|Accounting Records and Use of Estimates
||Accounting Records and Use of Estimates:|
The accounting records are maintained in accordance with
accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the Company’s
financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses during the reporting period. The estimates that we make include allowance for doubtful
accounts, depreciation and amortization, income tax assets and liabilities, fair value of marketable securities and revenue recognition.
Estimates are based on historical experience where applicable or other assumptions that management believes are reasonable under
the circumstances. Due to the inherent uncertainty involved in making estimates, actual results may differ from those estimates
under different assumptions or conditions.
The interim financial statements are prepared pursuant to
the requirements for reporting on Form 10-Q. The July 31, 2017 condensed consolidated balance sheet was derived from audited financial
statements but does not include all disclosures required by GAAP. The interim financial statements and notes thereto should be
read in conjunction with the financial statements and notes included in the Company's latest Form 10-K Annual Report for the fiscal
year ended July 31, 2017. In the opinion of management, the interim financial statements reflect all adjustments of a normal recurring
nature necessary for a fair statement of the results for interim periods. The results of operations for the current period are
not necessarily indicative of the results for the entire fiscal year ending July 31, 2018.
The computation of the annual expected effective tax rate
at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income
for the year and future periods, projections of the proportion of income (or loss), and permanent and temporary differences. The
accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is acquired,
or as additional information is obtained. To the extent the estimated annual effective tax rate changes during a quarter, see below,
the effect of the change on prior quarters is included in tax expense for the current quarter.
As of July 31, 2017, the Company had a federal net operating
loss carryforward approximating $5,366,000 which is available to offset future taxable income. In addition, as of July 31, 2017,
the Company had state and city net operating loss carryforwards of approximately $10,107,000 and $8,274,000, respectively, available
to offset future state and city taxable income. The net operating loss carryforwards will begin to expire, if not used, in 2035.
New York State and New York City taxes are calculated using
the higher of taxes based on income or the respective capital-based franchise taxes. In April 2014, the New York State governor
signed into law legislation overhauling the New York State franchise tax on corporations. The changes in the law were effective
for the Company’s year ended July 31, 2016. The state capital-based tax will be phased out over a 7-year period. The Company
anticipates New York State taxes will be based on capital through 2021, and New York City taxes will be based on capital for the
foreseeable future. Capital-based franchise taxes are recorded to administrative and general expense.
Due to the application of the capital-based tax while the
net operating loss still applies, or due to the possible absence of State taxable income in the years beyond 2021 to which the
State loss can be carried, the Company has not recorded the tax benefit of its New York State and New York City net operating loss
U.S. Tax Reform:
On December 22, 2017, the U.S. government enacted comprehensive
tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly revises
the future ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates. As the Company has
a July 31 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a statutory federal rate just over
26% for our fiscal year ending July 31, 2018, and 21 % for subsequent fiscal years. For the quarter ended January 31, 2018, these
changes required an adjustment to our deferred tax assets and liabilities to the lower federal rates resulting in an estimated
net deferred tax benefit of approximately $2.4 million.
The changes included in the Tax Act are broad and complex.
The final transition impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things,
changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes
in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates
the Company has utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates.
The Securities and Exchange Commission has issued rules allowing for a measurement period of up to one year after the enactment
date of the Tax Act to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any
resulting adjustments by the end of our current fiscal year ending July 31, 2018.
Recently issued accounting standards not yet adopted:
In May 2014, the Financial Accounting Standards Board (“FASB”),
issued Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers” (“ASU
2014-09”) establishing ASC Topic 606 Revenue from Contracts with Customers. ASU 2014-09 establishes a single comprehensive
model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue
recognition guidance. ASU 2014-09 requires an entity to recognize revenue when it transfers 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
and also requires certain additional disclosures. ASU 2014-09 is effective for interim and annual reporting in fiscal years that
begin after December 15, 2016. ASU 2015-14 extended the implementation date for fiscal years beginning after December 31, 2017.
The adoption of this ASU on August 1, 2018 will not have a significant impact on our consolidated financial statements.
Subsequent to the issuance of ASU 2014-09, the FASB issued
ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue
Gross versus Net)”, ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing”, ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and
Practical Expedients”, and ASU No. 2016-20, "Technical Corrections and Improvements to Topic 606, Revenue from Contracts
with Customers." The additional ASU's clarified certain provisions of ASU 2014-09 in response to recommendations from the Transition
Resource Group established by the FASB and have the same effective date and transition requirements as ASU 2014-09. The adoption
of these updates on August 1, 2018 will not have a significant impact on our consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01 "Financial
Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." ASU 2016-01
amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including the requirement
to measure certain equity investments at fair value with changes in fair value recognized in net income. ASU No. 2016-01 will be
effective for interim and annual periods beginning after December 15, 2017. The adoption of this ASU will not have a significant
impact on our balance sheet and statement of operations.
In February 2016, the FASB issued ASU 2016-02, “Leases.”
ASU 2016-02 is intended to increase transparency and comparability among organizations of accounting for leasing arrangements.
This guidance establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the
balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with
classification affecting the pattern of expense recognition in the income statement. Lessor accounting remains similar to the current
model, but updated to align with certain changes to the lessee model and the new revenue recognition standard (ASU 2014-09). ASU
2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are
required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements
to assess the amount, timing and uncertainty of cash flows arising from leases. Entities will be required to recognize and measure
leases as of the earliest period presented using a modified retrospective approach. The standard is effective for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years. The new standard will be effective for
the Company for the fiscal year beginning August 1, 2019. Early adoption is permitted. The adoption of this guidance is expected
to result in an increase in assets and liabilities on the Company’s balance sheet, with no material impact on the statement
of operations. However, the ultimate impact of adopting this ASU will depend on the Company’s lease portfolio as of the adoption
In November 2016, the FASB issued ASU 2016-18, “Restricted
Cash”. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Restricted cash and restricted
cash equivalents will be included with cash and cash equivalents when reconciling the beginning of period and end of period balances
on the statement of cash flows upon adoption of this standard. ASU 2016-18 is effective for interim and annual reporting periods
in fiscal years beginning after December 15, 2017. The adoption of the ASU will not have a significant impact on our consolidated
In February 2018, the FASB issued ASU 2018-02, “Income
Statement—Reporting Comprehensive Income (Topic 220)”. ASU 2018-02 allows a reclassification from accumulated other
comprehensive income to retained earnings for stranded tax effects resulting from the December 22, 2017 Tax Act. The amendments
in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those
fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public
business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities
for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this standard
should be applied either in the period of adoption or retrospectively to each period (or periods) in which the change in the U.S.
federal corporate income tax rate in the Tax Act is recognized. We expect to adopt the standard in the interim period ending April
30, 2018. The adoption of this ASU by the Company will result in a reclassification of the stranded tax effects from accumulated
other comprehensive income to retained earnings of approximately $92,000.