2.	Revenue Recognition

On January 1, 2017, we adopted Topic 606, applying the modified retrospective method to all contracts that were not completed as of that date. Results for reporting periods beginning after January 1, 2017 are presented under Topic 606, while prior period results are not adjusted and continue to be reported under the accounting standards in effect for the prior period. We recorded an increase to opening equity of $404,000 as of January 1, 2017 due to the cumulative impact of adopting Topic 606. The impact to revenue for the year ended December 31, 2017 was an increase of $1.9 million as a result of adopting Topic 606.

The adoption of Topic 606 did not have a significant impact on our third-party software or professional engineering service revenue; however, it did have a significant impact on our proprietary DataV software products and services revenue. We executed our first two DataV contracts in the fourth quarter of 2016. Our current DataV contracts include customization, software license and support and maintenance performance obligations. Under the accounting standards in effect in the prior period, revenue from our DataV software contracts was recognized under a zero-profit model whereby revenue was recognized up to the amount of costs incurred. The profit margin was deferred and recognized ratably over the service and maintenance period after delivery and acceptance of the software product. Under Topic 606, revenue is recognized on our DataV contracts when the customization services essential to provide the derived benefit of the software to the customer are completed and control of the product is transferred to the customer as evidenced by customer acceptance.

Disaggregation of revenue

The following table provides information about disaggregated revenue by primary geographical market, major product line and timing of revenue recognition, and includes a reconciliation of the disaggregated revenue with reportable segments (in thousands):

	Year Ended December 31, 2017
	Third-Party Software		Proprietary Software		Total Software		Professional Engineering Service		Total
Primary geographical markets:
North America	$	63,430	$	3,950	$	67,380	$	8,682	$	76,062
Europe		1,914		-		1,914		1,191		3,105
Asia		411		696		1,107		537		1,644
Total	$	65,755	$	4,646	$	70,401	$	10,410	$	80,811

Major products/services lines:
Third-party software	$	65,755	$	-	$	65,755	$	-	$	65,755
Proprietary software		-		4,646		4,646		-		4,646
Professional engineering services		-		-		-		10,410		10,410
Total	$	65,755	$	4,646	$	70,401	$	10,410	$	80,811

Timing of revenue recognition:
Transferred at a point in time	$	65,608	$	3,696	$	69,304	$	861	$	70,165
Transferred over time		147		950		1,097		9,549		10,646
Total	$	65,755	$	4,646	$	70,401	$	10,410	$	80,811

Contract Balances

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

	December 31, 2017
Receivables	$	18,014
Short-term contract assets		937
Long-term contract assets		30
Short-term contract liabilities (deferred revenue)		3,219
Long-term contract liabilities (deferred revenue)		61

We receive payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets include amounts related to our contractual right to consideration for completed performance objectives not yet invoiced and deferred contract acquisition costs, which are amortized along with the associated revenue. Contract liabilities include payments received in advance of performance under the contract and are realized with the associated revenue recognized under the contract. We had no asset impairment charges related to contract assets in the period.

Significant changes in contract assets and liabilities balances were as follows (in thousands):

	December 31, 2017
	Contract Assets		Contract Liabilities⁽¹⁾
Revenue recognized that was included in the contract liability at beginning of the period	$	-	$	3,068
Transferred to receivables from contract assets recognized at beginning of the period	$	780	$	-
⁽¹⁾ Comprised of deferred revenue

Contract acquisition costs

In connection with the adoption of Topic 606, we are required to capitalize certain contract acquisition costs consisting primarily of commissions paid when contracts are signed. As of January 1, 2017, the date we adopted Topic 606, we capitalized $292,000 in contract acquisition costs related to contracts that were not completed. For contracts that have a duration of less than one year, we follow a Topic 606 practical expedient and expense these costs when incurred. For contracts with lives exceeding one year, as is more common with our DataV software bookings, we record these costs in proportion to each completed contract performance obligation. During the year ended December 31, 2017, the amount of amortization was $168,000, and there was no impairment loss in relation to costs capitalized. During the year ended December 31, 2017, an additional $87,000 in contract acquisition costs were capitalized.

Performance obligations

We did not recognize any revenue from performance obligations satisfied in previous periods.

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, in thousands. The estimated revenue does not include contracts with original durations of one year or less, amounts of variable consideration attributable to royalties, or contract renewals that are unexercised as of December 31, 2017.

	2018		2019		2020		2021
Third-party software	$	110	$	36	$	-	$	-
Proprietary software		2,655		1,133		820		114
Professional engineering services		760		-		-		-

Practical expedients and exemptions

We generally expense sales commissions when incurred because the amortization period would have been less than one year. We record these costs within selling, general and administrative expenses.

In accordance with Topic 606, the disclosure of the impact of adoption to our consolidated statements of operations was as follows (in thousands, except per share amounts):

	Year Ended December 31, 2017
	As reported			Balances without adoption of Topic 606			Effect of change - higher (lower)
Revenue:
Third-party software	$	65,755		$	65,755		$	—
Proprietary software		4,646			2,964			1,682
Professional engineering service		10,410			10,198			212
Total revenue		80,811			78,917			1,894
Cost of revenue:
Third-party software		55,161			55,161			—
Proprietary software		163			163			—
Professional engineering service		7,365			7,277			88
Total cost of revenue		62,689			62,601			88
Gross profit		18,122			16,316			1,806
Operating expenses:
Selling, general and administrative		20,982			20,909			73
Research and development		6,561			6,561			—
Total operating expenses		27,543			27,470			73
Loss from operations		(9,421	)		(11,154	)		1,733
Other income, net		214			214			—
Loss before income taxes		(9,207	)		(10,940	)		1,733
Income tax benefit		149			149			—
Net loss	$	(9,058	)	$	(10,791	)	$	1,733
Basic loss per share	$	(0.72	)	$	(0.86	)	$	0.14
Diluted loss per share	$	(0.72	)	$	(0.86	)	$	0.14

In accordance with Topic 606, the disclosure of the impact of adoption to our consolidated balance sheet was as follows (in thousands):

	December 31, 2017
	As reported			Balances without adoption of Topic 606			Effect of change - higher (lower)
Assets:
Contract assets	$	937		$	753		$	184
Other noncurrent assets		89			59			30
Liabilities:
Deferred revenue - current		3,219			4,243			(1,024	)
Deferred revenue - noncurrent		61			556			(495	)
Shareholders' Equity:
Accumulated deficit		(105,276	)		(107,009	)		1,733