11.

Contract Costs

(a) Deferred costs of acquisition

We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the period of benefit of those costs to be longer than

one

year and those costs are expected to be recoverable under the term of the contract. We have identified certain sales incentive programs that meet the requirements to be capitalized, and therefore, capitalized them as contract costs in the amount of

$1.4

million at

June 30, 2018.

Capitalized contract acquisition costs are amortized into operating expense based on the transfer of goods or services to which the assets relate which typically range

–

years. For the

three

months ended

June 30, 2018,

the Company capitalized

$0.2

million and also amortized

$0.3

million of contract costs, respectively, realizing net amortization of less than

$0.1

million. For the

six

months ended

June 30, 2018,

the Company capitalized

$0.4

million and also amortized

$0.5

million of contract costs, respectively, realizing net amortization of less than

$0.1

million. There was

impairment loss recognized in relation to the costs capitalized during the

three

six

months ending

June 30, 2018.

The breakdown of the movement in the contract costs balance for the

three

and

six

months ending

June 30, 2018

is as follows (Dollar amounts in thousands of U.S. dollars):

	Three months ended June 30, 2018			Six months ended June 30, 2018 (1 )

Balance, beginning of period	$	1,378		$	1,404
Capitalization of costs		244			439
Amortization of costs		(268	)		(489	)
Balance, end of period	$	1,354		$	1,354

(

)

The beginning balance consists entirely of a cumulative adjustment recorded on

January 1, 2018

as a result of the modified retrospective adoption of ASU

2014

09.

See note

for additional information.

When the amortization period for costs incurred to obtain a contract with a customer is less than

one

year, we have elected to apply a practical expedient to expense the costs as incurred. These costs include our internal sales compensation program and certain partner sales incentive programs.

(b) Deferred costs of fulfillment

Deferred costs to fulfill contracts generally consist of domain registration costs which have been paid to a domain registry, and are capitalized as Prepaid domain name registry and ancillary services fees. These costs are deferred and amortized over the life of the domain which generally ranges from

one

ten

years. For the

three

months ended

June 30, 2018,

the Company capitalized

$41.2

million and also amortized

$41.4

million of contract costs, respectively, realizing a net change in prepaid domain name registry and ancillary services fees of

$0.2

million. For the

six

months ended

June 30, 2018,

the Company capitalized

$87.2

million and also amortized

$98.7

million of contract costs, respectively, realizing a net change in prepaid domain name registry and ancillary services fees of

$11.5

million. There was

impairment loss recognized in relation to the costs capitalized during the

three

six

months ending

June 30, 2018.

Amortization expense is primarily included in cost of revenue. The breakdown of the movement in the prepaid domain name registry and ancillary services fees balance for the

three

and

six

months ended

June 30, 2018

is as follows (Dollar amounts in thousands of U.S. dollars).

	Three months ended June 30, 2018			Six months ended June 30, 2018

Balance, beginning of period	$	115,660		$	127,003
Deferral of costs		41,177			87,160
Recognition of costs 1		(41,380	)		(98,708	)
Balance, end of period	$	115,456		$	115,456

As a result of the bulk transfer of

2.65

million domain names to Namecheap on

January

5th,

2018,

recognized costs for the

six

months ended

June 30, 2018

includes

$14.5

million related to previously deferred revenue for these names.