Envela (US:ELA)2019-04-12 20:01Business Operations - As of December 31, 2018, the company operated five retail locations in South Carolina and Texas, having closed one location in the DFW area in 2017[18]. - The company’s retail and wholesale jewelry business is generally seasonal, with peak sales during Christmas, Valentine's Day, and Mother's Day[38]. - The company’s wholesale transactions occur at industry-specific trade shows and through telephonic sales calls, indicating a significant portion of business is conducted in this manner[21]. - The company has maintained relationships with numerous commercial consignment vendors, enhancing its overall jewelry offering[25]. - The company closed three stores in the DFW market in Fiscal 2015 as part of a strategy to consolidate retail locations[102]. - The company closed multiple stores in DFW and is now focusing on developing larger, full-service stores with diverse inventory offerings[131]. Financial Performance - Revenues from continuing operations decreased by $7,938,575 or 12.8% in Fiscal 2018, totaling $54,056,343 compared to $61,994,918 in Fiscal 2017[146]. - Jewelry sales decreased by 15%, bullion sales decreased by approximately 11%, rare coins decreased by 13%, and scrap sales decreased by 18% compared to Fiscal 2017[146]. - Gross margin decreased by $1,609,101 to $9,679,723, with a gross margin percentage of 17.9% compared to 18.2% in the prior year[147]. - Net income recorded was $657,685 in Fiscal 2018, a decrease of $1,181,101 from $1,838,786 in Fiscal 2017, primarily due to a bad debt write-off of $1,241,919[154]. - Operating income fell to $651,432 in 2018, a decline of 66.7% compared to $1,954,603 in 2017[208]. - Basic net income per share decreased to $0.02 in 2018 from $0.07 in 2017[208]. Shareholder Information - Truscott Capital is the largest shareholder, owning 12,814,727 shares, which represents 47.7% of total outstanding shares[54]. - Eduro owns 6,365,460 shares, representing 23.7% of total outstanding shares, indicating significant shareholder influence on company decisions[54]. - The company has a total of 409 record holders of its Common Stock as of February 28, 2019[110]. Market Conditions - The price of gold experienced a 1.5% net loss from December 31, 2017, to December 31, 2018, with fluctuations throughout the year, ending at $1,283 per ounce[19]. - The market for precious metals is unpredictable, with potential adverse effects on profitability due to fluctuations in commodity prices[61]. - Adverse economic conditions could materially affect operating results, particularly declines in consumer confidence and spending[63]. - The company faces intense competition from larger firms with greater resources, which could impact sales and revenue[66]. Internal Controls and Governance - The company faced an SEC investigation regarding accounting irregularities, leading to a settlement and required corporate governance reforms[55]. - Corporate governance reforms included appointing two new independent directors and establishing term limits for board members[57]. - Management assessed the effectiveness of internal control over financial reporting as of December 31, 2018, and concluded that it is effective[173]. - The company maintains disclosure controls designed to provide reasonable assurance that information is recorded and reported within specified time periods[170]. Cash Flow and Assets - Cash provided by operating activities increased by $126,942 to $375,217 in Fiscal 2018, driven by a decrease in net trade receivables and net income before non-cash expenses[156]. - Cash and cash equivalents rose to $1,453,941 in 2018, up from $1,272,208 in 2017, marking a growth of about 14.2%[204]. - Total current assets increased to $11,394,474 in 2018 from $10,892,128 in 2017, representing an increase of approximately 4.6%[204]. - Total liabilities decreased to $4,604,637 in 2018 from $5,558,837 in 2017, a reduction of about 17.2%[204]. - The accumulated deficit improved to $(32,028,460) in 2018 from $(32,686,145) in 2017, showing a reduction in deficit of about 2%[204]. Advertising and Marketing - In Fiscal 2018, the company spent approximately $416,306 on advertising and marketing, representing a 52% year-over-year decrease[36]. - The company anticipates that digital advertising will allow for targeting specific customer groups on a wider scale in 2019[37]. - The company’s advertising and marketing strategy includes a focus on radio, print, and digital media, emphasizing price advantages compared to competitors[36]. Revenue Recognition - Revenue is recognized upon the transfer of goods or services, primarily from the sale of jewelry, rare coins, and repair services[136]. - The company has adopted ASC 606 for revenue recognition, which includes identifying performance obligations and recognizing revenue as they are satisfied[137]. - The company offers third-party financing options for customers, recognizing revenue upon the promise of payment from the financing company[141].