Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2011

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies were identified in its Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Revenue recognition

Government research grants that provide for payments to the Company for work performed are recognized as revenue when the related expenses are incurred.

The Company recognizes revenue in accordance with accounting guidance on revenue recognition in financial statements and accounting for multiple element revenue arrangements. This guidance requires that persuasive evidence of a sales arrangement exists, delivery of goods occurs through transfer of title and risk and rewards of ownership, the selling price is fixed or determinable and collectability is reasonably assured. The Company also follows accounting guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets.

In past instances and according to accounting guidance on revenue recognition in financial statements and accounting for multiple element revenue arrangements existent at the time of the transactions, where the Company sold instruments with a related installation obligation, the Company allocated revenue between the instrument and the installation based on relative fair value at the time of the sale. The instrument revenue will be recognized when title and risk of loss passes. The installation revenue will be recognized when the installation is performed. If fair value was not available for any undelivered element, revenue for all elements was deferred until delivery and installation are complete. In instances where the Company sells an instrument with specified acceptance criteria, the Company will defer revenue recognition until such acceptance has been obtained.

Revenue from service contracts sold in conjunction with the sale of equipment is recognized ratably over the service period and revenue from contract sequencing services is recognized when results of the Company’s testing are delivered to and accepted by the customer.

The costs of service and grant revenue are included in research and development expense.

As of December 31, 2010 and September 30, 2011, the Company had deferred revenue of $7.3 million and $8.0 million, respectively. Pursuant to the revenue recognition guidelines for multiple element, single accounting unit arrangements, the Company has continued to defer recognition of these amounts as revenue due to the uncertainty associated with the Company’s ability to deliver on all of the obligations under these arrangements. These amounts have been received and future revenue recognition will have no effect on the Company’s cash balances.

Recent Accounting Pronouncements

In October 2009, the FASB issued an amendment to the accounting guidance for revenue arrangements with multiple deliverables. This guidance provides principles for allocation of consideration among its multiple-elements, allowing more flexibility in identifying and accounting for separate deliverables under an arrangement. The guidance introduces an estimated selling price method for valuing the elements of a bundled arrangement if vendor-specific objective evidence or third-party evidence of selling price is not available, and significantly expands related disclosure requirements. This guidance is effective on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company adopted this accounting guidance on a prospective basis in the first quarter of 2011 for new and materially modified revenue arrangements. The adoption did not have a material impact on the Company’s consolidated financial statements.

In October 2009, the FASB issued an amendment to the accounting standards related to certain revenue arrangements that include software elements. This standard clarifies the existing accounting guidance such that tangible products that contain both software and non-software components that function together to deliver the product’s essential functionality, shall be excluded from the scope of the software revenue recognition accounting standards. Accordingly, sales of these products may fall within the scope of other revenue recognition accounting standards or may now be within the scope of this standard and may require an allocation of the arrangement consideration for each element of the arrangement. The Company adopted this standard on January 1, 2011. This adoption did not have a material impact on the Company’s consolidated financial statements.

In January 2011, the Company adopted “Improving Disclosures About Fair Value Measurements” which requires additional disclosure about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. In addition, effective for interim and annual periods beginning after December 15, 2010, which for the Company is January 1, 2011, this standard further requires an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than as one net amount. As this accounting standard only requires enhanced disclosure, the adoption of this newly issued accounting standard did not impact the Company’s financial position or results of operations.

In May 2011, the FASB issued  “Fair Value Measurement (Topic 820): Amendment to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. This newly issued accounting standard clarifies the application of certain existing fair value measurement guidance and expands the disclosure for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This ASU is effective on a prospective basis for annual and interim reporting periods beginning on or after December 15, 2011, which for the Company is January 1, 2012. The Company does not expect that adoption of this standard will have a material impact on the Company’s financial position or results of operations.

In June 2011, the FASB issued an amendment to the accounting guidance for presentation of comprehensive income. This newly issued accounting standard (1) eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity; (2) requires the consecutive presentation of the statement of net income and other comprehensive income; and (3) requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The amendments in this Accounting Standard Update (“ASU”) do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income nor do the amendments affect how earnings per share is calculated or presented. This ASU is required to be applied retrospectively and is effective for fiscal years and interim periods within those years beginning after December 15, 2011. As this accounting standard only requires enhanced disclosure, the adoption of this standard will not impact the Company’s financial position or results of operations.