Envela Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless the context indicates otherwise for one of our specific operating segments, references to “we,” “us,” “our,” the “Company” and “Envela” refer to the consolidated business operations of Envela Corporation, and all of its direct and indirect subsidiaries. Forward-Looking Statements This Quarterly Report on Form 10-Q for the quarter ended 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; and (iii) our strategies, plans and objectives, together with other statements that are not historical facts, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,” “will,” “would,” “expect,” “intend,” “could,” “estimate,” “should,” “anticipate”, “potential,” “continue,” “deploy” or “believe.” We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements other than statements of historical information provided herein are forward-looking based on current expectations regarding important risk factors. Many of these risks and uncertainties are beyond our ability to control, and, in many cases, we cannot predict all of the risks and uncertainties that could cause our actual results to differ materially from those expressed in the forward-looking statements. Actual results could differ materially from those expressed in the forward-looking statements, and readers should not regard those statements as a representation by us or any other person that the results expressed in the statements will be achieved. Important risk factors that could cause results or events to differ from current expectations are described under the section entitled “Risk Factors” in the Company’s 2023 Annual Report and any material updates are described under the section of this Form 10-Q entitled “Risk Factors” and elsewhere in this Form 10-Q. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the operations, performance, development and results of our business. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date thereon, including without limitation, changes in our business strategy or planned capital expenditures, or store growth plans, or to reflect the occurrence of unanticipated events. Introduction 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. 26 Table of Contents Use of Non-U.S. GAAP Financial Measures Within this management discussion and analysis, we use supplemental measures of our performance, which are derived from our interim consolidated financial information, but which are not presented in our interim consolidated financial statements prepared in accordance with U.S. GAAP. We believe that providing these non-U.S. GAAP financial measures adds a meaningful presentation of our operating and financial performance. See the reconciliation of net income to adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) and Net Cash, in Non-U.S. GAAP Financial Measures below. Critical Accounting Policies and Estimates There were no material changes to our critical accounting policies and estimates as described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Company’s 2023 Annual Report. We believe that the accounting estimates discussed below relate to the more significant areas involving management’s judgments and estimates. Economic Conditions The U.S. and other world economies are currently experiencing high interest rates and high levels of inflation, coupled with commodity price risk, mainly associated with variations in the market price of precious metals and diamonds which have the potential to impact consumer discretionary spending behavior. Furthermore, adverse macroeconomic conditions can also impact demand for resale technology assets. As to counterbalance economic cycles that impact market selling prices and/or underlying operating costs we adjust the inbound purchase price of commodity-based products, luxury hard assets, and resale technology. We continuously monitor our inventory positions and associated working capital to respond to market conditions and to meet seasonal business cycles and expansionary plans. These economic cycles may from time to time require the business to utilize its line of credit or seek additional capital. There can be no assurance that the measures we have adopted will be successful in mitigating the aforementioned risks. General 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: commercial and consumer. Consumer Segment Our consumer segment operates in the jewelry industry, specializing in the online and brick-and-mortar sale of authenticated high-end luxury goods, fine jewelry, watches, and bullion. Our diamonds and gemstones are recycled, meaning they were previously set and then unset to become a new design – allowing for a truly low-carbon, ethical origin. The company focuses on buying and selling pre-owned luxury items, ethically sourced diamonds, gemstones, and precious metals, catering to consumers seeking environmentally responsible options for engagement rings, wedding bands, and other fine jewelry. Our profound commitment to extending the lifespan of luxury goods stems from our understanding that well-crafted items have an enduring quality, enabling them to maintain their beauty and value as they are passed from one owner to another. 27 Table of Contents Commercial Segment Our commercial segment specializes in the de-manufacturing of end-of-life electronic assets to reclaim commodities and other materials, while also engaging in the (“IT”) asset disposition (“ITAD”) industry. The separated commodities, including metals, plastics, and glass, are sold to downstream processors where they are further processed and reintroduced into new products. ITAD services maximize the residual value of retired IT assets by adhering to a reuse-first philosophy and ensuring equipment is refurbished and re-marketed after data sanitization. The company focuses on offering services that manage the entire lifecycle of technology products to ensure data security, regulatory compliance, and environmental sustainability. We are proud of our role to support a circular economy through responsible reuse and recycling of electronic devices. Segment Activities The Company believes it is well positioned to take advantage of its overall capital structure. Consumer Segment Our strategy is to expand the number of locations we operate 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. Commercial Segment Our strategy is to expand both organically and through acquisitions. The Company has taken considerable steps to bolster its management team and operating systems 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 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. Recent Accounting Pronouncements See Note 3 - Accounting Policies and Estimates, to these interim condensed consolidated financial statements for recently adopted accounting pronouncements. Non-U.S. GAAP Financial Measures Adjusted EBITDA Adjusted EBITDA is a key performance measure that management uses to assess our operating performance. Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure as an overall assessment of our performance, to evaluate the effectiveness of our strategies and for planning purposes. Adjusted EBITDA may not be comparable to similarly titled metrics of other companies. Adjusted EBITDA is a non-U.S. GAAP measure and should not be considered as an alternative to the presentation of net income or any other measure of financial performance calculated and presented in accordance with U.S. GAAP. 28 Table of Contents 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, 2024 2023 Consumer Commercial Consolidated Consumer Commercial Consolidated Adjusted EBITDA Reconciliation: Net Income (Loss) $ (177,958 ) $ 1,742,137 $ 1,564,179 $ 1,168,309 $ 435,400 $ 1,603,709 Add (deduct): Depreciation and amortization 112,518 249,749 362,267 79,408 256,766 336,174 Other income (8,003 ) (217,414 ) (225,417 ) (23,929 ) (129,723 ) (153,652 ) Interest expense 55,697 53,444 109,141 58,209 56,479 114,688 Income tax expense 29,607 431,632 461,239 339,672 158,902 498,574 Adjusted EBITDA $ 11,861 $ 2,259,548 $ 2,271,409 $ 1,621,669 $ 777,824 $ 2,399,493 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, 2024 2023 Consumer Commercial Consolidated Consumer Commercial Consolidated Adjusted EBITDA Reconciliation: Net Income (Loss) $ (89,482 ) $ 3,561,200 $ 3,471,718 $ 2,305,193 $ 1,824,833 $ 4,130,026 Add (deduct): Depreciation and amortization 206,194 499,638 705,832 177,542 512,983 690,525 Other income (16,008 ) (447,937 ) (463,945 ) (47,463 ) (316,968 ) (364,431 ) Interest expense 120,098 109,897 229,995 117,827 113,925 231,752 Income tax expense 88,758 922,759 1,011,517 657,513 558,707 1,216,220 Adjusted EBITDA $ 309,560 $ 4,645,557 $ 4,955,117 $ 3,210,612 $ 2,693,480 $ 5,904,092 Net Cash Net Cash is the difference between (i) cash and cash equivalents and (ii) the sum of debt obligations. We believe that presenting net of cash is useful to investors as a measure of our leverage, as cash and cash equivalents can be used, among other things, to repay indebtedness. The following table depicts the Company’s net cash: June 30, December 31, 2024 2023 Total cash $ 17,344,001 $ 17,853,853 Less: debt obligations (14,306,866 ) ( 14,933,491 ) Net cash $ 3,037,135 $ 2,920,362 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. 29 Table of Contents Results of Operations 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, 2024 2023 Consumer Commercial Consolidated % of Sales (1) Consumer Commercial Consolidated % of Sales (1) Sales $ 31,990,028 $ 13,306,974 $ 45,297,002 100.0 % $ 39,641,434 $ 11,454,443 $ 51,095,877 100.0 % Cost of goods sold 27,968,699 5,938,846 33,907,545 74.9 % 35,546,792 4,787,038 40,333,830 78.9 % Gross margin 4,021,329 7,368,128 11,389,457 25.1 % 4,094,642 6,667,405 10,762,047 21.1 % Expenses: Selling, general and administrative 4,009,468 5,108,580 9,118,048 20.1 % 2,472,973 5,889,581 8,362,554 16.4 % Depreciation and amortization 112,518 249,749 362,267 0.8 % 79,408 256,766 336,174 0.7 % Total operating expenses 4,121,986 5,358,329 9,480,315 20.9 % 2,552,381 6,146,347 8,698,728 17.0 % Operating income (loss) (100,657 ) 2,009,799 1,909,142 4.2 % 1,542,261 521,058 2,063,319 4.0 % Other income (expense): Other income 8,003 217,414 225,417 0.5 % 23,929 129,723 153,652 0.3 % Interest expense (55,697 ) (53,444 ) (109,141 ) -0.2 % (58,209 ) (56,479 ) (114,688 ) -0.2 % Income (loss) before income taxes (148,351 ) 2,173,769 2,025,418 4.5 % 1,507,981 594,302 2,102,283 4.1 % Income tax expense (29,607 ) (431,632 ) (461,239 ) -1.0 % (339,672 ) (158,902 ) (498,574 ) -1.0 % Net income (loss) $ (177,958 ) $ 1,742,137 $ 1,564,179 3.5 % $ 1,168,309 $ 435,400 $ 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. 30 Table of Contents The individual segments reported the following for the three months ended June 30, 2024 and 2023: Sales Three Months Ended June 30, Change 2024 2023 Amount % Consolidated $ 45,297,002 $ 51,095,877 $ (5,798,875 ) -11.3 % % of consolidated sales 100.0 % 100.0 % Consumer $ 31,990,028 $ 39,641,434 $ (7,651,406 ) -19.3 % % of consumer sales 100.0 % 100.0 % Commercial $ 13,306,974 $ 11,454,443 $ 1,852,531 16.2 % % of commercial sales 100.0 % 100.0 % Consolidated 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, Change 2024 2023 Amount % Consolidated $ 33,907,545 $ 40,333,830 $ (6,426,285 ) -15.9 % % of consolidated sales 74.9 % 78.9 % Consumer $ 27,968,699 $ 35,546,792 $ (7,578,093 ) -21.3 % % of consumer sales 87.4 % 89.7 % Commercial $ 5,938,846 $ 4,787,038 $ 1,151,808 24.1 % % of commercial sales 44.6 % 41.8 % Consolidated 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 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. 31 Table of Contents Commercial Segment 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. Gross Margin Three Months Ended June 30, Change 2024 2023 Amount % Consolidated $ 11,389,457 $ 10,762,047 $ 627,410 5.8 % % of consolidated sales 25.1 % 21.1 % Consumer $ 4,021,329 $ 4,094,642 $ (73,313 ) -1.8 % % of consumer sales 12.6 % 10.3 % Commercial $ 7,368,128 $ 6,667,405 $ 700,723 10.5 % % of commercial sales 55.4 % 58.2 % Consolidated 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, Change 2024 2023 Amount % Consolidated $ 9,118,048 $ 8,362,554 $ 755,494 9.0 % % of consolidated sales 20.1 % 16.4 % Consumer $ 4,009,468 $ 2,472,973 $ 1,536,495 62.1 % % of consumer sales 12.5 % 6.2 % Commercial $ 5,108,580 $ 5,889,581 $ (781,001 ) -13.3 % % of commercial sales 38.4 % 51.4 % Consolidated 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. 32 Table of Contents 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, Change 2024 2023 Amount % Consolidated $ 362,267 $ 336,174 $ 26,093 7.8 % % of consolidated sales 0.8 % 0.7 % Consumer $ 112,518 $ 79,408 $ 33,110 41.7 % % of consumer sales 0.4 % 0.2 % Commercial $ 249,749 $ 256,766 $ (7,017 ) -2.7 % % of commercial sales 1.9 % 2.2 % Consolidated 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. 33 Table of Contents Other Income (Expense) Three Months Ended June 30, Change 2024 2023 Amount % Consolidated $ 225,417 $ 153,652 $ 71,765 46.7 % % of consolidated sales 0.5 % 0.3 % Consumer $ 8,003 $ 23,929 $ (15,926 ) -66.6 % % of consumer sales 0.0 % 0.1 % Commercial $ 217,414 $ 129,723 $ 87,691 67.6 % % of commercial sales 1.6 % 1.1 % Consolidated 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, Change 2024 2023 Amount % Consolidated $ (109,141 ) $ (114,688 ) $ 5,547 -4.8 % % of consolidated sales -0.2 % -0.2 % Consumer $ (55,697 ) $ (58,209 ) $ 2,512 -4.3 % % of consumer sales -0.2 % -0.1 % Commercial $ (53,444 ) $ (56,479 ) $ 3,035 -5.4 % % of commercial sales -0.4 % -0.5 % Consolidated 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. 34 Table of Contents 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, Change 2024 2023 Amount % Consolidated $ (461,239 ) $ (498,574 ) $ 37,335 -7.5 % % of consolidated sales -1.0 % -1.0 % Consumer $ (29,607 ) $ (339,672 ) $ 310,065 -91.3 % % of consumer sales -0.1 % -0.9 % Commercial $ (431,632 ) $ (158,902 ) $ (272,730 ) 171.6 % % of commercial sales -3.2 % -1.4 % Consolidated 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, Change 2024 2023 Amount % Consolidated $ 1,564,179 $ 1,603,709 $ (39,530 ) -2.5 % % of consolidated sales 3.5 % 3.1 % Consumer $ (177,958 ) $ 1,168,309 $ (1,346,267 ) NM % of consumer sales -0.6 % 2.9 % Commercial $ 1,742,137 $ 435,400 $ 1,306,737 300.1 % % of commercial sales 13.1 % 3.8 % NM – Not Meaningful Consolidated 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. 35 Table of Contents 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, Change 2024 2023 Amount % Consolidated $ 0.06 $ 0.06 $ - 0.0 % Consolidated 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, 2024 2023 Consumer Commercial Consolidated % of Sales (1) Consumer Commercial Consolidated % of Sales (1) Sales $ 60,216,045 $ 24,938,737 $ 85,154,782 100.0 % $ 76,345,831 $ 24,559,578 $ 100,905,409 100.0 % Cost of goods sold 52,645,527 10,799,114 63,444,641 74.5 % 68,266,221 10,467,239 78,733,460 78.0 % Gross margin 7,570,518 14,139,623 21,710,141 25.5 % 8,079,610 14,092,339 22,171,949 22.0 % Expenses: Selling, general and administrative 7,260,958 9,494,066 16,755,024 19.7 % 4,868,998 11,398,859 16,267,857 16.1 % Depreciation and amortization 206,194 499,638 705,832 0.8 % 177,542 512,983 690,525 0.7 % Total operating expenses 7,467,152 9,993,704 17,460,856 20.5 % 5,046,540 11,911,842 16,958,382 16.8 % Operating income 103,366 4,145,919 4,249,285 5.0 % 3,033,070 2,180,497 5,213,567 5.2 % Other income (expense): Other income 16,008 447,937 463,945 0.5 % 47,463 316,968 364,431 0.4 % Interest expense (120,098 ) (109,897 ) (229,995 ) -0.3 % (117,827 ) (113,925 ) (231,752 ) -0.2 % Income (loss) before income taxes (724 ) 4,483,959 4,483,235 5.3 % 2,962,706 2,383,540 5,346,246 5.3 % Income tax expense (88,758 ) (922,759 ) (1,011,517 ) -1.2 % (657,513 ) (558,707 ) (1,216,220 ) -1.2 % Net income (loss) $ (89,482 ) $ 3,561,200 $ 3,471,718 4.1 % $ 2,305,193 $ 1,824,833 $ 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. 36 Table of Contents The individual segments reported the following for the six months ended June 30, 2024 and 2023: Sales Six Months Ended June 30, Change 2024 2023 Amount % Consolidated $ 85,154,782 $ 100,905,409 $ (15,750,627 ) -15.6 % % of consolidated sales 100.0 % 100.0 % Consumer $ 60,216,045 $ 76,345,831 $ (16,129,786 ) -21.1 % % of consumer sales 100.0 % 100.0 % Commercial $ 24,938,737 $ 24,559,578 $ 379,159 1.5 % % of commercial sales 100.0 % 100.0 % Consolidated 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 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. 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 $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. 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 Six Months Ended June 30, Change 2024 2023 Amount % Consolidated $ 63,444,641 $ 78,733,460 $ (15,288,819 ) -19.4 % % of consolidated sales 74.5 % 78.0 % Consumer $ 52,645,527 $ 68,266,221 $ (15,620,694 ) -22.9 % % of consumer sales 87.4 % 89.4 % Commercial $ 10,799,114 $ 10,467,239 $ 331,875 3.2 % % of commercial sales 43.3 % 42.6 % Consolidated 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 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. 37 Table of Contents Commercial Segment 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. 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. Gross Margin Six Months Ended June 30, Change 2024 2023 Amount % Consolidated $ 21,710,141 $ 22,171,949 $ (461,808 ) -2.1 % % of consolidated sales 25.5 % 22.0 % Consumer $ 7,570,518 $ 8,079,610 $ (509,092 ) -6.3 % % of consumer sales 12.6 % 10.6 % Commercial $ 14,139,623 $ 14,092,339 $ 47,284 0.3 % % of commercial sales 56.7 % 57.4 % Consolidated 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 Six Months Ended June 30, Change 2024 2023 Amount % Consolidated $ 16,755,024 $ 16,267,857 $ 487,167 3.0 % % of consolidated sales 19.7 % 16.1 % Consumer $ 7,260,958 $ 4,868,998 $ 2,391,960 49.1 % % of consumer sales 12.1 % 6.4 % Commercial $ 9,494,066 $ 11,398,859 $ (1,904,793 ) -16.7 % % of commercial sales 38.1 % 46.4 % Consolidated 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. 38 Table of Contents Consumer Segment 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. 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 the stores for opening. Commercial Segment 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 Six Months Ended June 30, Change 2024 2023 Amount % Consolidated $ 705,832 $ 690,525 $ 15,307 2.2 % % of consolidated sales 0.8 % 0.7 % Consumer $ 206,194 $ 177,542 $ 28,652 16.1 % % of consumer sales 0.3 % 0.2 % Commercial $ 499,638 $ 512,983 $ (13,345 ) -2.6 % % of commercial sales 2.0 % 2.1 % Consolidated 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 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 $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. 39 Table of Contents Other Income (Expense) Six Months Ended June 30, Change 2024 2023 Amount % Consolidated $ 463,945 $ 364,431 $ 99,514 27.3 % % of consolidated sales 0.5 % 0.4 % Consumer $ 16,008 $ 47,463 $ (31,455 ) -66.3 % % of consumer sales 0.0 % 0.1 % Commercial $ 447,937 $ 316,968 $ 130,969 41.3 % % of commercial sales 1.8 % 1.3 % Consolidated 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 $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. 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 $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 $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 Six Months Ended June 30, Change 2024 2023 Amount % Consolidated $ (229,995 ) $ (231,752 ) $ 1,757 -0.8 % % of consolidated sales -0.3 % -0.2 % Consumer $ (120,098 ) $ (117,827 ) $ (2,271 ) 1.9 % % of consumer sales -0.2 % -0.2 % Commercial $ (109,897 ) $ (113,925 ) $ 4,028 -3.5 % % of commercial sales -0.4 % -0.5 % Consolidated 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 $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. 40 Table of Contents Commercial Segment 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 Six Months Ended June 30, Change 2024 2023 Amount % Consolidated $ (1,011,517 ) $ (1,216,220 ) $ 204,703 -16.8 % % of consolidated sales -1.2 % -1.2 % Consumer $ (88,758 ) $ (657,513 ) $ 568,755 -86.5 % % of consumer sales -0.1 % -0.9 % Commercial $ (922,759 ) $ (558,707 ) $ (364,052 ) 65.2 % % of commercial sales -3.7 % -2.3 % Consolidated 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 22.6% 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 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, Change 2024 2023 Amount % Consolidated $ 3,471,718 $ 4,130,026 $ (658,308 ) -15.9 % % of consolidated sales 4.1 % 4.1 % Consumer $ (89,482 ) $ 2,305,193 $ (2,394,675 ) NM % of consumer sales -0.1 % 3.0 % Commercial $ 3,561,200 $ 1,824,833 $ 1,736,367 95.2 % % of commercial sales 14.3 % 7.4 % NM – Not Meaningful Consolidated 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 (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. 41 Table of Contents Commercial Segment 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: Six Months Ended June 30, Change 2024 2023 Amount % Consolidated $ 0.13 $ 0.15 $ (0.02 ) -13.3 % Consolidated 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: Six Months Ended June 30, Change 2024 2023 Amount % Net cash provided by (used in): Operating activities $ 3,002,262 $ 2,748,490 $ 253,772 9.2 % Investing activities (1,265,004 ) (722,621 ) $ (542,383 ) 75.1 % Financing activities (2,247,110 ) (815,062 ) (1,432,048 ) 175.7 % Net increase (decrease) in cash and cash equivalents $ (509,852 ) $ 1,210,807 $ (1,720,659 ) NM NM – Not Meaningful Operating Activities 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 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 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. 42 Table of Contents 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 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. Capital Expenditures In Fiscal 2024, the Company is deploying capital for additional growth, maintenance activity and enhancements to our enterprise resource planning system. The Company continuously monitors the deployment of capital and primarily funds capital expenditures through cash flow from operating activities. Where appropriate the Company may use debt financing on select projects. When this occurs, the Company further evaluates future cashflows of the project as to ensure the debt tenure and pay-back period are in alignment as well as the appropriateness of the rate of return. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Because we are a “smaller reporting company,” we are not required to disclose the information required by this item.