Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2013

Summary of Significant Accounting Policies

Net Loss

Net Loss

The Company computes net loss per share in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 260, Earnings Per Share.  The following summarizes the potential outstanding common stock of the Company at September 30, 2013 and 2012:

	September 30, 2013	September 30, 2012
Common stock options and restricted stock units outstanding	4,163,020	4,007,984
Common stock options and restricted stock units available for grant	2,329,786	1,685,904
Common stock	25,723,376	25,018,341
Total	32,216,182	30,712,229

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by giving effect to all potential dilutive common shares, including stock options and warrants, as applicable.

The following table presents the calculation of basic and diluted net loss per share:

	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	2013			2012			2013			2012
	(in thousands, except share and per share amounts)
Numerator:
Net loss	$	(2,956	)	$	(3,121	)	$	(7,342	)	$	(7,853	)
Denominator:
Weighted average shares used in computing diluted net loss per share	25,616,417			24,995,449			25,449,554			24,839,752
Basic and diluted net loss per share	$	(0.12	)	$	(0.12	)	$	(0.29	)	$	(0.32	)

If the outstanding vested options or restricted stock units were exercised or converted into common stock, the result would be anti-dilutive for the three and nine months ended September 30, 2013 and 2012. Accordingly, basic and diluted net loss per share are the same for the three and nine months ended September 30, 2013 and 2012.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents are held in U.S. financial institutions or in custodial accounts with U.S. financial institutions. Cash equivalents are defined as liquid investments and money market funds with maturity from date of purchase of 90 days or less that are readily convertible into cash and have minimal interest rate risk.

Accounts Receivable

Accounts Receivable

Accounts receivable related to the patient services segment are recorded at the time revenue is recognized, net of contractual allowances, and are presented on the balance sheet net of allowance for doubtful accounts. The ultimate collection of accounts receivable may not be known for several months after services have been provided and billed. The Company records allowance for doubtful accounts based on the aging of the receivable using historical customer- specific data as well as current and historical cash collections.

Accounts receivable related to the product and research services segments are recorded at the time revenue is recognized. The Company estimates allowance for doubtful accounts on a specific account basis, and considers several factors in its analysis including customer specific information and aging of the account.

The Company writes off receivables when the likelihood for collection is remote and when the Company believes collection efforts have been fully exhausted and it does not intend to devote additional resources in attempting to collect. The Company performs write-offs on a monthly basis. The Company wrote off $6,769 and $8,479 of receivables for the nine months ended September 30, 2013 and 2012, respectively. The impact was a reduction of gross receivables and a reduction in the allowance for doubtful accounts. There was no impact on the net receivables reported on the balance sheets, or bad debt expense reported on the statement of operations for the nine months ended September 30, 2013 or 2012, as a result of these write-offs. The Company recorded bad debt expense of $5,861 and $9,066 for the nine months ended September 30, 2013 and 2012, respectively.

Inventory

Inventory

Inventory consists of the following:

	September 30,2013		December 31, 2012
Raw materials and supplies	$	3,089	$	2,782
Finished goods	325		112
Total inventories	$	3,414	$	2,894

Inventories, which include purchased parts, materials, direct labor and applied manufacturing overhead, are stated at the lower of cost or net realizable value, with cost determined by use of the first-in, first-out method.

Goodwill

Goodwill

Goodwill is the excess of purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed in a business combination. In accordance with ASC 350, Intangibles—Goodwill and Other, goodwill is reviewed for impairment annually, or when events arise that could indicate that impairment exists. The provisions of ASC 350 require that the Company perform a two-step impairment test. In the first step, the Company compares the fair value of its reporting units to the carrying value of the reporting units. If the carrying value of the net assets assigned to the reporting units exceeds the fair value of the reporting units, then the second step of the impairment test is performed in order to determine the implied fair value of the reporting units’ goodwill. If the carrying value of the reporting units’ goodwill exceeds its implied fair value, an impairment loss equal to the difference is recorded.

For the purpose of performing its goodwill impairment analysis, the Company considers its business to be comprised of three reporting units: patient services, products and research services. The Company calculates the fair value of the reporting units utilizing a weighting of the income and market approaches. The income approach is based on a discounted cash flow methodology that includes assumptions for, among other things, forecasted income, cash flow, growth rates, income tax rates, expected tax benefits and long-term discount rates, all of which require significant judgment. The market approach utilizes the Company’s market data as well as market data from publicly traded companies that are similar to the Company. There are inherent uncertainties related to these factors and the judgment applied in the analysis. The Company believes that the combination of an income and a market approach provides a reasonable basis to estimate the fair value of its reporting units.

Stock-Based Compensation

Stock-Based Compensation

ASC 718, Compensation — Stock Compensation, addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. ASC 718 requires that an entity measure the cost of equity-based service awards based on the grant-date fair value of the award and recognize the cost of such awards over the period during which the employee is required to provide service in exchange for the award (the vesting period). ASC 718 requires that an entity measure the cost of liability-based service awards based on current fair value that is re-measured subsequently at each reporting date through the settlement date. The Company accounts for equity awards issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees.

The Company’s income before and after income taxes for the nine months ended September 30, 2013 and 2012, was reduced by $2,505 and $2,656, respectively, as a result of stock-based compensation expense incurred. The impact of stock-based compensation expense was $(0.10) and $(0.11) on basic and diluted earnings per share for the nine months ended September 30, 2013 and 2012.

The Company estimates the fair value of its share-based awards to employees and directors using the Black-Scholes option valuation model. The Black-Scholes option valuation model requires the use of certain subjective assumptions. The most significant of these assumptions are the estimates of the expected volatility of the market price of the Company’s stock and the expected term of the award. For the nine months ended September 30, 2013 and 2012, the Company based the estimates of expected volatility on the historical average of our stock price. The expected term represents the period of time that stock-based awards granted are expected to be outstanding. Other assumptions used in the Black-Scholes option valuation model include the risk-free interest rate and expected dividend yield. The risk-free interest rate for periods pertaining to the contractual life of each option is based on the U.S. Treasury yield of a similar duration in effect at the time of grant. The Company has never paid, and does not expect to pay, dividends in the foreseeable future.

The Company utilized the Black-Scholes valuation model for estimating the fair value of stock options granted using the following weighted average assumptions:

	Nine Months Ended September 30,
	2013		2012
Expected dividend yield	0	%	0	%
Expected volatility	60	%	61	%
Risk-free interest rate	1.31	%	1.15	%
Expected life	6.73		6.31

Based on the Company’s historical experience of options that cancel before becoming fully vested, the Company has assumed an annualized forfeiture rate of 15% for all options. Under the true-up provision of ASC 718, the Company will record additional expense if the actual forfeiture rate is lower than estimated, and will record a recovery of prior expense if the actual forfeiture rate is higher than estimated.

Based on the above assumptions, the per share weighted average fair value of the options granted under the stock option plan for the nine months ended September 30, 2013 and 2012 was $1.59 and $1.58, respectively.

The following table summarizes activity under all stock award plans from December 31, 2012 through September 30, 2013:

			Options Outstanding
	Shares				Weighted
	Available		Number		Average
	for Grant		of Shares		Exercise Price
Balance — December 31, 2012	1,853,786		3,669,103		$	5.83
Additional options available for grant	1,260,768		—		—
Granted	(884,597	)	884,597		2.54
Canceled	210,990		(210,990	)	6.74
Exercised	—		(61,149	)	2.92
Balance — March 31, 2013	2,440,947		4,281,561		5.14
Granted	(90,000	)	90,000		2.44
Canceled	78,151		(78,151	)	6.80
Exercised	—		(163,887	)	4.90
Balance — June 30, 2013	2,429,098		4,129,523		5.06
Granted	(144,329	)	144,329		5.90
Canceled	45,017		(45,017	)	3.88
Exercised	—		(65,815	)	4.36
Balance — September 30, 2013	2,329,786		4,163,020		$	5.11

Per the plan documents, the 2008 Non-Employee Director Stock Option (NEDS) and Employee Stock Option (ESOP) Plans have an automatic increase in the shares available for grant every January the plans are active. The increase in the shares available for grant under the NEDS plan is equal to the lesser of the number of shares issuable upon the exercise of options granted during the preceding calendar year or such number of shares as determined by the Board of Directors. The increase in the shares available for grant under the ESOP plan is equal to 4% of the total shares outstanding at December 31, 2012.

Additional information regarding options outstanding is as follows:

	September 30, 2013	September 30, 2012
Range of exercise prices (per option)	$0.70 - $31.18	$0.70 - $31.18
Weighted average remaining contractual life (years)	7.74	8.26

Employee Stock Purchase Plan

In 2013, 243,185 shares were purchased in accordance with the Employee Stock Purchase Plan (ESPP). Net proceeds to the Company from the issuance of shares of common stock under the ESPP for the nine months ended September 31, 2013 were $487. In January 2013, the number of shares available for grant was increased by 252,154, per the ESPP documents. At September 30, 2013, approximately 517,456 shares remain available for purchase under the ESPP.