| Revenue Recognition under ASC 606 [Text Block] | Note 4
Revenue Recognition under ASC 606
On May 1, 2018, the Company adopted the new accounting standard,
ASC 606 “Revenue from Contracts with Customers” Revenues from contracts with customers are recognized when control of promised goods and services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company recognizes revenue using the five-step model as prescribed by ASC 606:
1)
Identification of the contract, or contracts, with a customer;
2)
Identification of the performance obligations in the contract;
3)
Determination of the transaction price;
4)
Allocation of the transaction price to the performance obligations in the contract; and
5)
Recognition of revenue when or as, the Company satisfies a performance obligation. When a contract with a customer is signed, the Company assesses whether collection of the fees under the arrangement is probable. The Company estimates the amount to reserve for uncollectible amounts at the end of each reporting period based on the aging of the contract balance, current and historical customer trends, and communications with its customers. These reserves are recorded against the related accounts receivable. The transaction price is the consideration that the Company expects to receive from its customers in exchange for its products or services. In determining the allocation of the transaction price, the Company identifies performance obligations in contracts with customers, which may include products, subscriptions to software and services, support, professional services and training. The Company allocates the transaction price to each performance obligation on a relative standalone selling price basis. The standalone selling price (SSP) is the price at which the Company would sell a promised product or service separately to a customer. The Company determines the SSP using information that may include market conditions or other observable inputs. In certain cases, the Company is able to establish a SSP based on observable prices for products or services sold separately. In these instances, the Company would use a single amount to estimate a SSP. If a SSP is not directly observable, for example when pricing is variable, the Company will use a range of SSP. In certain circumstances, the Company may estimate SSP for a product or service by applying the residual approach. This approach has been most commonly used when certain perpetual software licenses are only sold bundled with one year of post-contract support or other services, and a price has not been established for the software. Significant judgement is used to determine SSP and to determine whether there is a variance that needs to be allocated based on the relative SSP of the various products and services. Estimating SSP is a formal process that includes review and approval by the Company’s management.
Software Revenue The Company generates software revenue primarily on a single fee per perpetual software license basis. The Company recognizes software revenue for perpetual licenses when control has transferred to the customer, which is generally at the time of delivery when the customer has the ability to deploy the licenses, provided all revenue recognition criteria have been met. If the revenue recognition criteria has not been met, the revenue is deferred or not recognized.
Subscription, support and maintenance Revenue from the Company’s recurring subscription revenue from subscriptions related to our software as a service offering is recognized ratably over the contractual subscription term as control of the goods or services is transferred to the customer, beginning on the date that the subscription is made available to the customer. Support and maintenance revenue is generated from recurring annual software support and maintenance contracts for our perpetual software licenses and is recognized ratably over the term of the service period, which is generally twelve months. Support and maintenance services include e-mail and telephone support, unspecified rights to bug fixes and product updates and upgrades and enhancements available on a when-and-if available basis. Both subscription revenue and support and maintenance revenue are typically billed annually in advance based on the terms of the arrangement.
Professional services and other Professional services and other revenue is generated through services including product configuration and customization, implementation, dedicated engineering and training. The amount of product configuration and customization required by a customer typically increases as the order size increases from a given customer. Services and pricing may vary depending upon a customer’s requirements for customization, implementation and training. Depending on the services to be provided, revenue from professional services and other is generally recognized at the time of delivery when the services have been completed and control has been transferred. For contracts with elements related to customized network solutions and certain network build-outs or software systems that require significant modification or customization, the Company will recognize revenue using the percentage-of-completion method. In using the percentage-of-completion method, revenues are generally recorded based on completion of milestones as described in the agreement. Profit estimates on long-term contracts are revised periodically based on changes in circumstances and any losses on contracts are recognized in the period that such losses become known.
Unearned Revenue Unearned revenue represent billings or payments received in advance of revenue recognition and is recognized upon transfer of control. Balances consist primarily of annual support and subscription services and professional services not yet provided as of the balance sheet date.
During the three and six months ended October 31, 2018, the Company recognized $708,052
and $1,655,852
in revenue, respectively, in its consolidated statements of operations that was previously recognized as unearned revenue in the consolidated balance sheets at May 1, 2018.
Costs to Obtain a Customer Contract
Sales commissions and related expenses are considered incremental and recoverable costs of acquiring customer contracts. These costs are capitalized and amortized on a systematic basis, consistent with the timing of revenue recognition over the anticipated benefit period of up to
3.5
years, depending on the products and services. The anticipated benefit period was estimated based on the average length of applicable customer contracts and includes the contract term and any anticipated renewal periods. This amortization expense is recorded in sales and marketing expense within the Company's consolidated statement of operations. The Company has elected to apply a practical expedient that permits the Company to expense costs to obtain a contract as incurred, if the anticipated benefit period is one year or less. From time to time, management will revisit the estimates used in recognizing the costs to obtain customer contracts.
During the three and six months ended October 31, 2018, the Company capitalized approximately $277,332
and $319,132, respectively, of costs to obtain revenue contracts and amortized approximately $59,595
and $113,695
of commissions during those same periods to sales and marketing expense. Capitalized costs to obtain a revenue contract on the Company's condensed consolidated balance sheets totaled approximately $165,545
at October 31, 2018.
Costs to Fulfill a Customer Contract
Certain contract costs incurred to fulfill obligations under a contract are capitalized when such costs generate or enhance resources to be used in satisfying future performance obligations and the costs are deemed recoverable. Judgement is used in determining whether certain contract costs can be capitalized. These costs are capitalized and amortized on a systematic basis to match the timing of revenue recognition over the anticipated benefit period of up to
3.5
years, depending on the products and services. The anticipated benefit period was estimated based on the average length of applicable customer contracts and includes the contract term and any anticipated renewal periods. This amortization expense is recorded in cost of sales in the Company’s consolidated statement of operations. From time to time, management will review the capitalized costs for impairment and will also revisit the estimates used in recognizing the costs to fulfill customer contracts.
Adoption Impact of ASC 606 The Company recognized the cumulative effect of initially applying ASC 606 as an adjustment to retained earnings in the condensed consolidated balance sheet as of May 1, 2018:
Balance at
ASC 606
Balance at
April 30, 2018
Adjustments
May 1, 2018
Current assets:
Deferred sales commissions costs $
–
$
70,248
$
70,248
Non-current assets:
Deferred sales commissions costs $
–
$
63,785
$
63,785
Stockholders’ equity:
Accumulated deficit $
(63,701,685
) $
134,033
$
(63,567,652
) The following tables summarize the adoption impact of ASC 606 on the Company's condensed consolidated financial statements for the three and six months ended October 31, 2018.
Selected Condensed Consolidated Income Statement Line Items:
Three Months Ended October 31, 2018
ASC 606
(As Reported)
ASC 605
Adjustments
ASC 606
Revenue:
Software $
935,217
$
(11,801
) $
923,416
Subscription, support and maintenance
1,321,250
(1,410
)
1,319,840
Professional services and other
183,564
14,441
198,005
Total revenue $
2,440,031
$
1,230
$
2,441,261
Operating expenses:
Sales and marketing $
973,263
$
(5,574
) $
967,689
Loss from operations $
(2,098,881
) $
6,804
$
(2,092,077
)
Net loss per share:
Basic and diluted $
(0.35
) $
–
$
(0.35
)
Six Months Ended October 31, 2018
ASC 606
(As Reported)
ASC 605
Adjustments
ASC 606
Revenue:
Software $
2,311,460
$
(32,042
) $
2,279,418
Subscription, support and maintenance
2,572,447
(1,587
)
2,570,860
Professional services and other
438,492
40,321
478,813
Total revenue $
5,322,399
$
6,692
$
5,329,091
Operating expenses:
Sales and marketing $
1,992,205
$
(29,556
) $
1,962,649
Loss from operations $
(3,225,605
) $
36,248
$
(3,189,357
)
Net loss per share:
Basic and diluted $
(0.52
) $
–
$
(0.52
)
Selected Condensed Consolidated Balance Line Items:
October 31, 2018
ASC 606
(As Reported)
ASC 605
Adjustments
ASC 606
Current assets:
Deferred sales commissions costs $
–
$
103,292
$
103,292
Current liabilities:
Unearned revenue $
2,604,157
$
(6,692
) $
2,597,465
Non-current assets:
Deferred sales commissions costs $
–
$
62,253
$
62,253
Stockholders’ equity:
Accumulated deficit $
(66,801,209
) $
158,853
$
(66,642,356
)
Selected Condensed Consolidated Statement of Cash Flows Line Items:
Six Months Ended October 31, 2018
ASC 606
(As Reported)
ASC 605
Adjustments
ASC 606
Net loss $
(3,110,952
) $
36,248
$
(3,074,704
)
Deferred sales commissions costs $
–
$
(31,512
) $
(31,512
)
Unearned revenue $
38,281
$
(6,692
) $
31,589
Unrealized foreign exchange (gain) loss $
(173,931
) $
1,956
$
(171,975
)
Net cash provided by operating activities $
(1,481,323
) $
–
$
(1,481,323
)
Disaggregation of Revenue
The Company disaggregates its revenue by geographic region. See
Note 10 – Segmented Information |
