13.

Revenue

Adoption of ASC Topic

606,

“Revenue from Contracts with Customers”

January

2018,

the Company adopted Topic

606

using the modified retrospective method. The adoption of Topic

606

did

not

have a material effect on the Company’s financial position or results of operations.

Revenue is recognized when control of the services is transferred to our customers, in an amount that reflects the consideration (

none

of which is variable) we expect to be entitled to in exchange for those services. The Company typically invoices customers monthly for services provided and payments are generally due within

days of the invoice date.

The table below disaggregates our external revenue by major source. For additional revenue detail relating to geographic breakdown of sales, see Note

– “Business Segment Reporting”.

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in 000's)				(in 000's)
Testing	$	9,864	$	8,739	$	19,896	$	18,141
Shipping/Collection (hair)		812		834		1,636		1,518
Other		111		111		190		234
Total Revenue	$	10,787	$	9,684	$	21,722	$	19,893

Testing Revenue

Drug and alcohol tests for drugs of abuse using hair, performed in the Company’s forensic laboratory in California, represents our primary service. Sales to customers are initiated through sales agreements, most of which have standard terms. Most tests are identified through a chain of custody form (“CCF”) and can therefore be uniquely tracked. Revenue is recognized when performance obligations under the terms of the contract with a customer are satisfied; generally, this occurs with the transfer of control of our service, which occurs at a specific point-in-time. The specific point-in-time is the completion of the test and availability of test results to the customer. Most tests are completed the same day that the hair specimen is received. Substantially all tests are completed within a few days. As the tests are performed in a forensic laboratory, the exact date and time of each test completion is available and used in the timing of recognition of revenue.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for providing services. Sales and other taxes the Company pays concurrent with revenue-producing activities are excluded from revenue.

Shipping and Hair Collection Revenue

Shipping revenue represents the amount billed to customers related to shipping of the hair specimen and CCF (“sample”) to the Company’s laboratory. Collection revenue represents the amount billed to customers related to the collection of the hair specimen. This collection is done by

third

parties who have contracted with the Company. Shipping and hair collection revenue is recognized when performance obligations under the terms of the contract with a customer are satisfied; generally, this occurs with the transfer of control of the Company’s service, which occurs at a specific point-in-time. The specific point-in-time is the completion of the test (associated with the shipping or hair collection charge) and availability of test results to the customer.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for providing services. As the Company controls the service before transferring to the customer, it is considered a principal in the transaction, and therefore records revenues on gross basis, with shipping and hair collection costs in costs of revenues.

Other Revenue

Other revenue represents several items including; urine testing performed by other labs, medical review officer charges, legal/testifying services, a retail test which is sent to the laboratory for testing, and other miscellaneous charges. The total of all of these items is approximately

of sales. The amounts are generally billed to customers as services are performed, which occurs at a specific point-in-time.

Practical Expedients and Exemptions

The Company generally expenses sales commissions when incurred because the amortization period is

one

year or less. These costs are recorded within selling, general and administrative expense.