Envela Corp 10-Q

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 March 31, 2025 (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 2024 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 months ended March 31, 2025 and 2024. 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 2024 Annual Report, the unaudited condensed consolidated financial statements, and the related Notes thereto included in Part I, Item 1 of this report. 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 2024 Annual Report. Economic Conditions Impacts of High Interest Rates and Inflation The U.S. and other world economies are currently experiencing high interest rates and elevated 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. 26 Table of Contents 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. Impacts of Tariffs The U.S. government has recently adopted new approaches to trade policy, and announced tariffs on certain foreign goods, certain global tariffs, and the possibility of significant additional tariff increases or expansions of tariffs. The timing and scope of such tariffs by the U.S. and retaliatory tariffs by other countries in response to such tariffs are currently uncertain. The impacts of tariffs on each of our reportable segments are detailed below: Consumer Segment The Company’s consumer segment does not source inventory from or sell it into international markets, so it is not directly impacted by tariffs. However, global market uncertainty caused by tariffs can increase commodity costs on safe-haven metals such as gold and silver, which may increase working capital requirements. The Company mitigates increased working capital requirements by monitoring its inventory position and turnover, and maintaining disciplined buying practices to maintain margin. Commercial Segment The Company’s commercial segment periodically purchases limited quantities of personal technology assets for resale and replacement parts from international markets. Tariffs may increase costs for original equipment manufacturers, retailers, and parts distributors and, as a result, may require the Company to pay more for the purchase of personal technology assets for resale and replacement parts, thus increasing the Company’s required working capital requirements. The Company mitigates increased working capital requirements by monitoring its inventory position and turnover, maintaining disciplined buying practices, and using optimal domestic and international sales channels to maintain margins. There can be no assurance that the measures we have adopted will be successful in mitigating the aforementioned risks. 27 Table of Contents Our Business 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 the 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. 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. ​ 28 Table of Contents Results of Operations Comparison of the Three Months Ended March 31, 2025 and 2024 The following table depicts our disaggregated condensed consolidated statements of income for the three months ended March 31, 2025 and 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ ​ 2025 ​ 2024 ​ Consumer Commercial Consolidated % of Sales (1) Consumer Commercial Consolidated % of Sales (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales ​ $ 36,770,604 ​ $ 11,485,225 ​ $ 48,255,829 100.0 % $ 28,226,017 ​ $ 11,631,763 ​ $ 39,857,780 100.0 % Cost of goods sold ​ 32,559,701 ​ ​ 3,728,104 ​ 36,287,805 75.2 % 24,676,828 ​ 4,860,268 ​ 29,537,096 74.1 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross margin ​ 4,210,903 ​ 7,757,121 ​ 11,968,024 24.8 % 3,549,189 ​ 6,771,495 ​ 10,320,684 25.9 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Expenses: ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative ​ 3,887,906 ​ 4,516,356 ​ 8,404,262 17.4 % 3,251,490 ​ 4,385,486 ​ 7,636,976 19.2 % Depreciation and amortization ​ 180,632 ​ 264,709 ​ 445,341 0.9 % 93,676 ​ 249,889 ​ 343,565 0.9 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total operating expenses ​ 4,068,538 ​ 4,781,065 ​ 8,849,603 18.3 % 3,345,166 ​ 4,635,375 ​ 7,980,541 20.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating income ​ 142,365 ​ 2,976,056 ​ 3,118,421 6.5 % 204,023 ​ 2,136,120 ​ 2,340,143 5.9 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense): ​ ​ ​ ​ ​ ​ ​ Other income ​ 849 ​ 204,756 ​ 205,605 0.4 % 8,005 ​ 230,523 ​ 238,528 0.6 % Interest expense ​ (54,047) ​ (52,274) ​ (106,321) (0.2) % (64,401) ​ (56,453) ​ (120,854) (0.3) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes ​ 89,167 ​ 3,128,538 ​ 3,217,705 6.7 % 147,627 ​ 2,310,190 ​ 2,457,817 6.2 % Income tax expense ​ (20,073) ​ (704,285) ​ (724,358) (1.5) % (59,151) ​ ​ (491,127) ​ (550,278) (1.4) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 69,094 ​ $ 2,424,253 ​ $ 2,493,347 5.2 % $ 88,476 ​ $ 1,819,063 ​ $ 1,907,539 4.8 % (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 three months ended March 31, 2025 and 2024: Sales ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ Change ​ 2025 2024 Amount % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ $ 48,255,829 ​ $ 39,857,780 ​ $ 8,398,049 21.1 % % of consolidated sales ​ 100.0 % 100.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer ​ $ 36,770,604 ​ $ 28,226,017 ​ $ 8,544,587 30.3 % % of consumer sales ​ 100.0 % 100.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 11,485,225 ​ $ 11,631,763 ​ $ (146,538) (1.3) % % of commercial sales ​ 100.0 % 100.0 % ​ ​ Consolidated Sales increased by $8,398,049, or 21.1%, during the three months ended March 31, 2025, to $48,255,829, as compared to $39,857,780 during the same period in Fiscal 2024. 29 Table of Contents Consumer Segment Sales in the consumer segment increased by $8,544,587, or 30.3%, during the three months ended March 31, 2025, to $36,770,604, as compared to $28,226,017 during the same period in Fiscal 2024. The change was primarily attributed to stronger volumes and pricing on scrap grade precious metals transactions and bullion. Our sales of scrap grade precious metals and bullion were favorably impacted by exceptional inbound material flow from our in-store buying programs, which was sustained from the fourth quarter of Fiscal 2024. Our online and retail stores business also achieved favorable results. In the Fiscal 2024 comparative period, we were building an inventory position in preparation for the opening of our new stores, which is now beginning to be relieved in the normal course of operations. Commercial Segment Sales in the commercial segment decreased by $146,538, or 1.3%, during the three months ended March 31, 2025, to $11,485,225, as compared to $11,631,763 during the same period in Fiscal 2024. The change was primarily attributed to lower sales volumes of inventory associated with ITAD settlements and from our trade-in business partners but was almost fully offset by sales of our electronic scrap grades and associated recoveries, and from continued growth in our product returns service business. Inbound material flows resumed from a key supplier of electronic scrap grades that had reduced shipping during the fourth quarter of Fiscal 2024. Cost of Goods Sold ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ Change ​ 2025 2024 Amount % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ $ 36,287,805 ​ $ 29,537,096 ​ $ 6,750,709 22.9 % % of consolidated sales ​ 75.2 % 74.1 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer ​ $ 32,559,701 ​ $ 24,676,828 ​ $ 7,882,873 31.9 % % of consumer sales ​ 88.5 % 87.4 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 3,728,104 ​ $ 4,860,268 ​ $ (1,132,164) (23.3) % % of commercial sales ​ 32.5 % 41.8 % ​ ​ Consolidated Cost of goods sold increased by $6,750,709, or 22.9%, during the three months ended March 31, 2025, to $36,287,805, as compared to $29,537,096 during the same period in Fiscal 2024. Consumer Segment Cost of goods sold in the consumer segment increased by $7,882,873, or 31.9%, during the three months ended March 31, 2025, to $32,559,701, as compared to $24,676,828 during the same period in Fiscal 2024. The change was primarily attributed to the aforementioned volumes and impacts of rising gold prices. Cost of goods sold as a percentage of sales was 88.5% during the three months ended March 31, 2025, as compared to 87.4% during the three months ended March 31, 2024. The change was primarily attributed to product mix, as the relief of inventory associated with scrap grade precious metals and bullion improved as a result of selling into a rising gold market during the first quarter of Fiscal 2025. Commercial Segment Cost of goods sold in the commercial segment decreased by $1,132,164, or 23.3%, during the three months ended March 31, 2025, to $3,728,104, as compared to $4,860,268 during the same period in Fiscal 2024. The change was primarily attributed to reduced sales associated with ITAD settlements and from personal technology assets originating from our trade in business. In comparative terms, our trade in business had greater asset flow from business partners in the first quarter of Fiscal 2024, resulting in stronger outbound sales in that period. 30 Table of Contents Cost of goods sold as a percentage of sales was 32.5% during the three months ended March 31, 2025, as compared to 41.8% during the three months ended March 31, 2024. The change was primarily attributed to the settlement of a large high margin ITAD settlement with a recurring customer and from strategic initiatives associated with margin expansion from sales channels associated with personal technology assets, and from a greater mix of revenue from service fees from our product returns business, which has no associated cost of goods sold. Gross Margin ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ Change ​ 2025 2024 Amount % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ $ 11,968,024 ​ $ 10,320,684 ​ $ 1,647,340 16.0 % % of consolidated sales ​ 24.8 % 25.9 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer ​ $ 4,210,903 ​ $ 3,549,189 ​ $ 661,714 18.6 % % of consumer sales ​ 11.5 % 12.6 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 7,757,121 ​ $ 6,771,495 ​ $ 985,626 14.6 % % of commercial sales ​ 67.5 % 58.2 % ​ ​ Consolidated Gross margin increased by $1,647,340, or 16.0%, during the three months ended March 31, 2025, to $11,968,024, as compared to $10,320,684 during the same period in Fiscal 2024. Consumer Segment Gross margin in the consumer segment increased by $661,714, or 18.6%, during the three months ended March 31, 2025, to $4,210,903, as compared to $3,549,189 during the same period in Fiscal 2024. The net impact of the aforementioned increase in sales of $8,544,587 and increase in cost of goods sold of $7,882,873 resulted in the $661,714 increase in gross margin. Commercial Segment Gross margin in the commercial segment increased by $985,626, or 14.6%, during the three months ended March 31, 2025, to $7,757,121, as compared to $6,771,495 during the same period in Fiscal 2024. The net impact of the aforementioned decrease in sales of $146,538 and decrease in cost of goods sold $1,132,164 resulted in the $985,626 increase in gross margin. Selling, General and Administrative ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ Change ​ 2025 2024 Amount % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ $ 8,404,262 ​ $ 7,636,976 ​ $ 767,286 10.0 % % of consolidated sales ​ 17.4 % 19.2 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer ​ $ 3,887,906 ​ $ 3,251,490 ​ $ 636,416 19.6 % % of consumer sales ​ 10.6 % 11.5 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 4,516,356 ​ $ 4,385,486 ​ $ 130,870 3.0 % % of commercial sales ​ 39.3 % 37.7 % ​ ​ 31 Table of Contents Consolidated Selling, general and administrative expense increased by $767,286, or 10.0%, during the three months ended March 31, 2025, to $8,404,262, as compared to $7,636,976 during the same period in Fiscal 2024. Consumer Segment Selling, general and administrative expense in the consumer segment increased by $636,416, or 19.6%, during the three months ended March 31, 2025, to $3,887,906, as compared to $3,251,490 during the same period in Fiscal 2024. The change was primarily attributed to cost structures associated with our new Phoenix and San Antonio stores, but was incrementally offset by the reduction of costs associated with new store openings. During the first quarter of Fiscal 2024 the business was heavily focused on bringing our Phoenix stores online, resulting in significant costs associated with travel, onboarding employees and training. Commercial Segment Selling, general and administrative expense in the commercial segment increased by $130,870, or 3.0%, during the three months ended March 31, 2025, to $4,516,356, as compared to $4,385,486 during the same period in Fiscal 2024. The change was primarily attributed to human capital costs associated with our services business which were offset by variable-cost production expenses that scale with sales volumes of inventory. Depreciation and Amortization ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, Change ​ ​ 2025 2024 ​ Amount % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ $ 445,341 ​ $ 343,565 ​ $ 101,776 ​ 29.6 % % of consolidated sales ​ 0.9 % 0.9 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer ​ $ 180,632 ​ $ 93,676 ​ $ 86,956 92.8 % % of consumer sales ​ 0.5 % 0.3 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 264,709 ​ $ 249,889 ​ $ 14,820 5.9 % % of commercial sales ​ 2.3 % 2.1 % ​ ​ Consolidated Depreciation and amortization expense increased by $101,776, or 29.6%, during the three months ended March 31, 2025, to $445,341, as compared to $343,565 during the same period in Fiscal 2024. Consumer Segment Depreciation and amortization expense in the consumer segment increased by $86,956, or 92.8%, during the three months ended March 31, 2025, to $180,632, as compared to $93,676 during the same period in Fiscal 2024. The change was primarily attributed to the depreciation of assets placed into service related to our new stores. 32 Table of Contents Commercial Segment Depreciation and amortization expense in the commercial segment increased by $14,820, or 5.9%, during the three months ended March 31, 2025, to $264,709, as compared to $249,889 during the same period in Fiscal 2024. There was no material impact from assets capitalized or reaching maturity in each comparative period and as such no discussion point. Other Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, Change ​ ​ 2025 2024 ​ Amount % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ $ 205,605 ​ $ 238,528 ​ $ (32,923) (13.8) % % of consolidated sales ​ 0.4 % 0.6 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer ​ $ 849 ​ $ 8,005 ​ $ (7,156) (89.4) % % of consumer sales ​ 0.0 % 0.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 204,756 ​ $ 230,523 ​ $ (25,767) (11.2) % % of commercial sales ​ 1.8 % 2.0 % ​ ​ ​ Consolidated Other income decreased by $32,923, or 13.8%, during the three months ended March 31, 2025, to $205,605, as compared to $238,528 during the same period in Fiscal 2024. Consumer Segment Other income in the consumer segment decreased by $7,156, or 89.4%, during the three months ended March 31, 2025, to $849, as compared to $8,005 during the same period in Fiscal 2024. The change was primarily attributed to rental income being present in our first quarter Fiscal 2024 results. Interest income comprised $0 and $6 of other income during the three months ended March 31, 2025 and 2024, respectively. Commercial Segment Other income in the commercial segment decreased by $25,767, or 11.2%, during the three months ended March 31, 2025, to $204,756, as compared to $230,523 during the same period in Fiscal 2024. The change was primarily attributed to a reduction in earned interest rates associated with our interest bearing account and from rental income being present in our first quarter Fiscal 2024 results. Interest income comprised $144,331 and $196,562 of other income during the three months ended March 31, 2025 and 2024, respectively. 33 Table of Contents Interest Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, Change ​ ​ 2025 2024 ​ Amount % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ $ (106,321) ​ $ (120,854) ​ $ 14,533 (12.0) % % of consolidated sales ​ (0.2) % (0.3) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer ​ $ (54,047) ​ $ (64,401) ​ $ 10,354 (16.1) % % of consumer sales ​ (0.1) % (0.2) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ (52,274) ​ $ (56,453) ​ $ 4,179 (7.4) % % of commercial sales ​ (0.5) % (0.5) % ​ ​ Consolidated Interest expense decreased by $14,533, or 12.0%, during the three months ended March 31, 2025, to $106,321, as compared to $120,854 during the same period in Fiscal 2024. Consumer Segment Interest expense in the consumer segment decreased by $10,354, or 16.1%, during the three months ended March 31, 2025, to $54,047, as compared to $64,401 during the same period in Fiscal 2024. 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 $4,179, or 7.4%, during the three months ended March 31, 2025, to $52,274, as compared to $56,453 during the same period in Fiscal 2024. There was no material impact from debt additions or amortization in each comparative period and as such no discussion point. Income Tax Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, Change ​ ​ 2025 2024 ​ Amount % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ $ (724,358) ​ $ (550,278) ​ $ (174,080) 31.6 % % of consolidated sales ​ (1.5) % (1.4) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer ​ $ (20,073) ​ $ (59,151) ​ $ 39,078 (66.1) % % of consumer sales ​ (0.1) % (0.2) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ (704,285) ​ $ (491,127) ​ $ (213,158) 43.4 % % of commercial sales ​ (6.1) % (4.2) % ​ ​ Consolidated Income tax expense increased by $174,080, or 31.6%, during the three months ended March 31, 2025, to $724,358, as compared to $550,278 during the same period in Fiscal 2024. 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 22.5% and 22.4% for the three months ended March 31, 2025 and 2024, 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 March 31, 2025, compared to the three months ended March 31, 2024. 34 Table of Contents Net Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, Change ​ ​ 2025 2024 ​ Amount % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ $ 2,493,347 ​ $ 1,907,539 ​ $ 585,808 30.7 % % of consolidated sales ​ 5.2 % 4.8 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer ​ $ 69,094 ​ $ 88,476 ​ $ (19,382) (21.9) % % of consumer sales ​ 0.2 % 0.3 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 2,424,253 ​ $ 1,819,063 ​ $ 605,190 33.3 % % of commercial sales ​ 21.1 % 15.6 % ​ ​ Consolidated Net income increased by $585,808, or 30.7%, during the three months ended March 31, 2025, to $2,493,347, as compared to $1,907,539 during the same period in Fiscal 2024. Refer to the aforementioned attributes discussed within the Comparison of the Three Months Ended March 31, 2025 and 2024 for further details. Consumer Segment Net income decreased in the consumer segment by $19,382, or 21.9%, during the three months ended March 31, 2025, to $69,094, as compared to $88,476 during the same period in Fiscal 2024. Refer to the aforementioned attributes discussed within the Comparison of the Three Months Ended March 31, 2025 and 2024 for further details. Commercial Segment Net income increased in the commercial segment by $605,190, or 33.3%, during the three months ended March 31, 2025, to $2,424,253, as compared to $1,819,063 during the same period in Fiscal 2024. Refer to the aforementioned attributes discussed within the Comparison of the Three Months Ended March 31, 2025 and 2024 for further details. Earnings Per Share The following table depicts the Company’s earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, Change ​ ​ 2025 2024 ​ Amount % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ $ 0.10 ​ $ 0.07 ​ $ 0.03 42.9 % ​ Consolidated ​ Basic and diluted earnings per share attributable to holders of our Common Stock increased by $0.03, or 42.9%, during the three months ended March 31, 2024, to $0.10, as compared to $0.07 same period in Fiscal 2024. ​ 35 Table of Contents Non-U.S. GAAP Financial Measures 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. GAAP. 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 adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) and Net Cash, in Non-U.S. GAAP Financial Measures below. 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 the Company’s net income to Adjusted EBITDA for the three months ended March 31, 2025 and 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ ​ 2025 ​ 2024 ​ Consumer Commercial Consolidated Consumer Commercial Consolidated Adjusted EBITDA Reconciliation: ​ ​ ​ ​ ​ Net income ​ $ 69,094 ​ $ 2,424,253 ​ $ 2,493,347 ​ $ 88,476 ​ $ 1,819,063 ​ $ 1,907,539 Addition (deduction): ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 180,632 ​ 264,709 ​ 445,341 ​ 93,676 ​ 249,889 ​ 343,565 Other income ​ (849) ​ (204,756) ​ (205,605) ​ (8,005) ​ (230,523) ​ (238,528) Interest expense ​ 54,047 ​ 52,274 ​ 106,321 ​ 64,401 ​ 56,453 ​ 120,854 Income tax expense ​ 20,073 ​ 704,285 ​ 724,358 ​ 59,151 ​ 491,127 ​ 550,278 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 322,997 ​ $ 3,240,765 ​ $ 3,563,762 ​ $ 297,699 ​ $ 2,386,009 ​ $ 2,683,708 ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2025 2024 ​ ​ ​ ​ ​ ​ ​ Total cash ​ $ 21,028,265 ​ $ 20,609,003 Less: debt obligations ​ (13,195,997) ​ (13,522,179) ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 7,832,268 ​ $ 7,086,824 ​ 36 Table of Contents Liquidity and Capital Resources The following table summarizes the Company’s condensed consolidated statement of cash flows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ Change ​ ​ 2025 ​ 2024 ​ Amount ​ % Net cash provided by (used in): ​ ​ ​ ​ Operating activities ​ $ 1,131,057 ​ $ 3,791,721 ​ $ (2,660,664) (70.2) % Investing activities ​ (382,987) ​ (644,792) ​ ​ 261,805 (40.6) % Financing activities ​ (328,808) ​ (1,216,915) ​ 888,107 (73.0) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net increase in cash and cash equivalents ​ $ 419,262 ​ $ 1,930,014 ​ $ (1,510,752) (78.3) % ​ Operating Activities Cash flows provided by operations decreased by $2,660,664, or 70.2%, during the three months ended March 31, 2025, to $1,131,057, as compared to $3,791,721 during the same period in Fiscal 2024. The decrease in cash provided by operations was primarily attributed to an increase in net income, certain non-cash adjustments to reconcile net income to operating cash flow (as detailed in the condensed consolidated statements of cash flows), and the following significant net changes in operating assets and liabilities, from the three months ended March 31, 2024 to the same period during Fiscal 2025: ● Accounts receivable: a $4,178,078 net decrease primarily attributed to our commercial segment, resulting from an increase in accounts receivable in the normal course of operations in the first quarter of Fiscal 2025 and from significant collections from a services customer that occurred in the first quarter of Fiscal 2024. ● Inventories: a $2,057,692 net increase primarily attributed to our consumer segment from the stabilization of inventory purchases in the first quarter of Fiscal 2025, as our consumer segment was purchasing inventory for our new stores in the first quarter of Fiscal 2024. ● Accounts payable: a $981,156 net decrease primarily attributed to our consumer segment, albeit in the normal course of operations. ● Accrued expenses: a $377,022 net decrease primarily attributed to our commercial segment, resulting from a reduction in unvouchered inventory payments from the settlement of a large ITAD transaction in the first quarter of Fiscal 2025. ​ Investing Activities Cash flows (used in) investing activities decreased by $261,805, or 40.6%, during the three months ended March 31, 2025, to $382,987, as compared to $644,792 during the same period in Fiscal 2024. The decrease in cash (used in) investing activities was primarily attributed to reduced spending associated with our enterprise resource planning system and from less spending on new store build-outs in the first quarter of Fiscal 2025. Financing Activities Cash flows (used in) financing activities decreased by $888,107, or 73.0%, during the three months ended March 31, 2025, to $328,808, as compared to $1,216,915 during the same period in Fiscal 2024. The decrease in cash (used in) financing activities was primarily reduced share buybacks in the first quarter of Fiscal 2025, 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 March 31, 2025 . 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. 37 Table of Contents Capital Expenditures In Fiscal 2025, the Company is focused on optimizing our new store performance, along with the continued focus on growing our Commercial business organically and evaluating opportunities for strategic growth. 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 to ensure the debt tenure and pay-back period are in alignment, as well as the appropriateness of the rate of return. As of March 31, 2025, the Company had no commitments for capital expenditures. 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 are 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.