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F-5
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements
December 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Executive LAN Management dba Micro Visions (the "Company") was incorporated in
California in 1993 and is a leading reseller and service provider of thin
client/server-based computing systems. The Company also provides a full line of
information technology consulting services including internet/intranet
consulting, LAN/WAN implementation, internetworking analysis and design,
application deployment and desktop management, and Year 2000 consulting. The
Company's principal markets are in the U.S.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes consulting revenues upon delivery of service. Software
license revenues are recognized upon delivery of the software. Computer
equipment sales are recognized upon shipment of the equipment. Training revenues
are recognized upon delivery of training services. Maintenance revenues are
recognized ratably over the period of the maintenance contract.
UNBILLED ACCOUNTS RECEIVABLES
Unbilled accounts receivable, representing unbilled consulting services, of
$89,000 and $65,000 at December 31, 1998 and 1997, respectively, are included in
accounts receivable on the accompanying balance sheets.
INVENTORY
Inventory is stated at the lower of cost (first-in, first out) or market and
primarily consists of prepackaged third party computer software.
F-6
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed on a
straight-line method based upon the estimated useful lives of the related assets
which range from five to seven years. Leasehold improvements are depreciated
using the straight-line method over seven years. Property and equipment were
comprised of the following:
DECEMBER 31
---------------------------
1998 1997
---------- ----------
Office furniture $ 90,000 $ 15,000
Computer equipment 376,000 149,000
Leasehold improvements 45,000 2,000
---------- ----------
511,000 166,000
Less accumulated depreciation and amortization (122,000) (83,000)
---------- ----------
$ 389,000 $ 83,000
========== ==========
LONG-LIVED ASSETS
Effective January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121"), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present. Implementation of SFAS No. 121 was immaterial to the
financial statements of the Company.
INCOME TAXES
Prior to July 1, 1998, the Company utilized the liability method to account for
income taxes as set forth in SFAS No. 109, Accounting for Income Taxes. Under
the liability method, deferred taxes are determined based on differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates.
F-7
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
Effective July 1, 1998, the stockholders of the Company elected, under
Subchapter S of the Internal Revenue Code, to include the Company's income in
their own income for federal income tax purposes. Accordingly, the Company is
generally not subject to federal income taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of cash, receivables,
accounts payable, and borrowings. The Company believes all the financial
instruments' recorded values approximate current values.
CONCENTRATION OF CREDIT RISK
The Company sells the majority of its products and provides services to various
customers, which include a variety of large companies and distributors
throughout the United States. In 1998, sales to the Company's largest customer
accounted for 10% of total sales. Accounts receivable from that customer
represented 12% of total accounts receivable at December 31, 1998. In 1997,
sales to the Company's two largest customers accounted for 47% and 19% of total
sales. Accounts receivable from those customers aggregated 44% of total accounts
receivable at December 31, 1997. The Company provides for uncollectible amounts
upon recognition of revenue and when specific credit problems arise. During 1998
and 1997, the Company did not perform credit evaluations on its customers,
however, the Company required a twenty-five percent deposit for its first time
customers. The Company generally does not require collateral on its accounts
receivable.
ADVERTISING
The Company expenses advertising costs as incurred. These costs include
promotional literature, direct mailing brochures, telemarketing, and trade
shows. Advertising expense for the years ended December 31, 1998 and 1997 was
$106,000 and $11,000, respectively.
F-8
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
Effective January 1, 1998, the Company adopted SFAS No. 128, Earnings Per Share,
and restated all prior period earnings per share (EPS) data, as required. SFAS
No. 128 replaced the presentation of primary and fully diluted EPS pursuant to
APB Opinion No. 15, Earnings Per Share, with the presentation of basic and
diluted EPS. Basic EPS excludes dilution and is computed by dividing net income
by the weighted average number of common shares outstanding for the period.
Diluted net income per share is computed by dividing net income by the weighted
average number of common shares outstanding for the period and the dilutive
effect, if any, of stock options and warrants outstanding for the period.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. For the
years ended December 31, 1998 and 1997, the Company did not have any components
of comprehensive income as defined by SFAS No. 130.
SEGMENTS OF A BUSINESS ENTERPRISE
Effective January 1, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, SFAS 131 superseded SFAS No.
14, Financial Reporting for Segments of a Business Enterprise. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual consolidated financial statements
and requires that those enterprises report selected information about operating
segments in interim financial reports. SFAS No. 131 also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The adoption of SFAS No. 131 did not affect the consolidated results
of operations or financial position of the Company. |
