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FERREIRA CONSTRUCTION COMPANY INC., AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1- Nature of the Business and Summary of Significant Accounting Policies: Nature of the Business - Ferreira Construction Company, Inc. (the "Company") is engaged primarily in heavy civil and utility company / energy related construction performed for various public agencies and commercial owners primarily in the New Jersey / New York / New England area, as well as Florida and California. The Company also participates in joint ventures to perform contract work. Contract work is performed under fixed price and unit price contracts. Contracts typically range in duration from a few months to two years. The Company also provides construction management services. Ferreira Power West, LLC ("Subsidiary') - wholly-owned subsidiary who performs utility grade electrical work primarily in the state of California. See Note 20. Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned Subsidiary. The financial position and results of operations presented in the accompanying consolidated financial statements do not represent those of a single legal entity. All significant intercompany transactions and accounts have been eliminated in consolidation. Estimates and Uncertainties - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results, as determined at a later date, could differ from those estimates. Revenue Recognition: Policy - The Company derives revenue from long-term construction contracts with public and private customers in the United States. The Company's construction contracts are generally each accounted for as a single unit of account (i.e., as a single performance obligation). The Company has the following types of revenue streams: percentage of completion (fixed price and cost plus fee), and reimbursable and time and material (unit price/work order). For the percentage of completion contracts, the Company recognizes revenues with the continuous transfer of control to the customer using the cost -to -cost input method. The Customer typically controls the asset under construction by either contractual termination clauses or by the Company's rights to payments for work already performed on the asset under construction that does not have an alternative use for the Company. Because control transfers over time, revenue is recognized to the extent of progress towards completion of the performance obligations. The cost -to -cost method measures progress toward completion for each performance obligation based on the ratio of costs incurred to date to the total estimated costs at completion for the respective performance obligation. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include all direct material, subcontractor, equipment rental and usage and labor costs, and allocated indirect costs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. The Company recognizes revenue over time for reimbursable and time and material contracts since the customer simultaneously receives and consumes the benefit of those services as the Company performs work under the contract. As a practical expedient allowed under the revenue accounting standards, the Company records revenue for these contracts in the amount for which they have a right to invoice for the services performed provided that they have a right to consideration from the customer in an amount that corresponds directly with the value of the performance completed to date.