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Envela Corporation

11/05/2024 | Press release | Distributed by Public on 11/05/2024 16:02

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

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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 September 30, 2024

☐ 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, Suite 100, Irving, Texas 75038

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(972) 587-4049

(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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 November 4, 2024 the registrant had 25,995,847 shares of common stock outstanding.

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TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		PAGE

Item 1.	Financial Statements		4

	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2024 and 2023 (Unaudited)		4

	Condensed Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023		5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (Unaudited)		6

	Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended September 30, 2024 and 2023 (Unaudited)		7

	Condensed Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 2024 and 2023 (Unaudited)		8

	Notes to Condensed Consolidated Financial Statements (Unaudited)		9

	Note 1 - Basis of Presentation		9
	Note 2 - Principles of Consolidation and Nature of Operations		9
	Note 3 - Accounting Policies and Estimates		10
	Note 4 - Changes in Business		16
	Note 5 - Inventories		18
	Note 6 - Goodwill		18
	Note 7 - Property and Equipment, Net		19
	Note 8 - Intangible Assets, Net		20
	Note 9 - Accrued Expenses		21
	Note 10 - Segment Information		22
	Note 11 - Revenue		24
	Note 12 - Leases		26
	Note 13 - Basic and Diluted Average Shares		27
	Note 14 - Debt		29
	Note 15 - Stock-Based Compensation		31
	Note 16 - Related Party Transactions		31
	Note 17 - Contingencies		31
	Note 18 - Subsequent Events		31

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		51

Item 4.	Controls and Procedures		51

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		52

Item 1A.	Risk Factors		52

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities		52

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Item 3.	Defaults Upon Senior Securities	52

Item 4.	Mine Safety Disclosures	52

Item 5.	Other Information	52

Item 6.	Exhibits	53

	Signature	54

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PART I. FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended September 30,		Nine Months Ended September 30,
(Unaudited)	2024		2023		2024	2023
Sales	$	46,899,559		$	36,876,486	$	132,054,341	$	137,781,895
Cost of goods sold		35,435,320			27,142,204		98,879,961		105,875,664

Gross margin		11,464,239			9,734,282		33,174,380		31,906,231

Expenses:
Selling, general and administrative		9,028,988			7,446,380		25,784,012		23,714,237
Depreciation and amortization		414,779			337,713		1,120,611		1,028,238

Total operating expenses		9,443,767			7,784,093		26,904,623		24,742,475

Operating income		2,020,472			1,950,189		6,269,757		7,163,756

Other income (expense):
Other income		340,351			192,437		804,296		556,868
Interest expense		(106,139)			(117,166)		(336,134)		(348,918)

Income before income taxes		2,254,684			2,025,460		6,737,919		7,371,706
Income tax expense		(569,645)			(317,967)		(1,581,162)		(1,534,187)

Net income	$	1,685,039		$	1,707,493	$	5,156,757	$	5,837,519

Basic earnings per share:
Net income	$	0.06		$	0.06	$	0.20	$	0.22

Diluted earnings per share:
Net income	$	0.06		$	0.06	$	0.20	$	0.22

Weighted average shares outstanding:
Basic		26,061,748			26,809,778		26,242,452		26,884,221
Diluted		26,076,748			26,824,778		26,257,452		26,899,221

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

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ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30,		December 31,
	2024		2023
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	17,752,199		$	17,853,853
Accounts receivable, net of allowances		3,881,479			7,811,159
Notes receivable		3,000			4,700
Inventories		29,073,234			23,146,177
Prepaid expenses		750,412			1,082,425
Other current assets		75,590			-
Total current assets		51,535,914			49,898,314

Property and equipment, net		13,266,943			10,764,224
Right-of-use assets from operating leases		4,448,956			4,189,621
Goodwill		3,621,453			3,921,453
Intangible assets, net		4,283,558			4,499,170
Other assets		234,744			201,447

Total assets	$	77,391,568		$	73,474,229

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	2,591,213		$	3,126,743
Notes payable		971,603			1,361,443
Operating lease liabilities		2,020,122			1,807,729
Accrued expenses		2,315,745			2,486,423
Other current liabilities		2,924,060			211,651
Total current liabilities		10,822,743			8,993,989

Deferred tax liability		34,187			38,668
Notes payable, less current portion		12,870,182			13,572,048
Operating lease liabilities, less current portion		2,547,841			2,560,671

Total liabilities	$	26,274,953		$	25,165,376

Contingencies (Note 17)

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 26,008,034 shares outstanding as of September 30, 2024; 26,924,631 shares issued and 26,508,658 shares outstanding as of December 31, 2023		269,246			269,246
Treasury stock at cost, 916,597 and 415,973 shares, as of September 30, 2024 and December 31, 2023, respectively		(4,504,044)			(2,155,049)
Additional paid-in capital		40,173,000			40,173,000
Retained earnings		15,178,413			10,021,656

Total stockholders' equity		51,116,615			48,308,853

Total liabilities and stockholders' equity	$	77,391,568		$	73,474,229

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

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ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,
(Unaudited)	2024		2023
Operations
Net income	$	5,156,757		$	5,837,519
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		1,120,611			1,028,238
Provision for credit losses		260,898			400,493
Deferred taxes		(4,481)			1,385,651
Non-cash lease expense		1,525,870			1,418,928
Changes in operating assets and liabilities:
Accounts receivable		3,668,782			(1,385,580)
Inventories		(5,927,057)			(4,295,072)
Prepaid expenses		332,013			165,863
Other assets		(104,188)			(55,600)
Accounts payable		(535,530)			162,899
Accrued expenses		(170,678)			(56,828)
Operating leases		(1,585,642)			(1,420,605)
Other liabilities		2,712,409			284,085

Net cash provided by operations		6,449,764			3,469,991

Investing
Purchase of property and equipment		(2,955,024)			(1,563,612)
Purchase of intangible assets		(302,693)			-
Investment in notes receivable		(3,000)			578,250
Acquisition, Kretchmer Transaction		-			(100,000)

Net cash (used in) investing		(3,260,717)			(1,085,362)

Financing
Payments on notes payable		(941,706)			(930,858)
Purchase of treasury stock		(2,348,995)			(1,318,351)

Net cash (used in) financing		(3,290,701)			(2,249,209)

Net change in cash and cash equivalents		(101,654)			135,420
Cash and cash equivalents, beginning of period		17,853,853			17,169,969

Cash and cash equivalents, end of period	$	17,752,199		$	17,305,389

Supplemental disclosures
Cash paid during the period for:
Interest	$	385,285		$	349,747
Income taxes	$	1,862,525		$	196,165

Noncash investing and financing activities
Kretchmer Transaction measurement period adjustment, addition to intangible assets, reduction to goodwill		27,500			-
Kretchmer Transaction measurement period adjustment, addition to property and equipment, reduction to goodwill		122,500			-
Kretchmer Transaction measurement period adjustment, reduction to notes payable, reduction to goodwill		150,000			-
Kretchmer Transaction, addition to notes payable, addition to goodwill		-			200,000

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

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ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


													Additional				Total
	Common Stock	Treasury Stock		Preferred Stock		Paid-in		Retained	Stockholders'
(Unaudited)	Shares	Amount		Shares		Amount		Shares	Amount	Capital		Earnings		Equity
Three Months Ended September 30, 2023

Balance as of July 1, 2023	26,924,631	$	269,246		(27,421)		$	(194,820)	-	$	-		$	40,173,000	$	7,004,230		$	47,251,656

Net Income	-		-		-			-	-		-			-		1,707,493			1,707,493

Shares repurchased	-		-		(197,210)			(1,123,531)	-		-			-		-			(1,123,531)

Balance as of September 30, 2023	26,924,631	$	269,246		(224,631)		$	(1,318,351)	-	$	-		$	40,173,000	$	8,711,723		$	47,835,618

Additional

Total

Common Stock

Treasury Stock

Preferred Stock

Paid-in

Retained

Stockholders'

(Unaudited)

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Earnings

Equity

Three Months Ended September 30, 2024

Balance as of July 1, 2024

26,924,631

269,246

(769,402)

(3,775,534)

40,173,000

13,493,374

50,160,086

Net Income

1,685,039

Shares repurchased

(147,195)

(728,510)

Balance as of September 30, 2024

26,924,631

269,246

(916,597)

(4,504,044)

40,173,000

15,178,413

51,116,615

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

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ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


													Additional				Total
	Common Stock	Treasury Stock		Preferred Stock		Paid-in		Retained	Stockholders'
(Unaudited)	Shares	Amount		Shares		Amount		Shares	Amount	Capital		Earnings		Equity
Nine Months Ended September 30, 2023

Balance as of January 1, 2023	26,924,631	$	269,246		-		$	-	-	$	-		$	40,173,000	$	2,874,204		$	43,316,450

Net Income	-		-		-			-	-		-			-		5,837,519			5,837,519

Shares repurchased	-		-		(224,631)			(1,318,351)	-		-			-		-			(1,318,351)

Balance as of September 30, 2023	26,924,631	$	269,246		(224,631)		$	(1,318,351)	-	$	-		$	40,173,000	$	8,711,723		$	47,835,618

Additional

Total

Common Stock

Treasury Stock

Preferred Stock

Paid-in

Retained

Stockholders'

(Unaudited)

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Earnings

Equity

Nine Months Ended September 30, 2024

Balance as of January 1, 2024

26,924,631

269,246

(415,973)

(2,155,049)

40,173,000

10,021,656

48,308,853

Net Income

5,156,757

Shares repurchased

(500,624)

(2,348,995)

Balance as of September 30, 2024

26,924,631

269,246

(916,597)

(4,504,044)

40,173,000

15,178,413

51,116,615

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

These unaudited 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 in accordance with accounting principles generally accepted ("GAAP") in the United States ("U.S.") for interim financial information and with the instructions to Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X prescribed by the Securities and Exchange Commission (the "SEC"). Pursuant to the SEC's rules and regulations, Quarterly Reports do not include all of the information and notes required by U.S. GAAP. In the opinion of management, all adjustments, which are of a normal and recurring nature except those which have been disclosed elsewhere in this Quarterly Report on Form 10-Q ("Form 10-Q"), necessary for a fair presentation of the consolidated financial statements for these interim periods, have been included. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the fiscal year ended December 31, 2024 ("Fiscal 2024"). Management suggests these unaudited condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 ("Fiscal 2023") filed with the SEC on March 21, 2024 ("2023 Annual Report").

The Company does not have any variable interest entities requiring consolidation. The Company's operations are located within the contiguous U.S. and its functional and reporting currency is the U.S. dollar. All intercompany transactions and balances have been eliminated.

Envela files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and other information with the SEC. Such information and amendments to reports previously filed or furnished are available on the Company's corporate website, www.envela.com, as soon as reasonably practicable after such materials are filed with or furnished to the SEC. The SEC also maintains an internet site at www.sec.gov that contains the Company's filings.

NOTE 2 - PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS

Throughout this document, Envela Corporation is referred to as "we," "us," "our," "Envela," or the "Company."

Envela serves as a holding company, conducting its operations via subsidiaries engaged in various businesses and activities within the re-commerce and recycling sectors. The products and services we offer are delivered by our subsidiaries under their distinct brands, rather than directly by Envela itself. Our operations are organized into two operating and reporting segments: consumer and commercial, which additionally are the Company's reporting units.

Consumer Segment

Our consumer segment operates in the jewelry industry, specializing in the online and brick-and-mortar sale of authenticated high-end luxury goods, fine jewelry, watches, and bullion. Our diamonds and gemstones are recycled, meaning they were previously set and then unset to become a new design - allowing for a truly low-carbon, ethical origin. The company focuses on buying and selling pre-owned luxury items, ethically sourced diamonds, gemstones, and precious metals, catering to consumers seeking environmentally responsible options for engagement rings, wedding bands, and other fine jewelry. Our profound commitment to extending the lifespan of luxury goods stems from our understanding that well-crafted items have an enduring quality, enabling them to maintain their beauty and value as they are passed from one owner to another.

Commercial Segment

Our commercial segment specializes in the de-manufacturing of end-of-life electronic assets to reclaim commodities and other materials, while also engaging in the information technology ("IT") asset disposition ("ITAD") industry. The separated commodities, including metals, plastics, and glass, are sold to downstream processors where they are further processed and reintroduced into new products. ITAD services maximize the residual value of retired IT assets by adhering to a reuse-first philosophy and ensuring equipment is refurbished and re-marketed after data sanitization. The company

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focuses on offering services that manage the entire lifecycle of technology products to ensure data security, regulatory compliance, and environmental sustainability. We are proud of our role to support a circular economy through responsible reuse and recycling of electronic devices.

NOTE 3 - ACCOUNTING POLICIES AND ESTIMATES

Financial Instruments

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

Use of Estimates

The preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include revenue recognition, determining the nature and timing of satisfaction of performance obligations, variable consideration, and other obligations such as product returns and refunds; loss contingencies; the fair value of and/or potential impairment of goodwill and intangible assets for the reporting units; useful lives of our tangible and intangible assets; allowances for credit losses; the market value of, and demand for, our inventory and the potential outcome of uncertain tax positions that have been recognized on our consolidated financial statements or tax returns. Actual results could differ from those estimates and assumptions.

Revenue Recognition

Accounting Standards Codification ("ASC") 606, Revenue Recognition provides guidance to identify performance obligations for revenue-generating transactions. The Company applies a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the corresponding performance obligation is satisfied.

Consumer Segment

For the consumer segment, revenue from monetary transactions (i.e., cash and accounts receivable) with wholesale customers is recognized when the merchandise is delivered or at the point of sale for retail customers, and consideration for the transaction has been made either by immediate payment or through a receivable obligation. For e-commerce, revenue is recognized when the customer has fulfilled their obligation to pay or promise to pay and goods have been shipped.

Revenue on precious metals requiring an assay is recognized upon transfer of title, based on the determination of the underlying weight and price of the associated metals.

The Company offers third-party financing for retail customers. Revenue is recognized upon transfer of title, with the promise of the third-party financing company to pay.

Commercial Segment

The commercial segment recognizes revenue at an amount that reflects the consideration to which we expect to be entitled to in exchange for transferring goods or services to the customer.

The commercial segment 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. The initial invoice is recognized in full when our performance obligation is satisfied. Under the guidance of ASC 606, an estimate of the variable consideration that we are expected to be entitled to 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 once

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the underlying weight and any precious metal spot price movement is resolved, which is usually around six weeks. Any adjustment from the resolution of the underlying uncertainty is netted with the settlement due from the original contract.

The commercial segment also provides recycling services according to a Scope of Work ("SOW"). Revenue from recycling services is recognized upon completion of the SOW at a predetermined amount based on the number of units processed and a preset price per unit or weight measurement.

The commercial segment provides freight arrangement services related to inbound asset or material movements to our facilities. Revenue from freight arrangement services is recognized at settlement with our inbound customers which occurs when the SOW has been completed. Under the guidance of ASC 606, the Company is deemed to be a principal and as such records freight arrangement services as a component of revenue, and the associated expense is recorded as a component of cost of goods sold.

The commercial segment recognizes revenue on outright sales when terms and transaction price are agreed to, product is shipped, and title is transferred.

See Note 10 - Revenue for further details.

Sales Returns and Allowances

Sales are recorded, net of expected returns. In some cases, the consumer and commercial segment's customers may return a product purchased within 30 days of receipt. Our allowance for estimated returns is based on our review of historical returns experience and reduces our reported revenues accordingly.

As of September 30, 2024, and December 31, 2023, the consumer segment's allowance for returns was $69,372 and $28,402, respectively.

As of September 30, 2024, and December 31, 2023, the commercial segment's allowance for returns was $55,501 and $0, respectively.

Concentrations and Credit Risk

The Company is potentially subject to concentrations of counterparty credit risk. The concentrations described herein pertain to certain domestic precious metals transactions requiring an assay which are of short duration and settled on comparable terms. Overall customer concentrations as a percentage of sales may vary as a result of the mix of product being sold within each comparative period. Individual customer concentrations are also impacted by each customer's production schedule and as such the Company identifies the most appropriate sales outlet to ensure a timely transaction settlement.

For the nine months ended September 30, 2024, two customers aggregated 40.0% of our sales and represented 0.0% of our accounts receivable balance.

For the nine months ended September 30, 2023, three customers aggregated 38.5% of our sales and represented 0.0% of our accounts receivable balance.

The Company believes that no single customer is critical to its business as a result of having diverse revenue streams and the optionality of sales outlets primarily associated with base and precious metals.

Shipping and Handling Costs

Within the consumer and commercial segments, outbound shipping and handling costs are accounted for as fulfillment costs within cost of goods sold.

For the three months ended September 30, 2024 and 2023, the consumer segment's outbound shipping and handling costs were $17,223 and $3,846, respectively. For the three months ended September 30, 2024 and 2023, the commercial segment's outbound shipping and handling costs were $1,128,553 and $1,096,423, respectively.

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For the nine months ended September 30, 2024 and 2023, the consumer segment's outbound shipping and handling costs were $67,013 and $9,083, respectively. For the nine months ended September 30, 2024 and 2023, the commercial segment's outbound shipping and handling costs were $3,716,832 and $4,308,906, respectively.

Advertising Costs

The consumer and commercial segment's advertising costs are expensed as incurred.

For the three months ended September 30, 2024 and 2023, the consumer segment's advertising costs were $357,151 and $162,713, respectively. For the three months ended September 30, 2024 and 2023, the commercial segment's advertising costs were $59,714 and $10,803, respectively.

For the nine months ended September 30, 2024 and 2023, the consumer segment's advertising costs were $930,132 and $713,840, respectively. For the nine months ended September 30, 2024 and 2023, the commercial segment's advertising costs were $192,691 and $32,042, respectively.

Leases

We determine if an arrangement is a lease at inception. We do not separate non-lease components from lease components to which they relate and have accounted for the combined lease and non-lease components as a single lease component. Many of our lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that we are reasonably certain of renewing the lease at inception or when a triggering event occurs.

In determining our right-of-use assets and lease liabilities, we apply a discount rate to the minimum lease payments within each lease agreement. ASC 842, Leases requires us to use the interest rate that a lessee would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. If we cannot readily determine the discount rate implicit in lease agreements, we utilize our incremental borrowing rate. For leases one-year or less the Company has elected not to record lease liabilities and right-of use assets and instead recognize the expense associated with the lease payments using the straight-line basis.

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 consolidated 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 be applicable 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.

Valuation of Deferred Tax Assets

The Company's deferred tax assets include certain future tax benefits. The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company reviews the likelihood that the benefit of the deferred tax assets will be realized and the need for valuation allowances on a quarterly basis, or more frequently if events indicate that a review is required. We have not taken a tax position that, if challenged, would have a material effect on the consolidated financial statements or the effective tax rate for the three and nine months ended September 30, 2024 and 2023. The Company did not have a deferred tax asset as of September 30, 2024, or December 31, 2023, and as such, there was no valuation allowance.

As of September 30, 2024, the Company had a deferred tax liability of $34,187. As of December 31, 2023, the Company had a deferred tax liability of $38,668.

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Segment Information

The accounting standards for reporting information about operating segments define an operating segment as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses for which discrete financial information is available that is evaluated regularly by the Chief Operating Decision Maker ("CODM") in deciding how to allocate resources and in assessing performance.

The Company allocates its corporate expenses to its operating segments, including selling, general and administrative expenses, depreciation and amortization, other income, interest expense, and income tax expense.

See Note 2 - Principles of Consolidation and Nature of Operations for further details.

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.

Stock-Based Compensation

The Company accounts for stock-based compensation by measuring the cost of employee services received in exchange for an award of equity instruments, including grants of stock options, based on the fair value of the award at the date of the grant. In addition, to the extent that the Company receives an excess tax benefit upon exercise of an award, such benefit is reflected as cash flow from financing activities in the consolidated statement of cash flows.

See Note 15 - Stock-Based Compensation for further details.

Taxes Collected from Customers

The Company's policy is to present taxes collected from customers and remitted to governmental authorities on a net basis. The Company records the amounts collected as a current liability and relieves such liability upon remittance to the taxing authority without impacting revenue or expenses.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The carrying amounts reported in the condensed consolidated balance sheets approximate fair value.

Accounts Receivable, Net of Allowances

Accounts receivable represent amounts primarily due from customers on products and services. Our allowance for credit losses is primarily determined by an analysis of our accounts receivable aging, using the expected losses methodology. The allowance for credit losses is determined based on the historical experience of collecting past due amounts, based on the degree of their aging. In addition, specific accounts that are considered and expected to be uncollectable are included in the allowance for credit losses. Accounts receivables are considered delinquent when payment has not been made within contract terms. Accounts receivables are written off when all efforts to collect have been exhausted and the potential for recovery is considered remote.

As of September 30, 2024, and December 31, 2023, the consumer segment's allowance for credit losses was $0 and $0, respectively.

As of September 30, 2024, and December 31, 2023, the commercial segment's allowance for credit losses was $415,593 and $260,858, respectively.

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Inventories

Consumer Segment

The consumer segment values inventory at the lower of cost or net realizable value. We acquire inventory based on our own internal estimate of the fair value of the items at the time of purchase. We consider factors such as the current spot market price of precious metals and the current market demand for the items being purchased. 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, we monitor these fluctuations for any adverse impact on the carrying value of our inventory.

Commercial Segment

Our inventory primarily includes processed and unprocessed base metals, electronic scrap materials, as well as technology assets being held for resale. The processed and unprocessed base metals and electronic scrap materials are valued utilizing the average cost method. Our technology assets are valued utilizing the retail cost method.

See Note 5 - Inventories for further details.

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. There were no triggering events identified during the nine months ended September 30, 2024, requiring an interim goodwill impairment test, and the Company did not record a goodwill impairment charge in any of the periods presented.

See Note 6 - Goodwill for further details.

Property and Equipment, Net

Property and equipment are carried at cost less accumulated depreciation and are depreciated on a straight-line basis over the estimated useful lives of the assets; except for construction in progress which has not yet been placed into service. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Expenditures for repairs and maintenance are expensed as incurred; betterments that increase the value or materially extend the life of the related assets are capitalized.

See Note 7 - Property and Equipment, Net for further details.

Intangible Assets, Net

Finite-lived intangible assets are carried at cost less accumulated amortization and are amortized on a straight-line basis over the estimated useful lives of the assets; except for assets under development which have not yet been placed into service. Finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

See Note 8 - Intangible Assets, Net for further details.

Correction of Immaterial Error

The Company's commercial segment previously reported revenue from freight arrangement services as a component of cost of goods sold. The Company has further evaluated the nature and scope of its service offering and has determined that it meets the definition of a principal in accordance with ASC 606 and as such be reported within revenue.

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The following table summarizes the correction of immaterial error:


	Three Months Ended
	March 31,		June 30,		September 30,	December 31,
	2023		2023		2023	2023		Total

Sales	$	48,389,040		$	50,303,527	$	36,266,271		$	36,715,250	$	171,674,088

Correction of immaterial error		1,420,492			792,350		610,215			766,681		3,589,738

Sales adjusted		49,809,532			51,095,877		36,876,486			37,481,931		175,263,826

Cost of goods sold		36,979,138			39,541,480		26,531,989			26,964,951		130,017,558

Correction of immaterial error		1,420,492			792,350		610,215			766,681		3,589,738

Cost of goods sold adjusted		38,399,630			40,333,830		27,142,204			27,731,632		133,607,296

Gross margin	$	11,409,902		$	10,762,047	$	9,734,282		$	9,750,299	$	41,656,530

The error had no impact on gross margin, operating income, net income, and basic and diluted earnings per share nor any other financial statement amount. Further these errors had no impact on the consolidated balance sheets, statements of stockholders' equity, and statements of cash flows. These corrections do not affect any of the metrics used to calculate and evaluate management's compensation and have no impact on bonuses, commissions, stock-based compensation, or any other employee renumeration. Historical amounts have been corrected and are presented on a comparable basis.

See Note 11 - Revenue for further details.

Changes in Disclosure

The Company has elected to discontinue the reporting of disaggregated of inventory and revenue by resale and recycle. The Company's business operations continue to evolve and include fee-for-service revenue that does not always correlate to these categories and underlying inventory positions; further, our inventory positions within these disaggregated presentations can vary at any point in time as they are a diverse mix of technology assets, base and precious metals and luxury hard assets. The Company believes that its disclosure of the nature of its operations, the type of inventory held at each segment and associated risk factors provides a sufficient understanding of its impact on our business.

See Note 5 - Inventories and Note 11 - Revenue for further details.

Reclassifications

For the Company's 2023 Annual Report, the presentation of the operations section within its consolidated statements of cash flows was updated to present "non-cash lease expense" as a separate line item, previously included within "changes in operating assets and liabilities - operating leases." The Company has elected to reclassify $1,418,928 from operating leases to non-cash lease expense in the condensed consolidated statements of cash flows for the nine months ended September 30, 2023.

See the condensed consolidated statements of cash flows for further details.

The Company has elected to reclassify $200 thousand in noncash activities associated with the acquisition of Steven Kretchmer, Inc. which were presented in the Company's Form 10-Q for the quarterly period ended September 30, 2023, as an investing cash outflow of $300 thousand for "Acquisition of Steven Kretchmer, Inc.," and a financing cash inflow of $200 thousand for "Proceeds from note payable, Steven Kretchmer, Inc. acquisition." The investing outflow for the

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acquisition of Steven Kretchmer, Inc. was $100 thousand. The reclassification had no impact on gross margin, operating income, net income, and basic and diluted earnings per share nor any other financial statement amount.

See the condensed consolidated statements of cash flows and Note 4 - Changes in Business for further details.

For the Company's 2023 Annual Report, the amount reported for other current assets within the consolidated balance sheets is related entirely to notes receivables. The Company has elected to present notes receivable as its own line item and has reclassified the historical presentation of the aforementioned as of December 31, 2023.

See the condensed consolidated balance sheets for further details.

The Company previously did not disclose construction in progress and intangible assets under development. The Company has determined that providing this information further enhances the understanding of the nature of our capital expenditures. The Company has elected to reclassify the historical presentation of the aforementioned as of December 31, 2023.

See Note 7 - Property and Equipment, Net for further details.

The Company previously reported the development of its enterprise resource planning system within property and equipment, net. The Company has further evaluated the nature of this asset under ASC 350, Intangibles - Goodwill and Other, and has determined that it is a nonmonetary asset without physical substance and was acquired separately from hardware and as such be reported within intangible assets, net. The Company has elected to reclassify the historical presentation of the aforementioned as of December 31, 2023.

See Note 8 - Intangible Assets, Net for further details.

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which will require the Company to disclose segment expenses that are significant and regularly provided to the CODM. In addition, ASU 2023-07 will require the Company to disclose the title and position of its CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources. ASU 2023-07 will be effective for fiscal years beginning January 1, 2024, Form 10-K, and interim periods within fiscal years beginning on January 1, 2025. The standard will be adopted beginning January 1, 2024, for the fiscal year and adopted for the interim periods beginning January 1, 2025, by using a modified retrospective transition approach. The Company does not expect adoption to have a material impact on its consolidated financial statements.

In December 2023, the FASB issued Accounting Standards Update 2023-09 ("ASU 2023-09"), Income Taxes (Topic 740): Improvement to Income Tax Disclosures, amending income tax disclosure requirements for the effective tax rate reconciliation and income taxes paid. The amendments in ASU 2023-09 will be effective for fiscal years beginning January 1, 2025. The standard will be adopted beginning January 1, 2025, for the fiscal year on a prospective basis. Early adoption and retrospective application of the amendments are permitted. The Company does not expect adoption to have a material impact on its consolidated financial statements.

No other recently issued or effective ASUs had, or are expected to have, a material impact on our financial position and results of operations.

NOTE 4 - CHANGES IN BUSINESS

On September 12, 2024, the consumer segment entered into a purchase agreement relating to the acquisition of the assets of Steven Kretchmer, Inc. (the "Kretchmer Transaction"), which amended, restated, and replaced the original terms and conditions of the stock purchase agreement entered into on September 12, 2023. The Kretchmer Transaction qualified as a business combination for accounting purposes, which involves the application of the acquisition method described in ASC 805, Business Combinations. The new asset purchase agreement was entered into by Steven Kretchmer, LLC a 100% owned subsidiary of the Company. Along with a change in the nature of the acquisition, the purchase price was amended

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from $300 thousand to $150 thousand. The purchase consideration transferred for the Kretchmer Transaction was $100 thousand in cash, paid on September 12, 2023, and the remaining $50 thousand through a note payable obligation.

See Note 14 - Debt for further details.

The primary purpose of the Kretchmer Transaction was to broaden customer offerings with a complimentary brand and provide another outlet for the reuse of ethically sourced precious metals and gemstones in the manufacturing of new products.

The results of operations relating to the Kretchmer Transaction have been reflected in the Company's consolidated financial statements from the initial date of acquisition. The Kretchmer Transaction was not material to the Company's consolidated financial statements, and therefore, pro forma operating results and other disclosures for the Kretchmer Transaction are not presented except as referenced below.

As part of the Kretchmer Transaction, on September 12, 2023 the consumer segment recorded goodwill of $300 thousand as part of the initial purchase price allocation. During the three months ended September 30, 2024, with the finalization of the terms of the Kretchmer Transaction, the Company made certain measurement period adjustments to the preliminary purchase price allocation, which resulted in a $300 thousand decrease to goodwill, a $150 thousand decrease due to the amendment of the purchase price, and a $150 thousand decrease due to the recognition of the assets acquired as part of the acquisition. As of September 30, 2024, the accounting for the Kretchmer Transaction is complete.

See Note 6 - Goodwill for further details.

In accordance with ASC 805, Business Combinations, the table presented below represents the final allocation of purchase price consideration.

The following table summarizes the fair values that were allocated to the Kretchmer Transaction:



	Fair Value

Property and equipment, net	$	127,000
Intangible assets, net		23,000

	$	150,000

The impacts of the measurement period adjustments to the Kretchmer Transaction as it pertains to the condensed consolidated statements of income were to depreciation and amortization expense, and are immaterial to the financial statements.

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NOTE 5 - INVENTORIES

The following table summarizes the details of the Company's inventories:


	September 30,		December 31,
	2024		2023
Consumer
Trade inventories	$	27,866,050		$	21,905,055

Sub-total		27,866,050			21,905,055

Commercial
Trade inventories		1,207,184			1,241,122

Sub-total		1,207,184			1,241,122

	$	29,073,234		$	23,146,177

NOTE 6 - GOODWILL

The following table summarizes the details of the Company's changes in goodwill:


	September 30,		December 31,
	2024		2023
Consumer
Opening balance	$	300,000		$	-
Additions (reductions) ⁽¹⁾		(300,000)			300,000

Sub-total		-			300,000

Commercial
Opening balance		3,621,453			3,621,453
Additions (reductions)		-			-

Sub-total		3,621,453			3,621,453

	$	3,621,453		$	3,921,453

(1)	The decrease in goodwill of $300 thousand for the nine months ended September 30, 2024, related to measurement period adjustments pertaining to the Kretchmer Transaction.

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NOTE 7 - PROPERTY AND EQUIPMENT, NET

The following table summarizes the details of the Company's property and equipment, net:


								Adjusted
	September 30,		December 31,				December 31,
	2024		2023		Reclassification	2023
Consumer
Land	$	1,824,892		$	1,824,892	$	-	$	1,824,892
Building and improvements		5,981,222			4,126,507		(1,443,207)		2,683,300
Leasehold improvements		1,514,780			1,450,695		-		1,450,695
Furniture and fixtures		935,414			802,058		(101,226)		700,832
Machinery and equipment		1,454,304			1,224,783		(3,215)		1,221,568
Vehicles		22,859			22,859		-		22,859
Construction in progress ⁽¹⁾		500,018			-		1,547,648		1,547,648
		12,233,489			9,451,794		-		9,451,794
Less: accumulated depreciation		(3,238,534)			(2,946,727)		-		(2,946,727)

Sub-total		8,994,955			6,505,067		-		6,505,067

Commercial
Leasehold improvements		151,647			151,647		-		151,647
Furniture and fixtures		145,950			145,950		-		145,950
Machinery and equipment		1,179,366			1,142,731		(48,979)		1,093,752
Vehicles		222,232			222,232		-		222,232
Construction in progress ⁽²⁾		-			-		48,979		48,979
		1,699,195			1,662,560		-		1,662,560
Less: accumulated depreciation		(968,891)			(819,389)		-		(819,389)

Sub-total		730,304			843,171		-		843,171

Corporate
Land		1,106,664			1,106,664		-		1,106,664
Building and improvements		2,688,523			2,505,716		(3,500)		2,502,216
Machinery and equipment		28,627			28,627		-		28,627
Enterprise resource planning system ⁽³⁾		-			191,075		(191,075)		-
Construction in progress ⁽⁴⁾		-			-		3,500		3,500
		3,823,814			3,832,082		(191,075)		3,641,007
Less: accumulated depreciation		(282,130)			(225,021)		-		(225,021)

Sub-total		3,541,684			3,607,061		(191,075)		3,415,986

	$	13,266,943		$	10,955,299	$	(191,075)	$	10,764,224

(1)	The reclassification primarily related to the build-out of our Arizona retail stores, which were placed into service in the second quarter of Fiscal 2024.

(2)	The reclassification related to the build-out of production equipment, which was placed into service in the second quarter of Fiscal 2024.

(3)	Reclassified amount to intangible assets, net. See Note 8 - Intangible Assets, Net for further details.

(4)	The reclassification related to improvements to our corporate headquarters, which were placed into service in the second quarter of Fiscal 2024.

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NOTE 8 - INTANGIBLE ASSETS, NET

The following table summarizes the details of the Company's intangible assets, net:


								Adjusted
	September 30,		December 31,				December 31,
	2024		2023		Reclassification	2023
Consumer
Technology	$	409,896		$	371,352	$	-	$	371,352
Customer lists		13,000			-		-		-
Assets under development ⁽²⁾		7,551			-		-		-
		430,447			371,352		-		371,352
Less: accumulated amortization		(377,562)			(365,852)		-		(365,852)

Sub-total		52,885			5,500		-		5,500

Commercial
Trademarks/tradenames		2,869,000			2,869,000		-		2,869,000
Customer contracts		1,873,000			1,873,000		-		1,873,000
Customer relationships		1,809,000			1,809,000		-		1,809,000
		6,551,000			6,551,000		-		6,551,000
Less: accumulated amortization		(2,720,491)			(2,248,405)		-		(2,248,405)

Sub-total		3,830,509			4,302,595		-		4,302,595

Corporate
Technology		439,473			-				-
Assets under development ⁽¹⁾⁽²⁾		22,700			-		191,075		191,075
		462,173			-		191,075		191,075
Less: accumulated amortization		(62,009)			-		-		-

Sub-total		400,164			-		191,075		191,075

	$	4,283,558		$	4,308,095	$	191,075	$	4,499,170

(1)	The reclassification related to the initial development of our enterprise resource planning system, which was placed into service in the first quarter of Fiscal 2024.

(2)	As of September 30, 2024, these intangible assets are under development and have not yet been placed into service and are not yet amortizable.

The following table depicts the Company's estimated future amortization expense related to intangible assets as of September 30, 2024:


	Consumer		Commercial		Corporate	Total

2024		3,606			157,362		22,204		183,172
2025		8,928			629,448		88,815		727,191
2026		8,928			629,448		88,815		727,191
2027		8,928			629,448		88,815		727,191
2028		8,050			629,448		88,815		726,313
Thereafter		6,894			1,155,355		-		1,162,249

	$	45,334		$	3,830,509	$	377,464	$	4,253,307

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NOTE 9 - ACCRUED EXPENSES

The following table summarizes the details of the Company's accrued expenses:


	September 30,		December 31,
	2024		2023
Consumer
Accrued interest	$	8,302		$	11,904
Payroll		161,579			226,435
Taxes		260,051			125,130
Other		24,271			-

Sub-total		454,203			363,469

Commercial
Accrued interest		6,697			7,903
Payroll		236,239			375,663
Taxes		8,554			-
Unvouchered inventory payments		1,337,673			1,041,188
Other		14,520			96,422

Sub-total		1,603,683			1,521,176

Corporate
Accrued interest		6,759			7,227
Payroll		19,237			24,543
Taxes		134,672			404,357
Professional fees		82,404			165,651
Other		14,787			-

Sub-total		257,859			601,778

	$	2,315,745		$	2,486,423

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NOTE 10 - SEGMENT INFORMATION

The following table depicts the Company's disaggregated condensed consolidated statements of income for the three months ended September 30, 2024 and 2023:


	Three Months Ended September 30,
	2024		% of Sales⁽¹⁾		2023		% of Sales⁽¹⁾

Consumer	$	33,756,600		72.0	%	$	26,881,202	72.9	%
Commercial		13,142,959		28.0	%		9,995,284	27.1	%

Sales		46,899,559		100.0	%		36,876,486	100.0	%

Consumer		29,840,285		63.6	%		23,291,939	63.2	%
Commercial		5,595,035		11.9	%		3,850,265	10.4	%

Cost of goods sold		35,435,320		75.6	%		27,142,204	73.6	%

Gross margin		11,464,239		24.4	%		9,734,282	26.4	%

Expenses:

Consumer		3,925,981		8.4	%		2,588,628	7.0	%
Commercial		5,103,007		10.9	%		4,857,752	13.2	%

Selling, general and administrative		9,028,988		19.3	%		7,446,380	20.2	%

Consumer		150,657		0.3	%		75,842	0.2	%
Commercial		264,122		0.6	%		261,871	0.7	%

Depreciation and amortization		414,779		0.9	%		337,713	0.9	%

Total operating expenses		9,443,767		20.1	%		7,784,093	21.1	%

Operating income		2,020,472		4.3	%		1,950,189	5.3	%

Other income (expense):

Consumer		62,502		0.1	%		22,851	0.1	%
Commercial		277,849		0.6	%		169,586	0.5	%

Other income		340,351		0.7	%		192,437	0.5	%

Consumer		(51,486)		(0.1)	%		(59,631)	(0.2)	%
Commercial		(54,653)		(0.1)	%		(57,535)	(0.2)	%

Interest expense		(106,139)		(0.2)	%		(117,166)	(0.3)	%

Income before income taxes		2,254,684		4.8	%		2,025,460	5.5	%

Income tax (expense) benefit:

Consumer		122,464		0.3	%		(120,637)	(0.3)	%
Commercial		(692,109)		(1.5)	%		(197,330)	(0.5)	%

Income tax expense		(569,645)		(1.2)	%		(317,967)	(0.9)	%

Net income	$	1,685,039		3.6	%	$	1,707,493	4.6	%

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(1)

The "% of Sales" figures present the proportion of each line item to the total consolidated sales for the respective period, which management believes is relevant to an assessment and understanding of our financial condition and results of operations. Due to rounding, percentages presented may not add up precisely to the totals provided.

The following table depicts the Company's disaggregated condensed consolidated statements of income for the nine months ended September 30, 2024 and 2023:


	Nine Months Ended September 30,
	2024		% of Sales⁽¹⁾		2023		% of Sales⁽¹⁾

Consumer	$	93,972,645		71.2	%	$	103,227,033	74.9	%
Commercial		38,081,696		28.8	%		34,554,862	25.1	%

Sales		132,054,341		100.0	%		137,781,895	100.0	%

Consumer		82,485,812		62.5	%		91,558,160	66.5	%
Commercial		16,394,149		12.4	%		14,317,504	10.4	%

Cost of goods sold		98,879,961		74.9	%		105,875,664	76.8	%

Gross margin		33,174,380		25.1	%		31,906,231	23.2	%

Expenses:

Consumer		11,186,939		8.5	%		7,457,628	5.4	%
Commercial		14,597,073		11.1	%		16,256,609	11.8	%

Selling, general and administrative		25,784,012		19.5	%		23,714,237	17.2	%

Consumer		356,851		0.3	%		253,385	0.2	%
Commercial		763,760		0.6	%		774,853	0.6	%

Depreciation and amortization		1,120,611		0.8	%		1,028,238	0.7	%

Total operating expenses		26,904,623		20.4	%		24,742,475	18.0	%

Operating income		6,269,757		4.7	%		7,163,756	5.2	%

Other income (expense):

Consumer		78,510		0.1	%		70,315	0.1	%
Commercial		725,786		0.5	%		486,553	0.4	%

Other income		804,296		0.6	%		556,868	0.4	%

Consumer		(171,584)		(0.1)	%		(177,458)	(0.1)	%
Commercial		(164,550)		(0.1)	%		(171,460)	(0.1)	%

Interest expense		(336,134)		(0.3)	%		(348,918)	(0.3)	%

Income before income taxes		6,737,919		5.1	%		7,371,706	5.4	%

Income tax (expense) benefit:

Consumer		33,706		0.0	%		(778,150)	(0.6)	%
Commercial		(1,614,868)		(1.2)	%		(756,037)	(0.5)	%

Income tax expense		(1,581,162)		(1.2)	%		(1,534,187)	(1.1)	%

Net income	$	5,156,757		3.9	%	$	5,837,519	4.2	%

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(1)

The following table depicts the Company's total assets:


	As of
	September 30, 2024		December 31, 2023

Consumer	$	41,453,365		$	35,839,361
Commercial		31,049,489			33,777,041
Corporate		4,888,714			3,857,827

	$	77,391,568		$	73,474,229

NOTE 11 - REVENUE

The following table depicts the Company's disaggregation of total sales and gross margin for the three months ended September 30, 2024 and 2023


	Three Months Ended September 30,
	2024		2023
	Sales		Gross Margin		Margin	Sales		Gross Margin		Margin

Consumer	$	33,756,600		$	3,916,315	11.6	%	$	26,881,202		$	3,589,263	13.4	%

Commercial		13,142,959			7,547,924	65.5	%		9,385,069			6,145,019	65.5	%

Correction of immaterial error ⁽¹⁾		-			-	-			610,215			-	-

Commercial adjusted		13,142,959			7,547,924	57.4	%		9,995,284			6,145,019	61.5	%

	$	46,899,559		$	11,464,239	24.4	%	$	36,876,486		$	9,734,282	26.4	%

(1)	Correction of immaterial error relating to revenue from freight arrangement services, see Note 3 - Accounting Policies and Estimates for further details.

The following table depicts the Company's disaggregation of total sales and gross margin for the nine months ended September 30, 2024 and 2023:


	Nine Months Ended September 30,
	2024		2023
	Sales		Gross Margin		Margin	Sales		Gross Margin		Margin

Consumer	$	93,972,645		$	11,486,833	12.2	%	$	103,227,033		$	11,668,873	11.3	%

Commercial		38,081,696			21,687,547	57.0	%		31,731,805			20,237,358	63.8	%

Correction of immaterial error ⁽¹⁾		-			-	-			2,823,057			-	-

Commercial adjusted		38,081,696			21,687,547	57.0	%		34,554,862			20,237,358	58.6	%

	$	132,054,341		$	33,174,380	25.1	%	$	137,781,895		$	31,906,231	23.2	%

(1)	Correction of immaterial error relating to revenue from freight arrangement services, see Note 3 - Accounting Policies and Estimates for further details.

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The following table lists the opening and closing balances of our contract assets and liabilities:


		Accounts		Contract		Contract
		Receivable		Assets		Liabilities
Consumer
Opening Balance - 1/1/2023	$	839,239	$	-	$	282,481
Closing Balance - 9/30/2023		406,959		-		516,567

Commercial
Opening Balance - 1/1/2023		7,110,536		-		-
Closing Balance - 9/30/2023		8,527,903		-		-


		Accounts		Contract		Contract
		Receivable		Assets		Liabilities
Consumer
Opening Balance - 1/1/2024	$	3,411,501	$	-	$	185,348
Closing Balance - 9/30/2024		366,612		-		2,921,982

Commercial
Opening Balance - 1/1/2024		4,399,658		-		-
Closing Balance - 9/30/2024		3,514,867		-		-

The Company has no contract assets, and the contract liabilities are customer deposits and gift cards, which are reported within other liabilities in the condensed consolidated balance sheets.

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NOTE 12 - LEASES

The following table depicts the Company's future minimum lease payments as of September 30, 2024:


	Operating
	Leases
Consumer
2024	$	189,715
2025		756,159
2026		745,690
2027		440,662
2028		279,090
Thereafter		209,632

Total minimum lease payments		2,620,948
Less: imputed interest		(161,050)

Sub-total		2,459,898

Commercial
2024		349,822
2025		1,321,299
2026		474,320
2027		33,454
2028		-
Thereafter		-

Total minimum lease payments		2,178,894
Less: imputed interest		(70,829)

Sub-total		2,108,065

Total		4,567,963

Less: current portion		2,020,122

	$	2,547,841

All of the Company's leased facilities as of September 30, 2024, are non-cancellable. The leases are a combination of triple net leases, for which the Company pays its proportionate share of common area maintenance, property taxes, and property insurance, and modified gross leases, for which the Company directly pays for common area maintenance and property insurance. Lease costs are comprised of a combination of minimum lease payments and variable lease costs.

Lease costs for the three months ended September 30, 2024 and 2023 were $846,602 and $686,354, respectively. Lease costs for the nine months ended September 30, 2024 and 2023 were $2,399,239 and $2,048,238, respectively.

As of September 30, 2024, the weighted average remaining lease term and weighted average discount rate for operating leases were 2.8 years and 3.7%. As of September 30, 2023, the weighted average remaining lease term and weighted average discount rate for operating leases were 2.3 years and 4.4%.

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NOTE 13 - BASIC AND DILUTED AVERAGE SHARES

The following table is a reconciliation of the Company's basic and diluted weighted average common shares for the three months ended September 30, 2024 and 2023:


	Three Months Ended
	September 30,
	2024	2023

Basic weighted average shares	26,061,748	26,809,778
Effect of potential dilutive securities	15,000	15,000

Diluted weighted average shares	26,076,748	26,824,778

The following table is a reconciliation of the Company's basic and diluted weighted average common shares for the nine months ended September 30, 2024 and 2023:


	Nine Months Ended
	September 30,
	2024	2023

Basic weighted average shares	26,242,452	26,884,221
Effect of potential dilutive securities	15,000	15,000

Diluted weighted average shares	26,257,452	26,899,221

For three and nine months ended September 30, 2024 and 2023, there was a total of 15 thousand common stock options unexercised. For the three and nine months ended September 30, 2024 and 2023, there were no anti-dilutive shares.

On March 14, 2023, a stock repurchase program was unanimously approved by the Company's Board of Directors (the "Board"), which gave management authorization to purchase up to one million shares of the Company's stock, at a per-share price not to exceed $9.00, on the open market. The plan expires on March 31, 2026.

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The following table lists the repurchase of Company shares for the three and nine months ended September 30, 2024:


	Total Number of	Average Price		Total Price		Shares Available
Fiscal Period	Shares Purchased	Paid per Share		Paid		to Purchase
Balance as of January 1, 2024	415,973	$	5.18		$	2,155,049	584,027

January 1 - 31, 2024	59,417		4.52			268,569	524,610
February 1 - 29, 2024	56,343		4.53			255,195	468,267
March 1 - 31, 2024	85,580		4.46			381,382	382,687

Balance as of March 31, 2024	617,313	$	4.96		$	3,060,195	382,687

April 1 - 30, 2024	30,891		4.66			143,840	351,796
May 1 - 31, 2024	37,672		4.65			175,257	314,124
June 1 - 30, 2024	83,526		4.74			396,242	230,598

Balance as of June 30, 2024	769,402	$	4.91		$	3,775,534	230,598

July 1 - 31, 2024	75,326		4.87			367,144	155,272
August 1 - 31, 2024	51,353		4.98			255,633	103,919
September 1 - 30, 2024	20,516		5.15			105,733	83,403

Balance as of September 30, 2024	916,597	$	4.91		$	4,504,044	83,403

For the three months ended September 30, 2024, the Company repurchased 147,195 shares for $728,510, for an average price of $4.95.

For the nine months ended September 30, 2024, the Company repurchased 500,624 shares for $2,348,995, for an average price of $4.69.

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NOTE 14 - DEBT

The following table summarizes the details of the Company's long-term debt obligations:


	Outstanding Balance
	September 30,		December 31,
	2024		2023
Consumer
Note payable, FSB ⁽¹⁾	$	2,483,853		$	2,563,108
Note payable, Truist Bank ⁽³⁾		810,659			838,430
Notes payable, TBT ^(4,5)		2,001,435			2,064,928
Note payable, Kretchmer Transaction ⁽⁶⁾		50,000			200,000

Sub-total		5,345,947			5,666,466

Commercial
Note payable, FSB ⁽²⁾		5,632,161			5,815,381
Note payable, Avail Transaction ⁽⁷⁾		333,333			833,333

Sub-total		5,965,494			6,648,714

Corporate
Line of credit, FSB ⁽⁸⁾		-			-
Note payable, TBT ⁽⁹⁾		2,530,344			2,618,311

Sub-total		2,530,344			2,618,311

Total		13,841,785			14,933,491

Less: current portion		(971,603)			(1,361,443)

	$	12,870,182		$	13,572,048

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The following table depicts the Company's future principal payments on long-term debt obligations as of September 30, 2024:


	2024		2025		2026	2027		2028		Thereafter
Consumer
Note payable, FSB ⁽¹⁾		29,235			112,154		2,342,464			-		-		-
Note payable, Truist Bank ⁽³⁾		9,485			38,745		40,203			41,716		43,216		637,294
Notes payable, TBT ^(4,5)		21,705			487,261		71,359			74,081		76,767		1,270,262
Note payable, Kretchmer Transaction ⁽⁶⁾		6,250			25,000		18,750			-		-		-

Sub-total		66,675			663,160		2,472,776			115,797		119,983		1,907,556

Commercial
Note payable, FSB ⁽²⁾		62,990			254,466		5,314,705			-		-		-
Note payable, Avail Transaction ⁽⁷⁾		166,666			166,667		-			-		-		-

Sub-total		229,656			421,133		5,314,705			-		-		-

Corporate
Line of Credit, FSB ⁽⁸⁾		-			-		-			-		-		-
Note payable, TBT ⁽⁹⁾		29,953			2,500,391		-			-		-		-

Sub-total		29,953			2,500,391		-			-		-		-

	$	326,284		$	3,584,684	$	7,787,481		$	115,797	$	119,983	$	1,907,556

(1)	On November 23, 2021, the consumer segment entered into a $2.781million secured amortizing note payable with Farmer's State Bank of Oakley, Kansas ("FSB"). The note payable bears interest at 3.10%and matures on November 15, 2026.

(2)	On November 23, 2021, the commercial segment entered into a $6.309million secured amortizing note payable with FSB. The note payable bears interest at 3.10%and matures on November 15, 2026.

(3)	On July 9, 2020, the consumer segment entered into a $956 thousand secured amortizing note payable with Truist Bank. The note payable bears interest at 3.65%and matures on July 9, 2030.

(4)	On September 14, 2020, the consumer segment entered into a $496 thousand secured amortizing note payable with Texas Bank & Trust ("TBT"). The note payable bears interest at 3.75%and matures on September 14, 2025.

(5)	On July 30, 2021, the consumer segment entered into a $1.772 million secured amortizing note payable with TBT. The note payable bears interest at 3.75%and matures on July 30, 2031.

(6)

On September 12, 2024, the consumer segment entered into a $50thousand secured amortizing note payable in relation to the Kretchmer Transaction. The repayment of the note payable shall begin upon the fulfillment of certain terms and conditions under the new asset purchase agreement entered into on September 12, 2024. The note payable's imputed interest is 3.10%and matures on September 30, 2026.

(7)	On October 29, 2021, the consumer segment entered into a $2.000million secured amortizing note payable in relation to the acquisition of Avail Recovery Solutions, LLC on October 29, 2021 ("Avail Transaction"). The note payable's imputed interest is 3.10%and matures on January 1, 2025.

(8)

On November 23, 2021, the Company entered into a $3.500million secured line of credit with FSB. The line of credit bears interest at 3.10%and matures on November 23, 2024. This note was previously presented within our commercial segment and is now presented within corporate as the line of credit provides borrowing capacity for all segments. See Note 18 - Subsequent Events for further details.

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(9)	On November 4, 2020, a wholly owned subsidiary of Envela entered into a $2.960million secured amortizing note payable with TBT. The note payable bears interest at 3.25%and matures on November 3, 2025.

The Company was in compliance with all of its debt obligation covenants for the three and nine months ended September 30, 2024 and 2023.

The following table depicts the Company's future scheduled aggregate principal payments and maturities as of September 30, 2024:


	Scheduled
	Principal		Loan
Scheduled Principal Payments and Maturities by Year	Payments		Maturities		Total

2024		326,284			-		326,284
2025		792,282			2,792,402		3,584,684
2026		476,241			7,311,240		7,787,481
2027		115,797			-		115,797
2028		119,983			-		119,983
Thereafter		297,332			1,610,224		1,907,556

	$	2,127,919		$	11,713,866	$	13,841,785

NOTE 15 - STOCK-BASED COMPENSATION

There was no stock-based compensation expense for the three and nine months ended September 30, 2024 and 2023.

NOTE 16 - RELATED PARTY TRANSACTIONS

The Company has a corporate policy governing the identification, review, consideration, and approval or ratification of transactions with related persons. Under this policy, all related party transactions are identified and approved prior to consummation of the transaction to ensure they are consistent with the Company's best interests and the best interests of its shareholders. There are no related party transactions subject to reporting for the three and nine months ended September 30, 2024 and 2023.

NOTE 17 - CONTINGENCIES

We review the need to accrue for any loss contingency and establish a liability when, in the opinion of management, it is probable that a matter would result in a liability and the amount of loss, if any, can be reasonably estimated. We do not believe that the resolution of any currently pending lawsuits, claims, and proceedings, either individually or in the aggregate, will have a material adverse effect on financial position, results of operations, or liquidity. However, the outcomes of any currently pending lawsuits, claims, and proceedings cannot be predicted, and therefore, there can be no assurance that this will be the case. There are no loss contingencies subject to reporting for the three and nine months ended September 30, 2024 and 2023.

NOTE 18 - SUBSEQUENT EVENTS

On October 30, 2024, the Company received a commitment from FSB to renew its line of credit. The renewal increases our line of credit from $3.500 million to $3.800 million, extends the maturity to November 23, 2027 with borrowings bearing interest at our rate of deposit plus 1.0%. The Company intends to renew its line of the credit with FSB.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 2024 (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", "potential," "continue," "deploy" 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 2023 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.

Introduction

This section includes a discussion of our operations for the three and nine months ended September 30, 2024 and 2023. The following discussion and analysis provide information that management believes is relevant to an assessment and understanding of our financial condition and results of operations. The discussion should be read in conjunction with the Company's 2023 Annual Report, the unaudited condensed consolidated financial statements, and the related Notes thereto included in Part I, Item 1 of this report.

Use of Non-U.S. GAAP Financial Measures

Within this management discussion and analysis, we use supplemental measures of our performance, which are derived from our interim condensed consolidated financial information, but which are not presented in our interim condensed consolidated financial statements prepared in accordance with U.S. GAAP. We believe that providing these non-GAAP financial measures adds a meaningful presentation of our operating and financial performance, liquidity, and leverage.

Our non-GAAP financial measures should be considered in addition to, but not as a substitute for, the most directly comparable GAAP measures. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.

See Non-U.S. GAAP Financial Measures for further details.

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Critical Accounting Policies and Estimates

There were no material changes to our critical accounting policies and estimates as described in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the Company's 2023 Annual Report.

Economic Conditions

The U.S. and other world economies are currently experiencing high interest rates and high levels of inflation, coupled with commodity price risk, mainly associated with the market price of precious metals and diamonds which have the potential to impact consumer discretionary spending behavior. Furthermore, adverse macroeconomic conditions can also impact demand for resale technology assets.

As to counterbalance economic cycles that impact market selling prices and/or underlying operating costs we adjust the inbound purchase price of commodity-based products, luxury hard assets, and resale technology.

We continuously monitor our inventory positions and associated working capital to respond to market conditions and to meet seasonal business cycles and expansionary plans. These economic cycles may from time to time require the business to utilize its line of credit or seek additional capital.

There can be no assurance that the measures we have adopted will be successful in mitigating the aforementioned risks.

General

Consumer Segment

Commercial Segment

Our commercial segment specializes in the de-manufacturing of end-of-life electronic assets to reclaim commodities and other materials, while also engaging in the ("IT") asset disposition ("ITAD") industry. The separated commodities, including metals, plastics, and glass, are sold to downstream processors where they are further processed and reintroduced into new products. ITAD services maximize the residual value of retired IT assets by adhering to a reuse-first philosophy and ensuring equipment is refurbished and re-marketed after data sanitization. The company focuses on offering services that manage the entire lifecycle of technology products to ensure data security, regulatory compliance, and environmental sustainability. We are proud of our role to support a circular economy through responsible reuse and recycling of electronic devices.

Segment Activities

The Company believes it is well positioned to take advantage of its overall capital structure.

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Consumer Segment

Our strategy is to expand the number of locations we operate by opening new locations throughout the U.S. Likewise, we continue to evaluate opportunities related to complementary product and service offerings for our stores and online business.

Commercial Segment

Our strategy is to expand both organically and through acquisitions. The Company has taken considerable steps to bolster its management team and operating systems to position itself for growth. Our production facilities are capable of managing the expansion of existing relationships and consolidation of acquisition targets within relative geographic proximity to our existing facilities.

Change in Disclosure of Results of Operations

The Company previously disaggregated revenue and gross margin by resale and recycle for each segment within the results of operations. The Company's revenue and gross margin are now comprised of more diverse revenue and gross margin streams associated with service offerings and as such to continue reporting under the prior disclosure methodology would be less representative of how the business operates. The Company believes that this change has no material impact on the interpretation of our results of operations.

Recent Accounting Pronouncements

See Note 3 - Accounting Policies and Estimates for further details.

Non-U.S. GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA is defined as the sum of net income (loss) of the Company, adjusted for additions (deductions) of interest expense, other (income) expense, income tax expense (benefit), and depreciation and amortization. Adjusted EBITDA is a key performance measure that management uses to assess our operating performance. Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure as an overall assessment of our performance, to evaluate the effectiveness of our strategies and for planning purposes.

The following table provides a reconciliation of net income to Adjusted EBITDA for the three months ended September 30, 2024 and 2023:


	Three Months Ended September 30,
	2024		2023
	Consumer		Commercial		Consolidated	Consumer		Commercial		Consolidated
Adjusted EBITDA Reconciliation:
Net income (loss)	$	(26,843)		$	1,711,882	$	1,685,039		$	767,376	$	940,117	$	1,707,493
Addition (deduction):
Depreciation and amortization		150,657			264,122		414,779			75,842		261,871		337,713
Other income		(62,502)			(277,849)		(340,351)			(22,851)		(169,586)		(192,437)
Interest expense		51,486			54,653		106,139			59,631		57,535		117,166
Income tax expense (benefit)		(122,464)			692,109		569,645			120,637		197,330		317,967

	$	(9,666)		$	2,444,917	$	2,435,251		$	1,000,635	$	1,287,267	$	2,287,902

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The following table provides a reconciliation of net income to Adjusted EBITDA for the nine months ended September 30, 2024 and 2023:


	Nine Months Ended September 30,
	2024		2023
	Consumer		Commercial		Consolidated	Consumer		Commercial		Consolidated
Adjusted EBITDA Reconciliation:
Net income (loss)	$	(116,325)		$	5,273,082	$	5,156,757		$	3,072,567	$	2,764,952	$	5,837,519
Addition (deduction):
Depreciation and amortization		356,851			763,760		1,120,611			253,385		774,853		1,028,238
Other income		(78,510)			(725,786)		(804,296)			(70,315)		(486,553)		(556,868)
Interest expense		171,584			164,550		336,134			177,458		171,460		348,918
Income tax expense (benefit)		(33,706)			1,614,868		1,581,162			778,150		756,037		1,534,187

	$	299,894		$	7,090,474	$	7,390,368		$	4,211,245	$	3,980,749	$	8,191,994

Net Cash

Net Cash is defined as the difference between (i) cash and cash equivalents and (ii) the sum of debt obligations. We believe that presenting Net Cash is useful to investors as a measure of our liquidity and leverage profile, as cash and cash equivalents can be used, among other things, to repay indebtedness.

The following table depicts the Company's Net Cash:


	September 30,		December 31,
	2024		2023

Total cash	$	17,752,199		$	17,853,853
Less: debt obligations		(13,841,785)			(14,933,491)

	$	3,910,414		$	2,920,362

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Results of Operations

Comparison of the Three Months Ended September 30, 2024 and 2023

The following table depicts our disaggregated condensed consolidated statements of income for the three months ended September 30, 2024 and 2023:


	Three Months Ended September 30,
	2024		2023
	Consumer		Commercial		Consolidated	% of Sales ⁽¹⁾		Consumer		Commercial		Consolidated	% of Sales ⁽¹⁾

Sales	$	33,756,600		$	13,142,959	$	46,899,559		100.0	%	$	26,881,202	$	9,995,284	$	36,876,486	100.0	%
Cost of goods sold		29,840,285		$	5,595,035		35,435,320		75.6	%		23,291,939		3,850,265		27,142,204	73.6	%

Gross margin		3,916,315			7,547,924		11,464,239		24.4	%		3,589,263		6,145,019		9,734,282	26.4	%

Expenses:
Selling, general and administrative		3,925,981			5,103,007		9,028,988		19.3	%		2,588,628		4,857,752		7,446,380	20.2	%
Depreciation and amortization		150,657			264,122		414,779		0.9	%		75,842		261,871		337,713	0.9	%

Total operating expenses		4,076,638			5,367,129		9,443,767		20.1	%		2,664,470		5,119,623		7,784,093	21.1	%

Operating income (loss)		(160,323)			2,180,795		2,020,472		4.3	%		924,793		1,025,396		1,950,189	5.3	%

Other income (expense):
Other income		62,502			277,849		340,351		0.7	%		22,851		169,586		192,437	0.5	%
Interest expense		(51,486)			(54,653)		(106,139)		(0.2)	%		(59,631)		(57,535)		(117,166)	(0.3)	%

Income (loss) before income taxes		(149,307)			2,403,991		2,254,684		4.8	%		888,013		1,137,447		2,025,460	5.5	%
Income tax (expense) benefit		122,464			(692,109)		(569,645)		(1.2)	%		(120,637)		(197,330)		(317,967)	(0.9)	%

Net income (loss)	$	(26,843)		$	1,711,882	$	1,685,039		3.6	%	$	767,376	$	940,117	$	1,707,493	4.6	%

(1)

The individual segments reported the following for the three months ended September 30, 2024 and 2023:

Sales


	Three Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	46,899,559		$	36,876,486		$	10,023,073	27.2	%
% of consolidated sales		100.0	%		100.0	%

Consumer	$	33,756,600		$	26,881,202		$	6,875,398	25.6	%
% of consumer sales		100.0	%		100.0	%

Commercial	$	13,142,959		$	9,995,284		$	3,147,675	31.5	%
% of commercial sales		100.0	%		100.0	%

Consolidated

Sales increased by $10,023,073, or 27.2%, during the three months ended September 30, 2024, to $46,899,559, as compared to $36,876,486 during the same period in Fiscal 2023.

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Consumer Segment

Sales in the consumer segment increased by $6,875,398, or 25.6%, during the three months ended September 30, 2024, to $33,756,600, as compared to $26,881,202 during the same period in Fiscal 2023. The change was primarily attributed to an increase in revenue from our wholesale channel and incrementally from our stores and online business. Underlying the aforementioned results was the impact from historically high gold and silver prices. Albeit, the third quarter of Fiscal 2024 was favorable to the comparative period the consumer segment has also built inventory as to ensure our new Arizona and Texas stores were adequately stocked. Our Arizona stores were operating for the entire third quarter of Fiscal 2024, while one of our Texas stores soft opened in the later part of the third quarter of Fiscal 2024 and the other opened early in the fourth quarter of Fiscal 2024. It is anticipated that as our new stores ramp up our inventory position should normalize, and inventory will return to being relieved in the normal course of operations.

Commercial Segment

Sales in the commercial segment increased by $3,147,675, or 31.5%, during the three months ended September 30, 2024, to $13,142,959, as compared to $9,995,284 during the same period in Fiscal 2023. The change was primarily attributed to the strong performance of our ITAD business and incrementally from the sale of personal technology assets and shredded electronic scrap grades and associated recoveries. Our ITAD business was impacted by strong inbound volumes from a new client that we were able to recognize sales on during third quarter of Fiscal 2024.

Cost of Goods Sold


	Three Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	35,435,320		$	27,142,204		$	8,293,116	30.6	%
% of consolidated sales		75.6	%		73.6	%

Consumer	$	29,840,285		$	23,291,939		$	6,548,346	28.1	%
% of consumer sales		88.4	%		86.6	%

Commercial	$	5,595,035		$	3,850,265		$	1,744,770	45.3	%
% of commercial sales		42.6	%		38.5	%

Consolidated

Cost of goods sold increased by $8,293,116, or 30.6%, during the three months ended September 30, 2024, to $35,435,320, as compared to $27,142,204 during the same period in Fiscal 2023.

Consumer Segment

Cost of goods sold in the consumer segment increased by $6,548,346, or 28.1%, during the three months ended September 30, 2024, to $29,840,285, as compared to $23,291,939 during the same period in Fiscal 2023. The change was primarily attributed to the relief of inventory on the lower margin scrap grade precious metals which were sold through our wholesale channel. The greater mix of lower margin scrap grade precious metals being relieved from inventory resulted in the higher cost of goods sold as a percent of sales.

Commercial Segment

Cost of goods sold in the commercial segment increased by $1,744,770, or 45.3%, during the three months ended September 30, 2024, to $5,595,035, as compared to $3,850,265 during the same period in Fiscal 2023. The change was primarily attributed to ITAD revenue sharing settlements and incrementally from the relief of inventory and settlements associated with lower margin shredded electronic scrap grades and from the relief of inventory associated with personal technology assets. The greater mix of lower margin shredded electronic scrap grades resulted in the higher cost of goods sold as a percent of sales.

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Gross Margin


	Three Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	11,464,239		$	9,734,282		$	1,729,957	17.8	%
% of consolidated sales		24.4	%		26.4	%

Consumer	$	3,916,315		$	3,589,263		$	327,052	9.1	%
% of consumer sales		11.6	%		13.4	%

Commercial	$	7,547,924		$	6,145,019		$	1,402,905	22.8	%
% of commercial sales		57.4	%		61.5	%

Consolidated

Gross margin increased by $1,729,957, or 17.8%, during the three months ended September 30, 2024, to $11,464,239, as compared to $9,734,282 during the same period in Fiscal 2023.

Consumer Segment

Gross margin in the consumer segment increased by $327,052, or 9.1%, during the three months ended September 30, 2024, to $3,916,315, as compared to $3,589,263 during the same period in Fiscal 2023. The net impact of the aforementioned increase in sales of $6,875,398 and increase in cost of goods sold of $6,548,346 resulted in the $327,052 increase in gross margin.

Commercial Segment

Gross margin in the commercial segment increased by $1,402,905, or 22.8%, during the three months ended September 30, 2024, to $7,547,924, as compared to $6,145,019 during the same period in Fiscal 2023. The net impact of the aforementioned increase in sales of $3,147,675 and increase in cost of goods sold $1,744,770 resulted in the $1,402,905 increase in gross margin.

Selling, General and Administrative


	Three Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	9,028,988		$	7,446,380		$	1,582,608	21.3	%
% of consolidated sales		19.3	%		20.2	%

Consumer	$	3,925,981		$	2,588,628		$	1,337,353	51.7	%
% of consumer sales		11.6	%		9.6	%

Commercial	$	5,103,007		$	4,857,752		$	245,255	5.0	%
% of commercial sales		38.8	%		48.6	%

Consolidated

Selling, general and administrative expense increased by $1,582,608, or 21.3%, during the three months ended September 30, 2024, to $9,028,988, as compared to $7,446,380 during the same period in Fiscal 2023.

Consumer Segment

Selling, general and administrative expense in the consumer segment increased by $1,337,353, or 51.7%, during the three months ended September 30, 2024, to $3,925,981, as compared to $2,588,628 during the same period in Fiscal 2023. The

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change was primarily attributed to incurring operational cost structures from our new Arizona and Texas stores along with travel costs associated with preparing the new Texas stores for opening.

Commercial Segment

Selling, general and administrative expense in the commercial segment increased by $245,255, or 5.0%, during the three months ended September 30, 2024, to $5,103,007, as compared to $4,857,752 during the same period in Fiscal 2023. The change was primarily attributed to a marginal increase in labor costs associated with a new service-based client along with labor costs from increased processing volumes of shredded electronic scrap grades. In addition, the cost of supplies increased on higher processing and shipping volumes.

Depreciation and Amortization


	Three Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	414,779		$	337,713		$	77,066	22.8	%
% of consolidated sales		0.9	%		0.9	%

Consumer	$	150,657		$	75,842		$	74,815	98.6	%
% of consumer sales		0.4	%		0.3	%

Commercial	$	264,122		$	261,871		$	2,251	0.9	%
% of commercial sales		2.0	%		2.6	%

Consolidated

Depreciation and amortization expense increased by $77,066, or 22.8%, during the three months ended September 30, 2024, to $414,779, as compared to $337,713 during the same period in Fiscal 2023.

Consumer Segment

Depreciation and amortization expense in the consumer segment increased by $74,815, or 98.6%, during the three months ended September 30, 2024, to $150,657, as compared to $75,842 during the same period in Fiscal 2023. The change was primarily attributed to our Arizona stores that were placed into service in the later part of the second quarter of Fiscal 2024 along with one of our new Texas stores that went into service in the later part of the third quarter of Fiscal 2024 as well as from the depreciation and amortization expense related to the assets acquired in the Kretchmer Transaction.

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Commercial Segment

Depreciation and amortization expense in the commercial segment increased by $2,251, or 0.9%, during the three months ended September 30, 2024, to $264,122, as compared to $261,871 during the same period in Fiscal 2023. There was no material impact from assets capitalized or reaching maturity in each comparative period and as such no discussion point.

Other Income (Expense)


	Three Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	340,351		$	192,437		$	147,914	76.9	%
% of consolidated sales		0.7	%		0.5	%

Consumer	$	62,502		$	22,851		$	39,651	173.5	%
% of consumer sales		0.2	%		0.1	%

Commercial	$	277,849		$	169,586		$	108,263	63.8	%
% of commercial sales		2.1	%		1.7	%

Consolidated

Other income increased by $147,914, or 76.9%, during the three months ended September 30, 2024, to $340,351, as compared to $192,437 during the same period in Fiscal 2023.

Consumer Segment

Other income in the consumer segment increased by $39,651, or 173.5%, during the three months ended September 30, 2024, to $62,502, as compared to $22,851 during the same period in Fiscal 2023. The change was primarily attributed to the proportional allocation of the proceeds from a settlement related to repairs to our corporate headquarters and to the consumer segment's higher working capital requirements from the aforementioned launching of our Arizona and Texas stores which has decreased the excess cash flow available to sweep into an interest-bearing account. The impact on interest income is referenced below.

Interest income comprised $2 and $21,741 of other income during the three months ended September 30, 2024 and 2023, respectively.

Commercial Segment

Other income in the commercial segment increased by $108,263, or 63.8%, during the three months ended September 30, 2024, to $277,849, as compared to $169,586 during the same period in Fiscal 2023. The change was primarily attributed to the proportional allocation of the proceeds from a settlement related to repairs to our Company's corporate headquarters and to the continued focus on reducing working capital which has increased the excess cash flow available to sweep into an interest bearing account. The impact on interest income is referenced below.

Interest income comprised $203,251 and $140,274 of other income during the three months ended September 30, 2024 and 2023, respectively.

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Interest Expense


	Three Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	(106,139)		$	(117,166)		$	11,027	(9.4)	%
% of consolidated sales		(0.2)	%		(0.3)	%

Consumer	$	(51,486)		$	(59,631)		$	8,145	(13.7)	%
% of consumer sales		(0.2)	%		(0.2)	%

Commercial	$	(54,653)		$	(57,535)		$	2,882	(5.0)	%
% of commercial sales		(0.4)	%		(0.6)	%

Consolidated

Interest expense decreased by $11,027, or 9.4%, during the three months ended September 30, 2024, to $106,139, as compared to $117,166 during the same period in Fiscal 2023.

Consumer Segment

Interest expense in the consumer segment decreased by $8,145, or 13.7%, during the three months ended September 30, 2024, to $51,486, as compared to $59,631 during the same period in Fiscal 2023. There was no material impact from debt additions or amortization in each comparative period and as such no discussion point.

Commercial Segment

Interest expense in the commercial segment decreased by $2,882, or 5.0%, during the three months ended September 30, 2024, to $54,653, as compared to $57,535 during the same period in Fiscal 2023. There was no material impact from amortization in each comparative period and as such no discussion point.

Income Tax (Expense) Benefit


	Three Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	(569,645)		$	(317,967)		$	(251,678)	79.2	%
% of consolidated sales		(1.2)	%		(0.9)	%

Consumer	$	122,464		$	(120,637)		$	243,101	NM
% of consumer sales		0.4	%		(0.4)	%

Commercial	$	(692,109)		$	(197,330)		$	(494,779)	250.7	%
% of commercial sales		(5.3)	%		(2.0)	%

NM - Not Meaningful

Consolidated

Income tax expense increased by $251,678, or 79.2%, during the three months ended September 30, 2024, to $569,645, as compared to $317,967 during the same period in Fiscal 2023. Currently, the Company has a deferred tax liability reflecting a future obligation to pay taxes. The Company has a federal tax rate of approximately 21.0%, in addition to other state and local taxes, on net income. The effective income tax rate was 25.3% and 18.6% for the three months ended September 30, 2024 and 2023, respectively. Differences between our effective income tax rate and the U.S. federal statutory rate are the result of state taxes and non-deductible expenses, as was the Company's case for the increase for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

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Net Income (Loss)


	Three Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	1,685,039		$	1,707,493		$	(22,454)	(1.3)	%
% of consolidated sales		3.6	%		4.6	%

Consumer	$	(26,843)		$	767,376		$	(794,219)	NM
% of consumer sales		(0.1)	%		2.9	%

Commercial	$	1,711,882		$	940,117		$	771,765	82.1	%
% of commercial sales		13.0	%		9.4	%

NM - Not Meaningful

Consolidated

Net income decreased by $22,454, or 1.3%, during the three months ended September 30, 2024, to $1,685,039, as compared to $1,707,493 during the same period in Fiscal 2023. Refer to the aforementioned attributes discussed within the Comparison of the Three Months Ended September 30, 2024 and 2023 for further details.

Consumer Segment

Net income (loss) decreased in the consumer segment by $794,219, during the three months ended September 30, 2024, to a net loss of $26,843, as compared to net income of $767,376 during the same period in Fiscal 2023. Refer to the aforementioned attributes discussed within the Comparison of the Three Months Ended September 30, 2024 and 2023 for further details.

Commercial Segment

Net income increased in the commercial segment by $771,765, or 82.1%, during the three months ended September 30, 2024, to $1,711,882, as compared to $940,117 during the same period in Fiscal 2023. Refer to the aforementioned attributes discussed within the Comparison of the Three Months Ended September 30, 2024 and 2023 for further details.

Earnings Per Share

The following table depicts the Company's earnings per share:


	Three Months Ended September 30,		Change
	2024		2023		Amount	%

Consolidated	$	0.06		$	0.06	$	-	0.0	%

Consolidated

Basic and diluted earnings per share attributable to holders of our Common Stock remained at $0.06 during the three months ended September 30, 2024, as compared to the same period in Fiscal 2023.

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Comparison of the Nine Months Ended September 30, 2024 and 2023

The following table depicts our disaggregated condensed consolidated statements of income for the nine months ended September 30, 2024 and 2023:


	Nine Months Ended September 30,
	2024		2023
	Consumer		Commercial		Consolidated	% of Sales ⁽¹⁾		Consumer		Commercial		Consolidated	% of Sales ⁽¹⁾

Sales	$	93,972,645		$	38,081,696	$	132,054,341		100.0	%	$	103,227,033	$	34,554,862	$	137,781,895	100.0	%
Cost of goods sold		82,485,812			16,394,149		98,879,961		74.9	%		91,558,160		14,317,504		105,875,664	76.8	%

Gross margin		11,486,833			21,687,547		33,174,380		25.1	%		11,668,873		20,237,358		31,906,231	23.2	%

Expenses:
Selling, general and administrative		11,186,939			14,597,073		25,784,012		19.5	%		7,457,628		16,256,609		23,714,237	17.2	%
Depreciation and amortization		356,851			763,760		1,120,611		0.8	%		253,385		774,853		1,028,238	0.7	%

Total operating expenses		11,543,790			15,360,833		26,904,623		20.3	%		7,711,013		17,031,462		24,742,475	18.0	%

Operating income		(56,957)			6,326,714		6,269,757		4.8	%		3,957,860		3,205,896		7,163,756	5.2	%

Other income (expense):
Other income		78,510			725,786		804,296		0.6	%		70,315		486,553		556,868	0.4	%
Interest expense		(171,584)			(164,550)		(336,134)		(0.3)	%		(177,458)		(171,460)		(348,918)	(0.3)	%

Income (loss) before income taxes		(150,031)			6,887,950		6,737,919		5.1	%		3,850,717		3,520,989		7,371,706	5.4	%
Income tax (expense) benefit		33,706			(1,614,868)		(1,581,162)		(1.2)	%		(778,150)		(756,037)		(1,534,187)	(1.1)	%

Net income (loss)	$	(116,325)		$	5,273,082	$	5,156,757		3.9	%	$	3,072,567	$	2,764,952	$	5,837,519	4.2	%

(1)

The individual segments reported the following for the nine months ended September 30, 2024 and 2023:

Sales


	Nine Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	132,054,341		$	137,781,895		$	(5,727,554)	(4.2)	%
% of consolidated sales		100.0	%		100.0	%

Consumer	$	93,972,645		$	103,227,033		$	(9,254,388)	(9.0)	%
% of consumer sales		100.0	%		100.0	%

Commercial	$	38,081,696		$	34,554,862		$	3,526,834	10.2	%
% of commercial sales		100.0	%		100.0	%

Consolidated

Sales decreased by $5,727,554 or 4.2%, during the nine months ended September 30, 2024, to $132,054,341, as compared to $137,781,895 during the same period in Fiscal 2023.

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Consumer Segment

Sales in the consumer segment decreased by $9,254,388, or 9%, during the nine months ended September 30, 2024, to $93,972,645, as compared to $103,227,033 during the same period in Fiscal 2023. The change was primarily attributed to softness in the demand for bullion, tempered by the impact from historically high gold and silver prices, coupled with continued inventory carry associated with our Arizona and Texas stores which was incrementally offset in the third quarter of Fiscal 2024 by the relief of lower margin scrap grade precious metals inventory through our wholesale channel.

Commercial Segment

Sales in the commercial segment increased by $3,526,834, or 10.2%, during the nine months ended September 30, 2024, to $38,081,696, as compared to $34,554,862 during the same period in Fiscal 2023. The change was primarily attributed to continued favorable performance of the sale of personal technology assets, shredded electronic scrap grades and associated recoveries as well as from stronger growth in our ITAD business which was more pronounced in the third quarter of Fiscal 2024. We also experienced growth in our retail returns service business which is small but growing portion of our diversified revenue streams.

Cost of Goods Sold


	Nine Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	98,879,961		$	105,875,664		$	(6,995,703)	(6.6)	%
% of consolidated sales		74.9	%		76.8	%

Consumer	$	82,485,812		$	91,558,160		$	(9,072,348)	(9.9)	%
% of consumer sales		87.8	%		88.7	%

Commercial	$	16,394,149		$	14,317,504		$	2,076,645	14.5	%
% of commercial sales		43.0	%		41.4	%

Consolidated

Cost of goods sold decreased by $6,995,703, or 6.6%, during the nine months ended September 30, 2024, to $98,879,961, as compared to $105,875,664 during the same period in Fiscal 2023.

Consumer Segment

Cost of goods sold in the consumer segment decreased by $9,072,348, or 9.9%, during the nine months ended September 30, 2024, to $82,485,812, as compared to $91,558,160 during the same period in Fiscal 2023. The change was primarily attributed to the aforementioned softness in the demand for bullion and continued inventory carry which resulted in less inventory costs to be recognized. In terms of cost of goods sold as a percent of sales it was primarily impacted by a greater mix of higher margin retail inventory being relieved during the first and second quarter of Fiscal 2024 and was tempered by lower margin scrap grade precious metals being relieved in the third quarter of Fiscal 2024.

Commercial Segment

Cost of goods sold in the commercial segment increased by $2,076,645, or 14.5%, during the nine months ended September 30, 2024, to $16,394,149, as compared to $14,317,504 during the same period in Fiscal 2023. The change was primarily attributed to the relief of inventory related to personal technology assets and lower margin shredded electronic scrap grades and associated revenue sharing and incrementally from ITAD settlements. ITAD settlements were more pronounced in the third quarter of Fiscal 2024. The greater mix of the sale of personal technology assets and lower margin shredded electronic scrap grades and associated settlements resulted in a higher cost of goods sold as a percent of sales.

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Gross Margin


	Nine Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	33,174,380		$	31,906,231		$	1,268,149	4.0	%
% of consolidated sales		25.1	%		23.2	%

Consumer	$	11,486,833		$	11,668,873		$	(182,040)	(1.6)	%
% of consumer sales		12.2	%		11.3	%

Commercial	$	21,687,547		$	20,237,358		$	1,450,189	7.2	%
% of commercial sales		57.0	%		58.6	%

Consolidated

Gross margin increased by $1,268,149, or 4.0%, during the nine months ended September 30, 2024, to $33,174,380, as compared to $31,906,231 during the same period in Fiscal 2023.

Consumer Segment

Gross margin in the consumer segment decreased by $182,040, or 1.6%, during the nine months ended September 30, 2024, to $11,486,833, as compared to $11,668,873 during the same period in Fiscal 2023. The net impact of the aforementioned decrease in sales of $9,254,388 and decrease in cost of goods sold of $9,072,348 resulted in the $182,040 decrease in gross margin.

Commercial Segment

Gross margin in the commercial segment increased by $1,450,189, or 7.2%, during the nine months ended September 30, 2024, to $21,687,547, as compared to $20,237,358 during the same period in Fiscal 2023. The net impact of the aforementioned increase in sales of $3,526,834 and increase in cost of goods sold of $2,076,645 resulted in the $1,450,189 increase in gross margin.

Selling, General and Administrative


	Nine Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	25,784,012		$	23,714,237		$	2,069,775	8.7	%
% of consolidated sales		19.5	%		17.2	%

Consumer	$	11,186,939		$	7,457,628		$	3,729,311	50.0	%
% of consumer sales		11.9	%		7.2	%

Commercial	$	14,597,073		$	16,256,609		$	(1,659,536)	(10.2)	%
% of commercial sales		38.3	%		47.0	%

Consolidated

Selling, general and administrative expense increased by $2,069,775, or 8.7%, during the nine months ended September 30, 2024, to $25,784,012, as compared to $23,714,237 during the same period in Fiscal 2023.

Consumer Segment

Selling, general and administrative expense in the consumer segment increased by $3,729,311, or 50.0%, during the nine months ended September 30, 2024, to $11,186,939, as compared to $7,457,628 during the same period in Fiscal 2023. The change was primarily attributed to incurring operational cost structures from our new Arizona and Texas stores along with

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travel costs associated with preparing the new Arizona and Texas stores for opening. Albeit, in the third quarter of Fiscal 2024 travel costs began to subside due to Arizona stores becoming fully operational and reduced travel associated with the opening of Texas based stores which are in relative geographic proximity to our headquarters.

Commercial Segment

Selling, general and administrative expense in the commercial segment decreased by $1,659,536, or 10.2%, during the nine months ended September 30, 2024, to $14,597,073, as compared to $16,256,609 during the same period in Fiscal 2023. The change was primarily attributed to the operational focus on human capital costs and processing efficiencies at our production facilities, however, the commercial segment has experienced a recent incremental increase in select human capital costs associated with a new retail returns client and from processing higher volumes of shredded electronic scrap grades.

Depreciation and Amortization


	Nine Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	1,120,611		$	1,028,238		$	92,373	9.0	%
% of consolidated sales		0.8	%		0.7	%

Consumer	$	356,851		$	253,385		$	103,466	40.8	%
% of consumer sales		0.4	%		0.2	%

Commercial	$	763,760		$	774,853		$	(11,093)	(1.4)	%
% of commercial sales		2.0	%		2.2	%

Consolidated

Depreciation and amortization expense increased by $92,373, or 9.0%, during the nine months ended September 30, 2024, to $1,120,611, as compared to $1,028,238 during the same period in Fiscal 2023.

Consumer Segment

Depreciation and amortization expense in the consumer segment increased by $103,466, or 40.8%, during the nine months ended September 30, 2024, to $356,851, as compared to $253,385 during the same period in Fiscal 2023. The change was primarily attributed to our Arizona stores that were placed into service in the second quarter of Fiscal 2024 along with one of our new Texas stores that went into service in the third quarter of Fiscal 2024 as well as the depreciation and amortization expense related to the assets acquired in the Kretchmer Transaction.

Commercial Segment

Depreciation and amortization expense in the commercial segment decreased by $11,093, or 1.4%, during the nine months ended September 30, 2024, to $763,760, as compared to $774,853 during the same period in Fiscal 2023. There was no material impact from assets capitalized or reaching maturity in each comparative period and as such no discussion point.

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Other Income (Expense)


	Nine Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	804,296		$	556,868		$	247,428	44.4	%
% of consolidated sales		0.6	%		0.4	%

Consumer	$	78,510		$	70,315		$	8,195	11.7	%
% of consumer sales		0.1	%		0.1	%

Commercial	$	725,786		$	486,553		$	239,233	49.2	%
% of commercial sales		1.9	%		1.4	%

Consolidated

Other income increased by $247,428, or 44.4%, during the nine months ended September 30, 2024, to $804,296, as compared to $556,868 during the same period in Fiscal 2023.

Consumer Segment

Other income in the consumer segment increased by $8,195, or 11.7%, during the nine months ended September 30, 2024, to $78,510, as compared to $70,315 during the same period in Fiscal 2023. The change was primarily attributed to the proportional allocation of the proceeds from a settlement related to repairs to our corporate headquarters and to the consumer segment's higher working capital requirements from the aforementioned launching of our Arizona and Texas stores which has decreased the excess cash flow available to sweep into an interest-bearing account. The impact on interest income is referenced below.

Interest income comprised $10 and $65,853 of other income during the nine months ended September 30, 2024 and 2023, respectively.

Commercial Segment

Other income in the commercial segment increased by $239,233, or 49.2%, during the nine months ended September 30, 2024, to $725,786, as compared to $486,553 during the same period in Fiscal 2023. The change was primarily attributed to the proportional allocation of the proceeds from a settlement related to repairs to our Company's corporate headquarters and to the continued focus on reducing working capital which has increased the excess cash flow available to sweep into an interest bearing account. The impact on interest income is referenced below.

Interest income comprised $599,774 and $296,526 of other income during the nine months ended September 30, 2024 and 2023, respectively.

Interest Expense


	Nine Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	(336,134)		$	(348,918)		$	12,784	(3.7)	%
% of consolidated sales		(0.3)	%		(0.3)	%

Consumer	$	(171,584)		$	(177,458)		$	5,874	(3.3)	%
% of consumer sales		(0.2)	%		(0.2)	%

Commercial	$	(164,550)		$	(171,460)		$	6,910	(4.0)	%
% of commercial sales		(0.4)	%		(0.5)	%

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Consolidated

Interest expense decreased by $12,784, or 3.7%, during the nine months ended September 30, 2024, to $336,134, as compared to $348,918 during the same period in Fiscal 2023.

Consumer Segment

Interest expense in the consumer segment decreased by $5,874, or 3.3%, during the nine months ended September 30, 2024, to $171,584, as compared to $177,458 during the same period in Fiscal 2023. There was no material impact from debt additions or amortization in each comparative period and as such no discussion point.

Commercial Segment

Interest expense in the commercial segment decreased by $6,910, or 4.0%, during the nine months ended September 30, 2024, to $164,550, as compared to $171,460 during the same period in Fiscal 2023. There was no material impact from amortization in each comparative period and as such no discussion point.

Income Tax (Expense) Benefit


	Nine Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	(1,581,162)		$	(1,534,187)		$	(46,975)	3.1	%
% of consolidated sales		(1.2)	%		(1.1)	%

Consumer	$	33,706		$	(778,150)		$	811,856	NM
% of consumer sales		0.0	%		(0.8)	%

Commercial	$	(1,614,868)		$	(756,037)		$	(858,831)	113.6	%
% of commercial sales		(4.2)	%		(2.2)	%

NM - Not Meaningful

Consolidated

Income tax expense increased by $46,975, or 3.1%, during the nine months ended September 30, 2024, to $1,581,162, as compared to $1,534,187during the same period in Fiscal2023. Currently, the Company has a deferred tax liability reflecting a future obligation to pay taxes. The Company has a federal tax rate of approximately 21.0%, in addition to other state and local taxes, on net income. The effective income tax rate was 23.5% and 20.8% for the nine months ended September 30, 2024 and 2023, respectively. Differences between our effective income tax rate and the U.S. federal statutory rate are the result of state taxes and non-deductible expenses, as was the Company's case for the increased for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

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Net Income (Loss)


	Nine Months Ended September 30,		Change
	2024		2023		Amount		%

Consolidated	$	5,156,757		$	5,837,519		$	(680,762)	(11.7)	%
% of consolidated sales		3.9	%		4.2	%

Consumer	$	(116,325)		$	3,072,567		$	(3,188,892)	NM
% of consumer sales		(0.1)	%		3.0	%

Commercial	$	5,273,082		$	2,764,952		$	2,508,130	90.7	%
% of commercial sales		13.8	%		8.0	%

NM - Not Meaningful

Consolidated

Net income decreased by $680,762, or 11.7%, during the nine months ended September 30, 2024, to $5,156,757, as compared to $5,837,519 during the same period in Fiscal 2023.

Consumer Segment

Net income (loss) decreased in the consumer segment by $3,188,892, during the nine months ended September 30, 2024, to a net loss of $116,325, as compared to net income of $3,072,567 during the same period in Fiscal 2023. Refer to the aforementioned attributes discussed within the Comparison of the Nine Months Ended September 30, 2024 and 2023 for further details.

Commercial Segment

Net income increased in the commercial segment by $2,508,130, or 90.7%, during the nine months ended September 30, 2024, to $5,273,082, as compared to $2,764,952 during the same period in Fiscal 2023. Refer to the aforementioned attributes discussed within the Comparison of the Nine Months Ended September 30, 2024 and 2023 for further details.

Earnings Per Share

The following table depicts the Company's earnings per share:


	Nine Months Ended September 30,		Change
	2024		2023		Amount	%

Consolidated	$	0.20		$	0.22	$	(0.02)	(9.1)	%

Consolidated

Basic and diluted earnings per share attributable to holders of our Common Stock decreased by $0.02, or 9.1%, during the nine months ended September 30, 2024, to $0.20, as compared to $0.22 during the same period in Fiscal 2023.

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Liquidity and Capital Resources

The following table summarizes the Company's condensed consolidated statement of cash flows:


	Nine Months Ended September 30,		Change
	2024		2023		Amount	%
Net cash provided by (used in):
Operating activities	$	6,449,764		$	3,469,991	$	2,979,773	85.9	%
Investing activities		(3,260,717)			(1,085,362)		(2,175,355)	200.4	%
Financing activities		(3,290,701)			(2,249,209)		(1,041,492)	46.3	%

Net increase (decrease) in cash and cash equivalents	$	(101,654)		$	135,420	$	(237,074)	NM

NM - Not Meaningful

Operating Activities

Cash flows provided by operations increased by $2,979,773, or 85.9%, during the nine months ended September 30, 2024, to $6,449,764, as compared to $3,469,991 during the same period in Fiscal 2023. The increase in cash provided by operations for the nine months ended September 30, 2024 was primarily attributed to the impacts of a decrease in net income, a decrease in non-cash charges relating to deferred taxes, along with a reduction in accounts receivable associated with the settlement of a large SOW with a recurring customer, an increased inventory position associated with the expansion of the consumer business, and an increase in other liabilities associated with customer deposits and gift cards.

Investing Activities

Cash flows (used in) investing activities increased by $2,175,355, or 200.4%, during the nine months ended September 30, 2024, to $3,260,717, as compared to $1,085,362 during the same period in Fiscal 2023. The increase in cash (used in) investing activities during the nine months ended September 30, 2024 was primarily attributed to the purchase of property and equipment, including real estate associated with one of our Arizona stores, the build-out of our Arizona and Texas stores, the purchase of production assets within our commercial recycling business, and the continued development of intangible assets associated with our enterprise resource planning system, and no net cash inflows from investments in notes receivable.

Financing Activities

Cash flows (used in) financing activities increased by $1,041,492, or 46.3%, during the nine months ended September 30, 2024, to $3,290,701, as compared to $2,249,209 during the same period in Fiscal 2023. The increase in cash (used in) financing activities during the nine months ended September 30, 2024, was primarily due to our share buyback plan as principal payments on debt were in relative parity.

Capital Resources

Although the Company has access to a line of credit our primary source of liquidity and capital resources currently consist of cash generated from our operating activities. We do not anticipate the need to fund our operations via the line of credit and we do not have any amounts drawn as ofSeptember 30, 2024. 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.

Capital Expenditures

In Fiscal 2024, the Company is deploying capital for additional growth, maintenance activity and enhancements to our enterprise resource planning system. The Company continuously monitors the deployment of capital and primarily funds capital expenditures through cash flow from operating activities. Where appropriate the Company may use debt financing on select projects. When this occurs, the Company further evaluates future cash flows of the project as to ensure the debt tenure and pay-back period are in alignment as well as the appropriateness of the rate of return.

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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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Because we are a "smaller reporting company," we are not required to disclose the information required by this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2024. We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of September 30, 2024, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective to provide reasonable assurance of the foregoing.

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance of achieving their objectives, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are various claims, lawsuits and pending actions against the Company arising in the normal course of the Company's business. It is the opinion of management that the ultimate resolution of these matters will not have a material adverse effect on the Company's financial condition, results of operations or cash flow. Management is also not aware of any legal proceedings contemplated by government agencies of which the outcome is reasonably likely to have a material adverse effect on the Company's financial condition, results of operations or cash flow.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors previously disclosed under Part I, Item 1A, "Risk Factors" in the Company's 2023 Annual Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

Repurchases

The following lists the repurchase of Company shares for the three months ended September 30, 2024:


	Total Number of
	Shares Purchased						Maximum Number
	as Part of Publicly						of Shares that May
	Announced Plan	Average Price		Total Price		Yet be Purchased
Fiscal Period	or Program ^{(1) (2)}	Paid Per Share ($)		Paid		Under the Plans
Balance as of June 30, 2024	769,402	$	4.91		$	3,775,534	230,598

July 1 - 31, 2024	75,326		4.87			367,144	155,272
August 1 - 31, 2024	51,353		4.98			255,633	103,919
September 1 - 30, 2024	20,516		5.15			105,733	83,403

Balance as of September 30, 2024	916,597	$	4.91		$	4,504,044	83,403

(1)	All shares were purchased in open-market transactions through the stock repurchase program approved by the Board on March 14, 2023, for the repurchase of up to one million shares of the Company's common stock.

(2)	The stock repurchase program was publicly announced on May 3, 2023, and expires March 31, 2026. Repurchases under the stock repurchase plan began on May 10, 2023.

The timing and amount of any common stock repurchased under the program will depend on a variety of factors including price, corporate and regulatory requirements, capital availability, and other market conditions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS

Exhibit
Number

Description

Filed
Herein

Incorporated
by Reference

Form

Date Filed
with SEC

Exhibit
Number

31.1

Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002 by John R. Loftus

31.2

Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002 by John G. DeLuca

32.1

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by John R. Loftus

32.2

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by John G. DeLuca

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Calculation Linkbase Document

101.DEF

XBRL Taxonomy Definition Linkbase Document

101.LAB

XBRL Taxonomy Label Linkbase Document

101.PRE

XBRL Taxonomy Presentation Linkbase Document

104*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101)

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	ENVELA CORPORATION
	(Registrant)

Date: November 5, 2024		/s/ JOHN G. DELUCA
		John G. DeLuca
		Chief Financial Officer (Principal Accounting Officer)

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