What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-08 · 199 added, 374 removed, 58 unchanged (91% of the section changed)

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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:

This Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 (this “Form 10-Q”), including but not limited to:

(i) the section of this Form 10-Q entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” (ii) information concerning our business prospects or future financial performance, anticipated revenues, expenses, profitability or other financial items;

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.

Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,” “will,” “would,” “expect,” “intend,” “could,” “estimate,” “should,” “anticipate”, “potential,” “continue,” “deploy” or “believe.” We intend that all forward-looking statements be subject to the safe harbors created by these laws.

All statements other than statements of historical information provided herein are forward-looking based on current expectations regarding important risk factors.

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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.

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.

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.

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.

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.

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.

This section includes a discussion of our operations for the three months ended March 31, 2024 and March 31, 2023.

The following discussion and analysis provides information for which management believes is relevant to an assessment and understanding of our financial condition and results of operations.

The discussion should be read in conjunction with the Company’s 2023 Annual Report, and the Unaudited Condensed Consolidated Financial Statements and the related Notes thereto included in Part I, Item 1 of this report.

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.

Within this management discussion and analysis, we use supplemental measures of our performance, which are derived from our interim consolidated financial information, but which are not presented in our interim consolidated financial statements prepared in accordance with U.S.

We believe that providing these non-U.S.

GAAP financial measures adds a meaningful presentation of our operating and financial performance.

See the reconciliation of net income to EBITDA (defined below), in Non-U.S.

See the reconciliation of net income to Adjusted EBITDA and Net Cash, in Non-U.S.

GAAP Financial Measures below.

Critical Accounting Policies and Estimates

There were no material changes to our critical accounting policies and estimates as described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Company’s 2023 Annual Report.

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

Economic Conditions

and other world economies are currently experiencing high interest rates and high levels of inflation, coupled with commodity price risk, mainly associated with variations in the market price of precious metals and diamonds which have the potential to impact consumer discretionary spending behavior.

Furthermore, adverse macroeconomic conditions can also impact demand for resale technology assets.

As to counterbalance economic cycles that impact market selling prices and/or underlying operating costs we adjust the inbound purchase price of commodity-based products, luxury hard assets and resale technology.

We continuously monitor our inventory positions and associated working capital to respond to market conditions and to meet seasonal business cycles and expansionary plans.

These economic cycles may from time to time require the business to utilize its line of credit or seek additional capital.

There can be no assurance that the measures we have adopted will be successful in mitigating the aforementioned risks.

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.

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.

Segment Activities

The Company believes it is well positioned to take advantage of its overall capital structure.

Consumer Segment

Our strategy is to expand the number of locations we operate through opening new locations throughout the U.S.

Likewise, we continue to evaluate opportunities related to complementary product and service offerings for our stores and online business.

Commercial Segment

Our strategy is to expand both organically and through acquisitions.

The Company has taken considerable steps to bolster its management team and operating systems as to position itself for growth.

Our production facilities are capable of managing the expansion of existing relationships and consolidation of acquisition targets within a relative proximity to our existing facilities.

Change in Disclosure of Results of Operations

The Company previously disaggregated revenue and gross margin by resale and recycle for each segment within the results of operations.

The Company’s revenue and gross margin is now comprised of more diverse revenue and gross margin streams associated with service offerings and as such to continue reporting under the prior disclosure methodology would be less representative of how the business operates.

The Company believes that this change has no material impact on the interpretation of our results of operations.

Recent Accounting Pronouncements

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

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.

Adjusted EBITDA

Adjusted EBITDA is a key performance measure that management uses to assess our operating performance.

Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure as an overall assessment of our performance, to evaluate the effectiveness of our strategies and for planning purposes.

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

Adjusted EBITDA means earnings before interest expense, other (income) expense, net, income tax expense, and depreciation and amortization.

Adjusted EBITDA is a non-U.S.

GAAP measure and should not be considered as an alternative to the presentation of net income or any other measure of financial performance calculated and presented in accordance with U.S.

The following table provides a reconciliation of net income to EBITDA for the three months ending September 30, 2023 and 2022:

For the three months ended September 30,

EBITDA Reconciliation:

Add (deduct):

Depreciation and amortization

Interest expense

Income tax expense

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,

EBITDA Reconciliation:

The following table provides a reconciliation of net income to Adjusted EBITDA for the three months ended March 31, 2024 and 2023:

For the Three Months Ended March 31,

Adjusted EBITDA Reconciliation:

Add (deduct):

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Income tax expense

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:

Three Months Ended September 30,

Comparison of three months ended September 30, 2023 and 2022

Resale Revenue

Three Months Ended September 30,

Resale Revenue

$ (8,893,575 )

$ (4,365,692 )

$ (4,527,883 )

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,

Recycled Revenue

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,

Gross Profit - Resale

Adjusted EBITDA

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

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

The following table depicts the Company’s net cash:

debt obligations

(14,621,722 )

(14,933,491 )

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:

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,

Gross Profit - Recycled

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,

The Company had a net cash position of $5,162,145 for the period ended March 31, 2024, as compared to a net cash position of $2,920,362 for the period ended December 31, 2023.

Results of Operations

The following table depicts our disaggregated statements of income for the three months ended March 31, 2024 and 2023:

For the Three Months Ended March 31,

% of Sales (1)

Cost of goods sold

Selling, general and administrative expenses

Selling, general and administrative

Depreciation and amortization

Total operating expenses

Operating income

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Income tax expense

Selling, General and Administrative

Three Months Ended September 30,

Selling, General and Administrative

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.

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,

Depreciation and Amortization

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.

Three Months Ended September 30,

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.

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.

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,

Interest Expense

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.

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,

Income Tax Expense

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.

Three Months Ended September 30,

$ (1,610,216 )

$ (1,175,744 )

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.

(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.

Comparison of Three Months Ended March 31, 2024 and 2023

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.

Earnings Per Share

Three Months Ended September 30,

Earnings Per Share (Consolidated)

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:

Nine Months Ended September 30,

$ 134,958,838

$ 135,252,502

Comparison of nine months ended September 30, 2023 and 2022

Resale Revenue

Nine Months Ended September 30,

Resale Revenue

$ 117,287,251

$ 120,214,917

Three Months Ended March 31,

$ (9,951,752 )

% of consolidated sales

$ (8,478,380 )

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.

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,

Recycled Revenue

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,

Gross Profit - Resale

% of consumer sales

$ (1,473,372 )

% of commercial sales

Sales decreased by $9,951,752, or 20.0%, during the three months ended March 31, 2024 to $39,857,780, as compared to $49,809,532 during the same period in 2023.

Consumer Segment

Sales in the consumer segment decreased by $8,478,380, or 23.1%, during the three months ended March 31, 2024 to $28,226,017, as compared to $36,704,397 during the same period in 2023.

The change was primarily attributed to building an inventory position in advance of opening our Arizona stores and as such the business had to allocate inventory to these stores that would have relieved in a normal operating cycle.

Commercial Segment

Sales in the commercial segment decreased by $1,473,372, or 11.2%, during the three months ended March 31, 2024 to $11,631,763, as compared to $13,105,135 during the same period in 2023.

The change was primarily attributed to lower revenue from softened demand for reuse hard drives, but was offset by stronger sales from the resale of personal technology assets.

We had a strong supply of personal technology assets from our retail trade in partners who destocked in late Fiscal 2023.

Cost of Goods Sold

Three Months Ended March 31,

$ (8,862,534 )

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.

Gross Profit - Recycled

Nine Months Ended September 30,

Gross Profit - Recycled

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,

% of consolidated sales

$ (8,042,601 )

% of consumer sales

% of commercial sales

Cost of goods sold decreased by $8,862,534, or 23.1%, during the three months ended March 31, 2024 to $29,537,096, as compared to $38,399,630 during the same period in 2023.

Consumer Segment

Cost of goods sold in the consumer segment decreased by $8,042,601, or 24.6%, during the three months ended March 31, 2024 to $24,676,828, as compared to $32,719,429 during the same period in 2023.

The change was primarily attributed to the aforementioned inventory build and by a mix of higher margin assets relieved from inventory which correspondingly had favorable impact on cost of goods sold as a % of sales.

Commercial Segment

Cost of goods sold in the commercial segment decreased by $819,933, or 14.4%, during the three months ended March 31, 2024 to $4,860,268, as compared to $5,680,201 during the same period in 2023.

The change was primarily attributed overall lower volumes and by a mix of higher margin assets relieved from inventory which correspondingly had a favorable impact on cost of goods sold as a % of sales.

Three Months Ended March 31,

$ (1,089,218 )

% of consolidated sales

% of consumer sales

% of commercial sales

Gross margin decreased by $1,089,218, or 9.5%, during the three months ended March 31, 2024 to $10,320,684, as compared to $11,409,902 during the same period in 2023.

Consumer Segment

Gross margin in the consumer segment decreased by $435,779, or 10.9%, during the three months ended March 31, 2024 to $3,549,189, as compared to $3,984,968 during the same period in 2023.

The net impact of the aforementioned resulted in sales contributing $(8,478,380) and cost of goods sold contributing $8,042,601 to the net decrease in gross margin of $435,779.

Commercial Segment

Gross margin in the commercial segment decreased by $653,439, or 8.8%, during the three months ended March 31, 2024 to $6,771,495, as compared to $7,424,934 during the same period in 2023.

The net impact of the aforementioned resulted in sales contributing $(1,473,372) and cost of goods sold contributing $819,933 to the net decrease in gross margin of $653,439.

Selling, General and Administrative

Three Months Ended March 31,

% of consolidated sales

% of consumer sales

$ (1,123,792 )

Cost of goods sold

Selling, general and administrative expenses

% of commercial sales

Selling, general and administrative expense decreased by $268,327, or 3.4%, during the three months ended March 31, 2024 to $7,636,976, as compared to $7,905,303 during the same period in 2023.

Consumer Segment

Selling, general and administrative expense in the consumer segment increased by $855,465, or 35.7%, during the three months ended March 31, 2024 to $3,251,490, as compared to $2,396,025 during the same period in 2023.

The change was primarily attributed to the onboarding of human capital, training and travel costs associated with our Arizona stores opening.

As the Arizona stores open and sales are generated, our selling, general and administrative expense is expected to realign as a % of sales.

Commercial Segment

Selling, general and administrative expense in the commercial segment decreased by $1,123,792, or 20.4%, during the three months ended March 31, 2024 to $4,385,486, as compared to $5,509,278 during the same period in 2023.

The change was primarily attributed to operational focus on human capital costs and processing efficiencies at our production facilities as they continue to align costs with our business model and margin achievement.

Depreciation and Amortization

Operating income

Three Months Ended March 31,

% of consolidated sales

% of consumer sales

% of commercial sales

Depreciation and amortization expense decreased by $10,786, or 3.0%, during the three months ended March 31, 2024 to $343,565, as compared to $354,351 during the same period in 2023.

Consumer Segment

Depreciation and amortization expense in the consumer segment decreased by $4,458, or 4.5%, during the three months ended March 31, 2024 to $93,676, as compared to $98,134 during the same period in 2023.

There was no material impact from assets capitalized or reaching maturity in the comparative periods and as such no discussion point.

Commercial Segment

Depreciation and amortization expense in the commercial segment decreased by $6,328, or 2.5%, during the three months ended March 31, 2024 to $249,889, as compared to $256,217 during the same period in 2023.

There was no material impact from assets capitalized or reaching maturity in the comparative periods and as such no discussion point.

Other Income/(Expense)

Interest expense

Income before income taxes

Income tax expense

Selling, General and Administrative

Nine Months Ended September 30,

Selling, General and Administrative

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.

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.

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,

Depreciation and Amortization

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.

Nine Months Ended September 30,

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%.

During December of fiscal 2022, the Company began to move excess working capital funds to savings accounts that paid higher interest rates.

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.

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,

Three Months Ended March 31,

% of consolidated sales

% of consumer sales

% of commercial sales

Other income increased by $27,749, or 13.2%, during the three months ended March 31, 2024 to $238,528, as compared to $210,779 during the same period in 2023.

Consumer Segment

Other income in the consumer segment decreased by $15,529, or 66.0%, during the three months ended March 31, 2024 to $8,005, as compared to $23,534 during the same period in 2023.

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

Interest income comprised $6 and $21,564 of other income during the three months ended March 31, 2024 and March 31, 2023, respectively.

Commercial Segment

Other income in the commercial segment increased by $43,278, or 23.1%, during the three months ended March 31, 2024 to $230,523, as compared to $187,245 during the same period in 2023.

The change was primarily attributed to a reduction in accounts receivable from the completion of a large SOW with a recurring customer in which excess cashflow above working capital requirements was swept to their interest-bearing cash account.

Interest income comprised $196,562 and $61,378 of other income during the three months ended March 31, 2024 and March 31, 2023, respectively.

Interest Expense

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.

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,

Three Months Ended March 31,

% of consolidated sales

% of consumer sales

% of commercial sales

Interest expense increased by $3,790, or 3.2%, during the three months ended March 31, 2024 to $120,854, as compared to $117,064 during the same period in 2023.

Consumer Segment

Interest expense in the consumer segment increased by $4,783, or 8.0%, during the three months ended March 31, 2024 to $64,401, as compared to $59,618 during the same period in 2023.

There was no material impact from additions or amortization in the comparative periods and as such no discussion point.

Commercial Segment

Interest expense in the commercial segment decreased by $993, or 1.7%, during the three months ended March 31, 2024 to $56,453, as compared to $57,446 during the same period in 2023.

There was no material impact from amortization in the comparative periods and as such no discussion point.

Income Tax Expense

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.

Three Months Ended March 31,

% of consolidated sales

% of consumer sales

% of commercial sales

Income tax expense, for both segments, for the three months ended March 31, 2024, was $550,278, a decrease of $167,368, as compared to income tax expense of $717,646 for the three months ended March 31, 2023.

Currently, the Company has a deferred tax liability reflecting a future obligation to pay taxes.

The Company has a federal tax rate of approximately 21.0%, in addition to other state and local taxes, on net income.

The effective income tax rate was 22.4% and 22.1% for the three months ended March 31, 2024 and 2023, 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.

Nine Months Ended September 30,

$ (3,975,273 )

$ (1,772,003 )

federal statutory rate are the result of state taxes and non-deductible expenses, as was the Company’s case for the increase for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

Three Months Ended March 31,

% of consolidated sales

$ (1,048,408 )

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.

% of consumer sales

% of commercial sales

Net income decreased by $618,778, or 24.5%, during the three months ended March 31, 2024 to $1,907,539, as compared to $2,526,317 during the same period in 2023.

Consumer Segment

Net income decreased in the consumer segment by $1,048,408, or 92.2%, during the three months ended March 31, 2024 to $88,476, as compared to $1,136,884 during the same period in 2023.

Refer to the aforementioned attributes discussed within the Comparison of Three Months Ended March 31, 2024 and 2023 for further details.

Commercial Segment

Net income increased in the commercial segment by $429,630, or 30.9%, during the three months ended March 31, 2024 to $1,819,063, as compared to $1,389,433 during the same period in 2023.

Refer to the aforementioned attributes discussed within the Comparison of Three Months Ended March 31, 2024 and 2023 for further details.

Earnings Per Share

Nine Months Ended September 30,

Earnings Per Share (consolidated)

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.

The following table depicts the Company’s earnings per share:

Three Months Ended March 31,

Earnings per share, for the three months ended March 31, 2024, for net income per basic and diluted shares attributable to holders of our Common Stock was $0.07, compared to $0.09 per basic and diluted shares attributable to holders of our Common Stock for the three months ended March 31, 2023.

Liquidity and Capital Resources

The following table summarizes our cash flows for the periods indicated.

Nine Months Ended September 30,

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

Three Months Ended March 31,

Net cash provided by (used in):

1 unchanged sentence

Investing activities

$ (1,214,314 )

Financing activities

Net increase in cash and cash equivalents

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.

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.

$ (1,252,726 )

Operating Activities

During the three months ended March 31, 2024, cash flows provided by operations totaled $3,791,721, and during the three months ended March 31, 2023, cash flows provided by operations totaled $2,924,025, a change of $867,696.

The increase in cash provided by operations for the three months ended March 31, 2024 was driven primarily by an increase in cash generated from a settlement of a large SOW with a recurring customer.

Investing Activities

During the three months ended March 31, 2024 and 2023, cash flows (used in) provided by investing activities totaled $(644,792) and $569,522, respectively, a change of $(1,214,314).

The increase in cash used in investing activities during the three months ended March 31, 2024 was primarily attributed to an increase in capital expenditures related to our enterprise resource planning system, improvements to our corporate headquarters and leaseholds for our planned Arizona stores.

The prior comparative period included a favorable $569,522 movement, which primarily consisted of payments received from notes receivable of $578,250, offset by the purchase of property and equipment of $8,728, which further contributed to the variance.

Financing Activities

During the three months ended March 31, 2024 and 2023, cash flows (used in) financing activities totaled $(1,216,915) and $(310,807), respectively, a change of $(906,108).

The increase in cash used in financing activities during the three months ended March 31, 2024 was primarily due to our share buyback plan as principal payments on debt were in relative parity.

Capital Resources

Although the Company has access to a line of credit our primary source of liquidity and capital resources currently consist of cash generated from our operating activities.

We do not anticipate the need to fund our operations via the line of credit and we do not have any amounts drawn as of March 31, 2024.

We have historically renewed, extended, or replaced short-term debt as it matures, and management believes that we will be able to continue to do so in the near future.

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

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

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

Capital Expenditures

In Fiscal 2024, the Company is deploying capital for additional growth, maintenance activity and enhancements to our enterprise resource planning system.

The Company continuously monitors the deployment of capital and primarily funds capital expenditures through cash flow from operating activities.

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

When this occurs, the Company further evaluates future cashflows of the project as to ensure the debt tenure and pay-back period are in alignment as well as the appropriateness of the rate of return.

Off-Balance Sheet Arrangements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis