11. REVENUE RECOGNITION

In accordance with ASC 606, the Company disaggregates its revenue from customers into two revenue streams, service revenue and product revenue. At contract inception the Company assesses the services promised in the contract with the customers to identify performance obligations in the arrangements.

Service revenue

The Company enters into contracts with customers to provide drug discovery and development services with payments based on mainly fixed-fee arrangements. The Company also offers free archive storage services on certain contracts. Customers can also enter into separate archive storage contracts after the expiration of the free storage period.

The Company’s drug discovery and development services contracts that include a free storage period are considered a single performance obligation because the company provides a highly integrated service. The inclusion of free storage fee in the measurement of progress under the discovery and development service contracts creates a timing difference between the amounts the company is entitled to receive in reimbursement of cost incurred and amount of revenue recognized on such costs, which is recognized as deferred revenue and classified as customer advances on the condensed consolidated balance sheet.

The Company’s fixed fee arrangements may involve bioanalytical and pharmaceutical method development and validation, nonclinical research services and the analysis of bioanalytical and pharmaceutical samples. For bioanalytical and pharmaceutical method validation services and nonclinical research services, revenue is recognized over time using the input method based on the ratio of direct costs incurred to total estimated direct costs. For contracts that involve method development or the analysis of bioanalytical and pharmaceutical samples, revenue is recognized over time when samples are analyzed or when services are performed. The Company generally bills for services on a milestone basis. These contracts represent a single performance obligation and due to the Company’s right to payment for work performed, revenue is recognized over time. Research services contract fees received upon acceptance are deferred until earned, and classified within customer advances on the condensed consolidated balance sheet. Unbilled revenues represent revenues earned under contracts in advance of billings.

Archive services provide climate controlled archiving for client’s data and samples. The archive revenue is recognized over time, generally when the service is provided. These arrangements typically include only one performance obligation. Amounts related to future archiving or prepaid archiving contracts for customers where archiving fees are billed in advance are accounted for as deferred revenue and recognized ratably over the period the applicable archive service is performed.

Product revenue

The Company’s products can be sold to multiple customers and have alternative use. Both the transaction sales price and shipping terms are agreed upon in the customer order. For these products, all revenue is recognized at a point in time, generally when title of the product and risk of loss is transferred to the customer based upon shipping terms. These arrangements typically include only one performance obligation. Certain products have maintenance agreements available for customers to purchase. These are typically billed in advance and are accounted for as deferred revenue and recognized ratably over the applicable maintenance period.

The impact of adoption of ASC 606 to the Company's condensed consolidated financial statements for the three months ended June 30, 2019 is as follows:

Statements of Operations and Comprehensive Income (Loss)


			Effect of		Amount Without
	As		Change		Adoption of
	Reported		Higher/(Lower)		ASC 606
Service revenue	$	9,689	$	(31)	$	9,720
Product revenue		1,172				1,172
Total revenue		10,861		(31)		10,892
Total cost of revenue		7,732				7,732
Gross profit		3,129		(31)		3,160
Operating loss		(250)		(31)		(219)
Net loss before income taxes		(426)		(31)		(395)
Income taxes expense
Net loss	$	(426)	$	(31)	$	(395)
Diluted net loss per share	$	(0.04)	$	(0.00)	$	(0.04)

Balance Sheet


			Effect of		Amount Without
	As		Change		Adoption of
	Reported		Higher/(Lower)		ASC 606

Current Liabilities:
Customer advances	$	6,516	$	(101)	$	6,415

Shareholder’s equity:
Accumulated deficit	$	(17,387)	$	101	$	(17,286)

The impact of adoption of ASC 606 to the Company's condensed consolidated financial statements for the nine months ended June 30, 2019 is as follows:

Statements of Operations and Comprehensive Income (Loss)


			Effect of		Amount Without
	As		Change		Adoption of
	Reported		Higher/(Lower)		ASC 606
Service revenue	$	25,555	$	(25)		25,580
Product revenue		3,275				3,275
Total revenue		28,830		(25)		28,855
Total cost of revenue		20,720				20,720
Gross profit		8,110		(25)		8,135
Operating loss		(657)		(25)		(632)
Net loss before income taxes		(1,078)		(25)		(1,053)
Income taxes benefit		2				2
Net loss	$	(1,080)	$	(25)	$	(1,055)
Diluted net loss per share	$	(0.10)	$	(0.00)	$	(0.10)

Balance Sheet


			Effect of		Amount Without
	As		Change		Adoption of
	Reported		Higher/(Lower)		ASC 606

Current Liabilities:
Customer advances	$	6,516	$	(101)	$	6,415

Shareholder's equity:
Accumulated deficit	$	(17,387)	$	101	$	(17,286)