REVENUE RECOGNITION

On January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers, and all of the related amendments and applied it to all contracts using the modified retrospective method. We recognized the cumulative effect of the initial adoption as an adjustment to the opening balance of retained earnings. Comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The adoption of the guidance resulted in a change in the accounting for milestone payments. Previously, we recognized revenue upon the achievement of a milestone. Under ASC Topic 606, milestone payments are treated as variable consideration and included in the transaction price for our design services. The cumulative effect of the changes made to our consolidated balance sheet as of January 1, 2018 for the adoption of the new standard was as follows:



BALANCE SHEET	Balance as of December 31, 2017			Adjustments Due to ASC 606		Balance as of January 1, 2018
ASSETS
Prepaid expenses and other current assets	$	536,000		$	67,000	$	603,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Deferred revenue, current	$	143,000		$	3,000	$	146,000
Accumulated deficit	$	(67,812,000	)	$	64,000	$	(67,748,000	)

The following table summarizes the impact of the adoption on our Consolidated Balance Sheet and Consolidated Statement of Comprehensive Loss as of and for the year ended December 31, 2018:



BALANCE SHEET	As of December 31, 2018
BALANCE SHEET	As Reported			Balances Without Adoption of ASC 606			Effect of Change Increase/(Decrease)
ASSETS
Prepaid expenses and other current assets	$	364,000		$	364,000		$	—
LIABILITIES AND STOCKHOLDERS' EQUITY
Deferred revenue, current	$	271,000		$	264,000		$	7,000
Accumulated deficit	$	(92,564,000	)	$	(92,557,000	)	$	(7,000	)



STATEMENT OF COMPREHENSIVE LOSS	Year Ended December 31, 2018
STATEMENT OF COMPREHENSIVE LOSS	As Reported			Activity Without Adoption of ASC 606			Effect of Change Increase/(Decrease)
Revenue	$	524,000		$	595,000		$	(71,000	)
Net loss	$	(24,816,000	)	$	(24,745,000	)	$	71,000

Our contracts with customers primarily relate to the design of filters for radio frequency, or RF, front-ends for the mobile device industry. Design service contracts generally include a modest upfront payment for the design services and a license over the completed design. We retain ownership of our designs, and therefore are also compensated for our design services through royalties based on sales of RFFE filters that incorporate our designs. We currently do not manufacture or sell any physical products or operate as a contract design company developing designs for a fee. Except for the royalty fees that are recognized as revenue upon use of one of our designs, we recognize revenue related to our design services over the estimated design development period, based on the level of effort expended, as the services are performed, which in most cases is 12 to 18 months but can vary depending upon the difficulty of the design.

Other Judgments and Assumptions - We apply the practical expedients available in ASC 606 to not disclose information about 1) remaining performance obligations that have original expected durations of one year or less and 2) variable consideration that is a sales-based or usage-based royalty.

Royalty Revenue - Upon completion of design services, our customers retain a license over the completed design. The license will typically last for a minimum of two years, and in many cases for the life of the design. Royalties are sales-based, and we recognize royalty revenue upon shipment, by our customer, of products that include our licensed design.

Contract Assets - Contract assets, other than accounts receivable, consist of unbilled revenue and generally arise when revenue is recognized on a contract whose transaction price includes an estimate of variable consideration from milestone payments. We do not have material amounts of contract assets as we have relatively few contracts, only modest design service fees and a small number of contracts containing milestone payments. Contract asset balances are included in Prepaid expenses and other current assets in our Consolidated Balance Sheet.

Contract Liabilities - Our contract liabilities consist of customer deposits and deferred revenue. We classify contract liabilities as current or noncurrent based on the timing of when we expect to recognize revenue. Generally, our contract liabilities are expected to be recognized in one year or less. Customer deposits and deferred revenue are separately stated in our Consolidated Balance Sheet.

Summary of changes in contract assets and liabilities for the period from January 1, 2018 to December 31, 2018:



Contract assets
Contract assets, January 1, 2018	$	67,000
Contract assets at beginning of year transferred to accounts receivable	(43,000		)
Reversal of contract assets due to changes in transaction price	(24,000		)
Contract assets recorded on contracts during the period	36,000
Contract assets, December 31, 2018	$	36,000

Contract liabilities
Contract liabilities, January 1, 2018	$	146,000
Recognition of revenue included in beginning of year contract liabilities	(138,000		)
Contract liabilities, net of revenue recognized on contracts during the period	263,000
Contract liabilities, December 31, 2018	$	271,000

The following table presents our disaggregated revenue by geographic region and source:



	Year Ended December 31,
	2017		2018
Revenue by geographic region:
United States	$	574,000	$	447,000
Switzerland	79,000		77,000
Total revenue	$	653,000	$	524,000

Revenue by source:
Design services	$	613,000	$	365,000
Royalties	40,000		159,000
Total revenue	$	653,000	$	524,000