##### 



EXHIBIT 99.2
 ENERGY EQUIPMENT CORPORATION
INDEX TO FINANCIAL STATEMENTS
 PageIndependent Auditors Report
    
    
    1Consolidated Financial Statements:Consolidated Balance Sheets
    
    
    2Consolidated Statements of Income
    
    
    3Consolidated Statements of Stockholders Equity
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    6




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Independent Auditors Report
  
    /s/ Hein & associates llp
  - 1 -




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ENERGY EQUIPMENT CORPORATION
 Consolidated Balance Sheets
 December 31,2004
    
    
    2005
    
    
    2006
    
    
    June 30, 2007(Unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    5,223
    
    
    $
    472,233
    
    
    $
    1,948,124
    
    
    $
    767,182Accounts receivable
    
    
    3,766,259
    
    
    
    4,562,663
    
    
    
    4,520,267
    
    
    
    11,567,135Inventory, net
    
    
    3,804,311
    
    
    
    7,848,985
    
    
    
    11,106,432
    
    
    
    11,965,341Prepaids and other
    
    
    157,283
    
    
    
    136,984
    
    
    
    209,275
    
    
    
    357,761Total current assets
    
    
    7,733,076
    
    
    
    13,020,865
    
    
    
    17,784,098
    
    
    
    24,657,419Property and Equipment, net
    
    
    2,004,729
    
    
    
    3,708,273
    
    
    
    5,124,561
    
    
    
    5,488,363Other Assets:Goodwill
    
    
    809,297
    
    
    
    809,297
    
    
    
    809,297
    
    
    
    809,297Construction in progress
    
    
    
    
    
    
    
    
    
    
    798,644
    
    
    
    1,480,520Other assets
    
    
    4,413
    
    
    
    7,400
    
    
    
    8,400
    
    
    
    44,837Total other assets
    
    
    813,710
    
    
    
    816,697
    
    
    
    1,616,341
    
    
    
    2,334,654Total assets
    
    $
    10,551,515
    
    
    $
    17,545,835
    
    
    $
    24,525,000
    
    
    $
    32,480,436LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Line of credit
    
    $
    700,000
    
    
    $
    2,050,000
    
    
    $
    2,500,000
    
    
    $
    3,200,000Current maturities of long-term debts
    
    
    204,771
    
    
    
    568,983
    
    
    
    1,174,705
    
    
    
    921,140Accounts payable
    
    
    2,018,191
    
    
    
    4,045,265
    
    
    
    6,071,736
    
    
    
    5,930,677Accrued expenses
    
    
    295,802
    
    
    
    301,788
    
    
    
    443,289
    
    
    
    916,279Deferred revenues
    
    
    
    
    
    
    
    
    
    
    215,786
    
    
    
    770,583Total current liabilities
    
    
    3,218,764
    
    
    
    6,966,036
    
    
    
    10,405,516
    
    
    
    11,738,679Long-Term Debt, less current
maturities
    
    
    1,356,870
    
    
    
    2,290,158
    
    
    
    2,303,368
    
    
    
    3,992,344Notes Payable  stockholders
    
    
    645,784
    
    
    
    645,784
    
    
    
    645,784
    
    
    
    645,784Total liabilities
    
    
    5,221,418
    
    
    
    9,901,978
    
    
    
    13,354,668
    
    
    
    16,376,807StockholdersEquity:Common stock  authorized, 1,000
shares, $.01 par value; issued and
outstanding 1,000 shares
    
    
    10
    
    
    
    10
    
    
    
    10
    
    
    
    10Additional paid-in capital
    
    
    644,158
    
    
    
    644,158
    
    
    
    644,158
    
    
    
    644,158Retained earnings
    
    
    4,685,929
    
    
    
    6,999,689
    
    
    
    10,526,164
    
    
    
    15,459,461Total stockholders equity
    
    
    5,330,097
    
    
    
    7,643,857
    
    
    
    11,170,332
    
    
    
    16,103,629Total liabilities and
stockholders equity
    
    $
    10,551,515
    
    
    $
    17,545,835
    
    
    $
    24,525,000
    
    
    $
    32,480,436
 The accompanying notes are an integral part of these consolidated financial statements.
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ENERGY EQUIPMENT CORPORATION
 Consolidated Statements of Income
 Years Ended December 31,
    
    
    Six Months Ended June 30,2004
    
    
    2005
    
    
    2006
    
    
    2006
    
    
    2007(Unaudited)Revenues, net of discount
    
    $
    15,675,599
    
    
    $
    23,786,424
    
    
    $
    39,190,367
    
    
    $
    17,171,390
    
    
    $
    33,443,287Costs of Revenues
    
    
    11,128,797
    
    
    
    16,896,856
    
    
    
    29,568,725
    
    
    
    12,544,447
    
    
    
    24,480,107Gross profit
    
    
    4,546,802
    
    
    
    6,889,568
    
    
    
    9,621,642
    
    
    
    4,626,943
    
    
    
    8,963,180Selling, General & Administrative
Expenses
    
    
    2,590,768
    
    
    
    3,430,681
    
    
    
    4,387,058
    
    
    
    2,064,521
    
    
    
    2,497,241Operating income
    
    
    1,956,034
    
    
    
    3,458,887
    
    
    
    5,234,584
    
    
    
    2,562,422
    
    
    
    6,465,939Other Income (Expense):Interest expense
    
    
    (169,385
    )
    
    
    (219,425
    )
    
    
    (470,093
    )
    
    
    (217,810
    )
    
    
    (326,187
    )Interest income
    
    
    2,507
    
    
    
    1,692
    
    
    
    1,706
    
    
    
    842
    
    
    
    4,743Gain (loss) on sale of
assets
    
    
    (2,807
    )
    
    
    
    
    
    
    128,396
    
    
    
    128,396
    
    
    
    3,000Other
    
    
    30,109
    
    
    
    36,006
    
    
    
    68,360
    
    
    
    18,082
    
    
    
    42,093Total other income
(expense), net
    
    
    (139,576
    )
    
    
    (181,727
    )
    
    
    (271,631
    )
    
    
    (70,490
    )
    
    
    (276,351
    )Net Income
    
    $
    1,816,458
    
    
    $
    3,277,160
    
    
    $
    4,962,953
    
    
    $
    2,491,932
    
    
    $
    6,189,588
 The accompanying notes are an integral part of these consolidated financial statements.
 - 3 -




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##### 



ENERGY EQUIPMENT CORPORATION
 Consolidated Statements of Stockholders Equity
 Additional
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    EquityBalances, December 31, 2003
    
    
    1,000
    
    
    $
    10
    
    
    $
    644,158
    
    
    $
    4,127,660
    
    
    $
    4,771,828Cash distributions to stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,258,189
    )
    
    
    (1,258,189
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,816,458
    
    
    
    1,816,458Balances, December 31, 2004
    
    
    1,000
    
    
    
    10
    
    
    
    644,158
    
    
    
    4,685,929
    
    
    
    5,330,097Cash distributions to stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (963,400
    )
    
    
    (963,400
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,277,160
    
    
    
    3,277,160Balances, December 31, 2005
    
    
    1,000
    
    
    
    10
    
    
    
    644,158
    
    
    
    6,999,689
    
    
    
    7,643,857Cash distributions to stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,436,478
    )
    
    
    (1,436,478
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,962,953
    
    
    
    4,962,953Balances, December 31, 2006
    
    
    1,000
    
    
    
    10
    
    
    
    644,158
    
    
    
    10,526,164
    
    
    
    11,170,332Cash distributions to stockholders (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,256,291
    )
    
    
    (1,256,291
    )Net income (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,189,588
    
    
    
    6,189,588Balances, June 30, 2007 (unaudited)
    
    
    1,000
    
    
    $
    10
    
    
    $
    644,158
    
    
    $
    15,459,461
    
    
    $
    16,103,629
 The accompanying notes are an integral part of these consolidated financial statements.
 - 4 -




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##### 



ENERGY EQUIPMENT CORPORATION
 Consolidated Statements of Cash Flows
 Years Ended December 31,
    
    
    Six Months Ended June 30,2004
    
    
    2005
    
    
    2006
    
    
    2006
    
    
    2007(Unaudited)Cash Flows From Operating Activities:Net income
    
    $
    1,816,458
    
    
    $
    3,277,160
    
    
    $
    4,962,953
    
    
    $
    2,491,932
    
    
    $
    6,189,588Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    470,884
    
    
    
    593,441
    
    
    
    1,033,056
    
    
    
    492,008
    
    
    
    602,982(Gain)/loss on sale of assets
    
    
    2,807
    
    
    
    
    
    
    
    (128,396
    )
    
    
    (128,396
    )
    
    
    Change in assets and liabilities:Accounts receivable
    
    
    (1,820,570
    )
    
    
    (796,404
    )
    
    
    42,396
    
    
    
    641,696
    
    
    
    (7,046,868
    )Inventory
    
    
    (905,668
    )
    
    
    (4,044,674
    )
    
    
    (3,257,447
    )
    
    
    (906,324
    )
    
    
    (858,909
    )Other assets
    
    
    (30,973
    )
    
    
    17,312
    
    
    
    (73,291
    )
    
    
    85,558
    
    
    
    (184,923
    )Accounts payable
    
    
    1,265,408
    
    
    
    2,027,074
    
    
    
    2,026,471
    
    
    
    (1,016,952
    )
    
    
    (141,059
    )Accrued liabilities and deferred
revenues
    
    
    99,580
    
    
    
    5,986
    
    
    
    357,287
    
    
    
    51,966
    
    
    
    1,027,787Net cash provided by
operating activities
    
    
    897,926
    
    
    
    1,079,895
    
    
    
    4,963,029
    
    
    
    1,711,488
    
    
    
    (411,402
    )Cash Flows From Investing Activities:Purchase of property and equipment
    
    
    (192,319
    )
    
    
    (2,296,985
    )
    
    
    (3,489,592
    )
    
    
    (1,114,447
    )
    
    
    (1,648,660
    )Proceeds from sale of assets
    
    
    
    
    
    
    
    
    
    
    370,000
    
    
    
    370,000
    
    
    
    Net cash used in
investing activities
    
    
    (192,319
    )
    
    
    (2,296,985
    )
    
    
    (3,119,592
    )
    
    
    (744,447
    )
    
    
    (1,648,660
    )Cash Flows From Financing Activities:Cash distributions to stockholders
    
    
    (1,258,189
    )
    
    
    (963,400
    )
    
    
    (1,436,478
    )
    
    
    (936,478
    )
    
    
    (1,256,291
    )Net proceeds/(payments) on line of credit
    
    
    700,000
    
    
    
    1,350,000
    
    
    
    450,000
    
    
    
    (500,000
    )
    
    
    700,000Proceeds from long-term debt
    
    
    
    
    
    
    1,543,556
    
    
    
    1,262,616
    
    
    
    849,075
    
    
    
    2,181,935Repayment of long-term debt
    
    
    (229,892
    )
    
    
    (246,056
    )
    
    
    (643,684
    )
    
    
    (427,396
    )
    
    
    (746,524
    )Net cash provided by
(used in) financing
activities
    
    
    (788,081
    )
    
    
    1,684,100
    
    
    
    (367,546
    )
    
    
    (1,014,799
    )
    
    
    879,120Net increase (decrease)
in cash and cash
equivalents
    
    
    (82,474
    )
    
    
    467,010
    
    
    
    1,475,891
    
    
    
    (47,758
    )
    
    
    (1,180,942
    )Cash and Cash Equivalents, beginning of
period
    
    
    87,697
    
    
    
    5,223
    
    
    
    472,233
    
    
    
    472,233
    
    
    
    1,948,124Cash and Cash Equivalents, end of period
    
    $
    5,223
    
    
    $
    472,233
    
    
    $
    1,948,124
    
    
    $
    424,475
    
    
    $
    767,182Supplemental Cash and Non-Cash
ActivitiesCash paid for interest
    
    $
    140,834
    
    
    $
    209,691
    
    
    $
    508,378
    
    
    $
    256,095
    
    
    $
    326,188
 The accompanying notes are an integral part of these consolidated financial statements.
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ENERGY EQUIPMENT CORPORATION
 Notes to Consolidated Financial Statements
 December 31, 2004, 2005, 2006 and June 30, 2007  (Amounts after December 31, 2006 are Unaudited)
 1.
    
    Organization and Summary of Significant Accounting PoliciesA summary of the significant accounting policies consistently applied in the preparation of
the accompanying consolidated financial statements follows.Organization and Business ActivityEnergy Equipment Corporation (EEC, or collectively with its subsidiary, the Company) was
formed as a Corporation in the State of Texas on April 22, 1985.The Company is a manufacturer of gate valves, chokes, controls and their associated parts.
The Company is licensed to manufacture products that meet with API standards and also offers
equipment for subsea applications, extreme temperatures, pressures and depths, and highly
corrosive/erosive environments.Interim Financial InformationThe unaudited consolidated interim financial statements as of and for the six months ended
June 30, 2007 and 2006 have been prepared on the same basis as the consolidated financial
statements and all normal recurring adjustments have been made. The results of operations
for the interim periods may not give a true indication of results for a full year.Principles of ConsolidationThe consolidated financial statements include the accounts of EEC and its wholly-owned
subsidiary, Energy Equipment Corporation Limited. All intercompany balances and transactions
have been eliminated.Cash and Cash EquivalentsCash and cash equivalents include cash on-hand, cash in banks and all highly liquid
investments with a maturity of three months or less at the time of purchase.Accounts ReceivableTrade receivables are uncollaterized customer obligations due under normal trade terms
requiring payment within a set time from the invoice date. Payments of trade receivables are
allocated to the specific invoices identified on the customers remittance advice or, if
unspecified, are applied to the earliest unpaid invoices.The Company maintains allowances for doubtful accounts for estimated losses that may result
from the inability of its customers to make required payments. Such allowances are based
upon several factors including but not limited to, credit approval practices, industry.
 - 6 -




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ENERGY EQUIPMENT CORPORATION
 Notes to Consolidated Financial Statements
 December 31, 2004, 2005, 2006 and June 30, 2007  (Amounts after December 31, 2006 are Unaudited)
 1.
    
    Organization and
Summary of Significant Accounting Policies(continued)and customer historical experience, and the current and projected financial condition of the
specific customer. Accounts outstanding longer than contractual terms are considered past
due. The Company writes off accounts receivables when they become uncollectible. As of
December 31, 2004, 2005 and 2006, no allowance for doubtful accounts was deemed necessary.Revenue RecognitionRevenues are recognized when earned, generally upon shipment of materials to a customer.InventoryInventory is stated at the lower of cost, determined by using the weighted average cost
method, or market. Obsolete inventory is charged to expense or an inventory obsolescence
reserve is established to adjust inventory to its net realizable value.Shipping and HandlingInbound shipping and handling costs are classified as cost of sales. Outbound shipping and
handling costs billed to customers are classified as a reduction to cost of sales. Included
in cost of sales of the accompanying consolidated statements of operations are inbound
shipping and handling costs of approximately $175,000, $320,000 and $465,000, which were
offset by outbound shipping costs billed to customers of approximately $86,000, $189,000 and
$165,000 for the years ended December 31, 2004, 2005 and 2006, respectively.Property and EquipmentProperty and equipment acquired in the acquisition of Energy Equipment Corporation were
recorded at fair value. Subsequent purchases of property and equipment are carried at cost.
Property and equipment are depreciated over their estimated useful lives using the
straight-line method. Capitalized costs include those capital expenditures (unaudited) that
improve the efficiency of the assets or lengthen their useful lives. Expenditures for
maintenance and repairs are charged to expense as incurred. Costs and related accumulated
depreciation of assets sold or otherwise retired are removed from the accounts, and any
resulting gain or loss is reflected in income.GoodwillGoodwill represents the excess of purchase price over the estimated fair value of
identifiable net assets acquired through purchase transactions.
 - 7 -




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ENERGY EQUIPMENT CORPORATION
 Notes to Consolidated Financial Statements
 December 31, 2004, 2005, 2006 and June 30, 2007  (Amounts after December 31, 2006 are Unaudited)
 1.
    
    Organization and
Summary of Significant Accounting Policies (continued)Goodwill is tested annually for impairment. If the implied fair value is lower than its
carrying amount, goodwill impairment is indicated and goodwill is written down to its implied
fair value. Subsequent increases in goodwill value are not recognized in the consolidated
financial statements.Financial InstrumentsThe following methods and assumptions were used by the Company to estimate the fair values of
financial instruments as disclosed herein:Cash, accounts receivable, accounts payable and accrued expenses: The carrying amount
approximates fair value because of the short period to maturity of the instruments.Notes payable and line of credit: The carrying values approximate fair value because interest
rates thereon are either variable or approximate current market rates.Income TaxesEEC is an S Corporation for tax reporting purposes. As such, any federal tax liability is the
responsibility of the individual shareholders. At the discretion of the Board of Directors,
the Company makes distributions to assist its shareholders for payment of their respective
individual tax liabilities. The Company does not have state income tax obligations except for
franchise tax obligations in the State of Texas.In May of 2006, the State of Texas enacted substantial changes to its tax structure beginning
in 2007 by imposing a new tax based upon modified gross revenue. Under the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, the Company
determined that this tax is an income tax. The impact of change in tax legislation on deferred
income tax liabilities and assets will be recorded in the period of enactment. The initial
accounting for enactment of this income tax will not materially affect the results of
operations, financial condition or cash flows.AdvertisingAdvertising expenses are expensed during the year in which they are incurred.EstimatesManagement uses estimates and assumptions in preparing financial statements in accordance with
accounting principles generally accepted in the United States of America. Those estimates and
assumptions affect the reported amounts of assets and liabilities, and the disclosure of
contingent assets and liabilities. Actual results could vary from the estimates that were
used.
 - 8 -




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##### 



ENERGY EQUIPMENT CORPORATION
 Notes to Consolidated Financial Statements
 December 31, 2004, 2005, 2006 and June 30, 2007  (Amounts after December 31, 2006 are Unaudited)
 1.
    
    Organization and
Summary of Significant Accounting Policies (continued)Recent Accounting PronouncementsAccounting for Uncertainty in Income TaxesIn June 2006, FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement 109 Accounting for Income Taxes, was issued. FIN No. 48
describes accounting for uncertainty in income taxes, and includes a recognition threshold
and measurement attribute for recognizing the effect of a tax position taken or expected to
be taken in a tax return. FIN No 48 is effective for fiscal years beginning after December
15, 2006. Since the Company is a S corporation and is not a taxable entity, FIN No. 48 has
no impact on the Companys financial position, results of operations and cash flows, except
as it relates to the franchise obligation in the State of Texas. The implementation of FIN
No. 48 on January 1, 2007 had no material impact on the Company.Accounting for Fair Value MeasurementsIn September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 157 Fair Value Measurements(SFAS No. 157).
SFAS No. 157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP) and expands disclosures about fair value
measurements. SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007. The Company is currently evaluating the impact that this
interpretation may have on its consolidated financial statements.The interim financial information for the consolidated balance sheet ended June 30, 2007, the
consolidated statements of stockholders equity for the six months ended June 30, 2007, and
the consolidated statements of income and consolidated statements of cash flows for the six
months ended June 30, 2007 and 2006 are unaudited and has been prepared on the same basis as
the audited financial statements. In the opinion of management, such unaudited financial
information includes all adjustments necessary for a fair presentation of the interim
information.
 - 9 -




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##### 



ENERGY EQUIPMENT CORPORATION
 Notes to Consolidated Financial Statements
 December 31, 2004, 2005, 2006 and June 30, 2007  (Amounts after December 31, 2006 are Unaudited)
 2.
    
    InventoryInventory consists of the following at December 31, 2004, 2005, 2006 and June 30, 2007:
 2004
    
    
    2005
    
    
    2006
    
    
    June 30, 2007(Unaudited)Finished goods
    
    $
    2,582,462
    
    
    $
    4,725,451
    
    
    $
    6,191,915
    
    
    $
    6,491,948Work-in-progress
    
    
    841,240
    
    
    
    2,009,882
    
    
    
    3,015,480
    
    
    
    4,291,363Raw materials
    
    
    380,609
    
    
    
    1,113,652
    
    
    
    1,899,037
    
    
    
    1,182,030Total
    
    $
    3,804,311
    
    
    $
    7,848,985
    
    
    $
    11,106,432
    
    
    $
    11,965,341
 3.
    
    Property and EquipmentAt December 31, 2004, 2005, 2006 and June 30, 2007, property and equipment consisted of the
following:
 Life
    
    December 31,(Years)
    
    2004
    
    
    2005
    
    
    2006
    
    
    June 30, 2007(Unaudited)Land
    
    
    
    $
    118,594
    
    
    $
    128,214
    
    
    $
    157,793
    
    
    $
    164,543Building
    
    39
    
    
    735,638
    
    
    
    896,952
    
    
    
    1,003,057
    
    
    
    1,026,618Machinery and
equipment
    
    5  7
    
    
    2,291,576
    
    
    
    4,263,416
    
    
    
    6,275,403
    
    
    
    7,189,404Office furniture
and equipment
    
    5  7
    
    
    46,153
    
    
    
    71,203
    
    
    
    74,445
    
    
    
    80,372Computers
    
    3  5
    
    
    284,210
    
    
    
    319,425
    
    
    
    392,041
    
    
    
    408,586Trucks
    
    5
    
    
    41,710
    
    
    
    83,359
    
    
    
    124,706
    
    
    
    124,7063,517,881
    
    
    
    5,762,569
    
    
    
    8,027,445
    
    
    
    8,994,229Accumulated
depreciation and
amortization
    
    
    
    
    (1,513,152
    )
    
    
    (2,054,296
    )
    
    
    (2,902,884
    )
    
    
    (3,505,866
    )$
    2,004,729
    
    
    $
    3,708,273
    
    
    $
    5,124,561
    
    
    $
    5,488,363
 Depreciation expense for the years ended December 31, 2004, 2005 and 2006 was $470,884,
$593,441 and $1,033,056, respectively. Depreciation expense for the six months ended June
30, 2006 and 2007 was $492,008 (unaudited) and $602,982 (unaudited), respectively.
 - 10 -




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##### 



ENERGY EQUIPMENT CORPORATION
 Notes to Consolidated Financial Statements
 December 31, 2004, 2005, 2006 and June 30, 2007  (Amounts after December 31, 2006 are Unaudited)
 4.
    
    Construction in ProgressThe Company began construction on a new building in 2006 to increase the size of its
facility. The cost of construction incurred on the facility was $798,644 at December 31,
2006. The cumulative cost incurred was $1,480,520 at June 30, 2007 (unaudited). The Company
will begin depreciating this addition when it is completed after June 30, 20075.
    
    Long-Term DebtNotes PayableA summary of notes payable at December 31, 2004, 2005 and 2006 follows:
 December 31,2004
    
    
    2005
    
    
    2006Note payable to bank carrying interest at a
rate of 5.00% annually. Payments are made in
monthly installments of $5,082, including
interest. The loan is secured by real estate
and matures in March 2007
    
    $
    508,552
    
    
    $
    479,683
    
    
    $
    457,671Note payable to a bank carrying interest at a
rate of 4.25% annually. Payments are made in
monthly installments of $4,135, including
interest. The loan is secured by inventory
and accounts receivable and matures in
December 2008
    
    
    184,822
    
    
    
    143,389
    
    
    
    101,865Notes payable to banks and financing
companies carrying interest at rates ranging
from 7.50% to prime plus .50 (9.00% at
December 31, 2006). Payments are made in
monthly installments ranging from $243 to
$5,780, including interest. These loans are
secured by equipment and mature December 2007
through July 2010
    
    
    868,267
    
    
    
    797,415
    
    
    
    419,402Notes payable to banks and financing
companies carrying interest at rates ranging
from 7.50% to prime plus .75 (9.25% at
December 31, 2006). Payments are made in
monthly installments ranging from $989 to
$12,184, including interest. These loans are
secured by equipment and mature May 2010
through October 2013
    
    
    
    
    
    
    1,438,654
    
    
    
    1,867,767Note payable to a bank carrying interest at a
rate of prime plus .75 (9.25% at December 31,
2006). Payments are made in monthly
installments of $9,823, including interest.
The loan is secured by equipment and matures
in January 2013
    
    
    
    
    
    
    
    
    
    
    631,368Notes payable to shareholders carrying
interest at rates from 8.00% to 10.00%.
Interest payments are made semi-annually.
The notes mature July 2008 and are secured by
common stock of the Company
    
    
    645,784
    
    
    
    645,784
    
    
    
    645,7842,207,425
    
    
    
    3,504,925
    
    
    
    4,123,857Less: current portion
    
    
    (204,771
    )
    
    
    (568,983
    )
    
    
    (1,174,705
    )Total long-term debt
    
    $
    2,002,654
    
    
    $
    2,935,942
    
    
    $
    2,949,152
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##### 



ENERGY EQUIPMENT CORPORATION
 Notes to Consolidated Financial Statements
 December 31, 2004, 2005, 2006 and June 30, 2007  (Amounts after December 31, 2006 are Unaudited)
 5.
    
    Long-Term Debt(continued)In January 2007, the Company entered into a financing agreement with a financial institution
for $661,935 at an interest rate of prime plus .75. Payments are made in monthly
installments of $9,190 plus interest to purchase a Toyoda machine. The loan is secured by
equipment and matures on December 29, 2011.On May 17, 2007, the Company restructured its construction loan agreement increasing the term
note to $1,520,000 from a balance of $457,761 at December 31, 2006. Interest is at 7.5% p.a.
and payable monthly. Payments are made in monthly installments of $12,245, including
interest. The note matures on May 27, 2014. The loan is collaterized by the land and
building owned by the Company and is subject to certain financial covenants. The
restructured note is guaranteed by the majority stockholder.Aggregate maturities of notes payable for the years following December 31, 2006 are as
follows:
 AmountFiscal Years Ending December 31,2007
    
    $
    1,174,7052008
    
    
    1,187,2562009
    
    
    432,0392010
    
    
    522,4742011
    
    
    351,881Thereafter
    
    
    455,502Total
    
    $
    4,123,857
 6.
    
    Line of CreditThe Company has an outstanding line of credit with a bank in the amount of $4,000,000. The
agreement expires in April 2007. Subsequent to year-end, the agreement was extended through
April 2008. Outstanding advances under the line of credit were $700,000, $2,050,000 and
$2,500,000 at December 31, 2004, 2005, and 2006, respectively. The outstanding balance was
$3,200,000 (unaudited) at June 30, 2007. Interest at prime minus .75% (7.75% at December 31,
2006) is payable monthly. The outstanding advances are collateralized by accounts
receivable, inventory and equipment. The line of credit is subject to certain financial
covenants. At December 31, 2006, the Company was in compliance with these covenants.
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##### 



ENERGY EQUIPMENT CORPORATION
 Notes to Consolidated Financial Statements
 December 31, 2004, 2005, 2006 and June 30, 2007  (Amounts after December 31, 2006 are Unaudited)
 7.
    
    Related Party TransactionsAt December 31, 2004, 2005, 2006 and June 30, 2007, the Company was obligated under secured
notes to certain stockholders for $645,784 (see Note 5).8.
    
    Deferred RevenuesDeferred revenue represents unearned income generated from the invoice and billing of
customers whose inventory had not shipped at December 31, 2006. There was no unearned
revenue at December 31, 2004 and 2005.9.
    
    Financial Instruments and Concentration of Credit RiskThe Company had sales to one major customer totaling approximately 24%, 20% and 11% of total
revenues for the years ended December 31, 2004, 2005 and 2006, respectively.At December 31, 2004, 2005 and 2006, two, three, and three customers made up approximately
45%, 47% and 42%, of total accounts receivable, respectively. The Company maintains cash on
deposit account in excess of federally insured limits. The Company maintains cash on deposit
account in excess of federally insured limits.10.
    
    Retirement PlanThe Company has a section 401k plan for the benefit of all full-time employees. Under the
provisions of the plan, the Company may match a maximum of 50% of the first 3% of employee
contributions. For the years ended December 31, 2004, 2005 and 2006, the Company made
contributions of $19,700, $26,168 and $33,031, respectively to the Plan. Contributions for
the six months ended June 30, 2006 and 2007 amounted to $15,640 (unaudited) and $19,748
(unaudited), respectively.11.
    
    Subsequent EventsOn July 24, 2007, the Company signed a letter of intent with T-3 Energy Services (T-3)
which sets forth the principal terms and conditions of a proposed acquisition by T-3 to
acquire all the outstanding capital stock of the Company for a purchase price of
approximately $68,560,000.
 - 13 -