The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, price is fixed or determinable, and collectability of the selling price is reasonably assured. Delivery occurs when risk of loss is passed to the customer, as specified by the terms of the applicable customer agreements.
When a right of return exists, contractually or implied, the Company recognizes revenue on the sell through-method. Under this method, revenue is not recognized upon delivery of the inventory components. Instead, the Company records deferred revenue upon delivery and recognize revenue when the inventory components are sold through to the end user.
Deferred revenue for the three months ended September 30, 2012, related to one customer, was $478,000, including the related product cost of $429,000 included in inventory, which represents units not yet sold through by our customer. The Company did not record deferred revenue or related product cost for the three months ended September 30, 2011.