Quality Communications Fire & Security

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Pau,e 7 QUALITY COMMUNICATIONS FIRE & SECURITY. INC.. QUALITY COMMUNICATIONS OF FLORID... INC. AND QUALITY HOLDING GROUP. L.L.C. NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31 . 2003 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Company Background Quality Communications Fire & Security, Inc., herein after referred to as "Fire & Security. Inc.". • was incorporated February 25, 2002 as a Florida Corporation. The company is a service contractor engaged in providing parts and labor in building, upgrading and maintaining fire and security systems to businesses and public schools. Quality Communications of Florida, Inc. was incorporated in 1990 as a Florida corporation and merged fully with Fire & Security, Inc. as of July L 2003. The Company was a service contractor engaged in providing pans and labor in building, upgrading and maintaining fiber optic networks fire and security systems for commercial businesses and public schools. Quality Holding Group. L.L.C. herein referred to as "LLC" is a Florida Limited Liability Company that was formed July 31, 2002. The Limited Liability Company purchased a building on August 13, 2002 and upon completion of renovations, the building was leased to Quality Communications Fire & Security. Inc. a related entit'. Prior to June 30, 2003; Quality Holding Group, L.L.C. was a development stage company. Jointly "LLC" and "Fire & Security, Inc.",, hereinafter referred to as the Company. In September 2003, Quality Communications Fire & Security, LLC, a Delaware Limited Liability Corporation, was formed and became the owner of all of the common stock of Quality Communications Fire & Security, Inc. B. Cash and Cash Equivalents For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three (3) months or less to be cash equivalents. C. Recognition of Revenues and Expenses In prior years Quality Communications of Florida, Inc. recognized revenues from service contracts when they were earned. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation. General and administrative costs were charged to expense as incurred. Starting January I, 2003 the Company entered into long-term contracts for which the percentage of completion method of accounting is applied. The balance sheet at December 31, 2002 was not materially different under either of these methods as there were no jobs in process at that date. D. Provision for Doubtful Accounts Quality Communications Fire & Security, Inc. provides for estimated losses on accounts ® receivable based on prior bad debt experience and a review of existing receivables. Based on these factors, there is a provision for doubtful accounts of 530,000 as of December 31, 2003. See accountant's review report.