Notes to Consolidated Financial Statements (continued)
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If the Company cannot reasonably estimate the estimated level of effort required to complete its performance obligation, then revenue is deferred until the Company can reasonably estimate its level of effort or the performance obligation ceases or becomes inconsequential.
Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company is expected to complete its performance obligations under an arrangement. In addition, if the Company is involved in a steering committee as part of a multiple element arrangement that is accounted for as a single unit of accounting, the Company assesses whether its involvement constitutes a performance obligation or a right to participate. Steering committee services that are not inconsequential or perfunctory and that are determined to be performance obligations are combined with other research services or performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the period over which the Company expects to complete its aggregate performance obligations.
Royalty Revenue
Royalty revenue is recognized upon the sale of the related products, provided that the royalty amounts are fixed or determinable, collection of the related receivable is reasonably assured and the Company has no remaining performance obligations under the arrangement. If royalties are received when the Company has remaining performance obligations, the royalty payments would be attributed to the services being provided under the arrangement and therefore would be recognized as such performance obligations are performed under either the relative performance or straight line methods, as applicable, and in accordance with these policies as described above.
Deferred Revenue
Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized during the year ending December 31, 2009 are classified as long-term deferred revenue. As of December 31, 2008, the Company has short-term deferred revenue of US$1,198,992 (2007: US$1,605,666) related to its collaborations.
Summary
The Company has one customer in the pesticides and insecticides segment in 2008 that represents 82% of total revenue (2007: one customer represents 91%).
(h) Equity Based Compensation
Effective July 1, 2005, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R), which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123). SFAS 123R requires all share-based payments, including grants of employee stock options, to be recognized in the statement of operations based on their fair values.
(i) Research and Technical Development
Research and technical development costs are expensed as incurred. Research and technical development costs for the years ended December 31, 2008 amounts to US$4,575,338 (2007: US$4,517,300) after charging US$2,780,224 (2007: US$1,413,518) to cost of sales.
(j) Income Taxes
Prior to its recapitalization as discussed below, under provisions of the Internal Revenue Code and applicable state laws, the Company was not directly subject to income taxes; the result of its operations was includable in the tax returns of its members. Therefore, no provision for income taxes was included in the accompanying financial statements, prior to May 23, 2007.
After being recapitalized from a limited liability company to a corporation on May 23, 2007, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating losses and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
TyraTech, Inc. Annual Report 2008
