Quarterly report pursuant to Section 13 or 15(d)

Note 2 - Revenue from Contracts with Customers

v3.22.2.2
Note 2 - Revenue from Contracts with Customers
6 Months Ended
Jun. 30, 2022
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]

Note 2.

Revenue from Contracts with Customers

 

Nature of Products and Services

 

We generate revenue from the sales of information technology professional services, sales of third-party software licenses and implementation and training services, sales of third-party support and maintenance contracts based on those software products, and incentive payments received from third-party software suppliers for facilitating sales directly between that supplier and a customer introduced by the Company. In addition, with the GMI acquisition, we expanded our offerings to include licensing and implementation services for proprietary blockchain-based SCM software. We sell through our direct relationships with end customers and under subcontractor arrangements.

 

Professional services are offered through several arrangements – through time and materials arrangements, fixed-price-per-unit arrangements, fixed-price arrangements, or combinations of these arrangements within individual contracts. Revenue under time and materials arrangements is recognized over time in the period the hours are worked or the expenses are incurred, as control of the benefits of the work is deemed to have passed to the customer as the work is performed. Revenue under fixed-price-per-unit arrangements is recognized at a point in time when delivery of units has occurred and units are accepted by the customer or are reasonably expected to be accepted. Generally, revenue under fixed-price arrangements and mixed arrangements is recognized either over time or at a point in time based on the allocation of transaction pricing to each identified performance obligation as control of each is transferred to the customer. For fixed-price arrangements under which documentary evidence of acceptance or receipt of deliverables is not present or withheld by the customer, the Company recognizes revenue when it has the right to invoice the customer. For fixed-price arrangements for which the Company is paid a fixed fee to make itself available to support a customer, with no predetermined deliverables to which transaction prices can be estimated or allocated, revenue is recognized ratably over time.

 

Third-party software licenses are classified as enterprise server-based software licenses or desktop software licenses, and desktop licenses are further classified by the type of customer and whether the licenses are bulk licenses or individual licenses. The Company’s obligations as the seller for each class differ based on its reseller agreements and whether its customers are government or non-government customers. Revenue from enterprise server-based sales to either government or non-government customers is usually recognized in full at a point in time based on when the customer gains use of the full benefit of the licenses, after the licenses are implemented. If the transaction prices of the performance obligations related to implementation and customer support for the individual contract is material, these obligations are recognized separately over time, as performed. Revenue for desktop software licenses for government customers is usually recognized on a gross basis at a point in time, based on when the customer’s administrative contact gains training in and beneficial use of the administrative portal. Revenue for bulk desktop software licenses for non-government customers is usually recognized on a gross basis at a point in time, based on when the customer’s administrative contact gains training in and beneficial use of the administrative portal. For desktop software licenses sold on an individual license basis to non-government customers, where the Company has no obligation to the customer after the third-party makes delivery of the licenses, the Company has determined it is acting as an agent, and the Company recognizes revenue upon delivery of the licenses only for the net of the selling price and its contract costs.

 

Third-party support and maintenance contracts for enterprise server-based software include a performance obligation under the Company’s reseller agreements for it to be the first line of support (direct support) and second line of support (intermediary between customer and manufacturer) to the customer. Because of the support performance obligations, and because the amount of support is not estimable, the Company recognizes revenue ratably over time as it makes itself available to provide the support.

 

Incentive payments are received under reseller agreements with software manufacturers and suppliers where the Company introduces and courts a customer, but the sale occurs directly between the customer and the supplier or between the customer and the manufacturer. Since the transfer of control of the licenses cannot be measured from outside of these transactions, revenue is recognized when payment from the manufacturer or supplier is received.

 

Disaggregation of Revenue from Contracts with Customers

 

   

Three months ended June 30,

 
   

2022

   

2021

 

Contract Type

 

Amount

   

Percentage

   

Amount

   

Percentage

 

Services time & materials

  $ 2,153,537       49.9 %   $ 2,847,962       60.2 %

Services fixed price over time

    51,154       1.2 %     416,751       8.8 %

Firm fixed price

    566,862       13.1 %     -       -  

Services combination

    21,080       0.5 %     49,401       1.1 %

Services fixed price per unit

    52,061       1.2 %     14,160       0.3 %

Third-party software

    1,423,770       33.0 %     1,317,514       27.8 %

Software support & maintenance

    48,918       1.1 %     85,336       1.8 %

Incentive payments

    -       0.0 %     837       0.0 %

Total revenue

  $ 4,317,382       100.0 %   $ 4,731,961       100.0 %

 

   

Six months ended June 30,

 
   

2022

   

2021

 

Contract Type

 

Amount

   

Percentage

   

Amount

   

Percentage

 

Services time & materials

  $ 4,066,533       55.6 %   $ 4,814,091       59.1 %

Services fixed price over time

    102,308       1.4 %     433,551       5.3 %

Firm fixed price

    566,862       7.8 %     -       -  

Services combination

    30,080       0.4 %     459,271       5.6 %

Services fixed price per unit

    145,601       2.0 %     60,620       0.7 %

Third-party software

    2,286,808       31.3 %     2,238,209       27.5 %

Software support & maintenance

    98,087       1.3 %     102,275       1.3 %

Incentive payments

    16,615       0.2 %     43,524       0.5 %

Total revenue

  $ 7,312,894       100.0 %   $ 8,151,541       100.0 %

 

 

Contract Balances

 

Accounts Receivable

 

Trade accounts receivable are recorded at the billable amount where the Company has the unconditional right to bill, net of allowances for doubtful accounts. The allowance for doubtful accounts is based on the Company’s assessment of the collectability of accounts. Management regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice, each customer's expected ability to pay and collection history, when applicable, to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectible are charged against the allowance for doubtful accounts when identified. There were no such allowances recognized as of June 30, 2022 and December 31, 2021.

 

Accounts receivable as of June 30, 2022 and December 31, 2021, consist of the following:

 

   

June 30, 2022

   

December 31, 2021

 

Billed federal government

  $ 3,560,883     $ 1,594,473  

Billed commercial

    22,253       -  

Unbilled receivables

    -       70,389  

Accounts receivable

  $ 3,583,136     $ 1,664,862  

 

Billed receivables from the federal government include amounts due from both prime contracts and subcontracts where the federal government is the end customer.

 

Contract Assets

 

Contract assets consist of assets resulting when revenue recognized exceeds the amount billed or billable to the customer due to allocation of transaction price, and of amounts withheld from payment of invoices as a financing component of a contract. There were no amounts recorded to contract assets as of June 30, 2022 or December 31, 2021. Changes in contract assets balances in the six months ended June 30, 2021, were as follows:

 

Balance as of December 31, 2020

  $ 210,688  

Contract assets added

    131,923  

Balance as of March 31, 2021

    342,611  

Contract assets added

    134,657  

Balance as of June 30, 2021

  $ 477,268  

 

Contract Liabilities

 

Contract liabilities consist of amounts that have been invoiced and for which the Company has the right to bill, but that have not been recognized as revenue because the related goods or services have not been transferred. Changes in contracts liabilities balances in the three months and six months ended June 30, 2022 and 2021, are as follows:

 

Balance as of December 31, 2021

  $ 186,835  

Contract liabilities added

    19,280  

Revenue recognized

    (56,423 )

Balance as of March 31, 2022

    149,692  

Contract liabilities added

    87,612  

Revenue recognized

    (71,461 )

Balance as of June 30, 2022

  $ 165,843  
         
         

Balance as of December 31, 2020

  $ 946,884  

Contract liabilities added

    93,934  

Revenue recognized

    (585,322 )

Balance as of March 31, 2021

    455,496  

Contract liabilities added

    4,815  

Revenue recognized

    (354,427 )

Balance as of June 30, 2021

  $ 105,884  

 

Revenues recognized during the three months ended June 30, 2022 and 2021, from the balances as of December 31, 2021 and 2020, were $55,168 and $352,969, respectively. Revenues recognized during the six months ended June 30, 2022 and 2021, from the balances as of December 31, 2021 and 2020, were $111,591 and $845,463, respectively.

 

Costs to Obtain or Fulfill a Contract

 

When applicable, the Company recognizes an asset related to the costs incurred to obtain a contract only if it expects to recover those costs and it would not have incurred those costs if the contract had not been obtained. The Company recognizes an asset from the costs incurred to fulfill a contract if the costs (i) are specifically identifiable to a contract, (ii) enhance resources that will be used in satisfying performance obligations in future and (iii) are expected to be recovered. There were no such assets as of June 30, 2022 and December 31, 2021. When incurred, these costs are amortized ratably over the periods of the contracts to which those costs apply.

 

Deferred Costs of Revenue

 

Deferred costs of revenue consist of the costs of third-party support and maintenance contracts for enterprise server-based software. These costs are reported under the prepaid expenses and other current assets caption on the Company’s condensed consolidated balance sheets. The Company recognizes these direct costs ratably over time as it makes itself available to provide its performance obligation for software support, commensurate with its recognition of revenue. Changes in deferred costs of revenue balances in the three and six months ended June 30, 2022 and 2021, are as follows:

 

Balance as of December 31, 2021

  $ 154,218  

Deferred costs added

    2,800  

Deferred costs expensed

    (55,362 )

Balance as of March 31, 2022

    101,656  

Deferred costs expensed

    (53,434 )

Balance as of June 30, 2022

  $ 48,222  
         

Balance as of December 31, 2020

  $ 89,068  

Deferred costs added

    17,406  

Deferred costs expensed

    (75,223 )

Balance as of March 31, 2021

    31,251  

Deferred costs added

    11,188  

Deferred costs expensed

    (16,681 )

Balance as of June 30, 2021

  $ 25,758