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Metric Engineering, Inc. and Subsidiary Notes to Consolidated Financial Statements June 30, 2008 NOT FOR PUBLIC INSPECTION / DO NOT COpy This tinancial statement is private and exempt from public inspection, or copying of public records pursuant to Florida Statutes 119.071 (I)(c). I. SUmmary of Sie:nificant AccountiDl! Policies (continued) Income Taxes Income taxes are provided for the tax effects of transactions reported in the financial statements and consists of taxes currently due plus deferred taxes related primarily to differences between the basis of current assets and current liabilities as reported on the cash basis for income tax purposes and on the accrual basis used for financial statement presentation in accordance with U.S. generally accepted accounting principles. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets are also recognized for operating losses that are available to offset future taxable income. New Pronouncements In February 2006 F ASB issued Statement No. 155, Accounting for Certain Hybrid Financial Instru- ments-an amendment ofFASB Statements No. 133 and 140. This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, "Application of Statement 133 to Beneficial Interests in Securitized Financial Assets." Adoption of this statement is not expected to have a significant effect on the Company's results of operations or financial position. In March 2006 FASB issued Statement No. 156, Accounting for Certain Hybrid Financial Instruments- an amendment ofFASB Statements No. 133 and 140. This Statement resolves issues FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract and requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. Adoption of this statement is not expected to have a significant effect on the Company's results of oper- ations or financial position. In September 2006 FASB issued Statement No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132(R). This Statement improves financial reporting by requiring an employer to recognize the over- funded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not- for-profit organization. Adoption of this statement is not applicable to the Company. The Company has elected not to early-implement the following Statements issued by F ASB during 2006 and 2007. Effective dates for implementation ofthe following FASB Statements are in 2008 and 2009: -Statement No. 157 - Fair Value Measurements -Statement No. 141 - Business Combinations -Statement No. 159 - The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment ofFASB Statement No. 115 -Statement No. 160 - Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51 7