Note 11 - Revenue Recognition

9 Months Ended

Feb. 29, 2012

Deferred Revenue Disclosure [Text Block]

11. REVENUE RECOGNITION

The Company recognizes revenue in accordance with accounting principles generally accepted in the United States of America, principally those required by the “Revenue Recognition” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and those prescribed by the SEC. Revenue is recognized when the following four basic criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured.

The Company’s revenue is generated from the following sources.

• Reagent sales

• Instrument sales

• Consumables (part kits)

• Training

• General Support Agreements

• Instrument leases

Effective June 1, 2011, the Company prospectively adopted Accounting Standards Update (“ASU”) 2009-13, “Multiple-Deliverable Revenue Arrangements.” Under historical standards, the Company used the residual method to allocate arrangement consideration when vendor specific objective evidence existed for all undelivered elements, but not for the delivered elements. Under the new standards, the Company allocates revenue to all elements based on their relative selling prices. The selling prices of the various elements of our contractual arrangements are determined as follows:

• Reagents (without price guarantees)—the selling price of reagents (without price guarantees) is based on vendor specific objective evidence (“VSOE”) of fair value by reference to the price our customers are required to pay for the reagents when sold separately.

• Reagents (with price guarantees)—the selling price of reagents (with price guarantees) is based on management’s best estimate of selling price (“MBESP”). In determining MBESP, we consider the following: (1) our pricing practices as they relate to future price increases, (2) the overall economic conditions, and (3) competitor pricing. Revenue from the sale of the Company’s reagents (both with and without price guarantees) to end users is primarily recognized upon shipment when both title and risk of loss transfer to the customer, unless there are specific contractual terms to the contrary. Revenue from the sale of the Company’s reagents to distributors is recognized FOB customs clearance when both title and risk of loss transfer to the customer.

• Instruments—the selling price of our instruments is based on MBESP. In determining MBESP, we consider the following: (1) the overall economic conditions, (2) the expected profit margin to be realized on the instruments, and (3) competitor pricing. Revenue from instrument sales is recognized when the instrument has been installed and accepted by the customer.

• Consumables (part kits)—the selling price of our consumables is based on MBESP. In determining MBESP, we consider the following: (1) the overall economic conditions, (2) the expected profit margin to be realized on the agreement, and (3) competitor pricing. Revenue from consumables is recognized when the consumables have been delivered.

• Training—the selling price of training is based on VSOE of fair value by reference to the price our customers are required to pay for training when training services are sold separately (through additional/incremental training sessions). Revenue from training services is recognized as the training services are provided.

• General Support Agreements—the selling price of general support agreements is based on VSOE by reference to the price our customers are required to pay for the general support agreements when sold separately via renewals. Revenue from general support agreements is recognized over the term of the agreement.

• Instrument leases—the selling price of instrument leases is based on MBESP. In determining MBESP, we consider the following: (1) the overall economic conditions, (2) the expected profit margin to be realized on the agreement, and (3) competitor pricing. Revenue from instrument leases is recognized over the term of the operating lease, which is generally 60 months.

The adoption of ASU 2009-13 did not have a material impact on the Company’s consolidated financial statements.