NOTE B – NEW ACCOUNTING PRONOUNCEMENTS

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides guidance for estimating credit losses on certain types of financial instruments, including trade receivables, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The guidance requires a modified retrospective transition method and early adoption is permitted. The Company does not expect the adoption of ASU 2016-13 to have a material impact on its consolidated financial statements.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (“ASU 2016-02”), subsequently amended in 2018 by ASU 2018-10, ASU 2018-11 and ASU 2018-20 and codified in ASC 842, Leases (“ASC 842”). ASC 842 is effective for annual periods beginning after December 15, 2018 and interim periods thereafter. Earlier application is permitted, however the Company will not do so. ASC 842 supersedes current lease guidance in ASC 840 and requires a lessee to recognize a right-of-use asset and a corresponding lease liability for substantially all leases. The lease liability will be equal to the present value of the remaining lease payments while the right-of-use asset will be similarly calculated and then adjusted for initial direct costs. In addition, ASC 842 expands the disclosure requirements to increase the transparency and comparability of the amount, timing and uncertainty of cash flows arising from leases.

We will elect available practical expedients permitted under the guidance, which among other items, allow the Company to carry forward its historical lease classification and not reassess leases for the definition of lease under the new standard. Upon the adoption of ASC 842, we do not expect to record a right-of-use asset and related lease liability for leases with an initial term of 12 months or less and we plan to account for lease and non-lease components as a single lease component.

ASU 2016-02 may be applied using either an optional alternative approach, under which all years included in the financial statements will be presented under the revised guidance, a modified retrospective approach, under which financial statements will be prepared under the revised guidance for the year of adoption, but not for prior years, or a new transition alternative approach, under which the standard is adopted and measured from the first date of the fiscal year under adoption, in this case January 1, 2019. We adopted the new transition alternative approach, where entities will measure current leases from date of adoption, January 1, 2019. Initial direct costs are to be recognized as a cumulative catch-up adjustment to the opening balance of retained earnings on January 1, 2019. The Company did not incur any initial direct costs upon the initial assessment of leases and thus will not be require a cumulative catch-up adjustment.

We expect to recognize additional lease assets and liabilities of approximately $1.0 million and $1.1 million, respectively, to reflect the present value of remaining lease payments under existing leasing arrangements. The cumulative impact of adopting ASC 842 is based on the Company’s best estimates at the time of the preparation of the consolidated financial statements. Our conclusions are preliminary and subject to change as we finalize our analysis. Changes in our lease population or changes in incremental borrowing rates may alter these estimates. We will expand our consolidated financial statement disclosure upon adoption of the new standard. We do not expect significant changes to our business processes, systems, or internal controls as a result of implementing the standard.

Accounting Standards Recently Adopted

Effective January 1, 2018, the Company has adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606, the Standard”), which supersedes nearly all legacy revenue recognition guidance. ASC 606 outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue based on when an it satisfies its performance obligations by transferring control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for said goods or services. Refer to Note C for further consideration of the recently adopted standard.

In November 2016, the Financial Accounting Standards Board issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, (“Update 2016-18”). Update 2016-18 provides guidance on the classification of restricted cash in the statement of cash flows. The amendments are effective for interim and annual periods beginning after December 15, 2017. The amendments in Update 2016-18 should be adopted on a retrospective basis. The adoption of this amendment increased the beginning cash balance by $810,000 as of January 1, 2018 in our statement of cash flows, due to the reclassification of $810,000 of restricted cash into the cash and cash equivalents category.

Management has evaluated other recently issued accounting pronouncements and does not believe any will have a significant impact on our consolidated financial statements and related disclosures.