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2. Revenue | 6 Months Ended
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Jun. 30, 2020
Revenues [Abstract] |
Revenue | Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. The following is a description of principal activities – separated by reportable segments – from which the Company generates its revenue. For more detailed information about reportable segments, see Note 15. Cloud Telecommunications Segment Products and services may be sold separately or in bundled packages. The typical length of a contract for service is thirty-six to sixty months. Customers are billed for these services on a monthly basis. For bundled packages, the Company accounts for individual products and services separately if they are distinct – i.e. if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration (including any discounts) is allocated between separate products and services in a bundle based on their relative stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the desktop devices and telecommunication services. For items that are not sold separately (e.g. additional features) the Company estimates stand-alone selling prices using the adjusted market assessment approach. When we provide a free trial period, we do not begin to recognize recurring revenue until the trial period has ended and the customer has been billed for the services. Desktop Devices – Revenue generated from the sale of telecommunications equipment (desktop devices) is recognized when the customer takes possession of the devices and the cloud telecommunications services begin. The Company typically bills and collects the fees for the equipment upon entering into a contract with a customer. Cash receipts are recorded as a contract liability until implementation is complete and the services begin. Equipment Financing Revenue – Fees generated from renting our cloud telecommunication equipment (IP or cloud telephone desktop devices) through leasing contracts are recognized as revenue based on whether the lease qualifies as an operating lease or sales-type lease. The two primary accounting provisions which we use to classify transactions as sales-type or operating leases are: 1) lease term to determine if it is equal to or greater than 75% of the economic life of the equipment and 2) the present value of the minimum lease payments to determine if they are equal to or greater than 90% of the fair market value of the equipment at the inception of the lease. The economic life of most of our products is estimated to be three years, since this represents the most frequent contractual lease term for our products, and there is no residual value for used equipment. Residual values, if any, are established at the lease inception using estimates of fair value at the end of the lease term. The vast majority of our leases that qualify as sales-type leases are non-cancelable and include cancellation penalties approximately equal to the full value of the lease receivables. Leases that do not meet the criteria for sales-type lease accounting are accounted for as operating leases. Revenue from sales-type leases is recognized upon installation and the interest portion is deferred and recognized as earned. Revenue from operating leases in recognized ratably over the applicable service period. Cloud Telecommunications Services – Cloud telecommunication services include voice, data, collaboration software, broadband Internet access, and interest generated from equipment financing revenue. The Company recognizes revenue as services are provided in service revenue. Fees generated from reselling broadband Internet access are recognized as revenue net of the costs charged by the third-party service providers. Cloud telecommunications services are billed and paid on a monthly basis. Our telecommunications services contracts typically have a term of thirty-six to sixty months. Fees, Commissions, and Other, Recognized over Time – Includes contracted and non-contracted items such as:
● | Contracted activation and flash fees – The Company generally allocates a portion of the activation fees to the desktop devices, which is recognized at the time of the installation or customer acceptance, and a portion to the service, which is recognized over the contract term using the straight-line method.
● | Non-contracted carrier cost recovery fee – This fee recovers the various costs and expenses that the Company incurs in connection with complying with legal, regulatory, and other requirements, including without limitation federal, state, and local reporting and filing requirements. This fee is assessed as a set percentage of our monthly billing and is recognized monthly.
● | Non-contracted administrative fees – Administrative fees are recognized as revenue on a monthly basis.
One-Time Fees, Commissions, and Other – Includes contracted and non-contracted items such as:
● | Contracted professional service revenue – Professional service revenue includes professional installation services, custom integration, and other professional services. The Company typically bills and collects professional service revenue upon entering into a contract with a customer. Professional service revenue is recognized as revenue when the performance obligations are completed.
● | Non-contracted cancellation fees – These cancellation fees relate to remaining contractual term buyout payments in connection with early cancellation and are billed and recognized as revenue upon receipt.
● | Other non-contracted fees – These fees include disconnect fees, shipping fees, restocking fees, and porting fees. Other non-contracted fees are recognized as revenue upon receipt of payment.
Web Services Segment Website Hosting Service – Fees generated from hosting customer websites are recognized as revenue as the services are provided in service revenue. Website hosting services are billed and collected on a monthly basis. Professional Website Management Service and Other – Fees generated from reselling professional website management services are recognized as revenue net of the costs charged by the third-party service providers. Professional website management services are billed and paid on a monthly basis. Disaggregation of Revenue In the following table, revenue is disaggregated by primary major product line, and timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue with the reportable segments.
Three Months Ended June 30, 2020 |  |  |  |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |
|  | Cloud Telecommunications Segment |  |  | Web Services Segment |  |  | Total Reportable Segments |
Major products/services lines |  |  |  |  |  |  |  |  |
Desktop devices |  | $ | 449 |  |  | $ | - |  |  | $ | 449 |
Equipment financing revenue |  |  | 51 |  |  |  | - |  |  |  | 51 |
Telecommunications services |  |  | 3,114 |  |  |  | - |  |  |  | 3,114 |
Fees, commissions, and other, recognized over time |  |  | 250 |  |  |  | - |  |  |  | 250 |
One time fees, commissions and other |  |  | 54 |  |  |  | - |  |  |  | 54 |
Website hosting services |  |  | - |  |  |  | 122 |  |  |  | 122 |
Website management services and other |  |  | - |  |  |  | 14 |  |  |  | 14 |
|  | $ | 3,918 |  |  | $ | 136 |  |  | $ | 4,054 |
Timing of revenue recognition |  |  |  |  |  |  |  |  |  |  |  |
Products and fees recognized at a point in time |  | $ | 503 |  |  | $ | - |  |  | $ | 503 |
Services and fees transferred over time |  |  | 3,415 |  |  |  | 136 |  |  |  | 3,551 |
|  | $ | 3,918 |  |  | $ | 136 |  |  | $ | 4,054 |
Three Months Ended June 30, 2019 |  |  |  |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |
|  | Cloud Telecommunications Segment |  |  | Web Services Segment |  |  | Total Reportable Segments |
Major products/services lines |  |  |  |  |  |  |  |  |
Desktop devices |  | $ | 467 |  |  | $ | - |  |  | $ | 467 |
Equipment financing revenue |  |  | 27 |  |  |  | - |  |  |  | 27 |
Telecommunications services |  |  | 2,629 |  |  |  | - |  |  |  | 2,629 |
Fees, commissions, and other, recognized over time |  |  | 208 |  |  |  | - |  |  |  | 208 |
One time fees, commissions and other |  |  | 118 |  |  |  | - |  |  |  | 118 |
Website hosting services |  |  | - |  |  |  | 152 |  |  |  | 152 |
Website management services and other |  |  | - |  |  |  | 13 |  |  |  | 13 |
|  | $ | 3,449 |  |  | $ | 165 |  |  | $ | 3,614 |
Timing of revenue recognition |  |  |  |  |  |  |  |  |  |  |  |
Products and fees recognized at a point in time |  | $ | 585 |  |  | $ | - |  |  | $ | 585 |
Services and fees transferred over time |  |  | 2,864 |  |  |  | 165 |  |  |  | 3,029 |
|  | $ | 3,449 |  |  | $ | 165 |  |  | $ | 3,614 |
Six Months Ended June 30, 2020 |  |  |  |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |
|  | Cloud Telecommunications Segment |  |  | Web Services Segment |  |  | Total Reportable Segments |
Major products/services lines |  |  |  |  |  |  |  |  |
Desktop devices |  | $ | 828 |  |  | $ | - |  |  | $ | 828 |
Equipment financing revenue |  |  | 96 |  |  |  | - |  |  |  | 96 |
Telecommunications services |  |  | 6,139 |  |  |  | - |  |  |  | 6,139 |
Fees, commissions, and other, recognized over time |  |  | 483 |  |  |  | - |  |  |  | 483 |
One time fees, commissions and other |  |  | 83 |  |  |  | - |  |  |  | 83 |
Website hosting services |  |  | - |  |  |  | 255 |  |  |  | 255 |
Website management services and other |  |  | - |  |  |  | 37 |  |  |  | 37 |
|  | $ | 7,629 |  |  | $ | 292 |  |  | $ | 7,921 |
Timing of revenue recognition |  |  |  |  |  |  |  |  |  |  |  |
Products and fees recognized at a point in time |  | $ | 911 |  |  | $ | - |  |  | $ | 911 |
Services and fees transferred over time |  |  | 6,718 |  |  |  | 292 |  |  |  | 7,010 |
|  | $ | 7,629 |  |  | $ | 292 |  |  | $ | 7,921 |
Six Months Ended June 30, 2019 |  |  |  |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |
|  | Cloud Telecommunications Segment |  |  | Web Services Segment |  |  | Total Reportable Segments |
Major products/services lines |  |  |  |  |  |  |  |  |
Desktop devices |  | $ | 951 |  |  | $ | - |  |  | $ | 951 |
Equipment financing revenue |  |  | 49 |  |  |  | - |  |  |  | 49 |
Telecommunications services |  |  | 5,136 |  |  |  | - |  |  |  | 5,136 |
Fees, commissions, and other, recognized over time |  |  | 399 |  |  |  | - |  |  |  | 399 |
One time fees, commissions and other |  |  | 228 |  |  |  | - |  |  |  | 228 |
Website hosting services |  |  | - |  |  |  | 298 |  |  |  | 298 |
Website management services and other |  |  | - |  |  |  | 45 |  |  |  | 45 |
|  | $ | 6,763 |  |  | $ | 343 |  |  | $ | 7,106 |
Timing of revenue recognition |  |  |  |  |  |  |  |  |  |  |  |
Products and fees recognized at a point in time |  | $ | 1,179 |  |  | $ | - |  |  | $ | 1,179 |
Services and fees transferred over time |  |  | 5,584 |  |  |  | 343 |  |  |  | 5,927 |
|  | $ | 6,763 |  |  | $ | 343 |  |  | $ | 7,106 |
Contract balances The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers.
(In thousands) |  | June 30, 2020 |  |  | December 31, 2019 |
Receivables, which are included in trade receivables, net of allowance |  |  |  |  |  |
for doubtful accounts |  | $ | 569 |  |  | $ | 386 |
Contract assets |  |  | 46 |  |  |  | 22 |
Contract liabilities |  |  | 1,235 |  |  |  | 1,214 |
Significant changes in the contract assets and the contract liabilities balances during the period are as follows:
|  | Six Months Ended |  |  | For the Year Ended |
(In thousands) |  | June 30, 2020 |  |  | December 31, 2019 |
|  | Contract Assets |  |  | Contract Liabilities |  |  | Contract Assets |  |  | Contract Liabilities |
Revenue recognized that was included in the contract liability balance at the beginning of the period |  | $ | - |  |  | $ | (852 | ) |  | $ | - |  |  | $ | (882 | )
Increase due to cash received, excluding amounts recognized as revenue during the period |  |  | - |  |  |  | 831 |  |  |  | - |  |  |  | 1,033 |
Transferred to receivables from contract assets recognized at the beginning of the period |  |  | (7 | ) |  |  | - |  |  |  | (13 | ) |  |  | - |
Increase due to additional unamortized discounts |  |  | 31 |  |  |  | - |  |  |  | 23 |  |  |  | - |
Transaction price allocated to the remaining performance obligations The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period (in thousands):
|  | 2020 |  |  | 2021 |  |  | 2022 |  |  | 2023 |  |  | 2024 |  |  | 2025 |  |  | Total |
Desktop devices |  | $ | 257 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  | $ | 257 |
Telecommunications service |  | $ | 5,765 |  |  |  | 8,782 |  |  |  | 6,322 |  |  |  | 4,086 |  |  |  | 1,944 |  |  |  | 193 |  |  | $ | 27,092 |
All consideration from contracts with customers is included in the amounts presented above |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130551-203045 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 13 -Subparagraph (b)(2) -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130556-203045 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130550-203045 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (e) -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (d) -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130558-203045 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (c) -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045 + Details
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