Note 6 - Revenue

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Revenue [Text Block]

NOTE 

6.

  Revenue

Service Contracts with Customers

Contract Balances.

 Accounts receivable related to service contracts with customers as of

December 31, 2020

and

2019,

was

nil

and

$181,000,

respectively. Contract assets, representing unbilled receivables where revenue has been recognized in advance of customer billings, as of

December 31, 2020

and

2019,

was

$219,000

and

$21,000,

respectively, which is included in prepaid expenses and other current assets.

Remaining Performance Obligations.

 Remaining Performance Obligations (“RPO”) comprise deferred revenue plus unbilled contract revenue. As of

December 31, 2020

and

2019,

there was

no

deferred revenue and the aggregate amount of RPO was

$13,000

and

$211,000,

respectively, all of which was unbilled contract revenue which is

not

recorded on the balance sheet. We expect

100%

of the balance as of

December 31, 2020, 

to be recognized as revenue within the next 

three

months. Unbilled contract revenue represents non-cancelable contracts under which the Company has an obligation to perform, for which revenue has

not

yet been recognized in the financial statements and the fixed amounts billable have

not

yet been invoiced.

U.S. Government HHS BARDA Contract

In

September 

2015,

HHS BARDA awarded the Company a contract to support the advanced development of a more effective and universal influenza vaccine to improve seasonal and pandemic influenza preparedness. On each of

May 

25

and

July 18, 2017,

and

June 28, 2018,

the Company entered into a Modification of Contract with HHS BARDA, the combined effect being to increase the value of the original

$14

 million contract by

$1.7

 million and to extend it through

September 30, 2018.

The modified contract is a cost-plus-fixed-fee contract, which reimburses the Company for allowable direct contract costs plus allowable indirect costs and a fixed-fee, totaling

$15.7

 million. The Company recognized revenue of

$1,344,000

during the year ended

December 31, 2018,

of which

$20,000

was reversed during the year ended

December 31, 2019.

As of

December 31, 2020

, the cumulative revenue recorded from inception under the HHS BARDA contract represents

$20,000

less than the maximum amount billable under the contract as presently modified, with

no

further change orders envisaged.

Billings under the contract are based on approved provisional indirect billing rates, which permit recovery of fringe benefits, overhead and general and administrative expenses. Indirect rates as well as allowable costs are subject to audit by HHS BARDA on an annual basis. Management believes that revenues recognized to date have been recorded in amounts that are expected to be realized upon final audit and settlement. When the final determination of the allowable costs for any year has been made, revenue and billings

may

be adjusted accordingly in the period that the adjustments are known and collection is probable. Costs relating to contract acquisition are expensed as incurred. In the

three

months ended

December 31, 2019,

the Company reversed 

$20,000

in revenue that was invoiced late in

2018

 to correct prior undercharges but which

may

never be received, and does

not

consider any of the revenue recorded as of

December 31, 2020,

to be at risk of reversal.

Royalty agreements

Aviragen entered into a royalty-bearing research and license agreement with GlaxoSmithKline, plc (“GSK”) in

1990

for the development and commercialization of zanamivir, a neuraminidase inhibitor marketed by GSK as Relenza,to treat influenza. All the Company's Relenza patents have expired, the last remaining intellectual property related to the Relenza patent portfolio, which is solely owned by the Company and exclusively licensed to GSK, having expired in

July 2019

in Japan, at which time royalty revenue ceased, although it remained subject to minor adjustments for sales returns and exchange rate differences. Royalty revenue related to Relenza in

2020,

2019,

and in the post-Merger period in

2018,

was

$193,000,

$778,000

and

$788,000,

respectively, representing

7%

of net sales in Japan.

The Company also generates royalty revenue from the sale of Inavir in Japan, pursuant to a collaboration and license agreement that Aviragen entered into with Daiichi Sankyo Company, Limited (“Daiichi Sankyo”), in

2009.

In

September 2010,

laninamivir octanoate was approved for sale by the Japanese Ministry of Health and Welfare for the treatment of influenza in adults and children, which Daiichi Sankyo markets as Inavir. Under the agreement, the Company currently receives a

4%

royalty on net sales of Inavir in Japan. The last patent related to Inavir is set to expire in

December 2029

in Japan, at which time royalty revenue will cease. The royalty revenue related to Inavir recognized in

2020,

2019,

and in the post-Merger period in

2018,

 was

$2,769,000,

$3,668,000

and

$552,000,

respectively. In addition, the Company recognized non-cash royalty revenue related to sale of future royalties (see Note

7

) of

$886,000,

$5,030,000

and

$1,475,000

in

2020,

2019

 and 

2018,

respectively. Both the royalty revenue and the non-cash royalty revenue related to sale of future royalties have been subjected to a

5%

withholding tax in Japan, for which

$183,000,

$435,000

and

$102,000

was included in income tax expense in the years ended

December 31, 2020,

2019

and

2018,

respectively.