REVENUE RECOGNITION - Note 4

9 Months Ended

Sep. 30, 2019

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION - Note 4

4. REVENUE RECOGNITION

The following is a description of principal activities from which we generate revenue. Revenues are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. We generate all of our revenue from contracts with customers.

We evaluate contracts based on the 5-step model as stated in Topic 606 as follows: (i) identify the contract, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price, and (v) recognize revenue when (or as) performance obligations are satisfied.

A contract contains a promise (or promises) to transfer goods or services to a customer. A performance obligation is a promise (or a group of promises) that is distinct, as defined in the revenue standard.

The transaction price is the amount of consideration an entity expects to be entitled to from a customer in exchange for providing the goods or services. A number of factors should be considered to determine the transaction price, including whether there is variable consideration, a significant financing component, noncash consideration, or amounts payable to the customer. The determination of variable consideration will require a significant amount of judgment. In estimating the transaction price we will use either the expected value method or the most likely amount method.

The transaction price is allocated to the separate performance obligations in the contract based on relative standalone selling prices. Determining the relative standalone selling price can be challenging when goods or services are not sold on a standalone basis. The revenue standard sets out several methods that can be used to estimate a standalone selling price when one is not directly observable. Allocating discounts and variable consideration must also be considered. Allocating the transaction price can require significant judgement on our part.

Revenue is recognized when (or as) the customer obtains control of the good or service/performance obligations are satisfied. Topic 606 provides guidance to help determine if a performance obligation is satisfied at a point in time or over time. Where a performance obligation is satisfied over time, the related revenue is also recognized over time.

Disaggregation of revenue

The following table provides information about disaggregated revenue by timing of revenue recognition, (in thousands):

		Three Months Ended September 30, 2019
				License and
		Product		royalty		Contract
		revenue		revenue		revenue		Total
Timing of revenue recognition:
Products transferred at a point in time	$	999	$	17	$	121	$	1,137
Product and services transferred over time		-		-		53		53
Total	$	999	$	17	$	174	$	1,190

		Nine Months Ended September 30, 2019
				License and
		Product		royalty		Contract
		revenue		revenue		revenue		Total
Timing of revenue recognition:
Products transferred at a point in time	$	1,198	$	17	$	173	$	1,388
Product and services transferred over time		-		-		2,893		2,893
Total	$	1,198	$	17	$	3,066	$	4,281

		Three Months Ended September 30, 2018
				License and
		Product		royalty		Contract
		revenue		revenue		revenue		Total
Timing of revenue recognition:
Products transferred at a point in time	$	-	$	10,000	$	26	$	10,026
Product and services transferred over time		-		-		1,546		1,546
Total	$	-	$	10,000	$	1,572	$	11,572

		Nine Months Ended September 30, 2018
				License and
		Product		royalty		Contract
		revenue		revenue		revenue		Total
Timing of revenue recognition:
Products transferred at a point in time	$	-	$	10,011	$	182	$	10,193
Product and services transferred over time		-		-		5,581		5,581
Total	$	-	$	10,011	$	5,763	$	15,774

Contract balances

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers (in thousands):

		September 30,		December 31,
		2019		2018
Accounts receivable, net	$	505	$	476
Costs and estimated earnings in excess of billings on uncompleted contracts		-		987
Deferred revenue		28		-
Contract liabilities		10,000		-
Other current liabilities		-		10,000

Under Topic 606, our rights to consideration are presented separately depending on whether those rights are conditional or unconditional. We present our unconditional rights to consideration as "accounts receivable" in our Consolidated Balance Sheet.

Contract assets represent rights to consideration that are subject to a condition other than the passage of time and will be comprised primarily of costs and estimated profits in excess of billings on uncompleted contracts and estimated accrued sales-based royalty revenue.

Contract costs in excess of billing are included in the "Costs and estimated earnings in excess of billings on uncompleted contracts" line of our Consolidated Balance Sheet.

Significant changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands, except percentages):

		September 30,		December 31,
		2019		2018		$ Change	% Change
Contract assets	$	-	$	987	$	(987)	(100.0)
Contract liabilities		(10,028)		-		(10,028)	-
Net contract assets (liabilities)	$	(10,028)	$	987	$	(11,015)	(1,116.0)

During the nine months ended September 30, 2019, we billed $3.9 million on our development contract. Of this amount, $987,000 was included in contract assets at December 31, 2018. We also recognized revenue of $2.9 million on development contract during the nine months ended September 30, 2019.

Contract acquisition costs

We are required to capitalize certain contract acquisition costs consisting primarily of commissions paid when contracts are signed. We currently do not pay any commissions upon the signing of a contract; therefore, no commission cost has been incurred as of September 30, 2019.  

Transaction price allocated to the remaining performance obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The $10.0 million upfront payment received from a major technology company will be recognized as revenue at the point in time future component sales are transferred to the customer. We have received initial purchase orders from our customer under the product supply agreement signed in April 2017. We expect to apply $877,000 of the $10.0 million contract liability over the two quarters ended December 31, 2019 and March 31, 2020 and this amount is included in revenue below. Because there is uncertainty about the timing of the application of the remainder of the $10.0 million contract liability, it has been excluded from future estimated revenue in the table below. The $10.0 million contract liability is classified as a current liability on our balance sheet.  Due to the uncertainty of the timing, it is possible that recognition of revenue may extend beyond the next twelve months. The following table provides information about the estimated timing of revenue recognition (in thousands):

		Remainder of 2019		2020
Product revenue	$	3,482	$	2,796
License and royalty revenue		84		57
Contract revenue		9		19