##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the Quarterly Period ended June 30, 2006



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the Transition Period from  to

Commission file number: 000-19580



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T-3 ENERGY SERVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 76-0697390                       
|(State or Other Jurisdiction of Incorporation or Organization) |  | (IRS Employer Identification No.)
|                                                               | 
|7135 Ardmore, Houston, Texas                                   |  | 77054                            
|(Address of Principal Executive Offices)                       |  | (Zip Code)                       

(Registrants telephone number, including area code): (713) 996-4110



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Indicate by check mark whether
the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):



|                         |  |                    |  |                         
|------------------------ |  | ------------------ |  | ------------------------
|Large accelerated filer ̈ |  | Accelerated filer ̈ |  | Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes ̈No  x

At July 20, 2006, the registrant had 10,700,324 shares of common stock outstanding.



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##### Table of Contents

TABLE OF CONTENTS

FORM 10-Q

PART I



|     |  |                                                                                                                     |  |     
|---- |  | ------------------------------------------------------------------------------------------------------------------- |  | ----
|Item |  |                                                                                                                     |  | Page
|1.   |  | Financial Statements                                                                                                |  |     
|     |  |                                                                                                                    
|     |  | Condensed Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005                                     |  | 1   
|     |  |                                                                                                                    
|     |  | Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2005           |  | 2   
|     |  |                                                                                                                    
|     |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005                     |  | 3   
|     |  |                                                                                                                    
|     |  | Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2006 and 2005 |  | 4   
|     |  |                                                                                                                    
|     |  | Notes to Condensed Consolidated Financial Statements                                                                |  | 5   
|     |  |                                                                                                                    
|2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                               |  | 14  
|     |  |                                                                                                                    
|3.   |  | Quantitative and Qualitative Disclosures about Market Risk.                                                         |  | 24  
|     |  |                                                                                                                    
|4.   |  | Controls and Procedures.                                                                                            |  | 24  
|     |  |                                                                                                                    
|     |  | PART II                                                                                                             |  |     
|     |  |                                                                                                                    
|1.   |  | Legal Proceedings                                                                                                   |  | 25  
|     |  |                                                                                                                    
|1A.  |  | Risk Factors                                                                                                        |  | 25  
|     |  |                                                                                                                    
|2.   |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                         |  | 32  
|     |  |                                                                                                                    
|3.   |  | Defaults Upon Senior Securities                                                                                     |  | 32  
|     |  |                                                                                                                    
|4.   |  | Submission of Matters to a Vote of Security Holders                                                                 |  | 32  
|     |  |                                                                                                                    
|5.   |  | Other Information                                                                                                   |  | 33  
|     |  |                                                                                                                    
|6.   |  | Exhibits                                                                                                            |  | 33  



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##### Table of Contents

T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except for share amounts)



|                                                                                                                                                                                                                                                             |  |               |         |   |                   |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                                                                                                             |  | June 30, 2006 |         |   | December 31, 2005 |  
|                                                                                                                                                                                                                                                             |  | (unaudited)   |         |   |                   |  
|ASSETS                                                                                                                                                                                                                                                       |  |               |         |   |                   |   |         |  
|Current assets:                                                                                                                                                                                                                                              |  |               |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                                                    |  | $             | 1,730   |   |                   | $ | 1,162   |  
|Accounts receivable  trade, net                                                                                                                                                                                                                             |  |               | 25,021  |   |                   |   | 21,527  |  
|Inventories                                                                                                                                                                                                                                                  |  |               | 25,313  |   |                   |   | 18,268  |  
|Notes receivable, current portion                                                                                                                                                                                                                            |  |               | 746     |   |                   |   | 480     |  
|Deferred income taxes                                                                                                                                                                                                                                        |  |               | 2,018   |   |                   |   | 1,731   |  
|Prepaids and other current assets                                                                                                                                                                                                                            |  |               | 1,338   |   |                   |   | 5,887   |  
|                                                                                                                                                                                                                                                             |  |               |         |   |                   |   |         |  
|Total current assets                                                                                                                                                                                                                                         |  |               | 56,166  |   |                   |   | 49,055  |  
|                                                                                                                                                                                                                                                             |  |              
|Property and equipment, net                                                                                                                                                                                                                                  |  |               | 22,717  |   |                   |   | 18,652  |  
|Notes receivable, less current portion                                                                                                                                                                                                                       |  |               | 35      |   |                   |   | 327     |  
|Goodwill, net                                                                                                                                                                                                                                                |  |               | 71,138  |   |                   |   | 69,607  |  
|Other intangible assets, net                                                                                                                                                                                                                                 |  |               | 2,807   |   |                   |   | 2,325   |  
|Other assets                                                                                                                                                                                                                                                 |  |               | 846     |   |                   |   | 822     |  
|                                                                                                                                                                                                                                                             |  |               |         |   |                   |   |         |  
|Total assets                                                                                                                                                                                                                                                 |  | $             | 153,709 |   |                   | $ | 140,788 |  
|                                                                                                                                                                                                                                                             |  |               |         |   |                   |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                         |  |               |         |   |                   |   |         |  
|Current liabilities:                                                                                                                                                                                                                                         |  |               |         |   |                   |   |         |  
|Accounts payable  trade                                                                                                                                                                                                                                     |  | $             | 13,653  |   |                   | $ | 12,943  |  
|Accrued expenses and other                                                                                                                                                                                                                                   |  |               | 9,979   |   |                   |   | 9,439   |  
|Current maturities of long-term debt                                                                                                                                                                                                                         |  |               | 12      |   |                   |   | 36      |  
|                                                                                                                                                                                                                                                             |  |               |         |   |                   |   |         |  
|Total current liabilities                                                                                                                                                                                                                                    |  |               | 23,644  |   |                   |   | 22,418  |  
|                                                                                                                                                                                                                                                             |  |              
|Long-term debt, less current maturities                                                                                                                                                                                                                      |  |               | 8,031   |   |                   |   | 7,058   |  
|Other long-term liabilities                                                                                                                                                                                                                                  |  |               | 58      |   |                   |   | 82      |  
|Deferred income taxes                                                                                                                                                                                                                                        |  |               | 3,286   |   |                   |   | 2,018   |  
|                                                                                                                                                                                                                                                             |  |              
|Commitments and contingencies                                                                                                                                                                                                                                |  |               |         |   |                   |   |         |  
|                                                                                                                                                                                                                                                             |  |              
|Stockholders equity:                                                                                                                                                                                                                                        |  |               |         |   |                   |   |         |  
|Preferred stock, $.001 par value, 5,000,000 and 25,000,000 shares authorized at June 30, 2006 and December 31, 2005, respectively,
no shares issued or outstanding                                                                                           |  |               |        |   |                   |   |        |  
|Common stock, $.001 par value, 20,000,000 and 25,000,000 shares authorized at June 30, 2006 and December 31, 2005, respectively,
10,700,324 shares issued and outstanding at June 30, 2006 and 10,581,986 shares issued and outstanding at December 31, 2005 |  |               | 11      |   |                   |   | 11      |  
|Warrants, 327,862 issued and outstanding at June 30, 2006 and 332,862 issued and outstanding at December 31, 2005                                                                                                                                            |  |               | 644     |   |                   |   | 644     |  
|Additional paid-in capital                                                                                                                                                                                                                                   |  |               | 124,117 |   |                   |   | 123,175 |  
|Retained deficit                                                                                                                                                                                                                                             |  |               | (7,301  | ) |                   |   | (15,420 | )
|Accumulated other comprehensive income                                                                                                                                                                                                                       |  |               | 1,219   |   |                   |   | 802     |  
|                                                                                                                                                                                                                                                             |  |               |         |   |                   |   |         |  
|Total stockholders equity                                                                                                                                                                                                                                   |  |               | 118,690 |   |                   |   | 109,212 |  
|                                                                                                                                                                                                                                                             |  |               |         |   |                   |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                   |  | $             | 153,709 |   |                   | $ | 140,788 |  
|                                                                                                                                                                                                                                                             |  |               |         |   |                   |   |         |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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##### Table of Contents

T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands except per share amounts)



|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                    |  | Three Months Ended June 30, |        |   | Six Months Ended June 30, |  
|                                                                    |  | 2006                        |        |   | 2005                      |   |        | 2006 |  |   | 2005   |  
|Revenues:                                                           |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Products                                                            |  | $                           | 28,463 |   |                           | $ | 13,985 |      |  | $ | 53,464 |   |  | $ | 25,090 |  
|Services                                                            |  |                             | 9,602  |   |                           |   | 11,054 |      |  |   | 20,284 |   |  |   | 19,731 |  
|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|                                                                    |  |                             | 38,065 |   |                           |   | 25,039 |      |  |   | 73,748 |   |  |   | 44,821 |  
|                                                                    |  |                             |        |  
|Cost of revenues:                                                   |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Products                                                            |  |                             | 18,575 |   |                           |   | 8,678  |      |  |   | 35,139 |   |  |   | 16,453 |  
|Services                                                            |  |                             | 5,375  |   |                           |   | 6,683  |      |  |   | 11,370 |   |  |   | 12,284 |  
|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|                                                                    |  |                             | 23,950 |   |                           |   | 15,361 |      |  |   | 46,509 |   |  |   | 28,737 |  
|                                                                    |  |                             |        |  
|Gross profit                                                        |  |                             | 14,115 |   |                           |   | 9,678  |      |  |   | 27,239 |   |  |   | 16,084 |  
|                                                                    |  |                             |        |  
|Operating expenses                                                  |  |                             | 7,426  |   |                           |   | 5,354  |      |  |   | 14,333 |   |  |   | 10,136 |  
|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Income from operations                                              |  |                             | 6,689  |   |                           |   | 4,324  |      |  |   | 12,906 |   |  |   | 5,948  |  
|                                                                    |  |                             |        |  
|Interest expense                                                    |  |                             | 254    |   |                           |   | 677    |      |  |   | 510    |   |  |   | 1,073  |  
|                                                                    |  |                             |        |  
|Interest income                                                     |  |                             | (6     | ) |                           |   | (31    | )    |  |   | (12    | ) |  |   | (54    | )
|                                                                    |  |                             |        |  
|Other (income) expense, net                                         |  |                             | (392   | ) |                           |   | 4      |      |  |   | (476   | ) |  |   | 29     |  
|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Income from continuing operations before provision for income taxes |  |                             | 6,833  |   |                           |   | 3,674  |      |  |   | 12,884 |   |  |   | 4,900  |  
|                                                                    |  |                             |        |  
|Provision for income taxes                                          |  |                             | 2,448  |   |                           |   | 1,310  |      |  |   | 4,635  |   |  |   | 1,838  |  
|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Income from continuing operations                                   |  |                             | 4,385  |   |                           |   | 2,364  |      |  |   | 8,249  |   |  |   | 3,062  |  
|                                                                    |  |                             |        |  
|Income (loss) from discontinued operations, net of tax              |  |                             | (50    | ) |                           |   | 3      |      |  |   | (130   | ) |  |   | 75     |  
|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net income                                                          |  | $                           | 4,335  |   |                           | $ | 2,367  |      |  | $ | 8,119  |   |  | $ | 3,137  |  
|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Basic earnings (loss) per common share:                             |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Continuing operations                                               |  | $                           | .41    |   |                           | $ | .22    |      |  | $ | .78    |   |  | $ | .29    |  
|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Discontinued operations                                             |  | $                           |       |   |                           | $ |       |      |  | $ | (.01   | ) |  | $ | .01    |  
|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net income (loss) per common share                                  |  | $                           | .41    |   |                           | $ | .22    |      |  | $ | .77    |   |  | $ | .30    |  
|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Diluted earnings (loss) per common share:                           |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Continuing operations                                               |  | $                           | .40    |   |                           | $ | .22    |      |  | $ | .76    |   |  | $ | .29    |  
|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Discontinued operations                                             |  | $                           |       |   |                           | $ |       |      |  | $ | (.01   | ) |  | $ | .01    |  
|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net income (loss) per common share                                  |  | $                           | .40    |   |                           | $ | .22    |      |  | $ | .75    |   |  | $ | .30    |  
|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Weighted average common shares outstanding:                         |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                               |  |                             | 10,593 |   |                           |   | 10,582 |      |  |   | 10,588 |   |  |   | 10,582 |  
|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                             |  |                             | 10,960 |   |                           |   | 10,620 |      |  |   | 10,819 |   |  |   | 10,624 |  
|                                                                    |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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##### Table of Contents

T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)



|                                                                                  |  |                           |        |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                  |  | Six Months Ended June 30, |       
|                                                                                  |  | 2006                      |        |   | 2005 |  
|Cash flows from operating activities:                                             |  |                           |        |   |      |   |         |  
|Net income                                                                        |  | $                         | 8,119  |   |      | $ | 3,137   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |        |   |      |   |         |  
|(Income) loss from discontinued operations, net of tax                            |  |                           | 130    |   |      |   | (75     | )
|Bad debt expense                                                                  |  |                           | 43     |   |      |   | 48      |  
|Depreciation and amortization                                                     |  |                           | 1,654  |   |      |   | 1,617   |  
|Amortization of deferred loan costs                                               |  |                           | 124    |   |      |   | 173     |  
|Write-off of deferred loan costs                                                  |  |                           |       |   |      |   | 370     |  
|Loss on sale of assets                                                            |  |                           | 13     |   |      |   | 24      |  
|Deferred taxes                                                                    |  |                           | 947    |   |      |   | 265     |  
|Employee stock-based compensation expense                                         |  |                           | 721    |   |      |   |        |  
|Amortization of stock compensation                                                |  |                           | 1      |   |      |   | 3       |  
|Changes in assets and liabilities:                                                |  |                           |        |   |      |   |         |  
|Accounts receivable  trade                                                       |  |                           | (3,004 | ) |      |   | (3,450  | )
|Inventories                                                                       |  |                           | (6,928 | ) |      |   | (3,389  | )
|Prepaids and other current assets                                                 |  |                           | 4,553  |   |      |   | 1,898   |  
|Other assets                                                                      |  |                           | (157   | ) |      |   | (109    | )
|Accounts payable  trade                                                          |  |                           | 485    |   |      |   | 2,056   |  
|Accrued expenses and other                                                        |  |                           | 172    |   |      |   | 497     |  
|                                                                                  |  |                           |        |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                           | 6,873  |   |      |   | 3,065   |  
|                                                                                  |  |                           |        |   |      |   |         |  
|Cash flows from investing activities:                                             |  |                           |        |   |      |   |         |  
|Purchases of property and equipment                                               |  |                           | (5,229 | ) |      |   | (747    | )
|Proceeds from sales of property and equipment                                     |  |                           | 144    |   |      |   | 52      |  
|Cash paid for acquisitions, net of cash acquired                                  |  |                           | (2,248 | ) |      |   |        |  
|Collections on notes receivable                                                   |  |                           | 26     |   |      |   | 696     |  
|                                                                                  |  |                           |        |   |      |   |         |  
|Net cash provided by (used in) investing activities                               |  |                           | (7,307 | ) |      |   | 1       |  
|                                                                                  |  |                           |        |   |      |   |         |  
|Cash flows from financing activities:                                             |  |                           |        |   |      |   |         |  
|Net borrowings (repayments) under revolving credit facility                       |  |                           | 973    |   |      |   | 10,128  |  
|Payments on long-term debt                                                        |  |                           | (24    | ) |      |   | (15,022 | )
|Proceeds from exercise of stock options                                           |  |                           | 142    |   |      |   |        |  
|Excess tax benefits from stock-based compensation                                 |  |                           | 78     |   |      |   |        |  
|                                                                                  |  |                           |        |   |      |   |         |  
|Net cash provided by (used in) financing activities                               |  |                           | 1,169  |   |      |   | (4,894  | )
|                                                                                  |  |                           |        |   |      |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                      |  |                           | (34    | ) |      |   | 17      |  
|                                                                                  |  |                           |        |   |      |   |         |  
|Cash flows of discontinued operations (Revised  See note 1):                     |  |                           |        |   |      |   |         |  
|Operating cash flows                                                              |  |                           | (133   | ) |      |   | 2,115   |  
|Investing cash flows                                                              |  |                           |       |   |      |   | (86     | )
|Financing cash flows                                                              |  |                           |       |   |      |   |        |  
|                                                                                  |  |                           |        |   |      |   |         |  
|Net cash provided by (used in) discontinued operations                            |  |                           | (133   | ) |      |   | 2,029   |  
|                                                                                  |  |                           |        |   |      |   |         |  
|Net increase in cash and cash equivalents                                         |  |                           | 568    |   |      |   | 218     |  
|Cash and cash equivalents, beginning of period                                    |  |                           | 1,162  |   |      |   | 95      |  
|                                                                                  |  |                           |        |   |      |   |         |  
|Cash and cash equivalents, end of period                                          |  | $                         | 1,730  |   |      | $ | 313     |  
|                                                                                  |  |                           |        |   |      |   |         |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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##### Table of Contents

T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

(in thousands)



|                                        |  |                             |       |      |                           |       |      |  |      |       |  |   |       |  
|--------------------------------------- |  | --------------------------- | ----- | ---- | ------------------------- | ----- | ---- |  | ---- | ----- |  | - | ----- | -
|                                        |  | Three Months Ended June 30, |       |      | Six Months Ended June 30, |      
|                                        |  | 2006                        |       | 2005 |                           |       | 2006 |  | 2005 |      
|Net income                              |  | $                           | 4,335 |      | $                         | 2,367 |      |  | $    | 8,119 |  | $ | 3,137 |  
|                                        |  |                             |       |     
|Other comprehensive income (loss):      |  |                             |       |      |                           |       |      |  |      |       |  |   |       |  
|Foreign currency translation adjustment |  |                             | 424   |      |                           | (78   | )    |  |      | 417   |  |   | (197  | )
|                                        |  |                             |       |      |                           |       |      |  |      |       |  |   |       |  
|Comprehensive income                    |  | $                           | 4,759 |      | $                         | 2,289 |      |  | $    | 8,536 |  | $ | 2,940 |  
|                                        |  |                             |       |      |                           |       |      |  |      |       |  |   |       |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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##### Table of Contents

T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form
10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. These financial statements include the accounts of T-3 Energy Services, Inc. and its subsidiaries (collectively, T-3
or the Company). All significant intercompany balances and transactions have been eliminated in consolidation. Operating results for the three and six months ended June 30, 2006, are not necessarily indicative of the results that
may be expected for the year ended December 31, 2006. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31,
2005. Certain reclassifications were made to previously reported amounts in the condensed consolidated financial statements and notes to reflect discontinued operations as discussed in Note 2 and to make them consistent with the current presentation
format. On the accompanying condensed consolidated statements of cash flows, the Company has also reclassified collections on notes receivable from net cash provided by operating activities to net cash provided by (used in) investing activities. In
addition, the Company has separately disclosed the operating, investing and financing portions of the cash flows attributable to its discontinued operations, which in prior periods were reported on a combined basis as a single amount.

Stock-Based Compensation

In December 2004, the
Financial Accounting Standards Board (FASB) issued SFAS No. 123 (Revised 2004) Share-Based Payment (SFAS 123R). SFAS 123R addresses the accounting for all share-based payment awards, including shares issued under
employee stock purchase plans, stock options, restricted stock and stock appreciation rights. Under the new standard, companies are no longer able to account for share-based compensation transactions using the intrinsic value method in accordance
with Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees and related interpretations. Under the intrinsic method, no stock-based employee compensation cost was recognized in the
condensed consolidated statement of operations for the three and six months ended June 30, 2005, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.
Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123R using the modified-prospective transition method. Under that transition method, compensation cost recognized in 2006 includes:
(a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, Accounting
for Stock-Based Compensation (SFAS 123), and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS
123R.

New Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for
uncertainty in income taxes recognized in accordance with FASB Statement No. 109 (SFAS 109). FIN 48 clarifies the application of SFAS 109 by defining criteria that an individual tax position must meet for any part of the benefit of
that position to be recognized in the financial statements. Additionally, FIN 48 provides guidance on the measurement, derecognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. The
provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. Management is currently evaluating
the impact the adoption of FIN 48 will have on the Companys financial position, results of operations and cash flows.



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2. BUSINESS COMBINATIONS AND DISPOSITIONS

Business Combinations

On January 12, 2006, the Company completed the purchase of KC Machine LLC
for approximately $2.5 million, of which $0.3 million is payable one year from the acquisition date subject to a post-closing working capital adjustment. KC Machine is located in Rock Springs, Wyoming and is a full service facility that maintains
and repairs drilling rigs (both oil and gas) and related support equipment. The acquisition of KC Machine continues the Companys expansion of its pressure and flow control, wellhead and pipeline products and services to those existing and new
customers who are located in the Rocky Mountain region. The acquisition was funded from the Companys working capital and the use of its senior credit facility.

The acquisition discussed above was accounted for using the purchase method of accounting. Results of operations for the above acquisition are included in the accompanying condensed consolidated financial statements
since the date of acquisition. The purchase price was allocated to the net assets acquired based upon their estimated fair market values at the date of acquisition. The balances included in the condensed consolidated balance sheet at June 30,
2006 related to the above acquisition are based upon preliminary information and are subject to change when final asset and liability valuations are determined. Final valuations of assets and liabilities will be determined and recorded within one
year from the date of acquisition. Material changes to the preliminary allocations are not anticipated by management. The KC Machine acquisition is not material to the Companys condensed consolidated financial statements, and therefore pro
forma information is not presented.

The following schedule summarizes investing activities related to the Companys acquisitions
presented in the condensed consolidated statements of cash flows for the six months ended June 30, 2006 (dollars in thousands):



|                                                                   |  |   |       |  
|------------------------------------------------------------------ |  | - | ----- | -
|Fair value of tangible and intangible assets, net of cash acquired |  | $ | 1,327 |  
|Goodwill recorded                                                  |  |   | 1,309 |  
|Total liabilities assumed                                          |  |   | (388  | )
|Common stock issued                                                |  |   |      |  
|                                                                   |  |   |       |  
|Cash paid for acquisitions, net of cash acquired                   |  | $ | 2,248 |  
|                                                                   |  |   |       |  

Dispositions

During 2004 and 2005, the Company sold substantially all of the assets of its products and distribution segments, respectively. The assets of the products and distribution segments sold constituted businesses and thus
their results of operations have been reported as discontinued operations during 2006 and 2005. The Company now operates under the one remaining historical reporting segment, pressure control. Accordingly, all historical segment results reflect this
operating structure.

Net revenues from discontinued operations for the three months ended June 30, 2006 and 2005 were $0 and $9.1
million, respectively. For the same periods, income (loss) before provision (benefit) for income taxes from discontinued operations was approximately $(0.1) million and $0.1 million, respectively. Net revenues from discontinued operations for the
six months ended June 30, 2006 and 2005 were $0 and $18.7 million, respectively. For the same periods, income (loss) before provision (benefit) for income taxes from discontinued operations was approximately $(0.2) million and $0.2 million,
respectively. Included in the income before provision for income taxes for the three and six months ended June 30, 2005 is interest expense of $0.2 million and $0.3 million, respectively. The Companys senior credit facility requires the
receipt of net cash proceeds from significant dispositions to be applied against outstanding principal balances. The Companys policy is to only allocate interest to discontinued operations for interest on debt that is required to be repaid as
a result of a disposal transaction or interest on debt that is assumed by the buyer. As a result, interest expense was allocated to discontinued operations for the period October 1, 2004 through June 30, 2005.



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3. INVENTORIES

Inventories consist of the following (dollars in thousands):



|                                   |  |               |        |                   |   |       
|---------------------------------- |  | ------------- | ------ | ----------------- | - | ------
|                                   |  | June 30, 2006 |        | December 31, 2005
|Raw materials                      |  | $             | 5,404  |                   | $ | 4,420 
|Work in process                    |  |               | 11,765 |                   |   | 6,891 
|Finished goods and component parts |  |               | 8,144  |                   |   | 6,957 
|                                   |  |               |        |                   |   |       
|                                   |  | $             | 25,313 |                   | $ | 18,268
|                                   |  |               |        |                   |   |       

4. DEBT

The Companys senior credit facility provides for a $50 million revolving line of credit, maturing September 30, 2007, that can be increased by up to $25 million (not to exceed a total commitment of $75
million). The senior credit facility consists of a revolving credit facility that includes a swing line subfacility up to $5 million and a letter of credit subfacility up to $5 million. During August 2005, the Company amended its senior credit
facility to provide for a separate Canadian revolving credit facility, which includes a revolving loan subfacility and a letter of credit subfacility of up to an aggregate of U.S. $4.0 million. The revolving credit facility matures on the same date
as the senior credit facility, and is subject to the same covenants and restrictions. During April 2006, the Company entered into an amendment to its senior credit facility increasing the amount of capital expenditures that the Company may make in a
fiscal year from 25% of EBITDA of the Company for the immediately preceding fiscal year to $15 million, and the minimum expiration date for letters of credit from two years after the date of issuance to three years after the date of issuance. As of
June 30, 2006, the Company had $8.0 million borrowed under its senior credit facility and there were no outstanding borrowings under the Canadian revolving credit facility. See Note 8 to the Companys consolidated financial statements
included in the Companys Annual Report on Form 10-K for the year ended December 31, 2005 for additional information related to the Companys debt.

5. EARNINGS (LOSS) PER SHARE

Basic income from continuing operations per common share is computed by dividing income from
continuing operations by the weighted average number of common shares outstanding during the period. Diluted income from continuing operations per common share is computed in the same manner but includes dilutive stock options, restricted stock and
warrants using the treasury stock method.

The following tables reconcile the numerators and denominators of the basic and diluted per
common share computations for net income for the three and six months ended June 30, 2006 and 2005, as follows (in thousands except per share data):



|                                                                             |  |                             |        |   |      |   |       
|---------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------
|                                                                             |  | Three Months Ended June 30,
|                                                                             |  | 2006                        |        |   | 2005
|Numerator:                                                                   |  |                             |        |   |      |   |       
|Income from continuing operations                                            |  | $                           | 4,385  |   |      | $ | 2,364 
|Income (loss) from discontinued operations                                   |  |                             | (50    | ) |      |   | 3     
|                                                                             |  |                             |        |   |      |   |       
|Net income                                                                   |  | $                           | 4,335  |   |      | $ | 2,367 
|                                                                             |  |                             |        |   |      |   |       
|Denominator:                                                                 |  |                             |        |   |      |   |       
|Weighted average common shares outstanding  basic                           |  |                             | 10,593 |   |      |   | 10,582
|Shares for dilutive stock options, restricted stock and warrants             |  |                             | 367    |   |      |   | 38    
|                                                                             |  |                             |        |   |      |   |       
|Weighted average common shares outstanding and assumed conversions  diluted |  |                             | 10,960 |   |      |   | 10,620
|                                                                             |  |                             |        |   |      |   |       
|Basic earnings (loss) per common share:                                      |  |                             |        |   |      |   |       
|Continuing operations                                                        |  | $                           | .41    |   |      | $ | .22   
|Discontinued operations                                                      |  |                             |       |   |      |   |      
|                                                                             |  |                             |        |   |      |   |       
|Net income per common share                                                  |  | $                           | .41    |   |      | $ | .22   
|                                                                             |  |                             |        |   |      |   |       
|Diluted earnings (loss) per common share:                                    |  |                             |        |   |      |   |       
|Continuing operations                                                        |  | $                           | .40    |   |      | $ | .22   
|Discontinued operations                                                      |  |                             |       |   |      |   |      
|                                                                             |  |                             |        |   |      |   |       
|Net income per common share                                                  |  | $                           | .40    |   |      | $ | .22   
|                                                                             |  |                             |        |   |      |   |       



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For the three months ended June 30, 2006, there were 5,325 options, 25,000 shares of restricted
stock and 0 warrants that were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive. For the three months ended June 30, 2005, there were 159,336 options and 327,862 warrants that
were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive.



|                                                                             |  |                           |        |   |      |   |       
|---------------------------------------------------------------------------- |  | ------------------------- | ------ | - | ---- | - | ------
|                                                                             |  | Six Months Ended June 30,
|                                                                             |  | 2006                      |        |   | 2005
|Numerator:                                                                   |  |                           |        |   |      |   |       
|Income from continuing operations                                            |  | $                         | 8,249  |   |      | $ | 3,062 
|Income (loss) from discontinued operations                                   |  |                           | (130   | ) |      |   | 75    
|                                                                             |  |                           |        |   |      |   |       
|Net income                                                                   |  | $                         | 8,119  |   |      | $ | 3,137 
|                                                                             |  |                           |        |   |      |   |       
|Denominator:                                                                 |  |                           |        |   |      |   |       
|Weighted average common shares outstanding  basic                           |  |                           | 10,588 |   |      |   | 10,582
|Shares for dilutive stock options, restricted stock and warrants             |  |                           | 231    |   |      |   | 42    
|                                                                             |  |                           |        |   |      |   |       
|Weighted average common shares outstanding and assumed conversions  diluted |  |                           | 10,819 |   |      |   | 10,624
|                                                                             |  |                           |        |   |      |   |       
|Basic earnings (loss) per common share:                                      |  |                           |        |   |      |   |       
|Continuing operations                                                        |  | $                         | .78    |   |      | $ | .29   
|Discontinued operations                                                      |  |                           | (.01   | ) |      |   | .01   
|                                                                             |  |                           |        |   |      |   |       
|Net income per common share                                                  |  | $                         | .77    |   |      | $ | .30   
|                                                                             |  |                           |        |   |      |   |       
|Diluted earnings (loss) per common share:                                    |  |                           |        |   |      |   |       
|Continuing operations                                                        |  | $                         | .76    |   |      | $ | .29   
|Discontinued operations                                                      |  |                           | (.01   | ) |      |   | .01   
|                                                                             |  |                           |        |   |      |   |       
|Net income per common share                                                  |  | $                         | .75    |   |      | $ | .30   
|                                                                             |  |                           |        |   |      |   |       

For the six months ended June 30, 2006, there were 5,325 options, 25,000 shares of restricted
stock and 0 warrants that were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive. For the six months ended June 30, 2005, there were 159,336 options and 327,862 warrants that
were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive.

6. SEGMENT INFORMATION

The Companys determination of reportable segments considers the strategic operating units under which the Company sells various
types of products and services to various customers. Financial information for purchase transactions is included in the segment disclosures only for periods subsequent to the dates of acquisition.

As discussed in Note 2, the Company sold substantially all of the assets of its products and distribution segments, and accordingly, their results of
operations for 2006 and 2005 have been reported as discontinued operations. In connection with the disposition of the distribution segment, the Company reviewed its presentation of segment information and concluded that it has one reporting segment,
pressure control. This segment classification is based on aggregation criteria defined in SFAS No. 131. Management now evaluates



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the operating results of its pressure control reporting segment based upon its three product lines: pressure and flow control, wellhead and pipeline. The
Companys operating segments of pressure and flow control, wellhead and pipeline have been aggregated into one reporting segment as the operating segments have the following commonalities: economic characteristics, nature of the products and
services, type or class of customer, and methods used to distribute their products and provide services. The pressure control segment manufactures, remanufactures and repairs high pressure, severe service products including valves, chokes,
actuators, blowout preventers, manifolds and wellhead equipment; manufactures accumulators and rubber goods; and applies custom coating to customers products used primarily in the oil and gas industry.

The accounting policies of the segment are the same as those of the Company. The Company evaluates performance based on income from operations excluding
certain corporate costs not allocated to the segment. Substantially all revenues are from domestic sources and Canada and all assets are held in the United States and Canada.



|                              |  |                        |        |           |   |        |              |  |   |       
|----------------------------- |  | ---------------------- | ------ | --------- | - | ------ | ------------ |  | - | ------
|                              |  | (dollars in thousands)
|                              |  | Pressure Control       |        | Corporate |   |        | Consolidated
|Three months ended June 30:   |  |                        |        |           |   |        |              |  |   |       
|2006                          |  |                        |        |           |   |        |              |  |   |       
|Revenues                      |  | $                      | 38,065 |           | $ |       |              |  | $ | 38,065
|Depreciation and amortization |  |                        | 600    |           |   | 247    |              |  |   | 847   
|Income (loss) from operations |  |                        | 9,400  |           |   | (2,711 | )            |  |   | 6,689 
|Capital expenditures          |  |                        | 2,191  |           |   | 545    |              |  |   | 2,736 
|2005                          |  |                        |        |           |   |        |              |  |   |       
|Revenues                      |  | $                      | 25,039 |           | $ |       |              |  | $ | 25,039
|Depreciation and amortization |  |                        | 603    |           |   | 200    |              |  |   | 803   
|Income (loss) from operations |  |                        | 6,128  |           |   | (1,804 | )            |  |   | 4,324 
|Capital expenditures          |  |                        | 164    |           |   | 162    |              |  |   | 326   
|                              | 
|                              |  | (dollars in thousands)
|                              |  | Pressure Control       |        | Corporate |   |        | Consolidated
|Six months ended June 30:     |  |                        |        |           |   |        |              |  |   |       
|2006                          |  |                        |        |           |   |        |              |  |   |       
|Revenues                      |  | $                      | 73,748 |           | $ |       |              |  | $ | 73,748
|Depreciation and amortization |  |                        | 1,180  |           |   | 474    |              |  |   | 1,654 
|Income (loss) from operations |  |                        | 18,207 |           |   | (5,301 | )            |  |   | 12,906
|Capital expenditures          |  |                        | 4,565  |           |   | 664    |              |  |   | 5,229 
|2005                          |  |                        |        |           |   |        |              |  |   |       
|Revenues                      |  | $                      | 44,821 |           | $ |       |              |  | $ | 44,821
|Depreciation and amortization |  |                        | 1,220  |           |   | 397    |              |  |   | 1,617 
|Income (loss) from operations |  |                        | 9,127  |           |   | (3,179 | )            |  |   | 5,948 
|Capital expenditures          |  |                        | 529    |           |   | 218    |              |  |   | 747   

7. COMMITMENTS AND CONTINGENCIES

The Company is, from time to time, involved in various legal actions arising in the normal course of business. In December 2001, a lawsuit was filed
against the Company in the 14thJudicial District Court of Calcasieu Parish, Louisiana. The lawsuit alleges that
certain equipment purchased from and installed by a wholly owned subsidiary of the Company was defective in assembly and installation. The plaintiffs have alleged certain damages in excess of $5 million related to repairs and activities associated
with the product failure and have also claimed unspecified damages with respect to certain expenses, loss of production and damage to the reservoir.

In June 2003, a lawsuit was filed against the Company in the 61stJudicial District
of Harris County, Texas. The lawsuit alleges that certain equipment purchased from and installed by a wholly owned subsidiary of the Company was defective. The plaintiffs initially alleged repair and replacement damages of $0.3 million. During the
three months ended June 30, 2005, the plaintiffs alleged production damages in the range of $3 to $5 million.

The Company has
tendered the defense of these claims under its comprehensive general liability insurance



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policy and its umbrella policy. Management does not believe that the outcomes of such legal actions involving the Company will have a material adverse effect
on the Companys financial position, results of operations, or cash flows.

In July 2003, a lawsuit was filed against the Company in
the U.S. District Court, Eastern District of Louisiana. The lawsuit alleges that a wholly owned subsidiary of the Company failed to deliver the proper bolts and/or sold defective bolts to the plaintiffs contractor to be used in connection with
a drilling and production platform in the Gulf of Mexico. The plaintiffs claim that the bolts failed and they had to replace all bolts at a cost of approximately $4 million. The complaint names the plaintiffs contractor and seven of its
suppliers and subcontractors (including the Companys subsidiary) as the defendants and alleges negligence on the part of all defendants. The Company has filed its motion to dismiss the lawsuit, denying responsibility for the claim. The Company
has also filed a cross claim against its supplier. Discovery is ongoing in this lawsuit, which is scheduled to be mediated in August 2006 and tried to the court beginning in October 2006. Management does not believe that the outcome of such legal
action will have a material adverse effect on the Companys financial position, results of operations, or cash flows.

The
Companys environmental remediation and compliance costs have not been material during any of the periods presented. T-3 has been identified as a potentially responsible party with respect to one site designated for cleanup under the
Comprehensive Environmental Response Compensation and Liability Act and similar state laws. The Companys involvement at this site is believed to have been minimal. Because it is early in the process, no determination of the Companys
actual liability can be made at this time. As such, management has not currently accrued for any future remediation costs related to this site. However, based upon the Companys involvement with this site, management does not expect that its
share of remediation costs will have a material impact on its financial position, results of operations or cash flows.

On October 26,
2005, a shareholder derivative lawsuit (Berger v. Halas, et al., C.A. No. 1733-N) was filed in the Court of Chancery of the State of Delaware in New Castle County, against the Company (as a nominal defendant), Gus D. Halas, all other members of
the Companys Board of Directors, and First Reserve Fund VIII, L.P., the principal stockholder of the Company. This lawsuit relates to the filing by the Company of a preliminary registration statement on Form S-1 with the U.S. Securities and
Exchange Commission on October 21, 2005. The complaint alleges a breach of the duty of loyalty and a bad faith breach of the duty of full disclosure by all defendants. In addition, the complaint alleges that the payment of a transaction bonus
to Mr. Halas in connection with the offering contemplated by the preliminary registration statement would be improper. The plaintiff seeks a temporary and a permanent injunction against the proposed sale and the payment of the transaction
bonus. The plaintiff also seeks a judgment awarding costs and fees incurred in filing and prosecuting the case. On January 17, 2006, the Company announced a decision had been made not to proceed with the public offering. The Companys
obligation to pay the transaction bonus expired on January 31, 2006. Since that date, there has been no discovery or other prosecution of the claims by the plaintiff.

At June 30, 2006, the Company had no significant letters of credit outstanding.

8. STOCKHOLDERS EQUITY

Common Stock

The Company issued 118,338 shares of common stock during the six months ended June 30, 2006 as a result of 100,000 shares of restricted stock granted
to Gus D. Halas and 18,338 stock options exercised by employees under the Companys 2002 Stock Incentive Plan.

Warrants

During the six months ended June 30, 2006, warrants to acquire 5,000 shares of the Companys common stock expired unexercised. At June 30,
2006, warrants to acquire 327,862 shares of common stock at $12.80 per share remain outstanding. These outstanding warrants are currently exercisable and expire in December 2011.



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Additional Paid-In Capital

During the six months ended June 30, 2006, additional paid-in capital increased as a result of the compensation cost recorded under SFAS 123R, stock options exercised by employees under the Companys 2002
Stock Incentive Plan (as discussed above), and the excess tax benefits from the stock options exercised.

9. STOCK-BASED COMPENSATION

The T-3 Energy Services, Inc. 2002 Stock Incentive Plan, as amended (the Plan), provides officers, employees and non-employee directors equity-based
incentive awards, including stock options and restricted stock. The Plan will remain in effect for 10 years, unless terminated earlier. As of June 30, 2006, the Company had 2,000,000 shares reserved for issuance in connection with the Plan.

Prior to January 1, 2006, the Company accounted for the Plan under the recognition and measurement provisions of APB 25 and related
interpretations. No stock-based employee compensation cost was recognized in the condensed consolidated statement of operations for the three and six months ended June 30, 2005, as all options granted under the Plan had an exercise price equal
to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123R using the modified-prospective transition method. Under that transition
method, compensation cost recognized in 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the
original provisions of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. The Company
recognized $484,000 and $721,000 of employee stock-based compensation expense related to stock options and restricted stock during the three and six months ended June 30, 2006, respectively. The related income tax benefit recognized during the
three and six months ended June 30, 2006 was $165,000 and $245,000, respectively.

As a result of adopting SFAS 123R on
January 1, 2006, the Companys income from continuing operations before provision for income taxes and income from continuing operations were $484,000 and $319,000 lower, respectively, for the three months ended June 30, 2006, and
$721,000 and $476,000 lower, respectively, for the six months ended June 30, 2006, than if it had continued to account for share-based compensation under APB 25. The impact of adopting SFAS 123R on basic and diluted earnings per share were
reductions of $0.03 and $0.03, respectively, for the three months ended June 30, 2006, and $0.04 and $0.05, respectively, for the six months ended June 30, 2006.

The following table illustrates the effect on net income and earnings per common share if the Company had applied the fair value recognition provisions
of SFAS 123 to stock-based employee plans for the periods prior to January 1, 2006 (dollars in thousands, except per share data):



|                                                                                                                              |  |                                 |       |                                |   |      
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ----- | ------------------------------ | - | -----
|                                                                                                                              |  | Three Months EndedJune 30,
2005 |       | Six Months Ended June 30, 2005
|Net income, as reported                                                                                                       |  | $                               | 2,367 |                                | $ | 3,137
|Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects |  |                                 | 542   |                                |   | 476  
|                                                                                                                              |  |                                 |       |                                |   |      
|Net income, as adjusted                                                                                                       |  | $                               | 2,909 |                                | $ | 3,613
|                                                                                                                              |  |                                
|Basic EPS:                                                                                                                    |  |                                 |       |                                |   |      
|As reported                                                                                                                   |  | $                               | .22   |                                | $ | .30  
|As adjusted                                                                                                                   |  | $                               | .27   |                                | $ | .34  
|                                                                                                                              |  |                                
|Diluted EPS:                                                                                                                  |  |                                 |       |                                |   |      
|As reported                                                                                                                   |  | $                               | .22   |                                | $ | .30  
|As adjusted                                                                                                                   |  | $                               | .27   |                                | $ | .34  



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For the purpose of estimating the pro forma fair value disclosures above, the fair value of each stock
option has been estimated on the grant date with a Black-Scholes option pricing model. The following assumptions for the three and six months ended June 30, 2005 were computed on a weighted average basis: risk-free interest rate of 4.18% and
4.18%, respectively, expected volatility of 38.91% and 38.91%, respectively, expected life of 4 years for each period and no expected dividends. For the three and six months ended June 30, 2005, the effect on stock-based employee compensation
was a benefit due to forfeitures of 185,000 options during the three months ended June 30, 2005. Prior to adoption of SFAS 123R, forfeitures were accounted for as recognized when they actually occurred for the purpose of estimating the pro
forma fair value disclosures under SFAS 123.

Stock Option Awards

Stock options under the Companys Plan generally expire 10 years from the grant date and vest over three to four years from the grant date. The Company uses the Black-Scholes option pricing model to estimate the
fair value of stock options granted to employees on the date of grant. The estimated fair value of the options is amortized to expense on a straight-line basis over the vesting period. The Company has recorded an estimate for forfeitures of awards
of stock options. This estimate will be adjusted as actual forfeitures differ from the estimate. The fair value of each stock option is estimated on the grant date using the Black-Scholes option pricing model using the assumptions noted in the
following table. Expected volatility is based on historical volatility of the Companys stock. The expected term is based on external data from similar companies that grant awards with similar terms since the Company does not have historical
employee exercises of options. The risk-free interest rate is based upon the U.S. Treasury yield curve in effect at the time of grant. The Company does not expect to pay any dividends on its common stock.



|                         |  |                                  |   |  |                                |  
|------------------------ |  | -------------------------------- | - |  | ------------------------------ | -
|                         |  | Three Months Ended June 30, 2006 |   |  | Six Months Ended June 30, 2006 |  
|Expected volatility      |  | 52.79                            | % |  | 52.79                          | %
|Risk-free interest rate  |  | 4.42                             | % |  | 4.42                           | %
|Expected term (in years) |  | 4                                |   |  | 4                              |  

A summary of option activity under the Plan as of June 30, 2006, and changes during the six
months then ended is presented below:



|                                            |  |         |   |  |                                 |       |                                             |      |                           |   |      
|------------------------------------------- |  | ------- | - |  | ------------------------------- | ----- | ------------------------------------------- | ---- | ------------------------- | - | -----
|Options                                     |  | Shares  |   |  | Weighted Average Exercise Price |       | Weighted Average Remaining Contractual
Term |      | Aggregate Intrinsic Value
|                                            |  |         |   |  |                                 |       |                                             |      | (In Thousands)           
|Outstanding at January 1, 2006              |  | 536,053 |   |  | $                               | 8.99  |                                             |      |                           |   |      
|Granted                                     |  | 402,000 |   |  |                                 | 12.25 |                                             |      |                           |   |      
|Exercised                                   |  | (18,338 | ) |  |                                 | 7.77  |                                             |      |                           |   |      
|Forfeited                                   |  | (23,312 | ) |  |                                 | 8.45  |                                             |      |                           |   |      
|                                            |  |         |   |  |                                 |       |                                             |      |                           |   |      
|Outstanding at June 30, 2006                |  | 896,403 |   |  | $                               | 10.49 |                                             | 7.93 |                           | $ | 8,575
|                                            |  |         |   |  |                                 |       |                                             |      |                           |   |      
|Vested or expected to vest at June 30, 2006 |  | 861,562 |   |  | $                               | 10.50 |                                             | 7.89 |                           | $ | 8,259
|                                            |  |         |   |  |                                 |       |                                             |      |                           |   |      
|Exercisable at June 30, 2006                |  | 381,736 |   |  | $                               | 9.59  |                                             | 6.28 |                           | $ | 4,294
|                                            |  |         |   |  |                                 |       |                                             |      |                           |   |      

The weighted average grant date fair value of options granted during the six months ended
June 30, 2006 and 2005 was $5.58 and $2.81, respectively. There were no options granted during the three months ended June 30, 2006 and 2005. The intrinsic value of options exercised during the three and six months ended June 30, 2006
was $217,000 and $246,000, respectively. There were no options exercised during the three and six months ended June 30, 2005.

As of
June 30, 2006, total unrecognized compensation costs related to nonvested stock options was $2.0 million. This cost is expected to be recognized over a weighted average period of 2.0 years. The total fair value of stock options vested was $0.1
million and $0.1 million, respectively, during the three months ended June 30, 2006 and 2005, and $0.3 million and $0.4 million, respectively, during the six months ended June 30, 2006 and 2005.



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Restricted Stock Awards

On April 27, 2006, the Company and Gus D. Halas entered into two Restricted Stock Award Agreements (the Stock Agreements). The Stock Agreements each grant Mr. Halas 50,000 shares of the
Companys restricted common stock, or a total of 100,000 shares, effective January 12, 2006. The first 50,000 shares will vest on January 11, 2008, provided that Mr. Halas remains employed with the Company through this vesting
date. The fair value of these restricted shares was determined based on the closing price of the Companys stock on the grant date, April 27, 2006. The fair value is amortized to expense on a straight line basis over the vesting period. Of
the remaining 50,000 shares, 25,000 will vest on January 12, 2007 if the Companys common stock price has increased at least 25% from the closing price of the common stock on January 12, 2006, and 25,000 will vest on January 11,
2008 if the Companys common stock price has increased at least 25% from the closing price of the common stock on January 12, 2007, provided in both cases that Mr. Halas remains employed with the Company through the applicable vesting
date. If on each of the vesting dates, the Companys common stock price has not increased by at least 25%, then a pro rata portion of the shares shall be vested for any increase in the closing price of the common stock as determined on such
vesting date. The fair value of these restricted shares with market conditions was determined using a Monte Carlo simulation model. This model incorporates into the valuation the possibility that the market conditions may not be satisfied. The fair
value is amortized to expense over the vesting period, with approximately 60% of the expense being recorded by January 12, 2007 and the remaining 40% recorded subsequent to January 12, 2007.

A summary of the status of the Companys restricted stock awards as of June 30, 2006 and changes during the period then ended, is presented
below:



|                              |  |         |  |                                        |      
|----------------------------- |  | ------- |  | -------------------------------------- | -----
|Restricted Stock              |  | Shares  |  | Weighted Average Grant Date Fair
Value
|Non-Vested at January 1, 2006 |  |        |  | $                                      |     
|Granted                       |  | 100,000 |  |                                        | 17.60
|Vested                        |  |        |  |                                        |     
|Forfeited                     |  |        |  |                                        |     
|                              |  |         |  |                                        |      
|Non-Vested at June 30, 2006   |  | 100,000 |  | $                                      | 17.60
|                              |  |         |  |                                        |      

As of June 30, 2006, there was $1.5 million of total unrecognized compensation cost related
to the Companys restricted stock and that cost is expected to be recognized over a weighted average period of 1.1 years.



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##### Table of Contents

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The following discussion of our historical results of operations and financial condition for the three and six months ended
June 30, 2006 and 2005 should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and our financial statements and related managements discussion and analysis
of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2005.

We
have historically operated under three reporting segments; however, during 2004 and October 2005, we sold substantially all of the assets of our products and distribution segments, respectively. The products and distribution segments assets
sold constituted businesses and thus their results of operations have been reported as discontinued operations during 2006 and 2005. We are now focused on our pressure control business, and while service revenues remain an important component of our
revenue stream, we are focusing our attention on the products we design or manufacture, which we call original equipment products.

Our pressure control business has three product lines: pressure and flow control, wellhead and pipeline, which generated 72%, 18% and 10% of our total revenues, respectively, for the three months ended June 30, 2006, and 72%, 19% and
9% of our total revenues, respectively, for the six months ended June 30, 2006. We offer original equipment products and aftermarket parts and services for each product line. Original equipment products generated 65% and 61%, respectively, and
aftermarket parts and services generated 35% and 39%, respectively, of our total revenues for the three and six months ended June 30, 2006.

Recent
Developments

During January 2006, we acquired KC Machine LLC for approximately $2.5 million, of which $0.3 million is payable one year
from the acquisition date subject to a post-closing working capital adjustment. KC Machine is located in Rock Springs, Wyoming and is a full service facility that maintains and repairs drilling rigs (both oil and gas) and related support equipment.
During the second quarter of 2006, we also expanded into Casper, Wyoming by opening a facility to provide wellhead and pipeline products, repairs and field services. The acquisition of KC Machine, along with the new location in Casper, continues our
expansion of our pressure and flow control, wellhead and pipeline products and services to those existing and new customers who are located in the Rocky Mountain region.

During the first half of 2006, we expanded into the East Texas region by opening two facilities to provide wellhead and pipeline products, repairs and field services for oil and gas and pipeline production and
transmission companies whose operations are actively involved in the Cotton Valley, Barnett Shale and Austin Chalk field. We also opened a facility in Indianapolis, Indiana to provide pipeline products and services to existing and new customers
located in the Midwest region.

Strategy

Our strategy is to better position ourselves to capitalize on increased drilling activity in the oil and gas industry. We believe this increased activity will result in significant additional demand for our products and services. We intend
to:



| |  |  | Expand our manufacturing capacity through facility expansions and improvements. We are expanding our manufacturing capacity to increase the volume and number of products we
manufacture, with an emphasis on our pressure and flow control product line. We have invested approximately $3.3 million in the first half of 2006 on this expansion effort, which includes our expansion into East Texas, Casper and Indianapolis by
opening four facilities during that period. We expect to invest up to $6 million over the remainder of 2006 and 2007 on our future expansion plans, which include:
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increasing our existing BOP manufacturing capacity from ten to 25 units per month by upgrading and expanding our machining capabilities at our existing facilities;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | establishing manufacturing capacity for 12 multi-bowl wellhead units per month;
| | - |  | -------------------------------------------------------------------------------



| |  |  | opening one facility for our wellhead product line;
| | - |  | ---------------------------------------------------



| |  |  | opening two facilities for our pipeline product line; and
| | - |  | ---------------------------------------------------------



| |  |  | expanding our elastomer producing capacity in North America.
| | - |  | ------------------------------------------------------------



| |  |  | Continue new product development. Since April 2003, we have introduced 22 new products, and we will continue to focus on new product development across all of our product
lines, with a continued focus on pressure and flow control products and more recently on wellhead products. To support this effort, we presently have an engineering department staff consisting of 21 employees and contract personnel compared to seven
employees at June 30, 2005.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Expand our geographic areas of operation. We intend to expand our geographic areas of operation, with particular focus on field services for our wellhead and pipeline product
lines. We are expanding our wellhead and pipeline repair and remanufacturing services by establishing facilities in areas we believe will have high drilling activity, such as the Barnett Shale in North Texas, the Cotton Valley trend in the East
Texas Basin, the Fayetteville Shale in the Arkoma Basin, and the Rocky Mountain and Appalachian regions. For example, in the first half of 2006, we continued our expansion into the Rocky Mountain region by acquiring KC Machine LLC, located in Rock
Springs, Wyoming, and opening a facility in Casper, Wyoming. In addition, we expanded into the East Texas Region by opening two facilities and the Midwest region by opening a facility in Indianapolis, Indiana.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Pursue strategic acquisitions and alliances. Our acquisition strategy will focus on broadening our markets and existing product offerings. For example, in January 2006, we
acquired KC Machine LLC, located in Rock Springs, Wyoming. In addition, in July 2005, we entered into a joint participation agreement with SYMMSA, a subsidiary of GRUPO R, a conglomerate of companies that provides services to the energy and
industrial sectors in Mexico. We will continue to seek similar strategic acquisition and alliance opportunities in the future.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

How We
Generate Our Revenue

We design, manufacture, repair and service products used in the drilling and completion of new oil and gas wells,
the workover of existing wells, and the production and transportation of oil and gas. Our products are used in both onshore and offshore applications. Our customer base, which operates in active oil and gas basins throughout the world, consists of
leading drilling contractors, exploration and production companies and pipeline companies.

Our pressure control business has three product
lines: pressure and flow control, wellhead and pipeline. Within each of those product lines, we sell original equipment products and also provide aftermarket parts and services. Original equipment products are those we manufacture or have
manufactured for us by others who use our product designs. Aftermarket products and services include all remanufactured products and parts and repair and field services.

Demand for our pressure and flow control and wellhead products and services is driven by exploration and development activity levels, which in turn are directly related to current and anticipated oil and gas prices.
Demand for our pipeline products and services is driven by maintenance, repair and construction activities for pipeline, gathering and transmission systems.

We typically bid for original equipment product sales and repair work. Field service work is offered at a fixed rate plus expenses.



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##### Table of Contents

How We Evaluate Our Operations

Our management uses the following financial and operational measurements to analyze the performance of our business:



| |  |  | revenue and facility output;
| | - |  | ----------------------------



| |  |  | material and labor expenses as a percentage of revenue;
| | - |  | -------------------------------------------------------



| |  |  | selling, general and administrative expenses as a percentage of revenue;
| | - |  | ------------------------------------------------------------------------



| |  |  | EBITDA; and
| | - |  | -----------



| |  |  | financial and operational models.
| | - |  | ---------------------------------

Revenue and Facility Output

We monitor our revenue and facility output and analyze trends to determine the relative performance of each of our facilities. Our
analysis enables us to more efficiently operate our facilities and determine if we need to refine our processes and procedures at any one location to improve operational efficiency.

Material and Labor Expenses as a Percentage of Revenue

Material and labor expenses are composed
primarily of cost of materials, labor costs and the indirect costs associated with our products and services. Our material costs primarily include the cost of inventory consumed in the manufacturing and remanufacturing of our products and in
providing repair services. Increases in our material costs are frequently passed on to our customers. However, due to the timing of our marketing and bidding cycles, there generally is a delay of several weeks or months from the time that we incur
an actual price increase until the time that we can pass on that increase to our customers.

Our labor costs consist primarily of wages at
our facilities. As a result of increased activity in the oil and gas industry, there have been recent shortages of qualified personnel. We may have to raise wage rates to attract and train workers to expand our current work force.

Selling, General and Administrative Expenses as a Percentage of Revenue

Our selling, general and administrative (SG&A) expenses include administrative and marketing costs, the costs of employee compensation and related benefits, office and lease expenses, insurance costs
and professional fees, as well as other costs and expenses not directly related to our operations. Our management continually evaluates the level of our SG&A expenses in relation to our revenue because these expenses have a direct impact on our
profitability.

EBITDA

We define
EBITDA as income (loss) from continuing operations before interest expense, net of interest income, provision for income taxes and depreciation and amortization expense. Our management uses EBITDA:



| |  |  | as a measure of operating performance that assists us in comparing our performance on a consistent basis because it removes the impact of our capital structure and asset base from
our operating results;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | as a measure for budgeting and for evaluating actual results against our budgets;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | to assess compliance with financial ratios and covenants included in our senior credit facility;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | in communications with lenders concerning our financial performance; and
| | - |  | ------------------------------------------------------------------------



| |  |  | to evaluate the viability of potential acquisitions and overall rates of return.
| | - |  | --------------------------------------------------------------------------------



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##### Table of Contents

Financial and Operational Models

We couple our evaluation of financial data with performance data that tracks financial losses due to safety incidents, product warranty and quality control; customer satisfaction; employee productivity; and management
system compliance. The information is collected in a proprietary statistical tracking program that automatically compiles and statistically analyzes real-time trends. This information helps us ensure that each of our facilities improves with respect
to customer and market demands.

Loss Management. We incur operational losses from employee injuries, product warranty claims
and quality control costs. We track both incident rates and costs. We also track quality control and warranty expenses through specialized software. All direct expenses incurred due to warranty, quality control and safety incidents are statistically
analyzed as a percentage of sales.

Customer Satisfaction. We monitor our customers level of satisfaction regarding our
delivery, product quality, and service through customer surveys and other data collection methods. All information collected from the customer satisfaction assessments is statistically compiled to track annual performance. All customer complaints
are processed through a corrective action program.

Employee Productivity. We have increased employee training. Each of our
facilities is provided a benchmark under which its employees are evaluated through a collection of practical examinations, written examinations, presentations and in-house training videos. As the collected information is evaluated, deficiencies are
identified and corrective actions are assessed.

Management System Compliance. We currently use four management programs
designed to consistently manage all aspects of our operations at each facility, while providing useful tools to limit operational liabilities and improve profitability. These programs incorporate various performance standards that are useful in the
evaluation of operational performance in the pursuit of continual improvement. Compliance with the standards set forth in those programs is evaluated several times a year through a combination of customer audits, third party audits and internal
audits. Each facilitys compliance with the standards is then evaluated and all deficiencies identified are analyzed and corrective actions assessed. Corrective actions at each facility are used to implement preventative action at the remaining
facilities.

How We Manage Our Operations

Our management team uses a variety of tools to monitor and manage our operations, including:



| |  |  | safety and environmental management systems;
| | - |  | --------------------------------------------



| |  |  | quality management systems;
| | - |  | ---------------------------



| |  |  | statistical tracking systems; and
| | - |  | ---------------------------------



| |  |  | inventory turnover rates.
| | - |  | -------------------------

Safety and Environmental Management Systems

Our Safety Management System (SMS) monitors our training program as it relates to OSHA compliance. Through a collection of
regulatory audits and internal audits, we can evaluate each facilitys compliance with regulatory requirements and take corrective actions necessary to ensure compliance.

We also use our SMS to ensure that employee training is conducted on a regular basis. Several employee qualification programs are managed from our SMS to
ensure that our employees perform their duties as safely as possible. All employees are individually evaluated with respect to their safety performance, and these evaluations are incorporated into all annual employee reviews.

Similar to the SMS, our Environmental Management System monitors compliance with environmental laws. Each of our facilities is continually evaluated
against collected data to identify possible deficiencies.



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##### Table of Contents

Quality Management Systems

All processes, employee certification programs, and inspection activities are managed through our Quality Management Systems (QMS). Our QMS is based on several industrial standards and is coupled with
performance models to ensure continual monitoring and improvement of the program. Each of our facilities has a quality management team that is charged with assuring that day-to-day operations are conducted consistently and within the protocols
outlined in the QMS. Operational steps continually are monitored and evaluated against customer and industrial requirements. To ensure that all QMS elements are operating as designed and to provide an addition level of support at each facility, we
have assigned a quality director at each facility who monitors individual facility performance and helps manage critical operations.

Statistical
Tracking Systems

We have developed a statistical tracking program that assists in the real time compilation of data from each facility
and then automatically assesses the data through various data analysis tools. Facility managers and operational executives are provided summary reports, providing information about their performance and how it compares to industrial and internal
benchmarks.

Inventory Turnover Rates

The cost of our material inventory represents a significant portion of our cost of revenue from our product lines. As a result, maintaining an optimum level of inventory at each of our facilities in an important factor in managing our
operations. We continually monitor the inventory turnover rates for each of our product lines and adjust the frequency of inventory orders as appropriate to maintain the optimum level of inventory based on activity level for each product line.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Our estimation process generally relates to potential bad
debts, obsolete and slow moving inventory, and the valuation of long-lived and intangible assets. Our estimates are based on historical experience and on our future expectations that we believe to be reasonable under the circumstances. The
combination of these factors results in the amounts shown as carrying values of assets and liabilities in the financial statements and accompanying notes. Actual results could differ from our current estimates and those differences may be material.

These estimates may change as events occur, as additional information is obtained and as our operating environment changes. Other than our
accounting for stock-based compensation, there have been no material changes or developments in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies and
Estimates from those as disclosed in our Annual Report on Form 10-K for the year ending December 31, 2005.

New Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
Interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109 (SFAS 109). FIN 48 clarifies the
application of SFAS 109 by defining criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in the financial statements. Additionally, FIN 48 provides guidance on the measurement,
derecognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect
of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the impact the adoption of FIN 48 will have on our financial position, results of operations and cash flows.



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##### Table of Contents

Outlook

Changes in the current and expected future prices of oil and gas influence the level of energy industry spending. Changes in spending result in an increase or decrease in demand for our products and services. Therefore, our results are
dependant on, among other things, the level of worldwide oil and gas drilling activity, capital spending by other oilfield service companies and drilling contractors and pipeline maintenance activity. Key industry indicators include the following:



|                   |  |         |       |               |   |                         |  |                  |  |                         |  |    
|------------------ |  | ------- | ----- | ------------- | - | ----------------------- |  | ---------------- |  | ----------------------- |  | ---
|Quarter Ended:     |  | WTI Oil |       | Henry Hub Gas |   | United States Rig Count |  | Canada Rig Count |  | International Rig Count
|June 30, 2005      |  | $       | 53.05 |               | $ | 6.95                    |  | 1,336            |  | 241                     |  | 916
|September 30, 2005 |  | $       | 63.19 |               | $ | 9.64                    |  | 1,428            |  | 497                     |  | 911
|December 31, 2005  |  | $       | 60.00 |               | $ | 12.80                   |  | 1,478            |  | 572                     |  | 929
|March 31, 2006     |  | $       | 63.27 |               | $ | 7.91                    |  | 1,519            |  | 665                     |  | 896
|June 30, 2006      |  | $       | 70.41 |               | $ | 6.65                    |  | 1,632            |  | 282                     |  | 913

Source: Rig count: Baker Hughes, Inc. (www.bakerhughes.com); West Texas Intermediate Crude Spot Price:
Department of Energy, Energy Information Administration (www.eia.doe.gov); NYMEX Henry Hub Natural Gas Spot Price: (www.oilnergy.com).

We believe our outlook for the remainder of 2006 is favorable, as overall activity in the markets in which we operate is expected to remain high and our backlog, especially for our pressure and flow control business, began to increase
significantly in the third quarter of 2005. We expect that the high levels of drilling activity in North America and the increased demand for our products to be shipped internationally will continue to increase our backlog.

Over the remainder of 2006, we expect that our increased manufacturing capacity gained through our facility expansions will have a positive effect on our
revenues. Additionally, we plan to continue to expand our manufacturing capacity through facility expansions and operational improvements, through several selected geographical expansions and the continued introduction of new products being
developed by our engineering group, which has more than doubled in size since mid 2005. We believe that our expansion efforts will allow us to continue and improve our already rapid response time to customer demands and enable us to continue to
build market share.

Looking into the remainder of 2006 and into the beginning of 2007, we expect average rig activity to remain at high
levels, and we expect our original equipment products sales to increase compared to 2005 levels due to our product acceptance by the industry, new product introductions, significant capital and geographical expansions and continued rapid response
time to customers. Our results will also be dependent on the pace and level of activities in the markets that we serve.

Results of Operations

Three Months ended June 30, 2006 Compared with Three Months ended June 30, 2005

Revenues. Revenues increased $13.0 million, or 52.0%, in the three months ended June 30, 2006 compared to the three months ended June 30,
2005. This increase was primarily attributable to improved demand for our products and services resulting from higher price levels for oil and correspondingly higher levels of construction of drilling rigs that require the type of equipment we
manufacture. For example, backlog has increased approximately 195% from $19.2 million at June 30, 2005 to $56.7 million at June 30, 2006. We also believe that our T-3 branded products have gained market acceptance, resulting in greater
sales to customers that use our products both domestically and in international operations. For example, T-3 original equipment product revenues have increased approximately 90% in the three months ended June 30, 2006 as compared to the same
period in 2005. In addition, our original equipment product revenues accounted for approximately 65% of total



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##### Table of Contents

revenues during the three months ended June 30, 2006, as compared to 52% of total revenues during the same period in 2005. The KC Machine acquisition,
which was completed in January 2006, accounted for $0.7 million of the total revenue increase.

Cost of Revenues. Cost of revenues
increased $8.6 million, or 55.9%, in the three months ended June 30, 2006 compared to the three months ended June 30, 2005, primarily as a result of the increase in revenues described above. Gross profit as a percentage of revenues was
37.1% in the three months ended June 30, 2006 compared to 38.7% in the three months ended June 30, 2005. Gross profit margin was slightly higher in 2005 primarily due to lower self-insured medical costs incurred during the three months
ended June 30, 2005. In addition, costs during the three months ended June 30, 2006 included costs associated with the increase in our manufacturing capacity for our new products, initial costs associated with our expansion into East
Texas, Casper and Indianapolis, along with various costs related to training of new employees at our existing facilities.

Operating
Expenses. Operating expenses increased $2.1 million, or 38.7%, in the three months ended June 30, 2006 compared to the three months ended June 30, 2005. This increase was primarily attributable to the increase in revenues described
above. Operating expenses as a percentage of revenues were 19.5% in the three months ended June 30, 2006 compared to 21.4% in the three months ended June 30, 2005. This decrease in operating expenses as a percentage of revenues is due to
operating expenses consisting primarily of fixed costs along with variable costs, such as payroll and benefits, not increasing proportionately with revenues. This is partially offset by employee stock-based compensation expense of $0.5 million as a
result of adopting SFAS 123R during 2006.

Interest Expense. Interest expense for the three months ended June 30, 2006 was $0.3
million compared to $0.7 million in the three months ended June 30, 2005. The decrease was primarily attributable to lower debt levels during 2006.

Other (Income) Expense, net. Other (Income) Expense, net increased $0.4 million for the three months ended June 30, 2006 primarily due to insurance proceeds received related to a casualty loss at one of
our facilities in August 2003, along with proceeds from contingency settlements and foreign currency transaction gains.

Income
Taxes. Income tax expense for the three months ended June 30, 2006 was $2.4 million as compared to $1.3 million in the three months ended June 30, 2005. The increase was primarily due to an increase in income before taxes. The
effective tax rate was 35.8% in the three months ended June 30, 2006 compared to 35.7% in the three months ended June 30, 2005.

Income from Continuing Operations. Income from continuing operations was $4.4 million in the three months ended June 30, 2006 compared with $2.4 million in the three months ended June 30, 2005 as a result of the foregoing
factors.

Discontinued Operations.During 2004 and October 2005, we sold substantially all of the assets of our products and
distribution segments, respectively. These assets constituted businesses and thus their results of operations are reported as discontinued operations for all periods presented. Income (loss) from discontinued operations, net of tax for the three
months ended June 30, 2006 was ($50,000) as compared to $3,000 in the three months ended June 30, 2005.

Six Months ended June 30, 2006
Compared with Six Months ended June 30, 2005

Revenues. Revenues increased $28.9 million, or 64.5%, in the six months ended
June 30, 2006 compared to the six months ended June 30, 2005. This increase was primarily attributable to improved demand for our products and services resulting from higher price levels for oil and correspondingly higher levels of
construction of drilling rigs that require the type of equipment we manufacture. For example, backlog has increased approximately 195% from $19.2 million at June 30, 2005 to $56.7 million at June 30, 2006. We also believe that our T-3
branded products have gained market acceptance, resulting in greater sales to customers that use our products both domestically and in international operations. For example, T-3 original equipment product



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##### Table of Contents

revenues have increased approximately 105% in the first six months of 2006 as compared to the same period in 2005. In addition, our original equipment
product revenues accounted for approximately 61% of total revenues during the six months ended June 30, 2006, as compared to 49% of total revenues during the same period in 2005. The KC Machine acquisition, which was completed in January 2006,
accounted for $1.4 million of the total revenue increase.

Cost of Revenues. Cost of revenues increased $17.8 million, or 61.8%, in
the six months ended June 30, 2006 compared to the six months ended June 30, 2005, primarily as a result of the increase in revenues described above. Gross profit as a percentage of revenues was 36.9% in the six months ended June 30,
2006 compared to 35.9% in the six months ended June 30, 2005. Gross profit margin was higher in 2006 primarily due to improved pricing and increased sales of higher margin products and services. This increase was partially offset by costs
associated with the increase in our manufacturing capacity for our new products, initial costs associated with our expansion into East Texas, Casper and Indianapolis, along with higher self-insured medical costs and various costs related to training
of new employees at our existing facilities.

Operating Expenses. Operating expenses increased $4.2 million, or 41.4%, in the six
months ended June 30, 2006 compared to the six months ended June 30, 2005. This increase was primarily attributable to the increase in revenues described above. Operating expenses as a percentage of revenues were 19.4% in the six months
ended June 30, 2006 compared to 22.6% in the six months ended June 30, 2005. This decrease in operating expenses as a percentage of revenues is due to operating expenses consisting primarily of fixed costs along with variable costs, such
as payroll and benefits, not increasing proportionately with revenues. This is partially offset by employee stock-based compensation expense of $0.7 million as a result of adopting SFAS 123R during 2006.

Interest Expense. Interest expense for the six months ended June 30, 2006 was $0.5 million compared to $1.1 million in the six months ended
June 30, 2005. The decrease was primarily attributable to lower debt levels during 2006.

Other (Income) Expense, net. Other
(Income) Expense, net increased $0.5 million for the six months ended June 30, 2006 primarily due to insurance proceeds received related to a casualty loss at one of our facilities in August 2003, along with proceeds from contingency
settlements and foreign currency transaction gains.

Income Taxes. Income tax expense for the six months ended June 30, 2006
was $4.6 million as compared to $1.8 million in the six months ended June 30, 2005. The increase was primarily due to an increase in income before taxes. The effective tax rate was 36.0% in the six months ended June 30, 2006 compared to
37.5% in the six months ended June 30, 2005. The higher rate in the 2005 period resulted primarily from the effect of non-deductible expenses such as the amortization of other intangible assets.

Income from Continuing Operations. Income from continuing operations was $8.2 million in the six months ended June 30, 2006 compared with
$3.1 million in the six months ended June 30, 2005 as a result of the foregoing factors.

Discontinued Operations.During 2004
and October 2005, we sold substantially all of the assets of our products and distribution segments, respectively. These assets constituted businesses and thus their results of operations are reported as discontinued operations for all periods
presented. Income (loss) from discontinued operations, net of tax for the six months ended June 30, 2006 was ($0.1) million as compared to $0.1 million in the six months ended June 30, 2005.

Liquidity and Capital Resources

At June 30,
2006, we had working capital of $32.5 million, current maturities of long-term debt of $12,000, long-term debt (net of current maturities) of $8.0 million and stockholders equity of $118.7 million. Historically, our principal liquidity
requirements and uses of cash have been for debt service, capital expenditures, working capital and acquisition financing, and our principal sources of liquidity and cash have been from cash flows from operations, borrowings under our senior credit
facility and issuances of equity securities. We have historically financed acquisitions through bank borrowings, sales of equity (primarily to First Reserve Fund VIII, L.P., our majority stockholder), debt from sellers and cash flow from operations.



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Net Cash Provided by Operating Activities. Net cash provided by operating activities was $6.9
million for the six months ended June 30, 2006 compared to $3.1 million for the six months ended June 30, 2005. The improved net cash provided by operating activities was primarily due to profitable operations. The increase of $3.8 million
for 2006 as compared to 2005 was also attributable to increased demand, resulting in our customers showing a willingness to prepay for our products. The increases were partially offset by increases in our receivables and inventory due to increased
sales activity in 2006.

Net Cash Provided by (Used in) Investing Activities. Principal uses of cash are for capital expenditures
and acquisitions. For the six months ended June 30, 2006 and 2005, we made capital expenditures of approximately $5.2 million and $0.7 million, respectively. Cash consideration paid for business acquisitions was $2.2 million in the six months
ended June 30, 2006 (see Note 2 to our condensed consolidated financial statements). There were no acquisitions in the six months ended June 30, 2005.

Net Cash Provided by (Used in) Financing Activities.Sources of cash from financing activities include borrowings under our credit facilities and sales of equity securities. Principal uses of cash include
payments on the senior credit facility and long-term debt. Financing activities provided net cash of $1.2 million for the six months ended June 30, 2006 as compared to net cash of $4.9 million used in the six months ended June 30, 2005. We
made net borrowings (repayments) on our senior credit facility of $1.0 million and $10.1 million during the six months ended June 30, 2006 and 2005, respectively. We also made principal payments of $15.0 million to pay down our subordinated
term loan during the six months ended June 30, 2005.

Net Cash Provided by (Used In) Discontinued Operations. For the six months
ended June 30, 2006, net cash provided by (used in) discontinued operations was ($0.1) million compared to $2.0 million in the same period in 2005. This consisted of operating cash flows of ($0.1) million and $2.1 million for the six months
ended June 30, 2006 and 2005, respectively. There were no investing cash flows in the six months ended June 30, 2006 and ($0.1) million for the same period in 2005. There were no financing cash flows for both periods.

Principal Debt Instruments. As of June 30, 2006, we had an aggregate of $8.0 million borrowed under our senior credit facility and debt
instruments entered into or assumed in connection with acquisitions, as well as other bank financings. As of June 30, 2006, availability under our senior credit facility was $64.5 million.

During May 2005, we received consents from our senior lenders to repay the $15 million subordinated term loan using advances made from our senior credit
facility. Our senior credit facility provides for a $50 million revolving line of credit, maturing September 30, 2007, that we can increase by up to $25 million (not to exceed a total commitment of $75 million) with the approval of the senior
lenders. As of June 30, 2006, we had $8.0 million borrowed under our senior credit facility. The senior credit facility consists of a revolving credit facility that includes a swing line subfacility up to $5 million and a letter of credit
subfacility up to $5 million. We expect to use the proceeds from any advances made pursuant to the senior credit facility for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes. The applicable
interest rate of the senior credit facility is governed by our leverage ratio and ranges from prime plus 0.75% to 2.00% or LIBOR plus 1.75% to 3.00%. At June 30, 2006, the senior credit facility bore interest ranging from 7.13% to 9.00%, with
interest payable quarterly or as LIBOR advances mature. The effective interest rate, including amortization of deferred loan costs, was 10.35%. The effective interest rate, excluding amortization of deferred loan costs, was 7.73%. We are required to
prepay the senior credit facility under certain circumstances with the net cash proceeds of certain asset sales, insurance proceeds and equity issuances subject to certain conditions. The senior credit facility provides, among other covenants and
restrictions, that we comply with the following financial covenants: a limitation on capital expenditures, a minimum fixed charge coverage ratio, a minimum consolidated net worth, and maximum leverage and senior leverage ratios. As of June 30,
2006, we were in compliance with the covenants under the senior credit facility. The senior credit facility is collateralized by substantially all of our assets.

On August 25, 2005, we amended our senior credit facility to provide for a separate Canadian revolving credit facility, which includes a revolving loan subfacility and a letter of credit subfacility of up to an
aggregate



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of U.S. $4.0 million. The revolving credit facility matures on the same date as the senior credit facility, and is subject to the same covenants and
restrictions. The applicable interest rate is governed by our leverage ratio and ranges from the Canadian prime rate plus 0.75% to the Canadian prime rate plus 2.00%. T-3 Oilco Energy Services Partnership, our Canadian subsidiary, may use the
proceeds from any advances made pursuant to the revolving credit facility for general corporate and working capital purposes in the ordinary course of business or to fund Canadian acquisitions. The revolving credit facility is guaranteed by us and
all of our material subsidiaries, and is collateralized by a first lien on substantially all of the assets of T-3 Oilco Energy Services Partnership.

On April 27, 2006, we entered into an amendment to our senior credit facility increasing the amount of capital expenditures that we may make in a fiscal year from 25% of EBITDA of the Company for the immediately
preceding fiscal year to $15 million, and the minimum expiration date for letters of credit from two years after the date of issuance to three years after the date of issuance.

On April 27, 2006, the Company and Gus D. Halas entered into an Amended and Restated Employment Agreement (the Agreement). The Agreement
has an initial two year term commencing in April 2006; however, after the first year, the Agreement is automatically renewed at the end of each calendar month so that the remaining term of the Agreement is always one year. The Agreement provides for
an annual base salary of $450,000, an annual bonus to be awarded in the discretion of our board of directors or a committee thereof, and the grant of 100,000 shares of restricted common stock effective January 12, 2006 pursuant to the Stock
Agreements (as defined in Note 9 to the condensed consolidated financial statements). The Agreement contains standard confidentiality covenants with respect to our trade secrets and non-competition and non-solicitation covenants until the later of
the first anniversary of the date of termination or resignation or such time as Mr. Halas no longer receives any payments under the Agreement. If Mr. Halas is terminated for any reason other than due to death, disability or cause (as
defined in the Agreement), we are required to pay Mr. Halas an amount equal to two times his average base pay and bonus for the prior two fiscal years of employment, and all stock options to purchase shares of our common stock and all
restricted stock grants will be fully vested. In addition, if through our actions, Mr. Halas ceases to hold the title of Chairman, President or Chief Executive Officer, ceases to report directly to the board of directors, has any of his primary
business responsibilities shifted to another employee that does not report directly to him or is transferred outside of Houston, Texas, and he resigns within 60 days after such event, the resignation will be deemed a termination without cause for
purposes of the severance payments described above. Upon the occurrence of a change of control (as defined in the Agreement), we are required to promptly pay Mr. Halas an amount equal to two times his average base pay and bonus for the prior
two fiscal years of employment, and all stock options to purchase shares of our common stock and all restricted stock grants will be fully vested; provided, that Mr. Halas will no longer be entitled to receive the severance payment described
above in the event of his subsequent termination for any reason other than due to death, disability or cause.

On June 1, 2006, T-3
Management Services, L.P. (T-3 Management), a subsidiary of ours, entered into the Fourth Employment Agreement (the Fourth Agreement) with Keith A. Klopfenstein, Vice President of Operations, which has a two-year term ending
on May 31, 2008. The Fourth Agreement provides for an annual base salary of $140,000 and contains standard confidentiality covenants with respect to our trade secrets and non-competition and non-solicitation covenants until the later of the
first anniversary of the date of termination or resignation or such time as Mr. Klopfenstein no longer receives any payments under the Fourth Agreement. If Mr. Klopfenstein is terminated for any reason other than due to death, disability
or cause (as defined in the Fourth Agreement), T-3 Management is required to make monthly severance payments equal to his monthly base salary on termination for the lesser of one year or the remaining term of his employment. In addition, if within
18 months of a change of control (as defined in the Fourth Agreement) of the Company, Mr. Klopfenstein has a material demotion in his title or responsibilities or is transferred outside of Houston, Texas, and he resigns within 60 days after
that demotion or transfer, T-3 Management is required to make monthly severance payments equal to his monthly base salary on termination for one year.

We believe that cash generated from operations and amounts available under our senior credit facility will be sufficient to fund existing operations, working capital needs, capital expenditure requirements, including
the planned expansion of our manufacturing capacity, continued new product development and expansion of our geographic areas of operation, and financing obligations.



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We intend to make strategic acquisitions but the timing, size or success of any strategic acquisition and
the related potential capital commitments cannot be predicted. We expect to fund future acquisitions primarily with cash flow from operations and borrowings, including the unborrowed portion of our senior credit facility or new debt issuances, but
we may also issue additional equity either directly or in connection with an acquisition. There can be no assurance that acquisition funds may be available at terms acceptable to us.

A summary of our outstanding contractual obligations and other commercial commitments at June 30, 2006 is as follows (in thousands):



|                              |  |                        |        |                  |   |           |  |           |        |               |   |     |  |   |   
|----------------------------- |  | ---------------------- | ------ | ---------------- | - | --------- |  | --------- | ------ | ------------- | - | --- |  | - | --
|                              |  | Payments Due by Period
|Contractual Obligations       |  | Total                  |        | Less than 1 Year |   | 2-3 Years |  | 4-5 Years |        | After 5 Years
|Long-term debt                |  | $                      | 8,043  |                  | $ | 12        |  | $         | 8,031  |               | $ |    |  | $ |  
|Letters of credit             |  |                        | 190    |                  |   | 67        |  |           | 123    |               |   |    |  |   |  
|Operating leases              |  |                        | 4,916  |                  |   | 1,621     |  |           | 2,523  |               |   | 760 |  |   | 12
|                              |  |                        |        |                  |   |           |  |           |        |               |   |     |  |   |   
|Total contractual obligations |  | $                      | 13,149 |                  | $ | 1,700     |  | $         | 10,677 |               | $ | 760 |  | $ | 12
|                              |  |                        |        |                  |   |           |  |           |        |               |   |     |  |   |   

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk generally represents
the risk that losses may occur in the value of financial instruments as a result of movements in interest rates, foreign currency exchange rates and commodity prices.

We are exposed to some market risk due to the floating interest rates under our senior credit facility and our Canadian revolving credit facility. As of June 30, 2006, our senior credit facility, whose interest
rate floats with prime or LIBOR, had a principal balance of $8.0 million. A 1.0% increase in interest rates could result in a $0.1 million increase in interest expense on the June 30, 2006 principal balance. As of June 30, 2006, our
Canadian revolving credit facility did not have a principal balance, and therefore, we did not have any exposure to rising interest rates.

We are also exposed to some market risk due to the foreign currency exchange rates related to our Canadian operations. We conduct our Canadian business in the local currency, and thus the effects of foreign currency fluctuations are largely
mitigated because the local expenses of such foreign operations are also denominated in the same currency. Assets and liabilities are translated using the exchange rate in effect at the balance sheet date, resulting in translation adjustments that
are reflected as accumulated other comprehensive income in the stockholders equity section on our consolidated balance sheet. Less than 2% of our net assets are impacted by changes in foreign currency in relation to the U.S. dollar. We
recorded a $0.4 million adjustment to our equity account for the six months ended June 30, 2006 to reflect the net impact of the change in foreign currency exchange rate.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our management carried out an evaluation, with the participation of our principal
executive officer (the CEO) and our principal financial officer (the CFO), of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based on those
evaluations, the CEO and CFO have concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely
decisions regarding required disclosure.



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Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal controls over financial reporting during the period covered by this report that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. Legal Proceedings

On October 26, 2005, a shareholder derivative lawsuit (Berger v. Halas, et
al., C.A. No. 1733-N) was filed in the Court of Chancery of the State of Delaware in New Castle County, against us (as a nominal defendant), Gus D. Halas, all other members of our Board of Directors, and First Reserve Fund VIII, L.P., our
majority stockholder. This lawsuit relates to the initial filing by us of a registration statement on Form S-1 with the Commission on October 21, 2005. The complaint alleges a breach of the duty of loyalty and a bad faith breach of the duty of
full disclosure by all defendants. In addition, the complaint alleges that the payment of a transaction bonus to Mr. Halas in connection with the offering contemplated by the preliminary registration statement would be improper. The plaintiff
seeks a temporary and a permanent injunction against the proposed sale and the payment of the transaction bonus. The plaintiff also seeks a judgment awarding costs and fees incurred in filing and prosecuting the case. On January 17, 2006, we
announced that a decision had been made not to proceed at this time with the public offering. T-3s obligation to pay the transaction bonus expired on January 31, 2006. Since that date, there has been no discovery or other prosecution of
the claims by the plaintiff.

The NASD has notified us that it has concluded its review of certain transactions in our common stock that
occurred last year and has referred the matter to the SEC. These transactions occurred prior to our announcement on June 22, 2005 that we were considering strategic alternatives. The inquiry relates to transactions by an employee and separately
by a cousin of Gus D. Halas, our President and Chief Executive Officer. We believe that the inquiry may also include a broader review of transactions by persons not related to T-3, although T-3 does not know the identity of any of these persons.
Both we and Mr. Halas have cooperated in the NASDs review. Mr. Halas has provided information to the us, including information about his relationship with his cousin. We have shared this information with the NASD. In addition to
providing other helpful background information, Mr. Halas confirmed that he has not provided any confidential information to his cousin about our business affairs. A committee consisting solely of independent directors has received advice from
independent counsel and concluded that it was not necessary for us to take any further steps with respect to this matter. The committee also concluded that the NASD/SEC process should be allowed to proceed to conclusion, and that, based on the
information available to the committee, the matter was not expected to result in any adverse effect on T-3.

Item 1A. Risk Factors

Certain information in this Quarterly Report on Form 10-Q includes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the words expects, projects,
believes, anticipates, intends, plans, budgets, predicts, estimates and similar expressions.

We have based the forward-looking statements relating to our operations on our current expectations, and estimates and projections about us and about the
industries in which we operate in general. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions. In addition, many of these forward-looking statements are based on assumptions about future events
that may prove to be inaccurate. Actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements.



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If we are unable to successfully manage our growth and implement our business plan, our results of operations will
be adversely affected.

We have experienced significant revenue growth in 2005 and the first half of 2006. To maintain our advantage
of delivering original equipment products and providing aftermarket services more rapidly than our competitors, we plan to further expand our operations by adding new facilities, upgrading existing facilities and increasing manufacturing capacity.
We believe our future success depends in part on our ability to manage this expansion. The following factors could present difficulties for us:



| |  |  | inability to integrate operations between existing and new or expanded facilities;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | lack of a sufficient number of qualified technical and operating personnel;
| | - |  | ---------------------------------------------------------------------------



| |  |  | shortage of operating equipment and raw materials necessary to operate our expanded business; and
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | managing the increased costs associated with our expansion.
| | - |  | -----------------------------------------------------------

Our
business depends on spending by the oil and gas industry, and this spending and our business may be adversely affected by industry conditions that are beyond our control.

We depend on our customers willingness to make operating and capital expenditures to explore for, develop and produce oil and gas. Industry
conditions are influenced by numerous factors over which we have no control, such as:



| |  |  | the level of drilling activity;
| | - |  | -------------------------------



| |  |  | the level of oil and gas production;
| | - |  | ------------------------------------



| |  |  | the demand for oil and gas related products;
| | - |  | --------------------------------------------



| |  |  | domestic and worldwide economic conditions;
| | - |  | -------------------------------------------



| |  |  | political instability in the Middle East and other oil producing regions;
| | - |  | -------------------------------------------------------------------------



| |  |  | the actions of the Organization of Petroleum Exporting Countries;
| | - |  | -----------------------------------------------------------------



| |  |  | the price of foreign imports of oil and gas, including liquefied natural gas;
| | - |  | -----------------------------------------------------------------------------



| |  |  | natural disasters or weather conditions, such as hurricanes;
| | - |  | ------------------------------------------------------------



| |  |  | technological advances affecting energy consumption;
| | - |  | ----------------------------------------------------



| |  |  | the level of oil and gas inventories;
| | - |  | -------------------------------------



| |  |  | the cost of producing oil and gas;
| | - |  | ----------------------------------



| |  |  | the price and availability of alternative fuels;
| | - |  | ------------------------------------------------



| |  |  | merger and divestiture activity among oil and gas producers; and
| | - |  | ----------------------------------------------------------------



| |  |  | governmental regulation.
| | - |  | ------------------------

The volatility of the oil and
gas industry and the consequent impact on drilling activity could reduce the level of drilling and workover activity by some of our customers. Any such reduction could cause a decline in the demand for our products and services.



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A decline in or substantial volatility of oil and gas prices could adversely affect the demand and prices for our
products and services.

The demand for our products and services is substantially influenced by current and anticipated oil and gas
prices and the related level of drilling activity and general production spending in the areas in which we have operations. Volatility or weakness in oil and gas prices (or the perception that oil and gas prices will decrease) affects the spending
patterns of our customers and may result in the drilling of fewer new wells or lower production spending for existing wells. This, in turn, could result in lower demand and prices for our products and services.

Historical prices for oil and gas have been volatile and are expected to continue to be volatile. For example, since 1999, oil prices have ranged from as
low as approximately $10 per Bbl to over $75 per Bbl. This volatility has in the past and may in the future adversely affect our business. A prolonged low level of activity in the oil and gas industry will adversely affect the demand for our
products and services.

We rely on a few key employees whose absence or loss could disrupt our operations or be adverse to our business.

Many key responsibilities within our business have been assigned to a small number of employees. The loss of their services,
particularly the loss of our Chairman, President and Chief Executive Officer, Gus D. Halas, and the managers of our wellhead and pipeline product lines, Alvin Dueitt and Jimmy Ray, respectively, could be adverse to our business. Although we have
employment and non-competition agreements with Mr. Halas and some of our other key employees, as a practical matter, those agreements will not assure the retention of our employees, and we may not be able to enforce all of the provisions in any
employment or non-competition agreement. In addition, we do not maintain key person life insurance policies on any of our employees. As a result, we are not insured against any losses resulting from the death or disability of our key
employees.

Our industry has recently experienced shortages in the availability of qualified personnel. Any difficulty we experience replacing or
adding qualified personnel could adversely affect our business.

Our operations require the services of employees having technical
training and experience in our business. As a result, our operations depend on the continuing availability of such personnel. Shortages of qualified personnel are occurring in our industry. If we should suffer any material loss of personnel to
competitors, or be unable to employ additional or replacement personnel with the requisite level of training and experience, our operations could be adversely affected. A significant increase in the wages paid by other employers could result in a
reduction in our workforce, increases in wage rates, or both.

Shortages of raw materials may restrict our operations.

The forgings, castings and outsourced coating services necessary for us to make our products are in high demand from our competitors and from participants
in other industries. There can be no assurance that we will be able to continue to purchase these raw materials on a timely basis or at acceptable prices. Shortages could result in increased prices that we may be unable to pass on to customers. In
addition, during periods of shortages, delivery times may be substantially longer. Any significant delay in our obtaining raw materials would have a corresponding delay in the manufacturing and delivery of our products. Any such delay might
jeopardize our relationships with our customers and result in a loss of future business.

We intend to expand our business through strategic
acquisitions. Our acquisition strategy exposes us to various risks, including those relating to difficulties in identifying suitable acquisition opportunities and integrating businesses and the potential for increased leverage or debt service
requirements.

We have pursued and intend to continue to pursue strategic acquisitions of complementary assets and businesses.
Acquisitions involve numerous risks, including:



| |  |  | unanticipated costs and exposure to unforeseen liabilities;
| | - |  | -----------------------------------------------------------



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| |  |  | difficulty in integrating the operations and assets of the acquired businesses;
| | - |  | -------------------------------------------------------------------------------



| |  |  | potential loss of key employees and customers of the acquired company;
| | - |  | ----------------------------------------------------------------------



| |  |  | our ability to properly maintain effective internal controls over an acquired company; and
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | risk of entering markets in which we have limited prior experience.
| | - |  | -------------------------------------------------------------------

Our failure to achieve consolidation savings, to incorporate the acquired businesses and assets into our existing operations successfully or to minimize any unforeseen operational difficulties could have an adverse
effect on our business.

In addition, we may incur indebtedness to finance future acquisitions and also may issue equity securities in
connection with such acquisitions. Debt service requirements could represent a burden on our results of operations and financial condition and the issuance of additional equity securities could be dilutive to our existing stockholders.

The oilfield service industry in which we operate is highly competitive, which may result in a loss of market share or a decrease in revenue or profit margins.

Many of our competitors have greater financial and other resources than we do. Our products and services are subject to competition
from a number of similarly sized or larger businesses. Factors that affect competition include timely delivery of products and services, reputation, manufacturing capabilities, availability of plant capacity, price, performance and dependability.
Any failure to adapt to a changing competitive environment may result in a loss of market share and a decrease in revenue and profit margins.

If we
do not develop and commercialize new competitive products, our revenue may decline.

To remain competitive in the market for
pressure control products and services, we must continue to develop and commercialize new products. If we are not able to develop commercially competitive products in a timely manner in response to industry demands, our business and revenues will be
adversely affected. Our future ability to develop new products depends on our ability to:



| |  |  | design and commercially produce products that meet the needs of our customers;
| | - |  | ------------------------------------------------------------------------------



| |  |  | successfully market new products; and
| | - |  | -------------------------------------



| |  |  | protect our proprietary designs from our competitors.
| | - |  | -----------------------------------------------------

We
may encounter resource constraints or technical or other difficulties that could delay introduction of new products and services. Our competitors may introduce new products before we do and achieve a competitive advantage.

Additionally, the time and expense invested in product development may not result in commercial products or provide revenues. We could be required to
write off our entire investment in a new product that does not reach commercial viability. Moreover, we may experience operating losses after new products are introduced and commercialized because of high start-up costs, unexpected manufacturing
costs or problems, or lack of demand.

The cyclical nature of or a prolonged downturn in our industry could affect the carrying value of our
goodwill.

Since 2003, we have incurred goodwill impairments related to continuing and discontinued operations totaling $29.5
million. As of June 30, 2006, we had approximately $71.1 million of goodwill. Our estimates of the value of our goodwill could be reduced as a result of various factors, some of which are beyond our control.



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We may be faced with product liability claims.

Most of our products are used in hazardous drilling and production applications where an accident or a failure of a product can cause personal injury,
loss of life, damage to property, equipment or the environment, or suspension of operations. Despite our quality assurance measures, defects may occur in our products. Any defects could give rise to liability for damages, including consequential
damages, and could impair the markets acceptance of our products. To mitigate our risk of liability for damages, we attempt to disclaim responsibility for consequential damages, but our disclaimers may not be effective. We carry product
liability insurance as a part of our commercial general liability coverage of $1 million per occurrence with a $2 million general aggregate annual limit. Additional coverage may also be available under our umbrella policy. Our insurance may not
adequately cover our costs arising from defects in our products or otherwise.

Liability to customers under warranties may materially and adversely
affect our earnings.

We provide warranties as to the proper operation and conformance to specifications of the products we
manufacture. Failure of our products to operate properly or to meet specifications may increase our costs by requiring additional engineering resources and services, replacement of parts and equipment or monetary reimbursement to a customer. We have
in the past received warranty claims, and we expect to continue to receive them in the future. To the extent that we incur substantial warranty claims in any period, our reputation, our ability to obtain future business and our earnings could be
adversely affected.

Uninsured or underinsured claims or litigation or an increase in our insurance premiums could adversely impact our results.

We maintain insurance to cover potential claims and losses, including claims for personal injury or death resulting from the use of
our products. We carry comprehensive insurance, including business interruption insurance, subject to deductibles, at levels we believe are sufficient to cover existing and future claims. It is possible an unexpected judgment could be rendered
against us in cases in which we could be uninsured or underinsured and beyond the amounts we currently have reserved or anticipate incurring. Significant increases in the cost of insurance and more restrictive coverage may have an adverse impact on
our results of operations. In addition, we may not be able to maintain adequate insurance coverage at rates we believe are reasonable.

Our
operations are subject to stringent environmental laws and regulations that may expose us to significant costs and liabilities.

Our
operations in the U.S. and abroad are subject to stringent federal, state, provincial and local environmental laws and regulations governing the discharge of materials into the environment and environmental protection. These laws and regulations
require us to acquire permits to conduct regulated activities, and to incur capital expenditures to limit or prevent releases of materials from our facilities, and to respond to liabilities for pollution resulting from our operations. Governmental
authorities enforce compliance with these laws and regulations and the permits issued under them, oftentimes requiring difficult and costly actions. Failure to comply with these laws, regulations and permits may result in the assessment of
administrative, civil and criminal penalties, the imposition of remedial obligations, and the issuance of injunctions limiting or preventing some or all of our operations.

There is inherent risk of incurring significant environmental costs and liabilities in our business. Joint and several, and strict liability may be
incurred in connection with discharges or releases of petroleum hydrocarbons and wastes on, under or from our properties and facilities, many of which have been used for industrial purposes for a number of years, oftentimes by third parties not
under our control. Private parties who use our products and facilities where our petroleum hydrocarbons or wastes are taken for reclamation or disposal may also have the right to pursue legal actions to enforce compliance as well as to seek damages
for non-compliance with environmental laws and regulations and for personal injury or property damage. In addition, changes in environmental laws and regulations occur frequently, and any such changes that result in more stringent and costly
requirements could have a material adverse effect on our business. We may not be able to recover some or any of these costs from insurance.



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We will be subject to political, economic and other uncertainties as we expand our international operations.

We intend to continue our expansion into international oil and gas producing areas such as Mexico and Canada. Our international
operations are subject to a number of risks inherent in any business operating in foreign countries including, but not limited to:



| |  |  | political, social and economic instability;
| | - |  | -------------------------------------------



| |  |  | currency fluctuations; and
| | - |  | --------------------------



| |  |  | government regulation that is beyond our control.
| | - |  | -------------------------------------------------

Our
operations have not yet been affected to any significant extent by such conditions or events, but as our international operations expand, the exposure to these risks will increase. To the extent we make investments in foreign facilities or receive
revenues in currencies other than U.S. dollars, the value of our assets and our income could be adversely affected by fluctuations in the value of local currencies.

If we are unable to complete our assessment of the adequacy of our internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, investors could lose confidence in
the reliability of our financial statements, which could result in a decrease in the value of our common stock.

Under
Section 404 of the Sarbanes-Oxley Act of 2002, we will be required to include in each of our future annual reports on Form 10-K, beginning with our annual report for the fiscal year ended December 31, 2007, a report containing our
managements assessment of the effectiveness of our internal control over financial reporting and a related attestation of our independent auditors. We are currently undertaking a comprehensive effort in preparation for compliance with
Section 404. This effort includes the documentation and evaluation of our internal controls under the direction of our management. We have been making various changes to our internal control over financial reporting as a result of our review
efforts. To date, we have not identified any material weaknesses in our internal control over financial reporting, as defined by the Public Company Accounting Oversight Board. Due to the number of controls to be examined, the complexity of the
project, as well as the subjectivity involved in determining effectiveness of controls, we cannot be certain that all our controls will be considered effective. Therefore, we can give no assurances that our internal control over financial reporting
will satisfy the new regulatory requirements. If we are unable to successfully implement the requirements of Section 404, it will prevent our independent auditors from issuing an unqualified attestation report on a timely basis as required by
Section 404. In that event, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our common stock.

Risks Related to Our Common Stock

The market price of our common stock may be volatile or may decline
regardless of our operating performance.

The market price of our common stock has experienced, and may continue to experience,
substantial volatility. During the twelve-month period ended June 30, 2006, the sale prices of our common stock on The Nasdaq Global Market has ranged from a low of $8.90 to a high of $28.10 per share. We expect our common stock to continue to
be subject to fluctuations. Broad market and industry factors may adversely affect the market price of our common stock, regardless of our actual operating performance. Factors that could cause fluctuation in the stock price may include, among other
things:



| |  |  | actual or anticipated variations in quarterly operating results;
| | - |  | ----------------------------------------------------------------



| |  |  | announcements of technological advances by us or our competitors;
| | - |  | -----------------------------------------------------------------



| |  |  | current events affecting the political and economic environment in the United States;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | conditions or trends in our industry, including demand for our products and services, technological advances and governmental regulations;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | litigation involving or affecting us;
| | - |  | -------------------------------------



| |  |  | changes in financial estimates by us or by any securities analysts who might cover our stock; and
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | additions or departures of our key personnel.
| | - |  | ---------------------------------------------

The
realization of any of these risks and other factors beyond our control could cause the market price of our common stock to decline significantly. In particular, the market price of our common stock may be influenced by variations in oil and gas
prices, because demand for our services is closely related to those prices.

Two of our directors may have conflicts of interest because they are
also directors or officers of First Reserve Corporation. The resolution of these conflicts of interest may not be in our or our stockholders best interests.

Two of our directors, Joseph R. Edwards and Ben A. Guill, are also officers or employees of First Reserve Corporation, which controls the general partner of First Reserve Fund VIII, our majority stockholder. This may
create conflicts of interest because these directors have responsibilities to First Reserve Fund VIII and its owners. Their duties as officers or employees of First Reserve Corporation may conflict with their duties as directors of our Company
regarding business dealings between First Reserve Corporation and us and other matters. The resolution of these conflicts may not always be in our or our stockholders best interests.

We renounced any interest in specified business opportunities, and First Reserve Fund VIII and its director designees on our board of directors generally will have
no obligation to offer us those opportunities.

First Reserve Fund VIII has investments in other oilfield service companies that
compete with us, and First Reserve Corporation and its affiliates, other than T-3, may invest in other such companies in the future. We refer to First Reserve Corporation, its other affiliates and its portfolio companies as the First Reserve group.
Our certificate of incorporation provides that, so long as First Reserve Corporation and its affiliates continue to own at least 20% of our common stock, we renounce any interest in specified business opportunities. Our certificate of incorporation
also provides that if an opportunity in the oilfield services industry is presented to a person who is a member of the First Reserve group, including any individual who also serves as First Reserve Fund VIIIs director designee of our Company:



| |  |  | no member of the First Reserve group or any of those individuals will have any obligation to communicate or offer the opportunity to us; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | such entity or individual may pursue the opportunity as that entity or individual sees fit,
| | - |  | -------------------------------------------------------------------------------------------

unless:



| |  |  | it was presented to a member of the First Reserve group in that persons capacity as a director or officer of T-3; or
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | the opportunity was identified solely through the disclosure of information by or on behalf of T-3.
| | - |  | ---------------------------------------------------------------------------------------------------

These provisions of our certificate of incorporation may be amended only by an affirmative vote of holders of at least 80% of its outstanding common stock. As a result of these charter provisions, our future
competitive position and growth potential could be adversely affected.

Our ability to issue preferred stock could adversely affect the rights of
holders of our common stock.

Our certificate of incorporation authorizes us to issue up to 5,000,000 shares of preferred stock in
one or more series on terms that may be determined at the time of issuance by our board of directors. Accordingly, we may issue shares of any series of preferred stock that would rank senior to the common stock as to voting or dividend rights or
rights upon our liquidation, dissolution or winding up.



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Certain provisions in our charter documents have anti-takeover effects.

Certain provisions of our certificate of incorporation and bylaws may have the effect of delaying, deferring or preventing a change in control of us. Such
provisions, including those regulating the nomination and election of directors and limiting who may call special stockholders meetings, together with the possible issuance of our preferred stock without stockholder approval, may make it more
difficult for other persons, without the approval of our board of directors, to make a tender offer or otherwise acquire substantial amounts of our common stock or to launch other takeover attempts that a stockholder might consider to be in such
stockholders best interest.

Because we have no plans to pay any dividends for the foreseeable future, investors must look solely to stock
appreciation for a return on their investment in us.

We have never paid cash dividends on our common stock and do not anticipate
paying any cash dividends in the foreseeable future. We currently intend to retain any future earnings to support our operations and growth. Any payment of cash dividends in the future will be dependent on the amount of funds legally available, our
earnings, financial condition, capital requirements and other factors that our board of directors may deem relevant. Additionally, certain of our debt agreements restrict the payment of dividends. Accordingly, investors must rely on sales of their
common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

The 2006 Annual Meeting of
Stockholders of the Company was held on June 1, 2006.



| | a. | The following persons were elected at that meeting as Class II directors:
| | -- | -------------------------------------------------------------------------



|                  |  |                 |  |         
|----------------- |  | --------------- |  | --------
|                  |  | Number of Votes
|Name of Nominee   |  | For             |  | Withheld
|Joseph R. Edwards |  | 10,018,232      |  | 182,241 
|James M. Tidwell  |  | 10,186,567      |  | 13,906  
|Michael W. Press  |  | 10,190,877      |  | 9,596   



| | b. | The result of the vote to approve the amendment to the Certificate of Incorporation to decrease the number of authorized shares of preferred stock from 25,000,000 to 5,000,000 and
the number of authorized shares of common stock from 25,000,000 to 20,000,000 was as follows:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                |  |         |  |         |  |          
|--------------- |  | ------- |  | ------- |  | ---------
|Number of Votes
|For             |  | Against |  | Abstain |  | Non-Votes
|8,974,806       |  | 795     |  | 41,704  |  | 1,183,168



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| | c. | The result of the vote to approve the amendment and restatement of the 2002 Stock Incentive Plan to increase the number of shares of common stock authorized for issuance from
1,000,000 to 2,000,000 and to comply with the requirements under Section 409A of the Internal Revenue Code of 1986 was as follows:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                |  |         |  |         |  |          
|--------------- |  | ------- |  | ------- |  | ---------
|Number of Votes
|For             |  | Against |  | Abstain |  | Non-Votes
|8,743,715       |  | 231,306 |  | 42,284  |  | 1,183,168

Item 5. Other Information

None

Item 6. Exhibits



|              |  |                                                                                                                                                                                                                                                                   
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Identification of Exhibit                                                                                                                                                                                                                                         
|3.1           |  | Certificate of Amendment to the Certificate of Incorporation of T-3 Energy
Services, Inc.                                                                                                                                                                         
|              | 
|10.1          |  | Amended and Restated Employment Agreement of Gus D. Halas (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed with the SEC on May 3, 2006 (File
No. 000-19580)).                                                         
|              | 
|10.2          |  | Restricted Stock Award Agreement between T-3 and Gus D. Halas (incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K filed with the SEC on May 3, 2006
(File No. 000-19580)).                                                     
|              | 
|10.3          |  | Restricted Stock Award Agreement between T-3 and Gus D. Halas (incorporated by reference to Exhibit 10.4 to the Companys Current Report on Form 8-K filed with the SEC on May 3, 2006
(File No. 000-19580)).                                                     
|              | 
|10.4          |  | Fourth Employment Agreement dated June 1, 2006, between T-3 Management Services, L.P. and Keith A. Klopfenstein (incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed with the SEC on June 5, 2006 (File No. 000-19580)).  
|              | 
|10.5          |  | T-3 Energy Services 2002 Stock Incentive Plan (As Amended and Restated Effective January 1, 2005) (incorporated by reference to Appendix A to the Companys Definitive Proxy
Statement on Schedule 14A filed with the SEC on April 21, 2006 (File No. 000-19580)).
|              | 
|31.1          |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended                                                                                                          
|              | 
|31.2          |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended                                                                                                          
|              | 
|32.1          |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 (Chief Executive Officer)                                                                                                                  
|              | 
|32.2          |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 (Chief Financial Officer)                                                                                                                  



33



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 24th day
of July 2006.



T-3 ENERGY SERVICES, INC.By:

/s/ MICHAEL T. MINOMichael T. Mino (Chief Financial Officer
and Vice President)




34



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##### Table of Contents

INDEX TO EXHIBITS



|               |  |                                                                                                                                                                                                                                                                   
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Identification of Exhibit                                                                                                                                                                                                                                         
|3.1*           |  | Certificate of Amendment to the Certificate of Incorporation of T-3 Energy
Services, Inc.                                                                                                                                                                         
|               | 
|10.1           |  | Amended and Restated Employment Agreement of Gus D. Halas (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed with the SEC on May 3, 2006 (File
No. 000-19580)).                                                         
|               | 
|10.2           |  | Restricted Stock Award Agreement between T-3 and Gus D. Halas (incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K filed with the SEC on May 3, 2006
(File No. 000-19580)).                                                     
|               | 
|10.3           |  | Restricted Stock Award Agreement between T-3 and Gus D. Halas (incorporated by reference to Exhibit 10.4 to the Companys Current Report on Form 8-K filed with the SEC on May 3, 2006
(File No. 000-19580)).                                                     
|               | 
|10.4           |  | Fourth Employment Agreement dated June 1, 2006, between T-3 Management Services, L.P. and Keith A. Klopfenstein (incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed with the SEC on June 5, 2006 (File No. 000-19580)).  
|               | 
|10.5           |  | T-3 Energy Services 2002 Stock Incentive Plan (As Amended and Restated Effective January 1, 2005) (incorporated by reference to Appendix A to the Companys Definitive Proxy
Statement on Schedule 14A filed with the SEC on April 21, 2006 (File No. 000-19580)).
|               | 
|31.1*          |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended                                                                                                          
|               | 
|31.2*          |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended                                                                                                          
|               | 
|32.1*          |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 (Chief Executive Officer)                                                                                                                  
|               | 
|32.2*          |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 (Chief Financial Officer)                                                                                                                  



---

|* | Filed herewith.
|- | ---------------