Fatpipe Inc/UT Revenue Disclosure
Revenue Recognition
Effective January 1, 2020, the Company adopted Financial Accounting Standards Board (FASB), Accounting Standard Updates (ASU) No. 2014-09, Revenue from Contracts with Customers and the related amendments, which are codified into Accounting Standard Codification (ASC) 606 Revenue from Contracts with Customers., which establishes a broad principle that requires entities to assess the products or services promised in contracts with customers at contract inception to determine the appropriate unit at which to record revenues, which is referred to as a performance obligation. Revenue is recognized when control of the promised products or services is transferred to customers, at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those products or services. The new standard supersedes GAAP guidance on revenue recognition and requires the use of more estimates and judgments than the previous standards. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
ASC 606 may be applied either retrospectively or through the use of a modified-retrospective method. The full retrospective method requires companies to recast each prior reporting period presented as if the new guidance had always existed. Under the modified retrospective method, companies recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings at the date of initial application. The Company adopted ASC 606, Revenue from Contracts with Customers, on January 1, 2020, using the modified retrospective method, the impact of which was not material to the Company.
To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606 Revenue from Contracts with Customers, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract was determined to be within the scope of ASC 606, Revenue from Contracts with Customers, the Company assessed the goods or services promised within each contract and determined those that were performance obligations, and assessed whether each promised good or service was distinct.
The company recognizes three types of revenues as explained below;
Product Revenue is for a network server running FatPipe software with contract term of 36 to 60 months. Each contract has a description of the goods and services to be delivered, the term of the contract, and payment terms. We assess relevant contractual terms in our customer contracts to determine the standalone selling price of each of the performance obligation. We apply judgment in identifying contractual terms and determining the transaction price. The Company’s performance obligations are to transfer control of the software delivered on a network server with customer-specific configurations. In addition, the Company provides technical support which includes implementation, configuration and training services over the term of the contract. Additionally, as per the options for determining standalone selling price in ASC 606-10-32-32 to 32-35, in respect to the contract with multiple performance obligations of delivery of software license and technical support; including implementation into customer networks, configuration of the software, and training services to train the customer on how to use the software, we have selected the cost of technical support personnel, plus a 20% margin for support services, and the balance contract value as the standalone selling price for delivery of product and software license, so that it can be consistently applied for each financial year.
The contract’s initial term is non-cancellable and does not have a refund or cancellation provision. The customer enjoys the use of the product and associated service for the Term in exchange for monthly payments or upfront payment made for the term of the contract. The revenue is recognized upon transfer of control of the software and network server to the customer or to staging when the customer requests staging and custom configuration of the software and network server. The software license revenue in our product arrangements is recognized at a point-in-time when the software solution has been delivered or ownership has been transferred.
The service and support revenue is recognized over the term of the contract. An imputed interest charge is recognized in income using the interest method in respect of the inherent interest arising from the payment terms. The balance sheet account “Contract receivable” represents “Unbilled receivable” in connection with the revenue recognized upfront upon transfer of control of the software and the network server to the customer. The same shall be transferred to Accounts Receivable on a monthly basis over the contract term. Cash is received based on our payment terms which is typically 30-90 days.
We provide service/support options for our customers. The first support option is 36 to 60 months paid monthly, or secondly, 12 months paid upfront. For the 36-to-60-month service contracts paid monthly, the service revenue is recognized over the term of the contract. as discussed above and is part of our product offering. The 12-month service option revenue is deferred and recognized ratably over the 12-months, and is referred to in the balance sheet as “Deferred Revenue”.
Our service offerings complement our products through a range of consulting, we provide a broad range of service and support options to our customers. Consulting agreements are usually of 12 months term with options to extend. We also provide comprehensive advisory services that are focused on responsive, preventive, and consultative support of our technologies for specific networking needs. Total contract term may be up to 5 years. Customers are billed monthly based on the hours expended on customers’ behalf. Revenue is recognized on a monthly basis. Payment terms vary from 30 to 45 days from invoice date based on the customer/partner. In the below table, short term RPO will be recognized over the next 12 months, while long-term RPO will be recognized over the 36-60 month term of the contracts.
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Product | $ | 776,426 | $ | 2,793,655 | ||||
| Service | 2,294,906 | 3,062,938 | ||||||
| Total | 3,071,332 | 5,856,593 | ||||||
| Short Term – RPO – within 12 months | 1,358,632 | 1,519,412 | ||||||
| Long Term – RPO – from 13 to 36 months | 729,037 | 3,466,983 | ||||||
| Long Term RPO (37 month to 60 months) | 983,663 | 870,198 | ||||||
| Total | $ | 3,071,332 | $ | 5,856,593 | ||||
Amount to be recognized as revenue over next 12 months
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Deferred Revenue | $ | 1,358,632 | $ | 1,519,412 | ||||
| $ | 1,358,632 | $ | 1,519,412 | |||||
Deferred Revenue
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Product | $ | $ | ||||||
| Service | 1,358,632 | 1,519,412 | ||||||
| Total | $ | 1,358,632 | $ | 1,519,412 | ||||
Deferred Revenue
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Current | $ | 1,358,632 | $ | 1,519,412 | ||||
| Non-Current | ||||||||
| Total | $ | 1,358,632 | $ | 1,519,412 | ||||
Contract balances
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Allowance for bad debts at the beginning of the year | $ | (875,518 | ) | $ | (721,782 | ) | ||
| Provisions / (reversal) | (143,238 | ) | (153,736 | ) | ||||
| Recoveries | ||||||||
| Allowance for bad debts at the end of the year | $ | (1,018,756 | ) | $ | (875,518 | ) | ||
Disaggregated revenue
We disaggregate our revenue into products, services and consulting revenue that depict the nature, amount, and timing of revenue and cash flows for our various offerings.
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Product revenue | $ | 10,706,169 | $ | 11,581,464 | ||||
| Service revenue | 3,110,230 | 3,421,453 | ||||||
| Consulting revenue | 2,472,482 | 2,857,992 | ||||||
| Total | $ | 16,288,881 | $ | 17,860,909 | ||||
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About Revenue Disclosures
Revenue disclosures under ASC 606 explain how a company identifies performance obligations, allocates transaction prices, and determines when revenue is recognized. This section is essential for understanding whether reported revenue reflects genuine economic activity or aggressive accounting choices. Analysts examine the mix of point-in-time versus over-time recognition, which directly affects revenue timing and comparability.
Key signals: rising contract liabilities (deferred revenue) suggest strong future revenue visibility, while declining contract assets may indicate slowing project milestones. Watch for variable consideration estimates — rebates, returns, and performance bonuses that require management judgment. Significant changes in disaggregated revenue by geography or product line can reveal shifting business mix before it appears in headline numbers. Compare revenue growth against contract liability growth to assess sustainability, and scrutinize any changes in the timing of recognition that coincide with earnings pressure.