions, and Director Independence](#I13) | 59 |
|  | [Item 14.](#I14) | [Principal Accounting Fees and Services](#I14) | 59 |
| **[PART IV](#P4)** |  |  |  |
|  | [Item 15.](#I15) | [Exhibit and Financial Statement Schedules](#I15) | 60 |
|  | [Item 16.](#I16) | [Form 10-K Summary](#I16) | 62 |

---

---

| |
|:---|
| 2 |
| *[**Table of Contents**](#TOC)* |

---

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

**Note About Forward-Looking Statements**

This annual report on Form 10-K for the fiscal year ended December 31, 2022 (this "Form 10-K"), including but not limited to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" below, information concerning our business prospects or future financial performance, anticipated revenues, expenses, profitability or other financial items, and our strategies, plans and objectives, together with other statements that are not historical facts, includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereon, including without limitation, changes in our business strategy or planned capital expenditures, store growth plans, or to reflect the occurrence of unanticipated events.

---

| |
|:---|
| 3 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART I</u>

Item 1

**PART I**

**ITEM 1. BUSINESS**

**OVERVIEW**

Envela's mission is to empower buyers and sellers to extend the useful lives of manufactured goods by reselling previously owned, new or used goods, or recycling goods' materials, elements or components for sale and reuse. This process is called "re-commerce".

A circular economy is a sustainable economic system that aims to increase the lifespan of manufactured goods and thereby reduce waste and pollution for a cleaner environment. Re-commerce is an integral part of circular economies, and it's a business model that's sustainable to its core. Envela helps expand circular consumption through product reuse, refurbishment, repair, and related strategies to extend the useful lives of manufactured goods and reduce their negative impact on our planet.

Envela focuses its re-commerce business on two areas: direct-to-consumer and commercial services. Our direct-to-consumer portfolio operates multiple brick-and-mortar and online marketplaces. Our commercial-services portfolio offers custom re-commerce solutions to meet the needs of diverse clients, including Fortune 500 companies.

**HOW WE ORGANIZE OUR BUSINESS**

Envela is a diverse re-commerce company that manages its business through two operating segments. Its commercial-services segment is led by subsidiary ECHG, LLC ("ECHG"), and its direct-to-consumer segment is led by subsidiary DGSE, LLC ("DGSE"). Envela reports its revenue and operating expenses based on these two operating segments. We also include segment information in the notes to our financial statements.

**COMMERCIAL SERVICES** 

*<u>Re-commerce through Intelligent Reuse & Responsible Recycling</u>*

Envela's commercial services portfolio, led by ECHG and its subsidiaries, provides asset- disposition solutions to government agencies, middle-market firms, major corporations, and other organizations. Through a deep understanding of our clients' business goals, we're able to exceed their evolving needs and maintain a differentiated position in this marketplace.

When clients upgrade their IT equipment, ECHG purchases the replaced assets. They can then be resold as whole goods, harvested for components to re-use, or recycled if not reusable. By extending the usable lives of their replaced technology assets through re-commerce, our clients realize maximum value for these products, help protect the environment, and reduce the amount of raw materials required to make new products.

We create custom programs for retailers, original equipment manufacturers ("OEMs") and other institutions to offer their consumer clients an easy, environmentally friendly way to trade in their electronic devices, including laptops and mobile telephones. And we also repair and refurbish such electronic devices for resale and reuse before ultimately being recycled to make something new. Simply put, we offer comprehensive lifecycle solutions for a host of electronic devices through custom ITAD programs that address our clients' specific needs—down to the transportation and product tracking.

We combine our unique consumer insight and extensive re-commerce capabilities to anticipate and exceed the needs of our commercial clients and the consumers they serve. Moreover, we help companies navigate the maze of regulations associated with technology disposition, including through our secure logistics and data-sanitization processes. For end-of life items, we remove reusable components for resale. We separate and shred the remaining materials to reduce them into their commodity components (e.g., plastic, metal, glass) for resale and remanufacture into new products.

We experience some seasonal fluctuations that can impact demand with our commercial clients. Our business is subject to fluctuations as device trade-in and upgrade volumes can be based on the release of new devices and promotional programs, as well as customer preferences. Our business is also subject to volatility in margins based on the actual and anticipated timing of the release of new devices and promotional programs, as well as to changes in customer preferences. Most purchases are through non-exclusive, cancelable agreements.

---

| |
|:---|
| 4 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART I</u>

Item 1

Envela's commercial-services segment markets its products directly to prospective clients through several wholly owned subsidiary brands including ITAD USA; Echo Environmental; Teladvance; and Avail Recovery Solutions. Sales and operating results for these brands are reported within their respective ECHG operating segments. ECHG operates from two leased warehouses in the Dallas/Fort Worth Metroplex ("DFW"), and one leased warehouse in Chandler, Arizona.

**DIRECT-TO-CONSUMER** 

<u>Authenticated Re-commerce</u>

Envela's direct-to-consumer portfolio, spearheaded by DGSE, primarily buys to resell or recycle luxury hard assets like jewelry, diamonds, gemstones, fine watches, rare coins and related collectibles, precious-metal bullion products, gold, silver and other precious metals. For over 50 years, DGSE has been a destination location for seeking value and liquidity in luxury goods.

Our direct-to-consumer business provides a marketplace that delivers what we believe to be unparalleled value and liquidity for those seeking to buy, sell or trade merchandise in every major jewelry, fine watch, diamond, gemstone, finding, precious metal, and premium brand product category. Our experienced staff of experts, including GIA-graduate gemologists, horologists, numismatists, and jewelers and brand authenticators, recondition and rebuild items for resale through our retail locations, e-commerce, or wholesale distributors. When reconditioning is not feasible because crafted precious metals are at the end of their useful lives, we sell them wholesale channels or recycle them by selling them to third-party refiners who recover reusable precious metals for subsequent sale or recrafting into new jewelry or bullion products. We offer on-site repair services for jewelry and watches, as well as custom jewelry services.

Our long history of experience in resale has given us the unique ability to have deep knowledge of the resale market. Using the same processes of authentication, pricing, and marketing as our primary channels, we provide services through consignment of premium brand products. Premium brand products from individuals, wholesalers and retailers are evaluated for authenticity meeting minimum resale cutlines receive product description, priced, pictured, and packaged for omnichannel distribution and fulfillment services.

Historically, we have observed trends in supply-and-demand seasonality. Our supply tends to increase in the third and fourth quarters, and our demand tends to increase in the fourth quarter. As a result, we typically incur higher operating expenses in the last four months of the year as we increase advertising spend.

DGSE operates six retail locations throughout DFW, and one in Mt. Pleasant, South Carolina. We opened our newest location in Frisco, Texas, during the first quarter of Fiscal 2022. We own three retail locations in the DFW area and lease the others. Our direct-to-consumer brands include Dallas Gold & Silver Exchange, Charleston Gold & Diamond, and Bullion Express. Sales and operating results for these brands are reported within their respective DGSE operating segments.

---

| |
|:---|
| 5 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART I</u>

Item 1

**CORPORATE INFORMATION**

<u>HISTORY</u>

The Company incorporated in the State of Nevada on September 16, 1965, as Canyon State Mining Corporation of Nevada. During the next 50 years, the Company changed its name to Canyon State Corporation (October 13, 1981), The American Pacific Mint, Inc. (July 15, 1986), Dallas Gold & Silver Exchange, Inc. (June 22, 1992), and DGSE Companies, Inc. (June 26, 2001).

In 2016, after recently celebrating its 50th anniversary, it was named by S&P Global Market Intelligence as the second most likely company to go bankrupt, behind Sears Holdings. Aiming to turn the Company around, the board of directors (its "Board") brought in new management. On December 12, 2016, John Loftus was named CEO, and transformation of the business began. For many employees, that day marked the "true founding" of the Company. Under this new leadership, the Company has posted six straight years of unprecedented profitability.

By pursuing diversified re-commerce opportunities with potential long-term rewards, we continued to evolve as a company. On December 12, 2019, we changed our name to Envela Corporation to better reflect our current business operations and diversified re-commerce portfolio.

<u>CONTACT & OTHER</u>

Our principal executive offices are located at 1901 Gateway Drive, Irving, Texas 75038, and our telephone number is (972) 587-4049. You may access our annual reports on Form 10-K, quarterly reports on Form 10- Q, current reports on Form 8-K, and other reports (and amendments and exhibits thereto) filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the Securities and Exchange Commission ("SEC"), as well as proxy statements filed by us, free of charge on our website at www.envela.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Additionally, our website contains complete copies of our policies (Business Code of Conduct & Ethics), committee charters (Audit; Compliance, Governance and Nominating; and Compensation), and information about how to communicate with our Board.

Many of our subsidiaries and brands maintain their own websites for commercial purposes, including primarily the following: DGSE.com, echoenvironmental.com, ITADUSA.com, teladvance.com and AvailRecovery.com.

Information contained on, or that can be accessed through, our website or any website of our subsidiaries or brands is not incorporated by reference into this or any other report we file with, or furnish to, the SEC, and you should not consider information on any such website to be part of this or any other report we file with, or furnish to, the SEC. Such periodic reports, proxy statements and other information are also available on the SEC's website at http://www.sec.gov.

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

---

| |
|:---|
| 6 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART I</u>

Item 1

<u>ENVIRONMENTAL, SOCIAL AND GOVERNANCE</u>

Our stakeholders are essential to our business—shareholders, employees, and the communities in which we do business. We aspire to operate our business with positive social and environmental impact.

Our Board, including the Corporate Governance and Nominating Committee, the Audit Committee, and the Compensation Committee, provide oversight on business initiatives and programs that relate to social responsibility, emerging opportunities and the Company's exposure to risk. The Board and management seek to attract and retain the most qualified inclusive workforce to propel the Company into the next generation.

*Our Sustainability Program* 

We are committed to extending the useful lives of goods by promoting their recirculation and re-use, rather than creating waste. In this way, sustainability is at the core of our business, and we hope to create a more sustainable future.

*Human Capital Resources* 

Our employees are guided by our mission to extend the lifespans of durable goods. We are part of a diverse global community, and we aim to reflect that diversity within our team. We believe diversity and inclusion foster a collaborative culture, which fuels our ability to innovate as we work to create a more sustainable future.

As of December 31, 2022, we had 257 full-time equivalent employees. Additionally, we rely on independent contractors and temporary personnel to supplement our workforce, primarily in our electronic-disposition centers. None of our employees is represented by a labor union or covered by a collective bargaining agreement. We consider our relations with our employees to be positive. Our management policy is to keep employees informed of material decisions that affect them, encourage employee suggestions, and implement them whenever practicable.

*Diversity and Inclusion* 

We are proud to have a diverse team. We celebrate diversity and are committed to providing equal-employment opportunities regardless of race, color, ancestry, religion, sex, national origin, sexual orientation, age, citizenship, marital status, disability, or gender identity or expression.

*Competitive Environment* 

The Company encounters competition in connection with all aspects of its operations. These competitive conditions may adversely affect the Company's revenue and profitability and its ability to expand and execute its business strategy. In addition, the Company competes with other companies and retailers to attract and retain employees with competitive compensation programs. Many of the competitors have significantly greater size, financial resources, and human capital than the Company.

<u>GOVERNMENT REGULATIONS, ENVIRONMENTAL MATTERS AND IMPACT OF CLIMATE CHANGE</u>

Envela buys and resells precious metals, which are generally subject to regulation including conflict mineral tracing. However, in conjunction with legal counsel, we have determined that we do not have sufficient control over manufacturing of any of our products to be included in the group of companies required to provide conflict-minerals disclosure and reporting. If our sourcing processes should change, or if there is a determination that our current practices should be covered by the conflict-minerals reporting and disclosure guidelines, we would need to implement significant additional measures to comply with these rules. In addition, Envela partners with refiners for a portion of its sales. These refiners are subject to increasingly stringent governmental regulation in their refining operations, and a change or increase in such regulations in the United States or abroad may have an adverse impact on our business.

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

---

| |
|:---|
| 7 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART I</u>

Item 1A

**ITEM 1A. RISK FACTORS** 

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

You should carefully review and consider the risks described below and the forward-looking statements contained in this Form 10-K before evaluating our business or making an investment decision. Our business, financial condition or results of operations could be materially adversely affected by these risks. The trading price of the Company's Common Stock could decline due to any of these risks, and you may lose all or part of your investment. You should also refer to the other information included or incorporated by reference in this report, including the Company's consolidated financial statements and the related notes thereto. These risks and uncertainties could cause actual results and events to differ materially from those anticipated. Additional risks which the Company does not presently consider material, or of which management is not currently aware, may also have an adverse impact on the Company's business. Please also see the section of this Form 10-K entitled "Note About Forward-Looking Statements" on page 2.

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

N10TR, LLC ("N10TR") is the Company's largest shareholder, owning 12,814,727 shares of Common Stock, representing 47.6% of the total outstanding shares of Common Stock, as of December 31, 2022. Eduro Holdings, LLC ("Eduro") owns 6,365,460 shares of Common Stock, representing 23.6% of the total outstanding shares of Common Stock, as of December 31, 2022. Both N10TR and Eduro are under the common control of John R. Loftus, the Company's CEO, President and Chairman of the Board. Consequently, Mr. Loftus, is in a position to significantly influence any matters that are brought to a vote of the shareholders, including, but not limited to, the election of members of the Company's Board and any action requiring the approval of shareholders, including any amendments to the governing documents, mergers or sales of all or substantially all of the Company assets. This concentration of ownership also may delay, defer or even prevent a change in control of the Company and make some transactions more difficult or impossible without the support of Mr. Loftus. These transactions might include proxy contests, tender offers, mergers or other purchases of Common Stock that could give shareholders the opportunity to realize a premium over the then-prevailing market price for shares of Common Stock.

**The Company's success depends on the ability to attract, retain, and motivate qualified directors, management and other skilled employees.**

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

---

| |
|:---|
| 8 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART I</u>

Item 1A

**When the Company makes acquisitions, it may take on additional liabilities or not be able to successfully integrate such acquisitions.**

As part of the Company's history and growth strategy, it has acquired other businesses. Acquisitions involve numerous risks, including the following:

· effectively combining the acquired operations, technologies, or product offerings;

· unanticipated costs or assumed liabilities, including those associated with regulatory actions or investigations;

· not realizing the anticipated financial benefit from the acquired companies;

· diversion of management's attention;

· negative effects on existing customer and supplier relationships; and

· potential loss of key employees, especially those of the acquired companies.

Further, the Company has made, and may continue to make acquisitions of, or investments in new services, businesses, or technologies to expand its current service offerings and product lines. Some of these may involve risks that may differ from those traditionally associated with the Company's core business, including undertaking product or service warranty responsibilities that in its traditional core business would generally reside primarily with its suppliers. If the Company is not successful in mitigating or insuring against such risks, it could have a material adverse effect on the Company's business.

**Changes in liquidity and capital requirements and the ability to secure financing and credit could materially adversely affect the Company's financial condition and results of operations.**

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

**We may not realize our deferred tax assets.** 

As of December 31, 2022, we had deferred tax assets (primarily consisting of federal net operating loss carryovers) of approximately $1.5 million. The ultimate realization of our deferred tax assets is dependent upon generating future taxable income to utilize our net operating loss carryovers before they expire.

The value of our deferred tax assets and liabilities are also dependent upon the tax rates expected to be in effect at the time they are realized. A change in enacted corporate tax rates in our major jurisdictions, especially the U.S. federal corporate tax rate, would change the value of our deferred taxes, which could be material.

**Interest-rate fluctuations could increase our interest expense.**

Interest rates rose significantly during 2022 as the Federal Reserve sought to control inflation, and interest rates are likely to rise higher during 2023. Interest rates could continue to rise, which would increase our borrowing cost, or could make it difficult or impossible to secure financing.

---

| |
|:---|
| 9 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART I</u>

Item 1A

**The Company is, and will be, subject to new and existing corporate-governance and internal-control demands and reporting requirements. The costs related to the compliance of existing and future requirements could adversely affect the Company.** 

Governments, including agencies at the national, state and local levels, may seek to enforce or impose new laws, regulatory restrictions, or licensing requirements. They may also interpret or enforce existing requirements in new ways that could restrict the Company's ability to continue its current methods of operation or to expand operations, impose significant additional compliance costs, and could have a material adverse effect on the Company's financial condition and results of operations. In 2014, the Company agreed to a series of corporate governance reforms with the SEC. Additionally, the Company faces corporate-governance requirements under the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"), as well as new rules and regulations subsequently adopted by the SEC, the Public Company Accounting Oversight Board and the NYSE American (the "Exchange"). These laws, rules and regulations continue to evolve and may become increasingly stringent in the future. If the Company does not comply with the corporate governance reforms, the Company could face enforcement actions by the SEC or other governmental or regulatory bodies, as well as shareholder lawsuits, all of which could have significant negative financial or operational implications.

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

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

**We may incur losses because of unforeseen or catastrophic events, including pandemics, terrorist attacks, extreme weather events or other natural disasters.**

The occurrence of unforeseen or catastrophic events, including pandemics, such as COVID-19, or other widespread health emergencies (or concerns over the possibility of such an emergency), terrorist attacks, extreme weather events, solar events or other natural disasters, could create economic and financial disruptions, and could lead to operational difficulties (including travel limitations and limitations on occupancy in our offices) that could impair our ability to manage our businesses.

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

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

**The Company's websites may be vulnerable to security breaches and similar threats, which could result in liability for damages and harm to the Company's reputation.**

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

**Our revenues and profits may decline if we are unable to maintain relationships with significant clients or renew contracts with them on favorable terms.**

The success of our business depends largely on our relationships and contractual arrangements with significant clients. If our key clients terminate important business arrangements with us, or renew contracts on terms less favorable to us, we may fail to meet our business objectives and targets, and our cash flows, results of operations and financial condition could be materially adversely affected.

**Our mobile business is subject to the risk of declines in the value and availability of mobile devices in our inventory, and to export compliance and other risks.** 

The value of the electronic devices that we collect and refurbish may fall below the prices we have paid, which could adversely affect our profitability. These devices are subject to the risk that the value, including selling price, will be adversely affected by technological changes affecting the usefulness or desirability of the devices and parts; physical problems resulting from faulty design or manufacturing; increased competition; decreased customer demand, including due to changes in customer preferences, changes in client promotions and seasonality; supply chain constraints; and growing industry emphasis on cost containment. The value and availability of devices may also be impacted by adverse foreign trade relationships and an escalation of U.S.-China and China-Taiwan trade tensions, including with respect to trade policies, treaties, government relations, tariffs, and other trade restrictions. If the value or availability of devices or parts is significantly reduced, it could have a material adverse effect on our profitability.

---

| |
|:---|
| 10 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART I</u>

Item 1A

**We may incur losses because of a failure to manage and protect our clients' assets throughout the electronics disposition processes and that could impair our ability to conduct future business, damage our reputation and could adversely impact our business, financial condition, results of operations.**

The Company's commercial services segment provides services related to electronic devices being disposed of by business customers, including cleansing storage devices from customer equipment and either recycling it through resale or disposing of it in an environmentally compliant manner. If the Company does not meet its contractual and regulatory obligations, it could be subject to contractual damages, penalties, and damage to reputation. Also, the Company's or its subcontractors' failure to comply with applicable environmental laws and regulations in disposing of the equipment could result in liability. Such environmental liability may be joint and several, meaning that the company could be held responsible for more than its share of the liability involved. To the extent that Company fails to comply with its obligations and such failure is not covered by insurance, the Company's business could be adversely affected.

**If the Company is unable to maintain its relationships with its suppliers or if the suppliers materially change the terms of their existing agreements with the company, the Company's business could be materially adversely affected.**

Certain parts of ECHG's business comes from a limited number of partners. A substantial portion of ECHG's inventory is purchased from suppliers with which the Company has entered into non-exclusive agreements. These agreements are typically cancelable on short notice. To the extent that these partners reduce the number of assets they sell, are unwilling to continue to do business with the Company or are unable to continue to meet or significantly alter their obligations, the Company's business could be materially adversely affected. In addition, to the extent that the company's suppliers modify the terms of their contracts with the company, limit supplies due to capacity constraints, or other factors, there could be a material adverse effect on the company's business.

**There is intense competition across all markets for Envela's products and services, which may lead to lower revenue or operating margins.** 

The industries in which Envela operates are highly competitive, and the Company competes with numerous other firms, a number of which are larger and have significantly greater financial, distribution, advertising and marketing resources. Envela's products compete on a number of bases, including attractiveness of brand, category assortments and pricing competitiveness. Significant increases in these competitive influences could adversely affect the operations through a decrease in the number and dollar volume of sales.

We compete with a number of smaller companies, same sized and larger firms throughout the United States. Many competitors attract customers with their reputation and industry connections. Additional companies may decide to enter our markets to compete with us. These companies may have greater name recognition and have greater financial and marketing resources than Envela. If these new companies are successful in entering the markets, or if customers choose to go to other established competition, there could be fewer buyers or sellers and revenue could decrease.

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

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

---

| |
|:---|
| 11 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART I</u>

Item 1A

**A decrease in demand for the Company's products and services and the failure of the Company to adapt to such decreases could adversely affect the Company's results of operations.** 

Although the Company actively manages its product and service offerings to ensure that such offerings meet the needs and preferences of its customer base and partners, the demand for a particular product or service may decrease due to a variety of factors, including many that the Company may not be able to control, anticipate or respond to in a timely manner, such as the availability and pricing of competing products or technology, changes in customers' financial conditions as a result of changes in unemployment levels, declines in consumer spending habits related to general economic conditions, inflation, weather events, public health and safety issues, fuel prices, interest rates, government sponsored economic stimulus programs, social welfare or benefit programs, real or perceived loss of consumer confidence or regulatory restrictions that increase or reduce customer access to particular products.

Should the Company fail to adapt to a significant change in its customers' demand for, or regular access to, its products, the Company's revenue could decrease significantly. Even if the Company makes adaptations, its customers or merchants may resist or may reject products or services whose adaptations make them less attractive or less available. In any event, the effect of any product or service change on the results of the Company's business may not be fully ascertainable until the change has been in effect for some time.

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

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

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

**DGSE's wholesale and retail jewelry business is seasonal, with sales traditionally greater during certain holiday seasons. Events and circumstances that adversely affect holiday consumer spending will have a disproportionately adverse effect on DGSE's operational results.**

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

**The market for precious metals is inherently unpredictable.**

---

| |
|:---|
| 12 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART I</u>

Item 1A

**If the Company misjudges the demand for our products, high inventory levels could adversely affect future operating results and profitability.**

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

**A failure of the information systems could prevent the Company from effectively managing and controlling operations and serving customers.**

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

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

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

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

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

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

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

---

| |
|:---|
| 13 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART I</u>

Item 1A

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

**The coronavirus (COVID-19) pandemic adversely affected us and a reoccurrence of the pandemic or similar outbreaks could in the future adversely affect our business, financial condition, and results of operations.**

On March 11, 2020, the World Health Organization announced that infections of the coronavirus COVID-19 had become a pandemic, and on March 13, 2020, the U.S. President announced a National Emergency relating to the disease. There was widespread infection in the United States and abroad. National, state, and local authorities implemented social distancing and imposed quarantine and isolation measures on large portions of the population, including temporary mandatory business closures. These measures, while intended to protect human life, had serious adverse impact on domestic and foreign economies.

The U.S. and certain other governments took unprecedented actions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. The impact of the actions taken by these governments is still being felt.

**Sustained geopolitical conflicts, military action and civil unrest could result in disruptions to the global supply chain and uncertain economic conditions, which could materially adversely affect our financial condition.** 

U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions between Ukraine and Russia, which has devolved into military conflict. In addition, the United States, Canada, the European Union, and other countries have levied economic sanctions and other penalties on Russia. Although the length and full impact of the ongoing conflict remains uncertain, the events in Ukraine have resulted in market disruptions. The broader consequences of the conflict, which may include further sanctions, embargoes, regional instability, geopolitical shifts, transportation bans on certain shipping routes and potential retaliatory action by the Russian government against the United States and its allies. This may lead to economic instability, sustained inflation and changes in liquidity and credit availability. Any of the factors could adversely impact our business, financial condition, results of operations.

---

| |
|:---|
| 14 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART I</u>

Item 1B, 2, 3, 4

**ITEM 1B. UNRESOLVED STAFF COMMENTS** 

None.

**ITEM 2. PROPERTIES** 

The Company leases and owns various properties across three markets in which DGSE and ECHG currently operate. Nine leased and owned properties are in DFW, one is in Mount Pleasant, South Carolina and one is in Chandler, Arizona, a suburb of Phoenix. The leases have a wide variety of terms, rents and expiration dates. DGSE owns three of their retail locations and leases another four in DFW. The four leased locations have leases expiring starting in 2025 through 2027 with rights of renewal for three of the properties. ECHG leases all three of their locations, two of which are in DFW and the other being in Chandler, Arizona, with leases expiring starting in 2025 through 2027, with one lease having a right of renewal. DGSE and ECHG are constantly evaluating each of their locations in terms of profitability, effectiveness and fit with long-term sustainability. Our principal corporate office building is owned by the Company and is located at 1901 Gateway Drive, Irving, Texas 75038.

For addition information about encumbrances on properties the Company owns, see Note 9 to our consolidated financial statements. For additional information about the nature of the Company's leases, see Note 15 to the Company's consolidated financial statements.

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

**ITEM 3. LEGAL PROCEEDINGS** 

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

**ITEM 4. MINE SAFETY DISCLOSURES** 

Not applicable.

---

| |
|:---|
| 15 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

Item 5, 6

**PART II**

**ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES** 

MARKET AND STOCKHOLDERS

The Company's Common Stock is traded on the Exchange, under the symbol "ELA." As of March 10, 2023, we had 268 record holders of our Common Stock.

SHARE REPURCHASES AND DIVIDENDS

Envela has not declared any dividends with respect to Common Stock. Management's intent is to retain all current earnings to finance future growth; accordingly, it is not anticipated that cash or other dividends will be paid to the Company's shareholders of Common Stock in the near future.

**Securities authorized for issuance under equity compensation plans.**

On December 7, 2016, the Company's shareholders approved the adoption of the 2016 Equity Incentive Plan (the "2016 Plan"), which reserves 1,100,000 shares of Common Stock for issuance pursuant to awards issued thereunder. As of December 31, 2022, no awards had been made under the 2016 Plan. The Company's prior 2006 Equity Incentive Plan (the "2006 Plan") expired according to its terms on December 31, 2019, and as a result no further shares may be issued under the 2006 Plan. No securities issued pursuant to the 2006 Plan remain issuable upon the exercise of any option, warrants or rights. However, 15,000 options issued pursuant to the Company's 2004 Employee Stock Option Plan (the "2004 Employee Stock Option Plan") remain unexercised and have no expiration date. For more information, see Note 13 to our consolidated financial statements.

The following table summarizes the equity compensation plan information as of December 31, 2022:

---

| | | | |
|:---|:---|:---|:---|
| **Plan Category** | **Column (a):**<br>**Number of securities to be**<br>**issued upon exercise of**<br>**outstanding options, warrants**<br>**and rights** | **Column (b):**<br>**Weighted-average exercise**<br>**price of outstanding options,**<br>**warrants and rights** | **Column©:**<br>**Number of securities remaining**<br>**available for future issuance**<br>**under equity compensation**<br>**plans (excluding securities**<br>**reflected in column (a))** |
| Equity compensation plans approved by security holders | 15000 (1) | 2.17 | 1100000 (2) |
| Equity compensation plans not approved by security holders | N/A | N/A | N/A |
| **Total** | 15000 | 2.17 | 1100000 |

---

(1) Represents 15,000 options issued under the 2004 Employee Stock Option Plan, which remain unexercised and have no expiration date.

(2) The total number of securities remaining available for future issuance is solely comprised of shares of Common Stock reserved under the 2016 Plan.

**Purchases of equity securities by the issuer and affiliates purchases.**

**There have been no purchases made by or on behalf of the issuer or any "affiliated purchaser," as defined in Rule 10b-18(a)(3) of the Exchange Act of any of our equity securities during the years ended December 31, 2022 and December 31, 2021.**

**ITEM 6. [RESERVED]**

---

| |
|:---|
| 16 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

Items 7

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

**CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS** 

Please see the section of this Form 10-K entitled "Note About Forward-Looking Statements" on page 3.

The following discussion of our financial condition and results of operations should be read together with our financial statements and related notes and other financial information included in this Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in the section titled "Risk Factors." Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

**Overview**

We are enabling a better world through the circular economy; by empowering buyers and sellers to extend the useful lives of specialty and durable goods; and by seizing retail, recycling, and reverse-logistics supply-chain opportunities. Envela is a diverse re-commerce company that manages its business through two segments. Its commercial-services segment is led by subsidiary ECHG, and its direct-to-consumer segment is led by subsidiary DGSE. Envela reports its revenue and operating expenses based on these two operating segments, with revenue for each operating segment, being presented as resale and recycle. We also include segment information in the notes to our financial statements. For more information, see "Item 1. Business—Operating Segments" above. A list of the company's significant subsidiaries is presented in Exhibit 21.1.

**Key Economic Factors and Trends Affecting the Markets in Which We Operate**

*ECHG Business Drivers and Impacts*

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

The electronic disposition and recycling industry is fragmented in the United States. Certain parts of ECHG's business comes from a limited number of partners. The used electronics processing business is subject to cyclical fluctuations based upon product availability, promotions, seasonality, and supply chain constraints. In our ECHG segment, we compete primarily on price and on the services, we provide to clients. The price offered for devices is the principle competitive factor in acquiring material from generators. Generators of material may also consider factors other than price, such as logistics costs, timely removal, customized reports, the ability to service multiple locations, insurance coverage, and the buyer's financial strength. For additional information regarding ECHG, see "Item 1. Business—Operating Segments—ECHG Segment" and See "Item 1A. Risk Factors—unable to maintain relationships with significant clients".

*DGSE Precious Metals Pricing and Business Impact*

The Company is exposed to various market risks. Market risk is the potential loss arising from the adverse changes in market prices and rates. The nature of DGSE's operations results in exposure to fluctuations in commodity prices, specifically diamonds, platinum, gold and silver. The Company does not currently use derivatives to hedge these risks. As a significant portion of our inventory and sales involve gold and jewelry, financial results can be influenced by the market price of gold and diamonds. The retail sales and gross margin could be materially impacted if prices of diamonds, platinum, gold, or silver rise so significantly that consumer behavior changes or if price increases cannot be passed onto customers. Because DGSE buys and resells precious metals, it is impacted by fluctuations and changes in precious-metal pricing which rises and falls based upon global supply and demand dynamics, with the greatest impact relating to gold as it represents a significant portion of the precious-metal in which DGSE trades. Such fluctuations, particularly with respect to gold, which accounts for a majority of DGSE's merchandise costs, can have a significant impact on earnings and cash availability.

---

| |
|:---|
| 17 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

Items 7

*Impact of COVID-19 and Macroeconomic Conditions on Our Business*

The ongoing impact of the COVID-19 pandemic continues to affect our business and results of operations, although to a lesser extent than the prior years. Throughout the pandemic, our top priority has been to protect the health and safety of our employees and our customers. Macroeconomic uncertainty and inflationary pressure may drive lower demand for the end consumer and increase operating costs and costs of borrowing.

**Critical Accounting Policies and Estimates** 

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

While our significant accounting policies are more fully described in Note 1—Summary of Significant Accounting Policies, we believe that the accounting estimates discussed below relate to the more significant areas involving management's judgments and estimates.

**Inventories**

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

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

For the year ended December 31, 2022, we have not identified critical accounting estimates that involve a significant level of estimation uncertainty and would have a material impact on our results. Refer to our significant accounting policies are more fully described in Note 1—Summary of Significant Accounting Policies.

**Recent Accounting Pronouncements**

See Note 1, "Accounting Policies and Nature of Operations" to our financial statements included this Annual Report on Form 10-K for recently issued accounting pronouncements not yet adopted as of the date of this Annual Report on Form 10-K.

---

| |
|:---|
| 18 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

Items 7

**Use of Non-U.S. GAAP Financial Measures**

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

**Non-U.S. GAAP Financial Measures**

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

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Years Ended December 31,** | **For the Years Ended December 31,** | **For the Years Ended December 31,** | **For the Years Ended December 31,** | **For the Years Ended December 31,** | **For the Years Ended December 31,** |
|  | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 |
|  | **DGSE** | **ECHG** | **Consolidated** | DGSE | ECHG | Consolidated |
| EBITA Reconciliation: |  |  |  |  |  |  |
| Net Income | $**8305429** | $**7383704** | $**15689133** | $5170517 | $4878358 | $10048875 |
| Add (deduct): |  |  |  |  |  |  |
| Depreciation and amortization | **410759** | **1041075** | **1451834** | 389703 | 536392 | 926095 |
| Other income from loan forgiveness | **-** | **-** | **-** | (675210) | (992990) | (1668200) |
| Other (income) expense | **(61686)** | **(857005)** | **(918691)** | (238585) | 538020 | 299435 |
| Interest expense | **244202** | **239491** | **483693** | 288236 | 415815 | 704051 |
| Income tax expense (benefit) | **(1426697)** | **117091** | **(1309606)** | 45124 | 67684 | 112808 |
| EBITDA | $**7472007** | $**7924356** | $**15396363** | $4979785 | $5443279 | $10423064 |

---

---

| |
|:---|
| 19 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

Items 7

**Results of Operations**

The results of operations presented below should be reviewed in conjunction with the financial statements and notes included elsewhere in the Annual Report. Prior year comparisons for 2022 and 2021, are included in "Part II, Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal years ended December 31, 2022 and 2021. Year-over-year discussion and analysis of the line-item revenue and expenses within the consolidated income statement are included below for 2022 and 2021. The following tables set forth our results of operations and such data as a percentage of revenue and gross profit for the periods presented:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** |
|  | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 |
|  | **Revenues** | **Gross Profit** | **Margin** | Revenues | Gross Profit | Margin |
| DGSE |  |  |  |  |  |  |
| Resale | $**122468154** | **14240795** | **11.6%** | $89146783 | 11022162 | 12.4% |
| Recycled | **8639279** | **1993644** | **23.1%** | 7572476 | 1586000 | 20.9% |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | **131107433** | **16234439** | **12.4%** | 96719259 | 12608162 | 13.0% |
| ECHG |  |  |  |  |  |  |
| Resale | **39747631** | **22119853** | **55.7%** | 32540366 | 14570092 | 44.8% |
| Recycled | **11830790** | **6472794** | **54.7%** | 11706453 | 4042905 | 34.5% |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | **51578421** | **28592647** | **55.4%** | 44246819 | 18612997 | 42.1% |
|  | $**182685854** | $**44827086** | **24.5%** | $140966078 | $31221159 | 22.1% |

---

**Comparison of 2022 and 2021**

*Resale Revenue*

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Change** | **Change** |
|  | **2022** | 2021 | **Amount** | % |
| **Resale Revenue** |  |  |  |  |
| DGSE | $**122468154** | $89146783 | $**33321371** | **37%** |
| ECHG | $**39747631** | $32540366 | $**7207265** | **22%** |

---

Resale revenue related to DGSE increased by $33,321,371, or 37% in Fiscal 2022 compared to Fiscal 2021. Resale revenue, such as bullion, jewelry, watches, and rare coins, increased primarily due to increased traction in DGSE's new retail locations added to increased consumer demand with increased foot traffic from an increase in advertising. Resale revenue related to ECHG increased by $7,207,265, or 22%, in Fiscal 2022 compared to Fiscal 2021. Resale revenue increased primarily due to the economy beginning to stabilize during Fiscal 2022 from the COVID-19 pandemic.

---

| |
|:---|
| 20 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

Items 7

*Recycled-Material Revenue*

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Change** | **Change** |
|  | **2022** | 2021 | **Amount** | % |
| **Recycled Revenue** |  |  |  |  |
| DGSE | $**8639279** | $7572476 | $**1066803** | **14%** |
| ECHG | $**11830790** | $11706453 | $**124337** | **1%** |

---

Recycled-material revenue related to DGSE increased by $1,066,803, or 14% in Fiscal 2022 compared to Fiscal 2021. The increase in recycled-material revenue is primarily due to DGSE's retail locations purchasing additional inventory over the counter from increased foot traffic. Recycled-material revenue related to ECHG increased by $124,337, or 1% in Fiscal 2022 compared to Fiscal 2021. The increase in recycled-material revenue is primarily due to the increase of down-stream recycling activity beginning to come back from the COVID-19 pandemic.

*Resale Gross Profit*

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Change** | **Change** |
|  | **2022** | 2021 | **Amount** | % |
| **Gross Margin - Resale** |  |  |  |  |
| DGSE | $**14240795** | $11022162 | $**3218633** | **29%** |
| ECHG | $**22119853** | $14570092 | $**7549761** | **52%** |

---

Resale gross profit related to DGSE, increased by $3,218,633, or 29% in Fiscal 2022 compared to Fiscal 2021. The increase in resale gross profit is primarily due to the 37% increase in resale revenue even though the margin percentage decreased from 12.4% during Fiscal 2021 to 11.6% during Fiscal 2022. The resale gross profit related to ECHG, increased $7,549,761, or 52% in Fiscal 2022 compared to Fiscal 2021. The resale gross profit increase is primarily due to a 22% increase in resale revenue and the margin percentage increasing from 44.8% during Fiscal 2021 to 55.7% during Fiscal 2022.

*Recycled-Material Gross Profit* 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Change** | **Change** |
|  | **2022** | 2021 | **Amount** | % |
| **Gross Margin - Recycled** |  |  |  |  |
| DGSE | $**1993644** | $1586000 | $**407644** | **26%** |
| ECHG | $**6472794** | $4042905 | $**2429889** | **60%** |

---

Recycled-material gross profit related to DGSE, increased by $407,644, or 26% in Fiscal 2022 compared to Fiscal 2021. The recycled-material gross profit increase is primarily due to a 14% increase in recycled revenue and a margin percentage increase from 20.9% during Fiscal 2021 to 23.1% during Fiscal 2022. Recycled-material gross profit related to ECHG, increased by $2,429,889, or 60% in Fiscal 2022 compared to Fiscal 2021. The recycled-material gross profit increase is primarily due to a slight increase in recycled-material revenue and the margin percentage increasing from 34.5% during Fiscal 2021 to 54.7% during Fiscal 2022

---

| |
|:---|
| 21 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

Items 7

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** |
|  | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 |
|  | **DGSE**  | **ECHG** | **Consolidated** | DGSE  | ECHG | Consolidated |
| Revenue: |  |  |  |  |  |  |
| Sales | $**131107433** | $**51578421** | $**182685854** | $96719259 | $44246819 | $140966078 |
| Cost of goods sold | **114872994** | **22985774** | **137858768** | 84111097 | 25633822 | 109744919 |
| Gross profit | **16234439** | **28592647** | **44827086** | 12608162 | 18612997 | 31221159 |
| Expenses: |  |  |  |  |  |  |
| Selling, general and administrative expenses | **8762432** | **20668291** | **29430723** | 7628377 | 13169718 | 20798095 |
| Depreciation and amortization | **410759** | **1041075** | **1451834** | 389703 | 536392 | 926095 |
|  | **9173191** | **21709366** | **30882557** | 8018080 | 13706110 | 21724190 |
| Operating income | **7061248** | **6883281** | **13944529** | 4590082 | 4906887 | 9496969 |
| Other income/expense : |  |  |  |  |  |  |
| Other income from loan forgiveness | **-** | **-** | **-** | 675210 | 992990 | 1668200 |
| Other income (expense) | **61686** | **857005** | **918691** | 238585 | (538020) | (299435) |
| Interest expense | **244202** | **239491** | **483693** | 288236 | 415815 | 704051 |
| Income before income taxes | **6878732** | **7500795** | **14379527** | 5215641 | 4946042 | 10161683 |
| Income tax expense (benefit) | **(1426697)** | **117091** | **(1309606)** | 45124 | 67684 | 112808 |
| Income from continuing operations | $**8305429** | $**7383704** | $**15689133** | $5170517 | $4878358 | $10048875 |

---

*Selling, General and Administrative*

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Change** | **Change** |
|  | **2022** | 2021 | **Amount** | **%** |
| **Selling, General and Administrative** |  |  |  |  |
| DGSE | $**8762432** | $7628377 | $**1134055** | **15%** |
| ECHG | $**20668292** | $13169718 | $**7498574** | **57%** |

---

Selling, general and administrative expenses for DGSE increased $1,134,055, or 15% in Fiscal 2022 compared to Fiscal 2021. The increase in SG&A was primarily due to an increase in advertising of approximately $312,000, and payroll and payroll related expenses of approximately $900,000. Selling, general and administrative expenses for ECHG increased by $7,498,574, or 57% in Fiscal 2022 compared to Fiscal 2021. The CExchange Transaction and the Avail Transaction closed in June and October 2021, respectively. The added companies are primarily the reason for the increase in selling, general and administrative expenses.

---

| |
|:---|
| 22 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

<u>Items 7</u>

*Depreciation and Amortization* 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Change** | **Change** |
|  | **2022** | 2021 | **Amount** | **%** |
| **Depreciation and Amortization** |  |  |  |  |
| DGSE | $**410759** | $389703 | $**21056** | **5%** |
| ECHG | $**1041075** | $536392 | $**504683** | **94%** |

---

Depreciation and amortization for DGSE increased by $21,056, or 5% in Fiscal 2022 compared to Fiscal 2021. The increase is primarily due to the added depreciation from additional furniture and fixtures, new equipment and building improvements added during Fiscal 2022. Depreciation and Amortization expense for ECHG increased by $504,683, or 94% in Fiscal 2022 compared to Fiscal 2021. The CExchange Transaction and the Avail Transaction closed in June and October 2021, respectively. Added amortization expense from new intangible assets produced by the two transactions is primarily the increase in depreciation and amortization expense for ECHG.

*Other Income from Loan Forgiveness* 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Change** | **Change** |
|  | **2022** | 2021 | **Amount** | **%** |
| **Other Income from Loan Forgiveness** |  |  |  |  |
| DGSE | $**-** | $675210 | $**(675210)** | **-100%** |
| ECHG | $**-** | $992990 | $**(992990)** | **-100%** |

---

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

*Other Income/Expense*

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Change** | **Change** |
|  | **2022** | **2021** | **Amount** | % |
| **Other Income/(Expense)** |  |  |  |  |
| DGSE | $**61686** | $238585 | $**(176899)** | **-74%** |
| ECHG | $**857005** | $(538020) | $**1395025** | **259%** |

---

Other income for DGSE decreased by $176,899, or 74% in Fiscal 2022 compared to Fiscal 2021. During Fiscal 2022, other income consists of $48,000 of DGSE's portion of the rental income generated from the Company's corporate headquarters and approximately $13,700 of other miscellaneous income. During Fiscal 2021, other income of $238,585, consisted primarily of DGSE's portion of the net rental income in excess of the SG&A expenses from space leased at the Company's corporate headquarters of $230,364.

Other income for ECHG increased by $1,395,025 in Fiscal 2022, or 259%, to other income, net of $857,005, as compared to other expense, net of $538,020 during Fiscal 2021. Other income, net during Fiscal 2022, of $857,005 consists primarily of reducing the notes receivable reserve from $838,647 to $0, and bank account interest income of $11,720. Other expense during Fiscal 2021, of $538,020, consists primarily of interest income from notes receivables of $113,606, net rental income in excess of the SG&A expenses from the space leased at the Company's corporate headquarters of $230,364, offset by the write-off of the CExchange notes receivable accrued interest of $49,174 and the reserve set for the CExchange notes receivable of $838,647.

---

| |
|:---|
| 23 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

Items 7

*Interest Expense* 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Change** | **Change** |
|  | **2022** | 2021 | **Amount** | **%** |
| **Interest Expense** |  |  |  |  |
| DGSE | $**244202** | $288236 | $**(44034)** | **-15%** |
| ECHG | $**239491** | $415815 | $**(176324)** | **-42%** |

---

Interest expense for DGSE decreased by $44,034 or 15%, in Fiscal 2022 compared to Fiscal 2021. The decrease is primarily due to Farmers State Banks of Oakley Kansas ("FSB") refinancing of a DGSE loan on November 23, 2021. The refinancing reduced the interest rate from 6.0% to 3.1% annualized. The interest expense for ECHG decreased by $176,324 or 42%, in Fiscal 2022 compared to Fiscal 2021. The decrease is primarily due to FSB refinancing an ECHG loan on November 23, 2021. The refinancing reduced the interest rate from 6.0% to 3.1% annualized.

*Income Tax Expense* 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Change** | **Change** |
|  | **2022** | 2021 | **Amount** | **%** |
| **Income Tax Expense (Benefit)** |  |  |  |  |
| DGSE | $**(1426697)** | $45124 | $**(1471821)** | **-3262%** |
| ECHG | $**117091** | $67684 | $**49407** | **73%** |

---

Income tax benefit for Fiscal 2022 totaled $1,309,606 as compared to an income tax expense of $112,808 for Fiscal 2021. See Note 14 for Federal Income Taxes.

*Net Income*

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Change** | **Change** |
|  | **2022** | 2021 | **Amount** | **%** |
| **Net Income** |  |  |  |  |
| DGSE | $**8305429** | $5170517 | $**3134912** | **61%** |
| ECHG | $**7383704** | $4878358 | $**2505346** | **51%** |

---

The Company recorded an increase in net income of $5,640,258, or 56% in Fiscal 2022 compared to Fiscal 2021. The increase in net income is due primarily to an increase of revenue of approximately $41.7 million, the reduction of the reserve against the notes receivable of $838,647 during Fiscal 2022 and the valuation allowance reduction of $1,488,258 against the deferred tax benefit during Fiscal 2022.

---

| |
|:---|
| 24 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

Items 7, 7A

*Earnings Per Share* 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Change** | **Change** |
|  | **2022** | 2021 | **Amount** | % |
| **Earnings Per Share** | $**0.58** | $0.37 | $**0.21** | **57%** |

---

Our net income per basic and diluted shares attributable to holders of our Common Stock increased by $0.21 per share, or 57% in Fiscal 2022 compared to Fiscal 2021. The increase is due primarily from the revenue increase of approximately $41.7 million from Fiscal 2021 to Fiscal 2022, the removal of the reserve against the notes receivable of $838,647 during Fiscal 2022 and the valuation allowance reduction of $1,488,258 against the deferred tax benefit, during Fiscal 2022.

**Liquidity and Capital Resources**

*Cash Flows*

The following table summarizes our cash flows for the periods indicated. Prior year comparisons are included in "Part II, Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for Fiscal 2022.

---

| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2022** | 2021 |
| Net cash (used in) provided by: |  |  |
| Operating activities | $**10019885** | $2805063 |
| Investing activities | **(229339)** | (4875356) |
| Financing activities | **(2758725)** | 2990405 |
| Net increase in cash and cash equivalents | $**7031821** | $920112 |

---

During Fiscal 2022, cash provided by operations totaled $10,019,885, which was primarily driven by net income of $15,689,133, reduction from non-cash charges, net of $801,653, the increase in accounts payable and accrued expenses of $1,367,713 and a decrease in other assets of $985,509. In addition, the foregoing was further offset by the increase of trade receivables of $856,660, the increase in inventories of $4,707,349, the increase in prepaid expenses of $792,778 and the reduction of customer deposits and other liabilities of $896,742.

During Fiscal 2022, cash used in investing totaled $229,339 which primarily consisted of the purchase of equipment and additional property build-out of $272,748 and the additional net cash payment concerning the Avail Transaction of $216,988, offset by the receipt of $260,397 from notes receivable.

During Fiscal 2022, cash used in financing totaled $2,758,725 which primarily consisted of principal payments made against the notes payable loans of $1,058,725 and payments made against the Company's line of credit of $1,700,000.

On November 23, 2021, the Company secured a 36-month line of credit from FSB for $3,500,000 at 3.1% annual interest rate. A line of credit of up to $3,500,000 with Texas Bank and Trust was immediately closed with a $0 outstanding balance. Our line of credit with FSB is to fund any cash shortfalls that the Company may have from time-to-time during the life of the line of credit. Also, from time-to-time, inventory levels have been adjusted to meet seasonal demand or in order to meet working capital requirements. Management believes there are enough capital resources to meet working capital requirements. If additional working capital is required, additional loans can be obtained from individuals or from other commercial banks.

---

| |
|:---|
| 25 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

Items 7, 7A

Management expects our capital expenditures to total approximately $750,000 during the next 12 months. These expenditures will be largely driven by the purchase of equipment, the build-out of corporate office space in the Company headquarters and the potential purchase and build-out of any additional DGSE retail buildings. As of December 31, 2022, there were no commitments outstanding for capital expenditures.

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

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

The Company leases certain of its facilities under operating leases. The minimum rental commitments under non-cancellable operating leases as of December 31, 2022 are as follows:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| Operating Leases | Total  | 2023  | 2024  | 2025  | 2026  | Thereafter |
| DGSE  | $1911781 | $541984 | $552414 | $412269 | $355000 | $50114 |
| ECHG  | 4582587 | 1357381 | 1396129 | 1321297 | 474326 | 33454 |
| **Total** | $**6494368** | $**1899365** | $**1948543** | $**1733566** | $**829326** | $**83568** |

---

*Off-Balance Sheet Arrangements*

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

**STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS**

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

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

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

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

---

| |
|:---|
| 26 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

Items 7, 7A

**ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

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

---

| |
|:---|
| 27 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

Item 8

**ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA** 

ENVELA CORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

---

| | | |
|:---|:---|:---|
| **Year Ended December 31,** | **2022** | 2021 |
| Revenue: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Sales | $**182685854** | $140966078 |
| &nbsp;&nbsp;&nbsp;&nbsp;Cost of goods sold | **137858768** | 109744919 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross margin | **44827086** | 31221159 |
| Expenses: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Selling, General & Administrative Expenses | **29430723** | 20798095 |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation and Amortization | **1451834** | 926095 |
| Total cost of revenue | **30882557** | 21724190 |
| Operating income | **13944529** | 9496969 |
| Other income from loan forgiveness | **-** | 1668200 |
| Other income (expense), net  | **918691** | (299435) |
| Interest expense | **483693** | 704051 |
| Income before income taxes | **14379527** | 10161683 |
| Income tax expense (benefit) | **(1309606)** | 112808 |
| Net income | $**15689133** | $10048875 |
| Earnings per share: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Basic | $**0.58** | $0.37 |
| &nbsp;&nbsp;&nbsp;&nbsp;Diluted | $**0.58** | $0.37 |
| Weighted average shares outstanding: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Basic | **26924631** | 26924631 |
| &nbsp;&nbsp;&nbsp;&nbsp;Diluted | **26939631** | 26939631 |

---

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

---

| |
|:---|
| 28 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

ENVELA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

---

| | | |
|:---|:---|:---|
| **December 31,**  | **2022** | 2021 |
| **Assets** |  |  |
| Current assets: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents | $**17169969** | $10138148 |
| &nbsp;&nbsp;&nbsp;&nbsp;Trade receivables, net of allowances | **7949775** | 7166533 |
| &nbsp;&nbsp;&nbsp;&nbsp;Notes receivable, net of allowance | **578250** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Inventories | **18755785** | 14048436 |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred tax asset | **1488258** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Current right-of-use assets from operating leases | **1683060** | 1604736 |
| &nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses | **1231817** | 439038 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other current assets | **35113** | 969624 |
| Total current assets | **48892027** | 34366515 |
| Property and equipment, net | **9393802** | 9806188 |
| Goodwill | **3621453** | 6140465 |
| Intangible assets, net | **4993545** | 3024245 |
| Operating lease right-of-use assets, less current portion | **4189621** | 5692141 |
| Other assets, less current portion | **186761** | 237761 |
| Total assets | $**71277209** | $59267315 |
| **Liabilities and stockholders equity** |  |  |
| Current liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts payable-trade | $**3358881** | $2488396 |
| &nbsp;&nbsp;&nbsp;&nbsp;Line of credit | **-** | 1700000 |
| &nbsp;&nbsp;&nbsp;&nbsp;Notes payable | **1250702** | 1065794 |
| &nbsp;&nbsp;&nbsp;&nbsp;Current operating lease liabilities | **1686997** | 1573824 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses | **2286594** | 1789366 |
| &nbsp;&nbsp;&nbsp;&nbsp;Customer deposits and other liabilities | **282482** | 1179224 |
| Total current liabilities | **8865656** | 9796604 |
| Notes payable, less current portion | **14726703** | 15970337 |
| Operating lease liabilities, less current portion | **4368400** | 5873057 |
| Total liabilities | **27960759** | 31639998 |
| Commitments and contingencies |  |  |
| Stockholders equity: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Common stock, $0.01 par value; 60,000,000 shares authorized; 26,924,631 shares issued and outstanding  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Preferred stock, $0.01 par value; 5,000,000 shares authorized; 0 shares issued and outstanding | **269246** | 269246 |
| &nbsp;&nbsp;&nbsp;&nbsp;Additional paid-in capital | **40173000** | 40173000 |
| &nbsp;&nbsp;&nbsp;&nbsp;Retained earnings (accumulated deficit) | **2874204** | (12814929) |
| Total stockholders equity | **43316450** | 27627317 |
| Total liabilities and stockholders equity | $**71277209** | $59267315 |

---

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

---

| |
|:---|
| 29 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

ENVELA CORPORATION AND SUBSIDIARIES

CONSOLIDATED CASH FLOW STATEMENTS

&nbsp;&nbsp;&nbsp;&nbsp;

---

| | | |
|:---|:---|:---|
| **Year Ended December 31,** | **2022** | 2021 |
| **Operations** |  |  |
| Net income | $**15689133** | $10048875 |
| Adjustments to reconcile net income to net cash provided by operations: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation, amortization, and other | **1451834** | 926095 |
| &nbsp;&nbsp;&nbsp;&nbsp;Bad debt expense | **120554** | 83003 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other income from forgiveness of Federal Loan | **-** | (1668200) |
| &nbsp;&nbsp;&nbsp;&nbsp;Income tax valuation allowance reduction | **(1488258)** | **-** |
| &nbsp;&nbsp;&nbsp;&nbsp;Write-off (reserve reduction) of notes receivable and accrued interest receivable | **(838647)** | 887821 |
| &nbsp;&nbsp;&nbsp;&nbsp;Changes in operating assets and liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade receivables | **(903796)** | (3969701) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories | **(4707349)** | (3554802) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses | **(792778)** | (60996) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other assets | **985509** | (1024234) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable and accrued expenses | **1367713** | 752379 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating leases | **32712** | 27275 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Customer deposits and other liabilities | **(896742)** | 357548 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by operations | **10019885** | 2805063 |
| **Investing** |  |  |
| Investment in note receivable | **-** | (300000) |
| Payments from note receivable | **260397** | 61353 |
| Purchase of property and equipment | **(272748)** | (3138715) |
| Acquisition of Avail Recovery Solutions' assets, net of cash acquired | **-** | (1511130) |
| Additional cash payment for Avail Recovery Solutions' assets | **(216988)** |  |
| Acquisition of Cexchange assets, net of cash acquired | **-** | 13136 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in investing | **(229339)** | (4875356) |
| **Financing** |  |  |
| Payments on notes payable, related party | **-** | (268793) |
| Payments on notes payable | **(1058725)** | (212802) |
| Proceeds from line of credit | **-** | 1700000 |
| Payments on line of credit | **(1700000)** |  |
| Proceeds from notes payable for retail and office buildings | **-** | 1772000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by (used in) financing | **(2758725)** | 2990405 |
| Net change in cash and cash equivalents | **7031821** | 920112 |
| Cash and cash equivalents, beginning of period | **10138148** | 9218036 |
| Cash and cash equivalents, end of period | $**17169969** | $10138148 |
| **Supplemental Disclosures** |  |  |
| Cash paid during the period for: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest | $**491828** | $688391 |
| &nbsp;&nbsp;&nbsp;&nbsp;Income taxes | $**133000** | $86000 |
| Non-cash activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Transfer Avail goodwill to intangibles | $**2736000** | $**-** |
| &nbsp;&nbsp;&nbsp;&nbsp;Acquisition of Cexchange assets and liabilities through forgiveness of debt | $**-** | $**1555892** |
| &nbsp;&nbsp;&nbsp;&nbsp;Notes payable, related party refinanced directly by Farmers State Bank | $**-** | $**9091049** |

---

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

---

| |
|:---|
| 30 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

ENVELA CORPORATION AND SBDISIARIES

CONSOLIDATED STOCKHOLDERS' EQUITY STATEMENTS

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Common Stock** | **Common Stock** | | | |
|  | **Shares** | **Amount** | **Additional** <br>**Paid-in**<br>**Capital** | **Retained Earnings**<br>**(Accumulated** <br>**Deficit)** | **Total**<br>**Stockholders'**<br>**Equity** |
| **Balance at January 1, 2021** | **26924631** | $**269246** | $**40173000** | $**(22863804)** | $**17578442** |
| **Net income** | **-** | **-** | **-** | **10048875** | **10048875** |
| **Balance at December 31, 2021** | **26924631** | **269246** | **40173000** | **(12814929)** | **27627317** |
| **Net income** | **-** | **-** | **-** | **15689133** | **15689133** |
| **Balance at December 31, 2022** | **26924631** | $**269246** | $**40173000** | $**2874204** | $**43316450** |

---

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

---

| |
|:---|
| 31 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<u>NOTE 1 — ACCOUNTING POLICIES AND NATURE OF OPERATIONS</u>

A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows. References to fiscal years below are denoted with the word "Fiscal" and the associated year.

**Principles of Consolidation and Nature of Operations**

Envela and its subsidiaries engage in diverse business activities within the re-commerce sector. These activities include being one of the nation's premier authenticated re-commerce retailers of luxury hard assets; providing end-of-life asset recycling; offering data destruction and IT asset management; and providing products, services, and solutions to industrial and commercial companies. Envela operates primarily via two segments. Its commercial-services segment is led by subsidiary ECHG, and its direct-to-consumer segment is led by subsidiary DGSE. Envela reports its revenue and operating expenses based on these two operating segments. We also include segment information in the notes to our financial statements. Envela is a Nevada corporation, headquartered in Irving, Texas.

Envela primarily makes a resale marketplace for previously-owned products via its two business segments, a direct-to-consumer business (DGSE) and a commercial services business (ECHG). Our direct-to-consumer portfolio primarily operates multiple brick-and-mortar and online marketplaces. Where our commercial services portfolio offers custom re-commerce solutions to meet the needs of diverse clients, including Fortune 500 companies.

For additional business operations for both DGSE and ECHG, see Note 10 – Segment Information..

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and include the accounts of the Company and its subsidiaries. All material intercompany transactions and balances have been eliminated.

**Cash and Cash Equivalents**

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The carrying amounts reported in the consolidated balance sheets approximate fair value.

**Inventories**

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

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

The inventory listed in Note 3, and for the time period until November 15, 2026, is pledged as collateral against the $3,500,000 FSB line of credit and the FSB notes with DGSE and ECHG. For the FSB notes, see Note 9 – Long-Term Debt.

---

| |
|:---|
| 32 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

**Property and Equipment**

Property and equipment are stated at cost. Depreciation on property and equipment is provided for using the straight-line method over the anticipated economic useful lives of the related property. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by the asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. There were no impairments recorded during Fiscal 2022 and Fiscal 2021.

Expenditures for maintenance and repairs are charged against income as incurred; betterments that increase the value or materially extend the life of the related assets are capitalized. When assets are sold or retired, the cost and accumulated depreciation are removed from the accounts and any gain or loss is recorded to current operating income.

**Impairment of Long-Lived Assets, Amortized Intangible Assets and Goodwill**

The Company performs impairment evaluations of its long-lived assets, including property, equipment, and intangible assets with finite lives whenever business conditions or events indicate that those assets may be impaired. When the estimated future undiscounted cash flows to be generated by the assets are less than the carrying value of the long-lived assets, the assets are written down to fair market value and a charge is recorded to current operations. Based on the Company's evaluations, no impairment was required as of December 31, 2022 or 2021.

Goodwill is evaluated for impairment annually in the fourth quarter, or when there is reason to believe that the value has been diminished or impaired. Evaluations for possible impairment are based upon a comparison of the estimated fair value of the reporting segment to which the goodwill has been assigned, versus the sum of the carrying value of the assets and liabilities of that segment including the assigned goodwill value. Goodwill is tested at the segment level and is the only intangible asset with an indefinite life on the balance sheet.

**Financial Instruments**

The carrying amounts reported in the consolidated balance sheets for cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amounts reported for the notes receivable and notes payable approximate fair value because the underlying instruments have an interest rate that reflects current market rates. None of these instruments are held for trading purposes.

**Advertising Costs**

DGSE's advertising costs are expensed as incurred and amounted to $723,889 and $406,775 for Fiscal 2022 and Fiscal 2021, respectively. ECHG's advertising costs are expensed as incurred and amounted to $49,977 and $52,617 For Fiscal 2022 and Fiscal 2021, respectively.

**Accounts Receivable** 

Given the generally low level of accounts receivable for DGSE, the Company uses a simplified approach to calculate a general bad debt reserve. An allowance is calculated for each aging "bucket," based on the risk profile of that bucket. For example, based on our historical experience, we have chosen not to place any reserve on amounts that are less than 60 days past due. From there the reserve amount escalates: 10% reserve on amounts over 60 but less than 90 days past due, 25% on amounts over 90 but less than 120 past due, and 75% on amounts over 120 days past due. The account receivables past 120 days past due are reviewed quarterly and if they are deemed uncollectable will be written off against the reserve.

For Fiscal 2022 and 2021, besides the normal timing to clear credit cards and financing collections, DGSE's accounts receivable balance consisted of wholesale dealers that are current, therefore no reserve was established as of December 31, 2022 and 2021. Once a reserve is established, and an amount is considered to be uncollectable it is to be written off against the reserve. We revisit the reserve periodically, but no less than annually, with the same analytical approach in order to determine if the reserve needs to be increased or decreased, based on the risk profile of open accounts receivable at that point.

---

| |
|:---|
| 33 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

ECHG has a more sizable accounts receivable balance of $7,110,535 at December 31, 2022 and $6,661,042 as of December 31, 2021. Collectability of accounts receivable are viewed on an ongoing basis which includes historical payment rates. Upon evaluating the trade receivables balance for historical payment rates, we follow the simplified approach allowance methodology, as mentioned above. We reserved $51,735 for Fiscal 2022 and $1,583 for Fiscal 2021.

A summary of the Allowance for Doubtful Accounts is presented below:

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | 2021 |
| Beginning Balance | $**1583** | $- |
| Bad debt expense (+) | **120554** | 83003 |
| Receivables written off (-) | **(70403)** | (81420) |
| Ending Balance | $**51734** | $1583 |

---

**Notes Receivable**

ECHG holds two notes receivable from CExchange as of December 31, 2022 and 2021. During Fiscal 2021, management learned the two notes may not have been recoverable. Management reserved the full amount of the outstanding and unpaid notes receivable of $900,000 and wrote-off the outstanding and unpaid accrued interest associated with the notes receivable of $49,174. The notes receivable of $900,000 and $49,174 of accrued interest receivable were charged to other expense during Fiscal 2021. Subsequent to reserving the note of $900,000 during Fiscal 2021, a partial payment was received of $61,353, reducing the amount of the reserve to $838,647, as of December 31, 2021. On October 25, 2022, ECHG received $260,397 of the reserved $838,647 notes receivable. Upon receipt of the partial payment, management believed, from the information available, that the remaining and unpaid notes receivable of $578,250, would probably be received in full. The reserve was reduced to $0, recording $838,647 as other income, thereby restoring the balance of the notes receivable, net to $578,250, as of December 31, 2022. The full payment of the remaining $578,250 was received on January 17, 2023. Interest receivable was written off against the reserve in Fiscal 2021. See Note 18 – Subsequent Events for interest received.

**Short-Term Financing**

On November 23, 2021, the Company secured a 36 month line of credit from FSB for $3,500,000 at 3.1% annual interest rate with a maturity date of November 23, 2024. As of December 31, 2022, and December 31, 2021, the line of credit had a principal and outstanding balance of $0 and $1,700,000, respectively, with accrued and unpaid interest balance of $0 as of December 31, 2022 and $6,005 as of December 31, 2021.

**Income Taxes**

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

---

| |
|:---|
| 34 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

The Company accounts for its position in tax uncertainties in accordance with U.S. GAAP. The guidance establishes standards for accounting for uncertainty in income taxes. The guidance provides several clarifications related to uncertain tax positions. Most notably, a "more likely-than-not" standard for initial recognition of tax positions, a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization. U.S. GAAP requires a two-step process to determine the amount of tax benefit to be recognized in the financial statements. First, the Company must determine whether any amount of the tax benefit may be recognized. Second, the Company determines how much of the tax benefit should be recognized (this would only apply to tax positions that qualify for recognition). The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements or the effective tax rate during the years ended December 31, 2022 and 2021.

The Company currently believes that its significant filing positions are highly certain and that all of its other significant income tax filing positions and deductions would be sustained upon audit or the final resolution would not have a material effect on the consolidated financial statements. Therefore, the Company has not established any significant reserves for uncertain tax positions. The Company recognizes accrued interest and penalties resulting from audits by tax authorities in the provision for income taxes in the consolidated statements of operations. During Fiscal 2022 and Fiscal 2021, the Company did not incur any federal income tax interest or penalties.

**Revenue Recognition**

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

---

| |
|:---|
| 35 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

The following disaggregation of total revenue is listed by sales category and segment for the years ended December 31, 2022 and 2021:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** |
|  | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 |
|  | **Revenues** | **Gross Profit** | **Margin** | Revenues | Gross Profit | Margin |
| <u>DGSE</u> |  |  |  |  |  |  |
| Resale | $**122468154** | **14240795** | **11.6%** | $89146783 | 11022162 | 12.4% |
| Recycled | **8639279** | **1993644** | **23.1%** | 7572476 | 1586000 | 20.9% |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | **131107433** | **16234439** | **12.4%** | 96719259 | 12608162 | 13.0% |
| <u>ECHG</u> |  |  |  |  |  |  |
| Resale | **39747631** | **22119853** | **55.7%** | 32540366 | 14570092 | 44.8% |
| Recycled | **11830790** | **6472794** | **54.7%** | 11706453 | 4042905 | 34.5% |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | **51578421** | **28592647** | **55.4%** | 44246819 | 18612997 | 42.1% |
|  | $**182685854** | $**44827086** | **24.5%** | $140966078 | $31221159 | 22.1% |

---

For DGSE, revenue for monetary transactions (i.e., cash and receivables) with dealers and the retail public are recognized when the merchandise is delivered, and payment has been made either by immediate payment or through a receivable obligation at one of our over-the-counter retail stores. Revenue is recognized upon the shipment of goods when retail and wholesale customers have fulfilled their obligation to pay, or promise to pay, through e-commerce or phone sales. Shipping and handling costs are accounted for as fulfillment costs after the customer obtains control of the goods.

Crafted-precious-metal items at the end of their useful lives are sold for its precious metal contained. The metal is assayed to determine the precious metal content, a price is agreed upon and payment is made usually within two days. Revenue is recognized from the sale once the performance obligation is satisfied.

In limited circumstances, merchandise is exchanged for similar merchandise and/or monetary consideration with both dealers and retail customers, for which revenue is recognized in accordance with Accounting Standards Codification ("ASC") 845, Nonmonetary Transactions. When merchandise is exchanged for similar merchandise and there is no monetary component to the exchange, there is no revenue recognized. Instead, the basis of the merchandise relinquished becomes the basis of the merchandise received, less any indicated impairment of value of the merchandise relinquished. When merchandise is exchanged for similar merchandise and there is a monetary component to the exchange, revenue is recognized to the extent of the monetary assets received that determines the cost of sale based on the ratio of monetary assets received to monetary and non-monetary assets received multiplied by the cost of the assets surrendered.

---

| |
|:---|
| 36 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

The Company offers 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 finance company. Revenue is recognized from the sale upon the promise of the financing company to pay.

DGSE's return policy covers retail transactions. In some cases, customers may return a product purchased within 30 days of the receipt of the items for a full refund. Also, in some cases customers may cancel the sale within 30 days of making a commitment to purchase the items. Additionally, a customer may return an item for full refund if they can demonstrate that the item is not authentic, or there was an error in the description of the piece. Returns are accounted for as a reversal of the original transaction, with the effect of reducing revenues, and cost of sales, and returning the merchandise to inventory. DGSE has established an allowance for estimated returns related to Fiscal 2022 sales, which is based on our review of historical returns experience and reduces our reported revenues and cost of sales accordingly. As of December 31, 2022 and 2021, our allowance for returns remained the same at approximately $28,000 for both years.

A significant amount of revenue (17.9%) stems from sales to one precious metals partner, which relationship constitutes Envela's single largest source of revenues for Fiscal 2022. However, the Company believes that the products it sells is marketable to numerous sources at competitive prices.

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

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

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

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

**Shipping and Handling Costs**

Shipping and handling costs amounted to $3,193,742 and $1,367,944, for 2022 and 2021, respectively. Management has determined that shipping and handling costs should be included in cost of goods sold since inventory is what is shipped to and from store locations or to and from vendors.

**Taxes Collected from Customers**

The Company's policy is to present taxes collected from customers and remitted to governmental authorities on a net basis. The Company records the amounts collected as a current liability and relieves such liability upon remittance to the taxing authority without impacting revenues or expenses.

**Earnings Per Share**

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

---

| |
|:---|
| 37 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

**Stock-Based Compensation**

The Company accounts for stock-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 Fiscal 2022 and Fiscal 2021 amounted to $0 for both years. There were 15,000 stock options that remained unexercised as of December 31, 2022 and 2021.

**Use of Estimates**

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price of performance obligations, variable consideration, and other obligations such as product returns and refunds; loss contingencies; the fair value of and/or potential impairment of goodwill and intangible assets for the reporting units; useful lives of our tangible and intangible assets; allowances for doubtful accounts; valuation allowance; the market value of, and demand for, our inventory and the potential outcome of uncertain tax positions that have been recognized on our consolidated financial statements or tax returns. Actual results and outcomes may differ from management's estimates and assumptions.

**New Accounting Pronouncements** 

In June 2016, the FASB issued a new credit loss accounting standard ASU 2016-13. The new accounting standard introduces the current expected credit losses methodology for estimating allowances for credit losses which will be based on expected losses rather than incurred losses. We will be required to use a forward-looking expected credit loss methodology for accounts receivable, loans and other financial instruments, requiring immediate recognition of management's estimates of current expected credit losses. The Company completed its review of its methodology based on expected losses and determined that there was no impact to its consolidated financial statements, results of operations or liquidity. The standard will be adopted upon the effective date for us beginning January 1, 2023 by using a modified retrospective transition approach to align the Company's credit loss methodology with the new standard. Management is evaluating the financial statement implications of ASU 2016-13.

No other recently issued or effective ASU's had, or are expected to have, a material impact on the Company's results of operations, financial condition or liquidity.

<u>NOTE 2 — CONCENTRATION OF CREDIT RISK</u>

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. At times, such amounts exceed federally-insured limits.

A significant amount of revenue (17.9%) stems from sales to one precious metals partner, which relationship constitutes Envela's single largest source of revenues for Fiscal 2022. However, the Company believes that the products it sells is marketable to numerous sources at competitive prices.

---

| |
|:---|
| 38 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

<u>NOTE 3 — INVENTORIES</u>

Inventories consist of the following:

---

| | | |
|:---|:---|:---|
|  | **December 31,**<br>**2022** | December 31,<br>2021 |
| <u>DGSE</u> |  |  |
| Resale | $**16462749** | $10422072 |
| Recycle | **46697** | 11995 |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | **16509446** | 10434067 |
| <u>ECHG</u> |  |  |
| Resale | **1858519** | 3350159 |
| Recycle | **387820** | 264210 |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | **2246339** | 3614369 |
|  | $**18755785** | $14048436 |

---

---

| |
|:---|
| 39 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

<u>NOTE 4 — PROPERTY AND EQUIPMENT</u>

Property and equipment consist of the following:

---

| | | |
|:---|:---|:---|
|  | **December 31,**<br>**2022** | December 31,<br>2021 |
| <u>DGSE</u> |  |  |
| Land | $**1640219** | $1640220 |
| Buildings and improvements | **2798975** | 2764529 |
| Leasehold improvements | **1450695** | 1450695 |
| Machinery and equipment | **1078595** | 1056315 |
| Furniture and fixtures | **603944** | 526250 |
| Vehicles | **22859** | 22859 |
|  | **7595287** | 7460868 |
| Less: accumulated depreciation | **(2651832)** | (2343923) |
| &nbsp;&nbsp;&nbsp;&nbsp;Sub-Total | **4943455** | 5116945 |
| <u>ECHG</u> |  |  |
| Leasehold improvements | **151647** | 135491 |
| Machinery and equipment | **1180636** | 1109306 |
| Furniture and fixtures | **145950** | 145950 |
|  | **1478233** | 1390747 |
| Less: accumulated depreciation | **(515673)** | (212147) |
| &nbsp;&nbsp;&nbsp;&nbsp;Sub-Total | **962560** | 1178600 |
| <u>Envela</u> |  |  |
| Land | **1106664** | 1106664 |
| Buildings and improvements | **2502216** | 2456324 |
| Machinery and equipment | **28627** | 23676 |
|  | **3637507** | 3586664 |
| Less: accumulated depreciation | **(149720)** | (76021) |
| &nbsp;&nbsp;&nbsp;&nbsp;Sub-Total | **3487787** | 3510643 |
|  | $**9393802** | $9806188 |

---

Depreciation expense was $685,134 and $498,866 for Fiscal 2022 and Fiscal 2021, respectively.

<u>NOTE 5 — ACQUISITIONS</u>

On June 9, 2021, ECHG, entered into the CExchange Transaction, pursuant to which the seller agreed to sell the assets and certain liabilities of CExchange for ECHG's cancellation and forgiveness of $1,500,000 of the outstanding principal amount under the loan agreement between ECHG and CExchange originally dated February 15, 2020 and accrued and unpaid interest thereunder of $55,892. The remaining $900,000, which represents two notes of $600,000 and $300,000, principal owed to ECHG by CExchange is not a part of the purchase price listed below and was expected to be repaid with any accrued and unpaid interest during the third or fourth fiscal quarters of 2021. We subsequently performed impairment evaluations on the remaining $900,000 principal owed after management learned that it is more likely than not that the $900,000 may not be recoverable. Management concluded that ECHG should reserve the full amount of the outstanding and unpaid notes receivable of $900,000 and wrote-off the outstanding and unpaid accrued interest associated with the notes receivable totaling $49,174. Subsequent to the reserve established for the notes receivable, the Company received $61,353 as partial payment against the notes receivable. This payment was used to reduce the notes receivable reserved amount to $838,647. Management still believed that it was more likely than not that the remaining balance was uncollectable. The remaining notes receivable of $838,647 and $49,174 of accrued interest receivable were charged to other expense during Fiscal 2021. On October 25, 2022, ECHG received $260,397 of the reserved $838,647 notes receivable. Upon receipt of the partial payment, management believed the remaining and unpaid notes receivable of $578,250 would probably be received in full. The reserve was reduced to $0, recording $838,647 as other income, thereby restoring the balance of the notes receivable, net to $578,250, as of December 31, 2022. The full payment of the remaining $578,250 was received on January 17, 2023. Interest receivable was written off against the reserve in Fiscal 2021. See Note 18 – Subsequent Events for interest received.

---

| |
|:---|
| 40 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

As part of the CExchange Transaction, goodwill was originally recorded as $1,891,477, which is the purchase price less the approximate fair value of the net assets and liabilities purchased. Adjustments were made to the acquiring assets and liabilities of the CExchange Transaction through management evaluation and a third-party valuation. The Company's goodwill is related to the ECHG segment. ECHG has its own separate financial information to perform goodwill impairment testing. The Company will evaluate goodwill based on cash flows for the ECHG segment. For tax purposes, goodwill is amortized and deductible over fifteen (15) years.

The purchase price allocation of the CExchange Transaction is as follows:

---

| | |
|:---|:---|
| Description | Amount |
| <u>Assets</u> |  |
| Cash | $13136 |
| Account receivables | 93970 |
| Prepaids | 2594 |
| Deposits | 21419 |
| Intangible assets, trademarks/tradenames | 114000 |
| Intangible assets, customer relationships | 345000 |
| Fixed assets - net | 30697 |
| <u>Liabilities</u> |  |
| Account payables | (345057) |
| Accrued liabilities | (1939) |
| Net assets | 273820 |
| Goodwill | 1282072 |
| **Total Purchase Price** | $**1555892** |

---

On October 29, 2021, ECHG entered into the Avail Transaction to purchase all of the assets, liabilities and rights and interests for $4,500,000. The purchase was facilitated by an initial payment of $2,500,000 at closing, with the remaining $2,000,000 represented by the installment note (the "Avail Installment Note") made by ECHG to the seller to be paid out by 12 quarterly payments starting April 1, 2022, of $166,667 each. See Note 9 to our consolidated financial statements for more information on this loan. The Avail Installment Note for the Avail transaction does not bear interest, but imputed interest rate was determined to be 3.1%.

---

| |
|:---|
| 41 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

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

---

| | | |
|:---|:---|:---|
|  | Initial | Final  |
| Description | Allocation | Allocation |
| <u>Assets</u> |  |  |
| Cash | $988870 | $988870 |
| Account receivables | 395144 | 395144 |
| Inventories | 486736 | 486736 |
| Prepaid expenses | 93727 | 93727 |
| Intangible assets - Trademarks/Tradenames |  | 1272000 |
| Intangible assets - Customer Relationships |  | 1464000 |
| Fixed assets - net | 247038 | 247038 |
| Right-of-use assets | 609511 | 609511 |
| Other assets | 13268 | 13268 |
| <u>Liabilities</u> |  |  |
| Account payables | (562778) | (562778) |
| Accrued liabilities | (653289) | (653289) |
| Operating lease liabilities | (609511) | (609511) |
| Net assets | 1008716 | 3744716 |
| Goodwill | 3491284 | 972272 |
| Total Purchase Price | $4500000 | $4716988 |

---

---

| |
|:---|
| 42 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

<u>NOTE 6 — GOODWILL</u>

The changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021, are as follows:

---

| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2022** | **2021** |
| Opening balance | $**6140465** | $1367109 |
| Additions (reductions) (1) | **(2519012)** | 4773356 |
|  | $**3621453** | $6140465 |

---

(1) Additions for Fiscal 2021 totaling $4,773,356 is a combination of the CExchange Transaction on June 9, 2021 of $1,282,072 and the Avail Transaction's preliminary purchase price allocation on October 29, 2021, of $3,491,284. The reduction in goodwill of $2,519,012 for Fiscal 2022, is a combination of an additional cash payment made on May 31, 2022 of $216,988, which increased goodwill for the Avail Transaction, offset by the reduction of goodwill related to the Avail Transaction by management identifying $2,736,000 of intangible assets that were not initially included in the fair value of Avail's net assets, reducing goodwill and increasing intangible assets.

The Company's goodwill is related to the ECHG segment. Goodwill is evaluated for impairment annually in the fourth quarter, or when there is reason to believe that the value has been diminished or impaired. Based on the Company's evaluations, no impairment was required as of December 31, 2022 and 2021.

---

| |
|:---|
| 43 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

<u>NOTE 7 — INTANGIBLE ASSETS</u>

Intangible assets consist of:

---

| | | |
|:---|:---|:---|
|  | **December 31,**<br>**2022** | December 31,<br>2021 |
| <u>DGSE</u> |  |  |
| Domain names | $**41352** | $41352 |
| Point of sale system | **330000** | 330000 |
|  | **371352** | 371352 |
| Less: accumulated amortization | **(335502)** | (269502) |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | **35850** | 101850 |
| <u>ECHG</u> |  |  |
| Trademarks (1) | **1483000** | 1483000 |
| Customer Contracts (1) | **1873000** | 1873000 |
| Trademarks/Tradenames (2) | **114000** | 114000 |
| Customer Relationships (2) | **345000** | 345000 |
| Trademarks/Tradenames (3) | **1272000** |  |
| Customer Relationships (3) | **1464000** | - |
|  | **6551000** | 3815000 |
| Less: accumulated amortization | **(1593305)** | (892605) |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | **4957695** | 2922395 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total | $**4993545** | $3024245 |

---

(1) Intangibles relate to the asset purchase agreement of the Echo Legacy Entities on May 20, 2019.

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

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

Amortization expense was $766,700 and $427,228 for Fiscal years 2022 and 2021, respectively.

The estimated aggregate amortization expense for each of the five succeeding fiscal years follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **DGSE** | **ECHG** | **Total** |
| 2023 | 30350 | 655100 | 685450 |
| 2024 | 5500 | 655100 | 660600 |
| 2025 |  | 655100 | 655100 |
| 2026 |  | 655100 | 655100 |
| 2027 |  | 655100 | 655100 |
| Thereafter | - | 1682195 | 1682195 |
|  | $35850 | $4957695 | $4993545 |

---

---

| |
|:---|
| 44 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

<u>NOTE 8 – ACCRUED EXPENSES</u>

Accrued expenses consist of the following:

---

| | | |
|:---|:---|:---|
|  | **December 31**<br>**2022** | December 31<br>2021 |
| <u>DGSE</u> |  |  |
| Accrued Interest | $**11624** | $12627 |
| Payroll | **146817** | 131325 |
| Property tax | **115222** | 88046 |
| Sales tax | **153039** | 150070 |
| Other administrative expenses | **424** | - |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | **427126** | 382068 |
| <u>ECHG</u> |  |  |
| Accrued Interest | **8228** | 14547 |
| Payroll | **336226** | 334431 |
| Other accrued expenses | **7392** | 51506 |
| Unvouchered payables - inventory | **803649** | 461481 |
| Material & shipping costs (COGS) | **229159** | 78647 |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | **1384654** | 940612 |
| <u>Envela</u> |  |  |
| Accrued Interest | **7543** | 8355 |
| Payroll | **25179** | 25175 |
| Professional fees | **199508** | 220101 |
| Property tax | **87275** | 84920 |
| Other administrative expenses | **-** | 18453 |
| State income tax | **155309** | 109682 |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | **474814** | 466686 |
|  | $**2286594** | $1789366 |

---

---

| |
|:---|
| 45 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

<u>NOTE 9 — LONG-TERM DEBT</u>

Long-term debt consists of the following:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Outstanding Balance** | **Outstanding Balance** | | |
|  | **December 31,**<br>**2022** | **December 31,**<br>**2021** |<br>Current<br>Interest Rate | <br>Maturity |
| <u>DGSE</u> |  |  |  |  |
| Note payable, FSB (1) | $**2668527** | $2770729 | 3.10% | November 15, 2026 |
| Note payable, Truist Bank (2) | **874418** | 909073 | 3.65% | July 9, 2030 |
| Note payable, Texas Bank & Trust (3) | **456187** | 474009 | 3.75% | September 14, 2025 |
| Note payable, Texas Bank & Trust (4) | **1691020** | 1752446 | 3.75% | July 30, 2031 |
| DGSE Sub-Total | **5690152** | 5906257 |  |  |
| <u>ECHG</u> |  |  |  |  |
| Note payable, FSB (1) | **6054565** | 6286459 | 3.10% | November 15, 2026 |
| Line of Credit (5) | **-** | 1700000 | 3.10% | November 15, 2024 |
| Avail Transaction note payable (6) | **1500000** | 2000000 | 0.00% | April 1, 2025 |
| ECHG Sub-Total | **7554565** | 9986459 |  |  |
| <u>Envela</u> |  |  |  |  |
| Note payable, Texas Bank & Trust (7) | **2732688** | 2843415 | 3.25% | November 4, 2025 |
| Sub-Total | **15977405** | 18736131 |  |  |
| Current portion | **1250702** | 2765794 |  |  |
|  | $**14726703** | $15970337 |  |  |

---

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

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

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

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

(5) On November 23, 2021, the Company secured a 36-month line of credit from FSB for $3,500,000 at 3.1% annual interest rate. A line of credit of up to $3,500,000 with Texas Bank and Trust was immediately closed with a $0 outstanding balance.

(6) On October 29, 2021, ECHG entered into the Avail Transaction to purchase all of the assets, liabilities and rights and interests of Avail AZ, for $4.5 million. The purchase was facilitated by an initial payment of $2.5 million at closing, and the remaining $2.0 million to be paid out by 12 quarterly payments starting April 1, 2022, of $166,667 each. The Installment note payable for the Avail Transaction imputed at 3.1%

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

---

| |
|:---|
| 46 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

Future scheduled principal payments of our note payables and note payables, related party, as of December 31, 2022 are as follows:

---

| | |
|:---|:---|
| **<u>Note payable, Farmers State Bank - DGSE</u>** |  |
| Year Ending December 31, | Amount  |
| 2023 | $105428 |
| 2024 | 108743 |
| 2025 | 112162 |
| 2026 | 2342194 |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | $2668527 |

---

---

| | |
|:---|:---|
| **<u>Note payable, Truist Bank - DGSE</u>** |  |
| Year Ending December 31, | Amount  |
| 2023 | $35988 |
| 2024 | 37342 |
| 2025 | 38748 |
| 2026 | 40206 |
| 2027 | 42081 |
| Thereafter | 680053 |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | $874418 |

---

---

| | |
|:---|:---|
| **<u>Note payable, Texas Bank & Trust - DGSE</u>** |  |
| Year Ending December 31, | Amount  |
| 2023 | $18503 |
| 2024 | 19209 |
| 2025 | 418475 |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | $456187 |

---

---

| |
|:---|
| 47 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

---

| | |
|:---|:---|
| **<u>Note payable, Texas Bank & Trust - DGSE</u>** |  |
| Year Ending December 31, | Amount  |
| 2023 | $72226 |
| 2024 | 74608 |
| 2025 | 77070 |
| 2026 | 79360 |
| 2027 | 81366 |
| Thereafter | 1306390 |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | $1691020 |

---

---

| | |
|:---|:---|
| **<u>Note payable, Farmers Bank - ECHG</u>** |  |
| Year Ending December 31, | Amount  |
| 2023 | $239204 |
| 2024 | 246725 |
| 2025 | 254483 |
| 2026 | 5314153 |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | $6054565 |

---

---

| | |
|:---|:---|
| **<u>Note payable - Justin and Tami Tinkle</u>** |  |
| Year Ending December 31, | Amount  |
| 2023 | $666667 |
| 2024 | 666667 |
| 2025 | 166666 |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | $1500000 |

---

---

| | |
|:---|:---|
| **<u>Note payable, Texas Bank & Trust - Envela</u>** |  |
| Year Ending December 31, | Amount  |
| 2023 | $112686 |
| 2024 | 116476 |
| 2025 | 2503526 |
| &nbsp;&nbsp;&nbsp;&nbsp;Subtotal | $2732688 |
|  | $15977405 |

---

---

| |
|:---|
| 48 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

Future scheduled aggregate amount of principal payments and maturities of our notes payable as of December 31, 2022 are as follows:

---

| | | | |
|:---|:---|:---|:---|
| **Scheduled Principal Payments and Maturities by Year:** | **Scheduled** <br>**Principal**<br>**Payments** |<br>**Loan**<br>**Maturities** |<br>**Total** |
| 2023 | $1250702 | $- | $1250702 |
| 2024 | 1269770 |  | 1269770 |
| 2025 | 482463 | 3088668 | 3571131 |
| 2026 | 119566 | 7656346 | 7775912 |
| 2027 | 123447 |  | 123447 |
| 2028 and thereafter | 430774 | 1555669 | 1986443 |
| Total | $3676722 | $12300683 | $15977405 |

---

<u>NOTE 10 — SEGMENT INFORMATION</u>

We determine our business segments based upon an internal reporting structure. The financial results are based on the following segments: DGSE and ECHG. The DGSE segment includes Dallas Gold & Silver Exchange, which has six retail stores in DFW, and Charleston Gold & Diamond Exchange, which has one retail store in Mt. Pleasant, South Carolina. The ECHG segment includes Echo, ITAD USA, CEX, Teladvance and Avail. These five companies are involved in recycling and the reuse of electronic waste.

The Company's corporate costs and expenses are allocated to the business segments. The corporate building's expenses are included in selling, general and administrative expenses since the building is part of the Company's operations. Depreciation and amortization, other income from rental income, interest expense and income tax expense are also allocated to the Company's business segments. Management evaluates the operating performance of each segment and makes decisions about the allocation of resources to each segment. The allocations are generally amounts agreed upon by management, which may differ from an arms-length transaction.

---

| |
|:---|
| 49 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

The following table segments the financial results of DGSE and ECHG for the years ended December 31, 2022 and 2021:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** | **For the Years Ended** |
|  | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 |
|  | **DGSE**  | **ECHG** | **Consolidated** | DGSE  | ECHG | Consolidated |
| Revenue: |  |  |  |  |  |  |
| Sales | $**131107433** | $**51578421** | $**182685854** | $96719259 | $44246819 | $140966078 |
| Cost of goods sold | **114872994** | **22985774** | **137858768** | 84111097 | 25633822 | 109744919 |
| &nbsp;&nbsp;&nbsp;&nbsp;Gross profit | **16234439** | **28592647** | **44827086** | 12608162 | 18612997 | 31221159 |
| Expenses: |  |  |  |  |  |  |
| Selling, general and administrative expenses | **8762432** | **20668291** | **29430723** | 7628377 | 13169718 | 20798095 |
| Depreciation and amortization | **410759** | **1041075** | **1451834** | 389703 | 536392 | 926095 |
|  | **9173191** | **21709366** | **30882557** | 8018080 | 13706110 | 21724190 |
| Operating income | **7061248** | **6883281** | **13944529** | 4590082 | 4906887 | 9496969 |
| Other income/expense : |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Other income from loan forgiveness | **-** | **-** | **-** | 675210 | 992990 | 1668200 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other income (expense) | **61686** | **857005** | **918691** | 238585 | (538020) | (299435) |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest expense | **244202** | **239491** | **483693** | 288236 | 415815 | 704051 |
| Income before income taxes | **6878732** | **7500795** | **14379527** | 5215641 | 4946042 | 10161683 |
| Income tax expense (benefit) | **(1426697)** | **117091** | **(1309606)** | 45124 | 67684 | 112808 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income from continuing operations | $**8305429** | $**7383704** | $**15689133** | $5170517 | $4878358 | $10048875 |

---

<u>NOTE 11 — BASIC AND DILUTED AVERAGE SHARES</u>

A reconciliation of basic and diluted average common shares is as follows:

---

| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2022** | 2021 |
| Basic weighted average shares | **26924631** | 26924631 |
| Effect of potential dilutive securities | **15000** | 15000 |
| Diluted weighted average shares | **26939631** | 26939631 |

---

For the years ended December 31, 2022 and 2021, there were 15,000 Common Stock options, warrants, and Restricted Stock Units (RSUs) unexercised. For the years ended December 31, 2022 and 2021, there were no anti-dilutive shares.

<u>NOTE 12 — COMMON STOCK</u>

In January 2014, the Company's Board granted 112,000 RSUs to its officers and certain key employees. As of December 31, 2022, no RSUs remain unexercised.

---

| |
|:---|
| 50 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

<u>NOTE 13 — STOCK OPTIONS AND RESTRICTED STOCK UNITS</u>

On June 21, 2004, our Stockholders approved the adoption of the 2004 Employee Stock Option Plan (the "2004 Employee Stock Option Plan") that provided for incentive stock options and nonqualified stock options to be granted to key employee and certain directors. Each option vested on either January 1, 2004 or immediately upon issuance thereafter. The exercise price of each option issued pursuant to the 2004 Plan is equal to the market value of our Common Stock on the date of grant, as determined by the closing bid price for our Common Stock on the Exchange on the date of grant or, if no trading occurred on the date of grant, on the last day prior to the date of grant on which our securities were listed and traded on the Exchange. Of the options issued under the 2004 Employee Stock Option Plan, 15,000 remain outstanding. Options issued pursuant to the 2004 Employee Stock Option Plan have no expiration date. The Company previously determined there will be no additional grants under the 2004 Employee Stock Option Plan.

On December 7, 2016, Stockholders of the Company approved the adoption of the 2016 Equity Incentive Plan (the "2016 Plan"), which reserved 1,100,000 shares for issuance pursuant to awards issued thereunder. As of December 31, 2022, no awards had been made under the 2016 Plan.

The following table summarizes the activity in common shares subject to options and warrants:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2022** | 2021 | 2021 |
|  |<br>**Shares** | **Weighted**<br>**average exercise**<br>**price** | <br><br>Shares | Weighted<br>average exercise<br>price |
| Outstanding at beginning or year | **15000** | $**2.17** | 15000 | $2.17 |
| Granted | **-** | **-** |  |  |
| Exercised | **-** | **-** |  |  |
| Forfeited | **-** | **-** | - | - |
| Outstanding at end of year | **15000** | $**2.17** | 15000 | $2.17 |
| Options exercisable at end of year | **15000** | $**2.17** | 15000 | $2.17 |

---

The 15,000 options exercisable at the end of the year are potential dilutive shares.

Information about stock options outstanding at December 31, 2022 is summarized as follows:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | Options Outstanding and Exercisable | Options Outstanding and Exercisable | Options Outstanding and Exercisable | Options Outstanding and Exercisable | |
|  | | Weighted average |  | | |
|  |  | remaining |  | Weighted | Aggregate  |
|  | Number | contractual life |  | average | intrinsic |
| Exercise price | outstanding | (Years) |  | exercise price | value |
| $2.13 | 10000 | NA | (1) | $2.13 | $31300 |
| $2.25 | 5000 | NA | (1) | $2.25 | $15050 |
|  | 15000 |  |  |  | $46350 |

---

Options currently issued pursuant to the Company's 2004 Employee Stock Option Plans have no expiration date. The aggregate intrinsic values in the above table were based on the closing price of our Common Stock of $5.26 as of December 31, 2022. During Fiscal years 2022 and 2021, there was $0 recognized in stock-based compensation expense.

---

| |
|:---|
| 51 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

NOTE 14 — INCOME TAXES

The income tax provision reconciled to the tax computed at the statutory from continuing operations Federal rate follows:

---

| | | |
|:---|:---|:---|
|  | **2022** | 2021 |
| Tax Expense at Statutory Rate | $**3019701** | $2133953 |
| Valuation Allowance | **(4513493)** | (1787132) |
| Non-Deductible Expenses and Other | **5534** | 3501 |
| PPP Loan Forgiveness | **-** | (350322) |
| State Taxes, Net of Federal Benefit | **178652** | 112808 |
| &nbsp;&nbsp;&nbsp;&nbsp;Income tax expense (benefit) | $**(1309606)** | $112808 |
| Current | $**178652** | $112808 |
| Deferred benefit | **(1488258)** | - |
| &nbsp;&nbsp;&nbsp;&nbsp;Total | $**(1309606)** | $112808 |

---

Deferred income taxes are comprised of the following at December 31, 2022 and 2021:

&nbsp;&nbsp;&nbsp;&nbsp;

---

| | | |
|:---|:---|:---|
|  | **2022** | 2021 |
| Deferred tax assets (liabilities): |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Inventories | $**46557** | $39433 |
| &nbsp;&nbsp;&nbsp;&nbsp;Stock options and other | **6836** | 6836 |
| &nbsp;&nbsp;&nbsp;&nbsp;Contingencies and accruals | **57822** | 224240 |
| &nbsp;&nbsp;&nbsp;&nbsp;Property and equipment | **(442012)** | (297984) |
| &nbsp;&nbsp;&nbsp;&nbsp;Net operating loss carryforward | **1727126** | 4500023 |
| &nbsp;&nbsp;&nbsp;&nbsp;Goodwill and intangibles | **91929** | 40945 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total deferred tax assets, net | **1488258** | 4513493 |
| &nbsp;&nbsp;&nbsp;&nbsp;Valuation allowance | **-** | (4513493) |
| &nbsp;&nbsp;&nbsp;&nbsp;Net Deferred tax asset | $**1488258** | $- |

---

A valuation allowance of $4,513,493 was recorded against the net deferred tax asset balance as of December 31, 2021. For the year ended December 31, 2022 a release of the valuation allowance of $4,513,493 is recorded. Management considers both positive and negative evidence that could effect the future realization of deferred tax assets. As of December 31, 2022, in part due to 3 years of cumulative pretax income, management has determined that there is sufficient evidence to conclude it is more likely than not that net deferred taxes of $1,488,258 are realizable and therefore reduced the valuation allowance accordingly.

As of December 31, 2022, the Company had approximately $8,224,409 of net operating loss carry-forwards related to Superior Galleries' post acquisition operating losses and other operating losses incurred by the Company's other operations. These carry-forwards will expire starting in 2034 if not utilized.

---

| |
|:---|
| 52 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

<u>NOTE 15 — LEASES</u>

The Company has nine operating leases, five in DFW, two in Mount Pleasant, South Carolina and two in Chandler, Arizona. ECHG has two leases in Chandler, Arizona and two leases in DFW, with a total of approximately 246,000 square feet under lease. DGSE has two leases in Charleston, South Carolina and three leases in DFW, with a total of approximately 26,000 square feet under lease.

All nine leases are triple net leases that pay their proportionate amount of common area maintenance, property taxes and property insurance. Leasing costs for Fiscal 2022 and Fiscal 2021 was $2,597,528 and $2,109,104, respectively. These lease costs consist of a combination of minimum lease payments and variable lease costs.

As of December 31, 2022, the weighted average remaining lease term and weighted average discount rate for operating leases was 3.29 years and 4.4%, respectively. The Company's future operating lease obligations that have not yet commenced are immaterial. The cash paid for operating lease liabilities for Fiscal 2022 and Fiscal 2021 was $2,564,815 and $2,300,630, respectively.

Future annual minimum lease payments as of December 31, 2022:

---

| | |
|:---|:---|
|  | Operating<br>Leases |
| <u>DGSE</u> |  |
| 2023 | 541984 |
| 2024 | 552414 |
| 2025 | 412269 |
| 2026 | 355000 |
| 2027 and thereafter | 50114 |
| Total minimum lease payments | 1911781 |
| Less imputed interest | (146921) |
| &nbsp;&nbsp;&nbsp;&nbsp;DGSE Sub-Total | 1764860 |
| <u>ECHG</u> |  |
| 2023 | 1357381 |
| 2024 | 1396129 |
| 2025 | 1321297 |
| 2026 | 474326 |
| 2027 and thereafter | 33454 |
| Total minimum lease payments | 4582587 |
| Less imputed interest | (292050) |
| &nbsp;&nbsp;&nbsp;&nbsp;ECHG Sub-Total | 4290537 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total | 6055397 |
| &nbsp;&nbsp;&nbsp;&nbsp;Current portion | 1686997 |
|  | $4368400 |

---

---

| |
|:---|
| 53 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 8

<u>NOTE 16 — RELATED-PARTY TRANSACTIONS</u>

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

<u>NOTE 17 — DEFINED CONTRIBUTION PLAN</u>

The Company sponsors a defined contribution 401(k) plan that is subject to the provisions of the Employee Retirement Income Security Act of 1974. The plan covers substantially all employees who have completed one month of service. Participants can contribute up to 15% of their annual salary subject to Internal Revenue Service limitations. The Company matched 10% of the employee's contribution up to 6% of the employee's salary for the Fiscal 2022 and Fiscal 2021 plans.

<u>NOTE 18 — SUBSEQUENT EVENTS</u>

On January 17, 2023, the remaining balance of the notes receivable from the CExchange Transaction, of $578,250, was received. With the receipt of these funds, an additional amount of $94,115 was received, representing interest receivable on the notes. Interest receivable was written off against the reserve in Fiscal 2021. Since the interest receivable was written-off against the reserve in Fiscal 2021, they are to be recognized when they are received. Therefore, the additional interest received of $94,115 will be recognized in Fiscal 2023.

---

| |
|:---|
| 54 |
| *[Table of Cntents](#TOCF)* |

---

<u>PART II</u>

Item 9, 9A

**ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE** 

None.

**ITEM 9A. CONTROLS AND PROCEDURES** 

**Evaluation of Disclosure Controls and Procedures**

As required by rule 13a-15(b) and Rule 15d-15(b) under the Exchange Ace, our management, with the participation of our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2022. We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of December 31, 2022, the Company's principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective to be provide the reasonable assurance of the foregoing.

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

**Management's Annual Report on Internal Control Over Financial Reporting**

Our management has the responsibility for establishing and maintaining adequate internal control over financial reporting and for our assessment of the effectiveness of internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, and with respect to us as a process designed by, or under the supervision of, the Company's principal executive and principal financial officer and effected by the Board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles that achieve certain specified controls over the records of business transactions.

Because of its inherent limitations, internal control over financial reporting only provides reasonable assurance with respect to financial statement presentation and preparation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on its assessments, management has concluded that, as of December 31, 2022, the internal control over financial reporting is effective.

The Company is not required to provide an attestation report of our registered public accounting firm pursuant to rules promulgated by the SEC.

**Changes in Internal Control Over Financial Reporting**

During the fiscal year ended December 31, 2022, no changes occurred that the Company's management believes have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.

---

| |
|:---|
| 55 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

Item 9B, 9C

**ITEM 9B. OTHER INFORMATION** 

None.

**ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS**

None.

---

| |
|:---|
| 56 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

Item 9B, 9C

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders of

Envela Corporation and Subsidiaries

**Opinion on the Financial Statements**

We have audited the accompanying consolidated balance sheets of Envela Corporation and subsidiaries (the "Company") as of December 31, 2022 and 2021, and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

**Basis for Opinion**

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

---

| |
|:---|
| 57 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART II</u>

**Critical Audit Matter**

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

***Realizability of Deferred Tax Assets***

*Description of the Matter*

As discussed in Note 14 to the consolidated financial statements, the Company considers the need for a valuation allowance based on their assessment of the realizability of the Company's deferred tax assets. As of December 31, 2022, the balance of the Company's net deferred tax assets was approximately $1.5 million. A significant portion of the deferred tax assets are subject to future expiration. Management performs an analysis to determine whether sufficient future taxable income will be generated to support the realization of deferred tax assets prior to expiration in order to determine the need for a valuation allowance adjustment. This analysis involves a high degree of subjectivity and significant judgment.

The principal considerations for our procedures relating to the realizability of deferred tax assets as a critical audit matter is that there was significant judgment by management in evaluating how the current economic environment could impact management's projections of future taxable income. This required significant auditor judgment to evaluate management's analysis of the overall realizability of deferred tax assets.

*How We Addressed the Matter in Our Audit*

The primary procedures we performed included evaluating the quantitative and qualitative analysis management prepares to determine realizability of deferred tax assets. This analysis includes consideration of past years income, taxable income as well as management's consideration of how the current economic environment could impact future operating results.

/s/Whitley Penn LLP

We have served as the Company's auditor since 2012.

Dallas, Texas

March 16, 2023

---

| |
|:---|
| 58 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART III</u>

Items 10, 11, 12, 13, 14

**PART III**

**ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE** 

Information with respect to this Item will be included in our definitive Proxy Statement with respect to our 2023 Annual Meeting, which we intend to file with the SEC no later than 120 days after the end of the fiscal year covered by this annual report on Form 10-K.

**ITEM 11. EXECUTIVE COMPENSATION** 

Information with respect to this Item will be included in our definitive Proxy Statement with respect to our 2023 Annual Meeting, which we intend to file with the SEC no later than 120 days after the end of the fiscal year covered by this annual report on Form 10-K.

**ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS** 

Information with respect to this Item will be included in our definitive Proxy Statement with respect to our 2023 Annual Meeting, which we intend to file with the SEC no later than 120 days after the end of the fiscal year covered by this annual report on Form 10-K.

**ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE** 

Information with respect to this Item will be included in our definitive Proxy Statement with respect to our 2023 Annual Meeting, which we intend to file with the SEC no later than 120 days after the end of the fiscal year covered by this annual report on Form 10-K.

**ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES** 

Information with respect to this Item will be included in our definitive Proxy Statement with respect to our 2023 Annual Meeting, which we intend to file with the SEC no later than 120 days after the end of the fiscal year covered by this annual report on Form 10-K.

---

| |
|:---|
| 59 |
| *[**Table of Contents**](#TOC)* |

---

<u>Part IV</u>

Item 15

**PART IV**

**ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES**

**Documents filed as part of this report**

**Index to Financial Statements**

---

| | |
|:---|:---|
| Note: | All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto. The information required by this Item pursuant to Item 601 of Regulation S-K is set forth on the financial statement index and exhibit index that follows the signature page of this report. |

---

Index to Exhibits

---

| | |
|:---|:---|
| **Index to Financial Statements** | **Page** |
| [Consolidated Income Statements](#IS) | 30 |
| [Consolidated Balance Sheets](#BS) | 31 |
| [Consolidated Cash Flows Statements](#CF) | 32 |
| [Consolidated Stockholders' Equity Statements](#SE) | 33 |
| [Notes to Consolidated Financial Statements](#NT) | 34 |
| [Report of Independent Registered Public Accounting Firm (PCAOB ID 726)](#RT) | 57 |

---

---

| |
|:---|
| 60 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART IV</u>

Item 15

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Exhibit** <br>**Number** | **Description** | **Filed**<br>**Herein** | **Incorporated by Reference** | **Form** | **Date Filed with SEC** | **Exhibit Number** |
| [3.1](http://www.sec.gov/Archives/edgar/data/701719/000165495421005160/ela_ex31.htm) | [Amended and Restated By-laws, dated March 23, 2021](http://www.sec.gov/Archives/edgar/data/701719/000165495421005160/ela_ex31.htm) |  | X | 10-Q | May 5, 2021 | 3.1 |
| [3.2](http://www.sec.gov/Archives/edgar/data/701719/000149315219019268/ex3-1.htm) | [Certificate of Amendment to Articles of Incorporation, Dated December 12, 2019](http://www.sec.gov/Archives/edgar/data/701719/000149315219019268/ex3-1.htm) |  | X | 8-K | December 16, 2019 | 3.1 |
| [4.1](http://www.sec.gov/Archives/edgar/data/701719/000114420407010016/v065446_ex4-1.htm) | [Specimen Common Stock Certificate](http://www.sec.gov/Archives/edgar/data/701719/000114420407010016/v065446_ex4-1.htm) |  | X | S-4 | February 26, 2007 | 4.1 |
| 4.2  | Description of Capital Stock | X |  |  |  |  |
| [10.1](http://www.sec.gov/Archives/edgar/data/701719/000114420411053548/v234728_ex10-5.htm) | [Registration Rights Agreement, dated September 12, 2011, by and between DGSE Companies, Inc. and certain shareholders](http://www.sec.gov/Archives/edgar/data/701719/000114420411053548/v234728_ex10-5.htm) |  | X | 8-K | September 16, 2011 | 10.5 |
| [10.2](http://www.sec.gov/Archives/edgar/data/701719/000114420411053548/v234728_ex10-7.htm) | [Registration Rights Agreement, dated September 12, 2011, by and between DGSE Companies, Inc. and NTR Metals, LLC](http://www.sec.gov/Archives/edgar/data/701719/000114420411053548/v234728_ex10-7.htm) |  | X | 8-K | September 16, 2011 | 10.7 |
| [10.3](http://www.sec.gov/Archives/edgar/data/701719/000114420411060075/v238479_ex10-2.htm) | [Option Grant Agreement, dated October 25, 2011, by and between DGSE Companies, Inc. and NTR Metals, LLC](http://www.sec.gov/Archives/edgar/data/701719/000114420411060075/v238479_ex10-2.htm) |  | X | 8-K | October 28, 2011 | 10.2 |
| [10.4](http://www.sec.gov/Archives/edgar/data/701719/000114420416081284/v431691_ex10-1.htm) | [Form of Indemnification Agreement between DGSE Companies, Inc. and each Officer and director of DGSE](http://www.sec.gov/Archives/edgar/data/701719/000114420416081284/v431691_ex10-1.htm) |  | X | 8-K | February 12, 2016 | 10.1 |
| [10.5](http://www.sec.gov/Archives/edgar/data/0000701719/000114420416139147/v454735_ex10-1.htm) | [Registration Rights Agreement by and among DGSE Companies, Inc., Elemetal, LLC, and NTR Metals, LLC dated as of December 9, 2016](http://www.sec.gov/Archives/edgar/data/0000701719/000114420416139147/v454735_ex10-1.htm) |  | X | 8-K | December 9, 2016 | 10.1 |
| [10.6](http://www.sec.gov/Archives/edgar/data/701719/000165495420011867/dgse_ex103.htm) | [Purchase agreement, dated September 14, 2020, for the Irving, Texas office building purchased by Envela Corporation](http://www.sec.gov/Archives/edgar/data/701719/000165495420011867/dgse_ex103.htm) |  | X<br>| 10-Q | October 5, 2020 | 10.3 |
| [10.7](http://www.sec.gov/Archives/edgar/data/701719/000165495421008518/ela_ex101.htm) | [Purchase Agreement Dated May 6, 2021, for The Frisco, Texas location,](http://www.sec.gov/Archives/edgar/data/701719/000165495421008518/ela_ex101.htm)<br>[by and between DGSE, LLC and KMTHT Holding, LLC](http://www.sec.gov/Archives/edgar/data/701719/000165495421008518/ela_ex101.htm) |  | X | 10-Q | August 4, 2021 | 10.1  |
| [10.8](http://www.sec.gov/Archives/edgar/data/701719/000114420414018387/v371696_ex21-1.htm) | [2016 Long-Term Incentive Plan](http://www.sec.gov/Archives/edgar/data/701719/000114420414018387/v371696_ex21-1.htm) |  | X | 10-K/ | March 27, 2014 | 21.1 |
| [21.1](ela_ex211.htm) | [Subsidiaries of the Registrant](ela_ex211.htm) | X |  | 10-K | March 16, 2023 | 21.1 |
| [23.1](ela_ex231.htm) | [Consent of Whitley Penn LLP](ela_ex231.htm) | X |  |  |  |  |
| [31.1](ela_ex311.htm) | [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](ela_ex311.htm) | X |  |  |  |  |
| [31.2](ela_ex312.htm) | [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](ela_ex312.htm) | X |  |  |  |  |
| [32.1](ela_ex321.htm) | [Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to](ela_ex321.htm)<br>[Section 906 of the Sarbanes-Oxley Act of 2002 by John R. Loftus](ela_ex321.htm) | X |  |  |  |  |
| [32.2](ela_ex322.htm) | [Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to](ela_ex322.htm)<br>[Section 906 of the Sarbanes-Oxley Act of 2002 by Bret A. Pedersen](ela_ex322.htm) | 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 |  |  |  |  |

---

---

| |
|:---|
| 61 |
| *[**Table of Contents**](#TOC)* |

---

<u>PART IV</u>

Item 16

**ITEM 16. FORM 10-K SUMMARY**

None.

---

| |
|:---|
| 62 |
| *[**Table of Contents**](#TOC)* |

---

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ENVELA CORPORATION

---

| | | |
|:---|:---|:---|
| By: | /s/ JOHN R. LOFTUS | Dated: March 16, 2023 |
|  | John R. Loftus<br>Chairman of the Board,<br>Chief Executive Officer,<br>President<br>(Principal Executive Officer) |  |

---

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

---

| | | |
|:---|:---|:---|
| By: | /s/ JOHN R. LOFTUS | Dated: March 16, 2023 |
|  | John R. Loftus<br>Chairman of the Board,<br>Chief Executive Officer,<br>President<br>(Principal Executive Officer) |  |
| By: | /s/ BRET A. PEDERSEN | Dated: March 16, 2023 |
|  | Bret A. Pedersen<br>Chief Financial Officer<br>(Principal Accounting Officer) |  |
| By: | /s/ RICHARD D. SCHEPP | Dated: March 16, 2023 |
|  | Richard D. Schepp<br>Director |  |
| By: | /s/ ALEXANDRA C. GRIFFIN | Dated: March 16, 2023 |
|  | Alexandra C. Griffin<br>Director |  |
| By: | /s/ JIM R. RUTH | Dated: March 16, 2023 |
|  | Jim R. Ruth<br>Director |  |
| By: | /s/ ALLISON M. DeSTEFANO | Dated: March 16, 2023 |
|  | Allison M. DeStefano<br>Director |  |

---

## Exhibit 21.1

**EXHIBIT 21.1**

**SUBSIDIARIES OF ENVELA CORPORATION**<sup>i</sup>

On December 31, 2022

---

| | |
|:---|:---|
| **Name of Subsidiary** | **State in Which Organized** |
| Avail Recovery Solutions, LLC | Delaware |
| CEX Holdings, LLC | Texas |
| Charleston Gold & Diamond Exchange, Inc. | South Carolina |
| DGSE, LLC | Delaware |
| ECHG, LLC | Delaware |
| Echo Environmental Holdings, LLC | Delaware |
| ITAD USA Holdings, LLC | Delaware |
| QOEX, LLC | Texas |
| Teladvance, LLC | Delaware |

---

<sup>i</sup> All of the subsidiaries in the above list are wholly owned, either directly or indirectly, by Envela Corporation. Certain subsidiaries are not listed since, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary on December 31, 2022.

## Exhibit 23.1

**EXHIBIT 23.1**

**CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

We consent to the incorporation by reference in the Registration Statement No. 333-220852 on Form S-3 of Envela Corporation, of our report dated March 16, 2023, relating to the consolidated financial statements appearing in this Annual Report on Form 10-K of Envela Corporation for the year ended December 31, 2022.

/s/ Whitley Penn LLP

Dallas, Texas

March 16, 2023

## Exhibit 31.1

**EXHIBIT 31.1**

**CERTIFICATION OF CHIEF EXECUTIVE OFFICER**

**PURSUANT TO**

**RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, IMPLEMENTING SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

I, John R. Loftus, certify that:

1. I have reviewed this annual report on Form 10-K of Envela Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 16, 2023

---

| | |
|:---|:---|
| By: | /s/ JOHN R. LOFTUS |
|  | John R. Loftus |
|  | Chief Executive Officer |
|  | President(Principal Executive Officer) |

---

## Exhibit 31.2

**EXHIBIT 31.2**

**CERTIFICATION OF CHIEF FINANCIAL OFFICER**

**PURSUANT TO**

**RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, IMPLEMENTING SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

I, Bret A. Pedersen, certify that:

1. I have reviewed this annual report on Form 10-K of Envela Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 16, 2023

---

| | |
|:---|:---|
| By: | /s/ BRET A. PEDERSEN |
|  | Bret A. Pedersen |
|  | Chief Financial Officer<br> (Principal Accounting Officer) |

---

## Exhibit 32.1

**EXHIBIT 32.1**

**CERTIFICATION OF CHIEF EXECUTIVE OFFICER**

**PURSUANT TO**

**18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

I, John R. Loftus, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Envela Corporation on Form 10-K for the fiscal year ended December 31, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents in all material respects the financial condition and results of operations of Envela Corporation.

March 16, 2023

---

| | |
|:---|:---|
| By: | /s/ JOHN R. LOFTUS |
|  | John R. Loftus |
|  | Chief Executive Officer<br> (Principal Executive Officer) |

---

A signed original of this written statement required by Section 906 has been provided to Envela Corporation and will be retained by Envela Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

## Exhibit 32.2

**EXHIBIT 32.2**

**CERTIFICATION OF CHIEF FINANCIAL OFFICER**

**PURSUANT TO**

**18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

I, Bret A. Pedersen, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Envela Corporation on Form 10-K for the fiscal year ended December 31, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents in all material respects the financial condition and results of operations of Envela Corporation.

March 16, 2023

---

| | |
|:---|:---|
| By: | /s/ BRET A. PEDERSEN |
|  | Bret A. Pedersen |
|  | Chief Financial Officer<br> (Principal Accounting Officer) |

---

A signed original of this written statement required by Section 906 has been provided to Envela Corporation and will be retained by Envela Corporation and furnished to the Securities and Exchange Commission or its staff upon request.