ELA Envela Corp - 10-K

ITEM 1A. RISK FACTORS

Investment in our Company involves risk. You should carefully consider the risks described below and the other information in this Form 10-K and other filings we make from time to time with the SEC, including our consolidated financial statements and accompanying notes. Any of the following risks could materially and adversely affect our reputation, financial condition, results of operations, or liquidity. These risks are not the only risks we face. Our business, financial condition, results of operations, or liquidity could also be materially and adversely affected by additional factors that apply to all companies generally, or by risks not currently known to us or that we currently view as immaterial. We can provide no assurance and make no representation that any of our risk mitigation efforts, although we believe them to be reasonable, will be successful.

Risks Related to Budgeting and Forecasting

An inability to reasonably budget or forecast our commercial and operational performance and liquidity requirements may make it difficult to meaningfully compare our results of operations between periods.

Our financial condition and results of operations could vary significantly from quarter to quarter and from year to year due to a variety of factors, many of which are outside our control. As a result, comparing our results of operations on a period-to-period basis may not be meaningful or provide significant context. In addition to the risk factors discussed in this section, factors that may contribute to the variability of our quarterly and annual results include:

Our ability to accurately forecast sales and appropriately plan our expenses, capital expenditures, and liquidity;

The timing and effectiveness of marketing campaigns;

Successful expansion into new markets or expanding relationships with business partners and customers;

The effectiveness of business partner and customer retention strategies;

Seasonality along with any associated weather disruptions;

Macroeconomic conditions; and

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Our ability to collect payments from customers on a timely basis.

Risks Related to Our Business Relationships

An inability to attract new customers, turn existing customers into repeat customers, maintain relationships with significant business partners, or renew contracts with them on favorable terms.

Our business partner and customer base may be unfavorably impacted by several factors, including, but not limited to:

Dissatisfaction with our services and the assortment, pricing, and quality of our products;

Intense competition in our markets;

Lack of market acceptance or familiarity with our brands, particularly in new geographies or targeted markets.

We expect to continue to expend capital on marketing efforts to acquire and retain business partners and customers, which, if unsuccessful in creating transactional relationships, may have a material adverse effect on our financial condition and results of operations.

Within our commercial segment, the business primarily depends on maintaining relationships and contractual arrangements with major business partners. If our key business partners terminate important transactional 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.

Risks Related 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, refining capacity, and governmental and private mint supply. The Company seeks to reduce its exposure to market volatility through disciplined inventory management procedures. As circumstances permit, the Company may use financial derivative instruments to minimize the impact of market volatility. If commodity markets underlying our bullion- or precious-metal-laden inventory are misjudged, or if our inventory management or hedging strategies are unsuccessful, our business could suffer material adverse consequences.

While jewelry manufacturing is a major driver of gold demand, management believes that gold costs are predominantly driven by investment transactions, which may result in significant cost fluctuations. The Company’s cost of merchandise and potential earnings may be adversely affected by investment market factors that cause gold prices to rise or fall significantly.

A significant portion of the consumer segment’s profits is generated by buying and selling pre-owned fine jewelry and 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 undervalued or the value is uncertain.

Any of the aforementioned risk factors may have a material adverse effect on our financial condition and results of operations.

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

Historically, jewelry retailers have been able to increase prices over time to reflect changes in commodity costs. However, particularly sharp increases in commodity costs may result in a time lag before they 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

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may occur. Moreover, any sustained increases in commodity costs could require us to fund inventory purchases at higher prices or to adjust the merchandise we offer, 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 where we sell into, may result in 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.

The consumer wholesale and retail jewelry business is seasonal.

The consumer segment’s retail jewelry sales are seasonal by nature. The periods around Valentine’s Day and Mother’s Day, and the Holiday Months leading up to Christmas, are typically the main seasons for jewelry sales. The amounts of sales and operating income generated during these periods depend on general economic conditions and other factors beyond our control. Given the timing of the corresponding season, inclement weather can at times pose a substantial barrier to consumer retail activity and adversely affect store traffic. If inclement weather conditions were to occur during these peak sales periods, they could have a material adverse effect on our financial condition and results of operations.

Risks Related to Competition

Intense competition across all markets for our 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. Increases in these competitive influences could adversely affect our operations by reducing 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 and 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, which could have a material adverse effect on our financial condition and results of operations.

Jewelry and watch retailing are 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, online retailers, 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, making it easier to compare prices with other retailers. If our consumer brands do not offer the same or equivalent items at competitive prices, consumers may purchase their jewelry from competitors, which could have a material adverse effect on our financial condition and results of operations.

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Risks Related to Demand

Demand for our products and services may decrease, and there can be no assurances that the Company will be able 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 business 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 our customers’ financial condition 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 significant changes in its business partners’ or customers' demand for, or regular access to, its products and services, our revenue could decrease significantly with a commensurate impact on our financial condition. Even if the Company makes adaptations, its business partners or customers may resist or reject services or products whose adaptations make them less attractive or less available. In any event, the effect of any change in services or products 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 may strain our operating cash flow and have other negative impacts on our business.

Consumer demand for the Company’s products can affect inventory levels. If consumer demand is lower than expected, inventory levels can rise, straining 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 could lead to unfulfilled orders, revenue loss, and adverse impacts on customer relationships. Volatility and uncertainty in macroeconomic factors also make it more difficult to forecast consumer demand across markets. Failure to properly judge consumer demand and effectively manage inventory could have a material adverse effect on the results of operations and financial condition.

Risks Related to the Luxury Hard Asset Market

Changing 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 due to their price point, trends toward sustainability, and greater understanding of their origin. Although we offer lab-grown diamond collections at lower price points, this may have a material adverse effect on our financial condition and results of operations.

Consumer acceptance of near-perfect counterfeit products may result in increased competition.

Technology has evolved to the point 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 increase competition in the luxury recommerce market, which could have a material adverse effect on our financial condition and results of operations.

The proliferation of near-perfect counterfeit products may erode consumer confidence.

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

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Risks Related 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, 2025. 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, 2025. 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’s assets. This concentration of ownership may also delay, defer, or even prevent a change in control of the Company and may make certain 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.

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 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 and NYSE Texas-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, internal control, and reporting requirements.

Governments, including agencies at the federal, 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 may 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 rules and regulations subsequently adopted by the SEC, the Public Company Accounting Oversight Board, and the NYSE American and NYSE Texas. 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 condition and results of operations.

Risks Related 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 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

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compliance. Failure to comply with applicable AML regulations could result in regulatory enforcement actions, fines, reputational harm, or other adverse consequences that could impact our financial condition 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 that meet certain criteria were required to file reports with the SEC beginning in May 2014, disclosing their due diligence measures related to 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-mineral disclosure and reporting.

If the Company’s sourcing processes change, or if it is determined that the Company’s current practices should be covered by the conflict-minerals reporting and disclosure guidelines, significant additional measures would be required to comply with these rules. Management cannot be certain of the costs associated with such regulatory compliance. The final rules also cover tungsten, which is present in a small number of items 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 responses from parts of the Company’s supply chain to verification requests were adverse, it could harm our ability to obtain merchandise and increase compliance costs. In addition, Envela partners with refiners for a portion of its sales. These refiners are subject to increasingly stringent governmental regulations governing their refining operations, and any change or increase in such regulations in the U.S. or abroad could have a material adverse effect on our financial condition 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 commercial segment, are subject to greater federal, state, and local environmental regulations and compliance requirements. Increased requirements for licensing and permitting may require changes in our business service delivery models, capital expenditures, and compliance programs. While we acknowledge our commitment to our communities and stewardship of our properties, operating processes, and outcomes, increased regulation and compliance could have a material adverse effect on our financial condition and results of operations.

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

The methodologies and standards for tracking and reporting on ESG matters are relatively new, remain unstandardized, and continue to evolve. As a result, our ESG-related disclosures may not be calculated in the same manner as, or be comparable to, similarly titled measures presented by us in other contexts, by other companies, or by third-party estimates. If our ESG-related disclosures are, or are perceived by government authorities, investors, or other 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 regularly monitors developments to ensure it has adequately assessed its strategy and capital requirements related to compliance.

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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 the reclamation of commodities from electronic waste. We are required to obtain environmental permits and approvals for some of our operations and must spend time and resources to ensure compliance. As noted above, we cannot guarantee the timely receipt of required permits or their renewals, or that such processes will proceed 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 usable goods from it. Such regulations tend to become more restrictive over time, and new regulations may be enacted that require material changes to our operations or otherwise result in a material adverse effect on our financial condition and results of operations.

Risks Related to Cyber Threats and Rapid Advancements in AI

The Company’s websites or portals 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 or portals may be vulnerable to computer viruses, break-ins, and other disruptive issues caused by internet users. These occurrences could result in liability for damages and could damage the Company’s reputation. Circumvention of security measures may result in the misappropriation of business partner and/or customer information or other confidential information, or attacks may render our websites inoperable or compromised with false information. Any such security breach could lead to interruptions, delays, and cessation of service to customers or business partners and could have a material adverse effect on our reputation, financial condition, and results of operations.

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

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

A failure to maintain the security of our business partners', customers', employees', or vendors' information, or to comply with privacy laws, could expose us to litigation, government enforcement actions, and costly response measures.

In connection with the buying and selling functions, providing services, and transacting with non-trade vendors, we transmit or receive credit and debit card information, payment instructions, and other data required to comply with Company and governmental requirements. We also have access to, collect, or maintain certain private data pertaining to employees and their dependents. In some instances, we may leverage third-party service providers to collect data. Additionally, we may share information with select vendors to assist us in conducting our business. While we have implemented procedures and technology intended to protect such information and require appropriate controls of our service providers, external attackers could compromise such controls and result in unauthorized disclosure of such information, as attacks are becoming increasingly sophisticated, may include attacks on our business partners, customers, employees, or vendors, and do not always or immediately produce detectable indicators of compromise. If attackers obtain information via our business or employee relationships, and if these impacted parties do not employ good online security practices (e.g., use the same password across different sites or do not use available multifactor authentication options), these passwords could be used to gain access to their information or accounts with us in certain situations.

Because we accept debit and credit cards for payment, we are subject to industry data protection standards and protocols, such as the Payment Card Industry Data Security Standards (“PCI DSS”), issued by the PCI DSS Council. Nonetheless, our applicable payment processing partner(s) may be vulnerable to, and unable to detect and appropriately respond to, cardholder data security breaches and data loss, including successful attacks on applications, systems, or networks.

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A significant security breach of any kind, which could be undetected for a period of time, or a significant failure by us with applicable privacy and information security laws, regulations, standards, and related reporting requirements could expose us to risks of data loss, litigation, government enforcement actions, fines or penalties, negative publicity and reputational harm, business disruption and costly response measures (e.g., providing notification to, and credit monitoring services for, affected individuals, as well as further upgrades to our security measures; procuring a replacement vendor if one of our current vendors is unable to fulfill its obligations to us due to a cyberattack or incident) which may not be covered by or may exceed the coverage limits of our insurance policies, and could materially disrupt our operations. Any resulting negative publicity could materially and adversely affect our reputation, financial condition, and results of operations.

Challenges or failures in maintaining or updating our existing technology, or in implementing new technologies.

We depend on a variety of information technology systems, including systems owned and managed by third-party vendors, for the efficient functioning of our business, including, without limitation, transaction processing and the management of our employees, inventories, and customer-facing digital applications and operations. Such systems are subject to damage or interruption from power surges and outages, facility damage, physical theft, computer and telecommunications failures, inadequate or ineffective redundancy, malicious code (e.g., malware, ransomware, or similar), successful attacks (e.g., account compromise; phishing; denial of service; and application, network or system vulnerability exploitation), software upgrade failures or code defects, natural disasters and human error. A system breach or failure, design defects, damage to, or interruption to these systems may require a significant investment to repair or replace, disrupt our operations and affect our ability to meet business and reporting requirements, may result in the loss or corruption of critical data, and harm our reputation, all of which could materially and adversely affect our financial condition and results of operations.

Our technology initiatives may not deliver desired results or may do so on a delayed schedule. We rely heavily on our information technology staff to execute our technology initiatives while maintaining existing systems, and on third parties to maintain, enhance, and periodically upgrade many of these systems and software programs so they can continue to support our business. The inability or failure of these third parties or us to continue to maintain, enhance and upgrade these systems and software programs or efficiently implement and integrate new systems could disrupt or reduce the efficiency of our operations or retain vulnerability exploitation risk if we were unable to convert to alternate systems in an efficient and timely manner and could expose us to greater risk of a successful attack. In addition, costs and delays for any reason associated with the implementation or upgrade of systems, software, and technology, or with maintenance or adequate support of existing systems, could disrupt or reduce the efficiency of our operations and affect our ability to meet business and reporting requirements and could materially and adversely affect our financial condition 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 for practical applications that enhance processes and serve our business partners and 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 condition, 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 business partners, equipment suppliers, customers, or operations are located could have a material adverse effect on our financial condition 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.

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We may incur losses due to unforeseen or catastrophic events, terrorist attacks, extreme weather, or natural disasters.

The occurrence of unforeseen or catastrophic events, terrorist attacks, extreme weather events, or natural disasters could create economic and financial disruptions and lead to operational difficulties (e.g., travel limitations and occupancy restrictions 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 condition and results of operations.

Risks Related to Inventory

The impact of inventory shrinkage.

A significant part of our business is tied to high-dollar stock-keeping units (“SKUs”), which are inherently higher-risk inventory. The Company seeks to mitigate these risks through robust policies and procedures, employee training, regular and random stock-takes, reporting, security monitoring of facilities and store locations, appropriate levels of insurance, and overall risk management strategies. Despite good-faith efforts to ensure our inventory remains in the Company's custody and, upon sale, reaches its destination, there can be no assurance that we will be successful in our overall mitigation strategies, which may have a material adverse effect on our reputation, financial condition, and results of operations.

We must carefully manage our inventory to prevent a negative impact on our operating cash flows, profitability, and financial condition.

Our inventory represented 36.5% and 33.0% of the total assets as of December 31, 2025 and 2024. Efficient inventory management is a key component of our business success and profitability. We must maintain sufficient inventory levels and a desirable product mix to meet customer demand without allowing those levels to rise to the point that holding costs increase the risk of inventory shrinkage and/or have a material adverse effect on our financial condition and results of operations.

The impact of inventory curation related to store expansion may increase our carrying costs, reduce our inventory turnover, and expose us to margin volatility.

A key factor in the success of a new store opening within the consumer segment is curating an inventory position that meets customer demand. As is inherent in the recommerce industry, we must purchase our inventory before a new store opens. Holding the curated inventory until the store opens may increase carrying costs, reduce our inventory turnover, and expose us to margin volatility if held for an extended period, which may have a material adverse effect on our financial condition and results of operations.

Risks Related to Legal and Regulatory Claims and Implementation of Accounting Standards

The failure to protect our reputation.

Our success depends, in part, on protecting the reputation of Envela and its brands and on delivering products and services successfully. While our operating standards and business models are predicated on trust and transparency and being a responsible operator and communicator, there can be no assurance that we will be able to prevent adverse media, reports,

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or comments related to the Company or its brands, or that our responses will be deemed to have mitigated the impact. Negative reputational incidents could have a material adverse effect on financial condition and results of operations.

Legal proceedings may cause us to incur unexpected liabilities.

Our business is subject to litigation or other legal proceedings. The outcome of these matters may be difficult to assess or quantify. Plaintiffs may seek to recover large or indeterminate amounts, and the magnitude of the potential loss may remain unknown for lengthy periods. In addition, certain matters, if decided adversely to us or settled by us and not covered by insurance, may result in the incurrence of a liability that could have a material adverse effect on our reputation, financial condition, and results of operations.

Asserting our rights to ownership of our tradenames, trademarks, and other intellectual property may result in unexpected costs, and failure to protect these rights may harm our ability to compete effectively.

Our commercial success depends on protecting our tradenames, trademarks, and intellectual property, which create brand awareness and allow us to maintain competitive advantages. Competitors may adopt tradenames and trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. If we are unable to protect our trade names and trademarks and establish name recognition, we may not be able to compete effectively, which could have a material adverse effect on our financial condition and results of operations.

The impact of implementing accounting standards, rules, and regulations established by the SEC, NYSE American and Texas could increase our operating costs and result in changes to our financial statements.

The implementation of accounting standards may require certain systems, internal processes and controls, and other changes that could increase our operating costs and affect our consolidated financial statements. U.S. GAAP and related pronouncements, implementation guidelines, and interpretations regarding a wide range of matters relevant to our business involve many subjective assumptions, estimates, and judgments that could significantly affect our reported or expected financial performance. The outcome of such changes could include litigation or regulatory actions, which could materially and adversely affect our financial condition and results of operations.

Risks Related to Liquidity Management Strategies

Changes in liquidity and the ability to secure capital at reasonably economic terms could hinder our ability to operate and expand our business.

A significant reduction in cash flow from operations, or the inability to secure capital on reasonable economic terms, 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, it could hinder the ability to acquire new stores or to operate those profitably. Credit and equity markets remain sensitive to world events, pandemics, foreign and domestic conflicts, macroeconomic developments, and investor sentiment. Therefore, costs associated with borrowing or raising capital may increase, making it more difficult to obtain financing for operations or expansion, or to refinance long-term obligations as they come due. 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 such as 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. While the Company seeks to operate with financial discipline, we can make no assurances that our ability to obtain capital through the debt or equity markets will be at reasonably economic terms or be successful at all. A significant increase in the cost of capital or an inability to access debt or equity markets may have a material adverse effect on our financial condition and results of operations.

Sustained high interest rates have increased the cost of borrowing for the Company.

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

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Risks Related to Our Employees

The Company’s expansion into new geographic regions may increase the difficulty of hiring and retaining employees across a geographically diverse workforce.

The Company has portions of its business located outside 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.

The Company’s success depends on its 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 unable to attract or retain qualified personnel. There is a limited number of people with knowledge and experience within our business verticals. The Company does not have employment agreements with its employees and does not maintain life insurance policies for any of its 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 it will continue to retain key management and skilled personnel, or that it will be able to attract, assimilate, and retain other highly qualified personnel in the future.

Legal or regulatory changes, including, but not limited to, minimum wage increases or changes in salary levels for certain overtime-exempt positions, may increase the Company’s labor costs.

Many of our entry-level employees are paid at rates in line with applicable state minimum wages, and, consequently, in certain situations, increases to those wage rates have increased our labor costs. If wage rates/salary levels were to further increase significantly and/or rapidly, compliance with such increases could adversely affect our earnings. Our ability to pass along labor and other related costs to our customers may be constrained if we are not able to increase sales volumes with commensurate margins and/or if we are not able to offset such increased costs elsewhere in our business, which may have a material adverse impact on our financial condition and results of operations.

Risks Related to Our Strategies

Our business depends significantly on strategies, initiatives, and investments designed to increase sales and profitability, improve operational efficiency, and contain costs.

We have strategies, initiatives, and investments (e.g., such as those relating to merchandising, identifying locations and for new store development, store formats and concepts, digital marketing, inventory management, technology, margin expansion, and cost containment) in various stages of testing, evaluation, and implementation, which are designed to improve of financial condition and results of operations. The effectiveness of these initiatives is inherently uncertain, even when tested successfully, and depends on the consistency of training and execution, workforce stability, ease of execution, scalability, and customer acceptance. The Company cannot guarantee that our strategies, initiatives, and investments will meet their intended objectives, which may have a material adverse impact on our financial condition and results of operations.

The Company may assume additional liabilities in connection with acquisitions or may be unable 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 liabilities;

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Not realizing the anticipated financial benefit from the acquired companies;

Diversion of management’s attention;

Negative effects on existing business partner and customer 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 condition and results of operations.

The success of our online merchandising initiatives for the sale of bullion and luxury hard assets is not assured.

The cost of marketing products online is substantial and is inherently impacted by the multitude of SKUs in a recommerce business. Unlike other retailers with fixed product lines, our SKUs vary based on the inventory we receive. Therefore, maintaining an online marketplace requires significant investment in technology and devoted personnel to ensure a quality customer experience. Not all of our SKUs are marketed online. While our consumer segment continues to evaluate technologies and approaches for expanding our sales channels, the Company cannot guarantee that these initiatives will be successful. If the Company is not successful with its initiatives, it may adversely affect brand awareness and have a material adverse effect on our financial condition and results of operations.

Our ability to procure real estate on reasonably economic terms, the timeliness of new store openings, and the risks associated with store placement may be limiting factors in the expansion of our business.

Our ability to expand our consumer segment is largely predicated on geographic store expansion. Securing a lease or purchasing real estate on reasonably favorable terms may cause delays or outright halt our expansionary efforts in a given market. Further, upon securing a lease or purchasing real estate, delays may be caused by unmet construction and permitting deadlines or by delays in obtaining a certificate of occupancy or operating licenses, which are largely outside the Company's control. We also face further risks associated with store placement, including, but not limited to:

Strategically picking new geographies;

Selection and availability of store locations in easily accessible and high-visibility locations;

Misjudging market dynamics;

Effectiveness of marketing campaigns; and

Selection of inventory that is in line with the demographics of the new market.

The Company cannot guarantee it will be successful in mitigating these risks, which may have a material adverse effect on financial condition and results of operations if we incur further costs to open the associated store(s) or delays in the intended revenue streams.

Risks Related to Product and Service Offerings

Our electronic device and harvested parts business is subject to the risk of declines in value related to changes in consumer preferences, foreign trade risks, export compliance, and the length of time inventory is held.

The value of the electronic devices that we collect and refurbish, or the value of harvested parts, may fall below the prices we have paid, which could adversely affect our profitability. These devices and technology in which we harvested parts from 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 consumer demand, including due to changes in consumer preferences, changes in business partner promotions and seasonality; and supply chain constraints. The value and availability of devices or parts may also be affected by adverse foreign trade relations and escalating trade tensions, including trade policies, treaties, government relations, tariffs, and other trade restrictions or compliance requirements. If the value of or availability

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of devices or parts is significantly reduced, it could have a material adverse effect on our financial condition 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 the disposal of electronic devices, including cleansing storage devices from customer equipment and either recycling them for resale or disposing of them in an environmentally compliant manner. If the Company fails to meet its contractual and regulatory obligations, it could be subject to contractual damages, penalties, and reputational damage. Also, the Company’s or its subcontractors’ failure to comply with applicable laws and regulations governing the disposal of the equipment could result in environmental liabilities. Such environmental liabilities may be joint and several, meaning the Company could be held responsible for more than its share of the liability. 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 condition, and results of operations.

Risks Related to Changes in Tax Rules

We may incur higher 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 condition and results of operations.

Various states may assert that the Company is liable for sales and use, commerce, or similar taxes.

We ship products to retail customers throughout the U.S. In South Dakota v. Wayfair, Inc., the U.S. Supreme Court ruled that states may tax purchases made from out-of-state sellers, even if the seller has no physical presence in the taxing state. The effect of the ruling was to uphold economic nexus principles in determining sales and use tax nexus. As a result of the decision, most states have adopted laws that require an out-of-state retailer to register and collect sales and use, or other non-income-type, taxes upon meeting certain economic nexus standards, regardless of whether the company has a physical presence in the state. Although the Company believes it is complying with the applicable legislative requirements and collecting tax where obligated to do so, our interpretation and application of the legislation may differ from those of the states, which could result in the states' attempts to impose additional tax liabilities, including potential penalties and interest. Furthermore, state, or local government requirements that out-of-state sellers collect sales and use taxes could deter future sales, which could have a material adverse impact on our financial condition and results of operations.

Risks Related to Insurance Coverage

We may incur increased costs or loss of certain insurance coverages.

We procure third-party insurance policies to cover various operating-related risks, including employment practices liability, workers’ compensation, property and casualty, cybersecurity, directors’ and officers' liability, species, and general business liabilities. Should these providers discontinue or increase the cost of coverage or change terms and conditions of our policies in a manner not favorable to us, our insurance costs could increase, and if we are not able to offset these costs elsewhere in our business, it may have a material adverse effect on our financial condition and results of operation.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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.

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

Introduction

This management’s discussion and analysis provides comparisons of material changes in the consolidated financial statements for the years ended December 31, 2025, and December 31, 2024. The following discussion and analysis also provides information that management believes is relevant to the assessment and understanding of our results of operation, financial condition, liquidity, and capital resources.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with 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 various other factors we believe are reasonable under the circumstances, and the results of which form the basis for judgments about the carrying value of assets and liabilities that are not readily determinable from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions, and any such differences may be material.

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

Economic Conditions

Impacts of Demand for Safe-Haven Metals

While the current market for safe-haven metals has generally led to stronger premiums within our consumer segment, especially for gold and silver, demand for these metals has created industry-wide backlogs and slowed payments from refiners, which the Company has experienced. The impact on working capital is having to pay more to procure inventory, and the delayed conversion of accounts receivable from refiners. While the length of the current cycle and the steps domestic refiners will take to address processing capacity are indeterminate, the Company is closely monitoring its inbound buying practices, cash, inventory levels, and its accounts receivable exposure with its refining customers. The Company believes it has sufficient liquidity to maintain its current buying practices, yet it can adjust its buying programs to reduce exposure should these conditions materially affect its conversion of accounts receivable.

Impacts of Government Legislation

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law, which includes significant changes to federal tax law and other regulatory provisions that may impact the Company. We have evaluated the provisions of the new law and its potential effects on our effective tax rate, results of operations, and financial condition. OBBBA allows businesses to immediately deduct the full cost of qualifying assets in the year they are placed in service, rather than spreading the deduction over several years, and is effective for property acquired and placed in service after January 19, 2025. OBBBA also requires businesses to recognize the effects of tax law changes in the period of enactment, such as remeasuring estimated U.S. deferred tax assets and liabilities. The Company intends to utilize bonus depreciation, effectively reducing taxable income in the respective tax period and the cash deployed to settle such obligations. There was no material impact on the effective tax rate, financial condition, results of operations, or cash flows during the period ending December 31, 2025. In future fiscal periods, the impact of OBBBA is contingent on the continued election of bonus depreciation and the amount of qualifying assets acquired by the Company.

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Impacts of High Interest Rates and Inflation

The U.S. and other global economies are currently experiencing high interest rates and elevated inflation, coupled with commodity price risk, mainly associated with fluctuations in the market prices of precious metals and diamonds, which could affect consumer discretionary spending. Furthermore, adverse macroeconomic conditions can also impact demand for the resale of personal technology assets.

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 use its line of credit or seek additional capital.

Impacts of Tariffs

The U.S. government has recently adopted new approaches to trade policy, announced tariffs on certain foreign goods and certain global tariffs, and signaled the possibility of significant additional tariff increases or tariff expansions. Specifically, under Section 232 of the Trade Expansion Act of 1962, tariffs were imposed on the importation of aluminum, copper, steel, and certain derivative products, but excluded gold and silver. The impact of such tariffs and retaliatory tariffs by other countries continues to evolve and requires regular monitoring and evaluation. The deemed impacts of tariffs on each of our reportable segments are detailed below:

Consumer Segment

The consumer segment does not source inventory from or sell it into international markets, so it is not directly impacted by tariffs. However, global market uncertainty caused by tariffs can increase commodity costs on safe-haven metals such as gold and silver, which may increase working capital requirements. The Company mitigates increased working capital requirements by monitoring its inventory position and turnover and by maintaining disciplined buying practices to preserve margins.

Commercial Segment

The commercial segment periodically purchases limited quantities of personal technology assets and replacement parts for resale from international markets. Tariffs may increase costs for original equipment manufacturers, retailers, and parts distributors and, as a result, may require the Company to pay more for the purchase of personal technology assets for resale and replacement parts, thereby increasing the Company’s required working capital. The Company mitigates increased working capital requirements by monitoring its inventory position and turnover, maintaining disciplined buying practices, and using optimal domestic or international sales channels to preserve margins.

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, and secondary market bullion. We incorporate recycled diamonds and gemstones into our new designs, meaning they were

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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 and product returns industry. 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. Our product returns business reintroduces products back into the supply chain, creating another opportunity for the asset to be used. 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 the 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. Our processing facilities are capable of managing the expansion of existing relationships and consolidation of acquisition targets within relative geographic proximity into our existing facilities.

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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 2024 and 2023, 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, 2024 and 2023, which was filed with the SEC on March 26, 2025.

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, 2025 and 2024.

Comparison of the Years Ended December 31, 2025 and 2024

The following table depicts our disaggregated consolidated statements of income for the years ended December 31, 2025 and 2024:

Year Ended December 31,

Consumer

Commercial

Consolidated

% of Sales  (1)

Consumer

Commercial

Consolidated

% of Sales  (1)

Sales

Cost of goods sold

Gross margin

Expenses:

Selling, general and administrative

Depreciation and amortization

Total operating expenses

Operating income

Other income (expense):

Other income

Interest expense

Income before income taxes

Income tax expense

Net income

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.

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The individual segments reported the following for the years ended December 31, 2025 and 2024:

Sales

Year Ended December 31,

Change

Amount

Consolidated

% of consolidated sales

Consumer

% of consumer sales

Commercial

% of commercial sales

Consolidated

Sales increased by $60,645,133, or 33.6%, during the year ended December 31, 2025, to $241,021,362, as compared to $180,376,229 during the same period in Fiscal 2024.

Consumer Segment

Sales in the consumer segment increased by $62,248,071, or 47.7%, during the year ended December 31, 2025, to $192,717,539, as compared to $130,469,468 during the same period in Fiscal 2024. The change was primarily attributed to higher transaction volumes, which were supported by the upward movement in gold and silver prices throughout the year. Overall sales benefited from favorable supply flows when compared to the same period in Fiscal 2024.

Commercial Segment

Sales in the commercial segment decreased by $1,602,938, or 3.2%, during the year ended December 31, 2025, to $48,303,823, as compared to $49,906,761 during the same period in Fiscal 2024. The change was primarily attributed to less revenue from: ITAD revenue share settlements and personal technology assets sourced from our trade-in programs, which were partially offset by increased service revenue from product returns and secured processing of end-of-life assets, electronic scrap grades and associated recoveries. Our electronic scrap grades and associated recoveries experienced a strong fourth quarter of Fiscal 2025, which was a key driver of the vertical’s full-year results.

Cost of Goods Sold

Year Ended December 31,

Change

Amount

Consolidated

% of consolidated sales

Consumer

% of consumer sales

Commercial

% of commercial sales

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Consolidated

Cost of goods sold increased by $51,035,927, or 37.5%, during the year ended December 31, 2025, to $187,096,369, as compared to $136,060,442 during the same period in Fiscal 2024.

Consumer Segment

Cost of goods sold in the consumer segment increased by $55,205,691, or 48.2%, during the year ended December 31, 2025, to $169,793,289, as compared to $114,587,598 during the same period in Fiscal 2024. The change was primarily attributed to the aforementioned higher sales volumes and the upward movement of gold and silver prices compared to the same period in Fiscal 2024.

Cost of goods sold as a percent of sales was 88.1% during the year ended December 31, 2025, as compared to 87.8% during the year ended December 31, 2024. The change was primarily attributed to a greater impact from the recognition of costs associated with wholesale precious metals transactions.

Commercial Segment

Cost of goods sold in the commercial segment decreased by $4,169,764, or 19.4%, during the year ended December 31, 2025, to $17,303,080, as compared to $21,472,844 during the same period in Fiscal 2024. The change was primarily attributed to the aforementioned impact of fewer ITAD revenue-share settlements and, incrementally, to the recognition of costs associated with the sale of trade-in-related personal technology assets, which was partially offset by an increase in cost of goods sold from electronic scrap grades and associated recoveries.

Cost of goods sold as a percent of sales was 35.8% during the year ended December 31, 2025, as compared to 43.0% during the year ended December 31, 2024. The change was primarily attributed to favorable margins from our ITAD revenue-share settlements and trade-in-related product mix, despite lower overall sales, while our margins on electronic waste and associated recoveries were in line with the same period in Fiscal 2024.

Gross Margin

Year Ended December 31,

Change

Amount

Consolidated

% of consolidated sales

Consumer

% of consumer sales

Commercial

% of commercial sales

Consolidated

Gross margin increased by $9,609,206, or 21.7%, during the year ended December 31, 2025, to $53,924,993, as compared to $44,315,787 during the same period in Fiscal 2024.

Consumer Segment

Gross margin in the consumer segment increased by $7,042,380, or 44.3%, during the year ended December 31, 2025, to $22,924,250, as compared to $15,881,870 during the same period in Fiscal 2024. The net impact of the aforementioned increase in sales of $62,248,071 and increase in cost of goods sold of $55,205,691 resulted in the $7,042,380 increase in gross margin.

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Commercial Segment

Gross margin in the commercial segment increased by $2,566,826, or 9.0%, during the year ended December 31, 2025, to $31,000,743, as compared to $28,433,917 during the same period in Fiscal 2024. The net impact of the aforementioned decrease in sales of $1,602,938 and decrease in cost of goods sold of $4,169,764 resulted in the $2,566,826 increase in gross margin.

Selling, General and Administrative

Year Ended December 31,

Change

Amount

Consolidated

% of consolidated sales

Consumer

% of consumer sales

Commercial

% of commercial sales

Consolidated

Selling, general and administrative expenses decreased by $655,659, or 1.9%, during the year ended December 31, 2025, to $33,949,473, as compared to $34,605,132 during the same period in Fiscal 2024.

Consumer Segment

Selling, general and administrative expenses in the consumer segment increased by $242,622, or 1.6%, during the year ended December 31, 2025, to $15,454,592, as compared to $15,211,970 during the same period in Fiscal 2024. The change was primarily attributed to new store cost structures, partially offset by reductions in store onboarding and new-store marketing costs, as well as select reductions in human capital costs.

Commercial Segment

Selling, general and administrative expenses in the commercial segment decreased by $898,281, or 4.6%, during the year ended December 31, 2025, to $18,494,881, as compared to $19,393,162 during the same period in Fiscal 2024. The change was primarily attributed to a reduction in variable-cost processing-related expenses, of which human-capital costs were a significant component, along with a reduction in lease costs and facility-related costs from the closure of our Arizona ITAD facility, which occurred in the latter part of the second quarter of Fiscal 2025. We began diverting inbound asset flow before closure, and we fully absorbed the asset flow from the former Arizona ITAD facility into our Texas ITAD facility in the third quarter of Fiscal 2025.

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Depreciation and Amortization

Year Ended December 31,

Change

Amount

Consolidated

% of consolidated sales

Consumer

% of consumer sales

Commercial

% of commercial sales

Consolidated

Depreciation and amortization expense increased by $314,815, or 20.3%, during the year ended December 31, 2025, to $1,866,589, as compared to $1,551,774 during the same period in Fiscal 2024.

Consumer Segment

Depreciation and amortization expense in the consumer segment increased by $267,456, or 51%, during the year ended December 31, 2025, to $791,966, as compared to $524,510 during the same period in Fiscal 2024. The change was primarily attributed to the depreciation of assets placed into service related to our new retail stores.

Commercial Segment

Depreciation and amortization expense in the commercial segment increased by $47,359, or 4.6%, during the year ended December 31, 2025, to $1,074,623, as compared to $1,027,264 during the same period in Fiscal 2024. There was no material impact from assets being capitalized or reaching maturity in each comparative period; as such, there was no discussion point.

Other Income (Expense)

Year Ended December 31,

Change

Amount

Consolidated

% of consolidated sales

Consumer

% of consumer sales

Commercial

% of commercial sales

Consolidated

Other income decreased by $16,753, or 1.6%, during the year ended December 31, 2025, to $1,020,929, as compared to $1,037,682 during the same period in Fiscal 2024.

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Consumer Segment

Other income in the consumer segment increased by $247,734, or 236.9%, during the year ended December 31, 2025, to $352,295, as compared to $104,561 during the same period in Fiscal 2024. The change was primarily attributable to the proportionate share of earned dividend and interest income. Excess cash balances are now aggregated at the corporate level to optimize earnings, rather than being held at the segment level. This resulted in the segment receiving a higher allocation of earned income on excess cash balances. The segment also received an employee retention credit in Fiscal 2025, while Fiscal 2024 included the proportionate share of income from a settlement for repairs related to our corporate headquarters. The impact of dividend and interest income is referenced below.

Dividend income comprised $90,710 and $0 of other income during the years ended December 31, 2025, and December 31, 2024, respectively. Interest income comprised $165,105 and $2,304 of other income during the years ended December 31, 2025, and December 31, 2024, respectively. In aggregate, cash balances were higher in Fiscal 2025, resulting in greater overall dividend and interest income for the Company.

Commercial Segment

Other income in the commercial segment decreased by $264,487, or 28.3%, during the year ended December 31, 2025, to $668,634, as compared to $933,121 during the same period in Fiscal 2024. The change was primarily attributable to the proportionate share of dividend and interest income. Excess cash balances are now aggregated at the corporate level to optimize earnings, rather than being held at the segment level. This resulted in lower segment allocation of earned income on excess cash balances. Further, the same period in Fiscal 2024 included the proportionate share of income from a settlement for repairs related to our corporate headquarters. The impact of dividend and interest income is referenced below.

Dividend income comprised $213,773 and $39,156 of other income during the years ended December 31, 2025, and December 31, 2024, respectively. Interest income comprised $391,806 and $753,315 of other income during the years ended December 31, 2025, and December 31, 2024, respectively. In aggregate, cash balances were higher in Fiscal 2025, resulting in greater overall dividend and interest income for the Company.

Interest Expense

Year Ended December 31,

Change

Amount

Consolidated

% of consolidated sales

Consumer

% of consumer sales

Commercial

% of commercial sales

Consolidated

Interest expense decreased by $40,741, or 9.1%, during the year ended December 31, 2025, to $406,642, as compared to $447,383 during the same period in Fiscal 2024.

Consumer Segment

Interest expense in the consumer segment decreased by $24,189, or 10.6%, during the year ended December 31, 2025, to $204,603, as compared to $228,792 during the same period in Fiscal 2024. The change was primarily attributed to a loan

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pay-off on a retail location that occurred in the third quarter of Fiscal 2025 and to a reduced allocation of interest expense as we paid off our loan on our corporate headquarters in the fourth quarter of Fiscal 2025.

Commercial Segment

Interest expense in the commercial segment decreased by $16,552, or 7.6%, during the year ended December 31, 2025, to $202,039, as compared to $218,591 during the same period in Fiscal 2024. The change was primarily attributable to the reduced allocation of interest expense as we paid off our loan on our corporate headquarters in the fourth quarter of Fiscal 2025.

Income Tax Expense

Year Ended December 31,

Change

Amount

Consolidated

% of consolidated sales

Consumer

% of consumer sales

Commercial

% of commercial sales

Consolidated

Income tax expense, for both segments, for the year ended December 31, 2025, was $4,126,240, an increase of $2,134,119, as compared to income tax expense of $1,992,121 for the year ended December 31, 2024. Currently, the Company has a deferred tax liability reflecting a future obligation to pay taxes. The Company is subject to a federal tax rate of approximately 21.0% on net income, in addition to state and local taxes. The effective income tax rate was 22.0% and 22.8% for the years ended December 31, 2025 and 2024, 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 case for the decrease for the year ended December 31, 2025, compared to the year ended December 31, 2024.

Net Income

Year Ended December 31,

Change

Amount

Consolidated

% of consolidated sales

Consumer

% of consumer sales

Commercial

% of commercial sales

Consolidated

Net income increased by $7,839,919, or 116%, during the year ended December 31, 2025 to $14,596,978, as compared to $6,757,059 during the same period in Fiscal 2024. Refer to the aforementioned attributes discussed within the Comparison of the Years Ended December 31, 2025 and 2024 for further details.

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Consumer Segment

Net income increased in the consumer segment by $5,317,621, or 32,541.6%, during the year ended December 31, 2025 to $5,333,962, as compared to $16,341 during the same period in Fiscal 2024. Refer to the aforementioned attributes discussed within the Comparison of Years Ended December 31, 2025 and 2024 for further details.

Commercial Segment

Net income increased in the commercial segment by $2,522,298, or 37.4%, during the year ended December 31, 2025 to $9,263,016, as compared to $6,740,718 during the same period in Fiscal 2024. Refer to the aforementioned attributes discussed within the Comparison of Years Ended December 31, 2025 and 2024 for further details.

Earnings Per Share

Year Ended December 31,

Change

Amount

Consolidated

Consolidated

Basic and diluted earnings per share attributable to holders of our Common Stock increased by $0.30, or 115.4%, during the year ended December 31, 2025 to $0.56, as compared to $0.26 during the same period in Fiscal 2024.

Non-U.S. GAAP Financial Measures

In this management discussion and analysis, we use supplemental measures of our financial performance derived from our consolidated financial information that are not presented in our consolidated financial statements prepared in accordance with U.S. GAAP. When evaluated in conjunction with U.S. GAAP financial measures, the Company believes that these non-U.S. GAAP financial measures add meaningful insight into our results of operations, financial condition, liquidity, and ability to meet financial obligations.

These non-U.S. GAAP financial measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with U.S. GAAP. Each of these non-U.S. GAAP financial measures is not calculated in the same manner by all companies and, accordingly, may not be an appropriate measure for comparing performance among different companies.

We have included the definitions of our non-U.S. GAAP financial measures and reconciliations to the most comparable U.S. GAAP financial measures in the following tables below.

Adjusted EBITDA and Adjusted EBITDAR

Adjusted EBITDA is defined as the sum of (i) net income (loss) of the Company, adjusted for additions (deductions) of (ii) interest expense, (iii) other (income) expense, (iv) income tax expense (benefit), and (v) depreciation and amortization. Management considers Adjusted EBITDA to be a key financial measure to assess our overall operating performance.

Adjusted EBITDAR is defined as (i) Adjusted EBITDA plus (ii) minimum fixed rent expense for properties occupied under operating leases. Management considers Adjusted EBITDAR to be a key financial measure to assess our overall operating performance, excluding the impact of variability in leasing methods and capital structures.

These measures are also inputs into the Company’s leverage ratios.

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The Company’s Adjusted EBITDA and Adjusted EBITDAR are considered non-U.S. GAAP financial measures and are not calculated in accordance with, or preferable to, “net income” or other financial measures of operating performance calculated in accordance with U.S. GAAP.

The following table provides a reconciliation of net income to Adjusted EBITDA and Adjusted EBITDAR for the years ended December 31, 2025 and 2024:

Year Ended December 31,

Consumer

Commercial

Consolidated

Consumer

Commercial

Consolidated

Adjusted EBITDA Reconciliation:

Net income

Addition (deduction):

Depreciation and amortization

Other income

Interest expense

Income tax expense

Adjusted EBITDAR Reconciliation:

Adjusted EBITDA

Addition:

Rent expense (1)

The table below depicts the calculation of rent expense and reconciles rent expense to total lease cost, per ASC 842, the most directly comparable U.S. GAAP financial measure for the years ended December 31, 2025 and 2024:

Year Ended December 31,

Consumer

Commercial

Consolidated

Consumer

Commercial

Consolidated

Total lease costs, per ASC 842

Less: variable lease cost

Less: short-term lease cost

Debt to Adjusted EBITDA and Net Debt to Adjusted EBITDA Leverage Ratios

The Company’s Debt to Adjusted EBITDA Leverage Ratio is defined as the Company’s (i) Debt Obligations divided by (ii) Adjusted EBITDA. Debt Obligations are defined as the sum of amounts outstanding under notes payable balances.

The Company’s Net Debt to Adjusted EBITDA Leverage Ratio is defined as the Company’s (i) Net Debt Obligations divided by (ii) Adjusted EBITDA. Net Debt Obligations are defined as the difference between the Company’s (i) Debt Obligations and (ii) Total Cash.

Management considers these financial measures to be helpful in understanding the Company’s ability to service Debt Obligations, excluding, and including the impact of Total Cash available to service such obligations.

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The Company’s Debt to Adjusted Leverage Ratio and Net Debt to Adjusted EBITDA Leverage Ratio are considered non-U.S. GAAP financial measures and are not calculated in accordance with, or preferable to, other financial measures utilized to assess our ability to service “notes payable” in accordance with U.S. GAAP. The Company considers the Debt to Net Income Leverage Ratio, defined as (i) Debt Obligations divided by (ii) net income, to be the representative financial measure of our ability to service “notes payable” utilizing U.S. GAAP-derived financial statement balances and is incorporated into the presentation below.

The following table reconciles components of the Debt to Adjusted EBITDA Leverage Ratio and Net Debt to Adjusted EBITDA Leverage Ratio for the years ended December 31, 2025 and 2024:

December 31,

December 31,

Debt Obligations

Total Cash

Net Debt Obligations

Net income

Adjusted EBITDA

Leverage Ratios

Debt to Net Income Leverage: (a) divided by (c)

Debt to Adjusted EBITDA Leverage: (a) divided by (d)

Net Debt to Adjusted EBITDA Leverage: (b) divided by (d)

Adjusted Debt to Adjusted EBITDAR Leverage and Adjusted Net Debt to Adjusted EBITDAR Leverage Ratios

The Company’s Adjusted Debt to Adjusted EBITDAR Leverage Ratio is defined as the Company’s (i) Adjusted Debt Obligations divided by (ii) Adjusted EBITDAR. Adjusted Debt Obligations are defined as the sum of the Company’s (i) Debt Obligations and (ii) operating lease liabilities.

The Company’s Adjusted Net Debt to Adjusted EBITDAR Leverage Ratio is defined as the Company’s (i) Adjusted Net Debt Obligations divided by (ii) Adjusted EBITDAR. Adjusted Net Debt Obligations are defined as the difference between the Company’s (i) Adjusted Debt Obligations and (ii) Total Cash.

Management considers these financial measures to be helpful in understanding the Company’s ability to service debt and operating lease obligations, excluding and including the impact of Total Cash available to service such obligations.

The Company’s Adjusted Debt to Adjusted EBITDAR Leverage Ratio and Adjusted Net Debt to Adjusted EBITDAR Leverage Ratio are considered non-U.S. GAAP financial measures and are not calculated in accordance with, or preferable to, other financial measures utilized to assess our ability to service “notes payable” and “operating lease liabilities” in accordance with U.S. GAAP. The Company considers the Adjusted Debt to Net Income Leverage Ratio, defined as the sum of (i) Debt Obligations and (ii) operating lease liabilities divided by (iii) net income, to be the representative financial measure of our ability to service “notes payable” and “operating leases” utilizing U.S. GAAP derived financial statement balances and is incorporated into the presentation below.

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The following table reconciles components of the Adjusted Debt to Adjusted EBITDAR Leverage Ratio and Adjusted Net Debt to Adjusted EBITDAR Leverage Ratio for the years ended December 31, 2025 and 2024:

December 31,

December 31,

Debt Obligations

Operating lease liabilities

Adjusted Debt Obligations

Total Cash

Adjusted Net Debt Obligations

Net income

Adjusted EBITDAR

Adjusted Leverage Ratios

Adjusted Debt to Net Income Leverage: (a) divided by (c)

Adjusted Debt to Adjusted EBITDAR Leverage: (a) divided by (d)

Adjusted Net Debt to Adjusted EBITDAR Leverage: (b) divided by (d)

Net Cash

Net Cash is defined as the difference between the Company’s (i) cash and cash equivalents (“Total Cash”) and (ii) Debt Obligations. Management considers this financial measure to be helpful in understanding the Company’s liquidity.

The Company’s Net Cash is considered a non-U.S. GAAP financial measure and is not calculated in accordance with, or preferable to, “cash and cash equivalents” and amounts outstanding under “notes payable” balances or other financial measures of liquidity calculated in accordance with U.S. GAAP.

The following table reconciles Net Cash to its comparable U.S. GAAP financial measures:

December 31,

December 31,

Total Cash

Less: Debt Obligations

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Free Cash Flow

Free Cash Flow is defined as the difference between the Company’s (i) net cash provided by operations (“Operating Cash Flow”) and (ii) Capital Expenditures.

Management considers this financial measure to be helpful in understanding the amount of Free Cash Flow that the Company can utilize to meet its financing needs.

The Company’s Free Cash Flow is considered a non-U.S. GAAP financial measure and is not calculated in accordance with, or preferable to, “net cash provided by operations” or other financial measures of cash flow available to meet financing needs calculated in accordance with U.S. GAAP.

The following table reconciles Free Cash Flow to the comparable U.S. GAAP financial measures for the years ended December 31, 2025 and 2024:

Year Ended December 31,

Operating Cash Flow

Capital Expenditures

Performance Metrics

In addition to non-U.S. GAAP financial measures, management utilizes certain performance metrics to assess its operations. A key performance metric that is calculated consistently across our reportable segments is the Inventory Turnover Ratio. As a purveyor of recommerce assets and recycling-grade base and precious metals, our ability to acquire inventory with appropriate margin, turn over our inventory, and redeploy sale proceeds is critical to our success. Appropriate inventory turns also reduce our exposure to changing consumer preferences and commodity market volatility.

The Company defines its Inventory Turnover Ratio as (i) cost of goods sold less shipping and handling costs divided by (ii) Average Inventory. The Company excludes shipping and handling costs in the definition of Inventory Turnover. The Company defines Average Inventory as the mean value of the Company’s inventory over a specific period, calculated by (i) adding the beginning inventory and ending inventory for that period and (ii) dividing by two.

When evaluated in conjunction with our consolidated financial statements, the Company believes that these performance metrics provide meaningful insight into our results of operations, financial condition, and ability to meet financial obligations.

These performance metrics should not be considered a substitute for, nor superior to, our financial results. These performance metrics are not calculated in the same manner by all companies and, accordingly, may not be an appropriate measure for comparing performance among different companies.

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The following table reconciles the components of Inventory Turnover for the years ended December 31, 2025 and 2024:

Year Ended December 31,

Consumer

Commercial

Consolidated

Consumer

Commercial

Consolidated

Cost of goods sold

Less: shipping and handling costs

Cost of goods sold less shipping and handling costs

Beginning inventory

Ending inventory

Average Inventory: (d) plus (e) divided by 2

Inventory Turnover Ratio

Inventory Turnover: (c) divided by (e)

Liquidity and Capital Resources

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

Year Ended December 31,

Change

Amount

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Net increase (decrease) in cash and cash equivalents

Operating Activities

Cash flows provided by operations decreased by $7,609,846, or 74.7%, during the year ended December 31, 2025, to $2,580,794, as compared to $10,190,640 during the same period in Fiscal 2024. The decrease in cash provided by operations was primarily attributed to an increase in net income, certain non-cash adjustments to reconcile net income to operating cash flow (as detailed in the consolidated statements of cash flows), and the following significant net changes in cash associated with operating assets and liabilities:

Accounts receivable: a $10,109,701 net increase primarily attributed to our consumer segment, resulting from an increase in wholesale precious metals transactions awaiting payment.

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Inventories: a $6,801,094 net increase primarily attributed to our consumer segment, resulting from rising inventory costs, which were most significant in Fiscal 2025.

Prepaid expenses: a $573,502 net increase primarily attributed to our commercial segment, resulting from incurring costs in Fiscal 2025 to obtain a contract and from a reduction in prepaid freight associated with our ITAD revenue share settlements in Fiscal 2024.

Other assets: an $89,880 net decrease primarily attributed to our consumer segment, resulting from an increase in lease deposits that predominantly occurred in Fiscal 2024 and from the reversal of a federal income tax asset within our corporate segment in Fiscal 2025. Lease deposits were greater in Fiscal 2024 due to the store expansions.

Accounts payable: a $1,066,086 net increase primarily attributed to normal course operations throughout the Company.

Accrued expenses: a $1,153,260 net decrease primarily attributed to our commercial segment, resulting from a decrease in unvouchered inventory payment in Fiscal 2025 and an increase in unvouchered inventory payments in Fiscal 2024. This change was partially offset by an increase in accrued tax liability within our corporate segment that occurred in Fiscal 2025.

Operating leases: a $304,521 net decrease primarily attributed to our commercial segment, resulting from an increase in lease costs from the new store footprint, which was incrementally offset by the closure of our ITAD Arizona facility in Fiscal 2025.

Other liabilities: a $1,172,096 net increase primarily attributed to our consumer segment, resulting from an increase in customer gift cards.

Investing Activities

Cash flows (used in) investing activities decreased by $2,511,908, or 66.8%, during the year ended December 31, 2025, to $1,248,496, as compared to $3,760,404 during the same period in Fiscal 2024. The decrease in cash (used in) investing activities during the year ended December 31, 2025, was primarily impacted by more significant capital being deployed on ERP development, new store buildouts, and an associated real estate purchase for one of our Arizona locations in the same period in Fiscal 2024. Fiscal 2025 expenditures have primarily been related to improvements to our corporate headquarters and new stores.

Financing Activities

Cash flows (used in) financing activities increased by $111,366, or 3.0%, during the year ended December 31, 2025, to $3,786,452, as compared to $3,675,086 during the same period in Fiscal 2024. The increase in cash (used in) financing activities during the year ended December 31, 2025, was primarily attributed to a greater use of cash in the repayment of two notes payable in Fiscal 2025, while cash utilized in Fiscal 2024 was primarily attributed to share buybacks, which were substantially less in Fiscal 2025.

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 needing to fund our operations through the use of our line of credit, and we have no amounts drawn as of December 31, 2025. 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 capital deployment and primarily funds capital expenditures with cash flow from operating activities. Where appropriate, the Company may use debt financing on select projects. When this occurs, the Company further evaluates the project's future cash flows to ensure the debt tenure and payback period are aligned, as well as the appropriateness of the rate of return.

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Consumer Segment

In Fiscal 2025, the consumer segment primarily expended capital on store expansion, albeit to a lesser degree, as only 1 store was opened during the year. In Fiscal 2024, the consumer segment primarily expended capital on the opening of 5 stores.

The Company believes it has the liquidity and capital resources to fund future capital outlays associated with maintaining its asset base and strategic initiatives.

Commercial Segment

In Fiscal 2025, the commercial segment primarily expended capital on facility-related items. In Fiscal 2024, the commercial segment primarily expended capital on processing assets and was the primary beneficiary of our ERP system capital spend.

The Company believes it has the liquidity and capital resources to fund future capital outlays to maintain its asset base and pursue strategic initiatives.

Contractual Obligations

The following table summarizes future contractual obligations related to debt and leases as of December 31, 2025:

Thereafter

Notes payable (1)

Interest payments on notes payable (2)

Operating leases (3)

Notes payable include the principal amount of borrowings outstanding under the Company’s debt facilities.

Interest payments on notes payable are based on interest rates in effect as of December 31, 2025. As contractual interest rates and the amount of notes payable outstanding vary in certain cases, actual cash payments may differ from the amounts provided.

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 taxes, 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.