REVENUE RECOGNITION - Note 4

3 Months Ended

Mar. 31, 2020

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION - Note 4

4. REVENUE RECOGNITION

The following is a description of principal activities from which we generate revenue. Revenues are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. We generate all of our revenue from contracts with customers.

We evaluate contracts based on the 5-step model as stated in Topic 606 as follows: (i) identify the contract, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price, and (v) recognize revenue when (or as) performance obligations are satisfied.

A contract contains a promise (or promises) to transfer goods or services to a customer. A performance obligation is a promise (or a group of promises) that is distinct, as defined in the revenue standard.

The transaction price is the amount of consideration an entity expects to be entitled to from a customer in exchange for providing the goods or services. A number of factors should be considered to determine the transaction price, including whether there is variable consideration, a significant financing component, noncash consideration, or amounts payable to the customer. The determination of variable consideration will require a significant amount of judgment. In estimating the transaction price we will use either the expected value method or the most likely amount method.

The transaction price is allocated to the separate performance obligations in the contract based on relative standalone selling prices. Determining the relative standalone selling price can be challenging when goods or services are not sold on a standalone basis. The revenue standard sets out several methods that can be used to estimate a standalone selling price when one is not directly observable. Allocating discounts and variable consideration must also be considered. Allocating the transaction price can require significant judgement on our part.

Revenue is recognized when (or as) the customer obtains control of the good or service/performance obligations are satisfied. Topic 606 provides guidance to help determine if a performance obligation is satisfied at a point in time or over time. Where a performance obligation is satisfied over time, the related revenue is also recognized over time.

Disaggregation of revenue

The following table provides information about disaggregated revenue by timing of revenue recognition (in thousands):

		Three Months Ended March 31, 2020
		Product		Royalty		Contract
		revenue		revenue		revenue		Total
Timing of revenue recognition:
Products transferred at a point in time	$	1,247	$	212	$	4	$	1,463
Product and services transferred over time		-		-		6		6
Total	$	1,247	$	212	$	10	$	1,469

		Three Months Ended March 31, 2019
		Product		Royalty		Contract
		revenue		revenue		revenue		Total
Timing of revenue recognition:
Products transferred at a point in time	$	199	$	-	$	16	$	215
Product and services transferred over time		-		-		1,636		1,636
Total	$	199	$	-	$	1,652	$	1,851

Contract balances

The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):

		March 31,		December 31,
		2020		2019
Accounts receivable, net	$	552	$	1,079
Accrued liabilities		200		432
Deferred revenue		15		21
Contract liabilities		9,271		9,755

Under Topic 606, our rights to consideration are presented separately depending on whether those rights are conditional or unconditional. We present our unconditional rights to consideration as "accounts receivable" in our Balance Sheet.

Contract liabilities in the table below are presented as contract liabilities, deferred revenue, and a portion of accrued liabilities on the balance sheet. Significant changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands, except percentages):

		March 31,		December 31,
		2020		2019		$ Change	% Change
Contract assets	$	-	$	-	$	-	-
Contract liabilities		(9,486)		(10,208)		722	(7.1)
Net contract assets (liabilities)	$	(9,486)	$	(10,208)	$	722	(7.1)

During the three months ended March 31, 2020, we applied $485,000 against the contract liability with our April 2017 customer.

During 2019, we reached an agreement with the distributor in our Ragentek contract on the final transaction price of the units shipped to them. As part of the agreement, we agreed to return $432,000 of the original transaction price to our distributor and the amount was included in accrued liabilities at December 31, 2019. During the three months ended March 31, 2020, payments totaling $232,000 were made to the distributor.

Contract acquisition costs

We are required to capitalize certain contract acquisition costs consisting primarily of commissions paid when contracts are signed. We currently do not pay any commissions upon the signing of a contract; therefore, no commission cost has been incurred as of March 31, 2020.  

Transaction price allocated to the remaining performance obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The $10.0 million upfront payment received from a major technology company was being recognized as revenue as component sales were transferred to the customer. Under the new arrangement reached in March 2020, the royalties we expect to earn will be applied against the remaining prepayment. We expect to apply an additional $1.4 million in 2020, and this amount is included in revenue below. Because there is uncertainty about the timing of the application of the remainder of the contract liability, it has been excluded from future estimated revenue in the table below. The $9.3 million contract liability is classified as a current liability on our balance sheet. It is likely that recognition of revenue may extend beyond the next twelve months. The following table provides information about the estimated timing of revenue recognition (in thousands):

		Remainder of 2020		2021
License and royalty revenue	$	1,375	$	-
Contract revenue		15		-