What changed in this filing

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Item 1. Financial Statements

2024-05-08 compared with 2023-11-08 · 349 added, 440 removed, 156 unchanged (83% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended September 30,

Nine Months Ended September 30,

$ 134,958,838

$ 135,252,502

Three Months Ended March 31,

Cost of goods sold

Selling, General & Administrative Expenses

Selling, general and administrative

Depreciation and amortization

1 unchanged sentence

Operating income

Other income/(expense):

Interest expense

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CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Current assets:

Cash and cash equivalents

Trade receivables, net of allowances

Notes receivable, net of allowances

Accounts receivable, net of allowances

Notes receivable

Prepaid expenses

Other current assets

Total current assets

2 unchanged sentences

Intangible assets, net

Deferred tax asset

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable-trade

Accounts payable

Notes payable

1 unchanged sentence

Accrued expenses

Customer deposits and other liabilities

Other liabilities

Total current liabilities

Deferred tax liability

Notes payable, less current portion

1 unchanged sentence

Total liabilities

Commitments and contingencies

Contingencies (Note 16)

Stockholders’ equity:

4 unchanged sentences

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

Treasury stock at cost, 224,631 and 0 shares, as of September 30, 2023 and December 31, 2022, respectively

26,924,631 shares issued and 26,307,318 shares outstanding as of March 31, 2024;

26,924,631 shares issued and 26,508,658 shares outstanding as of December 31, 2023

Treasury stock at cost, 617,313 and 415,973 shares, as of March 31, 2024 and December 31, 2023, respectively

( 3,060,195 )

( 2,155,049 )

Additional paid-in capital

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30,

Three Months Ended March 31,

Adjustments to reconcile net income to net cash provided by operations:

Depreciation, amortization, and other

Bad debt expense

Depreciation and amortization

Provision for credit losses

Deferred taxes

Non-cash lease expense

Changes in operating assets and liabilities:

Trade receivables

( 1,385,580 )

( 4,295,072 )

Accounts receivable

( 2,476,259 )

Prepaid expenses

( 1,213,187 )

Intangible assets

Accounts payable and accrued expenses

Accounts payable

Accrued expenses

Operating leases

Customer deposits and other liabilities

Other liabilities

Net cash provided by operations

Purchase of property and equipment

( 1,563,612 )

Investment in note receivable

Acquisition of Steven Kretchmer, Inc.

Adjustment to the purchase price of the Avail Transaction

Net cash used in investing

( 1,285,362 )

Purchase of intangible assets

Investment in notes receivable

Net cash (used in) provided by investing

Payments on notes payable

Purchase of treasury stock

( 1,318,351 )

Proceeds from note payable, Steven Kretchmer, Inc.

Payments on line of credit

( 1,700,000 )

Net cash (used in) financing

( 1,216,915 )

( 2,450,347 )

Net change in cash and cash equivalents

3 unchanged sentences

Cash paid during the period for:

Non cash activities

Adjustment to the Avail Transaction purchase price allocation

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months ended September 30, 2022 and 2023

Treasury Stock

Preferred Stock

Stockholders'

Balances at July 1, 2022

$ ( 6,319,846 )

Balances at September 30, 2022

$ ( 3,002,137 )

For the Three Months Ended March 31, 2023

Treasury Stock

1 unchanged sentence

Stockholders'

Balances at July 1, 2023

$ ( 194,820 )

Shares repurchased

( 1,123,531 )

Balances at September 30, 2023

$ ( 1,318,351 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months ended September 30, 2022 and 2023

Balance as of January 1, 2023

Balance as of March 31, 2023

For the Three Months Ended March 31, 2024

Treasury Stock

1 unchanged sentence

Stockholders'

Balances at January 1, 2022

$ ( 12,814,929 )

Balances at September 30, 2022

Balance as of January 1, 2024

$ ( 2,155,049 )

Treasury Stock

Preferred Stock

Stockholders'

Balances at January 1, 2023

Shares repurchased

( 1,318,351 )

Balances at September 30, 2023

Balance as of March 31, 2024

$ ( 3,060,195 )

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NOTE 1 — BASIS OF PRESENTATION

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”).

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 United States (“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.

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.

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 (“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, 2024 (“Fiscal 2024”).

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.

Management suggests these unaudited condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“Fiscal 2023”) filed with the SEC on March 21, 2024 (“2023 Annual Report”).

The preparation of interim condensed consolidated financial statements in conformity with U.S.

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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.

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.

Throughout this document, Envela Corporation is referred to as “we,” “us,” “our,” “Envela,” or the “Company.”

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

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

Our operations are organized into two operating and reportable segments:

commercial and consumer, which additionally are the Company’s reporting units.

Consumer Segment

Our consumer segment operates in the jewelry industry, specializing in the online and brick-and-mortar sale of authenticated high-end luxury goods, fine jewelry, watches, and bullion.

Our diamonds and gemstones are recycled, meaning they were previously set and then unset to become a new design – allowing for a truly low-carbon, ethical origin.

The company focuses on buying and selling pre-owned luxury items, ethically sourced diamonds, gemstones, and precious metals, catering to consumers seeking environmentally responsible options for engagement rings, wedding bands, and other fine jewelry.

Our profound commitment to extending the lifespan of luxury goods stems from our understanding that well-crafted items have an enduring quality, enabling them to maintain their beauty and value as they are passed from one owner to another.

Commercial Segment

Our commercial segment specializes in the de-manufacturing of end-of-life electronic assets to reclaim commodities and other materials, while also engaging in the IT asset disposition (ITAD) industry.

The separated commodities, including metals, plastics, and glass, are sold to downstream processors where they are further processed and reintroduced into new products.

ITAD services maximize the residual value of retired IT assets by adhering to a reuse-first philosophy and ensuring equipment is refurbished and re-marketed after data sanitization.

The company focuses on offering services that manage the entire lifecycle of technology products to ensure data security, regulatory compliance, and environmental sustainability.

We are proud of our role to support a circular economy through responsible reuse and recycling of electronic devices.

For additional information on the consumer and commercial segments, see “Item 1.

Business – How We Organize Our Business” in the Company’s 2023 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.

All 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.

The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivables, prepaid expenses, other current assets, accounts payable, accrued expenses, 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.

Use of Estimates

The preparation of interim condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses.

Examples of estimates and assumptions include:

revenue recognition, determining the nature and timing of satisfaction of the performance obligations, variable consideration, and other obligations such as product returns and refunds;

loss contingencies;

the fair value of and/or potential impairment of goodwill and intangible assets for the reporting units;

useful lives of our tangible and intangible assets;

allowances for credit losses;

the market value of, and demand for, our inventory and the potential outcome of uncertain tax positions that have been recognized on our consolidated financial statements or tax returns.

Actual results and outcomes may differ from management’s estimates and assumptions.

Revenue Recognition

Accounting Standards Codification (“ASC”) ASC 606, Revenue Recognition provides guidance to identify performance obligations for revenue-generating transactions.

The Company applies a five-step approach in determining the amount and timing of revenue to be recognized:

(1) identifying the contract with a customer;

(2) identifying the performance obligations in the contract;

(3) determining the transaction price;

(4) allocating the transaction price to the performance obligations in the contract;

and (5) recognizing revenue when the corresponding performance obligation is satisfied.

Consumer Segment

For the consumer segment, revenue for monetary transactions (i.e., cash and receivables) with wholesale customers are recognized when the merchandise is delivered or at point of sale for retail customers, and payment has been made either by immediate payment or through a receivable obligation.

For e-commerce, revenue is recognized upon when the customer has fulfilled their obligation to pay, or promise to pay and goods have been shipped.

Revenue on precious metals requiring an assay are recognized upon transfer of title, based on the determination of the underlying weight and price of the associated metals.

The Company offers the option of third-party financing for customers wishing to borrow money for the purchase.

Revenue is recognized from the sale upon transfer of title, with the promise of the third-party financing company to pay.

Commercial Segment

The commercial segment recognizes revenue 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 commercial segment recognizes refining revenue when our inventory arrives at the destination port and the performance obligation is satisfied by transferring the 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 are 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.

Historically, these amounts have been insignificant.

The commercial segment also provides recycling services according to a Scope of Work (“SOW”).

Recycling services are primarily recognized based on the number of units processed by a preset price per unit or weight measurements, and revenue is recognized upon completion of the SOW.

The commercial segment provides freight arrangement services related to inbound asset or material movements to our facilities.

Freight arrangement services are recognized at settlement with our inbound customers which occurs when the SOW has been completed.

Under the guidance of ASC 606 the Company is deemed to be a principal and as such records freight arrangement services as a component of revenue and the associated expense is recorded as a component of cost of goods sold.

The commercial segment recognizes revenue on outright sales when terms and transaction price are agreed to, product is shipped, and title is transferred.

See Note 10 – Revenue for further detail.

Sales Returns and Allowances

Sales are recorded, net of expected returns.

In some cases, the consumer and commercial segment’s customers may return a product purchased within 30 days of receipt.

Our allowance for estimated returns is based on our review of historical returns experience and reduces our reported revenues and cost of sales accordingly.

For the three months ended March 31, 2024 and March 31, 2023, the consumer segment’s allowance for returns was $ 28,402 and $ 0 , respectively.

For the three months ended March 31, 2024 and March 31, 2023, the commercial segment’s allowance for returns was $ 6,578 and $ 0 , respectively.

Concentrations and Credit Risk

The Company is potentially subject to concentrations of credit risk in its accounts receivable.

A significant amount of revenue stems from one precious metals partner, which accounted for 6 % of our sales for the period ended March 31, 2024, and 6 % of our sales for the period ended March 31, 2023.

However, the Company believes that the products it sells are marketable to numerous sources at competitive prices.

Shipping and Handling Costs

Within the consumer and commercial segments shipping and handling costs are accounted for as fulfillment costs within costs of goods sold.

For the three months ended March 31, 2024 and March 31, 2023, the consumer segment’s shipping and handling costs were $ 439 and $ 0 , respectively.

For the three months ended March 31, 2024 and March 31, 2023, the commercial segment’s shipping and handling costs were $ 1,394,077 and $ 1,689,941 , respectively.

Advertising Costs

The consumer and commercial segment’s advertising costs are expensed as incurred.

For the three months ended March 31, 2024 and March 31, 2023, the consumer segment’s advertising costs were $ 247,903 and $ 206,075 , respectively.

For the three months ended March 31, 2024 and March 31, 2023, the commercial segment’s advertising costs were $ 71,095 and $ 14,553 , respectively.

We determine if an arrangement is a lease at inception.

We do not separate non-lease components from lease components to which they relate and have accounted for the combined lease and non-lease components as a single lease component.

Many of our lease agreements contain renewal options;

however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that we are reasonably certain of renewing the lease at inception or when a triggering event occurs.

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, Leases requires us to use the interest rate that a lessee would have to pay to borrow on a collateralized basis over a similar term in 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 less the Company has elected 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.

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 consolidated 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 be applicable 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.

Valuation of Deferred Tax Assets

The Company’s deferred tax assets include certain future tax benefits.

The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company reviews the likelihood that the benefit of the deferred tax assets will be realized and the need for valuation allowances on a quarterly basis, or more frequently if events indicate that a review is required.

We have not taken a tax position that, if challenged, would have a material effect on the consolidated financial statements or the effective tax rate for the three months ended March 31, 2024.

For the period ended March 31, 2024, the Company had a deferred tax liability of $ 21,177 .

For the period ended December 31, 2023, the Company had a deferred tax liability of $ 38,668 .

The Company did not have a valuation allowance for the period ended March 31, 2024 and December 31, 2023.

Segment Information

The accounting standards for reporting information about operating segments defines an operating segment as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses for which discrete financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance.

The Company’s financial performance is based on the following segments:

consumer and commercial.

The Company allocates its corporate expenses including selling, general and administrative expenses, depreciation and amortization, other income, interest expense, and income tax expense.

See Note 2 – Principles of Consolidation and Nature of Operations for further detail.

Earnings Per Share

2 unchanged sentences

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.

Stock-Based Compensation

The Company accounts for stock-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.

See Note 14 – Stock-Based Compensation for further detail.

Taxes Collected from Customers

The Company’s policy is to present taxes collected from customers and remitted to governmental authorities on a net basis.

The Company records the amounts collected as a current liability and relieves such liability upon remittance to the taxing authority without impacting revenue or expenses.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

The carrying amounts reported in the consolidated balance sheets approximate fair value.

Accounts Receivable, Net of Allowances

Accounts receivable represent amounts primarily due from customers on product and other sales.

Our allowance for credit losses is primarily determined by an analysis of our trade receivables aging, using the expected losses methodology.

The allowance for credit losses 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 for credit losses.

Trade receivables are considered delinquent when payment has not been made within contract terms.

Trade receivables are charged off when there is certainty as to their being uncollectible.

For the three months ended March 31, 2024 and March 31, 2023, the consumer segment’s allowance for credit losses was $ 0 and $ 0 , respectively.

For the three months ended March 31, 2024 and March 31, 2023, the commercial segment’s allowance for credit losses was $ 306,727 and $ 0 , respectively.

Consumer Segment

The consumer segment values inventory at the lower of cost or net realizable value.

We acquire inventory 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.

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, we monitor these fluctuations for any adverse impact on the carrying value of our inventory.

Commercial Segment

Our inventory primarily includes processed and unprocessed, base metals, electronic scrap materials containing precious metals as well as technology assets being held for resale.

The processed and unprocessed base metals and electronic scrap materials are valued utilizing the average cost method.

Our technology assets are valued utilizing the retail cost method.

See Note 4 – Inventories for further detail.

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.

There were no triggering events identified during the first three months of fiscal 2024 requiring an interim goodwill impairment test, and the Company did not record a goodwill impairment charge in any of the periods presented.

There have been no other adjustments to goodwill in any of the periods presented.

See Note 5 – Goodwill for further detail.

Property and Equipment, Net

Property and equipment is carried at cost less accumulated depreciation and is depreciated on a straight-line basis over the estimated useful lives of the assets;

except for construction in progress which has not yet been placed into service.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Expenditures for maintenance and repairs are charged against income as incurred;

betterments that increase the value or materially extend the life of the related assets are capitalized.

See Note 6 – Property and equipment, net for further detail.

Intangible Assets, Net

Finite-lived intangible assets are carried at cost less accumulated amortization and are amortized on a straight-line basis over the estimated useful lives of the assets;

except for assets under development which have not yet been placed into service.

Finite-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

See Note 7 – Intangibles, net for further detail.

Correction of Immaterial Error

The Company’s consumer segment previously reported revenue from freight arrangement services as a component of cost of goods sold.

The Company has further evaluated the nature and scope of its service offering and has determined that it meets the definition of a principal in accordance with ASC 606 and as such be reported within revenue.

As a result of the correction, for the three months ended March 31,2023 revenue and cost of goods sold increased by $ 1,420,492 .

The error had no impact on operating income, net income, and net income per share nor any other financial statement amount.

Further these errors had no impact on the consolidated balance sheets, statements of stockholders’ equity, and statement of cash flows.

These corrections do not affect any of the metrics used to calculate and evaluate management’s compensation and had no impact on bonuses, commissions, stock-based compensation, or any other employee renumeration.

Historical amounts have been corrected and are presented on a comparable basis.

See Note 10 – Revenue for further detail.

Changes in Disclosure

The Company has elected to discontinue reporting the disaggregation of inventory and revenue by resale and recycle.

The Company’s business operations continue to evolve and includes fee for service revenue that does not always correlate to these categories and underlying inventory positions;

further our inventory positions within these disaggregated presentations can vary at any point in time as they are a diverse mix of technology assets, precious and base metals and luxury hard assets.

The Company believes that its disclosure of the nature of its operations, the inventory held at each segment and associated risk factors provides a sufficient understanding of its impact on our business.

See Note 4 – Inventories and Note 10 – Revenue, for further detail.

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 .

For the Company’s 2023 Annual Report, the presentation of the operations section within its Consolidated Cash Flow Statements was updated to present "non-cash lease expense" as a separate line item, previously included within "changes in operating assets and liabilities – operating leases.” The Company has elected to reclassify $ 473,881 from operating leases to non-cash lease expenses in the Consolidated Cash Flow Statement for the period ending March 31, 2023.

See the Condensed Consolidated Statements of Cash Flows for further detail.

For the Company’s 2023 Annual Report, the amount reported for other current assets within the Consolidated Balance Sheets related entirely to notes receivables.

The Company has elected to present notes receivable as its own line item and has reclassified the historical presentation of the aforementioned for the period ended December 31, 2023.

See the Condensed Consolidated Balance Sheets for further detail.

The Company previously did not disclose construction in progress and intangible assets under development.

The Company has determined that providing this information further enhances the understanding of the nature of our capital expenditures.

The Company has elected to reclassify the historical presentation of the aforementioned for the period ended December 31, 2023.

See Note 6 – Property and equipment, net for further detail.

The Company previously reported the development of its enterprise resource planning system within property and equipment, net.

The Company has further evaluated the nature of this asset under ASC 350, Intangibles – Goodwill and Other and has determined that it is a nonmonetary asset without physical substance and was acquired separately from hardware and as such be reported within intangibles, net.

The Company has elected to reclassify the historical presentation of the aforementioned for the period ended December 31, 2023.

See Note 7 – Intangibles, net for further detail.

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.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures ("ASU 2023-07”), which will require the Company to disclose segment expenses that are significant and regularly provided to the CODM.

In addition, ASU 2023-07 will require the Company to disclose the title and position of its CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources.

ASU 2023-07 will be effective for fiscal years beginning January 1, 2024, Form 10-K, and interim periods within fiscal years beginning on January 1, 2025.

The standard will be adopted beginning January 1, 2024, for the fiscal year and adopted for the interim periods beginning January 1, 2025, by using a modified retrospective transition approach.

The Company does not expect adoption to have a material impact on its consolidated financial statements.

In December 2023, the FASB issued Accounting Standards Update 2023-09 (“ASU 2023-09”), Income Taxes (Topic 740):

Improvement to Income Tax Disclosures, amending income tax disclosure requirements for the effective tax rate reconciliation and income taxes paid.

The amendments in ASU 2023-09 are effective beginning in the Company’s fiscal 2025 and are applied prospectively.

Early adoption and retrospective application of the amendments are permitted.

The Company does not expect adoption to have a material impact on its consolidated financial statements.

No other recently issued or effective ASU’s had, or are expected to have, a material impact on the Company’s results of operations, financial condition or liquidity.

NOTE 4 — INVENTORIES

A summary of inventories is as follows:

September 30,

The following table summarizes the details of the Company’s inventories:

Trade inventories

NOTE 5 — GOODWILL

The change in goodwill is as follows:

September 30,

The following table summarizes the details of the Company’s changes in goodwill:

Opening balance

Additions/(reductions) (1)

( 2,519,012 )

(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.

NOTE 6 — PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

September 30,

Opening balance

Additions/(reductions)

(1) The increase in goodwill of $ 300 thousand for the year ended December 31, 2023 relates to the Company’s acquisition of Steven Kretchmer, Inc.

on September 12, 2023 (“Kretchmer Transaction”).

The Kretchmer Transaction remains within the measurement period of ASC 805, Business Combinations.

The measurement period is the period after the acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination.

NOTE 6 — PROPERTY AND EQUIPMENT, NET

The following table summarizes the details of the Company’s property and equipment, net:

Reclassification

Building and improvements

( 1,443,207 )

Leasehold improvements

Machinery and equipment

Furniture and fixtures

Machinery and equipment

Construction in progress (1)

accumulated depreciation

1 unchanged sentence

( 2,946,727 )

Building and improvements

Machinery and equipment

( 2,946,727 )

Leasehold improvements

Furniture and fixtures

Machinery and equipment

Construction in progress (2)

accumulated depreciation

Building and improvements

Computer software

Machinery and equipment

Enterprise resource planning system (3)

Construction in progress (4)

accumulated depreciation

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.

NOTE 7 — INTANGIBLE ASSETS

Intangible assets consist of the following:

September 30,

$ ( 191,075 )

(1) Construction in progress relates to the build-out of production equipment.

(2) Construction in progress relates to the build-out of our Arizona retail stores.

(3) Reclassified amount to intangibles, net.

See Note 7 – Intangible, Net for further details.

(4) Construction in progress pertains to improvements to our corporate headquarters.

NOTE 7 — INTANGIBLES, NET

The following table summarizes the details of the Company’s intangible assets, net:

Reclassification

Point of sale system

accumulated amortization

Trademarks (1)

Customer Contracts (1)

Trademarks/tradenames

Customer Relationships (2)

Trademarks/Tradenames (3)

Customer contracts

Customer relationships

2 unchanged sentences

( 2,248,405 )

(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:

2023 (excluding the nine months ending September 30, 2023)

( 2,248,405 )

Enterprise resource planning system

Assets under development (1)

accumulated amortization

(1) Assets under development relate to the development of our enterprise resource planning system.

The following table depicts the Company’s estimated future amortization expense related to intangible assets as of March 31, 2024:

NOTE 8 — ACCRUED EXPENSES

Accrued expenses consist of the following:

September 30,

The following table summarizes the details of the Company’s accrued expenses:

Accrued interest

Property taxes

Other administrative expenss

Accrued interest

Unvouchered payables - inventory/COGS

Other accrued expenses

Unvouchered inventory payments

Accrued interest

Professional fees

Federal & state Income tax

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.

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,

Cost of goods sold

Selling, general and administrative expenses (1)

Depreciation and amortization

Operating income

Other income/expense:

Other income (1)

Interest expense

Income before income taxes

Income tax expense

(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.

No other presentation changes have been made to prior periods.

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,

$ 103,227,033

$ 134,958,838

$ 135,252,502

The following table depicts the Company’s disaggregated statements of income:

Three Months Ended March 31,

% of Sales (1)

Cost of goods sold

Selling, general and administrative expenses (1)

Selling, general and administrative

Depreciation and amortization

Total operating expenses

Operating income

Other income/(expense):

Other income (1)

Interest expense

1 unchanged sentence

Income tax expense

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.

The following disaggregation of total revenue is listed by sales category and segment for the three months ended September 30, 2023 and 2022:

Three Months Ended September 30,

The following disaggregation of total revenue is listed by sales category and segment for the nine months ended September 30, 2023 and 2022:

Nine Months Ended September 30,

$ 134,958,838

$ 135,252,502

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.

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.

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.

(1) The "% of Sales" figures present the proportion of each line item to the total consolidated sales for the respective period, which management believes is relevant to an assessment and understanding of our financial condition and results of operations.

The following chart depicts the Company’s total assets:

NOTE 10 — REVENUE

The following table depicts the Company’s disaggregation of total sales and gross margin:

For the Three Months Ended March 31,

Correction of immaterial error (1)

Commercial adjusted

(1) Correction of Immaterial Error relating to freight arrangement services, see Note 3 - ACCOUNTING POLICIES AND ESTIMATES for further detail.

The following table lists the opening and closing balances of our contract assets and liabilities:

Opening Balance - 1/1/2023

Closing Balance - 3/31/2023

Opening Balance - 1/1/2023

Closing Balance - 3/31/2023

Opening Balance - 1/1/2024

Closing Balance - 3/31/2024

Opening Balance - 1/1/2024

Closing Balance - 3/31/2024

The Company has no contract assets, and the only contract liability is customer deposits, which is reported within other liabilities in the Unaudited Condensed Consolidated Balance Sheets.

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.

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:

2023 (excluding the nine months ending September 30, 2023)

2027 and thereafter

The following table depicts the Company’s future annual minimum leases payments as of March 31, 2024:

Total minimum lease payments

Less imputed interest

Consumer Sub-Total

2023 (excluding the nine months ending September 30, 2023)

2027 and thereafter

Total minimum lease payments

Less imputed interest

Commercial Sub-Total

Current portion

All of the Company’s facilities leases as of March 31, 2024 are non-cancellable and 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 March 31, 2024 and 2023 were $ 784,735 and $ 659,616 , respectively, comprised of a combination of minimum lease payments and variable lease costs.

As of March 31, 2024, the weighted average remaining lease term and weighted average discount rate for operating leases were 2.3 years and 4.3 %.

As of March 31, 2023, the weighted average remaining lease term and weighted average discount rate for operating leases were 3.3 years and 4.4 %.

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:

The following table is a reconciliation of the Company’s basic and diluted weighted average common shares:

For the Three Months Ended

September 30,

Basic weighted average shares

1 unchanged sentence

Diluted weighted average shares

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,

Basic weighted average shares

Effect of potential dilutive securities

Diluted weighted average shares

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.

For the three months ended March 31, 2024 and 2023, there was a total of 15,000 common stock options, warrants, and Restricted Stock Units (“RSUs”) unexercised.

For the three months ended March 31, 2024 and 2023, there were no anti-dilutive shares.

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 $ 9.00 , 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

The following table lists the repurchase of Company shares as of March 31, 2024:

Average Price

Fiscal Period

Shares Purchased

Paid per Share

under the plan

Beginning Balance

May 1 - 31, 2023

June 1 - 30, 2023

July 1 - 31, 2023

August 1 - 31, 2023

September 1 - 30, 2023

NOTE 13 — LONG-TERM DEBT

Long-term debt consists of the following:

Balance as of January 1, 2024

January 1 - 31, 2024

February 1 - 29, 2024

March 1 - 31, 2024

Balance as of March 31, 2024

NOTE 13 — DEBT

The following table summarizes the details of the Company’s long-term debt obligations:

Outstanding Balance

September 30,

Interest Rate

Note payable, Farmers Bank (1)

November 15, 2026

Note payable, FSB (1)

Note payable, Truist Bank (3)

Note payable, Texas Bank & Trust (3)

September 14, 2025

Note payable, Texas Bank & Trust (4)

July 30, 2031

Note payable, Kretchmer (5)

October 1, 2025

Consumer Sub-Total

Note payable, Farmers Bank (1)

November 15, 2026

Line of Credit (6)

November 15, 2024

Avail Transaction note (7)

April 1, 2025

Commercial Sub-Total

Note payable, Texas Bank & Trust (8)

Novemeber 4, 2025

Notes payable, TBT (4,5)

Note payable, Kretchmer Transaction (6)

Note payable, FSB (2)

Note payable, Avail Transaction (7)

Line of credit, FSB (8)

Note payable, TBT (9)

Current portion

(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 .

(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 .

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,

2023 (excluding the nine months ended September 30, 2023)

Note payable, Kretchmer

Year Ending December 31,

2023 (excluding the nine months ended September 30, 2023)

COMMERCIAL SEGMENT

Note payable, Farmers Bank

Year Ending December 31,

2023 (excluding the nine months ended September 30, 2023)

( 1,475,625 )

( 1,361,443 )

The following table depicts the Company’s future principal payments on long-term debt obligations as of March 31, 2024:

Note payable, FSB (1)

Note payable, Truist Bank (3)

Notes payable, TBT (4,5)

Note payable, Kretchmer Transaction (6)

Note payable, FSB (2)

Note payable, Avail Transaction (7)

Year Ending December 31,

2023 (excluding the nine months ended September 30, 2023)

Note payable, Texas Bank & Trust - Envela

Year Ending December 31,

2023 (excluding the nine months ended September 30, 2023)

Future scheduled aggregate amount of principal payments and maturities of our notes payable as of September 30, 2023 are as follows:

Line of Credit, FSB (8)

Note payable, TBT (9)

(1) On November 23, 2021, the consumer segment entered into a $ 2.781 million secured amortizing note payable with Farmer’s State Bank of Oakley, Kansas (“FSB”).

The note payable bears interest at 3.10 % and matures on November 15, 2026.

(2) On November 23, 2021, the commercial segment entered into a $ 6.309 million secured amortizing note payable with FSB.

The note payable bears interest at 3.10 % and matures on November 15, 2026.

(3) On July 9, 2020, the consumer segment entered into a $ 1.195 million secured amortizing note payable with Truist Bank.

The note payable bears interest at 3.65 % and matures on July 9, 2030.

(4) On September 14, 2020, the consumer segment entered into a $ 620 thousand secured amortizing note payable with Texas Bank & Trust (“TBT”).

The note payable bears interest at 3.75 % and matures on September 14, 2025.

(5) On July 30, 2021, the consumer segment entered into a $ 2.215 million secured amortizing note payable with TBT.

The note payable bears interest at 3.75 % and matures on July 30, 2031.

(6) On September 12, 2023, the consumer segment entered into a $300 thousand secured amortizing note payable in relation to the Kretchmer Transaction.

The note payable’s imputed interest is 3.10% and matures on October 1, 2025 .

The consumer segment is restructuring the Kretchmer Transaction and the aforementioned terms and conditions and as such is electing to record the note payable in current liabilities.

(7) On October 29, 2021, the consumer segment entered into a $4.500 million secured amortizing note payable in relation to the acquisition of Avail Recovery Solutions, LLC on October 29, 2021 (“Avail Transaction").

The note payable’s imputed interest is 3.10% and matures on April 1, 2025 .

(8) On November 23, 2021, the Company entered into a $ 3.500 million secured line of credit with FSB.

The line of credit bears interest at 3.10 % and matures on November 15, 2024.

This note was previously presented within our commercial segment and is now presented within corporate as the line of credit provides borrowing capacity for all segments.

(9) On November 4, 2020, a wholly owned subsidiary of Envela entered into a $ 2.960 million secured amortizing note payable with TBT.

The note payable bears interest at 3.25 % and matures on November 4, 2025.

The Company was in compliance with all of its debt obligation covenants for the periods ended March 31, 2024 and March 31, 2023.

The following table depicts the Company’s future scheduled aggregate principal payments and maturities as of March 31, 2024:

Scheduled Principal Payments and Maturities by Year:

2023 (excluding the nine months ended September 30, 2023)

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.

There was no stock-based compensation expense for the three and nine months ended September 30, 2023 and 2022.

There was no stock-based compensation expense for the three months ended March 31, 2024 and March 31, 2023.

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”).

The Company has a corporate policy governing the identification, review, consideration and approval or ratification of transactions with related persons.

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.

There are no related party transactions subject to reporting as of March 31, 2024 and March 31, 2023.

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.

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.

We review the need to accrue for any loss contingency and establish a liability when, in the opinion of management, it is probable that a matter would result in a liability and the amount of loss, if any, can be reasonably estimated.

We do not believe that the resolution of any currently pending lawsuits, claims, and proceedings, either individually or in the aggregate, will have a material adverse effect on financial position, results of operations or liquidity.

However, the outcomes of any currently pending lawsuits, claims and proceedings cannot be predicted, and therefore, there can be no assurance that this will be the case.

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

What changed 10-Q

Item 1. Financial Statements