In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which modifies how all entities recognize revenue. FASB ASU No. 2014-09 outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of control for promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Revenue recognition under ASC 606 is based on when an entity satisfies its performance obligation(s) by transferring control of product and/or services as opposed to being entitled to the benefits. For contracts comprised of product and services (“turnkey”), the Company currently recognizes product revenues when shipped and service revenues only when substantially fulfilled, in essence at points in time. Currently, direct costs are recognized in the period incurred. In contrast, the entire contract will now be recognized over time until the contract has been substantially fulfilled. Direct costs will be deferred accordingly. The standard allows for either an input or output method of determining a contract’s measure of progress. Based upon the nature of our projects, an output method is the more appropriate choice and will be measured as room installations are completed.

The Company has concluded that the most significant impact relates to the timing of revenue recognition for turnkey contracts where product has shipped, but an insignificant amount of rooms have been installed. Transactions consisting solely of product will continue to be recognized when shipped. The Company does not offer installation services for competitors’ product.

FASB ASU No. 2014-09 may be applied using either a full retrospective approach, under which all years included in the financial statements will be presented under the revised guidance, or 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. We adopted the modified retrospective approach, where entities will recognize a cumulative catch-up adjustment to the opening balance of retained earnings on January 1, 2018. We elected to apply the rules to all contracts not completed at January 1, 2018. We are substantially complete with our evaluation and expect to record a cumulative decrease to retained earnings of approximately $0.43 million.

The cumulative impact of adopting ASC 606 is based on the Company’s best estimates at the time of the preparation of this Annual Report. The actual impact is subject to change prior to the filing of Form 10-Q for the quarter ending March 31, 2018. The Company anticipates the effect of adopting the standard on its controls environment and other business systems and processes will be insignificant. The Company is finalizing the impact of ASC 606 on the disclosures for its financial statements footnotes and expects the disclosures to be enhanced in the first quarter of 2018.

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of its pending adoption of ASU 2016-02 on its consolidated financial statements. Upon adoption, the Company expects that the ROU asset and lease liability will be recognized in the balance sheets in amounts that will be material.

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 August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The new standard provides guidance on the classification of certain transactions in the statement of cash flows, such as contingent consideration payments made in connection with a business combination and debt prepayment or extinguishment costs. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within that fiscal year. When adopted, the new guidance will be applied retrospectively. The adoption of ASU 2016-15 will not have an impact on the Company’s consolidated financial statements.

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. We expect that the adoption of this amendment may have a material effect on our consolidated financial statements due to the material balance of restricted cash on hand as of December 31, 2017.

In May 2017, the FASB issued ASU 2017-09, Compensation — Stock Compensation — Scope of Modification Accounting (“ASU 2017-09”), which provides guidance about the types of changes to terms or conditions of a share-based payment award that would require an entity to apply modification accounting. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. The adoption of ASU 2017-09 will not have an impact on the Company’s consolidated financial statements.

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