| Summary of Significant Accounting Policies | 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Estimates The preparation of condensed consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets
and liabilities reported and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Management’s estimates are based on historical experience,
facts and circumstances available at the time, and various other assumptions that are believed to be reasonable under the circumstances.
Significant estimates include accounting for valuation allowances related to deferred income taxes, contingent consideration, allowances
for doubtful accounts, revenue recognition, unrecognized tax benefits, and asset impairments involving other intangible assets.
The Company periodically reviews these matters and reflects changes in estimates in earnings as appropriate. Actual results could
materially differ from those estimates. Revenue Recognition Our Services We are a fully integrated commercial
and bioinformatics company that develops and provides clinically useful molecular diagnostic tests and pathology services. We develop
and commercialize molecular diagnostic tests and related first line assays principally focused on early detection of patients at
high risk of cancer and leverage the latest technology and personalized medicine for improved patient diagnosis and management.
We currently have four commercialized molecular diagnostic assays in the marketplace for which we are receiving reimbursement:
PancraGEN ® ® ®
® ® ® ® Adoption of Accounting Standards
Codification Topic 606 (“ASC 606”), “Revenue from Contracts with Customers” Effective January 1, 2018, the Company
adopted ASC 606 which amends the guidance for the recognition of revenue from contracts with customers for the transfer of goods
and services, by using the modified-retrospective method applied to any contracts that were not completed as of January 1, 2018.
The results for the reporting period beginning after January 1, 2018, are presented in accordance with the new standard, although
comparative information has not been restated and continues to be reported under the accounting standards and policies in effect
for those periods. Upon adoption, the Company performed
a comprehensive analysis of existing revenue arrangements as of January 1, 2018 following the five-step model outlined in ASC 606.
Based on our analysis, we recorded a cumulative adjustment to opening accumulated deficit and increase of accounts receivable of
$2.5 million as of January 1, 2018. The cumulative impact was driven by a change in the timing of revenue recognition for certain
payer categories and the related proprietary tests performed. The balance of accounts receivable related to the adjustment is approximately
$0.9 million as of June 30, 2018. The following tables present the
effect of the adoption of ASC Topic 606 on our condensed consolidated balance sheet and revenue as of and for the six months ended
June 30, 2018: Consolidated Balance Sheet:
June 30, 2018
(unaudited)
As reported Balances without Adoption of ASC 606 Effect of Change Higher/(Lower)
Accounts receivable, net $ 7,647 $ 6,731 $ 916
Accumulated deficit (134,410 ) (136,910 ) (2,500 ) Revenue:
For the six months ended June 30, 2018
(unaudited)
As reported Balances without Adoption of ASC 606 Effect of Change Higher/(Lower)
Revenue, net $ 10,310 $ 9,580 $ 730
Historically, for certain third-party
payers that did not have established contractual reimbursement rates or a predictable pattern of collectability, including commercial
insurance carriers, Medicaid and certain direct-bill payers (primarily hospitals, but also laboratories), the Company previously
recognized revenues when the fee was fixed or determinable and collectability was reasonably assured, which was upon request of
third-party payer notification of payment or when cash was received. Under the new standard, the Company estimates the variable
consideration within the transaction price for all third-party payers and proprietary tests and recognizes revenue as the Company
satisfies its performance obligations. In addition, the Company updated
its estimates of the expected transaction price and related reimbursement rates for its payer categories and related proprietary
tests based on the variable consideration guidance in ASC 606. This consisted of updating the reimbursement rates realized by the
Company’s proprietary tests based on historical amounts received by each payer category for the corresponding tests performed. Overall, other than an initial acceleration
in the timing of our revenue recognition for certain payer categories, the adoption of this new standard will not have a significant
impact on our reported total revenues and operating results as compared to amounts that would have been reported under the prior
revenue recognition standard over our typical revenue cycle. Our accounting policies under the new standard were applied prospectively
and are discussed further below. Revenue Recognition after adoption
of ASC 606 Upon adoption of ASC 606, the Company
recognizes revenue when a customer obtains control of promised goods or services in an amount that reflects the consideration which
the entity expects to receive in exchange for those goods or services. To the extent the transaction price includes variable consideration,
the Company estimates the amount of variable consideration that should be included in the transaction price using the expected
value method based on historical experience. The Company derives its revenues
from the performance of its proprietary tests. The Company’s performance obligation is fulfilled upon completion, review
and release of test results to the customer. The Company subsequently bills third-party payers or direct-bill payers for the proprietary
tests performed. Revenue is recognized based on the estimated transaction price or net realizable value (“NRV”), which
is determined based on historical collection rates by each payer category for each proprietary test offered by the Company. The
Company regularly reviews the ultimate amounts received from the third-party payers and related estimated reimbursement rates and
adjusts the NRV’s and related contractual allowances accordingly. If actual collections and related NRV’s vary from
our estimates, we will adjust the estimates of contractual allowances, which would affect net revenue in the period such variances
become known. Disaggregated Revenues We operate in a single operating
segment and, therefore, the results of our operations are reported on a consolidated basis for purposes of segment reporting, which
is consistent with internal management reporting. For the six-month periods ended June 30, 2018 and June 30, 2017, the majority
of the Company’s revenues were derived from its molecular diagnostic tests. Financing and Payment Our payment terms vary by third-party
payers and type of proprietary testing services performed. The term between invoicing and when payment is due is not significant. Costs to Obtain or Fulfill a Customer
Contract Sales commissions are expensed when
incurred because the amortization period would have been one year or less. These costs are recorded in sales and marketing expense
in the condensed consolidated statements of operations. Accounts Receivable The Company’s accounts receivable
represent unconditional rights to consideration and are generated using its proprietary tests. The Company’s services are
fulfilled upon completion of the test, review and release of the test results. In conjunction with fulfilling these services, the
Company bills the third-party payer or direct-bill payer. Prior to the adoption of ASC 606 on January 1, 2018, the Company recognized
accounts receivable related to billings for Medicare, Medicare Advantage, and direct-bill payers on an accrual basis, net of contractual
adjustment, when collectability was reasonably assured. Under ASC 606 accounts receivable is now recognized for all payer groups,
net of contractual adjustment and net of estimated uncollectable amounts. Contractual adjustments represent the difference between
the list prices and the reimbursement rates set by third party payers, including Medicare, commercial payers, and amounts billed
to direct-bill payers. Specific accounts may be written off after several appeals, which in some cases may take longer than twelve
months. Other Current Assets Other current assets consisted of
the following as of June 30, 2018 and December 31, 2017:
June 30, 2018 December 31, 2017
(unaudited)
Indemnification asset $ 875 $ 875
Prepaid assets 556 266
Other 43 31
$ 1,474 $ 1,172 Long-Lived Assets, including Finite-Lived
Intangible Assets Finite-lived intangible assets are
stated at cost less accumulated amortization. Amortization of finite-lived acquired intangible assets is recognized on a straight-line
basis, using the estimated useful lives of the assets of approximately two years to nine years in acquisition related amortization
expense in the condensed consolidated statements of operations. The Company reviews the recoverability
of long-lived assets and finite-lived intangible assets whenever events or changes in circumstances indicate that the carrying
value of such assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, an impairment loss is recognized by reducing the recorded value of the asset to its fair value measured by
future discounted cash flows. This analysis requires estimates of the amount and timing of projected cash flows and, where applicable,
judgments associated with, among other factors, the appropriate discount rate. Such estimates are critical in determining whether
any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary. Discontinued Operations The Company accounts for business
dispositions and its businesses held for sale in accordance with ASC 205-20, Discontinued Operations (“ASC 205-20”) Discontinued Operations Basic and Diluted Net Loss per
Share A reconciliation of the number of
shares of common stock used in the calculation of basic and diluted loss per share for the three- and six-month periods ended June
30, 2018 and 2017 is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
(unaudited)
Basic weighted average number of common shares 27,933 9,657 27,894 6,877
Potential dilutive effect of stock-based awards - - - -
Diluted weighted average number of common shares 27,933 9,657 27,894 6,877 The following outstanding stock-based
instruments were excluded from the computation of the effect of dilutive securities on loss per share for the following periods
because they would have been anti-dilutive:
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
(unaudited)
Options 2,256 323 2,256 323
Stock-settled stock appreciation rights (SARs) 59 85 59 85
Restricted stock units (RSUs) 220 68 220 68
Warrants 13,542 17,105 13,542 17,105
16,077 17,581 16,077 17,581 |
