Envela Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless the context indicates otherwise for one of our specific operating segments, references to “we,” “us,” “our,” “the ”Company” and “Envela” refer to the consolidated business operations of Envela Corporation, and all of its direct and indirect subsidiaries. Forward-Looking Statements This Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (this “Form 10-Q”), including but not limited to: (i) the section of this Form 10-Q entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” (ii) information concerning our business prospects or future financial performance, anticipated revenues, expenses, profitability or other financial items; and (iii) our strategies, plans and objectives, together with other statements that are not historical facts, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,” “will,” “would,” “expect,” “intend,” “could,” “estimate,” “should,” “anticipate” or “believe.” We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements other than statements of historical information provided herein are forward-looking based on current expectations regarding important risk factors. Many of these risks and uncertainties are beyond our ability to control, and, in many cases, we cannot predict all of the risks and uncertainties that could cause our actual results to differ materially from those expressed in the forward-looking statements. Actual results could differ materially from those expressed in the forward-looking statements, and readers should not regard those statements as a representation by us or any other person that the results expressed in the statements will be achieved. Important risk factors that could cause results or events to differ from current expectations are described under the section entitled “Risk Factors” in the Company’s 2022 Annual Report and any material updates are described under the section of this Form 10-Q entitled “Risk Factors” and elsewhere in this Form 10-Q. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the operations, performance, development and results of our business. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date thereon, including without limitation, changes in our business strategy or planned capital expenditures, or store growth plans, or to reflect the occurrence of unanticipated events. Envela Overview The Company operates through two recommerce business segments represented by customer designations. The consumer segment, formerly known as the DGSE segment, focuses on the recommercialization of luxury hard assets, and the commercial segment formerly known as the ECHG segment, focuses on the recommercialization of business IT equipment and electronic devices. Through the consumer segment, the Company recommercializes luxury hard assets and operates the Dallas Gold and Silver Exchange, Charleston Gold & Diamond Exchange, Kretchmer and Bullion Express brands. Through the commercial segment, the Company recommercializes business IT equipment and electronic devices and operates Echo, ITAD USA, Teladvance, CEX and Avail. Echo focuses on end-of-life electronics recycling and sustainability, ITAD USA provides IT equipment disposition, including compliance and data sanitization services, and Teladvance, CEX and Avail operate as value-added resellers by providing offerings and services to companies looking either to upgrade capabilities or dispose of equipment. In addition to its operations through the consumer and commercial segments, Envela also leases unused space at its Company headquarters in Irving, Texas to third-party tenants. 28 Table of Contents Consumer Segment Business Overview The consumer segment is headquartered in Dallas, Texas and focuses on sustainable, authenticated recommerce of luxury hard assets, including diamonds. Its retail strategy is anchored in being an information resource for clients, bringing transparency to purchase and sale transactions, and offering value and liquidity to those seeking to buy, sell or trade jewelry, fine watches, diamonds, rare coins and currency as well as other valuables. The Company wholesales and retails these items through its Charleston Gold & Diamond Exchange and Dallas Gold & Silver Exchange operations. Dallas Gold & Silver Exchange and Charleston Gold & Diamond Exchange have specialized in buying and selling jewelry for almost 50 years, making our expert staff among the best in the business. Dallas Gold & Silver Exchange also maintains a number of related operations, on-site jewelry and watch repair and restoration at its Dallas flagship location, and design of custom bridal and fashion jewelry. In addition, it also has a precious-metal bullion-trading operation that buys and sells all forms of gold, silver, platinum and palladium products, including United States and other government-issue coins, private-mint medallions, art bars and trade unit bars. For additional information regarding the consumer segment, see “Item 1. Business – How We Organize Our Business – Direct-To-Consumer.” in the Company’s 2022 Annual Report. Consumer Segment Recommerce Activities The Company operates a sustainable marketplace for preowned luxury goods. We buy and sell coins, diamonds, jewelry, and related accessories and other merchandise. Our ability to offer quality pre-owned goods at prices significantly lower than original retail prices attracts value-conscious customers. The consumer segment depends on purchasing products and materials from secondary markets. We are reliant on our ability to obtain an adequate supply of products and material at prices or other terms acceptable to us. The gross profit on sales of inventory depends primarily on our assessment of the purchase value at the time the property is purchased and our ability to sell that merchandise in a timely manner. Consumer Segment Precious Metals Pricing and Business Impact We are exposed to various market risks. Market risk is the potential loss arising from the adverse changes in market prices and rates. The nature of the consumer operations results in exposure to fluctuations in commodity prices, specifically diamonds, platinum, gold and silver. We do not currently use derivatives to hedge these risks. As a significant portion of our inventory and sales involve gold and jewelry, our results can be influenced by the market price of gold and diamonds. Our retail sales and gross margin could be materially impacted if prices of diamonds, platinum, gold, or silver rise so significantly that our consumers’ behavior changes or if price increases cannot be passed onto our customers. 29 Table of Contents Because the consumer segment buys and resells precious metals, it is impacted by fluctuations and changes in precious-metal pricing which rises and falls based upon global supply and demand dynamics, with the greatest impact on us relating to gold as it represents a significant portion of the precious-metal in which we trade. Such fluctuations, particularly with respect to gold, which accounts for a majority of our merchandise costs, can have a significant impact on its earnings and cash availability. We continue to monitor the economic impact on our operations from surging inflation and the conflicts in Ukraine and the Middle East. Uncertainties exist that could affect our operations or cash flows in the future, such as continued inflationary environmental changes (including, but not limited to, labor, materials, and advertising costs). The Company’s ability to recruit and retain qualified team members, organized retail crime, or the consumers’ ability to spend on discretionary categories. Consumer Segment Growth and Expansion Our continued strategy will be to expand the number of locations we operate through opening new (“de novo”) locations in both current markets within DFW and South Carolina. On May 4, 2023, the Company closed on a building, in Phoenix, Arizona, for $1,231,150 and continues to prepare the building to house our next retail location. We continue to search for other locations to expand. Our ability to add new stores is dependent on several variables, such as projected achievement of internal investment hurdles, the availability of acceptable sites, the regulatory environment, local zoning ordinances, access to capital and the availability of qualified personnel. We see opportunity for further expansion through de novo openings in the United States. The Company expects capital expenditures over the next twelve months including the potential purchase of additional properties. On September 12, 2023, the Company purchased all of the issued and outstanding stock of Kretchmer. 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. Commercial Segment Business Overview The commercial segment operates Echo, ITAD USA, Teladvance, CEX and Avail, through which it primarily buys and resells or recycles electronic components and IT equipment. Echo focuses on end-of-life electronics recycling and also offers disposal transportation and product tracking, ITAD USA provides IT equipment disposition including compliance and data sanitization services and Teladvance, CEX and Avail operates as value-added resellers by providing offerings and services to companies looking to either upgrade capabilities or dispose of equipment. In addition, as a result of the CExchange Transaction, Teladvance offers its customers the ability to further offer their customers the ability to upgrade their old phones through a trade-in program supported by Teladvance. Like the consumer segment, the commercial segment also maintains relationships with refiners for which it sells extracted valuable materials from electronics and IT equipment deemed unsuitable for retail or wholesale customers. Commercial Segment Recommerce Activities A portion of the commercial business depends on obtaining products and material from secondary markets and is reliant on its ability to obtain an adequate supply of products and material at prices and other items acceptable to it. Although we believe that the long-term prospects for the industry remain bright, but because we do not have unlimited backlogs, our business can be promptly affected by short-term market fluctuations and supply limitations. 30 Table of Contents Commercial Segment Metals Pricing and Business Impact The commercial recycling business is affected by precious and other non-ferrous metal prices, which fluctuate based upon global supply-and-demand dynamics, among other things, with the greatest impact relating to gold. As discussed below, we have seen a recent decrease of recycled items, which we believe is primarily due to the supply chain problems downstream with our customers. Commercial Segment Growth and Expansion The commercial strategy is to expand both organically and through acquisitions. As an organization, we strive to deliver value through organic growth, high customer loyalty and retention as well as strategic acquisitions. We are committed to continuous innovation. Many of our clients have made commitments to going carbon neutral over the next few years and we see the potential to further expand key relationships as we partner with them in more ways to help them achieve their goal. With an emphasis on increasing recurring revenues and expanding our margins, commercially we believe our organic strategy will ultimately drive strong financial performance, including cash flow to support our acquisition strategy. Commercial’s business strategy has always included pursuing synergistic acquisitions, and we plan to continue to expand the business by making strategic acquisitions and regularly seeking suitable acquisition targets to enhance its growth. For additional information regarding the commercial segment, see “Item 1. Business—How We Organize Our Business—Commercial Services.” in the Company’s 2022 Annual Report. Economic Conditions Surging inflation, supply chain disruptions and the wars in Ukraine and the Middle East have affected the recommerce business in unpredictable ways. There have been fewer customers raising money by selling items. For more information, see Note 16 to these interim condensed consolidated financial statements. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP principles. The preparation of these financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. While our significant accounting policies are more fully described in “Note 1 — Accounting Policies and Nature of Operations” in the Company’s 2022 Annual Report, we believe that the accounting estimates discussed below relate to the more significant areas involving management’s judgments and estimates. Inventories The consumer segment inventory is valued at the lower of cost or net realizable value (“NRV”). We acquire a majority of our inventory from individual customers, including pre-owned jewelry, watches, bullion, rare coins and monetary collectibles. We acquire these items based on our own internal estimate of the fair value of the items at the time of purchase. We consider factors such as the current spot market price of precious metals and current market demand for the items being purchased. The consumer segment supplements these purchases from individual customers with inventory purchased from wholesale vendors. These wholesale purchases can take the form of full asset purchases, or consigned inventory. Consigned inventory is accounted for on our balance sheet with a fully offsetting contra account so that consigned inventory has a net zero balance. The majority of our inventory has some component of its value that is based on the spot market price of precious metals. Because the overall market value for precious metals regularly fluctuates, these fluctuations could have either a positive or negative impact on the value of our inventory and could positively or negatively impact our profitability. We monitor these fluctuations to evaluate any necessary impairment to inventory. 31 Table of Contents The Echo inventory principally includes processed and unprocessed electronic scrap materials. The value of the material is derived from recycling the precious and other scrap metals included in the scrap. The processed and unprocessed materials are carried at the lower of the average cost of the material during the month of purchase or NRV. The in-transit material is carried at lower of cost or NRV using the retail method. Under the retail method the valuation of the inventory at cost and the resulting gross margins are calculated by applying a cost to retail ratio to the retail value of the inventory. For the three and nine months ended September 30, 2023, we have not identified critical accounting estimates that involve a significant level of estimation uncertainty and would have a material impact on our results. For additional information, refer to Note 3 to these interim condensed consolidated financial statements, where our significant accounting policies are more fully described. Recent Accounting Pronouncements See Note 3- Accounting Policies and Estimates, to these interim condensed consolidated financial statements for recently adopted accounting pronouncements. Use of Non-U.S. GAAP Financial Measures In this management’s 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. GAAP. We believe that providing these non-U.S. GAAP financial measures adds a meaningful presentation of our operating and financial performance. See the reconciliation of net income to EBITDA (defined below), in Non-U.S. GAAP Financial Measures below. Non-U.S. GAAP Financial Measures EBITDA is a key performance measure that our management uses to assess our operating performance. Because EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure as an overall assessment of our performance, to evaluate the effectiveness of our business strategies and for business planning purposes. EBITDA may not be comparable to similarly titled metrics of other companies. EBITDA means earnings before interest expense, other (income) expense, net, income tax expense, and depreciation and amortization. EBITDA is a non-U.S. GAAP measure and should not be considered as an alternative to the presentation of net income or any other measure of financial performance calculated and presented in accordance with U.S. GAAP. The following table provides a reconciliation of net income to EBITDA for the three months ending September 30, 2023 and 2022: For the three months ended September 30, 2023 2022 Consumer Commercial Consolidated Consumer Commercial Consolidated EBITDA Reconciliation: Net Income $ 767,376 $ 940,117 $ 1,707,493 $ 1,201,848 $ 2,115,861 $ 3,317,709 Add (deduct): Depreciation and amortization 75,842 261,871 337,713 103,022 431,942 534,964 Other income (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 tax expense 120,637 197,330 317,967 20,243 43,818 64,061 EBITDA $ 1,000,635 $ 1,287,267 $ 2,287,902 $ 1,379,775 $ 2,613,797 $ 3,993,572 32 Table of Contents The following table provides a reconciliation of net income to EBITDA for the nine months ending September 30, 2023 and 2022: For the nine months ended June 30, 2023 2022 Consumer Commercial Consolidated Consumer Commercial Consolidated EBITDA Reconciliation: Net Income $ 3,072,567 $ 2,764,952 $ 5,837,519 $ 4,844,572 $ 4,968,220 $ 9,812,792 Add (deduct): Depreciation and amortization 253,385 774,853 1,028,238 311,419 795,008 1,106,427 Other income (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 tax expense 778,150 756,037 1,534,187 48,811 95,794 144,605 EBITDA $ 4,211,245 $ 3,980,749 $ 8,191,994 $ 5,358,355 $ 5,978,547 $ 11,336,902 Results of Operations 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 % Comparison of three months ended September 30, 2023 and 2022 Resale Revenue Three Months Ended September 30, Change 2023 2022 Amount % Resale Revenue Consolidated $ 30,797,325 $ 39,690,900 $ (8,893,575 ) -22 % Consumer $ 23,807,040 $ 28,172,732 $ (4,365,692 ) -15 % Commercial $ 6,990,285 11,518,168 $ (4,527,883 ) -39 % 33 Table of Contents Resale revenue decreased by $8,893,575, or 22%, during the three months ended September 30, 2023 to $30,797,325, as compared to $39,690,900 during the same period in 2022. The individual segments reported the following: Resale revenue related to the consumer segment decreased by $4,365,692, or 15%, during the three months ended September 30, 2023, to $23,807,040, as compared to $28,172,732 during the same period in 2022. Resale revenue decreased for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, primarily due to a reduction in gold and silver bullion ounces sold, partially offset by higher average selling prices of gold and silver. Resale revenue related to the commercial segment decreased by $4,527,883, or 39%, during the three months ended September 30, 2023, to $6,990,285, as compared to $11,518,168 during the same period in 2022. Resale revenue decreased for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, primarily due to a post pandemic normalization of product from cable operator clients and a decrease in reusable photovoltaic modules. Recycled Revenue Three Months Ended September 30, Change 2023 2022 Amount % Recycled Revenue Consolidated $ 5,468,946 $ 5,506,786 $ (37,840 ) -0.01 % Consumer $ 3,074,162 2,254,522 $ 819,640 36 % Commercial $ 2,394,784 3,252,264 $ (857,480 ) -26 % Recycled revenue decreased by $37,840, or 0.01%, during the three months ended September 30, 2023 to $5,468,946, as compared to $5,506,786 during the same period in 2022. The individual segments reported the following: Recycled revenue related to the consumer segment increased by $819,640, or 36%, during the three months ended September 30, 2023, to $3,074,162, as compared to $2,254,522 during the same period in 2022. The increase in recycled revenue for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, primarily due to an increase in over-the-counter purchases made directly from customers. The surge in transactions is believed to be largely driven by the ongoing inflationary pressures, which has led to a higher demand from individuals seeking funds for emergency situations, bills, or other financial responsibilities. Recycled revenue related to the commercial segment decreased by $857,480, or 26%, during the three months ended September 30, 2023, to $2,394,784, as compared to $3,252,264 during the same period in 2022. Recycled revenue decreased for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, primarily due to a post pandemic normalization of product from cable operator clients and a decrease in photovoltaic module recycling. Gross Profit - Resale Three Months Ended September 30, Change 2023 2022 Amount % Gross Profit - Resale Consolidated $ 7,593,938 $ 9,716,539 $ (2,122,601 ) -22 % Consumer $ 2,791,390 $ 3,251,153 $ (459,763 ) -14 % Commercial $ 4,802,548 6,465,386 $ (1,662,838 ) -26 % Resale gross profit decreased by $2,122,601, or 22%, during the three months ended September 30, 2023 to $7,593,938, as compared to $9,716,539 during the same period in 2022. The individual segments reported the following: 34 Table of Contents Resale gross profit related to the consumer operations for the three months ended September 30, 2023, decreased by $459,763, or 14%, to $2,791,390, as compared to resale gross profit of $3,251,153 during the same period in 2022. The decrease in resale gross profit was due primarily to a decrease in resale revenue. Resale gross profit related to the commercial operations for the three months ended September 30, 2023, decreased by $1,662,838, or 26%, to $4,802,548, as compared to resale gross profit of $6,465,386 during the same period in 2022. The decrease in resale gross profit was primarily due to the decrease in resale revenue during the three months ended September 30, 2023, as compared to the same period in 2022. Gross Profit - Recycled Three Months Ended September 30, Change 2023 2022 Amount % Gross Profit - Recycled Consolidated $ 2,140,344 $ 2,139,118 $ 1,226 0.06 % Consumer $ 797,873 498,210 $ 299,663 60 % Commercial $ 1,342,471 1,640,908 $ (298,437 ) -18 % Recycled gross profit increased by $1,226, or 0.06%, during the three months ended September 30, 2023 to $2,140,344, as compared to $2,139,118 during the same period in 2022. The individual segments reported the following: Recycled gross profit related to the consumer operations for the three months ended September 30, 2023, increased by $299,663, or 60%, to $797,873, as compared to gross profit of $498,210 during the same period in 2022. The increase in recycled gross profit was primarily due to the increase in recycled revenue of 36%, and the increase of gross profit percentage to 26% during the three months ended September 30, 2023 as compared to 22.1% during the three months ended September 30, 2022. Recycled gross profit related to the commercial operations for the three months ended September 30, 2023, decreased by $298,437, or 18%, to $1,342,471, as compared to gross profit of $1,640,908 during the same period in 2022. The decrease in recycled gross profit was due primarily to a 26% decrease in recycled revenue during the three months ended September 30, 2023, as compared to the same period in 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 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 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 35 Table of Contents Selling, General and Administrative Three Months Ended September 30, Change 2023 2022 Amount % Selling, General and Administrative Consolidated $ 7,446,380 $ 7,862,085 $ (415,705 ) -5 % Consumer $ 2,588,628 $ 2,369,588 $ 219,040 9 % Commercial $ 4,857,752 $ 5,492,497 $ (634,745 ) -12 % Selling, General and Administrative Expenses decreased by $415,705, or 5%, during the three months ended September 30, 2023 to $7,446,380, as compared to $7,862,085 during the same period in 2022. The individual segments reported the following: Selling, General and Administrative Expenses, for the consumer segment , for the three months ended September 30, 2023, increased by $219,040, or 9%, to $2,588,628, as compared to $2,369,558 during the same period in 2022. The increase was primarily due to increased expenses related to expanding our footprint into Arizona and other markets. Starting January 1, 2023, expenses previously classified as other expenses related to corporate campus overhead have been classified as operating expenses within the selling, general, and administrative expenses category. The corporate campus overhead for 2022 initially recorded as other expense has been restated here to be included in selling, general, and administrative expenses for comparison purposes. Selling, General and Administrative Expenses, for the commercial segment for the three months ended September 30, 2023, decreased by $634,745, or 12%, to $4,857,752, as compared to $5,492,497 during the same period in 2022. This decrease is primarily due to factors such as a decrease in wages and related costs, as well as the decrease in equipment supplies and rentals. Starting January 1, 2023, expenses previously classified as other expenses related to corporate campus overhead have been classified as operating expenses within the selling, general, and administrative expenses category. The corporate campus overhead for 2022 initially recorded as other expense has been restated here to be included in selling, general, and administrative expenses for comparison purposes. Depreciation and Amortization Three Months Ended September 30, Change 2023 2022 Amount % Depreciation and Amortization Consolidated $ 337,715 $ 534,964 $ (197,249 ) -37 % Consumer $ 75,843 $ 103,022 $ (27,179 ) -26 % Commercial $ 261,872 $ 431,942 $ (170,070 ) -39 % Depreciation and amortization decreased by $197,249, or 37%, during the three months ended September 30, 2023 to $337,715, as compared to $534,964 during the same period in 2022. The individual segments reported the following: Depreciation and amortization, for the consumer segment, for the three months ended September 30, 2023, decreased by $27,179, or 26%, to $75,843, as compared to $103,022 during the same period in 2022. The decrease was primarily due to some of the fixed assets and intangible assets being fully depreciated and fully amortized. Depreciation and amortization, for the commercial segment, for the three months ended September 30, 2023, decreased by $170,070, or 39%, to $261,872, as compared to $431,942 during the same period in 2022. The decrease was primarily due to the amortization of increased intangible assets identified from the Avail Transaction during the three months ended September 30, 2022, as compared to the three months ended September 30, 2023. The commercial segment needed to catch up with amortizing the intangible assets once they were identified. 36 Table of Contents Other Income Three Months Ended September 30, Change 2023 2022 Amount % Other Income Consolidated $ 192,436 $ 43,119 $ 149,317 346 % Consumer $ 22,851 $ 5,957 $ 16,894 284 % Commercial $ 169,585 $ 37,162 $ 132,423 356 % Other income increased by $149,317, or 346%, during the three months ended September 30, 2023 to $192,436, as compared to $43,119, during the same period in 2022. The individual segments reported the following: Other income, for the consumer segment, for the three months ended September 30, 2023, increased by $16,894, or 284%, to $22,851, as compared to $5,967 during the same period in 2022. The increase in other income for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022 was primarily due to an increase in interest earned from bank accounts of approximately $21,700. During December of fiscal 2022, the Company began to move excess working capital funds to savings accounts that paid higher interest rates. Starting January 1, 2023, expenses previously classified as other expenses related to corporate campus overhead have been classified as operating expenses within the selling, general, and administrative expenses category. The corporate campus overhead for 2022 initially recorded as other expense has been restated to be included in selling, general, and administrative expenses for comparison purposes. Other income, for the commercial segment, for the three months ended September 30, 2023, increased by $132,423, or 356%, as compared to $169,585, during the same period in 2022. The increase in other income for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, was primarily due to an increase in interest earned from bank accounts of approximately $140,274. During December of fiscal 2022, the Company began to move excess working capital funds to savings accounts that paid higher interest rates. Starting January 1, 2023, expenses previously classified as other expenses related to corporate campus overhead have been classified as operating expenses within the selling, general, and administrative expenses category. The corporate campus overhead for 2022 initially recorded as other expense has been restated to be included in selling, general, and administrative expenses for comparison purposes. Interest Expense Three Months Ended September 30, Change 2023 2022 Amount % Interest Expense Consolidated $ 117,166 $ 119,957 $ (2,791 ) -2 % Consumer $ 59,631 $ 60,619 $ (988 ) -2 % Commercial $ 57,535 $ 59,338 $ (1,803 ) -3 % Interest expense decreased by $2,791, or 2%, during the three months ended September 30, 2023 to $117,166, as compared to $119,957, during the same period in 2022. The individual segments reported the following: Interest expense, for the consumer segment, for the three months ended September 30, 2023, decreased by $988, or 2%, to $59,631, as compared to $60,619 during the same period in 2022. The decrease was primarily due to reduced loan balances during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. 37 Table of Contents Interest expense, for the commercial segment, for the three months ended September 30, 2023, decreased by $1,803, or 3%, to $57,535, as compared to $59,338 during the same period in 2022. The decrease was primarily due to reduced loan balances during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Income Tax Expense Three Months Ended September 30, Change 2023 2022 Amount % Income Tax Expense Consolidated $ 317,967 $ 64,061 $ 253,906 396 % Consumer $ 120,637 $ 20,243 $ 100,394 496 % Commercial $ 197,330 $ 43,818 $ 153,512 350 % Income tax expense, for both segments, for the three months ended September 30, 2023, was $317,967, an increase of $253,906, as compared to income tax expense of $64,061 for the three months ended September 30, 2022. Currently, the Company has a deferred tax asset reflecting net operating losses brought over from prior years. Through fiscal 2022, there was an off-setting valuation allowance associated with the deferred tax asset. The valuation allowance was written off as of December 31, 2022. Starting January 1, 2023, the Company has a federal tax rate of approximately 21%, in addition to other state and local taxes, on net income. The effective income tax rate was 18.6% and 1.9% for the three months ended September 30, 2023 and 2022, respectively. Differences between our effective income tax rate and the U.S. federal statutory rate are the result of state taxes, non-deductible expenses and changes in the valuation allowance in relation to the deferred tax asset for net operating loss carryforwards, as was the Company’s case for the increase for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. Net Income Three Months Ended September 30, Change 2023 2022 Amount % Net Income Consolidated $ 1,707,493 $ 3,317,709 $ (1,610,216 ) -49 % Consumer $ 767,376 $ 1,201,848 $ (434,472 ) -36 % Commercial $ 940,117 $ 2,115,861 $ (1,175,744 ) -56 % Net income decreased by $1,610,216, or 49%, during the three months ended September 30, 2023 to $1,707,493, as compared to $3,317,709, during the same period in 2022. The individual segments reported the following: Net income related to the consumer operations for the three months ended September 30, 2023, decreased by $434,472, or 36%, to $767,376, as compared to $1,201,848 during the same period in 2022. The decrease in net income was due primarily to increased income tax expense of $100,394, an increase in selling, general and administrative expenses of $219,040, and a decrease in gross profit of approximately $160,000, for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022. Net income related to the commercial operations for the three months ended September 30, 2023, decreased by $1,175,744, or 56%, to $940,117, as compared to $2,115,861 during the same period in 2022. The decrease in net income was due primarily to an increase in income tax expense of $153,512 and a decrease in gross profit for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022. 38 Table of Contents Earnings Per Share Three Months Ended September 30, Change 2023 2022 Amount % Earnings Per Share (Consolidated) $ 0.06 $ 0.12 $ (0.06 ) -50 % Earnings per share, for the three months ended September 30, 2023, for net income per basic and diluted shares attributable to holders of our Common Stock was $0.06, compared to $0.12 per basic and diluted shares attributable to holders of our Common Stock for the three months ended September 30, 2022. 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 % Comparison of nine months ended September 30, 2023 and 2022 Resale Revenue Nine Months Ended September 30, Change 2023 2022 Amount % Resale Revenue Consolidated $ 117,287,251 $ 120,214,917 $ (2,927,666 ) -2 % Consumer $ 94,172,640 $ 90,014,891 $ 4,157,749 5 % Commercial $ 23,114,611 $ 30,200,026 $ (7,085,415 ) -23 % Resale revenue decreased by $2,927,666, or 2%, during the nine months ended September 30, 2023 to $117,287,251, as compared to $120,214,917 during the same period in 2022. The individual segments reported the following: Resale revenue related to the consumer segment increased by $4,157,749, or 5%, during the nine months ended September 30, 2023, to $94,172,640, as compared to $90,014,891 during the same period in 2022. Resale revenue increased for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily due to an increase in gold and silver bullion ounces sold. 39 Table of Contents Resale revenue related to the commercial segment decreased by $7,085,415, or 23%, during the nine months ended September 30, 2023, to $23,114,611, as compared to $30,200,026 during the same period in 2022. Resale revenue decreased for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily due to a post pandemic normalization of product from cable operator clients and a decrease in reusable photovoltaic modules. Recycled Revenue Nine Months Ended September 30, Change 2023 2022 Amount % Recycled Revenue Consolidated $ 17,671,587 $ 15,037,585 $ 2,634,002 18 % Consumer $ 9,054,393 $ 6,534,362 $ 2,520,031 39 % Commercial $ 8,617,194 $ 8,503,223 $ 113,971 1 % Recycled revenue increased by $2,634,002, or 18%, during the nine months ended September 30, 2023, to $17,671,587, as compared to $15,037,585 during the same period in 2022. The individual segments reported the following: Recycled revenue related to the consumer segment increased by $2,520,031, or 39%, during the nine months ended September 30, 2023, to $9,054,393, as compared to $6,534,362 during the same period in 2022. The increase in recycled revenue for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily due to an increase in over-the-counter purchases made directly from customers. This surge in transactions is believed to be largely driven by the ongoing inflationary pressures, which has led to a higher demand from individuals seeking funds for emergency situations, bills, or other financial responsibilities. Recycled revenue related to the commercial segment increased by $113,971, or 1%, during the nine months ended September 30, 2023, to $8,617,194, as compared to $8,503,223 during the same period in 2022. There was minimal change in recycled revenue during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. Gross Profit - Resale Nine Months Ended September 30, Change 2023 2022 Amount % Gross Profit - Resale Consolidated $ 25,103,167 $ 27,320,120 $ (2,216,953 ) -8 % Consumer $ 9,450,156 $ 10,713,959 $ (1,263,803 ) -12 % Commercial $ 15,653,011 $ 16,606,161 $ (953,150 ) -6 % Resale gross profit decreased by $2,216,953, or 8%, during the nine months ended September 30, 2023 to $25,103,167, as compared to $27,320,120 during the same period in 2022. The individual segments reported the following: Resale gross profit related to the consumer operations for the nine months ended September 30, 2023, decreased by $1,263,803, or 12%, to $9,450,156, as compared to resale gross profit of $10,713,959 during the same period in 2022. The reduction in gross profit can be attributed to a higher volume of gold bullion sales in comparison to silver bullion sales for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. Resale gross profit related to the commercial operations for the nine months ended September 30, 2023, decreased by $953,150, or 6%, to $15,653,011, as compared to resale gross profit of $16,606,161 during the same period in 2022. The decrease in resale gross profit was primarily due to a decrease in resale revenue of 23% during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. 40 Table of Contents Gross Profit - Recycled Nine Months Ended September 30, Change 2023 2022 Amount % Gross Profit - Recycled Consolidated $ 6,803,064 $ 5,724,571 $ 1,078,493 19 % Consumer $ 2,218,717 $ 1,447,450 $ 771,267 53 % Commercial $ 4,584,347 $ 4,277,121 $ 307,226 7 % Recycled gross profit increased by $1,078,493, or 19%, during the nine months ended September 30, 2023, to $6,803,064, as compared to $5,724,571 during the same period in 2022. The individual segments reported the following: Recycled gross profit related to the consumer operations for the nine months ended September 30, 2023, increased by $771,267, or 53%, to $2,218,717, as compared to gross profit of $1,447,450 during the same period in 2022. The increase in recycled gross profit was primarily due to the increase of recycled revenue by 39% during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. Recycled gross profit related to the commercial operations for the nine months ended September 30, 2023, increased by $307,226, or 7%, to $4,584,347, as compared to gross profit of $4,277,121 during the same period in 2022. The increase in recycled gross profit was due primarily to an increase in recycled revenue during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 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 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 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 41 Table of Contents Selling, General and Administrative Nine Months Ended September 30, Change 2023 2022 Amount % Selling, General and Administrative Consolidated $ 23,714,237 $ 21,707,789 $ 2,006,448 9 % Consumer $ 7,457,628 $ 6,803,054 $ 654,574 10 % Commercial $ 16,256,609 $ 14,904,735 $ 1,351,874 9 % Selling, General and Administrative Expenses increased by $2,006,448, or 9%, during the nine months ended September 30, 2023 to $23,714,237, as compared to $21,707,789 during the same period in 2022. The individual segments reported the following: Selling, General and Administrative Expenses, for the consumer segment, for the nine months ended September 30, 2023, increased by $654,574, or 10%, to $7,457,628, as compared to $6,803,054 during the same period in 2022. The increase was primarily due to increased expenses related to expanding our footprint into Arizona and other markets. Starting January 1, 2023, expenses previously classified as other expenses related to corporate campus overhead have been classified as operating expenses within the selling, general, and administrative expenses category. The corporate campus overhead for 2022 initially recorded as other expense has been restated to be included in selling, general, and administrative expenses for comparison purposes. Selling, General and Administrative Expenses, for the commercial segment, for the nine months ended September 30, 2023, increased by $1,351,874, or 9%, to $16,256,609, as compared to $14,904,735 during the same period in 2022. The increase was primarily due to increased expenses related to expanding the commercial business by increasing the corporate infrastructure. Starting January 1, 2023, expenses previously classified as other expenses related to corporate campus overhead have been classified as operating expenses within the selling, general, and administrative expenses category. The corporate campus overhead for 2022 initially recorded as other expense has been restated to be included in selling, general, and administrative expenses for comparison purposes. Depreciation and Amortization Nine Months Ended September 30, Change 2023 2022 Amount % Depreciation and Amortization Consolidated $ 1,028,238 $ 1,106,427 $ (78,189 ) -7 % Consumer $ 253,385 $ 311,419 $ (58,034 ) -19 % Commercial $ 774,853 $ 795,008 $ (20,155 ) -3 % Depreciation and amortization decreased by $78,189, or 7%, during the nine months ended September 30, 2023 to $253,385, as compared to $311,419 during the same period in 2022. The individual segments reported the following: Depreciation and amortization, for the consumer segment, for the nine months ended September 30, 2023, decreased by $58,034, or 19%, to $253,385, as compared to $311,419 during the same period in 2022. The decrease was primarily due to some of the fixed assets being fully depreciated plus some of the intangible assets being fully amortized. Depreciation and amortization, for the commercial segment, for the nine months ended September 30, 2023, decreased by $20,155, or 3%, to $774,853, as compared to $795,008 during the same period in 2022. The decrease was primarily due to some of the fixed assets being fully depreciated. 42 Table of Contents Other Income Nine Months Ended September 30, Change 2023 2022 Amount % Other Income Consolidated $ 556,868 $ 91,160 $ 465,708 511 % Consumer $ 70,315 $ 29,970 $ 40,345 135 % Commercial $ 486,553 $ 61,190 $ 425,363 695 % Other income increased by $465,708, or 511%, during the nine months ended September 30, 2023 to $556,868, as compared to $91,160 during the same period in 2022. The individual segments reported the following: Other income, for the consumer segment, for the nine months ended September 30, 2023, was $70,315, as compared to $29,970 during the same period in 2022, an increase of $40,345, or 135%. The increase in other income for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022 was primarily due to an increase in interest earned from bank accounts of approximately $45,000. During December of fiscal 2022, the Company began to move excess working capital funds to savings accounts that paid higher interest rates. Starting January 1, 2023, expenses previously classified as other expenses related to corporate campus overhead have been classified as operating expenses within the selling, general, and administrative expenses category. The corporate campus overhead for 2022 initially recorded as other expense has been restated to be included in selling, general, and administrative expenses for comparison purposes. Other income, for the commercial segment, for the nine months ended September 30, 2023, was $486,553, as compared to $61,190 during the same period in 2022, an increase of $425,363, or 695%. The increase in other income for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022 was primarily due to an increase in interest earned from bank accounts of approximately $297,000, and notes receivable interest received of $94,115 from notes receivable formerly written off during fiscal year 2021. During December of fiscal 2022, the Company began to move excess working capital funds to savings accounts that paid higher interest rates. Starting January 1, 2023, expenses previously classified as other expenses related to corporate campus overhead have been classified as operating expenses within the selling, general, and administrative expenses category. The corporate campus overhead for 2022 initially recorded as other expense has been restated to be included in selling, general, and administrative expenses for comparison purposes. Interest Expense Nine Months Ended September 30, Change 2023 2022 Amount % Interest Expense Consolidated $ 348,918 $ 364,238 $ (15,320 ) -4 % Consumer $ 177,458 $ 183,523 $ (6,065 ) -3 % Commercial $ 171,460 $ 180,715 $ (9,255 ) -5 % Interest expense decreased by $15,320, or 4%, during the nine months ended September 30, 2023 to $348,918, as compared to $364,238 during the same period in 2022. The individual segments reported the following: Interest expense, for the consumer segment, for the nine months ended September 30, 2023, decreased by $6,065, or 3%, to $177,458, as compared to $183,523 during the same period in 2022. The decrease was primarily due to reduced loan balances during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. 43 Table of Contents Interest expense, for the commercial segment, for the nine months ended September 30, 2023, decreased by $9,255, or 5%, to $171,460, as compared to $180,715 during the same period in 2022. The decrease was primarily due to reduced loan balances during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. Income Tax Expense Nine Months Ended September 30, Change 2023 2022 Amount % Income Tax Expense Consolidated $ 1,534,187 $ 144,605 $ 1,389,582 961 % Consumer $ 778,150 $ 48,811 $ 729,339 1494 % Commercial $ 756,037 $ 95,794 $ 660,243 689 % Income tax expense, for both segments, for the nine months ended September 30, 2023, was $1,534,187, an increase of $1,389,582, as compared to income tax expense of $144,605 for the nine months ended September 30, 2022. Currently, the Company has a deferred tax asset reflecting net operating losses brought over from prior years. Through fiscal 2022, there was an off-setting valuation allowance associated with the deferred tax asset. The valuation allowance was written off as of December 31, 2022. Starting January 1, 2023, the Company has a federal tax rate of approximately 21%, in addition to other state and local taxes, on net income before taxes. The effective income tax rate was 20.8% and 1.5% for the nine months ended September 30, 2023 and 2022, respectively. Differences between our effective income tax rate and the U.S. federal statutory rate are the result of state taxes, non-deductible expenses and changes in the valuation allowance in relation to the deferred tax asset for net operating loss carryforwards, as was the Company’s case for the increase for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. Net Income Nine Months Ended September 30, Change 2023 2022 Amount % Net Income Consolidated $ 5,837,519 $ 9,812,792 $ (3,975,273 ) -41 % Consumer $ 3,072,569 $ 4,844,572 $ (1,772,003 ) -37 % Commercial $ 2,764,950 $ 4,968,220 $ (2,203,270 ) -44 % Net income decreased by $3,975,273, or 41%, during the nine months ended September 30, 2023 to $5,837,519, as compared to $9,812,792 during the same period in 2022. The individual segments reported the following: Net income related to the consumer operations for the nine months ended September 30, 2023, decreased by $1,772,003, or 37%, to $3,072,569, as compared to $4,844,572 during the same period in 2022. The decrease in net income was due primarily to the increased tax expense of $729,339, the decrease in gross profit of $492,536 and the increase in selling, general and administrative expenses of $654,574 for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. Net income related to the commercial operations for the nine months ended September 30, 2023, decreased by $2,203,270, or 44%, to $2,764,950, as compared to $4,968,220 during the same period in 2022. The decrease in net income for the nine months ended September 30, 2023 was due primarily to an increase in income tax expense of $660,243, an increase in selling, general and administrative expenses of $1,351,874, a decrease in gross profit of $645,924 and offset by an increase in other income of $425,373, as compared to the nine months ended September 30, 2022. 44 Table of Contents Earnings Per Share Nine Months Ended September 30, Change 2023 2022 Amount % Earnings Per Share (consolidated) $ 0.22 $ 0.36 $ (0.14 ) -39 % Earnings per share, for the nine months ended September 30, 2023, for net income per basic and diluted shares attributable to holders of our Common Stock was $0.22, compared to $0.36 per basic and diluted shares attributable to holders of our Common Stock for the nine months ended September 30, 2022. Liquidity and Capital Resources The following table summarizes our cash flows for the periods indicated. Nine Months Ended September 30, 2023 2022 Net cash provided by (used in): Operating activities $ 3,469,991 $ 7,725,140 Investing activities (1,285,362 ) (444,185 ) Financing activities (2,049,209 ) (2,450,347 ) Net increase in cash and cash equivalents $ 135,420 $ 4,830,608 During the nine months ended September 30, 2023, cash flows provided by operations totaled $3,469,991, and during the nine months ended September 30, 2022, cash flows provided by operations totaled $7,725,140, a decrease of $4,255,149. Cash provided by operations for the nine months ended September 30, 2023 was driven primarily by net income added to non-cash items of depreciation and amortization, bad debt and deferred taxes of $8,651,902, a reduction of prepaid expenses of $165,863, an increase in customer deposits and other liabilities of $284,085 and an increase in accounts payable and accrued expenses of $106,071, offset by an increase in inventories of $4,295,072, an increase in other assets of $55,601 and an increase in trade receivables of $1,385,580. Cash provided by operations for the nine months ended September 30, 2022 was driven largely by net income added to non-cash items of depreciation, amortization and bad debt of $10,992,637, a decrease in other assets of $311,420 and an increase in accounts payable and accrued expenses of $1,924,658, offset by an increase in inventories of $4,014,627, an increase in prepaid expenses of $1,213,187, an increase in trade receivables of $97,994 and the decrease in customer deposits and other liabilities of $186,590. During the nine months ended September 30, 2023 and 2022, cash flows used in investing activities totaled $1,285,362 and $444,185, respectively, a period-over-period increase of $841,177. Cash used in investing activities during the nine months ended September 30, 2023 was primarily due to the purchase of property and equipment of $1,563,612 and from the Kretchmer Transaction of $300,000, offset by the reduction in note receivable of $578,250. Cash used in investing activities during the nine months ended September 30, 2022 was primarily due to the purchase of additional property and equipment of $227,197 and the addition to the acquisition of Avail assets and liabilities of $216,988. During the nine months ended September 30, 2023 and 2022, cash flows used in financing totaled $2,049,209 and $2,450,347, respectively, a period-over-period decrease of $401,138. Cash used in financing during the nine months ended September 30, 2023 was due from payments made against notes payable of $930,858, repurchase of Company stock on the open market of $1,318,351, offset by the loan proceeds from the kretchmer Transaction of $200,000. Cash used in financing during the nine months ended September 30, 2022 was due from payments made against notes payable of $750,347 and payments made against the line of credit of $1,700,000. 45 Table of Contents We expect our capital expenditures to total approximately $4,000,000 during the next 12 months. These expenditures will be driven by the purchase of additional equipment and potential property purchases by both segments seeking to expand the Company into other markets. The Company has an outstanding capital commitment of $100,000 to build-out the consumer building purchased in Phoenix, Arizona on May 4, 2023. Our primary source of liquidity and capital resources currently consist of cash generated from our operating results and current borrowings, including the Truist Lewisville Loan, the TB&T Grapevine Loan, the TB&T Irving Loan, the TB&T Frisco Loan and two FSB loans. For more information, see Note 13 to our interim condensed financial statements, which is incorporated into this item by reference. In addition, on November 23, 2021, the Company secured a thirty-six month line of credit from Farmers State Bank of Oakley Kansas (the “FSB Facility”) for up to $3,500,000. The FSB Facility has an annual interest rate of 3.1%. We maintain the FSB Facility to help fund cash shortfalls that we may have from time to time. We do not currently anticipate the need of those funds for operations and do not currently have any amounts drawn against the FSB Facility as of September 30, 2023. From time to time, we have adjusted and may further adjust our inventory levels to meet seasonal demand or in order to meet working capital requirements. Management believes we have sufficient capital resources to meet working capital requirements. In the event of significant growth in retail and wholesale jewelry sales and recycling demand, whether purchases or services, our demand for additional working capital will increase due to a related need to stock additional jewelry inventory, increases in wholesale accounts receivable and the purchasing of recycled material. Historically we have funded these activities through operations. If additional working capital is required, we will seek additional loans from individuals or other commercial banks. If necessary, inventory levels may be adjusted in order to meet unforeseen working-capital requirements. 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. The Company leases certain of its facilities under operating leases. The minimum rental commitments, under non-cancellable operating leases, excluding imputed interest, as of September 30, 2023 are as follows: Operating Leases Total 2023 2024 2025 2026 Thereafter Consumer (excluding the nine months ending September 30, 2023) $ 1,528,159 $ 136,357 $ 552,414 $ 434,274 $ 355,000 $ 50,114 Commercial (excluding the nine months ending September 30, 2023) 3,564,973 339,766 1,396,129 1,321,297 474,326 33,455 Total $ 5,093,132 $ 476,123 $ 1,948,543 $ 1,755,571 $ 829,326 $ 83,569 Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders. 46 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Because we are a “smaller reporting company,” we are not required to disclose the information required by this item.