SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2018

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

New Accounting Pronouncements and Impact of Adoption on Financial Statements

The Company recorded the following cumulative effect as of January 1, 2018, itemized here (in millions):

	As reported December 31, 2017			Adjustments			Adjusted January 1, 2018
Accounts receivable	$	4.7		$	7.6	⁽¹⁾	$	12.3
Deferred revenue		(6.4	)		6.3	⁽²⁾		(0.1	)
Deferred royalty buy-down		(2.5	)		(0.4	)⁽³⁾		(2.9	)
Accounts payable and accrued expenses -third party royalties		(0.4	)		(0.5	)⁽³⁾		(0.9	)
Deferred tax assets, net		1.7			(1.3	)⁽⁴⁾		0.4
Income tax payable		-			(1.4	)⁽⁵⁾		(1.4	)
Retained earnings adjustment	$	(2.9	)	$	10.3		$	7.4

(1)	This adjustment represents the elimination of the one quarter lag by recognizing royalty revenues based on of XIALFLEX net sales and mark-up on cost of goods sold revenues reported to us by Endo for the fourth quarter of 2017.

(2)	Represents the remaining deferred revenue balance of the prepaid mark-up on cost of goods sold based on sales by non-affiliated sublicensees of Endo outside of the U.S.

(3)	Represents the amortization of the royalty buy-down and third party royalties expense associated royalty revenues based on XIALFLEX net sales reported to us by Endo for the fourth quarter of 2017.

(4)	To reverse a deferred tax asset associated with the deferred revenue balance of the prepaid mark-up on cost of goods sold by non-affiliated sublicensees of Endo outside of the U.S.

(5)	To create a tax liability associated the elimination of the one quarter lag by recognizing royalty revenues based on of XIALFLEX net sales and mark-up on cost of goods sold revenues reported to us by Endo for the fourth quarter of 2017.

At September 30, 2018, contract assets of $8.2 million for which there’s an unconditional right to receive payment were included in accounts receivable on the condensed consolidated balance sheet.

In accordance with the new revenue standard requirements, the impact of adoption on our condensed consolidated balance sheet was as follows (in millions):

	September 30, 2018
	As Reported		Balances Without Adoption of New Revenue Standard		Effect of Change Higher / (Lower)
Assets
Accounts receivable	$	14.5	$	6.3	$	8.2
Deferred royalty buy-down		0.6		0.7		(0.1	)
Deferred tax assets		0.3		1.5		(1.2	)
Liabilities
Accounts payable and accrued expenses		1.1		0.5		0.6
Deferred revenue		-		1.0		(1.0	)
Income tax payable		0.7		(0.6)		1.3
Deferred revenue, long term		-		4.5		(4.5	)
Equity
Retained earnings		66.0		55.5		10.5

In accordance with the new revenue standard requirements, the impact of adoption on our condensed consolidated statement of operations for the three and nine months ended September 30, 2018 was as follows (in millions):

	Three Months Ended September 30, 2018
	As Reported		Balances Without Adoption of New Revenue Standard		Effect of Change Higher / (Lower)
Revenues
Royalties	$	8.2	$	8.1	$	0.1
Costs and expenses
General and administrative	$	2.2	$	2.2	$	-
Provision for income taxes		1.1		1.1		-
Net income		5.0		4.9		0.1

	Nine Months Ended September 30, 2018
	As Reported		Balances Without Adoption of New Revenue Standard		Effect of Change Higher / (Lower)
Revenues
Royalties	$	23.1	$	23.1	$	-
Costs and expenses
General and administrative	$	6.3	$	6.3	$	-
Provision for income taxes		3.3		3.5		(0.2	)
Net income		13.9		13.7		0.2

Maturities

The following table presents the Company’s schedule of maturities at September 30, 2018 and December 31, 2017:

	Maturities as of September 30, 2018				Maturities as of December 31, 2017
	1 Year or Less		Greater than 1 Year		1 Year or Less		Greater than 1 Year
Municipal bonds	$	4,285,175	$	100,000	$	1,002,650	$	100,000
Corporate bonds		49,052,966		4,819,306		48,143,495		3,155,573
Certificates of deposit		5,091,070		249,016		2,827,826		2,490,401
Total	$	58,429,211	$	5,168,322	$	51,973,971	$	5,745,974

Fair Value Assets Measured on Recurring Basis

The following tables present the Company’s fair value hierarchy for these financial assets as of September 30, 2018 and December 31, 2017:

September 30, 2018	Type of Instrument	Fair Value		Level 1		Level 2		Level 3

Cash equivalents	Institutional Money Market	$	9,491,019	$	9,491,019	$	-	$	-

Cash equivalents	Corporate Bonds		1,300,000		1,300,000		-		-

Investments	Municipal Bonds		4,385,175		-		4,385,175		-

Investments	Corporate Bonds		53,872,272		-		53,872,272		-

Investments	Certificates of Deposit		5,340,086		5,340,086		-		-

December 31, 2017	Type of Instrument	Fair Value		Level 1		Level 2		Level 3

Cash equivalents	Institutional Money Market	$	3,108,549	$	3,108,549	$	-	$	-

Cash equivalents	Municipal Bonds		800,000		-		800,000		-

Investments	Municipal Bonds		1,102,650		-		1,102,650		-

Investments	Corporate Bonds		51,299,068		-		51,299,068		-

Investments	Certificates of Deposit		5,318,227		5,318,227		-		-

Assumptions Used in Valuation of Stock Options Granted

The assumptions used in the valuation of stock options granted during the nine months ended September 30, 2018 were as follows:

	Nine Months Ended September 30, 2018
Risk-free interest rate	2.62% to 2.81%
Expected term of option	6.25 years
Expected stock price volatility	39.6% to 39.7%
Expected dividend yield	$	0.0

Stock Option Activity

A summary of our stock option activity during the nine months ended September 30, 2018 is presented below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2017		232,000		$	21.56		2.52	$	5,050,990
Grants		31,500			41.79		-		-
Exercised		(138,000	)		18.63		-		3,720,149
Forfeitures or expirations		-			-		-		-
Outstanding at September 30, 2018		125,500		$	29.86		5.16	$	3,593,430
Exercisable at September 30, 2018		86,500		$	24.84		3.47	$	2,910,945