Note 9 - Revenue

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

9. Revenue

In connection with its Controlled Launch program in dermatology, the Company recognized revenue at a point in time when it satisfied performance obligations by transferring control of promised goods to its customers. The amount of revenue recognized was equal to the consideration which the Company was entitled to in exchange for the promised goods, excluding any amounts assessed by government authorities for taxes which might be collected from a customer. This consideration  may include non-cash services performed, as was the case with revenue recognized in connection with the Controlled Launch program. On  September 20, 2022, the Company announced its shift in focus to advance its core NPS technology outside of dermatology and concluded its Controlled Launch program. The Company has not recognized any revenue during the year ended December 31, 2023.  Total revenue recognized for the year ended  December 31, 2022, was $0.7 million of which approximately $0.4 million was driven by the redemption of non-cash credits earned as part of the Controlled Launch, with the balances driven by cash purchases of cycle units (“CUs”) and CellFX commercial consoles sold.

Dermatology sales contracts often involved the sale and delivery of multiple performance obligations in the contract.

Performance Obligations

In the Controlled Launch, systems consisted of the CellFX console and its embedded software, handpieces, and disposable tips. The console was a physical piece of hardware used by the dermatology customer to perform patient procedures. Individually the console and software were not distinct, therefore the Company combined the console and embedded software to form one distinct system performance obligation. Payment for systems was generally due prior to shipment, and the system performance obligation was satisfied upon shipment of the system to the customer.

Handpieces were attached to the console and used in conjunction with tips to perform patient procedures. Generally, in the Controlled Launch, upon initial sale of a system to a customer, the Company included two handpieces. The handpiece had a shorter expected useful life than the console, and a customer could purchase additional handpieces when needed, as they were available for sale on a stand-alone basis. Payment for handpieces was generally due prior to shipment, and handpieces represented a distinct performance obligation which was satisfied either upon shipment, or upon delivery of the handpiece to the customer, depending on the specific contract.

Tips are single-patient multiple-use products that come in different sizes, each of which are to be used for specific procedures. Tips are attached to the handpiece for use in patient procedures and, upon detachment from the handpiece, a tip cannot be reused, and it must be disposed of. Tips represent a distinct performance obligation which is satisfied either upon shipment, or upon delivery of the tips to the customer, depending on the specific contract.

CUs, which are also still available for existing customers, are credits that authorize the customer to perform a procedure, or cycle. Each procedure requires a specific number of CUs, dependent upon type of tip used and procedure level selected. As the procedure is performed, the applicable number of CUs are decremented. During part of the Controlled Launch, customers purchased CUs; when the customer’s balance of CUs on a specific system was depleted, the system would no longer function until the customer purchased additional CUs. At that time, customers could purchase additional CUs via the Company’s CellFX Marketplace which was an online marketplace accessible directly from the CellFX System. Payment for CUs was due upon order placement and the CUs were immediately available for download to the console via CellFX CloudConnect. At that time, CUs represented a distinct performance obligation which was satisfied when CUs were made available for customers to download from the Company’s CellFX CloudConnect, as customers could use purchased CUs at any time at their discretion, and the Company did not provide any ongoing service or other forms of involvement after the sale occurred.

Shipping and handling activities are not considered to be a separate performance obligation. The Company’s standard commercial agreements generally include FOB shipping point terms. The Company has made an accounting policy election to account for shipping and handling costs as fulfillment costs because the shipping and handling activities occur after the customer obtains control of the product.

Transaction Price

In the Controlled Launch, the transaction price was the consideration to which the Company expected to be entitled to in exchange for providing the promised goods to customers. Customer orders placed for cash contemplated a fixed amount of consideration. Customer orders placed by physicians participating in the Controlled Launch when they elected to purchase the CellFX System were paid for via conversion of accumulated earned credits for prior services provided by the physicians under the terms of their participation in the Controlled Launch. For these transactions, the transaction price included noncash consideration. The services rendered by the physicians in the Controlled Launch were accounted for separately from the subsequent sales of the CellFX Systems because they were distinct from the system sales. They were distinct because they provided the Company with treatment data that could also be procured, and historically had been procured by the Company, without the corresponding system sales. This data was used by the Company to enhance marketing and promotion of its products.

The Company evaluated the possible impact of variable consideration in determining the transaction price, in particular the possibility of future returns or credits. Still outstanding sales agreements allow for a right of return only if the product does not conform to the agreed upon quality standards or if the product was shipped due to Company error. The Company anticipates such returns will be minimal and has made no adjustments to the transaction price for any estimated returns. The transaction price is determined at the time of the initial revenue recognition and updated each quarter for any changes in circumstances (e.g., changes in estimated return or credit rates).

The Company has made an accounting policy election to exclude from the measurement of the transaction price all taxes which are imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer.

When there are multiple performance obligations present, the total transaction price shall be allocated to each of the performance obligations based upon the relative SSPs of those performance obligations. The Company establishes SSPs based on multiple factors including, prices charged by the Company for similar offerings, product-specific business objectives, and the estimated cost to provide the performance obligation. However, upon the sale of a new CellFX System, all performance obligations are delivered concurrently and therefore there is no impact to revenue recognition timing, and the Company has determined allocations are not necessary. Should the customer purchase additional CUs, handpieces, or tips at a later time, those purchases will be made under separate purchase agreements, with all promised goods generally transferred at the same time, therefore no price allocation is necessary in that scenario either.

Controlled Launch Agreements

In  August 2021, the Company began to recognize revenue in relation to the conversion of Controlled Launch Program participants into sales agreements (Note 8). These customers were already in possession of the system, handpiece, and tips. As such, upon execution of these purchase agreements, the Company recognized revenue on the agreements because control of all performance obligations were transferred at that time. These customers separately purchased CUs in order to operate the CellFX System and the revenue for these CUs was recognized upon delivery of the CUs to CellFX CloudConnect.