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Note 8 - Revenue, Deferred Revenue and Accounts Receivable | 6 Months Ended
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May 31, 2022
Notes to Financial Statements |
Revenue, Deferred Revenue and Accounts Receivable [Text Block] |
8. | REVENUE, DEFERRED REVENUE AND ACCOUNTS RECEIVABLE
The Company generates revenue through the wholesale distribution of its products and accessories to dealers/distributors, and retail sales to large end-users such as security companies and law enforcement agencies, and through e-commerce portals to consumers. Revenue is recognized upon transfer of control of goods to the customer, which generally occurs when title to goods is passed and risk of loss transfers to the customer. Depending on the contract terms, transfer of control is upon shipment of goods to or upon the customer’s pick-up of the goods. Payment terms to customers other than e-commerce customers are generally 30-60 days for established customers, whereas new wholesale and large end-user customers have prepaid terms for their first order. The amount of revenue recognized is net of returns and discounts that the Company offers to its customers. Products purchased include a standard warranty that cannot be purchased separately. This allows customers to return defective products for repair or replacement within one year of sale. The Company also sells an extended warranty for the same terms over three years. The extended 3-year warranty can be purchased separately from the product and therefore, must be classified as a service warranty. Since a warranty for the first year after sale is included and non-separable from all launcher purchases, the Company considers this extended warranty to represent a service obligation during the second and third years after sale. Therefore, the Company accumulates billings of these transactions on the balance sheet as deferred revenue, to be recognized on a straight-line basis during the second and third year after sale. The Company recognizes an estimated reserve based on its analysis of historical experience, and an evaluation of current market conditions. The Company also has a 14-day money back guarantee, which allows for a full refund of the purchase price, excluding shipping charges, within 14 days from the date of delivery. The right of return creates a variable component to the transaction price and needs to be considered for any possible constraints. The Company estimates returns using the expected value method, as there will likely be a range of potential return amounts. The Company’s returns under the 14-day money back guarantee for the three and six months ended May 31, 2022 and 2021 were immaterial. The Company sells to dealers and retailers for whom there is no money back guarantee but who may request a return or credit for unforeseen reasons or who may have agreed discounts or allowances to be netted from amounts invoiced. The company reserves for returns, discounts and allowances based on past performance and on agreement terms and reports revenue net of the estimated reserve. The Company's reserve for returns, discounts, and allowances three and six months ended May 31, 2022 and 2021 were immaterial. The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. Shipping and handling costs associated with the distribution of finished products to customers, are recorded in operating expenses in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss and are recognized when the product is shipped to the customer. Included as cost of goods sold are costs associated with the production and procurement of products, such as labor and overhead, inbound freight costs, manufacturing depreciation, purchasing and receiving costs, and inspection costs. Allowance for Doubtful Accounts The Company provides an allowance for its accounts receivable for estimated losses that may result from its customers’ inability to pay. The Company determines the amount of the allowance by analyzing known uncollectible accounts, aged receivables, economic conditions, historical losses, and changes in customer payment cycles and its customers’ creditworthiness. Amounts later determined and specifically identified to be uncollectible are charged or written off against this allowance. To minimize the likelihood of uncollectible debt, the Company reviews its customers’ creditworthiness periodically. Material differences may result in the amount and timing of expense for any period if the Company were to make different judgments or utilize different estimates. The allowance for doubtful accounts was approximately $0.01 million as of May 31, 2022, November 30, 2021, and December 1, 2020. Deferred Revenue Changes in deferred revenue, which relate to unfulfilled e-commerce orders and amounts to be recognized under extended 3-year service warranties, for the six months ended May 31, 2022 and the year ended November 30, 2021, are summarized below (in thousands):
|  | May 31, |  |  | November 30, |
|  | 2022 |  |  | 2021 |
Deferred revenue balance, beginning of period |  | $ | 1,125 |  |  | $ | 4,902 |
Net additions to deferred revenue during the period |  |  | 13,095 |  |  |  | 33,641 |
Reductions in deferred revenue for revenue recognized during the period |  |  | (13,453 | ) |  |  | (37,418 | )
Deferred revenue balance, end of period |  |  | 767 |  |  |  | 1,125 |
Less current portion |  |  | 357 |  |  |  | 720 |
Deferred revenue, non-current |  | $ | 410 |  |  | $ | 405 |
Revenue Disaggregation The following table presents disaggregation of the Company’s revenue by distribution channel (in thousands):
|  | Three Months Ended |  |  | Six Months Ended |
|  | May 31, |  |  | May 31, |
Distribution channel |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Wholesale (dealer/distributors) |  | $ | 4,679 |  |  | $ | 2,107 |  |  | $ | 6,434 |  |  | $ | 3,776 |
E-commerce |  |  | 6,940 |  |  |  | 11,294 |  |  |  | 13,162 |  |  |  | 18,518 |
Total |  | $ | 11,619 |  |  | $ | 13,401 |  |  | $ | 19,596 |  |  | $ | 22,294 |

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