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. . . CUBELLIS BUSINESS TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization (Continued) On February I, 2006. the Comp~my formed a new wholly o\vned subsidiary. GBQC Arehitects. P.c. (GBQC) in exchange for a note payable in the amount of $46.840 ($46.840 outstanding as of December 31. 2006. see Note 7) and 4.044 shares of beneficial interest of Cubellis l.3usiness rrust in the amount of $516.216 issued to the three shareholders of Gf3QC. ()n July I. 2006. the Company funned a new wholly owned subsidiary. Synalovski Gutierrez Romanik Architects Inc. (SGRl in exchange for cash in the amount of S550.000, a note payable in the amount of $852.000 ($ 714.325 outstanding as of December 31. 2006. see Note 7) and 488 shares of beneficial interest of ('ubellis Business Trust in the amount of S50.000 issued to one of the sellers or SGR. rerms of the merger included an employment contract for the rormer shareholders of Synalovski (iutiLTrez Romanik Architects Inc. subject to provisions of the agreement. These consol idated tinancial statements include only the accounts and transactions of the Trust C1mlthe Company and its wholly owned subsidiaries. Note 2 - Summary of Significant Accounting Policies Accounting Method l"ht: accrual method of accounting is used in the preparation of the financial statements. The corporate income tax returns are prepared on the cash basis. All intercompany transactions and bahlnces have been eliminated. Use of Estimates The preparation of tinancial statements in eonrormity with accounting principles generally accepted in the l'nited States of America requires management to make estimates and assumptions that atli:ct the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the linancial statements and the reported amounts or revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition A substantial majority of the Company's revenues are derived from time and materials contracts under \vhich revenues arc recllgniLed and bilkd on the basis of costs incurred. A small number or contracts are lixed-price contracts under v.hich revenues are recogniLed on the percentage or completion method. rhe asset resulting from costs incurred in excess or billings and the liability resulting from billings in excess or eosts incurred were not material at December 31. 2006 and 2005 and arc included in accounts receivable and accrued expenses and other current liabilities. respectively. on the accompanying balance sheets. Cash and Cash Equivalents rile Company considers all highl) liquid debt Instruments \\ itll an initial maturity of thn..'e months or kss to be cash L'qui\aknts. 7