Note B – REVENUE RECOGNITION
Revenue is generated through the sale or license of patented technology and processes and from services provided through development agreements. These arrangements are generally governed by contracts that dictate responsibilities and payment terms. The Company recognizes revenues as they are earned over the duration of a license agreement or upon the sale of any owned patent once all contractual obligations have been fulfilled. If a license agreement has an undetermined or unlimited life, the revenue is recognized over the remaining expected life of the patents. Revenue is recognized under development agreements in the period the services are performed.
The Company treats the incremental direct cost of revenue arrangements, which consists principally of employee bonuses, as deferred charges and these incremental direct costs are amortized to expense using the straight-line method over the same term as the related deferred revenue recognition.
The licensing and development revenue recognized during the three and nine month periods ended September 30, 2012 includes $457,088 related to the acceleration of the revenue recognition from deferred revenue because of the termination of the Abbott and Quest contracts.
Deferred revenue represents the unearned portion of payments received in advance for licensing and development agreements. The Company had total unearned revenue of $2,497,851 as of September 30, 2012. Unearned revenue of $1,024,988 is recorded as current and $1,472,863is classified as long-term.