2. Summary of Significant Accounting Policies

Basis of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Response Genetics, Ltd., a Scottish corporation (the “Subsidiary”), which was incorporated in November 2006. The Subsidiary had no employees or active operations in 2014 or to date in 2015. All significant intercompany transactions and balances have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity date of three months or less from the date of purchase to be cash equivalents. The carrying value of cash equivalents approximates fair value due to the short-term nature and liquidity of these instruments. The Company’s cash equivalents are comprised of cash on hand, deposits in banks and money market investments.

Accounts Receivable

Pharmaceutical Accounts Receivable

The Company invoices its clients as specimens are processed and any other contractual obligations are met. The Company’s contracts with clients typically require payment within 45 days of the date of invoice. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its clients to make required payments. The Company specifically analyzes accounts receivable and historical bad debts, client credit, current economic trends and changes in client payment trends when evaluating the adequacy of the allowance for doubtful accounts. Account balances are charged-off against the allowance when it is probable the receivable will not be recovered. To date, the Company’s pharmaceutical customers have primarily been large pharmaceutical companies. As a result, bad debts from pharmaceutical accounts receivable to date have been minimal. Pharmaceutical company accounts receivable as of December 31, 2014 and March 31, 2015 were $1,037,834 and $454,773, respectively. There were no allowances for doubtful accounts recorded against these pharmaceutical accounts receivable at December 31, 2014 and March 31, 2015.

ResponseDX^® Accounts Receivable

ResponseDX^® accounts receivable are recorded from two primary payors: (1) Medicare and (2) third party payors such as commercial insurance and private payors or self-paying payors (“Private Payors”). ResponseDX^® accounts receivable are recorded at established billing rates less an estimated billing adjustment, based on reporting models utilizing historical cash collection percentages and updated for current effective reimbursement factors. Management performs ongoing valuations of accounts receivable balances based on management’s evaluation of historical collection experience and industry trends. Based on the historical experience for our accounts, management has determined, based on a detailed analysis, that accounts receivable associated with certain billings are unlikely to be collected. Therefore, the Company has recorded an allowance for doubtful accounts of $2,071,706 and $2,226,890 as of December 31, 2014 and March 31, 2015, respectively. The Company’s bad debt expense for the three months ended March 31, 2014 and 2015 was $1,293,850 and $1,902,144, respectively.

ResponseDX^® accounts receivable as of December 31, 2014 and March 31, 2015, consisted of the following:

	December 31, 2014			March 31, 2015

Net Medicare receivable	$	2,814,989		$	2,191,781
Net Private Payor receivable		6,029,300			5,639,447
		8,844,289			7,831,228
Allowance for doubtful accounts		(2,071,706	)		(2,226,890	)
Total	$	6,772,583		$	5,604,338

At December 31, 2014 and March 31, 2015, all Medicare accounts receivable outstanding for a period of greater than one year have been reserved 100%.

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line methods over the estimated useful lives of the assets. The Company has determined the estimated useful lives of its property and equipment, as follows:

Laboratory equipment		5 to 7 years
Furniture and equipment		3 to 7 years
Purchased and internally-developed software		3 to 5 years
Leasehold improvements		Shorter of the useful life (5 to 7 years) or the lease term

Maintenance and repairs are charged to expense as incurred. The cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the related accounts and the resulting gain or loss is reflected in the statements of operations. The Company has capitalized costs related to the development of database software (see Note 3). The portion of this database placed into service is amortized in accordance with ASC 350-40, Internal-Use Software. The amortization period is five years using the straight-line method.

Revenue Recognition

Pharmaceutical Revenue

Revenues that are derived from testing services provided to pharmaceutical companies are recognized on a contract specific basis pursuant to the terms of the related agreements. Revenue is recognized in accordance with ASC 605, Revenue Recognition, which requires 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 client or services have been rendered; (3) the price is fixed or determinable; and (4) collectability is reasonably assured.

Revenues are recorded on an accrual basis as the contractual obligations are completed and as a set of assays is processed through the Company’s laboratory under a specified contractual protocol and are recorded on the date the tests are completed. Certain contracts have minimum assay requirements that, if not met, result in payments that are due upon the completion of the designated period. In these cases, revenues are recognized when the end of the specified contract period is reached.

On occasion, the Company may enter into a contract that requires the client to provide an advance payment for specimens that will be processed at a later date. In these cases, the Company records this advance as deferred revenue and recognizes the revenue as the specimens are processed or at the end of the contract period, as appropriate. There was no deferred revenue at December 31, 2014 or March 31, 2015.

The Company recorded revenue from pharmaceutical clients for the three months ended March 31, 2014 and 2015 of $577,381 and $462,093, respectively.

ResponseDX^® Revenue

The Company recognizes revenues when (a) the price is fixed or determinable, (b) persuasive evidence of an arrangement exists, (c) the service is performed and (d) collectability of the resulting receivable is reasonably assured. The Company’s specialized diagnostic services are performed based on a written test requisition form or electronic equivalent and revenues are recognized once the diagnostic services have been performed, and the results have been delivered to the ordering physician.

Services are provided to certain patients covered by various third-party payer programs including various managed care organizations, commercial insurance plans and Medicare programs. Billings for services under third-party payer programs are included in revenue net of allowances for contractual discounts and allowances for differences between the amounts billed and estimated payment amounts. Significant judgment is inherent in the selection of assumptions and the interpretation of historical experience as well as the identification of external and internal factors affecting the determination of these reserves for Medicare, private health insurance companies, healthcare institutions, and patients.

The Company reports revenues from contracted payers, including Medicare, certain insurance companies and certain healthcare institutions, based on the contractual rate, or in the case of Medicare, published fee schedules. The Company reports revenues from non-contracted payers, including certain insurance companies and individuals, based on the amount expected to be collected. The difference between the amount billed and the amount estimated to be collected from non-contracted payers is recorded as a contractual allowance to arrive at the reported net revenues. The expected revenues from non-contracted payers are based on the historical collection experience of each payer or payer group, as appropriate. The assumptions used to determine these contractual allowances are reasonable considering known facts and circumstances. If actual future payments are less than the estimates the Company made at the time of recognizing revenue, the consolidated financial position, results of operations and cash flows may be negatively impacted. If actual future payments are materially different from the contracted amounts or estimates, the difference is accounted for as a change in estimate in the period in which they become known. Adjustments to the estimated payment amounts based on final settlement are recorded upon settlement as an adjustment to revenue.

For the three months ended March 31, 2014 and 2015, approximately 39% and 42%, respectively, of the Company's ResponseDX^® revenues were derived directly from the Medicare program. The Company’s Medicare provider number allows it to invoice and collect from Medicare. The Company’s invoicing to Medicare is primarily based on amounts allowed by Medicare for the service provided as defined by Common Procedural Terminology (“CPT”). Laws and regulations governing the Medicare program and healthcare generally are complex and subject to interpretation.

The following details ResponseDX^® revenue for the periods indicated:

	Three Months
	Ended March 31,

	2014		2015

Net Medicare revenue	$	1,308,422	$	1,408,241

Net Private Payor revenue		2,009,131		1,920,270

Net ResponseDX^® revenue	$	3,317,553	$	3,328,511

The Company recognizes revenue for services covered by Medicare based on the Medicare fee schedule. For 2014, the Company’s Medicare fees were based on the Centers for Medicare and Medicaid Services (“CMS”) proposed “Medicare Program; Revisions to Payment Policies under the Physician Fee Schedule, Clinical Laboratory Fee Schedule & Other Revisions to Part B for CY 2014” released in July 2013. For the three months ended March 31, 2015, the Company’s fees were based on the Centers for Medicare and Medicaid Services (“CMS”) fee schedules released in December 2014.

The Company updates its estimates of Medicare fees based on current information from CMS. The nature of the testing services the Company provides, the evidence the Company gathers to establish the creditworthiness of its payors and the delivery method of its services have not changed from prior periods, and therefore these assumption remain appropriate.

Cost of Revenue

Cost of revenue represents the cost of materials, direct labor, royalties, costs associated with processing tissue specimens including pathological review, staining, microdissection, paraffin extraction, reverse transcription polymerase chain reaction (“PCR”), fluorescence in situ hybridization (“FISH”), quality control analyses, license fees and delivery charges necessary to render an individualized test result. Costs associated with performing tests are recorded as the tests are processed.

License Fees

The Company has licensed technology for the extraction of ribonucleic acid (“RNA”) from formalin-fixed, paraffin-embedded tumor specimens from the University of Southern California (“USC”). Under the terms of the license agreement, the Company is required to pay royalties to USC calculated as a fixed percentage of the net sales price as defined in the agreement that the Company generates by using this technology. Total license fees expensed in cost of revenue under the license agreement with USC were $10,961 and $5,508 for the three months ended March 31, 2014 and 2015, respectively. The Company also maintains a non-exclusive license to use certain patents related to the PCR of Roche Molecular Systems, Inc. (“Roche”). The Company pays Roche a royalty fee based on revenue that the Company generates through use of this technology. The Company accrues for such royalties at the time revenue is recognized. Royalties expensed in cost of revenue under the Roche agreement totaled $44,373 and $16,265 for the three months ended March 31, 2014 and 2015, respectively. Such royalties are included in cost of revenues in the accompanying statements of operations.

The Company is subject to potentially significant variations in royalties recorded in any period. While the amount paid is based on a fixed percentage of net sales price as defined in the agreement of specific tests pursuant to terms set forth in the agreements with USC and Roche, the amount due is calculated based on the revenue we recognize using the respective licensed technology. As discussed above, this revenue can vary from period to period as it is dependent on the timing of the specimens submitted by our clients for testing.

Additionally, the Company periodically analyzes the technical procedures performed in its test offerings to assess which activities utilize licensed technologies and to calculate royalties for use of the licensed technology. The most recent analyses indicate that the Company could owe less than the amounts that have been accrued for royalties payable. Roche is still reviewing the Company’s updated royalty calculations. It is possible that based on Roche’s review and the Company’s discussions with Roche, the Company may further adjust its Roche royalty accrual.

Research and Development

The Company expenses costs associated with research and development activities as incurred. Research and development costs are expensed as incurred and classified as research and development costs. Research and development costs include employee costs (salaries, payroll taxes, benefits, and travel), equipment depreciation and maintenance, laboratory supplies, primers and probes, reagents, patent costs and occupancy costs.

Line of Credit

On July 14, 2011, the Company entered into a line of credit agreement with Silicon Valley Bank (the “Bank”), which agreement has been amended most recently on July 30, 2014. The line of credit is collateralized by all of the Company’s assets including its pharmaceutical, Private Payor and Medicare receivables. The maximum amount that can be borrowed from the line of credit is $2,000,000, subject to certain conditions. As of December 31, 2014 and March 31, 2015, the Company had drawn $1,500,000 and $1,465,662, respectively, against the line of credit. As of December 31, 2014 and March 31, 2015, the available amount the Company can draw from the line of credit was $500,000 and $463,677, respectively, calculated as the lesser of (i) the Company’s calculated borrowing base, which was 80% of certain of the Company’s accounts receivable, or (ii) the amount available under the line of credit. During the first half of 2014, the interest rate charged to the Company on the line of credit was 5%, calculated by reference to the prime rate plus 1.75%. For the latter half of 2014 and the three months ended March 31, 2015, the rate charged to the Company was 5.5%, calculated by reference to the prime rate plus 2.25%. The line of credit’s maturity date is July 25, 2016.

The line of credit is subject to various covenants, including financial covenants that require the Company to maintain (i) an adjusted quick ratio of at least 1.25 to 1.00; (ii) quarterly rolling twelve-month net revenue balances beginning December 31, 2014; and (iii) quarterly minimum liquidity of $1,000,000. The Company’s revenue covenant and liquidity covenant under the line of credit agreement conform with, and are cross-defaulted with equivalent covenants under the SWK Credit Agreement (as described below.) At December 31, 2014 and March 31, 2015, the Company was in compliance with its covenants under the line of credit agreement. Historically, however, the Company has been out of compliance with certain covenants from time to time, and the Company has received waivers and forbearance agreements from the Bank.

From time to time, the Company’s calculated borrowing base under its Bank line of credit may decrease to a level where the Company is in an over-advance position in which case the Company will be required to repay any outstanding amounts greater than the calculated borrowing base for such covered period back to the Bank immediately. The Company will be able to draw down on the credit line again with respect to such paid-back amount once the Company is in compliance with the borrowing base requirement.

As of December 31, 2014 and March 31, 2015, the line of credit under the credit agreement was classified as a non-current liability of the Company on the accompanying condensed consolidated balance sheet as the line of credit had a maturity date of greater than one year from the date of the balance sheet.

SWK Term Loan

On July 30, 2014 (the “Closing Date”), the Company entered into a credit agreement (the “SWK Credit Agreement”) with SWK Funding LLC, as the administrative agent (the “Agent” or “SWK”), and the lenders (including SWK) party thereto from time to time (the “Lenders”). The SWK Credit Agreement provides for a multi-draw term loan to the Company (the “Loan”) up to a maximum principal amount of $12,000,000 (the “Loan Commitment Amount”). On the Closing Date, the Lenders advanced the Company an amount equal to $8,500,000 which is due and payable on July 30, 2020 (the “Term Loan Maturity Date”) or such earlier date on which the Loan Commitment Amount is terminated pursuant to the terms of the SWK Credit Agreement. On February 3, 2015 (the “Amendment Closing Date”), the Company and SWK entered into a first amendment (the “Amendment”) to the SWK Credit Agreement. Pursuant to the Amendment, the Company drew an additional $1,500,000 of the Loan Commitment Amount thereby increasing the total amount advanced to the Company under the SWK Credit Agreement to $10,000,000.

The Loan bears interest at a rate equal to the LIBOR Rate (as defined in the SWK Credit Agreement) plus an applicable margin of 12.5% per annum, subject to a one percent (1.0%) LIBOR floor. Interest on the Loan is due and payable in arrears (i) on the forty-fifth (45th) day following the last calendar day of each of the months of September, December, March, and June, commencing on November 15, 2014, (ii) upon a prepayment of the Loan and (iii) on the Term Loan Maturity Date. At December 31, 2014 and March 31, 2015, the interest rate charged to the Company was 13.5%. Upon the earlier of (a) the Term Loan Maturity Date or (b) full repayment of the Loan, the Company is also required to pay an exit fee. On September 9, 2014, SWK, in its capacity as the initial Lender, assigned part of its interests under the SWK Credit Agreement to SG-Financial, LLC (“SG”). Pursuant to the assignment, SG was assigned $2,500,000 of the $8,500,000 Closing Date initial advance to the Company and $1,029,412 of the subsequent term loan commitment. On January 30, 2015, SG assigned all of its interests under the SWK Credit Agreement back to SWK.

On the Closing Date, the Company issued to the Agent a warrant (the “Initial Warrant”) to purchase up to 681,090 shares of the Company's common stock. The Initial Warrant was exercisable, in whole or in part, from the date of issuance until and including July 30, 2020 at an exercise price of $0.936 per share, subject to adjustment. The Initial Warrant was valued at $414,239, or approximately $0.61 per covered share, using a Black-Scholes pricing model with the following assumptions: 2.01% risk free rate, 0% dividend, 101.5% volatility, and six-year expected life. The value of the warrant was recorded on the balance sheet included in additional paid-in capital. On September 9, 2014, the Agent assigned a portion of the Initial Warrant consisting of the right to purchase 200,321 shares of common stock to SG (the “SG Initial Warrant”). On January 30, 2015, SG assigned the SG Initial Warrant back to the Agent and on the Amendment Closing Date, the Company replaced the Initial Warrant to purchase the total 681,090 shares of the Company’s common stock with a new warrant with an adjusted exercise price (the “Replacement Warrant”). The Replacement Warrant is exercisable up to and including July 30, 2020 at an exercise price of $0.39 per share. The Agent may exercise the Replacement Warrant on a cashless basis at any time. In the event the Agent exercises the Replacement Warrant on a cashless basis, the Company will not receive any proceeds. The exercise price of the Replacement Warrant is subject to customary adjustments for stock splits, stock dividends, recapitalizations and the like.

For accounting purposes, the proceeds received in the July 2014 transaction were allocated to the liability for debt, a debt issuance discount and additional paid-in capital for the warrant based upon the relative fair value of the loan and the warrant. The amounts recorded in the financial statements were $8,500,000 for loan liability, $576,161 for debt issuance discount and $377,140 to additional paid-in capital for the warrant. Additionally, the Company recorded deferred loan issuance costs of $187,092 for investment banker fees and legal fees incurred to enter into the SWK Credit Agreement. The debt issuance discount and the deferred issuance costs are being amortized to interest expense over the six-year term of the loan. Upon the re-issuance of the Replacement Warrant on February 3, 2015 at a reduced exercise price of $0.39, the debt issuance discount was re-valued at $599,305 and a $23,144 increase in the warrant value was recorded as an increase to debt discount and additional paid-in capital. The Replacement Warrant transaction was determined to be a debt modification.

In addition, on the Amendment Closing Date, the Company issued the Agent a new warrant (the “First Amendment Warrant”) to purchase 576,923 shares of Common Stock. The First Amendment Warrant is exercisable up to and including February 3, 2021 at an exercise price of $0.39 per share, subject to adjustment. The First Amendment Warrant was valued at $167,712, or approximately $0.29 per covered share, using a Black-Scholes pricing model with the following assumptions: 1.39% risk free rate, 0% dividend, 90.9% volatility and six-year expected life. The value of the warrant was recorded on the balance sheet included in additional paid-in capital. The Agent may exercise the First Amendment Warrant on a cashless basis at any time. In the event the Agent exercises the First Amendment Warrant on a cashless basis, the Company will not receive any proceeds. The exercise price of the First Amendment Warrant is subject to customary adjustments for stock splits, stock dividends, recapitalizations and the like.

Additionally, for accounting purposes, the proceeds received in the February 2015 transaction were allocated to the liability for debt, a debt issuance discount and additional paid-in capital for the warrant based upon the relative fair value of the loan and the warrant. The amounts recorded in the financial statements were $1,500,000 for loan liability, $168,372 for debt issuance discount and $148,887 to additional paid-in capital for the warrant. Additionally, the Company recorded deferred loan issuance costs of $19,485 for investment banker fees and legal fees incurred to enter into the Amendment. The debt issuance discount and the deferred issuance costs are being amortized to interest expense over the six-year term of the loan.

The Company may prepay the Loan, in whole or in part, upon five business days’ written notice provided that a prepayment premium is paid to the Lenders as set forth in the SWK Credit Agreement. The Company is required to prepay the Loan with any net cash proceeds received from certain types of dispositions of assets described in the SWK Credit Agreement. The Company is also required to make certain revenue-based payments on the Company’s quarterly revenues, applied in the following priority: (i) first, to the payment of all fees, costs, expenses and indemnities due and owing to the Agent under the SWK Credit Agreement, (ii) second, to the payment of all fees, costs, expenses and indemnities due and owing to the Lenders under the SWK Credit Agreement, (iii) third, to the payment of all accrued but unpaid interest until paid in full, (iv) fourth, for each revenue-based payment date after August 2016, to the payment of all principal of the Loan up to an aggregate amount of $750,000 on any such payment date and (v) fifth, all remaining amounts to the Company.

As of December 31, 2014 and March 31, 2015, the term debt under SWK Credit Agreement was classified as a non-current liability of the Company on the accompanying balance sheet as the repayment terms are based on future revenues that cannot be reasonably estimated and therefore all outstanding amounts are classified as non-current.

The SWK Credit Agreement contains customary affirmative and negative covenants for credit facilities of its type, including covenants that limit the Company’s ability to pay dividends or redeem outstanding equity interests, incur additional indebtedness, grant additional liens, engage in any other type of business, make investments, merge, consolidate or sell all or substantially all of its assets and enter into transactions with related parties. The SWK Credit Agreement also contains certain financial covenants, including certain minimum aggregate revenue requirements. The Company was in compliance with these covenants at December 31, 2014 and March 31, 2015.

The SWK Credit Agreement includes customary events of default, including failure to pay principal, interest or fees when due, failure to comply with covenants, default under certain other indebtedness, certain insolvency or bankruptcy events, the occurrence of certain material judgments, the institution of any proceeding by a government agency or a change of control of the Company that is not otherwise permitted under the SWK Credit Agreement.

Refer to Note 11 to these unaudited condensed consolidated financial statements for a description of the second amendment to the SWK Credit Agreement, dated April 3, 2015, pursuant to which the Company drew the remaining $2,000,000 of the Loan Commitment Amount and issued certain of the Lenders warrants to purchase an aggregate 2,702,702 shares of Common Stock.

Income Taxes

Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

ASC 740, Income Taxes, clarifies the accounting for uncertainty in income taxes recognized in financial statements and requires the impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority. As of December 31, 2014 and March 31, 2015, the Company does not have a liability for unrecognized tax benefits. The Company recognizes interest and penalties associated with tax matters as part of the income tax provision, and includes accrued interest and penalties with the related tax liability in the balance sheet. For the periods ended March 31, 2014 and 2015, there were no interest and penalties recorded in the Condensed Consolidated Statement of Operations.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Stock Compensation, Share-Based Payment. Stock-based compensation expense for all stock-based compensation awards granted is based on the grant-date fair value estimated in accordance with the provisions of ASC 718. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the option vesting period. As further described in Note 7, certain awards granted to Thomas A. Bologna, the Company’s Chairman and Chief Executive Officer, were recognized based on an accelerated vesting basis triggered by market conditions rather than a straight-line basis.

The Company accounts for equity instruments issued to non-employees in accordance with ASC 505, Equity. Under ASC 505, stock option awards issued to non-employees are measured at fair value using the Black-Scholes option-pricing model and recognized pursuant to a performance model.

Management Estimates

The preparation of financial statements in conformity with U.S. GAAP 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 in these condensed consolidated financial statements have been made for revenue, allowances for doubtful accounts, impairment of long-lived assets, depreciation of property and equipment and stock-based compensation. Actual results could differ materially from those estimates.

Long-lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates potential impairment by comparing the carrying amount of the asset with the estimated undiscounted future cash flows associated with the use of the asset and its eventual disposition. Should the review indicate that the assets cost is not recoverable, the carrying value of the asset would be reduced to its fair value, which is measured by future discounted cash flows.

Foreign Currency Translation

The financial position and results of operations of the Company’s foreign subsidiary are determined using local currency as the functional currency. Assets and liabilities of these operations are translated at the exchange rate in effect at each period-end. Statement of Operations amounts are translated at the average rate of exchange prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive loss in stockholders’ deficit.

Comprehensive Loss

The components of comprehensive loss are accumulated net loss and foreign currency translation adjustments for the three months ended March 31, 2014 and 2015.

Fair Value of Financial Instruments

Cash and cash equivalents are stated at cost, which approximates fair market value. Cash equivalents consist of money market accounts, with fair values estimated based on quoted market prices. Debt balances are stated at historical amounts less principal payments, which approximate fair market value. The Company believes interest rates in its debt agreements are commensurate with lender risk profiles for similar companies.

Advertising Costs

The Company markets its services through its advertising activities in trade publications and on the internet. Advertising costs are included in selling and marketing expenses on the statements of operations and are expensed as incurred. Advertising costs for the three months ended March 31, 2014 and 2015 were $6,422 and $17,124, respectively.

Concentration of Credit Risk and Clients and Limited Suppliers

Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances. At March 31, 2015, the Company had $1,476,222 in cash and cash equivalents that exceeded federally insured limits. At March 31, 2015, $7,803 of cash was held outside of the United States.

Revenue sources that account for greater than 10 percent of total revenue are provided below.

	Three Months Ended March 31,
	2014					2015
	Revenue		Percent of Total Revenue			Revenue		Percent of Total Revenue
Medicare, net of contractual allowances	$	1,308,422		34	%	$	1,408,241		37	%

Customers that account for greater than 10 percent of gross accounts receivable are provided below.

	As of December 31, 2014					As of March 31, 2015
	Receivable Balance		Percent of Gross Receivables			Receivable Balance		Percent of Gross Receivables
Medicare, net of contractual allowances	$	2,814,989		29	%	$	2,191,781		26	%

Many of the supplies and reagents used in the Company’s testing process are procured from a limited number of suppliers. Any supply interruption or an increase in demand beyond the suppliers’ capabilities could have an adverse impact on the Company’s business. Management believes it can identify alternative sources, if necessary, but it is possible such sources may not be identified in sufficient time to avoid an adverse impact on its business. The Company purchases certain laboratory supplies and reagents primarily from a limited number of suppliers. The Company made approximately 73% of its reagent purchases from four suppliers during the year ended December 31, 2014 and made approximately 70% of its reagent purchases from three suppliers during the three months ended March 31, 2015.

Recent Accounting Pronouncements

In April 2015, the FASB issued ASU 2015-03 “Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires an entity to present debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The amendment will be effective for the Company’s annual and interim reporting periods beginning January 1, 2016 and should applied on a retrospective basis. The adoption of ASU 2015-03 will not have any impact on the Company’s results of operations, but will result in debt issuance costs being presented as a direct reduction from the carrying amount of debt liabilities. This standard will not have a material impact on the Company’s consolidated financial statements.

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which modifies how all entities recognize revenue, and consolidates into one Accounting Standards Codification ("ASC") Topic (ASC Topic 606, Revenue from Contracts with Customers) the current guidance found in ASC Topic 605, Revenue Recognition, and various other revenue accounting standards for specialized transactions and industries. The core principle of the guidance is that “an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” In achieving this objective, an entity must perform five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations of the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 also clarifies how an entity should account for costs of obtaining or fulfilling a contract in a new ASC Subtopic 340-40, Other Assets and Deferred Costs – Contracts with Customers.

ASU 2014-09 is effective for public companies for annual periods beginning after December 15, 2016 and interim periods within those annual periods, and early adoption is not permitted. ASU 2014-09 may be applied using either a full retrospective approach, in which all years included in the financial statements are presented under the revised guidance, or a modified retrospective approach. Under the modified retrospective cumulative catch-up approach, financial statements will be prepared using the new standard for the year of adoption, but not for prior years. Under this method, entities will recognize a cumulative catch-up adjustment to the opening balance of retained earnings at the effective date for contracts that still require performance by the Company and disclose all line items in the year of adoption as if they were prepared under the old revenue guidance. The Company is currently evaluating the impact of ASC 606, but at the current time does not know what impact the new standard will have on revenue recognized and other accounting decisions in future periods, if any, nor what method of adoption will be selected if the impact is material.

In August 2014, the Financial Accounting Standards Board issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-09”). ASU 2014-15 provides guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the financial statements are issued. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter; earlier adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial condition, results of operations or cash flows.