What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-08 · 243 added, 90 removed, 167 unchanged (67% of the section changed)

2 unchanged sentences

Forward-Looking Statements

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

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

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

8 unchanged sentences

We undertake no obligation to release publicly the results of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date thereon, including without limitation, changes in our business strategy or planned capital expenditures, or store growth plans, or to reflect the occurrence of unanticipated events.

This section includes a discussion of our operations for the three 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.

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

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

The discussion should be read in conjunction with the Company’s 2023 Annual Report, 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.

3 unchanged sentences

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

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

See the reconciliation of net income to adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) and Net Cash, in Non-U.S.

GAAP Financial Measures below.

10 unchanged sentences

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

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

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

Our operations are organized into two operating and reportable segments:

14 unchanged sentences

Consumer Segment

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

Our strategy is to expand the number of locations we operate by 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.

1 unchanged sentence

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.

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

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

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’s revenue and gross margin are 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.

6 unchanged sentences

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 Adjusted EBITDA for the three months ended March 31, 2024 and 2023:

For the Three Months Ended March 31,

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

For the Three Months Ended June 30,

Adjusted EBITDA Reconciliation:

Net Income (Loss)

Add (deduct):

3 unchanged sentences

Adjusted EBITDA

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

For the Six Months Ended June 30,

Adjusted EBITDA Reconciliation:

Net Income (Loss)

Add (deduct):

Depreciation and amortization

Interest expense

Income tax expense

Adjusted EBITDA

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

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( 14,933,491 )

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.

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

Results of Operations

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,

Comparison of Three Months Ended June 30, 2024 and 2023

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

For the Three Months Ended June 30,

% of Sales (1)

4 unchanged sentences

Total operating expenses

Operating income

Operating income (loss)

Other income (expense):

Interest expense

Income before income taxes

Income (loss) before income taxes

Income tax expense

Net income (loss)

(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:

Three Months Ended March 31,

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

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

Three Months Ended June 30,

$ (5,798,875 )

2 unchanged sentences

% of consumer sales

% of commercial sales

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

Consumer Segment

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

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

Commercial Segment

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

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

Cost of Goods Sold

Three Months Ended June 30,

$ (6,426,285 )

% of consolidated sales

$ (7,578,093 )

% of consumer sales

% 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.

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

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.

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

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

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

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

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

Three Months Ended June 30,

% of consolidated sales

% of consumer sales

% of commercial sales

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

Consumer Segment

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

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

Commercial Segment

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

The net impact of the aforementioned increase in sales of $1,852,531 and increase in cost of goods sold $1,151,808 resulted in the $700,723 increase in gross margin.

Selling, General and Administrative

Three Months Ended June 30,

% of consolidated sales

% of consumer sales

% of commercial sales

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

Consumer Segment

Selling, general and administrative expense in the consumer segment increased by $1,536,495, or 62.1%, during the three months ended June 30, 2024, to $4,009,468, as compared to $2,472,973 during the same period in 2023.

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

Commercial Segment

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

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

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

Depreciation and Amortization

Three Months Ended June 30,

% of consolidated sales

% of consumer sales

% of commercial sales

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

Consumer Segment

Depreciation and amortization expense in the consumer segment increased by $33,110, or 41.7%, during the three months ended June 30, 2024, to $112,518, as compared to $79,408 during the same period in 2023.

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

Commercial Segment

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

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

Other Income (Expense)

Three Months Ended June 30,

% of consolidated sales

% of consumer sales

% of commercial sales

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

Consumer Segment

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

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

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

Commercial Segment

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

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

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

Interest Expense

Three Months Ended June 30,

% of consolidated sales

% of consumer sales

% of commercial sales

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

Consumer Segment

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

There was no material impact from debt additions or amortization in each comparative period and as such no discussion point.

Commercial Segment

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

There was no material impact from amortization in each comparative period and as such no discussion point.

Income Tax Expense

Three Months Ended June 30,

% of consolidated sales

% of consumer sales

% of commercial sales

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

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

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

The effective income tax rate was 22.8% and 23.7% for the three months ended June 30, 2024 and 2023, respectively.

Differences between our effective income tax rate and the U.S.

federal statutory rate are the result of state taxes and non-deductible expenses, as was the Company’s case for the decrease for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Net Income (Loss)

Three Months Ended June 30,

% of consolidated sales

$ (1,346,267 )

% of consumer sales

% of commercial sales

NM – Not Meaningful

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

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

Consumer Segment

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

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

Commercial Segment

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

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

Earnings Per Share

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

Three Months Ended June 30,

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

Comparison of Six Months Ended June 30, 2024 and 2023

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

For the Six Months Ended June 30,

% of Sales (1)

$ 100,905,409

Cost of goods sold

Three Months Ended March 31,

Selling, general and administrative

Depreciation and amortization

Total operating expenses

Operating income

Other income (expense):

Interest expense

Income (loss) before income taxes

Income tax expense

Net income (loss)

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

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

Six Months Ended June 30,

$ 100,905,409

$ (15,750,627 )

% of consolidated sales

2 unchanged sentences

% 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.

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

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.

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

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,

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

Cost of Goods Sold

Six Months Ended June 30,

$ (15,288,819 )

% of consolidated sales

$ (15,620,694 )

% 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.

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

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.

Cost of goods sold in the consumer segment decreased by $15,620,694, or 22.9%, during the six months ended June 30, 2024, to $52,645,527, as compared to $68,266,221 during the same period in 2023.

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

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

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.

Cost of goods sold in the commercial segment increased by $331,875, or 3.2%, during the six months ended June 30, 2024, to $10,799,114, as compared to $10,467,239 during the same period in 2023.

Six Months Ended June 30,

% of consolidated sales

% of consumer sales

% of commercial sales

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

Consumer Segment

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

The net impact of the aforementioned decrease in sales of $16,129,786 and decrease in cost of goods sold of $15,620,694 resulted in the $509,092 decrease in gross margin.

Commercial Segment

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

The net impact of the aforementioned increase in sales of $379,159 and increase in cost of goods sold of $331,875 resulted in the $47,284 increase in gross margin.

Selling, General and Administrative

Three Months Ended March 31,

Six Months Ended June 30,

% of consolidated sales

2 unchanged sentences

% 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.

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

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.

Selling, general and administrative expense in the consumer segment increased by $2,391,960, or 49.1%, during the six months ended June 30, 2024, to $7,260,958, as compared to $4,868,998 during the same period in 2023.

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.

Selling, general and administrative expense in the commercial segment decreased by $1,904,793, or 16.7%, during the six months ended June 30, 2024, to $9,494,066, as compared to $11,398,859 during the same period in 2023.

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

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

Depreciation and Amortization

Three Months Ended March 31,

Six Months Ended June 30,

% of consolidated sales

1 unchanged sentence

% 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.

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

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.

Depreciation and amortization expense in the consumer segment increased by $28,652, or 16.1%, during the six months ended June 30, 2024, to $206,194, as compared to $177,542 during the same period in 2023.

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

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.

Depreciation and amortization expense in the commercial segment decreased by $13,345, or 2.6%, during the six months ended June 30, 2024, to $499,638, as compared to $512,983 during the same period in 2023.

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

Other Income (Expense)

Three Months Ended March 31,

Six Months Ended June 30,

% of consolidated sales

1 unchanged sentence

% 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.

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

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.

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

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

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.

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

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

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

Interest Expense

Three Months Ended March 31,

Six Months Ended June 30,

% of consolidated sales

1 unchanged sentence

% 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.

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

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.

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

There was no material impact from debt additions or amortization in each comparative period and as such no discussion point.

Commercial Segment

Interest expense in the commercial segment decreased by $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.

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

There was no material impact from amortization in each comparative period and as such no discussion point.

Income Tax Expense

Three Months Ended March 31,

Six Months Ended June 30,

$ (1,011,517 )

$ (1,216,220 )

% of consolidated sales

1 unchanged sentence

% 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.

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

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

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.

The effective income tax rate was 22.6% and 22.7% for the six months ended June 30, 2024 and 2023, respectively.

Differences between our effective income tax rate and the U.S.

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

Three Months Ended March 31,

federal statutory rate are the result of state taxes and non-deductible expenses, as was the Company’s case for the decrease for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Net Income (Loss)

Six Months Ended June 30,

% of consolidated sales

2 unchanged sentences

% 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.

NM – Not Meaningful

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

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.

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

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

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.

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

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

Earnings Per Share

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.

Six Months Ended June 30,

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

Liquidity and Capital Resources

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

Three Months Ended March 31,

Six Months Ended June 30,

Net cash provided by (used in):

1 unchanged sentence

Investing activities

$ (1,214,314 )

Financing activities

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

$ (1,720,659 )

NM – Not Meaningful

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.

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

The increase in cash provided by operations for the six months ended June 30, 2024 was primarily attributed to the impacts of a decrease in net income, a decrease in non-cash charges relating to deferred taxes, along with a reduction in accounts receivable associated with the settlement of a large SOW with a recurring customer, an increased inventory position associated with the expansion of the consumer business, and a decrease in accruals primarily associated with payroll.

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.

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

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

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

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.

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

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

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 do not anticipate the need to fund our operations via the line of credit and we do not have any amounts drawn as of June 30, 2024.

We 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.

9 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis