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 March 31, 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_10qimg37.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, TX  75038

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

 

(972) 587-4049

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

 

www.envela.com

 

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 May 7, 2024 the registrant had 26,276,427 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 months ended March 31, 2024 and 2023 (Unaudited)

 

3

 

 

 

 

 

 

 

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

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (Unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023 (Unaudited)

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

7

 

 

 

 

 

 

Item 2.

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

 

24

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

34

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

34

 

 

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

35

 

 

 

 

 

 

Item 1A.

Risk Factors

 

35

 

 

 

 

 

 

Item 2.

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

 

35

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

35

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

35

 

 

 

 

 

 

Item 5.

Other Information

 

35

 

 

 

 

 

 

Item 6.

Exhibits

 

36

 

 

 

 

 

 

SIGNATURES

 

37

 

 

 
2

 

PART I. FINANCIAL INFORMATION

 

ITEM 1: FINANCIAL STATEMENTS

 

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

 

 

Three Months Ended March 31,

 

(Unaudited)

 

2024

 

 

2023

 

 

 

 

 

 

 

 

Sales

 

$39,857,780

 

 

$49,809,532

 

Cost of goods sold

 

 

29,537,096

 

 

 

38,399,630

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

10,320,684

 

 

 

11,409,902

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

7,636,976

 

 

 

7,905,303

 

Depreciation and amortization

 

 

343,565

 

 

 

354,351

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

7,980,541

 

 

 

8,259,654

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

2,340,143

 

 

 

3,150,248

 

 

 

 

 

 

 

 

 

 

Other income/(expense):

 

 

 

 

 

 

 

 

Other income

 

 

238,528

 

 

 

210,779

 

Interest expense

 

 

(120,854)

 

 

(117,064)

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

2,457,817

 

 

 

3,243,963

 

Income tax expense

 

 

(550,278)

 

 

(717,646)

 

 

 

 

 

 

 

 

 

Net income

 

$1,907,539

 

 

$2,526,317

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

Net income

 

$0.07

 

 

$0.09

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

Net income

 

$0.07

 

 

$0.09

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

26,419,039

 

 

 

26,924,631

 

Diluted

 

 

26,434,039

 

 

 

26,939,631

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
3

 

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

(Unaudited)

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$19,783,867

 

 

$17,853,853

 

Accounts receivable, net of allowances

 

 

4,597,054

 

 

 

7,811,159

 

Notes receivable

 

 

3,383

 

 

 

4,700

 

Inventories

 

 

25,622,436

 

 

 

23,146,177

 

Prepaid expenses

 

 

1,296,667

 

 

 

1,082,425

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

51,303,407

 

 

 

49,898,314

 

Property and equipment, net

 

 

11,048,221

 

 

 

10,764,224

 

Right-of-use assets from operating leases

 

 

3,757,873

 

 

 

4,189,621

 

Goodwill

 

 

3,921,453

 

 

 

3,921,453

 

Intangible assets, net

 

 

4,513,017

 

 

 

4,499,170

 

Other assets

 

 

201,447

 

 

 

201,447

 

 

 

 

 

 

 

 

 

 

Total assets

 

$74,745,418

 

 

$73,474,229

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$3,747,804

 

 

$3,126,743

 

Notes payable

 

 

1,475,625

 

 

 

1,361,443

 

Operating lease liabilities

 

 

1,840,082

 

 

 

1,807,729

 

Accrued expenses

 

 

2,375,661

 

 

 

2,486,423

 

Other liabilities

 

 

741,808

 

 

 

211,651

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

10,180,980

 

 

 

8,993,989

 

Deferred tax liability

 

 

21,177

 

 

 

38,668

 

Notes payable, less current portion

 

 

13,146,097

 

 

 

13,572,048

 

Operating lease liabilities, less current portion

 

 

2,085,918

 

 

 

2,560,671

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

$25,434,172

 

 

$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 26,307,318 shares outstanding as of March 31, 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, 617,313 and 415,973 shares, as of March 31, 2024 and December 31, 2023, respectively

 

 

(3,060,195)

 

 

(2,155,049)

Additional paid-in capital

 

 

40,173,000

 

 

 

40,173,000

 

Retained earnings

 

 

11,929,195

 

 

 

10,021,656

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

49,311,246

 

 

 

48,308,853

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$74,745,418

 

 

$73,474,229

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
4

 

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Three Months Ended March 31,

 

(Unaudited)

 

2024

 

 

2023

 

Operations

 

 

 

 

 

 

Net income

 

$1,907,539

 

 

$2,526,317

 

Adjustments to reconcile net income to net cash provided by operations:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

343,565

 

 

 

354,351

 

Provision for credit losses

 

 

45,869

 

 

 

(13,091)

Deferred taxes

 

 

(17,491)

 

 

348,256

 

Non-cash lease expense

 

 

462,882

 

 

 

473,881

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

3,168,236

 

 

 

(328,487)

Inventories

 

 

(2,476,259)

 

 

(350,053)

Prepaid expenses

 

 

(214,242)

 

 

(47,847)

Other assets

 

 

4,700

 

 

 

(228,959)

Accounts payable

 

 

621,060

 

 

 

(612,651)

Accrued expenses

 

 

(110,762)

 

 

(208,762)

Operating leases

 

 

(473,535)

 

 

(473,535)

Other liabilities

 

 

530,159

 

 

 

1,484,605

 

 

 

 

 

 

 

 

 

 

Net cash provided by operations

 

 

3,791,721

 

 

 

2,924,025

 

 

 

 

 

 

 

 

 

 

Investing

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(448,242)

 

 

(8,728)

Purchase of intangible assets

 

 

(193,167)

 

 

-

 

Investment in notes receivable

 

 

(3,383)

 

 

578,250

 

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by investing

 

 

(644,792)

 

 

569,522

 

 

 

 

 

 

 

 

 

 

Financing

 

 

 

 

 

 

 

 

Payments on notes payable

 

 

(311,769)

 

 

(310,807)

Purchase of treasury stock

 

 

(905,146)

 

 

-

 

 

 

 

 

 

 

 

 

 

Net cash (used in) financing

 

 

(1,216,915)

 

 

(310,807)

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

1,930,014

 

 

 

3,182,740

 

Cash and cash equivalents, beginning of period

 

 

17,853,853

 

 

 

17,169,969

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$19,783,867

 

 

$20,352,709

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$178,674

 

 

$116,061

 

Income taxes

 

$-

 

 

$-

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
5

 

ENVELA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

For the Three Months Ended March 31, 2023

 

Common Stock

 

 

Treasury Stock

 

 

Preferred Stock

 

 

Additional

Paid-in

 

 

Retained

 

 

Total

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,526,317

 

 

 

2,526,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2023

 

 

26,924,631

 

 

$269,246

 

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

$40,173,000

 

 

$5,400,521

 

 

$45,842,767

 

 

For the Three Months Ended March 31, 2024

 

Common Stock

 

 

Treasury Stock

 

 

Preferred Stock

 

 

Additional

Paid-in

 

 

Retained

 

 

Total

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,907,539

 

 

 

1,907,539

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares repurchased

 

 

-

 

 

 

-

 

 

 

(201,340)

 

 

(905,146)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

(905,146)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2024

 

 

26,924,631

 

 

$269,246

 

 

 

(617,313)

 

$(3,060,195)

 

 

-

 

 

$-

 

 

$40,173,000

 

 

$11,929,195

 

 

$49,311,246

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
6

 

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”).

 

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 these subsidiaries  under their distinct brands, rather than directly by Envela Corporation itself. Our operations are organized into two operating and reportable segments: commercial and consumer, 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 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.

 

 
7

 

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.

 

NOTE 3 — ACCOUNTING POLICIES AND ESTIMATES

 

Financial Instruments

 

The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivables, 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 the 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”) 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 for monetary transactions (i.e., cash and receivables) with wholesale customers are recognized when the merchandise is delivered or at 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 upon 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 are 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 the 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 in exchange for transferring goods or services to the customer.

 

 
8

 

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, as stated in the first sentence. Under the guidance of ASC 606, an estimate of the variable consideration that are expected to be entitled 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 in the period once the underlying weight and any precious metal spot price movement is resolved, which is usually around six (6) weeks. Any adjustment from the resolution of the underlying uncertainty is netted with the settlement due from the original contract. Historically, these amounts have been insignificant.

 

The commercial segment also provides recycling services according to a Scope of Work (“SOW”). Recycling services are primarily recognized based on the number of units processed by a preset price per unit or weight measurements, and revenue is recognized upon completion of the SOW.

 

The commercial segment provides freight arrangement services related to inbound asset or material movements to our facilities. Freight arrangement services are 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.

 

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 and cost of sales accordingly.

 

For the three months ended March 31, 2024 and March 31, 2023, the consumer segment’s allowance for returns was $28,402 and $0, respectively. For the three months ended March 31, 2024 and March 31, 2023, the commercial segment’s allowance for returns was $6,578 and $0, respectively.

 

Concentrations and Credit Risk

 

The Company is potentially subject to concentrations of credit risk in its accounts receivable. A significant amount of revenue stems from one precious metals partner, which accounted for 6% of our sales for the period ended March 31, 2024, and 6% of our sales for the period ended March 31, 2023. However, the Company believes that the products it sells are marketable to numerous sources at competitive prices.

 

Shipping and Handling Costs

 

Within the consumer and commercial segments shipping and handling costs are accounted for as fulfillment costs within costs of goods sold.

 

For the three months ended March 31, 2024 and March 31, 2023, the consumer segment’s shipping and handling costs were $439 and $0, respectively. For the three months ended March 31, 2024 and March 31, 2023, the commercial segment’s shipping and handling costs were $1,394,077 and $1,689,941, respectively.

 

Advertising Costs

 

The consumer and commercial segment’s advertising costs are expensed as incurred.

 

For the three months ended March 31, 2024 and March 31, 2023, the consumer segment’s advertising costs were $247,903 and $206,075, respectively. For the three months ended March 31, 2024 and March 31, 2023, the commercial segment’s advertising costs were $71,095 and $14,553, respectively.

 

 
9

 

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.

 

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 months ended March 31, 2024.

 

For the period ended March 31, 2024, the Company had a deferred tax liability of $21,177. For the period ended December 31, 2023, the Company had a deferred tax liability of $38,668. The Company did not have a valuation allowance for the period ended March 31, 2024 and December 31, 2023.

 

Segment Information

 

The accounting standards for reporting information about operating segments defines 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.

 

 
10

 

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 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 consolidated balance sheets approximate fair value.

 

Accounts Receivable, Net of Allowances

 

Accounts receivable represent amounts primarily due from customers on product and other sales. Our allowance for credit losses is primarily determined by an analysis of our trade receivables 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. Trade receivables are considered delinquent when payment has not been made within contract terms. Trade receivables are charged off when there is certainty as to their being uncollectible.

 

For the three months ended March 31, 2024 and March 31, 2023, the consumer segment’s allowance for credit losses was $0 and $0, respectively. For the three months ended March 31, 2024 and March 31, 2023, the commercial segment’s allowance for credit losses was $306,727 and $0, 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 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 containing precious metals 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.

 

 
11

 

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 first three months of fiscal 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 is carried at cost less accumulated depreciation and is 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 maintenance and repairs are charged against income 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 which have not yet been placed into service. Finite-lived 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 consumer 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. As a result of the correction, for the three months ended March 31,2023 revenue and cost of goods sold increased by $1,420,492. The error had no impact on operating income, net income, and net income per share nor any other financial statement amount. Further these errors had no impact on the consolidated balance sheets, statements of stockholders’ equity, and statement of cash flows. These corrections do not affect any of the metrics used to calculate and evaluate management’s compensation and had 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 includes 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, precious and base 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.

 

 
12

 

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 $473,881 from operating leases to non-cash lease expenses in the Consolidated Cash Flow Statement for the period ending March 31, 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 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 for the period ended 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 for the period ended 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 for the period ended 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 are effective beginning in the Company’s fiscal 2025 and are applied prospectively. 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 ASU’s had, or are expected to have, a material impact on the Company’s results of operations, financial condition or liquidity.

 

 
13

 

NOTE 4 — INVENTORIES

 

The following table summarizes the details of the Company’s inventories:

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Consumer

 

 

 

 

 

 

Trade inventories

 

$24,128,255

 

 

$21,905,055

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

24,128,255

 

 

 

21,905,055

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

Trade inventories

 

 

1,494,181

 

 

 

1,241,122

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

1,494,181

 

 

 

1,241,122

 

 

 

 

 

 

 

 

 

 

 

 

$25,622,436

 

 

$23,146,177

 

 

NOTE 5 — GOODWILL

 

The following table summarizes the details of the Company’s changes in goodwill:

 

 

 

March 31,

 

 

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 period after the acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination.

 

 
14

 

NOTE 6 — PROPERTY AND EQUIPMENT, NET

 

The following table summarizes the details of the Company’s property and equipment, net:

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted

 

 

 

March 31,

 

 

December 31,

 

 

 

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

Reclassification

 

 

2023

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

$1,824,892

 

 

$1,824,892

 

 

$-

 

 

$1,824,892

 

Building and improvements

 

 

3,039,823

 

 

 

4,126,507

 

 

 

(1,443,207)

 

 

2,683,300

 

Leasehold improvements

 

 

1,444,814

 

 

 

1,450,695

 

 

 

-

 

 

 

1,450,695

 

Furniture and fixtures

 

 

793,646

 

 

 

802,058

 

 

 

(101,226)

 

 

700,832

 

Machinery and equipment

 

 

1,150,137

 

 

 

1,224,783

 

 

 

(3,215)

 

 

1,221,568

 

Vehicles

 

 

22,859

 

 

 

22,859

 

 

 

-

 

 

 

22,859

 

Construction in progress (1)

 

 

1,392,786

 

 

 

-

 

 

 

1,547,648

 

 

 

1,547,648

 

 

 

 

9,668,957

 

 

 

9,451,794

 

 

 

-

 

 

 

9,451,794

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: accumulated depreciation

 

 

(3,019,183)

 

 

(2,946,727)

 

 

-

 

 

 

(2,946,727)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

6,649,774

 

 

 

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

 

 

1,095,917

 

 

 

1,142,731

 

 

 

(48,979)

 

 

1,093,752

 

Vehicles

 

 

222,232

 

 

 

222,232

 

 

 

-

 

 

 

222,232

 

Construction in progress (2)

 

 

96,257

 

 

 

-

 

 

 

48,979

 

 

 

48,979

 

 

 

 

1,712,003

 

 

 

1,662,560

 

 

 

-

 

 

 

1,662,560

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: accumulated depreciation

 

 

(893,459)

 

 

(819,389)

 

 

-

 

 

 

(819,389)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

818,544

 

 

 

843,171

 

 

 

-

 

 

 

843,171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

1,106,664

 

 

 

1,106,664

 

 

 

-

 

 

 

1,106,664

 

Building and improvements

 

 

2,490,879

 

 

 

2,505,716

 

 

 

(3,500)

 

 

2,502,216

 

Machinery and equipment

 

 

45,234

 

 

 

28,627

 

 

 

-

 

 

 

28,627

 

Enterprise resource planning system (3)

 

 

-

 

 

 

191,075

 

 

 

(191,075)

 

 

-

 

Construction in progress (4)

 

 

179,849

 

 

 

-

 

 

 

3,500

 

 

 

3,500

 

 

 

 

3,822,626

 

 

 

3,832,082

 

 

 

(191,075)

 

 

3,641,007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: accumulated depreciation

 

 

(242,723)

 

 

(225,021)

 

 

-

 

 

 

(225,021)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

3,579,903

 

 

 

3,607,061

 

 

 

(191,075)

 

 

3,415,986

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$11,048,221

 

 

$10,955,299

 

 

$(191,075)

 

$10,764,224

 

 

(1) Construction in progress relates to the build-out of production equipment. 

    

(2) Construction in progress relates to the build-out of our Arizona retail stores. 

    

(3) Reclassified amount to intangibles, net. See Note 7 – Intangible, Net for further details. 

    

(4) Construction in progress pertains to improvements to our corporate headquarters. 

 

 
15

 

NOTE 7 — INTANGIBLES, NET

 

The following table summarizes the details of the Company’s intangible assets, net:

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted

 

 

 

March 31,

 

 

December 31,

 

 

 

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

Reclassification

 

 

2023

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

Domain names

 

$41,352

 

 

$41,352

 

 

$-

 

 

$41,352

 

Point of sale system

 

 

330,000

 

 

 

330,000

 

 

 

-

 

 

 

330,000

 

 

 

 

371,352

 

 

 

371,352

 

 

 

-

 

 

 

371,352

 

Less: accumulated amortization

 

 

(368,598)

 

 

(365,852)

 

 

-

 

 

 

(365,852)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

2,754

 

 

 

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

 

 

(2,405,767)

 

 

(2,248,405)

 

 

-

 

 

 

(2,248,405)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

4,145,233

 

 

 

4,302,595

 

 

 

-

 

 

 

4,302,595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Enterprise resource planning system

 

 

384,242

 

 

 

-

 

 

 

 

 

 

 

-

 

Assets under development (1)

 

 

-

 

 

 

-

 

 

 

191,075

 

 

 

191,075

 

 

 

 

384,242

 

 

 

-

 

 

 

191,075

 

 

 

191,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: accumulated amortization

 

 

(19,212)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

365,030

 

 

 

-

 

 

 

191,075

 

 

 

191,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$4,513,017

 

 

$4,308,095

 

 

$-

 

 

$4,499,170

 

  

(1) Assets under development relate to the development of our enterprise resource planning system.

 

The following table depicts the Company’s estimated future amortization expense related to intangible assets as of March 31, 2024:

 

 

 

Consumer

 

 

Commercial

 

 

Corporate

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2024

 

 

2,754

 

 

 

491,325

 

 

 

57,638

 

 

 

551,717

 

2025

 

 

-

 

 

 

655,100

 

 

 

76,848

 

 

 

731,948

 

2026

 

 

-

 

 

 

655,100

 

 

 

76,848

 

 

 

731,948

 

2027

 

 

-

 

 

 

655,100

 

 

 

76,848

 

 

 

731,948

 

2028

 

 

-

 

 

 

655,100

 

 

 

76,848

 

 

 

731,948

 

Thereafter

 

 

-

 

 

 

1,033,508

 

 

 

-

 

 

 

1,033,508

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$2,754

 

 

$4,145,233

 

 

$365,030

 

 

$4,513,017

 

 

 
16

 

NOTE 8 — ACCRUED EXPENSES

 

The following table summarizes the details of the Company’s accrued expenses:

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Consumer

 

 

 

 

 

 

Accrued interest

 

$14,970

 

 

$11,904

 

Payroll

 

 

637

 

 

 

226,435

 

Taxes

 

 

122,186

 

 

 

125,130

 

Other

 

 

2

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

137,795

 

 

 

363,469

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

Accrued interest

 

 

8,308

 

 

 

7,903

 

Payroll

 

 

-

 

 

 

375,663

 

Taxes

 

 

8,367

 

 

 

-

 

Unvouchered inventory payments

 

 

1,137,801

 

 

 

1,041,188

 

Other

 

 

45,111

 

 

 

96,422

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

1,199,587

 

 

 

1,521,176

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

 

Accrued interest

 

 

7,148

 

 

 

7,227

 

Payroll

 

 

-

 

 

 

24,543

 

Taxes

 

 

908,219

 

 

 

404,357

 

Professional fees

 

 

122,821

 

 

 

165,651

 

Other

 

 

91

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

1,038,279

 

 

 

601,778

 

 

 

 

 

 

 

 

 

 

 

 

$2,375,661

 

 

$2,486,423

 

  

 
17

 

NOTE 9 — SEGMENT INFORMATION

 

The following table depicts the Company’s disaggregated statements of income:

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

% of Sales(1)

 

 

2023

 

 

% of Sales(1)

 

Consumer

 

$28,226,017

 

 

 

70.8%

 

$36,704,397

 

 

 

73.7%

Commercial

 

 

11,631,763

 

 

 

29.2%

 

 

13,105,135

 

 

 

26.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

39,857,780

 

 

 

100.0%

 

 

49,809,532

 

 

 

100.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

24,676,828

 

 

 

61.9%

 

 

32,719,429

 

 

 

65.7%

Commercial

 

 

4,860,268

 

 

 

12.2%

 

 

5,680,201

 

 

 

11.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

29,537,096

 

 

 

74.1%

 

 

38,399,630

 

 

 

77.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

10,320,684

 

 

 

25.9%

 

 

11,409,902

 

 

 

22.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

3,251,490

 

 

 

8.2%

 

 

2,396,025

 

 

 

4.8%

Commercial

 

 

4,385,486

 

 

 

11.0%

 

 

5,509,278

 

 

 

11.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

7,636,976

 

 

 

19.2%

 

 

7,905,303

 

 

 

15.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

93,676

 

 

 

0.2%

 

 

98,134

 

 

 

0.2%

Commercial

 

 

249,889

 

 

 

0.6%

 

 

256,217

 

 

 

0.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

343,565

 

 

 

0.8%

 

 

354,351

 

 

 

0.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

7,980,541

 

 

 

20.0%

 

 

8,259,654

 

 

 

16.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

2,340,143

 

 

 

5.9%

 

 

3,150,248

 

 

 

6.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

8,005

 

 

 

0.0%

 

 

23,534

 

 

 

0.0%

Commercial

 

 

230,523

 

 

 

0.6%

 

 

187,245

 

 

 

0.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

238,528

 

 

 

0.6%

 

 

210,779

 

 

 

0.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

(64,401)

 

 

(0.2)%

 

 

(59,618)

 

 

(0.1)%

Commercial

 

 

(56,453)

 

 

(0.1)%

 

 

(57,446)

 

 

(0.1)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(120,854)

 

 

(0.3)%

 

 

(117,064)

 

 

(0.2)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

2,457,817

 

 

 

6.2%

 

 

3,243,963

 

 

 

6.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

(59,151)

 

 

(0.1)%

 

 

(317,841)

 

 

(0.6)%

Commercial

 

 

(491,127)

 

 

(1.3)%

 

 

(399,805)

 

 

(0.9)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(550,278)

 

 

(1.4)%

 

 

(717,646)

 

 

(1.5)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$1,907,539

 

 

 

4.8%

 

$2,526,317

 

 

 

5.1%

  

(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.

 

The following chart depicts the Company’s total assets:

 

 

 

As of

 

 

 

March 31,

2024

 

 

December

31, 2023

 

 

 

 

 

 

 

 

Consumer

 

$34,993,787

 

 

$35,839,361

 

Commercial

 

 

35,682,400

 

 

 

33,777,041

 

Corporate

 

 

4,069,231

 

 

 

3,857,827

 

 

 

 

 

 

 

 

 

 

 

 

$74,745,418

 

 

$73,474,229

 

 

 
18

 

 

NOTE 10 — REVENUE

 

The following table depicts the Company’s disaggregation of total sales and gross margin:

 

 

 

For the Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

Sales

 

 

Gross Margin

 

 

Margin

 

 

Sales

 

 

Gross Margin

 

 

Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

$28,226,017

 

 

$3,549,189

 

 

 

12.6%

 

$36,704,397

 

 

$3,984,968

 

 

 

10.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

11,631,763

 

 

 

6,771,495

 

 

 

58.2%

 

 

11,684,643

 

 

 

7,424,934

 

 

 

63.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Correction of immaterial error (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,420,492

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial adjusted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,105,135

 

 

 

7,424,934

 

 

 

56.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$39,857,780

 

 

$10,320,684

 

 

 

25.9%

 

$49,809,532

 

 

$11,409,902

 

 

 

22.9%

 

(1) Correction of Immaterial Error relating to freight arrangement services, see Note 3 - ACCOUNTING POLICIES AND ESTIMATES for further detail.

 

The following table lists the opening and closing balances of our contract assets and liabilities:

 

 

 

Accounts

 

 

Contract

 

 

Contract

 

 

 

Receivable

 

 

Assets

 

 

Liabilities

 

Consumer

 

 

 

 

 

 

 

 

 

Opening Balance - 1/1/2023

 

 

839,239

 

 

 

-

 

 

 

196,382

 

Closing Balance - 3/31/2023

 

 

443,223

 

 

 

-

 

 

 

153,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

Opening Balance - 1/1/2023

 

 

7,110,536

 

 

 

-

 

 

 

-

 

Closing Balance - 3/31/2023

 

 

7,848,131

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts

 

 

Contract

 

 

Contract

 

 

 

Receivable

 

 

Assets

 

 

Liabilities

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

Opening Balance - 1/1/2024

 

 

3,411,501

 

 

 

-

 

 

 

58,728

 

Closing Balance - 3/31/2024

 

 

244,914

 

 

 

-

 

 

 

96,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

Opening Balance - 1/1/2024

 

 

4,399,658

 

 

 

-

 

 

 

-

 

Closing Balance - 3/31/2024

 

 

4,352,140

 

 

 

-

 

 

 

-

 

  

The Company has no contract assets, and the only contract liability is customer deposits, which is reported within other liabilities in the Unaudited Condensed Consolidated Balance Sheets.

 

 
19

 

NOTE 11 — LEASES

 

The following table depicts the Company’s future annual minimum leases payments as of March 31, 2024:

 

 

 

Operating

 

 

 

Leases

 

Consumer

 

 

 

2024

 

$415,526

 

2025

 

 

412,271

 

2026

 

 

354,998

 

2027

 

 

50,114

 

2028

 

 

-

 

Thereafter

 

 

-

 

 

 

 

 

 

Total minimum lease payments

 

 

1,232,909

 

Less imputed interest

 

 

(65,819)

 

 

 

 

 

Sub-total

 

 

1,167,090

 

 

 

 

 

 

Commercial

 

 

 

 

2024

 

 

1,048,490

 

2025

 

 

1,321,298

 

2026

 

 

474,320

 

2027

 

 

33,454

 

2028

 

 

-

 

Thereafter

 

 

-

 

 

 

 

 

 

Total minimum lease payments

 

 

2,877,562

 

Less imputed interest

 

 

(118,652)

 

 

 

 

 

Sub-total

 

 

2,758,910

 

 

 

 

 

 

Total

 

 

3,926,000

 

 

 

 

 

 

Current portion

 

 

1,840,082

 

 

 

 

 

 

 

 

$2,085,918

 

 

All of the Company’s facilities leases as of March 31, 2024 are non-cancellable and triple net, for which it pays its proportionate share of common area maintenance, property taxes and property insurance. Leasing costs for the three months ended March 31, 2024 and 2023 were $784,735 and $659,616, respectively, comprised of a combination of minimum lease payments and variable lease costs.

 

As of March 31, 2024, the weighted average remaining lease term and weighted average discount rate for operating leases were 2.3 years and 4.3%. As of March 31, 2023, the weighted average remaining lease term and weighted average discount rate for operating leases were 3.3 years and 4.4%.

 

 
20

 

NOTE 12 — BASIC AND DILUTED AVERAGE SHARES

 

The following table is a reconciliation of the Company’s basic and diluted weighted average common shares:

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

 

 

 

 

 

 

 

Basic weighted average shares

 

 

26,419,039

 

 

 

26,924,631

 

Effect of potential dilutive securities

 

 

15,000

 

 

 

15,000

 

Diluted weighted average shares

 

 

26,434,039

 

 

 

26,939,631

 

  

For the three months ended March 31, 2024 and 2023, there was a total of 15,000 common stock options, warrants, and Restricted Stock Units (“RSUs”) unexercised. For the three months ended March 31, 2024 and 2023, there were no anti-dilutive shares.

 

On March 14, 2023, a stock repurchase program was unanimously approved by the Company’s Board of Directors (the “Board”), that gave management authorization to purchase up to one million (1,000,000) shares of the Company’s stock, at a per share price not to exceed $9.00, on the open market. The plan expires on March 31, 2026.

 

The following table lists the repurchase of Company shares as of March 31, 2024:

 

 

 

Total Number

 

 

Average Price 

 

 

 

 

Shares

 

Fiscal Period

 

of Shares

Purchased

 

 

Paid per 

Share

 

 

Total Price

Paid

 

 

Available

to Purchase

 

Balance as of January 1, 2024

 

 

415,973

 

 

$5.18

 

 

$2,155,049

 

 

 

584,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1 - 31, 2024

 

 

59,417

 

 

 

4.52

 

 

 

268,569

 

 

 

524,610

 

February 1 - 29, 2024

 

 

56,343

 

 

 

4.53

 

 

 

255,195

 

 

 

468,267

 

March 1 - 31, 2024

 

 

85,580

 

 

 

4.46

 

 

 

381,382

 

 

 

382,687

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2024

 

 

617,313

 

 

$4.96

 

 

$3,060,195

 

 

 

382,687

 

 

 
21

 

NOTE 13 — DEBT

 

The following table summarizes the details of the Company’s long-term debt obligations:

 

 

 

Outstanding Balance

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Consumer

 

 

 

 

 

 

Note payable, FSB (1)

 

$2,537,700

 

 

$2,563,108

 

Note payable, Truist Bank (3)

 

 

829,204

 

 

 

838,430

 

Notes payable, TBT (4,5)

 

 

2,043,823

 

 

 

2,064,928

 

Note payable, Kretchmer Transaction (6)

 

 

200,000

 

 

 

200,000

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

5,610,727

 

 

 

5,666,466

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

Note payable, FSB (2)

 

 

5,754,790

 

 

 

5,815,381

 

Note payable, Avail Transaction (7)

 

 

666,667

 

 

 

833,333

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

6,421,457