Critical Accounting Policies We believe the following represents our critical accounting policies: Revenue Recognition We derived 98% of our revenue from consulting services under time and material billing arrangements in fiscal year 2002. Under these arrangements, revenue is recognized as the services are provided. We also derive revenue on fixed price contracts. Revenue on fixed price contracts is recognized using the percentage of completion method of accounting and is adjusted monthly for the cumulative impact of any revision in estimates. We determine the percentage of completion of our contracts by comparing costs incurred to date to total estimated costs. Income Taxes We recognize deferred tax assets and liabilities for the expected consequences of temporary differences between the financial statement basis and tax basis of our assets and liabilities. A deferred tax valuation allowance is established if, in management's opinion, it is more likely than not that all or a portion of our deferred tax assets will not be realized. At March 31, 2002, a full valuation allowance has been provided for our deferred tax assets. If we achieve sustained profitability, some or all of this valuation allowance would be reversed to income. Accounts Receivable We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Since our accounts receivable are concentrated in a relatively few number of customers, a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the collectibility of our accounts receivables and our future operating results. Valuation of Long-Lived Assets We periodically evaluate long-lived assets for potential impairment under SFAS 121 and, in fiscal year 2003 under SFAS 144, we will perform these evaluations whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets is not recoverable. Indicators of potential impairment include: • a significant change in the manner in which an asset is used; • a significant decrease in the market value of an asset; and • a significant adverse change in our business or our industry. If we believe an indicator of potential impairment exists, we test to determine whether the impairment recognition criteria of SFAS 121 and SFAS 144, going forward, have been met. In evaluating long-lived assets for potential impairment, we make several significant estimates and judgments, including: • estimating future cash flows associated with the asset or group of assets; and • determining an appropriate discount rate to use in the analysis. Use of different estimates and judgments could yield materially different results in our analysis, and could result in significant different asset impairment charges. Marketable Securities We invest in marketable securities as part of our strategy to invest excess cash and achieve income therefrom. On a quarterly basis we review the fair market value of these marketable securities in comparison to historical cost. If the fair market value of a marketable security is less than our carrying value, we consider all available evidence in assessing when and if the value of the investment can be expected to recover to at least its historical cost. This evidence would include: • a lack of any substantial company-specific adverse events causing declines in value; and • overall financial condition and liquidity of the issuer of the securities. If our review indicates that the decline in value is "other than temporary," we write-down our investment to the then current market value and record an impairment charge in our statements of operations. The determination of whether an unrealized loss is "other than temporary" requires significant judgment, and can have a material impact on our reported results.