What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-03-26 compared with 2024-03-21 · 221 added, 270 removed, 47 unchanged (91% of the section changed)

1 unchanged sentence

Cautionary Statement Regarding Risks and Uncertainties that May Affect Future Results

Please see the section of this Form 10-K entitled “Note About Forward-Looking Statements” on page 3.

The following discussion of our financial condition and results of operations should be read together with our financial statements and related notes and other financial information included in this Annual Report.

2 unchanged sentences

Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in the section titled “Risk Factors.” Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

We are enabling a better world through the circular economy;

by empowering buyers and sellers to extend the useful lives of specialty and durable goods;

and by seizing retail, recycling, and reverse-logistics supply-chain opportunities.

Envela is a diverse re-commerce company that manages its business through two segments.

Its commercial-services segment, and its direct-to-consumer segment.

Envela reports its revenue and operating expenses based on these two operating segments, with revenue for each operating segment, being presented as resale and recycle.

We also include segment information in the notes too our financial statements.

For more information, see “Item 1.

Business—Operating Segments” above.

A list of the company’s significant subsidiaries is presented in Exhibit 21.2.

Key Economic Factors and Trends Affecting the Markets in Which We Operate

Commercial Business Drivers and Impacts

The commercial segment includes Echo, ITAD USA, CEX, Avail and Teladvance, through which it primarily buys and resells or recycles consumer electronic components and IT equipment.

Echo focuses on end-of-life electronics recycling and also offers disposal transportation and product tracking, ITAD USA provides IT equipment disposition including compliance and data sanitization services, and Teladvance, CEX and Avail operate as value-added resellers by providing offerings and services to companies looking to either upgrade capabilities or dispose of equipment.

Like the consumer segment, the commercial segment also maintains relationships with refiners or recyclers to which it sells extracted valuable materials from electronics and IT equipment that are not appropriate for resale or reuse.

The electronic disposition and recycling industry is fragmented in the United States.

Certain parts of the commercial segment comes from a limited number of partners.

The used electronics processing business is subject to cyclical fluctuations based upon product availability, promotions, seasonality, and supply chain constraints.

In our commercial segment, we compete primarily on price and on the services, we provide to clients.

The price offered for devices is the principle competitive factor in acquiring material from generators.

Generators of material may also consider factors other than price, such as logistics costs, timely removal, customized reports, the ability to service multiple locations, insurance coverage, and the buyer’s financial strength.

For additional information regarding ECHG, see “Item 1.

Business—Operating Segments—Commercial Segment” and See “Item 1A.

Risk Factors—Our revenues and profits may decline if we are unable to maintain relationships with significant clients or renew contracts with them on favorable terms”.

Consumer Precious Metals Pricing and Business Impact

The Company is exposed to various market risks.

Market risk is the potential loss arising from the adverse changes in market prices and rates.

The nature of the consumer segment operations results in exposure to fluctuations in commodity prices, specifically diamonds, platinum, gold and silver.

The Company does not currently use derivatives to hedge these risks.

As a significant portion of our inventory and sales involve gold and jewelry, financial results can be influenced by the market price of gold and diamonds.

The retail sales and gross margin could be materially impacted if prices of diamonds, platinum, gold, or silver rise so significantly that consumer behavior changes or if price increases cannot be passed onto customers.

Because the consumer segment buys and resells precious metals, it is impacted by fluctuations and changes in precious-metal pricing which rises and falls based upon global supply and demand dynamics, with the greatest impact relating to gold as it represents a significant portion of the precious-metal in which it trades.

Such fluctuations, particularly with respect to gold, which accounts for a majority of the merchandise costs, can have a significant impact on earnings and cash availability.

Refer to Cautionary Note Regarding Forward-Looking Statements on page 4 for further details.

This section includes a discussion of our operations for the years ended December 31, 2024, and December 31, 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.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting (“U.S.

GAAP”) principles.

Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States Generally Accepted Accounting Principles (“U.S.

The preparation of these financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods.

1 unchanged sentence

Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material.

Our significant accounting policies are fully described in Note 1 of the consolidated financial statements.

References to fiscal years below are denoted with the word “Fiscal” and the associated year.

While our significant accounting policies are more fully described in Note 1—Summary of Significant Accounting Policies, we believe that the accounting estimates discussed below relate to the more significant areas involving management’s judgments and estimates.

DGSE inventory is valued at the lower of cost or net realizable value (“NRV”).

We acquire a majority of our inventory from individual customers, including pre-owned jewelry, watches, bullion, rare coins and monetary collectibles.

We acquire these items based on our own internal estimate of the fair value of the items at the time of purchase.

We consider factors such as the current spot market price of precious metals and current market demand for the items being purchased.

DGSE supplements these purchases from individual customers with inventory purchased from wholesale vendors.

These wholesale purchases can take the form of full asset purchases, or consigned inventory.

Consigned inventory is accounted for on our balance sheet with a fully offsetting contra account so that consigned inventory has a net zero balance.

The majority of our inventory has some component of its value that is based on the spot market price of precious metals.

Because the overall market value for precious metals regularly fluctuates, these fluctuations could have either a positive or negative impact on the value of our inventory and could positively or negatively impact our profitability.

We monitor these fluctuations to evaluate any necessary impairment to inventory.

The Echo inventory principally includes processed and unprocessed electronic scrap materials.

The value of the material is derived from recycling the precious and other scrap metals included in the scrap.

The processed and unprocessed materials are carried at the lower of the average cost of the material during the month of purchase or NRV.

The in-transit material is carried at lower of cost or NRV using the retail method.

Under the retail method the valuation of the inventory at cost and the resulting gross margins are calculated by applying a cost to retail ratio to the retail value of the inventory.

For the year ended December 31, 2023, we have not identified critical accounting estimates that involve a significant level of estimation uncertainty and would have a material impact on our results.

Refer to our significant accounting policies are more fully described in Note 1—Summary of Significant Accounting Policies.

Recent Accounting Pronouncements

See Note 1, “Accounting Policies and Nature of Operations” to our financial statements included this Annual Report on Form 10-K for recently issued accounting pronouncements not yet adopted as of the date of this Annual Report on Form 10-K.

Use of Non-U.S.

References to fiscal years herein are denoted with the word “Fiscal” and the associated year.

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

Economic Conditions

and other world economies are currently experiencing high interest rates and high levels of inflation, coupled with commodity price risk, mainly associated with variations in 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.

Envela serves as a holding company, conducting its operations via subsidiaries engaged in various businesses and activities within the recommerce and recycling sectors.

The products and services we offer are delivered by our subsidiaries under their distinct brands, rather than directly by Envela itself.

Significant business activities within our reportable segments are detailed below:

Consumer Segment

Our consumer segment primarily operates in the jewelry industry, specializing in the online and brick-and-mortar sale of authenticated high-end luxury goods, including pre-owned fine jewelry, diamonds and gemstones, luxury watches, along with secondary market bullion.

We incorporate recycled diamonds and gemstones into our new designs meaning they were previously set and unset, producing a low-carbon and ethical origin product.

The Company caters to consumers seeking environmentally responsible options for engagement rings, wedding bands, and other fine jewelry at accessible prices.

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 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 offers services that manage the entire lifecycle of technology products to ensure data security, regulatory compliance, and environmental sustainability.

We are proud of our role in supporting 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.

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 into our existing facilities.

Changes 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.

GAAP Financial Measures

In this management’s discussion and analysis, we use supplemental measures of our performance, which are derived from our consolidated financial information, but which are not presented in our consolidated financial statements prepared in accordance with U.S.

Within this management discussion and analysis, we use supplemental measures of our performance, which are derived from our consolidated financial information, but which are not presented in our consolidated financial statements prepared in accordance with U.S.

We believe that providing these non-U.S.

GAAP financial measures adds a meaningful presentation of our operating and financial performance.

See the reconciliation of net income to EBITDA, in Non-U.S.

See the reconciliation of net income to adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) and Net Cash, in Non-U.S.

GAAP Financial Measures below.

GAAP Financial Measures

EBITDA is a key performance measure that our management uses to assess our operating performance.

Because 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 business strategies and for business planning purposes.

EBITDA may not be comparable to similarly titled metrics of other companies.

EBITDA means earnings before interest expense, other (income) expense, net, income tax expense, and depreciation and amortization.

EBITDA is a non-U.S.

GAAP measure and should not be considered as an alternative to the presentation of net income or any other measure of financial performance calculated and presented in accordance with U.S.

The following table provides a reconciliation of net income to EBITDA:

For the Years Ended December 31,

EBITDA Reconciliation:

Add (deduct):

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 years ended December 31, 2024 and 2023:

Year Ended December 31,

Adjusted EBITDA Reconciliation:

Addition (deduction):

Depreciation and amortization

Interest expense

Income tax expense (benefit)

Starting December 31, 2023, the EBITDA Reconciliation presentation has been revised to align with the Company’s performance.

Income tax expense

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:

debt obligations

Results of Operations

The results of operations presented below should be reviewed in conjunction with the financial statements and notes included elsewhere in the Annual Report.

Prior year comparisons for 2023 and 2022, are included in “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal years ended December 31, 2023 and 2022.

Year-over-year discussion and analysis of the line-item revenue and expenses within the consolidated income statement are included below for 2023 and 2022.

The following tables set forth our results of operations and such data as a percentage of revenue and gross profit for the periods presented:

For the Years Ended

December 31, 2023

December 31, 2022

$ 117,918,242

$ 122,468,154

$ 171,674,088

$ 182,685,854

Comparison of 2023 and 2022

Resale Revenue

Year Ended December 31,

Resale Revenue

$ 149,533,829

$ 162,215,785

$ (12,681,956 )

Consumer ( f/k/a DGSE)

$ 117,918,242

$ 122,468,154

$ (4,549,912 )

Commercial (f/k/a ECHG)

$ (8,132,044 )

Resale revenue decreased by $12,681,956, or 8%, in Fiscal 2023 to $149,533,829, as compared to $162,215,785 during Fiscal 2022.

The individual segments reported the following:

Resale revenue related to the consumer segment, decreased by $4,549,912, or 4% in Fiscal 2023 as compared to Fiscal 2022.

Resale revenue, such as bullion, jewelry, watches and rare coins, decreased primarily due to a general volatility in precious metal commodity prices during 2023 as compared to 2022.

Resale revenue related to the commercial segment, decreased by $8,132,044, or 20%, in Fiscal 2023 as compared to Fiscal 2022.

Resale revenue decreased primarily due to the reduced demand of our hard drives.

Recycled Revenue

Year Ended December 31,

Recycled Revenue

Consumer ( f/k/a DGSE)

Commercial (f/k/a ECHG)

$ (1,185,958 )

Recycled revenue increased by $1,670,190 or 8%, in Fiscal 2023 to $22,140,259, as compared to $20,470,069 during Fiscal 2022.

The individual segments reported the following:

Recycled revenue related to the consumer segment, increased by $2,856,148, or 33% in Fiscal 2023 as compared to Fiscal 2022.

The increase in recycled revenue is primarily due to the volatility in commodity prices that forced the scaping of inventory that would have usually been sold in the retail stores.

Recycled revenue related to the commercial segment, decreased by $1,185,958, or 10% in Fiscal 2023 as compared to Fiscal 2022.

The decrease in recycled revenue is primarily due to a reduced level of inventory purchased.

Resale-Cost of Goods Sold

Year Ended December 31,

COGS - Resale

$ 116,774,364

$ 125,855,137

$ (9,080,773 )

Consumer ( f/k/a DGSE)

$ 105,226,933

$ 108,227,359

$ (3,000,426 )

Commercial (f/k/a ECHG)

$ (6,080,347 )

Starting December 31, 2023, the cost of goods sold, for both resale and recycled revenue, is added to our results of operations for comparison purposes.

Resale cost of goods sold decreased by $9,080,773, or 7%, in Fiscal 2023 to $116,774,364, as compared to $125,855,137 during Fiscal 2022.

The individual segments reported the following:

Resale cost of goods sold related to the consumer segment, decreased by $3,000,426, or 3% in Fiscal 2023 as compared to Fiscal 2022.

The decrease in the resale cost of goods sold is primarily due to the decrease in resale revenue of 3% in Fiscal 2023 as compared to Fiscal 2022.

Resale cost of goods sold related to the commercial segment decreased by $6,080,347, or 34% in Fiscal 2023 as compared to Fiscal 2022.

The decrease in the resale cost of goods sold is primarily due to the decrease in resale revenue of 20% in Fiscal 2023 as compared to Fiscal 2022.

Recycled-Cost of Goods Sold

Year Ended December 31,

COGS - Recycled

Consumer ( f/k/a DGSE)

Commercial (f/k/a ECHG)

Recycled cost of goods sold increased by $1,239,563, or 10%, in Fiscal 2023 to13,243,194, as compared to $12,003,631 during Fiscal 2022.

The individual segments reported the following:

Recycled cost of goods sold related to the consumer segment, increased by $1,892,543, or 28% in Fiscal 2023 as compared to Fiscal 2022.

The increase in the recycled cost of goods sold is primarily due to the increase in recycled revenue of 33% in Fiscal 2023 as compared to Fiscal 2022.

Recycled cost of goods sold related to the commercial segment decreased by $652,980, or 12% in Fiscal 2023 as compared to Fiscal 2022.

The decrease in the recycled cost of goods sold is primarily due to the decrease in the recycled revenue of 10% in Fiscal 2023 as compared to Fiscal 2022.

Resale-Gross Profit

Year Ended December 31,

Gross Profit - Resale

$ (3,601,183 )

Consumer ( f/k/a DGSE)

$ (1,549,486 )

Commercial (f/k/a ECHG)

$ (2,051,697 )

Resale gross profit decreased by $3,601,183, or 10%, in Fiscal 2023 to $32,759,465, as compared to $36,360,648 during Fiscal 2022.

The individual segments reported the following:

Resale gross profit related to the consumer segment, decreased by $1,549,486, or 11% in Fiscal 2023 as compared to Fiscal 2022.

The decrease in resale gross profit is primarily due to the decrease in resale revenue of 4% during Fiscal 2023 as compared to Fiscal 2022, added to the drop in gross profit margin from 11.6% during Fiscal 2022 as compared to 10.8% in Fiscal 2023.

The resale gross profit related to the commercial segment, decreased $2,051,697, or 9% in Fiscal 2023 as compared to Fiscal 2022.

The resale gross profit decreased is primarily due to a 20% decrease in resale revenue during Fiscal 2023 as compared to Fiscal 2022, offset by an increase in the margin percentage from 63.5% during Fiscal 2023 as compared to 55.7% during Fiscal 2022.

Recycled-Gross Profit

The results of operations should be read in conjunction with our financial statements and notes included elsewhere in the Annual Report.

Prior year comparisons for 2023 and 2022, are included in “Part II.

Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal years ended December 31, 2023 and 2022, which was filed with the SEC on March 21, 2024.

Any reference in this Annual Report to a “year-over-year” change is to the relevant comparison between activity from each twelve-month period ended December 31, 2024 and 2023.

Comparison of the Years Ended December 31, 2024 and 2023

The following table depicts our disaggregated consolidated statements of income for the years ended December 31, 2024 and 2023:

Year Ended December 31,

Gross Profit - Recycled

Consumer ( f/k/a DGSE)

Commercial (f/k/a ECHG)

Recycled gross profit increased by $430,627, or 5%, in Fiscal 2023 to $8,897,065, as compared to $8,466,438 during Fiscal 2022.

The individual segments reported the following:

Recycled gross profit related to the consumer segment, increased by $963,605, or 48% in Fiscal 2023 as compared to Fiscal 2022.

The recycled gross profit increase is primarily due to the 33% increase in recycled revenue and a margin percentage increase to 25.7% during Fiscal 2023 from 23.1% during Fiscal 2022.

Recycled gross profit related to the commercial segment, decreased by $532,978, or 8% in Fiscal 2023 as compared to Fiscal 2022.

The recycled gross profit for the commercial segment decrease is primarily due to a 10% decrease in recycled revenue for Fiscal 2023 as compared to Fiscal 2022.

For the Years Ended

December 31, 2023

December 31, 2022

$ 129,413,669

$ 171,674,088

$ 131,107,433

$ 182,685,854

% of Sales (1)

Cost of goods sold

Selling, general and administrative expenses

Selling, general and administrative

Depreciation and amortization

Total operating expenses

Operating income

2 unchanged sentences

Income before income taxes

Income tax expense (benefit)

Income from continuing operations

Selling, General and Administrative

Income tax expense

(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, the percentages presented may not add up precisely to the totals provided.

The individual segments reported the following for the years ended December 31, 2024 and 2023:

Year Ended December 31,

% of consolidated sales

% of consumer sales

% of commercial sales

Sales increased by $5,112,403, or 2.9%, during the year ended December 31, 2024, to $180,376,229, as compared to $175,263,826 during the same period in Fiscal 2023.

Consumer Segment

Sales in the consumer segment increased by $1,055,799, or 0.8%, during the year ended December 31, 2024, to $130,469,468, as compared to $129,413,669 during the same period in Fiscal 2023.

The change was primarily attributed to stronger sales of scrap grade precious metals inventory which were more pronounced in the third and fourth quarters of Fiscal 2024, which was offset by softer market conditions for bullion that was most prevalent in the first and second quarters of Fiscal 2024;

which also impacted store performance.

Our sales of scrap grade precious metals were favorably impacted by exceptional inbound material flow from our in-store buying programs.

While Fiscal 2024 produced favorable movements in the spot price of gold it was not sufficient to offset the impact of lower bullion demand.

Commercial Segment

Sales in the commercial segment increased by $4,056,604, or 8.8%, during the year ended December 31, 2024, to $49,906,761, as compared to $45,850,157 during the same period in Fiscal 2023.

The change was primarily attributed to the favorable performance from almost all of our verticals with the most significant being the sale of personal technology assets and sales generated through our ITAD business.

While the sales of electronic scrap grades and associated recoveries were strong through to the third quarter of Fiscal 2024 they dropped off in the fourth quarter resulting in relative parity to Fiscal 2023.

Electronic scrap grade sales were primarily impacted by inbound material flows from a single customer’s shipping schedule in the fourth quarter of Fiscal 2024.

Cost of Goods Sold

Year Ended December 31,

% of consolidated sales

% of consumer sales

% of commercial sales

Cost of goods sold increased by $2,453,146, or 1.8%, during the year ended December 31, 2024, to $136,060,442, as compared to $133,607,296 during the same period in Fiscal 2023.

Consumer Segment

Cost of goods sold in the consumer segment increased by $822,487, or 0.7%, during the year ended December 31, 2024, to $114,587,598, as compared to $113,765,111 during the same period in Fiscal 2023.

The change was primarily attributed to the aforementioned increase in sales attributed to lower margin scrap grade precious metals, which were more pronounced in the third and fourth quarters of Fiscal 2024.

These sales allowed the consumer segment to reduce its inventory position from an intra-year high of $27,866,050 as of September 30, 2024 to $23,973,333 as of December 31, 2024.

Cost of goods sold as a percent of sales was 87.8% during the year ended December 31, 2024, as compared to 87.9% during the year ended December 31, 2023.

The change was primarily attributed to the product mix, as the relief of inventory associated with lower margin scrap grade precious metals and bullion was almost fully offset by higher margin luxury goods.

Commercial Segment

Cost of goods sold in the commercial segment increased by $1,630,659, or 8.2%, during the year ended December 31, 2024, to $21,472,844, as compared to $19,842,185 during the same period in Fiscal 2023.

The change was primarily attributed to the relief of inventory associated with lower margin electronic scrap grades and revenue sharing, ITAD settlements, and incrementally from the relief of inventory associated with personal technology assets.

Our ITAD business had a strong fourth quarter in Fiscal 2024 resulting in this vertical having a greater impact on cost of goods sold than was evident through the nine months ended September 30, 2024.

Cost of goods sold as a percent of sales was 43.0% during the year ended December 31, 2024, as compared to 43.3% during the year ended December 31, 2023.

The change was primarily attributed to the product mix that was relieved during the fourth quarter of Fiscal 2024 as our costs of goods sold as a percent of sales for the nine months ended September 30, 2024 had been unfavorable to the same period in Fiscal 2023.

In the fourth quarter of 2024 the commercial segment experienced stronger margins on the sale of personal technology assets that moved its cost of goods sold as a percent of sales into a favorable variance for the year ended December 31, 2024.

Year Ended December 31,

% of consolidated sales

% of consumer sales

% of commercial sales

Gross margin increased by $2,659,257, or 6.4%, during the year ended December 31, 2024, to $44,315,787, as compared to $41,656,530 during the same period in Fiscal 2023.

Consumer Segment

Gross margin in the consumer segment increased by $233,312, or 1.5%, during the year ended December 31, 2024, to $15,881,870, as compared to $15,648,558 during the same period in Fiscal 2023.

The net impact of the aforementioned increase in sales of $1,055,799 and increase in cost of goods sold of $822,487 resulted in the $233,312 increase in gross margin.

Commercial Segment

Gross margin in the commercial segment increased by $2,425,945, or 9.3%, during the year ended December 31, 2024, to $28,433,917, as compared to $26,007,972 during the same period in Fiscal 2023.

The net impact of the aforementioned increase in sales of $4,056,604 and increase in cost of goods sold of $1,630,659 resulted in the $2,425,945 increase in gross margin.

Selling, General and Administrative

Consumer ( f/k/a DGSE)

Commercial (f/k/a ECHG)

SG&A expenses increased by $2,106,953, or 7%, in Fiscal 2023 to $31,537,677, as compared to $29,430,724 during Fiscal 2022.

The individual segments reported the following:

Selling, general and administrative expenses for the consumer segment, increased $1,878,408, or 21% in Fiscal 2023 as compared to Fiscal 2022.

The increase in SG&A was primarily due to an increase in advertising of approximately $221,000 and payroll and payroll related expenses of approximately $1,700,000.

Selling, general and administrative expenses for the commercial segment, increased by $228,545, or 1% in Fiscal 2023 compared to Fiscal 2022.

The increase in SG&A was primarily due to an increase in payroll and payroll related expenses of approximately $217,000.

Depreciation and Amortization

Year Ended December 31,

% of consolidated sales

% of consumer sales

% of commercial sales

Selling, general and administrative expense increased by $3,067,455, or 9.7%, during the year ended December 31, 2024, to $34,605,132, as compared to $31,537,677 during the same period in Fiscal 2023.

Consumer Segment

Selling, general and administrative expense in the consumer segment increased by $4,571,130, or 43.0%, during the year ended December 31, 2024, to $15,211,970, as compared to $10,640,840 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 travel costs associated with preparing those stores for opening.

However, travel costs consecutively declined in both the third and fourth quarters of Fiscal 2024.

During the year, processes and procedures were developed to create efficiencies in rolling out new stores in geographically dispersed locations that can be utilized in future store openings.

Commercial Segment

Selling, general and administrative expense in the commercial segment decreased by $1,503,675, or 7.2%, during the year ended December 31, 2024, to $19,393,162, as compared to $20,896,837 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 during Fiscal 2024.

Albeit, we did experience some intra-year increases in human capital costs associated with overall higher processing volumes and associated with a new retail returns client, the spend correlated to an increase in gross margin.

Depreciation and Amortization

Consumer ( f/k/a DGSE)

Commercial (f/k/a ECHG)

Depreciation and amortization expense decreased by $89,770, or 6%, in Fiscal 2023 to $1,362,064, as compared to $1,451,834 during Fiscal 2022.

The individual segments reported the following:

Depreciation and amortization for the consumer segment, decreased by 85,532, or 21% in Fiscal 2023 as compared to Fiscal 2022.

The decrease is primarily due to fixed and intangible assets being fully depreciated and amortized during Fiscal 2023 not yet fully depreciated or amortized during Fiscal 2022.

Depreciation and Amortization expense for the Commercial segment decreased by $4,238, or less than 1% in Fiscal 2023 as compared to Fiscal 2022.

Year Ended December 31,

Consumer ( f/k/a DGSE)

Commercial (f/k/a ECHG)

Other income decreased by $190,909, or 21%, in Fiscal 2023 to $727,782, as compared to $918,691 during Fiscal 2022.

The individual segments reported the following:

Other income for the consumer segment increased by $22,120, or 36% in Fiscal 2023 as compared to Fiscal 2022.

During Fiscal 2023, other income consisted of approximately $78,000 and approximately $6,000 of other miscellaneous receipts.

During Fiscal 2023, all of the corporate rental income was allocated to the commercial segment.

During Fiscal 2022, other income consisted of $48,000 of the consumer’s portion of the rental income generated from the Company’s corporate headquarters and approximately $13,700 of other miscellaneous income.

Other income for the commercial segment decreased by $213,029 in Fiscal 2023, or 25%, to $643,976, as compared to $857,005 during Fiscal 2022.

During Fiscal 2023, other income consisted of approximately $456,000 in bank account interest income, approximately $94,000 in written off notes receivable in prior years and $88,000 in the Company’s corporate headquarters being leased to a third party.

During Fiscal 2022, other income of $857,005 was the result from reducing the notes receivable reserve from $838,647 to $0, and bank account interest income of $11,720.

Interest Expense

% of consolidated sales

% of consumer sales

% of commercial sales

Depreciation and amortization expense increased by $189,710, or 13.9%, during the year ended December 31, 2024, to $1,551,774, as compared to $1,362,064 during the same period in Fiscal 2023.

Consumer Segment

Depreciation and amortization expense in the consumer segment increased by $199,283, or 61.3%, during the year ended December 31, 2024, to $524,510, as compared to $325,227 during the same period in Fiscal 2023.

The change was primarily attributed to our Arizona and Texas stores that were placed into service as well as the depreciation and amortization expense related to the assets acquired in the Scottsdale Transaction.

Commercial Segment

Depreciation and amortization expense in the commercial segment decreased by $9,573, or 0.9%, during the year ended December 31, 2024, to $1,027,264, as compared to $1,036,837 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)

Year Ended December 31,

% of consolidated sales

% of consumer sales

% of commercial sales

Other income increased by $309,900, or 42.6%, during the year ended December 31, 2024, to $1,037,682, as compared to $727,782 during the same period in Fiscal 2023.

Consumer Segment

Other income in the consumer segment increased by $20,755, or 24.8%, during the year ended December 31, 2024, to $104,561, as compared to $83,806 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 the Company’s corporate headquarters, and the Employee Retention Tax Credit (“ERTC”), 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 $2,304 and $77,936 of other income during the years ended December 31, 2024, and December 31, 2023, respectively.

Commercial Segment

Other income in the commercial segment increased by $289,145, or 44.9%, during the year ended December 31, 2024, to $933,121, as compared to $643,976 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 the Company’s corporate headquarters, the ERTC, 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 $753,315 and $455,665 of other income during the years ended December 31, 2024, and December 31, 2023, respectively.

Interest Expense

Consumer ( f/k/a DGSE)

Commercial (f/k/a ECHG)

Interest expense decreased by $20,492, or 4%, in Fiscal 2023 to $463,201, as compared to $483,693 during Fiscal 2022.

The individual segments reported the following:

Interest expense for the consumer segment decreased by $51,809 or 21%, in Fiscal 2023 as compared to Fiscal 2022.

The decrease is primarily due to the interest expense on the note for the corporate headquarters was fully allocated to the commercial segment during Fiscal 2023.

The interest expense for the commercial segment increased by $31,317 or 13%, in Fiscal 2023 as compared to Fiscal 2022.

The increase is primarily due to the interest expense on the note for the corporate headquarters was fully allocated to the commercial segment during Fiscal 2023.

Year Ended December 31,

% of consolidated sales

% of consumer sales

% of commercial sales

Interest expense decreased by $15,818, or 3.4%, during the year ended December 31, 2024, to $447,383, as compared to $463,201 during the same period in Fiscal 2023.

Consumer Segment

Interest expense in the consumer segment increased by $36,399, or 18.9%, during the year ended December 31, 2024, to $228,792, as compared to $192,393 during the same period in Fiscal 2023.

The change was primarily attributed to the impact of the allocation of corporate interest expense.

Commercial Segment

Interest expense in the commercial segment decreased by $52,217, or 19.3%, during the year ended December 31, 2024, to $218,591, as compared to $270,808 during the same period in Fiscal 2023.

The change was primarily attributed to the impact of the allocation of corporate interest expense.

Income Tax Expense

Year Ended December 31,

Income Tax Expense (Benefit)

$ (1,309,606 )

Consumer ( f/k/a DGSE)

$ (1,426,697 )

Commercial (f/k/a ECHG)

Income tax expense for the Company increased by $3,183,524 or 243%, to $1,873,918 in Fiscal 2023 as compared to a tax benefit of $1,309,606 in Fiscal 2022.

The income tax expense increase was partially due from the valuation allowance being reduced in the amount of $1,490,000 against the deferred tax benefit during Fiscal 2022.

See Note 14 for Federal Income Taxes.

% of consolidated sales

% of consumer sales

% of commercial sales

Income tax expense, for both segments, for the year ended December 31, 2024, was $1,992,121, an increase of $118,203, as compared to income tax expense of $1,873,918 for the year ended December 31, 2023.

Currently, the Company has a deferred tax asset reflecting a future tax benefit that the Company expects to receive.

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 22.8% and 20.8% for the years ended December 31, 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 year ended December 31, 2024, compared to the year ended December 31, 2023.

Year Ended December 31,

$ (8,541,681 )

Consumer ( f/k/a DGSE)

$ (4,658,682 )

Commercial (f/k/a ECHG)

$ (3,882,999 )

The Company’s net income decreased by $8,541,681, or 54% in Fiscal 2023 as compared to Fiscal 2022.

The decrease is due primarily from the revenue decrease of approximately $11,000,000 from Fiscal 2022 to Fiscal 2023, the increase of SG&A expenses of approximately $2,100,000 and the increase in income tax expense of approximately $3,200,000 during Fiscal 2023 as compared to Fiscal 2022.

The income tax expense increase was partially due from the valuation allowance being released in the amount of $1,490,000 million against the deferred tax benefit during Fiscal 2022

% of consolidated sales

% of consumer sales

% of commercial sales

Net income decreased by $390,393, or 5.5%, during the year ended December 31, 2024 to $6,757,059, as compared to $7,147,452 during the same period in Fiscal 2023.

Refer to the aforementioned attributes discussed within the Comparison of Years Ended December 31, 2024 and 2023 for further details.

Consumer Segment

Net income decreased in the consumer segment by $3,630,406, or 99.6%, during the year ended December 31, 2024 to $16,341, as compared to $3,646,747 during the same period in Fiscal 2023.

Refer to the aforementioned attributes discussed within the Comparison of Years Ended December 31, 2024 and 2023 for further details.

Commercial Segment

Net income increased in the commercial segment by $3,240,013, or 92.6%, during the year ended December 31, 2024 to $6,740,718, as compared to $3,500,705 during the same period in Fiscal 2023.

Refer to the aforementioned attributes discussed within the Comparison of Years Ended December 31, 2024 and 2023 for further details.

Earnings Per Share

Year Ended December 31,

Earnings Per Share - Consolidated

Our net income per basic and diluted shares attributable to holders of our Common Stock decreased by $0.31 per share, or 53% in Fiscal 2023 compared to Fiscal 2022.

The income tax expense increase was partially due from the valuation allowance being released in the amount of $1,490.000 against the deferred tax benefit during Fiscal 2022.

Basic and diluted earnings per share attributable to holders of our Common Stock decreased by $0.01, or 3.7%, during the year ended December 31, 2024 to $0.26, as compared to $0.27 during the same period in Fiscal 2023.

Liquidity and Capital Resources

The following table summarizes our cash flows for the periods indicated.

Prior year comparisons are included in “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for Fiscal 2023.

The following table summarizes the Company’s consolidated statements of cash flows:

Year Ended December 31,

4 unchanged sentences

Net increase in cash and cash equivalents

During Fiscal 2023, cash provided by operations totaled $5,842,708, which was primarily driven by net income of $7,147,452, adding in non-cash charges, net of $5,084,849.

Offset by the increase of trade receivables of $161,815, the increase in inventories of $4,390,392, the decrease in operating leases of $1,899,365, and the decrease in accounts payable and accrued expenses of $32,310.

During Fiscal 2023, cash used in investing totaled $1,759,861 which consisted of the purchase of property and equipment of $2,238,111 and the acquisition of the Steven Kretchmer, Inc.

stock of $100,000.

Offset by the receipt of $578,250 from notes receivable.

During Fiscal 2023, cash used in financing totaled $3,398,963 which consisted of principal payments made against notes payable loans of $1,243,914 and the acquisition of Company treasury stock of $2,155,049.

Starting December 31, 2023, certain amounts within the Consolidated Cash Flow Statements have been reclassified for presentation purposes.

The reclassification did not impact the overall operating activities.

On November 23, 2021, the Company secured a 36-month line of credit from Farmers State Bank of Oakley Kansas (“FSB”) for $3,500,000 at 3.1% annual interest rate.

Our line of credit with FSB is to fund any cash shortfalls that the Company may have from time-to-time during the life of the line of credit.

Also, from time-to-time, inventory levels have been adjusted to meet seasonal demand or in order to meet working capital requirements.

Management believes there are enough capital resources to meet working capital requirements.

If additional working capital is required, additional loans can be obtained from individuals or from other commercial banks.

Management expects our capital expenditures to total approximately $2,700,000 during the next 12 months.

These expenditures will be largely driven by the build-out of six properties, included in this is the build-out of corporate office space in the Company headquarters and the potential purchase and build-out of an additional consumer segment retail building.

As of December 31, 2023, there are commitments of approximately $150,000 to build-out space at the Company’s headquarters located at 1901 Gateway Dr., Irving, Texas 75038.

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

Historically, operations has funded these activities.

The Company has 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.

The Company leases certain of its facilities under operating leases.

The minimum rental commitments under non-cancellable operating leases as of December 31, 2023 are as follows:

Operating Activities

Cash flows provided by operations increased by $4,347,932, or 74.4%, during the year ended December 31, 2024, to $10,190,640, as compared to $5,842,708 during the same period in Fiscal 2023.

The increase in cash provided by operations for the year ended December 31, 2024, was primarily attributed to the impacts of a decrease in net income, an increase in depreciation and amortization, a decrease in non-cash charges relating to deferred taxes, an increase in non-cash lease expense, a decrease 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, an increase in accrued expenses primarily associated with our payroll accrual and unvouchered payments related to estimated settlement liabilities for inbound ITAD customers, and an increase in other liabilities associated with customer deposits and gift cards.

Investing Activities

Cash flows (used in) investing activities increased by $2,000,543, or 113.7%, during the year ended December 31, 2024, to $3,760,404, as compared to $1,759,861 during the same period in Fiscal 2023.

The increase in cash (used in) investing activities during the year ended December 31, 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.

Financing Activities

Cash flows (used in) financing activities increased by $276,123, or 8.1%, during the year ended December 31, 2024, to $3,675,086, as compared to $3,398,963 during the same period in Fiscal 2023.

The increase in cash (used in) financing activities during the year ended December 31, 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 consists 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 of December 31, 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

We regularly identify growth opportunities and business optimizations that require capital deployment.

The Company continuously monitors its 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 to ensure the debt tenure and pay-back period are in alignment as well as the appropriateness of the rate of return.

Consumer Segment

In Fiscal 2024, the consumer segment primarily expended capital in relation to store expansion.

In Fiscal 2025, we will look to optimize the performance of our new retail stores along with identifying new market opportunities.

The Company believes it has the liquidity and capital resources to fund capital outlays of the aforementioned.

Commercial Segment

In Fiscal 2024, the commercial segment primarily expended capital in relation to production assets and was the primary beneficiary of our capital spend associated with our enterprise resource planning system.

In Fiscal 2025, we will look to identify opportunities for growth of service offerings, evaluate expansion, and maintain our production assets.

The Company believes it has the liquidity and capital resources to fund capital outlays of the aforementioned.

Contractual Obligations

The following table summarizes future contractual obligations related to debt and leases as of December 31, 2024:

Notes payable (1)

Interest payments on notes payable (2)

Operating leases (3)

(1) Notes payable includes the principal amount of borrowings outstanding under the Company’s debt facilities.

(2) Interest payments on notes payable are based on interest rates in effect as of December 31, 2024.

As contractual interest rates and the amount of notes payable outstanding in variable in certain cases, actual cash payments may differ from the amounts provided.

(3) Operating lease payments reflect those embedded in the measurement of our operating lease liabilities and thus, include lease payments for the remaining non-cancellable period of the lease together with periods covered by renewal (or termination) options which we are reasonably certain to exercise (or not exercise).

These operating lease payments do not include certain tax, insurance, and maintenance costs, which are also required contractual obligations under some of our operating leases, but are generally not fixed and can fluctuate year to year.

Off-Balance Sheet Arrangements

There are no 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 shareholders.

STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

Management is responsible for the preparation of the consolidated financial statements and related information that are presented in this report.

The consolidated financial statements, which include amounts based on management’s estimates and judgments, have been prepared in conformity with accounting principles generally accepted in the United States of America.

The Company designs and maintains accounting and internal control systems to provide reasonable assurance at reasonable cost that assets are safeguarded against loss from unauthorized use or disposition, and that the financial records are reliable for preparing consolidated financial statements and maintaining accountability for assets.

These systems are augmented by written policies, an organizational structure providing division of responsibilities and careful selection and training of qualified personnel.

The Company engaged Whitley Penn LLP, an independent registered public accounting firm, to audit and render an opinion on the consolidated financial statements in accordance with the standards of the Public Accounting Oversight Board (United States).

Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit the company to provide only management’s report in this annual report.

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

Whitley Penn LLP and our management team each have full and free access to the Audit Committee.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis