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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 financial statement is private and exempt from public inspection, or copying of public records pursuant to Florida Statutes 119.071 (I )(c). 2. ACQuisition of Dvnamic Corporate Consultants, Inc. The Company entered into a stock purchase agreement with the shareholders of Dynamic to acquire 100% of the outstanding shares of Dynamic for a purchase price of $400,000 payable in installments of $100,000 at closing and $100,000 installments due in May 2007, November 2007, and May 2008. Ad- justments pursuant to the contract leave a zero balance due the shareholders of Dynamic at June 30, 2008. At the time of closings the shareholders of Dynamic received 100% of the net assets of Dynamic through an S Corporation distribution. Consequently, the purchase price was allocated by recording $1,000 as an investment in Dynamic and $399,000 as goodwill recognized in the purchase. The Com- pany received the assignment accounts receivable and furniture and equipment, and assumed certain agreed upon liabilities. Total assets and liabilities received and assumed, respectively, amounted to ap- proximately $400,219, as represented in Dynamic's corporate tax retum. 3. Prior Period Adiustments In the year ended June 30, 2008 the Company posted prior period adjustments. In Metric the adjust- ment was necessary to reconcile book and tax differences in fixed assets. The adjustment decreased fixed assets and accumulated depreciation by a net amount of$15,138 and decreased retained eamings by $15,138. Additionally, a prior period adjustment was also posted in the subsidiary to correct amounts reported as liabilities. The adjustment decreased federal and state income taxes payable and increased retained earnings by $63,804. At the consolidated level, the prior period adjustments amounted to an increase of $48,666 to retained earnings. 4. Contracts Receivable and Concentration of Credit Risk Financial instruments that potentially subject the Company to credit risk are primarily cash and accounts receivable. The Company had $1,963,068 on deposits with various national financial institutions as of June 30, 2008, insured for up to $100,000 per institution by the U.S. Federal Deposit lnsurance Corporation. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents because the banks are large national enterprises, which are financially sound. The Company provides engineering services principally to various governmental agencies under binding contracts in the State of Florida and extends terms to these agencies. The Company estimated an allowance for doubtful accounts due to exposure it faces on the jobs ongoing and believes it is not exposed to any significant credit risk on contracts receivable. Contracts receivable consist of the following at June 30, 2008: Less allowance for doubtful accounts 9,925,100 207,183 10,132,283 130,000 10,002,283 Contracts receivable $ Retainages receivable $ 8