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BUDGET CONSTRUCTION CO., INe. AND BUDGET HOLDINGS, LLC NOTES TO THE COMBINED FINANCIAL STATEMENTS Years Ended December 31, 2008 and 2007 NOTE 1 - Summary of operations and significant accounting policies (Continued): Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosed amounts of contingent assets and liabilities, and the reported amounts of revenues, costs and expenses. Management believes the most significant estimates and assumptions are associated with revenue recognition on construction contracts and valuation of contracts receivable, as well as the determination of cost to complete for all contracts in progress. If the underlying estimates and assumptions, upon which the financial statements are based, change in the future, actual amounts may differ from those included in the accompanying financial statements. Warranty: Warranty costs are normally incurred prior to project completion and are charged to project costs as they are incurred. Warranty costs incurred subsequent to project completion were not material for the years presented. As of December 31,2008 and 2007, no accrued liability was considered necessary by management of The Company for warranties on completed jobs. Property, Equipment and Capital Leases: Property, equipment and capital leases are stated at cost. Depreciation and amortization are provided principally on the straight-line method over the estimated useful lives of the assets. Amortization of leased equipment under capital leases is included in depreciation and amortization. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Loss on contingencies: Various legal actions, claims and other contingencies arise in the normal course of business. Contingencies are recorded in the financial statements, or are otherwise disclosed, in accordance with Statement of Financial Accounting Standards No.5, "Accounting for Contingencies". Specific reserves are provided for loss contingencies to the extent that management concludes their occurrence is both probable and estimable. Management uses a case-by-case evaluation of the underlying data and updates its evaluation as further information becomes known. Management believes that any amounts exceeding the recorded accruals should not materially affect The Companies' financial position, results of operations or liquidity. However, the results of litigation are inherently unpredictable and the possibility exists that the ultimate resolution of one or more of these matters could result in a material adverse effect on The Companies' financial position, results of operations or liquidity. Fair Value: The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SF AS 157") which defines fair value, establishes guidelines for measuring fair value, and expands disclosures regarding fair value measurements. SF AS 157 is effective for fiscal years beginning after November 15,2007. The adoption of SF AS 157 is not expected to have a material impact on the financial position, results of operations or cash flows of The Company. 8 Benitez & Company, CPA's