Summary of Significant Accounting Policies


(a)	Description of the Business

Hooper Holmes, Inc. and its subsidiaries (“Hooper Holmes” or the "Company”) mobilize a national network of health professionals to provide on-site health screenings, laboratory testing, risk assessment and sample collection services to wellness and disease management companies, insurance companies, employers, government organizations and academic institutions. The Company also conducts laboratory testing, assembles collection kits, conducts telephone interviews of life insurance applicants, compiles health histories, collects medical records and provides underwriting services to help life insurance companies evaluate underwriting risks.

On September 30, 2013, the Company completed the sale of certain assets comprising its Portamedic service line. The Portamedic service line is accounted for as a discontinued operation in this Report. Accordingly, the assets and liabilities of Portamedic that were sold have been reclassified and are reported as assets and liabilities held for sale on the December 31, 2012 consolidated balance sheet. The operating results of Portamedic are segregated and reported as discontinued operations in the accompanying consolidated statements of operations for all periods presented. For further discussion on Discontinued Operations, refer to Notes 2 and 5.

Following the sale of the Portamedic service line, the Company reassessed its segment reporting. Beginning in the fourth quarter of 2013, the Company has reported its financial results in three segments: Health and Wellness, Heritage Labs and Hooper Holmes Services. Previously reported financial statement amounts have been reclassified to reflect the new segment determination for all periods presented in this Report. For further discussion on Segments, refer to Note 15.


(b)	Principles of Consolidation

The consolidated financial statements include the accounts of Hooper Holmes, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.


(c)	Cash and Cash Equivalents

The Company considers highly liquid investments with original maturities at the date of purchase of less than 90 days to be cash equivalents.


(d)	Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains allowances for doubtful accounts for (i) estimated losses resulting from the inability of our customers to make required payments and (ii) estimated amounts that customers may deduct from their remittances to the Company for billed items not in compliance with customer specifications. Allowances for uncollectible accounts are estimated based on the Company's periodic review of accounts receivable historical losses, current receivables aging and existing industry and economic data. Account balances are charged off to the allowance after all means of collections have been exhausted and potential for recovery is considered remote. Customer billing adjustments are recorded against revenue whereas adjustments for bad debts are recorded within selling, general and administrative expenses. Accounts receivable are net of an allowance for doubtful accounts and pricing adjustments totaling $0.2 million and $0.7 million as of December 31, 2013 and 2012, respectively. The Company does not have any off-balance sheet credit exposure related to its customers.


(e)	Inventories

Inventories, which consist of finished goods and component inventory, are stated at the lower of average cost or market. Included in inventories at December 31, 2013 and 2012 are $0.4 million and $0.4 million, respectively, of finished goods and $1.0 million and $0.9 million, respectively, of components.


(f)	Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the assets’ estimated useful lives. Leasehold improvements are amortized over the shorter of the estimated useful life of the improvement or the remaining lease term. The cost of maintenance and repairs is charged to operations as incurred.

Internal use software and website development costs are capitalized and included in property, plant and equipment in the consolidated balance sheet. These assets are depreciated over the estimated useful life of the asset using the straight-line method. Subsequent modifications or upgrades to internal use software are capitalized only to the extent that additional functionality is provided.


(g)	Long-Lived Assets

Long-lived assets, including intangible assets with determinable useful lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets and is charged to earnings. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the costs to sell. Intangible assets with determinable useful lives are amortized on a straight line basis over their respective estimated useful lives and were fully amortized as of December 31, 2012. Amortization expense from continuing operations of $0.2 million and $0.2 million was recorded for the years ended December 31, 2012 and 2011, respectively.


(h)	Deferred Rent

The Company accounts for scheduled rent increases contained in its leases on a straight-line basis over the term of the lease.


(i)	Advertising

Costs related to space in publications are expensed as incurred. Advertising expense included in continuing operations was approximately $0.1 million, $0.2 million and $0.2 million in 2013, 2012 and 2011, respectively.


(j)	Revenue Recognition

Revenue is recognized for Health and Wellness services when the wellness screening is completed and the results are delivered to customers. Revenues generated from medical record collection, laboratory testing, fingerstick test kits and other services are recognized when the related service is completed and the results are delivered to our customers. Revenue for kit assembly in Heritage Labs is recorded upon shipment to the customers. In all cases, there must be evidence of an agreement with the customer, the sales price must be fixed or determinable, delivery of services must occur and the ability to collect must be reasonably assured.

Sales tax collected from customers and remitted to governmental authorities is accounted for on a net basis and therefore is excluded from revenues in the consolidated statements of operations.


(k)	Share-Based Compensation

The Company recognizes share-based compensation cost on a straight-line basis over the vesting period. Compensation cost is measured at the grant date based on the fair value of the award.


(l)	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 in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the tax authorities. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in income tax expense.


(m)	(Loss) Earnings per Common Share

Basic (loss) earnings per share equals net (loss) income divided by the weighted average common shares outstanding during the period. Diluted (loss) earnings per share equals net (loss) income divided by the sum of the weighted average common shares outstanding during the period plus dilutive common stock equivalents. The computation of basic and diluted (loss) earnings per share for the three years ended December 31, 2013 is included in the table below. The calculation of (loss) earnings per common share on a basic and diluted basis was the same as there was no impact of dilutive common stock equivalents for all periods presented.



			For the Years Ended December 31,
			2013			2012			2011
(Loss) earnings - basic and diluted:
	Loss from continuing operations		$	(10,255	)	$	(7,077	)	$	(7,802	)
	(Loss) income from discontinued operations		(1,020		)	(10,521		)	4,278
	Net loss		$	(11,275	)	$	(17,598	)	$	(3,524	)

Weighted average shares outstanding:
	Weighted average shares outstanding - basic		69,965,814			69,743,897			69,628,135
	Effect of dilutive common stock options
		and restricted stock	—			—			—
	Weighted average shares outstanding - diluted		69,965,814			69,743,897			69,628,135

Basic and diluted (loss) earnings per share:
	Continuing operations		$	(0.15	)	$	(0.10	)	$	(0.11	)
	Discontinued Operations		$	(0.01	)	$	(0.15	)	$	0.06
	Net loss		$	(0.16	)	$	(0.25	)	$	(0.05	)

Outstanding options to purchase approximately 3,455,000, 5,171,000 and 4,028,000 shares of the Company's common stock were excluded from the calculation of diluted (loss) earnings per share for the years ended December 31, 2013, 2012 and 2011, respectively, because their exercise prices exceeded the average market price of the Company's common stock for such periods and therefore were antidilutive.


(n)	Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable as well as the Holdback Amount, property, plant and equipment, deferred tax assets and the assessment of contingencies, among others. These estimates and assumptions are based on the Company’s best estimates and judgment. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which the Company believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates will be reflected in the consolidated financial statements in future periods.


(o)	Concentration of Credit Risk

The Company’s accounts receivable are due primarily from healthcare and insurance companies. As of December 31, 2013, there were three customer balances that each accounted for more than 10% of the total consolidated accounts receivable. The accounts receivable balance for these three customers represented approximately 42% of total consolidated accounts receivable as of December 31, 2013. For the year ended December 31, 2013, there was one customer in the Health and Wellness segment that exceeded 10% of revenue from continuing operations. For the year ended December 31, 2012, there were two customers in the Health and Wellness segment that exceeded 10% of revenue from continuing operations. For the year ended December 31, 2011, no one customer accounted for more than 10% of the revenue from continuing operations. As of December 31, 2012, no one customer accounted for more than 10% of the total consolidated accounts receivable.