2. Summary of Significant Accounting Policies and Select Balance Sheet Information

Cash, restricted cash and cash equivalents consist of financial instruments with maturities of three months or less at the Company’s acquisition date of the security and are stated at cost which approximates fair value and may include money market instruments, certificates of deposit, repurchase agreements and commercial paper instruments. Restricted cash represents cash balances restricted pursuant to the terms of a real estate lease.

Investments consisted principally of commercial paper and corporate bond securities and are classified as available-for-sale as of September 30, 2019 and 2018. Available-for-sale securities are reported at fair value with unrealized gains and losses, net of tax, excluded from the consolidated statements of operations and reported in the consolidated statements of comprehensive income (loss) as well as a separate component of stockholders’ equity in the consolidated balance sheets, except for other-than-temporary impairments, which are reported as a charge to current earnings. A loss would be recognized when there is an other-than-temporary impairment in the fair value of any individual security classified as available-for-sale, with the associated net unrealized loss reclassified out of accumulated other comprehensive income (loss) with a corresponding adjustment to other income (loss). This adjustment would result in a new cost basis for the investment. No such adjustments occurred during the years ended September 30, 2019, 2018 or 2017. Interest earned on debt securities, including amortization of premiums and accretion of discounts, is included in other income (loss). Realized gains and losses from the sales of available-for-sale debt securities, which are included in other income (loss), are determined using the specific identification method.

The amortized cost, unrealized holding gains and losses, and fair value of available-for-sale securities as of September 30, 2019 and 2018 were as follows (in thousands):

	September 30, 2019
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Commercial paper and corporate bonds	$	24,918	$	13	$	—	$	24,931
Total	$	24,918	$	13	$	—	$	24,931

	September 30, 2018
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Commercial paper and corporate bonds	$	41,403	$	—	$	(51	)	$	41,352
Total	$	41,403	$	—	$	(51	)	$	41,352

There were no held-to-maturity debt securities as of September 30, 2019 or 2018. There were no realized gains or losses on sales of available-for-sale securities for the years ended September 30, 2019, 2018 or 2017.

Inventories are principally stated at the lower of cost or market using the specific identification method and include direct labor, materials and overhead. Inventories consisted of the following components as of September 30 (in thousands):

Property and equipment are stated at cost, less any impairment, and are depreciated using the straight-line method over the estimated useful lives of the assets. The Company recorded depreciation expense of $4.7 million, $3.7 million and $3.0 million for the years ended September 30, 2019, 2018 or 2017, respectively.

The September 30, 2019 and 2018 balances in construction-in-progress include the cost of equipment and building improvements not yet placed in service in the Company’s Ballinasloe, Ireland and Eden Prairie, Minnesota facilities. As assets are placed in service, construction-in-progress is transferred to the specific property and equipment categories and depreciated over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful life of the asset. Expenditures for maintenance and repairs and minor renewals and betterments that do not extend or improve the life of the respective assets are expensed as incurred.

Property and equipment consisted of the following components as of September 30 (in thousands):

	Useful Life	2019			2018
	(In years)
Land	N/A	$	4,415		$	4,420
Laboratory fixtures and equipment	3 to 10		25,467			22,024
Buildings and improvements	3 to 20		24,513			21,717
Leasehold improvements	10		4,836			4,836
Office furniture and equipment	3 to 10		6,476			5,824
Construction-in-progress			2,030			4,834
Less accumulated depreciation			(37,989	)		(33,512	)
Property and equipment, net		$	29,748		$	30,143

Other assets consist principally of the following as of September 30 (in thousands):

Intangible assets consist principally of acquired patents and technology, customer lists and relationships, licenses and trademarks. The Company recorded amortization expense of $2.6 million, $2.7 million and $2.6 million for the years ended September 30, 2019, 2018 or 2017, respectively.

	2019
	Weighted Average Original Life (Years)		Gross Carrying Amount		Accumulated Amortization			Net
Definite-lived intangible assets:
Customer lists and relationships		8.9	$	17,374	$	(10,661	)	$	6,713
Developed technology		11.5		9,490		(3,196	)		6,294
Non-compete		5.0		230		(196	)		34
Patents and other		16.5		2,321		(1,716	)		605
Subtotal				29,415		(15,769	)		13,646
Unamortized intangible assets:
Trademarks and trade names				580		—			580
Total			$	29,995	$	(15,769	)	$	14,226

	2018
	Weighted Average Original Life (Years)		Gross Carrying Amount		Accumulated Amortization			Net
Definite-lived intangible assets:
Customer lists and relationships		8.9	$	18,086	$	(9,377	)	$	8,709
Developed technology		11.5		9,656		(2,361	)		7,295
Non-compete		5.0		230		(150	)		80
Patents and other		16.5		2,321		(1,569	)		752
Subtotal				30,293		(13,457	)		16,836
Unamortized intangible assets:
In-process research and development				267		—			267
Trademarks and trade names				580		—			580
Total			$	31,140	$	(13,457	)	$	17,683

Based on the intangible assets in service as of September 30, 2019, estimated amortization expense for each of the next five fiscal years is as follows (in thousands):

2020	$	2,414
2021		2,275
2022		2,235
2023		1,629
2024		1,584

Future amortization amounts presented above are estimates. Actual future amortization expense may be different as a result of future acquisitions, impairments, changes in amortization periods, foreign currency exchange rates or other factors.

The Company defines IPR&D as the value of technology acquired for which the related projects have substance and are incomplete. IPR&D acquired in a business acquisition is recognized at fair value and is capitalized as an indefinite-lived intangible asset until completion or abandonment of the IPR&D project. Upon completion of the development project (generally when regulatory approval to market the product is obtained), an impairment assessment is performed prior to amortizing the asset over its estimated useful life. If the IPR&D projects were abandoned, the related IPR&D assets would be written off. The Company assesses indefinite-lived assets for impairment annually in the fourth quarter and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired. Similar to the goodwill impairment test, the indefinite-lived assets impairment test requires the Company to make several estimates about fair value, most of which are based on projected future cash flows.

The Company performs its annual impairment analysis as of August 31 each fiscal year. After completing the fiscal 2019 and 2017 impairment analyses, the fair value of certain IPR&D and trade name assets were deemed to be less than their carrying value, due to decreases in estimated future revenue associated with the assets. Accordingly, impairment losses on indefinite-lived intangible assets totaling $0.3 million were recorded in research and development in the consolidated statements of operations for both fiscal 2019 and 2017 and impairment losses totaling $0.1 million were recorded in and selling, general and administrative expenses in fiscal 2017. No impairment charges were recorded in fiscal 2018 as there were no indicators of impairment associated with the indefinite-lived intangible assets. No other impairment losses were identified during the annual impairment analyses in fiscal 2019 or 2017. The valuation methodology for determining the decline in value of the indefinite-lived intangible assets was based on inputs that require management judgment and are Level 3 inputs, as discussed in Note 5 to the consolidated financial statements.

Goodwill represents the excess of the purchase price of an acquired business over the fair value assigned to the assets purchased and liabilities assumed. Goodwill is not amortized but is subject, at a minimum, to annual tests for impairment in accordance with accounting guidance for goodwill. The carrying amount of goodwill is evaluated annually, and between annual evaluations if events occur or circumstances change indicating that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

The Company’s reporting units are the In Vitro Diagnostics and Medical Device operating segments. Inherent in the determination of fair value of the reporting units are certain estimates and judgments, including the interpretation of current economic indicators and market valuations as well as the Company’s strategic plans with regard to its operations.

The Company performs its annual assessment of goodwill for impairment as of August 31 each fiscal year and no goodwill impairment charges were recorded in fiscal 2019, 2018 or 2017 as there were no indicators of impairment associated with either of the reporting units. The impairment assessment is reliant on forecasted cash flows, as well as the selected discount rate when a quantitative assessment is necessary, which are inherently subjective and require significant management estimates. Differences in the reporting units’ actual future operating results as compared with these forecasted estimates could materially affect the estimation of the fair value of the reporting units.

Goodwill as of September 30, 2019 and 2018 totaled $26.2 million and $27.0 million, respectively. Goodwill related to the In Vitro Diagnostics reporting unit represents the gross value from the acquisition of BioFX Laboratories, Inc. in 2007. Goodwill related to the Medical Device reporting unit represents the gross value from the acquisitions of Creagh Medical, Ltd. and NorMedix, Inc. which were completed in fiscal 2016. The Medical Device reporting segment goodwill includes $13.4 million of goodwill denominated in Euros and subject to revaluation due to fluctuations in exchange rates.

The change in the carrying amount of goodwill by segment for the years ended September 30, 2019 and 2018 was as follows (in thousands):

(Dollars in thousands)	In Vitro Diagnostics		Medical Device			Total
Balance as of September 30, 2017	$	8,010	$	19,272		$	27,282
Foreign currency translation adjustment		—		(250	)		(250	)
Balance as of September 30, 2018		8,010		19,022			27,032
Foreign currency translation adjustment		—		(861	)		(861	)
Balance as of September 30, 2019	$	8,010	$	18,161		$	26,171

Accounting guidance requires the Company to evaluate periodically whether events and circumstances have occurred that may affect the estimated useful life or the recoverability of the remaining balance of long-lived assets, such as property and equipment and intangibles with finite lives. If such events or circumstances were to indicate that the carrying amount of these assets may not be recoverable, the Company would estimate the future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) were less than the carrying amount of the assets, the Company would recognize an impairment charge to reduce such assets to their fair value. In fiscal 2019, 2018 and 2017, there were no impairment charges relating to the Company’s long-lived assets as there were no events or circumstances that occurred that affected the recoverability of such assets.

Other accrued liabilities consisted of the following as of September 30 (in thousands):

	2019		2018
Accrued professional fees	$	434	$	311
Accrued clinical study expense		2,163		2,839
Accrued purchases		679		533
Acquisition of in process research and development		989		—
Deferred rent		130		121
Other		395		262
Customer claim		—		1,000
Construction in progress		—		1,199
Total	$	4,790	$	6,265

Effective October 1, 2018, the Company adopted ASC Topic 606 using the modified retrospective adoption method. Based on the requirements of ASC Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services. The Company primarily sells or licenses its products, technologies and services to other medical device and diagnostics companies.

Taxes collected from customers and remitted to governmental authorities that are imposed on, and concurrent with, a specific revenue producing transaction are excluded from revenue. For contracts that have an original duration of one year or less, the Company uses the practical expedient applicable to such contracts and does not adjust the transaction price for the time value of money.

The Company derives its revenue from three primary sources: (1) product revenues from the sale of reagent chemicals to licensees, the sale of stabilization products, antigens, substrates and surface coatings to the diagnostic and biomedical research markets as well as the sale of medical devices and related products (such as balloons and catheters) to original equipment manufacturer (OEM) suppliers and distributors; (2) royalties and license fees from licensing our proprietary surface modification and device drug delivery technologies to customers; and (3) research and commercial development fees generated on customer projects.

The Company recognizes revenue when control is transferred to the customer. The transfer of control varies by revenue classification and is described below.

Product sales – Revenue from product sales is recognized at the point in time control of the products is transferred, generally upon shipment based upon the standard contract terms. Shipping and handling activities are considered to be fulfillment activities rather than promised services and are not, therefore, considered to be separate performance obligations. The Company’s sales terms provide no right of return outside of a standard warranty policy and returns are generally not significant. Payment terms for product sales are generally set at 30-45 days after the consideration becomes due and payable.

Royalties – Royalty revenue consists of sales-based and recurring minimum royalties earned under licenses of our surface modification technologies. Performance obligations under these licenses, which consist of the right to use the Company’s proprietary technology, are satisfied at a point in time corresponding with delivery of the underlying technology rights to the customer, which is generally upon transfer of the licensed technology to the customer. Sales-based royalty revenue represents variable consideration under the license agreements and is recognized in the period a customer sells products incorporating the Company’s licensed technologies. The Company estimates sales-based royalty revenue earned but unpaid at each reporting period using the expected value method based on historical sales information, adjusted for known changes such as product launches and patent expirations. The Company's license arrangements also often provide for recurring fees (minimum royalties) which the Company recognizes at the later of the satisfaction of the underlying performance obligation or upon renewal of the contract, which is generally done on a quarterly basis. Sales-based and minimum royalties are generally due within 45 days of the end of each quarter.

License fees – For distinct license performance obligations, upfront license fees are recognized when the Company satisfies the underlying performance obligation. This generally occurs upon transfer of the right to use the Company’s licensed technology to the customer, with the exception of the license of the Company’s SurVeil™ drug-coated balloon (the “SurVeil DCB”) disclosed below. Certain license arrangements include contingent milestone payments, which are due following achievement by our customers of specified sales or regulatory milestones. Contingent milestone payment terms vary by contract. The Company has generally fulfilled its performance obligation prior to achievement of these milestones. However, because of the uncertainty of the milestone achievement, and/or the dependence on sales of our customers, variable consideration for contingent milestones is fully constrained and excluded from the contract price until the milestone is achieved by our customer, to the extent collectability is reasonably certain.

The Company has a collaborative arrangement contract with Abbott Vascular, Inc. (“Abbott”) disclosed in Note 4 (the “Abbott Agreement”), pursuant to which the Company received an upfront payment of $25 million in fiscal 2018 and a milestone payment after completion of enrollment in the TRANSCEND clinical trial of $10 million in fiscal 2019. To the extent the Company achieves certain agreed-upon clinical and regulatory milestones, the Company may receive up to $57 million of additional contingent milestone payments. The performance obligation identified in this arrangement includes delivery of our licensed technology and completion of research and development activities, primarily clinical trial activities (together, “R&D and Clinical Activities”). These promises are not distinct performance obligations because the product necessary for completion of the R&D and Clinical Activities is currently only able to be manufactured by the Company due to the exclusive proprietary know-how and certain regulatory requirements associated with the manufacture of the product. The customer (Abbott) simultaneously receives and consumes the benefits of the R&D and Clinical Activities as study data are generated to support regulatory approval submissions. Control is effectively transferred over time as we complete the TRANSCEND clinical study of our SurVeil DCB and related regulatory activities. Revenue related to this contract is recognized using the cost-to-cost method which measures progress based on costs incurred to date relative to the expected total cost of the services, as the Company believes this represents a faithful depiction of the satisfaction of its performance obligation. Use of the cost-to-cost method requires significant estimates including the total cost of the TRANSCEND study, which is expected to be completed over the next six years. Revenue is recorded based on the cost-to-cost completion estimate relative to the transaction price, which is equal to the total upfront fee plus the expected value of the clinical and regulatory milestones. As of September 30, 2019, consideration from the clinical and regulatory milestones, other than the $10 million full-enrollment milestone discussed above, has been fully constrained and excluded from the contract price, due to the high level of uncertainty as to the achievement of the underlying regulatory approval(s) and/or clinical milestones. Significant judgment is used to estimate total revenue and cost at completion for this contract.

Research and development – The Company performs third-party research and development activities, which are typically charged to customers on a time-and-materials basis. Generally, revenue for research and development is recorded over time as the services are provided to the customer in the amount to which the Company has the right to invoice. These services are generally charged to the customer as they are provided. Payment terms for R&D services are generally set at 30-45 days after the consideration becomes due and payable.

If a contract contains more than one distinct performance obligation, the transaction price is allocated to each performance obligation based on relative standalone selling price.

Contract assets are generally short in duration given the nature of products produced and services provided by the Company. Contract assets consist of sales-based and minimum royalty revenue earned for which unconditional right to payment does not exist as of the balance sheet date. These assets are comprised of estimated sales-based royalties earned, but not yet reported by the Company’s customers, minimum royalties on non-cancellable contracts, and contingent milestones earned but not yet billable based on the terms of the contract. The increase in contract assets from October 1, 2018 to September 30, 2019 resulted primarily from changes in sales-based and minimum royalties earned but not collected at each balance sheet date.

The Company records a contract liability, or deferred revenue, when there is an obligation to provide a product or service to the customer and payment is received or due in advance of performance, or when payment is received for a period outside the contract term. The Company’s deferred revenue at September 30, 2019 and 2018 is primarily related to the upfront payment received pursuant to the Abbott Agreement (Note 4).

Remaining performance obligations include deferred revenue and amounts the Company expects to receive for goods and services that have not yet been delivered or provided under existing, noncancellable contracts. For contracts that have an original duration of one year or less, the Company has elected the practical expedient applicable to such contracts and does not disclose the transaction price for remaining performance obligations at the end of each reporting period and when the Company expects to recognize this revenue. As of September 30, 2019, the estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied for executed contracts with an original duration of one year or more was approximately $17.1 million. This revenue is entirely related to the R&D and Clinical Activities performance obligation in the Abbott Agreement from the upfront payment and milestone payments and does not include revenue from potential contingent milestone payments that may be received in the future. The Company expects to recognize the remaining revenue from this performance obligation over the next six years as the services, which are primarily comprised of the TRANSCEND clinical study activities, are completed. We expect the contract to be approximately 75% completed by the end of fiscal 2021, with the remaining 25% amortized over the final four years of the TRANSCEND trial follow-up and clinical reporting period.

The Company has licenses and supply agreements with a diverse base of customers and certain customers have multiple products using the Company’s technology. Abbott and its affiliates and Medtronic plc (“Medtronic”) are our largest customers, comprising 19% and 14%, respectively, of our consolidated revenue for fiscal 2019. These same customers each comprised 11% and 16%, respectively of our consolidated revenue for fiscal 2018. In fiscal 2017, revenue from Medtronic comprised 18% of our consolidated revenue. Abbott has several separately licensed products, including the SurVeil license, which generate royalty and license fee revenue for Surmodics. Revenue from the SurVeil license represented 13%, 5% and 0% of total revenue for fiscal 2019, 2018 and 2017, respectively. Medtronic has several separately licensed products that generate royalty revenue for Surmodics, none of which represented more than 3% of our total revenue. No other individual customer constitutes more than 10% of the Company’s total revenue. The loss of Abbott, Medtronic or any of our largest customers, or reductions in business from them, could have a material adverse effect on the Company’s business, financial condition, results of operations, and cash flows from operations.

The Company’s licensing agreements with many of its customers, including most of its significant customers, cover many licensed products that each separately generates royalty revenue. This structure reduces the potential risk to the Company’s operations that may result from reduced sales (or the termination of a license) of a single product for any specific customer.

The Company believes that the credit risk related to marketable securities is limited due to the adherence to an investment policy and that credit risk related to accounts receivable is limited due to a large customer base.

The Company accounts for income taxes under the asset and liability method prescribed in accounting guidance. 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. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income 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 this assessment. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date of such change.

Research and development (“R&D”) costs are expensed as incurred. Some R&D costs are related to customer contracts, and the related revenue is recognized as described in “Revenue Recognition” above. Costs associated with customer-related R&D include specific project direct labor and material expenses as well as an allocation of overhead costs based on direct labor dollars. Costs associated with research and development of the Company’s own products include design, engineering and testing activities necessary to develop a new product or improve the manufacturing process of an existing product. Internal research and development costs also include any necessary pre-commercialization regulatory and clinical trial costs.

Clinical trial costs. The Company sponsors clinical trials intended to obtain the necessary clinical data required to obtain approval from various regulatory agencies to market medical devices developed by the Company. Costs associated with clinical trials include trial design and management expenses, clinical site reimbursements and third party fees, among other things. The Company’s clinical trials are administered by third-party clinical research organizations (“CROs”). These CROs generally bill monthly for certain services performed as well as upon achievement of certain milestones. The Company monitors patient enrollment, the progress of clinical studies and related activities through internal reviews of data reported to the Company by the CROs and correspondence with the CROs. The Company periodically evaluates its estimates to determine if adjustments are necessary or appropriate based on information it receives. These estimates often require significant judgement on the part of the Company’s management.

Government funding. The Company is eligible to receive reimbursement for certain qualifying R&D expenditures under a grant from the Industrial Development Agency of Ireland (“IDA”). Reimbursements are recognized as a reduction of R&D expense when there is reasonable assurance that the funding will be received and conditions associated with the funding are met. The Company recorded reimbursements from IDA grants of $0.7 million, $0.8 million and $0.8 million during the years ended September 30, 2019, 2018 and 2017 as a reduction of R&D expense.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from those estimates.

Basic income (loss) per common share is calculated based on the weighted average number of common shares outstanding during the period. Diluted income per common share is computed by dividing income by the weighted average number of common and common equivalent shares outstanding during the period. The Company’s potentially dilutive common shares are those that result from dilutive common stock options and non-vested stock relating to restricted stock awards, restricted stock units and performance shares. However, these items have been excluded from the calculation of diluted net loss per share for the year ended September 30, 2018, as their effect was antidilutive as a result of the net loss incurred for that period. Therefore, diluted weighted average number of shares outstanding and diluted net loss per share were the same as basic weighted average number of shares outstanding and net loss per share for the year ended September 30, 2018.

The following table sets forth the denominator for the computation of basic and diluted income per share for each of the years ended September 30 (in thousands):

The Company’s reporting currency is the U.S. Dollar. Assets and liabilities of non-U.S. dollar functional currency subsidiaries are translated into U.S. dollars at the period-end exchange rates, and revenue and expenses are translated at the average quarterly exchange rates during the period. The net effect of these translation adjustments on the consolidated financial statements is recorded as a foreign currency translation adjustment, a component of accumulated other comprehensive income on the consolidated balance sheets. Realized foreign currency transaction gains and losses are included in other, income (loss) net in the consolidated statements of operations.

In May 2014, the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) issued Update No. 2014-09, Revenue from Contracts with Customers (“ASC Topic 606”). The core principal of ASC Topic 606 is to recognize revenue in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration an entity expects to be entitled to in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, as well as significant judgements and changes in judgements. The Company adopted ASC Topic 606 in the first quarter of fiscal year 2019 using the modified retrospective method and applied the new revenue standard to all new customer contracts initiated on or after the effective date and contracts which had remaining performance obligations as of the effective date. The adoption of ASC Topic 606 resulted in an acceleration of minimum license fees and sales-based royalty revenue earned under the Company’s hydrophilic coating technology license agreements by approximately one quarter. Prior to the adoption of ASC Topic 606, sales-based royalties were recognized in the period the Company’s customers reported the underlying sales, which is generally one quarter after the sales occur. Additionally, minimum royalties were recognized in the period they were contractually owed to the Company. Upon adoption of ASC Topic 606, sales-based royalties are recognized in the period the underlying customer sale occurs, while the minimum royalties are recognized at each renewal of the license contract, which generally occurs on the last day of the quarter for minimum royalties contractually due in the following quarter.

The adoption of ASC Topic 606 resulted in cumulative-effect adjustments to opening retained earnings, contract assets, deferred tax assets and income tax receivable. The impact of the adoption of ASC Topic 606 on the opening consolidated balance sheet as of October 1, 2018, as compared with the consolidated balance sheet previously reported as of September 30, 2018, was as follows:

(Dollars in thousands)	September 30, 2018, As Reported		Adjustments for Adoption of Topic 606			October 1, 2018 Opening Balance
Assets
Contract assets - royalties and license fees	$	—	$	6,904		$	6,904
Deferred income taxes		6,304		(1,215	)		5,089
Income tax receivable		1,152		(390	)		762

Liabilities and Stockholders' Equity
Deferred revenue, current portion		9,646		(18	)		9,628
Deferred revenue, less current portion		11,247		(181	)		11,066
Retained earnings		97,615		5,498			103,113

The impact of adoption of ASC Topic 606 to the Company’s consolidated statements of operations for the year ended September 30, 2019 was an increase of royalty and license fee revenue of $1.3 million, as well as reduced income tax benefit of $0.3 million.

Accounting Standards to be Adopted

In February 2016, the FASB issued Accounting Standards Update ASU 2016-02, Leases (ASC Topic 842). The new guidance primarily affects lessee accounting, while accounting by lessors will not be significantly impacted by the update. The update maintains two classifications of leases: finance leases, which replace capital leases, and operating leases. Lessees will need to recognize a right-of-use asset and a lease liability on the statement of financial position for those leases previously classified as operating leases under the old guidance. The liability will be equal to the present value of remaining contractual lease payments. The asset will be based on the liability, subject to adjustment, such as for direct costs. The accounting standard will be effective for the Company beginning the first quarter of fiscal year 2020 (October 1, 2019) and will be applied using a modified retrospective approach. The Company is currently evaluating the impact that the adoption of this standard will have on the Company’s results of operations, cash flows and financial position and expects the impact to be material due to the right of use assets and lease obligations that will be recorded as a result of the adoption, as well as several additional required financial statement footnote disclosures. The Company estimates that a right of use asset totaling approximately $1.7 million and a lease obligation liability totaling approximately $2.9 million will be recorded as a result of the adoption of the new lease accounting standard. Additionally, the deferred rent liability totaling approximately $1.2 million that is currently included in other current and long-term liabilities will be eliminated as it will reduce the amount of the right-of-use asset recorded upon adoption. The Company expects the adoption of the lease standard will not have a significant impact on stockholders’ equity, the consolidated statements of operations, or the consolidated statements of cash flows.

In June 2016, the FASB issued ASU No 2016-13, Financial Instruments – Credit Losses (ASC Topic 326), Measurement of Credit Losses on Financial Statements. This ASU requires a financial asset (or a group of financial assets) measured at an amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The accounting standard will be effective for the Company beginning in the first quarter of fiscal 2021 (October 1, 2020). The Company is currently evaluating the impact that the adoption of this standard will have on the Company’s results of operations, cash flows and financial position.

No other new accounting pronouncement issued or effective has had, or is expected to have, a material impact on the Company’s consolidated financial statements.