3.     Revenue Recognition

Revenue by Service Line

Contract Balances

During the three and six months ended June 30, 2021, the Company recognized capital equipment and software-related service revenue of approximately $0.09 million and $0.2 million, respectively, which were previously included in deferred revenue in the accompanying condensed consolidated balance sheet at December 31, 2020.

In 2019, the Company entered into a Development Services Agreement with a customer under which the Company was entitled to bill the customer for an upfront payment of $0.13 million, of which approximately $0.02 million and $0.05 million are included in deferred revenue in the accompanying condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, respectively.

Commencing in 2019, the Company was a party to a Letter of Intent and a related Statement of Work (together with the Letter of Intent, the “Project Documents”) with a customer who is a stockholder and a noteholder (see Note 5), and an officer of whom is a member of the Company’s Board of Directors, to commence a product development project. Under the terms of the Project Documents, the Company was entitled to bill the customer for: (a) an upfront, nonrefundable payment of $0.5 million, which was received in 2019; and (b) quarterly service fees of $0.5 million. In February 2020, the Company entered into a Supply Agreement and a Statement of Work (the “European SOW”) with a European affiliate of the customer. Under the terms of the European SOW, the Company was entitled to bill the customer on a quarterly basis, commencing in the first quarter of 2020, for service fees of $0.25 million. During 2020, the clinical trials contemplated by the Project Documents and the European SOW were delayed as a result of the COVID-19 pandemic. As a result, the Company agreed to reduce such quarterly service fees by an aggregate of $0.25 million through September 30, 2020. In November 2020, the Company entered into an addendum to the Project Documents and the European SOW that, among other provisions, set the aggregate service fee to be billed to the customer at $0.7 million per quarter, effective October 1, 2020. The Company recognized as revenue the upfront payment described in this paragraph ratably over the initial two years of the term of the Project Documents, corresponding to the estimated period in which the related performance obligations were expected to be satisfied, and recognizes as revenue the quarterly service fees described in this paragraph as stand-by services beginning in the quarter such services commenced. Based on the foregoing: (a) the Company recognized revenue of approximately $0.7 million and $1.5 million for the three and six months ended June 30, 2021, respectively; (b) accounts receivable from the customer at June 30, 2021 and December 31, 2020 amounted to approximately $0.02 million and $0.1 million, respectively; and (c) approximately $0.04 million and $0.1 million of the aggregate amount of all the payments described in this paragraph were included in deferred revenue in the accompanying condensed consolidated balance sheets at June 30, 2021 and December 31, 2020, respectively.

The Company offers an upgraded version of its software at no additional charge to customers purchasing a three-year systems service agreement. The transaction prices of the software and the service agreement are determined through an allocation of the service agreement price based on the standalone prices of the software and the service agreements customarily charged by the Company. The transaction price of the software is recognized as revenue upon its installation and comprised approximately $0.1 million of unbilled accounts receivable at each of June 30, 2021 and December 31, 2020.

Remaining Performance Obligations

The Company’s contracts with customers for functional neurosurgery and therapy product sales are predominantly of terms less than one year. Accordingly, the transaction prices of remaining performance obligations related to such contracts at June 30, 2021 are not material.

Revenue with respect to remaining performance obligations related to capital equipment and software-related service agreements with original terms in excess of one year and the upfront payments discussed under the heading “Contract Balances” above amounted to approximately $0.6 million at June 30, 2021. The Company expects to recognize this revenue within the next three years.

Revenue with respect to remaining performance obligations related to contracts with the Company’s biologic and drug delivery customers, other than those contracts discussed under the heading “Contract Balances,” predominantly is contingent upon such customers’ performance of clinical trials on which the Company’s performance obligations are predicated.