• Filing Date: 2019-07-11
  • Form Type: 10-K
  • Description: Annual report
v3.19.2
Revenue Recognition under ASC 606
12 Months Ended
Apr. 30, 2019
Revenue Recognition under ASC 606 [Text Block]
Note 3 Revenue Recognition under ASC 606
   
 
On May 1, 2018, the Company adopted the new accounting standard, ASC 606 “Revenue from Contracts with Customers” and all related amendments to the new accounting standard to contracts using the modified retrospective method. The Company recognized the cumulative effect of initially applying the new revenue recognition standard to contracts with open performance obligations as of May 1, 2018, as an adjustment to the opening balance of retained earnings. Results of the reporting period beginning May 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historic accounting under ASC 605.
   
 
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 the allocation of the transaction price 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 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 year ended April 30, 2019, the Company recognized $2,364,378 in revenue 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 year ended April 30, 2019, the Company capitalized approximately $607,166 of costs to obtain revenue contracts of which $134,033 was recorded as an adjustment to opening retained earnings at the adoption of ASC 606 and amortized approximately $272,785 of commissions to sales and marketing expense. Capitalized costs to obtain a revenue contract on the Company's condensed consolidated balance sheets totaled approximately $200,348 at April 30, 2019.

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.

Transaction Price Allocated to the Remaining Performance Obligations

The Company expects to recognize approximately $2,966,102 and $156,528 in revenue during the years ended April 30, 2020 and April 30, 2021 respectively, under its customer contracts relating to fixed consideration associated with remaining performance obligations.

Adoption Impact of ASC 606

The Company recognized the cumulative effect of initially applying ASC 606 as an adjustment to retained earnings in the 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 consolidated financial statements for the year ended April 30, 2019.

Selected Consolidated Income Statement Line Items:

      Year ended April 30, 2019  
            ASC 606     (As Reported)  
      ASC 605     Adjustments     ASC 606  
  Revenue:                  
  Software $  4,696,266   $  (35,606 ) $  4,660,660  
  Subscription, support and maintenance   5,371,408     (5,118 )   5,366,290  
  Professional services and other   690,274     47,680     737,954  
  Total revenue $  10,757,948   $  6,956   $  10,764,904  
                     
  Operating expenses:                  


  Sales and marketing $  4,128,113   $  (66,192 ) $  4,061,921  
  Loss from operations $  (5,239,909 ) $  73,148   $  (5,166,761 )
                     
  Net loss per share:                  
  Basic and diluted $  (0.85 ) $  0.01   $  (0.84 )

Selected Consolidated Balance Line Items:

      April 30, 2019  
            ASC 606     (As Reported)  
      ASC 605     Adjustments     ASC 606  
  Current assets:                  
  Deferred sales commissions costs $  –   $  122,777   $  122,777  
  Current liabilities:                  
  Unearned revenue $  2,600,682   $  (6,956 ) $  2,593,726  
  Non-current assets:                  
  Deferred sales commissions costs $  –   $  77,571   $  77,571  
  Stockholders’ equity:                  
  Accumulated deficit $  (68,774,483 ) $  193,392   $  (68,581,091 )

Selected Consolidated Statement of Cash Flows Line Items:

      Year ended April 30, 2019  
            ASC 606     (As Reported)  
      ASC 605     Adjustments     ASC 606  
  Net loss $  (5,086,587 ) $  73,148   $  (5,013,439 )
  Deferred sales commissions costs $  –   $  (61,705 ) $  (61,705 )
  Unearned revenue $  34,806   $  (6,956 ) $  27,850  
  Net cash provided by operating activities $  (3,447,866 ) $  4,487   $  (3,443,379 )

Disaggregation of Revenue

The Company disaggregates its revenue by geographic region. See Note 13 – Segmented Information for more information.