Quarterly report pursuant to Section 13 or 15(d)

Note 2 - Revenue from Contracts with Customers

v3.19.3
Note 2 - Revenue from Contracts with Customers
9 Months Ended
Sep. 30, 2019
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]
2.
Revenue from Contracts with Customers
 
Revenue is recognized when all of the following steps have been taken and criteria met for each contract:
 
 
Identification of the contract, or contracts, with a customer
-
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and the parties are committed to perform and, (iii) it determines that collection of substantially all consideration to which the Company will be entitled in exchange for goods or services that will be transferred is probable based on the customer’s intent and ability to pay the promised consideration.
 
 
Identification of the performance obligations in the contract
-
Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from
third
parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, the Company applies judgment to determine whether promised goods or services are capable of being distinct and distinct in the context of the contract. If these criteria are
not
met, the promised goods or services are accounted for as a combined performance obligation.
 
 
Determination of the transaction price
-
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer adjusted for estimated variable consideration, if any. The Company typically estimates the transaction price impact of discounts offered to the customers for early payments on receivables or rebates based on sales target achievements. Constraints are applied when estimating variable considerations based on historical experience where applicable.
 
 
Allocation of the transaction price to the performance obligations in the contract
-
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis. The Company determines standalone selling price by taking into account available information such as historical selling prices of the performance obligation, geographic location, overall strategic pricing objective, market conditions and internally approved pricing guidelines related to the performance obligations.
 
 
Recognition of revenue when, or as,
the Company
satisf
ies
performance obligations
-
The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at or over the time the related performance obligation is satisfied by transferring a promised good or service to a customer.
 
Nature of
P
roducts and
S
ervices
 
The Company generates 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. The Company sells through its direct relationships with end customers and under subcontractor arrangements. The Company accounts for its performance obligations in accordance with ASC
606,
and all related interpretations.
 
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 have 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 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 in full at a point in time, based on when the customer’s administrative contact gains training in and beneficial use of the administrative portal. If the transaction prices of the performance obligations related to implementing the government administrator’s use of the administrative portal and administrator support for the individual contract are material (rare), these obligations are recognized separately over time, as performed. Revenue for bulk desktop software licenses for non-government customers is usually recognized in full 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 court 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
 
Contract
 
3 Months ended 09/30/2019
   
3 Months ended 09/30/2018
 
Type
 
Amount
   
Percentage
   
Amount
   
Percentage
 
                                 
Services Time & Materials
  $
643,047
     
20.2
%   $
694,524
     
28.7
%
                                 
Services Fixed Price
   
96,255
     
3.0
%    
328,214
     
13.6
%
                                 
Services Combination
   
113,220
     
3.6
%    
52,440
     
2.2
%
                                 
Services Fixed Price per Unit
   
36,140
     
1.1
%    
36,180
     
1.5
%
                                 
Third-Party Software
   
2,138,815
     
67.2
%    
1,086,780
     
44.9
%
                                 
Software Support & Maintenance
   
149,570
     
4.7
%    
212,843
     
8.8
%
                                 
Incentive Payments
   
5,550
     
0.2
%    
7,696
     
0.3
%
                                 
Total Revenue
  $
3,182,597
     
 
    $
2,418,677
     
 
 
 
Contract
 
9 Months ended 09/30/2019
   
9 Months ended 09/30/2018
 
Type
 
Amount
   
Percentage
   
Amount
   
Percentage
 
                                 
Services Time & Materials
  $
1,817,577
     
22.5
%   $
2,223,912
     
29.6
%
                                 
Services Fixed Price
   
310,654
     
3.9
%    
984,643
     
13.1
%
                                 
Services Combination
   
185,867
     
2.3
%    
174,348
     
2.3
%
                                 
Services Fixed Price per Unit
   
98,311
     
1.2
%    
46,250
     
0.6
%
                                 
Third-Party Software
   
5,195,547
     
64.4
%    
3,636,083
     
48.3
%
                                 
Software Support & Maintenance
   
448,357
     
5.6
%    
440,686
     
5.9
%
                                 
Incentive Payments
   
9,524
     
0.1
%    
15,050
     
0.2
%
                                 
Total Revenue
  $
8,065,837
     
 
    $
7,520,972
     
 
 
 
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.
 
Contract Assets
 
 
Contract assets consist of assets typically resulting when revenue recognized exceeds the amount billed or billable to the customer due to allocation of transaction price. There were contract assets balances of
$498,681
at
September 30, 2019,
and
no
contract assets balance at
December 31, 2018.
 
Contract Liabilities
 
Contract liabilities, to which the Company formerly referred as deferred revenue, 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. Contract liabilities balances were
$486,362
and
$318,552
at
September 30, 2019,
and
December 31, 2018,
respectively. For the
three
months and
nine
months ended
September 30, 2019,
revenue was recognized from previous contract liabilities balances in the amounts of
$63,366
and
$318,552,
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 the future, and (iii) are expected to be recovered. There were
$0
and
$3,480
of such assets at
September 30, 2019,
and
December 31, 2018,
respectively. These costs are amortized ratably over the periods of the contracts to which those costs apply.
 
Financing Components
 
In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts do
not
include a significant financing component. The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing its products and services,
not
to receive financing from its customers or to provide customers with financing. Examples include invoicing at the beginning of a software support and maintenance term with revenue recognized ratably over the contract period.
 
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 caption on the Company’s 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. Deferred costs of revenue balances included in prepaid expenses were
$532,791
and
$294,115
at
September 30, 2019,
and
December 31, 2018,
respectively.