What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-05 compared with 2024-08-07 · 171 added, 179 removed, 231 unchanged (60% of the section changed)

2 unchanged sentences

Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 (this “Form 10-Q”), including but not limited to:

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;

8 unchanged sentences

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.

This section includes a discussion of our operations for the three and six months ended June 30, 2024, and June 30, 2023.

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.

2 unchanged sentences

GAAP Financial Measures

Within this management discussion and analysis, we use supplemental measures of our performance, which are derived from our interim consolidated financial information, but which are not presented in our interim 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 adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) and Net Cash, in Non-U.S.

GAAP Financial Measures below.

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.

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.

GAAP Financial Measures for further details.

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.

We believe that the accounting estimates discussed below relate to the more significant areas involving management’s judgments and estimates.

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.

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.

4 unchanged sentences

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 Corporation itself.

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 reportable segments:

19 unchanged sentences

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 proximity to our existing facilities.

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

3 unchanged sentences

Recent Accounting Pronouncements

See Note 3 - Accounting Policies and Estimates, to these interim condensed consolidated financial statements for recently adopted accounting pronouncements.

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

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.

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

Adjusted 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 Adjusted EBITDA for the three months ended June 30, 2024 and 2023:

For the Three Months Ended June 30,

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,

Adjusted EBITDA Reconciliation:

Net income (loss)

Add (deduct):

Addition (deduction):

Depreciation and amortization

Interest expense

Income tax expense

Adjusted EBITDA

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

For the Six Months Ended June 30,

Income tax expense (benefit)

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,

Adjusted EBITDA Reconciliation:

Net income (loss)

Add (deduct):

Addition (deduction):

Depreciation and amortization

Interest expense

Income tax expense

Adjusted EBITDA

Net Cash is the difference between (i) cash and cash equivalents and (ii) the sum of debt obligations.

We believe that presenting net of cash is useful to investors as a measure of our leverage, as cash and cash equivalents can be used, among other things, to repay indebtedness.

Income tax expense (benefit)

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,

debt obligations

(14,306,866 )

( 14,933,491 )

The Company had a net cash position of $3,037,135 as of June 30, 2024, as compared to a net cash position of $2,920,362 as of December 31, 2023.

Results of Operations

Comparison of Three Months Ended June 30, 2024 and 2023

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

For the Three Months Ended June 30,

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,

% of Sales (1)

8 unchanged sentences

Income (loss) before income taxes

Income tax expense

Income tax (expense) benefit

Net income (loss)

1 unchanged sentence

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

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

Three Months Ended June 30,

$ (5,798,875 )

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

Three Months Ended September 30,

% of consolidated sales

$ (7,651,406 )

% of consumer sales

% of commercial sales

Sales decreased by $5,798,875, or 11.3%, during the three months ended June 30, 2024, to $45,297,002, as compared to $51,095,877 during the same period in 2023.

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.

Consumer Segment

Sales in the consumer segment decreased by $7,651,406, or 19.3%, during the three months ended June 30, 2024, to $31,990,028, as compared to $39,641,434 during the same period in 2023.

The change was primarily attributed to demand softness for bullion coupled with continued inventory carry associated with our Arizona stores, which opened in the later part of the second quarter of Fiscal 2024.

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 $1,852,531, or 16.2%, during the three months ended June 30, 2024, to $13,306,974, as compared to $11,454,443 during the same period in 2023.

The change was primarily attributed to the continued favorable performance of the sale of personal technology assets along with stronger sales of shredded electronic scrap grades and associated recoveries.

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 June 30,

$ (6,426,285 )

Three Months Ended September 30,

% of consolidated sales

$ (7,578,093 )

% of consumer sales

% of commercial sales

Cost of goods sold decreased by $6,426,285, or 15.9%, during the three months ended June 30, 2024, to $33,907,545, as compared to $40,333,830 during the same period in 2023.

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 decreased by $7,578,093, or 21.3%, during the three months ended June 30, 2024, to $27,968,699, as compared to $35,546,792 during the same period in 2023.

The change was primarily attributed to the aforementioned demand softness for bullion and inventory carry.

Bullion margins are lower than those associated with hard assets and, as such, the reduction in bullion relieved from inventory had a favorable impact on cost of goods sold as a percentage of sales.

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 $1,151,808, or 24.1%, during the three months ended June 30, 2024, to $5,938,846, as compared to $4,787,038 during the same period in 2023.

The change was primarily attributed to the recognition of costs on lower margin shredded electronic scrap grades but was partially offset by the recognition of costs on higher margin personal technology assets.

Three Months Ended June 30,

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.

Three Months Ended September 30,

% of consolidated sales

1 unchanged sentence

% of commercial sales

Gross margin increased by $627,410, or 5.8%, during the three months ended June 30, 2024, to $11,389,457, as compared to $10,762,047 during the same period in 2023.

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 decreased by $73,313, or 1.8%, during the three months ended June 30, 2024, to $4,021,329, as compared to $4,094,642 during the same period in 2023.

The net impact of the aforementioned decrease in sales of $7,651,406 and decrease in cost of goods sold of $7,578,093 resulted in the $73,313 decrease in gross margin.

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 $700,723, or 10.5%, during the three months ended June 30, 2024, to $7,368,128, as compared to $6,667,405 during the same period in 2023.

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 June 30,

Three Months Ended September 30,

% of consolidated sales

1 unchanged sentence

% of commercial sales

Selling, general and administrative expense increased by $755,494, or 9.0%, during the three months ended June 30, 2024, to $9,118,048, as compared to $8,362,554 during the same period in 2023.

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 $1,536,495, or 62.1%, during the three months ended June 30, 2024, to $4,009,468, as compared to $2,472,973 during the same period in 2023.

The change was primarily attributed to incurring the operational cost structure of two stores in advance of their opening in the later part of the second quarter of Fiscal 2024 along with continued travel costs in relation to training and preparing stores for opening.

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.

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 decreased by $781,001, or 13.3%, during the three months ended June 30, 2024, to $5,108,580, as compared to $5,889,581 during the same period in 2023.

The change was primarily attributed to the operational focus on human capital costs and processing efficiencies at our production facilities.

Albeit, in the second quarter of Fiscal 2024 we experienced a marginal increase in human capital costs which is related to the aforementioned processing of shredded electronic scrap grades.

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 June 30,

Three Months Ended September 30,

% of consolidated sales

1 unchanged sentence

% of commercial sales

Depreciation and amortization expense increased by $26,093, or 7.8%, during the three months ended June 30, 2024 to $362,267, as compared to $336,174 during the same period in 2023.

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 $33,110, or 41.7%, during the three months ended June 30, 2024, to $112,518, as compared to $79,408 during the same period in 2023.

The change was primarily attributed to assets associated with our Arizona stores being placed into service.

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.

Commercial Segment

Depreciation and amortization expense in the commercial segment decreased by $7,017, or 2.7%, during the three months ended June 30, 2024, to $249,749, as compared to $256,766 during the same period in 2023.

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 June 30,

Three Months Ended September 30,

% of consolidated sales

1 unchanged sentence

% of commercial sales

Other income increased by $71,765, or 46.7%, during the three months ended June 30, 2024, to $225,417, as compared to $153,652 during the same period in 2023.

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 decreased by $15,926, or 66.6%, during the three months ended June 30, 2024, to $8,003, as compared to $23,929 during the same period in 2023.

The change was primarily attributed to higher working capital requirements as the Company is carrying a higher inventory position from the aforementioned launching of our Arizona stores and as such there was less excess cashflow available to sweep into an interest-bearing account.

Interest income comprised $2 and $22,549 of other income during the three months ended June 30, 2024, and June 30, 2023, respectively.

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 $87,691, or 67.6%, during the three months ended June 30, 2024, to $217,414, as compared to $129,723 during the same period in 2023.

The change was primarily attributed to the continued focus on reducing working capital which has increased the excess cashflow available to sweep into an interest-bearing account.

Interest income comprised $199,960 and $94,875 of other income during the three months ended June 30, 2024, and June 30, 2023, respectively.

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.

Interest Expense

Three Months Ended June 30,

Three Months Ended September 30,

% of consolidated sales

1 unchanged sentence

% of commercial sales

Interest expense decreased by $5,547, or 4.8%, during the three months ended June 30, 2024, to $109,141, as compared to $114,688 during the same period in 2023.

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 $2,512, or 4.3%, during the three months ended June 30, 2024, to $55,697, as compared to $58,209 during the same period in 2023.

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 $3,035, or 5.4%, during the three months ended June 30, 2024, to $53,444, as compared to $56,479 during the same period in 2023.

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

Three Months Ended June 30,

Income Tax (Expense) Benefit

Three Months Ended September 30,

% of consolidated sales

1 unchanged sentence

% of commercial sales

Income tax expense, for both segments, for the three months ended June 30, 2024, was $461,239, a decrease of $37,335, as compared to income tax expense of $498,574 for the three months ended June 30, 2023.

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

NM – Not Meaningful

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 22.8% and 23.7% for the three months ended June 30, 2024 and 2023, respectively.

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 decrease for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

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.

Net Income (Loss)

Three Months Ended June 30,

Three Months Ended September 30,

% of consolidated sales

$ (1,346,267 )

% of consumer sales

1 unchanged sentence

NM – Not Meaningful

Net income decreased by $39,530, or 2.5%, during the three months ended June 30, 2024 to $1,564,179, as compared to $1,603,709 during the same period in 2023.

Refer to the aforementioned attributes discussed within the Comparison of Three Months Ended June 30, 2024 and 2023 for further details.

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 $1,346,267, during the three months ended June 30, 2024 to a net loss of $177,958, as compared to net income of $1,168,309 during the same period in 2023.

Refer to the aforementioned attributes discussed within the Comparison of Three Months Ended June 30, 2024 and 2023 for further details.

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 $1,306,737, or 300.1%, during the three months ended June 30, 2024 to $1,742,137, as compared to $435,400 during the same period in 2023.

Refer to the aforementioned attributes discussed within the Comparison of Three Months Ended June 30, 2024 and 2023 for further details.

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 June 30,

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

Comparison of Six Months Ended June 30, 2024 and 2023

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

For the Six Months Ended June 30,

Three Months Ended September 30,

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.

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,

% of Sales (1)

$ 100,905,409

Cost of goods sold

6 unchanged sentences

Income (loss) before income taxes

Income tax expense

Income tax (expense) benefit

Net income (loss)

1 unchanged sentence

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

The individual segments reported the following for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

$ 100,905,409

$ (15,750,627 )

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

Nine Months Ended September 30,

% of consolidated sales

$ (16,129,786 )

% of consumer sales

% of commercial sales

Sales decreased by $15,750,627 or 15.6%, during the six months ended June 30, 2024, to $85,154,782, as compared to $100,905,409 during the same period in 2023.

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.

Consumer Segment

Sales in the consumer segment decreased by $16,129,786, or 21.1%, during the six months ended June 30, 2024, to $60,216,045, as compared to $76,345,831 during the same period in 2023.

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 $379,159, or 1.5%, during the six months ended June 30, 2024, to $24,938,737, as compared to $24,559,578 during the same period in 2023.

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

Six Months Ended June 30,

$ (15,288,819 )

Nine Months Ended September 30,

% of consolidated sales

$ (15,620,694 )

% of consumer sales

% of commercial sales

Cost of goods sold decreased by $15,288,819, or 19.4%, during the six months ended June 30, 2024, to $63,444,641, as compared to $78,733,460 during the same period in 2023.

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 $15,620,694, or 22.9%, during the six months ended June 30, 2024, to $52,645,527, as compared to $68,266,221 during the same period in 2023.

The change was primarily attributed to the aforementioned demand softness for bullion and inventory carry.

Bullion margins are lower than those associated with hard assets and, as such, the reduction in bullion relieved from inventory had a favorable impact on cost of goods sold as a percentage of sales.

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 $331,875, or 3.2%, during the six months ended June 30, 2024, to $10,799,114, as compared to $10,467,239 during the same period in 2023.

Six Months Ended June 30,

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.

Nine Months Ended September 30,

% of consolidated sales

1 unchanged sentence

% of commercial sales

Gross margin decreased by $461,808, or 2.1%, during the six months ended June 30, 2024, to $21,710,141, as compared to $22,171,949 during the same period in 2023.

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 $509,092, or 6.3%, during the six months ended June 30, 2024, to $7,570,518, as compared to $8,079,610 during the same period in 2023.

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 $47,284, or 0.3%, during the six months ended June 30, 2024, to $14,139,623, as compared to $14,092,339 during the same period in 2023.

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

Six Months Ended June 30,

Nine Months Ended September 30,

% of consolidated sales

% of consumer sales

$ (1,904,793 )

% of commercial sales

Selling, general and administrative expense increased by $487,167, or 3.0%, during the six months ended June 30, 2024, to $16,755,024, as compared to $16,267,857 during the same period in 2023.

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 $2,391,960, or 49.1%, during the six months ended June 30, 2024, to $7,260,958, as compared to $4,868,998 during the same period in 2023.

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

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 $1,904,793, or 16.7%, during the six months ended June 30, 2024, to $9,494,066, as compared to $11,398,859 during the same period in 2023.

The change was primarily attributed to the operational focus on human capital costs and processing efficiencies at our production facilities.

Albeit, in the second quarter of Fiscal 2024 we experienced a marginal increase in human capital costs which is correlative to the aforementioned processing of shredded electronic scrap grades.

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

Six Months Ended June 30,

Nine Months Ended September 30,

% of consolidated sales

1 unchanged sentence

% of commercial sales

Depreciation and amortization expense increased by $15,307, or 2.2%, during the six months ended June 30, 2024, to $705,832, as compared to $690,525 during the same period in 2023.

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 $28,652, or 16.1%, during the six months ended June 30, 2024, to $206,194, as compared to $177,542 during the same period in 2023.

The change was primarily attributed to assets associated with our Arizona stores being placed into service.

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 $13,345, or 2.6%, during the six months ended June 30, 2024, to $499,638, as compared to $512,983 during the same period in 2023.

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.

Other Income (Expense)

Six Months Ended June 30,

Nine Months Ended September 30,

% of consolidated sales

1 unchanged sentence

% of commercial sales

Other income increased by $99,514, or 27.3%, during the six months ended June 30, 2024, to $463,945, as compared to $364,431 during the same period in 2023.

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 decreased by $31,455, or 66.3%, during the six months ended June 30, 2024, to $16,008, as compared to $47,463 during the same period in 2023.

Interest income comprised $8 and $44,112 of other income during the six months ended June 30, 2024, and June 30, 2023, respectively.

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 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 $130,969, or 41.3%, during the six months ended June 30, 2024, to $447,937, as compared to $316,968 during the same period in 2023.

The change was primarily attributed to the continued focus on reducing working capital which has increased the excess cashflow available to sweep into an interest-bearing account.

Interest income comprised $396,522 and $156,252 of other income during the six months ended June 30, 2024, and June 30, 2023, respectively.

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 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

Six Months Ended June 30,

Nine Months Ended September 30,

% of consolidated sales

1 unchanged sentence

% of commercial sales

Interest expense decreased by $1,757, or 0.8%, during the six months ended June 30, 2024, to $229,995, as compared to $231,752 during the same period in 2023.

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 increased by $2,271, or 1.9%, during the six months ended June 30, 2024, to $120,098, as compared to $117,827 during the same period in 2023.

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 $4,028, or 3.5%, during the six months ended June 30, 2024, to $109,897, as compared to $113,925 during the same period in 2023.

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

Six Months Ended June 30,

$ (1,011,517 )

$ (1,216,220 )

Income Tax (Expense) Benefit

Nine Months Ended September 30,

% of consolidated sales

1 unchanged sentence

% of commercial sales

Income tax expense, for both segments, for the six months ended June 30, 2024, was $1,011,517, a decrease of $204,703, as compared to income tax expense of $1,216,220 for the six months ended June 30, 2023.

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

NM – Not Meaningful

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 $1,534,187 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 22.6% and 22.7% for the six months ended June 30, 2024 and 2023, respectively.

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 decrease for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

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.

Net Income (Loss)

Six Months Ended June 30,

Nine Months Ended September 30,

% of consolidated sales

$ (2,394,675 )

% of consumer sales

1 unchanged sentence

NM – Not Meaningful

Net income decreased by $658,308, or 15.9%, during the six months ended June 30, 2024 to $3,471,718, as compared to $4,130,026 during the same period in 2023.

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 $2,394,675, during the six months ended June 30, 2024 to a net loss of $89,482, as compared to net income of $2,305,193 during the same period in 2023.

Refer to the aforementioned attributes discussed within the Comparison of Six Months Ended June 30, 2024 and 2023 for further details.

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 $1,736,367, or 95.2%, during the six months ended June 30, 2024 to $3,561,200, as compared to $1,824,833 during the same period in 2023.

Refer to the aforementioned attributes discussed within the Comparison of Six Months Ended June 30, 2024 and 2023 for further details.

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:

Six Months Ended June 30,

Basic and diluted earnings per share attributable to holders of our Common Stock decreased by $0.02, or 13.3%, during the six months ended June 30, 2024, to $0.13, as compared to $0.15 during the same period in 2023.

Nine Months Ended September 30,

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.

Liquidity and Capital Resources

The following table summarizes the Company’s Consolidated Statement of Cashflows:

Six Months Ended June 30,

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

Nine Months Ended September 30,

Net cash provided by (used in):

3 unchanged sentences

Net increase (decrease) in cash and cash equivalents

$ (1,720,659 )

NM – Not Meaningful

Operating Activities

During the six months ended June 30, 2024, cash flows provided by operations totaled $3,002,262, and during the six months ended June 30, 2023, cash flows provided by operations totaled $2,748,490, a change of $253,772.

The increase in cash provided by operations for the six months ended June 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 a decrease in accruals primarily associated with payroll.

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

During the six months ended June 30, 2024 and 2023, cash flows (used in) investing activities totaled $1,265,004 and $722,621, respectively, a change of $542,383.

The increase in cash used in investing activities during the six months ended June 30, 2024, was primarily attributed to the buildout of our Arizona stores, purchase of production assets within our recycling business and continued development of our enterprise resource planning system.

The prior comparative period had cash flows (used in) investing activities of $722,621, which primarily consisted of payments received from notes receivable of $578,250, offset by the purchase of property and equipment of $1.3 million.

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

During the six months ended June 30, 2024 and 2023, cash flows (used in) financing activities totaled $2,247,110 and $815,062, respectively, a change of $1,432,048.

The increase in cash used in financing activities during the six months ended June 30, 2024, was primarily due to our share buyback plan as principal payments on debt were in relative parity.

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 of June 30, 2024.

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 September 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.

3 unchanged sentences

Where appropriate the Company may use debt financing on select projects.

When this occurs, the Company further evaluates future cashflows 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.

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.

Off-Balance Sheet Arrangements

3 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis