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Note 9 - Revenue
12 Months Ended
Dec. 31, 2022
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]

9. Revenue

 

The Company recognizes revenue at a point in time when it satisfies performance obligations by transferring control of promised goods to its customers. The amount of revenue recognized is equal to the consideration which the Company is entitled to in exchange for the promised goods, excluding any amounts assessed by government authorities for taxes which might be collected from a customer. This consideration may include non-cash services performed, as is the case with revenue recognized in connection with the Controlled Launch program. On September 20, 2022, the Company announced its shift in focus to advance its core NPS technology outside of dermatology and concluded its Controlled Launch program. Total revenue recognized for the years ended  December 31, 2022 and 2021 was $0.7 million and $1.4 million, respectively, of which approximately $0.4 million and $1.1 million, respectively, was driven by the redemption of non-cash credits earned as part of the Controlled Launch, with the balances driven by cash purchases of cycle units (“CUs”) and CellFX commercial consoles sold.

 

Sales contracts often involve the sale and delivery of multiple performance obligations in the contract.

 

Performance Obligations

 

Systems consist of the CellFX console and its embedded software, handpieces, and disposable tips. The console is a physical piece of hardware used by the customer to perform patient procedures. Individually the console and software are not distinct, therefore the Company combines the console and embedded software to form one distinct system performance obligation. Payment for systems is generally due prior to shipment, and the system performance obligation is satisfied upon shipment of the system to the customer.

 

Handpieces are attached to the console and used in conjunction with tips to perform patient procedures. Generally, upon initial sale of a system to a customer, the Company will include two handpieces. The handpiece has a shorter expected useful life than the console, and a customer can purchase additional handpieces when needed, as they are available for sale on a stand-alone basis. Payment for handpieces is generally due prior to shipment, and handpieces represent a distinct performance obligation which is satisfied either upon shipment, or upon delivery of the handpiece to the customer, depending on the specific contract.

 

Disposable treatment tips are single-patient multiple-use products that come in different sizes, each of which are to be used for specific procedures. Tips are attached to the handpiece for use in patient procedures and, upon detachment from the handpiece, a tip cannot be reused, and it must be disposed of. Tips represent a distinct performance obligation which is satisfied either upon shipment, or upon delivery of the tips to the customer, depending on the specific contract.

 

CUs are credits that authorize the customer to perform a procedure, or cycle. Each procedure requires a specific number of CUs, dependent upon type of tip used and procedure level selected. As the procedure is performed, the applicable number of CUs are decremented. When the customer’s balance of CUs on a specific system is depleted, the system will no longer function until the customer purchases additional CUs. Customers can purchase additional CUs via the Company’s CellFX Marketplace which is an online marketplace accessible directly from the CellFX System. Payment for CUs is due upon order placement and the CUs are immediately available for download to the console via CellFX CloudConnect. CUs represent a distinct performance obligation which is satisfied when CUs are made available for customers to download from the Company’s CellFX CloudConnect, as customers can use purchased CUs at any time at their discretion, and the Company does not provide any ongoing service or other forms of involvement after the sale occurs.

 

Shipping and handling activities are not considered to be a separate performance obligation. The Company’s standard commercial agreements generally include FOB shipping point terms. The Company has made an accounting policy election to account for shipping and handling costs as fulfillment costs because the shipping and handling activities occur after the customer obtains control of the product.

 

Transaction Price

 

The transaction price is the consideration to which the Company expects to be entitled to in exchange for providing the promised goods to customers. Customer orders placed for cash contemplate a fixed amount of consideration. Customer orders placed by physicians participating in the Controlled Launch when they elected to purchase the CellFX System were paid for via conversion of accumulated earned credits for prior services provided by the physicians under the terms of their participation in the Controlled Launch. For these transactions, the transaction price included noncash consideration. The services rendered by the physicians in the Controlled Launch were accounted for separately from the subsequent sales of the CellFX Systems because they were distinct from the system sales. They were distinct because they provided the Company with treatment data that could also be procured, and historically had been procured by the Company, without the corresponding system sales. This data was used by the Company to enhance marketing and promotion of its products.

 

The Company evaluates the possible impact of variable consideration in determining the transaction price, in particular the possibility of future returns or credits. Sales agreements allow for a right of return only if the product does not conform to the agreed upon quality standards or if the product was shipped due to Company error. The Company anticipates such returns will be minimal and has made no adjustments to the transaction price for any estimated returns. The transaction price is determined at the time of the initial revenue recognition and updated each quarter for any changes in circumstances (e.g., changes in estimated return or credit rates).

 

The Company has made an accounting policy election to exclude from the measurement of the transaction price all taxes which are imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer.

 

When there are multiple performance obligations present, the total transaction price shall be allocated to each of the performance obligations based upon the relative SSPs of those performance obligations. The Company establishes SSPs based on multiple factors including, prices charged by the Company for similar offerings, product-specific business objectives, and the estimated cost to provide the performance obligation. However, upon the sale of a new CellFX System, all performance obligations are delivered concurrently and therefore there is no impact to revenue recognition timing, and the Company has determined allocations are not necessary. Should the customer purchase additional CUs, handpieces, or tips at a later time, those purchases will be made under separate purchase agreements, with all promised goods generally transferred at the same time, therefore no price allocation is necessary in that scenario either.

 

Controlled Launch Agreements

 

In August 2021 the Company began to recognize revenue in relation to the conversion of Controlled Launch Program participants into sales agreements (Note 8). These customers were already in possession of the system, handpiece, and tips. As such, upon execution of these purchase agreements, the Company recognized revenue on the agreements because control of all performance obligations were transferred at that time. These customers separately purchased CUs in order to operate the CellFX System and the revenue for these CUs was recognized upon delivery of the CUs to CellFX CloudConnect.