4. Deferred Revenues

 

In connection with our medical device sales and engineering services, we often receive cash payments before our earnings process is complete. In these instances, we record the payments as customer deposits until a device is shipped to the customer, or as customer advances in the case of engineering services until the earnings process is achieved. In both cases, the cash received is recorded as a component of deferred revenue.

 

As described in Note 2. Summary of Significant Accounting Policies and Estimates, Medical Device Revenue and Cost of Revenue Recognition prior to January 1, 2016, the sale of a device, associated software, initial training, and extended support and maintenance were deemed as a single unit of accounting due to the uncertainty of the Company’s follow-up maintenance and upgrade expenses, which were forecast to extend over three years. Accordingly, the revenue from the sales of the device and associated cost of revenue were deferred at the time of shipment. Upon completion of training, such amounts were recognized as revenue and cost of revenue over a three year period on a straight line basis, while all service expenses, whether or not covered by the Company’s original warranty, extended warranty contracts, or neither, were recognized as incurred.  For sales beginning January 1, 2016, revenue and associated cost of revenue of medical devices are being recognized when delivered, or training has been completed, if required. Revenue for extended maintenance and support agreements will be recognized on a straight line basis over the contractual term of the agreement, which typically ranges from one  to four years. Consistent with this change, the Company recognized medical device revenue previously deferred at December 31, 2015 of $6,517 (which represents the fair value of the already delivered devices) and associated cost of revenue of $4,159.

 

Deferred revenues and deferred cost of revenues consist of the following:

 

		March 31 2016			December 31, 2015
Customer deposits and advances		$	47		$	48
Deferred medical device revenues			551			7,388
Deferred rental income			64			71
Deferred extended maintenance and support			1,326			1,066
Total deferred revenues			1,988			8,573
Less current portion			(1,222)			(3,960)
Deferred revenues, non-current			766			4,613
Deferred medical device unit costs		$	255		$	4,590
Less current portion			(255)			(2,088)
Deferred cost of revenue, non-current		$	-		$	2,502