Notes to Consolidated Financial Statements
(CONTINUED)
TYRATECH, INC. • ANNUAL REPORT 2011 • PAGE 36
revenue, recorded as sales tax payable, and remitted monthly
to the appropriate state revenue departments.
LICENSE FEES AND MULTIPLE ELEMENT
ARRANGEMENTS
Nonrefundable license fees are recognized as revenue when
the Company has a contractual right to receive such payment,
the contract price is fixed or determinable, the collection
of the resulting receivable is reasonably assured and the
Company has no further performance obligations under the
license agreement. Multiple element arrangements, such as
license and development arrangements, are analyzed to
determine whether the deliverables, which often include a
license and performance obligations such as research and
steering committee services, can be separated or whether
they must be accounted for as a single unit of accounting.
The Company recognizes up-front license payments as
revenue upon delivery of the license only if the license has
stand-alone value and the fair value of the undelivered performance
obligations, typically including research and/or
steering committee services, can be determined. If the fair
value of the undelivered performance obligations can be
determined, such obligations would then be accounted for
separately as performed. If the license is considered to either
(i) not have stand-alone value or (ii) have stand-alone value
but the fair value of any of the undelivered performance
obligations cannot be determined, the arrangement would
then be accounted for as a single unit of accounting and
the license payments and payments for performance obligations
are recognized as revenue over the estimated period of
when the performance obligations are performed.
Whenever the Company determines that an arrangement
should be accounted for as a single unit of accounting, it must
determine the period over which the performance obligations
will be performed and revenue will be recognized. Revenue
will be recognized using a relative method. The Company recognizes
revenue using the relative performance method provided
that the Company can reasonably estimate the level
of effort required to complete its performance obligations under
an arrangement and such performance obligations are
provided on a best efforts basis. Revenue recognized under
the relative performance method would be determined by
multiplying the total payments under the contract by the ratio
of level of effort incurred to date to estimated total level
of effort required to complete the Company's performance
obligations under the arrangement. Revenue is limited to the
lesser of the cumulative amount of non-refundable payments
received or the cumulative amount of revenue earned, as
determined using the relative performance method, as of
each reporting period.
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.
DEFERRED REVENUE
Amounts received prior to satisfying the above revenue rec
