| REVENUE RECOGNITION - Note 4 | 4. REVENUE RECOGNITION In May 2014, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update 2014-09 (ASU 2014-09), Revenue from Contracts with Customers (Topic 606), an updated
standard on revenue recognition. The core principle of the new standard is for companies to recognize revenue to depict the transfer
of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange
for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions
that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. We implemented ASU
2014-09 as of January 1, 2018 using the full retrospective approach, meaning we will restate each prior reporting period presented. We performed a review of our revenue generating
contracts with customers subject to ASU 2014-09, and implementation of this standard has the following material impacts on our
financial statements: i. Timing of revenue recognition under the
PicoP® scanning technology license agreement we signed with Sony in March 2015. Under previous guidance, we had been recognizing
the upfront license fee payment of $8.0 million on a straight-line basis over a period of eight years. Under the new guidance,
the entire $8.0 million upfront license fee payment was recognized in the first quarter of 2015. The result of this change in timing
resulted in a decrease of $7.2 million in our beginning 2016 accumulated deficit balance and a reduction in our short-term deferred
revenue balance of $1.0 million and long-term deferred revenue balance of $6.1 million. License and royalty revenue for each of
the years ended December 31, 2016 and 2017 was reduced by approximately $1.0 million. ii. Timing of revenue recognition on product
sales. Previously, we recognized revenue after expiration of the contractual acceptance period. Under the new guidance, we recognize
revenue when control of the product transfers to the buyer, which may occur before the expiration of the contractual acceptance
period. The result of this change was a net decrease in our beginning 2016 accumulated deficit of $527,000, as well as a shift
in revenue and cost recognition to earlier quarters in 2016 and 2017. Accounting policy as a result of adopting
Topic 606 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. Product revenue We sell our products to customers under a
contract or by purchase order. We consider the sale of each individual item to be one performance obligation. The transaction price
is generally either at stated product price per quantity or at a fixed amount at contract inception. Revenue is recognized under
Topic 606 when the product is shipped to the customer because control passes to the customer at the point of shipment. Our product
sales generally include acceptance provisions, however, because we generally can objectively determine that we have met agreed-upon
customer specifications prior to shipment, control of the item passes at the time of shipment. License and royalty revenue We recognize revenue on upfront license fees
at a point in time if the nature of the license granted is a right-to-use license, representing functional intellectual property
with significant standalone functionality. If the nature of the license granted is a right-to-access license, representing symbolic
intellectual property, which excludes significant standalone functionality, we recognize revenue over the period of time we have
ongoing obligations under the agreement. We will recognize revenue from sales-based royalties on the basis of the quarterly reports
provided by our customer as to the number of royalty-bearing products sold or otherwise distributed. In the event that reports
are not received, we will estimate the number of royalty-bearing products sold by our customers. Contract revenue Our contract revenue in a particular period
is dependent upon when we enter into a contract, the value of the contracts we have entered into, and the availability of technical
resources to perform work on the contracts. We recognize contract revenue either at a point in time, or over time, depending upon
the characteristics of the individual contract. If control of the deliverable(s) occur over time, the revenue is recognized in
proportion to the transfer of control. If control passes to the customer only upon completion and transfer of the asset, revenue
is recognized at the completion of the contract. In contracts that include significant customer acceptance provisions, we recognize
revenue only upon acceptance of the deliverable(s). We identify each performance obligation in
our development contracts at contract inception. The contracts generally include product development and customization specified
by the customer. In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether
the performance obligations are distinct within the context of the contract. Performance obligations that are not distinct at contract
inception are combined. Our development contracts are primarily fixed-fee
contracts. If control of deliverables occurs over time, we recognize revenue on fixed fee contracts on the proportion of total
cost expended (under Topic 606, the 'input method') to the total cost expected to complete the contract performance obligation.
For contracts that require the input method for revenue recognition, the determination of the total cost expected to complete the
performance obligations on fixed fee contracts involves significant judgment. We incorporate revisions to hour and cost estimates
when the causal facts become known. Disaggregation of revenue The following table provides information about
disaggregated revenue by timing of revenue recognition, (in thousands):
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
Three Months Ended September 30, 2017
License and
Product royalty Contract
revenue revenue revenue Total
Timing of revenue recognition:
Products transferred at a point in time $ 2,253 $ 77 $ 1,040 $ 3,370
Product and services transferred over time - - 2,055 2,055
Total $ 2,253 $ 77 $ 3,095 $ 5,425
Nine Months Ended September 30, 2017
License and
Product royalty Contract
revenue revenue revenue Total
Timing of revenue recognition:
Products transferred at a point in time $ 2,298 $ 280 $ 1,497 $ 4,075
Product and services transferred over time - - 3,257 3,257
Total $ 2,298 $ 280 $ 4,754 $ 7,332 Contract balances The following table provides information about
receivables, contract assets, and contract liabilities from contracts with customers (in thousands):
September 30, December 31,
2018 2017
Accounts receivable, net $ 5,044 $ 15
Costs and estimated earnings in excess of billings on uncompleted contracts 1,080 680
Other current assets - 70
Billings on uncompleted contracts in excess of related costs 1 5
Other current liabilities 10,000 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 are 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,
and sales-based royalties are included in "Other current assets". This does not represent a change in presentation for
contract fulfillment costs; however, for sales-based royalty revenue, this revenue was previously not recognized until quarterly
royalty reporting had been received from our customer. Under Topic 606, once quarterly royalty reporting has been received, the
related contract assets will be transferred to accounts receivable. 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,
2018 2017 $ Change % Change
Contract assets $ 1,080 $ 680 $ 400 58.8
Contract liabilities (1) (5) 4 80.0
Net contract assets (liabilities) $ 1,079 $ 675 $ 404 59.9 During the nine months ended September 30,
2018, we billed $5.2 million on our development contracts. Of this amount, $680,000 was included in contract assets at December
31, 2017. We also recognized revenue of $5.6 million during the nine months ended September 30, 2018, resulting in a contract asset
of $1.1 million. Contract acquisition costs Regarding the adoption of Topic 606, 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, 2018. 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 estimated revenue does not include the $10.0 million upfront payment received from a major technology
company to develop an LBS display system due to uncertainty around the timing of recognition. Additionally, the estimated revenue
does not include amounts of variable consideration attributable to royalties or unexercised contract renewals (in thousands):
Remainder of 2018 2019
Product revenue $ 1,792 $ 1,375
License and royalty revenue - -
Contract revenue 1,617 2,553 Impacts to Previously Reported Results In accordance with Topic 606, the disclosure
of the impact of adoption to our condensed consolidated statements of operations and balance sheets was as follows (in thousands,
except per share data):
Three Months Ended September 30, 2017
As previously New revenue As
reported standard adjustment restated
Product revenue $ 2,298 $ (45) $ 2,253
License and royalty revenue 359 (282) 77
Contract revenue 3,429 (334) 3,095
Cost of product revenue 3,224 (46) 3,178
Cost of contract revenue 2,619 (94) 2,525
Net loss (5,241) (521) (5,762)
Net loss per share - basic and diluted (0.07) (0.01) (0.08)
Nine Months Ended September 30, 2017
As previously New revenue As
reported standard adjustment restated
Product revenue $ 2,298 $ - $ 2,298
License and royalty revenue 1,240 (960) 280
Contract revenue 4,793 (39) 4,754
Cost of product revenue 3,572 - 3,572
Cost of contract revenue 3,754 (14) 3,740
Net loss (16,382) (985) (17,367)
Net loss per share - basic and diluted (0.23) (0.02) (0.25)
December 31, 2017
As previously New revenue As
reported standard adjustment restated
Costs and estimated earnings incurred on uncompleted contracts $ 680 $ - $ 680
Other current assets 945 70 1,015
Billings on uncompleted contracts 5 - 5
Deferred revenue - current 999 (999) -
Deferred revenue - noncurrent 4,151 (4,151) -
Shareholders' equity:
Accumulated deficit (524,086) 5,220 (518,866) Adoption of the standards related to revenue
recognition had no impact to cash from or used in operating, investing, or financing activities on our condensed consolidated statements
of cash flows. |
