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BROOKS & FREUND, LLC NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activity Brooks and Freund, LLC (the "Company") is a general contractor whose work consists of commercial, industrial and residential construction in Southwest Florida. The duration of the Company's contracts varies, however, completion typically takes one year or less. Revenue and Cost Recognition Revenue from all fixed-price construction contracts is recognized on the percentage- of-completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract, commencing when progress reaches a point where experience is sufficient to estimate final results with reasonable accuracy. Contract costs include all direct material, labor and equipment costs, and all indirect costs related to contract performance, such as indirect labor, supplies, tools and repairs. Selling, general and administrative costs are charged to expense as incurred. Provisions for estimated losses, if any, on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements may result in revisions to contract costs and income and are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reliably estimated. Cash and Cash Equivalents The Company considers all highly liquid investments with remaining maturities at date of purchase of three months or less to be cash equivalents. Certificates of Deposit The Company invests in certificates of deposit through a financial institution. Certificates of deposit held at December 31, 2009 accrue interest at 1. 73 % and mature November 2010. Contract Receivables Contract receivables are uncollateralized customer obligations due under normal trade terms. The carrying amount of contract receivables may be reduced by an allowance that reflects management's best estimate of the amounts that will not be collected. Management individually reviews all contract receivable balances and based on an assessment of current credit worthiness, estimates the portion, if any, of the balance that will not be collected. The Company writes off specific accounts upon determination that such amounts will not be collected. 5