REVENUE AND DEFERRED REVENUE

6 Months Ended

Jun. 30, 2019

Revenue Recognition and Deferred Revenue [Abstract]

REVENUE AND DEFERRED REVENUE

NOTE 2 – REVENUE AND DEFERRED REVENUE

We adopted ASC 606 effective January 1, 2018 to (i) all new contracts entered into after January 1, 2018 and (ii) all existing contracts for which all (or substantially all) of the revenue has not been recognized under legacy revenue guidance, using the modified retrospective transition method, which means ASC 606 has been applied to the Company’s 2018 financial statements and disclosures going forward, but that prior period financial statements and disclosures reflect the prior revenue recognition standard. The adoption of ASC 606 did not result in a change to the opening balance of accumulated deficit.

During the implementation of ASC 606 we identified five broad revenue streams: 1) professional services, 2) sale of perpetual software licenses and sale of equipment, 3) ASP and hosting revenue, 4) maintenance revenue, and 5) Reseller Fee (as defined below). The following table discloses revenue by revenue stream.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018
Professional services	$	1,069,263	$	2,602,127	$	2,241,888	$	6,372,468
ASP and hosting revenue		1,902,507		2,028,704		3,835,851		4,032,595
Maintenance revenue		492,998		443,471		984,919		825,989
Sale of equipment		-		-		-		23,797
Other revenue		4,913		9,548		8,623		16,748
Total	$	3,469,681	$	5,083,850	$	7,071,281	$	11,271,597

Professional services consist of pre- and post-implementation services pertaining to InsPro Enterprise installation, configuration and modification of InsPro Enterprise^TM functionality, client insurance plan set-up, client insurance document design and system documentation, training and data migration. Once these services are performed for a client they cannot be returned by the client to the Company and the Company cannot provide the same services to any other client without substantial rework needed to satisfy another client’s needs. We primarily recognize professional services revenue on a time and materials basis. Under the new standard, we elect to apply the "right to invoice" practical expedient outlined in ASC 606-10-55-18. The invoice amount represents the number of hours of time worked by each worker multiplied by the contractual bill rate for the type of work billed. As such, the Company recognizes revenue in the amount for which it has the right to invoice.

Sale of perpetual licenses entitles the purchaser a perpetual license to a copy of the InsPro Enterprise software installed at a single client location or hosted by InsPro Technologies. The Company also sells perpetual licenses for 3^rd party software and sells 3^rd party equipment to a client in connection with the client’s use of InsPro Enterprise software on hardware owned by the client. We recognize sale of software licenses and sale of equipment revenue at the point in time when control has transferred to the client.

ASP hosting enables a client to effectively lease the InsPro Enterprise software, paying only for that capacity required to support their business during the contacted time period. Hosting Service can also enable a client to outsource its application management of its perpetually licensed InsPro Enterprise software to the Company. ASP hosting clients access InsPro Enterprise installed on InsPro Technologies owned servers. Maintenance enables a client to periodic updates to their InsPro Enterprise software and access to customer support from the Company. We have determined the Company’s continuous service and support represent a series of performance obligations that are delivered over time on a stand-ready basis.

Effective August 18, 2015, the Company entered into a five year software and services reseller agreement (the “Reseller Agreement”) with an unaffiliated third party (the “Reseller”) whereby the Company granted the Reseller the exclusive right to market InsPro Enterprise to prospective customers for their administration of long term care insurance products for an initial fee of $2,500,000 (the “Reseller Fee”). Pursuant to the Reseller Agreement, the Reseller Fee is fully or partially refundable to the Reseller in the event that the Company materially breaches the Reseller Agreement or the Company becomes insolvent, goes into liquidation or seeks protection under bankruptcy during the term of the Reseller Agreement. Under ASC 606, the Company believes the contractual specific refund amounts and time frames pertaining to events that may result in a refund represent separate performance obligations over the duration of the Reseller Agreement (“Reseller Performance Obligations”), which the Reseller Agreement has contractually specified the prices for each separate performance deliverable. Revenue recognition is deemed to be consistent under both ASC 606 and the previous standard.

The unearned portion of the Company’s revenue, which is revenue collected or billed but not yet recognized as earned, has been included in the consolidated balance sheet as a liability for deferred revenue.

The following table discloses changes in unearned revenue for the six months ended June 30, 2019.

	As of June 30, 2019
Short Term
Balance at the beginning of the period	$	2,850,976
Deferral of revenue		1,141,916
Recognition of unearned revenue		(804,881	)
Balance at the end of the period	$	3,188,011
Long Term
Balance at the beginning of the period	$	875,000
Deferral of revenue		-
Recognition of unearned revenue		-
Balance at the end of the period	$	875,000

Deferral of revenue in the six months ended June 30, 2019 and 2018 was $1,141,916 and $1,208,913, respectively. This deferred revenue primarily represents annual maintenance fees, which were invoiced at the beginning of customers’ annual maintenance contracts and which pertain to performance obligations not realized as of June 30, 2019 and 2018.

Revenue recognized in the six months ended June 30, 2019 and 2018, which was included in the unearned revenue liability balance at the beginning of each year, was $804,881 and $686,881, respectively, which represents maintenance and professional services performed.

Long term unearned revenue pertains to the portion of the Reseller Fee associated with Reseller Performance Obligations that will occur more than 12 months from June 30, 2019 and 2018, respectively.