Awesome Videogames Inc. Management’s Discussion and Analysis

Awesome Videogames, Inc.
Management’s Discussion and Analysis
December 31, 2016

Revenue Recognition

Our company uses many different methods of revenue recognition. Primarily, revenue is recognized when, persuasive evidence of an arrangement exists, the product or service was successfully provided to the customer, we are reasonably assured fees from customer will be collected, and the amount of total fees is fixed or determinable.

Regarding products that have a "street date"-- the earliest date the products can be sold by retailers, revenue is recognized either on the later of the street date or on the date the product gets sold to the customer. When product sales include the transfer of physical products, digital full-game downloads and other enhancements, we consider these products or services to have been provided to the customer upon the transfer of a title and risk of loss to our customers if they are physical products. We consider the products or services to have been provided when the product is available for download or is activated for gameplay if they are digital full-game downloads. Revenue from these products is recognized on the income statement after deducting the estimated allowance for returns and price protection, according to GAAP and the judgements of our accountants.  

Certain revenue arrangements have multiple deliverables, such as peripherals or other ancillary collectors' items sold together with physical "boxed" software and sales of Excellent Adventure Videogame boxed products, expansion packs and the additional value-added services. We account for these products in accordance with Accounting Standards Codification ("ASC") Topic 605 and Accounting Standards Update ("ASU") 2009-13.

Additionally, our software products with online functionality or products that are a part of a hosted service arrangement is evaluated for whether the functionality is more-than-inconsequential separate deliverable in addition to the software product. Evaluation is performed for each software product or product add-on, including digital downloadable content. After it is determined that the online functionality has constituted a more-than-inconsequential separate service deliverable in addition to the product, our performance obligation for this title to extend beyond the sale of the game is considered. Thus, all software-related revenues from the sale of any digital downloadable content are initially deferred, and the revenue gets recognized ratably over the estimated service period of the title. The costs of sales for the title are initially delayed, and the costs of sales are recognized as the related revenues are recognized. All costs of sales include manufacturing costs, software royalties, amortization, and intellectual property licenses. However, amortization of intangible assets is excluded. The related revenue to Software products that offer online functionality that is considered to be incidental (and not critical to the overall product offering, and considered to be inconsequential deliverables), is recognized when the revenue criteria described is met.