4. Revenue

On April 1, 2018, the Company adopted ASC 606 using the modified retrospective method and recognized the cumulative effect of initially applying the guidance as an adjustment to the opening balance of retained deficit. The Company applied the new revenue standard to new and existing contracts that were not complete as of the date of initial application. As a result of applying this standard using the modified retrospective method, the Company has presented financial results and applied its accounting policies for the period beginning April 1, 2018 under ASC 606, while prior period results and accounting policies have not been adjusted and are reflected under legacy GAAP pursuant to Accounting Standard Codification 605.

As a result of adopting ASC 606, on April 1, 2018, the Company recorded a reduction of $0.8 million to its accumulated deficit. The most significant drivers of the adjustment included the Company’s change in accounting policy related to the deferral of costs to obtain a contract. The Company is required to capitalize certain contract acquisition costs that relate directly to a customer contract, and recognize such costs as an asset, including commissions paid to its sales team and indirect dealers, and to amortize these costs on a straight-line basis over the customer’s estimated contract period, which is an average of 24 months. The Company previously expensed these contract acquisition costs as incurred in selling, general and administrative expenses. Management assesses these costs and the related asset carrying value for impairment on a quarterly basis.

In accordance with ASC 606, when the customer purchases or receives a discounted handset in connection with entering into a contract for service, the Company allocates revenue between the handset and the service based on the relative standalone selling price. Revenue is recognized when the performance obligation which includes providing the services or transferring control of promised handsets, which are distinct to a customer, has been satisfied. Revenue is recognized in an amount that reflects the consideration the Company expects to be entitled to for those performance obligations.

The cumulative effect of the changes made to the Company’s consolidated April 1, 2018 balance sheet for the adoption of ASC 606 were as follows:


	Balance at March 31,		Adjustments due to		Balance at April 1,
	2018		ASC 606		2018
Assets
Prepaid expenses and other current assets	$	850	$	473	$	1,323
Other assets		486		295		781
Liabilities
Deferred revenue, short-term and long-term	$	5,070	$	—	$	5,070
Stockholders' Equity
Accumulated deficit	$	(127,239)	$	768	$	(126,471)

Service Revenue. The Company has historically derived its service revenue from a fixed monthly recurring unit price per user, with 30-day payment terms, for its pdvConnect, TeamConnect and Diga-talk service offerings.

pdvConnect is the Company’s proprietary cloud-based mobile resource management solution which has historically been sold as a separate software-as-a-service offering for dispatch-centric business customers who utilize Tier 1 cellular networks, and to a lesser extent, who utilize land mobile radio networks not operated by the Company. pdvConnect is sold directly by the Company or through two Tier 1 domestic carriers. The service is contracted and billed on a month to month basis and the Company satisfies its performance obligation over time as the services are delivered.

TeamConnect combines pdvConnect with the Company’s push-to-talk (“PTT”) mobile communication services involving digital network architecture and mobile devices. TeamConnect gives customers the ability to instantly set up PTT communications and delivers real-time information from mobile workers to dispatch operators. It also allows customers to deliver voice messages to any computer (via the internet), any email address or to any phone in the United States as well as to communicate in real time with TeamConnect enabled smartphones on any cellular carrier network. The contract period for the TeamConnect service varies from a month to month basis to 24 months. The customer is billed at the beginning of each month of the contract term. The Company recognizes revenue as it satisfies its performance obligation over time as the services are delivered.

Diga-talk is a mobile communications offering that is being resold by the Company and that provides nationwide two-way digital communication services. The service is contracted and billed on a month to month basis. The Company launched the offering in March 2018 and is a reseller of the services and related devices. The determination was made that the Company is the principal in this reseller arrangement since the customer views the Company as fulfilling the performance obligations and therefore, records revenue on a gross basis over time upon delivery of the services.

Spectrum Revenue. In September 2014, Motorola paid the Company an upfront, fully-paid fee of $7.5 million in order to use a portion of the Company’s wireless spectrum licenses. The payment of the fee is accounted for as deferred revenue on the Company’s consolidated balance sheets and is recognized ratably as the service is provided over the contractual term of approximately ten years. The revenue recognized for the years ended March 31, 2019, 2018 and 2017 was approximately $729,000 each year.

Other Revenue. The Company historically derived other revenue primarily from either the sale of radios and accessories for TeamConnect and Diga-talk as well as the rental of radios for TeamConnect based on 30-day payment terms. The Company recognizes radio and accessory revenue when a customer takes possession of the device.

For TeamConnect, when the customer purchases a radio offered at a discounted price bundled with services or is provided a discount by the dealer which is paid for by the Company, the Company allocates a portion of our future service billings to the radio and recognizes revenue upon handset delivery at the inception of the contract, which results in a contract asset that is amortized as a reduction to service revenue over the expected term of the customer’s contract period, which is typically 24 months. For Diga-talk, the customer contract is month to month. As a result, when the customer purchases a radio offered at a discounted price bundled with services, the discount for the radio is taken in the first month.

Contract Assets. Contract assets include the portion of the Company’s future service invoices which has been allocated to the discounted price of the radios and amortized as a reduction against service revenue over the contract period. As of March 31, 2019 and April 1, 2018, the Company had $0.3 million in total contract assets, of which $0.1 million was classified as a component of prepaid expenses and other current assets in our condensed consolidated balances sheets for both periods. The amortization of the contract asset for the year ended March 31, 2019 was not significant.

The Company also recognizes a contract asset for the incremental costs of obtaining a contract with a customer. These costs include commissions for sales people and commissions paid to third-party dealers. These costs are amortized ratably using the portfolio approach over the estimated customer contract period. The Company reviews the contract asset on a periodic basis to determine if an impairment exists. If it is determined that there is an impairment, the contract asset will be expensed. Under the previous accounting standard, the Company expensed commissions as incurred. As of March 31, 2019 and April 1, 2018, the Company had $0.5 million and $0.6 million, respectively, of deferred costs related to expenses required to obtain or fulfill a contract. Of these total deferred costs, as of March 31, 2019, $0.3 million was recorded as a component of prepaid and other current assets. As of April 1, 2019, $0.4 million were recorded as a component of prepaid and other current assets. In addition, the Company recorded $0.5 million resulting from the amortization of its contract assets during the year ended March 31, 2019 in selling, general and administrative expenses in its consolidated statement of operations.

The following table presents the activity for the Company’s contract assets (in thousands):


	Contract Assets
Balance as of April 1, 2018	$	768
Additions		284
Amortization		(558)
Impairment		(58)
Balance at March 31, 2019	$	436

Contract liabilities. Contract liabilities primarily relate to advance consideration received from customers for spectrum services, for which revenue is recognized over time, as the services are performed. These contract liabilities are recorded as deferred revenue on the balance sheet. The related liability as of March 31, 2018 of $5.1million has been reduced by revenue recognized in the year ended March 31, 2019 of $0.9 million leaving a remaining liability of $4.2 million as of March 31, 2019.

Adoption Impact. The following table is a comparison of the reported results of operations for the year ended March 31, 2019 compared to the amounts that would have been reported had the Company not adopted ASC 606 (in thousands):


	Impact on change in accounting policy

			Impact of
	As Reported		ASC 606		Legacy GAAP
Service revenue	$	4,774	$	108	$	4,882
Spectrum revenue		729		—		729
Other revenue		996		(94)		902
Sales and support		3,679		(318)		3,361
Net (loss)/income		(41,993)		332		(41,661)
Net loss per common share basic and diluted	$	(2.88)	$	0.02	$	(2.86)

The following table is a comparison of certain consolidated balance sheet captions under ASC 606 to the balance sheet results using the historical accounting method:


	Impact on change in accounting policy

	As reported		Impact of		Legacy GAAP
	March 31, 2019		ASC 606		March 31, 2019
Prepaid and other current assets	$	1,180	$	(313)	$	867
Other assets		845		(124)		721
Deferred revenue, short term and long term		4,258		—		4,258
Accumulated deficit		(168,464)		437		(168,027)