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2. Summary of Significant Accounting Policies (Policies)
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6 Months Ended |
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Jun. 30, 2012
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| Notes to Financial Statements | |
| Revenue Recognition |
Revenue Recognition
The Company recognizes revenue when a contract has been executed, the contract price is fixed and determinable, delivery of services or products has occurred, and collectability of the contract price is considered probable and can be reasonably estimated. Revenue is earned under time and materials and fixed-price contracts. For sales of third-party software products, revenue is recognized upon delivery.
Revenue on time and materials contracts is recognized based on direct labor hours expended at contract billing rates and adding other billable direct costs.
For fixed-price contracts that are based on unit pricing, the Company recognizes revenue for the number of units delivered in any given reporting period.
For fixed-price contracts in which the Company is paid a specific amount to be available to provide a particular service for a stated period of time, revenue is recognized ratably over the service period. The Company applies this method of revenue recognition to sales of maintenance contracts on third-party software sales, such as Adobe and Micro Focus software, for which the Company is responsible for first line support to the customer and for serving as a liaison between the customer and the third-party maintenance provider for issues the Company is unable to resolve.
The Company engages in fixed-price contracts with the U.S. federal government involving the complex delivery of technology products and services. Accordingly, these contracts are within the scope of the American Institute of Certified Public Accountants Audit and Accounting Guide for Audits of Federal Government Contractors. To the extent contracts are incomplete at the end of an accounting period, revenue is recognized on a proportional performance basis, using costs incurred in relation to total estimated costs.
Sales of third-party software products such as Adobe and Micro Focus products are reported on a gross basis with the Company as a principal under authoritative guidance issued by the Financial Accounting Standards Board (the FASB). This determination was based on the following: 1) the Company has inventory risk as suppliers are not obligated to accept returns, 2) the Company has reasonable latitude, within economic constraints, in establishing price, 3) the Company, in its marketing efforts, frequently aids the customer in determining product specifications, 4) the Company has physical loss and inventory risk as title transfers at the shipping point, 5) the Company bears full credit risk, and 6) the amount the Company earns in the transaction is neither a fixed dollar amount nor a fixed percentage. |
| Government Contracts |
Government Contracts
Company sales to departments or agencies of the U.S. federal government are subject to audit by the Defense Contract Audit Agency (DCAA), which could result in the renegotiation of amounts previously billed. Because the Company has not entered into any cost plus fixed fee contracts since 1997, management believes there is minimal risk of an audit by DCAA resulting in a material misstatement of previously reported financial statements. |
| Accounts Receivable |
Accounts Receivable
Accounts receivable consist of trade accounts receivable and do not bear interest. The allowance for doubtful accounts is the Companys best estimate of the amount of probable credit losses in the Companys existing accounts receivable. The Company reviews its allowance for doubtful accounts monthly. Accounts with receivable balances past due over 90 days are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers. The Company has recorded an allowance for doubtful accounts of $90,582 at June 30, 2012 and $141,721 at December 31, 2011. |
| Notes Receivable - employees |
Notes Receivable - employees
Notes receivable - employees consists of two notes issued to non-officer employees of the Company which were outstanding as of June 30, 2012 and one note issued to a non-officer employee of the Company which was outstanding as of December 30, 2011. The note that was outstanding at both periods reported bears interest compounded at 3.5%, requires equal semi-monthly payments, and will mature on August 10, 2013. The other note, which was only outstanding as of June 30, 2012, bears simple interest of 3.5%, and requires a lump-sum payment on October 7, 2012. |
| Stock based compensation |
Stock-Based Compensation
Total compensation expense was $1,787 and $1,462 for the quarters ended June 30, 2012 and 2011, respectively, of which $0 related to options awarded to non-employees. For the six months ended June 30, 2012 and 2011, total compensation expense was $3,363 and $4,846, respectively, of which $550 and $0, respectively, related to options awarded to non-employees. The Company estimates the fair value of options granted using a Black-Scholes valuation model to establish the expense. When stock-based compensation is awarded to employees, the expense is recognized ratably over the vesting period. When stock-based compensation is awarded to non-employees, the expense is recognized immediately. |
| Earnings Per Share |
Earnings Per Share
The Companys earnings per share calculations are based upon the weighted average of shares of common stock outstanding. The dilutive effect of stock options, warrants and convertible notes are included for purposes of calculating diluted earnings per share, except for periods when the Company reports a net loss, in which case the inclusion of such equity instruments would be antidilutive. |
| Reclassifications |
Reclassifications
Certain prior period balances have been reclassified to conform to the presentation of the current period. |
| Subsequent Events |
Subsequent Events
The Company has evaluated the period from June 30, 2012, the date of the financial statements, through the date of the issuance and filing of the financial statements, and has determined that no material subsequent events have occurred that would affect the information presented in these financial statements or require additional disclosure. |