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I 'I i. I. I I I. I II 1. I. I I II I. I I. -I II I Consul- Tech Enterprises, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2006 and 2005 A. Summary of Significant Accounting Policies Nature of Operations Consul-Tech Enterprises, Inc. and Subsidiaries ("the Company") offer a broad range of engineering services, which include but are not limited to planning, design, construction management, and surveying and mapping services. Headquartered in Miramar, Florida, the Company operates throughout the State of Florida providing engineering services to state and local government agencies as well as to private clients. The work is performed under cost-pIus-fee and fIxed-price contracts modifIed by unspecifIed service provisions at fIxed hourly rates. Principles of Consolidation The consolidated [mancial statements include the accounts of Consul-Tech Enterprises, Inc. and its wholly owned subsidiaries as listed below. The consolidated fInancial statements also include the accounts of its 94% owned foreign subsidiary, Consul-Tech Americas S.A. The [mancial statements of this foreign subsidiary are measured using the local currency (U.S. Dollars) as the functional currency. Net exchange gains or losses resulting from translation of financial statements of foreign operations were insignifIcant to the Company's consolidated results of operations. All signifIcant intercompany transactions and balances have been eliminated in consolidation. Consul-Tech Construction Management, Inc, Consul-Tech Development Services, Inc. Consul-Tech Engineering, Inc. Consul-Tech Surveying and Mapping, Inc, Consul-Tech Transportation, Inc. - Consul-Tech Americas S.A. Comparative Data/ReclassifIcations Certain reclassifIcations have been made to the. December 31, 2005 consolidated [mancial statements to conform to the presentation of the December 31, 2006 [mancial statements. The reclassifIcations had no effect on previously reported net income, Revenue and Cost Reco~nition Revenue from contract services is recognized on the percentage-of-completion method, measured by the percentage of labor hours incurred to date to estimated total labor hours Jor each contract. This method is used as management considers expended labor hours to be the best available measure of progress on these contracts. Revenues from cost-pIus-fee contraCts are recognized on the basis of costs incurred during the period plus the fee earned. 6