Quarterly report pursuant to Section 13 or 15(d)

CONTRACT ACCOUNTING

v3.19.3
CONTRACT ACCOUNTING
9 Months Ended
Sep. 30, 2019
Revenue from Contract with Customer [Abstract]  
CONTRACT ACCOUNTING

NOTE 9 – CONTRACT ACCOUNTING


Contract Assets


Contract assets on uncompleted contracts represents costs and estimated earnings in excess of billings and/or cash received on uncompleted contracts accounted for under the input method, which recognizes revenue only to the extent of the cost incurred.

 

At September 30, 2019 and December 31, 2018, contract assets on uncompleted contracts consisted of the following:


 

 

September 30,

2019

 

 

December 31. 2018

 

Costs and estimated earnings recognized

 

$

15,063,602

 

 

$

4,273,057

 

Less: Billings or cash received

 

 

(13,477,464

)

 

 

(3,064,453

)

Contract assets

 

$

1,586,138

 

 

$

1,208,604

 


Contract Liabilities


Contract liabilities on uncompleted contracts represents billings and/or cash received that exceed accumulated revenues recognized on uncompleted contracts accounted for under the input method, which recognizes revenue only to the extent of the cost incurred.


At September 30, 2019 and December 31, 2018, contract liabilities on uncompleted contracts consisted of the following:


 

 

September 30,

2019

 

 

December 31. 2018

 

Billings and/or cash receipts on uncompleted contracts

 

$

2,665,570

 

 

$

8,563,241

 

Less: Costs and estimated earnings recognized

 

 

(1,557,828

)

 

 

(6,314,412

)

Contract liabilities

 

$

1,107,742

 

 

$

2,248,829

 


A contract is considered complete when all costs except insignificant items have been incurred and the installation is operating according to specifications or has been accepted by the customer.


The Company has contracts in various stages of completion. Such contracts require estimates to determine the appropriate cost and revenue recognition. Costs estimates are reviewed periodically on a contract-by-contract basis throughout the life of the contract such that adjustments to the profit resulting from revisions are made cumulative to the date of the revision. Significant management judgments and estimates, including the estimated costs to complete projects, must be made and used in connection with the revenue recognized in the accounting period. Current estimates may be revised as additional information becomes available.


Maintenance and Technical Support


Maintenance and technical support services are provided on both an as-needed and extended-term basis and may include providing both parts and labor. Maintenance and technical support provided outside of a maintenance contract are on an as-requested basis, and revenue is recognized as the services are provided. Revenue for maintenance and technical support provided on an extended-term basis is recognized ratably over the term of the contract.


For sales arrangements that do not involve multiple elements such as professional services, which are of short-term duration, revenues are recognized when services are completed.


IT Asset Management Services (“ITAM”)


The Company’s ITAM business generates revenues under contract with customers from three sources: (1) Professional Services (consulting and auditing); (2) Software licensing with optional hardware sales; and (3) Customer Service (training and maintenance support).


For sales arrangements that do not involve performance obligations: 


(1)

Revenues for professional services, which are of short-term duration, are recognized when services are completed;

(2)

For all periods reflected in this report, software license sales have been one-time sales of a perpetual license to use our software product and the customer also has the option to purchase third party manufactured handheld devices from us if they purchase our software license. Accordingly, the revenue is recognized upon delivery of the software and delivery of the hardware, as applicable, to the customer;

(3)

Training sales are one-time upfront short-term training sessions and are recognized after the service has been performed; and

(4)

Maintenance/support is an optional product sold to our software license customers under one-year contracts. Accordingly, maintenance payments received upfront are deferred and recognized over the contract term.


Multiple Elements


Arrangements with customers may involve multiple elements including project revenue and maintenance services in our Intelligent Technology Systems business. Maintenance will occur after the project is completed and may be provided on an extended-term basis or on an as-needed basis. In our ITAM business, multiple elements may include any of the above four sources. Training and maintenance on software products may occur after the software product sale while other services may occur before or after the software product sale and may not relate to the software product. Revenue recognition for multiple element arrangement is as follows:


Each element is accounted for separately when each element has value to the customer on a standalone basis and there is Company specific objective evidence of selling price of each deliverable. For revenue arrangements with multiple deliverables, the Company allocates the total customer arrangement to the separate units of accounting based on their relative selling prices as determined by the price of the items when sold separately. Once the selling price is allocated, the revenue for each element is recognized using the applicable criteria under GAAP as discussed above for elements sold in non-multiple element arrangements. A delivered item or items that do not qualify as a separate unit of accounting within the arrangement are combined with the other applicable undelivered items within the arrangement. The allocation of arrangement consideration and the recognition of revenue is then determined for those combined deliverables as a single unit of accounting. The Company sells its various services and software and hardware products at established prices on a standalone basis which provides Company specific objective evidence of selling price for purposes of multiple element relative selling price allocation. The Company only sells maintenance services or spare parts based on its established rates after it has completed a system integration project for a customer. The customer is not required to purchase maintenance services. All elements in multiple element arrangements with Company customers qualify as separate units of account for revenue recognition purposes. 

 

Deferred Revenue


Deferred revenues represent billings or cash received in excess of revenue recognizable on service agreements that are not accounted for under the percentage of completion method.


Disaggregation of Revenue


The Company is following the guidance of ASC 606-10-55-296 and 297 for disaggregation of revenue. Accordingly, revenue has been disaggregated according to the nature, amount, timing and uncertainty of revenue and cash flows. We are providing qualitative and quantitative disclosures.


Qualitative:


1.

We have three distinct revenue sources:

a.

Turnkey, engineered projects;

b.

Associated maintenance and support services; and

c.

Licensing and professional services related to auditing of data center assets.

2.

We currently operate in North America including the USA, Mexico and Canada.

3.

Our customers include rail transportation, commercial, petrochemical, government, banking and IT suppliers.

4.

Our contracts are fixed price and fall into two duration types:

a.

Turnkey engineered projects and professional service contracts that are less than 1 year in duration and are typically three to nine months in length; and

b.

Maintenance and support contracts ranging from one to five years in length.

5.

Transfer of goods and services are over time.


Quantitative:  

For the Nine Months Ended September 30, 2019


Segments

 

Rail

 

 

Commercial

 

 

Petrochemical

 

 

Government

 

 

Banking

 

 

IT Suppliers

 

 

Total

 

Primary Geographical Markets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

6,039,521

 

 

$

317,222

 

 

$

76,586

 

 

$

147,011

 

 

$

1,075,274

 

 

$

240,673

 

 

$

7,896,287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Major Goods and Service Lines

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turnkey Projects

 

$

5,433,356

 

 

$

315,025

 

 

$

53,169

 

 

$

86,348

 

 

$

1,066,164

 

 

$

—

 

 

$

6,954,062

 

Maintenance & Support

 

 

606,165

 

 

 

2,197

 

 

 

23,417

 

 

 

60,663

 

 

 

9,110

 

 

 

—

 

 

 

701,552

 

Data Center Auditing Services

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

198,838

 

 

 

198,838

 

Software License

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

41,835

 

 

 

41,835

 

 

 

$

6,039,521

 

 

$

317,222

 

 

$

76,586

 

 

$

147,011

 

 

$

1,075,274

 

 

$

240,673

 

 

$

7,896,287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Timing of Revenue Recognition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goods transferred over time

 

$

5,433,356

 

 

$

315,025

 

 

$

53,169

 

 

$

86,348

 

 

$

1,066,164

 

 

$

240,673

 

 

$

7,194,735

 

Services transferred over time

 

 

606,165

 

 

 

2,197

 

 

 

23,417

 

 

 

60,663

 

 

 

9,110

 

 

 

—

 

 

 

701,552

 

 

 

$

6,039,521

 

 

$

317,222

 

 

$

76,586

 

 

$

147,011

 

 

$

1,075,274

 

 

$

240,673

 

 

$

7,896,287