The Company generates revenue primarily from sales of finished products. Revenue is recognized upon the transfer of control of products to the Company’s customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those products or services.

Product Sales

The Company generates revenue through the wholesale distribution of its products and accessories to dealers/distributors, large end-users such as security companies and law enforcement agencies, and through an e-commerce portal to consumers. Revenue is recognized upon transfer of control of goods to the customer, which generally occurs when title to goods is passed and risk of loss transfers to the customer. Depending on the contract terms, transfer of control is upon shipment of goods to or upon the customer’s pick-up of the goods. Payment terms to customers other than e-commerce customers are generally 30-60 days for established customers, whereas new wholesale and large end-user customers have prepaid terms for their first order. The amount of revenue recognized is net of returns and discounts that the Company offers to its customers. The Company’s returns have been immaterial; and the Company will recognize an estimated reserve, if material and estimable, based on its analysis of historical experience and an evaluation of current market conditions.

The Company excludes from revenue taxes collected from customers and remitted to government authorities related to sales of the Company’s products. Shipping and handling costs that occur after control of goods has been transferred to the customer and that are not billed to the customer are accounted for as fulfillment costs and are included in “Cost of goods sold” in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.

The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. Shipping and handling costs associated with the distribution of finished products to customers, are recorded in selling, general and administrative (“SG&A”) expenses and are recognized when the product is shipped to the customer. Shipping and handling costs included in SG&A were $34,290 and $20,123 during the nine months ended August 31, 2020 and 2019, respectively. Shipping and handling costs were $20,709 and $5,400 during the three months ended August 31, 2020 and 2019, respectively. Costs to obtain a contract consist of commissions paid to employees and are included in SG&A in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. Commissions were $75,606 and $85,606 in each of the three and nine months ended August 31, 2020, respectively. Commissions were $0 in each of the three and nine months ended August 31, 2019.

Included as cost of goods sold are costs associated with the production and procurement of products, such as inbound freight costs, manufacturing depreciation, purchasing and receiving costs, and inspection costs.        

Deferred Revenue

Changes in deferred revenue, which relate to unfulfilled e-commerce orders for the nine months ended August 31, 2020, are summarized below.