SALES SERVICE REVENUE, NET AND ACCOUNTS RECEIVABLE

3 Months Ended

Mar. 31, 2022

SALES SERVICE REVENUE, NET AND ACCOUNTS RECEIVABLE [Abstract]

SALES SERVICE REVENUE, NET AND ACCOUNTS RECEIVABLE

10. SALES SERVICE REVENUE, NET AND ACCOUNTS RECEIVABLE

ASC Topic 606, “Revenue from contracts with customers”

The Company follows the guidance of ASC 606 for the recognition of revenue from contracts with customers to transfer goods and services. The Company performed a comprehensive review of its existing revenue arrangements following the five-step model:

Step 1: Identification of the contract with the customer.  Sub-steps include determining the customer in a contract, initial contract identification and determining if multiple contracts should be combined and accounted for as a single transaction.  

Step 2: Identify the performance obligation in the contract.  Sub-steps include identifying the promised goods and services in the contract and identifying which performance obligations within the contract are distinct.

Step 3: Determine the transaction price.  Sub-steps include variable consideration, constraining estimates of variable consideration, the existence of a significant financing component in the contract, noncash consideration and consideration payable to a customer.

Step 4: Allocate transaction price.  Sub-steps include assessing the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised goods or services to the customer.

Step 5: Satisfaction of performance obligations.  Sub-steps include ascertaining the point in time when an asset is transferred to the customer and when the customer obtains control of the asset upon which time the Company recognizes revenue.

Nature of Contracts and Customers

The Company’s contracts and related performance obligations are similar for its customers and the sales process for all customers starts upon the receipt of requisition forms from the customers for patient diagnostic testing and the execution of contracts for biomarker testing and clinical research.  Payment terms for the services provided are 30 days, unless separately negotiated.

Diagnostic testing

Control of the laboratory testing services is transferred to the customer at a point in time. As such, the Company recognizes revenue for laboratory testing services at a point in time based on the delivery method (web-portal access or fax) for the patient’s laboratory report, per the contract.

Clinical research grants

Control of the clinical research services are transferred to the customer over time. The Company will recognize revenue utilizing the “effort based” method, measuring its progress toward complete satisfaction of the performance obligation.

Biomarker testing and clinical project services

Control of the biomarker testing and clinical project services are transferred to the customer over time.  The Company utilizes an “effort based” method of assessing performance and measures progress towards satisfaction of the performance obligation based upon the delivery of results.

The Company generates revenue from the provision of diagnostic testing provided to patients, biomarker testing provided to bio-pharma customers and clinical research grants funded by both bio-pharma customers and government health programs.

Reagents and other diagnostic products

Control of reagents and other diagnostic products are transferred to the customer at a point in time and, as such, the Company recognizes these revenues at a point in time based on the delivery method. These revenues include revenues from reagent sets for our HSRR program, COVID-19 antibody tests and other product sales and are included in other revenue in our condensed consolidated statements of operations.

Equipment leasing

The Company accounts for sales-type leases within the scope of ASC 842, Leases, as ASC 606 specifically excludes leases from its guidance. The sales-type leases result in the derecognition of the underlying asset, the recognition of profit or loss on the sale, and the recognition of an investment in leased asset.  Revenue from sales-type leases is recognized upfront on the commencement date of the lease, and is included in other revenue in our condensed consolidated statements of operations. For the three ended March 31, 2022 and 2021, revenue from sales-type leases was zero and less than $0.1 million, respectively.

Disaggregation of Revenues by Transaction Type

We operate in one business segment and, therefore, the results of our operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. Service revenue, net for the three months ended March 31, 2022 and 2021 was as follows:

	For the Three Months Ended March 31,
(dollars in thousands)	Diagnostic Testing				Biomarker Testing				Total
	2022		2021		2022		2021		2022		2021
Medicaid	$	15	$	13	$	—	$	—	$	15	$	13
Medicare		974		984		—		—		974		984
Self-pay		49		47		—		—		49		47
Third party payers		967		900		—		—		967		900
Contract diagnostics		—		—		—		—		—		—
Service revenue, net	$	2,005	$	1,944	$	—	$	—	$	2,005	$	1,944

Revenue from the Medicare and Medicaid programs account for a portion of the Company’s patient diagnostic service revenue. Laws and regulations governing those programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term.

Revenue Recognition

Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience. The Company does not typically enter arrangements where multiple contracts can be combined as the terms regarding services are generally found within a single agreement/requisition form. The Company derives its revenues from the following types of transactions: diagnostic testing (“Diagnostic”), revenues from the Company’s ICP technology and bio-pharma projects encompassing genetic diagnostics (collectively “Biomarker”), revenues from clinical research grants from state and federal research programs and diagnostic product sales, including revenues from equipment leases and reagent sales associated with our HSRR program.

Deferred revenue

Deferred revenue, or unearned revenue, refers to advance payments for products or services that are to be delivered in the future. The Company records such prepayment of unearned revenue as a liability, as revenue that has not yet been earned, but represents products or services that are owed to a customer. As the product or service is delivered over time, the Company recognizes the appropriate amount of revenue from deferred revenue. For the period ended March 31, 2022 and December 31, 2021, the deferred revenue was $21,000 and $18,000, respectively.

Contractual Allowances and Adjustments

We are reimbursed by payers for services we provide. Payments for services covered by payers average less than billed charges. We monitor revenue and receivables from payers and record an estimated contractual allowance for certain revenue and receivable balances as of the revenue recognition date to properly account for anticipated differences between amounts estimated in our billing system and amounts ultimately reimbursed by payers. Accordingly, the total revenue and receivables reported in our condensed consolidated financial statements are recorded at the amounts expected to be received from these payers. For service revenue, the contractual allowance is estimated based on several criteria, including unbilled claims, historical trends based on actual claims paid, current contract and reimbursement terms and changes in customer base and payer/product mix. The billing functions for the remaining portion of our revenue are contracted and fixed fees for specific services and are recorded without an allowance for contractual discounts. The following table presents our revenues initially recognized for each associated payer class during the three months ended March 31, 2022 and 2021.

	For the Three Months Ended March 31,
(dollars in thousands)					Contractual Allowances and				Revenues, net of Contractual
	Gross Revenues				adjustments				Allowances and adjustments
	2022		2021		2022		2021		2022		2021
Medicaid	$	15	$	13	$	—	$	—	$	15	$	13
Medicare		974		984		—		—		974		984
Self-pay		49		47		—		—		49		47
Third party payers		3,385		3,133		(2,418)		(2,233)		967		900
Contract diagnostics		—		—		—		—		—		—
		4,423		4,177		(2,418)		(2,233)		2,005		1,944
Other		522		167		—		—		522		167
	$	4,945	$	4,344	$	(2,418)	$	(2,233)	$	2,527	$	2,111

Allowance for Doubtful Accounts

The Company provides for a general allowance for collectability of services when recording net sales. The Company has adopted the policy of recognizing net sales to the extent it expects to collect that amount. Reference is made to FASB 954-605-45-5 and ASU 2011-07, Health Care Entities: Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debt, and the Allowance for Doubtful Accounts. The change in the allowance for doubtful accounts is directly related to the increase in patient service revenues. The following table presents our reported revenues net of the collection allowance and adjustments for the three months ended March 31, 2022 and 2021.

	For the Three Months Ended March 31,
	Revenues, net of
(dollars in thousands)	Contractual Allowances				Allowances for doubtful
	and adjustments				accounts				Total
	2022		2021		2022		2021		2022		2021
Medicaid	$	15	$	13	$	(7)	$	(8)	$	8	$	5
Medicare		974		984		(24)		(99)		950		885
Self-pay		49		47		—		—		49		47
Third party payers		967		900		(49)		(180)		918		720
Contract diagnostics		—		—		—		—		—		—
		2,005		1,944		(80)		(287)		1,925		1,657
Other		522		167		—		—		522		167
	$	2,527	$	2,111	$	(80)	$	(287)	$	2,447	$	1,824

Costs to Obtain or Fulfill a Customer Contract

Sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded in operating expenses in the condensed consolidated statements of operations.

Shipping and handling costs are comprised of inbound and outbound freight and associated labor. The Company accounts for shipping and handling activities related to contracts with customers as fulfillment costs which are included in cost of sales in the condensed consolidated statements of operations.

Accounts Receivable

The Company has provided an allowance for potential credit losses, which has been determined based on management’s industry experience. The Company grants credit without collateral to its patients, most of who are insured under third party payer agreements.

The following summarizes the mix of receivables outstanding related to payer categories:

(dollars in thousands)	March 31, 2022		December 31, 2021
Medicaid	$	45	$	45
Medicare		963		727
Self-pay		229		139
Third party payers		1,596		2,111
Contract diagnostic services and other		347		159
	$	3,180	$	3,181
Less allowance for doubtful accounts		(2,026)		(2,484)
Accounts receivable, net	$	1,154	$	697

The following table presents the roll-forward of the allowance for doubtful accounts for the three months ended March 31, 2022.

			Allowance for
			Doubtful
(dollars in thousands)			Accounts
Balance, January 1, 2022			$	(2,484)
Collection Allowance:
Medicaid	$	(7)
Medicare		(24)
Third party payers		(49)
		(80)
Bad debt expense	$	2
Total charges				(78)
Other				536
Balance, March 31, 2022			$	(2,026)

For the three months ended March 31, 2022, the allowance for doubtful accounts was adjusted by $0.5 million due to the revaluation of fully reserved accounts receivable and customer credits at January 1, 2022. The adjustment had no effect on our net accounts receivable or total assets in our condensed consolidated balance sheets.

Customer Revenue and Accounts Receivable Concentration

Our customers are oncologists, hospitals, reference laboratories, physician-office laboratories, and pharma and biotech companies. Customers that accounted for 10% or greater of our net sales or accounts receivable for the identified periods is as follows:

	Net sales			Accounts receivable, as of
	Three Months Ended
	March 31,			March 31,		December 31,
	2022		2021	2022		2021
Customer A	10	%	*	19	%	21	%
Customer B	*		*	11	%	*
Customer C	*		*	*		12	%
* represents less than 10%