Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Our most significant estimates and critical accounting policies involve recognizing revenue, reviewing goodwill and intangible assets for impairment, determining the assumptions used in measuring share-based compensation expense, measuring expense related to our in-process research and development acquisition, and valuing allowances for doubtful accounts and inventory reserves. Actual results could differ from these estimates. Management’s estimates and assumptions are reviewed regularly, and the effects of revisions are reflected in the consolidated financial statements in the periods they are determined to be necessary. Cash and cash equivalents We consider all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents includes cash in readily available checking and savings accounts. We held no investments as of December 31, 2017 and 2016. We maintain our cash at insured financial institutions. Restricted Cash Restricted cash consists of cash invested in certificate of deposits used as collateral for the issuance of letters of credit pursuant to lease agreements for leasing of property at 3020 and 3030 Callan Road, San Diego, CA, which requires us to execute a letter of credit for $0.2 million naming the landlord as a beneficiary as of December 31, 2017. In addition, in connection with the new lease (see Note 7) we executed in 2017, we issued a letter of credit in favor of that landlord in the amount of $0.5 million, which will remain in effect for the term of the lease. Accounts Receivable Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company periodically assesses the collectability of accounts receivable on a specific customer basis considering factors such as evaluation of collectability, historical collection experience, the age of accounts receivable and other currently available evidence of the collectability, and records an allowance for doubtful accounts for the estimated uncollectible amount. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Inventories Inventories include the cost of material, labor, and overhead related to Celution devices, consumable kits, and reagents, and are stated at the lower of cost, determined on the first-in, first-out (FIFO) method, or net realizable value. We periodically evaluate our on-hand stock and make appropriate provisions for any stock deemed excess or obsolete. Manufacturing costs resulting from lower than “normal” production levels are expensed as incurred. Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation. Depreciation expense, which includes the amortization of capitalized leasehold improvements, is provided for on a straight-line basis over the estimated useful lives of the assets, or the life of the lease, whichever is shorter, and range from three to five years. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is included in operations. Maintenance and repairs are charged to operations as incurred. Impairment We assess certain of our long-lived assets, such as property and equipment and intangible assets other than goodwill, for potential impairment when there is a change in circumstances that indicates carrying values of assets may not be recoverable. Such long-lived assets are deemed to be impaired when the undiscounted cash flows expected to be generated by the asset (or asset group) are less than the asset’s carrying amount. Any required impairment loss would be measured as the amount by which the asset’s carrying value exceeds its fair value, and would be recorded as a reduction in the carrying value of the related asset and a charge to operating expense. We recognized no impairment losses during any of the periods presented in these financial statements. Goodwill and Intangibles Goodwill is reviewed for impairment annually or more frequently if indicators of impairment exist. We perform our impairment test annually during the fourth quarter. As the Company operates in a single operating segment and reporting unit, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If, after assessing qualitative factors, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If deemed necessary, a two-step test is used to identify the potential impairment and to measure the amount of goodwill impairment, if any. The first step is to compare the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is considered not impaired; otherwise, there is an indication that goodwill may be impaired and the amount of the loss, if any, is measured by performing step two. Under step two, the impairment loss, if any, is measured by comparing the implied fair value of the reporting unit goodwill with the carrying amount of goodwill. There was no indication of impairment of goodwill for all periods presented. Separable intangible assets that have finite useful lives are amortized over their respective useful lives. As part of the May 2013 acquisition of the Joint Venture (see Note 3), we acquired intangible assets which consisted primarily of contractual license rights that had previously enabled the Joint Venture to conduct development and manufacturing activities pertaining to certain aspects of Cytori’s Celution technology. The useful life of the identifiable intangible assets was estimated based on the assumed future economic benefit expected to be received from the assets. The technology was valued at $9.4 million and is being amortized on a straight-line basis over a useful life of eleven years, commensurate with the expected cash flows. The changes in the carrying amounts of finite-life intangible assets and goodwill for the years ended December 31, 2017 and 2016 are as follows (in thousands): December 31, 2017 December 31, 2016 Intangibles, net: Beginning balance $ 8,447 $ 9,031 Increase — — Amortization (1,240 ) (584 ) Ending balance 7,207 8,447 Goodwill, net: Beginning balance 3,922 3,922 Increase (decrease) — — Ending balance 3,922 3,922 Total goodwill and other intangibles, net $ 11,129 $ 12,369 Revenue Recognition Product Sales We recognize revenue from product sales when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price to the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is reasonably assured. We evaluate customers that have not developed a sufficient payment history with us or for whom a letter of credit is not in place at the time of the transaction and defer revenues until collectability is reasonably assured. For all sales, we use a binding purchase order or a signed agreement as evidence of an arrangement. If the other revenue recognition criteria are met, revenue for these product sales is recognized upon delivery to the customer as all risks and rewards of ownership have been substantively transferred to the customer at that point. For sales to customers who arrange for and manage the shipping process, we recognize revenue upon shipment from our facilities. Shipping and handling costs that are billed to our customers are classified as revenue. The customer’s obligation to pay and the payment terms are set at the time of delivery and are not dependent on the subsequent use or resale of our products. For sales where all revenue recognition criteria are not met, revenue is deferred and related inventory remains on our books. Concentration of Significant Customers & Geographical Sales For the year ended December 31, 2017, our sales were concentrated with respect to five direct customers, which comprised 68% of our product revenue recognized. One licensee and one direct customer accounted for 77% of total outstanding accounts For the year ended December 31, 2016, our sales were concentrated with respect to two distributors and three direct customers, which comprised 65% of our product revenue recognized. Two direct customers accounted for 57% of total outstanding accounts receivable (excluding receivables from BARDA) as of December 31, 2016. Product revenues, classified by geographic location, are as follows (in thousands): Years ended December 31, 2017 2016 Product Revenues % of Total Product Revenues % of Total Americas $ 345 13 % $ 936 20 % Japan 1,924 71 % 3,279 71 % EMEA 344 13 % 379 8 % Asia Pacific 76 3 % 62 1 % Total product revenues $ 2,689 100 % $ 4,656 100 % Development Revenues We earn revenue for performing tasks under research and development agreements with governmental agencies like BARDA. Revenues derived from reimbursement of direct out-of-pocket expenses for research costs associated with government contracts are recorded as government contract and other within development revenues. Government contract revenue is recorded at the gross amount of the reimbursement. The costs associated with these reimbursements are reflected as a component of research and development expense in our statements of operations. We recognized $3.7 million and $6.7 million in BARDA revenue for the years ended December 31, 2017 and 2016, respectively. Research and Development Research and development expenditures, which are charged to operations in the period incurred, include costs associated with the design, development, testing and enhancement of our products, regulatory fees, the purchase of laboratory supplies, and pre-clinical and clinical studies as well as salaries and benefits for our research and development employees. Also included in research and development expenditures are costs incurred to support the government reimbursement contract, including $3.5 million and $6.3 million of qualified expenses that were incurred for the years ended December 31, 2017 and 2016, related to our government contract with BARDA. Deferred Financing Costs and Other Debt-Related Costs Deferred financing costs are capitalized, recorded as an offset to debt balances and amortized to interest expense over the term of the associated debt instrument using the effective interest method. If the maturity of the debt is accelerated because of default or early debt repayment, then the amortization would be accelerated. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (loss) in the years in which those temporary differences are expected to be recovered or settled. Due to our history of losses, a full valuation allowance has been recognized against our deferred tax assets. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. For the years ended December 31, 2017 and 2016, the Company has not recorded any interest or penalties related to income tax matters. The Company does not foresee any material changes to unrecognized tax benefits within the next twelve months. Share-Based Compensation We recognize the fair value of all share-based payment awards in our statements of operations over the requisite vesting period of each award, which approximates the period during which the employee and non-employee director is required to provide service in exchange for the award. We estimate the fair value of these options using the Black-Scholes option pricing model using assumptions for expected volatility, expected term, and risk-free interest rate. Expected volatility is based primarily on historical volatility and is computed using daily pricing observations for recent periods that correspond to the expected term of the options. The expected term is calculated based on historical data for and applied to all employee awards as a single group as we do not expect (nor does historical data suggest) substantially different exercise or post-vesting termination behavior amongst our employee population. The risk-free interest rate is the interest rate for treasury instruments with maturities that approximate the expected term. Segment Information For the years ended December 31, 2017 and 2016, the Company is managed as a single operating segment, therefore we report our results in one operating segment. Loss Per Share Basic per share data is computed by dividing net income or loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted per share data is computed by dividing net income or loss applicable to common stockholders by the weighted average number of common shares outstanding during the period increased to include, if dilutive, the number of additional common shares that would have been outstanding as calculated using the treasury stock method. Potential common shares were related entirely to outstanding but unexercised options and warrants for all periods presented. We have excluded all potentially dilutive securities, including unvested performance-based restricted stock, from the calculation of diluted loss per share attributable to common stockholders for the years ended December 31, 2017 and 2016, as their inclusion would be antidilutive. Potentially dilutive securities excluded from the calculations of diluted loss per share were 20.5 million as of December 31, 2017, which includes 19.5 million outstanding warrants and 1.0 million options and restricted stock awards. Potentially dilutive securities excluded from the calculations of diluted loss per share were 4.2 million as of December 31, 2016. Recently Issued and Recently Adopted Accounting Pronouncements Recently Issued Accounting Pronouncements In May 2014, the Financial Accounting Standards Board issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new standard is based on the principle that revenue should be recognized in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the transfer of promised goods or services. ASU 2014-09 and all subsequent amendments (collectively, the “new standards”) may be applied using either the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. We will adopt the standards beginning the first quarter of 2018 using the modified retrospective method. We have completed our assessment of the new standard and are evaluating the impact of the new required disclosures. Overall, we do not expect the timing or amounts related to the revenue recognition under the new standards to be materially different from our current revenue recognition policy. Our product revenues are recognized at a point in time, which is when we control transfers to the customer. We will make accounting policy elections to 1) treat shipping and handling activities that occur after the customer obtains control of the goods as fulfillment costs and 2) exclude sales (and similar) taxes from the measurement of the transaction price. Because we have no open contracts as of December 31, 2017, there will be no cumulative effect of applying the new standards. In February 2016, the FASB issued ASU 2016-02, Leases In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of certain cash receipts and cash payments In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Restricted Cash In February 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation Recently Adopted Accounting Pronouncements In July 2015, FASB issued ASU 2015-11, Simplifying the Measurement of Inventory In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business |