Envela Corp 10-Q

Item 1. Financial Statements ENVELA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended September 30, Nine Months Ended September 30, (Unaudited) 2023 2022 2023 2022 Revenue: Sales $ 36,266,271 $ 45,197,686 $ 134,958,838 $ 135,252,502 Cost of goods sold 26,531,989 33,342,029 103,052,607 102,207,811 Gross margin 9,734,282 11,855,657 31,906,231 33,044,691 Expenses: Selling, General & Administrative Expenses 7,446,380 7,862,085 23,714,237 21,707,789 Depreciation and Amortization 337,713 534,964 1,028,238 1,106,427 Total operating expenses 7,784,093 8,397,049 24,742,475 22,814,216 Operating income 1,950,189 3,458,608 7,163,756 10,230,475 Other income 192,437 43,119 556,868 91,160 Interest expense 117,166 119,957 348,918 364,238 Income before income taxes 2,025,460 3,381,770 7,371,706 9,957,397 Income tax expense 317,967 64,061 1,534,187 144,605 Net income $ 1,707,493 $ 3,317,709 $ 5,837,519 $ 9,812,792 Basic earnings per share: Net income $ 0.06 $ 0.12 $ 0.22 $ 0.36 Diluted earnings per share: Net income $ 0.06 $ 0.12 $ 0.22 $ 0.36 Weighted average shares outstanding: Basic 26,809,778 26,924,631 26,884,221 26,924,631 Diluted 26,824,778 26,939,631 26,899,221 26,939,631 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents ENVELA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, December 31, 2023 2022 Assets (unaudited) Current assets: Cash and cash equivalents $ 17,305,389 $ 17,169,969 Trade receivables, net of allowances 8,934,862 7,949,775 Notes receivable, net of allowances - 578,250 Inventories 23,050,857 18,755,785 Prepaid expenses 1,065,955 1,231,817 Other current assets 76,030 35,113 Total current assets 50,433,093 45,720,709 Property and equipment, net 10,447,600 9,393,802 Right-of-use assets from operating leases 4,616,902 5,872,681 Goodwill 3,921,453 3,621,453 Intangible assets, net 4,475,120 4,993,545 Deferred tax asset 102,607 1,488,258 Other assets 201,446 186,761 Total assets $ 74,198,221 $ 71,277,209 Liabilities and stockholders’ equity Current liabilities: Accounts payable-trade $ 3,521,781 $ 3,358,881 Notes payable 1,331,586 1,250,702 Operating lease liabilities 1,775,883 1,686,997 Accrued expenses 2,229,767 2,286,594 Customer deposits and other liabilities 566,567 282,482 Total current liabilities 9,425,584 8,865,656 Notes payable, less current portion 13,914,961 14,726,703 Operating lease liabilities, less current portion 3,022,058 4,368,400 Total liabilities 26,362,603 27,960,759 Commitments and contingencies Stockholders’ equity: Preferred stock, $ 0.01 par value; 5,000,000 shares authorized; no shares issued and outstanding - - Common stock, $ 0.01 par value; 60,000,000 shares authorized; 26,924,631 shares issued and 26,700,000 shares outstanding as of September 30, 2023; 26,924,631 shares issued and outstanding as of December 31, 2022 269,246 269,246 Treasury stock at cost, 224,631 and 0 shares, as of September 30, 2023 and December 31, 2022, respectively ( 1,318,351 ) - Additional paid-in capital 40,173,000 40,173,000 Retained earnings 8,711,723 2,874,204 Total stockholders’ equity 47,835,618 43,316,450 Total liabilities and stockholders’ equity $ 74,198,221 $ 71,277,209 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents ENVELA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2023 2022 (Unaudited) (Unaudited) Operations Net income $ 5,837,519 $ 9,812,792 Adjustments to reconcile net income to net cash provided by operations: Depreciation, amortization, and other 1,028,239 1,106,427 Bad debt expense 400,493 73,418 Deferred taxes 1,385,651 - Changes in operating assets and liabilities: Trade receivables ( 1,385,580 ) ( 97,994 ) Inventories ( 4,295,072 ) ( 4,014,627 ) Prepaid expenses 165,863 ( 1,213,187 ) Intangible assets - ( 15,300 ) Other assets ( 55,601 ) 311,420 Accounts payable and accrued expenses 106,071 1,924,658 Operating leases ( 1,677 ) 24,123 Customer deposits and other liabilities 284,085 ( 186,590 ) Net cash provided by operations 3,469,991 7,725,140 Investing Purchase of property and equipment ( 1,563,612 ) ( 227,197 ) Investment in note receivable 578,250 - Acquisition of Steven Kretchmer, Inc. ( 300,000 ) - Adjustment to the purchase price of the Avail Transaction - ( 216,988 ) Net cash used in investing ( 1,285,362 ) ( 444,185 ) Financing Payments on notes payable ( 930,858 ) ( 750,347 ) Purchase of treasury stock ( 1,318,351 ) - Proceeds from note payable, Steven Kretchmer, Inc. acquisition 200,000 - Payments on line of credit - ( 1,700,000 ) Net cash used in financing ( 2,049,209 ) ( 2,450,347 ) Net change in cash and cash equivalents 135,420 4,830,608 Cash and cash equivalents, beginning of period 17,169,969 10,138,148 Cash and cash equivalents, end of period $ 17,305,389 $ 14,968,756 Supplemental Disclosures Cash paid during the period for: Interest $ 349,747 $ 372,819 Income taxes $ 196,165 $ 133,000 Non cash activities Adjustment to the Avail Transaction purchase price allocation $ - $ 2,736,000 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents ENVELA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the Three Months ended September 30, 2022 and 2023 (Unaudited) Additional Total Common Stock Treasury Stock Preferred Stock Paid-in Accumulated Stockholders' Shares Amount Shares Amount Shares Amount Capital Deficit Equity Balances at July 1, 2022 26,924,631 $ 269,246 - $ - - $ - $ 40,173,000 $ ( 6,319,846 ) $ 34,122,400 Net Income - - - - - - - 3,317,709 3,317,709 Balances at September 30, 2022 26,924,631 $ 269,246 - $ - - $ - $ 40,173,000 $ ( 3,002,137 ) $ 37,440,109 Additional Total Common Stock Treasury Stock Preferred Stock Paid-in Retained Stockholders' Shares Amount Shares Amount Shares Amount Capital Earnings Equity Balances at July 1, 2023 26,924,631 $ 269,246 ( 27,421 ) $ ( 194,820 ) - $ - $ 40,173,000 $ 7,004,230 $ 47,251,656 Net Income - - - - - - - 1,707,493 1,707,493 Shares repurchased - - ( 197,210 ) ( 1,123,531 ) - - - - ( 1,123,531 ) Balances at September 30, 2023 26,924,631 $ 269,246 ( 224,631 ) $ ( 1,318,351 ) - $ - $ 40,173,000 $ 8,711,723 $ 47,835,618 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents ENVELA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the Nine Months ended September 30, 2022 and 2023 (Unaudited) Additional Total Common Stock Treasury Stock Preferred Stock Paid-in Accumulated Stockholders' Shares Amount Shares Amount Shares Amount Capital Deficit Equity Balances at January 1, 2022 26,924,631 $ 269,246 - $ - - $ - $ 40,173,000 $ ( 12,814,929 ) $ 27,627,317 Net Income - - - - - - - 9,812,792 9,812,792 Balances at September 30, 2022 26,924,631 $ 269,246 - $ - - $ - $ 40,173,000 $ ( 3,002,137 ) $ 37,440,109 Additional Total Common Stock Treasury Stock Preferred Stock Paid-in Retained Stockholders' Shares Amount Shares Amount Shares Amount Capital Earnings Equity Balances at January 1, 2023 26,924,631 $ 269,246 - $ - - $ - $ 40,173,000 $ 2,874,204 $ 43,316,450 Net Income - - - - - - - 5,837,519 5,837,519 Shares repurchased - - ( 224,631 ) ( 1,318,351 ) - - - - ( 1,318,351 ) Balances at September 30, 2023 26,924,631 $ 269,246 ( 224,631 ) $ ( 1,318,351 ) - $ - $ 40,173,000 $ 8,711,723 $ 47,835,618 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 — BASIS OF PRESENTATION These unaudited interim condensed consolidated financial statements of Envela Corporation, a Nevada corporation, and its subsidiaries (together with its subsidiaries, the “Company” or “Envela”), included herein have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the instructions to Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X prescribed by the Securities and Exchange Commission (the “SEC”). Pursuant to the SEC’s rules and regulations, they do not include all of the information and notes required by accounting principles generally accepted in the U.S. (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments, which are of a normal and recurring nature except those which have been disclosed elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”), necessary for a fair presentation of the consolidated financial statements for these interim periods, have been included. Operating results presented for these interim periods are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023 (“fiscal 2023”). For further information, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (“fiscal 2022”) of Envela filed with the SEC on March 16, 2023 (the “2022 Annual Report”). Contemporaneously with filing our Quarterly Report Form 10-Q for the period ending March 31, 2023, we updated our two reportable segments by renaming the ECHG segment the “Commercial” segment and the DGSE segment the “Consumer” segment. The segment name changes did not result in any change to the composition of the Company’s operations and therefore did not result in any change to the historical results. Our operations conducted by each of our segments are more specifically described in the following notes to our condensed consolidated financial statements. Starting January 1, 2023, expenses previously classified as other expenses related to the Company’s corporate campus overhead have been included in selling, general, and administrative expenses. Since the presentation of these expenses changed January 1, 2023, management believes the presentation of the 2022 corporate campus overhead should be reclassified to selling, general, and administrative expense for comparison purposes for the three and nine months ended September 30, 2022. The preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. NOTE 2 — PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS Envela and its subsidiaries engage in diverse business activities within the recommerce sector. These activities include being one of the nation's premier authenticated recommerce retailers of luxury hard assets; providing end-of-life asset recycling and resale to businesses, organization and retail consumers; offering data destruction and IT asset management; and providing products, services and solutions to industrial and commercial companies. Envela operates primarily via two operating and reportable segments. Our consumer segment, formerly known as the DGSE segment, operates DGSE, LLC (“DGSE”), Dallas Gold & Silver Exchange, Charleston Gold & Diamond Exchange, Steven Kretchmer, Inc. (“Kretchmer”) and Bullion Express brands. Our commercial segment, formerly known as the ECHG segment, operates ECHG, LLC (“ECHG”), Echo Environmental Holdings, LLC (“Echo”), ITAD USA Holdings, LLC (“ITAD USA”), Teladvance, LLC (“Teladvance”), CEX Holdings, LLC (“CEX”) and Avail Recovery Solutions, LLC (“Avail”). Envela is a Nevada corporation, headquartered in Irving, Texas. 8 Table of Contents On September 12, 2023, the Company purchased all of the issued and outstanding stock of Steven Kretchmer, Inc., an Arizona corporation for 300,000 (the “Kretchmer Transaction”). Based on the terms of the purchase, the Company has concluded the Kretchmer Transaction represents a business combination pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations, or ASC 805. The Kretchmer Transaction will be incorporated into the consumer segment. See Note 3 for additional information. Our consumer segment primarily buys and resells or recycles luxury hard assets like jewelry, diamonds, gemstones, fine watches, rare coins and related collectibles, precious-metal bullion products, gold, silver and other precious-metals. We currently operate seven jewelry stores at both the retail and wholesale levels throughout the United States via its facilities in Texas and South Carolina. The Company purchased a new retail building in Arizona, but has not commenced operations as of September 30, 2023. The consumer segment is continuing to promote and build the Bullion Express brand into a leading on-line seller of bullion. Buying and selling items for their precious-metals content is a major method by which we are marketing our brands. The consumer segment also offers jewelry repair services, custom-made jewelry and consignment items, and maintains relationships with refiners for precious-metal items that are not retained for resale. We also maintain a presence in retail markets through websites, www.dgse.com , www.cgdeinc.com , www.stevenkretchmer.com and www.bullionexpress.com . Our commercial segment primarily buys electronic components from business and other organizations, such as school districts, for end-of-life recycling and resell, or to add life to electronic devices by data destruction and refurbishment for reuse. We also recycle and resell electronics at the retail level. We focus on end-of-life electronics recycling and sustainability, and ITAD USA provides IT equipment disposition, including compliance and data sanitization services. Teladvance, CEX and Avail operate as value-added resellers by providing offerings and services to companies looking either to upgrade capabilities or dispose of equipment. Like the consumer segment, the commercial segment also maintains relationships with refiners or recyclers to which it sells valuable materials it extracts from electronics and IT equipment that are not appropriate for resale or reuse. The commercial segment’s customers are companies and organizations that are based domestically and internationally. For additional information on the businesses of both the consumer and commercial segments, see “Item 1. Business – Operating Segments” in the Company’s 2022 Annual Report. The interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its subsidiaries. All material intercompany transactions and balances have been eliminated. NOTE 3 — ACCOUNTING POLICIES AND ESTIMATES Financial Instruments The carrying amounts reported in the condensed consolidated balance sheets for cash equivalents, trade receivables, prepaid expenses, other current assets, accounts payable, accrued expenses, customer deposits and other liabilities approximate fair value because of the immediate or short-term nature of these financial instruments. Notes payable approximate fair value due to the market interest rate charged. Earnings Per Share Basic earnings per share of our common stock, par value $ 0.01 per share (our “Common Stock”), is computed by dividing net earnings available to holders of the Company’s Common Stock by the weighted average number of shares of Common Stock outstanding for the reporting period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts requiring the Company to issue Common Stock were exercised or converted into Common Stock. For the calculation of diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect of stock options and warrants outstanding determined using the treasury stock method. 9 Table of Contents Goodwill Goodwill is not amortized but evaluated for impairment on an annual basis during the fourth quarter of our fiscal year, or earlier if events or circumstances indicate the carrying value may be impaired. The Company’s goodwill is related to both of Envela’s segments. See Note 5 – Goodwill, for the further allocation of goodwill. Both segments have their own, separate financial information to perform goodwill impairment testing. As a result of the current market and economic conditions related to surging inflation and the wars in Eastern Europe and the Middle East, in accordance with step 1 of the guidelines set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 350-20-35-3A, management concluded there were no impairments of goodwill that resulted from those triggering events for the three and nine months ended September 30, 2023. Management will continue to evaluate goodwill for the commercial and consumer segments. For tax purposes, goodwill generated from asset purchases is amortized and deductible over fifteen years. Goodwill generated from the Kretchmer transaction classified as a stock purchase, is not deductable for tax purposes. Goodwill was allocated in connection with three commercial segment acquisitions of assets, and one acquisition made by the consumer segment. The acquisitions by the commercial segment consist of the assets now held by Echo on May 20, 2019 (the “Echo Transaction”), of the assets now held by Teladvance on June 9, 2021 (the “CExchange Transaction”) and of the assets now held by Avail on October 29, 2021 (the “Avail Transaction”). The preliminary goodwill associated with the Avail Transaction was $ 3,491,285 , which was the initial purchase price less the approximate fair value of the net assets purchased. On May 31, 2022, an additional cash payment was made of $ 216,988 due to certain conditions being met concerning the cash balance upon a certain date. The cash payment increased goodwill for the Avail Transaction to $ 3,708,273 . During fiscal year 2022 management also identified $2,736,000 of intangibles that were not initially included in the fair value of Avail’s net assets. The separation of intangibles reduced the Avail Transaction goodwill to $ 972,272 . As part of the Kretchmer Transaction, the consumer segment recorded goodwill of $ 300,000 as part of the initial purchase price allocation, which has not been finalized. There have been no other adjustments or impairment charges to goodwill. As of September 30, 2023, and December 31, 2022, goodwill as reported in the condensed consolidated balance sheets were $ 3,921,453 and $ 3,621,453 , respectively. Reclassifications Prior period amounts included in current assets, for both right-of-use assets from operating leases and deferred tax asset, have been reclassified for current period presentation, to be included in non-current assets. The right-of-use assets from operating leases reclassified for December 31, 2022, amounted to 2.4% of the total assets at $1,683,060. The deferred tax asset reclassified for December 31, 2022, amounted to 2.0% of the total assets at $1,488,258 . Recent Accounting Pronouncements In June 2016, the FASB issued a new credit loss accounting standard ASU 2016-13. The new accounting standard introduces the current expected credit losses methodology for estimating allowances for credit losses which will be based on expected losses rather than incurred losses. We will be required to use a forward-looking expected credit loss methodology for accounts receivable, loans and other financial instruments. The ASU is effective for the fiscal years beginning after December 15, 2022. We adopted this ASU as of January 1, 2023, which includes interim periods within the reporting period. ASU 2016-13 was adopted by using a modified retrospective transition approach to align our credit loss methodology with the new standard. There were no effects of this standard on our financial position, results of operations or cash flows. There were no other new accounting standards that had a material impact on the Company’s consolidated financial statements during the three and nine-month periods ended September 30, 2023. There were no other new accounting standards or pronouncements that were issued but not yet effective as of September 30, 2023 that the Company expects to have a material impact on its consolidated financial statements. 10 Table of Contents NOTE 4 — INVENTORIES A summary of inventories is as follows: September 30, December 31, 2023 2022 Consumer Resale $ 21,517,831 $ 16,462,749 Recycle - 46,697 Subtotal 21,517,831 16,509,446 Commercial Resale 1,089,567 1,858,519 Recycle 443,459 387,820 Subtotal 1,533,026 2,246,339 $ 23,050,857 $ 18,755,785 NOTE 5 — GOODWILL The change in goodwill is as follows: September 30, December 31, 2023 2022 Opening balance $ 3,621,453 $ 6,140,465 Additions/(Reductions) (1) 300,000 ( 2,519,012 ) Goodwill $ 3,921,453 $ 3,621,453 (1) The reduction in goodwill of $ 2,519,012 for fiscal 2022, is a combination of an additional cash payment made on May 31, 2022 of $ 216,988 , increasing goodwill for the Avail Transaction, offset by the effect of identifying $ 2,736,000 of intangible assets that was not initially included in the fair value of Avail’s net assets, reducing goodwill and increasing intangible assets. The increase in goodwill of $ 300,000 , for the three and nine months ended September 30, 2023, is the addition from the Kretchmer Transaction. Goodwill was initially recorded at $ 300,000 , and adjustments will be made once assets and liabilities are evaluated and quantified. There have been no other adjustments or impairment charges to goodwill for the three and nine months ended September 30, 2023. 11 Table of Contents NOTE 6 — PROPERTY AND EQUIPMENT Property and equipment consist of the following: September 30, December 31, 2023 2022 Consumer Land $ 1,824,892 $ 1,640,219 Building and improvements 3,859,052 2,798,975 Leasehold improvements 1,450,695 1,450,695 Machinery and equipment 1,149,891 1,078,595 Furniture and fixtures 656,817 603,944 Vehicles 22,859 22,859 8,964,206 7,595,287 Less: accumulated depreciation ( 2,878,117 ) ( 2,651,832 ) Sub-Total 6,086,089 4,943,455 Commercial Building and improvements 151,647 151,647 Machinery and equipment 1,098,098 1,082,026 Vehicles 222,832 98,610 Furniture and fixtures 145,950 145,950 1,618,527 1,478,233 Less: accumulated depreciation ( 742,725 ) ( 515,673 ) Sub-Total 875,802 962,560 Corporate Land 1,106,664 1,106,664 Building and improvements 2,502,216 2,502,216 Computer software 54,398 - Machinery and equipment 28,627 28,627 3,691,905 3,637,507 Less: accumulated depreciation ( 206,196 ) ( 149,720 ) Sub-Total 3,485,709 3,487,787 $ 10,447,600 $ 9,393,802 On May 4, 2023, the consumer segment closed the purchase of a new retail building located at 6030 North 19 th Avenue in Phoenix, Arizona for $ 1,231,150 . During the three months ended September 30, 2023, $ 184,673 of the purchase price, was allocated to the land. The purchase was paid through operating cash flow without the use of borrowed funds. As of September 30, 2023, the building has not been placed into service. Once the new location is placed into service, the building will begin to be depreciated. 12 Table of Contents NOTE 7 — INTANGIBLE ASSETS Intangible assets consist of the following: September 30, December 31, 2023 2022 Consumer Domain names $ 41,352 $ 41,352 Point of sale system 330,000 330,000 371,352 371,352 Less: accumulated amortization ( 362,602 ) ( 335,502 ) Subtotal 8,750 35,850 Commercial Trademarks (1) 1,483,000 1,483,000 Customer Contracts (1) 1,873,000 1,873,000 Trademarks/Tradenames (2) 114,000 114,000 Customer Relationships (2) 345,000 345,000 Trademarks/Tradenames (3) 1,272,000 1,272,000 Customer Relationships (3) 1,464,000 1,464,000 6,551,000 6,551,000 Less: accumulated amortization ( 2,084,630 ) ( 1,593,305 ) Subtotal 4,466,370 4,957,695 $ 4,475,120 $ 4,993,545 (1) Intangibles relate to the Echo Transaction on May 20, 2019. (2) Intangibles relate to the CExchange Transaction on June 9, 2021. (3) Intangibles relate to the Avail Transaction on October 29, 2021. The following table outlines the estimated future amortization expense related to intangible assets held as of September 30, 2023: Consumer Commercial Total 2023 (excluding the nine months ending September 30, 2023) 3,250 163,775 167,025 2024 5,500 655,100 660,600 2025 - 655,100 655,100 2026 - 655,100 655,100 2027 - 655,100 655,100 Thereafter - 1,682,195 1,682,195 $ 8,750 $ 4,466,370 $ 4,475,120 13 Table of Contents NOTE 8— ACCRUED EXPENSES Accrued expenses consist of the following: September 30, December 31, 2023 2022 Consumer Accrued interest $ 11,508 $ 11,624 Payroll 103,958 146,817 Property taxes 214,474 115,222 Sales tax 60,982 153,039 Other administrative expenss - 424 Subtotal 390,922 427,126 Commercial Accrued interest 7,985 8,228 Payroll 187,587 336,226 Unvouchered payables - inventory/COGS 1,185,907 1,032,808 Other accrued expenses 118,201 7,392 Subtotal 1,499,680 1,384,654 Corporate Accrued interest 7,072 7,543 Payroll 12,796 25,179 Professional fees 134,049 199,508 Property Tax 64,555 87,275 Federal & state Income tax 120,693 155,309 Subtotal 339,165 474,814 $ 2,229,767 $ 2,286,594 NOTE 9 — SEGMENT INFORMATION As stated in Note 1 – Basis of Presentation, we updated our two reportable segments by renaming the ECHG segment to the “Commercial” segment and the DGSE segment to the “Consumer” segment. The segment name changes did not result in any change to the composition of the Company’s operations and therefore did not result in any changes to historical results. Our operations conducted by each of our segments are more specifically described below. We determine our business segments based upon an internal reporting structure. The Company’s financial performance is based on the following segments: consumer and commercial. The consumer segment includes Dallas Gold & Silver Exchange, which has six operating retail stores in the Dallas/Fort Worth Metroplex (“DFW”), one retail location in Mt. Pleasant, South Carolina and one location in Phoenix, Arizona, as stated in a footnote to Note 6 – Property and Equipment, which has not yet been placed in service. Kretchmer has one retail location in Scottsdale, Arizona. The consumer segment also operates the on-line Bullion Express brand. 14 Table of Contents The commercial segment includes Echo, ITAD USA, Teladvance, CEX and Avail. These five companies are involved in recycling and the reuse of electronic components. A portion of certain corporate costs and expenses is allocated, including information technology as well as rental income and expenses relating to our corporate headquarters, to the business segments. These income and expenses are included in selling, general and administrative (“SG&A”) expenses, depreciation and amortization, other income, interest expense and income tax expense. The management team evaluates each segment and makes decisions about the allocation of resources according to each segment’s profit. Allocation amounts are generally agreed upon by management and may differ from arms-length allocations. The following separates the consumer and the commercial financial results of operations for the three months ended September 30, 2023 and 2022: For The Three Months Ended September 30, 2023 2022 Consumer Commercial Consolidated Consumer Commercial Consolidated Revenue: Sales $ 26,881,202 $ 9,385,069 $ 36,266,271 $ 30,427,254 $ 14,770,432 $ 45,197,686 Cost of goods sold 23,291,939 3,240,050 26,531,989 26,677,891 6,664,138 33,342,029 Gross profit 3,589,263 6,145,019 9,734,282 3,749,363 8,106,294 11,855,657 Expenses: Selling, general and administrative expenses (1) 2,588,628 4,857,752 7,446,380 2,369,588 5,492,497 7,862,085 Depreciation and amortization 75,842 261,871 337,713 103,022 431,942 534,964 2,664,470 5,119,623 7,784,093 2,472,610 5,924,439 8,397,049 Operating income 924,793 1,025,396 1,950,189 1,276,753 2,181,855 3,458,608 Other income/expense: Other income (1) 22,851 169,586 192,437 5,957 37,162 43,119 Interest expense 59,631 57,535 117,166 60,619 59,338 119,957 Income before income taxes 888,013 1,137,447 2,025,460 1,222,091 2,159,679 3,381,770 Income tax expense 120,637 197,330 317,967 20,243 43,818 64,061 Net income $ 767,376 $ 940,117 $ 1,707,493 $ 1,201,848 $ 2,115,861 $ 3,317,709 (1) Starting January 1, 2023, expenses previously classified as other expenses related to the Company’s corporate campus overhead have been included in selling, general, and administrative expenses. Since the presentation of these expenses changed January 1, 2023, management believes the presentation of the 2022 corporate campus overhead should be reclassified to selling, general, and administrative expense for comparison purposes for the three months ended September 30, 2022. No other presentation changes have been made to prior periods. 15 Table of Contents The following separates the consumer and the commercial financial results of operations for the nine months ended September 30, 2023 and 2022: For The Nine Months Ended September 30, 2023 2022 Consumer Commercial Consolidated Consumer Commercial Consolidated Revenue: Sales $ 103,227,033 $ 31,731,805 $ 134,958,838 $ 96,549,253 $ 38,703,249 $ 135,252,502 Cost of goods sold 91,558,160 11,494,447 103,052,607 84,387,844 17,819,967 102,207,811 Gross profit 11,668,873 20,237,358 31,906,231 12,161,409 20,883,282 33,044,691 Expenses: Selling, general and administrative expenses (1) 7,457,628 16,256,609 23,714,237 6,803,054 14,904,735 21,707,789 Depreciation and amortization 253,385 774,853 1,028,238 311,419 795,008 1,106,427 7,711,013 17,031,462 24,742,475 7,114,473 15,699,743 22,814,216 Operating income 3,957,860 3,205,896 7,163,756 5,046,936 5,183,539 10,230,475 Other income/expense: Other income (1) 70,315 486,553 556,868 29,970 61,190 91,160 Interest expense 177,458 171,460 348,918 183,523 180,715 364,238 Income before income taxes 3,850,717 3,520,989 7,371,706 4,893,383 5,064,014 9,957,397 Income tax expense 778,150 756,037 1,534,187 48,811 95,794 144,605 Net income $ 3,072,567 $ 2,764,952 $ 5,837,519 $ 4,844,572 $ 4,968,220 $ 9,812,792 (1) Starting January 1, 2023, expenses previously classified as other expenses related to the Company’s corporate campus overhead have been included in selling, general, and administrative expenses. Since the presentation of these expenses changed January 1, 2023, management believes the presentation of the 2022 corporate campus overhead should be reclassified to selling, general, and administrative expense for comparison purposes for the nine months ended September 30, 2022. No other presentation changes have been made to prior periods. NOTE 10 — REVENUE RECOGNITION ASC 606 provides guidance to identify performance obligations for revenue-generating transactions. The initial step is to identify the contract with a customer created with the sales invoice or a repair ticket. The second step is to identify the performance obligations in the contract as we promise to deliver the purchased item or promised repairs in return for payment or future payment as a receivable. The third step is determining the transaction price of the contract obligation as in the full ticket price, negotiated price or a repair price. The next step is to allocate the transaction price to the performance obligations as we designate a separate price for each item. The final step in the guidance is to recognize revenue as each performance obligation is satisfied. 16 Table of Contents The following disaggregation of total revenue is listed by sales category and segment for the three months ended September 30, 2023 and 2022: CONSOLIDATED Three Months Ended September 30, 2023 2022 Revenues Gross Profit Margin Revenues Gross Profit Margin Consumer Resale $ 23,807,040 $ 2,791,390 11.7 % $ 28,172,732 $ 3,251,153 11.5 % Recycled 3,074,162 797,873 26.0 % 2,254,522 498,210 22.1 % Subtotal 26,881,202 3,589,263 13.4 % 30,427,254 3,749,363 12.3 % Commercial Resale 6,990,285 4,802,548 68.7 % 11,518,168 6,465,386 56.1 % Recycled 2,394,784 1,342,471 56.1 % 3,252,264 1,640,908 50.5 % Subtotal 9,385,069 6,145,019 65.5 % 14,770,432 8,106,294 54.9 % $ 36,266,271 $ 9,734,282 26.8 % $ 45,197,686 $ 11,855,657 26.2 % The following disaggregation of total revenue is listed by sales category and segment for the nine months ended September 30, 2023 and 2022: CONSOLIDATED Nine Months Ended September 30, 2023 2022 Revenues Gross Profit Margin Revenues Gross Profit Margin Consumer Resale $ 94,172,640 $ 9,450,156 10 .0 % $ 90,014,891 $ 10,713,959 11.9 % Recycled 9,054,393 2,218,717 24.5 % 6,534,362 1,447,450 22.2 % Subtotal 103,227,033 11,668,873 11.3 % 96,549,253 12,161,409 12.6 % Commercial Resale 23,114,611 15,653,011 67.7 % 30,200,026 16,606,161 55 .0 % Recycled 8,617,194 4,584,347 53.2 % 8,503,223 4,277,121 50.3 % Subtotal 31,731,805 20,237,358 63.8 % 38,703,249 20,883,282 54 .0 % $ 134,958,838 $ 31,906,231 23.6 % $ 135,252,502 $ 33,044,691 24.4 % For the consumer segment, revenue for monetary transactions (i.e., cash and receivables) with wholesale dealers and the retail public are recognized when the merchandise is delivered, and payment has been made either by immediate payment or through a receivable obligation at one of our over-the-counter retail stores. Revenue is recognized upon the shipment of goods when retail and wholesale customers have fulfilled their obligation to pay, or promise to pay, through e-commerce or phone sales. Shipping and handling costs are accounted for as fulfillment costs after the customer obtains control of the goods. Crafted-precious-metal items at the end of their useful lives are sold for its precious metal contained. The metal is assayed to determine the precious metal content, a price is agreed upon and payment is made usually within two days. Revenue is recognized from the sale once the performance obligation is satisfied. 17 Table of Contents In limited circumstances, merchandise is exchanged for similar merchandise and/or monetary consideration with both dealers and retail customers, for which revenue is recognized in accordance with ASC 845, Nonmonetary Transactions. When merchandise is exchanged for similar merchandise and there is no monetary component to the exchange, there is no revenue recognized. Instead, the basis of the merchandise relinquished becomes the basis of the merchandise received, less any indicated impairment of value of the merchandise relinquished. When merchandise is exchanged for similar merchandise and there is a monetary component to the exchange, revenue is recognized to the extent of the monetary assets received that determines the cost of sale based on the ratio of monetary assets received to monetary and non-monetary assets received multiplied by the cost of the assets surrendered. The Company offers the option of third-party financing for customers wishing to borrow money for the purchase. The customer applies on-line with the third party and upon going through the credit check will be approved or denied. If accepted, the customer is allowed to purchase according to the limits set by the finance company. Revenue is recognized from the sale upon the promise of the financing company to pay. Our return policy covers retail transactions. In some cases, customers may return a product purchased within 30 days of the receipt of the items for a full refund. Also, in some cases customers may cancel the sale within 30 days of making a commitment to purchase the items. Additionally, a customer may return an item for full refund if they can demonstrate that the item is not authentic, or there was an error in the description of the piece. Returns are accounted for as a reversal of the original transaction, with the effect of reducing revenues, and cost of sales, and returning the merchandise to inventory. The consumer segment has established an allowance for estimated returns based on our review of historical returns experience and reduces our reported revenues and cost of sales accordingly. For the three and nine months ended September 30, 2023 and 2022, the allowance for returns remained the same at approximately $ 28,000 . A significant amount of revenue stems from sales to two precious metal refining and bullion partners. One partner constitutes 27.2 % and 25.3 % of the revenues for the three and nine months ended September 30, 2023, respectively. The second partner constitutes 11 % and 9.9 % of the revenues for the three and nine months ended September 30, 2023, respectively. However, the Company believes that the products it sells are marketable to numerous sources at competitive prices. The commercial segment has several revenue streams and recognizes revenue according to ASC 606 at an amount that reflects the consideration to which the entities expect to be entitled in exchange for transferring goods or services to the customer. The revenue streams are as follows: Outright sales are recorded when product is shipped and title transferred. Once the price is established and the terms are agreed to and the product is shipped and title is transferred, the revenue is recognized. The commercial segment has fulfilled its performance obligation with an agreed upon transaction price, payment terms and shipping the product. We recognize refining revenue when our inventory arrives at the destination port and the performance obligation is satisfied by transferring control of the promised goods that are identified in the customer contract. The initial invoice is recognized in full when our performance obligation is satisfied, as stated in the first sentence. Under the guidance of ASC 606, an estimate of the variable consideration that is expected to be entitled is included in the transaction price stated at the current precious metal spot price and weight of the precious metal. An adjustment to revenue is made in the period once the underlying weight and any precious metal spot price movement is resolved, which is usually around six (6) weeks. Any adjustment from the resolution of the underlying uncertainty is netted with the settlement due from the original contract. The commercial segment also provides recycling services according to a Scope of Work (“SOW”). Services are recognized based on the number of units processed by a preset price per unit. Activity reports are produced weekly with the counts and revenue is recognized based on the billing from the weekly reports. Recycling services can be conducted at our facility, or they can be performed at the client’s facility. The SOW will determine the charges and whether the service will be completed at our facility or at the client’s facility. Payment terms are also dictated in the SOW. 18 Table of Contents Accounts Receivable : We record trade receivables when revenue is recognized. The new accounting standard introduces a new expected credit losses methodology for estimating allowances for credit losses which is based on expected losses rather than incurred losses. We are required to use a forward-looking expected credit loss methodology for accounts receivable. This new methodology is effective for the fiscal years beginning January 1, 2023. We will record an allowance for doubtful accounts, which is primarily determined by an analysis of our trade receivables aging, using the new expected losses methodology. The allowance is determined based on historical experience of collecting past due amounts, based on the degree of their aging. In addition, specific accounts that are considered and expected to be uncollectable are included in the allowance. These provisions are reviewed to determine the adequacy of the allowance for doubtful accounts. Trade receivables are charged off when there is certainty as to their being uncollectible. Trade receivables are considered delinquent when payment has not been made within contract terms. The consumer segment had no allowance for doubtful accounts balance as of September 30, 2023 and December 31, 2022. Some of the commercial segment’s customers are on payment terms, and although low risk, occasionally the need may arise to record an allowance for receivables that are deemed high risk using the new expected loss methodology. The commercial segment’s allowance for doubtful accounts, as of September 30, 2023 and December 31, 2022 was $ 207,462 and $ 51,734 , respectively. The increase in allowance for doubtful accounts ending September 30, 2023, as compared to December 31, 2022 is primarily due to the new forward looking methodology of estimating future expected losses. Income Taxes : Income taxes are accounted for under the asset and liability method prescribed by ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not such assets will be realized. During fiscal 2022, management determined that it was more likely than not that the deferred tax assets could be utilized in the future. As of September 30, 2023, the Company had a deferred tax asset of $ 102,607 with $ 0 offsetting valuation allowance. As of December 31, 2022, the Company had a deferred tax asset of $ 1,488,258 with an offsetting valuation allowance of $ 0 . We account for our position in tax uncertainties in accordance with ASC 740, Income Taxes. The guidance establishes standards for accounting for uncertainty in income taxes. The guidance provides several clarifications related to uncertain tax positions. Most notably, a “more likely-than-not” standard for initial recognition of tax positions, a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization. The guidance applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements. First, we must determine whether any amount of the tax benefit may be recognized. Second, we determine how much of the tax benefit should be recognized (this would only apply to tax positions that qualify for recognition.) We have not taken a tax position that, if challenged, would have a material effect on the financial statements or the effective tax rate for the three and nine months ended September 30, 2023 and 2022. NOTE 11 — LEASES In determining our right-of-use assets and lease liabilities, we apply a discount rate to the minimum lease payments within each lease agreement. ASC 842 requires us to use the interest rate that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. If we cannot readily determine the discount rate implicit in lease agreements, we utilize our incremental borrowing rate. For leases one-year or shorter, lessees can elect not to record lease liabilities and right-of use assets and instead recognize the expense associated with the lease payments using the straight-line basis. 19 Table of Contents The Company has nine operating leases as of September 30, 2023—five in DFW, two in Mt. Pleasant, South Carolina and two in Chandler, Arizona. The leases for the consumer segment are: 1) the flagship store located at 13022 Preston Road, Dallas, Texas expiring on January 31, 2027, with an option to extend the lease for an additional five years, at the prevailing market rate for comparable space in comparable buildings in the vicinity; 2) the Grand Prairie, Texas lease expiring June 30, 2027, with an option to extend the lease for an additional five years; 3) the two leases for the Mt. Pleasant, South Carolina location expiring on April 30, 2025, with no additional renewal options; and 4) the lease for the Euless, Texas location expiring June 30, 2025, with an option to extend the lease for an additional five years. The leases for the commercial segment are: 1) the Echo location on W. Belt Line Road, in Carrollton, Texas, expiring January 31, 2026, with an option to extend the lease an additional five years: 2) the lease for the Teladvance location, which also houses ITAD USA and CEX, on Realty Road in Carrollton, Texas expires January 31, 2027, with no additional renewal options; and 3) the two leases for the Avail location in Chandler, Arizona expiring on May 31, 2025, with no additional renewal options. All of the Company’s nine leases as of September 30, 2023 are triple net, for which it pays its proportionate share of common area maintenance, property taxes and property insurance. Leasing costs for the three months ended September 30, 2023 and 2022 were $ 686,354 and $ 655,669 respectively, comprised of a combination of minimum lease payments and variable lease costs. Leasing costs for the nine months ended September 30, 2023 and 2022 were $ 2,048,238 and $ 1,938,392 , respectively, comprised of a combination of minimum lease payments and variable lease costs. As of September 30, 2023, the weighted average remaining lease term and weighted average discount rate for operating leases were 2.3 years and 4.4 %, respectively. For the three months ended September 30, 2023 and 2022, the Company’s cash paid for operating lease liabilities was $ 680,019 and $ 654,471 respectively. For the nine months ended September 30, 2023 and 2022, the Company’s cash paid for operating lease liabilities was $ 2,042,911 and $ 1,934,791 , respectively. Future annual minimum lease payments as of September 30, 2023: Operating Leases Consumer 2023 (excluding the nine months ending September 30, 2023) 136,357 2024 552,414 2025 434,274 2026 355,000 2027 and thereafter 50,115 Total minimum lease payments 1,528,160 Less imputed interest ( 94,155 ) Consumer Sub-Total 1,434,005 Commercial 2023 (excluding the nine months ending September 30, 2023) 339,765 2024 1,396,129 2025 1,321,297 2026 474,326 2027 and thereafter 33,455 Total minimum lease payments 3,564,972 Less imputed interest ( 201,036 ) Commercial Sub-Total 3,363,936 Total 4,797,941 Current portion 1,775,883 $ 3,022,058 20 Table of Contents NOTE 12 — BASIC AND DILUTED AVERAGE SHARES A reconciliation of basic and diluted weighted average common shares for the three months ended September 30, 2023 and 2022 is as follows: For the Three Months Ended September 30, 2023 2022 Basic weighted average shares 26,809,778 26,924,631 Effect of potential dilutive securities 15,000 15,000 Diluted weighted average shares 26,824,778 26,939,631 For the three months ended September 30, 2023 and 2022, there was a total of 15,000 common stock options, warrants, and Restricted Stock Units (RSUs) unexercised. For the three months ended September 30, 2023 and 2022, there were no anti-dilutive shares. A reconciliation of basic and diluted weighted average common shares for the nine months ended September 30, 2023 and 2022 is as follows: For the Nine Months Ended September 30, 2023 2022 Basic weighted average shares 26,884,221 26,924,631 Effect of potential dilutive securities 15,000 15,000 Diluted weighted average shares 26,899,221 26,939,631 For the nine months ended September 30, 2023 and 2022, there was a total of 15,000 common stock options, warrants, and Restricted Stock Units (RSUs) unexercised. For the nine months ended September 30, 2023 and 2022, there were no anti-dilutive shares. 21 Table of Contents On March 14, 2023, a stock repurchase program was unanimously approved by the Company’s Board of Directors (the “Board”), that gave management authorization to purchase up to one million ( 1,000,000 ) shares of the Company’s stock, at a per-share price not to exceed $ 9 , on the open market. The plan expires on March 31, 2026. The following lists the repurchase of Company shares as of September 30, 2023: Shares available Total Number of Average Price Total to purchase Fiscal Period Shares Purchased Paid per Share Price Paid $ under the plan Beginning Balance 1,000,000 May 1 - 31, 2023 17,029 6.73 114,621 982,971 June 1 - 30, 2023 10,392 7.72 80,199 972,579 July 1 - 31, 2023 - - - 972,579 August 1 - 31, 2023 197,210 5.70 1,123,531 775,369 September 1 - 30, 2023 - - - 775,369 Total 224,631 $ 5.87 $ 1,318,351 775,369 NOTE 13 — LONG-TERM DEBT Long-term debt consists of the following: Outstanding Balance September 30, December 31, Current 2023 2022 Interest Rate Maturity Consumer Note payable, Farmers Bank (1) $ 2,589,824 $ 2,668,527 3.10 % November 15, 2026 Note payable, Truist Bank (2) 847,573 874,418 3.65 % July 9, 2030 Note payable, Texas Bank & Trust (3) 442,387 456,187 3.75 % September 14, 2025 Note payable, Texas Bank & Trust (4) 1,643,453 1,691,020 3.75 % July 30, 2031 Note payable, Kretchmer (5) 200,000 - 0.00 % October 1, 2025 Consumer Sub-Total 5,723,237 5,690,152 Commercial Note payable, Farmers Bank (1) 5,875,998 6,054,565 3.10 % November 15, 2026 Line of Credit (6) - - 3.10 % November 15, 2024 Avail Transaction note (7) 1,000,000 1,500,000 0.00 % April 1, 2025 Commercial Sub-Total 6,875,998 7,554,565 Corporate Note payable, Texas Bank & Trust (8) 2,647,312 2,732,688 3.25 % Novemeber 4, 2025 Sub-Total 15,246,547 15,977,405 Current portion 1,331,586 1,250,702 $ 13,914,961 $ 14,726,703 (1) On November 23, 2021, Farmers State Bank of Oakley, Kansas (“FSB”) refinanced prior related party notes held by the consumer segment and the commercial segment. The commercial segment note was refinanced with a remaining and outstanding balance of $ 6,309,962 . The note is a five-year promissory note amortized over 20 years at 3.1 % annual interest rate. The note has monthly principal and interest payments of $ 35,292 . The consumer segment note was refinanced with a remaining and outstanding balance of $ 2,781,087 , is a five-year promissory note amortized over 20 years at 3.1 % annual interest rate. The note has monthly principal and interest payments of $ 15,555 . 22 Table of Contents (2) On July 9, 2020, the consumer segment closed the purchase of a retail building located at 610 E. Round Grove Road in Lewisville, Texas for $ 1.195 million. The purchase was partly financed through a $ 956,000 , ten-year loan, bearing an annual interest rate of 3.65 %, amortized over 20 years, payable to Truist Bank (f/k/a BB&T Bank). The note has monthly interest and principal payments of $ 5,645 . (3) On September 14, 2020, the consumer segment closed on the purchase of a retail building located at 1106 W. Northwest Highway in Grapevine, Texas for $ 620,000 . The purchase was partly financed through a $ 496,000 , five-year loan, bearing an annual interest rate of 3.75 %, amortized over 20 years, payable to Texas Bank & Trust. The note has monthly interest and principal payments of $ 2,941 . (4) On July 30, 2021, the consumer segment closed the purchase of a new retail building located at 9166 Gaylord Parkway in Frisco, Texas for $ 2,215,500 . The purchase was partly financed through a $ 1,772,000 , five-year loan (the “TB&T Frisco Loan”), bearing an annual interest rate of 3.75 %, amortized over 20 years, payable to Texas Bank and Trust. The note has monthly interest and principal payments of $ 10,509 . (5) On September 12, 2023, the consumer segment entered into the Kretchmer Transaction to purchase all of the issued and outstanding common stock for $ 300,000 . The purchase was facilitated by an initial payment of $100,000 at closing, and the remaining $200,000 to be paid out by 8 quarterly payments starting January 1, 2024, of $25,000 each. The installment note payable for the Kretchmer Transaction is imputed at 3.1% . (6) On November 23, 2021, the Company secured a 36-month line of credit from FSB for $ 3,500,000 at 3.1 % annual interest rate. As of September 30, 2023 and December 31, 2022, the outstanding balance of the line of credit was $ 0 . (7) On October 29, 2021, the commercial segment entered into the Avail Transaction to purchase all of the assets, liabilities and rights and interests of Avail AZ, for $ 4.5 million. The purchase was facilitated by an initial payment of $2.5 million at closing, and the remaining $2.0 million to be paid out by 12 quarterly payments starting April 1, 2022, of $166,667 each. The installment note payable for the Avail Transaction is imputed at 3.1% (8) On November 4, 2020, 1901 Gateway Holdings, LLC, a wholly owned subsidiary of Envela Corporation, closed on the purchase of its corporate office building located at 1901 Gateway Drive, Irving, Texas for $ 3.521 million. The building was partially financed through a $ 2.96 million, five-year loan, bearing an interest rate of 3.25 %, amortized over 20 years, payable to Texas Bank & Trust. The note has monthly interest and principal payments of $ 16,792 . 23 Table of Contents Future scheduled principal payments of our notes payable as of September 30, 2023 are as follows: Note payable, Texas Bank & Trust Year Ending December 31, Amount 2023 (excluding the nine months ended September 30, 2023) $ 16,043 2024 66,218 2025 75,213 2026 78,734 2027 80,711 Thereafter 1,326,534 Subtotal $ 1,643,453 Note payable, Kretchmer Year Ending December 31, Amount 2023 (excluding the nine months ended September 30, 2023) $ - 2024 100,000 2025 100,000 Subtotal $ 200,000 COMMERCIAL SEGMENT Note payable, Farmers Bank Year Ending December 31, Amount 2023 (excluding the nine months ended September 30, 2023) $ 60,619 2024 246,725 2025 254,482 2026 5,314,172 Subtotal $ 5,875,998 Note payable, Avail Transaction Year Ending December 31, Amount 2023 (excluding the nine months ended September 30, 2023) $ 166,667 2024 666,667 2025 166,666 Subtotal $ 1,000,000 25 Table of Contents CORPORATE Note payable, Texas Bank & Trust - Envela Year Ending December 31, Amount 2023 (excluding the nine months ended September 30, 2023) $ 28,532 2024 116,517 2025 2,502,263 Subtotal $ 2,647,312 $ 15,246,547 Future scheduled aggregate amount of principal payments and maturities of our notes payable as of September 30, 2023 are as follows: Scheduled Principal Loan Scheduled Principal Payments and Maturities by Year: Payments Maturities Total 2023 (excluding the nine months ended September 30, 2023) 312,423 - 312,423 2024 1,361,421 - 1,361,421 2025 872,393 2,795,617 3,668,010 2026 464,890 7,310,424 7,775,314 2027 122,792 - 122,792 Thereafter 428,239 1,578,348 2,006,587 Total $ 3,562,158 $ 11,684,389 $ 15,246,547 NOTE 14 — STOCK-BASED COMPENSATION The Company accounts for share-based compensation by measuring the cost of employee services received in exchange for an award of equity instruments, including grants of stock options, based on the fair value of the award at the date of grant. In addition, to the extent that the Company receives an excess tax benefit upon exercise of an award, such benefit is reflected as cash flow from financing activities in the consolidated statement of cash flows. There was no stock-based compensation expense for the three and nine months ended September 30, 2023 and 2022. 26 Table of Contents NOTE 15 — RELATED PARTY TRANSACTIONS The Company has a corporate policy governing the identification, review, consideration and approval or ratification of transactions with related persons, as that term is defined in the Instructions to Item 404(a) of Regulation S-K, promulgated under the Securities Act (“Related Party”). Under this policy, all Related Party transactions are identified and approved prior to consummation of the transaction to ensure they are consistent with the Company’s best interests and the best interests of its shareholders. Among other factors, the Company’s Board considers the size and duration of the transaction, the nature and interest of the of the Related Party in the transaction, whether the transaction may involve a conflict of interest and if the transaction is on terms that are at least as favorable to the Company as would be available in a comparable transaction with an unaffiliated third party. Envela’s Board reviews all Related Party transactions at least annually to determine if it is in the Board’s best interests and the best interests of the Company’s shareholders to continue, modify, or terminate any of the Related Party transactions. Envela’s Related Person Transaction Policy is available for review in its entirety under the “Investors” menu of the Company’s corporate relations website at www.envela.com. NOTE 16 — CONTINGENCIES Inflation continues to adversely affect global economic business conditions. Future sales on products like ours could decline or fluctuate due to increased or fluctuating commodities prices, particularly gold. The Federal Reserve has continued raising interest rates to combat inflation and restore price stability and it is expected that rates will continue to rise at a slower and more deliberate pace through fiscal 2023. Although we are continuing to monitor and assess the economic effects of inflation, the ultimate impact is highly uncertain and subject to change. In addition, the economic effects of the foregoing are subject to, among other things, the effect of government responses on our operations. The global tension caused by the conflicts between Russia and Ukraine and within the Middle East has upset the stability within the region of the former Soviet era block and the whole of the Middle East. This could lead to further volatility in global energy and other industries that could negatively impact our operations. The U.S. government has imposed sanctions and export controls against Russia and Russian interests and threatened additional sanctions and controls, which have impacted global supply chains. The impact of these measures, as well as other measures taken, as it concerns our operations is currently unknown. 27 Table of Contents