2 — Revenue Recognition

On January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) using the modified retrospective method applied to contracts which were incomplete as of January 1, 2018. Results from reporting periods beginning after January 1, 2018 are presented under this new guidance, while prior period amounts are unadjusted and continue to be reported under previous revenue recognition guidance.

We generate revenue from the one-time sale of MRI compatible medical devices and accessories, extended warranty agreements and the sale of disposable products used with our devices. The principal customers for our MRI compatible products include hospitals and acute care facilities, both in the U.S. and internationally. In the U.S., we sell our products through our direct sales force and outside of the U.S. we sell our products through distributors who resell our products to end users.

For most domestic sales, we enter into agreements with healthcare supply contracting companies, commonly referred to as Group Purchasing Organizations (“GPOs”), which enable us to sell and distribute our products to their member hospitals. Our agreements with GPOs typically include negotiated pricing for all group members established at time of GPO contract execution.

We do not sell to GPOs. Hospitals, group practices and other acute care facilities that are members of a GPO, purchase products directly from us under the terms of our GPO agreements.

We recognize revenue when all of the following criteria are met: we have a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the amount we expect to receive, is determinable and we have transferred control of the promised products or services to the customer. We consider transfer of control evidenced upon the passage of title and risks and rewards of ownership to the customer. We allocate the transaction price using the relative standalone selling price method. Customer sale prices for our MRI compatible IV infusion pump systems and related disposables and services are contractually fixed over the GPO contract term. We recognize a receivable at the point in time we have an unconditional right to payment. Payment terms are typically within 45 days after transferring control to U.S. customers. Most international distributors are required to pay a portion of the transaction price in advance and the remaining amount within 30 days of receiving the related products. Accordingly, we have elected to use the practical expedient that allows us to ignore the possible existence of a significant financing component within the contract.

We have elected to account for shipping and handling charges billed to customers as revenue and shipping and handling related expenses as cost of revenue.

In certain U.S. states we are required to collect sales taxes from our customers. We have elected to exclude the amounts collected for these taxes from revenue and record them as a liability until remitted to the taxing authority.

Disaggregation of Revenue

We disaggregate revenue from contracts with customers by geographic region and revenue type as we believe it best depicts the nature, amount, timing and uncertainty of our revenue and cash flow.

Revenue information by geographic region is as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
	(unaudited)				(unaudited)
United States	$	6,099,767	$	5,016,550	$	17,808,918	$	14,176,357
International		1,514,888		673,174		4,290,673		2,200,291
Total revenue	$	7,614,655	$	5,689,724	$	22,099,591	$	16,376,648

Revenue information by type is as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
	(unaudited)				(unaudited)
Devices:
MRI Compatible IV Infusion Pump Systems	$	3,532,670	$	3,606,327	$	10,748,830	$	9,888,166
MRI Compatible Patient Vital Signs Monitoring Systems		1,817,361		118,598		4,526,735		907,622
Total Devices Revenue		5,350,031		3,724,925		15,275,565		10,795,788
Disposables and Services		1,874,439		1,673,254		5,722,573		4,893,990
Amortization of extended warranty agreements		390,185		291,545		1,101,453		686,870
Total revenue	$	7,614,655	$	5,689,724	$	22,099,591	$	16,376,648

Contract Liabilities

We record contract liabilities, or deferred revenue, when we have an obligation to provide a product or service to the customer and payment is received in advance of our performance. When we sell a product or service with a future performance obligation, we defer revenue allocated to the unfulfilled performance obligation and recognize this revenue when (or as) the performance obligation is satisfied.

Our deferred revenue consists of advance payments received from customers prior to the transfer of products or services, shipments that are in-transit at the end of a period and sales of extended warranty agreements. Advanced payments received from customers and shipments in-transit are recognized in revenue at the time control of the related products has been transferred to the customer or services have been delivered. Amounts related to extended warranty agreements are deferred and recognized in revenue ratably over the agreement period, which is typically one to four years after control of the related products is transferred to the customer, as we believe this recognition pattern best depicts the transfer of services being provided.

Deferred revenue is classified as current or long-term deferred revenue in our Balance Sheets, depending on the expected timing of satisfying the related performance obligations. Our contract liabilities consist of:


	September 30,		December 31,
	2018		2017
	(unaudited)
Advance payments from customers	$	53,273	$	251,087
Shipments in-transit		84,865		13,326
Extended warranty agreements		3,564,597		3,356,843
Total	$	3,702,735	$	3,621,256

Changes in the contract liabilities during the period are as follows:


	Deferred
	Revenue
Contract liabilities, December 31, 2017	$	3,621,256
Increases due to cash received from customers		1,764,735
Decreases due to recognition of revenue		(1,683,256)
Contract liabilities, September 30, 2018	$	3,702,735

Capitalized Contract Costs

We capitalize commissions paid to our sales managers related to contracts with customers when the associated revenue is expected to be earned over a period of time. Deferred commissions are primarily related to the sale of extended warranty agreements. Capitalized commissions are included in Prepaid Expenses and Other Current Assets in our Balance Sheets when the associated expense is expected to be recognized in one year or less, or Other Assets when the associated expense is expected to be recognized in greater than one year. The associated expense is included in Sales and Marketing expenses in our Statements of Operations.

Our total capitalized contract costs as of September 30, 2018 and December 31, 2017 were $188,591 and $168,757, respectively. Expense for the three and nine months ended September 30, 2018 and 2017 related to the amortization of capitalized contract costs were immaterial to our financial statements.

Variable Consideration

Most of our sales are subject to 30 to 60-day customer-specified acceptance provisions primarily for purposes of ensuring products were not damaged during the shipping process. Historically, we have experienced immaterial product returns and, when experienced, we typically exchange the affected products with new products. Accordingly, variable consideration from contracts with customers is immaterial to our financial statements.