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'-I ~ I ~ 1 NOT FOR PUBLIC Il\;SPECTIO;'\l/ DO ;'\lOT 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 8. Income Taxes : I The Company recognizes deferred tax assets and liabilities based on the future tax consequences of events that have been included in the consolidated financial statements or tax returns. The differences related primarily to the use of the percentage of completion method for revenue recognition, the methods of depreciation and the use of the accrual basis discussed in Note 1, reflected in the preparation of the accrual basis fmancial statements compared to the completed contract method to recognize revenues, the accelerated methods of depreciation allowed by the IRS and the cash basis of accounting used to calculate taxable income. The IRS also requires amortization of goodwill over 15 years, amortization expense in the 2009 tax return amounted to $32,267 and accumulated amortization amounted to $58,867. : ] r I Deferred tax assets and liabilities are calculated based on the difference between the financial reporting and tax bases of assets and liabilities using the currently enacted tax rates in effect during the years in which the differences are expected to reverse. Deferred taxes are classified as current or non-current, depending on the classification of the assets and liabilities to which they relate. 1/ The Company's provision for income taxes differs from applying the statutory U.S. federal income tax rate to income before taxes. The primary differences result from providing for state income taxes and from deducting certain expenses for financial statement purposes but not for federal income tax purposes. [I [ / In accordance with the Statement of Financial Accounting Standards, ("FAS") No. 109, Accounting for Income Taxes ("F AS 1 09"), a valuation allowance is established based on the future recoverability of deferred tax assets. This assessment is based upon consideration of available positive and negative evidence, which includes, among other things, our most recent results of operations and expected future profitability. : ] [ ] The computation of deferred assets is as follows: [I I j Deferred Tax Liability Accounts and retainages receivable Uncompleted contracts Other assets $ 4,533,471 408,355 107,483 $ 5,049,309 ~- ] Deffered Tax Asset Accounts payable Other accruals $ 463,908 309,989 $ 773,897 ~ I J : 1 :,] 11