ela_10q

10-Q 1 ela_10q.htm QUARTERLY REPORT ela_10q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission File Number 001-11048

ENVELA CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

1901 GATEWAY DRIVE, STE 100, IRVING, TX 75038

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(972) 587-4049

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

www.envela.com


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

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

COMMON STOCK, par value $0.01 per share	ELA	NYSE American

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

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

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

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

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

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

As of May 4, 2021, the registrant had 26,924,631 shares of common stock outstanding.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	Page No.

Item 1.	Financial Statements	1

	Condensed Consolidated Statement of Income for the three months ended March 31, 2021 and 2020 (unaudited)	1

	Condensed Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020	2

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (unaudited)	3

	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2021 (unaudited)	4

	Notes to Condensed Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	24

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 3.	Defaults Upon Senior Securities	25

Item 4.	Mine Safety Disclosures	25

Item 5.	Other Information	25

Item 6.	Exhibits	26

SIGNATURES		27

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	(Unaudited)	(Unaudited)
Three Months Ended March 31,	2021	2020
Revenue:
Sales	$25,490,441	$25,829,143
Cost of goods sold	19,186,177	20,527,863

Gross margin	6,304,264	5,301,280

Expenses:
Selling, General & Administrative Expenses	4,153,229	3,825,200
Depreciation and Amortization	204,912	179,729

Total operating expenses	4,358,141	4,004,929

Operating income	1,946,123	1,296,351
Other income, net	271,941	41,690
Interest expense	179,022	145,315

Income before income taxes	2,039,042	1,192,726
Income tax expense	30,770	18,577

Net income	$2,008,272	$1,174,149

Basic earnings per share:
Net income	$0.07	$0.04

Diluted earnings per share:
Net income	$0.07	$0.04

Weighted average shares outstanding:
Basic	26,924,631	26,924,381
Diluted	26,939,631	26,939,631

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

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,	December 31,
	2021	2020
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$8,396,997	$9,218,036
Trade receivables, net of allowances	3,184,473	2,846,619
Notes receivable	123,472	-
Inventories	11,630,383	10,006,897
Current right-of-use assets from operating leases	1,057,511	1,157,077
Prepaid expenses	858,299	281,719

Total current assets	25,251,135	23,510,348
Notes receivable, less current portion	2,100,000	2,100,000
Property and equipment, net	6,984,653	6,888,601
Goodwill	1,367,109	1,367,109
Intangible assets, net	2,892,073	2,992,473
Operating lease right-of-use assets	3,344,732	3,522,923
Other long-term assets	297,638	197,638

Total assets	$42,237,340	$40,579,092

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable-Trade	$1,192,454	$1,510,697
Notes payable, related party	311,067	307,032
Notes payable	1,825,487	1,813,425
Current operating lease liabilities	1,054,599	1,148,309
Accrued expenses	922,159	844,324
Customer deposits and other liabilities	689,592	428,976

Total current liabilities	5,995,358	6,052,763
Notes payable, related party, less current portion	8,976,922	9,052,810
Notes payable, less current portion	4,188,357	4,240,658
Long-term operating lease liabilities, less current portion	3,489,989	3,654,419

Total liabilities	22,650,626	23,000,650

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized;
no shares issued and outstanding	-	-
Common stock, $0.01 par value; 60,000,000 shares authorized;
26,924,631 shares issued and outstanding	269,246	269,246
Additional paid-in capital	40,173,000	40,173,000
Accumulated deficit	(20,855,532)	(22,863,804)

Total stockholders’ equity	19,586,714	17,578,442

Total liabilities and stockholders’ equity	$42,237,340	$40,579,092

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

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31,	2021	2020
	(Unaudited)	(Unaudited)
Operations
Net income	$2,008,272	$1,174,149
Adjustments to reconcile net income to net cash provided by (used in) operations:
Depreciation, amortization, and other	204,912	179,729
Bad debt expense	6,249	-
Changes in operating assets and liabilities:
Trade receivables	(344,103)	525,519
Inventories	(1,623,485)	111,931
Prepaid expenses	(576,578)	(163,312)
Other assets	(100,000)	5,120
Accounts payable and accrued expenses	(240,410)	(647,804)
Operating leases	19,616	(34,907)
Customer deposits and other liabilities	260,615	(118,710)
Net cash provided by (used in) operations	(384,912)	1,031,715

Investing
Investment in note receivable	(123,472)	(1,500,000)
Purchase of property and equipment	(200,563)	(29,046)

Net cash used in investing	(324,035)	(1,529,046)

Financing
Payments on notes payable, related party	(71,853)	(69,404)
Payments on notes payable	(40,239)	-

Net cash used in financing	(112,092)	(69,404)

Net change in cash and cash equivalents	(821,039)	(566,735)
Cash and cash equivalents, beginning of period	9,218,036	4,510,660

Cash and cash equivalents, end of period	$8,396,997	$3,943,925

Supplemental Disclosures
Cash paid during the period for:
Interest	$179,082	$121,718
Income taxes	$-	$-

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

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months ended March 31, 2020 and 2021

(Unaudited)

	Common Stock		Preferred Stock
	Shares	Amount	Shares	Amount	Additional Paid-in Capital	Accumulated Deficit	Total Stockholders' Equity
Balances at December 31, 2019	26,924,381	$269,244	-	$-	$40,172,677	$(29,247,747)	$11,194,174

Net Income	-	-	-	-	-	1,174,149	1,174,149

Balances at March 31, 2020
	26,924,381	$269,244	-	$-	$40,172,677	$(28,073,598)	$12,368,323

	Common Stock		Preferred Stock
	Shares	Amount	Shares	Amount	Additional Paid-in Capital	Accumulated Deficit	Total Stockholders' Equity
Balances at December 31, 2020	26,924,631	$269,246	-	$-	$40,173,000	$(22,863,804)	$17,578,442

Net Income	-	-	-	-	-	2,008,272	2,008,272

Balances at March 31, 2021
	26,924,631	$269,246	-	$-	$40,173,000	$(20,855,532)	$19,586,714

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

The interim condensed consolidated financial statements of Envela Corporation, a Nevada corporation, and its subsidiaries (together with its subsidiaries, the “Company” or “Envela”), included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), including under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the SEC’s rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The Company suggests that these financial statements be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 23, 2021(as amended, the “2020 Annual Report”). In the opinion of the management of the Company, the accompanying unaudited interim financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary to present fairly its results of operations and cash flows for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. Certain reclassifications were made to the prior year's consolidated financial statements to conform to the current year presentation. The information provided as of March 31, 2021 in these notes to the interim condensed consolidated financial statements is unaudited.

NOTE 2 — PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS

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

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

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

For additional information on the businesses of both DGSE and ECHG, see “Item 1. Business – Operating Segments” in the Company’s 2020 Annual Report.

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

NOTE 3 — ACCOUNTING POLICIES AND ESTIMATES

Financial Instruments

The carrying amounts reported in the condensed consolidated balance sheets for cash equivalents, trade receivables, accounts payable, accrued expenses and notes payable approximate fair value because of the immediate or short-term nature of these financial instruments. Notes receivable, notes payable and notes payable, related party approximate fair value due to the market interest rate charged.

Earnings Per Share

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

Goodwill

Goodwill is not amortized but evaluated for impairment on an annual basis during the fourth quarter of our fiscal year, or earlier if events or circumstances indicate the carrying value may be impaired. The Company’s goodwill is related to ECHG only and not the entire Company. ECHG has its own, separate financial information to perform goodwill impairment testing at least annually or if events indicate that those assets may be impaired. As a result of the current market and economic conditions related to COVID-19, in accordance with step 1 of the guidelines set forth in Accounting Standards Codification (“ASC”) 350-20-35-3A, the Company concluded there were no impairments of goodwill that resulted from triggering events due to COVID-19 as of March 31, 2021. The Company will continue to evaluate goodwill for the ECHG segment. For tax purposes, goodwill is amortized and deductible over fifteen years.

ECHG goodwill was allocated in connection with the acquisition (the “Echo Transaction”) of the assets now held by Echo and ITAD USA (the “Echo Entities”) on May 20, 2019. There has been no additions, acquisition adjustments or impairment charges to goodwill since the allocation on May 20, 2019. As of March 31, 2021 and 2020, goodwill was $1,367,109.

Recent Accounting Pronouncements

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

NOTE 4 — INVENTORIES

A summary of inventories is as follows:

	March 31,	December 31,
	2021	2020
DGSE
Resale	$9,184,314	$8,971,815
Recycle	87,907	191,677

Subtotal	9,272,221	9,163,492

ECHG
Resale	1,962,929	557,959
Recycle	395,233	285,446

Subtotal	2,358,162	843,405

	$11,630,383	$10,006,897

NOTE 5 — NOTES RECEIVABLE

ECHG, LLC, entered into an agreement with CExchange, LLC on February 15, 2020, to lend $1,500,000 bearing interest at eight and one-half percent (8.5%) with interest only payments due quarterly. The loan matures on February 20, 2023. The parties also agreed to warrant and call-option agreements to acquire all of CExchange’s equity interests. On November 7, 2020, the Company entered into an amended agreement, to increase the loan from $1,500,000 to $2,100,000. CExchange is the leader in retail trade-in services, providing in-store and online solutions for most of the major consumer electronics retailers in the United States. CExchange helps retailers provide in-store trade-in programs designed to allow customers to exchange their old technology for cash in minutes. This fits well with ECHG’s core business of refurbishing and reusing cell telephones. There is no assurance that the Company will exercise its warrant or call option.

ECHG entered into an agreement with Committed Agency, LLC (“Committed Agency”) on February 4, 2021, pursuant to which it agreed (the “CA Facility Agreement”) to provide Committed Agency a line-of-credit not to exceed $1,000,000 (the “CA Facility”). Committed Agency intends to, directly or indirectly, sell or dispose of electronic devices previously owned by major electronic carriers. In addition to the CA Facility Agreement, ECHG has contracted with Committed Agency beginning February 4, 2021 to exclusively facilitate their sales through the Company’s warehousing and cleaning of electronic devices, wiping of existing data, and inspecting, packaging and shipping of devises to purchasers, in exchange ECHG will receive a per unit service fee (the “CA Service Agreement”). The CA Service Agreement will terminate no later than July 30, 2021. Under the terms of the agreement, the borrower cannot borrow any additional funds, under this facility, after May 31, 2021. Committed Agency is required to pay back any principal and accrued interest no later than 60 days after withdrawing funds. Amount borrowed under the CA Facility bears an interest rate of 6% per annum. Principal and accrued interest are due and payable no later than 60 days after such advance and the CA Facility has a current maturity of July 30, 2021. As of March 31, 2021, Committed Agency has drawn $123,472 on the CA Facility.

NOTE 6 — PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	March 31,	December 31,
	2021	2020
DGSE
Land	$720,786	$720,786
Building and improvements	1,331,887	1,317,906
Leasehold improvements	1,450,695	1,435,742
Machinery and equipment	1,056,315	1,056,315
Furniture and fixtures	511,247	504,430
Vehicles	22,859	22,859
	5,093,789	5,058,038
Less: accumulated depreciation	(2,126,518)	(2,054,294)

Sub-Total	2,967,271	3,003,744

ECHG
Building and improvements	81,149	81,149
Machinery and equipment	375,686	220,417
Furniture and fixtures	93,827	93,827
	550,662	395,393
Less: accumulated depreciation	(87,150)	(71,058)

Sub-Total	463,512	324,335

Envela
Land	1,106,664	1,106,664
Building and improvements	2,456,324	2,456,324
Machinery and equipment	14,951	5,407

	3,577,939	3,568,395
Less: accumulated depreciation	(24,069)	(7,873)

Sub-Total	3,553,870	3,560,522

	$6,984,653	$6,888,601

NOTE 7 — INTANGIBLE ASSETS

Intangible assets consist of the following:

	March 31,	December 31,
	2021	2020
DGSE
Domain names	$41,352	$41,352
Point of sale system	330,000	330,000
	371,352	371,352
Less: accumulated amortization	(220,002)	(203,502)

Subtotal	151,350	167,850

ECHG
Trademarks	1,483,000	1,483,000
Customer Contracts	1,873,000	1,873,000
	3,356,000	3,356,000
Less: accumulated amortization	(615,277)	(531,377)

Subtotal	2,740,723	2,824,623

	$2,892,073	$2,992,473

The following table outlines the estimated future amortization expense related to intangible assets held as of March 31, 2021:

	DGSE	ECHG	Total

2021 (excluding the three months ending March 31, 2021)	$49,500	$251,700	$301,200
2022	66,000	335,600	401,600
2023	30,350	335,600	365,950
2024	5,500	335,600	341,100
2025	-	335,600	335,600
Thereafter	-	1,146,623	1,146,623

	$151,350	$2,740,723	$2,892,073

NOTE 8 — ACCRUED EXPENSES

Accrued expenses consist of the following:

	March 31,	December 31,
	2021	2020
DGSE
Accrued interest	$9,250	$10,057
Board member fees	-	7,500
Payroll	126,596	155,635
Property taxes	66,831	26,435
Sales tax	53,427	180,609
Other administrative expenss	9,488	13,525

Subtotal	265,592	393,761

ECHG
Accrued interest	16,955	17,086
Payroll	224,666	119,327
Property tax	20,500	20,500
Other accrued expenses	38,472	10,574

Subtotal	300,593	167,487

Envela
Accrued interest	7,811	7,884
Payroll	52,802	10,745
Professional fees	144,889	142,635
Property Tax	24,900	-

SEC Form 10-Q filed by Envela Corporation