Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Osiris Therapeutics International GmbH. All intercompany transactions have been eliminated in consolidation. Osiris Therapeutics International GmbH does not have any operations.

The condensed financial statements included in this quarterly report have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States of America (“GAAP”).

The condensed consolidated balance sheet as of December 31, 2017 is derived from the Company’s audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the SEC’s rules and regulations for interim financial statements. This Quarterly Report on Form 10-Q should be read in conjunction with our financial statements and footnotes included in our Annual Report on Form 10-K for the years ended December 31, 2017, 2016, and 2015 (the “Annual Report”). In the opinion of management, these condensed consolidated financial statements include all adjustments (consisting solely of normal recurring adjustments) considered necessary to fairly present the results of operations, financial position and cash flows for the periods indicated.

Operating results for any interim period are not necessarily indicative of the results that may be achieved for the full year.

Use of Estimates

We make certain estimates and assumptions in preparing our condensed consolidated financial statements in accordance with GAAP. These estimates and assumptions affect the reported amount 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 for the period presented. Actual results may differ from these estimates.

Income per Common Share

Basic income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted income per common share adjusts basic income per share for the potentially dilutive effects of common share equivalents, using the treasury stock method, and includes the incremental effect of shares that would be issued upon the assumed exercise of stock options.


	Three months ended				Nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
	(in thousands, except per share amounts)
Net income	$	4,207	$	7,758	$	4,371	$	6,879
Shares used in computation:
Weighted-average shares outstanding		34,526		34,526		34,526		34,524
Basic earnings per share	$	0.12	$	0.22	$	0.13	$	0.20

Diluted earnings per share:
Net income	$	4,207	$	7,758	$	4,371	$	6,879
Shares used in computation:
Weighted-average shares outstanding		34,526		34,526		34,526		34,524
Weighted-average share equivalents from stock options		68		—		39		1
Weighted-average shares and share equivalents outstanding		34,594		34,526		34,565		34,525
Diluted earnings per share	$	0.12	$	0.22	$	0.13	$	0.20

Diluted earnings per share for the three-months ended September 30, 2018 and 2017 exclude 378,438 and 697,501 of our outstanding options as of that date, respectively, as their impact on our net income per share is anti-dilutive. Diluted earnings per share for the nine-months ended September 30, 2018 and 2017 excludes 379,813 and 697,501 of our outstanding options as of that date, respectively, as their impact on our net income per share is anti-dilutive.

Stockholders’ Equity

On June 26, 2018, the Company amended its charter, which was approved by the Company’s stockholders, which decreased the total number of authorized shares of common stock from ninety million (90,000,000) shares to seventy-two million (72,000,000) shares.

Concentration of Risk

We maintain cash and cash equivalents as well as short-term investment balances in accounts that exceed federally insured limits. Our investments consist primarily of marketable securities with a total portfolio duration of approximately two years. We have historically provided credit in the normal course of business to contract counterparties and to the end user customers and distributors of our products. Trade accounts receivable in the accompanying condensed consolidated balance sheets consist primarily of amounts due from end user customers and distributors of our products within the United States.

The Company's revenue concentrations through distributors of 10% or greater are as follows:


	Three-months Ended September 30,				Nine-months Ended September 30,
Distributor	2018		2017		2018		2017
A	19	%	20	%	19	%	20	%

The Company's accounts receivable concentrations of 10% or greater are as follows:

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (“Topic 606”).” This ASU outlines a single set of comprehensive principles for recognizing revenue under GAAP and supersedes existing revenue recognition guidance. The main principle of this ASU is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted the new standard on a modified retrospective basis as of January 1, 2018. The Company completed a comprehensive assessment of customer contracts and concluded that the adoption of this ASU did not have a material impact on our condensed consolidated financial statements; therefore, no adjustment was recorded upon adoption. See Note 8, “Revenue,” for additional information.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 203).” This ASU addresses eight specific cash flow issues and clarifies their presentation and classification in the statement of cash flows. The Company adopted this ASU on January 1, 2018 and concluded that the adoption of this ASU did not have a material impact on our condensed consolidated financial statements. As such, no retrospective adjustment was recorded.

On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the newly-enacted U.S. Tax Cuts and Jobs Act (the “Act”). SAB 118 allows registrants to include a provisional amount to account for the implications of the Act where a reasonable estimate can be made and requires the completion of the accounting no later than one year from the date of enactment of the Act or December 22, 2018.

Recently Issued Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This ASU requires, among other things, a lessee to recognize assets and liabilities associated with the rights and obligations attributable to most leases but also recognize expenses similar to current lease accounting. This ASU also requires certain qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases, along with additional key information about leasing arrangements. Originally, entities were required to adopt Leases (Topic 842) using a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application. However, in July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” which now allows entities the option of recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance. In July 2018, the FASB also issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,” which clarifies how to apply certain aspects of ASU 2016-02. ASU 2016-02, ASU 2018-10 and ASU 2018-11 (now commonly referred to as ASC Topic 842 (ASC 842)) is effective for the Company’s fiscal year beginning January 1, 2019. The Company plans to elect the transition option provided under the ASU, which will not require adjustments to comparative periods nor require modified disclosures in those comparative periods. Upon adoption, the Company expects to elect the transition package of practical expedients permitted within the new standard, which among other things, allows the carryforward of the historical lease classification. Based on its anticipated election of practical expedients, the Company anticipates the recognition of right of use assets and related lease liabilities on its consolidated balance sheets related to its leases. The Company is finalizing its analysis of data gathered to evaluate the impact of adopting this ASU on its consolidated financial statements. The Company will apply this ASU and its related updates on a modified retrospective basis as of January 1, 2019. The adoption of the guidance will likely have a material effect on the consolidated balance sheets, resulting in the recording of an operating lease asset and liability. The impact on the consolidated statement of comprehensive income and the consolidated statement of cash flows are expected to be immaterial.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326).” The guidance eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments. The credit loss estimate can now reflect an entity’s current estimate of all future expected credit losses. Under the previous guidance, an entity only considered past events and current conditions. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of certain amendments of this guidance must be applied on a modified retrospective basis and the adoption of the remaining amendments must be applied on a prospective basis. We have not yet begun to evaluate the specific impacts of this guidance nor have we determined the manner in which we will adopt this guidance.

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU gives entities the option to reclassify the disproportionate income tax effects caused by the Act from accumulated other comprehensive income to retained earnings. The update also requires new disclosures, some of which are applicable for all entities. The guidance in ASU 2018-02 is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and the timing of adoption although we do not believe the impact of adoption will be material.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds, and modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance in ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and the timing of adoption although we do not believe the impact of adoption will be material.

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” This ASU requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the non-cancellable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider. The guidance in ASU 2018-15 is effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and the timing of adoption.

September 30,

December 31,

Distributor

OSIRIS THERAPEUTICS, INC. 10-Q