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Note 8 - Resalable Software License Rights | 9 Months Ended
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Sep. 30, 2019
Notes to Financial Statements |
Research, Development, and Computer Software Disclosure [Text Block] |
8. | RESALABLE SOFTWARE LICENSE RIGHTS
On November 11, 2015, the Company entered into a license agreement for the rights to all software and documentation regarding the technology currently known as or offered under the FingerQ name. The license agreement grants the Company the exclusive right to reproduce, create derivative works and distribute copies of the FingerQ software and documentation, create new FingerQ related products, and grant sub-licenses of the licensed technology to end users. The license rights have been granted to the Company in perpetuity, with a stated number of end-user resale sub-licenses allowed under the contract for a total of $12,000,000. The cost of sub-license rights expected to be amortized in the following 12 months is $1,125,000 and is classified as current, with remainder as non-current. The Company originally determined the software license rights to be a finite lived intangible asset, and estimated that the software license rights shall be economically used over a 10 year period, with a weighting towards the beginning years of that time-frame. The license rights were acquired during the fourth quarter of 2015, but the usage of such rights in the Company’s products was not generally available until January 2017. Accordingly, amortization began in the first quarter of 2017. Through 2018, the remaining license rights were amortized over the greater of the following amounts: 1 ) an estimate of the economic use of such license rights, 2 ) the amount calculated by the straight line method over ten years or 3 ) the actual cost basis of sales usage of such rights. The Company believes that the economic use model was front-end focused as a majority of the expected up-take of the FingerQ technology was predicted to occur during the first 4 - 5 years of the 10 -year life cycle of the product. Based on current sales trends, the Company now believes future transactions will be more evenly dispersed over the remaining life cycle of the product, indicating that the greater of the straight-line methodology or actual unit cost per license sold will more closely align the expense with the remaining useful life of the product. The change in amortization was effective beginning on January 1, 2019 based on the net remaining software license rights balance. The Company believes categorizing the amortization expense under Cost of Sales more closely reflects the nature of the license right arrangement and the use of the technology. A total of $281,250 and $660,000 was charged to cost of sales during the three -month periods ended September 30, 2019 and 2018, respectively, and of this amount $113 and $210, represent the cost basis of the actual sales, respectively. A total of $843,750 and $1,980,000 was charged to cost of sales during the nine -month periods ended September 30, 2019 and 2018, respectively and of this amount $463 and $1,651 represent the cost basis of the actual sales, respectively. Since the license purchase, a cumulative amount of $5,042,346 has been charged to cost of sales, with a carrying balance of $6,957,654 as of September 30, 2019. The Company's change in methodology was determined to be a change in accounting estimate that is effected by a change in accounting principle. Pursuant to ASC 250 - 10 - 45 - 17 guidance, this accounting change will not be accounted for as a cumulative effect adjustment on the statement of operations in the period of change and there will be no retroactive application or restatement of prior periods. Instead, the Company allocates the remaining unamortized balance over the remaining life of the assets using the newly adopted method. The following compares line items on the statement of operations had the change in amortization methodology not been made:
|  | As reported |  |  | Prior methodology |  |  | As reported |  |  | Prior methodology |
|  | 3 months ended |  |  | 3 months ended |  |  | 9 months ended |  |  | 9 months ended |
|  | September 30, 2019 |  |  | September 30, 2019 |  |  | September 30, 2019 |  |  | September 30, 2019 |
Amortization of software license rights |  | $ | 281,137 |  |  | $ | 749,887 |  |  | $ | 843,287 |  |  | $ | 2,249,537 |
Total operating expenses |  | $ | 1,215,197 |  |  | $ | 1,683,947 |  |  | $ | 4,326,236 |  |  | $ | 5,732,486 |
Operating loss |  | $ | (1,271,136 | ) |  | $ | (1,739,886 | ) |  | $ | (4,385,645 | ) |  | $ | (5,791,895 | )
Net loss |  | $ | (1,829,567 | ) |  | $ | (2,298,317 | ) |  | $ | (5,058,818 | ) |  | $ | (6,465,068 | )
Basic & diluted loss per share |  | $ | (0.13 | ) |  | $ | (0.16 | ) |  | $ | (0.36 | ) |  | $ | (0.46 | )
On December 31, 2015, the Company purchased third -party software licenses in the amount of $180,000 in anticipation of a large pending deployment that has yet to materialize. The Company is amortizing the total cost over the same methodology described above with the greatest of the two approaches being the actual unit cost per license sold. A total of $5,701 and $8,358 was expensed during the three month periods ended September 30, 2019 and 2018, respectively. A total of $40,394 and $16,460 (net of credits of $14,400 ) was expensed during the nine -month periods ended September 30, 2019 and 2018, respectively. Since the license purchase, the actual per unit cost (actual usage) of such license rights in the cumulative amount of $106,188 has been charged to cost of sales, with a carrying balance of $73,812 as of September 30, 2019. The Company has classified the balance as non-current until a larger deployment occurs. Software license rights is comprised of the following as of:
|  | September 30, |  |  | December 31, |
|  | 2019 |  |  | 2018 |
Current resalable software license rights |  | $ | 1,125,000 |  |  | $ | 1,125,000 |
Non-current resalable software license rights |  |  | 5,906,466 |  |  |  | 6,790,610 |
Total resalable software license rights |  | $ | 7,031,466 |  |  | $ | 7,915,610 |

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- Definition The entire disclosure for research, development, and computer software activities, including contracts and arrangements to be performed for others and with federal government. Includes costs incurred (1) in a planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service, a new process or technique, or in bringing about a significant improvement to an existing product or process; or (2) to translate research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or the entity's use, during the reporting period charged to research and development projects, including the costs of developing computer software up to the point in time of achieving technological feasibility and in-process research and development acquired in a business combination consummated during the period. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 985 -SubTopic 730 -URI http://asc.fasb.org/subtopic&trid=2197926 + Details
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