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OFFON

ENVELA CORPORATION

(ELA)
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ENVELA : 10-K/A - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

03/26/2021 | 03:39pm EDT

CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS

Please see the section of this Form 10-K entitled "Note About Forward-Looking Statements" on page 2.


The coronavirus disease 2019 (COVID-19) pandemic has adversely affected global
economic business conditions. Future sales on products like ours could decline,
and the ultimate impact is uncertain and subject to change. We took steps during
Fiscal 2020 to have as many employees work from home as possible. We also
followed governmental directives to wear masks and adopt the social distance
guidelines where possible. The duration of this pandemic and the impact, either
direct or indirect cannot be predicted. The Company believed additional
liquidity was necessary to support ongoing operations during this period of
uncertainty. We applied for and received approximately $1.67 million, 1%
interest, federally backed loan to pay employees and cover certain rent and
utility-related costs during the COVID-19 pandemic (the "Federal Loan"). The
loan is forgivable to the extent that certain criteria are met. We have applied
for forgiveness and that forgiveness application is currently under review by
the SBA.

Changes in Financial Presentation During Fiscal Year 2020

During the first quarter of fiscal year 2020, we revised the way we review and
report our financial information to align more closely with the Company's
strategy to engage in diverse recommerce activities through two principle
business segments-DGSE and ECHG. Envela continues to report its revenue and
operating expenses based on its DGSE and ECHG operating segments, and beginning
in fiscal year 2020, disaggregated its revenue, within the operating segments,
based on its resale and recycle presentation basis. The Company's historical
disaggregation of revenue has been recast to conform to our current
presentation. For more information, see "Item 1. Business-Operating Segments"
above.

DGSE Precious Metals Pricing and Business Impact

Because DGSE buys and resells precious metals, it is impacted by changes in
precious metals pricing which rises and falls based upon global supply and
demand dynamics, with the greatest impact on us relating to gold as it
represents a significant portion of the precious metals in which we trade. Gold
prices stabilized during fiscal year 2019 starting at $1,238 an ounce, as
determined by the London AM Fix on January 1, 2019, climbing to $1,523 an ounce,
as determined by the London PM Fix on December 31, 2019, representing an
increase of 19% during fiscal year 2019. Gold prices surged during the
beginnings of the COVID-19 pandemic, starting at $1,523 an ounce, as determined
by the London AM Fix on January 1, 2020, and rose strongly during the first half
of 2020 peaking at $2,060 an ounce during August. However, gold prices dipped
from the peak to close at $1,891 an ounce, as determined by the London PM Fix on
December 31, 2020, registering a 24% increase during fiscal year 2020.

The World Gold Council ("WGC"), noted that gold demand improved greatly during
2019 due to uncertainty in the global financial markets and rising geopolitical
unrest. As noted, gold prices observably surged during the beginnings of the
COVID-19 pandemic and price tempered toward the end of the year. According to
Stuart Burns of the Industry News, physical demand could pick up during 2021 due
to China's forecasted double-digit growth and world recovery from the pandemic.
The WGC has projected the price of gold to remain over $1,800 an ounce this
year.

The pandemic, economic downturn, and civil unrest, seem to have been affecting
the recommerce business in unpredictable ways - there are fewer customers
raising money by selling items. This is the opposite of what one might expect
when a record number of people are unemployed. Government stimulus checks,
eviction moratoriums and forbearances on mortgages and student loans may be
contributing to this effect. To date, this drop has been offset by other areas
of our business. This diversity, combined with DGSE's continued focus on
disciplined operations, makes us optimistic for DGSE's continued future success.


                                       21

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                                     Item 7

When prices rise for gold or other precious metals, DGSE has observed that
individual sellers tend to be more likely to sell their unwanted
crafted-precious-metal items and at the same time retail customers tend to buy
bullion and other gold products so as not to miss out on potential market gains.
Tracking the rise in gold prices, DGSE's crafted-precious-metal purchases
increased 45% in fiscal year 2019. In fiscal year 2020, however, DGSE
experienced a dip in crafted-precious-metal purchases by 21%. The Company
attributes this dip to the impact of the COVID-19 and various shutdown orders,
which impacted foot traffic and its retail locations. While the precious metals
industry has improved, our focus will be to continue to grow our jewelry,
diamond and fine watch business, as well as maintain our business of purchasing
crafted-precious-metal items, a diversified strategy which we believe will
continue to grow and be a profit engine in the future.

For additional information regarding DGSE, see "Item 1. Business-Operating Segments-DGSE Segment."

ECHG Business Drivers and Impacts


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

For additional information regarding DGSE, see "Item 1. Business-Operating Segments-ECHG Segment."

Critical Accounting Policies and Estimates


Our significant accounting policies are disclosed in Note 1 of our consolidated
financial statements. The following discussion addresses our most critical
accounting policies, which are those that are both important to the portrayal of
our financial condition and results of operations and that require significant
judgment or use of complex estimates. References to fiscal years below are
denoted with the word "Fiscal" and the associated year.

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 market value of the items at the time of purchase. We consider factors such
as the current spot market price of precious metals and current market demand
for the items being purchased. We supplement these purchases from individual
customers with inventory purchased from wholesale vendors. These wholesale
purchases can take the form of full asset purchases, or consigned inventory.
Consigned inventory is accounted for on our balance sheet with a fully
offsetting contra account so that consigned inventory has a net zero balance.
The majority of our inventory has some component of its value that is based on
the spot market price of precious metals. Because the overall market value for
precious metals regularly fluctuates, these fluctuations could have either a
positive or negative impact on the value of our inventory and could positively
or negatively impact our profitability. We monitor these fluctuations to
evaluate any necessary impairment to inventory.

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

Impairment of Long-Lived and Amortized Intangible Assets: We perform impairment
evaluations of our long-lived assets, including property, plant and equipment
and intangible assets with finite lives whenever business conditions or events
indicate that those assets may be impaired. When the estimated future
undiscounted cash flows to be generated by the assets are less than the carrying
value of the long-lived assets, the assets are written down to fair market value
and a charge is recorded to current operations. Based on our evaluations, no
impairment was required as of December 31, 2020 or 2019.


                                       22

                                    PART II
                                     Item 7

Revenue Recognition: In May 2014, the Financial Accounting Standards Board
(FASB) issued Accounting Standards update (ASU) No. 2014-09, Revenue from
Contracts with Customers(Topic 606), which superseded revenue recognition
requirements in Topic 605, Revenue Recognition. The ASU is based on the
principle that revenue is recognized to depict the transfer of goods or services
to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The ASU also
requires additional disclosure about the nature, amount, timing, and uncertainty
of revenue and cash flows arising from customer contracts, including significant
judgements and changes in judgements and assets recognized from cost incurred to
obtain or fulfill a contract.

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

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

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

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

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

We have a return policy (money-back guarantee). The policy covers retail
transactions involving jewelry, graded rare coins and currency only. Customers
may return jewelry, graded rare coins and currency purchased within 30 days of
the receipt of the items for a full refund as long as the items are returned in
exactly the same condition as they were delivered. In the case of jewelry,
graded rare coins and currency sales on account, customers may cancel the sale
within 30 days of making a commitment to purchase the items. The receipt of a
deposit and a signed purchase order evidences the commitment. Any customer may
return a jewelry item or graded rare coins and currency if they can demonstrate
that the item is not authentic, or there was an error in the description of a
graded coin or currency piece. Returns are accounted for as a reversal of the
original transaction, with the effect of reducing revenues, and cost of sales,
and returning the merchandise to inventory. We have established an allowance for
estimated returns related to year ended December 31, 2020 ("Fiscal 2020") and
year ended December 31, 2019 ("Fiscal 2019") sales, which is based on our review
of historical returns experience and reduces our reported revenues and cost of
sales accordingly. As of December 31, 2020 and 2019, our allowance for returns
remained the same at approximately $28,000 for both years.


                                       23

                                    PART II
                                     Item 7


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

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

?
Echo recognizes refining revenue when our inventory arrives at the destination
port and the performance obligation is satisfied by transferring the control of
the promised goods that are identified in the customer contract. Ninety percent
(90%) of our refining revenue is generated from one refining partner that has an
international refining facility. This refining partner pays us sixty percent
(60%) of an Invoice within five working days upon the receipt of the Ocean Bill
of Lading issued by the Ocean Carrier. Our initial Invoice is recognized in full
when our performance obligation is satisfied, as stated in the first sentence.
Under the guidance of ASC 606, an estimate of the variable consideration that we
expect to be entitled is included in the transaction price stated at the current
precious metal spot price and weight of the precious metal. An adjustment to
revenue is made in the period once the underlying weight and any precious metal
spot price movement is resolved, which is usually around six (6) weeks. Any
adjustment from the resolution of the underlying uncertainty is netted with the
remaining forty percent (40%) due from the original contract.

?
Hard drive sales by the Echo Entities are limited to customers who are required
to prepay shipments. Once the commodity price is established and agreed upon by
both parties, customers send payment in advance. The Company releases the
shipment on the same day when payment receipt is confirmed, and revenue is
recognized on day of shipment. If payment is received on the last day of the
month and shipment goes out the following day the payment received is deferred
revenue and recognized the following month when the shipment is made.

?
The Echo Entities also provide recycling services according to a Scope of Work
and services are recognized when promised services are rendered. We have
recycling services conducted at the Echo facility and another type of service is
conducted at the client's facility. The Scope of Work will determine the charges
and whether it is completed on campus or off campus. Payment terms are also
dictated in the Scope of Work.

Accounts Receivable: We record trade receivables when revenue is recognized.
When appropriate, we will record an allowance for doubtful accounts, which is
primarily determined by an analysis of our trade receivables aging. The
allowance is determined based on historical experience of collecting past due
amounts, based on the degree of their aging. In addition, specific accounts that
are doubtful of collection are included in the allowance. These provisions are
reviewed to determine the adequacy of the allowance for doubtful accounts. Trade
receivables are charged off when there is certainty as to their being
uncollectible. Trade receivables are considered delinquent when payment has not
been made within contract terms. DGSE had no allowance for doubtful accounts
balance for the years ending December 31, 2020 and 2019. The Echo Entities also
had no allowance for doubtful accounts balance for the years ending December 31,
2020 and 2019.

Note Receivable: We record ECHG's note receivable as a non-current asset due to
the note being quarterly interest only payments, with a maturity date of
February 20, 2023. Interest is accrued quarterly and payments are applied
against the accruals. From time to time, the balance is increased through
amendments to the note. We perform impairment evaluations on the note on
December 31 of each year, or whenever business conditions or events indicate
that the note receivable may be impaired. The note receivable, in addition, has
a warrant and call option agreements to the lender which represents the right of
the lender to purchase an equity interest for a certain amount within a certain
time. There is no guarantee that the warrant will be exercised. As of December
31, 2020, based on our evaluation, no impairment was required.


                                       24

                                    PART II
                                     Item 7

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

We account for our position in tax uncertainties in accordance with ASC 740,
Income Taxes. The guidance establishes standards for accounting for uncertainty
in income taxes. The guidance provides several clarifications related to
uncertain tax positions. Most notably, a "more likely-than-not" standard for
initial recognition of tax positions, a presumption of audit detection and a
measurement of recognized tax benefits based on the largest amount that has a
greater than 50 percent likelihood of realization. The guidance applies a
two-step process to determine the amount of tax benefit to be recognized in the
financial statements. First, we must determine whether any amount of the tax
benefit may be recognized. Second, we determine how much of the tax benefit
should be recognized (this would only apply to tax positions that qualify for
recognition.) No additional liabilities have been recognized as a result of the
implementation. We have not taken a tax position that, if challenged, would have
a material effect on the financial statements or the effective tax rate during
Fiscal 2020 and Fiscal 2019, respectively.

Results of Operations

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019


Revenue. Revenue related to DGSE's continuing operations increased by
$18,141,237, or 27%, during fiscal 2020, to $85,661,391, as compared to
$67,520,154 during Fiscal 2019. Resale revenue, such as bullion, jewelry,
watches and rare coins, increased by $19,702,014 in Fiscal 2020, or 33%, to
$79,790,419 as compared to $60,088,405 during Fiscal 2019. Recycled-material
sales decreased 21% to $5,870,972 for Fiscal 2020, as compared to $7,431,749 for
Fiscal 2019. Revenue increased for resale items for Fiscal 2020, compared to
Fiscal 2019 primarily due to the apparent increase in consumer demand following
the lifting of governmental orders to refrain from selling non-essential items
in our retail stores due to the COVID-19 pandemic and the related spiking of
gold prices due to the pandemic. The decrease in recycled-materials revenue is
primarily due to the spike in resale revenue stemming from the COVID-19
pandemic, as we purchased inventory for Fiscal 2020, more inventory was kept for
our retail stores as compared to Fiscal 2019, and recycled less.

Revenue related to ECHG for Fiscal 2020 was $28,260,624. Resale revenue of $19,395,834 accounted for 69% of the total. Recycled revenue of $8,864,790 accounted for 31% of the total. The assets of the Echo Legacy Entities were acquired on May 20, 2019 and the Echo Entities were formed in connection therewith, and Teladvance was acquired on August 2, 2019; therefore, Fiscal 2019 is not comparable to Fiscal 2020.


Gross Margin: Gross margin related to DGSE, increased in Fiscal 2020 by
$1,452,046 to $10,369,870, as compared to $8,917,824 during Fiscal 2019. The
increase in gross profit was primarily related to a 33% increase in resale
revenue although the resale margin decreased from 12.9% in Fiscal 2019 to 11.5%
in Fiscal 2020. The gross profit for recycled material sales for Fiscal 2020
compared to Fiscal 2019 stayed relatively the same although sales decreased by
21%. The sales declined but the profit margin increased from 15.6% in Fiscal
2019 to 19.7% in Fiscal 2020.

The ECHG profit margin for Fiscal 2020 was $12,699,093. Resale profit margin was
49% or $9,504,607, an overall percentage of 75% of ECHG's total profit margin.
Recycling's gross margin of 36.0% accounted for $3,194,486, or 25% of the total.
The assets of the Echo Legacy Entities were acquired on May 20, 2019 and the
Echo Entities were formed in connection therewith, and Teladvance was acquired
on August 2, 2019; therefore, Fiscal 2019 is not comparable to Fiscal 2020.

The following table represents our historical operating revenue and gross profit results by category:



            For the Years Ended


            December 31, 2020                   December 31, 2019


            Revenues       Gross Profit  Margin Revenues      Gross Profit  Margin



DGSE
Resale       $79,790,419    9,215,494     11.5%  $60,088,405   $7,760,365    12.9%
Recycled     5,870,972      1,154,376     19.7%  7,431,749     1,157,459     15.6%

   Subtotal  85,661,391     10,369,870    12.1%  67,520,154    8,917,824     13.2%

ECHG
Resale       19,395,834     9,504,607     49.0%  8,722,281     4,692,114     53.8%
Recycled     8,864,790      3,194,486     36.0%  5,782,062     2,645,904     45.8%

  Subtotal   28,260,624     12,699,093    44.9%  14,504,343    7,338,018     50.6%

             $113,922,015   $23,068,963   20.2%  $82,024,497   $16,255,842   19.8%




                                       25

                                    PART II
                                     Item 7

Selling, General and Administrative: Selling, general and administrative expenses for DGSE decreased $551,975 or 7% in Fiscal 2020, to $6,933,259 compared to $7,485,234 in the prior year. The overall decrease in SG&A was primarily through the ability to apply corporate overhead expenses to two reporting segments.


Selling, general and administrative expenses for ECHG totaled $8,620,015 for
Fiscal 2020. The expenses consist primarily of payroll, payroll taxes and
employee benefits of $5,192,492, rent and variable rent costs, net of sublet
income, of $813,220, warehouse and office supplies of $202,728, insurance costs
of $97,490, travel expenses of $29,623, professional fees of $91,327, Utilities
of $228,620 and overhead administrative expenses of $979,767. The assets of the
Echo Legacy Entities were acquired on May 20, 2019 and the Echo Entities were
formed in connection therewith, and Teladvance was acquired on August 2, 2019;
therefore, Fiscal 2019 is not comparable to Fiscal 2020.

Depreciation and Amortization:Depreciation and amortization for DGSE increased
by $53,160 or 20% in Fiscal 2020 to $321,833 as compared to $268,673 in Fiscal
2019. The increase is primarily due to the added depreciation from two buildings
purchased, and associated build-out costs, that were put into service during the
fourth quarter of Fiscal 2020.

The Depreciation and Amortization expense for ECHG totaled $406,793 for Fiscal
2020. The balance is made up of the amortization of intangibles acquired from
the Echo Transaction on May 20, 2019 of $335,600 and depreciation expense of
$71,193. The assets of the Echo Legacy Entities were acquired on May 20, 2019
and the Echo Entities were formed in connection therewith, and Teladvance was
acquired on August 2, 2019; therefore, Fiscal 2019 is not comparable to Fiscal
2020.

Other Income: Other income for DGSE increased by $58,590 in Fiscal 2020, to
$113,974 compared to $55,384 in Fiscal 2019. Fiscal 2020, other income of
$113,974, was primarily the combination of writing off old vendor checks of
approximately $45,000 and half of the rent income allocated from tenants at the
new Company headquarters' of $67,632. Fiscal 2019, other income of $55,384 was
primarily the write up of a small plot of land owned by the Company for many
years.

Other income for ECHG totaled $193,023 in Fiscal 2020. The other income amount
of $193,024 is primarily a combination of interest income from note receivable
of $114,297 and half of the rent income allocated from tenants at the new
Company headquarters' of $67,632. The assets of the Echo Legacy Entities were
acquired on May 20, 2019 and the Echo Entities were formed in connection
therewith, and Teladvance was acquired on August 2, 2019; therefore, Fiscal 2019
is not comparable to Fiscal 2020.

Interest Expense: Interest expense for DGSE increased by $47,054 or 29% in
Fiscal 2020, to $209,295 compared to $162,241 in Fiscal 2019. The increase is
due from the promissory note issued by John R. Loftus to pay off an accounts
payable - related party balance on May 20, 2019, that has a slightly higher
interest rate than the accounts payable - related party had as an imputed rate
and the two notes payable associated with the new stand-alone buildings
purchased during the second half of 2020.

The interest expense for ECHG was $411,204 in Fiscal 2020. The interest is
primarily related to the note payable, related party, with an outstanding
balance of $6,496,128 as of December 31, 2020. The assets of the Echo Legacy
Entities were acquired on May 20, 2019 and the Echo Entities were formed in
connection therewith, and Teladvance was acquired on August 2, 2019; therefore,
Fiscal 2019 is not comparable to Fiscal 2020.

Income Tax Expense: Income tax expense for DGSE decreased $5,498 or 6% in Fiscal
2020, to $89,618 compared to $95,116 in Fiscal 2019. See Note 15 for Federal
Income Taxes.

Net Income:  We recorded a net income of $6,383,943 in Fiscal 2020, compared to
a net income of $2,780,713 in Fiscal 2019, an increase in net income of
$3,603,230 is due primarily to an increase of revenue of approximately $32.0
million and the purchase of the assets of the Echo Legacy Entities on May 20,
2019.


                                       26

                                    PART II
                                     Item 7


Earnings Per Share: Our net income per basic and diluted shares attributable to
holders of our Common Stock was $0.24, for Fiscal 2020, compared to $0.10 per
basic and diluted shares for Fiscal 2019, an increase of $0.14 per share. The
increase is due primarily from the revenue increase of approximately $32.0
million from Fiscal 2019 to Fiscal 2020 and the purchase of the assets of the
Echo Legacy Entities on May 20, 2019.

Liquidity and Capital Resources: During Fiscal 2020, cash flows provided by
operating activities totaled $6,897,091 compared to cash flows used in operating
activities totaling $542,828 in Fiscal 2019, an increased cash flows provided by
operating activities of $7,439,919. Cash provided by operating activities for
the year ended December 31, 2020, was primarily driven by the increase in trade
accounts receivable of $151,124, an increase in customer deposits and other
liabilities of $263,572 and net income, with depreciation, amortization and
stock based compensation to employees of $7,112,894. Offset by the increase of
inventories of $497,444, the increase of prepaid expenses of $108,884 and the
reduction of accounts payable and accrued accounts payable of $29,332. Cash used
in operating activities for the year ended December 31, 2019, was primarily
driven by the increase in trade accounts receivable of $1,877,783, the reduction
of accounts payable and accrued accounts payable of $492,952, the reduction of
the accounts payable - related party of $3,074,021. Offset by the reduction of
inventories of $1,464,843, the increase in operating leases of 124,713 and net
income, with depreciation and amortization of $3,301,011.

During Fiscal 2020 and Fiscal 2019, cash used in investing activities totaled
$7,964,588 and $6,039,505, respectively, an increase of $1,925,083. The cash
used in investing for 2020, was a combination of investing in a note receivable
of $2,100,000 to CExchange, LLC ("CExchange"), purchasing two new retail
locations for DGSE totaling $1,815,000 and associated build out costs, of which
$363,000 was cash payments applied against the purchases of the retail locations
and the remainder of the balance from the purchases was financed through notes
payable, and the purchase of our corporate headquarters totaling $3,521,021, of
which $561,021 was cash payments applied against the office building and the
remainder of the balance from the purchase was financed through notes payable.
The cash used in investing for 2019, was the combination of property and
equipment purchases of $102,989, the continual upgrading our point-of-sale
system in the amount of $60,000 and acquisition of the assets of the Echo Legacy
Entities, net of cash acquired, in the amount of $5,876,516.

During Fiscal 2020, cash provided by financing activities totaled $5,774,873,
and Fiscal 2019, cash provided by financing activities totaled $9,639,052, a
decrease in cash provided by financing activities of $3,864,179. The cash
provided by financing activities during Fiscal 2020 is funds provided by loans
made by Texas Bank & Trust for the corporate office building in Irving, Texas
and the retail building in Grapevine, Texas, both totaling $3,456,000, a loan
made by Truist Bank (f/k/a BB&T Bank) for the retail building located in
Lewisville, Texas for $956,000 and the proceeds from the Federal Loan of
$1,668,200. Offset by principal payments made against the two promissory notes
from Mr. Loftus in the amount of $279,210 and principal payments made against
the notes payable loans issued for the buildings purchased mentioned in this
paragraph of approximately $26,000. The cash provided by financing activities
during Fiscal 2019 is funds provided to purchase the assets of the Echo Legacy
Entities through a promissory note from John R. Loftus dated May 20, 2019 for
$6,925,979. Additionally, funds provided to pay off an accounts payable -
related party balance of $3,074,021, evidenced by a promissory note dated May
20, 2019 by John R. Loftus and the drawing on a short-term line of credit from
Texas Bank and Trust of $150,000. Offset by principal payments made against the
two promissory notes From Mr. Loftus in the amount of $360,948 and the pay down
of the short-term line of credit from Texas Bank and Trust for $150,000.

On May 17, 2019, the Company secured a twelve month Line of Credit from Texas
Bank and Trust for $1,000,000. The Line of Credit was renewed for an additional
24 months and increased to $3,500,000 on May 17, 2020. The Line of Credit is to
fund any cash shortfalls that we may have from time-to-time during the next 24
months. We don't anticipate the need of those funds for operations. Also, from
time-to-time, we have adjusted our inventory levels to meet seasonal demand or
in order to meet working capital requirements. Management believes we have
enough capital resources to meet working capital requirements. If additional
working capital is required, additional loans can be obtained from individuals
or from other commercial banks. If necessary, inventory levels may be adjusted
in order to meet unforeseen working-capital requirements.

We expect our capital expenditures to total approximately $100,000 during the
next twelve months. These expenditures will be largely driven by the purchase of
equipment and the build-out of corporate space in our office building for
tenants, As of December 31, 2020, there were no commitments outstanding for
capital expenditures.

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

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


                                       27

                                    PART II
                                   Item 7, 7A


On May 20, 2019, we entered into two (2) loan agreements with John R. Loftus,
the Company's CEO, President and Chairman of the Board. The first note of
$6,925,979, pursuant to the Echo Legacy Entities asset purchase agreement, is a
5-year promissory note amortized over 20 years at 6% annual interest rate. The
second note of $3,074,021 paid off the accounts payable - related party balance
to a former Related Party on May 20, 2019. The promissory note is a 5-year note
amortized over 20 years at 6% annual interest rate. Both notes are being
serviced by operational cash flow.

The coronavirus disease 2019 (COVID-19) pandemic has adversely affected global
economic business conditions. Future sales on products like ours could decline,
and the ultimate impact is uncertain and subject to change. The duration of this
pandemic and the impact, either direct or indirect cannot be predicted. The
Company believed additional liquidity was necessary to support ongoing
operations during this period of uncertainty. We applied for and received
approximately $1.67 million, 1% interest, Federal Loan to pay employees and
cover certain rent and utility-related costs during the COVID-19 pandemic. The
loan is forgivable to the extent that certain criteria are met. We have applied
for forgiveness and that forgiveness application is currently under review by
the SBA.

The Company leases certain of its facilities under operating leases. The minimum
rental commitments under non-cancellable operating leases as of December 31,
2020 are as follows:


                                  Total        2021         2022         2023         2024        Thereafter
Operating Leases



 DGSE                             $1,205,662   $479,161     $235,674     $212,855     $213,885     $64,087

 Echo Entities                    4,217,873    869,209      786,396      808,022      830,244      924,002

  Total                           $5,423,535   $1,348,370   $1,022,070  

$1,020,877 $1,044,129 $988,089

Off-Balance Sheet Arrangements.


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

STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

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


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

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

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

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2021 138 M - -
Net income 2021 9,13 M - -
Net Debt 2021 - - -
P/E ratio 2021 11,7x
Yield 2021 -
Capitalization 107 M 107 M -
Capi. / Sales 2021 0,78x
Capi. / Sales 2022 0,67x
Nbr of Employees 152
Free-Float 28,0%
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Number of Analysts 2
Last Close Price 3,99 $
Average target price 9,00 $
Spread / Average Target 126%
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Managers and Directors
John R. Loftus Chairman, President & Chief Executive Officer
Bret A. Pedersen CFO & Principal Accounting Officer
Jim R. Ruth Independent Director
Alexandra C. Griffin Independent Director
Allison M. DeStefano Director