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CERES ENVIRONMENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2016 NOTE 1 -Summary of Significant Accounting Policies (cont.) Classification of Current Assets and Liabilities-The Company includes in current assets and liabilities amounts realizable and payable under contracts which extend beyond one year. Other assets and liabilities are classified as current or noncurrent on the basis of expected realization of payment within or beyond one year. New Accounting Pronouncements-During May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers." ASU No. 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. During August 2015, the FASB issued ASU No. 2015-14,which defers the effective date of ASU No. 2014-09. ASU No. 2014-09 is effective for fiscal years beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The Company may elect to apply the guidance earlier, but no earlier than fiscal years beginning after December 15, 2016. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently assessing the effect that ASU No. 2014-09 will have on its results of operations,financial position and cash flows. In February 2016, the FASB issued ASU No. 2016-02, Leases(Topic 842). The amendments in this ASU revise the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with terms in excess of 12 months). The new lease guidance also simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The amendments in this ASU are effective for the Company beginning on January 1, 2020 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company is currently assessing the effect that ASU No. 2016-02 will have on its results of operations, financial position and cash flows. NOTE 2-Costs and Estimated Earnings on Uncompleted Contracts Costs and estimated earnings on uncompleted contracts as of December 31, 2016 are summarized as follows: Costs incurred on uncompleted contracts $ 90,811,267 Estimated earnings 10.700,829 • 101,512,096 • Less: billings to date 97,166,119 $, 4345,977 The above data is presented in the accompanying balance sheet as follows: Costs and estimated earnings in excess of billings on uncompleted contracts $ 5,295,851 Billings in excess of costs and estimated earnings on uncompleted contracts (949,874) $, 4,345,977 The Company had under contract uncompleted work at bid prices totaling approximately$64,791,000 as of December 31, 2016. Page 10 CONFIDENTIAL& PROPRIETARY