OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED ACCOUNTING STANDARDS (Policies)

3 Months Ended

Sep. 30, 2019

OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED ACCOUNTING STANDARDS

Basis of Consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements.  In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair presentation of our interim financial statements have been included in this Form 10-Q.  Operating results for the three months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2020.  These interim unaudited financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019 filed with the Securities and Exchange Commission on August 8, 2019 (“Fiscal 2019 10-K”).

Certain amounts in the prior period consolidated balance sheet have been reclassified for comparative purposes to conform with the presentation in the current period balance sheet.  Reclassified amounts were not material.  

Recently Adopted and Recently Issued Accounting Standards

Recently Adopted Accounting Standards

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which requires recognition of right-of-use assets and lease payment liabilities on the balance sheet by lessees for all leases with terms greater than twelve months.  Classification of leases as either a finance or operating lease will determine the recognition, measurement and presentation of expenses. ASU 2016-02 also requires certain quantitative and qualitative disclosures about material leasing arrangements.

Subsequently, in July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”). ASU 2018-11 provides an additional modified retrospective transition method for adopting ASU 2016-02, which eliminates the need for adjusting prior period comparable financial statements prepared under legacy lease accounting guidance.

ASU 2016-02, together with ASU 2018-11, is effective for the Company July 1, 2019. The Company adopted the new guidance using the modified retrospective approach set forth in ASU 2018-11, with the date of initial application on July 1, 2019.  Comparative reporting periods were not adjusted upon adoption.

As permitted under the transition guidance, the Company has elected to use the following practical expedients at transition:

● To not reassess whether any expired or existing contracts were or contained leases; and

● To not reassess the lease classification for any expired or existing leases.

In addition, the Company has elected to use the following practical expedients at and subsequent to adoption in accordance with ASU 2016-02:

● Not to separate non-lease from lease components, and instead account for each lease component and any associated non-lease components as a single lease component; and

● Not to recognize right-of-use assets and associated liabilities for short-term contracts with lease terms of 12 months or less.

The Company’s significant lease arrangements relate to its office spaces. These arrangements are for leases of assets such as corporate office space and office equipment.  Through the implementation process, the Company evaluated its lease arrangements, which included an analysis of contracts, and updated its internal controls and processes that are necessary to track and calculate the additional accounting and disclosure requirements as required upon adoption of ASU 2016-02.

Upon adoption, the new standard had an insignificant impact on the Company’s consolidated balance sheets as of September 30, 2019.  Adoption of the new standard resulted in the recognition of $2.4 million of right-of-use assets on our consolidated balance sheets with an offsetting $2.4 million of lease liabilities for operating leases.  The current portion of our right of use assets are included in Prepaid expenses and other, while the long-term portion is included in Other assets on our consolidated balance sheets.  The current portion of the offsetting lease liabilities are included in Other current liabilities, while the long-term portion is included in Other long-term liabilities on our consolidated balance sheets.  The Company did not have any finance leases as of September 30, 2019.  The adoption of ASU 2016-02 did not impact accumulated losses, our consolidated statements of operations and comprehensive income, and our consolidated statements of cash flows.