Significant Accounting Policies | Significant Accounting Policies Basis of presentation : We prepare our financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Segment reporting : Operating segments are defined as components of an enterprise about which separate discrete information is used by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. We view our operations and manage our business in one operating segment, which is the business of developing and selling diagnostic tests and services. Liquidity and going concern : At December 31, 2016, our cash position and history of losses required management to asses our ability to continue operating as a going concern, according to FASB Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). Management evaluated the history and operational losses to have a material effect on our ability to continue as a going concern, unless we take actions to alleviate those conditions. Our primary sources of liquidity have been funds generated from our debt financings and equity financings. Subsequent to December 31, 2016, we were able to restructure our senior debt with our lender and secure additional debt capital with another lender to increase our cash positon and have available funds to operate, and we completed the sale of State of New Jersey net operating loss carryforwards in early 2017 (Note 20 Subsequent Events). We have reduced, and plan to continue reducing, our operating expenses, and expect to grow our revenue in 2017 and beyond, and have also increased our cash collections from our customers and third-party payors and plan to continue to improve our cash collection results. Management believes that its existing cash and cash equivalents, taken together with the net proceeds of the debt financing completed in March 2017, will be sufficient to fund the Company's operations for at least the next twelve months after filing this Annual Report on Form 10-K. Principles of consolidation : The accompanying consolidated financial statements include the accounts of Cancer Genetics, Inc. and our wholly owned subsidiaries. All significant intercompany account balances and transactions have been eliminated in consolidation. Use of estimates and assumptions : The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect 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 revenues and expenses during the reporting period. Significant estimates made by management include, among others, realization of amounts billed, realization of long-lived assets, realization of intangible assets, accruals for litigation and registration payments, assumptions used to value stock options, warrants and goodwill and the valuation of assets acquired and liabilities assumed from acquisitions. Actual results could differ from those estimates. Risks and uncertainties : We operate in an industry that is subject to intense competition, government regulation and rapid technological change. Our operations are subject to significant risk and uncertainties including financial, operational, technological, regulatory, foreign operations, and other risks, including the potential risk of business failure. Cash and cash equivalents : Highly liquid investments with original maturities of three months or less when purchased are considered to be cash equivalents. Financial instruments which potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents. We maintain cash and cash equivalents with high-credit quality financial institutions. At times, such amounts may exceed insured limits. We have not experienced any losses in such accounts and believe we are not exposed to any significant credit risk on our cash and cash equivalents. Restricted cash : Represents cash held at financial institutions which we may not withdraw and which collateralizes certain of our financial commitments. All of our restricted cash is invested in interest bearing certificates of deposit. Our restricted cash collateralizes a $300,000 letter of credit in favor of our landlord, pursuant to the terms of the lease for our Rutherford facility. Revenue recognition : The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, as well as SEC Staff Accounting Bulletin 104, for its Biopharma and Discovery Services, and ASC 954-605, Health Care Entities, Revenue Recognition for its Clinical Services. These standards generally require that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred and title and the risks and rewards of ownership have been transferred to the customer or services have been rendered; (3) the price is fixed or determinable; and (4) collectability is reasonably assured. In determining whether the price is fixed or determinable, we consider payment limits imposed by insurance carriers and Medicare, and the amount of revenue recorded takes into account the historical percentage of revenue we have collected for each type of test for each payor category. Periodically, an adjustment is made to Clinical Services revenue to record differences between our anticipated cash receipts from third parties, such as insurance carriers and Medicare and actual receipts from such payors. For the periods presented, such adjustments were not significant. For some Clinical Service and Biopharma customers billed directly, revenue is recorded based upon the contractually agreed upon fee schedule. When assessing collectability, we consider whether we have sufficient payment history to reliably estimate a payor’s individual payment patterns. We do not bill customers for shipping and handling fees, other than reimbursement of such expenses we incur on behalf of our Biopharma clients, and we do not collect any sales or other taxes from customers. Accounts receivable : Accounts receivable are carried at net realizable value, which is the original invoice amount less an estimate for contractual adjustments, discounts and doubtful receivables, the amounts of which are determined by an analysis of individual accounts. Our policy for assessing the collectability of receivables is dependent upon the major payor source of the underlying revenue. For Biopharma and Discovery clients, an assessment of credit worthiness is performed prior to initial engagement and is reassessed periodically. If deemed necessary, an allowance is established on receivables from direct bill clients. For Clinical Services clients, we record revenues and related receivables when the testing process is complete and the results are reported. Revenue is recorded at the expected price, taking into account the patient's ability to pay, as well as anticipated discounts, adjustments and/or contractual allowances, as applicable. After reasonable collection efforts are exhausted, amounts deemed to be uncollectible are written off against the allowance for doubtful accounts. Since the Company only recognizes revenue to the extent it expects to collect such amounts, bad debt expense related to receivables from patient service revenue is recorded in general and administrative expense in the consolidated statements of operations. Recoveries of accounts receivable previously written off are recorded when received. Deferred revenue: Payments received in advance of services rendered are recorded as deferred revenue and are subsequently recognized as revenue in the period in which the services are performed. Fixed assets: Fixed assets consist of diagnostic equipment, furniture and fixtures and leasehold improvements. Fixed assets are carried at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, which generally range from five to seven years. Leasehold improvements are depreciated over the lesser of the lease term or the estimated useful lives of the improvements using the straight-line method. Repairs and maintenance are charged to expense as incurred while improvements are capitalized. Upon sale, retirement or disposal of fixed assets, the accounts are relieved of the cost and the related accumulated depreciation with any gain or loss recorded to the consolidated statements of operations. Fixed assets are reviewed for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These computations utilize judgments and assumptions inherent in our estimate of future cash flows to determine recoverability of these assets. If our assumptions about these assets were to change as a result of events or circumstances, we may be required to record an impairment loss. Goodwill : Goodwill resulted from the purchases of Gentris Corporation (“Gentris”) and BioServe Biotechnologies (India) Pvt. Ltd. (“BioServe”) in 2014 and the purchase of Response Genetics, Inc. (“Response Genetics”) in 2015, as described in Note 16. In accordance with ASC 350, Intangibles - Goodwill and Other, we are required to test goodwill for impairment and adjust for impairment losses, if any, at least annually and on an interim basis if an event or circumstance indicates that it is likely impairment has occurred. Our annual goodwill impairment testing date is October 1 of each year. No such losses were incurred during the years ended December 31, 2016 and 2015. Goodwill (in thousands) Balance, December 31, 2014 $ 3,187 Purchased through acquisition of Response Genetics 8,842 Balance, December 31, 2015 and 2016 $ 12,029 Loan guarantee and financing fees: Loan guarantee fees are amortized on a straight-line basis over the term of the guarantee. Financing fees are amortized using the effective interest method over the term of the related debt. Warrant liability : We have issued certain warrants which contain an exercise price adjustment feature in the event we issue additional equity instruments at a price lower than the exercise price of the warrant. We have also issued warrants containing a contingent net cash settlement feature. The warrants are described herein as derivative warrants. We account for these derivative warrants as liabilities. These common stock purchase warrants do not trade in an active securities market, and as such, we estimate the fair value of these warrants using the binomial lattice valuation pricing model with the assumptions as follows: The risk-free interest rate for periods within the contractual life of the warrant is based on the U.S. Treasury yield curve. The expected life of the warrants is based upon the contractual life of the warrants. Prior to 2016, volatility was estimated based on an average of the historical volatilities of the common stock of four entities with characteristics similar to those of the Company. Effective January 1, 2016, we began using the historical volatility of our common stock. We used the closing price of our shares on the NASDAQ Capital Market. We compute the fair value of the warrant liability at each reporting period and the change in the fair value is recorded as non-cash expense or non-cash income. The key component in the value of the warrant liability is our stock price, which is subject to significant fluctuation and is not under our control. The resulting effect on our net income (loss) is therefore subject to significant fluctuation and will continue to be so until the warrants are exercised, amended or expire. Assuming all other fair value inputs remain constant, we will record non-cash expense when the stock price increases and non-cash income when the stock price decreases. Income taxes : Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred income taxes. Deferred income taxes are recognized for temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Deferred income taxes are also recognized for net operating loss carryforwards that are available to offset future taxable income and research and development credits. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We have established a full valuation allowance on our deferred tax assets as of December 31, 2016 and 2015 , therefore we have not recognized any tax benefit or expense in the periods presented. ASC 740, Income Taxes, clarifies the accounting for uncertainty in income taxes recognized in the financial statements. ASC 740 provides that a tax benefit from uncertain tax positions may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. ASC 740 also provides guidance on measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 31, 2016 and 2015 we had no uncertain tax positions. Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. There is no accrual for interest or penalties on our consolidated balance sheets at December 31, 2016 or 2015 , and we have not recognized interest and/or penalties in the consolidated statements of operations for the years ended December 31, 2016 or 2015 . Patents and other intangible assets : We account for intangible assets under ASC 350-30. Patents consisting of legal fees incurred are initially recorded at cost. We have also acquired patents that are initially recorded at fair value. Patents are amortized over the useful lives of the assets, using the straight-line method. Certain patents are in the legal application process and therefore are not currently being amortized. We review the carrying value of patents at the end of each reporting period. Based upon our review, there were no patent impairments in 2016 or 2015 . Other intangible assets consist of software acquired with Response Genetics, which are amortized using the straight-line method over the estimated useful lives of the assets, which range from three to five years. Research and development : Research and development costs associated with service and product development include direct costs of payroll, employee benefits, stock-based compensation and supplies and an allocation of indirect costs including rent, utilities, depreciation and repairs and maintenance. All research and development costs are expensed as they are incurred. Stock-based compensation : Stock-based compensation is accounted for in accordance with the provisions of ASC 718, Compensation-Stock Compensation , which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. We estimate the fair value of stock-based awards on the date of grant using the Black-Scholes option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method. See additional information in Note 12. All issuances of stock options or other issuances of equity instruments to employees as the consideration for services received by us are accounted for based on the fair value of the equity instrument issued. We account for stock-based compensation awards to non-employees in accordance with ASC 505-50, Equity Based Payments to Non-Employees . Under ASC 505-50, we determine the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Stock-based compensation awards issued to non-employees are recorded in expense and additional paid-in capital in stockholders’ equity (deficit) over the applicable service periods based on the fair value of the awards or consideration received at the vesting date. Fair value of financial instruments : The carrying amount of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses, approximate their estimated fair values due to the short term maturities of those financial instruments. The fair value of warrants recorded as derivative liabilities, contingent consideration and note payable to VenturEast are described in Notes 14 and 15. Joint venture accounted for under the equity method : The Company records its joint venture investment following the equity method of accounting, reflecting its initial investment in the joint venture and its share of the joint venture’s net earnings or losses and distributions. The Company’s share of the joint venture’s net loss was approximately $73,000 in 2016 and $707,000 in 2015 and is included in research and development expense on the Consolidated Statements of Operations. The Company has a net receivable due from the joint venture of approximately $10,000 at both December 31, 2016 and 2015 , which is included in other assets in the Consolidated Balance Sheets. See additional information in Note 18. Subsequent events : We have evaluated potential subsequent events through the date the financial statements were issued. Recent Accounting Pronouncements : In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which provides guidance for accounting for leases. Under ASU 2016-02, the Company will be required to recognize the assets and liabilities for the rights and obligations created by leased assets. ASU 2016-02 will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the effect this standard will have on the consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. As issued and amended, ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. The updated standard becomes effective for the Company in the first quarter of fiscal year 2018. Early adoption is permitted in the first quarter of fiscal year 2017. The Company believes its Biopharma Service revenue could be affected by the new standard. The Company is presently evaluating its Biopharma Service contacts for multiple elements and variable consideration provisions that may affect the timing of revenue recognition subsequent to ASU 2014-09's adoption. The Company expects to adopt the new standard on January 1, 2018, using the modified retrospective approach, which involves applying the new standard to all contracts initiated on or after the effective date and recording an adjustment to opening equity for pre-existing contracts that have remaining obligations as of the effective date. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) “Clarifying the Definition of a Business.” ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The updated standard is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the effect this standard will have on the consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) “Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides guidance on statement of cash flow presentation for eight specific cash flow issues where diversity in practice exists. The updated standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the effect this standard will have on the consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718) “Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. The updated standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. We do not expect ASU 2016-09 to have a material impact on our financial statements. In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): “Simplifying the Accounting for Goodwill Impairment,” which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted and applied prospectively. We do not expect ASU 2017-04 to have a material impact to our financial statements. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): “Restricted Cash,” clarifying the treatment of restricted cash accounts on the statements of cash flows. ASU 2016-18 indicates that restricted cash accounts should be included with cash and cash equivalents when reconciling the beginning of year and end of year total amounts shown on the statements of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017. The Company is currently evaluating the effect this standard will have on the consolidated financial statements. Earnings (loss) per share : Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares assumed to be outstanding during the period of computation. Diluted earnings per share is computed similar to basic earnings per share except that the numerator is adjusted for the change in fair value of the warrant liability (only if dilutive) and the denominator is increased to include the number of dilutive potential common shares outstanding during the period using the treasury stock method. Basic net loss and diluted net loss per share data were computed as follows (in thousands, except per share amounts): 2016 2015 Numerator: Net (loss) for basic earnings per share $ (15,803 ) $ (20,184 ) Less change in fair value of warrant liability — 35 Net (loss) for diluted earnings per share $ (15,803 ) $ (20,219 ) Denominator: Weighted-average basic common shares outstanding 15,861 10,298 Assumed conversion of dilutive securities: Common stock purchase warrants — 1 Potentially dilutive common shares — 1 Denominator for diluted earnings per share—adjusted weighted-average shares 15,861 10,299 Basic net loss per share $ (1.00 ) $ (1.96 ) Diluted net loss per share $ (1.00 ) $ (1.96 ) The following table summarizes potentially dilutive adjustments to the weighted average number of common shares which were excluded from the calculation (in thousands): 2016 2015 Common stock purchase warrants 7,033 4,372 Stock options 2,198 1,961 Restricted shares of common stock 80 121 9,311 6,454 |