3.	REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company adopted ASC

606

January 1, 2018

using the modified retrospective method for all contracts

not

completed as of the date of adoption. The reported results for

2018

reflect the application of ASC

606

guidance while the reported results for

2017

were prepared under the guidance of ASC

605,

Revenue Recognition

(ASC

605

), which is also referred to herein as "legacy GAAP" or the "previous guidance". The adoption of ASC

606

represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company's services and will provide financial statement readers with enhanced disclosures. In accordance with ASC

606,

revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. To achieve this core principle, the Company applies the following

five

steps:

●

Identify the contract with a customer

●

Identify the performance obligations in the contract

●

Determine the transaction price

●

Allocate the transaction price to performance obligations in the contract

●

Recognize revenue when or as the Company satisfies a performance obligation

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the

three

month periods ended:

	North America		South America		EMEA*		Asia		September 30, 2018

License fees	$	116,985	$	2,000	$	91,666	$	-	$	210,651
Hardware		115,162		160		173,400		14,638		303,360
Support and Maintenance		196,969		-		22,650	-			219,619
Professional services		6,120		-		-		-		6,120
Total Revenues	$	435,236	$	2,160	$	287,716	$	14,638	$	739,750

	North America		South America		EMEA*		Asia		September 30, 2017

License fees	$	29,745	$	-	$	4,278	$	19,000	$	53,023
Hardware		344,179		-		7,662		160,440		512,281
Support and Maintenance		107,638		100		8,368		982		117,088
Professional services		260,025		-		-		-		260,025
Total Revenues	$	741,587	$	100	$	20,308	$	180,422	$	942,417

The following table summarizes revenue from contracts with customers for the

nine

month periods ended:

	North America		South America		EMEA*		Asia		September 30, 2018

License fees	$	247,105	$	32,000	$	188,516	$	-	$	467,621
Hardware		335,248		53,200		398,474		297,494		1,084,416
Support and Maintenance		600,487		16		43,866		16,970		661,339
Professional services		113,970		-		2,000		-		115,970
Total Revenues	$	1,296,810	$	85,216	$	632,856	$	314,464	$	2,329,346

	North America		South America		EMEA*		Asia		September 30, 2017

License fees	$	561,480	$	583	$	4,279	$	111,000	$	677,342
Hardware		1,066,001		2,341		8,252		661,936		1,738,530
Support and Maintenance		355,339		345		23,662		1,690		381,036
Professional services		445,325		-		-		5,400		450,725
Total Revenues	$	2,428,145	$	3,269	$	36,193	$	780,026	$	3,247,633

*EMEA – Europe, Middle East, Africa

All of the Company's performance obligations, and associated revenue, are generally transferred to customers at a point in time, with the exception of support and maintenance, and professional services, which are generally transferred to the customer over time.

Software licenses

Software license revenue consist of fees for perpetual software licenses for

one

or more of the Company’s biometric fingerprint solutions. Revenue is recognized at a point in time once the software is available to the customer for download. Software license contracts are generally invoiced in full on execution of the arrangement.

Hardware

Hardware revenue consists of fees for associated equipment sold with or without a software license arrangement, such as servers, locks and fingerprint readers. Customers are

not

obligated to buy

third

party hardware from the Company, and

may

procure these items from a number of suppliers. Revenue is recognized at a point in time once the hardware is shipped to the customer. Hardware items are generally invoiced in full on execution of the arrangement.

Support and Maintenance

Support and Maintenance revenue consists of fees for unspecified upgrades, telephone assistance and bug fixes. The Company satisfies its Support and Maintenance performance obligation by providing “stand-ready” assistance as required over the contract period. The Company records deferred revenue (contract liability) at time of invoice until the contracts term occurs. Revenue is recognized over time on a ratable basis over the contract term. Support and Maintenance contracts are up to

one

year in length and are generally invoiced either annually or quarterly in advance.

Professional Services

Professional services revenues consist primarily of fees for deployment and optimization services, as well as training. The majority of the Company’s consulting contracts are billed on a time and materials basis, and revenue is recognized based on the amount billable to the customer in accordance with practical expedient ASC

606

18.

For other professional services contracts, the Company utilizes an input method and recognizes revenue based on labor hours expended to date relative to the total labor hours expected to be required to satisfy its performance obligation.

Contracts with Multiple Performance Obligations

Some contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The standalone selling prices are determined based on overall pricing objectives, taking into consideration market conditions and other factors, including the value of the contracts, the cloud applications sold, customer demographics, geographic locations, and the number and types of users within the contracts.

The Company considered several factors in determining that control transfers to the customer upon shipment of hardware and availability of download of software. These factors include that legal title transfers to the customer, the Company has a present right to payment, and the customer has assumed the risks and rewards of ownership.

Accounts receivable from customers are typically due within

days of invoicing. The Company does

not

record a reserve for product returns or warranties as amounts are deemed immaterial based on historical experience.

Costs to Obtain and Fulfill a Contract

Costs to obtain and fulfill a contract are predominantly sales commissions earned by the sales force and are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized over a period of benefit determined to be

four

years. These costs are included as capitalized contract costs on the balance sheet. The period of benefit was determined by taking into consideration customer contracts, technology, and other factors based on historical evidence. Amortization expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

Financial Statement Impact of Adopting ASC

606

The Company adopted ASC

606

using the modified retrospective method. The cumulative effect of applying the new guidance to all contracts with customers that were

not

completed as of

January 1, 2018

was recorded as an adjustment to accumulated deficit as of the adoption date. The cost of obtaining the contract reflects the outcome of the sales effort in educating, demonstrating and selling our solutions. Accordingly under ASC

606,

commissions are a capitalized cost due to the acquisition of a new customer.

As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to the following select condensed consolidated balance sheet line items as of

January 1, 2018:

	As reported - December 31, 2017			Adjustments		As adjusted - January 1, 2018

Capitalized contract assets	$	-		$	240,017	$	240,017
Total assets	$	16,078,822		$	240,017	$	16,318,839

Accumulated deficit	$	(67,076,492	)	$	240,017	$	(66,836,475	)
Total Stockholders’ Equity	$	13,753,295		$	240,017	$	13,993,312
Total Liabilities and Stockholders’ Equity	$	16,078,822		$	240,017	$	16,318,839

Impact of New Revenue Guidance on Financial Statement Line Items

The following table compares selected reported condensed consolidated balance sheet, statement of operations and cash flows, as of and for the

three

and

nine

months ended

September 30, 2018,

to the pro-forma amounts had the previous guidance still been applied:

	As of September 30, 2018
	As reported		Pro- forma		Increase (decrease)

Consolidated balance sheet data:
Capitalized contract costs, net	$	333,068	$	-	$	(333,068	)

	Three Months Ended September 30, 2018									Nine Months Ended September 30, 2018
	As reported			Pro-forma			Increase (decrease)			As reported			Pro-forma			Increase (decrease)
Consolidated statement of operations data:
Selling, general and administrative expenses	$	1,049,270		$	1,040,716		$	(8,554	)	$	3,587,308		$	3,680,359		$	93,051
Net loss	$	(1,641,315	)	$	(1,632,761	)	$	8,554		$	(5,488,772	)	$	(5,581,823	)	$	(93,051	)
Net loss available to common stockholders	$	(3,070,281	)	$	(3,061,727	)	$	8,554		$	(7,115,771	)	$	(7,208,822	)	$	(93,051	)
Basic & Diluted Loss per Common Share		(0.23	)		(0.23	)		0.00			(0.66	)		(0.67	)		(0.01	)

	Nine Months Ended September 30, 2018
	As reported			Pro-forma			Increase (decrease)
Consolidated statement of cash flow data:
Net loss		(5,488,772	)		(5,581,823	)		(93,051	)
Change in contract assets		(93,051	)		-			93,051
Net cash used by operating activities		(917,835	)		(917,835	)		-

Revenue recognized during the

three

and

nine

months ended

September 30, 2018

from amounts included in deferred revenue at the beginning of the period was approximately

$89,000

and

$286,000

respectively. The Company did

not

recognize any revenue from performance obligations satisfied in prior periods. Total deferred revenue (contract liability) was

$255,738

and

$507,866

September 30, 2018

and

December 31, 2017,

respectively.

Transaction Price Allocated to the Remaining Performance Obligations

ASC

606

requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have

not

yet been satisfied as at

September 30, 2018.

The guidance provides certain practical expedients that limit this requirement, which the Company’s contracts meet as follows:

●

The performance obligation is part of a contract that has an original expected duration of

one

year or less, in accordance with ASC

606

14.

September 30, 2018

deferred revenue represents our remaining performance obligations related to support and maintenance, all of which is expected to be recognized within

one

year.