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, I 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). Metric Engineering, Inc. and Subsidiaries Notes to Consolidated Financial Statements June 30, 2009 ! I 1. Summary of Sienificant Accountine Policies (continued) r I Goodwill The Company acquired Dynamic Corpomte Consultants, Inc. ("Dynamic") and Advanced Transportation Engineering, Inc ("A TEC") under stock purchase agreements effective September 30, 2006 and October 31, 2008, respectively. Goodwill represents the excess of the purchase price over the book value of the acquired entity. In accordance with GAAP, goodwill is not amortized since it has an indeftnite life. Instead, it is tested annually for impairment. During the year ended June 30, 2009, there was no change in the carrying amount of goodwill. Cash Value of Life Insurance The Company is the owner and beneficiary of life insurance policies on several key officers. The cash surrender value relative to the policies in place at June 30, 2009 was $314,376. Intangible Software Costs Intangible software costs represent computer license costs that are accounted for at the lower of unamortized costs or net realizable value. Accumulated amortization of intangible software costs of $744,612 amounted to $591,160 as of June 30, 2009. Revenue Recognition The Company recognizes revenue on its professional services contracts on the percentage-of- completion method, measured by the percentage of billed and unbilled revenues to date to estimated total revenue for each contract. Revenues are calculated using the actual cost plus allowed Department of Transportation ("D.O.T") overhead rates and D.O.T. approved fixed fees and expense. These methods are used because management considers them to be the best available measure of progress on these contracts since billings are done monthly for all costs incurred the previous month. The asset costs and estimated earnings in excess of billings on uncompleted contracts represent revenues recognized in excess of amounts billed. Other income includes collections from contract revenues that are non-recurring. Consequently, this income has been shown below operating income. ! I Contract costs include all direct labor costs and those indirect cost related to contract performance, such as indirect labor costs, subcontractors, truck and related expenses, materials and supplies, equipment rentals, radios and telephone, rent, utilities, repairs and maintenance, and related sales tax expense. Changes in job performance, job conditions, and estimated profitability, including final contact settlements, may result in revisions to cost and revenue and are recognized in the period in which the revisions are determined. : j Estimates ~ 1 The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. J :_1 6