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What changed in Envela Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Envela Corp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+144 added−130 removedSource: 10-K (2024-03-21) vs 10-K (2023-03-16)

Top changes in Envela Corp's 2023 10-K

144 paragraphs added · 130 removed · 97 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeECHG operates from two leased warehouses in the Dallas/Fort Worth Metroplex (“DFW”), and one leased warehouse in Chandler, Arizona. DIRECT-TO-CONSUMER Authenticated Re-commerce Envela’s direct-to-consumer portfolio, spearheaded by DGSE, primarily buys to resell or recycle luxury hard assets like jewelry, diamonds, gemstones, fine watches, rare coins and related collectibles, precious-metal bullion products, gold, silver and other precious metals.
Biggest changeDIRECT-TO-CONSUMER Authenticated Re-commerce Envela’s direct-to-consumer portfolio primarily buys to resell or recycle luxury hard assets like jewelry, diamonds, gemstones, fine watches, rare coins and related collectibles, precious-metal bullion products, gold, silver and other precious metals. For over 50 years, Envela’s consumer segment has been a destination location for seeking value and liquidity in luxury goods.
Our experienced staff of experts, including GIA-graduate gemologists, horologists, numismatists, and jewelers and brand authenticators, recondition and rebuild items for resale through our retail locations, e-commerce, or wholesale distributors.
Our experienced staff of experts, including GIA-graduate gemologists, horologists, numismatists, jewelers and brand authenticators, recondition and rebuild items for resale through our retail locations, e-commerce, or wholesale distributors.
None of our employees is represented by a labor union or covered by a collective bargaining agreement. We consider our relations with our employees to be positive. Our management policy is to keep employees informed of material decisions that affect them, encourage employee suggestions, and implement them whenever practicable. Diversity and Inclusion We are proud to have a diverse team.
None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relations with our employees to be positive. Our management policy is to keep employees informed of material decisions that affect them, encourage employee suggestions, and implement them whenever practicable. Diversity and Inclusion We are proud to have a diverse team.
In 2016, after recently celebrating its 50th anniversary, it was named by S&P Global Market Intelligence as the second most likely company to go bankrupt, behind Sears Holdings. Aiming to turn the Company around, the board of directors (its “Board”) brought in new management. On December 12, 2016, John Loftus was named CEO, and transformation of the business began.
In 2016, after celebrating its 50th anniversary, it was named by S&P Global Market Intelligence as the second most likely company to go bankrupt, behind Sears Holdings. Aiming to turn the Company around, the board of directors (its “Board”) brought in new management. On December 12, 2016, John Loftus was named CEO, and transformation of the business began.
Additionally, our website contains complete copies of our policies (Business Code of Conduct & Ethics), committee charters (Audit; Compliance, Governance and Nominating; and Compensation), and information about how to communicate with our Board. Many of our subsidiaries and brands maintain their own websites for commercial purposes, including primarily the following: DGSE.com, echoenvironmental.com, ITADUSA.com, teladvance.com and AvailRecovery.com.
Additionally, our website contains complete copies of our policies (Business Code of Conduct & Ethics), committee charters (Audit; Compliance, Governance and Nominating; and Compensation), and information about how to communicate with our Board. Many of our subsidiaries and brands maintain their own websites for commercial purposes, including primarily the following: DGSE.com, echoenvironmental.com, ITADUSA.com, teladvance.com, AvailRecovery.com and StevenKretchmer.com.
When reconditioning is not feasible because crafted precious metals are at the end of their useful lives, we sell them wholesale channels or recycle them by selling them to third-party refiners who recover reusable precious metals for subsequent sale or recrafting into new jewelry or bullion products.
When reconditioning is not feasible because crafted precious metals are at the end of their useful lives, we sell them through wholesale channels or recycle them by selling them to third-party refiners who recover reusable precious metals for subsequent sale or recrafting into new jewelry or bullion products.
For many employees, that day marked the “true founding” of the Company. Under this new leadership, the Company has posted six straight years of unprecedented profitability. By pursuing diversified re-commerce opportunities with potential long-term rewards, we continued to evolve as a company.
For many employees, that day marked the “true founding” of the Company. Under this new leadership, the Company has posted seven straight years of unprecedented profitability. By pursuing diversified re-commerce opportunities with potential long-term rewards, we continued to evolve as a company.
A circular economy is a sustainable economic system that aims to increase the lifespan of manufactured goods and thereby reduce waste and pollution for a cleaner environment. Re-commerce is an integral part of circular economies, and it’s a business model that’s sustainable to its core.
A circular economy is a sustainable economic system that aims to increase the lifespan of manufactured goods and thereby reducing waste and pollution for a cleaner environment. Re-commerce is an integral part of circular economies, and it’s a business model that’s sustainable to its core.
Through a deep understanding of our clients’ business goals, we’re able to exceed their evolving needs and maintain a differentiated position in this marketplace. When clients upgrade their IT equipment, ECHG purchases the replaced assets. They can then be resold as whole goods, harvested for components to re-use, or recycled if not reusable.
Through a deep understanding of our clients’ business goals, we’re able to exceed their evolving needs and maintain a differentiated position in this marketplace. When clients upgrade their IT equipment, our commercial services division purchases the replaced assets. They can then be resold as whole goods, harvested for components to re-use, or recycled if not reusable.
GOVERNMENT REGULATIONS, ENVIRONMENTAL MATTERS AND IMPACT OF CLIMATE CHANGE Envela buys and resells precious metals, which are generally subject to regulation including conflict mineral tracing.
GOVERNMENT REGULATIONS, ENVIRONMENTAL MATTERS AND IMPACT OF CLIMATE CHANGE Envela buys and resells precious metals, which is generally subject to regulation including conflict mineral tracing.
We experience some seasonal fluctuations that can impact demand with our commercial clients. Our business is subject to fluctuations as device trade-in and upgrade volumes can be based on the release of new devices and promotional programs, as well as customer preferences.
There can be some seasonal fluctuations that can impact demand with our commercial clients. Our business is subject to fluctuations as device trade-in and upgrade volume can be based on the release of new devices and promotional programs, as well as customer preferences.
Our supply tends to increase in the third and fourth quarters, and our demand tends to increase in the fourth quarter. As a result, we typically incur higher operating expenses in the last four months of the year as we increase advertising spend. DGSE operates six retail locations throughout DFW, and one in Mt. Pleasant, South Carolina.
Our supply tends to increase in the third and fourth quarters, and our demand tends to increase in the fourth quarter. As a result, we typically incur higher operating expenses in the last four months of the year as we increase advertising spend. The consumer segment operates six retail locations throughout DFW, one in Mt.
Sales and operating results for these brands are reported within their respective DGSE operating segments. 5 Table of Contents PART I Item 1 CORPORATE INFORMATION HISTORY The Company incorporated in the State of Nevada on September 16, 1965, as Canyon State Mining Corporation of Nevada.
Sales and operating results for these brands are reported within the consumer operating segment. 5 Table of Contents PART I Item 1 CORPORATE INFORMATION HISTORY The Company incorporated in the State of Nevada on September 16, 1965, as Canyon State Mining Corporation of Nevada.
For over 50 years, DGSE has been a destination location for seeking value and liquidity in luxury goods. Our direct-to-consumer business provides a marketplace that delivers what we believe to be unparalleled value and liquidity for those seeking to buy, sell or trade merchandise in every major jewelry, fine watch, diamond, gemstone, finding, precious metal, and premium brand product category.
Our direct-to-consumer business provides a marketplace that delivers what we believe to be unparalleled value and liquidity for those seeking to buy, sell or trade merchandise in every major jewelry, fine watch, diamond, gemstone, finding, precious metal, and premium brand product category.
Our commercial-services portfolio offers custom re-commerce solutions to meet the needs of diverse clients, including Fortune 500 companies. HOW WE ORGANIZE OUR BUSINESS Envela is a diverse re-commerce company that manages its business through two operating segments. Its commercial-services segment is led by subsidiary ECHG, LLC (“ECHG”), and its direct-to-consumer segment is led by subsidiary DGSE, LLC (“DGSE”).
Our commercial-services portfolio offers custom re-commerce solutions to meet the needs of diverse clients, including Fortune 500 companies. HOW WE ORGANIZE OUR BUSINESS Envela is a diverse re-commerce company that manages its business through two operating segments. Its commercial-services segment, and its consumer segment. Envela reports its revenue and operating expenses based on these two operating segments.
Envela reports its revenue and operating expenses based on these two operating segments. We also include segment information in the notes to our financial statements. COMMERCIAL SERVICES Re-commerce through Intelligent Reuse & Responsible Recycling Envela’s commercial services portfolio, led by ECHG and its subsidiaries, provides asset- disposition solutions to government agencies, middle-market firms, major corporations, and other organizations.
We also include segment information in the notes too our financial statements. COMMERCIAL SERVICES SEGMENT Re-commerce through Intelligent Reuse & Responsible Recycling Envela’s commercial services portfolio provides asset- disposition solutions to government agencies, middle-market firms, major corporations, and other organizations.
Solely for convenience, the trademarks, service marks, logos and trade names referred to in this document are without the “®” and “™” symbols, but such references are not intended to indicate that we waive or will not assert our rights in them. 6 Table of Contents PART I Item 1 ENVIRONMENTAL, SOCIAL AND GOVERNANCE Our stakeholders are essential to our business—shareholders, employees, and the communities in which we do business.
Solely for convenience, the trademarks, service marks, logos and trade names referred to in this document are without the “®” and “™” symbols, but such references are not intended to indicate that we waive or will not assert our rights in them.
Most purchases are through non-exclusive, cancelable agreements. 4 Table of Contents PART I Item 1 Envela’s commercial-services segment markets its products directly to prospective clients through several wholly owned subsidiary brands including ITAD USA; Echo Environmental; Teladvance; and Avail Recovery Solutions. Sales and operating results for these brands are reported within their respective ECHG operating segments.
Envela’s commercial-services segment markets its products directly to prospective clients through several wholly owned subsidiary brands including ITAD USA; Echo Environmental; Teladvance; and Avail Recovery Solutions. Sales and operating results for these brands are reported within their respective commercial operating segments. Commercial-services operates from two leased warehouses in the Dallas/Fort Worth Metroplex (“DFW”) and one leased warehouse in Chandler, Arizona.
We believe diversity and inclusion foster a collaborative culture, which fuels our ability to innovate as we work to create a more sustainable future. As of December 31, 2022, we had 257 full-time equivalent employees. Additionally, we rely on independent contractors and temporary personnel to supplement our workforce, primarily in our electronic-disposition centers.
We believe diversity and inclusion foster a collaborative culture, which fuels our ability to innovate as we work to create a more sustainable future. 6 Table of Contents PART I Item 1 As of December 31, 2023, we had 288 full-time equivalent employees.
Our business is also subject to volatility in margins based on the actual and anticipated timing of the release of new devices and promotional programs, as well as to changes in customer preferences.
Our business is also subject to volatility in margins based on the actual and anticipated timing of the release of new devices and promotional programs, as well as to changes in customer preferences. Most purchases are through non-exclusive, cancelable agreements. 4 Table of Contents PART I Item 1 We maintain relationships with refining partners for many commodity components.
We opened our newest location in Frisco, Texas, during the first quarter of Fiscal 2022. We own three retail locations in the DFW area and lease the others. Our direct-to-consumer brands include Dallas Gold & Silver Exchange, Charleston Gold & Diamond, and Bullion Express.
The Company purchased another building in the Phoenix area, during Fiscal 2023, which is currently being prepared to be the ninth retail location. Our direct-to-consumer brands include Dallas Gold & Silver Exchange, Charleston Gold & Diamond, and Bullion Express.
In this way, sustainability is at the core of our business, and we hope to create a more sustainable future. Human Capital Resources Our employees are guided by our mission to extend the lifespans of durable goods. We are part of a diverse global community, and we aim to reflect that diversity within our team.
We are part of a diverse global community, and we aim to reflect that diversity within our team.
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We aspire to operate our business with positive social and environmental impact. Our Board, including the Corporate Governance and Nominating Committee, the Audit Committee, and the Compensation Committee, provide oversight on business initiatives and programs that relate to social responsibility, emerging opportunities and the Company’s exposure to risk.
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Management believes no single partner accounted for a material amount of the company’s consolidated sales in 2023. The Company believes that many of the products we sell are marketable to numerous sources at competitive prices.
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The Board and management seek to attract and retain the most qualified inclusive workforce to propel the Company into the next generation. Our Sustainability Program We are committed to extending the useful lives of goods by promoting their recirculation and re-use, rather than creating waste.
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Pleasant, South Carolina and one in Phoenix, Arizona. We opened our newest location in Phoenix, Arizona, during the fourth quarter of Fiscal 2023 (as defined below). The Company owns three retail locations in the DFW area, and leases the others.
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE Our stakeholders are essential to our business—shareholders, employees, and the communities in which we do business. We aspire to operate our business with positive social and environmental impact. Human Capital Resources Our employees are guided by our mission to extend the lifespan of durable goods.
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Additionally, we rely on independent contractors and temporary personnel to supplement our workforce, primarily in our electronic-disposition centers. The consumer segment is currently developing and training a workforce to help manage and run the new locations that have been opened and are scheduled to open in the Phoenix area during 2024.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSustained geopolitical conflicts, military action and civil unrest could result in disruptions to the global supply chain and uncertain economic conditions, which could materially adversely affect our financial condition. U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions between Ukraine and Russia, which has devolved into military conflict.
Biggest changeIn addition, fluctuations in demand and other implications associated with public health emergencies have resulted in, and could in the future result in, certain supply chain constraints and challenges. Sustained geopolitical conflicts, military action and civil unrest could result in disruptions to the global supply chain and uncertain economic conditions, which could materially adversely affect our financial condition.
Given the timing of the annual seasonality, inclement weather can at times pose a substantial barrier to consumer retail activity and have a material negative impact on DGSE’s store traffic. If events or circumstances were to occur that negatively impact consumer spending during such holiday seasons, it could have a material adverse effect on sales, profitability and operating results.
Given the timing of the annual seasonality, inclement weather can at times pose a substantial barrier to consumer retail activity and have a material negative impact on store traffic. If events or circumstances were to occur that negatively impact consumer spending during such holiday seasons, it could have a material adverse effect on sales, profitability and operating results.
The time periods around Valentine’s Day, Mother’s Day and Christmas are typically the main seasons for jewelry sales. DGSE’s sales are traditionally greater during significant holidays that occur in early spring, late fall, and winter. The amount of net sales and operating income generated during these seasons depends upon the general economic conditions and other factors beyond our control.
The time periods around Valentine’s Day, Mother’s Day and Christmas are typically the main seasons for jewelry sales. Sales are traditionally greater during significant holidays that occur in early spring, late fall, and winter. The amount of net sales and operating income generated during these seasons depends upon the general economic conditions and other factors beyond our control.
Competition for employees is intense, and the Company may be unsuccessful in attracting or retaining qualified personnel. There are a limited number of people with knowledge and experience within our industries. The Company does not have employment agreements with many of the key employees and do not maintain life insurance policies on any of the key personnel.
Competition for employees is intense, and the Company may be unsuccessful in attracting or retaining qualified personnel. There are a limited number of people with knowledge and experience within our industries. The Company does not have employment agreements with many of the key employees and does not maintain life insurance policies on any of the key personnel.
Consumer demand for the Company’s products can affect inventory levels. If consumer demand is lower than expected, inventory levels can rise, causing a strain on operating cash flow. If the inventory cannot be sold through retail outlets or wholesale contacts, additional write-downs or write-offs to earnings could be necessary.
Consumer demand for the Company’s products can affect inventory levels. If consumer demand is lower than expected, inventory levels can rise, causing a strain on operating cash flow. If the inventory cannot be sold through retail outlets or wholesale contacts, write-downs or write-offs to earnings could be necessary.
Our mobile business is subject to the risk of declines in the value and availability of mobile devices in our inventory, and to export compliance and other risks. The value of the electronic devices that we collect and refurbish may fall below the prices we have paid, which could adversely affect our profitability.
Our mobile device business is subject to the risk of declines in the value and availability of devices in our inventory, and to export compliance and other risks. The value of the electronic devices that we collect and refurbish may fall below the prices we have paid, which could adversely affect our profitability.
Significant price fluctuations in precious metals, especially downward, can have a severe impact on this part of our business, as people are less likely to sell these products to the Company if they believe their merchandise is being undervalued, or if they believe the value is uncertain.
Significant price fluctuations in precious metals, especially downward, could have a severe impact on this part of our business, as people are less likely to sell these products to the Company if they believe their merchandise is being undervalued, or if they believe the value is uncertain.
If DGSE’s brands do not offer the same or similar items at the lowest prices, consumers may purchase their jewelry from competitors, which would adversely impact the Company’s sales and results of operations. 11 Table of Contents PART I Item 1A A decrease in demand for the Company’s products and services and the failure of the Company to adapt to such decreases could adversely affect the Company’s results of operations.
If our consumer brands do not offer the same or similar items at the lowest prices, consumers may purchase their jewelry from competitors, which would adversely impact the Company’s sales and results of operations. 11 Table of Contents PART I Item 1A A decrease in demand for the Company’s products and services and the failure of the Company to adapt to such decreases could adversely affect the Company’s results of operations.
DGSE’s wholesale and retail jewelry business is seasonal, with sales traditionally greater during certain holiday seasons. Events and circumstances that adversely affect holiday consumer spending will have a disproportionately adverse effect on DGSE’s operational results. DGSE’s wholesale and retail jewelry sales are seasonal by nature.
Consumer wholesale and retail jewelry business is seasonal, with sales traditionally greater during certain holiday seasons. Events and circumstances that adversely affect holiday consumer spending will have a disproportionately adverse effect on operational results. The consumer wholesale and retail jewelry sales are seasonal by nature.
Moreover, any sustained increases in the cost of commodities could result in the need to fund a higher level of inventory or to make changes in the merchandise available to customers. A significant portion of DGSE’s profit is generated from buying and selling pre-owned jewelry or other precious-metal-based products.
Moreover, any sustained increases in the cost of commodities could result in the need to fund a higher level of inventory or to make changes in the merchandise available to customers. A significant portion of the consumer segment’s profit is generated from buying and selling pre-owned jewelry or other precious-metal-based products.
A substantial portion of ECHG’s inventory is purchased from suppliers with which the Company has entered into non-exclusive agreements. These agreements are typically cancelable on short notice.
A substantial portion of their inventory is purchased from suppliers with which the Company has entered into non-exclusive agreements. These agreements are typically cancelable on short notice.
If the Company is unable to maintain its relationships with its suppliers or if the suppliers materially change the terms of their existing agreements with the company, the Company’s business could be materially adversely affected. Certain parts of ECHG’s business comes from a limited number of partners.
If the Company is unable to maintain its relationships with its suppliers or if the suppliers materially change the terms of their existing agreements with the company, the Company’s business could be materially adversely affected. Certain parts of our commercial business comes from a limited number of partners.
The broader consequences of the conflict, which may include further sanctions, embargoes, regional instability, geopolitical shifts, transportation bans on certain shipping routes and potential retaliatory action by the Russian government against the United States and its allies. This may lead to economic instability, sustained inflation and changes in liquidity and credit availability.
The broader consequences of the conflicts, which may include further sanctions, embargoes, regional instability, geopolitical shifts, transportation bans on certain shipping routes and potential retaliatory action by the Russian and Iranian governments against the United States and its allies. This may lead to economic instability, sustained inflation and changes in liquidity and credit availability.
Jewelry and watch retailing is highly fragmented and competitive. DGSE competes for jewelry sales primarily against specialty jewelers and other retailers that sell jewelry and watches including department stores, discount stores, apparel outlets, and internet retailers.
Jewelry and watch retailing is highly fragmented and competitive. The consumer division competes for jewelry sales primarily against specialty jewelers and other retailers that sell jewelry and watches including department stores, discount stores, apparel outlets, and internet retailers.
The Company has a solid footprint in DFW, but it is not guaranteed that the Company will be able find staff, train and supervise new employees away from the Company’s base of operations for both DGSE and ECHG.
The Company has a solid footprint in DFW, but it is not guaranteed that the Company will be able find staff, train and supervise new employees away from the Company’s base of operations for both the consumer and commercial segments.
Any of the factors could adversely impact our business, financial condition, results of operations. 14 Table of Contents PART I Item 1B, 2, 3, 4 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Any of the factors could adversely impact our business, financial condition, results of operations 14 Table of Contents PART I Item 1B, 2, 3, 4
N10TR, LLC (“N10TR”) is the Company’s largest shareholder, owning 12,814,727 shares of Common Stock, representing 47.6% of the total outstanding shares of Common Stock, as of December 31, 2022. Eduro Holdings, LLC (“Eduro”) owns 6,365,460 shares of Common Stock, representing 23.6% of the total outstanding shares of Common Stock, as of December 31, 2022.
N10TR, LLC (“N10TR”) is the Company’s largest shareholder, owning 12,814,727 shares of Common Stock, representing 48.3% of the total outstanding shares of Common Stock, as of December 31, 2023. Eduro Holdings, LLC (“Eduro”) owns 6,365,460 shares of Common Stock, representing 24.0% of the total outstanding shares of Common Stock, as of December 31, 2023.
A decrease in these ratings would likely increase the Company’s borrowing cost and make it more difficult to obtain financing. A significant increase in costs to finance operations may have a material adverse impact on Envela’s business results and financial condition. We may not realize our deferred tax assets.
A decrease in these ratings would likely increase the Company’s borrowing cost and make it more difficult to obtain financing. A significant increase in costs to finance operations may have a material adverse impact on Envela’s business results and financial condition. High interest rates and interest-rate fluctuations could increase our interest expense.
Interest rates could continue to rise, which would increase our borrowing cost, or could make it difficult or impossible to secure financing. 9 Table of Contents PART I Item 1A The Company is, and will be, subject to new and existing corporate-governance and internal-control demands and reporting requirements.
Interest rates rose significantly during 2022 and 2023 as the Federal Reserve sought to control inflation. High interest rates and interest rates that continue to rise, may increase our borrowing cost, or could make it difficult or impossible to secure financing. The Company is, and will be, subject to new and existing corporate-governance and internal-control demands and reporting requirements.
Also, if the responses of parts of the Company’s supply chain to verification requests were adverse, it could harm our ability to obtain merchandise and add to compliance costs. The coronavirus (COVID-19) pandemic adversely affected us and a reoccurrence of the pandemic or similar outbreaks could in the future adversely affect our business, financial condition, and results of operations.
Also, if the responses of parts of the Company’s supply chain to verification requests were adverse, it could harm our ability to obtain merchandise and add to compliance costs.
These laws, rules and regulations continue to evolve and may become increasingly stringent in the future. If the Company does not comply with the corporate governance reforms, the Company could face enforcement actions by the SEC or other governmental or regulatory bodies, as well as shareholder lawsuits, all of which could have significant negative financial or operational implications.
If the Company does not comply with the corporate governance reforms, the Company could face enforcement actions by the SEC or other governmental or regulatory bodies, as well as shareholder lawsuits, all of which could have significant negative financial or operational implications. 9 Table of Contents PART I Item 1A We have not paid dividends on our Common Stock in the past and do not anticipate paying dividends on our Common Stock in the foreseeable future.
Our current business plan provides for reinvesting earnings in an effort to complete development of our technologies, inventories and expansion, with the goal of increasing sales and long-term profitability and value. We may incur losses because of unforeseen or catastrophic events, including pandemics, terrorist attacks, extreme weather events or other natural disasters.
We have not paid Common Stock dividends and do not anticipate paying dividends in the foreseeable future. Our current business plan provides for reinvesting earnings in an effort to complete development of our technologies, inventories and expansion, with the goal of increasing sales and long-term profitability and value.
In addition, the United States, Canada, the European Union, and other countries have levied economic sanctions and other penalties on Russia. Although the length and full impact of the ongoing conflict remains uncertain, the events in Ukraine have resulted in market disruptions.
Although the length and full impact of the ongoing conflicts remain uncertain, the events in Ukraine, Israel and the Middle East have resulted in market disruptions.
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As of December 31, 2022, we had deferred tax assets (primarily consisting of federal net operating loss carryovers) of approximately $1.5 million. The ultimate realization of our deferred tax assets is dependent upon generating future taxable income to utilize our net operating loss carryovers before they expire.
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These laws, rules and regulations continue to evolve and may become increasingly stringent in the future.
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The value of our deferred tax assets and liabilities are also dependent upon the tax rates expected to be in effect at the time they are realized. A change in enacted corporate tax rates in our major jurisdictions, especially the U.S. federal corporate tax rate, would change the value of our deferred taxes, which could be material.
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We may incur losses because of unforeseen or catastrophic events, including pandemics, terrorist attacks, extreme weather events or other natural disasters.
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Interest-rate fluctuations could increase our interest expense. Interest rates rose significantly during 2022 as the Federal Reserve sought to control inflation, and interest rates are likely to rise higher during 2023.
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Public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases have disrupted, and could in the future disrupt, our operations and materially and adversely affect our business, financial condition, and results of operations.
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We have not paid dividends on our Common Stock in the past and do not anticipate paying dividends on our Common Stock in the foreseeable future. We have not paid Common Stock dividends and do not anticipate paying dividends in the foreseeable future.
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Widespread public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases, such as the COVID-19 pandemic, have had, and could in the future have, a material adverse effect on our business, financial condition, and results of operations.
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On March 11, 2020, the World Health Organization announced that infections of the coronavirus COVID-19 had become a pandemic, and on March 13, 2020, the U.S. President announced a National Emergency relating to the disease. There was widespread infection in the United States and abroad.
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The full extent to which a global health crisis may impact our business and operating results would depend on future developments that are highly uncertain and cannot be accurately predicted, including new medical and other information that may emerge as a result and the actions by governmental entities or others to contain it or treat its impact.
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National, state, and local authorities implemented social distancing and imposed quarantine and isolation measures on large portions of the population, including temporary mandatory business closures. These measures, while intended to protect human life, had serious adverse impact on domestic and foreign economies.
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The impacts of a severe health crisis could pose the risk that we or our employees, suppliers, customers and others may be restricted or prevented from conducting, or adversely modify, our business activities for indefinite or intermittent periods of time, including as a result of employee health and safety concerns, shutdowns, shelter in place orders, travel restrictions and other actions and restrictions that may be prudent or required by governmental authorities.
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The U.S. and certain other governments took unprecedented actions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. The impact of the actions taken by these governments is still being felt.
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A global health crisis could also impact our customers’ purchasing behavior or decisions, including reduced demand for our products that could continue for an extended period of time.
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Any or all of the foregoing in jurisdictions where we or our customers, suppliers, or operations are located have had and could in the future have a material adverse effect on our business, results of operations, cash flows, and financial condition.
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U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions between Ukraine and Russia, Israel and Gaza, and the Middle East. Those of which have devolved into military conflicts. In addition, the United States, Canada, the European Union, and other countries have levied economic sanctions and other penalties on Russia.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES The Company leases and owns various properties across three markets in which DGSE and ECHG currently operate. Nine leased and owned properties are in DFW, one is in Mount Pleasant, South Carolina and one is in Chandler, Arizona, a suburb of Phoenix. The leases have a wide variety of terms, rents and expiration dates.
Biggest changeNine of the properties are located in DFW, one is in Mount Pleasant, South Carolina and three are in the Phoenix area. The leases have a wide variety of terms, rents and expiration dates. The consumer segment owns three of their retail locations in DFW and one in the Phoenix area, which is currently being prepared as a retail location.
Our principal corporate office building is owned by the Company and is located at 1901 Gateway Drive, Irving, Texas 75038. For addition information about encumbrances on properties the Company owns, see Note 9 to our consolidated financial statements. For additional information about the nature of the Company’s leases, see Note 15 to the Company’s consolidated financial statements.
Our principal corporate office building is owned by the Company, as stated earlier, and is located at 1901 Gateway Drive, Irving, Texas 75038. For addition information about encumbrances on properties the Company owns, see Note 9 to our consolidated financial statements. For additional information about the nature of the Company’s leases, see Note 15 to the Company’s consolidated financial statements.
ECHG leases all three of their locations, two of which are in DFW and the other being in Chandler, Arizona, with leases expiring starting in 2025 through 2027, with one lease having a right of renewal. DGSE and ECHG are constantly evaluating each of their locations in terms of profitability, effectiveness and fit with long-term sustainability.
The commercial segment leases all three of their locations, two of which are in DFW and the other being in Chandler, Arizona. The leases begin to expire starting in 2025 through 2027, with one lease having a right of renewal. Both segments are constantly evaluating each of their locations in terms of profitability, effectiveness and fit with long-term sustainability.
In management’s opinion, these properties have been well maintained, are in good operating condition and contain all necessary equipment and facilities for their intended purposes.
In management’s opinion, these properties have been well maintained, are in good operating condition and contain all necessary equipment and facilities for their intended purposes. 15 Table of Contents PART I Item 1B, 2, 3, 4
DGSE owns three of their retail locations and leases another four in DFW. The four leased locations have leases expiring starting in 2025 through 2027 with rights of renewal for three of the properties.
They lease another three in DFW, one in Mount Pleasant, South Carolina, and one in the Phoenix area. The five leased locations have leases expiring starting in 2024 through 2027, with rights of renewal for three of the properties.
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ITEM 2. PROPERTIES The Company leases eight properties and owns five other properties across three markets in which the consumer and commercial segments currently operate. Included in the owned properties is the Company’s corporate headquarters located in Irving, Texas.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS There are various claims, lawsuits and pending actions against the Company arising in the normal course of the Company’s business. It is the opinion of management that the ultimate resolution of these matters will not have a material effect on the Company’s financial condition, results of operations or cash flows. ITEM 4.
Biggest changeITEM 3. LEGAL PROCEEDINGS There are various claims, lawsuits and pending actions against the Company arising in the normal course of the Company’s business. It is the opinion of management that the ultimate resolution of these matters will not have a material effect on the Company’s financial condition, results of operations or cash flow. ITEM 4.
MINE SAFETY DISCLOSURES Not applicable. 15 Table of Contents PART II Item 5, 6 PART II
MINE SAFETY DISCLOSURES Not applicable. 16 Table of Contents PART II Item 5, 6 PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 15 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 16 Item 6. [Reserved] 16 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 27 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 16 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 17 Item 6. [Reserved] 17 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 29 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSHARE REPURCHASES AND DIVIDENDS Envela has not declared any dividends with respect to Common Stock. Management’s intent is to retain all current earnings to finance future growth; accordingly, it is not anticipated that cash or other dividends will be paid to the Company’s shareholders of Common Stock in the near future. Securities authorized for issuance under equity compensation plans.
Biggest changeSHARE REPURCHASES AND DIVIDENDS Envela has not declared any dividends with respect to Common Stock. Management’s intent is to retain all current earnings to finance future growth; accordingly, management is not anticipating that cash or other dividends will be paid to the Company’s shareholders of Common Stock in the near future.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET AND STOCKHOLDERS The Company’s Common Stock is traded on the Exchange, under the symbol “ELA.” As of March 10, 2023, we had 268 record holders of our Common Stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET AND STOCKHOLDERS The Company’s Common Stock is traded on the Exchange, under the symbol “ELA.” As of March 15, 2024, we had 257 record holders of our Common Stock.
Removed
On December 7, 2016, the Company’s shareholders approved the adoption of the 2016 Equity Incentive Plan (the “2016 Plan”), which reserves 1,100,000 shares of Common Stock for issuance pursuant to awards issued thereunder. As of December 31, 2022, no awards had been made under the 2016 Plan.
Added
Unregistered Sales of Equity Securities On March 14, 2023, a stock repurchase program was unanimously approved by the Company’s Board of Directors (the “Board”), that gave management authorization to purchase up to one million (1,000,000) shares of the Company’s stock, at a per-share price not to exceed $9, on the open market. The plan expires on March 31, 2026.
Removed
The Company’s prior 2006 Equity Incentive Plan (the “2006 Plan”) expired according to its terms on December 31, 2019, and as a result no further shares may be issued under the 2006 Plan. No securities issued pursuant to the 2006 Plan remain issuable upon the exercise of any option, warrants or rights.
Added
The following lists the repurchase of Company shares as of December 31, 2023: Total Number of shares Maximum number purchased as part of a of shares that may publicly announced Average Price Total Price yet be purchased under Fiscal Period plan or program (1) (2) Paid per Share ($) Paid $ the plan or program Beginning Balance 1,000,000 May 1 - 31, 2023 17,029 6.73 114,623 982,971 June 1 - 30, 2023 10,392 7.72 80,201 972,579 August 1 - 31, 2023 197,210 5.70 1,123,532 775,369 November 1 - 30, 2023 96,089 4.01 385,547 679,280 December 1 - 31, 2023 95,253 4.74 451,146 584,027 Total 415,973 $ 5.18 $ 2,155,049 584,027 (1) All shares were purchased in open-market transactions through the stock repurchase program approved by the Board on March 14, 2023, for the repurchase of up to one million shares of the Company’s common stock.
Removed
However, 15,000 options issued pursuant to the Company’s 2004 Employee Stock Option Plan (the “2004 Employee Stock Option Plan”) remain unexercised and have no expiration date. For more information, see Note 13 to our consolidated financial statements.
Added
(2) The stock repurchase program was publicly announced on May 3, 2023, and expires March 31, 2026. Repurchases under the stock repurchase program began on May 10, 2023.
Removed
The following table summarizes the equity compensation plan information as of December 31, 2022: Plan Category Column (a): Number of securities to be issued upon exercise of outstanding options, warrants and rights Column (b): Weighted-average exercise price of outstanding options, warrants and rights Column ©: Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Equity compensation plans approved by security holders 15,000 (1) 2.17 1,100,000 (2) Equity compensation plans not approved by security holders N/A N/A N/A Total 15,000 2.17 1,100,000 (1) Represents 15,000 options issued under the 2004 Employee Stock Option Plan, which remain unexercised and have no expiration date.
Removed
(2) The total number of securities remaining available for future issuance is solely comprised of shares of Common Stock reserved under the 2016 Plan. Purchases of equity securities by the issuer and affiliates purchases.
Removed
There have been no purchases made by or on behalf of the issuer or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act of any of our equity securities during the years ended December 31, 2022 and December 31, 2021.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe recycled-material gross profit increase is primarily due to a slight increase in recycled-material revenue and the margin percentage increasing from 34.5% during Fiscal 2021 to 54.7% during Fiscal 2022 21 Table of Contents PART II Items 7 For the Years Ended December 31, 2022 December 31, 2021 DGSE ECHG Consolidated DGSE ECHG Consolidated Revenue: Sales $ 131,107,433 $ 51,578,421 $ 182,685,854 $ 96,719,259 $ 44,246,819 $ 140,966,078 Cost of goods sold 114,872,994 22,985,774 137,858,768 84,111,097 25,633,822 109,744,919 Gross profit 16,234,439 28,592,647 44,827,086 12,608,162 18,612,997 31,221,159 Expenses: Selling, general and administrative expenses 8,762,432 20,668,291 29,430,723 7,628,377 13,169,718 20,798,095 Depreciation and amortization 410,759 1,041,075 1,451,834 389,703 536,392 926,095 9,173,191 21,709,366 30,882,557 8,018,080 13,706,110 21,724,190 Operating income 7,061,248 6,883,281 13,944,529 4,590,082 4,906,887 9,496,969 Other income/expense : Other income from loan forgiveness - - - 675,210 992,990 1,668,200 Other income (expense) 61,686 857,005 918,691 238,585 (538,020 ) (299,435 ) Interest expense 244,202 239,491 483,693 288,236 415,815 704,051 Income before income taxes 6,878,732 7,500,795 14,379,527 5,215,641 4,946,042 10,161,683 Income tax expense (benefit) (1,426,697 ) 117,091 (1,309,606 ) 45,124 67,684 112,808 Income from continuing operations $ 8,305,429 $ 7,383,704 $ 15,689,133 $ 5,170,517 $ 4,878,358 $ 10,048,875 Selling, General and Administrative Year Ended December 31, Change 2022 2021 Amount % Selling, General and Administrative DGSE $ 8,762,432 $ 7,628,377 $ 1,134,055 15 % ECHG $ 20,668,292 $ 13,169,718 $ 7,498,574 57 % Selling, general and administrative expenses for DGSE increased $1,134,055, or 15% in Fiscal 2022 compared to Fiscal 2021.
Biggest changeFor the Years Ended December 31, 2023 December 31, 2022 Consumer Commercial Consolidated Consumer Commercial Consolidated Revenue: Sales $ 129,413,669 $ 42,260,419 $ 171,674,088 $ 131,107,433 $ 51,578,421 $ 182,685,854 Cost of goods sold 113,765,111 16,252,447 130,017,558 114,872,994 22,985,774 137,858,768 Gross profit 15,648,558 26,007,972 41,656,530 16,234,439 28,592,647 44,827,086 Expenses: Selling, general and administrative expenses 10,640,840 20,896,837 31,537,677 8,762,432 20,668,291 29,430,723 Depreciation and amortization 325,227 1,036,837 1,362,064 410,759 1,041,075 1,451,834 10,966,067 21,933,674 32,899,741 9,173,191 21,709,366 30,882,557 Operating income 4,682,491 4,074,298 8,756,789 7,061,248 6,883,281 13,944,529 Other income/expense : Other income 83,806 643,976 727,782 61,686 857,005 918,691 Interest expense 192,393 270,808 463,201 244,202 239,491 483,693 (108,587 ) 373,168 264,581 (182,516 ) 617,514 434,998 Income before income taxes 4,573,904 4,447,466 9,021,370 6,878,732 7,500,795 14,379,527 Income tax expense (benefit) 927,157 946,761 1,873,918 (1,426,697 ) 117,091 (1,309,606 ) Income from continuing operations $ 3,646,747 $ 3,500,705 $ 7,147,452 $ 8,305,429 $ 7,383,704 $ 15,689,133 Selling, General and Administrative Year Ended December 31, Change 2023 2022 Amount % Selling, General and Administrative Consolidated $ 31,537,677 $ 29,430,724 $ 2,106,953 7 % Consumer ( f/k/a DGSE) $ 10,640,840 $ 8,762,432 $ 1,878,408 21 % Commercial (f/k/a ECHG) $ 20,896,837 $ 20,668,292 $ 228,545 1 % SG&A expenses increased by $2,106,953, or 7%, in Fiscal 2023 to $31,537,677, as compared to $29,430,724 during Fiscal 2022.
The used electronics processing business is subject to cyclical fluctuations based upon product availability, promotions, seasonality, and supply chain constraints. In our ECHG segment, we compete primarily on price and on the services, we provide to clients. The price offered for devices is the principle competitive factor in acquiring material from generators.
The used electronics processing business is subject to cyclical fluctuations based upon product availability, promotions, seasonality, and supply chain constraints. In our commercial segment, we compete primarily on price and on the services, we provide to clients. The price offered for devices is the principle competitive factor in acquiring material from generators.
For the year ended December 31, 2022, we have not identified critical accounting estimates that involve a significant level of estimation uncertainty and would have a material impact on our results. Refer to our significant accounting policies are more fully described in Note 1—Summary of Significant Accounting Policies.
For the year ended December 31, 2023, we have not identified critical accounting estimates that involve a significant level of estimation uncertainty and would have a material impact on our results. Refer to our significant accounting policies are more fully described in Note 1—Summary of Significant Accounting Policies.
Prior year comparisons for 2022 and 2021, are included in “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal years ended December 31, 2022 and 2021.
Prior year comparisons for 2023 and 2022, are included in “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal years ended December 31, 2023 and 2022.
The preparation of these financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods.
GAAP”) principles. The preparation of these financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods.
Because DGSE buys and resells precious metals, it is impacted by fluctuations and changes in precious-metal pricing which rises and falls based upon global supply and demand dynamics, with the greatest impact relating to gold as it represents a significant portion of the precious-metal in which DGSE trades.
Because the consumer segment buys and resells precious metals, it is impacted by fluctuations and changes in precious-metal pricing which rises and falls based upon global supply and demand dynamics, with the greatest impact relating to gold as it represents a significant portion of the precious-metal in which it trades.
Whitley Penn LLP and our management team each have full and free access to the Audit Committee. 26 Table of Contents PART II Items 7, 7A
Whitley Penn LLP and our management team each have full and free access to the Audit Committee. 28 Table of Contents PART II Items 7, 7A
Year-over-year discussion and analysis of the line-item revenue and expenses within the consolidated income statement are included below for 2022 and 2021.
Year-over-year discussion and analysis of the line-item revenue and expenses within the consolidated income statement are included below for 2023 and 2022.
Overview We are enabling a better world through the circular economy; by empowering buyers and sellers to extend the useful lives of specialty and durable goods; and by seizing retail, recycling, and reverse-logistics supply-chain opportunities. Envela is a diverse re-commerce company that manages its business through two segments.
Overview We are enabling a better world through the circular economy; by empowering buyers and sellers to extend the useful lives of specialty and durable goods; and by seizing retail, recycling, and reverse-logistics supply-chain opportunities. Envela is a diverse re-commerce company that manages its business through two segments. Its commercial-services segment, and its direct-to-consumer segment.
Like DGSE, ECHG also maintains relationships with refiners or recyclers to which it sells extracted valuable materials from electronics and IT equipment that are not appropriate for resale or reuse. The electronic disposition and recycling industry is fragmented in the United States. Certain parts of ECHG’s business comes from a limited number of partners.
Like the consumer segment, the commercial segment also maintains relationships with refiners or recyclers to which it sells extracted valuable materials from electronics and IT equipment that are not appropriate for resale or reuse. The electronic disposition and recycling industry is fragmented in the United States. Certain parts of the commercial segment comes from a limited number of partners.
Generators of material may also consider factors other than price, such as logistics costs, timely removal, customized reports, the ability to service multiple locations, insurance coverage, and the buyer’s financial strength. For additional information regarding ECHG, see “Item 1. Business—Operating Segments—ECHG Segment” and See “Item 1A. Risk Factors—unable to maintain relationships with significant clients”.
Generators of material may also consider factors other than price, such as logistics costs, timely removal, customized reports, the ability to service multiple locations, insurance coverage, and the buyer’s financial strength. For additional information regarding ECHG, see “Item 1. Business—Operating Segments—Commercial Segment” and See “Item 1A.
Recent Accounting Pronouncements See Note 1, “Accounting Policies and Nature of Operations” to our financial statements included this Annual Report on Form 10-K for recently issued accounting pronouncements not yet adopted as of the date of this Annual Report on Form 10-K. 18 Table of Contents PART II Items 7 Use of Non-U.S.
Recent Accounting Pronouncements See Note 1, “Accounting Policies and Nature of Operations” to our financial statements included this Annual Report on Form 10-K for recently issued accounting pronouncements not yet adopted as of the date of this Annual Report on Form 10-K. Use of Non-U.S.
See the reconciliation of net income to EBITDA, in Non-U.S. GAAP Financial Measures below. Non-U.S. GAAP Financial Measures EBITDA is a key performance measure that our management uses to assess our operating performance.
See the reconciliation of net income to EBITDA, in Non-U.S. GAAP Financial Measures below. 19 Table of Contents PART II Items 7 Non-U.S. GAAP Financial Measures EBITDA is a key performance measure that our management uses to assess our operating performance.
Inventories DGSE inventory is valued at the lower of cost or net realizable value (“NRV”). We acquire a majority of our inventory from individual customers, including pre-owned jewelry, watches, bullion, rare coins and monetary collectibles. We acquire these items based on our own internal estimate of the fair value of the items at the time of purchase.
We acquire a majority of our inventory from individual customers, including pre-owned jewelry, watches, bullion, rare coins and monetary collectibles. We acquire these items based on our own internal estimate of the fair value of the items at the time of purchase.
The Company does not currently use derivatives to hedge these risks. As a significant portion of our inventory and sales involve gold and jewelry, financial results can be influenced by the market price of gold and diamonds.
The nature of the consumer segment operations results in exposure to fluctuations in commodity prices, specifically diamonds, platinum, gold and silver. The Company does not currently use derivatives to hedge these risks. As a significant portion of our inventory and sales involve gold and jewelry, financial results can be influenced by the market price of gold and diamonds.
If additional working capital is required, additional loans can be obtained from individuals or from other commercial banks. 25 Table of Contents PART II Items 7, 7A Management expects our capital expenditures to total approximately $750,000 during the next 12 months.
If additional working capital is required, additional loans can be obtained from individuals or from other commercial banks. Management expects our capital expenditures to total approximately $2,700,000 during the next 12 months.
The minimum rental commitments under non-cancellable operating leases as of December 31, 2022 are as follows: Operating Leases Total 2023 2024 2025 2026 Thereafter DGSE $ 1,911,781 $ 541,984 $ 552,414 $ 412,269 $ 355,000 $ 50,114 ECHG 4,582,587 1,357,381 1,396,129 1,321,297 474,326 33,454 Total $ 6,494,368 $ 1,899,365 $ 1,948,543 $ 1,733,566 $ 829,326 $ 83,568 Off-Balance Sheet Arrangements There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our shareholders.
The minimum rental commitments under non-cancellable operating leases as of December 31, 2023 are as follows: Operating Leases Total 2024 2025 2026 2027 Thereafter Consumer $ 1,391,802 $ 552,414 $ 434,274 $ 355,000 $ 50,114 $ - Commercial 3,225,206 1,396,129 1,321,297 474,326 33,454 - Total $ 4,617,008 $ 1,948,543 $ 1,755,571 $ 829,326 $ 83,568 $ - Off-Balance Sheet Arrangements There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our shareholders.
Liquidity and Capital Resources Cash Flows The following table summarizes our cash flows for the periods indicated. Prior year comparisons are included in “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for Fiscal 2022.
Prior year comparisons are included in “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for Fiscal 2023.
Business—Operating Segments” above. A list of the company’s significant subsidiaries is presented in Exhibit 21.1. Key Economic Factors and Trends Affecting the Markets in Which We Operate ECHG Business Drivers and Impacts ECHG owns and operates Echo, ITAD USA, CEX, Avail and Teladvance, through which it primarily buys and resells or recycles consumer electronic components and IT equipment.
Key Economic Factors and Trends Affecting the Markets in Which We Operate Commercial Business Drivers and Impacts The commercial segment includes Echo, ITAD USA, CEX, Avail and Teladvance, through which it primarily buys and resells or recycles consumer electronic components and IT equipment.
Its commercial-services segment is led by subsidiary ECHG, and its direct-to-consumer segment is led by subsidiary DGSE. Envela reports its revenue and operating expenses based on these two operating segments, with revenue for each operating segment, being presented as resale and recycle. We also include segment information in the notes to our financial statements. For more information, see “Item 1.
Envela reports its revenue and operating expenses based on these two operating segments, with revenue for each operating segment, being presented as resale and recycle. We also include segment information in the notes too our financial statements. For more information, see “Item 1. Business—Operating Segments” above. A list of the company’s significant subsidiaries is presented in Exhibit 21.2.
Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. While our significant accounting policies are more fully described in Note 1—Summary of Significant Accounting Policies, we believe that the accounting estimates discussed below relate to the more significant areas involving management’s judgments and estimates.
Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. Our significant accounting policies are fully described in Note 1 of the consolidated financial statements. References to fiscal years below are denoted with the word “Fiscal” and the associated year.
Also, from time-to-time, inventory levels have been adjusted to meet seasonal demand or in order to meet working capital requirements. Management believes there are enough capital resources to meet working capital requirements.
Our line of credit with FSB is to fund any cash shortfalls that the Company may have from time-to-time during the life of the line of credit. Also, from time-to-time, inventory levels have been adjusted to meet seasonal demand or in order to meet working capital requirements. Management believes there are enough capital resources to meet working capital requirements.
The increase in net income is due primarily to an increase of revenue of approximately $41.7 million, the reduction of the reserve against the notes receivable of $838,647 during Fiscal 2022 and the valuation allowance reduction of $1,488,258 against the deferred tax benefit during Fiscal 2022. 24 Table of Contents PART II Items 7, 7A Earnings Per Share Year Ended December 31, Change 2022 2021 Amount % Earnings Per Share $ 0.58 $ 0.37 $ 0.21 57 % Our net income per basic and diluted shares attributable to holders of our Common Stock increased by $0.21 per share, or 57% in Fiscal 2022 compared to Fiscal 2021.
The income tax expense increase was partially due from the valuation allowance being released in the amount of $1,490,000 million against the deferred tax benefit during Fiscal 2022 26 Table of Contents PART II Items 7 Earnings Per Share Year Ended December 31, Change 2023 2022 Amount % Earnings Per Share - Consolidated $ 0.27 $ 0.58 $ (0.31 ) -53 % Our net income per basic and diluted shares attributable to holders of our Common Stock decreased by $0.31 per share, or 53% in Fiscal 2023 compared to Fiscal 2022.
The resale gross profit increase is primarily due to a 22% increase in resale revenue and the margin percentage increasing from 44.8% during Fiscal 2021 to 55.7% during Fiscal 2022.
The resale gross profit decreased is primarily due to a 20% decrease in resale revenue during Fiscal 2023 as compared to Fiscal 2022, offset by an increase in the margin percentage from 63.5% during Fiscal 2023 as compared to 55.7% during Fiscal 2022.
Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting (“U.S. GAAP”) principles.
Such fluctuations, particularly with respect to gold, which accounts for a majority of the merchandise costs, can have a significant impact on earnings and cash availability. 18 Table of Contents PART II Items 7 Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting (“U.S.
The recycled-material gross profit increase is primarily due to a 14% increase in recycled revenue and a margin percentage increase from 20.9% during Fiscal 2021 to 23.1% during Fiscal 2022. Recycled-material gross profit related to ECHG, increased by $2,429,889, or 60% in Fiscal 2022 compared to Fiscal 2021.
The individual segments reported the following: Recycled gross profit related to the consumer segment, increased by $963,605, or 48% in Fiscal 2023 as compared to Fiscal 2022. The recycled gross profit increase is primarily due to the 33% increase in recycled revenue and a margin percentage increase to 25.7% during Fiscal 2023 from 23.1% during Fiscal 2022.
During Fiscal 2022, other income consists of $48,000 of DGSE’s portion of the rental income generated from the Company’s corporate headquarters and approximately $13,700 of other miscellaneous income.
During Fiscal 2022, other income consisted of $48,000 of the consumer’s portion of the rental income generated from the Company’s corporate headquarters and approximately $13,700 of other miscellaneous income. Other income for the commercial segment decreased by $213,029 in Fiscal 2023, or 25%, to $643,976, as compared to $857,005 during Fiscal 2022.
The following tables set forth our results of operations and such data as a percentage of revenue and gross profit for the periods presented: For the Years Ended December 31, 2022 December 31, 2021 Revenues Gross Profit Margin Revenues Gross Profit Margin DGSE Resale $ 122,468,154 14,240,795 11.6 % $ 89,146,783 11,022,162 12.4 % Recycled 8,639,279 1,993,644 23.1 % 7,572,476 1,586,000 20.9 % Subtotal 131,107,433 16,234,439 12.4 % 96,719,259 12,608,162 13.0 % ECHG Resale 39,747,631 22,119,853 55.7 % 32,540,366 14,570,092 44.8 % Recycled 11,830,790 6,472,794 54.7 % 11,706,453 4,042,905 34.5 % Subtotal 51,578,421 28,592,647 55.4 % 44,246,819 18,612,997 42.1 % $ 182,685,854 $ 44,827,086 24.5 % $ 140,966,078 $ 31,221,159 22.1 % Comparison of 2022 and 2021 Resale Revenue Year Ended December 31, Change 2022 2021 Amount % Resale Revenue DGSE $ 122,468,154 $ 89,146,783 $ 33,321,371 37 % ECHG $ 39,747,631 $ 32,540,366 $ 7,207,265 22 % Resale revenue related to DGSE increased by $33,321,371, or 37% in Fiscal 2022 compared to Fiscal 2021.
The following tables set forth our results of operations and such data as a percentage of revenue and gross profit for the periods presented: For the Years Ended December 31, 2023 December 31, 2022 Revenues Gross Profit Margin Revenues Gross Profit Margin Consumer Resale $ 117,918,242 12,691,309 10.8 % $ 122,468,154 14,240,795 11.6 % Recycled 11,495,427 2,957,249 25.7 % 8,639,279 1,993,644 23.1 % Subtotal 129,413,669 15,648,558 12.1 % 131,107,433 16,234,439 12.4 % Commercial Resale 31,615,587 20,068,156 63.5 % 39,747,631 22,119,853 55.7 % Recycled 10,644,832 5,939,816 55.8 % 11,830,790 6,472,794 54.7 % Subtotal 42,260,419 26,007,972 61.5 % 51,578,421 28,592,647 55.4 % $ 171,674,088 $ 41,656,530 24.3 % $ 182,685,854 $ 44,827,086 24.5 % Comparison of 2023 and 2022 Resale Revenue Year Ended December 31, Change 2023 2022 Amount % Resale Revenue Consolidated $ 149,533,829 $ 162,215,785 $ (12,681,956 ) -8 % Consumer ( f/k/a DGSE) $ 117,918,242 $ 122,468,154 $ (4,549,912 ) -4 % Commercial (f/k/a ECHG) $ 31,615,587 $ 39,747,631 $ (8,132,044 ) -20 % Resale revenue decreased by $12,681,956, or 8%, in Fiscal 2023 to $149,533,829, as compared to $162,215,785 during Fiscal 2022.
These expenditures will be largely driven by the purchase of equipment, the build-out of corporate office space in the Company headquarters and the potential purchase and build-out of any additional DGSE retail buildings. As of December 31, 2022, there were no commitments outstanding for capital expenditures.
These expenditures will be largely driven by the build-out of six properties, included in this is the build-out of corporate office space in the Company headquarters and the potential purchase and build-out of an additional consumer segment retail building.
Year Ended December 31, 2022 2021 Net cash (used in) provided by: Operating activities $ 10,019,885 $ 2,805,063 Investing activities (229,339 ) (4,875,356 ) Financing activities (2,758,725 ) 2,990,405 Net increase in cash and cash equivalents $ 7,031,821 $ 920,112 During Fiscal 2022, cash provided by operations totaled $10,019,885, which was primarily driven by net income of $15,689,133, reduction from non-cash charges, net of $801,653, the increase in accounts payable and accrued expenses of $1,367,713 and a decrease in other assets of $985,509.
Year Ended December 31, 2023 2022 Net cash provided by (used in): Operating activities $ 5,842,708 $ 10,019,885 Investing activities (1,759,861 ) (229,339 ) Financing activities (3,398,963 ) (2,758,725 ) Net increase in cash and cash equivalents $ 683,884 $ 7,031,821 During Fiscal 2023, cash provided by operations totaled $5,842,708, which was primarily driven by net income of $7,147,452, adding in non-cash charges, net of $5,084,849.
The increase in SG&A was primarily due to an increase in advertising of approximately $312,000, and payroll and payroll related expenses of approximately $900,000. Selling, general and administrative expenses for ECHG increased by $7,498,574, or 57% in Fiscal 2022 compared to Fiscal 2021. The CExchange Transaction and the Avail Transaction closed in June and October 2021, respectively.
The individual segments reported the following: Selling, general and administrative expenses for the consumer segment, increased $1,878,408, or 21% in Fiscal 2023 as compared to Fiscal 2022. The increase in SG&A was primarily due to an increase in advertising of approximately $221,000 and payroll and payroll related expenses of approximately $1,700,000.
The increase in resale gross profit is primarily due to the 37% increase in resale revenue even though the margin percentage decreased from 12.4% during Fiscal 2021 to 11.6% during Fiscal 2022. The resale gross profit related to ECHG, increased $7,549,761, or 52% in Fiscal 2022 compared to Fiscal 2021.
The decrease in resale gross profit is primarily due to the decrease in resale revenue of 4% during Fiscal 2023 as compared to Fiscal 2022, added to the drop in gross profit margin from 11.6% during Fiscal 2022 as compared to 10.8% in Fiscal 2023.
The following table provides a reconciliation of net income to EBITDA: For the Years Ended December 31, 2022 2021 DGSE ECHG Consolidated DGSE ECHG Consolidated EBITA Reconciliation: Net Income $ 8,305,429 $ 7,383,704 $ 15,689,133 $ 5,170,517 $ 4,878,358 $ 10,048,875 Add (deduct): Depreciation and amortization 410,759 1,041,075 1,451,834 389,703 536,392 926,095 Other income from loan forgiveness - - - (675,210 ) (992,990 ) (1,668,200 ) Other (income) expense (61,686 ) (857,005 ) (918,691 ) (238,585 ) 538,020 299,435 Interest expense 244,202 239,491 483,693 288,236 415,815 704,051 Income tax expense (benefit) (1,426,697 ) 117,091 (1,309,606 ) 45,124 67,684 112,808 EBITDA $ 7,472,007 $ 7,924,356 $ 15,396,363 $ 4,979,785 $ 5,443,279 $ 10,423,064 19 Table of Contents PART II Items 7 Results of Operations The results of operations presented below should be reviewed in conjunction with the financial statements and notes included elsewhere in the Annual Report.
The following table provides a reconciliation of net income to EBITDA: For the Years Ended December 31, 2023 2022 Consumer Commercial Consolidated Consumer Commercial Consolidated EBITDA Reconciliation: Net Income $ 3,646,747 $ 3,500,705 $ 7,147,452 $ 8,305,429 $ 7,383,704 $ 15,689,133 Add (deduct): Depreciation and amortization 325,227 1,036,837 1,362,064 410,759 1,041,075 1,451,834 Interest expense 192,393 270,808 463,201 244,202 239,491 483,693 Income tax expense (benefit) 927,157 946,761 1,873,918 (1,426,697 ) 117,091 (1,309,606 ) EBITDA $ 5,091,524 $ 5,755,111 $ 10,846,635 $ 7,533,693 $ 8,781,361 $ 16,315,054 Starting December 31, 2023, the EBITDA Reconciliation presentation has been revised to align with the Company’s performance. 20 Table of Contents PART II Items 7 Results of Operations The results of operations presented below should be reviewed in conjunction with the financial statements and notes included elsewhere in the Annual Report.
Resale revenue increased primarily due to the economy beginning to stabilize during Fiscal 2022 from the COVID-19 pandemic. 20 Table of Contents PART II Items 7 Recycled-Material Revenue Year Ended December 31, Change 2022 2021 Amount % Recycled Revenue DGSE $ 8,639,279 $ 7,572,476 $ 1,066,803 14 % ECHG $ 11,830,790 $ 11,706,453 $ 124,337 1 % Recycled-material revenue related to DGSE increased by $1,066,803, or 14% in Fiscal 2022 compared to Fiscal 2021.
Resale revenue decreased primarily due to the reduced demand of our hard drives. 21 Table of Contents PART II Items 7 Recycled Revenue Year Ended December 31, Change 2023 2022 Amount % Recycled Revenue Consolidated $ 22,140,259 $ 20,470,069 $ 1,670,190 8 % Consumer ( f/k/a DGSE) $ 11,495,427 $ 8,639,279 $ 2,856,148 33 % Commercial (f/k/a ECHG) $ 10,644,832 $ 11,830,790 $ (1,185,958 ) -10 % Recycled revenue increased by $1,670,190 or 8%, in Fiscal 2023 to $22,140,259, as compared to $20,470,069 during Fiscal 2022.
DGSE Precious Metals Pricing and Business Impact The Company is exposed to various market risks. Market risk is the potential loss arising from the adverse changes in market prices and rates. The nature of DGSE’s operations results in exposure to fluctuations in commodity prices, specifically diamonds, platinum, gold and silver.
Risk Factors—Our revenues and profits may decline if we are unable to maintain relationships with significant clients or renew contracts with them on favorable terms”. Consumer Precious Metals Pricing and Business Impact The Company is exposed to various market risks. Market risk is the potential loss arising from the adverse changes in market prices and rates.
During Fiscal 2022, cash used in investing totaled $229,339 which primarily consisted of the purchase of equipment and additional property build-out of $272,748 and the additional net cash payment concerning the Avail Transaction of $216,988, offset by the receipt of $260,397 from notes receivable.
During Fiscal 2023, cash used in investing totaled $1,759,861 which consisted of the purchase of property and equipment of $2,238,111 and the acquisition of the Steven Kretchmer, Inc. stock of $100,000. Offset by the receipt of $578,250 from notes receivable.
The added companies are primarily the reason for the increase in selling, general and administrative expenses. 22 Table of Contents PART II Items 7 Depreciation and Amortization Year Ended December 31, Change 2022 2021 Amount % Depreciation and Amortization DGSE $ 410,759 $ 389,703 $ 21,056 5 % ECHG $ 1,041,075 $ 536,392 $ 504,683 94 % Depreciation and amortization for DGSE increased by $21,056, or 5% in Fiscal 2022 compared to Fiscal 2021.
The increase in SG&A was primarily due to an increase in payroll and payroll related expenses of approximately $217,000. 24 Table of Contents PART II Items 7 Depreciation and Amortization Year Ended December 31, Change 2023 2022 Amount % Depreciation and Amortization Consolidated $ 1,362,064 $ 1,451,834 $ (89,770 ) -6 % Consumer ( f/k/a DGSE) $ 325,227 $ 410,759 $ (85,532 ) -21 % Commercial (f/k/a ECHG) $ 1,036,837 $ 1,041,075 $ (4,238 ) 0 % Depreciation and amortization expense decreased by $89,770, or 6%, in Fiscal 2023 to $1,362,064, as compared to $1,451,834 during Fiscal 2022.
Resale Gross Profit Year Ended December 31, Change 2022 2021 Amount % Gross Margin - Resale DGSE $ 14,240,795 $ 11,022,162 $ 3,218,633 29 % ECHG $ 22,119,853 $ 14,570,092 $ 7,549,761 52 % Resale gross profit related to DGSE, increased by $3,218,633, or 29% in Fiscal 2022 compared to Fiscal 2021.
Resale-Gross Profit Year Ended December 31, Change 2023 2022 Amount % Gross Profit - Resale Consolidated $ 32,759,465 $ 36,360,648 $ (3,601,183 ) -10 % Consumer ( f/k/a DGSE) $ 12,691,309 $ 14,240,795 $ (1,549,486 ) -11 % Commercial (f/k/a ECHG) $ 20,068,156 $ 22,119,853 $ (2,051,697 ) -9 % Resale gross profit decreased by $3,601,183, or 10%, in Fiscal 2023 to $32,759,465, as compared to $36,360,648 during Fiscal 2022.
Income Tax Expense Year Ended December 31, Change 2022 2021 Amount % Income Tax Expense (Benefit) DGSE $ (1,426,697 ) $ 45,124 $ (1,471,821 ) -3262 % ECHG $ 117,091 $ 67,684 $ 49,407 73 % Income tax benefit for Fiscal 2022 totaled $1,309,606 as compared to an income tax expense of $112,808 for Fiscal 2021.
Income Tax Expense Year Ended December 31, Change 2023 2022 Amount % Income Tax Expense (Benefit) Consolidated $ 1,873,918 $ (1,309,606 ) $ 3,183,524 243 % Consumer ( f/k/a DGSE) $ 927,157 $ (1,426,697 ) $ 2,353,854 165 % Commercial (f/k/a ECHG) $ 946,761 $ 117,091 $ 829,670 709 % Income tax expense for the Company increased by $3,183,524 or 243%, to $1,873,918 in Fiscal 2023 as compared to a tax benefit of $1,309,606 in Fiscal 2022.
Other income for ECHG increased by $1,395,025 in Fiscal 2022, or 259%, to other income, net of $857,005, as compared to other expense, net of $538,020 during Fiscal 2021. Other income, net during Fiscal 2022, of $857,005 consists primarily of reducing the notes receivable reserve from $838,647 to $0, and bank account interest income of $11,720.
During Fiscal 2022, other income of $857,005 was the result from reducing the notes receivable reserve from $838,647 to $0, and bank account interest income of $11,720. 25 Table of Contents PART II Items 7 Interest Expense Year Ended December 31, Change 2023 2022 Amount % Interest Expense Consolidated $ 463,201 $ 483,693 $ (20,492 ) -4 % Consumer ( f/k/a DGSE) $ 192,393 $ 244,202 $ (51,809 ) -21 % Commercial (f/k/a ECHG) $ 270,808 $ 239,491 $ 31,317 13 % Interest expense decreased by $20,492, or 4%, in Fiscal 2023 to $463,201, as compared to $483,693 during Fiscal 2022.
Other Income/Expense Year Ended December 31, Change 2022 2021 Amount % Other Income/(Expense) DGSE $ 61,686 $ 238,585 $ (176,899 ) -74 % ECHG $ 857,005 $ (538,020 ) $ 1,395,025 259 % Other income for DGSE decreased by $176,899, or 74% in Fiscal 2022 compared to Fiscal 2021.
Other Income Year Ended December 31, Change 2023 2022 Amount % Other Income Consolidated $ 727,782 $ 918,691 $ (190,909 ) -21 % Consumer ( f/k/a DGSE) $ 83,806 $ 61,686 $ 22,120 36 % Commercial (f/k/a ECHG) $ 643,976 $ 857,005 $ (213,029 ) -25 % Other income decreased by $190,909, or 21%, in Fiscal 2023 to $727,782, as compared to $918,691 during Fiscal 2022.
Recycled-Material Gross Profit Year Ended December 31, Change 2022 2021 Amount % Gross Margin - Recycled DGSE $ 1,993,644 $ 1,586,000 $ 407,644 26 % ECHG $ 6,472,794 $ 4,042,905 $ 2,429,889 60 % Recycled-material gross profit related to DGSE, increased by $407,644, or 26% in Fiscal 2022 compared to Fiscal 2021.
Recycled-Gross Profit Year Ended December 31, Change 2023 2022 Amount % Gross Profit - Recycled Consolidated $ 8,897,065 $ 8,466,438 $ 430,627 5 % Consumer ( f/k/a DGSE) $ 2,957,249 $ 1,993,644 $ 963,605 48 % Commercial (f/k/a ECHG) $ 5,939,816 $ 6,472,794 $ (532,978 ) -8 % 23 Table of Contents PART II Items 7 Recycled gross profit increased by $430,627, or 5%, in Fiscal 2023 to $8,897,065, as compared to $8,466,438 during Fiscal 2022.
Removed
Such fluctuations, particularly with respect to gold, which accounts for a majority of DGSE’s merchandise costs, can have a significant impact on earnings and cash availability. 17 Table of Contents PART II Items 7 Impact of COVID-19 and Macroeconomic Conditions on Our Business The ongoing impact of the COVID-19 pandemic continues to affect our business and results of operations, although to a lesser extent than the prior years.
Added
While our significant accounting policies are more fully described in Note 1—Summary of Significant Accounting Policies, we believe that the accounting estimates discussed below relate to the more significant areas involving management’s judgments and estimates. Inventories DGSE inventory is valued at the lower of cost or net realizable value (“NRV”).
Removed
Throughout the pandemic, our top priority has been to protect the health and safety of our employees and our customers. Macroeconomic uncertainty and inflationary pressure may drive lower demand for the end consumer and increase operating costs and costs of borrowing.
Added
The individual segments reported the following: Resale revenue related to the consumer segment, decreased by $4,549,912, or 4% in Fiscal 2023 as compared to Fiscal 2022. Resale revenue, such as bullion, jewelry, watches and rare coins, decreased primarily due to a general volatility in precious metal commodity prices during 2023 as compared to 2022.
Removed
Resale revenue, such as bullion, jewelry, watches, and rare coins, increased primarily due to increased traction in DGSE’s new retail locations added to increased consumer demand with increased foot traffic from an increase in advertising. Resale revenue related to ECHG increased by $7,207,265, or 22%, in Fiscal 2022 compared to Fiscal 2021.
Added
Resale revenue related to the commercial segment, decreased by $8,132,044, or 20%, in Fiscal 2023 as compared to Fiscal 2022.
Removed
The increase in recycled-material revenue is primarily due to DGSE’s retail locations purchasing additional inventory over the counter from increased foot traffic. Recycled-material revenue related to ECHG increased by $124,337, or 1% in Fiscal 2022 compared to Fiscal 2021.
Added
The individual segments reported the following: Recycled revenue related to the consumer segment, increased by $2,856,148, or 33% in Fiscal 2023 as compared to Fiscal 2022. The increase in recycled revenue is primarily due to the volatility in commodity prices that forced the scaping of inventory that would have usually been sold in the retail stores.
Removed
The increase in recycled-material revenue is primarily due to the increase of down-stream recycling activity beginning to come back from the COVID-19 pandemic.
Added
Recycled revenue related to the commercial segment, decreased by $1,185,958, or 10% in Fiscal 2023 as compared to Fiscal 2022. The decrease in recycled revenue is primarily due to a reduced level of inventory purchased.
Removed
The increase is primarily due to the added depreciation from additional furniture and fixtures, new equipment and building improvements added during Fiscal 2022. Depreciation and Amortization expense for ECHG increased by $504,683, or 94% in Fiscal 2022 compared to Fiscal 2021. The CExchange Transaction and the Avail Transaction closed in June and October 2021, respectively.
Added
Resale-Cost of Goods Sold Year Ended December 31, Change 2023 2022 Amount % COGS - Resale Consolidated $ 116,774,364 $ 125,855,137 $ (9,080,773 ) -7 % Consumer ( f/k/a DGSE) $ 105,226,933 $ 108,227,359 $ (3,000,426 ) -3 % Commercial (f/k/a ECHG) $ 11,547,431 $ 17,627,778 $ (6,080,347 ) -34 % Starting December 31, 2023, the cost of goods sold, for both resale and recycled revenue, is added to our results of operations for comparison purposes.
Removed
Added amortization expense from new intangible assets produced by the two transactions is primarily the increase in depreciation and amortization expense for ECHG.
Added
Resale cost of goods sold decreased by $9,080,773, or 7%, in Fiscal 2023 to $116,774,364, as compared to $125,855,137 during Fiscal 2022. The individual segments reported the following: Resale cost of goods sold related to the consumer segment, decreased by $3,000,426, or 3% in Fiscal 2023 as compared to Fiscal 2022.
Removed
Other Income from Loan Forgiveness Year Ended December 31, Change 2022 2021 Amount % Other Income from Loan Forgiveness DGSE $ - $ 675,210 $ (675,210 ) -100 % ECHG $ - $ 992,990 $ (992,990 ) -100 % Other income from loan forgiveness, in Fiscal 2021, is due from the Federal Loan being forgiven and allocated to both segments in accordance with the use of the funds.
Added
The decrease in the resale cost of goods sold is primarily due to the decrease in resale revenue of 3% in Fiscal 2023 as compared to Fiscal 2022. Resale cost of goods sold related to the commercial segment decreased by $6,080,347, or 34% in Fiscal 2023 as compared to Fiscal 2022.
Removed
The total amount forgiven of $1,668,200 was allocated to DGSE in the amount of $675,210, and $992,990 was allocated to ECHG.
Added
The decrease in the resale cost of goods sold is primarily due to the decrease in resale revenue of 20% in Fiscal 2023 as compared to Fiscal 2022. 22 Table of Contents PART II Items 7 Recycled-Cost of Goods Sold Year Ended December 31, Change 2023 2022 Amount % COGS - Recycled Consolidated $ 13,243,194 $ 12,003,631 $ 1,239,563 10 % Consumer ( f/k/a DGSE) $ 8,538,178 $ 6,645,635 $ 1,892,543 28 % Commercial (f/k/a ECHG) $ 4,705,016 $ 5,357,996 $ (652,980 ) -12 % Recycled cost of goods sold increased by $1,239,563, or 10%, in Fiscal 2023 to13,243,194, as compared to $12,003,631 during Fiscal 2022.
Removed
During Fiscal 2021, other income of $238,585, consisted primarily of DGSE’s portion of the net rental income in excess of the SG&A expenses from space leased at the Company’s corporate headquarters of $230,364.
Added
The individual segments reported the following: Recycled cost of goods sold related to the consumer segment, increased by $1,892,543, or 28% in Fiscal 2023 as compared to Fiscal 2022. The increase in the recycled cost of goods sold is primarily due to the increase in recycled revenue of 33% in Fiscal 2023 as compared to Fiscal 2022.
Removed
Other expense during Fiscal 2021, of $538,020, consists primarily of interest income from notes receivables of $113,606, net rental income in excess of the SG&A expenses from the space leased at the Company’s corporate headquarters of $230,364, offset by the write-off of the CExchange notes receivable accrued interest of $49,174 and the reserve set for the CExchange notes receivable of $838,647. 23 Table of Contents PART II Items 7 Interest Expense Year Ended December 31, Change 2022 2021 Amount % Interest Expense DGSE $ 244,202 $ 288,236 $ (44,034 ) -15 % ECHG $ 239,491 $ 415,815 $ (176,324 ) -42 % Interest expense for DGSE decreased by $44,034 or 15%, in Fiscal 2022 compared to Fiscal 2021.
Added
Recycled cost of goods sold related to the commercial segment decreased by $652,980, or 12% in Fiscal 2023 as compared to Fiscal 2022. The decrease in the recycled cost of goods sold is primarily due to the decrease in the recycled revenue of 10% in Fiscal 2023 as compared to Fiscal 2022.
Removed
The decrease is primarily due to Farmers State Banks of Oakley Kansas (“FSB”) refinancing of a DGSE loan on November 23, 2021. The refinancing reduced the interest rate from 6.0% to 3.1% annualized. The interest expense for ECHG decreased by $176,324 or 42%, in Fiscal 2022 compared to Fiscal 2021.
Added
The individual segments reported the following: Resale gross profit related to the consumer segment, decreased by $1,549,486, or 11% in Fiscal 2023 as compared to Fiscal 2022.
Removed
The decrease is primarily due to FSB refinancing an ECHG loan on November 23, 2021. The refinancing reduced the interest rate from 6.0% to 3.1% annualized.
Added
The resale gross profit related to the commercial segment, decreased $2,051,697, or 9% in Fiscal 2023 as compared to Fiscal 2022.
Removed
See Note 14 for Federal Income Taxes. Net Income Year Ended December 31, Change 2022 2021 Amount % Net Income DGSE $ 8,305,429 $ 5,170,517 $ 3,134,912 61 % ECHG $ 7,383,704 $ 4,878,358 $ 2,505,346 51 % The Company recorded an increase in net income of $5,640,258, or 56% in Fiscal 2022 compared to Fiscal 2021.
Added
Recycled gross profit related to the commercial segment, decreased by $532,978, or 8% in Fiscal 2023 as compared to Fiscal 2022. The recycled gross profit for the commercial segment decrease is primarily due to a 10% decrease in recycled revenue for Fiscal 2023 as compared to Fiscal 2022.
Removed
The increase is due primarily from the revenue increase of approximately $41.7 million from Fiscal 2021 to Fiscal 2022, the removal of the reserve against the notes receivable of $838,647 during Fiscal 2022 and the valuation allowance reduction of $1,488,258 against the deferred tax benefit, during Fiscal 2022.
Added
Selling, general and administrative expenses for the commercial segment, increased by $228,545, or 1% in Fiscal 2023 compared to Fiscal 2022.
Removed
In addition, the foregoing was further offset by the increase of trade receivables of $856,660, the increase in inventories of $4,707,349, the increase in prepaid expenses of $792,778 and the reduction of customer deposits and other liabilities of $896,742.
Added
The individual segments reported the following: Depreciation and amortization for the consumer segment, decreased by 85,532, or 21% in Fiscal 2023 as compared to Fiscal 2022. The decrease is primarily due to fixed and intangible assets being fully depreciated and amortized during Fiscal 2023 not yet fully depreciated or amortized during Fiscal 2022.
Removed
During Fiscal 2022, cash used in financing totaled $2,758,725 which primarily consisted of principal payments made against the notes payable loans of $1,058,725 and payments made against the Company’s line of credit of $1,700,000. On November 23, 2021, the Company secured a 36-month line of credit from FSB for $3,500,000 at 3.1% annual interest rate.
Added
Depreciation and Amortization expense for the Commercial segment decreased by $4,238, or less than 1% in Fiscal 2023 as compared to Fiscal 2022.
Removed
A line of credit of up to $3,500,000 with Texas Bank and Trust was immediately closed with a $0 outstanding balance. Our line of credit with FSB is to fund any cash shortfalls that the Company may have from time-to-time during the life of the line of credit.
Added
The individual segments reported the following: Other income for the consumer segment increased by $22,120, or 36% in Fiscal 2023 as compared to Fiscal 2022. During Fiscal 2023, other income consisted of approximately $78,000 and approximately $6,000 of other miscellaneous receipts. During Fiscal 2023, all of the corporate rental income was allocated to the commercial segment.
Added
During Fiscal 2023, other income consisted of approximately $456,000 in bank account interest income, approximately $94,000 in written off notes receivable in prior years and $88,000 in the Company’s corporate headquarters being leased to a third party.
Added
The individual segments reported the following: Interest expense for the consumer segment decreased by $51,809 or 21%, in Fiscal 2023 as compared to Fiscal 2022. The decrease is primarily due to the interest expense on the note for the corporate headquarters was fully allocated to the commercial segment during Fiscal 2023.

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