Revenue Recognition

3 Months Ended

Mar. 31, 2024

Revenue from Contract with Customer [Abstract]

Revenue Recognition

7. Revenue Recognition

The Company recognizes product revenue upon shipment or after meeting certain performance obligations. These products can include hardware, software subscriptions and consulting services. The Company also offers software on a subscription basis subject to software as a service (“SaaS”). Warranty costs have not been material.

The Company recognizes sales of the Company’s datasets in accordance with FASB ASC Topic 606 whereby revenue from contracts with customers are recognized once the criteria under the five steps below have been met:

i)	identification of the contract with a customer;
ii)	identification of the performance obligations in the contract;
iii)	determination of the transaction price;
iv)	allocation of the transaction price to the separate performance obligations; and
v)	recognize revenue upon satisfaction of a performance obligation.

Consulting services include reporting and are typically done monthly, and revenue is matched accordingly. Product sales may include maintenance and customer support allocated revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy using the relative selling price method. All product offering and service offering market values are readily determined based on current and prior stand-alone sales. The Company defers and recognizes maintenance, updates, and support revenue over the term of the contract period, which is generally one year.

Normal payment terms offered to customers, distributors and resellers are net 30 days domestically. The Company does not offer payment terms that extend beyond one year and rarely does it extend payment terms beyond its normal terms. If certain customers do not meet its credit standards, the Company typically requires payment in advance to limit its credit exposure.

With the Company’s newest product, INTRUSION Shield, the Company began offering software on a subscription basis. INTRUSION Shield is a hosted arrangement subject to SaaS guidance under ASC 606. SaaS arrangements are accounted for as subscription services, not arrangements that transfer a license of intellectual property.

The Company utilizes the five-step process, mentioned above, per FASB ASC Topic 606 to recognize sales and will follow that directive, also, to define revenue items as individual and distinct. INTRUSION Shield services provided to its customers for a fixed monthly subscription fee include:

· access to Intrusion’s proprietary software and database to detect and prevent unauthorized access to its clients’ information networks;

· use of all software, associated media, printed materials, data, files, online documentation, and any equipment that Intrusion provides for customers to access the INTRUSION Shield; and

· tech support, post contract customer support (PCS) includes daily program releases or corrections provided by Intrusion without additional charge.

INTRUSION Shield contracts provide for no other services, and the Company’s customers have no rebates or return rights, nor are any such rights anticipated to be offered as part of this service.

The Company satisfies its performance obligation when the INTRUSION Shield solution is available to detect and prevent unauthorized access to a client’s information networks. Revenue should be recognized monthly over the term of the contract. The Company’s standard initial contract terms automatically renew unless notice is given 30 days before renewal. Upfront payment of fees is deferred and amortized into income over the period covered by the contract.

The Company’s accounts receivable represents unconditional contract billings for sales per contracts with customers and are classified as current assets. As of March 31, 2024, and December 31, 2023, the Company had accounts receivable balances of $0.3 million and $0.4 million, respectively. As of March 31, 2024, and December 31, 2023, the Company had an allowance for credit losses of $0.1 million.

The Company classifies its contract assets as receivables because the Company generally has an unconditional right to payment for the Company’s sales or services performed at the end of the reporting period.

Contract liabilities consist of cash payments in advance of the Company satisfying performance obligations and recognizing revenue. The Company currently classifies deferred revenue as a contract liability.

The following table presents changes in the Company’s contract liability during the period ended March 31, 2024, and the year ended December 31, 2023 (in thousands):

	March 31, 2024			December 31, 2023
Balance at beginning of period	$	439		$	455
Additions		1,565			4,727
Revenue recognized		(1,089	)		(4,743	)
Balance at end of period	$	915		$	439