REVENUE RECOGNITION

We record contract assets and contract liabilities in connection with revenue recognized for filter design projects.

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 condensed consolidated balance sheets.

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 condensed consolidated balance sheets.

Summary of changes in contract assets and liabilities for the nine months ended September 30, 2019 and 2018:



	Nine Months Ended September 30,
	2019			2018
Contract assets
Contract assets, beginning	$	36,000		$	67,000
Contract assets at beginning of year transferred to accounts receivable	(36,000		)	(43,000		)
Reversal of contract assets due to changes in transaction price	(8,000		)	(24,000		)
Contract assets recorded on contracts during the period	8,000			3,000
Contract assets, ending	$	—		$	3,000

Contract liabilities
Contract liabilities, beginning	$	271,000		$	146,000
Recognition of revenue included in beginning of year contract liabilities	(199,000		)	(92,000		)
Contract liabilities, net of revenue recognized on contracts during the period	2,037,000			132,000
Foreign currently translation	$	—		$	1,000
Contract liabilities, ending	$	2,109,000		$	187,000

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Revenue by geographic region:
United States	$	79,000	$	96,000	$	276,000	$	338,000
Switzerland	—		19,000		—		58,000
Total revenue	$	79,000	$	115,000	$	276,000	$	396,000

Revenue by source:
Design services	$	70,000	$	85,000	$	252,000	$	276,000
Royalties	9,000		30,000		24,000		120,000
Total revenue	$	79,000	$	115,000	$	276,000	$	396,000

Effective September 30, 2019, we entered into a collaboration and license agreement, dated September 30, 2019, with Murata Manufacturing Co., Ltd. Pursuant to the collaboration agreement, we have agreed with Murata to collaborate on the development of proprietary circuit designs using our XBAR® technology, and we licensed to Murata rights for products in four specific radio frequencies, or bands. Murata has agreed to pay us up to an aggregate of $9.0 million as pre-paid royalties and other fees for the licensed designs and certain other intellectual property developed in the collaboration, payable in installments over a multi-year development period, with each installment conditional upon our achievement of certain milestones and deliverables acceptable to Murata in its discretion. Murata may terminate the collaboration agreement at any time upon thirty (30) days prior written notice to us.

Murata’s rights to our XBAR® technology are exclusive for a period of 30 months, through March 2022, during which period we may not grant to any third party the right to develop, make, have made, use, sell, offer for sale or import any filter or resonator produced through the use of the XBAR® technology for use in mobile communication devices.

Under the collaboration agreement, the first of payment of $2.0 million was due to us, and was recorded in accounts receivable with the offset to deferred revenue at September 30, 2019. Payment was received on October 11, 2019.