10-Q 1 ela_10q.htm FORM 10-Q ela_10q.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

 

FORM 10-Q

_____________________

 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2024

 

OR

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the Transition Period From __________ to __________

 

Commission File Number 001-11048

_____________________

 

ela_10qimg54.jpg

 

ENVELA CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

Nevada

 

88-0097334

(STATE OF INCORPORATION)

 

(I.R.S. EMPLOYER IDENTIFICATION NO.)

 

1901 Gateway Drive, Ste 100, Irving, Texas 75038

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 

 

(972) 587-4049

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE) 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of exchange on which registered

Common Stock, par value $0.01 per share

 

ELA

 

NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

 

 

Emerging growth company

☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒

 

As of August 6, 2024 the registrant had 26,074,390 shares of common stock outstanding.

 

 

 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

PAGE NO.

 

 

 

 

 

 

Item 1.

Financial Statements

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income for the three and six months ended June 30, 2024 and 2023 (Unaudited)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 (Unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended June 30, 2024 and 2023 (Unaudited)

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2024 and 2023 (Unaudited)

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

8

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

43

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

43

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

44

 

 

 

 

 

 

Item 1A.

Risk Factors

 

44

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

 

44

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

44

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

 44

 

 

 

 

 

 

Item 5.

Other Information

 

44

 

 

 

 

 

 

Item 6.

Exhibits

 

45

 

 

 

 

 

 

SIGNATURES

 

46

 

 

 
2

Table of Contents

 

PART I. FINANCIAL INFORMATION

 

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.

 

 
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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.

 

 
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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.

 

 
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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.

 

 
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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.

 

 
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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.

 

 
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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.

 

 
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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.

 

 
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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%