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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________

FORM 10-Q

________________________

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the quarterly period ended June 30, 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

________________________

ENVELA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

________________________

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

1901 GATEWAY DRIVE, STE 100, IRVING, TX 75038

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(972) 587-4049

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

www.envela.com

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

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

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

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

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

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

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

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

As of August 3, 2022, the registrant had 26,924,631 shares of common stock outstanding.

TABLE OF CONTENTS

PART I. | FINANCIAL INFORMATION |  | Page No. |
Item 1. | Financial Statements |  | 3 |
| Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2022 and 2021 (unaudited) |  | 3 |
| Condensed Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021 |  | 4 |
| Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited) |  | 5 |
| Condensed Consolidated Statements of Stockholders’ Equity for the three months ended June 30, 2021 and 2022 (unaudited) |  | 6 |
| Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2021 and 2022 (unaudited) |  | 7 |
| Notes to Condensed Consolidated Financial Statements (unaudited) |  | 8 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 27 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |  | 36 |
Item 4 | Controls and Procedures |  | 36 |
PART II. | OTHER INFORMATION |  |  |
Item 1 | Legal Proceedings |  | 37 |
Item 1A. | Risk Factors |  | 37 |
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds |  | 37 |
Item 3. | Defaults Upon Senior Securities |  | 37 |
Item 4. | Mine Safety Disclosures |  | 37 |
Item 5. | Other Information |  | 37 |
Item 6. | Exhibits |  | 38 |
SIGNATURES |  | 39 |

2
Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
(Unaudited) |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |
Sales |  | $ | 42,639,718 |  |  | $ | 33,724,006 |  |  | $ | 90,054,816 |  |  | $ | 59,214,447 |
Cost of goods sold |  |  | 31,161,718 |  |  |  | 26,596,116 |  |  |  | 68,865,782 |  |  |  | 45,782,293 |
Gross margin |  |  | 11,478,000 |  |  |  | 7,127,890 |  |  |  | 21,189,034 |  |  |  | 13,432,154 |
Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling, General & Administrative Expenses |  |  | 7,083,903 |  |  |  | 4,831,225 |  |  |  | 13,643,658 |  |  |  | 8,984,454 |
Depreciation and Amortization |  |  | 279,516 |  |  |  | 216,219 |  |  |  | 571,463 |  |  |  | 421,131 |
Total operating expenses |  |  | 7,363,419 |  |  |  | 5,047,444 |  |  |  | 14,215,121 |  |  |  | 9,405,585 |
Operating income |  |  | 4,114,581 |  |  |  | 2,080,446 |  |  |  | 6,973,913 |  |  |  | 4,026,569 |
Other income (expense), net |  |  | (95,429 | ) |  |  | 283,055 |  |  |  | (154,005 | ) |  |  | 554,996 |
Interest expense |  |  | 121,042 |  |  |  | 177,704 |  |  |  | 244,281 |  |  |  | 356,726 |
Income before income taxes |  |  | 3,898,110 |  |  |  | 2,185,797 |  |  |  | 6,575,627 |  |  |  | 4,224,839 |
Income tax expense |  |  | 50,252 |  |  |  | 32,685 |  |  |  | 80,544 |  |  |  | 63,455 |
Net income |  | $ | 3,847,858 |  |  | $ | 2,153,112 |  |  | $ | 6,495,083 |  |  | $ | 4,161,384 |
Basic earnings per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 0.14 |  |  | $ | 0.08 |  |  | $ | 0.24 |  |  | $ | 0.15 |
Diluted earnings per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 0.14 |  |  | $ | 0.08 |  |  | $ | 0.24 |  |  | $ | 0.15 |
Weighted average shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 26,924,631 |  |  |  | 26,924,381 |  |  |  | 26,924,631 |  |  |  | 26,924,381 |
Diluted |  |  | 26,939,631 |  |  |  | 26,939,631 |  |  |  | 26,939,631 |  |  |  | 26,939,631 |

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

3
Table of Contents

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

|  | June 30, |  |  | December 31, |
|  | 2022 |  |  | 2021 |
Assets |  | (unaudited) |  |  |  |
Current assets: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 13,935,476 |  |  | $ | 10,138,148 |
Trade receivables, net of allowances |  |  | 5,688,882 |  |  |  | 7,166,533 |
Inventories |  |  | 17,804,096 |  |  |  | 14,048,436 |
Current right-of-use assets from operating leases |  |  | 1,649,034 |  |  |  | 1,604,736 |
Prepaid expenses |  |  | 1,420,656 |  |  |  | 439,038 |
Other current assets |  |  | 265,866 |  |  |  | 969,624 |
Total current assets |  |  | 40,764,010 |  |  |  | 34,366,515 |
Property and equipment, net |  |  | 9,662,401 |  |  |  | 9,806,188 |
Goodwill |  |  | 6,357,453 |  |  |  | 6,140,465 |
Intangible assets, net |  |  | 2,800,495 |  |  |  | 3,024,245 |
Operating lease right-of-use assets |  |  | 5,039,806 |  |  |  | 5,692,141 |
Other assets |  |  | 186,761 |  |  |  | 237,761 |
Total assets |  | $ | 64,810,926 |  |  | $ | 59,267,315 |
Liabilities and stockholders’ equity |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Accounts payable-trade |  | $ | 3,303,090 |  |  | $ | 2,488,396 |
Line of credit |  |  | - |  |  |  | 1,700,000 |
Notes payable |  |  | 1,241,480 |  |  |  | 1,065,794 |
Current operating lease liabilities |  |  | 1,631,270 |  |  |  | 1,573,824 |
Accrued expenses |  |  | 1,741,794 |  |  |  | 1,789,366 |
Customer deposits and other liabilities |  |  | 2,198,587 |  |  |  | 1,179,224 |
Total current liabilities |  |  | 10,116,221 |  |  |  | 9,796,604 |
Notes payable, less current portion |  |  | 15,350,254 |  |  |  | 15,970,337 |
Long-term operating lease liabilities, less current portion |  |  | 5,222,051 |  |  |  | 5,873,057 |
Total liabilities |  |  | 30,688,526 |  |  |  | 31,639,998 |
Commitments and contingencies |  |  |  |  |  |  |  |
Stockholders’ equity: |  |  |  |  |  |  |  |
Preferred stock, $0.01 par value; 5,000,000 shares authorized; |  |  |  |  |  |  |  |
no shares issued and outstanding |  |  | - |  |  |  | - |
Common stock, $0.01 par value; 60,000,000 shares authorized; |  |  |  |  |  |  |  |
26,924,631 shares issued and outstanding |  |  | 269,246 |  |  |  | 269,246 |
Additional paid-in capital |  |  | 40,173,000 |  |  |  | 40,173,000 |
Accumulated deficit |  |  | (6,319,846 | ) |  |  | (12,814,929 | )
Total stockholders’ equity |  |  | 34,122,400 |  |  |  | 27,627,317 |
Total liabilities and stockholders’ equity |  | $ | 64,810,926 |  |  | $ | 59,267,315 |

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

4
Table of Contents

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, |  | 2022 |  |  | 2021 |
|  | (Unaudited) |  |  | (Unaudited) |
Operations |  |  |  |  |  |
Net income |  | $ | 6,495,083 |  |  | $ | 4,161,384 |
Adjustments to reconcile net income to net cash provided by operations: |  |  |  |  |  |  |  |
Depreciation, amortization, and other |  |  | 571,463 |  |  |  | 421,131 |
Bad debt expense |  |  | 25,000 |  |  |  | 6,249 |
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Trade receivables |  |  | 1,452,651 |  |  |  | (3,365,999 | )
Inventories |  |  | (3,755,662 | ) |  |  | (2,579,991 | )
Prepaid expenses |  |  | (981,616 | ) |  |  | (169,373 | )
Other assets |  |  | 754,759 |  |  |  | (146,042 | )
Accounts payable and accrued expenses |  |  | 767,122 |  |  |  | 1,574,520 |
Operating leases |  |  | 14,478 |  |  |  | 20,493 |
Customer deposits and other liabilities |  |  | 1,019,363 |  |  |  | 341,260 |
Net cash provided by operations |  |  | 6,362,641 |  |  |  | 263,632 |
Investing |  |  |  |  |  |  |  |
Investment in note receivable |  |  | - |  |  |  | (654,958 | )
Purchase of property and equipment |  |  | (203,929 | ) |  |  | (484,594 | )
Acquisition of CExchange assets and liabilities, net of cash acquired |  |  | - |  |  |  | 13,136 |
Adjustment to the purchase price of the Avail Transaction |  |  | (216,988 | ) |  |  | - |
Net cash used in investing |  |  | (420,917 | ) |  |  | (1,126,416 | )
Financing |  |  |  |  |  |  |  |
Payments on notes payable, related party |  |  | - |  |  |  | (144,787 | )
Payments on notes payable |  |  | (444,396 | ) |  |  | (79,353 | )
Payments on line of credit |  |  | (1,700,000 | ) |  |  | - |
Net cash used in financing |  |  | (2,144,396 | ) |  |  | (224,140 | )
Net change in cash and cash equivalents |  |  | 3,797,328 |  |  |  | (1,086,924 | )
Cash and cash equivalents, beginning of period |  |  | 10,138,148 |  |  |  | 9,218,036 |
Cash and cash equivalents, end of period |  | $ | 13,935,476 |  |  | $ | 8,131,112 |
Supplemental Disclosures |  |  |  |  |  |  |  |
Cash paid during the period for: |  |  |  |  |  |  |  |
Interest |  | $ | 252,431 |  |  | $ | 359,253 |
Income taxes |  | $ | 98,000 |  |  | $ | 56,900 |
Non cash activites: |  |  |  |  |  |  |  |
Acquisition of CExchange assets and liabilities |  | $ | - |  |  | $ | 1,555,892 |

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

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ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months ended June 30, 2021 and 2022

(Unaudited)

|  |  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  | Total |
|  | Common Stock |  |  | Preferred Stock |  |  |  | Paid-in |  |  |  | Accumulated |  |  |  | Stockholders' |
|  | Shares |  |  | Amount |  |  | Shares |  |  | Amount |  |  |  | Capital |  |  |  | Deficit |  |  |  | Equity |
Balances at March 31, 2021 |  |  | 26,924,381 |  |  | $ | 269,246 |  |  |  | - |  |  | $ | - |  |  | $ | 40,173,000 |  |  | $ | (20,855,532 | ) |  | $ | 19,586,714 |
Net Income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,153,112 |  |  |  | 2,153,112 |
Balances at June 30, 2021 |  |  | 26,924,381 |  |  | $ | 269,246 |  |  |  | - |  |  | $ | - |  |  | $ | 40,173,000 |  |  | $ | (18,702,420 | ) |  | $ | 21,739,826 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  |  |  | Total |
|  | Common Stock |  |  |  | Preferred Stock |  |  |  | Paid-in |  |  |  | Accumulated |  |  |  | Stockholders' |
|  |  | Shares |  |  | Amount |  |  |  | Shares |  |  |  | Amount |  |  |  | Capital |  |  |  | Deficit |  |  |  | Equity |
Balances at March 31, 2022 |  |  | 26,924,631 |  |  | $ | 269,246 |  |  |  | - |  |  | $ | - |  |  | $ | 40,173,000 |  |  | $ | (10,167,704 | ) |  | $ | 30,274,542 |
Net Income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,847,858 |  |  |  | 3,847,858 |
Balances at June 30, 2022 |  |  | 26,924,631 |  |  | $ | 269,246 |  |  |  | - |  |  | $ | - |  |  | $ | 40,173,000 |  |  | $ | (6,319,846 | ) |  | $ | 34,122,400 |

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

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ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Six Months ended June 30, 2021 and 2022

(Unaudited)

|  |  |  |  | Additional |  |  |  |  |  | Total |
|  | Common Stock |  |  | Preferred Stock |  |  |  | Paid-in |  |  |  | Accumulated |  |  |  | Stockholders' |
|  | Shares |  |  | Amount |  |  | Shares |  |  | Amount |  |  |  | Capital |  |  |  | Deficit |  |  |  | Equity |
Balances at December 31, 2020 |  |  | 26,924,631 |  |  | $ | 269,246 |  |  |  | - |  |  | $ | - |  |  | $ | 40,173,000 |  |  | $ | (22,863,804 | ) |  | $ | 17,578,442 |
Net Income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4,161,384 |  |  |  | 4,161,384 |
Balances at June 30, 2021 |  |  | 26,924,631 |  |  | $ | 269,246 |  |  |  | - |  |  | $ | - |  |  | $ | 40,173,000 |  |  | $ | (18,702,420 | ) |  | $ | 21,739,826 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  |  |  | Total |
|  | Common Stock |  | Preferred Stock |  |  | Paid-in |  |  |  | Accumulated |  |  |  | Stockholders' |
|  | Shares |  |  | Amount |  |  | Shares |  |  | Amount |  |  |  | Capital |  |  |  | Deficit |  |  |  | Equity |
Balances at December 31, 2021 |  |  | 26,924,631 |  |  | $ | 269,246 |  |  |  | - |  |  | $ | - |  |  | $ | 40,173,000 |  |  | $ | (12,814,929 | ) |  | $ | 27,627,317 |
Net Income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 6,495,083 |  |  |  | 6,495,083 |
Balances at June 30, 2022 |  |  | 26,924,631 |  |  | $ | 269,246 |  |  |  | - |  |  | $ | - |  |  | $ | 40,173,000 |  |  | $ | (6,319,846 | ) |  | $ | 34,122,400 |

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

The interim condensed consolidated financial statements of Envela Corporation, a Nevada corporation, and its subsidiaries (together with its subsidiaries, the “Company” or “Envela”), included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), including under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the SEC’s rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The Company suggests that these financial statements be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 16, 2022 (the “2021 Annual Report”). In the opinion of the management of the Company, the accompanying unaudited interim financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary to present fairly its results of operations and cash flows for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. Certain reclassifications were made to the prior year's consolidated financial statements to conform to the current year presentation. The information provided as of June 30, 2022 in these notes to the interim condensed consolidated financial statements is unaudited.

NOTE 2 — PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS

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

DGSE primarily buys and resells or recycles luxury hard assets like jewelry, diamonds, gemstones, fine watches, rare coins and related collectibles, precious-metal bullion products, gold, silver and other precious-metals. DGSE operates seven jewelry stores at both the retail and wholesale levels in Texas and South Carolina. Buying and selling items for their precious-metals content is a major method by which DGSE markets itself. DGSE also offers jewelry repair services, custom-made jewelry and consignment items, and maintains relationships with refiners for precious-metal items that are not appropriate for resale. The Company also maintains a presence in the retail market through its websites, www.dgse.com and www.cgdeinc.com.

ECHG, through its subsidiaries, primarily buys electronic components from business and other organizations, such as school districts, for end-of-life recycling and resale, or to add life to electronic devices by data destruction and refurbishment for reuse. ECHG also conducts such recycling and resale at the retail level. Echo focuses on end-of-life electronics recycling and sustainability and ITAD USA provides IT equipment disposition, including compliance and data sanitization services. Teladvance, CEX and Avail operate as value-added resellers by providing offerings and services to companies looking either to upgrade capabilities or dispose of equipment. Like DGSE, ECHG also maintains relationships with refiners or recyclers to which it sells valuable materials it extracts from electronics and IT equipment that are not appropriate for resale or reuse. ECHG’s customers are companies and organizations that are based domestically and internationally.

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For additional information on the businesses of both DGSE and ECHG, see “Item 1. Business – Operating Segments” in the Company’s 2021 Annual Report.

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

NOTE 3 — ACCOUNTING POLICIES AND ESTIMATES

Financial Instruments

The carrying amounts reported in the condensed consolidated balance sheets for cash equivalents, trade receivables, prepaid expenses, other current assets, accounts payable, accrued expenses and customer deposits and other liabilities approximate fair value because of the immediate or short-term nature of these financial instruments. Notes payable and line of credit approximate fair value due to the market interest rate charged.

Earnings Per Share

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

Goodwill

Goodwill is not amortized but evaluated for impairment on an annual basis during the fourth quarter of our fiscal year, or earlier if events or circumstances indicate the carrying value may be impaired. The Company’s goodwill is related to ECHG only and not the entire Company. ECHG has its own, separate financial information to perform goodwill impairment testing at least annually or if events indicate that those assets may be impaired. As a result of the current market and economic conditions related to the coronavirus pandemic (“COVID-19”) and the war between Ukraine and Russia, in accordance with step 1 of the guidelines set forth in ASC 350-20-35-3A, the Company concluded there were no impairments of goodwill that resulted from those triggering events as of June 30, 2022. The Company will continue to evaluate goodwill for the ECHG segment. For tax purposes, goodwill is amortized and deductible over fifteen years.

ECHG goodwill was allocated in connection with three acquisitions of the assets now held by Echo on May 20, 2019 (the “Echo Transaction”), of the assets now held by Teladvance on June 9, 2021 (the “CExchange Transaction”) and of the assets now held by Avail on October 29, 2021 (the “Avail Transaction”). The preliminary goodwill associated with the Avail Transaction was $3,491,285. There was an adjustment made to goodwill concerning the Avail Transaction from an additional cash payment made during the three months ending June 30, 2022 of $216,988, bringing the total goodwill for the Avail Transaction to $3,708,273 as of June 30, 2022. There have been no other adjustments or impairment charges to goodwill. As of June 30, 2022 and December 31 2021, goodwill was $6,357,453 and $6,140,465, respectively.

Recent Accounting Pronouncements

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

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

NOTE 4 — INVENTORIES

A summary of inventories is as follows:

|  | June 30, |  |  | December 31, |
|  | 2022 |  |  | 2021 |
DGSE |  |  |  |  |  |
Resale |  | $ | 15,964,881 |  |  | $ | 10,422,072 |
Recycle |  |  | 15,791 |  |  |  | 11,995 |
Subtotal |  |  | 15,980,672 |  |  |  | 10,434,067 |
ECHG |  |  |  |  |  |  |  |
Resale |  |  | 1,236,523 |  |  |  | 3,350,159 |
Recycle |  |  | 586,901 |  |  |  | 264,210 |
Subtotal |  |  | 1,823,424 |  |  |  | 3,614,369 |
|  | $ | 17,804,096 |  |  | $ | 14,048,436 |

NOTE 5 — ACQUISITION

On October 29, 2021, ECHG entered into the Avail Transaction to purchase all of the assets, liabilities and rights and interests of Avail for $4,500,000. The purchase was facilitated by an initial payment of $2,500,000 at closing, and the remaining $2,000,000 to be paid out by 12 quarterly payments starting April 1, 2022, of $166,667 each. See Note 14 to our consolidated financial statements for more information on this loan. The installment note payable for the Avail Transaction imputed at 3.1% interest.

As part of the Avail Transaction, goodwill was preliminarily recorded as $3,491,284, which is 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 in connection with the Avail Transacton adjusting the goodwill and purchase price amount as shown in the preliminary purchase price allocation in the following table. The additional payment is not part of the installment note payable of $2,000,000 from the initial Avail Transaction. The Company’s goodwill is related to the ECHG segment. ECHG has its own separate financial information to perform goodwill impairment testing. The Company will evaluate goodwill based on cash flows for the ECHG segment. For tax purposes, goodwill is amortized and deductible over 15 years.

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

|  | Consolidated Statement of Income For the Three Months Ended |  |  | Proforma Combined For the Three Months Ended |
|  | June 30, 2022 |  |  | June 30, 2021 |
|  | (unaudited) |  |  | (unaudited) |
Revenue |  | $ | 42,639,718 |  |  | $ | 35,525,133 |
Income from continuing operations |  | $ | 3,847,858 |  |  | $ | 2,482,863 |
Net income |  | $ | 3,847,858 |  |  | $ | 2,482,863 |
Basic net income per common share |  | $ | 0.14 |  |  | $ | 0.09 |
Diluted net income per common share |  | $ | 0.14 |  |  | $ | 0.09 |

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

|  | Consolidated Statement of Income For the Six Months Ended |  |  | Proforma Combined For the Six Months Ended |
|  | June 30, 2022 |  |  | June 30, 2021 |
|  | (unaudited) |  |  | (unaudited) |
Revenue |  | $ | 90,054,816 |  |  | $ | 62,635,207 |
Income from continuing operations |  | $ | 6,495,083 |  |  | $ | 4,837,758 |
Net income |  | $ | 6,495,083 |  |  | $ | 4,837,758 |
Basic net income per common share |  | $ | 0.24 |  |  | $ | 0.18 |
Diluted net income per common share |  | $ | 0.24 |  |  | $ | 0.18 |

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

The preliminary purchase price is allocated as follows:

Description |  | Amount |
Assets |  |  |
Cash |  | $ | 988,870 |
Account receivables |  |  | 395,144 |
Inventories |  |  | 486,736 |
Prepaid expenses |  |  | 93,727 |
Fixed assets - net |  |  | 247,038 |
Right-of-use assets |  |  | 609,511 |
Other assets |  |  | 13,268 |
Liabilities |  |  |  |
Account payables |  |  | (562,778 | )
Accrued liabilities |  |  | (653,289 | )
Operating lease liabilities |  |  | (609,511 | )
Net assets |  |  | 1,008,716 |
Goodwill |  |  | 3,708,272 |
Total Purchase Price |  | $ | 4,716,988 |

NOTE 6 — GOODWILL

The changes in goodwill is as follows:

|  | June 30, |  |  | December 31, |
|  | 2022 |  |  | 2021 |
Opening balance |  | $ | 6,140,465 |  |  | $ | 1,367,109 |
Additions (1) |  |  | 216,988 |  |  |  | 4,773,356 |
Goodwill |  | $ | 6,357,453 |  |  | $ | 6,140,465 |

(1) Additions ending December 31, 2021 totaling $4,773,356 are a combination of the CExchange Transaction on June 9, 2021, of $1,282,072, and the Avail Transaction on October 29, 2021, of $3,491,284. The addition ending June 30, 2022 is the additional cash payment concerning the Avail Transaction made on May 31, 2022.

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NOTE 7 — PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

|  | June 30, |  |  | December 31, |
|  | 2022 |  |  | 2021 |
DGSE |  |  |  |  |  |
Land |  | $ | 1,640,220 |  |  | $ | 1,640,220 |
Building and improvements |  |  | 2,781,903 |  |  |  | 2,764,529 |
Leasehold improvements |  |  | 1,450,695 |  |  |  | 1,450,695 |
Machinery and equipment |  |  | 1,056,315 |  |  |  | 1,056,315 |
Furniture and fixtures |  |  | 603,945 |  |  |  | 526,250 |
Vehicles |  |  | 22,859 |  |  |  | 22,859 |
|  |  | 7,555,937 |  |  |  | 7,460,868 |
Less: accumulated depreciation |  |  | (2,501,296 | ) |  |  | (2,343,923 | )
Sub-Total |  |  | 5,054,641 |  |  |  | 5,116,945 |
ECHG |  |  |  |  |  |  |  |
Building and improvements |  |  | 135,491 |  |  |  | 135,491 |
Machinery and equipment |  |  | 1,167,321 |  |  |  | 1,109,306 |
Furniture and fixtures |  |  | 145,950 |  |  |  | 145,950 |
|  |  | 1,448,762 |  |  |  | 1,390,747 |
Less: accumulated depreciation |  |  | (366,438 | ) |  |  | (212,147 | )
Sub-Total |  |  | 1,082,324 |  |  |  | 1,178,600 |
Envela |  |  |  |  |  |  |  |
Land |  |  | 1,106,664 |  |  |  | 1,106,664 |
Building and improvements |  |  | 2,502,216 |  |  |  | 2,456,324 |
Machinery and equipment |  |  | 28,626 |  |  |  | 23,676 |
|  |  | 3,637,506 |  |  |  | 3,586,664 |
Less: accumulated depreciation |  |  | (112,070 | ) |  |  | (76,021 | )
Sub-Total |  |  | 3,525,436 |  |  |  | 3,510,643 |
|  | $ | 9,662,401 |  |  | $ | 9,806,188 |

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NOTE 8 — INTANGIBLE ASSETS

Intangible assets consist of the following:

|  | June 30, |  |  | December 31, |
|  | 2022 |  |  | 2021 |
DGSE |  |  |  |  |  |
Domain names |  | $ | 41,352 |  |  | $ | 41,352 |
Point of sale system |  |  | 330,000 |  |  |  | 330,000 |
|  |  | 371,352 |  |  |  | 371,352 |
Less: accumulated amortization |  |  | (302,502 | ) |  |  | (269,502 | )
Subtotal |  |  | 68,850 |  |  |  | 101,850 |
ECHG |  |  |  |  |  |  |  |
Trademarks (1) |  |  | 1,483,000 |  |  |  | 1,483,000 |
Customer Contracts (1) |  |  | 1,873,000 |  |  |  | 1,873,000 |
Trademarks/Tradenames (2) |  |  | 114,000 |  |  |  | 114,000 |
Customer Relationships (2) |  |  | 345,000 |  |  |  | 345,000 |
|  |  | 3,815,000 |  |  |  | 3,815,000 |
Less: accumulated amortization |  |  | (1,083,355 | ) |  |  | (892,605 | )
Subtotal |  |  | 2,731,645 |  |  |  | 2,922,395 |
|  | $ | 2,800,495 |  |  | $ | 3,024,245 |

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

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

The following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2022:

|  | DGSE |  |  | ECHG |  |  | Total |
2022 (excluding the six months ending June 30, 2022) |  |  | 33,000 |  |  |  | 190,750 |  |  |  | 223,750 |
2023 |  |  | 30,350 |  |  |  | 381,500 |  |  |  | 411,850 |
2024 |  |  | 5,500 |  |  |  | 381,500 |  |  |  | 387,000 |
2025 |  |  | - |  |  |  | 381,500 |  |  |  | 381,500 |
2026 |  |  | - |  |  |  | 381,500 |  |  |  | 381,500 |
Thereafter |  |  | - |  |  |  | 1,014,895 |  |  |  | 1,014,895 |
|  | $ | 68,850 |  |  | $ | 2,731,645 |  |  | $ | 2,800,495 |

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NOTE 9— ACCRUED EXPENSES

Accrued expenses consist of the following:

|  | June 30, |  |  | December 31, |
|  | 2022 |  |  | 2021 |
DGSE |  |  |  |  |  |
Accrued interest |  | $ | 12,079 |  |  | $ | 12,627 |
Payroll |  |  | 118,857 |  |  |  | 131,325 |
Property taxes |  |  | 120,449 |  |  |  | 88,046 |
Sales tax |  |  | 57,894 |  |  |  | 150,070 |
Other administrative expenss |  |  | 30,000 |  |  |  | - |
Subtotal |  |  | 339,279 |  |  |  | 382,068 |
ECHG |  |  |  |  |  |  |  |
Accrued interest |  |  | 7,862 |  |  |  | 14,547 |
Payroll |  |  | 337,180 |  |  |  | 334,431 |
Unvouchered payables - inventory |  |  | 252,020 |  |  |  | 461,481 |
Material & shipping costs (COGS) |  |  | 500,326 |  |  |  | 78,647 |
Other accrued expenses |  |  | - |  |  |  | 51,506 |
Subtotal |  |  | 1,097,388 |  |  |  | 940,612 |
Envela |  |  |  |  |  |  |  |
Accrued interest |  |  | 7,448 |  |  |  | 8,355 |
Payroll |  |  | 25,642 |  |  |  | 25,175 |
Professional fees |  |  | 125,617 |  |  |  | 220,101 |
Property Tax |  |  | 43,400 |  |  |  | 84,920 |
Other administrative expenses |  |  | 10,794 |  |  |  | 18,453 |
State income tax |  |  | 92,226 |  |  |  | 109,682 |
Subtotal |  |  | 305,127 |  |  |  | 466,686 |
|  | $ | 1,741,794 |  |  | $ | 1,789,366 |

NOTE 10 — SEGMENT INFORMATION

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

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

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

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

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

|  | For The Three Months Ended June 30, |
|  | 2022 |  |  | 2021 |
|  | DGSE |  |  | ECHG |  |  | Consolidated |  |  | DGSE |  |  | ECHG |  |  | Consolidated |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales |  | $ | 30,339,127 |  |  | $ | 12,300,591 |  |  | $ | 42,639,718 |  |  | $ | 23,012,324 |  |  | $ | 10,711,682 |  |  | $ | 33,724,006 |
Cost of goods sold |  |  | 26,150,543 |  |  |  | 5,011,175 |  |  |  | 31,161,718 |  |  |  | 19,915,328 |  |  |  | 6,680,788 |  |  |  | 26,596,116 |
Gross profit |  |  | 4,188,584 |  |  |  | 7,289,416 |  |  |  | 11,478,000 |  |  |  | 3,096,996 |  |  |  | 4,030,894 |  |  |  | 7,127,890 |
Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling, general and administrative expenses |  |  | 2,194,494 |  |  |  | 4,889,409 |  |  |  | 7,083,903 |  |  |  | 1,889,895 |  |  |  | 2,941,330 |  |  |  | 4,831,225 |
Depreciation and amortization |  |  | 101,434 |  |  |  | 178,082 |  |  |  | 279,516 |  |  |  | 97,435 |  |  |  | 118,784 |  |  |  | 216,219 |
|  |  | 2,295,928 |  |  |  | 5,067,491 |  |  |  | 7,363,419 |  |  |  | 1,987,330 |  |  |  | 3,060,114 |  |  |  | 5,047,444 |
Operating income |  |  | 1,892,656 |  |  |  | 2,221,925 |  |  |  | 4,114,581 |  |  |  | 1,109,666 |  |  |  | 970,780 |  |  |  | 2,080,446 |
Other income/expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other income (expense), net |  |  | (49,018 | ) |  |  | (46,411 | ) |  |  | (95,429 | ) |  |  | 119,460 |  |  |  | 163,595 |  |  |  | 283,055 |
Interest expense |  |  | 61,663 |  |  |  | 59,379 |  |  |  | 121,042 |  |  |  | 68,692 |  |  |  | 109,012 |  |  |  | 177,704 |
Income before income taxes |  |  | 1,781,975 |  |  |  | 2,116,135 |  |  |  | 3,898,110 |  |  |  | 1,160,434 |  |  |  | 1,025,363 |  |  |  | 2,185,797 |
Income tax expense |  |  | 15,391 |  |  |  | 34,861 |  |  |  | 50,252 |  |  |  | 14,185 |  |  |  | 18,500 |  |  |  | 32,685 |
Net income |  | $ | 1,766,584 |  |  | $ | 2,081,274 |  |  | $ | 3,847,858 |  |  | $ | 1,146,249 |  |  | $ | 1,006,863 |  |  | $ | 2,153,112 |

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

|  | For The Six Months Ended June 30, |
|  | 2022 |  |  | 2021 |
|  | DGSE |  |  | ECHG |  |  | Consolidated |  |  | DGSE |  |  | ECHG |  |  | Consolidated |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales |  | $ | 66,121,999 |  |  | $ | 23,932,817 |  |  | $ | 90,054,816 |  |  | $ | 41,926,825 |  |  | $ | 17,287,622 |  |  | $ | 59,214,447 |
Cost of goods sold |  |  | 57,709,953 |  |  |  | 11,155,829 |  |  |  | 68,865,782 |  |  |  | 36,022,194 |  |  |  | 9,760,099 |  |  |  | 45,782,293 |
Gross profit |  |  | 8,412,046 |  |  |  | 12,776,988 |  |  |  | 21,189,034 |  |  |  | 5,904,631 |  |  |  | 7,527,523 |  |  |  | 13,432,154 |
Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling, general and administrative expenses |  |  | 4,332,443 |  |  |  | 9,311,215 |  |  |  | 13,643,658 |  |  |  | 3,672,332 |  |  |  | 5,312,122 |  |  |  | 8,984,454 |
Depreciation and amortization |  |  | 208,397 |  |  |  | 363,066 |  |  |  | 571,463 |  |  |  | 194,257 |  |  |  | 226,874 |  |  |  | 421,131 |
|  |  | 4,540,840 |  |  |  | 9,674,281 |  |  |  | 14,215,121 |  |  |  | 3,866,589 |  |  |  | 5,538,996 |  |  |  | 9,405,585 |
Operating income |  |  | 3,871,206 |  |  |  | 3,102,707 |  |  |  | 6,973,913 |  |  |  | 2,038,042 |  |  |  | 1,988,527 |  |  |  | 4,026,569 |
Other income/expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other income (expense), net |  |  | (77,009 | ) |  |  | (76,996 | ) |  |  | (154,005 | ) |  |  | 231,191 |  |  |  | 323,805 |  |  |  | 554,996 |
Interest expense |  |  | 122,904 |  |  |  | 121,377 |  |  |  | 244,281 |  |  |  | 137,177 |  |  |  | 219,549 |  |  |  | 356,726 |
Income before income taxes |  |  | 3,671,293 |  |  |  | 2,904,334 |  |  |  | 6,575,627 |  |  |  | 2,132,056 |  |  |  | 2,092,783 |  |  |  | 4,224,839 |
Income tax expense |  |  | 28,568 |  |  |  | 51,976 |  |  |  | 80,544 |  |  |  | 27,890 |  |  |  | 35,565 |  |  |  | 63,455 |
Net income |  | $ | 3,642,725 |  |  | $ | 2,852,358 |  |  | $ | 6,495,083 |  |  | $ | 2,104,166 |  |  | $ | 2,057,218 |  |  | $ | 4,161,384 |

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NOTE 11 — REVENUE RECOGNITION

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

The following disaggregation of total revenue is listed by sales category and segment for the three months ended June 30, 2022 and 2021:

CONSOLIDATED |  | Three Months Ended June 30, |
|  | 2022 |  |  | 2021 |
|  | Revenues |  |  | Gross Profit |  |  | Margin |  |  | Revenues |  |  | Gross Profit |  |  | Margin |
DGSE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Resale |  | $ | 28,165,026 |  |  | $ | 3,719,954 |  |  |  | 13.2 | % |  | $ | 20,893,838 |  |  | $ | 2,678,640 |  |  |  | 12.8 | %
Recycled |  |  | 2,174,101 |  |  |  | 468,630 |  |  |  | 21.6 | % |  |  | 2,118,486 |  |  |  | 418,356 |  |  |  | 19.7 | %
Subtotal |  |  | 30,339,127 |  |  |  | 4,188,584 |  |  |  | 13.8 | % |  |  | 23,012,324 |  |  |  | 3,096,996 |  |  |  | 13.5 | %
ECHG |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Resale |  |  | 9,102,001 |  |  |  | 5,566,507 |  |  |  | 61.2 | % |  |  | 8,595,910 |  |  |  | 3,019,685 |  |  |  | 35.1 | %
Recycled |  |  | 3,198,590 |  |  |  | 1,722,909 |  |  |  | 53.9 | % |  |  | 2,115,772 |  |  |  | 1,011,209 |  |  |  | 47.8 | %
Subtotal |  |  | 12,300,591 |  |  |  | 7,289,416 |  |  |  | 59.3 | % |  |  | 10,711,682 |  |  |  | 4,030,894 |  |  |  | 37.6 | %
|  | $ | 42,639,718 |  |  | $ | 11,478,000 |  |  |  | 26.9 | % |  | $ | 33,724,006 |  |  | $ | 7,127,890 |  |  |  | 21.1 | %

The following disaggregation of total revenue is listed by sales category and segment for the six months ended June 30, 2022 and 2021:

CONSOLIDATED |  | Six Months Ended June 30, |
|  | 2022 |  |  | 2021 |
|  | Revenues |  |  | Gross Profit |  |  | Margin |  |  | Revenues |  |  | Gross Profit |  |  | Margin |
DGSE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Resale |  | $ | 61,842,159 |  |  | $ | 7,462,806 |  |  |  | 12.1 | % |  | $ | 38,214,479 |  |  | $ | 5,135,784 |  |  |  | 13.4 | %
Recycled |  |  | 4,279,840 |  |  |  | 949,240 |  |  |  | 22.2 | % |  |  | 3,712,346 |  |  |  | 768,847 |  |  |  | 20.7 | %
Subtotal |  |  | 66,121,999 |  |  |  | 8,412,046 |  |  |  | 12.7 | % |  |  | 41,926,825 |  |  |  | 5,904,631 |  |  |  | 14.1 | %
ECHG |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Resale |  |  | 18,681,858 |  |  |  | 10,140,775 |  |  |  | 54.3 | % |  |  | 13,336,902 |  |  |  | 5,631,869 |  |  |  | 42.2 | %
Recycled |  |  | 5,250,959 |  |  |  | 2,636,213 |  |  |  | 50.2 | % |  |  | 3,950,720 |  |  |  | 1,895,654 |  |  |  | 48.0 | %
Subtotal |  |  | 23,932,817 |  |  |  | 12,776,988 |  |  |  | 53.4 | % |  |  | 17,287,622 |  |  |  | 7,527,523 |  |  |  | 43.5 | %
|  | $ | 90,054,816 |  |  | $ | 21,189,034 |  |  |  | 23.5 | % |  | $ | 59,214,447 |  |  | $ | 13,432,154 |  |  |  | 22.7 | %

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

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

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

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

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

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

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

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| · | Echo recognizes refining revenue when our inventory arrives at the destination port and the performance obligation is satisfied by transferring the control of the promised goods that are identified in the customer contract. Ninety percent (90%) of our refining revenue is generated from one refining partner that has an international refining facility. This refining partner pays us sixty percent (60%) of an Invoice within five working days upon the receipt of the Ocean Bill of Lading issued by the Ocean Carrier. Our initial Invoice is recognized in full when our performance obligation is satisfied, as stated in the first sentence. Under the guidance of ASC 606, an estimate of the variable consideration that we expect to be entitled is included in the transaction price stated at the current precious metal spot price and weight of the precious metal. An adjustment to revenue is made in the period once the underlying weight and any precious metal spot price movement is resolved, which is usually around six weeks. Any adjustment from the resolution of the underlying uncertainty is netted with the remaining forty percent (40%) due from the original contract.
| · | Hard drive sales by the Echo Entities are limited to customers who are required to prepay shipments. Once the commodity price is established and agreed upon by both parties, customers send payment in advance. The Company releases the shipment on the same day when payment receipt is confirmed, and revenue is recognized on day of shipment. If payment is received on the last day of the month and shipment goes out the following day the payment received is deferred revenue and recognized the following month when the shipment is made.
| · | Echo also provides recycling services according to a Scope of Work and services are recognized when promised services are rendered. We have recycling services conducted at the Echo facility and another type of service is conducted at the client’s facility. The Scope of Work will determine the charges and whether it is completed on campus or off campus. Payment terms are also dictated in the Scope of Work.

Accounts Receivable: We record trade receivables when revenue is recognized. When appropriate, we will record an allowance for doubtful accounts, which is primarily determined by an analysis of our trade receivables aging. The allowance is determined based on historical experience of collecting past due amounts, based on the degree of their aging. In addition, specific accounts that are doubtful of collection are included in the allowance. These provisions are reviewed to determine the adequacy of the allowance for doubtful accounts. Trade receivables are charged off when there is certainty as to their being uncollectible. Trade receivables are considered delinquent when payment has not been made within contract terms. DGSE had no allowance for doubtful accounts balance as of June 30, 2022 and December 31, 2021. Some of ECHG’s customers are on payment terms, and although low risk, occasionally the need arises to record an allowance for receivables that are deemed high risk to collect. We established an allowance for estimated uncollectable receivables related to sales based on historical collections. Our allowance as of June 30, 2022 and December 31, 2021 was $26,582 and $1,582, respectively.

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

We account for our position in tax uncertainties in accordance with ASC 740, Income Taxes. The guidance establishes standards for accounting for uncertainty in income taxes. The guidance provides several clarifications related to uncertain tax positions. Most notably, a “more likely-than-not” standard for initial recognition of tax positions, a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization. The guidance applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements. First, we must determine whether any amount of the tax benefit may be recognized. Second, we determine how much of the tax benefit should be recognized (this would only apply to tax positions that qualify for recognition.) No additional liabilities have been recognized as a result of the implementation. We have not taken a tax position that, if challenged, would have a material effect on the financial statements or the effective tax rate for the three and six months ended June 30, 2022 and 2021.

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NOTE 12 — LEASES

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

The Company has seven operating leases as of June 30, 2022—five in the Dallas/Fort Worth Metroplex, one in Charleston, South Carolina and one in Chandler, Arizona. The lease for DGSE’s flagship store located at 13022 Preston Road, Dallas, Texas expires on January 31, 2027, with an option to extend the lease for an additional five years, at market rate as determined by the prevailing market rate for comparable space in comparable buildings in the vicinity. The lease for DGSE’s Grand Prairie, Texas location was renewed starting July 1, 2022, expiring June 30, 2027, with an option to extend the lease for an additional five years. The lease for DGSE’s Mt Pleasant, South Carolina location expires April 30, 2025, with no additional renewal options. The lease for DGSE’s Euless, Texas location expires June 30, 2025, with an option to extend the lease for an additional five years. The lease for ECHG’s Echo location on W. Belt Line Road, in Carrollton, Texas, expires January 31, 2026. The lease for ECHG’s Teladvance location, which also houses ITAD USA, on Realty Road in Carrollton, Texas expires January 31, 2027. The lease for ECHG’s Avail location in Chandler, Arizona expires May 31, 2025. All of the Company’s seven leases as of June 30, 2022 are triple net, for which it pays its proportionate share of common area maintenance, property taxes and property insurance. Leasing costs for the three months ended June 30, 2022 and 2021 was $659,860 and $588,896 respectively. Leasing costs for the six months ended June 30, 2022 and 2021 was $1,282,723 and $895,433, respectively, comprised of a combination of minimum lease payments and variable lease costs.

As of June 30, 2022, the weighted average remaining lease term and weighted average discount rate for operating leases was 3.75 years and 4.4%, respectively. For the three months ended June 30, 2022 and 2021, the Company’s cash paid for operating lease liabilities was $650,606 and $588,026, respectively. For the six months ended June 30, 2022 and 2021, the Company’s cash paid for operating lease liabilities was $1,266,703 and $923,253, respectively.

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Future annual minimum lease payments as of June 30, 2022:

|  | Operating |
|  | Leases |
DGSE |  |  |
2022 (excluding the six months ending June 30, 2022) |  | $ | 267,938 |
2023 |  |  | 541,984 |
2024 |  |  | 552,414 |
2025 |  |  | 412,269 |
2026 and thereafter |  |  | 405,114 |
Total minimum lease payments |  |  | 2,179,719 |
Less imputed interest |  |  | (188,707 | )
DGSE Sub-Total |  |  | 1,991,012 |
ECHG |  |  |  |
2022 (excluding the six months ending June 30, 2022) |  |  | 661,506 |
2023 |  |  | 1,357,381 |
2024 |  |  | 1,396,129 |
2025 |  |  | 1,321,297 |
2026 and thereafter |  |  | 507,780 |
Total minimum lease payments |  |  | 5,244,093 |
Less imputed interest |  |  | (381,784 | )
ECHG Sub-Total |  |  | 4,862,309 |
Total |  |  | 6,853,321 |
Current portion |  |  | 1,631,270 |
|  | $ | 5,222,051 |

NOTE 13 — BASIC AND DILUTED AVERAGE SHARES

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

|  | For the Three Months Ended |
|  | June 30, |
|  | 2022 |  |  | 2021 |
Basic weighted average shares |  |  | 26,924,631 |  |  |  | 26,924,631 |
Effect of potential dilutive securities |  |  | 15,000 |  |  |  | 15,000 |
Diluted weighted average shares |  |  | 26,939,631 |  |  |  | 26,939,631 |

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

|  | For the six Months Ended |
|  | June 30, |
|  | 2022 |  |  | 2021 |
Basic weighted average shares |  |  | 26,924,631 |  |  |  | 26,924,631 |
Effect of potential dilutive securities |  |  | 15,000 |  |  |  | 15,000 |
Diluted weighted average shares |  |  | 26,939,631 |  |  |  | 26,939,631 |

For the three and six months ended June 30, 2022 and 2021, there were 15,000 common stock options, warrants, and Restricted Stock Units (RSUs) unexercised, respectively. For the three and six months ended June 30, 2022 and 2021, there were no anti-dilutive shares.

NOTE 14 — LONG-TERM DEBT

Long-term debt consists of the following:

|  | Outstanding Balance |  |  |  |  |  |  |
|  | June 30, |  |  | December 31, |  |  | Current |  |  |  |
|  | 2022 |  |  | 2021 |  |  | Interest Rate |  |  | Maturity |
DGSE |  |  |  |  |  |  |  |  |  |  |  |
Note payable, Farmers Bank (1) |  | $ | 2,719,906 |  |  | $ | 2,770,729 |  |  |  | 3.10 | % |  | November 15, 2026 |
Note payable, Truist Bank (2) |  |  | 891,874 |  |  |  | 909,073 |  |  |  | 3.65 | % |  | July 9, 2030 |
Note payable, Texas Bank & Trust (3) |  |  | 465,157 |  |  |  | 474,009 |  |  |  | 3.75 | % |  | September 14, 2025 |
Note payable, Texas Bank & Trust (4) |  |  | 1,721,937 |  |  |  | 1,752,446 |  |  |  | 3.25 | % |  | July 30, 2031 |
DGSE Sub-Total |  |  | 5,798,874 |  |  |  | 5,906,257 |  |  |  |  |  |  |  |
ECHG |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Note payable, Farmers Bank (1) |  |  | 6,171,150 |  |  |  | 6,286,459 |  |  |  | 3.10 | % |  | November 15, 2026 |
Line of Credit (5) |  |  | - |  |  |  | 1,700,000 |  |  |  | 3.10 | % |  | November 15, 2024 |
Avail Transaction note (6) |  |  | 1,833,333 |  |  |  | 2,000,000 |  |  |  | 0.00 | % |  | April 1, 2025 |
ECHG Sub-Total |  |  | 8,004,483 |  |  |  | 9,986,459 |  |  |  |  |  |  |  |
Envela |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Note payable, Texas Bank & Trust (7) |  |  | 2,788,377 |  |  |  | 2,843,415 |  |  |  | 3.25 | % |  | November 4, 2025 |
Sub-Total |  |  | 16,591,734 |  |  |  | 18,736,131 |  |  |  |  |  |  |  |
Current portion |  |  | 1,241,480 |  |  |  | 2,765,794 |  |  |  |  |  |  |  |
|  | $ | 15,350,254 |  |  | $ | 15,970,337 |  |  |  |  |  |  |  |

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

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(2) On July 9, 2020, DGSE closed the purchase of a retail building located at 610 E. Round Grove Road in Lewisville, Texas for $1,195,000. The purchase was partly financed through a $956,000, 10 year loan (the “Truist Lewisville Loan”), bearing an annual interest rate of 3.65%, amortized over 20 years, payable to Truist Bank (f/k/a BB&T Bank). The note has monthly interest and principal payments of $5,645.

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

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

(5) On November 23, 2021, the Company secured a 36-month line of credit from Farmers State Bank of Oakley, Kansas (“FSB Facility”) for $3,500,000 at a 3.1% annual interest rate.

(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 the Company, closed on the purchase of an office building located at 1901 Gateway Drive, Irving, Texas for $3.521 million. The building was partially financed through a $2,960,000, 5-year loan (the “TB&T Irving Loan”), bearing an interest rate of 3.25%, amortized over 20 years, payable to Texas Bank and Trust. The note has monthly interest and principal payments of $16,792.

Future scheduled principal payments of our notes payable and notes payable, related party, as of June 30, 2022 are as follows:

Note payable, Farmers State Bank - DGSE |  |  |
Year Ending December 31, |  | Amount |
2022 (excluding the six months ended June 30, 2022) |  | $ | 51,387 |
2023 |  |  | 105,428 |
2024 |  |  | 108,743 |
2025 |  |  | 112,163 |
2026 |  |  | 2,342,185 |
Subtotal |  | $ | 2,719,906 |

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Note payable, Truist Bank - DGSE |  |  |
Year Ending December 31, |  | Amount |
2022 (excluding the six months ended June 30, 2022) |  | $ | 17,456 |
2023 |  |  | 35,988 |
2024 |  |  | 37,342 |
2025 |  |  | 38,748 |
2026 |  |  | 40,206 |
Thereafter |  |  | 722,134 |
Subtotal |  | $ | 891,874 |
Note payable, Texas Bank & Trust - DGSE |  |  |  |
Year Ending December 31, |  | Amount |
2022 (excluding the six months ended June 30, 2022) |  | $ | 8,971 |
2023 |  |  | 18,503 |
2024 |  |  | 19,209 |
2025 |  |  | 418,474 |
Subtotal |  | $ | 465,157 |
Note payable, Texas Bank & Trust - DGSE |  |  |  |
Year Ending December 31, |  | Amount |
2022 (excluding the six months ended June 30, 2022) |  | $ | 35,079 |
2023 |  |  | 72,363 |
2024 |  |  | 74,750 |
2025 |  |  | 77,216 |
2026 |  |  | 79,512 |
Thereafter |  |  | 1,383,017 |
Subtotal |  | $ | 1,721,937 |
Note payable, Farmers Bank - ECHG |  |  |  |
Year Ending December 31, |  | Amount |
2022 (excluding the six months ended June 30, 2022) |  | $ | 116,590 |
2023 |  |  | 239,204 |
2024 |  |  | 246,725 |
2025 |  |  | 254,484 |
2026 |  |  | 5,314,147 |
Subtotal |  | $ | 6,171,150 |

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Note payable - Avail Transaction |  |  |
Year Ending December 31, |  | Amount |
2022 (excluding the six months ended June 30, 2022) |  | $ | 333,334 |
2023 |  |  | 666,668 |
2024 |  |  | 666,668 |
2025 |  |  | 166,663 |
Subtotal |  | $ | 1,833,333 |
Note payable, Texas Bank & Trust - Envela |  |  |  |
Year Ending December 31, |  | Amount |
2022 (excluding the six months ended June 30, 2022) |  | $ | 54,948 |
2023 |  |  | 112,661 |
2024 |  |  | 116,450 |
2025 |  |  | 2,504,318 |
Subtotal |  | $ | 2,788,377 |
|  | $ | 16,591,734 |

Future scheduled aggregate amount of principal payments and maturities of our notes payable as of June 30, 2022 are as follows:

|  | Scheduled |  |  |  |  |  |  |
|  | Principal |  |  | Loan |  |  |  |
Scheduled Principal Payments and Maturities by Year: |  | Payments |  |  | Maturities |  |  | Total |
2022 (excluding the six months ended June 30, 2022) |  | $ | 617,765 |  |  | $ | - |  |  | $ | 617,765 |
2023 |  |  | 1,250,815 |  |  |  | - |  |  |  | 1,250,815 |
2024 |  |  | 1,269,887 |  |  |  | - |  |  |  | 1,269,887 |
2025 |  |  | 595,584 |  |  |  | 2,976,482 |  |  |  | 3,572,066 |
2026 |  |  | 434,160 |  |  |  | 7,341,891 |  |  |  | 7,776,051 |
2027 and Thereafter |  |  | 558,168 |  |  |  | 1,546,982 |  |  |  | 2,105,150 |
Total |  | $ | 4,726,379 |  |  | $ | 11,865,355 |  |  | $ | 16,591,734 |

NOTE 15 — STOCK-BASED COMPENSATION

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

There was no stock-based compensation expense for the three and six months ended June 30, 2022 and 2021.

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NOTE 16 — RELATED PARTY TRANSACTIONS

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

On May 20, 2019, in connection with the Echo Transaction, the Company entered into two loan agreements with John R. Loftus, the Company’s CEO, President and Chairman of the Board. ECHG, LLC executed a five-year, $6,925,979 note for the Echo Transaction, amortized over 20 years at a 6% annual interest rate. The interest and principal payment due monthly was $49,646. DGSE executed a five-year, $3,074,021 note to pay off the accounts payable – related party balance to a former Related Party as of May 20, 2019. That promissory note was also amortized over 20 years at a 6% annual interest rate. The interest and principal payment due monthly on the note for DGSE was $22,203. Both notes were being serviced by operational cash flow. On November 23, 2021, both notes were refinanced by Farmers State Bank of Oakley, Kansas. For the three months ended June 30, 2022 and 2021, the Company paid Mr. Loftus $0 and $142,144, respectively, in interest on the Company’s notes payable, related party. For the six months ended June 30, 2022 and 2021, the Company paid Mr. Loftus $0 and $285,353, respectively, in interest on the Company’s notes payable, related party.

NOTE 17 — CONTINGENCIES

The coronavirus disease 2019 (COVID-19) pandemic has adversely affected global economic business conditions. Future sales on products like ours could decline or fluctuate due to increased or fluctuating commodities prices, particularly gold. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic, the ultimate impact is highly uncertain and subject to change. The duration of any such impact cannot be predicted, nor can the timing of the development, distribution and acceptance of effective vaccines, booster shots or other treatments for potential COVID-19 divergent strains, including the Delta variant, omicron variant or other variants that may surface. In addition, the effects of the COVID-19 pandemic are subject to, among other things, the effect of government responses to the COVID-19 pandemic on our operations, including vaccine mandates, impacts of the COVID-19 pandemic on global and domestic economic conditions, including with respect to commercial activity, our customers and business partners, as well as consumer preferences and demand.

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

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

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 (this “Form 10-Q”), including but not limited to: (i) the section of this Form 10-Q entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” (ii) information concerning our business prospects or future financial performance, anticipated revenues, expenses, profitability or other financial items; and (iii) our strategies, plans and objectives, together with other statements that are not historical facts, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,” “will,” “would,” “expect,” “intend,” “could,” “estimate,” “should,” “anticipate” or “believe.” We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements other than statements of historical information provided herein are forward-looking based on current expectations regarding important risk factors. Many of these risks and uncertainties are beyond our ability to control, and, in many cases, we cannot predict all of the risks and uncertainties that could cause our actual results to differ materially from those expressed in the forward-looking statements. Actual results could differ materially from those expressed in the forward-looking statements, and readers should not regard those statements as a representation by us or any other person that the results expressed in the statements will be achieved. Important risk factors that could cause results or events to differ from current expectations are described under the section entitled “Risk Factors” in the Company’s 2021 Annual Report and any material updates are described under the section of this Form 10-Q entitled “Risk Factors” and elsewhere in this Form 10-Q. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the operations, performance, development and results of our business. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date thereon, including without limitation, changes in our business strategy or planned capital expenditures, or store growth plans, or to reflect the occurrence of unanticipated events.

Envela Overview

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

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

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DGSE Business Overview

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

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

DGSE Recommerce Activities

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

DGSE Precious Metals Pricing and Business Impact

DGSE’s business, similar to the jewelry industry overall, is effected by fluctuations in precious-metals pricing. Such fluctuations, particularly with respect to gold which accounts for a majority of DGSE’s merchandise costs, can have significant impact on its earnings and cash availability.

Because DGSE buys and resells precious metals, it is impacted by changes in precious metal pricing which rises and falls based upon global supply and demand dynamics, with the greatest impact on us relating to gold as it represents a significant portion of the precious metal in which we trade. Gold prices surged during the beginnings of the COVID-19 pandemic. Gold prices started January 1, 2021 at $1,891 an ounce, as determined by the London AM Fix and dipped to a low of $1,683 an ounce on March 30, 2021. Gold then began to rebound throughout the remainder of 2021 closing at $1,820 an ounce on December 31, 2021, as determined by the London AM Fix. During fiscal year 2021, gold prices receded 4% from December 31, 2020. Gold rose 7% during the first three months of 2022, ending at $1,942 an ounce, only to give back the 7% gain from the first fiscal quarter of 2022 to recede to $1,814 an ounce at June 30, 2022.

The COVID-19 pandemic continues to affect the recommerce business in unpredictable ways. Although there are variants of COVID-19 affecting the health of the United States, employment figures improved throughout 2021. The unemployment rate improved from over six percent (6%) in January of 2021 to four percent (4%), as of May 2022.

When prices rise for gold or other precious metals, DGSE has observed that individual sellers tend to be more likely to sell their unwanted crafted-precious-metal items and at the same time retail customers tend to buy bullion and other gold products so as not to miss out on potential market gains. When prices decline for gold or other precious metals, DGSE has observed that individual buyers tend to buy due to the decrease in gold prices. While the precious-metals industry has slowed, our focus will be to grow our jewelry, diamond and fine watch business, as well as maintain our business of purchasing crafted-precious-metal items, a diversified strategy which we believe will continue to grow and be a profit engine in the future.

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

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DGSE Growth and Expansion

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

ECHG Business Overview

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

ECHG Recommerce Activities

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

ECHG Metals Pricing and Business Impact

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

ECHG Growth and Expansion

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

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

COVID-19

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

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The COVID-19 pandemic, recent economic trends, civil unrest and the war in Ukraine have affected the recommerce business in unpredictable ways. There have been fewer customers raising money by selling items. Government stimulus checks, eviction moratoriums and forbearances on mortgages and student loans may have contributed and may still be contributing to this effect. For more information, see Note 17 to our interim condensed consolidated financial statements.

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

Critical Accounting Policies and Estimates

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

Results of Operations

General

The following disaggregation of total revenue is listed by sales category and segment for the three months ended June 30, 2022 and 2021:

CONSOLIDATED |  | Three Months Ended June 30, |
|  | 2022 |  |  | 2021 |
|  | Revenues |  |  | Gross Profit |  |  | Margin |  |  | Revenues |  |  | Gross Profit |  |  | Margin |
DGSE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Resale |  | $ | 28,165,026 |  |  | $ | 3,719,954 |  |  |  | 13.2 | % |  | $ | 20,893,838 |  |  | $ | 2,678,640 |  |  |  | 12.8 | %
Recycled |  |  | 2,174,101 |  |  |  | 468,630 |  |  |  | 21.6 | % |  |  | 2,118,486 |  |  |  | 418,356 |  |  |  | 19.7 | %
Subtotal |  |  | 30,339,127 |  |  |  | 4,188,584 |  |  |  | 13.8 | % |  |  | 23,012,324 |  |  |  | 3,096,996 |  |  |  | 13.5 | %
ECHG |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Resale |  |  | 9,102,001 |  |  |  | 5,566,507 |  |  |  | 61.2 | % |  |  | 8,595,910 |  |  |  | 3,019,685 |  |  |  | 35.1 | %
Recycled |  |  | 3,198,590 |  |  |  | 1,722,909 |  |  |  | 53.9 | % |  |  | 2,115,772 |  |  |  | 1,011,209 |  |  |  | 47.8 | %
Subtotal |  |  | 12,300,591 |  |  |  | 7,289,416 |  |  |  | 59.3 | % |  |  | 10,711,682 |  |  |  | 4,030,894 |  |  |  | 37.6 | %
|  | $ | 42,639,718 |  |  | $ | 11,478,000 |  |  |  | 26.9 | % |  | $ | 33,724,006 |  |  | $ | 7,127,890 |  |  |  | 21.1 | %

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The following disaggregation of total revenue is listed by sales category and segment for the six months ended June 30, 2022 and 2021:

CONSOLIDATED |  | Six Months Ended June 30, |
|  | 2022 |  |  | 2021 |
|  | Revenues |  |  | Gross Profit |  |  | Margin |  |  | Revenues |  |  | Gross Profit |  |  | Margin |
DGSE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Resale |  | $ | 61,842,159 |  |  | $ | 7,462,806 |  |  |  | 12.1 | % |  | $ | 38,214,479 |  |  | $ | 5,135,784 |  |  |  | 13.4 | %
Recycled |  |  | 4,279,840 |  |  |  | 949,240 |  |  |  | 22.2 | % |  |  | 3,712,346 |  |  |  | 768,847 |  |  |  | 20.7 | %
Subtotal |  |  | 66,121,999 |  |  |  | 8,412,046 |  |  |  | 12.7 | % |  |  | 41,926,825 |  |  |  | 5,904,631 |  |  |  | 14.1 | %
ECHG |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Resale |  |  | 18,681,858 |  |  |  | 10,140,775 |  |  |  | 54.3 | % |  |  | 13,336,902 |  |  |  | 5,631,869 |  |  |  | 42.2 | %
Recycled |  |  | 5,250,959 |  |  |  | 2,636,213 |  |  |  | 50.2 | % |  |  | 3,950,720 |  |  |  | 1,895,654 |  |  |  | 48.0 | %
Subtotal |  |  | 23,932,817 |  |  |  | 12,776,988 |  |  |  | 53.4 | % |  |  | 17,287,622 |  |  |  | 7,527,523 |  |  |  | 43.5 | %
|  | $ | 90,054,816 |  |  | $ | 21,189,034 |  |  |  | 23.5 | % |  | $ | 59,214,447 |  |  | $ | 13,432,154 |  |  |  | 22.7 | %

Three Months Ended June 30, 2022 as compared to the Three Months Ended June 30, 2021

Revenue. Revenue related to DGSE’s continuing operations increased by $7,326,803, or 32%, during the three months ended June 30, 2022, to $30,339,127, as compared to revenue of $23,012,324 during the same period in 2021. Resale revenue, such as bullion, jewelry, watches and rare coins, increased by $7,271,188, or 35%, during the three months ended June 30, 2022, to $28,165,026 as compared to resale revenue of $20,893,838 during the same period in 2021. Recycled-material sales increased 3% to $2,174,101 for the three months ended June 30, 2022, as compared to recycled-material sales of $2,118,486, for the three months ended June 30, 2021. The increased resale revenue for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, was primarily due to the addition of the new Frisco, Texas retail location in January of 2022 and the maturation of the Lewisville and Grapevine locations which were added during the latter half of fiscal 2020. Revenue increased slightly for recycled items for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, which was primarily due to the addition of the new Frisco, Texas retail location in January of 2022.

Revenue related to ECHG’s continuing operations for the three months ended June 30, 2022 increased by $1,588,909, or 15%, to $12,300,591, as compared to revenue of $10,711,682 during the same period in 2021. Resale revenue increased by $506,091, or 6%, to $9,102,001, for the three months ended June 30, 2022, as compared to revenue of $8,595,910 during the three months ended June 30, 2021. Recycled sales increased by $1,082,818 or 51%, to $3,198,590 for the three months ended June 30, 2022, as compared to recycled sales of $2,115,772 for the three months ended June 30, 2021. Revenue increased for resale and recycled items for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, mainly due to the COVID-19 pandemic slowing wholesale operations during the three months ended June 30, 2021.

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

Gross Profit. Gross profit related to DGSE’s operations for the three months ended June 30, 2022, increased by $1,091,588 or 35%, to $4,188,584 as compared to gross profit of $3,096,996 during the same period in 2021. Resale gross profit increased by $1,041,314, or 39%, to $3,719,954 for the three month ended June 30, 2022, as compared to resale gross profit of $2,678,640 during the three months ended June 30, 2021. Recycled gross profit increased by $50,274, or 12%, to $468,630 for the three months ended June 30, 2022, as compared to recycled gross profit of $418,356 during the three months ended June 30, 2021. The increase in resale and recycled gross profit for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021 was primarily due to increased sales.

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Gross profit related to ECHG for the three months ended June 30, 2022 increased by $3,258,522, or 81%, to $7,289,416 as compared to gross profit of $4,030,894 during the same period in 2021. Gross profit for resale revenue for the three months ended June 30, 2022 increased by $2,546,822, or 84%, to $5,566,507, as compared to gross profit for resale revenue $3,019,685 during the same period in 2021. Gross profit for recycled sales for the three months ended June 30, 2022 increased $711,700, or 70%, to $1,722,909, as compared to gross profit for recycled sales of $1,011,209, during the same period in 2021. The gross profit increase for the resale and recycled items for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021 was primarily due to increased sales.

Selling, General and Administrative Expenses. For the three months ended June 30, 2022, SG&A expenses for DGSE increased by $304,599, or 16%, to $2,194,495, as compared to SG&A expenses of $1,889,894 during the same period in 2021. The increase in SG&A expenses was primarily due to increased expenses from the new retail location in Frisco, Texas placed into service during January 2022, and an increase in advertising during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

For the three months ended June 30, 2022, SG&A expenses for ECHG increased by $1,948,079 or 66%, to $4,889,409, as compared to SG&A expenses of $2,941,330 during the same period in 2021. The increase in SG&A expenses was primarily due to the added cost of the Avail and CExchange companies during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Depreciation and Amortization. For the three months ended June 30, 2022, depreciation and amortization expense for DGSE was $101,434, as compared to an expense of $97,435 for the same period in 2021, an increase of $3,999, or 4%. The increase of $3,999 from the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 is primarily due to the depreciation of the new retail building located in Frisco, Texas.

For the three months ended June 30, 2022, depreciation and amortization expense for ECHG was $178,082 as compared to an expense of $118,784 for the same period in 2021, an increase of $59,298, or 50%. The increase of $59,298 from the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, is primarily due to additional amortization expense of intangible assets and depreciation of equipment from the CExchange transaction.

Interest Expense. For the three months ended June 30, 2022, interest expense for DGSE was $61,663, a decrease of $7,029 or 10%, as compared to interest expense of $68,692 during the same period in 2021. The decrease was primarily the combination of an increase from the new loan for the retail building located in Frisco, Texas, offset by a decrease from refinancing the related party loan by Farmers State Bank of Oakley, Kansas on November 23, 2021.

For the three months ended June 30, 2022, interest expense for ECHG was $59,379, a decrease of $49,633 or 46%, as compared to interest expense of $109,012 during the same period in 2021. The decrease was primarily the result of refinancing the related party loan by Farmers State Bank of Oakley, Kansas on November 23, 2021.

Other Income/Expense. For the three months ended June 30, 2022, other expense for DGSE was $49,018, an increase of $168,478, as compared to other income of $119,460 during the same period in 2021. The increase in expense was primarily due to DGSE’s portion of the Company’s corporate building’s operating expenses for the three months ended June 30, 2022. Other income for the three months ended June 30, 2021 only included the rental income from corporate tenants in the Company’s corporate building and therefore are not comparable. In subsequent quarters, the Company’s corporate building’s operating expenses and rental income are netted into other income/expense.

For the three months ended June 30, 2022, other expense for ECHG was $46,411, an increase of $210,006, as compared to other income of $163,595 during the same period in 2021. The increase in expense was primarily due to ECHG’s portion of the Company’s corporate building’s operating expenses for the three months ended June 30, 2022. Other income for the three months ended June 30, 2021 only included the rental income from corporate tenants in the Company’s corporate building and therefore are not comparable. In subsequent quarters, the Company’s corporate building’s operating expenses and rental income are netted into other income/expense.

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Income Tax Expense. For the three months ended June 30, 2022, income tax expense was $50,252, an increase of $17,567, compared to income tax expense of $32,685 for the three months ended June 30, 2021. The effective income tax rate was 1.3% and 1.5% for the three months ended June 30, 2022 and June 30, 2021, respectively. Differences between our effective income tax rate and the U.S. federal statutory rate are mainly the result of state taxes, non-deductible expenses and changes in the valuation allowance in relation to the deferred tax asset for net operating loss carryforwards.

Net Income. We recorded a net income of $3,847,858 for the three months ended June 30, 2022, compared to a net income of $2,153,112 for the three months ended June 30, 2021, an increase in net income of $1,694,746, which is due primarily to an increase in gross profit of $4,350,110 offset by an increase in SG&A of $2,252,678.

Earnings Per Share. For the three months ended June 30, 2022, our net income per basic and diluted shares attributable to holders of our Common Stock was $0.14, as compared to $0.08 per basic and diluted shares attributable to holders of our Common Stock for the three months ended June 30, 2021.

Six Months Ended June 30, 2022 as compared to the Six Months Ended June 30, 2021

Revenues. Revenues related to DGSE’s operations increased by $24,195,174, or 58%, during the six months ended June 30, 2022, to $66,121,999, as compared to revenue of $41,926,825 during the same period in 2021. Resale revenue, such as bullion, jewelry, watches and rare coins, increased by $23,627,680, to $61,842,159 for the six months ended June 30, 2022, or 62%, compared to resale revenue of $38,214,479 during the six months ended June 30, 2021. Recycled revenue increased by $567,494 to $4,279,840 for the six months ended June 30, 2022, or 15%, compared to recycled revenue of $3,712,346 during the six months ended June 30, 2021. The increased resale and recycle revenue for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was primarily due to the addition of the new retail location in Frisco, Texas in January of 2022 and the maturation of the Lewisville and Grapevine retail locations which were added during the latter half of fiscal 2020.

Revenue related to ECHG’s continuing operations for the six months ended June 30, 2022 increased by $6,645,195, or 38%, to $23,932,817, as compared to revenue of $17,287,622 during the same period in 2021. Resale revenue increased by $5,344,956, or 40%, to $18,681,858, for the six months ended June 30, 2022, as compared to resale revenue of $13,336,902 during the six months ended June 30, 2021. Recycled revenue increased by $1,300,239, or 33%, to $5,250,959 for the six months ended June 30, 2022, as compared to recycled revenue of $3,950,720 for the six months ended June 30, 2021. Revenue increased for resale and recycled items for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, primarily due to the COVID-19 pandemic slowing wholesale operations during the six months ended June 30, 2021.

Gross Profit. Gross profit related to DGSE’s operations for the six months ended June 30, 2022, increased by $2,507,415 or 42%, to $8,412,046 as compared to gross profit of $5,904,631 during the same period in 2021. Resale gross profit increased by $2,327,022, or 45%, to $7,462,806 for the six month ended June 30, 2022, as compared to resale gross profit of $5,135,784 during the six months ended June 30, 2021. Recycled gross profit increased by $180,393, or 23%, to $949,240 for the six months ended June 30, 2022, as compared to recycled gross profit of $768,847 during the six months ended June 30, 2021. The increase in resale and recycled gross profit was due primarily to increased sales.

Gross profit related to ECHG for the six months ended June 30, 2022, increased by $5,249,465, or 70%, to $12,776,988 as compared to gross profit of $7,527,523 during the same period in 2021. Gross profit for resale revenue for the six months ended June 30, 2022 increased by $4,508,906, or 80% to $10,140,775, as compared to gross profit for resale revenue of $5,631,869 during the same period in 2021. Gross profit for recycled sales for the six months ended June 30, 2022, increased $740,559, or 39% to $2,636,213, as compared to gross profit for recycle sales of $1,895,654, during the same period in 2021. The gross profit increase for resale and recycle revenue for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021 is primarily due to increased sales and an increase in gross margin percentages.

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Selling, General and Administrative Expenses. For the six months ended June 30, 2022, DGSE’s SG&A expenses increased by $660,111, or 18%, to $4,332,443, as compared to SG&A expenses of $3,672,332 during the same period in 2021. The increase in SG&A expenses was primarily due to increased expenses from the new retail location in Frisco, Texas placed into service during January 2022, and an increase in advertising during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

For the six months ended June 30, 2022, SG&A expenses for ECHG increased by $3,999,093 or 75%, to $9,311,215, as compared to SG&A expenses of $5,312,122 during the same period in 2021. The increase in SG&A expenses was primarily due to the added cost of the Avail and CExchange companies during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Depreciation and Amortization. For the six months ended June 30, 2022, DGSE’s depreciation and amortization expense was $208,397, compared to an expense of $194,257 for the same period in 2021. The increase is primarily due to the depreciation of the new retail building in Frisco, Texas in January of 2022.

For the six months ended June 30, 2022, depreciation and amortization expense for ECHG was $363,066, as compared to an expense of $226,874 for the same period in 2021, an increase of $136,192, or 60%. The increase of $136,192 from the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, is primarily due to additional amortization expense of intangible assets and depreciation of equipment from the CExchange transaction.

Interest Expense. For the six months ended June 30, 2022, the interest expense for DGSE was $122,904, a decrease of $14,273, or 10%, compared to interest expense of $137,177 during the same period in 2021. The decrease was primarily the combination of an increase from the new loan for the retail building located in Frisco, Texas, offset by a decrease from refinancing the related party loan by Farmers State Bank of Oakley, Kansas on November 23, 2021.

For the six months ended June 30, 2022, interest expense for ECHG was $121,377, a decrease of $98,172 or 45%, compared to interest expense of $219,549 during the same period in 2021. The decrease was primarily the result of refinancing the related party loan by Farmers State Bank of Oakley, Kansas on November 23, 2021.

Other Income/Expense. For the six months ended June 30, 2022, other expense for DGSE was $77,009, an increase of $308,200, compared to other income of $231,191 during the same period in 2021. The increase in expense was primarily due to DGSE’s portion of the Company’s corporate building’s operating expenses for the six months ended June 30, 2022. Other income for the three months ended June 30, 2021 only included the rental income from corporate tenants in the Company’s corporate building and therefore are not comparable. In subsequent quarters, the Company’s corporate building’s operating expenses and rental income are netted into other income/expense.

For the six months ended June 30, 2022, other expense for ECHG was $76,996, an increase of $400,801, compared to other income of $323,805 during the same period in 2021. The increase in expense was primarily due to ECHG’s portion of the Company’s corporate building’s operating expenses for the three months ended June 30, 2022. Other income for the three months ended June 30, 2021 only included the rental income from corporate tenants in the Company’s corporate building and therefore are not comparable. In subsequent quarters, the Company’s corporate building’s operating expenses and rental income are netted into other income/expense.

Income Tax Expense. For the six months ended June 30, 2022, income tax expense was $80,544, an increase of $17,089, or 27%, as compared to income tax expense of $63,455 for the six months ended June 30, 2021. The effective income tax rate was 1.2% and 1.5% for the six months ended June 30, 2022 and 2021, respectively. Differences between our effective income tax rate and the U.S federal statutory rate are mainly the result of state taxes, non-deductible expenses, changes in reserves for uncertain tax positions and unused net operating loss carryforwards.

Net Income. We recorded a net income of $6,495,083 for the six months ended June 30, 2022, as compared to a net income of $4,161,384 for the six months ended June 30, 2021, an increase in net income of $2,333,699, which is due primarily to an increase in gross profit of $7,756,880 offset by an increase in SG&A of $4,659,204.

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Earnings Per Share. For the six months ended June 30, 2022, the net income per basic and diluted shares attributable to common stockholders is $0.24, as compared to $0.15 per basic and diluted shares for the six months ended June 30, 2021.

Liquidity and Capital Resources

During the six months ended June 30, 2022, cash flows provided by operations totaled $6,362,641, and during the six months ended June 30, 2021, cash flows provided by operations totaled $263,632, an increase of $6,099,009. Cash provided by operations for the six months ended June 30, 2022 was driven largely by net income added to non-cash items of depreciation, amortization and bad debt of $7,091,546, a decrease in trade receivables of $1,452,651, an increase in customer deposits and other liabilities of $1,019,363, a decrease in other assets of $754,759 and an increase in accounts payable and accrued expenses of $767,122, offset by an increase in inventories of $3,755,662 and the increase in prepaid expenses of $981,616. Cash provided by operations for the six months ended June 30, 2021 was driven largely by net income added to non-cash items of depreciation, amortization and bad debt of $4,588,764, an increase in accounts payable and accrued expenses of $1,574,520 and an increase in customer deposits and other liabilities of $341,260, offset by the increase in trade receivables of $3,365,999, an increase in inventories of $2,579,991, an increase in prepaid expenses of $169,373 and the increase in other assets of $146,042.

During the six months ended June 30, 2022 and 2021, cash flows used in investing activities totaled $420,917 and $1,126,416, respectively, a period-over-period decrease of $705,499. The use of cash in investing activities during the six months ended June 30, 2022 was primarily due to the purchase of additional property and equipment of $203,929 and the addition to the acquisition of Avail assets and liabilities of $216,988. The use of cash in investing activities during the six months ended June 30, 2021 was primarily due to the increase in notes receivable of $654,958 and the purchase of additional property and equipment of $484,494, offset by acquisition of CExchange’s assets and liabilities, net of cash acquired of $13,136.

During the six months ended June 30, 2022 and 2021, cash flows used in financing totaled $2,144,396 and $224,140, respectively, a period-over-period increase of $1,920,256. Cash used in financing during the six months ended June 30, 2022 was primarily due from payments made against notes payable of $444,396 and payments made against the line of credit of $1,700,000. Cash used in financing during the six months ended June 30, 2021 was primarily due from payments made against notes payable of $79,353 and payments made against notes payable, related party of $144,787.

We expect our capital expenditures to total approximately $1,000,000 during the next 12 months. These expenditures will be driven by the purchase of additional equipment and the purchase of potential properties by DGSE for retail locations and for build-out of those purchased properties. The Company has no capital expenditure commitments as of June 30, 2022.

Our primary source of liquidity and capital resources currently consist of cash generated from our operating results and current borrowings, including the Truist Lewisville Loan, the TB&T Grapevine Loan, the TB&T Irving Loan, the TB&T Frisco Loan and the two Farmers State Bank of Oakley, Kansas loans. For more information, see Note 14 to our interim condensed financial statements, which is incorporated into this item by reference. In addition, on November 23, 2021, the Company secured a thirty six month line of credit from Farmers State Bank of Oakley Kansas for up to $3,500,000. The FSB Facility has an annual interest rate of 3.1%. We maintain the FSB Facility to help fund cash shortfalls that we may have from time to time. We do not currently anticipate the need of those funds for operations and do not currently have any amounts drawn against the FSB Facility as of June 30, 2022.

From time to time, we have adjusted and may further adjust our inventory levels to meet seasonal demand or in order to meet working capital requirements. Management believes we have sufficient capital resources to meet working capital requirements. In the event of significant growth in retail and wholesale jewelry sales and recycling demand, whether purchases or services, our demand for additional working capital will increase due to a related need to stock additional jewelry inventory, increases in wholesale accounts receivable and the purchasing of recycled material. Historically we have funded these activities through operations. If additional working capital is required, we will seek additional loans from other commercial banks.

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

The COVID-19 pandemic and the war between Ukraine and Russia has adversely affected global economic business conditions. Future sales of products like ours have and may continue to decline or fluctuate due to increased or fluctuating commodities prices, particularly gold prices. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic and the war between Ukraine and Russia, the ultimate impact, including the impact on our liquidity and capital resources, is highly uncertain and subject to change. The duration of any such impact cannot be predicted, and the Company believes additional liquidity may be necessary to support ongoing operations during this period of uncertainty. For more information, see Note 17 to our interim condensed consolidated financial statements.

The Company leases certain of its facilities under operating leases. For more information on the minimum rental commitments under non-cancellable operating leases as of June 30, 2022, see Note 12 to our interim condensed consolidated financial statements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 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 June 30, 2022, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective to provide reasonable assurance of the foregoing.

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

Changes in Internal Control over Financial Reporting

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

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in the Company’s 2021 Annual Report and the Company’s quarterly report on Form 10-Q for the period ended March 31, 2022, filed with the SEC on May 11, 2022.

For additional information on the COVID-19 pandemic, see Note 17 to our interim condensed consolidated financial statements.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF

PROCEEDS

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS

Exhibit Number |  | Description |  | Filed Herein |  | Incorporated by Reference |  | Form |  | Date Filed with SEC |  | Exhibit Number
31.1 |  | Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002 by John R. Loftus |  | X |  |  |  |  |  |  |  |
31.2 |  | Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002 by Bret A. Pedersen |  | X |  |  |  |  |  |  |  |
32.1 |  | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by John R. Loftus |  | X |  |  |  |  |  |  |  |
32.2 |  | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Bret A. Pedersen |  | X |  |  |  |  |  |  |  |
101.INS |  | XBRL Instance Document |  | X |  |  |  |  |  |  |  |
101.SCH |  | XBRL Taxonomy Extension Schema Document |  | X |  |  |  |  |  |  |  |
101.CAL |  | XBRL Taxonomy Calculation Linkbase Document |  | X |  |  |  |  |  |  |  |
101.DEF |  | XBRL Taxonomy Definition Linkbase Document |  | X |  |  |  |  |  |  |  |
101.LAB |  | XBRL Taxonomy Label Linkbase Document |  | X |  |  |  |  |  |  |  |
101.PRE |  | XBRL Taxonomy Presentation Linkbase Document |  | X |  |  |  |  |  |  |  |
104* |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101) |  | X |  |  |  |  |  |  |  |

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SIGNATURES

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

| ENVELA CORPORATION (Registrant) |
Date: August 3, 2022 | By: | /s/ JOHN R. LOFTUS |
|  | John R. Loftus |
|  | Chief Executive Officer (Principal Executive Officer) |
Date: August 3, 2022 |  | /s/ BRET A. PEDERSEN |
|  | Bret A. Pedersen |
|  | Chief Financial Officer (Principal Accounting Officer) |

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