| Revenue Recognition | ASC 606 provided guidance to identify performance
obligations for revenue-generating transactions. The initial step is to identify the contract with a customer created with the
sales invoice or a repair ticket. Secondly, we identify the performance obligations in the contract, as we promise to deliver the
purchased item or promised repairs in return for payment or future payment as a receivable. The third step is determining the transaction
price of the contract obligation, as in the full ticket price, negotiated price or a repair price. The next step is to allocate
the transaction price to the performance obligations, as we designate a separate price for each item. The final step in the guidance
is to recognize revenue as each performance obligation is satisfied. Beginning in fiscal year 2020, Envela disaggregated
its revenue, within the operating segments, based on its resale and recycle presentation basis to more closely align with the Company’s
activities. The Company’s historical disaggregation of revenue has been recast to conform to our current presentation. The following disaggregation of total revenue is listed by sales
category and segment for the three months ended September 30, 2020 and 2019:
CONSOLIDATED Three Months Ended September 30,
2020 2019
Revenues Gross Profit Margin Revenues Gross Profit Margin
DGSE
Resale $ 27,101,477 $ 3,139,884 11.6 % $ 14,105,015 $ 1,659,597 11.8 %
Recycled 1,035,697 293,076 28.3 % 2,547,912 359,255 14.1 %
Subtotal 28,137,174 3,432,960 12.2 % 16,652,927 2,018,852 12.1 %
ECHG
Resale 7,812,553 2,376,406 30.4 % 5,133,181 2,408,416 46.9 %
Recycled 2,861,157 1,354,031 47.3 % 1,075,093 759,186 70.6 %
Subtotal 10,673,710 3,730,437 34.9 % 6,208,274 3,167,602 51.0 %
$ 38,810,884 $ 7,163,397 18.5 % $ 22,861,201 $ 5,186,454 22.7 % The following disaggregation of total revenue is listed by sales
category and segment for the nine months ended September 30, 2020 and 2019:
CONSOLIDATED Nine Months Ended September 30,
2020 2019
Revenues Gross Profit Margin Revenues Gross Profit Margin
DGSE
Resale $ 59,065,343 $ 6,632,131 11.2 % $ 45,737,002 $ 5,705,946 12.5 %
Recycled 3,784,444 779,776 20.6 % 5,514,091 801,216 14.5 %
Subtotal 62,849,787 7,411,907 11.8 % 51,251,093 6,507,162 12.7 %
ECHG
Resale 15,595,813 5,818,672 37.3 % 5,116,345 2,335,781 45.7 %
Recycled 6,740,034 3,705,356 55.0 % 3,450,730 1,927,308 55.9 %
Subtotal 22,335,847 9,524,028 42.6 % 8,567,075 4,263,089 49.8 %
$ 85,185,634 $ 16,935,935 19.9 % $ 59,818,168 $ 10,770,251 18.0 % DGSE recognizes revenue from its over-the-counter
retail and resale transactions, and its wholesale-dealer transactions when the merchandise is delivered and payment is either
made immediately or via receivable obligation. We also recognize revenue upon the shipment of goods when resale and wholesale customers
have fulfilled their obligation to pay or made a promise to pay through e-commerce or telephone sales. We account for shipping
and handling costs as fulfillment costs after customers obtain control of the goods. We recycle material deemed to be past its
useful life primarily to recover its precious-metal content. This material is sold to a Dallas-based refiner and we recognize revenue
from these recycling sales when we receive payment. DGSE offers layaway purchases, requiring a deposit,
a 25% payment within two weeks, and full payment of the remaining balance within 90 days after the deposit. If customers fail to
make either the 25% payment or final-balance payment within 90 days, then the items are returned to inventory, and such customers
forfeit any payments made. We recognize revenue for layaway sales when the items are paid in full and delivered to the customers,
or upon payment forfeiture. Sales of fine watches, bullion, clearance/final-sale
items, and custom, sized or engraved items are final. All other purchased items may be returned by customers to DGSE within 30
days from purchase for a full refund, less a 10% restocking fee. Returns are accounted for as reversals of the original transactions,
with the effect of reducing revenues and cost of sales, and returning the merchandise to inventory. We have established an allowance
for estimated returns related to sales based on historical returns and reduced our reported revenues and cost of sales accordingly.
Our return allowance as of September 30, 2019 and September 30, 2020 remained the same for both periods, at approximately $28,000. In limited circumstances, for wholesale dealers
or resale customers, DGSE exchanges resale items for (a) similar resale items, or (b) similar resale items plus money payment.
We recognize revenue for these exchanges in accordance with ASC 845, Nonmonetary Transactions. For resale item/resale item exchanges,
without payments, we do not recognize any revenue; the basis of the resale items relinquished becomes the basis of the resale items
received, less any indicated impairment of value of the resale items relinquished. For resale item/resale item-plus- payment exchanges,
we recognize revenue to the extent of payments received, and determine the cost of sale based on the ratio of payments received
to payments plus items received, multiplied by the cost of items surrendered. ECHG has several revenue streams and recognizes
revenue according to ASC 606 at an amount that reflects the consideration to which the entities expect to be entitled in exchange
for transferring goods or services to customers. The revenue streams are described below. Resale transactions are recorded when a product
is shipped. Revenue is recognized when prices are established, terms agreed, and products shipped (i.e., upon ECHG fulfilling its
performance obligations). ECHG typically requires resale customers to make prepayment based on an agreed commodity price. ECHG
releases shipments upon confirming payment receipt and recognizes revenue on the shipping date. If payment is received on the last
day of a month, and shipment occurs the following day, the payment is deferred revenue, recognized the following month when the
shipment is made. ECHG recycles material deemed to be past its
useful life to recover precious and other non-ferrous metals. As part of its recycling operations, ECHG recognizes refining revenue
when its performance obligations are satisfied, i.e., when its inventory arrives at the agreed destination and control of the contracted
goods is transferred to the refiner. Our initial invoice is recognized in full when our performance obligation is satisfied, as
referenced above. Under the guidance of ASC 606, an estimate of the variable consideration that we expect to receive is included
in the transaction price, stated at the current precious-metal spot price and precious-metal weight. We adjust revenue in the period
once the underlying metal’s weight and any movement in metal spot price is resolved, generally within six weeks. Adjustments
from resolving the underlying uncertainty is netted with the remaining 40% due under the original contract. ECHG also provides recycling services under
agreed scopes of work. It recognizes services based on the number of units processed at a preset price per unit. ECHG produces
weekly activity reports reflecting numbers of units processed; revenue is recognized based on billing from the weekly reports.
ECHG performs recycling services either at its facilities or at clients’ facilities, as confirmed in the scope of work, together
with the associated costs and payment terms. Some of ECHG’s customers are on payment
terms, and although low risk, occasionally the need arises to record an allowance for receivables that are deemed high risk to
collect. We have established an allowance for estimated uncollectable receivables related to sales based on historical collections.
Our allowance as of September 30, 2019 and September 30, 2020 was $0 and $20,428, respectively. |
