5. Revenue Recognition
The Company recognizes revenue when the following basic revenue recognition criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the price to the buyer is fixed or determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the price to the buyer charged for products delivered or services rendered and collectability of the sales price. The Company assesses credit worthiness of customers based upon prior history with the customer and assessment of financial condition. The Company’s shipping terms are customarily Free On Board (“FOB”) shipping point. The Company records revenue at the time of shipment if all other revenue recognition criteria have been met. As of September 30, 2012 and December 31, 2011, the Company had deferred revenue of $394,000 and $277,000, respectively of revenues related to shipments to its distributor in Italy, Artech, because not all revenue recognition criteria were met. During the three and nine months ended September 30, 2012, the Company recognized $65,000 and $126,000, respectively, in revenue of previously deferred revenue upon the receipt of cash from the customer.