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<br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />I. <br />.. <br />I. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br />. <br /> <br />BERMELLO, AJAMIL & PARTNERS, INC. <br /> <br />NOTES TO FINA_NClAL STATEMENiS <br />DECElvffiER 3 J l 2005 AND 2004 <br /> <br />NOTE 10. COAl1ifITMENTS AJ\Tf) CONTINGENCIES (CONTINUED) <br /> <br />Litigation <br /> <br />The Company has raised its liability 90verage to reflect the size and complexity of the jobs <br />and has implemented a fonnal Quality Control program and CADD training program. <br />Dw-mg 2004, the Company entered in an arbitration proceeding with a developer entity to <br />recover additional architectural fees of approximately $430,000. The developer entity has <br />asserted a counterclaim for alleged design deficiencies in the approximate amount of <br />$2,900,000, Legal counsel and management believe the potential damages fi:om the <br />co'llilterc1aim, if any, appear to be covered by insurance and the Company appears to have <br />valid defenses. <br /> <br />The Company is exposed to various asserted and unasserted potential claims encountered in <br />the normal course of business, In the opinion of management, the resolution of these <br />matters will not have a material effect on the Company's financial position or results of <br />operations, <br /> <br />NOTE 11. CONCENTRATION OF CREDIT RISK <br /> <br />Revenue <br /> <br />Two customers accounted for approximately 15% and 21 % of total revenue for the years <br />ended December 31,2005 and 2004, respectively, <br /> <br />Net Contract Receivables <br /> <br />Most of the Company's business activity is with customers located within its primary <br />market area, which generally includes Miami and the surrounding area in Miami-Dade <br />County, Florida. This market area does not depend heavily on any particular industry nor <br />are the Company's customers concentrated in any particular market segment. Two <br />customers accounted for approximately 14% and 20% of net contract receivables as of <br />December 31, 2005 and 2004, respectively, The Company conducts ongoing credit <br />evaluations of its customers and maintains an allowance for doubtful accounts. The <br />Company does not require collateral ai1d has historically not experienced significant losses <br />on contract receivables, Such credit risk is considered by management to be limited due to <br />the Company's broad customer base and its customers' financial resources, <br /> <br />- i 7- <br />