Unless the context indicates otherwise for one of our specific operating
segments, references to "we," "us," "our," the "Company" and "Envela" refer to
the consolidated business operations of Envela Corporation, and all of its
direct and indirect subsidiaries.
Forward-Looking Statements
This Quarterly Report on Form 10-Q for the quarter ended September 30, 2022
(this "Form 10-Q"), including but not limited to: (i) the section of this Form
10-Q entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations;" (ii) information concerning our business prospects or
future financial performance, anticipated revenues, expenses, profitability or
other financial items; and (iii) our strategies, plans and objectives, together
with other statements that are not historical facts, includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Forward-looking statements generally
can be identified by the use of forward-looking terminology, such as "may,"
"will," "would," "expect," "intend," "could," "estimate," "should," "anticipate"
or "believe." We intend that all forward-looking statements be subject to the
safe harbors created by these laws. All statements other than statements of
historical information provided herein are forward-looking based on current
expectations regarding important risk factors. Many of these risks and
uncertainties are beyond our ability to control, and, in many cases, we cannot
predict all of the risks and uncertainties that could cause our actual results
to differ materially from those expressed in the forward-looking statements.
Actual results could differ materially from those expressed in the
forward-looking statements, and readers should not regard those statements as a
representation by us or any other person that the results expressed in the
statements will be achieved. Important risk factors that could cause results or
events to differ from current expectations are described under the section
entitled "Risk Factors" in the Company's 2021 Annual Report and any material
updates are described under the section of this Form 10-Q entitled "Risk
Factors" and elsewhere in this Form 10-Q. These factors are not intended to be
an all-encompassing list of risks and uncertainties that may affect the
operations, performance, development and results of our business. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. We undertake no obligation to release publicly
the results of any revisions to these forward-looking statements, which may be
made to reflect events or circumstances after the date thereon, including
without limitation, changes in our business strategy or planned capital
expenditures, or store growth plans, or to reflect the occurrence of
unanticipated events.
Envela Overview
The Company operates through two recommerce business segments represented by its
two direct subsidiaries. DGSE focuses on the recommercialization of luxury hard
assets, and ECHG focuses on the recommercialization of business IT equipment and
consumer electronic devices.
Through DGSE, the Company recommercializes luxury hard assets and operates the
Dallas Gold and Silver Exchange, Charleston Gold & Diamond Exchange, and Bullion
Express brands. Through ECHG, the Company recommercializes business IT equipment
and consumer electronic devices and operates Echo, ITAD USA, Teladvance, CEX and
Avail. Echo focuses on end-of-life electronics recycling and sustainability,
ITAD USA provides IT equipment disposition, including compliance and data
sanitization services, and Teladvance, CEX and Avail operate as value-added
resellers by providing offerings and services to companies looking either to
upgrade capabilities or dispose of equipment. In addition to its operations
through DGSE and ECHG, Envela also leases unused space at its Company
headquarters in Irving, Texas to commercial tenants.
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DGSE Business Overview
DGSE is headquartered in Dallas, Texas and focuses on sustainable, authenticated
recommerce of luxury hard assets, including diamonds. Its retail strategy is
anchored in being an information resource for clients, bringing transparency to
purchase and sale transactions, and offering value and liquidity to those
seeking to buy, sell or trade jewelry, fine watches, diamonds, rare coins and
currency as well as other valuables. DGSE wholesales and retails these items
through its Charleston Gold & Diamond Exchange and Dallas Gold & Silver Exchange
operations. DGSE has specialized in buying and selling jewelry for almost 50
years, making our expert staff among the best in the business.
DGSE also maintains a number of related operations, on-site jewelry and watch
repair and restoration at its Dallas flagship location, and design of custom
bridal and fashion jewelry. In addition, DGSE has a precious-metal
bullion-trading operation that buys and sells all forms of gold, silver,
platinum and palladium products, including United States and other
government-issue coins, private-mint medallions, art bars and trade unit bars.
For additional information regarding DGSE, see "Item 1. Business - Operating
Segments - DGSE Segment." in the Company's 2021 Annual Report.
DGSE Recommerce Activities
We operate a sustainable marketplace for preowned luxury goods. We buy and sell
coins, diamonds, jewelry, and related accessories and other merchandise. Our
ability to offer quality pre-owned goods at prices significantly lower than
original retail prices attracts value-conscious customers. DGSE depends on
purchasing products and materials from secondary markets. We are reliant on our
ability to obtain an adequate supply of products and material at prices or other
terms acceptable to us. The gross profit on sales of inventory depends primarily
on our assessment of the purchase value at the time the property is purchased
and our ability to sell that merchandise in a timely manner.
DGSE Precious Metals Pricing and Business Impact
We are 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. We do not currently use
derivatives to hedge these risks.
As a significant portion of our inventory and sales involve gold and jewelry,
our results can be influenced by the market price of gold and diamonds. Our
retail sales and gross margin could be materially impacted if prices of
diamonds, platinum, gold, or silver rise so significantly that our consumers'
behavior changes or if price increases cannot be passed onto our customers.
Because DGSE buys and resells precious metals, it is impacted by fluctuations
and changes in precious-metal pricing which rises and falls based upon global
supply and demand dynamics, with the greatest impact on us relating to gold as
it represents a significant portion of the precious-metal in which we trade.
Such fluctuations, particularly with respect to gold, which accounts for a
majority of DGSE's merchandise costs, can have a significant impact on its
earnings and cash availability.
We continue to monitor additional potential impacts of COVID-19 and other
macroeconomic factors on our business, such as inflation and the conflict in
Ukraine. Uncertainties exist that could continue to impact our operations or
cash flows in the future, such as potential resurgence of COVID-19, further
pricing and inflationary environmental changes (including, but not limited to,
labor, materials, and advertising costs). The Company's ability to recruit and
retain qualified team members, organized retail crime, or the consumers' ability
to spend on discretionary categories.
DGSE Growth and Expansion
Our continued strategy will be to expand the number of locations we operate
through opening new ("de novo") locations in both current markets of Dallas/Fort
Worth, Texas and Mt. Pleasant, South Carolina and potential new markets. Our
ability to add new stores is dependent on several variables, such as projected
achievement of internal investment hurdles, the availability of acceptable
sites, the regulatory environment, local zoning ordinances, access to capital
and the availability of qualified personnel. We see opportunity for further
expansion through de novo openings in the United States. The Company expects
capital expenditures over the next twelve months including the potential
purchase of additional properties by DGSE.
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ECHG Business Overview
ECHG owns and operates Echo, ITAD USA, Teladvance, CEX and Avail, through which
it primarily buys and resells or recycles consumer electronic components and IT
equipment. Echo focuses on end-of-life electronics recycling and also offers
disposal transportation and product tracking, ITAD USA provides IT equipment
disposition including compliance and data sanitization services and Teladvance,
CEX and Avail operates as value-added resellers by providing offerings and
services to companies looking to either upgrade capabilities or dispose of
equipment. In addition, as a result of the CExchange Transaction, Teladvance
offers its customers the ability to further offer their customers the ability to
upgrade their old phones through a trade-in program supported by Teladvance.
Like DGSE, ECHG also maintains relationships with refiners for which it sells
extracted valuable materials from electronics and IT equipment deemed unsuitable
for retail or wholesale customers.
ECHG Recommerce Activities
A portion of ECHG's business depends on obtaining products and material from
secondary markets and is reliant on its ability to obtain an adequate supply of
products and material at prices and other items acceptable to it. Although we
believe that the long-term prospects for the industry remain bright, but because
we do not have unlimited backlogs, our business can be promptly affected by
short-term market fluctuations and supply limitations.
ECHG Metals Pricing and Business Impact
ECHG's recycling business is affected by precious and other non-ferrous metal
prices, which fluctuate based upon global supply-and-demand dynamics, among
other things, with the greatest impact relating to gold. Recent fluctuations in
gold prices are discussed above. As discussed below, ECHG has seen a recent
decrease of recycled items, which we believe is primarily due to the supply
chain problems downstream with our customers.
ECHG Growth and Expansion
ECHG's strategy is to expand both organically and through acquisitions. As an
organization, ECHG strives to deliver value through organic growth, high
customer loyalty and retention as well as strategic acquisitions. ECHG is
committed to continuous innovation. Many of ECHG's clients have made commitments
to going carbon neutral over the next few years and ECHG sees the potential to
further expand key relationships as it partners with them in more ways to help
them achieve their goal. With an emphasis on increasing recurring revenues and
expanding our margins, ECHG believes its organic strategy will ultimately drive
strong financial performance, including cash flow to support our acquisition
strategy. ECHG's business strategy has always included pursuing synergistic
acquisitions, and ECHG's plans to continue to expand its business by making
strategic acquisitions and regularly seeking suitable acquisition targets to
enhance its growth.
For additional information regarding ECHG, see "Item 1. Business-Operating
Segments-ECHG Segment." in the Company's 2021 Annual Report.
COVID-19 and Economic Conditions
The COVID-19 pandemic continues to affect the U.S. and global economies, and as
disclosed in our 2021 Annual Report, the COVID-19 pandemic also affected our
business in a variety of ways beginning in the second quarter of fiscal 2020,
continuing through fiscal 2021 and fiscal 2022.
The COVID-19 pandemic, surging inflation, supply chain disruptions and the war
in Ukraine have affected the recommerce business in unpredictable ways. There
have been fewer customers raising money by selling items. For more information,
see Note 17 to our interim condensed consolidated financial statements.
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The full extent and duration of the impact of the COVID-19 pandemic, surging
inflation, supply chain disruptions and the war in Ukraine on the global economy
generally, and on our business specifically, is currently unknown. A prolonged
pandemic and recovery may have an adverse effect on our results of operations,
financial position and liquidity in future periods.
Critical Accounting Policies and Estimates
For a discussion of critical accounting policies, see "Note 1 - Accounting
Policies and Nature of Operations" in the Company's 2021 Annual Report.
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