NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ber of sales accounted for as multiple-element arrangements, whereby related revenue on each product is rec- ognized when it is shipped, and the related service revenue is recognized when the service is performed. Advertising Expense - The cost of advertising, other than direct response advertising, is expensed as incurred. The Company incurred approximately $2,700,000, $4,447,000 and $3,478,000 in advertising costs during 2002, 2001 and 2000, respectively. Direct response advertising is capitalized and amortized over its expected period of future benefits. The Company participates in a weeklong industry trade show that takes place once every three years. The Company maintains customer and potential customer attendance records that are used to track the future sales revenues as a result of their advertising and customer relation efforts at the show. The costs related to the trade exhibits and show attendance are capitalized, then amortized over the period in which revenue related to the trade show is generated, which is twenty-four months. Sixty percent of costs are expensed during the first twelve months fol- lowing the show and the remaining forty percent is expensed over the succeeding twelve-month period based on historical revenue patterns. The amortization method is supported by the attendance and revenue related records maintained by the Company. Prepaid trade show expenses totaled $1,472,000 and $0 as of December 31, 2002 and 2001. Amortized advertising expenses related to presentation and attendance at trade shows were $963,000, $257,000 and $899,000 for the years ended December 31, 2002, 2001 and 2000. Stock-based Compensation - As permitted under Statement of Financial Accounting Standards (SFAS) No. 123,  Accounting for Stock-Based Compensation , the Company accounts for stock-based compensation in accordance with Accounting Principles Board Opinion (APB) No. 25,  Accounting for Stock Issued to Employees , and accordingly, recognizes no compensation expense for the stock option grants as long as the exercise price is equal to or more than the fair value of the shares at the date of the grant. Because all option grants for 2002, 2001 and 2000 were at or above the fair value of the shares, no stock-based employee com- pensation cost is reflected in net income (loss) for those years. During 2002, the Financial Accounting Standards Board issued SFAS No. 148 “Accounting for Stock-Based Compensation - Transition and Disclosure.” SFAS 148 amends SFAS 123 to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that statement to require prominent disclo- sure about the effects on the reporting of net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. Finally, SFAS 148 amends APB Opinion No. 28, “Interim Financial Reporting,” to require disclosure about these effects in interim financial information. The annual disclosure requirements of SFAS 148 are effective for fiscal years ending after December 15, 2002. Although Statement 148 does not amend Statement 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of Statement 148 are applicable to all companies with stock-based compensation, regardless of whether they account for that compensation using the fair value method of Statement 123 or the intrinsic value method of APB 25. The following pro forma summary presents the Company’s net income (loss) and per share earnings (loss) which would have been reported had the Company determined stock compensation cost using the fair value method of accounting set forth under SFAS 123. The pro forma impact on net income (loss) shown below may not be representative of future effects. Year Ended December 31, Net income (loss), as reported $ (4,705,926) $ 1,992,422 $26,281,086 Stock compensation expense under SFAS 123, net of taxes (1,886,735) (2,611,266) (3,124,400) Adjusted net income (loss) $ (6,592,661) $ (618,844) $23,156,686 Basic earnings (loss) per share, as reported $ (0.24) $ 0.10 $ 1.37 Stock compensation expense under SFAS 123, net of taxes (0.10) (0.13) (0.17) Adjusted basic earnings (loss) per share $ (0.34) $ (0.03) $ 1.20 Diluted earnings (loss) per share, as reported $ (0.24) $ 0.10 $ 1.33 Stock compensation expense under SFAS 123, net of taxes (0.10) (0.13) (0.16) Adjusted diluted earnings (loss) per share $ (0.34) $ (0.03) $ 1.17 2002 2001 2000