Unless the context indicates otherwise for one of our specific operating
segments, references to "we," "us," "our," the "Company" and "Envela" refer to
the consolidated business operations of Envela Corporation, and all of its
direct and indirect subsidiaries.
Forward-Looking Statements
This Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 (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 2020 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 via 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 (collectively, "DGSE"). Through ECHG, the Company
recommercializes business IT equipment and consumer electronic devices and
operates Echo, ITAD USA and Teladvance. 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.
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DGSE Business Overview
DGSE is headquartered in Dallas, Texas. DGSE focuses on sustainable,
authenticated recommerce of luxury hard assets, including diamonds. Its retail
strategy is anchored in being an information resource for clients, bringing
transparency to purchase and sale transactions, and offering value and liquidity
to those seeking to buy, sell or trade jewelry, fine watches, diamonds, rare
coins and currency as well as other valuables. DGSE wholesales and retails these
items through its Charleston Gold & Diamond Exchange and Dallas Gold & Silver
Exchange operations. DGSE has specialized in buying and selling jewelry for over
40 years, making our expert staff among the best in the business. DGSE also
maintains a number of related operations, including precious-metal bullion
exchange and refiner partnerships, on-site jewelry and watch repair and
restoration at its Dallas flagship location, consignment offerings and
partnerships, and design of custom bridal and fashion jewelry.
For additional information regarding DGSE, see "Item 1, Business-Operating
Segments-DGSE Segment." In the Company's 2020 Annual Report.
DGSE Recommerce Activities
Our ability to offer quality pre-owned goods at prices significantly lower than
original retail prices attracts value-conscious customers. The gross profit on
sales of inventory depends primarily on our assessment of the purchase value at
the time the property is purchased and our ability to sell that merchandise in a
timely manner. As a significant portion of our inventory and sales involve gold
and jewelry, our results can be influenced by the market price of gold and
diamonds.
DGSE Precious Metals Pricing and Business Impact
DGSE's business, similar to the jewelry industry overall, is effected by
fluctuations in precious-metals pricing. Such fluctuations, particularly with
respect to gold which accounts for a majority of DGSE's merchandise costs, can
have significant impact on its earnings and cash availability. Precious metals
pricing rises and falls based upon global supply and demand dynamics. 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. Gold prices dipped further during the quarter ended
March 31, 2021 to $1,691 an ounce, as determined by the London PM Fix on March
31, 2021, registering an 11% decline during the quarter. Gold increased slightly
to $1,763 an ounce, as determined by the London PM Fix on June 30, 2021,
registering a 4% increase during the three months ending June 30, 2021 and a 7%
decline for the six months ending June 30, 2021.
When prices rise for gold or other precious metals, DGSE has observed that
individual sellers tend to be more likely to sell their unwanted
crafted-precious-metal items and at the same time retail customers tend to buy
bullion and other gold products so as not to miss out on potential market gains.
When prices decline for gold or other precious metals, DGSE has observed that
individual buyers tend to buy due to the decrease in gold prices. While the
precious-metals industry has slowed, our focus will be to grow our jewelry,
diamond and fine watch business, as well as maintain our business of purchasing
crafted-precious-metal items, a diversified strategy which we believe will
continue to grow and be a profit engine in the future.
In addition, DGSE depends on purchasing products and materials from secondary
markets. We are reliant on our ability to obtain an adequate supply of products
and material at prices or other terms acceptable to it.
DGSE Growth and Expansion
Our strategy is to expand the number of locations we operate through opening new
("de novo") locations in both current markets of Dallas/Fort Worth, Texas and
Charleston, South Carolina and potential new markets. Our ability to add new
stores is dependent on several variables, such as projected achievement of
internal investment hurdles, the availability of acceptable sites, the
regulatory environment, local zoning ordinances, access to capital and the
availability of qualified personnel. We see opportunity for further expansion
through de novo openings in the United States.
ECHG Business Overview
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. In addition, as a result of
the CExchange Transaction, Teladvance now offers retail customers a trade-in
program to offer their customers the ability to upgrade their old phones through
a trade-in program. Like DGSE, ECHG also maintains relationships with refiners
or recyclers to which it sells extracted valuable materials from electronics and
IT equipment that are not appropriate for resale or reuse.
ECHG Recommerce Activities
A portion of ECHG's business depends on obtaining products and material from
secondary markets and is reliant on its ability to obtain an adequate supply of
products and material at prices and other items acceptable to it. Although we
believe that the long-term prospects for the industry remain bright, but because
we do not have unlimited backlogs, our business can be promptly affected by
short-term market fluctuations.
ECHG Metals Pricing and Business Impact
ECHG's recycling business is affected by precious and other non-ferrous metal
prices, which fluctuate based upon global supply-and-demand dynamics, among
other things, with the greatest impact relating to gold. Recent fluctuations in
gold prices are discussed above
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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 2020 Annual Report.
COVID-19
The COVID-19 pandemic continues to affect the U.S. and global economies, and as
disclosed in our 2020 Annual Report on Form 10-K, the pandemic also affected our
business in a variety of ways beginning in the second quarter of fiscal 2020 and
continuing into fiscal 2021.
The pandemic, together with the recent economic downturn and civil unrest, have
affected the recommerce business in unpredictable ways, but Envela experienced
fewer customers raising money by selling items, despite higher unemployment.
Government stimulus checks, eviction moratoriums and forbearances on mortgages
and student loans may have contributed and may still be contributing to this
effect. To date, this drop has been offset by other areas of our business. This
diversity, combined with ECHG and DGSE's continued focus on disciplined
operations, makes us optimistic for our future success.
The full extent and duration of the COVID-19 impact on the global economy
generally, and on our business specifically, is currently unknown. A prolonged
pandemic and recovery may have an adverse effect on our results of operations,
financial position and liquidity in future periods.
Critical Accounting Policies and Estimates
For a discussion of critical accounting policies, see Note 3 to the interim
condensed consolidated financial statements included herein.
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