Quarterly report pursuant to Section 13 or 15(d)

Accounting Policies (Policies)

v3.19.1
Accounting Policies (Policies)
9 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Use of Estimates

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The areas requiring significant estimates are provision for doubtful accounts, provision for taxation, useful life of depreciable assets, useful life of intangible assets, contingencies, and estimated contract costs. The estimates and underlying assumptions are reviewed on an ongoing basis. Actual results could differ from those estimates.

Concentration of Credit Risk

Concentration of Credit Risk

 

Cash includes cash on hand and demand deposits in accounts maintained within the United States as well as in foreign countries. Certain financial instruments, which subject the Company to concentration of credit risk, consist of cash and restricted cash. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for the banks located in the United States. Balances at financial institutions within certain foreign countries are not covered by insurance. As of March 31, 2019, and June 30, 2018, the Company had uninsured deposits related to cash deposits in accounts maintained within foreign entities of approximately $15,525,141 and $20,933,224, respectively. The Company has not experienced any losses in such accounts.

 

The Company’s operations are carried out globally. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments of each country and by the general state of the country’s economy. The Company’s operations in each foreign country are subject to specific considerations and significant risks not typically associated with companies in economically developed nations. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

The Company applies the provisions of ASC 820-10, “Fair Value Measurements and Disclosures.” ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. For certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and short-term debt, the carrying amounts approximate fair value due to their relatively short maturities. The carrying amounts of the convertible note receivable and the long-term debt approximate their fair values based on current interest rates for instruments with similar characteristics.

 

The three levels of valuation hierarchy are defined as follows:

 

Level 1: Valuations consist of unadjusted quoted prices in active markets for identical assets and liabilities and has the highest priority.
   
Level 2: Valuations rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability.
   
Level 3: Valuations are based on prices or third party or internal valuation models that require inputs that are significant to the fair value measurement and are less observable and thus have the lowest priority.

 

The Company does not have any financial assets that are measured at fair value on a recurring basis as of March 31, 2019.

 

The Company’s financial assets that were measured at fair value on a recurring basis as of June 30, 2018, were as follows:

 

    Level 1     Level 2     Level 3     Total Assets  
Revenues in excess of billing - long term   $ -     $ -     $ 1,206,669     $ 1,206,669  
Total   $ -     $ -     $ 1,206,669     $ 1,206,669  

 

The reconciliation from June 30, 2018 to March 31, 2019 is as follows:

 

    Revenues in excess of billing - long term    

Fair value

discount

    Total  
 Balance at June 30, 2018   $ 1,445,245     $ (238,576 )   $ 1,206,669  
 Effect of ASC 606 adoption     (1,445,245 )     238,576       (1,206,669 )
 Balance at March 31, 2019   $ -     $ -     $ -  

 

Management analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging.” Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. In addition, the fair values of freestanding derivative instruments such as warrants and option derivatives are valued using the Black-Scholes model.

New Accounting Pronouncements

New Accounting Pronouncements

 

Recent Accounting Standards Adopted by the Company:

 

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01), which requires equity investments that are not accounted for under the equity method of accounting to be measured at fair value with changes recognized in net income and updates certain presentation and disclosure requirements. ASU 2016-01 is effective beginning after December 15, 2017. The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.

 

In August 2016, the FASB issued ASU 2016-15, Clarification of Certain Cash Receipts and Cash Payments, which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The amendments in this update should be applied retrospectively to all periods presented, unless deemed impracticable, in which case, prospective application is permitted. The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.

 

On November 17, 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. It is intended to reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The new standard requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Earlier adoption is permitted. The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.

 

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which clarifies and provides a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this update should be applied prospectively on or after the effective date. This update is effective for annual periods beginning after December 15, 2017, and interim periods within those periods. Early adoption is permitted for acquisition or deconsolidation transactions occurring before the issuance date or effective date and only when the transactions have not been reported in issued or made available for issuance financial statements. The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.

 

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as a modification. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The new standard will be effective prospectively for the Company for the fiscal year beginning July 1, 2018. Early adoption is permitted. The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.

 

In August 2018, the Securities and Exchange Commission issued Release No. 33-10532 that amends and clarifies certain financial reporting requirements. The principal change to the Company’s financial reporting is the inclusion of the annual disclosure requirement of changes in stockholders’ equity in Rule 3-04 of Regulation S-X to interim periods. The Company adopted this new rule beginning the quarter ended September 30, 2018.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605) and Subtopic 985-605 Software - Revenue Recognition. Topic 605 and Subtopic 985-605 are collectively referred to as “Topic 605” or “prior GAAP.” Under Topic 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, Topic 606 requires enhanced disclosures, including disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

 

The Company adopted Topic 606 on the first day of fiscal 2019 using the modified retrospective transition method. Under this method, the Company evaluated contracts that were in effect at the beginning of fiscal 2019 as if those contracts had been accounted for under Topic 606. The Company did not evaluate individual modifications for those periods prior to the adoption date, but the aggregate effect of all modifications as of the adoption date and such effects are provided below. Under the modified retrospective transition method, periods prior to the adoption date were not adjusted and continue to be reported in accordance with historical, pre-Topic 606 accounting. A cumulative catch-up adjustment was recorded to beginning accumulated deficit to reflect the impact of all existing arrangements under Topic 606.

 

As a result of adopting ASC 606, the Company recorded a net decrease of $5,795,795 to opening accumulated deficit and $2,957,860 to non-controlling interest as of July 1, 2018 as a cumulative catch-up adjustment for all open contracts as of the date of adoption. The most significant drivers of this adjustment related to the allocation of revenue to certain performance obligations on a stand-alone selling price basis. Specifically, contracts with one customer were required to be aggregated under the guidance of ASC 606, resulting in additional revenue allocated to the maintenance services under these contracts. Under the guidance of ASC 605, the Company had recognized one of these contracts as a stand-alone and separate contract with this customer, which resulted in additional revenue allocated to the license and services that had previously been delivered to this customer.

 

The following table presents the cumulative effect adjustments, net of income tax effects, to beginning consolidated balance sheet accounts for the new accounting standards adopted by the Company on the first day of fiscal 2019:

 

   

As of

June 30, 2018

   

Topic 606

Adjustments

   

As of

July 1,2018

 
ASSETS                  
Current assets:                        
Cash and cash equivalents   $ 22,088,853             $ 22,088,853  
Accounts receivable, net of allowance of $610,061 and $571,511     12,775,461               12,775,461  
Accounts receivable, net - related party     3,374,272               3,374,272  
Revenues in excess of billings     14,285,778       (7,328,812 )     6,956,966  
Convertible note receivable - related party     2,123,500               2,123,500  
Other current assets     2,703,032               2,703,032  
Total current assets     57,350,896       (7,328,812 )     50,022,084  
Revenues in excess of billings, net - long term     1,206,669       (1,206,669 )     -  
Property and equipment, net     16,165,491               16,165,491  
Long term investment     3,217,162               3,217,162  
Other assets     70,299               70,299  
Intangible assets, net     12,247,196               12,247,196  
Goodwill     9,516,568               9,516,568  
Total assets   $ 99,774,281     $ (8,535,481 )   $ 91,238,800  
                         
LIABILITIES AND STOCKHOLDERS’ EQUITY                        
Current liabilities:                        
Accounts payable and accrued expenses   $ 7,873,809             $ 7,873,809  
Current portion of loans and obligations under capitalized leases     8,595,919               8,595,919  
Unearned revenues     5,949,581       218,174       6,167,755  
Common stock to be issued     88,324               88,324  
Total current liabilities     22,507,633       218,174       22,725,807  
Loans and obligations under capitalized leases; less current maturities     330,596               330,596  
Total liabilities     22,838,229       218,174       23,056,403  
Commitments and contingencies                        
Stockholders’ equity:                        
Preferred stock, $.01 par value; 500,000 shares authorized;     -       -       -  
Common stock, $.01 par value; 14,500,000 shares authorized;11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018 and 11,225,385 shares issued and 11,190,606 outstanding as of June 30, 2017     117,085               117,085  
Additional paid-in-capital     126,479,147               126,479,147  
Treasury stock (At cost, 205,853 shares and 34,779 shares as of June 30, 2018 and June 30, 2017, respectively)     (1,205,024 )             (1,205,024 )
Accumulated deficit     (37,994,502 )     (5,795,795 )     (43,790,297 )
Stock subscription receivable     (221,000 )             (221,000 )
Other comprehensive loss     (24,386,071 )             (24,386,071 )
Total NetSol stockholders’ equity     62,789,635       (5,795,795 )     56,993,840  
Non-controlling interest     14,146,417       (2,957,860 )     11,188,557  
Total stockholders’ equity     76,936,052       (8,753,655 )     68,182,397  
Total liabilities and stockholders’ equity   $ 99,774,281     $ (8,535,481 )   $ 91,238,800  

 

The following table presents the cumulative effect adjustments, net of income tax effects, to beginning consolidated balance sheet accounts for the new accounting standards adopted by the Company as of March 31, 2019:

 

    As reported under Topic 606           Balances under Prior GAAP  
    March 31, 2019     Adjustments     March 31, 2019  
ASSETS                  
Current assets:                        
Cash and cash equivalents   $ 17,014,590             $ 17,014,590  
Accounts receivable, net of allowance of $373,329 and $610,061     15,971,676               15,971,676  
Accounts receivable, net - related party     3,012,133               3,012,133  
Revenues in excess of billings     13,381,205       7,964,871       21,346,076  
Revenues in excess of billings - related party     61,822               61,822  
Convertible note receivable - related party     3,250,000               3,250,000  
Other current assets     3,593,057               3,593,057  
Total current assets     56,284,483       7,964,871       64,249,354  
Revenues in excess of billings, net - long term     -       1,370,111       1,370,111  
Property and equipment, net     14,374,262               14,374,262  
Long term investment     2,501,299               2,501,299  
Other assets     23,994               23,994  
Intangible assets, net     9,042,726               9,042,726  
Goodwill     9,516,568               9,516,568  
Total assets   $ 91,743,332     $ 9,334,982     $ 101,078,314  
                         
LIABILITIES AND STOCKHOLDERS’ EQUITY                        
Current liabilities:                        
Accounts payable and accrued expenses   $ 6,881,435             $ 6,881,435  
Current portion of loans and obligations under capitalized leases     8,111,332               8,111,332  
Unearned revenues     6,241,741       (1,013,469 )     5,228,272  
Common stock to be issued     88,324               88,324  
Total current liabilities     21,322,832       (1,013,469 )     20,309,363  
Loans and obligations under capitalized leases; less current maturities     716,563               716,563  
Total liabilities     22,039,395       (1,013,469 )     21,025,926  
Commitments and contingencies                        
Stockholders’ equity:                        
Preferred stock, $.01 par value; 500,000 shares authorized;     -       -       -  
Common stock, $.01 par value; 14,500,000 shares authorized;11,879,056 shares issued and 11,673,203 outstanding as of March 31, 2019 and 11,708,469 shares issued and 11,502,616 outstanding as of June 30, 2018     118,791               118,791  
Additional paid-in-capital     127,551,606               127,551,606  
Treasury stock (At cost, 205,853 shares and 205,853 shares as of March 31, 2019 and June 30, 2018, respectively)     (1,205,024 )             (1,205,024 )
Accumulated deficit     (38,704,519 )     6,851,550       (31,852,969 )
Stock subscription receivable     (221,000 )             (221,000 )
Other comprehensive loss     (28,474,832 )             (28,474,832 )
Total NetSol stockholders’ equity     59,065,022       6,851,550       65,916,572  
Non-controlling interest     10,638,915       3,496,901       14,135,816  
Total stockholders’ equity     69,703,937       10,348,451       80,052,388  
Total liabilities and stockholders’ equity   $ 91,743,332     $ 9,334,982     $ 101,078,314  

 

The following table summarizes the effects of adopting Topic 606 on the Company’s Condensed Consolidated Statement of Income for the three and nine months ended March 31, 2019:

 

   

For the Three Months Ended

March 31, 2019

   

For the Nine Months Ended

March 31, 2019

 
   

As reported

under

Topic 606

    Adjustments    

Under prior

GAAP

   

As reported under

Topic 606

    Adjustments    

 

Under prior

GAAP

 
                                     
Net Revenues:                                                
License fees   $ 2,536,320     $ 175,507     $ 2,711,827     $ 13,310,002     $ 175,507     $ 13,485,509  
Maintenance fees     3,562,412       232,110       3,794,522       10,735,432       589,466       11,324,898  
Services     10,519,219               10,519,219       25,175,187       -       25,175,187  
Maintenance fees - related party     142,344               142,344       370,723       -       370,723  
Services - related party     366,760               366,760       934,883       -       934,883  
Total net revenues     17,127,055       407,617       17,534,672       50,526,227       764,973       51,291,200  
                                                 
Cost of revenues:                                                
Salaries and consultants     4,833,611               4,833,611       14,351,227       -       14,351,227  
Travel     1,793,964               1,793,964       4,652,143       -       4,652,143  
Depreciation and amortization     874,654               874,654       2,692,306       -       2,692,306  
Other     1,067,506               1,067,506       3,176,602       -       3,176,602  
Total cost of revenues     8,569,735       -       8,569,735       24,872,278       -       24,872,278  
                                                 
Gross profit     8,557,320       407,617       8,964,937       25,653,949       764,973       26,418,922  
                                                 
Operating expenses:                                                
Selling and marketing     1,864,990               1,864,990       5,614,619       -       5,614,619  
Depreciation and amortization     252,442               252,442       658,453       -       658,453  
General and administrative     3,833,209               3,833,209       12,241,988       -       12,241,988  
Research and development cost     513,770               513,770       1,256,577       -       1,256,577  
Total operating expenses     6,464,411       -       6,464,411       19,771,637       -       19,771,637  
                                                 
Income from operations     2,092,909       407,617       2,500,526       5,882,312       764,973       6,647,285  
                                                 
Other income and (expenses)                                                
Gain (loss) on sale of assets     16,380               16,380       65,170       -       65,170  
Interest expense     (70,447 )             (70,447 )     (233,685 )     -       (233,685 )
Interest income     201,084       13,474       214,558       680,469       163,442       843,911  
Gain on foreign currency exchange transactions     47,218       (73,088 )     (25,870 )     2,594,885       666,381       3,261,266  
Share of net loss from equity investment     (245,389 )             (245,389 )     (843,373 )     -       (843,373 )
Other income     3,116               3,116       12,998       -       12,998  
Total other income (expenses)     (48,038 )     (59,614 )     (107,652 )     2,276,464       829,823       3,106,287  
                                                 
Net income before income taxes     2,044,871       348,003       2,392,874       8,158,776       1,594,796       9,753,572  
Income tax provision     (275,476 )             (275,476 )     (777,262 )     -       (777,262 )
Net income     1,769,395       348,003       2,117,398       7,381,514       1,594,796       8,976,310  
Non-controlling interest     (501,835 )     (117,625 )     (619,460 )     (2,295,736 )     (539,041 )     (2,834,777 )
Net income attributable to NetSol   $ 1,267,560     $ 230,378     $ 1,497,938     $ 5,085,778     $ 1,055,755     $ 6,141,533  
                                                 
Net income per share:                                                
Net income per common share                                                
Basic   $ 0.11     $ 0.02     $ 0.13     $ 0.44     $ 0.09     $ 0.53  
Diluted   $ 0.11     $ 0.02     $ 0.13     $ 0.44     $ 0.09     $ 0.53  
                                                 
Weighted average number of shares outstanding                                                
Basic     11,656,098       11,656,098       11,656,098       11,580,066       11,580,066       11,580,066  
Diluted     11,691,342       11,691,342       11,691,342       11,615,310       11,615,310       11,615,310  

 

The following table summarizes the effects of adopting Topic 606 on the financial statement line items of the Company’s Consolidated Statement of Cash Flows for the three months ended March 31, 2019:

 

   

For the Nine Months Ended

March 31, 2019

 
    As reported under           Under prior  
    Topic 606     Adjustments     GAAP  
Cash flows from operating activities:                        
Net income   $ 7,381,514     $ 1,594,796     $ 8,976,310  
Adjustments to reconcile net income
to net cash provided by operating activities:
                       
Depreciation and amortization     3,350,759               3,350,759  
Share of net loss from investment under equity method     843,373               843,373  
Loss on sale of assets     (65,170 )             (65,170 )
Stock based compensation     980,682               980,682  
Fair market value of stock options extended     43,612               43,612  
Changes in operating assets and liabilities:                     -  
Accounts receivable     (4,249,540 )             (4,249,540 )
Accounts receivable - related party     (461,435 )             (461,435 )
Revenues in excess of billing     (6,862,451 )     (799,501 )     (7,661,952 )
Revenues in excess of billing - related party     (97,359 )             (97,359 )
Other current assets     (1,189,909 )             (1,189,909 )
Accounts payable and accrued expenses     (540,615 )             (540,615 )
Unearned revenue     611,157       (795,295 )     (184,138 )
Net cash used in operating activities     (255,382 )     -       (255,382 )
                         
Cash flows from investing activities:                        
Purchases of property and equipment     (2,590,302 )             (2,590,302 )
Sales of property and equipment     1,005,214               1,005,214  
Convertible note receivable - related party     (1,126,500 )             (1,126,500 )
Net cash used in investing activities     (2,711,588 )     -       (2,711,588 )
                         
Cash flows from financing activities:                        
Proceeds from the exercise of stock options and warrants     85,000               85,000  
Proceeds from exercise of subsidiary options        2,650               2,650  
Dividend paid by subsidiary to non-controlling interest     (566,465 )             (566,465 )
Proceeds from bank loans     1,337,092               1,337,092  
Payments on capital lease obligations and loans - net     (298,610 )             (298,610 )
Net cash provided by financing activities     559,667       -       559,667  
Effect of exchange rate changes     (2,666,960 )             (2,666,960 )
Net increase in cash and cash equivalents     (5,074,263 )     -       (5,074,263 )
Cash and cash equivalents at beginning of the period     22,088,853               22,088,853  
Cash and cash equivalents at end of period   $ 17,014,590     $ -     $ 17,014,590  

 

Accounting Standards Recently Issued but Not Yet Adopted by the Company:

 

In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize right-of-use assets and lease liabilities, for all leases, with the exception of short-term leases, at the commencement date of each lease. This ASU requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. This ASU is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods. Early adoption is permitted. The amendments of this update should be applied using a modified retrospective approach, which requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented. The Company is currently evaluating its lease portfolio; assessing system needs to support adoption of the new lease standard; and analyzing procedural changes, including updating our lease accounting policy as needed to reflect the new requirements of this standard. The Company continues to evaluate the impact that these changes in methodology will have on its financial condition, results of operations and disclosures.

 

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods. Early adoption is permitted for interim or annual goodwill impairment test performed on testing dates after January 1, 2017. The Company will apply this guidance to applicable impairment tests after the adoption date.

 

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The ASU was issued to address the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. The ASU, among other things, eliminates the need to consider the effects of down round features when analyzing convertible debt, warrants and other financing instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The amendments are effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted, including adoption in an interim period. The Company is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

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 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this ASU also require certain disclosures about stranded tax effects. The amendments in this ASU should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently in the process of evaluating the impact of adoption of this standard on its consolidated financial statements.

 

In March 2018, FASB issued ASU No. 2018-05, “Income Taxes (Topic 740).” This ASU was issued to provide guidance on the income tax accounting implications of the Tax Act and allows for entities to report provisional amounts for specific income tax effects of the Tax Act for which the accounting under ASC Topic 740 was not yet complete, but a reasonable estimate could be determined. A measurement period of one year is allowed to complete the accounting effects under ASC Topic 740 and revise any previous estimates reported. Any provisional amounts or subsequent adjustments included in an entity’s financial statements during the measurement period should be included in income from continuing operations as an adjustment to tax expense in the reporting period the amounts are determined.

 

In June 2018, the FASB issued ASU 2018-07 “Compensation — Stock compensation — Improvements to Nonemployee Share-Based Payment Accounting”. This update aims to simplify the accounting for share-based payments awarded to non-employees for goods or services acquired. The update specifies that the measurement date is the grant date and that awards are required to be measured at fair value. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently in the process of evaluating the impact of adoption of this standard on its consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” which is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements. The update is effective for the Company on July 1, 2020, with early adoption permitted. The Company is currently assessing the impact this update will have on its consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update are effective for the Company on July 1, 2020, with early adoption permitted. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is in the process of assessing the impact of the amendments in this update but does not expect it to have a material impact on the Company’s consolidated financial statements.

 

All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.