Revenue Recognition

3 Months Ended

Mar. 31, 2018

Revenue from Contract with Customer [Text Block]

Note 3. Revenue Recognition

Effective January 1, 2018, we adopted Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contacts with Customers (“ASC 606”). ASC 606 was applied using the modified retrospective method. Accordingly, comparative periods have not been adjusted and continue to be reported under FASB ASC Topic 605, Revenue Recognition (“ASC 605”). There was a cumulative effect of $71,000 to be recognized as an adjustment to opening retained earnings at January 1, 2018 related to deferred revenue booked from initiation fees that were received in prior years of $49,750 that would have been recognized at a point in time and revenues that would be recognized on the accrual basis in the prior years based on collection probability assessment of $21,250. Under ASC 605, initiation fee revenue was to be deferred and recognized over the life of the contract while most royalty revenues were recognized as collected. However, under ASC 606, revenue from the initiation fees are recognizable when at a point in time (first month of the contract) and royalty revenues are recognized over time for those contracts with probable collections.

Our license fee revenue is generated from royalties earned through intellectual property licensing agreements which permit the licensee to use the recognition and status of the Scores brand in order to promote their businesses. Under ASC 606, revenue is recognized throughout the life of the executed licensing agreement. We measure revenue based on consideration specified in a contract with a customer. Furthermore, we recognize revenue when we satisfy a performance obligation by transferring control over the service to our customer.

A performance obligation is a promise in a contract to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. Our customers typically receive the benefit of our services as they are performed. Substantially all customer contracts provide that we are compensated for services performed to date. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue.

Nature of goods and services

The following is a description of our products and services from which we generate revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each:

i. Licensing Revenue

Licensing fees represent the fees we receive from the licensing of our Scores trademark. The terms of the royalties earned under these license agreements vary from a flat monthly fee to a percentage of the revenues of the licensee on a monthly basis. The licensing rights are transferred to our customers over time, and we recognize licensing revenue over time because the customer will simultaneously receive and consume the benefit from the license as the performance occurs.

ii. Stand-Ready for Consulting and Club Set-up Services

The Company offers an initial set-up and consultation to new clubs in order to aid in the opening and operation. The services are provided within the first month of any licensing agreements, and sometimes are not requested by the licensee and therefore never provided at all.

Disaggregation of revenue

In the following table, revenue is disaggregated by major products/service lines, and timing of revenue recognition (in thousands):

	For the Three Months Ended March 31,
	2018		2017
Major products/service lines
Licensing fees – royalty revenue	$	101,209	$	204,825
Initiation fees		0		3,000
Total revenue	$	101,209	$	207,825

Timing of revenue recognition
Products transferred at a point in time	$	0	$	3,000
Products and services transferred over time		101,209		204,825
	$	101,209	$	207,825

Contract balances

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

	March 31, 2018		December 31, 2017
Assets
Trade receivables - including affiliates, net	$	66,510	$	73,943
Liabilities
Deferred revenue	$	25,000	$	14,000
Deferred revenue - long term	$	0	$	35,750

Contract receivables are recorded at the invoiced amount and do not bear interest. Credit is extended based on the evaluation of a customer’s financial condition and collateral is not required.

The contract liabilities primarily relate to deferred revenue. Amounts billed in advance of performance obligations being satisfied are booked as deferred revenue.

Practical Expedients and Exemptions

The Company did not apply any practical expedients during the adoption of ASC 606.