Envela Corp: Form 10-K for the period ended Dec 31, 2024

OVERVIEW

Envela is a leading provider of recycling and recommerce services at the forefront of the circular economy. Motivated by building long-lasting relationships rooted in trust and transparency, Envela’s brands address a broad range of sustainability and value-driven initiatives that impact consumers and businesses alike. Our core business lines focus extending the lifespan of products through buying and selling goods in the secondary market. The company is comprised primarily of two key operating and reportable segments: consumer and commercial. The consumer segment focuses on selling authenticated high-end luxury goods, including pre-owned and repurposed fine jewelry, diamonds, gemstones, luxury watches, and secondary market bullion. At the same time, the commercial segment provides solutions for de-manufacturing end-of-life electronic assets, reclaiming base and precious metals, and other saleable materials, while also expanding our presence in the ITAD industry. Envela’s subsidiaries are trusted partners for those seeking responsible value in the disposition or acquisition of technology, metals, and luxury hard assets, with each reportable segment contributing to decarbonization and value creation in its own unique way.

Consumer Segment

Our consumer segment is a retail organization that operates several brands specializing in the buying and selling of pre-owned luxury hard assets. Our ability to understand new market trends, while also paying homage to the past with vintage pieces, allows us to be the destination of choice for customers seeking a sustainable and value-driven purchase of some of the world’s most iconic brands. Our team of experts provides a straightforward process for buying and selling items, along with guidance that helps ensure customers feel informed and confident in their decisions. We also offer our customers a unique buying experience, as our jewelry designers introduce sustainably sourced diamonds and gemstones into the manufacturing process, resulting in a diverse assortment of modern designs at achievable price points. Operating as a multi-brand retailer we aim to maximize our market reach, the division was formed through the consolidation of multiple retail merchants, with its roots tracing back more than half a century to the founding of its earliest predecessor in 1972.

The Company has long been associated with precious metals, with a history of trading silver since 1972 and trading gold since the repeal of the U.S. law limiting gold ownership in 1974. Our connection to minting bullion began in the late 1970s. Today, this rich history continues as the Company remains a leading provider of sustainable precious metals products.

Commercial

Our commercial segment operates in multiple sustainability verticals focused on the responsible disposition of end-of-life technology assets. Our electronics recycling business was originally founded in 2009 on the premise of addressing the demand for responsible electronic waste disposal. We focus on adhering to regulations and industry standards, ensuring the proper dismantling and recycling of electronic devices. Our approach prioritizes reclaiming and reusing materials, preventing them from ending up in landfills. Our ITAD business, tracing its origins back to its earliest predecessor in 2007, is dedicated to unlocking the value of consumer electronics within the circular economy. We specialize in assisting businesses with the end-of-life management of their IT assets, including data destruction, asset refurbishment, and remarketing. Our commercial segment also provides detailed asset disposition data that enables our customers to address their sustainability goals and responsibilities to internal and external stakeholders.

BUSINESS DEVELOPMENTS

Since our founding in 1965, we have consistently evolved, adapting to market changes while our commitment to sustainability has been at the core of our brand’s success. In 2025, Envela will be celebrating its diamond jubilee, marking 60 years, and we are looking forward to recognizing our employees, customers, and stakeholders who have contributed to our journey. Detailed below are significant business developments that impacted fiscal years ending December 31, 2024 and 2023.

Consumer Segment

On September 12, 2024, the consumer segment entered into a purchase agreement relating to the acquisition of the assets of a bespoke fabricator of jewelry in Scottsdale, Arizona (the “Scottsdale Transaction”).

See Note 4 – Changes in Business for further details.

In Fiscal 2024, we rapidly expanded our bricks-and-mortar footprint by opening 5 stores under our Four Nines brand which also features Bijoux Exchange an in-store buying platform. Our Bijoux Exchange brand is an in-store buying platform predicated on the store-within-a-store concept. Personnel are dedicated to customers seeking to monetize their luxury hard assets due to changes in style, damage, financial need, or life events.

Commercial Segment

In Fiscal 2023, the commercial segment began to optimize its overall business model as the commercial segment was born from a series of acquisitions. The business began to focus on unifying its systems, enhancing its business intelligence platforms in support of its commercial and operations teams as well as aligning its cost structure with margin achievement which became steady state in Fiscal 2024. Additionally, the business has focused on diversifying its business lines from those requiring the outright procurement of technology to those involving fees for services. These fee-for-service relationships allow our clients to outsource the management of the testing and packaging of items destined for secondary sales outlets while maintaining control over their inventory.

MARKET

Each of the Company’s reportable segments has unique market conditions that impact their respective operations. These competitive conditions may adversely affect the Company’s financial condition, results of operations, and its ability to expand and execute its business strategy.

Consumer Segment

Many online and brick-and-mortar retailers are of significant size with substantial resources. We compete to buy and sell pre-owned luxury hard assets such as fine jewelry, luxury watches, diamonds and gemstones, and bullion against established retailers, auction houses, secondary market online platforms, as well as other resale goods marketplaces. Our customers seek to maximize the value of their purchases and have multiple options to evaluate our value and service proposition. Our sales of outright precious metals to refiners and diamonds and gemstones to wholesalers take place at near-spot market values and, as such are not subject to peer competition, but are impacted by macroeconomic conditions impacting their respective markets. All of our products are sourced and sold domestically.

Commercial Segment

Our competition is primarily attributed to the inbound procurement of IT assets and commodities; albeit we do experience certain levels of competition on outright sales of IT assets to consumers. We compete for inbound products against large, diversified recyclers as well as other ITAD-specific companies. Our sales of outright IT assets are primarily marketed through online channels on which our customers can compare like goods against an array of purveyors, with select IT assets being sold wholesale into international markets. Our sales of outright base and precious metals-laden materials are sold at near-spot market values and, as such, are not subject to peer competition but are inherently impacted by macroeconomic market conditions. The commercial segment’s business is also subject to both multi-year and spot transactions, of which the multi-year contracts may be subject to cancellation on short notice.

CYCLICALITY AND SEASONALITY

Each of the Company’s reportable segments has aspects of cyclicality stemming from macroeconomic conditions consumer behavior, and commodity markets, but also from seasonality within a given fiscal year.

Consumer Segment

The consumer segment business experiences seasonality with the fourth quarter holiday months of November and December typically being the highest volume months of the year. However, seasonality is less pronounced than traditional luxury goods retailers as a result of our business being underpinned by our precious metals business, which is driven by the perception of market trends and global economic activity.

Commercial Segment

The commercial segment experiences seasonality with the first quarter months of January and February typically being the highest volume months of the year. We receive a higher volume of assets from our trade-in partners destocking from the post-holiday period.

ENVIRONMENTAL AND SOCIAL IMPACT

We aspire to operate our business with a positive environmental and social impact while ensuring we create value for our shareholders. We are an environmentally conscious business as we are able to extend the useful life of technology and luxury hard assets along with reducing the reliance on mills and refiners sourcing materials from extractive industries.

Community

We aim to serve and strengthen the communities we operate in by repurposing dormant infrastructure, creating jobs, increasing tax base, and selling sustainably sourced products.

Energy Supply and Resource Consumption

We continue to evaluate opportunities within our store operations, production processes, and supply chains for opportunities to reduce our environmental footprint.

In terms of our electricity, natural gas, and water consumption costs they represented 0.2% and 0.3% of sales for Fiscal 2024 and 2023, respectively.

Sustainability

Sustainability is deep-rooted within our corporate strategy, and instilled in our company values, as a business partner, an employer, a community member, and a value creator for shareholders.

Consumer Segment

Unlike a traditional retail jewelry business, recommerce requires curating an inventory, which is crucial to attracting and retaining customers, and sourcing a diverse inventory takes time and strategy. Due to our size, we are able to source most of our products through our in-store buying programs; except in instances where a new setting or repair is needed. In terms of our retail store footprint, we look to refurbish existing buildings as opposed to ground-up construction which requires new building materials and land consumption. Our recent expansionary efforts have focused on acquiring or leasing former retail bank buildings, which not only offer excellent security infrastructure but are also situated in ideal geographic locations.

In Fiscal 2024 and 2023, the consumer segment sold 2.2 and 2.0 metric tons of refining-grade precious metals destined for new products, respectively.

Commercial Segment

We source products through different strategies, including trade-in programs, returns, buybacks, closeouts, individuals, and companies transitioning technologies. We extend the useful lives of IT assets, divert plastic and base metal waste streams into recycled commodities along with providing precious metal-laden material for refining. As part of our sustainability service offering, we provide traceability of dispositions and ensure we have maximized the recovery of base and precious metals and have taken all steps to reintroduce technology assets back into the marketplace.

In Fiscal 2024 and 2023, the commercial segment sold 1,267,632 and 1,202,838 individual units of secondary electronics and components in which their useful life was extended, respectively.

In Fiscal 2024 and 2023, the commercial segment sold 12,837.7 and 12,862.4 metric tons of electronic scrap containing base and precious metals and other saleable materials destined for new products, respectively.

HUMAN CAPITAL RESOURCES

We are part of a diverse global community, and we aim to reflect that diversity within our team and values. We believe inclusiveness fosters a collaborative culture allowing for differing perspectives, which fuels our ability to innovate as we work to create a more sustainable future.

Employees

Our management policy is to keep employees informed of material decisions that affect them, encourage employee suggestions, and implement them whenever practicable. We are committed to providing equal employment opportunities regardless of race, color, ancestry, religion, sex, national origin, sexual orientation, age, citizenship, marital status, disability, or gender identity or expression. We sometimes rely on independent contractors and temporary personnel to supplement our workforce, primarily in our commercial segment production facilities. None of our employees are represented by a labor union or covered by a collective bargaining agreement.

In Fiscal 2024 and 2023, we employed 309 and 289 persons, respectively.

Ethics and Compliance

At every level of our Company, we work to create a culture that inspires trust among our employees, with our customers, and in the communities we serve. We empower employees to raise issues and concerns regarding compliance with our code of conduct, policies, and applicable laws by providing third-party and confidential reporting channels. We also believe that ethics and compliance allow us to be a business partner of choice as we are entrusted to substantiate value and authenticity in our consumer segment, while our commercial segment ensures technology assets are responsibly disposed of or reintroduced into the marketplace by our client’s protocols and applicable laws.

Safety

We work to continuously improve all aspects of our safety performance. Our approach to safety is proactive and focuses on active leadership, engagement, risk and hazard identification, training, and verifying controls associated with operating equipment and material handling processes are being adhered to. We also track safety performance using industry-standard metrics. Two key safety performance indicators that we monitor are total recordable injury frequency rate (“TRIFR”) and total lost time injury frequency rate (“LTIFR”).

The following chart depicts our TRIFR for the past 5 fiscal years:

(1) Number of injuries per 200,000 hours worked.

The following chart depicts our LTIFR for the past 5 fiscal years:

(1) Number of injuries per 200,000 hours worked.

GOVERNMENT REGULATIONS

We use our best efforts to ensure compliance with federal, state, and local laws and regulations, including but not limited to those pertaining to environmental matters, consumer protection, consumer privacy, data protection, waste disposal, truth in advertising, employment, health and safety, building and occupancy codes, metal theft, and AML laws. The laws and regulations to which we are subject to include requirements to obtain permits, approvals, licenses or other governmental authorizations to engage in new business or maintain our existing operations. If we violate any of these laws or regulations, we may be subject to civil or potentially criminal prosecution which may result in the imposition of fines and penalties, or cessation of business activities. As a result of business expansion and ever-changing regulatory environments, the past amounts expended to maintain compliance may not be indicative of future requirements. We continually monitor the status of laws and regulations and the impact any developments may have on financial condition and results of operations.

Refer to Item 1A. Risk Factors for further details.

CORPORATE INFORMATION

We were incorporated in Nevada in September 1965. Our Common Stock is currently listed on the New York Stock Exchange (“NYSE”) American under the symbol "ELA." Our principal executive offices are located at 1901 Gateway Drive, Irving, Texas 75038 and our telephone number is (972) 587-4049.

AVAILABLE INFORMATION

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are filed with the U.S. Securities and Exchange Commission (“SEC”). We are subject to the informational requirements of the Exchange Act and file or furnish reports, proxy statements, and other information with the SEC. Such reports and other information filed by us with the SEC are available free of charge on our website at www.envela.com (http://www.envela.com) when such reports are available on the SEC's website.

We use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov (http://www.sec.gov).

The contents of the websites referred to above are not incorporated into this filing. Our references to the URLs for these websites are intended to be inactive textual references only.

Risks Related to Our Business Relationships

An inability to maintain relationships with significant clients or renew contracts with them on favorable terms.

The success of our commercial segment’s business primarily depends on maintaining relationships and contractual arrangements with significant clients. If our key clients terminate important business arrangements with us or renew contracts on terms less favorable to us, there could be a material adverse effect on our financial condition and results of operations.

Risk Factors Relating to Commodity Volatility, Changing Economic Conditions and Seasonality

The market for precious metals is inherently unpredictable.

Bullion, crafted precious metals, and other precious metal products are purchased and sold based on current market pricing. Bullion and precious metal-laden inventories are subject to market-value changes created by their underlying commodity markets. Several national and international factors are beyond management’s control but may affect margins, customer demand, and transactional volumes. These factors include but are not limited to, the policies of the U.S. Federal Reserve, inflation rates, global economic uncertainty, and governmental and private mint supply. If commodity markets underlying our bullion or precious metal-laden inventory are misjudged, our business could suffer material adverse consequences.

While jewelry manufacturing is a major driver of demand for gold, management believes that the cost of gold is predominantly driven by investment transactions, which may result in significant changes in cost. The Company’s cost of merchandise and potential earnings may be adversely impacted by investment-market considerations that cause the price of gold to significantly increase or decrease.

A significant portion of the consumer segment’s profit is generated from buying and selling pre-owned fine jewelry or other precious metal-laden products. Significant price fluctuations in precious metals, especially downward, could have a severe impact on this part of our business, as people are less likely to sell these products to the Company if they believe their merchandise is being undervalued, or if they believe the value is uncertain.

An inability to increase retail prices to reflect higher commodity costs.

Historically, jewelry retailers have been able, over time, to increase prices to reflect changes in commodity costs. However, in general, particularly sharp increases in commodity costs may result in a time lag before increased commodity costs are fully reflected in retail prices. There is no certainty that such price increases will be sustainable, so downward pressure on gross margin and earnings may occur. Moreover, any sustained increases in the cost of commodities could result in the need to fund the purchase of inventory at higher values or to make changes in the merchandise available, which could have a material adverse effect on our financial condition and results of operations.

Adverse economic conditions in the U.S. or in other key markets we sell into, and resulting declines in consumer confidence and spending.

The Company’s operating results are dependent on several factors impacting consumer confidence and discretionary spending, including, but not limited to, the following: general economic and business conditions; wages and employment levels; volatility in the stock market; home values; inflation; consumer-debt levels; availability and cost of consumer credit; economic uncertainty; solvency concerns of major financial institutions; fluctuations in foreign currency exchange rates; fuel and energy costs and/or shortages; tax issues; and general political conditions, both domestic and abroad. Fluctuations in any of these factors could adversely affect consumer confidence and discretionary spending and could have a material adverse effect on our financial condition and results of operations.

Consumer wholesale and retail jewelry business is seasonal, with sales traditionally greater during certain holiday seasons.

The consumer segment’s retail jewelry sales are seasonal by nature. The periods around Valentine’s Day, Mother’s Day, and Christmas are typically the main seasons for jewelry sales. Sales are traditionally greater during significant holidays that occur in early spring, late fall, and winter. The amount of sales and operating income generated during these seasons depends upon the general economic conditions and other factors beyond our control. Given the timing of the seasonality, inclement weather can at times pose a substantial barrier to consumer retail activity and may have an unfavorable impact on store traffic. If inclement weather conditions were to occur during such holiday seasons, they could have a material adverse effect on our financial condition and results of operations.

Risk Factors Relating to Competition

Intense competition across all markets for Envela’s products and services.

The markets in which Envela operates are highly competitive, and the Company competes with numerous other companies, several of which are larger and have significantly greater financial, distribution, advertising, and marketing resources. A significant portion of Envela’s products are evaluated by consumers based on the attractiveness of brands, assortment of products, and price competitiveness. Significant increases in these competitive influences could adversely affect our operations through a decrease in the number and total value of sales transactions.

Many competitors attract customers with their reputation and industry connections. Additionally, companies may decide to enter our markets to compete with us, which may have greater name recognition and greater financial and marketing resources than Envela. If these new companies are successful in entering our markets, or if customers choose to go to other established competitors, there could be fewer buyers or sellers, and could have a material adverse effect on our financial condition and results of operations.

Jewelry and watch retailing is highly fragmented and competitive. The consumer segment competes for jewelry and watch sales primarily against specialty jewelers and other retailers that sell jewelry and watches, including department stores, internet retail, and recommerce platforms. Participants in the jewelry and watch category compete for a share of customers’ disposable income with other consumer sectors such as electronics, clothing, furniture, travel, and restaurants. The competition for consumer discretionary spending is particularly relevant to gift giving, and somewhat to bridal jewelry (e.g. engagement, wedding, and anniversary).

Consumers are increasingly shopping for jewelry or starting their jewelry-buying experience online, which makes it easier for them to compare prices with other jewelry retailers. If our consumer brands do not offer the same or similar items at the lowest prices, consumers may purchase their jewelry from competitors, which could have a material adverse effect on our financial condition and results of operations.

Risk Factors Relating to Demand

A decrease in demand for the Company’s products and services and the failure of the Company to adapt to such decreases.

Although the Company actively manages its product and service offerings to ensure that such offerings meet the needs and preferences of its customer base and partners, the demand for a particular product or service may decrease due to a variety of factors, including many that the Company may not be able to control, anticipate or respond to promptly, such as the availability and pricing of competing products or technology, changes in customers’ financial conditions as a result of changes in unemployment levels, declines in consumer spending habits related to general economic conditions, inflation, weather events, public health and safety issues, fuel prices, interest rates, government-sponsored economic stimulus programs, social welfare or benefit programs, real or perceived loss of consumer confidence or regulatory restrictions that increase or reduce customer access to particular products.

Should the Company fail to adapt to a significant change in its customers’ demand for, or regular access to, its products, the Company’s revenue could decrease significantly. Even if the Company makes adaptations, its customers or merchants may resist or reject products or services whose adaptations make them less attractive or less available. In any event, the effect of any product or service change on the results of the Company’s business may not be fully ascertainable until the change has been in effect for some time.

Misjudging consumer demand.

Consumer demand for the Company’s products can affect inventory levels. If consumer demand is lower than expected, inventory levels can rise, causing a strain on operating cash flow. If inventory cannot be sold through our retail outlets or wholesale channels, write-downs or write-offs to earnings could be necessary. Conversely, if consumer demand is higher than expected, insufficient inventory levels could result in unfulfilled orders, loss of revenue, and an unfavorable impact on customer relationships. In particular, volatility and uncertainty related to macroeconomic factors make it more difficult to forecast consumer demand in various markets. Failure to properly judge consumer demand and properly manage inventory could have a material adverse effect on profitability and liquidity.

Risk Factors Specific to the Luxury Hard Asset Market

Adapting to consumer buying preferences toward lab-grown diamonds.

While the Company regularly assesses consumer buying preferences to provide our customers with an array of attractive buying options, consumers have become more accepting of lab-grown diamonds as a result of their price point and trends toward sustainability and understanding source origin. Although we offer lab-grown diamond collections, these are at lower price points, which may have a material adverse effect on our financial condition and results of operation.

Consumer acceptance of near-perfect counterfeit products.

Technology has evolved to where manufacturers can produce near-perfect counterfeits of luxury retail brands. While our business model is value-driven, consumer acceptance of near-perfect counterfeit goods may result in increased competition against the luxury recommerce market, which may have a material adverse effect on our financial condition and results of operation.

The proliferation of near-perfect counterfeit products.

While the company employs a team of authentication experts to ensure transactional confidence in both the buying and selling process, the continued proliferation of near-perfect counterfeit goods may erode consumer confidence in the luxury recommerce market, which may have a material adverse effect on our financial condition and results of operation.

Risk Factors Relating to Corporate Structure and Governance

The voting power in the Company is substantially controlled by a small number of shareholders, which may, among other things, impede the removal of incumbent directors or a takeover attempt, even if such events may be beneficial to shareholders.

N10TR, LLC (“N10TR”) is the Company’s largest shareholder, owning 12,814,727 shares of Common Stock, representing 49.3% of the total outstanding shares of Common Stock, as of December 31, 2024. Eduro Holdings, LLC (“Eduro”) owns 6,365,460 shares of Common Stock, representing 24.5% of the total outstanding shares of Common Stock, as of December 31, 2024. Both N10TR and Eduro are under the common control of John R. Loftus, the Company’s CEO, President, and Chairman of the Board. Consequently, Mr. Loftus is in a position to significantly influence any matters that are brought to a vote of the shareholders, including, but not limited to, the election of members of the Company’s board and any action requiring the approval of shareholders, including any amendments to the governing documents, mergers or sales of all or substantially all of the Company assets. This concentration of ownership also may delay, defer, or even prevent a change in control of the Company and make some transactions more difficult or impossible without the support of Mr. Loftus. These transactions might include proxy contests, tender offers, mergers, or other purchases of Common Stock that could allow shareholders to realize a premium over the then-prevailing market price for shares of Common Stock.

Our status as a "controlled company" could make our Common Stock less attractive to some investors or otherwise harm our stock price.

Because we qualify as a "controlled company" under the corporate governance rules for New York Stock Exchange (“NYSE”) American-listed companies, we are not required to have a majority of our Board of Directors (the “Board”) be independent, nor are we required to have a compensation committee or an independent nominating function. In the future, we could elect not to have a majority of our Board be independent or not to have a compensation committee or an independent nominating function. Accordingly, should the interests of our controlling stockholder differ from those of other stockholders, the other stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance rules for NYSE American-listed companies. Our status as a controlled company could make our Common Stock less attractive to some investors or otherwise harm our stock price.

The Company is, and will be, subject to new and existing corporate-governance and internal-control demands and reporting requirements.

Governments, including agencies at the national, state, and local levels, may seek to enforce or impose new laws, regulatory restrictions, or licensing requirements. They may also interpret or enforce existing requirements in new ways that could restrict the Company’s ability to continue its current methods of operation or to expand operations, impose significant additional compliance costs, and could have a material adverse effect on the Company’s financial condition and results of operations. In 2014, the Company agreed to a series of corporate governance reforms with the SEC. Additionally, the Company faces corporate-governance requirements under the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the ”Dodd-Frank Act”), as well as new rules and regulations subsequently adopted by the SEC, the Public Company Accounting Oversight Board and the NYSE American (the “Exchange”). These laws, rules, and regulations continue to evolve and may become increasingly stringent in the future. If the Company does not comply with the corporate governance reforms, the Company could face enforcement actions by the SEC or other governmental or regulatory bodies, as well as shareholder lawsuits, all of which could have a material adverse effect on our financial position and results of operations.

Risk Factors Relating to Compliance

The Company is subject to maintaining an AML compliance program, and the failure to comply could adversely affect the Company’s reputation and ability to obtain merchandise.

The Company is subject to the provisions of the USA PATRIOT Act, which requires certain businesses to maintain an AML compliance program. The Company’s AML compliance program is isolated to our retail buying program within our consumer segment, as opposed to the Company as a whole. We do not buy from international sources nor are our sales subject to AML compliance. Failure to comply with applicable AML regulations could result in regulatory enforcement actions, fines, reputational harm, or other adverse consequences impacting our financial position and results of operations.

The conflict-mineral diligence process, the results from that process, and the related reporting obligations could increase costs, adversely affecting the Company’s reputation and our ability to obtain merchandise.

In August 2012, the SEC, pursuant to the Dodd-Frank Act, issued final rules that require annual disclosure and reporting on the source and use of certain minerals, including gold, from the Democratic Republic of Congo and adjoining countries. The gold supply chain is complex, and while management believes that the rules only cover less than 1% of annual worldwide gold production based upon current estimates, the final rules require certain jewelry retailers and manufacturers that file with the SEC to exercise reasonable due diligence in determining the country of origin of the statutorily designated minerals that are used in kinds of products the Company sells. Jewelry retailers or manufacturers who meet certain criteria were required to file certain reports with the SEC beginning in May 2014, disclosing their due diligence measures related to the country of origin, the results of those activities, and related determinations. In conjunction with legal counsel, we have determined that we do not have sufficient control over the manufacturing of any of our products to be included in the group of companies required to provide conflict-minerals disclosure and reporting.

If the Company’s sourcing processes should change, or if there is a determination that the Company’s current practices should be covered by the conflict-minerals reporting and disclosure guidelines, there would be a need to implement significant additional measures to comply with these rules. Management cannot be certain of the costs that might be associated with such regulatory compliance. The final rules also cover tungsten, which is contained in a small portion of items that we sell. Other minerals, such as diamonds, could be added to those currently covered by these rules. The Company may incur reputational risks with customers and other shareholders if, due to the complexity of the global supply chain, management is unable to sufficiently verify the origin of the relevant metals. Also, if the responses of parts of the Company’s supply chain to verification requests were adverse, it could harm our ability to obtain merchandise and add to compliance costs. In addition, Envela partners with refiners for a portion of its sales. These refiners are subject to increasingly stringent governmental regulation in their refining operations, and a change or increase in such regulations in the United States or abroad could have a material adverse effect on our financial position and results of operations.

Governments may refuse to renew or grant licenses and permits, thus restricting our ability to operate.

Certain aspects of our business, namely our electronics recycling business within our consumer segment are subject to greater regulation and compliance at federal, state, and local levels. Increased requirements for licensing and permitting may require changes in our business service delivery, capital expenditures, and compliance programs. While we acknowledge our commitment to stewardship of our properties, operating processes, and outcomes, increased regulation and compliance could have a material adverse effect on our financial position and results of operations.

Changes to ESG regulations may impact our reputation and financial results.

In recent years, ESG matters have come to the forefront of corporate governance, resulting in the SEC issuing its final ruling on climate-related disclosures, on March 6, 2024. Less than one month after their adoption, the SEC chose to stay its adopted disclosure rules, pending judicial review, creating a period of stasis which has impacted corporate governance strategies related to ESG. While the Company remains steadfast in its business practices and messaging to its stakeholders related to its sustainability value proposition, commitment to inclusivity, and the positive impact of our businesses in the communities we operate in, this period of uncertainty creates risk associated with the nature and extent of adoption of ESG practices.

The methodologies and standards for tracking and reporting on ESG matters are relatively new, have not been standardized, and continue to evolve. As a result, our ESG-related disclosures may not necessarily be calculated in the same manner or comparable to similarly titled measures presented by us in other contexts, or by other companies or third-party estimates. If our ESG-related disclosures are or are perceived by government authorities, investors, or stakeholders to be inadequate, inaccurate, or non-compliant with applicable standards or regulations, or if we discover material inaccuracies therein, our reputation could be negatively impacted, and we could be exposed to litigation and other regulatory actions.

The Company is regularly monitoring developments pertaining to the judicial review, to ensure it has adequately assessed its strategy and capital requirements related to compliance.

U.S. governmental regulation and environmental, health and safety requirements may adversely affect our business.

Our operations are subject to federal, state and local environmental, health and safety laws applicable to reclamation of commodities from electronic waste. We are required to obtain environmental permits and approvals for some of our operations and must expend time and resources to ensure compliance with those permits and approvals. As noted above, we cannot guarantee receipt of required permits or renewals of such permits in a timely manner or without unforeseen limitations on our operations. We are also subject to environmental, transportation, and health and safety laws that govern the management of electronic waste and the reclamation of useful goods therefrom. Such regulations tend to become more restrictive over time, and it is possible that new regulations will be passed that require material changes to our operations or could otherwise result in a material adverse effect on our financial position.

Risks Related to Cyber Threats and Rapid Advancements in AI

The Company’s websites may be vulnerable to security breaches and similar threats, which could result in liability for damages and harm to the Company’s reputation.

Despite the implementation of network security measures, Company websites are vulnerable to computer viruses, break-ins, and similar disruptive problems caused by internet users. These occurrences could result in liability for damages, and the Company’s reputation could suffer. Circumvention of security measures may result in the misappropriation of customer or other confidential information. Any such security breach could lead to interruptions, delays, and cessation of service to customers and could have a material adverse effect on our reputation, financial position, and results of operations.

A failure of the information systems could prevent the Company from effectively managing and controlling operations and serving customers.

The Company relies on information systems to manage and operate our businesses. These include our communications systems, website, point-of-sale application, enterprise resource planning system, and other supporting systems. Any disruption in the availability of our information systems could adversely affect the Company’s ability to service customers and could have a material adverse effect on our reputation, financial position, and results of operations.

The Company may be subject to business, compliance, and reputational risks associated with AI.

The Company continues to evaluate opportunities for AI and machine learning in terms of their use in practical applications to enhance processes and serve customers. Its adoption may result in new or expanded risks and liabilities, including governmental and regulatory compliance, litigation, ethical concerns, confidentiality, or security risks that may have a material adverse effect on our reputation, financial position, and results of operations.

Risks Related to Global Health Crises, Disasters and Geopolitics Impacting Supply and Demand

Outbreaks of epidemics, pandemics, or other public health emergencies have disrupted, and could in the future, disrupt our operations.

Our operations are exposed to risks associated with epidemics, pandemics, or other public health emergencies. Such events could lead to restrictions and mandates, which could be applied differently across jurisdictions, and there could be global impacts resulting directly or indirectly from such an event including labor shortages, logistical challenges, supply chain disruptions, and increases in costs for certain goods and services. Any or all of the foregoing in jurisdictions where we or our customers, suppliers, or operations are located could have a material adverse effect on our financial position and results of operations. In addition, fluctuations in demand and other implications associated with public health emergencies have resulted in, and could in the future result in, certain supply chain constraints and challenges.

We may incur losses because of unforeseen or catastrophic events, terrorist attacks, extreme weather events or other natural disasters.

The occurrence of unforeseen or catastrophic events, terrorist attacks, extreme weather events, or other natural disasters, could create economic and financial disruptions and could lead to operational difficulties (e.g., travel limitations and limitations on occupancy in our facilities) that could impair our ability to manage our businesses.

Geopolitical conflicts, military action, and civil unrest could result in global supply chain disruptions and uncertain economic conditions.

The broader consequences of geopolitical conflicts, military action, and civil unrest could lead to economic instability and sustained inflation and result in changes in consumer behavior impacting discretionary spending. Any of these factors could have a material adverse effect on our financial position and results of operations.

Risks Related to Liquidity Management Strategies

Changes in liquidity and capital requirements and the ability to secure financing and credit could materially and adversely affect the Company’s financial condition and results of operations.

A significant reduction in cash flows from operations or the availability of credit could materially and adversely affect our ability to fund growth initiatives and provide working capital. Similarly, if actual costs to acquire and build out new retail stores significantly exceed planned costs, could hinder the ability to acquire new stores or to operate those profitably. Credit and equity markets remain sensitive to world events and macroeconomic developments. Therefore, the cost of borrowing may increase, and it may be more difficult to obtain financing for operations or to refinance long-term obligations as they become payable. Additionally, borrowing costs can be affected by independent rating agencies’ short- and long-term debt ratings which are based largely on performance as measured by credit metrics including interest coverage and leverage ratios. A decrease in these ratings would likely increase the Company’s borrowing costs and make it more difficult to obtain financing. A significant increase in costs to finance operations may have a material adverse effect on our financial position and the results of operations.

The impact of sustained high interest rates.

We are currently experiencing a sustained high-interest rate environment which may increase our borrowing costs associated with new or refinancing debt obligations or could make it difficult or impossible to secure financing.

Risk Factors Relating to Our Employees

The Company’s success depends on the ability to attract, retain, and motivate qualified directors, management, and other skilled employees.

Envela’s future success and growth depend on the continued services of directors, key management, and employees. Losing services from any of these individuals could materially affect the Company’s operations. The Company’s future success also depends on management’s ability to identify, attract, and retain additional qualified personnel. Competition for employees is intense, and the Company may be unsuccessful in attracting or retaining qualified personnel. There are a limited number of people with knowledge and experience within our industries. The Company does not have employment agreements with employees and does not maintain life insurance policies on any of the key personnel. The loss of key personnel, especially without advance notice, or the inability to hire or retain qualified people, could have a material adverse effect on all facets of our business. The Company cannot guarantee that we will continue to retain key management and skilled personnel, or will be able to attract, assimilate and retain other highly qualified personnel in the future.

The Company’s expansion into new geographical regions.

Both of the Company’s segments have portions of their business located in areas outside of its base of operations in Dallas-Fort Worth. The ability to manage operations in multiple geographical regions is vital to sustaining success. It is not guaranteed that the Company will have the same success in finding, training, and supervising geographically dispersed employees.

Risk Factors Relating to Our Strategies

The Company may take on additional liabilities in connection with acquisitions, or it may not be able to successfully integrate such acquisitions.

As part of the company’s history and growth strategy, it has acquired other businesses. Acquisitions involve numerous risks, including the following:

• effectively combining the acquired operations, technologies, or product offerings;
• unanticipated costs or assumed liabilities;
• not realizing the anticipated financial benefit from the acquired companies;
• diversion of management’s attention;
• negative effects on existing customer and supplier relationships; and
• potential loss of key employees, especially those of the acquired companies.

Further, the Company has made and may continue to make acquisitions of, or investments in, new services, businesses, or technologies to expand its current service offerings and product lines. Some of these may involve risks that may differ from those traditionally associated with the Company’s core business. If the Company is not successful in mitigating or insuring against such risks, it may have a material adverse effect on our financial position and results of operations.

Risks Related to Product and Service Offerings

Our electronic device business is subject to the risk of declines in the value and availability of devices in our inventory and to foreign trade risks and export compliance.

The value of the electronic devices that we collect and refurbish may fall below the prices we have paid, which could adversely affect our profitability. These devices are subject to the risk that the value, including selling price, will be adversely affected by technological changes affecting the usefulness or desirability of the devices and parts; physical problems resulting from faulty design or manufacturing; increased competition; decreased customer demand, including due to changes in customer preferences, changes in client promotions and seasonality; supply chain constraints; and growing industry emphasis on cost containment. The value and availability of devices or parts may also be impacted by adverse foreign trade relationships and an escalation in trade tensions, including concerning trade policies, treaties, government relations, tariffs, and other trade restrictions or compliance. If the value or availability of devices or parts is significantly reduced, it could have a material adverse effect on our financial position and results of operations.

We may incur losses because of a failure to manage and protect our client’s assets throughout the ITAD process.

The Company’s commercial segment provides services related to electronic devices being disposed of by business customers, including cleansing storage devices from customer equipment and either recycling them through resale or disposing of them in an environmentally compliant manner. If the Company does not meet its contractual and regulatory obligations, it could be subject to contractual damages, penalties, and damage to reputation. Also, the Company’s or its subcontractors’ failure to comply with applicable laws and regulations in disposing of the equipment could result in environmental liabilities. Such environmental liabilities may be joint and several, meaning that the company could be held responsible for more than its share of the liability involved. To the extent that the Company fails to comply with its obligations and such failure is not covered by insurance, it could have a material adverse effect on our reputation, financial position, and results of operations.

Risks Related to Changes in Tax Rules

We may incur an increase in taxes as a result of changes in tax rules.

As a company conducting business throughout the U.S. with physical operations in multiple states, we are exposed to the effects of changes in U.S., state, and local tax rules. Governments seeking to increase their corporate tax base may have a material adverse effect on our financial position and results of operations.

Our facilities by segment and geography were as follows as of December 31, 2024:

(1) The Texas-owned properties are encumbered by debt facilities, see Note 14 – Debt for further details.

Our leases begin to expire starting in 2025 through 2030, with six leases having a right of renewal. Both segments regularly evaluate each of their locations in terms of profitability, effectiveness and fit with their long-term strategy.

In management’s opinion, these properties have been well maintained, are in good operating condition, and contain all necessary equipment and facilities for their intended purposes.

See Note 12 – Leases for further details on leased facilities.

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. The Company does not believe that any such legal proceedings and claims pending against the Company would have a material adverse effect on our financial position and results of operations.

Cautionary Statement Regarding Risks and Uncertainties that May Affect Future Results

The following discussion of our financial condition and results of operations should be read together with our financial statements and related notes and other financial information included in this Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in the section titled “Risk Factors.” Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Refer to Cautionary Note Regarding Forward-Looking Statements on page 4 for further details.

Introduction

This section includes a discussion of our operations for the years ended December 31, 2024, and December 31, 2023. The following discussion and analysis provide information that management believes is relevant to an assessment and understanding of our financial condition and results of operations.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”). The preparation of these financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. References to fiscal years herein are denoted with the word “Fiscal” and the associated year.

See Note 3 – Accounting Policies and Estimates for further details.

Economic Conditions

The U.S. and other world economies are currently experiencing high interest rates and high levels of inflation, coupled with commodity price risk, mainly associated with variations in the market price of precious metals and diamonds which have the potential to impact consumer discretionary spending behavior. Furthermore, adverse macroeconomic conditions can also impact demand for resale technology assets.

As to counterbalance economic cycles that impact market selling prices and/or underlying operating costs we adjust the inbound purchase price of commodity-based products, luxury hard assets, and resale technology.

We continuously monitor our inventory positions and associated working capital to respond to market conditions and to meet seasonal business cycles and expansionary plans. These economic cycles may from time to time require the business to utilize its line of credit or seek additional capital.

There can be no assurance that the measures we have adopted will be successful in mitigating the aforementioned risks.

Our Business

Envela serves as a holding company, conducting its operations via subsidiaries engaged in various businesses and activities within the recommerce and recycling sectors. The products and services we offer are delivered by our subsidiaries under their distinct brands, rather than directly by Envela itself. Significant business activities within our reportable segments are detailed below:

Consumer Segment

Our consumer segment primarily operates in the jewelry industry, specializing in the online and brick-and-mortar sale of authenticated high-end luxury goods, including pre-owned fine jewelry, diamonds and gemstones, luxury watches, along with secondary market bullion. We incorporate recycled diamonds and gemstones into our new designs meaning they were previously set and unset, producing a low-carbon and ethical origin product. The Company caters to consumers seeking environmentally responsible options for engagement rings, wedding bands, and other fine jewelry at accessible prices. 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 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 offers services that manage the entire lifecycle of technology products to ensure data security, regulatory compliance, and environmental sustainability. We are proud of our role in supporting a circular economy through responsible reuse and recycling of electronic devices.

Segment Activities

The Company believes it is well-positioned to take advantage of its overall capital structure.

Consumer Segment

Our strategy is to expand the number of locations we operate by opening new locations throughout the U.S. Likewise, we continue to evaluate opportunities related to complementary product and service offerings for our stores and online business.

Commercial Segment

Our strategy is to expand both organically and through acquisitions. The Company has taken considerable steps to bolster its management team and operating systems to position itself for growth. Our production facilities are capable of managing the expansion of existing relationships and consolidation of acquisition targets within relative geographic proximity into our existing facilities.

Changes in Disclosure of Results of Operations

The Company previously disaggregated revenue and gross margin by resale and recycle for each segment within the results of operations. The Company’s revenue and gross margin are now comprised of more diverse revenue and gross margin streams associated with service offerings and as such to continue reporting under the prior disclosure methodology would be less representative of how the business operates. The Company believes that this change has no material impact on the interpretation of our results of operations.

Non-U.S. GAAP Financial Measures

Within this management discussion and analysis, we use supplemental measures of our performance, which are derived from our consolidated financial information, but which are not presented in our consolidated financial statements prepared in accordance with U.S. GAAP. We believe that providing these non-U.S. GAAP financial measures adds a meaningful presentation of our operating and financial performance. See the reconciliation of net income to adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) and Net Cash, in Non-U.S. GAAP Financial Measures below.

Adjusted EBITDA

Adjusted EBITDA is defined as the sum of net income (loss) of the Company, adjusted for additions (deductions) of interest expense, other (income) expense, income tax expense (benefit), and depreciation and amortization. Adjusted EBITDA is a key performance measure that management uses to assess our operating performance. Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure as an overall assessment of our performance, to evaluate the effectiveness of our strategies and for planning purposes.

The following table provides a reconciliation of net income to Adjusted EBITDA for the years ended December 31, 2024 and 2023:

Net Cash

Net Cash is defined as the difference between (i) cash and cash equivalents and (ii) the sum of debt obligations. We believe that presenting Net Cash is useful to investors as a measure of our liquidity and leverage profile, as cash and cash equivalents can be used, among other things, to repay indebtedness.

The following table depicts the Company’s Net Cash:

Results of Operations

The results of operations should be read in conjunction with our financial statements and notes included elsewhere in the Annual Report. Prior year comparisons for 2023 and 2022, are included in “Part II. Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal years ended December 31, 2023 and 2022, which was filed with the SEC on March 21, 2024.

Any reference in this Annual Report to a “year-over-year” change is to the relevant comparison between activity from each twelve-month period ended December 31, 2024 and 2023.

Comparison of the Years Ended December 31, 2024 and 2023

The following table depicts our disaggregated consolidated statements of income for the years ended December 31, 2024 and 2023:

(1) The “% of Sales” figures present the proportion of each line item to the total consolidated sales for the respective period, which management believes is relevant to an assessment and understanding of our financial condition and results of operations. Due to rounding, the percentages presented may not add up precisely to the totals provided.

The individual segments reported the following for the years ended December 31, 2024 and 2023:

Sales

Consolidated

Sales increased by $5,112,403, or 2.9%, during the year ended December 31, 2024, to $180,376,229, as compared to $175,263,826 during the same period in Fiscal 2023.

Consumer Segment

Sales in the consumer segment increased by $1,055,799, or 0.8%, during the year ended December 31, 2024, to $130,469,468, as compared to $129,413,669 during the same period in Fiscal 2023. The change was primarily attributed to stronger sales of scrap grade precious metals inventory which were more pronounced in the third and fourth quarters of Fiscal 2024, which was offset by softer market conditions for bullion that was most prevalent in the first and second quarters of Fiscal 2024; which also impacted store performance. Our sales of scrap grade precious metals were favorably impacted by exceptional inbound material flow from our in-store buying programs. While Fiscal 2024 produced favorable movements in the spot price of gold it was not sufficient to offset the impact of lower bullion demand.

Commercial Segment

Sales in the commercial segment increased by $4,056,604, or 8.8%, during the year ended December 31, 2024, to $49,906,761, as compared to $45,850,157 during the same period in Fiscal 2023. The change was primarily attributed to the favorable performance from almost all of our verticals with the most significant being the sale of personal technology assets and sales generated through our ITAD business. While the sales of electronic scrap grades and associated recoveries were strong through to the third quarter of Fiscal 2024 they dropped off in the fourth quarter resulting in relative parity to Fiscal 2023. Electronic scrap grade sales were primarily impacted by inbound material flows from a single customer’s shipping schedule in the fourth quarter of Fiscal 2024.

Cost of Goods Sold

Cost of goods sold increased by $2,453,146, or 1.8%, during the year ended December 31, 2024, to $136,060,442, as compared to $133,607,296 during the same period in Fiscal 2023.

Consumer Segment

Cost of goods sold in the consumer segment increased by $822,487, or 0.7%, during the year ended December 31, 2024, to $114,587,598, as compared to $113,765,111 during the same period in Fiscal 2023. The change was primarily attributed to the aforementioned increase in sales attributed to lower margin scrap grade precious metals, which were more pronounced in the third and fourth quarters of Fiscal 2024. These sales allowed the consumer segment to reduce its inventory position from an intra-year high of $27,866,050 as of September 30, 2024 to $23,973,333 as of December 31, 2024.

Cost of goods sold as a percent of sales was 87.8% during the year ended December 31, 2024, as compared to 87.9% during the year ended December 31, 2023. The change was primarily attributed to the product mix, as the relief of inventory associated with lower margin scrap grade precious metals and bullion was almost fully offset by higher margin luxury goods.

Commercial Segment

Cost of goods sold in the commercial segment increased by $1,630,659, or 8.2%, during the year ended December 31, 2024, to $21,472,844, as compared to $19,842,185 during the same period in Fiscal 2023. The change was primarily attributed to the relief of inventory associated with lower margin electronic scrap grades and revenue sharing, ITAD settlements, and incrementally from the relief of inventory associated with personal technology assets. Our ITAD business had a strong fourth quarter in Fiscal 2024 resulting in this vertical having a greater impact on cost of goods sold than was evident through the nine months ended September 30, 2024.

Cost of goods sold as a percent of sales was 43.0% during the year ended December 31, 2024, as compared to 43.3% during the year ended December 31, 2023. The change was primarily attributed to the product mix that was relieved during the fourth quarter of Fiscal 2024 as our costs of goods sold as a percent of sales for the nine months ended September 30, 2024 had been unfavorable to the same period in Fiscal 2023. In the fourth quarter of 2024 the commercial segment experienced stronger margins on the sale of personal technology assets that moved its cost of goods sold as a percent of sales into a favorable variance for the year ended December 31, 2024.

Gross Margin

Gross margin increased by $2,659,257, or 6.4%, during the year ended December 31, 2024, to $44,315,787, as compared to $41,656,530 during the same period in Fiscal 2023.

Consumer Segment

Gross margin in the consumer segment increased by $233,312, or 1.5%, during the year ended December 31, 2024, to $15,881,870, as compared to $15,648,558 during the same period in Fiscal 2023. The net impact of the aforementioned increase in sales of $1,055,799 and increase in cost of goods sold of $822,487 resulted in the $233,312 increase in gross margin.

Commercial Segment

Gross margin in the commercial segment increased by $2,425,945, or 9.3%, during the year ended December 31, 2024, to $28,433,917, as compared to $26,007,972 during the same period in Fiscal 2023. The net impact of the aforementioned increase in sales of $4,056,604 and increase in cost of goods sold of $1,630,659 resulted in the $2,425,945 increase in gross margin.

Selling, General and Administrative

Selling, general and administrative expense increased by $3,067,455, or 9.7%, during the year ended December 31, 2024, to $34,605,132, as compared to $31,537,677 during the same period in Fiscal 2023.

Consumer Segment

Selling, general and administrative expense in the consumer segment increased by $4,571,130, or 43.0%, during the year ended December 31, 2024, to $15,211,970, as compared to $10,640,840 during the same period in Fiscal 2023. The change was primarily attributed to incurring operational cost structures from our new Arizona and Texas stores along with travel costs associated with preparing those stores for opening. However, travel costs consecutively declined in both the third and fourth quarters of Fiscal 2024. During the year, processes and procedures were developed to create efficiencies in rolling out new stores in geographically dispersed locations that can be utilized in future store openings.

Commercial Segment

Selling, general and administrative expense in the commercial segment decreased by $1,503,675, or 7.2%, during the year ended December 31, 2024, to $19,393,162, as compared to $20,896,837 during the same period in Fiscal 2023. The change was primarily attributed to the operational focus on human capital costs and processing efficiencies at our production facilities during Fiscal 2024. Albeit, we did experience some intra-year increases in human capital costs associated with overall higher processing volumes and associated with a new retail returns client, the spend correlated to an increase in gross margin.

Depreciation and Amortization

Consolidated

Depreciation and amortization expense increased by $189,710, or 13.9%, during the year ended December 31, 2024, to $1,551,774, as compared to $1,362,064 during the same period in Fiscal 2023.

Consumer Segment

Depreciation and amortization expense in the consumer segment increased by $199,283, or 61.3%, during the year ended December 31, 2024, to $524,510, as compared to $325,227 during the same period in Fiscal 2023. The change was primarily attributed to our Arizona and Texas stores that were placed into service as well as the depreciation and amortization expense related to the assets acquired in the Scottsdale Transaction.

Commercial Segment

Depreciation and amortization expense in the commercial segment decreased by $9,573, or 0.9%, during the year ended December 31, 2024, to $1,027,264, as compared to $1,036,837 during the same period in Fiscal 2023. There was no material impact from assets capitalized or reaching maturity in each comparative period and, as such, no discussion point.

Other Income (Expense)

Other income increased by $309,900, or 42.6%, during the year ended December 31, 2024, to $1,037,682, as compared to $727,782 during the same period in Fiscal 2023.

Consumer Segment

Other income in the consumer segment increased by $20,755, or 24.8%, during the year ended December 31, 2024, to $104,561, as compared to $83,806 during the same period in Fiscal 2023. The change was primarily attributed to the proportional allocation of the proceeds from a settlement related to repairs to the Company’s corporate headquarters, and the Employee Retention Tax Credit (“ERTC”), and to the consumer segment’s higher working capital requirements from the aforementioned launching of our Arizona and Texas stores which has decreased the excess cash flow available to sweep into an interest-bearing account. The impact on interest income is referenced below.

Interest income comprised $2,304 and $77,936 of other income during the years ended December 31, 2024, and December 31, 2023, respectively.

Commercial Segment

Other income in the commercial segment increased by $289,145, or 44.9%, during the year ended December 31, 2024, to $933,121, as compared to $643,976 during the same period in Fiscal 2023. The change was primarily attributed to the proportional allocation of the proceeds from a settlement related to repairs to the Company’s corporate headquarters, the ERTC, and to the continued focus on reducing working capital which has increased the excess cash flow available to sweep into an interest-bearing account. The impact on interest income is referenced below.

Interest income comprised $753,315 and $455,665 of other income during the years ended December 31, 2024, and December 31, 2023, respectively.

Interest Expense

Interest expense decreased by $15,818, or 3.4%, during the year ended December 31, 2024, to $447,383, as compared to $463,201 during the same period in Fiscal 2023.

Consumer Segment

Interest expense in the consumer segment increased by $36,399, or 18.9%, during the year ended December 31, 2024, to $228,792, as compared to $192,393 during the same period in Fiscal 2023. The change was primarily attributed to the impact of the allocation of corporate interest expense.

Commercial Segment

Interest expense in the commercial segment decreased by $52,217, or 19.3%, during the year ended December 31, 2024, to $218,591, as compared to $270,808 during the same period in Fiscal 2023. The change was primarily attributed to the impact of the allocation of corporate interest expense.

Income Tax Expense

Income tax expense, for both segments, for the year ended December 31, 2024, was $1,992,121, an increase of $118,203, as compared to income tax expense of $1,873,918 for the year ended December 31, 2023. Currently, the Company has a deferred tax asset reflecting a future tax benefit that the Company expects to receive. The Company has a federal tax rate of approximately 21.0%, in addition to other state and local taxes, on net income. The effective income tax rate was 22.8% and 20.8% for the years ended December 31, 2024 and 2023, respectively. Differences between our effective income tax rate and the U.S. federal statutory rate are the result of state taxes and non-deductible expenses, as was the Company’s case for the increase for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Net Income

Net income decreased by $390,393, or 5.5%, during the year ended December 31, 2024 to $6,757,059, as compared to $7,147,452 during the same period in Fiscal 2023. Refer to the aforementioned attributes discussed within the Comparison of Years Ended December 31, 2024 and 2023 for further details.

Consumer Segment

Net income decreased in the consumer segment by $3,630,406, or 99.6%, during the year ended December 31, 2024 to $16,341, as compared to $3,646,747 during the same period in Fiscal 2023. Refer to the aforementioned attributes discussed within the Comparison of Years Ended December 31, 2024 and 2023 for further details.

Commercial Segment

Net income increased in the commercial segment by $3,240,013, or 92.6%, during the year ended December 31, 2024 to $6,740,718, as compared to $3,500,705 during the same period in Fiscal 2023. Refer to the aforementioned attributes discussed within the Comparison of Years Ended December 31, 2024 and 2023 for further details.

Earnings Per Share

Basic and diluted earnings per share attributable to holders of our Common Stock decreased by $0.01, or 3.7%, during the year ended December 31, 2024 to $0.26, as compared to $0.27 during the same period in Fiscal 2023.

Liquidity and Capital Resources

The following table summarizes the Company’s consolidated statements of cash flows:

Operating Activities

Cash flows provided by operations increased by $4,347,932, or 74.4%, during the year ended December 31, 2024, to $10,190,640, as compared to $5,842,708 during the same period in Fiscal 2023. The increase in cash provided by operations for the year ended December 31, 2024, was primarily attributed to the impacts of a decrease in net income, an increase in depreciation and amortization, a decrease in non-cash charges relating to deferred taxes, an increase in non-cash lease expense, a decrease accounts receivable associated with the settlement of a large SOW with a recurring customer, an increased inventory position associated with the expansion of the consumer business, an increase in accrued expenses primarily associated with our payroll accrual and unvouchered payments related to estimated settlement liabilities for inbound ITAD customers, and an increase in other liabilities associated with customer deposits and gift cards.

Investing Activities

Cash flows (used in) investing activities increased by $2,000,543, or 113.7%, during the year ended December 31, 2024, to $3,760,404, as compared to $1,759,861 during the same period in Fiscal 2023. The increase in cash (used in) investing activities during the year ended December 31, 2024, was primarily attributed to the purchase of property and equipment, including real estate associated with one of our Arizona stores, the build-out of our Arizona and Texas stores, the purchase of production assets within our commercial recycling business, and the continued development of intangible assets associated with our enterprise resource planning system.

Financing Activities

Cash flows (used in) financing activities increased by $276,123, or 8.1%, during the year ended December 31, 2024, to $3,675,086, as compared to $3,398,963 during the same period in Fiscal 2023. The increase in cash (used in) financing activities during the year ended December 31, 2024, was primarily due to our share buyback plan as principal payments on debt were in relative parity.

Capital Resources

Although the Company has access to a line of credit our primary source of liquidity and capital resources currently consists of cash generated from our operating activities. We do not anticipate the need to fund our operations via the line of credit and we do not have any amounts drawn as of December 31, 2024. We have historically renewed, extended, or replaced short-term debt as it matures, and management believes that we will be able to continue to do so in the near future.

Capital Expenditures

We regularly identify growth opportunities and business optimizations that require capital deployment. The Company continuously monitors its deployment of capital and primarily funds capital expenditures through cash flow from operating activities. Where appropriate the Company may use debt financing on select projects. When this occurs, the Company further evaluates future cash flows of the project to ensure the debt tenure and pay-back period are in alignment as well as the appropriateness of the rate of return.

Consumer Segment

In Fiscal 2024, the consumer segment primarily expended capital in relation to store expansion. In Fiscal 2025, we will look to optimize the performance of our new retail stores along with identifying new market opportunities. The Company believes it has the liquidity and capital resources to fund capital outlays of the aforementioned.

Commercial Segment

In Fiscal 2024, the commercial segment primarily expended capital in relation to production assets and was the primary beneficiary of our capital spend associated with our enterprise resource planning system. In Fiscal 2025, we will look to identify opportunities for growth of service offerings, evaluate expansion, and maintain our production assets. The Company believes it has the liquidity and capital resources to fund capital outlays of the aforementioned.

Contractual Obligations

The following table summarizes future contractual obligations related to debt and leases as of December 31, 2024:

(1) Notes payable includes the principal amount of borrowings outstanding under the Company’s debt facilities.

(2) Interest payments on notes payable are based on interest rates in effect as of December 31, 2024. As contractual interest rates and the amount of notes payable outstanding in variable in certain cases, actual cash payments may differ from the amounts provided.

(3) Operating lease payments reflect those embedded in the measurement of our operating lease liabilities and thus, include lease payments for the remaining non-cancellable period of the lease together with periods covered by renewal (or termination) options which we are reasonably certain to exercise (or not exercise). These operating lease payments do not include certain tax, insurance, and maintenance costs, which are also required contractual obligations under some of our operating leases, but are generally not fixed and can fluctuate year to year.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our shareholders.

Not required because we are a “Smaller Reporting Company” as that term is defined in Rule 12b-2 promulgated under the Exchange Act.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, with the participation of our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2024. We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to a low for timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of December 31, 2024, the Company’s principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective to provide the reasonable assurance of the foregoing.

We believe however, that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving their objectives, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management has the responsibility for establishing and maintaining adequate internal control over financial reporting and for our assessment of the effectiveness of internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, with respect to us as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officer and effected by the Board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles that achieve certain specified controls over the records of business transactions.

Because of its inherent limitations, internal control over financial reporting only provides reasonable assurance with respect to financial statement presentation and preparation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013). Based on its assessments, management has concluded that, as of December 31, 2024, the internal control over financial reporting is effective.

The Company is not required to provide an attestation report of our registered public accounting firm pursuant to rules promulgated by the SEC.

Changes in Internal Control Over Financial Reporting

During the fiscal year ended December 31, 2024, no changes occurred that the Company’s management believes have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.