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Summary of Significant Accounting Policies and Select Balance Sheet Information (Policies)

12 Months Ended

Sep. 30, 2020

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.

Accounts Receivable, Net

We grant credit to customers in the normal course of business and maintain an allowance for doubtful accounts which reflects our estimate of uncollectible accounts as of the balance sheet date. We consider various factors in establishing, monitoring, and adjusting the allowance for credit losses including the aging of the accounts and aging trends, the historical level of charge-offs, and specific exposures related to particular customers.

Investments

Investments consisted of commercial paper and corporate bond securities and are classified as available-for-sale as of September 30, 2020 and 2019. Available-for-sale debt 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) and 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 as they occur. 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 with a corresponding adjustment to other (expense) income. This adjustment would result in a new cost basis for the investment. No such adjustments occurred during fiscal 2020, 2019 or 2018. Interest earned on debt securities, including amortization of premiums and accretion of discounts, is included in other (expense) income. Realized gains and losses from the sales of available-for-sale debt securities, which are included in other (expense) income, are determined using the specific identification method.

The amortized cost, unrealized holding gains and losses, and fair value of available-for-sale securities were as follows:

	September 30, 2020
(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Commercial paper and corporate bonds	$	30,313	$	19	$	(19	)	$	30,313
Total	$	30,313	$	19	$	(19	)	$	30,313

	September 30, 2019
(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

There were no held-to-maturity debt securities as of September 30, 2020 or 2019. There were no realized gains or losses on sales of available-for-sale securities for fiscal 2020, 2019 or 2018.

Inventories

Inventories are principally stated at the lower of cost or market using the specific identification method and include direct labor, materials and overhead, with cost of product sales determined on a first-in, first-out basis. Inventories consisted of the following components:

Property and Equipment

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 $4.8 million, $4.7 million and $3.7 million in fiscal 2020, 2019 and 2018, respectively.

The September 30, 2020 and 2019 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:

	Useful Life	September 30,
(Dollars in thousands)	(Years)	2020			2019
Land	N/A	$	4,419		$	4,415
Laboratory fixtures and equipment	3 to 12		28,600			25,467
Buildings and improvements	3 to 20		25,638			24,513
Leasehold improvements	3 to 10		4,836			4,836
Office furniture and equipment	3 to 10		7,334			6,476
Construction-in-progress			2,238			2,030
Less: Accumulated depreciation			(42,962	)		(37,989	)
Property and equipment, net		$	30,103		$	29,748

Other Assets

Other assets consisted of the following:

	September 30,
(In thousands)	2020		2019
ViaCyte, Inc.	$	—	$	479
Operating lease right-of-use assets		2,508		—
Other noncurrent assets		1,761		1,645
Other assets, net	$	4,269	$	2,124

The Company has invested a total of $5.3 million in ViaCyte, Inc. (“ViaCyte”), a privately-held California-based biotechnology firm that is developing a treatment for diabetes using coated islet cells, the cells that produce insulin in the human body. As of September 30, 2019, the balance of the investment of $0.5 million, which was net of previously recorded other-than-temporary impairments of $4.8 million, was accounted for under the cost method and represented less than a 1% ownership interest. The Company does not exert significant influence over ViaCyte’s operating or financial activities.

The total carrying value of cost method investments is reviewed quarterly for changes in circumstances or the occurrence of events that suggest the Company’s investment may not be recoverable. The carrying value of cost method investments is not adjusted if there are no identified events or changes in circumstances that may have a material adverse effect on the fair value of the investment. In fiscal 2020, the Company recorded a $0.5 million other-than-temporary impairment loss based on a ViaCyte financing transaction during the period and market valuations to reduce the carrying value of the investment in ViaCyte to zero. The valuation methodology for determining the decline in value of the ViaCyte investment was based on Level 3 inputs that required management judgment (Note 5).

Operating lease right-of-use assets as of September 30, 2020 are recorded in accordance with ASC Topic 842, which we adopted as of October 1, 2019. Other noncurrent assets include a receivable related to refundable Irish research and development tax credits and prepaid expenses related to our ongoing clinical trials.

Intangible Assets

Intangible assets consisted of the following:

	September 30, 2020
(Dollars in thousands)	Weighted Average Original Life (Years)		Gross Carrying Amount		Accumulated Amortization			Net
Definite-lived intangible assets:
Customer lists and relationships		8.9	$	18,213	$	(12,451	)	$	5,762
Developed technology		11.5		9,685		(4,200	)		5,485
Non-compete		5.0		230		(230	)		—
Patents and other		14.7		3,321		(1,865	)		1,456
Total definite-lived intangible assets				31,449		(18,746	)		12,703
Unamortized intangible assets:
Trademarks and trade names				580		—			580
Total intangible assets			$	32,029	$	(18,746	)	$	13,283

	September 30, 2019
(Dollars in thousands)	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
Total definite-lived intangible assets				29,415		(15,769	)		13,646
Unamortized intangible assets:
Trademarks and trade names				580		—			580
Total intangible assets			$	29,995	$	(15,769	)	$	14,226

The Company recorded amortization expense of $2.5 million, $2.6 million and $2.7 million in fiscal 2020, 2019 and 2018, respectively.

Based on the intangible assets in service as of September 30, 2020, estimated amortization expense for each of the next five fiscal years is as follows:

(In thousands)
2021	$	2,488
2022		2,448
2023		1,843
2024		1,750
2025		1,712

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 in-process research and development (“IPR&D”) as the value of technology acquired for which the related projects have substance and are incomplete. IPR&D acquired in a business combination 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. In cases where the IPR&D projects are abandoned, the related IPR&D assets are 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 assessment, the indefinite-lived assets impairment assessment 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 assessment of indefinite-lived intangible assets for impairment as of July 1^st of each fiscal year. In fiscal 2020, the annual assessment date for impairment was changed to July 1^st from the August 31^st date used in fiscal 2019 and prior years. After completing the fiscal 2019 impairment analysis, 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, in fiscal 2019, impairment losses on indefinite-lived intangible assets totaling $0.3 million were recorded in research and development expense in the consolidated statements of operations. No impairment charges were recorded in fiscal 2020 and 2018 as there were no indicators of impairment associated with indefinite-lived intangible assets. The valuation methodology for determining the decline in value of the indefinite-lived intangible assets in fiscal 2019 was based on Level 3 inputs that require management judgment (Note 5).

Goodwill

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 July 1^st of each fiscal year. In fiscal 2020, the annual assessment date of goodwill for impairment was changed to July 1^st from the August 31^st date used in fiscal 2019 and prior years. 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 compared to these forecasted estimates could materially affect the estimation of the fair value of the reporting units.

Goodwill was not impaired in either reporting unit based on the outcome of the fiscal 2020 annual impairment test which utilized a quantitative assessment. No goodwill impairment charges were recorded in fiscal 2020, 2019 or 2018 as there were no indicators of impairment associated with either of the reporting units.

Goodwill in the Medical Device reporting unit represents the gross value from the acquisitions of Creagh Medical, Ltd. (“Creagh Medical”) and NorMedix, Inc. (“NorMedix”), which were completed in fiscal 2016. Goodwill in the In Vitro Diagnostics reporting unit represents the gross value from the acquisition of BioFX Laboratories, Inc. in 2007.

Changes in the carrying amount of goodwill by reportable segment were as follows:

(In thousands)	In Vitro Diagnostics		Medical Device			Total
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
Foreign currency translation adjustment		—		1,014			1,014
Balance as of September 30, 2020	$	8,010	$	19,175		$	27,185

Valuation of Long-lived Assets

The Company periodically evaluates 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, right-of-use assets, and definite-lived intangible assets. 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 2020, 2019 and 2018, 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.

Accrued Other Liabilities

Accrued other liabilities consisted of the following:

	September 30,
(In thousands)	2020		2019
Accrued professional fees	$	239	$	434
Accrued clinical study expense		2,206		2,163
Accrued purchases		647		679
Acquisition of in-process research and development and intangible assets		1,148		989
Due to customers		321		19
Construction-in-progress		272		—
Operating lease liability, current portion		436		—
Deferred rent, current portion		—		130
Other		278		376
Total accrued other liabilities	$	5,547	$	4,790

Revenue Recognition

Adoption of ASC Topic 606 in Fiscal 2019

Effective in fiscal 2019 (October 1, 2018), the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASC Topic 606”) using the modified retrospective adoption method. The adoption of ASC Topic 606 resulted in an acceleration of minimum license fees and sales-based royalties 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 in fiscal 2019 resulted in cumulative-effect adjustments to opening retained earnings, contract assets, deferred tax assets and income tax receivable as summarized below:

(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 fiscal 2019 was an increase in royalties and license fee revenue of $1.3 million, as well as reduced income tax benefit of $0.3 million.

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.

Performance Obligations

We derive our revenue from three primary sources:

•

Product revenues from the sale of chemical components within our IVD segment, including stabilization products, substrates, surface coatings, and antigens to the diagnostic and biomedical research markets; the sale of reagent chemicals to licensees within our Medical Device segment; and the sale of medical devices and related products (such as balloons and catheters) to original equipment manufacturer (“OEM”) suppliers and distributors within our Medical Device segment;

•	Royalties and license fees from licensing our proprietary surface modification coating and medical device technologies to our medical device manufacturers within our Medical Device segment; and

•	Research and development fees generated from contract coating services within our Medical Device segment and new product development and testing within our Medical Device and IVD segments.

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

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 shipment.

Royalties. Royalties revenue consists of sales-based and recurring minimum royalties earned under licenses of our surface modification coating 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 royalties 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 royalties 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 also considers macroeconomic factors affecting the medical device market. 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 generally occurs on a quarterly basis. Sales-based and minimum royalties are generally due within 45 days after 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”). Under the Abbott Agreement, the Company has received payments totaling $45.8 million, which consisted of the following: $25 million upfront fee in fiscal 2018, $10 million milestone payment in fiscal 2019 upon completion of enrollment in the TRANSCEND clinical trial, and $10.8 million milestone payment in fiscal 2020 upon receipt of Conformité Européenne Mark (“CE Mark”) approval prerequisite for commercialization of the SurVeil DCB in the European Union. The Company may receive up to $45 million of additional contingent milestone payments, pursuant to the terms of the Abbott Agreement, consisting of: (i) $15 million upon successful completion of the clinical study report of the TRANSCEND pivotal trial demonstrating safety and clinical non-inferiority with the control device and (ii) $30 million upon premarket approval of our SurVeil DCB by the U.S. Food and Drug Administration (“FDA”). 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 the 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 five 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, 2020, consideration from potential clinical and regulatory milestones totaling $45 million was fully constrained and excluded from the contract price, due to the high level of uncertainty as to the achievement of the underlying clinical milestone and regulatory approval.

Revenue from the upfront fee and contingent clinical and regulatory milestone payments, once the underlying contingencies are achieved, is recognized within royalties and license fees in the consolidated statements of operations as the clinical and regulatory activities are performed on a proportional performance basis. Performance is measured based on actual costs incurred relative to the expected total cost of the underlying activities, most notably the completion of the TRANSCEND clinical trial. A significant component of the cost of this trial is the cost of the Company’s outsourced clinical trial clinical research organization (“CRO”) consultants, which is estimated based on executed statements of work, project budgets, and patient enrollment timing, among other factors. A significant change to the Company’s estimate of the costs to complete the TRANSCEND clinical trial could have a material effect on the Company’s results of operations. Significant judgment is used to estimate total revenue and cost at completion for this contract.

To account for the Abbott Agreement, the Company applied the guidance in ASC Topic 808 (Collaborative Arrangements) as the parties are active participants and are exposed to significant risks and rewards dependent on commercial success of the collaborative activity. See Note 4 “Collaborative Arrangements” for further disclosures related to the Abbott Agreement.

Research and Development. The Company performs research and development (“R&D”) activities as a service to customers, which are typically charged to customers on a time-and-materials basis. Generally, revenue for R&D services 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.

Contract Assets, Deferred Revenue and Remaining Performance Obligations

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 royalties 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 decrease in contract assets from September 30, 2019 to September 30, 2020 resulted primarily from changes in sales-based and minimum royalties earned, but not collected at each balance sheet date, notably due to the expiration of our fourth-generation hydrophilic coating patents in fiscal 2020 and the impact of COVID-19.

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 as of September 30, 2020 and 2019 is primarily related to the upfront and milestone payments 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 or the expecting timing of recognition of related revenue. As of September 30, 2020, the estimated revenue expected to be recognized in future periods totaled approximately $15.9 million related to performance obligations that are unsatisfied for executed contracts with an original duration of one year or more. 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 excludes revenue from potential contingent milestone payments that may be received in the future. As of September 30, 2020, the Company expects to recognize the remaining revenue from this performance obligation over the next five years as the services, which are primarily comprised of the TRANSCEND clinical study activities, are completed. We expect the contract to be approximately 76% completed by the end of fiscal 2021, with the remaining 24% amortized over the final four years of the TRANSCEND trial follow-up and clinical reporting period.

Concentrations

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 both fiscal 2020 and 2019. These same customers each comprised 11% and 16%, respectively, of our consolidated revenue for fiscal 2018. Abbott has several separately licensed products, including the SurVeil DCB license, which generate royalties and license fee revenue for Surmodics. Revenue from the SurVeil DCB license represented 13%, 13% and 5% of total revenue for fiscal 2020, 2019 and 2018, respectively. Medtronic has several separately licensed products that generate royalties revenue for Surmodics, none of which represented more than 5% of our consolidated revenue for fiscal 2020. No other individual customer constitutes more than 10% of the Company’s total revenue. The loss of Abbott, Medtronic or any of our other 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 royalties 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.

Stock-based Compensation

We measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. Share-based payments are expensed based on their grant-date fair values on a straight-line basis over the requisite service period of the total award, less estimated forfeitures based on historical experience. Shares awarded under the Company’s stock-based compensation plans, with the exception of restricted stock awards, are not considered issued or outstanding common stock of the Company until they vest and the shares are released. New awards and forfeitures of unvested restricted stock result in an increase (decrease), respectively, in common stock issued and outstanding.

Income Taxes

We record a tax benefit (provision) for the anticipated tax consequences of the reported results of operations. 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 expenses include costs associated with the design, development, testing, enhancement and regulatory approval of the Company’s products. R&D expenses include employee compensation (including stock-based compensation), internal and external costs associated with our regulatory compliance and quality assurance functions, the costs of product used in development and clinical trials, consulting expenses, and facilities overhead. The Company also incurs significant R&D expenses to operate clinical trials. R&D costs are expensed as incurred.

Certain 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 materials expenses, as well as an allocation of overhead costs based on direct labor 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 costs. The Company’s clinical trials are administered by third-party 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. We periodically evaluates our estimates to determine if adjustments are necessary or appropriate based on information received. 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 $0.8 million, $0.7 million and $0.8 million in fiscal 2020, 2019 and 2018, respectively, as a reduction of R&D expense.

Net Income (Loss) Per Share Data

Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted income per common share is computed by dividing net 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 and restricted stock units. However, these items have been excluded from the calculation of diluted net loss per share for fiscal 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 fiscal 2018.

The following table sets forth the denominator for the computation of basic and diluted net income (loss) per share:

	Fiscal Year
(In thousands)	2020		2019		2018
Net income (loss) available to common shareholders	$	1,123	$	7,592	$	(4,457	)
Basic weighted average shares outstanding		13,552		13,389		13,157
Dilutive effect of outstanding stock options, non-vested restricted stock, and non-vested restricted stock units		260		390		—
Diluted weighted average shares outstanding		13,812		13,779		13,157

The calculation of weighted average diluted shares outstanding excludes outstanding common stock options associated with the right to purchase less than 0.1 million shares for fiscal 2020 and 0.2 million and 1.0 million shares for fiscal 2019 and 2018, respectively, as their inclusion would have had an antidilutive effect on diluted income per share for those periods.

Leases

Effective in fiscal 2020 (October 1, 2019), the Company adopted ASU No. 2016-02, Leases using the optional transition method. Refer to “New Accounting Pronouncements” within this Note 2 for further information on the impact of adoption. The Company leases facilities for research, office, manufacturing and warehousing. The Company determines whether a contract is a lease or contains a lease at inception date. Upon commencement, the Company recognizes a right-of-use asset and lease liability based on the net present value of the future minimum lease payments over the lease term at the commencement date. The net present value of future minimum lease payments recorded upon lease commencement is reduced by the discounted value of any leasehold improvement incentives payable to the Company considered to be in-substance fixed payments. The unamortized balance of leasehold improvement incentives in the form of tenant allowances represents the primary difference between the balance of the right-of-use assets and operating lease liabilities. As the Company’s leases typically do not provide an implicit rate, the Company’s lease liabilities are measured on a discounted basis using the Company's incremental borrowing rate. Lease terms used in the recognition of right-of-use assets and lease liabilities include only options to extend the lease that are reasonably certain to be exercised. The consolidated balance sheets do not include recognized assets or liabilities for leases that, at the commencement date, have a term of twelve months or less and do not include an option to purchase the underlying asset that is reasonably certain to be exercised. The Company recognizes such leases in the consolidated statements of income on a straight-line basis over the lease term.

The Company’s leases include one or more options to renew and extend the lease term at the Company’s discretion. These renewal options are not included in right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates renewal options, and when they are reasonably certain to be exercised, the renewal period is included in the lease term.

Operating lease right-of-use assets and lease liabilities were as follows:


(In thousands)	September 30, 2020
Right-of-use assets:
Other assets	$	2,508

Operating lease liabilities:
Other accrued liabilities	$	436
Other long-term liabilities		3,340
Total operating lease liabilities	$	3,776

As of September 30, 2020, operating lease maturities for each of the next five fiscal years were as follows:

(In thousands)
2021	$	586
2022		612
2023		625
2024		638
2025		651
Thereafter		1,521
Total expected operating lease payments		4,633
Less: Imputed interest		(857	)
Total operating lease liabilities	$	3,776

Operating lease cost was $0.6 million for fiscal 2020. Rent expense for both fiscal 2019 and 2018 was $0.5 million. Cash paid for operating lease liabilities approximated operating lease cost for fiscal 2020. As of September 30, 2020, the weighted average remaining lease term for operating leases was 7.3 years, and the weighted average discount rate used to determine operating lease liabilities was 4.0%.

Currency Translation

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 (expense) income in the consolidated statements of operations.

New Accounting Pronouncements

Accounting Standards Implemented

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (“ASC Topic 842” or the “new lease accounting standard”). The standard maintains two classifications of leases: finance leases, which replace capital leases, and operating leases. Lessees recognize a right-of-use asset and a lease liability on the consolidated balance sheets for those leases previously classified as operating leases under the previous guidance. The liability is equal to the present value of lease payments, while the asset is based on the liability, subject to adjustment, such as for direct costs.

Effective in fiscal 2020 (October 1, 2019), the Company adopted the new lease accounting standard using the optional transition method which allowed us to continue to apply the guidance under the lease standard in effect at the time in the comparative periods presented. In addition, the Company elected the package of practical expedients, including opting not to reassess whether any existing contracts contain a lease, historical lease classification as operating or finance leases, or initial direct costs. The Company has also elected the practical expedient to not separate the lease and non-lease components for all classes of underlying assets. The Company elected the short-term lease recognition exemption for all leases that qualified and has accordingly excluded short-term leases from the recognition of right-of-use assets and lease liabilities.

As a result of adoption of ASC Topic 842, we recorded operating lease right-of-use assets and corresponding operating lease liabilities of approximately $1.7 million and $2.9 million, respectively, as of October 1, 2019 with no impact on retained earnings. In addition, deferred rent liabilities related to escalating rent payments and tenant incentives totaling approximately $1.2 million were eliminated upon adoption, as these items were netted against right-of-use assets. The consolidated balance sheets for reporting periods beginning on or after October 1, 2019 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance.

Accounting Standards to be Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses, Measurement of Credit Losses on Financial Statements. This ASU updates the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the incurred loss model with an expected loss model. Accordingly, these financial assets will be presented at the net amount expected to be collected. The amendment also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The accounting standard will be adopted by the Company in the first quarter of fiscal 2021 (October 1, 2020), using a modified retrospective approach. We have evaluated the impact of this standard on the Company’s results of operations, cash flows and financial position, including accounting policies, processes and systems. We do not expect the impact to be material upon adoption.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation and to the methodology for calculating taxes during the quarters, as well as clarifies the accounting for enacted changes in tax laws. The accounting standard will be adopted by the Company in the first quarter of fiscal 2021 (October 1, 2020) using a prospective approach. We have evaluated the impact of this standard on the Company’s results of operations, cash flows and financial position, and we do not expect the impact to be material upon adoption.

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.