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Craig A. Smith & Associate, Inc. and MPS3D, LLC Notes to Financial Statements Note 1 — Summary of Significant Accounting Policies (continued) Allowance for Doubtful Accounts The Company records bad debt expense/allowance based on specific identification of accounts receivable that management determines are unlikely to be collected in full based on aging and other specific considerations. All outstanding accounts receivable accounts are reviewed monthly to determine collectability on an individual basis. Account balances deemed to be uncollectible are charged to the bad debt expense after all means of collection have been exhausted and the potential for recovery is considered remote. The Company recorded bad debt expense for the year ended December 31, 2014 of $350 and $13,000 for the year ended December 31, 2013. Income Taxes In 2009 the Company and it's shareholders, elected to have its income taxed under section 1382 of the Internal Revenue Code and conduct business as an S Corporation. As a result, the individual shareholders are taxed on Company income and the Company is not subject to corporate income taxes. Tax years for 2011, 2012 and 2013 are still subject to audit however there has been no notice given that the Internal Revenue Service is going to perform any audits. Management's Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentration of Risk Historically, the Company has maintained a wide mix of customers and therefore has limited or no risk of concentration, however as of December 31, 2014 one customer accounted for 20% of total accounts receivable. The Company collected the outstanding balance in January 2015. The Company's suppliers consist of various consultants there is limited or no risk of concentration. Fair Value of Financial Instruments The carrying amounts reported in the balance sheet for accounts receivable, accounts payable, accrued liabilities and loans receivable approximate fair value based on the short-term and long term maturity of these instruments. Accounting for Long -Lived Assets The Company reviews long-lived assets and certain identifiable assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. To the extent the carrying values exceed fair values, an impairment loss is recognized in operating results. -8- 73