Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition and Contracts with Customers

v3.10.0.1
Revenue Recognition and Contracts with Customers
9 Months Ended
Sep. 30, 2018
Revenue from Contract with Customer [Abstract]  
Revenue Recognition and Contracts with Customers
Note 2 – Revenue Recognition and Contracts with Customers
 
Adoption
 
On January 1, 2018, the Company adopted the new guidance on Revenue from Contracts with Customers under Topic 606 using the modified retrospective transition method. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting treatment under Topic 605. We recorded a net decrease to opening accumulated deficit of $81,724, as of January 1, 2018 due to the cumulative impact of adopting Topic 606, with the impact primarily related to our post contract support (PCS deferred revenue). Refer to the following table for the detailed effect to our consolidated balance sheet upon adoption:
 
 
 
Balance at
December 31,
2017
 
 
New Revenue
Standard
Adjustment
 
 
Balance at
January 1,
2018
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Unearned Revenue
 
$
81,724
 
 
$
(81,724
)
 
$
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Deficit
 
$
(96,472,452
)
 
$
81,724
 
 
$
(96,390,728
)
 
Under the modified retrospective method of adoption, we are required to disclose the impact to revenues had we continued to follow our accounting policies under the previous revenue recognition guidance. We estimate that the impact to revenues for the nine months ended September 30, 2018, primarily due to deferrals of PCS amounts for product shipped offset by the amortization of the unearned revenue related to our prior PCS deferred revenue under Topic 605, would have been immaterial.
 
Disaggregated Revenue
 
The Company’s total revenue was comprised of four major product lines: Smart Glasses and iWear Video Headphones sales, OEM product sales, Waveguide sales, and Engineering services. The following table summarizes the revenue recognized by major product line:
 
 
 
Three Months Ended
September 30,
 
 
Nine Months Ended
 September 30,
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Smart Glasses and iWear Video Headphones Sales
 
$
1,839,250
 
 
$
1,093,413
 
 
$
4,959,496
 
 
$
2,841,439
 
OEM Product Sales
 
 
 
 
 
 
 
 
766,065
 
 
 
 
Waveguide Sales
 
 
3,250
 
 
 
45,000
 
 
 
127,900
 
 
 
161,305
 
Engineering Services
 
 
80,900
 
 
 
266,687
 
 
 
261,416
 
 
 
938,281
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Revenue
 
$
1,923,400
 
 
$
1,405,100
 
 
$
6,114,877
 
 
$
3,941,025
 
 
Significant Judgments
 
In applying the new guidance under Topic
606
, we performed an assessment of judgments used that could potentially impact both the timing of our satisfaction of performance obligations and our determination of transaction prices used in determining revenue recognized by major product line. Judgments made include considerations in determining our transaction prices for our standard product sales that include an end-user
30
-day right to return if not satisfied with product and include payment terms that are between Net
30
and
60
days. For our Engineering Services, performance obligations are recognized over time using the input method and the estimated costs to complete each project are considered significant judgments. For the nine months ended
September 30, 2018
and the year ended
December 31, 2017
, the significant judgments previously mentioned did not have a material effect on the timing or the amount of revenue recognized under the new guidance.
 
Performance Obligations
 
Revenues from our performance obligations satisfied at a point in time are typically for standard goods (Smart Glasses, iWear Video Headphones and Waveguides) and our OEM Products, which are recognized when the customer obtains control, which is generally upon shipment. The Company also records revenue for performance obligations relating to our Engineering Services over time by using the input method measuring progress toward satisfying the performance obligations. Satisfaction of our performance obligations related to our Engineering Services are measured by the Company’s cost incurred as a percentage of total expected costs to project completion as the inputs of actual costs incurred by the Company are directly correlated with progress of completing the contract. As such, the Company believes that our methodologies for recognizing revenue over time for our Engineering Services correlate directly with the transfer of control of the underlying assets to our 
customers.
 
Our standard product sales include a twelve (12)
month assurance-type product warranty, except in certain European countries where it is two years for some consumer focused products. In the case of our OEM product and waveguide sales, some include a standard product warranty of up to
eighteen (18) months. Our engineering services contracts vary from contract to contract but typically include payment terms of net 30 days from date of billing, subject to an agreed upon customer acceptance period.
 
The following table presents a summary of the Company’s net sales by revenue recognition method as a percentage of total net sales for the nine months ended September 30, 2018:
 
 
 
% of Total Net Sales
 
Point-in-Time
 
 
96
%
Over Time - Input Method
 
 
4
%
Total
 
 
100
%
 
Remaining Performance Obligations
 
As of September 30, 2018, the Company had $228,000 of remaining performance obligations under our OEM product purchase agreement, which represents the transaction price of firm orders less inception to date sales recognized. The Company expects to recognize sales relating to this existing performance obligation of $228,000 during the remainder of 2018.
 
As of September 30, 2018, the Company had $141,000 of remaining performance obligations under a current waveguide development agreement, which represents the transaction price of the agreement less inception to date revenue recognized. The Company expects to recognize revenue relating to this existing performance obligation of $141,000 during the fourth quarter of 2018.