In the initial contract negotiation stage, the contract price with SM was $10.1 million in cash. However, as part of the final contract negotiations, SM agreed to give EYE SPY its old surveillance equipment in exchange for a credit of $100,000. It is expected that this old surveillance equipment will not be decommissioned until the new equipment is operational. Based on its extensive experience, EYE SPY's management believes it is probable that the estimated fair value of the old equipment is $115,000. There was also a provision in the contract that SM would receive a discount (similar to that which, would be reflected in a separate financing transaction between EYE SPY and SM) from the contract price of $10 million if they paid within three days of when the contract was signed. EYE SPY determined a discount of $500,000 for this financing based on applying the typical credit rate for the equipment and integration services to be delivered at the end of year one and the monthly delivery of maintenance services in year two through six of the contract. SM wired $9.5 million to EYE SPY two days after the contract was signed. In the interest of full and expanded disclosure, EYE SPY has decided not to apply the practical expedient in ASC 606-10-3218. Due to deep security concerns and recent losses of proprietary information, SM also offered a bonus to EYE SPY if the integration was completed early and EYE SPY agreed to pay a penalty if the integration was completed late. EYE SPY has a large number of contracts with bonus characteristics similar to the contract with SM. The following is the schedule of the potential bonus or penalty. While no specific outcome is probable, EYE SPY's management assessment of the likelihood of completing the integration in the specified time frame is based on significant historical experience with similar integration jobs. Completed Penalty Percentage 10 months $100,000 11 months 50,000 12 months 13 months (50,000) 15 months plus (500,000) Total 14 months _ (100,000)