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TENEX ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2007 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activitv The Company performs constmction and repairs of major roads, airport mnways and aprons, parking lots, sidewalks, curb and gutters, and storm drainage facilities including any excavating, clearing, grading and concrete work necessary and incidental thereto. Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. Revenue and Cost Recognition The Company recognizes revenues from fixed-price and modified fixed-price constmction contracts on the percentage-of-completion method, measured by the percentage of cost incurred to date to estimated total cost for each contract. That method is used because management considers total cost to be the best available measure of progress on the contracts. Because of inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term. 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. Selling, general, and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job perfonnance, job conditions, and estimated profitability may result in revisions to costs and income, which are recognized in the period in which the revisions are determined. The asset, "Costs and estimated eamings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed. The liability, "Billings in excess of costs and estimated eamings on uncompleted contracts," represents billings in excess of revenues recognized.