Revenue Recognition  In May 2014, The Financial Accounting Standards Board (FASB) issued ASC 606 which requires revenue recognition when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled to those goods and services. The standard became effective for us in 2018, but did not have a material impact to our revenue recognition process. For additional information regarding our adoption of ASC 606 please see New Accounting Standards. We earn our revenue from subscription fees for rights related to the use of our software. Our revenue contracts include multiple performance obligations that are highly interdependent and consists of software at the customers site, ongoing customer support, and cloud-based access to the hosted Zix encryption network. As our Company has expanded its portfolio of message security offerings in recent years, we have increased our revenue obtained from hosted service solutions. Approximately 38% of our revenue in 2018 was derived from hosted email protection solutions. Our subscription terms typically range from one to five years. Revenue is recognized by applying the following steps:  Step 1: Identify the contract(s) with a customer,  Step 2: Identify the performance obligations in the contract,  Step 3: determine the transaction price  Step 4: allocate the transaction price to the performance obligations in the contract, and  Step 5: recognize revenue when (or as) the performance obligation is satisfied.  Step 1: Identify the contract(s) with a customer: We consider the terms and conditions of the contract and our customary business practice in identifying our contracts. We determine we have a contract with a customer when the contract is approved, we can identify each partys rights regarding the services and products transferred, we can identify the payment terms for the services and products, the contract has commercial substance, and it is probable we will be paid.  Step 2: Identifying the performance obligations: ASC 606 requires identification and disclosure of performance obligations within a revenue contract. A good or service is considered distinct if the customer can both benefit from the good or service on its own or with other resources that are readily available to the customer, and the promise to transfer the good or service is separately identifiable from other promises in the contract. As of December 31, 2018, revenue from our email protection services represent 100% of our revenue, of which approximately 88% is specific to email encryption. To provide this service, our software at the customer site includes functionality to create a private encryption key that works in conjunction with the public encryption key provided via cloud-based access to our hosted Zix encryption network. Both keys are required to enable our asymmetrical encryption service. In our assessment of the factors listed in ASC 606-10-25-21, we have determined that because our software at the customers site and the access to our hosted Zix encryption network are highly interrelated, these items are not regarded as distinct components. Based on this assessment, these elements are combined as a single performance obligation.  Step 3: Determine the transaction price: The transaction price is determined based on the consideration we expect to be entitled to receive in exchange for transferring goods and services to the customer. We include variable consideration in the transaction price if we view it as probable that a significant future reduction of cumulative revenue under the contract will not occur.  Step 4: Allocate the transaction price to the performance obligations in the contract: We allocate transaction prices to each performance obligation based on the stand-alone selling price of our component services.  Step 5: Recognize revenue when (or as) the performance obligation is satisfied: We recognize revenue when the customer obtains control of the product or services, at the amount allocated to the satisfied performance obligation. Our performance obligations are generally satisfied over time. While some contracts include one or more performance obligations (including the combined elements noted above along with additional ongoing customer support and other hosted services), the revenue recognition pattern generally is not impacted by the separate allocations of these obligations because the services are generally satisfied over the same period of time and revenue is recognized over the contract period. Discounts provided to customers are recorded as reductions in revenue. Revenue Recognition In May 2014, the FASB issued ASC 606, which supersedes most prior revenue recognition guidance under U.S. Generally Accepted Accounting Principles (GAAP). The core principle of ASC 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASC 606 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than were required under prior U.S. GAAP. The standard became effective for us beginning in 2018. Our Company provides primarily email encryption and advanced threat protection security solutions as subscription services in which we recognize revenue as our services are rendered. We determined our revenue was not materially impacted by the new guidance. However, the guidance did require us to increase the amortization period of our commission expense. We applied the guidance to commissions earned on all contracts that were not complete as of January 1, 2018. Prior period amounts were not adjusted and continue to be reported in accordance with the previous guidance. Our Company elected to use a portfolio approach, applying 8 year, 4 year, and 18 month amortization periods for our new, add-on, and renewal sales commission expenses, respectively. Determination of the amortization period and the subsequent assessments for impairment of the related deferred cost asset requires significant judgement. We applied a modified retrospective approach to our implementation of ASC 606 in which we recognized a $4.6 million cumulative effect adjustment to our 2018 retained earnings opening balance related to our increased amortization period. This adjustment includes a $1.6 million impact to our deferred tax asset. The table below presents the cumulative effect of the changes made to our consolidated balance sheet due to the adoption of ASC 606: (In thousands) January 1, 2018 Beginning Balance Cumulative Effect Adjustment Beginning Balance, as Adjusted Assets: Prepaid and other current assets $ 3,222 $ (415 ) $ 2,807 Other assets and deferred costs  6,595 6,595 Deferred tax assets 25,647 (1,616 ) 24,031 Stockholders equity: Accumulated deficit $ (236,372 ) $ 4,564 $ (231,808 ) Financial statement results as reported under the new revenue standard as compared to the previous standard for the twelve months ended and as of December 31, 2018, are as follows: Twelve Months Ended December 31, 2018 (In thousands, except per share data) Under ASC 605 Under ASC 606 Variance Revenues $ 70,478 $ 70,478 $  Cost of revenues 15,186 15,186  Gross margin 55,292 55,292  Operating expenses: Research and development 11,323 11,323  Selling, general and administrative 36,554 33,999 (2,555 ) Total operating expenses 47,877 45,322 (2,555 ) Operating income 7,415 9,970 2,555 Other income, net 754 754  Income before income taxes 8,169 10,724 2,555 Income tax expense 5,257 4,720 (537 ) Net income $ 13,426 $ 15,444 $ 2,018 Basic income per common share $ 0.26 $ 0.29 0.04 Diluted income per common share $ 0.25 $ 0.29 0.04 (1) Per share variance may not foot due to rounding (In thousands) December 31, 2018 Under ASC 605 Under ASC 606 Variance Assets: Prepaid and other current assets $ 3,760 $ 3,176 $ (584 ) Other assets and deferred costs  9,424 9,424 Deferred tax assets 30,401 28,785 (1,616 ) Stockholders equity: Accumulated deficit $ (222,946 ) $ (216,364 ) $ 6,582