##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 
 Commission File No. 000-29235
 TEJAS INCORPORATED
 
  DELAWARE
    
    13-3577716(State or other jurisdiction of incorporation)
    
    (IRS Employer Identification No.)
  
   
 Common Stock, par value $0.001 per share
 o þ
 o þ
 þ o
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TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    10Item 1B.
    
    Unresolved Staff Comments
    
    
    19Item 2.
    
    Properties
    
    
    19Item 3.
    
    Legal Proceedings
    
    
    19Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    20PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    21Item 6.
    
    Selected Financial Data
    
    
    22Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    31Item 8.
    
    Financial Statements and Supplementary Data
    
    
    32Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    32Item 9A.
    
    Controls and Procedures
    
    
    32Item 9B.
    
    Other Information
    
    
    32PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    32Item 11.
    
    Executive Compensation
    
    
    32Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    32Item 13.
    
    Certain Relationships and Related Transactions
    
    
    32Item 14.
    
    Principal Accountant Fees and Services
    
    
    33PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    33Subsidiaries of the RegistrantConsent of Ernst & Young LLPConsent of Helin Donovan Trubee & Wilkinson, LLPCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
  2




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PART I
 
 ITEM 1. BUSINESS
 GENERAL
   
    
    proprietary research on distressed debt and special situation securities;
    
    trading and other brokerage services to value-based institutional and retail investors
active in fixed income and equity instruments;
    
    corporate finance and strategic advisory services to middle-market companies within our target industries; and
    
    operational and financial restructuring and consulting services for companies.
    
    
    recruiting experienced industry professionals with established client and
industry relationships typically from well-known industry competitors;
    
    increasing the number of companies under coverage by our research analysts;
    
    increasing and expanding our participation in investment banking transactions;
    
    expanding the number and enhancing the penetration of institutional investors
to which we market our investment research, sales and trading products and
services; and
    
    increasing the number of securities in which we make an active trading market.
  3




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Brokerage Services
  Investment Banking
  Consulting Services
  Industry Overview
  
    
    increased levels of industry consolidation, particularly involving smaller regional
investment banks that primarily provided investment banking and brokerage services to
middle-market companies and their institutional investors;
    
    the tendency for global competitors and acquired firms, once part of larger
organizations, to focus on larger market capitalization companies and larger transactions;
and
    
    the emergence of smaller boutique investment banking firms focused exclusively on growth
industries, particularly technology and healthcare.
  4




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Our Market Opportunity
  Our Targeted Addressable Market Continues to Grow As Our Research Coverage Expands to New
Industries
  High Yield Issuance Remains Robust, Creating a Steady Supply of Distressed Debt
  Our Research Department Fully Investigates the Details of Each Investment Situation
  Our Extensive Bankruptcy Coverage Allows Us to Identify Distressed Opportunities Regardless of Size
  5




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Largest Bankruptcies 1980-Present
 Company
    
    Bankruptcy Filing Date
    
    Total Pre-Bankruptcy AssetsWorldcom, Inc.
    
    
    7/21/02
    
    
    $
    103.9Enron Corp.
    
    
    12/2/01
    
    
    
    63.4Conseco, Inc.
    
    
    12/18/02
    
    
    
    61.4Texaco, Inc.
    
    
    4/12/87
    
    
    
    35.9Financial Corp. of America
    
    
    9/9/88
    
    
    
    33.9Refco Inc.
    
    
    10/17/05
    
    
    
    33.3Global Crossing, Ltd.
    
    
    1/28/02
    
    
    
    30.2Pacific Gas and Electric Co.
    
    
    4/6/01
    
    
    
    29.8UAL Corp.
    
    
    12/9/02
    
    
    
    25.2Delta Air Lines, Inc.
    
    
    9/14/05
    
    
    
    21.8Adelphia Communications
    
    
    6/25/02
    
    
    
    21.5
 
 Source: New Generation Research, Inc.(assets in billions)  Telecommunications and Technology Companies Continue to Evolve
  Our Competitive Strengths
 Highly Regarded Investment Research
  Experienced Professionals
  Focus on Under-Covered Securities
  6




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Entrepreneurial Culture
  Our Growth Strategies
  Expand Research Coverage to Other Industries Outside Our Current Focus
  Capitalize on Trading Resources By Increasing the Size of Brokered Transactions
  Expand Investment Banking Efforts to Include Additional Capabilities
  Develop Direct Investment Operations for Participation in Investment Banking Transactions
  Grow Through Acquisitions
  7




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Diversify Revenues
  Expand Our Consulting Services
  Revenues and Industry Segments
  Clients
   Employees
  Competition
  8




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Securities Industry Practices/Regulation
    Net Capital Requirements
   9




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FORWARD-LOOKING STATEMENTS AND RISK FACTORS
    Our Ability To Retain Our Executive Management Team And To Recruit And Retain Key Employees Is
Critical To The Success Of Our Business.
  There Is No Consistent Pattern In Our Financial Results From Quarter To Quarter And Year To Year,
Which May Result In Volatility In The Value Of Our Common Stock.
  
    
    fluctuations in the debt and equity markets;
    
    our ability to identify investment opportunities for our trading accounts and our clients accounts;
    
    general economic and market conditions which impact the number of distressed securities
opportunities that are available to us and our clients;
    
    our investment banking revenues being largely earned upon the successful completion of
transactions, the timing of which is uncertain and subject to the volatility of the capital
markets; and
    
    our consulting and advisory revenues being largely earned from a few telecommunication
and technology clients in early stage development and reorganization.
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A Key Part Of Our Business Strategy Involves Acquisitions; However, Such Acquisitions May Not
Achieve All Intended Benefits.
  
    
    diversion of managements attention from our existing business;
    
    increased competition for acquisitions which may increase the price of our acquisitions; and
    
    our failure to discover material liabilities during the due diligence process,
including the failure of prior owners of any acquired businesses or their employees to
comply with applicable laws or regulations or their failure to fulfill their contractual
obligations.
  We May Have Difficulty Integrating The Operations Of Any Companies We Acquire, Which May Adversely
Affect Our Results Of Operations.
  
    
    the integration of personnel with disparate business backgrounds;
    
    the transition of new information systems;
    
    the coordination of geographically dispersed organizations;
    
    the loss of key employees of acquired companies;
    
    the reconciliation of different corporate cultures; and
    
    the synchronization of disclosure and financial reporting controls of acquired
companies with our controls and, where applicable, improvement of the acquired companys
controls.
  11




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We Invest Our Own Principal Capital In Equities And Debt Securities That Expose Us To Risk Of
Capital Loss.
   If Institutional Investors Conduct Less Business With Us, Our Revenues May Be Harmed.
  We Specialize In A Few Discrete Sectors, And Any Downturn In Business In Those Sectors Could
Adversely Affect Our Revenues.
   Failure Of Third-Party Vendors To Provide Critical Services Could Harm Our Business.
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Credit Risk Exposes Us To Losses Caused By Financial Or Other Problems Experienced By Third
Parties.
   Employee And Consultant Misconduct Could Harm Our Businesses And Is Difficult To Detect And Deter.
  We Must Maintain Certain Net Capital Requirements That Could Slow Our Expansion Plans Or Prevent
Payments Of Dividends.
  We May Experience Reduced Revenues Due To Declining Market Volume, Securities Prices And Liquidity,
Which Can Also Cause Counterparties To Fail To Perform.
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Our Trading Systems May Fail, Resulting In Service Interruptions.
  Lack Of Liquidity At Our Clearing Organization May Impair Our Business.
  A High Percentage Of Our Consulting Revenues Are Derived From Clients In A Few Industries And The
Termination Of Any One Advisory Engagement Could Reduce Our Consulting Revenue Significantly.
  Our Restructuring Advisory Engagements May Not Provide For Continued Engagement After A Successful
Restructuring.
  Our Business Is Highly Competitive.
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We Are Subject To Market Forces Beyond Our Control.
  We Are Subject To Strict Government Regulation And The Failure To Comply Could Result In
Disciplinary Actions.
    15




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We Are Subject to Increased Use of Legal Proceedings, Which May Negatively Impact Our Business.
    No Active Public Market For Our Common Stock Currently Exists And None May Develop.
  Our Chairman And Vice Chairman Will Have Significant Influence Over Matters Requiring Stockholder
Or Board Approval.
  Investments By Our Executive Officers And Employees May Conflict With The Interests Of Holders Of
Our Securities.
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Our Common Stock Price May Be Volatile, Which Would Adversely Affect The Value Of Your Shares.
  
    
    variations in quarterly operating results;
    
    our announcements of significant contracts, milestones, acquisitions;
    
    our relationships with other companies;
    
    our ability to obtain needed capital commitments;
    
    additions or departures of key personnel;
    
    sales of common stock, conversion of securities convertible into common stock, exercise
of options and warrants to purchase common stock or termination of stock transfer
restrictions;
    
    general economic conditions, including conditions in the securities brokerage and investment banking markets;
    
    changes in financial estimates by securities analysts; and
    
    fluctuation in stock market price and volume.
   Future Sales Of Our Common Stock Could Adversely Affect Its Price
   We Do Not Expect To Pay Cash Dividends On Our Common Stock For The Foreseeable Future.
  17




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Our By-Laws Could Make It More Difficult For A Third Party To Acquire Us.
  EXECUTIVE OFFICERS OF THE REGISTRANT.
  Name
    
    Age
    
    PositionJohn J. Gorman
    
    
    45
    
    
    Director and ChairmanMark M. Salter
    
    
    46
    
    
    Chief Executive OfficerKurt J. Rechner
    
    
    45
    
    
    President, Chief Operating Officer and SecretaryJohn F. Garber
    
    
    36
    
    
    Chief Financial Officer and TreasurerWayne Barr, Jr.
    
    
    42
    
    
    President and Chief Executive Officer of C&TA
 John J. Gorman.
 Mark M. Salter.
 Kurt J. Rechner, CPA, CFA.
 John F. Garber, CPA.
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Wayne Barr, Jr.
 AVAILABLE INFORMATION
   
 ITEM 1A. RISK FACTORS
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
   
 ITEM 3. LEGAL PROCEEDINGS
  19




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  20




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
 RECENT STOCK PRICES
   High
    
    Low2005 Price RangeFirst Quarter
    
    $
    20.00
    
    
    $
    15.75Second Quarter
    
    
    19.20
    
    
    
    11.25Third Quarter
    
    
    16.45
    
    
    
    10.60Fourth Quarter
    
    
    12.00
    
    
    
    6.402004 Price RangeFirst Quarter
    
    $
    2.50
    
    
    $
    2.00Second Quarter
    
    
    5.00
    
    
    
    2.00Third Quarter
    
    
    9.00
    
    
    
    5.00Fourth Quarter
    
    
    18.00
    
    
    
    8.00
 DIVIDEND POLICY
  RECENT SALES OF UNREGISTERED STOCK
  EQUITY COMPENSATION PLANS
  (a)
    
    (b)
    
    (c)Number of Shares ofOur Common StockNumber of Shares of
    
    
    
    
    
    Remaining AvailableOur Common Stock
    
    
    
    
    
    for Future Issuanceto be Issued Upon
    
    Weighted Average
    
    Under EquityExercise of
    
    Exercise Price of
    
    Compensation PlansOutstanding
    
    Outstanding
    
    (exceeding securitiesOptions, Warrants
    
    Options, Warrants
    
    reflected inPlan Category
    
    and Rights
    
    and Rights
    
    column (a))Equity compensation plans approved by our security
holders
    
    
    1,703,602
    
    
    $
    6.71
    
    
    
    277,833Total
    
    
    1,703,602
    
    
    $
    6.71
    
    
    
    277,833
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ITEM 6. SELECTED FINANCIAL DATA
  AS OF AND FOR THE YEAR ENDED DECEMBER 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001STATEMENT OF OPERATIONS DATA:Commissions
    
    $
    17,139,488
    
    
    $
    20,945,763
    
    
    $
    29,260,473
    
    
    $
    19,467,276
    
    
    $
    25,615,989Underwriting and investment banking income
    
    
    16,436,706
    
    
    
    18,339,975
    
    
    
    72,799
    
    
    
    335,663
    
    
    
    316,927Net dealer inventory and investment income (loss)
    
    
    (5,800,745
    )
    
    
    9,087,139
    
    
    
    (2,793,103
    )
    
    
    1,296,933
    
    
    
    (630,687
    )Consulting fees
    
    
    2,503,663
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Other income
    
    
    608,046
    
    
    
    307,419
    
    
    
    43,591
    
    
    
    135,055
    
    
    
    25,920Total revenues
    
    
    30,887,158
    
    
    
    48,680,296
    
    
    
    26,583,760
    
    
    
    21,234,927
    
    
    
    25,328,149Commissions, employee compensation and benefits
    
    
    23,471,750
    
    
    
    23,140,948
    
    
    
    19,140,520
    
    
    
    15,667,467
    
    
    
    18,666,284Clearing and floor brokerage
    
    
    741,817
    
    
    
    652,037
    
    
    
    589,913
    
    
    
    412,657
    
    
    
    412,819Communications and occupancy
    
    
    2,161,640
    
    
    
    1,903,404
    
    
    
    2,100,250
    
    
    
    1,631,136
    
    
    
    1,645,693Professional fees
    
    
    4,264,244
    
    
    
    7,874,990
    
    
    
    949,313
    
    
    
    704,718
    
    
    
    1,169,474Other
    
    
    7,173,040
    
    
    
    3,042,605
    
    
    
    2,274,380
    
    
    
    2,230,697
    
    
    
    2,124,197Total expenses
    
    
    37,812,491
    
    
    
    36,613,984
    
    
    
    25,054,376
    
    
    
    20,646,675
    
    
    
    24,018,467Income (loss) before income taxes and minority interest
    
    
    (6,925,333
    )
    
    
    12,066,312
    
    
    
    1,529,384
    
    
    
    588,252
    
    
    
    1,309,682Income tax expense (benefit)
    
    
    (2,441,414
    )
    
    
    4,784,908
    
    
    
    682,254
    
    
    
    298,200
    
    
    
    495,474Minority interest
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (18,814
    )Net income (loss)
    
    $
    (4,4,83,919
    )
    
    $
    7,281,404
    
    
    $
    847,130
    
    
    $
    290,052
    
    
    $
    833,022Earnings (loss) per share:Basic
    
    $
    (0.74
    )
    
    $
    2.41
    
    
    $
    0.28
    
    
    $
    0.10
    
    
    $
    0.31Diluted
    
    $
    (0.74
    )
    
    $
    2.07
    
    
    $
    0.27
    
    
    $
    0.10
    
    
    $
    0.26Weighted average shares outstanding:Basic
    
    
    6,097,903
    
    
    
    3,025,048
    
    
    
    3,024,048
    
    
    
    3,024,048
    
    
    
    2,696,194Diluted
    
    
    6,097,903
    
    
    
    3,540,392
    
    
    
    3,127,752
    
    
    
    3,051,406
    
    
    
    3,092,224STATEMENT OF FINANCIAL CONDITION DATA:Cash and cash equivalents
    
    $
    1,644,176
    
    
    $
    1,959,719
    
    
    $
    551,857
    
    
    $
    750,746
    
    
    $
    547,761Deposit with clearing organization
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    260,471Receivable from clearing organization
    
    
    316,604
    
    
    
    3,737,741
    
    
    
    0
    
    
    
    0
    
    
    
    1,905,338Securities owned
    
    
    24,319,028
    
    
    
    15,956,971
    
    
    
    5,601,782
    
    
    
    5,985,305
    
    
    
    3,011,667Other investment
    
    
    0
    
    
    
    0
    
    
    
    1,155,000
    
    
    
    1,250,000
    
    
    
    0Property and equipment
    
    
    6,682,970
    
    
    
    265,238
    
    
    
    329,651
    
    
    
    333,800
    
    
    
    478,086Goodwill and intangible assets
    
    
    45,340,495
    
    
    
    138,215
    
    
    
    138,215
    
    
    
    138,215
    
    
    
    138,215Other assets
    
    
    2,700,193
    
    
    
    464,972
    
    
    
    579,948
    
    
    
    816,872
    
    
    
    898,970Total assets
    
    $
    81,003,466
    
    
    $
    22,522,856
    
    
    $
    8,356,453
    
    
    $
    9,274,938
    
    
    $
    7,240,508Accounts payable, accrued expenses and other liabilities
    
    $
    4,947,816
    
    
    $
    8,986,909
    
    
    $
    2,376,535
    
    
    $
    2,380,552
    
    
    $
    3,183,904Securities sold, not yet purchased
    
    
    0
    
    
    
    90,838
    
    
    
    221,279
    
    
    
    985,210
    
    
    
    332,581Payable to clearing organization
    
    
    610,446
    
    
    
    0
    
    
    
    742,334
    
    
    
    971,651
    
    
    
    0Notes payable
    
    
    3,906,695
    
    
    
    2,800,000
    
    
    
    1,655,100
    
    
    
    2,423,450
    
    
    
    500,000Subordinated debt
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,000,000Total liabilities
    
    
    9,464,957
    
    
    
    11,877,747
    
    
    
    4,995,248
    
    
    
    6,760,863
    
    
    
    5,016,485Minority interest
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total stockholders equity
    
    
    71,538,509
    
    
    
    10,645,109
    
    
    
    3,361,205
    
    
    
    2,514,075
    
    
    
    2,224,023Total liabilities and stockholders equity
    
    $
    81,003,466
    
    
    $
    22,522,856
    
    
    $
    8,356,453
    
    
    $
    9,274,938
    
    
    $
    7,240,508
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Company Overview
  
    
    proprietary research on distressed debt and special situation securities;
    
    trading and other brokerage services to value-based institutional and retail investors
active in fixed income and equity instruments;
    
    corporate finance and strategic advisory services to middle-market companies within our target industries; and
    
    operational and financial restructuring and consulting services for companies.
   Brokerage Services
  Investment Banking
  Consulting Services
  Business Environment
   23




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Critical Accounting Policies and Estimates
  Revenue Recognition
     Fair Value of Securities
  Receivable (Payable) to Clearing Organization
  Goodwill and Other Intangible Assets
  24




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Components of Revenues
   Components of Expenses
     25




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Results of Operations
 Fiscal Year Ended December 31, 2005, 2004 and 2003
 Total Revenues
      26




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Total Expenses
       27




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Net Income (Loss)
  Liquidity and Capital Resources
     Cash Flows From Operating Activities
   28




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Cash Flows from Investing Activities
  Cash Flows from Financing Activities
       29




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Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsNotes Payable
    
    $
    3,906,000
    
    
    $
    82,000
    
    
    $
    184,000
    
    
    $
    1,697,000
    
    
    $
    1,943,000Operating Lease Obligations
    
    
    4,795,000
    
    
    
    1,967,000
    
    
    
    1,176,000
    
    
    
    570,000
    
    
    
    1,082,000Capital Lease Obligations
    
    
    160,000
    
    
    
    44,000
    
    
    
    70,000
    
    
    
    46,000
    
    
    
    Total Contractual Cash Obligations
    
    $
    8,861,000
    
    
    $
    2,093,000
    
    
    $
    1,430,000
    
    
    $
    2,313,000
    
    
    $
    3,025,000
   30




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Effects Of Inflation
  Recently Issued Accounting Pronouncements
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
     31




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
   
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  32




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 1
    
    Financial StatementsSee Financial Statements attached hereto.2.
    
    ExhibitsIncorporated by reference to the Exhibit Index at the end of this report.
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TEJAS INCORPORATEDBy:
    
    /s/ Kurt J. RechnerKurt J. Rechner, President and Chief Operating Officer
   Signature
    
    Title
    
    Date/s/ John J. Gorman
    
    Chairman of the Board
    
    March 31, 2006John J. Gorman/s/ Mark M. Salter
    
    Chief Executive Officer
    
    March 31, 2006Mark M. Salter
    
    (Principal
Executive Officer)/s/ Kurt J. Rechner
    
    President, Chief Operating
    
    March 31, 2006Kurt J. Rechner
    
    Officer
and Secretary/s/ John F. Garber
    
    Chief Financial Officer and
    
    March 31, 2006John F. Garber
    
    Treasurer
(Principal
Financial Officer and
Principal Accounting
Officer)/s/ Michael F. Dura
    
    Vice-Chairman of the Board
    
    March 31, 2006Michael F. Dura/s/ Clark N. Wilson
    
    Director
    
    March 31, 2006Clark N. Wilson/s/ William A. Inglehart
    
    Director
    
    March 31, 2006William A. Inglehart/s/ Dennis G. Punches
    
    Director
    
    March 31, 2006Dennis G. Punches/s/ Charles H. Mayer
    
    Director
    
    March 31, 2006Charles H. Mayer/s/ Jared E. Abbruzzese Sr.
    
    Director
    
    March 31, 2006Jared E. Abbruzzese Sr.
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TEJAS INCORPORATED AND SUBSIDIARIES




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TEJAS
INCORPORATED AND SUBSIDIARIES
 Index to Consolidated Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    
    1Report of Independent Registered Public Accounting Firm
    
    
    2Consolidated Statements of Financial Condition as of December 31, 2005 and 2004
    
    
    3Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003
    
    
    4Consolidated Statements of Stockholders Equity for the years ended December 31, 2005, 2004
and 2003
    
    
    5Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
    
    
    6Notes to Consolidated Financial Statements
    
    
    8




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/s/ Helin, Donovan, Trubee & Wilkinson, LLP




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/s/ Ernst & Young LLP




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TEJAS INCORPORATED AND SUBSIDIARIES
 
   2005
    
    
    2004AssetsCash and cash equivalents
    
    $
    1,644,176
    
    
    
    1,959,719Receivable from clearing organization
    
    
    316,604
    
    
    
    3,737,741Receivables from employees
    
    
    122,684
    
    
    
    20,000Federal income taxes receivable
    
    
    1,828,250
    
    
    
    Securities owned, at market value
    
    
    24,319,028
    
    
    
    15,956,971Property and equipment, net
    
    
    6,682,970
    
    
    
    265,238Goodwill
    
    
    44,905,495
    
    
    
    138,215Intangible assets, net
    
    
    435,000
    
    
    
    Prepaid expenses and other assets
    
    
    749,259
    
    
    
    444,972Total assets
    
    $
    81,003,466
    
    
    
    22,522,856Liabilities and Stockholders EquityAccounts payable, accrued expenses and other liabilities
    
    $
    3,540,737
    
    
    
    5,923,979Securities sold, not yet purchased
    
    
    
    
    
    
    90,838Payable to clearing organization
    
    
    610,446
    
    
    
    Federal income tax payable
    
    
    
    
    
    
    1,664,171Deferred tax liability, net
    
    
    1,407,079
    
    
    
    1,398,759Notes payable
    
    
    3,906,695
    
    
    
    1,800,000Notes payable to stockholder
    
    
    
    
    
    
    1,000,000Total liabilities
    
    
    9,464,957
    
    
    
    11,877,747Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value, 100,000 shares authorized
Series A convertible preferred stock, 1,000 and 0 shares
issued and outstanding at December 31, 2005 and 2004,
respectively
    
    
    1
    
    
    
    Common stock, $0.001 par value
30,000,000 shares authorized; 7,860,508 and 3,026,048
issued and outstanding at December 31, 2005 and 2004,
respectively
    
    
    7,861
    
    
    
    3,026Additional paid in capital
    
    
    67,622,120
    
    
    
    2,223,267Retained earnings
    
    
    3,908,527
    
    
    
    8,418,816Total stockholders equity
    
    
    71,538,509
    
    
    
    10,645,109Total liabilities and stockholders equity
    
    $
    81,003,466
    
    
    
    22,522,856
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TEJAS INCORPORATED AND SUBSIDIARIES
 
   2005
    
    
    2004
    
    
    2003Revenue:Commissions from agency transactions
    
    $
    6,218,258
    
    
    
    5,574,850
    
    
    
    1,834,822Commissions from principal transactions
    
    
    10,921,230
    
    
    
    15,370,913
    
    
    
    27,425,651Underwriting and investment banking income
    
    
    16,436,706
    
    
    
    18,339,975
    
    
    
    72,799Net dealer inventory and investment income
(loss), net of trading interest expense of
$244,674, $38,776 and $112,348, respectively
    
    
    (5,800,745
    )
    
    
    9,087,139
    
    
    
    (2,793,103
    )Consulting fees
    
    
    2,503,663
    
    
    
    
    
    
    
    Other income
    
    
    608,046
    
    
    
    307,419
    
    
    
    43,591Total revenue
    
    
    30,887,158
    
    
    
    48,680,296
    
    
    
    26,583,760Expenses:Commissions, employee compensation
and benefits
    
    
    23,471,750
    
    
    
    23,140,948
    
    
    
    19,140,520Clearing and floor brokerage
    
    
    741,817
    
    
    
    652,037
    
    
    
    589,913Communications and occupancy
    
    
    2,161,640
    
    
    
    1,903,404
    
    
    
    2,100,250Professional fees
    
    
    4,264,244
    
    
    
    7,874,990
    
    
    
    949,313Interest, including $73,425, $48,493
and $40,543, respectively,
to related parties
    
    
    289,093
    
    
    
    177,705
    
    
    
    115,571Other
    
    
    6,883,947
    
    
    
    2,864,900
    
    
    
    2,158,809Total expenses
    
    
    37,812,491
    
    
    
    36,613,984
    
    
    
    25,054,376Income (loss) before income tax
expense (benefit)
    
    
    (6,925,333
    )
    
    
    12,066,312
    
    
    
    1,529,384Income tax expense (benefit)
    
    
    (2,441,414
    )
    
    
    4,784,908
    
    
    
    682,254Net income (loss)
    
    
    (4,483,919
    )
    
    
    7,281,404
    
    
    
    847,130Less:Dividends on Series A convertible preferred stock
    
    
    (26,370
    )
    
    
    
    
    
    
    Net income (loss) available to common stockholders
    
    $
    (4,510,289
    )
    
    
    7,281,404
    
    
    
    847,130Earnings (loss) per share of commons stock:Basic
    
    $
    (0.74
    )
    
    
    2.41
    
    
    
    0.28Diluted
    
    $
    (0.74
    )
    
    
    2.07
    
    
    
    0.27Weighted average common shares outstanding:Basic
    
    
    6,097,903
    
    
    
    3,025,048
    
    
    
    3,024,048Diluted
    
    
    6,097,903
    
    
    
    3,540,392
    
    
    
    3,127,752
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TEJAS INCORPORATED AND SUBSIDIARIES
 
   AdditionalPreferred
    
    
    Common
    
    
    Preferred
    
    
    Common
    
    
    Paid inShares
    
    
    Shares
    
    
    Stock
    
    
    Stock
    
    
    Capital
    
    
    Retained Earnings
    
    
    TotalBalance at December 31, 2002
    
    
    
    
    
    
    3,024,048
    
    
    $
    
    
    
    
    3,024
    
    
    
    2,220,769
    
    
    
    290,282
    
    
    
    2,514,075Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    847,130
    
    
    
    847,130Balance at December 31, 2003
    
    
    
    
    
    
    3,024,048
    
    
    
    
    
    
    
    3,024
    
    
    
    2,220,769
    
    
    
    1,137,412
    
    
    
    3,361,205Issuance of common stock from
option exercise
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    2
    
    
    
    2,498
    
    
    
    
    
    
    
    2,500Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,281,404
    
    
    
    7,281,404Balance at December 31, 2004
    
    
    
    
    
    
    3,026,048
    
    
    
    
    
    
    
    3,026
    
    
    
    2,223,267
    
    
    
    8,418,816
    
    
    
    10,645,109Issuance of common stock from
option exercise
    
    
    
    
    
    
    16,565
    
    
    
    
    
    
    
    17
    
    
    
    140,518
    
    
    
    
    
    
    
    140,535Issuance of common stock
    
    
    
    
    
    
    4,817,895
    
    
    
    
    
    
    
    4,818
    
    
    
    64,225,161
    
    
    
    
    
    
    
    64,229,979Issuance of preferred stock
    
    
    1,000
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    999,999
    
    
    
    
    
    
    
    1,000,000Tax impact of stock option exercises
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,175
    
    
    
    
    
    
    
    33,175Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,370
    )
    
    
    (26,370
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,483,919
    )
    
    
    (4,483,919
    )Balance at December 31, 2005
    
    
    1,000
    
    
    
    7,860,508
    
    
    $
    1
    
    
    
    7,861
    
    
    
    67,622,120
    
    
    
    3,908,527
    
    
    
    71,538,509
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TEJAS INCORPORATED AND SUBSIDIARIES
 
   2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income (loss)
    
    $
    (4,483,919
    )
    
    
    7,281,404
    
    
    
    847,130Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:Deferred tax expense (benefit)
    
    
    (293,927
    )
    
    
    1,452,263
    
    
    
    21,486Depreciation and amortization expense
    
    
    270,097
    
    
    
    123,017
    
    
    
    120,642Amortization of intangible assets
    
    
    1,105,000
    
    
    
    
    
    
    
    Non-cash compensation expense
    
    
    
    
    
    
    83,640
    
    
    
    99,836Loss on disposition of property and equipment
    
    
    
    
    
    
    
    
    
    
    36,462Changes in operating assets and liabilitiesReceivable from clearing organization
    
    
    3,421,137
    
    
    
    (3,737,741
    )
    
    
    (229,317
    )Receivables from employees
    
    
    (102,684
    )
    
    
    73,583
    
    
    
    (13,193
    )Federal income tax receivable/payable
    
    
    (3,645,950
    )
    
    
    1,828,318
    
    
    
    37,923Securities owned
    
    
    (8,362,057
    )
    
    
    (10,355,189
    )
    
    
    383,523Other investment
    
    
    
    
    
    
    1,155,000
    
    
    
    95,000Prepaid expenses and other assets
    
    
    (187,012
    )
    
    
    (259,898
    )
    
    
    90,872Accounts
payable, accrued expenses and other liabilities
    
    
    (3,189,893
    )
    
    
    3,577,186
    
    
    
    (86,363
    )Payable to clearing organization
    
    
    610,446
    
    
    
    (742,334
    )
    
    
    Securities sold, not yet purchased
    
    
    (90,838
    )
    
    
    (130,441
    )
    
    
    (763,931
    )Net cash (used in) provided by operating activities
    
    
    (14,949,600
    )
    
    
    348,808
    
    
    
    640,070Cash flows from investing activities:Purchase of business, net of cash acquired
    
    
    (5,210,332
    )
    
    
    
    
    
    
    Purchase of property and equipment
    
    
    (6,687,829
    )
    
    
    (58,604
    )
    
    
    (56,239
    )Net cash used in investing activities
    
    
    (11,898,161
    )
    
    
    (58,604
    )
    
    
    (56,239
    )Cash flows from financing activities:Payments on capital lease
    
    
    (48,884
    )
    
    
    (29,742
    )
    
    
    (14,370
    )Dividends paid on preferred stock
    
    
    (1,370
    )
    
    
    
    
    
    
    Proceeds from notes payable, net
    
    
    2,106,695
    
    
    
    144,900
    
    
    
    31,650Proceeds from (repayment of) notes payable to stockholder
    
    
    
    
    
    
    1,000,000
    
    
    
    (800,000
    )Proceeds from exercise of stock options
    
    
    140,535
    
    
    
    2,500
    
    
    
    Proceeds from issuance of common stock
    
    
    24,335,242
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    26,532,218
    
    
    
    1,117,658
    
    
    
    (782,720
    )
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TEJAS INCORPORATED AND SUBSIDIARIES
   Net change in cash and cash
equivalents
    
    $
    (315,543
    )
    
    
    1,407,862
    
    
    
    (198,889
    )Cash and cash equivalents at beginning of year
    
    
    1,959,719
    
    
    
    551,857
    
    
    
    750,746Cash and cash equivalents at end of year
    
    $
    1,644,176
    
    
    
    1,959,719
    
    
    
    551,857Supplemental disclosures:Interest paid
    
    $
    296,843
    
    
    
    177,704
    
    
    
    115,571Taxes paid
    
    $
    1,750,000
    
    
    
    1,142,171
    
    
    
    571,121
 Summary of non-cash investing and financing activities:On December 31, 2005, the Company had $25,000 of preferred stock dividends declared, but not yet paid.On September 25, 2005, Salter Family Partners Ltd. converted the $1,000,000 notes payable to stockholdersinto 1,000 shares of Series A convertible preferred stock.On July 1, 2005, the Company issued 3,157,895 shares of
 common stock valued at $39,894,737 for the purchase ofCapital & Technology Advisors, Inc.In July 2004, the Company forgave $5,005 of employee receivables, which has been recorded ascompensation expense.In May 2004, the Company forgave $28,635 of a note receivable from an employee which has been recordedas compensation expense.In January 2004, March 2003 and March 2002, the Company forgave $50,000, respectively, of an officersnote receivable which has been recorded as compensation expense.In March 2003, the Company forgave a $49,836 receivable from an officer, which has been recorded ascompensation expense.See accompanying notes to consolidated financial statements.
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TEJAS INCORPORATED AND SUBSIDIARIES
 
   (1)
    
    Organization and Basis of PresentationTejas Incorporated, a Delaware corporation (Tejas), is a financial services holding company
whose primary operating subsidiaries are Tejas Securities Group, Inc., a Texas corporation
(TSG), TI Building Partnership, Ltd., a Texas limited partnership (TI Building), and
Capital & Technology Advisors, Inc., a Delaware corporation (C&TA). TSG is engaged in the
business of providing brokerage and related financial services to institutional and retail
customers nationwide. TI Building owns and manages the real estate in which Tejas and TSG are
headquartered. C&TA is an advisory and consulting firm that provides operational and
financial restructuring services for companies primarily within the telecommunications and
technology industries.Tejas was incorporated as a shell corporation in New York on July 18, 1990, and made an
initial public offering in November 1991. On August 27, 1999, Tejas was acquired by TSG in a
reverse merger. On August 29, 2001, Tejas acquired all of the outstanding minority interest
in TSG.On November 8, 2004, Tejas board of directors declared a 100% stock dividend payable on
November 22, 2004 to holders of record as of November 21, 2004. The stock dividend was paid
on November 22, 2004, resulting in the issuance of 1,513,024 shares of Tejas common stock.
As a result of this stock dividend, earnings per share amounts and all share amounts for prior
periods as disclosed on the consolidated statements of financial condition, consolidated
statements of operations and notes to the consolidated financial statements have been restated
to reflect the shares outstanding as though the stock dividend had taken effect in the
earliest period presented.On February 3, 2005, Tejas issued 1,600,000 shares of its common stock through a secondary
public offering. On February 25, 2005, the underwriter for the secondary public offering
exercised their option to purchase an additional 60,000 shares of Tejas common stock.On June 6, 2005, Tejas shareholders approved a proposal to amend Tejas Certificate of
Incorporation to authorize the issuance of up to 100,000 shares of preferred stock upon terms
to be established by Tejas board of directors and to increase the number of shares of common
stock which Tejas has the authority to issue from 10,000,000 to 30,000,000. On June 29, 2005,
Tejas filed a Certificate of Amendment to the Certificate of Incorporation to affect these
measures. On August 9, 2005, Tejas board of directors designated 1,000 shares of Tejas
authorized preferred stock as Series A Convertible Preferred Stock pursuant to a Certificate
of Designations for Series A Convertible Preferred Stock.On July 1, 2005, Tejas completed its acquisition of C&TA, a privately-held, full-service
advisory and consulting firm based in Albany, New York. Pursuant to an Agreement and Plan of
Merger by and among Tejas, Tejas Acquisition Corp. (the Merger Sub), C&TA, and each of
Niskayuna Development LLC, Wayne Barr, Jr., Shawn ODonnell, Patrick Doyle and John P. Bade
(together, Niskayuna and such individuals, the Shareholders), the Merger Sub merged with and
into C&TA and the surviving entity became a wholly-owned subsidiary of Tejas.TSG is registered as a broker and dealer in securities with the National Association of
Securities Dealers, Inc. and clears its transactions on a fully disclosed basis through
National Financial Services. TSG became a registered investment advisor with the Securities
and Exchange Commission in January 2006. Tejas and TSG headquarters are located in Austin,
Texas. C&TAs business is conducted from its headquarters in Albany, New York.
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TEJAS INCORPORATED AND SUBSIDIARIES
   References to the Company within the accompanying notes to the consolidated financial
statements are to Tejas and subsidiaries.(2)
    
    Summary of Significant Accounting Policies
 (a)
    
    Principles of ConsolidationThe accompanying consolidated financial statements reflect the consolidated accounts of
the Company and its subsidiaries, TSG, C&TA and TI Building. All significant intercompany
accounts and transactions have been eliminated in consolidation.(b)
    
    Basis of AccountingThese consolidated financial statements are presented on the accrual basis of accounting
in accordance with U.S. generally accepted accounting principles whereby revenues are
recognized in the period earned and expenses when incurred.(c)
    
    Revenue RecognitionAgency commission revenue and related expense from customer security transactions is
recorded on a trade date basis. Customer security transactions that are executed through
the Companys proprietary trading account are recorded on a trade date basis as principal
commission revenue. The related expense is also recorded on a trade date basis.Net dealer inventory and investment income (loss) results from securities transactions
entered into for the account of the Company. Net dealer inventory and investment income
(loss) includes both realized and unrealized gains and losses, which are recorded on a
trade date basis.The Company does not carry or clear customer accounts and all customer transactions are
executed and cleared with other brokers on a fully disclosed basis. These brokers have
agreed to maintain such records of the transaction effected and cleared in the customers
accounts as are customarily made and kept by a clearing broker pursuant to the
requirements of Rules 17a-3 and 17a-4 of the Securities Exchange Act of 1934, as amended,
and to perform all services customarily incident thereto.Consulting fees include advisory fees, reimbursements for out-of-pocket expenses and
revenues associated with success fees. Monthly advisory fees are recognized as services
are provided over the term of the consulting agreement. Deferred revenue represents
billings in advance of services performed. Reimbursements, including those relating to
travel and other out-of-pocket expenses are recognized when billed. Revenues from success
fees are recognized when the services related to the
underlying customer transaction are determined to have been completed by all parties.
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TEJAS INCORPORATED AND SUBSIDIARIES
   (d)
    
    Underwriting and Investment BankingInvestment banking revenues include gains, losses, and fees, net of syndicate expenses,
arising from securities offerings in which the Company acts as an underwriter or agent.
Investment banking revenues also include fees earned from providing
merger-and-acquisition and advisory services. Investment banking management fees are
recorded on the offering date, sales concessions on the settlement date, and underwriting
fees at the time the underwriting is completed and the income is reasonably determinable.
Investment banking transactions may be completed on a best efforts or firm commitment
basis.The Company periodically receives equity securities, including warrants and options, as
part of its compensation for investment banking engagements. These securities are valued
at the intrinsic value at the time the engagement is completed, and are included in
investment banking revenues. The Company may distribute the equity securities to its
employees either through compensation agreements or by sale, based upon the intrinsic
value.(e)
    
    Cash and Cash EquivalentsCash and cash equivalents include cash and highly liquid investments with a maturity at
date of purchase of ninety days or less.(f)
    
    Securities Owned and Securities Sold, Not Yet PurchasedLong and short positions in securities are reported at fair value. Securities with
readily determinable market values are based on quoted market prices. Securities with
limited market activity for which quoted market values are not readily determinable are
based on managements best estimate which may include dealer price quotations and price
quotations for similar instruments traded. Warrants are valued based upon the value of
the underlying securities. The difference between cost and fair value has been included
in net dealer inventory and investment income (loss). These investments are subject to
the risk of failure of the issuer and the risk of changes in market value based on the
ability to trade such securities on the open market.(g)
    
    Property and EquipmentProperty and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the respective assets. Estimated
useful lives for equipment approximate those used for federal income tax purposes and
range from 3 to 7 years. Leasehold improvements are amortized using the straight-line
method over the shorter of the estimated useful lives of the improvements or the terms of
the related leases. Buildings and building improvements are amortized using the
straight-line method over 10 to 40 years.
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TEJAS INCORPORATED AND SUBSIDIARIES
   Long-lived assets, such as property and equipment are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to estimated undiscounted future cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed of would
be separately presented in the statements of financial condition and reported at the
lower of the carrying amount or fair value less costs to sell, and would no longer be
depreciated.(h)
    
    Goodwill and Intangible AssetsGoodwill represents the excess of costs over fair value of assets of businesses acquired
and was recorded in connection with the Companys acquisition of C&TA in July 2005 and
the minority interest purchase of TSG in August, 2001. Goodwill and other intangible
assets acquired in a purchase business combination and determined to have an indefinite
useful life are not amortized, but instead tested for impairment at least annually.
Intangible assets determined to have finite lives are amortized over their expected
lives.Business acquisitions typically result in goodwill, and the recorded values of goodwill
may become impaired in the future. The evaluation of the potential impairment of such
goodwill requires the Company to make estimates and assumptions that affect the Companys
consolidated financial statements. Management assesses potential impairments of goodwill
on an annual basis or when there is evidence that events or changes in circumstances
indicate that the carrying amount may not be recovered. Managements judgments regarding
the existence of impairment indicators and fair values related to goodwill are based on
operational performance of the businesses, market conditions and other factors. Future
events could cause management to conclude that impairment indicators exist and that
goodwill associated with the acquired businesses is impaired. Any resulting impairment
loss could have an adverse impact on the Companys results of operations. Management will
assess goodwill associated with the acquisition of C&TA at the acquisition anniversary
date of July 1, 2006 and will take into consideration revenues, operational performance
and business trends when making such an assessment. In the event that revenues and
results of operations do not meet or exceed historical results or projections used at the
time of acquisition, an impairment charge may be necessary.(i)
    
    Repurchase and Resale AgreementsRepurchase and resale agreements are treated as financing transactions and are carried at
the amounts at which the securities will be subsequently reacquired or resold as
specified in the respective agreements. There were no repurchase or resale agreements
outstanding at December 31, 2005 or 2004.
 11




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##### Table of Contents



TEJAS INCORPORATED AND SUBSIDIARIES
   (j)
    
    Federal Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the enactment
date.(k)
    
    EstimatesThe preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.(l)
    
    Stock-Based CompensationThe Company accounts for stock-based compensation to employees using the intrinsic value
method. Accordingly, compensation costs for employee stock options is measured as the
excess, if any, of the fair value of the Companys common stock at date of grant over the
exercise price. The Company accounts for stock-based compensation to non-employees at
fair value.Accordingly, the expense related to stock option compensation included in the
determination of net income (loss) for the years ended December 31, 2005, 2004 and 2003,
is less than that which would have been recognized if the fair value method had been
applied. The Companys net income (loss) and earnings (loss) per share of common stock
would have been adjusted to the proforma amounts indicated below.
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Net income (loss) available to
common stockholders as reported
for basic
    
    $
    (4,510,289
    )
    
    
    7,281,404
    
    
    
    847,130Deduct or add stock-based
compensation expense
determined under the fair
value based method
    
    
    (245,777
    )
    
    
    (27,959
    )
    
    
    (15,164
    )Pro forma net income (loss)
available to common stockholders
for basic
    
    $
    (4,756,066
    )
    
    
    7,253,445
    
    
    
    831,966
 12




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##### Table of Contents



TEJAS INCORPORATED AND SUBSIDIARIES
   Year Ended December 31,2005
    
    
    2004
    
    
    2003Net income (loss) available to
common stockholders as reported
for diluted (Note 14)
    
    $
    (4,510,289
    )
    
    
    7,313,409
    
    
    
    847,130Deduct or add stock-based
compensation expense
determined under the fair
value based method
    
    
    (245,777
    )
    
    
    (27,959
    )
    
    
    (15,164
    )Pro forma net income (loss)
available to common stockholders
for diluted
    
    $
    (4,756,066
    )
    
    
    7,285,450
    
    
    
    831,966Earnings (loss) per share of
common stock as reported:Basic
    
    $
    (0.74
    )
    
    
    2.41
    
    
    
    0.28Diluted
    
    $
    (0.74
    )
    
    
    2.07
    
    
    
    0.27Pro forma earnings (loss) per
share of common stock:Basic
    
    $
    (0.78
    )
    
    
    2.40
    
    
    
    0.28Diluted
    
    $
    (0.78
    )
    
    
    2.06
    
    
    
    0.27
   13




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TEJAS INCORPORATED AND SUBSIDIARIES
   (3)
    
    Receivables From and Payables To Clearing OrganizationAt December 31, 2005 and 2004, the Company had net receivables from and payables to its
clearing organization consisting of the following:
 2005
    
    
    2004Receivable:Receivable from clearing organization
    
    $
    
    
    
    
    3,610,411Fees and commissions receivable
    
    
    316,604
    
    
    
    127,330$
    316,604
    
    
    
    3,737,741Payable:Payable to clearing organization
    
    $
    610,446
    
    
    
    
 (4)
    
    Receivables from EmployeesThe Company makes advances to certain employees in months when their commission payout does
not meet a predetermined amount. As of December 31, 2005, approximately $0 had been advanced
to employees under this agreement. These receivables are to be repaid through reductions of
future commissions or bonuses. During 2004 and 2003, the Company forgave approximately $5,000
and $113,000, respectively, in receivables from employees. No amounts were forgiven during
2005. The amounts forgiven are included in compensation expense in the accompanying
consolidated statements of operations.In November 2003, the Company received a $60,000 note from an employee. The note did not bear
interest and was due and payable on November 20, 2004. On November 20, 2004, the remaining
balance of the note was extended until April 30, 2005. The balance of the note was $13,000
and $20,000 as of December 31, 2005 and 2004, respectively. As of December 31, 2005, the note
was delinquent; however, the employee continues to make payments.In July 2005, the Company received a $25,000 note from an employee. The does not bear
interest and was due and payable on October 11, 2005. On October 11, 2005, the Company
extended the due date for the remaining balance until February 2006. The balance of the note
was $9,053 as of December 31, 2005.In November 2005, the Company received a $100,000 note from an employee as part of an
employment agreement. The note does not bear interest and is due and payable in sixteen
monthly installments of $6,250 beginning in February 2006.Notes receivable and related party receivables are included in receivables from employees and
stockholders in the accompanying statements of financial condition.
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TEJAS INCORPORATED AND SUBSIDIARIES
   (5)
    
    Securities Owned and Securities Sold, Not Yet PurchasedAt December 31, 2005 and 2004, securities owned and sold, not yet purchased consisted of the
following:
 2005
    
    
    2004Sold,
    
    
    
    
    
    
    Sold,not yet
    
    
    
    
    
    
    not yetOwned
    
    
    purchased
    
    
    Owned
    
    
    purchasedState and
municipal obligations
    
    $
    
    
    
    
    
    
    
    
    20,000
    
    
    
    59,490US Government bonds
    
    
    1,495,265
    
    
    
    
    
    
    
    
    
    
    
    Corporate bonds and
notes
    
    
    6,421,559
    
    
    
    
    
    
    
    23,813
    
    
    
    24,750Equity securities
    
    
    10,343,204
    
    
    
    
    
    
    
    6,997,658
    
    
    
    6,598Warrants
    
    
    6,059,000
    
    
    
    
    
    
    
    8,915,500
    
    
    
    $
    24,319,028
    
    
    
    
    
    
    
    15,956,971
    
    
    
    90,838
 At December 31, 2005 and 2004, the unrealized gain (loss) associated with securities owned and
securities sold, not yet purchased, was $(5,558,826) and $6,557,404, respectively.Approximately 15% of the value of total assets as of December 31, 2005 related to equity
securities and warrants in five companies, a portion of which was sold subsequent to year end.
Approximately 48% of the value of total assets as of December 31, 2004 related to securities
in two companies, a portion of which was sold during 2005.(6)
    
    Property and EquipmentProperty and equipment consists of the following:
 December 31,2005
    
    
    2004Furniture and equipment
    
    $
    769,421
    
    
    
    369,422Land
    
    
    762,236
    
    
    
    Buildings
    
    
    4,607,170
    
    
    
    Building and leasehold improvements
    
    
    1,307,556
    
    
    
    389,1327,446,383
    
    
    
    758,554Accumulated depreciation and
amortization
    
    
    (763,413
    )
    
    
    (493,316
    )$
    6,682,970
    
    
    
    265,238
 (7)
    
    Accrued Commissions and BonusesAccrued commissions and bonuses are included in accounts payable, accrued expenses and other
liabilities in the accompanying consolidated statements of financial condition.
 15




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TEJAS INCORPORATED AND SUBSIDIARIES
   As of December 31, 2005 and 2004, the Company had accrued approximately $607,000 and
$2,620,000, respectively, in commissions and related payroll taxes payable.The Company pays bonuses to its employees and officers at interim periods and year-end.
Accrued bonuses as of December 31, 2005 and 2004 were $365,000 and $1,500,000, respectively.
During 2004 and 2003, an officer of the Company received approximately $183,000 and $289,000,
respectively, as part of his contractual compensation which was based on the Companys
operating performance. No such compensation was paid during 2005. Management of the Company
reviews both contractual and discretionary bonus amounts, with discretionary bonus amounts
approved by the Compensation Committee of the Company.(8)
    
    Notes PayableOn February 17, 2004, the Company entered into an agreement with a bank to borrow $2,500,000
for operating and financing purposes. The loan was due on demand or by February 15, 2007 if no
demand was made. The loan accrued interest at prime plus 2% and was to be repaid in equal
monthly payments of $70,000, plus accrued interest, commencing on March 15, 2004 with a final
payment of approximately $50,000. The loan documents required that the Company maintain a
minimum tangible net worth of not less than $2.5 million and contained other covenants that
restricted the Companys ability to incur debt, incur liens, sell assets, pay dividends,
engage in different business activities, merge with or acquire other entities, and make
investments or loans. The loan was secured by the common stock of TSG, as well as the personal
guaranty of an officer of the Company. Under the loan documents, a change of control of 25% or
more of the Companys common stock was an event of default. The Company obtained a waiver from
the bank with respect to this provision as it applied to the Companys February 2005 secondary
stock offering. The balance of the loan was $1,800,000 as of December 31, 2004. The loan was
repaid in full in February 2005. The Company paid approximately $21,000 and $115,000 in
interest during 2005 and 2004, respectively, in relation to this loan.On February 22, 2005, the Company purchased an office building through its wholly-owned
subsidiary, TI Building. The office building was purchased at a price of approximately
$3,470,000, with $2,200,000 being financed through a financial institution. Pursuant to the
terms of the promissory note, this loan accrues interest at a rate of 5.75% per annum, with
monthly payments of $13,840 through February 2011, at which time the outstanding principal and
accrued interest on the note shall be due and payable. A mortgage on the building and the
associated real property secures the repayment of such borrowing. In connection with this
acquisition, the Companys Chairman agreed to (1) indemnify the financial institution against
any losses incurred by the financial institution as a result of any violations of
environmental laws or certain building laws related to such real property and (2) provide a
limited guarantee of the Companys performance under certain provisions of the deed of trust
entered into in connection with such financing. The balance of the promissory note was
$2,171,522 at December 31, 2005. The Company paid approximately $99,000 in interest during
2005 in relation to this promissory note.
 16




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##### Table of Contents



TEJAS INCORPORATED AND SUBSIDIARIES
   On May 10, 2005, the Company borrowed $1,760,000 from a financial institution to finance in
part the purchase price of an office building through its wholly-owned subsidiary, TI
Building. Pursuant to the terms of a promissory note, the loan accrues interest at a rate of
6.75% per annum, with monthly installments of $13,388 through May 2010, at which time the
outstanding principal and accrued interest on the note shall be due and payable. A mortgage
on the building and the associated real property secures the repayment of such borrowing. The
balance of the promissory note was $$1,735,173 at December 31, 2005. The Company paid
approximately $69,000 in interest during 2005 in relation to this promissory note.The Company had other notes payable during 2003 and 2004 that were paid in full prior to
December 31, 2004. The Company paid interest on these notes totaling approximately $15,000
and $81,000 in 2004 and 2003, respectively.(9)
    
    Notes Payable to StockholdersOn July 7, 2004, the Company entered into a subordinated convertible promissory note agreement
with a family limited partnership controlled by the Companys Chief Executive Officer (the
Lender), to borrow $1,000,000 for operating purposes. Under the terms of the promissory
note, the Company made quarterly interest payments at a rate of 10% per annum. The promissory
note was unsecured. The maturity date of the note was December 1, 2005, at which time all
remaining unpaid principal and interest was due. The promissory note was convertible at any
time into common stock of the Company in an amount equal to the unpaid principal divided by
the conversion price of $5.00 per share. The promissory note originally required the Company
to designate a series of preferred stock by July 1, 2005, which the promissory note could be
convertible into at any time. The Company amended the terms of the promissory note so that the
Lender could convert the promissory note into the Companys Series A Convertible Preferred
Stock in an amount equal to the unpaid principal divided by a conversion price of $1,000 per
share. The promissory note was convertible until the note was repaid. The Company has also
granted the Chief Executive Officer, through the Lender, certain piggyback registration rights
for the shares into which the preferred stock may be converted. On September 26, 2005, the
Lender converted the promissory note into 1,000 shares of Series A convertible preferred
stock. The Company paid approximately $99,000 and $23,000 in interest during 2005 and 2004,
respectively, in relation to this promissory note.
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##### Table of Contents



TEJAS INCORPORATED AND SUBSIDIARIES
   (10)
    
    Preferred StockOn June 6, 2005, the Companys shareholders approved a proposal to amend its Certificate of
Incorporation to authorize the issuance of up to 100,000 shares of preferred stock upon terms
to be established by the Companys board of directors. On June 29, 2005, the Company filed a
Certificate of Amendment to the Certificate of Incorporation to affect these measures. On
August 9, 2005, the Companys board of directors designated 1,000 shares of its authorized
preferred stock as Series A Convertible Preferred Stock pursuant to a Certificate of
Designations for Series A Convertible Preferred Stock. On September 26, 2005, Salter Family
Partners, Ltd., a family partnership controlled by Mark M. Salter, the Companys Chief
Executive Officer, converted a $1,000,000 promissory note into 1,000 shares of Series A
convertible preferred stock, par value $0.001 per share. The terms of the Series A
convertible preferred stock include: a cumulative dividend of 10% payable on a quarterly
basis; a mandatory conversion feature to convert the preferred stock into the Companys common
stock in the event the common stock trades above $10.00 per share for ten consecutive trading
days; a liquidation preference over the Companys common stock equal to the conversion price,
and; the right for Salter Family Partners, Ltd. to convert the preferred stock into the
Companys common stock on a one-for-two hundred basis, which is consistent with the $5,00 per
share conversion price under the original convertible note agreement (Note 9). The preferred
stock is also subject to anti-dilution provisions and the right to vote the preferred stock on
an as converted basis with the Companys common stock.
 (11)
    
    Business CombinationOn July 1, 2005, the Company completed its acquisition of C&TA. The total consideration paid
by the Company in exchange for the outstanding capital stock of C&TA was approximately $45.4
million, consisting of cash in the amount of $3.0 million, which was paid out of the Companys
cash reserves on the closing date, and 3,157,895 shares of the Companys common stock valued
at $12.63 per share for a total value of $39,894,737. A deposit of $2.0 million had
previously been paid to C&TA as paying agent for the Shareholders in connection with the
execution of the letter of intent relating to the merger. Of the consideration paid by the
Company, 309,316 shares of the Companys common stock is being held in escrow, pursuant to an
escrow agreement, for a period of two years following the closing date, to satisfy possible
indemnification claims made by the Company under the Agreement and Plan of Merger.The allocation of the purchase price is based on an evaluation of the tangible and intangible
assets acquired and liabilities assumed. The fair values of the intangible assets acquired
are based on managements estimate. The excess of the purchase price over the fair value of
net assets acquired (goodwill) reflects the benefits from expansion of the Companys business
segments.
 Non-Compete (2 year useful life)
    
    $
    100,000Revenue backlog (1 year useful life)
    
    
    1,440,000Total intangible assets
    
    
    1,540,000Goodwill
    
    
    44,767,280Total intangible assets acquired
    
    
    46,307,280Deduct liabilities in excess of fair value of net tangible
assets acquired, which approximates book value
    
    
    (365,343
    )Net assets acquired
    
    $
    45,941,937
 18




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##### Table of Contents



TEJAS INCORPORATED AND SUBSIDIARIES
   The consideration paid is as follows:Cash deposit paid on May 10, 2005
    
    $
    2,000,000Cash paid on July 1, 2005 from sale of securities owned
    
    
    3,000,000Common stock
    
    
    40,441,937Acquisition costs
    
    
    500,000Total consideration
    
    $
    45,941,937
 Pro Forma Results of OperationsThe following presents the unaudited pro-forma combined results of operations of the Company
with C&TA, for the years ended December 31, 2005 and 2004, as if the acquisition had been
completed on January 1, 2004 and 2005, after giving effect to certain pro forma adjustments
related to the amortization of acquired intangible assets and shares issued in connection with
the acquisition. These unaudited pro forma results are not necessarily indicative of the
actual consolidated results of operations of the consolidated entities.
 Year Ended December 31,2005
    
    
    2004Revenue
    
    $
    36,057,481
    
    
    
    62,741,291Net income (loss)
    
    $
    (4,148,215
    )
    
    
    8,835,582Basic earnings (loss) per share
    
    $
    (0.68
    )
    
    
    1.43Diluted earnings (loss) per share
    
    $
    (0.68
    )
    
    
    1.32
 (12)
    
    Fair Value of Financial InstrumentsSubstantially all of the Companys financial assets and liabilities are carried at market
value or at amounts which, because of their short-term nature or because they carry market
rates of interest, approximate current fair value. The Companys notes payable, if
recalculated based on current interest rates, would not significantly differ from the amounts
recorded at December 31, 2005 and 2004.
 (13)
    
    Income TaxesThe Company files a consolidated tax return. Income tax expense (benefit) consists of the
following:
 2005
    
    
    2004
    
    
    2003FederalCurrent
    
    $
    (1,920,195
    )
    
    
    2,903,318
    
    
    
    576,614Deferred
    
    
    (222,846
    )
    
    
    1,258,727
    
    
    
    20,584StateCurrent
    
    
    (227,292
    )
    
    
    429,438
    
    
    
    84,154Deferred
    
    
    (71,081
    )
    
    
    193,425
    
    
    
    902$
    (2,441,414
    )
    
    
    4,784,908
    
    
    
    682,254
 19




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##### Table of Contents



TEJAS INCORPORATED AND SUBSIDIARIES
    2005
    
    
    2004
    
    
    2003Expected federal income expense
    
    $
    (2,354,613
    )
    
    
    4,102,546
    
    
    
    519,991Meals and entertainment
    
    
    104,850
    
    
    
    80,875
    
    
    
    60,634State income tax
    
    
    (293,927
    )
    
    
    622,864
    
    
    
    85,056Other, net
    
    
    102,276
    
    
    
    (21,377
    )
    
    
    16,573$
    (2,441,414
    )
    
    
    4,784,908
    
    
    
    682,254
  2005
    
    
    2004Deferred tax assets:Capital loss carryforward
    
    $
    
    
    
    
    51,257Non-qualified stock option expense
    
    
    874,904
    
    
    
    Lease termination liability
    
    
    205,622
    
    
    
    Charitable contributions carryforwards
    
    
    185,790
    
    
    
    Net operating loss carryforwards
    
    
    48,418
    
    
    
    Accrued expenses
    
    
    274,516
    
    
    
    1,011,326Property and equipment
    
    
    79,591
    
    
    
    Gross deferred tax assets
    
    
    1,668,841
    
    
    
    1,062,583Valuation allowance
    
    
    
    
    
    
    (48,902
    )Net deferred tax asset
    
    
    1,668,841
    
    
    
    1,013,681Deferred tax liabilities:Unrealized gains on securities held for investment
    
    
    (1,266,484
    )
    
    
    (2,235,950
    )Non-qualified stock option income
    
    
    (1,650,595
    )
    
    
    Property and equipment
    
    
    
    
    
    
    (10,200
    )Acquired intangible assets
    
    
    (134,280
    )
    
    
    Other
    
    
    (24,561
    )
    
    
    (166,290
    )Net deferred tax liability
    
    
    (3,075,920
    )
    
    
    (2,412,440
    )Net deferred tax asset (liability)
    
    $
    (1,407,079
    )
    
    
    (1,398,759
    )
 20




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##### Table of Contents



TEJAS INCORPORATED AND SUBSIDIARIES
   In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of historical
taxable income and projections for future taxable income over the periods which the deferred
tax assets are deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences net of the existing valuation allowances.
For the year ended December 31, 2004 the Company did not recognize change in valuation
allowance for capital loss carryforwards. At December 31, 2004, the Company had a capital
loss carryforward of approximately $144,000, which expired in 2005.(14)
    
    Profit Sharing and Stock Option PlansProfit Sharing PlanIn 1997, the Company instituted a profit sharing plan under section 401(k) of the Internal
Revenue Code. The plan allows all employees who are over 21 years old to defer a predetermined
portion of their compensation for federal income tax purposes. Contributions by the Company
are discretionary. During 2005. 2004 and 2003, the Company contributed approximately $228,000,
$219,000 and $167,000, respectively, to the employee profit sharing plan.Stock Option PlansThe Company established the Tejas Incorporated 1999 Stock Option Plan (the 1999 Plan) for
employees, directors and consultants of the Company and its subsidiaries on October 15, 1999.
Under the 1999 Plan, the Company was originally authorized to grant up to 600,000 shares of
the Companys common stock through incentive stock options or nonqualified stock options. In
August 2000, the board of directors of the Company amended the 1999 Plan to increase the
number of shares available to 800,000 shares of the Companys common stock. In September
2004, the board of directors of the Company amended the 1999 Plan to
increase the number of shares available to 2,000,000 shares of the Companys common stock. The exercise price of
each incentive stock option is determined by the Compensation Committee of the Company, and
shall not be less than 100% of the fair market value of the stock on the grant date. Incentive
stock options awarded to ten-percent owners of the Companys common stock shall not have an
exercise price of less than 110% of the fair market value of the stock on the grant date.
Incentive stock options may only be granted to employees of the Company or a subsidiary.Options become exercisable as determined at the date of the grant by the Compensation
Committee or the Board, in the case of non-employee directors. No option under the 1999 Plan
shall be exercisable after the expiration of ten years from the date of the grant. Options
granted to a ten-percent owner of the Company shall not be exercisable after the expiration of
five years from the date of the grant. The aggregate fair market value of stock purchased
under the 1999 Plan by an employee during any calendar year shall not exceed $100,000. In the
event that the purchased stock exceeds $100,000, the excess amount shall constitute a
nonqualified stock option.
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TEJAS INCORPORATED AND SUBSIDIARIES
       2005
    
    
    2004
    
    
    2003Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    Price
    
    
    Options
    
    
    PriceOutstanding

beginning of year
    
    
    1,480,000
    
    
    $
    4.69
    
    
    
    644,126
    
    
    $
    1.40
    
    
    
    524,126
    
    
    $
    2.77Granted
    
    
    668,500
    
    
    $
    13.18
    
    
    
    1,082,000
    
    
    $
    7.92
    
    
    
    200,000
    
    
    $
    1.25Exercised
    
    
    (16,565
    )
    
    $
    8.48
    
    
    
    (2,000
    )
    
    $
    1.25
    
    
    
    
    
    
    
    Forfeited
    
    
    (428,333
    )
    
    $
    14.71
    
    
    
    (244,126
    )
    
    $
    1.63
    
    
    
    (80,000
    )
    
    $
    10.00Canceled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding
 end of
Year
    
    
    1,703,602
    
    
    $
    6.71
    
    
    
    1,480,000
    
    
    $
    6.13
    
    
    
    644,126
    
    
    $
    1.40Exercisable
 end
of year
    
    
    1,146,477
    
    
    $
    5.74
    
    
    
    698,649
    
    
    $
    4.69
    
    
    
    510,786
    
    
    $
    1.43
  22




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##### Table of Contents



TEJAS INCORPORATED AND SUBSIDIARIES
    2005
    
    
    2004
    
    
    2003Risk-free interest rate
    
    
    3.04
    %
    
    
    1.80
    %
    
    
    3.01
    %Expected holding period
    
    5 years
    
    5 years
    
    3 yearsExpected volatility
    
    
    .13
    
    
    
    .001
    
    
    
    .001Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
  Stock Options Outstanding
    
    
    Stock Options ExercisableAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageContractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseExercise Price
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price$1.25
    
    
    398,000
    
    
    1.4 years
    
    $
    1.25
    
    
    
    398,000
    
    
    $
    1.25$4.50
    
    
    278,100
    
    
    3.4 years
    
    $
    4.50
    
    
    
    185,665
    
    
    $
    4.50$6.75
    
    
    220,000
    
    
    5.0 years
    
    $
    6.75
    
    
    
    73,330
    
    
    $
    6.75$9.00
    
    
    609,002
    
    
    3.9 years
    
    $
    9.00
    
    
    
    404,988
    
    
    $
    9.00$9.90
    
    
    35,000
    
    
    3.9 years
    
    $
    9.90
    
    
    
    23,333
    
    
    $
    9.90$10.00
    
    
    20,000
    
    
    4.9 years
    
    $
    10.00
    
    
    
    6,666
    
    
    $
    10.00$12.00
    
    
    20,000
    
    
    4.0 years
    
    $
    12.00
    
    
    
    13,333
    
    
    $
    12.00$15.00
    
    
    75,000
    
    
    4.6 years
    
    $
    15.00
    
    
    
    24,998
    
    
    $
    15.00$16.50
    
    
    28,500
    
    
    4.4 years
    
    $
    16.50
    
    
    
    9,498
    
    
    $
    16.50$17.03
    
    
    20,000
    
    
    4.2 years
    
    $
    17.03
    
    
    
    6,666
    
    
    $
    17.031,703,602
    
    
    
    
    
    
    
    
    
    
    
    1,146,477
 23




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##### Table of Contents



TEJAS INCORPORATED AND SUBSIDIARIES
   (15)
    
    Earnings (Loss) Per Share of Common StockBasic earnings (loss) per share of common stock are based on the weighted average common shares
outstanding without any dilutive effects considered. Diluted earnings (loss) per share
of common stock reflect dilution from all contingently issuable common shares, including
options and convertible notes issued. Contingently issuable common shares are not included in
the weighted average number of common shares when the inclusion would increase earnings per
share of common stock or decrease the net loss per share of common stock.Earnings (loss) per share of common stock is calculated as follows.
 2005
    
    
    2004
    
    
    2003Basic earnings (loss) per share of common
stock:Net income (loss) available to common
stockholders
    
    $
    (4,510,289
    )
    
    
    7,281,404
    
    
    
    847,130Weighted average common shares outstanding
    
    
    6,097,903
    
    
    
    3,025,048
    
    
    
    3,024,048Basic earnings (loss) per share of common
stock
    
    $
    (0.74
    )
    
    
    2.41
    
    
    
    0.28Diluted earnings (loss) per share of common
stock:Net income (loss) available to common
stockholders
    
    $
    (4,510,289
    )
    
    
    7,281,404
    
    
    
    847,130Impact of assumed conversion of
convertible debt
    
    
    
    
    
    
    32,005
    
    
    
    Net income (loss) available to common
stockholders after assumed conversions
    
    $
    (4,510,289
    )
    
    
    7,313,409
    
    
    
    847,130Weighted average common shares outstanding
    
    
    6,097,903
    
    
    
    3,025,048
    
    
    
    3,024,048Effect of dilutive securities:Options
    
    
    
    
    
    
    415,344
    
    
    
    103,704Convertible debt
    
    
    
    
    
    
    100,000
    
    
    
    Weighted average common shares outstanding
    
    
    6,097,903
    
    
    
    3,540,392
    
    
    
    3,127,752Diluted earnings (loss) per share of common
stock
    
    $
    (0.74
    )
    
    
    2.07
    
    
    
    0.27
 The Company has included the dilutive effect of 1,480,000 and 644,126 shares of the Companys
common stock for the years ended December 31, 2004 and 2003, respectively, in the computation
of diluted earnings (loss) per share. Of the 1,480,000 and 644,126 options issued by the
Company, 415,344 and 103,704 shares are included as dilutive securities on a weighted average
basis for the years ended December 31, 2004 and 2003, respectively, as calculated under the
Treasury Stock method. Options to purchase 1,703,602 shares of the Companys common stock for
the year ended December 31, 2005 were not included in the computation of diluted earnings
(loss) per share because the options were antidilutive.
 24




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##### Table of Contents



TEJAS INCORPORATED AND SUBSIDIARIES
   Options to purchase 200,000 shares of the Companys common stock under the convertible notes
payable were included in the computation of diluted earnings (loss) per share for the year
ended December 31, 2004. Of the 200,000 shares, 100,000 were included as dilutive securities
on a weighted average basis for the year ended December 31, 2004. Options to purchase 200,000
shares of the Companys common stock under the convertible notes payable and convertible
preferred stock were not included in the computation of diluted earnings (loss) per share for
the year ended December 31, 2005 because the options were antidilutive.(16)
    
    Concentrations and Off Statement of Financial Condition RiskThe Companys customers securities transactions are introduced on a fully disclosed basis
with its clearing organization. The clearing organization carries all of the accounts of the
customers of the Company and is responsible for execution, collection and payment of funds,
and receipt and delivery of securities relative to customer transactions. Off statement of
financial condition risk exists with respect to these transactions due to the possibility that
customers may be unable to fulfill their contractual commitments wherein the clearing
organization may charge any losses it incurs to the Company. The Company seeks to minimize
this risk through procedures designed to monitor the credit worthiness of its customers and
that customer transactions are executed properly by the clearing organization. Included in
the Companys clearing agreement with its clearing organization is an indemnification clause.
This clause relates to instances where the Companys customers fail to settle security
transactions. In the event this occurs, the Company will indemnify the clearing organization
to the extent of the net loss on any unsettled trades. As of December 31, 2005 and 2004, the
Company had not been notified by the clearing organization, nor was the Company otherwise
aware of any potential losses relating to this indemnification.The Company has $24,635,632 or approximately 30% of its total assets in securities owned and
receivable due from or held by its clearing organization as of December 31, 2005. The Company
also has $610,446 or approximately 6% of its total liabilities in payable due to its clearing
organization as of December 31, 2005.The Company enters into transactions in various financial instruments, including securities
sold, not yet purchased, for trading purposes. Securities sold, not yet purchased represent
obligations of the Company to deliver the underlying securities sold. The Companys
obligation to purchase the security may exceed the amount recognized in the statement of
financial condition. The Company monitors its positions in securities sold, not yet purchased
continuously to reduce the risk of potential losses due to changes in market value.The Company deposits its cash with financial institutions. Periodically such balances exceed
applicable FDIC insurance limits. As of December 31, 2005 and 2004, the Company had balances
of $1,690,158 and $1,686,154, respectively, in excess of FDIC insurance limits.The Company had one investment banking customer that generated approximately 37% of the
Companys total revenue for 2005. The Company had two investment banking customers that
generated approximately 29% of the Companys total revenue for 2004.
 25




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##### Table of Contents



TEJAS INCORPORATED AND SUBSIDIARIES
   (17)
    
    Industry Segment DataThe Company has three reportable segments: brokerage services, investment banking and
consulting services. The brokerage services segment includes sales, trading and market-making
activities of the Company and encompasses both retail and institutional customer accounts. The
investment-banking segment participates in underwriting of corporate securities as a managing
underwriter and a syndicate member, and
provides advisory services to companies. The consulting segment includes consulting and
advisory fees. These segments require the commitment of significant human capital and
financial resources, as well as industry specific skills.The accounting policies of the segments are the same as those described in the summary of
significant accounting policies. The Company evaluates performance based on profit or loss
from operations before income taxes.The following table presents segment revenues, income (loss) before income tax expense
(benefit), and assets for the year ended December 31, 2005.
 InvestmentBrokerage
    
    
    Banking
    
    
    Consulting
    
    
    TotalRevenues from external
customers
    
    $
    11,413,689
    
    
    
    16,436,706
    
    
    
    2,503,663
    
    
    
    30,354,058Interest revenue
    
    
    777,774
    
    
    
    
    
    
    
    
    
    
    
    777,774Interest expense
    
    
    533,737
    
    
    
    
    
    
    
    
    
    
    
    533,767Depreciation and amortization
    
    
    269,238
    
    
    
    
    
    
    
    1,105,859
    
    
    
    1,375,097Income(loss)
before income tax expense (benefit)
    
    
    (12,246,712
    )
    
    
    5,955,961
    
    
    
    (634,582
    )
    
    
    (6,925,333
    )Segment assets
    
    
    35,474,322
    
    
    
    
    
    
    
    45,529,144
    
    
    
    81,003,466Capital expenditures
    
    
    6,687,829
    
    
    
    
    
    
    
    
    
    
    
    6,687,829
 The following table presents segment revenues, income before income tax expense, and assets
for the year ended December 31, 2004.
 InvestmentBrokerage
    
    
    Banking
    
    
    Consulting
    
    
    TotalRevenues from external
customers
    
    $
    30,082,476
    
    
    
    18,339,975
    
    
    
    
    
    
    
    48,422,451Interest revenue
    
    
    296,621
    
    
    
    
    
    
    
    
    
    
    
    296,621Interest expense
    
    
    216,481
    
    
    
    
    
    
    
    
    
    
    
    216,481Depreciation and amortization
    
    
    123,017
    
    
    
    
    
    
    
    
    
    
    
    123,017Income before income tax
expense
    
    
    7,106,849
    
    
    
    4,959,463
    
    
    
    
    
    
    
    12,066,312Segment assets
    
    
    22,522,856
    
    
    
    
    
    
    
    
    
    
    
    22,522,856Capital expenditures
    
    
    58,604
    
    
    
    
    
    
    
    
    
    
    
    58,604
 26




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##### Table of Contents



TEJAS INCORPORATED AND SUBSIDIARIES
   The following table presents segment revenues, income before income tax expense, and assets
for the year ended December 31, 2003.
 InvestmentBrokerage
    
    
    Banking
    
    
    Consulting
    
    
    TotalRevenues from external
customers
    
    $
    25,558,868
    
    
    
    72,799
    
    
    
    
    
    
    
    25,631,667Interest revenue
    
    
    1,064,441
    
    
    
    
    
    
    
    
    
    
    
    1,064,441Interest expense
    
    
    227,919
    
    
    
    
    
    
    
    
    
    
    
    227,919Depreciation and amortization
    
    
    120,642
    
    
    
    
    
    
    
    
    
    
    
    120,642Income before income tax
expense
    
    
    1,515,284
    
    
    
    14,000
    
    
    
    
    
    
    
    1,529,284Segment assets
    
    
    8,356,453
    
    
    
    
    
    
    
    
    
    
    
    8,356,453Capital expenditures
    
    
    56,239
    
    
    
    
    
    
    
    
    
    
    
    56,239
 (18)
    
    Lease CommitmentsThe Company leases its office facilities and certain office equipment under operating and
capital leases. The future minimum payments due under these leases as of December 31, 2005 are
as follows:
 Operating
    
    
    Capital2006
    
    $
    1,967,000
    
    
    
    44,0002007
    
    
    859,000
    
    
    
    35,0002008
    
    
    317,000
    
    
    
    35,0002009
    
    
    298,000
    
    
    
    35,0002010
    
    
    272,000
    
    
    
    11,000Thereafter
    
    
    1,082,000
    
    
    
    Minimum Commitments
    
    $
    4,795,000
    
    
    
    160,000Less Interest
    
    
    
    
    
    
    (6,000
    )Net Present Value of Capital Lease Obligations
    
    
    
    
    
    
    154,000
 Office equipment, under capital leases, with a recorded cost of $260,763, net of depreciation
of $103,750 as of December 31, 2005, collateralizes the above capital lease obligations and is
included in the statements of financial condition under the caption of Property and
Equipment. Depreciation expense for assets under capital lease was $71,511, $32,239 and
$23,295 in 2005, 2004 and 2003, respectively.Rent expense amounted to approximately $1,549,000, $1,504,000 and $1,537,000 for the years
ended December 31, 2005, 2004 and 2003, respectively. Rent expense is reported net of sublease
revenue which is disclosed below.In August 2005, the Company subleased the remaining portion of its former Austin, Texas
headquarters, furniture and equipment through February 2008. Under the terms of the sublease
agreements, the future minimum payments to be received are approximately $74,000 and $12,000
in 2006 and 2007, respectively. During 2005, the Company received approximately $31,000 in
relation to this sublease agreement.
 27




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##### Table of Contents



TEJAS INCORPORATED AND SUBSIDIARIES
   In January 2005, the Company subleased its Houston, Texas office space through August 2006.
Under the terms of the sublease agreement, the future minimum payments to be received are
approximately $32,000 in 2006. During 2005, the Company received approximately $48,000 in
relation to this sublease agreement.In June 2003, the Company subleased a portion of its former Austin, Texas headquarters,
furniture and equipment effective June 15, 2003 through February 2008. Under the terms of the
sublease agreement, the future minimum payments to be received are approximately $106,000 and
$18,000 in 2006 and 2007, respectively. During 2005, 2004 and 2003, the Company received
approximately $106,000, $92,000 and $35,000, respectively, in relation to this sublease
agreement.In September 2002, the Corporation subleased its Atlanta, Georgia office space. The
Corporation received approximately $63,000 and $91,000 during 2005 and 2004, respectively, in
relation to this sublease agreement. The lease and sublease agreements terminated in 2005.In September 2002, the Company subleased its Atlanta, Georgia office space. The Company
received approximately $63,000, $91,000 and $83,000 during 2005, 2004 and 2003, respectively,
in relation to this sublease agreement.(19)
    
    ContingenciesIn February 2006, the Company settled two client complaints relating to previous investment
losses incurred by the clients for $500,000. The settlement amounts were accrued for as of
December 31, 2005, and were included in accrued expenses. The Company is involved in other
various claims and legal actions, including arbitrations, that have arisen in the ordinary
course of business. It is managements opinion that liabilities, if any, arising from these
actions will not have a significant adverse effect on the financial condition or results of
operations of the Company.On August 16, 2005, a stockholder and Director of Motient Corporation (Motient), a client of
the Companys, filed a stockholders derivative suit in the Chancery Court in the State of
Delaware against the Company and one of the Companys board members and a former board member,
as well against Motient and other directors of Motiens. Such former board member serves as a
member of the Motient board. The lawsuit alleged, among other things, that the Company aided
and abetted Motients directors and principal executive officer in breaching their fiduciary
duties to the stockholders, and that the Company was unjustly enriched by such breach of
fiduciary duties. The plaintiff sought the recovery of damages allegedly suffered by Motient
or directly by its stockholders and the recovery of fees paid to certain of the defendants.
On March 17, 2006, the Chancery Court of Delaware issued an order to dismiss the suit in its
entirety.In October 2001, an officer of the Company purchased a liability of the Company in the amount
of approximately $121,000 originally payable to a third party. The liability originated from
the Merger (Note 1) and is now payable to the officer upon the Companys successful listing on
a national exchange.
 28




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##### Table of Contents



TEJAS INCORPORATED AND SUBSIDIARIES
   (20)
    
    Net Capital RequirementsTSG, as a registered fully licensed broker and dealer in securities, is subject to the
Securities and Exchange Commission Uniform Net Capital Rule (Rule 15c3-1 of the Securities
Exchange Act of 1934, as amended). Under this rule, TSG is required to maintain a minimum net
capital and requires that the ratio of aggregate indebtedness to net capital, both as
defined, shall not exceed 15 to 1. Rule 15c3-1 also provides that equity capital may not be
withdrawn or cash dividends paid by TSG if the resulting net capital ratio would exceed 10 to
1. At December 31, 2005, the minimum net capital requirement for TSG was $250,000. Net
capital at December 31, 2005 aggregated $5,289,577. TSGs ratio of aggregate indebtedness to
net capital was 0.54 to 1 at December 31, 2005.(21)
    
    Other Related Party TransactionsThe Company entered into an engagement letter to place up to $10,000,000 principal amount of
debt securities on behalf of a company in which one of the Companys directors is a greater
than 10% stockholder and is also the Chairman, Chief Executive Officer and President of the
company. The Companys Chairman of the Board is a 10% or greater stockholders in the company.
In addition, another of the Companys former directors also serves on the board of that
company. The transaction was consummated on or about December 19, 2005. As part of the
purchase price, the purchasers exchanged approximately $5,000,000 principal amount of existing
bridge notes, plus accrued interest, which were sold by the company on November 10, 2005, for
which the Company also acted as placement agent. Under the engagement letter, the Company
received a cash fee equal to 3% of the principal amount of debt securities which it placed,
and a ten-year warrant to purchase common stock in the amount of 150,000 shares for each
$2,000,000 principal amount of debt securities placed at an exercise price of $2.00 per share.
On October 26, 2005, the Company received a non-refundable retainer of $125,000 from the
company. In December 2005, the Company received the cash fee of $300,000 upon completion of
the engagement. Additionally, the Company may be reimbursed for legal fees incurred.On October 15, 2004, the Company entered into a purchase agreement with a member of the
Companys board of directors, and Seton Securities Group, Inc. (Seton), a broker-dealer
controlled by that director, whereby the director and Seton would purchase the assets and
operations of the Companys New Jersey branch office by December 31, 2004 for nominal
consideration. As part of the agreement with the director, Seton entered into a sublease
agreement for the New Jersey office space for the remaining lease term. The sublease
agreement will take effect upon the closing of the purchase agreement. The director exercised
an option to extend the closing date to June 30, 2005 in exchange for consideration of $10,000
payable to the Company. Additionally, the Company entered into a memorandum of understanding
whereby the Company would maintain a trading account on behalf of Seton, and the net profits
from the trading account would be paid to Seton. As of December 31, 2005 and 2004, the
Company had paid Seton approximately $114,000 and $50,000, respectively, which represented the
net profit on the trading account.The employees, officers and management of the Company may maintain personal accounts with the
Company. When the Company executes securities transactions on behalf of its employees,
officers and management, those transactions are executed at current market prices, plus
execution costs. All officers of the Company, one of which is a majority owner, routinely
conduct such transactions for their own accounts, and management of the Company deems the
transactions to be arms length transactions. The majority owner of the Company also makes
many of the proprietary trading decisions for the Company, including securities transactions
between that individual and the Company.
 29




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##### Table of Contents



TEJAS INCORPORATED AND SUBSIDIARIES
   (22)
    
    Quarterly Results (Unaudited)The following tables set forth selected quarterly consolidated statements of operations
information for the years ended December 31, 2005 and 2004.
 First
    
    
    Second
    
    
    Third
    
    
    Fourth2005
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterTotal revenue
    
    $
    12,754,747
    
    
    
    13,750,133
    
    
    
    3,628,588
    
    
    
    753,690Income (loss) before
income tax expense
(benefit)
    
    
    3,724,236
    
    
    
    1,224,341
    
    
    
    (4,728,744
    )
    
    
    (7,165,166
    )Net income (loss)
    
    
    2,342,577
    
    
    
    702,551
    
    
    
    (2,934,031
    )
    
    
    (4,595,016
    )Basic earnings (loss)
per share of common
stock:Net income (loss)
    
    
    0.59
    
    
    
    0.15
    
    
    
    (0.37
    )
    
    
    (0.59
    )Diluted earnings
(loss) per share of
common stock:Net income (loss)
    
    
    0.47
    
    
    
    0.13
    
    
    
    (0.37
    )
    
    
    (0.59
    )
 First
    
    
    Second
    
    
    Third
    
    
    Fourth2004
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterTotal revenue
    
    $
    6,033,379
    
    
    
    7,527,704
    
    
    
    4,998,715
    
    
    
    30,120,498Income (loss) before
income tax expense
(benefit)
    
    
    259,124
    
    
    
    1,219,540
    
    
    
    (814,973
    )
    
    
    11,402,621Net income (loss)
    
    
    144,336
    
    
    
    718,129
    
    
    
    (538,550
    )
    
    
    6,957,489Basic earnings (loss)
per share of common
stock:Net income (loss)
    
    
    0.05
    
    
    
    0.24
    
    
    
    (0.18
    )
    
    
    2.30Diluted earnings
(loss) per share of
common stock:Net income (loss)
    
    
    0.04
    
    
    
    0.24
    
    
    
    (0.18
    )
    
    
    1.98
 30




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits3.1
    
    Certificate of Incorporation (Incorporated herein by reference to Exhibit 4.1 to the registrants
Current Report on Form 8-K filed on May 2, 2001).3.2
    
    Bylaws (Incorporated herein by reference to Exhibit 4.2 to the registrants Current Report on Form
8-K filed on May 2, 2001).3.3
    
    Certificate of Amendment to Certificate of Incorporation (Incorporated herein by reference to
Exhibit 3.3 of the registrants Current Report on Form 8-K filed on June 25, 2001).3.4
    
    Certificate of Amendment to Certificate of Incorporation (Incorporated herein by reference to
Exhibit 3.4 of the registrants Current Report on Form 8-K filed on June 20, 2002).3.5
    
    Certificate of Ownership and Merger Merging Tejas Incorporated into Westech Capital Corp.
(incorporated by reference to Exhibit 3.5 of the registrants Registration Statement on Form S-1,
filed on December 22, 2004).3.6
    
    Certificate of Amendment to Certificate of Incorporation (Incorporated herein by reference to the
registrants Current Report on Form 8-K filed on June 30, 2005).3.7
    
    Certificate of Designations for Series A Convertible Preferred Stock (Incorporated herein by
reference to Exhibit 10.1 of the registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2005).4.1
    
    Shareholder Agreement, dated November 23, 1999, between John Ohmstede, John Glade, Michael
Hidalgo, Jon McDonald, Britt Rodgers, Bob Sternberg, Mike Wolf, Greg Woodby and the Company
(Incorporated herein by reference to Exhibit 4.3 to the registrants Registration Statement on
Form 10-12(g) (File No. 000-29235)).10.1
    
    First Amended and Restated Westech Capital Corp. 1999 Stock Option Plan (Incorporated by reference
to Exhibit 10.1 to the registrants Annual Report on Form 10-K for the year ended December 31,
2002).10.2
    
    Form of Incentive Stock Option Agreement (Incorporated herein by reference to Exhibit 10.3 to the
registrants Registration Statement on Form 10-12(g)) (File No. 000-29235).10.3
    
    Form of Nonqualified Stock Option Agreement (Incorporated herein by reference to Exhibit 10.4 to
the registrants Registration Statement on Form 10-12(g)) (File No. 000-29235).10.4
    
    Employment and Confidentiality Agreement, dated as of June 1, 2004, between Westech Capital Corp.
and Kurt J. Rechner (Incorporated herein by reference to Exhibit 10.3 to the registrants
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).10.5
    
    Employment and Confidentiality Agreement, dated as of June 1, 2004, between Westech Capital Corp.
and John F. Garber (Incorporated herein by reference to Exhibit 10.4 to the registrants Quarterly
Report on Form 10-Q for the quarter ended June 30, 2004).10.6
    
    Agreement, dated December 3, 2001, with Correspondent Services Corporation (Incorporated herein by
reference to Exhibit 10.9 to the registrants Annual Report on Form 10-K for the year ended
December 31, 2001).10.7
    
    Employment and Confidentiality Agreement, dated as of June 1, 2004, between Westech Capital Corp.
and Mark M. Salter (Incorporated herein by reference to Exhibit 10.2 to the registrants Quarterly
Report on Form 10-Q for the quarter ended June 30, 2004).10.8
    
    Agreement, dated as of October 15, 2004, between Seton Securities Group, Inc., Charles H. Mayer,
Westech Capital Corp., and Tejas Securities Group, Inc. (Incorporated herein by reference to the
registrants Current Report on Form 8-K filed on November 9, 2004).10.9
    
    Agreement Regarding Contract between Blake Byram and TI Building Partnership, Ltd. (Incorporated
by reference to Exhibit 10.1 of the Registrants Current Report on Form 8-K filed on February 18,
2005).




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.10
    
    Real Estate Purchase and Sale Agreement, and the first and second amendments thereto, between
Blake Byram and 8226 Bee Caves, Ltd. (Incorporated by reference to Exhibit 10.2 of the
Registrants Current Report on Form 8-K filed on February 18, 2005).10.11
    
    Promissory Note, dated February 22, 2005, made by TI Building Partnership, Ltd. for the benefit of
Community Credit Union (Incorporated herein by reference to Exhibit 10.16 of the registrants
Annual Report on Form 10-K for the year ended December 31, 2004).10.12
    
    First Amendment to First Amended and Restated Stock Option Plan (Incorporated herein by reference
to Exhibit 10.1 of the registrants Current Report on Form 8-K filed on November 9, 2004).10.13
    
    Piggy-back Registration Rights Agreement, dated as of July 7, 2004, by and between Westech Capital
Corp. and Salter Family Partners, Ltd. (Incorporated herein by reference to Exhibit 10.1 to the
registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).10.14
    
    Assignment of Purchase and Sale Agreement between CNW2, Inc. and TI Building Partnership, Ltd.
(Incorporated herein by reference to Exhibit 10.1 of the registrants Current Report on Form 8-K
filed on April 25, 2005).10.15
    
    Purchase and Sale Agreement, between Catalyst Development II, L.P. and CNW2, Inc. (Incorporated
herein by reference to Exhibit 10.2 of the registrants Current Report on Form 8-K filed on April
25, 2005).10.16
    
    Promissory Note, dated May 9, 2005, made by TI Building Partnership, Ltd. for the benefit of First
United Bank (Incorporated herein by reference to Exhibit 10.6 of the registrants Quarterly Report
on Form 10-Q for the quarter ended March 31, 2005).10.17
    
    Letter of Intent, dated May 9, 2005, between Tejas Incorporated and Capital & Technology Advisors
Inc. (Incorporated herein by reference to Exhibit 10.7 of the registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 2005).10.18
    
    Agreement and Plan of Merger dated as of July 1, 2005 by and among Tejas Incorporated, Tejas
Acquisition Corp., Capital and Technology Advisors, Inc. and the persons listed on the signature
pages thereof (Incorporated herein by reference to Exhibit 10.1 of the registrants Current Report
on Form 8-K filed on July 8, 2005).10.19
    
    Escrow Agreement, dated as of July 1, 2005, by and among Tejas Incorporated, Capital and
Technology Advisors, Inc. and the persons listed on the signature pages thereof (Incorporated
herein by reference to Exhibit 10.2 of the registrants Current Report on Form 8-K filed on July
8, 2005).10.20
    
    Registration Rights Agreement, dated as of July 1, 2005, by and among Tejas Incorporated and the
persons listed on the signature pages thereof (Incorporated herein by reference to Exhibit 10.3 of
the registrants Current Report on Form 8-K filed on July 8, 2005).10.21
    
    Description of Oral Employment Arrangement with Jared E. Abbruzzese, Sr. as of July 1, 2005
(Incorporated herein by reference to Exhibit 10.4 of the registrants Current Report on Form 8-K
filed on July 8, 2005).10.22
    
    Employment and Confidentiality Agreement, dated as of July 1, 2005, by and between Tejas
Incorporated and Wayne Barr, Jr. (Incorporated herein by reference to Exhibit 10.5 of the
registrants Current Report on Form 8-K filed on July 8, 2005).10.23
    
    Non-Compete Agreement, dated as of July 1, 2005, by and between Tejas Incorporated and Wayne Barr,
Jr . (Incorporated herein by reference to Exhibit 10.6 of the registrants Current Report on Form
8-K filed on July 8, 2005).10.24
    
    Non-Compete Agreement, dated as of July 1, 2005, by and between Tejas Incorporated and Jared E.
Abbruzzese, Sr. (Incorporated herein by reference to Exhibit 10.7 of the registrants Current
Report on Form 8-K filed on July 8, 2005).10.25
    
    Non-Compete Agreement, dated as of July 1, 2005, by and between Tejas Incorporated and John Gorman
(Incorporated herein by reference to Exhibit 10.8 of the registrants Current Report on Form 8-K
filed on July 8, 2005).




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.26
    
    Amendment dated as of August 31, 2005 to Registration Rights Agreement dated July 1, 2005 by and
among Tejas Incorporated, Niskayuna Development LLC, Wayne Barr, Jr., Shawn ODonnell, Patrick
Doyle, and John P. Bade (Incorporated by reference to Exhibit 10.9 to the registrants Amendment
No. 1 to Current Report on Form 8-K filed on September 6, 2005).10.27
    
    Amendment to Letter of Intent dated May 9, 2005 by and among Tejas Incorporated, Jared E.
Abbruzzese, Sr., Wayne Barr, Jr., and Capital & Technology Advisors, Inc. (Incorporated by
reference to Exhibit 1.1 to the registrants Current Report on Form 8-K filed on June 20, 2005).21.1*
    
    Subsidiaries of the Registrant23.1*
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm23.2*
    
    Consent of Helin Donovan Trubee & Wilkinson, LLP, Independent Registered Public Accounting Firm31.1*
    
    Certification of Chief Executive Officer under Securities Exchange Act Rules 13a-14 or 15d-1431.2*
    
    Certification of Chief Financial Officer under Securities Exchange Act Rules 13a-14 or 15d-1432.1*
    
    Certifications of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2*
    
    Certifications of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith.
    
    Management contract or compensatory plan or arrangement.