Bermello Ajamil & Partners, Inc.#10

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BERMELLO, AJAMIL & PARTNERS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31. 2006 AND 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preselltatioll alld COIIsolidatioll The consolidated financial statements include the accounts of Bermello. Ajamil & Partners, Inc. ("BAP") incorporated in the State of Florida and its subsidiary. Bermello, Ajamil, and Partners - Architects and Engineers, Inc. ("SAP AE"). an affiliated foreign professional corporation incorporated in the State of Florida. authorized to conduct business in New York (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. Busilless The Company provides services such as architectural. civil and environmental engineering, landscape. planning and interior design. These various services are performed under fixed- price contracts, fixed-price contracts modified by incentive and performance provisions, time and materials contracts. percentage of cost of construction contracts and cost plus fee contracts. The length of the Companfs contracts varies but is typically greater than one year. Revelllle and Cost Recogllitioll Revenues from fixed-price and modified fixed-price contracts are recognized on the percentage-or-completion method. Accordingly, income from the fixed-price contracts is measured by the percentage that costs incurred to date bear to estimated total costs after giving effect to estimated costs to complete. Fees for percentage of cost of construction contracts are based on a percentage of final construction costs and revenues are recognized on the percentage-of-completion method. Revenues from cost plus fee contracts are recognized on the basis of costs incurred during the period plus the fee earned. Revenues from time and materials contracts are recognized as the work is perfonned. Individual contracts that are closely related and are in effect part of a single project with an overall profit margin are combined for price recognition purposes. so that revenues and profits are earned and reported unifonnly over the perfonnance of the combined contracts. Contract costs include all direct material and labor costs incurred. Indirect costs include indirect labor, supplies. rented equipment, repairs and a)) other general and administrative costs. Provisions for estimated losses on uncompleted contracts are recorded in the period in which such Josses arc determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reasonably estimated. -7-