Envela Corp 10-Q

ITEM 1: FINANCIAL STATEMENTS ENVELA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended June 30, Six Months Ended June 30, (Unaudited) 2024 2023 2024 2023 Sales $ 45,297,002 $ 51,095,877 $ 85,154,782 $ 100,905,409 Cost of goods sold 33,907,545 40,333,830 63,444,641 78,733,460 Gross margin 11,389,457 10,762,047 21,710,141 22,171,949 Expenses: Selling, general and administrative 9,118,048 8,362,554 16,755,024 16,267,857 Depreciation and amortization 362,267 336,174 705,832 690,525 Total operating expenses 9,480,315 8,698,728 17,460,856 16,958,382 Operating income 1,909,142 2,063,319 4,249,285 5,213,567 Other income (expense): Other income 225,417 153,652 463,945 364,431 Interest expense ( 109,141 ) ( 114,688 ) ( 229,995 ) ( 231,752 ) Income before income taxes 2,025,418 2,102,283 4,483,235 5,346,246 Income tax expense ( 461,239 ) ( 498,574 ) ( 1,011,517 ) ( 1,216,220 ) Net income $ 1,564,179 $ 1,603,709 $ 3,471,718 $ 4,130,026 Basic earnings per share: Net income $ 0.06 $ 0.06 $ 0.13 $ 0.15 Diluted earnings per share: Net income $ 0.06 $ 0.06 $ 0.13 $ 0.15 Weighted average shares outstanding: Basic 26,248,554 26,916,648 26,333,796 26,920,618 Diluted 26,263,554 26,931,648 26,348,796 26,935,618 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents ENVELA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 31, 2024 2023 Assets (Unaudited) Current assets: Cash and cash equivalents $ 17,344,001 $ 17,853,853 Accounts receivable, net of allowances 4,838,224 7,811,159 Notes receivable 2,983 4,700 Inventories 26,779,918 23,146,177 Prepaid expenses 922,908 1,082,425 Total current assets 49,888,034 49,898,314 Property and equipment, net 11,383,884 10,764,224 Right-of-use assets from operating leases 3,988,319 4,189,621 Goodwill 3,921,453 3,921,453 Intangible assets, net 4,435,699 4,499,170 Deferred tax asset 6,715 - Other assets 224,756 201,447 Total assets $ 73,848,860 $ 73,474,229 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 3,094,824 $ 3,126,743 Notes payable 1,307,921 1,361,443 Operating lease liabilities 1,939,765 1,807,729 Accrued expenses 1,842,567 2,486,423 Other liabilities 301,670 211,651 Total current liabilities 8,486,747 8,993,989 Deferred tax liability - 38,668 Notes payable, less current portion 12,998,945 13,572,048 Operating lease liabilities, less current portion 2,203,082 2,560,671 Total liabilities $ 23,688,774 $ 25,165,376 Contingencies (Note 16) Stockholders' equity: Preferred stock, $ 0.01 par value; 5,000,000 shares authorized; no shares issued and outstanding - - Common stock, $ 0.01 par value; 60,000,000 shares authorized; 26,924,631 shares issued and 26,155,229 shares outstanding as of June 30, 2024; 26,924,631 shares issued and 26,508,658 shares outstanding as of December 31, 2023 269,246 269,246 Treasury stock at cost, 769,402 and 415,973 shares, as of June 30, 2024 and December 31, 2023, respectively ( 3,775,534 ) ( 2,155,049 ) Additional paid-in capital 40,173,000 40,173,000 Retained earnings 13,493,374 10,021,656 Total stockholders' equity 50,160,086 48,308,853 Total liabilities and stockholders' equity $ 73,848,860 $ 73,474,229 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents ENVELA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, (Unaudited) 2024 2023 Operations Net income $ 3,471,718 $ 4,130,026 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 705,832 690,525 Provision for credit losses 240,166 173,196 Deferred taxes ( 45,383 ) 875,426 Non-cash lease expense 985,996 946,598 Changes in operating assets and liabilities: Accounts receivable 2,732,769 ( 78,053 ) Inventories ( 3,633,741 ) ( 2,762,524 ) Prepaid expenses 159,517 75,838 Other assets ( 18,609 ) ( 202,788 ) Accounts payable ( 31,919 ) ( 96,789 ) Accrued expenses ( 643,856 ) ( 121,843 ) Operating leases ( 1,010,247 ) ( 947,070 ) Other liabilities 90,019 65,948 Net cash provided by operations 3,002,262 2,748,490 Investing Purchase of property and equipment ( 965,525 ) ( 1,300,871 ) Purchase of intangible assets ( 296,496 ) - Investment in notes receivable ( 2,983 ) 578,250 Net cash (used in) by investing ( 1,265,004 ) ( 722,621 ) Financing Payments on notes payable ( 626,625 ) ( 620,242 ) Purchase of treasury stock ( 1,620,485 ) ( 194,820 ) Net cash (used in) financing ( 2,247,110 ) ( 815,062 ) Net change in cash and cash equivalents ( 509,852 ) 1,210,807 Cash and cash equivalents, beginning of period 17,853,853 17,169,969 Cash and cash equivalents, end of period $ 17,344,001 $ 18,380,776 Supplemental disclosures Cash paid during the period for: Interest $ 284,796 $ 233,495 Income taxes $ 1,352,525 $ 162,000 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents ENVELA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the Three Months ended June 30, 2023 and 2024 Additional Total Common Stock Treasury Stock Preferred Stock Paid-in Retained Stockholders' (Unaudited) Shares Amount Shares Amount Shares Amount Capital Earnings Equity Balance as of April 1, 2023 26,924,631 $ 269,246 - $ - - $ - $ 40,173,000 $ 5,400,521 $ 45,842,767 Net Income - - - - - - - 1,603,709 1,603,709 Shares repurchased - - ( 27,421 ) ( 194,820 ) - - - - ( 194,820 ) Balance as of June 30, 2023 26,924,631 $ 269,246 ( 27,421 ) $ ( 194,820 ) - $ - $ 40,173,000 $ 7,004,230 $ 47,251,656 Additional Total Common Stock Treasury Stock Preferred Stock Paid-in Retained Stockholders' (Unaudited) Shares Amount Shares Amount Shares Amount Capital Earnings Equity Balance as of April 1, 2024 26,924,631 $ 269,246 ( 617,313 ) $ ( 3,060,195 ) - $ - $ 40,173,000 $ 11,929,195 $ 49,311,246 Net Income - - - - - - - 1,564,179 1,564,179 Shares repurchased - - ( 152,089 ) ( 715,339 ) - - - - ( 715,339 ) Balance as of June 30, 2024 26,924,631 $ 269,246 ( 769,402 ) $ ( 3,775,534 ) - $ - $ 40,173,000 $ 13,493,374 $ 50,160,086 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents ENVELA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the Six Months ended June 30, 2023 and 2024 Additional Total Common Stock Treasury Stock Preferred Stock Paid-in Retained Stockholders' (Unaudited) Shares Amount Shares Amount Shares Amount Capital Earnings Equity Balance as of January 1, 2023 26,924,631 $ 269,246 - $ - - $ - $ 40,173,000 $ 2,874,204 $ 43,316,450 Net Income - - - - - - - 4,130,026 4,130,026 Shares repurchased - - ( 27,421 ) ( 194,820 ) - - - - ( 194,820 ) Balance as of June 30, 2023 26,924,631 $ 269,246 ( 27,421 ) $ ( 194,820 ) - $ - $ 40,173,000 $ 7,004,230 $ 47,251,656 Additional Total Common Stock Treasury Stock Preferred Stock Paid-in Retained Stockholders' (Unaudited) Shares Amount Shares Amount Shares Amount Capital Earnings Equity Balance as of January 1, 2024 26,924,631 $ 269,246 ( 415,973 ) $ ( 2,155,049 ) - $ - $ 40,173,000 $ 10,021,656 $ 48,308,853 Net Income - - - - - - - 3,471,718 3,471,718 Shares repurchased - - ( 353,429 ) ( 1,620,485 ) - - - - ( 1,620,485 ) Balance as of June 30, 2024 26,924,631 $ 269,246 ( 769,402 ) $ ( 3,775,534 ) - $ - $ 40,173,000 $ 13,493,374 $ 50,160,086 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 — BASIS OF PRESENTATION These unaudited interim condensed consolidated financial statements of Envela Corporation, a Nevada corporation, and its subsidiaries (together with its subsidiaries, the “Company” or “Envela”), included herein have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.”) for interim financial information and with the instructions to Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X prescribed by the Securities and Exchange Commission (the “SEC”). Pursuant to the SEC’s rules and regulations, they do not include all of the information and notes required by accounting principles generally accepted in the U.S. (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments, which are of a normal and recurring nature except those which have been disclosed elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”), necessary for a fair presentation of the consolidated financial statements for these interim periods, have been included. Operating results presented for these interim periods are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2024 (“Fiscal 2024”). Management suggests these unaudited condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“Fiscal 2023”) filed with the SEC on March 21, 2024 (“2023 Annual Report”). Envela files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and other information with the SEC. Such information and amendments to reports previously filed or furnished are available on the Company’s corporate website, www.envela.com, as soon as reasonably practicable after such materials are filed with or furnished to the SEC. The SEC also maintains an internet site at www.sec.gov that contains the Company’s filings. The preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. NOTE 2 — PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS Throughout this document, Envela Corporation is referred to as “we,” “us,” “our,” “Envela,” or the “Company.” Envela serves as a holding company, conducting its operations via subsidiaries engaged in various businesses and activities within the re-commerce and recycling sectors. The products and services we offer are delivered by our subsidiaries under their distinct brands, rather than directly by Envela Corporation itself. Our operations are organized into two operating and reportable segments: consumer and commercial, which additionally are the Company’s reporting units. Consumer Segment Our consumer segment operates in the jewelry industry, specializing in the online and brick-and-mortar sale of authenticated high-end luxury goods, fine jewelry, watches, and bullion. Our diamonds and gemstones are recycled, meaning they were previously set and then unset to become a new design – allowing for a truly low-carbon, ethical origin. The company focuses on buying and selling pre-owned luxury items, ethically sourced diamonds, gemstones, and precious metals, catering to consumers seeking environmentally responsible options for engagement rings, wedding bands, and other fine jewelry. Our profound commitment to extending the lifespan of luxury goods stems from our understanding that well-crafted items have an enduring quality, enabling them to maintain their beauty and value as they are passed from one owner to another. Commercial Segment Our commercial segment specializes in the de-manufacturing of end-of-life electronic assets to reclaim commodities and other materials, while also engaging in the information technology (“IT”) asset disposition (“ITAD”) industry. The separated commodities, including metals, plastics, and glass, are sold to downstream processors where they are further processed and reintroduced into new products. ITAD services maximize the residual value of retired IT assets by adhering to a reuse-first philosophy and ensuring equipment is refurbished and re-marketed after data sanitization. The company focuses on offering services that manage the entire lifecycle of technology products to ensure data security, regulatory compliance, and environmental sustainability. We are proud of our role to support a circular economy through responsible reuse and recycling of electronic devices. For additional information on the consumer and commercial segments, see “Item 1. Business – How We Organize Our Business” in the Company’s 2023 Annual Report. The interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated. 8 Table of Contents NOTE 3 — ACCOUNTING POLICIES AND ESTIMATES Financial Instruments The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses, and other liabilities approximate fair value because of the immediate or short-term nature of these financial instruments. Notes payable approximate fair value due to the market interest rate charged. Use of Estimates The preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include revenue recognition, determining the nature and timing of satisfaction of performance obligations, variable consideration, and other obligations such as product returns and refunds; loss contingencies; the fair value of and/or potential impairment of goodwill and intangible assets for the reporting units; useful lives of our tangible and intangible assets; allowances for credit losses; the market value of, and demand for, our inventory and the potential outcome of uncertain tax positions that have been recognized on our consolidated financial statements or tax returns. Actual results and outcomes may differ from management’s estimates and assumptions. Revenue Recognition Accounting Standards Codification (“ASC”) 606, Revenue Recognition provides guidance to identify performance obligations for revenue-generating transactions. The Company applies a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the corresponding performance obligation is satisfied. Consumer Segment For the consumer segment, revenue from monetary transactions (i.e., cash and accounts receivable) with wholesale customers is recognized when the merchandise is delivered or at the point of sale for retail customers, and payment has been made either by immediate payment or through a receivable obligation. For e-commerce, revenue is recognized when the customer has fulfilled their obligation to pay or promise to pay and goods have been shipped. Revenue on precious metals requiring an assay is recognized upon transfer of title, based on the determination of the underlying weight and price of the associated metals. The Company offers the option of third-party financing for customers wishing to borrow money for their purchase. Revenue is recognized from the sale upon transfer of title, with the promise of the third-party financing company to pay. Commercial Segment The commercial segment recognizes revenue at an amount that reflects the consideration to which the entities expect to be entitled to in exchange for transferring goods or services to the customer. The commercial segment recognizes refining revenue when our inventory arrives at the destination port and the performance obligation is satisfied by transferring the control of the promised goods that are identified in the customer contract. The initial invoice is recognized in full when our performance obligation is satisfied. Under the guidance of ASC 606, an estimate of the variable consideration that we are expected to be entitled to is included in the transaction price stated at the current precious metal spot price and weight of the precious metal. An adjustment to revenue is made once the underlying weight and any precious metal spot price movement is resolved, which is usually around six weeks. Any adjustment from the resolution of the underlying uncertainty is netted with the settlement due from the original contract. The commercial segment also provides recycling services according to a Scope of Work (“SOW”). Revenue from recycling services is recognized upon completion of the SOW at a predetermined amount based on the number of units processed and a preset price per unit or weight measurement. The commercial segment provides freight arrangement services related to inbound asset or material movements to our facilities. Revenue from freight arrangement services is recognized at settlement with our inbound customers which occurs when the SOW has been completed. Under the guidance of ASC 606, the Company is deemed to be a principal and as such records freight arrangement services as a component of revenue, and the associated expense is recorded as a component of cost of goods sold. The commercial segment recognizes revenue on outright sales when terms and transaction price are agreed to, product is shipped, and title is transferred. See Note 10 – Revenue for further detail. 9 Table of Contents Sales Returns and Allowances Sales are recorded, net of expected returns. In some cases, the consumer and commercial segment’s customers may return a product purchased within 30 days of receipt. Our allowance for estimated returns is based on our review of historical returns experience and reduces our reported revenues accordingly. As of June 30, 2024, and December 31, 2023, the consumer segment’s allowance for returns was $ 50,281 and $ 28,402 , respectively. As of June 30, 2024, and December 31, 2023, the commercial segment’s allowance for returns was $ 10,769 and $ 0 , respectively. Concentrations and Credit Risk The Company is potentially subject to concentrations of counterparty credit risk. The concentrations described herein pertain to domestic precious metals transactions requiring an assay which are of short duration and settled on comparable terms. Overall customer concentrations as a percentage of sales may vary as a result of the mix of product being sold within each comparative period. Individual customer concentrations are also impacted by each customer’s production schedule and as such the Company identifies the most appropriate sales outlet to ensure a timely transaction settlement. For the six months ended June 30, 2024, two customers aggregated 21.0 % of our sales and represented 0.0 % of our accounts receivable balance. For the six months ended June 30, 2023, three customers aggregated 39.1 % of our sales and represented 0.0 % of our accounts receivable balance. The Company believes that no single customer is critical to its business as a result of having diverse revenue streams and the optionality of sales outlets primarily associated with base and precious metals. Shipping and Handling Costs Within the consumer and commercial segments, outbound shipping and handling costs are accounted for as fulfillment costs within cost of goods sold. For the three months ended June 30, 2024, and June 30, 2023, the consumer segment’s outbound shipping and handling costs were $ 49,350 and $ 5,237 , respectively. For the three months ended June 30, 2024, and June 30, 2023, the commercial segment’s outbound shipping and handling costs were $ 1,194,203 and $ 1,522,542 , respectively. For the six months ended June 30, 2024, and June 30, 2023, the consumer segment’s outbound shipping and handling costs were $ 49,789 and $ 5,237 , respectively. For the six months ended June 30, 2024, and June 30, 2023, the commercial segment’s outbound shipping and handling costs were $ 2,588,280 and $ 3,212,483 , respectively. Advertising Costs The consumer and commercial segment’s advertising costs are expensed as incurred. For the three months ended June 30, 2024, and June 30, 2023, the consumer segment’s advertising costs were $ 325,079 and $ 345,052 , respectively. For the three months ended June 30, 2024, and June 30, 2023, the commercial segment’s advertising costs were $ 61,882 and $ 6,686 , respectively. For the six months ended June 30, 2024, and June 30, 2023, the consumer segment’s advertising costs were $ 572,982 and $ 551,127 , respectively. For the six months ended June 30, 2024, and June 30, 2023, the commercial segment’s advertising costs were $ 132,977 and $ 21,239 , respectively. Leases We determine if an arrangement is a lease at inception. We do not separate non-lease components from lease components to which they relate and have accounted for the combined lease and non-lease components as a single lease component. Many of our lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that we are reasonably certain of renewing the lease at inception or when a triggering event occurs. In determining our right-of-use assets and lease liabilities, we apply a discount rate to the minimum lease payments within each lease agreement. ASC 842, Leases requires us to use the interest rate that a lessee would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. If we cannot readily determine the discount rate implicit in lease agreements, we utilize our incremental borrowing rate. For leases one-year or less the Company has elected not to record lease liabilities and right-of use assets and instead recognize the expense associated with the lease payments using the straight-line basis. 10 Table of Contents Income Taxes Income taxes are accounted for under the asset and liability method prescribed by ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation of Deferred Tax Assets The Company’s deferred tax assets include certain future tax benefits. The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company reviews the likelihood that the benefit of the deferred tax assets will be realized and the need for valuation allowances on a quarterly basis, or more frequently if events indicate that a review is required. We have not taken a tax position that, if challenged, would have a material effect on the consolidated financial statements or the effective tax rate for the three and six months ended June 30, 2024, and June 30, 2023. As of June 30, 2024, the Company had a deferred tax asset of $ 6,715 . As of December 31, 2023, the Company had a deferred tax liability of $ 38,668 . The Company did not have a valuation allowance as of June 30, 2024, or December 31, 2023. Segment Information The accounting standards for reporting information about operating segments define an operating segment as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses for which discrete financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company’s financial performance is based on the following segments: consumer and commercial. The Company allocates its corporate expenses including selling, general and administrative expenses, depreciation and amortization, other income, interest expense, and income tax expense. See Note 2 – Principles of Consolidation and Nature of Operations for further detail. 11 Table of Contents Earnings Per Share Basic earnings per share of our common stock, par value $ 0.01 per share (our “Common Stock”), is computed by dividing net earnings available to holders of the Company’s Common Stock by the weighted average number of shares of Common Stock outstanding for the reporting period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts requiring the Company to issue Common Stock were exercised or converted into Common Stock. For the calculation of diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect of stock options and warrants outstanding determined using the treasury stock method. Stock-Based Compensation The Company accounts for stock-based compensation by measuring the cost of employee services received in exchange for an award of equity instruments, including grants of stock options, based on the fair value of the award at the date of the grant. In addition, to the extent that the Company receives an excess tax benefit upon exercise of an award, such benefit is reflected as cash flow from financing activities in the consolidated statement of cash flows. See Note 14 – Stock-Based Compensation for further detail. Taxes Collected from Customers The Company’s policy is to present taxes collected from customers and remitted to governmental authorities on a net basis. The Company records the amounts collected as a current liability and relieves such liability upon remittance to the taxing authority without impacting revenue or expenses. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The carrying amounts reported in the condensed consolidated balance sheets approximate fair value. Accounts Receivable, Net of Allowances Accounts receivable represent amounts primarily due from customers on products and services. Our allowance for credit losses is primarily determined by an analysis of our accounts receivable aging, using the expected losses methodology. The allowance for credit losses is determined based on historical experience of collecting past due amounts, based on the degree of their aging. In addition, specific accounts that are considered and expected to be uncollectable are included in the allowance for credit losses. Accounts receivables are considered delinquent when payment has not been made within contract terms. Accounts receivables are written off when all efforts to collect have been exhausted and the potential for recovery is considered remote. As of June 30, 2024, and December 31, 2023, the consumer segment’s allowance for credit losses was $ 0 and $ 0 , respectively. As of June 30, 2024, and December 31, 2023, the commercial segment’s allowance for credit losses was $ 429,908 and $ 260,858 , respectively. Inventories Consumer Segment The consumer segment values inventory at the lower of cost or net realizable value. We acquire inventory based on our own internal estimate of the fair value of the items at the time of purchase. We consider factors such as the current spot market price of precious metals and the current market demand for the items being purchased. Consigned inventory has a net zero balance. The majority of our inventory has some component of its value that is based on the spot market price of precious metals. Because the overall market value for precious metals regularly fluctuates, we monitor these fluctuations for any adverse impact on the carrying value of our inventory. Commercial Segment Our inventory primarily includes processed and unprocessed base metals, electronic scrap materials, as well as technology assets being held for resale. The processed and unprocessed base metals and electronic scrap materials are valued utilizing the average cost method. Our technology assets are valued utilizing the retail cost method. See Note 4 – Inventories for further detail. 12 Table of Contents Goodwill Goodwill is not amortized but evaluated for impairment on an annual basis during the fourth quarter of our fiscal year, or earlier if events or circumstances indicate the carrying value may be impaired. There were no triggering events identified during the six months ended June 30, 2024, requiring an interim goodwill impairment test, and the Company did not record a goodwill impairment charge in any of the periods presented. There have been no other adjustments to goodwill in any of the periods presented. See Note 5 – Goodwill for further detail. Property and Equipment, Net Property and equipment are carried at cost less accumulated depreciation and are depreciated on a straight-line basis over the estimated useful lives of the assets; except for construction in progress which has not yet been placed into service. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Expenditures for repairs and maintenance are expensed as incurred; betterments that increase the value or materially extend the life of the related assets are capitalized. See Note 6 – Property and equipment, net for further detail. Intangible Assets, Net Finite-lived intangible assets are carried at cost less accumulated amortization and are amortized on a straight-line basis over the estimated useful lives of the assets; except for assets under development that have not yet been placed into service. Finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. See Note 7 – Intangibles, net for further detail. Correction of Immaterial Error The Company’s commercial segment previously reported revenue from freight arrangement services as a component of cost of goods sold. The Company has further evaluated the nature and scope of its service offering and has determined that it meets the definition of a principal in accordance with ASC 606 and as such be reported within revenue. The following table summarizes the correction of immaterial error: For the Three Months Ended March 31, June 30, September 30, December 31, 2023 2023 2023 2023 Total Sales $ 48,389,040 $ 50,303,527 $ 36,266,271 $ 36,715,250 $ 171,674,088 Correction of immaterial error 1,420,492 792,350 610,215 766,681 3,589,738 Sales adjusted 49,809,532 51,095,877 36,876,486 37,481,931 175,263,826 Cost of goods sold 36,979,138 39,541,480 26,531,989 26,964,951 130,017,558 Correction of immaterial error 1,420,492 792,350 610,215 766,681 3,589,738 Cost of goods sold adjusted 38,399,630 40,333,830 27,142,204 27,731,632 133,607,296 Gross margin $ 11,409,902 $ 10,762,047 $ 9,734,282 $ 9,750,299 $ 41,656,530 The error had no impact on gross margin, operating income, net income, and basic and diluted earnings per share nor any other financial statement amount. Further these errors had no impact on the consolidated balance sheets, statements of stockholders’ equity, and statements of cash flows. These corrections do not affect any of the metrics used to calculate and evaluate management’s compensation and have no impact on bonuses, commissions, stock-based compensation, or any other employee renumeration. Historical amounts have been corrected and are presented on a comparable basis. See Note 10 – Revenue for further detail. Changes in Disclosure The Company has elected to discontinue reporting the disaggregation of inventory and revenue by resale and recycle. The Company’s business operations continue to evolve and include fee-for-service revenue that does not always correlate to these categories and underlying inventory positions; further, our inventory positions within these disaggregated presentations can vary at any point in time as they are a diverse mix of technology assets, base and precious metals and luxury hard assets. The Company believes that its disclosure of the nature of its operations, the inventory held at each segment and associated risk factors provides a sufficient understanding of its impact on our business. See Note 4 – Inventories and Note 10 – Revenue, for further detail. 13 Table of Contents Reclassifications For the Company’s 2023 Annual Report, the presentation of the operations section within its Consolidated Cash Flow Statements was updated to present "non-cash lease expense" as a separate line item, previously included within "changes in operating assets and liabilities – operating leases.” The Company has elected to reclassify $ 946,598 from operating leases to non-cash lease expense in the Condensed Consolidated Cash Flow Statement for the six months ended June 30, 2023. See the Condensed Consolidated Statements of Cash Flows for further detail. For the Company’s 2023 Annual Report, the amount reported for other current assets within the Consolidated Balance Sheets is related entirely to notes receivables. The Company has elected to present notes receivable as its own line item and has reclassified the historical presentation of the aforementioned as of December 31, 2023. See the Condensed Consolidated Balance Sheets for further detail. The Company previously did not disclose construction in progress and intangible assets under development. The Company has determined that providing this information further enhances the understanding of the nature of our capital expenditures. The Company has elected to reclassify the historical presentation of the aforementioned as of December 31, 2023. See Note 6 – Property and equipment, net for further detail. The Company previously reported the development of its enterprise resource planning system within property and equipment, net. The Company has further evaluated the nature of this asset under ASC 350, Intangibles – Goodwill and Other, and has determined that it is a nonmonetary asset without physical substance and was acquired separately from hardware and as such be reported within intangibles, net. The Company has elected to reclassify the historical presentation of the aforementioned as of December 31, 2023. See Note 7 – Intangibles, net for further detail. Recent Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07”), which will require the Company to disclose segment expenses that are significant and regularly provided to the CODM. In addition, ASU 2023-07 will require the Company to disclose the title and position of its CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources. ASU 2023-07 will be effective for fiscal years beginning January 1, 2024, Form 10-K, and interim periods within fiscal years beginning on January 1, 2025. The standard will be adopted beginning January 1, 2024, for the fiscal year and adopted for the interim periods beginning January 1, 2025, by using a modified retrospective transition approach. The Company does not expect adoption to have a material impact on its consolidated financial statements. In December 2023, the FASB issued Accounting Standards Update 2023-09 (“ASU 2023-09”), Income Taxes (Topic 740): Improvement to Income Tax Disclosures, amending income tax disclosure requirements for the effective tax rate reconciliation and income taxes paid. The amendments in ASU 2023-09 will be effective for fiscal years beginning January 1, 2025. The standard will be adopted beginning January 1, 2025, for the fiscal year on a prospective basis. Early adoption and retrospective application of the amendments are permitted. The Company does not expect adoption to have a material impact on its consolidated financial statements. No other recently issued or effective ASUs had, or are expected to have, a material impact on the Company’s results of operations, financial condition, or liquidity. 14 Table of Contents NOTE 4 — INVENTORIES The following table summarizes the details of the Company’s inventories: June 30, December 31, 2024 2023 Consumer Trade inventories $ 25,294,422 $ 21,905,055 Sub-total 25,294,422 21,905,055 Commercial Trade inventories 1,485,496 1,241,122 Sub-total 1,485,496 1,241,122 $ 26,779,918 $ 23,146,177 NOTE 5 — GOODWILL The following table summarizes the details of the Company’s changes in goodwill: June 30, December 31, 2024 2023 Consumer Opening balance $ 300,000 $ - Additions (reductions) (1) - 300,000 Sub-total 300,000 300,000 Commercial Opening balance 3,621,453 3,621,453 Additions (reductions) - - Sub-total 3,621,453 3,621,453 $ 3,921,453 $ 3,921,453 (1) The increase in goodwill of $ 300 thousand for the year ended December 31, 2023, relates to the Company’s acquisition of Steven Kretchmer, Inc. on September 12, 2023 (“Kretchmer Transaction”). The Kretchmer Transaction remains within the measurement period of ASC 805, Business Combinations. The measurement period is the one-year period after the acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination. 15 Table of Contents NOTE 6 — PROPERTY AND EQUIPMENT, NET The following table summarizes the details of the Company’s property and equipment, net: Adjusted June 30, December 31, December 31, 2024 2023 Reclassification 2023 Consumer Land $ 1,824,892 $ 1,824,892 $ - $ 1,824,892 Building and improvements 4,409,143 4,126,507 ( 1,443,207 ) 2,683,300 Leasehold improvements 1,516,648 1,450,695 - 1,450,695 Furniture and fixtures 987,853 802,058 ( 101,226 ) 700,832 Machinery and equipment 1,276,322 1,224,783 ( 3,215 ) 1,221,568 Vehicles 22,859 22,859 - 22,859 Construction in progress (1) 83,773 - 1,547,648 1,547,648 10,121,490 9,451,794 - 9,451,794 Less: accumulated depreciation ( 3,104,314 ) ( 2,946,727 ) - ( 2,946,727 ) Sub-total 7,017,176 6,505,067 - 6,505,067 Commercial Leasehold improvements 151,647 151,647 - 151,647 Furniture and fixtures 145,950 145,950 - 145,950 Machinery and equipment 1,250,953 1,142,731 ( 48,979 ) 1,093,752 Vehicles 222,232 222,232 - 222,232 Construction in progress (2) - - 48,979 48,979 1,770,782 1,662,560 - 1,662,560 Less: accumulated depreciation ( 965,780 ) ( 819,389 ) - ( 819,389 ) Sub-total 805,002 843,171 - 843,171 Corporate Land 1,106,664 1,106,664 - 1,106,664 Building and improvements 2,688,523 2,505,716 ( 3,500 ) 2,502,216 Machinery and equipment 28,627 28,627 - 28,627 Enterprise resource planning system (3) - 191,075 ( 191,075 ) - Construction in progress (4) - - 3,500 3,500 3,823,814 3,832,082 ( 191,075 ) 3,641,007 Less: accumulated depreciation ( 262,108 ) ( 225,021 ) - ( 225,021 ) Sub-total 3,561,706 3,607,061 ( 191,075 ) 3,415,986 $ 11,383,884 $ 10,955,299 $ ( 191,075 ) $ 10,764,224 (1) The reclassification primarily related to the build-out of our Arizona retail stores, which were placed into service in the second quarter of Fiscal 2024. (2) The reclassification related to the build-out of production equipment, which was placed into service in the second quarter of Fiscal 2024. (3) Reclassified amount to intangibles, net. See Note 7 – Intangible, Net for further details. (4) The reclassification related to improvements to our corporate headquarters, which were placed into service in the second quarter of Fiscal 2024. 16 Table of Contents NOTE 7 — INTANGIBLES, NET The following table summarizes the details of the Company’s intangible assets, net: Adjusted June 30, December 31, December 31, 2024 2023 Reclassification 2023 Consumer Technology $ 395,396 $ 371,352 $ - $ 371,352 Assets under development (2) 6,084 - - - 401,480 371,352 - 371,352 Less: accumulated amortization ( 371,136 ) ( 365,852 ) - ( 365,852 ) Sub-total 30,344 5,500 - 5,500 Commercial Trademarks/tradenames 2,869,000 2,869,000 - 2,869,000 Customer contracts 1,873,000 1,873,000 - 1,873,000 Customer relationships 1,809,000 1,809,000 - 1,809,000 6,551,000 6,551,000 - 6,551,000 Less: accumulated amortization ( 2,563,129 ) ( 2,248,405 ) - ( 2,248,405 ) Sub-total 3,987,871 4,302,595 - 4,302,595 Corporate Technology 422,317 - - Assets under development (1)(2) 35,125 - 191,075 191,075 457,442 - 191,075 191,075 Less: accumulated amortization ( 39,958 ) - - - Sub-total 417,484 - 191,075 191,075 $ 4,435,699 $ 4,308,095 $ 191,075 $ 4,499,170 (1) The reclassification related to the initial development of our enterprise resource planning system, which was placed into service in the first quarter of Fiscal 2024. (2) As of June 30, 2024, these intangible assets are under development, have not yet been placed into service and are not yet amortizable. The following table depicts the Company’s estimated future amortization expense related to intangible assets as of June 30, 2024: Consumer Commercial Corporate Total 2024 3,378 327,550 42,483 373,411 2025 4,728 655,100 84,969 744,797 2026 4,728 655,100 84,969 744,797 2027 4,728 655,100 84,969 744,797 2028 4,728 655,100 84,969 744,797 Thereafter 1,970 1,039,921 - 1,041,891 $ 24,260 $ 3,987,871 $ 382,359 $ 4,394,490 17 Table of Contents NOTE 8 — ACCRUED EXPENSES The following table summarizes the details of the Company’s accrued expenses: June 30, December 31, 2024 2023 Consumer Accrued interest $ 14,282 $ 11,904 Payroll 148,343 226,435 Taxes 194,072 125,130 Other 24,255 - Sub-total 380,952 363,469 Commercial Accrued interest 6,287 7,903 Payroll 199,389 375,663 Taxes 16,735 - Unvouchered inventory payments 1,053,480 1,041,188 Other 69,106 96,422 Sub-total 1,344,997 1,521,176 Corporate Accrued interest 6,838 7,227 Payroll 15,982 24,543 Taxes 59,628 404,357 Professional fees 32,920 165,651 Other 1,250 - Sub-total 116,618 601,778 $ 1,842,567 $ 2,486,423 18 NOTE 9 — SEGMENT INFORMATION The following table depicts the Company’s disaggregated condensed consolidated statements of income for the three months ended June 30, 2024 and 2023: Three Months Ended June 30, 2024 % of Sales (1) 2023 % of Sales (1) Consumer $ 31,990,028 70.6 % $ 39,641,434 77.6 % Commercial 13,306,974 29.4 % 11,454,443 22.4 % Sales 45,297,002 100.0 % 51,095,877 100.0 % Consumer 27,968,699 61.7 % 35,546,792 69.6 % Commercial 5,938,846 13.1 % 4,787,038 9.4 % Cost of goods sold 33,907,545 74.9 % 40,333,830 78.9 % Gross margin 11,389,457 25.1 % 10,762,047 21.1 % Expenses: Consumer 4,009,468 8.9 % 2,472,973 4.8 % Commercial 5,108,580 11.3 % 5,889,581 11.5 % Selling, general and administrative 9,118,048 20.2 % 8,362,554 16.4 % Consumer 112,518 0.2 % 79,408 0.2 % Commercial 249,749 0.6 % 256,766 0.5 % Depreciation and amortization 362,267 0.8 % 336,174 0.7 % Total operating expenses 9,480,315 20.9 % 8,698,728 17.0 % Operating income 1,909,142 4.2 % 2,063,319 4.0 % Other income (expense): Consumer 8,003 0.0 % 23,929 0.0 % Commercial 217,414 0.5 % 129,723 0.3 % Other income 225,417 0.5 % 153,652 0.3 % Consumer ( 55,697 ) - 0.1 % ( 58,209 ) - 0.1 % Commercial ( 53,444 ) - 0.1 % ( 56,479 ) - 0.1 % Interest expense ( 109,141 ) - 0.2 % ( 114,688 ) - 0.2 % Income before income taxes 2,025,418 4.5 % 2,102,283 4.1 % Consumer ( 29,607 ) - 0.1 % ( 339,672 ) - 0.7 % Commercial ( 431,632 ) - 1.1 % ( 158,902 ) - 0.4 % Income tax expense ( 461,239 ) - 1.2 % ( 498,574 ) - 1.1 % Net income $ 1,564,179 3.5 % $ 1,603,709 3.1 % (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. Due to rounding, percentages presented may not add up precisely to the totals provided. 19 Table of Contents The following table depicts the Company’s disaggregated condensed consolidated statements of income for the six months ended June 30, 2024 and 2023: Six Months Ended June 30, 2024 % of Sales (1) 2023 % of Sales (1) Consumer $ 60,216,045 70.7 % $ 76,345,831 75.7 % Commercial 24,938,737 29.3 % 24,559,578 24.3 % Sales 85,154,782 100.0 % 100,905,409 100.0 % Consumer 52,645,527 61.8 % 68,266,221 67.7 % Commercial 10,799,114 12.7 % 10,467,239 10.4 % Cost of goods sold 63,444,641 74.5 % 78,733,460 78.0 % Gross margin 21,710,141 25.5 % 22,171,949 22.0 % Expenses: Consumer 7,260,958 8.5 % 4,868,998 4.8 % Commercial 9,494,066 11.1 % 11,398,859 11.3 % Selling, general and administrative 16,755,024 19.7 % 16,267,857 16.1 % Consumer 206,194 0.2 % 177,542 0.2 % Commercial 499,638 0.6 % 512,983 0.5 % Depreciation and amortization 705,832 0.8 % 690,525 0.7 % Total operating expenses 17,460,856 20.5 % 16,958,382 16.8 % Operating income 4,249,285 5.0 % 5,213,567 5.2 % Other income (expense): Consumer 16,008 0.0 % 47,463 0.0 % Commercial 447,937 0.5 % 316,968 0.3 % Other income 463,945 0.5 % 364,431 0.4 % Consumer ( 120,098 ) - 0.1 % ( 117,827 ) - 0.1 % Commercial ( 109,897 ) - 0.1 % ( 113,925 ) - 0.1 % Interest expense ( 229,995 ) - 0.3 % ( 231,752 ) - 0.2 % Income before income taxes 4,483,235 5.3 % 5,346,246 5.3 % Consumer ( 88,758 ) - 0.1 % ( 657,513 ) - 0.7 % Commercial ( 922,759 ) - 1.2 % ( 558,707 ) - 0.7 % Income tax expense ( 1,011,517 ) - 1.3 % ( 1,216,220 ) - 1.4 % Net income $ 3,471,718 4.1 % $ 4,130,026 4.1 % (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. Due to rounding, percentages presented may not add up precisely to the totals provided. The following chart depicts the Company’s total assets: As of June 30, 2024 December 31, 2023 Consumer $ 35,482,326 $ 35,839,361 Commercial 33,765,284 33,777,041 Corporate 4,601,250 3,857,827 $ 73,848,860 $ 73,474,229 20 Table of Contents NOTE 10 — REVENUE The following table depicts the Company’s disaggregation of total sales and gross margin for the three months ended June 30, 2024 and 2023: For the Three Months Ended June 30, 2024 2023 Sales Gross Margin Margin Sales Gross Margin Margin Consumer $ 31,990,028 $ 4,021,329 12.6 % $ 39,641,434 $ 4,094,642 10.3 % Commercial 13,306,974 7,368,128 55.4 % 10,662,093 6,667,405 62.5 % Correction of immaterial error (1) - - - 792,350 - - Commercial adjusted 13,306,974 7,368,128 55.4 % 11,454,443 6,667,405 58.2 % $ 45,297,002 $ 11,389,457 25.1 % $ 51,095,877 $ 10,762,047 21.1 % (1) Correction of immaterial error relating to freight arrangement services, see Note 3 – Accounting Policies and Estimates for further detail. The following table depicts the Company’s disaggregation of total sales and gross margin for the six months ended June 30, 2024 and 2023: For the Six Months Ended June 30, 2024 2023 Sales Gross Margin Margin Sales Gross Margin Margin Consumer $ 60,216,045 $ 7,570,518 12.6 % $ 76,345,831 $ 8,079,610 10.6 % Commercial 24,938,737 14,139,623 56.7 % 22,346,736 14,092,339 63.1 % Correction of immaterial error (1) - - - 2,212,842 - - Commercial adjusted 24,938,737 14,139,623 56.7 % 24,559,578 14,092,339 57.4 % $ 85,154,782 $ 21,710,141 25.5 % $ 100,905,409 $ 22,171,949 22.0 % (1) Correction of immaterial error relating to freight arrangement services, see Note 3 – Accounting Policies and Estimates for further detail. The following table lists the opening and closing balances of our contract assets and liabilities: Accounts Contract Contract Receivable Assets Liabilities Consumer Opening Balance - 1/1/2023 839,239 - 196,382 Closing Balance - 6/30/2023 309,234 - 249,179 Commercial Opening Balance - 1/1/2023 7,110,536 - - Closing Balance - 6/30/2023 7,545,398 - - Accounts Contract Contract Receivable Assets Liabilities Consumer Opening Balance - 1/1/2024 3,411,501 - 58,728 Closing Balance - 6/30/2024 396,415 - 127,226 Commercial Opening Balance - 1/1/2024 4,399,658 - - Closing Balance - 6/30/2024 4,441,809 - - The Company has no contract assets, and the only contract liability is customer deposits, which are reported within other liabilities in the Condensed Consolidated Balance Sheets. 21 Table of Contents NOTE 11 — LEASES The following table depicts the Company’s future annual minimum leases payments as of June 30, 2024: Operating Leases Consumer 2024 $ 344,789 2025 544,944 2026 514,210 2027 209,324 2028 159,210 Thereafter 39,803 Total minimum lease payments 1,812,280 Less imputed interest ( 105,001 ) Sub-total 1,707,279 Commercial 2024 699,643 2025 1,321,299 2026 474,320 2027 33,454 2028 - Thereafter - Total minimum lease payments 2,528,716 Less imputed interest ( 93,148 ) Sub-total 2,435,568 Total 4,142,847 Current portion 1,939,765 $ 2,203,082 All of the Company’s leased facilities as of June 30, 2024, are non-cancellable. The leases are a combination of triple net leases, for which the Company pays its proportionate share of common area maintenance, property taxes, and property insurance, and modified gross leases, for which the Company directly pays for common area maintenance and property insurance. Leasing costs for the three months ended June 30, 2024 and 2023 were $ 767,902 and $ 705,635 , respectively, comprised of a combination of minimum lease payments and variable lease costs. Leasing costs for the six months ended June 30, 2024 and 2023 were $ 1,552,637 and $ 1,361,885 , respectively, comprised of a combination of minimum lease payments and variable lease costs. As of June 30, 2024, the weighted average remaining lease term and weighted average discount rate for operating leases were 2.5 years and 3.8 %. As of June 30, 2023, the weighted average remaining lease term and weighted average discount rate for operating leases were 2.8 years and 4.4 %. 22 Table of Contents NOTE 12 — BASIC AND DILUTED AVERAGE SHARES The following table is a reconciliation of the Company’s basic and diluted weighted average common shares for the three months ended June 30, 2024 and 2023: For the Three Months Ended June 30, 2024 2023 Basic weighted average shares 26,248,554 26,916,648 Effect of potential dilutive securities 15,000 15,000 Diluted weighted average shares 26,263,554 26,931,648 The following table is a reconciliation of the Company’s basic and diluted weighted average common shares for the six months ended June 30, 2024 and 2023: For the Six Months Ended June 30, 2024 2023 Basic weighted average shares 26,333,796 26,920,618 Effect of potential dilutive securities 15,000 15,000 Diluted weighted average shares 26,348,796 26,935,618 For the three and six months ended June 30, 2024, and 2023, there was a total of 15 thousand common stock options unexercised. For the three and six months ended June 30, 2024, and 2023, there were no anti-dilutive shares. On March 14, 2023, a stock repurchase program was unanimously approved by the Company’s Board of Directors (the “Board”), which gave management authorization to purchase up to one million shares of the Company’s stock, at a per-share price not to exceed $ 9.00 , on the open market. The plan expires on March 31, 2026. The following table lists the repurchase of Company shares for the three and six months ended June 30, 2024: Total Number of Average Price Total Price Shares Available Fiscal Period Shares Purchased Paid per Share Paid to Purchase Balance as of January 1, 2024 415,973 $ 5.18 $ 2,155,049 584,027 January 1 - 31, 2024 59,417 4.52 268,569 524,610 February 1 - 29, 2024 56,343 4.53 255,195 468,267 March 1 - 31, 2024 85,580 4.46 381,382 382,687 Balance as of March 31, 2024 617,313 $ 4.96 $ 3,060,195 382,687 April 1 - 30, 2024 30,891 4.66 143,840 351,796 May 1 - 31, 2024 37,672 4.65 175,257 314,124 June 1 - 30, 2024 83,526 4.74 396,242 230,598 Balance as of June 30, 2024 769,402 $ 4.91 $ 3,775,534 230,598 For the three months ended June 30, 2024, the Company repurchased 152,089 shares for $ 715,339 , for an average price of $ 4.70 . For the six months ended June 30, 2024, the Company repurchased 353,429 shares for $ 1,620,485 , for an average price of $ 4.58 . 23 Table of Contents NOTE 13 — DEBT The following table summarizes the details of the Company’s long-term debt obligations: Outstanding Balance June 30, December 31, 2024 2023 Consumer Note payable, FSB (1) $ 2,509,716 $ 2,563,108 Note payable, Truist Bank (3) 819,975 838,430 Notes payable, TBT (4,5) 2,023,143 2,064,928 Note payable, Kretchmer Transaction (6) 200,000 200,000 Sub-total 5,552,834 5,666,466 Commercial Note payable, FSB (2) 5,694,200 5,815,381 Note payable, Avail Transaction (7) 500,000 833,333 Sub-total 6,194,200 6,648,714 Corporate Line of credit, FSB (8) - - Note payable, TBT (9) 2,559,832 2,618,311 Sub-total 2,559,832 2,618,311 Sub-total 14,306,866 14,933,491 Current portion ( 1,307,921 ) ( 1,361,443 ) $ 12,998,945 $ 13,572,048 The following table depicts the Company’s future principal payments on long-term debt obligations as of June 30, 2024: 2024 2025 2026 2027 2028 Thereafter Consumer Note payable, FSB (1) 55,107 112,154 2,342,455 - - - Note payable, Truist Bank (3) 18,800 38,745 40,203 41,716 43,216 637,296 Notes payable, TBT (4,5) 43,419 487,260 71,359 74,081 76,767 1,270,257 Note payable, Kretchmer Transaction (6) 200,000 - - - - - Sub-total 317,326 638,159 2,454,017 115,797 119,983 1,907,553 Commercial Note payable, FSB (2) 125,031 254,466 5,314,702 - - - Note payable, Avail Transaction (7) 333,333 166,667 - - - - Sub-total 458,364 421,133 5,314,702 - - - Corporate Line of Credit, FSB (8) - - - - - - Note payable, TBT (9) 59,442 2,500,390 - - - - Sub-total 59,442 2,500,390 - - - - $ 835,132 $ 3,559,682 $ 7,768,719 $ 115,797 $ 119,983 $ 1,907,553 (1) On November 23, 2021, the consumer segment entered into a $ 2.781 million secured amortizing note payable with Farmer’s State Bank of Oakley, Kansas (“FSB”). The note payable bears interest at 3.10 % and matures on November 15, 2026. (2) On November 23, 2021, the commercial segment entered into a $ 6.309 million secured amortizing note payable with FSB. The note payable bears interest at 3.10 % and matures on November 15, 2026. (3) On July 9, 2020, the consumer segment entered into a $ 1.195 million secured amortizing note payable with Truist Bank. The note payable bears interest at 3.65 % and matures on July 9, 2030. (4) On September 14, 2020, the consumer segment entered into a $ 620 thousand secured amortizing note payable with Texas Bank & Trust (“TBT”). The note payable bears interest at 3.75 % and matures on September 14, 2025. (5) On July 30, 2021, the consumer segment entered into a $ 2.215 million secured amortizing note payable with TBT. The note payable bears interest at 3.75 % and matures on July 30, 2031. (6) On September 12, 2023, the consumer segment entered into a $300 thousand secured amortizing note payable in relation to the Kretchmer Transaction. The note payable’s imputed interest is 3.10% and matures on October 1, 2025 . The consumer segment is restructuring the Kretchmer Transaction and the aforementioned terms and conditions and as such is electing to record the note payable in current liabilities. (7) On October 29, 2021, the consumer segment entered into a $4.500 million secured amortizing note payable in relation to the acquisition of Avail Recovery Solutions, LLC on October 29, 2021 (“Avail Transaction"). The note payable’s imputed interest is 3.10% and matures on April 1, 2025 . (8) On November 23, 2021, the Company entered into a $ 3.500 million secured line of credit with FSB. The line of credit bears interest at 3.10 % and matures on November 15, 2024. This note was previously presented within our commercial segment and is now presented within corporate as the line of credit provides borrowing capacity for all segments. (9) On November 4, 2020, a wholly owned subsidiary of Envela entered into a $ 2.960 million secured amortizing note payable with TBT. The note payable bears interest at 3.25 % and matures on November 4, 2025. 24 Table of Contents The Company was in compliance with all of its debt obligation covenants for the three and six months ended June 30, 2024, and June 30, 2023. The following table depicts the Company’s future scheduled aggregate principal payments and maturities as of June 30, 2024: Scheduled Principal Loan Scheduled Principal Payments and Maturities by Year: Payments Maturities Total 2024 635,132 200,000 835,132 2025 767,282 2,792,400 3,559,682 2026 457,492 7,311,227 7,768,719 2027 115,797 - 115,797 2028 119,983 - 119,983 Thereafter 291,704 1,615,849 1,907,553 $ 2,387,390 $ 11,919,476 $ 14,306,866 NOTE 14 — STOCK-BASED COMPENSATION There was no stock-based compensation expense for the three and six months ended June 30, 2024, and June 30, 2023. NOTE 15 — RELATED PARTY TRANSACTIONS The Company has a corporate policy governing the identification, review, consideration, and approval or ratification of transactions with related persons. Under this policy, all related party transactions are identified and approved prior to consummation of the transaction to ensure they are consistent with the Company’s best interests and the best interests of its shareholders. There are no related party transactions subject to reporting as of June 30, 2024, and June 30, 2023. NOTE 16 — CONTINGENCIES We review the need to accrue for any loss contingency and establish a liability when, in the opinion of management, it is probable that a matter would result in a liability and the amount of loss, if any, can be reasonably estimated. We do not believe that the resolution of any currently pending lawsuits, claims, and proceedings, either individually or in the aggregate, will have a material adverse effect on financial position, results of operations, or liquidity. However, the outcomes of any currently pending lawsuits, claims, and proceedings cannot be predicted, and therefore, there can be no assurance that this will be the case. 25 Table of Contents