##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                      to
 Commission File Number: 000-24684
 ADUDDELL INDUSTRIES, INC.
  Oklahoma
    
    73-1587867(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1601 N.W. ExpresswayOklahoma City, Oklahoma
    
    73118(Address of principal executive offices)
    
    (Zip Code)
    þ o
  o o þ
  o þ




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##### 



PagePart I  Financial Information
    
    
    1Item 1. Financial Statements
    
    
    1Consolidated Balance Sheets
    
    
    1Consolidated Statements of Operations
    
    
    3Consolidated Statements of Cash Flows
    
    
    4Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28Part II  Other Information
    
    
    28Item 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Defaults Upon Senior Securities
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 5. Other Information
    
    
    30Item 6. Exhibits
    
    
    30Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Section 1350 Certification of Chief Executive OfficerSection 1350 Certification of Chief Financial Officer




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Cautionary Statement Regarding Forward-Looking Information
  
    
    our ability to expand our markets and maintain or increase profit margins;
    
    actions of our competitors;
    
    statements regarding our anticipated revenues, expense levels, liquidity and capital
resources and projections of positive operating cash flow; andthe matters described under Part II  Item 1A  Risk Factors and in our 2006 Form 10-K.




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 
 PART I FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)AssetsCurrent AssetsCash
    
    $
    
    
    
    $
    Contracts receivable, net of allowance
for doubtful accounts
    
    
    13,150,504
    
    
    
    13,662,030Costs and estimated earnings in excess of
billings on uncompleted contracts
    
    
    5,094,107
    
    
    
    2,298,191Inventory
    
    
    556,724
    
    
    
    472,588Income tax receivable
    
    
    376,469
    
    
    
    2,254,469Prepaid expenses
    
    
    132,828
    
    
    
    268,108Related party receivable
    
    
    
    
    
    
    60,088Deposits
    
    
    731,164
    
    
    
    252,710Employee and other receivables, net of
allowance for doubtful accounts
    
    
    28,247
    
    
    
    31,48420,070,043
    
    
    
    19,299,668Property and EquipmentField and shop equipment
    
    
    4,341,948
    
    
    
    4,023,879Office furniture and equipment
    
    
    1,139,475
    
    
    
    1,263,131Transportation equipment
    
    
    4,000,677
    
    
    
    3,931,118Land
    
    
    138,239
    
    
    
    Leasehold improvements
    
    
    227,413
    
    
    
    203,8969,847,752
    
    
    
    9,422,024Less: accumulated depreciation
    
    
    (2,410,333
    )
    
    
    (1,584,170
    )7,437,419
    
    
    
    7,837,854OtherIntangible asset customer lists, net
    
    
    5,664,213
    
    
    
    6,112,054Deferred tax asset
    
    
    724,985
    
    
    
    66,000Investments
    
    
    25,757
    
    
    
    25,1566,414,955
    
    
    
    6,203,210$
    33,922,417
    
    
    $
    33,340,732
  1




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)Liabilities and Shareholders EquityCurrent portion of long term debt
    
    
    269,174
    
    
    
    214,343Current portion of long-term acquisition payable
    
    
    162,166
    
    
    
    816,667Advances on line of credit
    
    
    9,349,824
    
    
    
    9,407,272Bank overdraft
    
    
    85,513
    
    
    
    732,778Accounts and subcontract payables
    
    
    12,012,801
    
    
    
    7,122,863Accrued liabilities
    
    
    718,420
    
    
    
    812,779Income tax payable
    
    
    
    
    
    
    Billings in excess of costs and estimated
earnings on uncompleted contracts
    
    
    885,132
    
    
    
    1,058,16823,483,030
    
    
    
    20,164,870Long-Term Debt (Net of Current Portion)
    
    
    506,125
    
    
    
    539,975Long-Term Acquisition Payable (Net of Current Portion)
    
    
    816,667
    
    
    
    978,833Shareholders EquityPreferred stock ($0.001 par value, 20,000,000
shares authorized, no shares issued and
outstanding)
    
    
    
    
    
    
    Common stock ($0.001 par value, 100,000,000
shares authorized, 53,965,854 and 52,799,191
shares issued and outstanding at June 30, 2007
and December 31, 2006)
    
    
    52,966
    
    
    
    52,799Paid-in capital
    
    
    5,515,730
    
    
    
    4,699,230Unrealized gain (loss) on available-for-sale securities
    
    
    2,786
    
    
    
    703Retained earnings
    
    
    3,545,112
    
    
    
    6,904,3229,116,594
    
    
    
    11,657,054$
    33,922,417
    
    
    $
    33,340,732
  2




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ADUDDELL INDUSTRIES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    14,434,376
    
    
    $
    8,637,728
    
    
    $
    24,386,618
    
    
    $
    12,372,306Operating ExpensesCost of sales
    
    
    11,937,500
    
    
    
    7,902,525
    
    
    
    20,910,887
    
    
    
    10,750,521Selling, general and administrative
    
    
    3,343,658
    
    
    
    575,898
    
    
    
    7,445,057
    
    
    
    1,888,463Warranty expense
    
    
    166,190
    
    
    
    36,228
    
    
    
    190,402
    
    
    
    86,78315,447,348
    
    
    
    8,514,651
    
    
    
    28,546,346
    
    
    
    12,725,767Operating Income (Loss)
    
    
    (1,012,971
    )
    
    
    123,077
    
    
    
    (4,159,727
    )
    
    
    (353,461
    )Other IncomeInterest and dividend income
    
    
    83,506
    
    
    
    79,925
    
    
    
    84,627
    
    
    
    281,956Gain(loss) on sale of equipment
    
    
    (5,340
    )
    
    
    22,739
    
    
    
    (5,555
    )
    
    
    26,239Other income
    
    
    36,163
    
    
    
    39,211
    
    
    
    64,541
    
    
    
    47,300113,899
    
    
    
    141,875
    
    
    
    143,613
    
    
    
    355,495Net Income (Loss) from Operations
Before Income Taxes
    
    
    (899,072
    )
    
    
    264,952
    
    
    
    (4,016,114
    )
    
    
    2,034Provision (benefit) for income taxes:Current
    
    
    (351,450
    )
    
    
    45,800
    
    
    
    (1,567,096
    )
    
    
    5,800Deferred
    
    
    193,614
    
    
    
    58,000
    
    
    
    908,111
    
    
    
    (22,000
    )(157,836
    )
    
    
    103,800
    
    
    
    (658,985
    )
    
    
    (16,200
    )Net Income (Loss)
    
    
    (741,236
    )
    
    
    161,152
    
    
    
    (3,357,129
    )
    
    
    18,234Other Comprehensive IncomeUnrealized holding gains (losses)
    
    
    (2,082
    )
    
    
    25,830
    
    
    
    (2,082
    )
    
    
    54,235Reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive Income (Loss)
    
    $
    (743,318
    )
    
    $
    186,982
    
    
    $
    (3,359,211
    )
    
    $
    72,469Basic Net Income (Loss) per
Common Share
    
    $
    (.01
    )
    
    $
    
    
    
    $
    (.06
    )
    
    $
    Diluted Net Income (Loss) per
Common Share
    
    $
    N/A
    
    
    $
    
    
    
    $
    N/A
    
    
    $
    Weighted Average Common
Shares Basic
    
    
    53,965,854
    
    
    
    50,187,921
    
    
    
    53,965,854
    
    
    
    50,187,921Weighted Average Common
Shares Assuming Dilution
    
    
    N/A
    
    
    
    83,666,739
    
    
    
    N/A
    
    
    
    83,666,739
  3




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ADUDDELL INDUSTRIES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)Cash Flows from Operating ActivitiesNet income (loss)
    
    $
    (3,357,129
    )
    
    $
    18,234Reconciliation of net income (loss) to net cashProvided (used) by operating activities:Depreciation and amortization
    
    
    1,471,851
    
    
    
    272,154Bad Debt Expense
    
    
    
    
    
    
    87,000Issuance of debt for interest expense
    
    
    
    
    
    
    (Gain) Loss on sale of property and equip
    
    
    5,555
    
    
    
    (26,238
    )(Increase) Decrease from changes in:Accounts receivable
    
    
    511,526
    
    
    
    (4,317,879
    )Costs and estimated earnings in excess of
billings on uncompleted contracts
    
    
    (2,795,916
    )
    
    
    247,316Inventory
    
    
    (84,136
    )
    
    
    Income tax receivable
    
    
    1,878,000
    
    
    
    (159,017
    )Related party receivable
    
    
    60,088
    
    
    
    (40,787
    )Deposits
    
    
    (478,454
    )
    
    
    Deferred taxes
    
    
    (658,985
    )
    
    
    Prepaid expenses
    
    
    135,279
    
    
    
    (261,959
    )Employee and other receivables
    
    
    3,237
    
    
    
    (10,477
    )Intangible asset customer list
    
    
    (167,174
    )
    
    
    (392,537
    )Increase (Decrease) from changes in:Bank overdraft
    
    
    (647,265
    )
    
    
    Accounts payable
    
    
    4,889,938
    
    
    
    (8,630,049
    )Insurance payable
    
    
    (39,504
    )
    
    
    70,678Accrued liabilities
    
    
    (54,855
    )
    
    
    507,864Income tax payable
    
    
    
    
    
    
    (5,349,105
    )Billings in excess of costs and estimated
earnings on uncompleted contracts
    
    
    (173,036
    )
    
    
    155,426Deferred taxes
    
    
    
    
    
    
    (22,000
    )Net adjustments to net income (loss)
    
    
    3,856,150
    
    
    
    (17,869,610
    )Net cash provided (used) by operating activities
    
    
    499,022
    
    
    
    (17,851,376
    )
  4




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)Cash Flows from Investing ActivitiesPurchase of Investments
    
    
    (601
    )Proceeds from sale of property and equipment
    
    
    7,000
    
    
    
    35,363Purchase of property and equipment
    
    
    (468,954
    )
    
    
    (2,633,033
    )Net cash used by investing activities
    
    
    (462,555
    )
    
    
    (2,597,670
    )Cash Flows from Financing ActivitiesProceeds from long-term debt
    
    
    20,981
    
    
    
    Net change in line of credit
    
    
    (57,448
    )Retirement of long-term debt
    
    
    (816,667
    )
    
    
    (298,671
    )Proceeds from issuance of stock
    
    
    816,667
    
    
    
    120,000Net cash provided (used) by financing activities
    
    
    (36,467
    )
    
    
    (178,671
    )Net Increase (Decrease) in Cash
    
    
    
    
    
    
    (20,627,717
    )Cash at Beginning of Period
    
    
    
    
    
    
    22,330,751Cash at End of Period
    
    $
    
    
    
    $
    1,703,034Supplemental Disclosure of Cash Flow
InformationCash paid for:Interest
    
    $
    478,968
    
    
    $
    30,902Taxes
    
    
    
    
    
    
    Supplemental Schedule of Non-Cash
Investing and Financing ActivitiesFixed asset additions
    
    $
    468,954
    
    
    $
    135,220Liabilities assumed or incurred
    
    $
    468,954
    
    
    $
    135,220Common stock issued for services
    
    $
    
    
    
    $
    205,000
  5




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##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Organization and Nature of Business
      6




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##### Table of Contents



Basis of Presentation
  Revenue Recognition
   Cash and Cash Equivalents
  Inventory
  7




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##### Table of Contents



Investments
 Statement of Financial
Accounting Standards No. 115 Accounting for Certain Investments in Debt and Equity Securities
(SFAS No. 115).
 SFAS No. 115
 Intangible Assets
 Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets SFAS No.
142 SFAS No. 142
 Fair Value of Financial Instruments
  Share-Based Compensation
 Statement of Financial Accounting Standards No. 123R,
Share-Based Payments
 8




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##### Table of Contents



Depreciation
  Classification
    
    
    Estimated Useful LifeField and shop equipment
    
    
    5  7   YearsOffice furniture and equipment
    
    
    5  10  YearsTransportation equipment
    
    
    3  7   YearsLeasehold improvements
    
    
    15  39 Years
 Income Taxes
 Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS No. 109) SFAS No. 109 SFAS No. 109
   Net Income (Loss) Per Common Share
 SFAS No. 128 Earnings per
Share SEC Staff Accounting Bulletin No. 98 (SAB 98). SFAS No. 128 SAB 98,
 Use of Estimates
  9




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NOTE 2  ACQUISITIONS
      10




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##### Table of Contents



NOTE 3  CONTRACTS RECEIVABLE
  June 30,
    
    
    December 31,2007
    
    
    2006Completed contracts
    
    $
    7,632,157
    
    
    $
    2,465,564Contracts in progress
    
    
    3,788,351
    
    
    
    9,139,408Retainage
    
    
    1,729,996
    
    
    
    2,057,05813,150,504
    
    
    
    13,662,030Less allowance for doubtful amounts
    
    
    
    
    
    
    $
    13,150,504
    
    
    $
    13,662,030
 NOTE 4  UNCOMPLETED CONTRACTS
  June 30,
    
    
    December 31,2007
    
    
    2006Costs incurred on uncompleted contracts
    
    $
    26,139,272
    
    
    $
    29,126,527Estimated earnings
    
    
    4,631,947
    
    
    
    145,50830,771,219
    
    
    
    29,272,035Billings to date
    
    
    26,562,244
    
    
    
    28,032,012$
    4,208,975
    
    
    $
    1,240,023
  June 30,
    
    
    December 31,2007
    
    
    2006Costs and estimated earnings in excess of
billings on uncompleted contracts
    
    $
    5,094,107
    
    
    $
    2,298,191Billings in excess of costs and estimated
earnings on uncompleted contracts
    
    
    (885,132
    )
    
    
    (1,058,168
    )$
    4,208,975
    
    
    $
    1,240,023
 NOTE 5  LETTER OF CREDIT
  NOTE 6  LINE OF CREDIT
  11




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##### Table of Contents



NOTE 7  LONG-TERM DEBT
  June 30
    
    
    December 31,2007
    
    
    20066.63% to 21% notes payable secured by
equipment, due in varying monthly installments
through May 2010
    
    $
    57,529
    
    
    $
    68,1246% to 8.25% notes payable secured by
transportation equipment, due in varying
monthly installments through January 2012
    
    
    717,770
    
    
    
    686,194775,299
    
    
    
    754,318Less: current portion of long-term debt
    
    
    269,174
    
    
    
    214,343$
    506,125
    
    
    $
    539,975
  Year
    
    Amount2008
    
    $
    269,1742009
    
    
    407,3742010
    
    
    56,8462011
    
    
    39,4112012
    
    
    2,494$
    755,299
  NOTE 8  PENSION PLAN
 Internal Revenue Code
 12




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NOTE 9  STOCK OPTIONS
 Common Stock Options and Other Warrants
  Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageJune 30,
    
    
    Exercise
    
    
    June 30,
    
    
    Exercise2007
    
    
    Price
    
    
    2006
    
    
    PriceOptions outstanding beginning of
quarter
    
    
    32,353,818
    
    
    $
    .12
    
    
    
    34,850,000
    
    
    $
    .12Options issued during the quarter
    
    
    
    
    
    
    
    
    
    
    525,000
    
    
    
    .83Options exercised during the quarter
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options cancelled during the quarter
    
    
    20,000
    
    
    
    
    
    
    
    1,971,182
    
    
    
    .23Options expired during the quarter
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options outstanding end of quarter
    
    
    32,333,818
    
    
    $
    .12
    
    
    
    33,403,818
    
    
    $
    .13
 Options Issued Under 2005 Stock Incentive Plan
 Section
422 Internal Revenue Code of 1986
  13




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##### Table of Contents



Options Issued Prior to the 2005 Stock Incentive Plan
   Options Outstanding
    
    Options ExercisableWeighted-Average
    
    Weighted-
    
    
    
    
    
    Weighted-Range of
    
    Number
    
    Remaining
    
    Average
    
    Number
    
    AverageExercise
    
    Outstanding
    
    Contractual
    
    Exercise
    
    Exercisable
    
    ExercisePrices
    
    at 6/30/07
    
    Life
    
    Price
    
    at 6/30/07
    
    Price.04
    
    
    28,528,818
    
    
    No term
    
    
    .04
    
    
    
    28,528,818
    
    
    
    .04.08  .10
    
    
    200,000
    
    
    No term
    
    
    .10
    
    
    
    200,000
    
    
    
    .10.70  1.38
    
    
    3,605,000
    
    
    10 year
    
    
    .78
    
    
    
    1,255,000
    
    
    
    .7832,333,818
    
    
    
    
    
    .12
    
    
    
    29,983,818
    
    
    
    .12
 14




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##### Table of Contents



NOTE 10  INCOME TAXES
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Current tax provision (benefit)
    
    $
    (351,450
    )
    
    $
    45,800
    
    
    $
    (1,567,096
    )
    
    $
    5,800Deferred tax provision (benefit)
    
    
    193,614
    
    
    
    58,000
    
    
    
    908,111
    
    
    
    (22,000
    )Total provision (benefit) for income taxes
    
    $
    (157,836
    )
    
    $
    103,800
    
    
    $
    (658,985
    )
    
    $
    (16,200
    )
  June 30, 2007
    
    June 30, 2006Statutory federal income tax rate
    
    
    34.0
    %
    
    
    34.0
    %State tax effective rate
    
    
    5.0
    %
    
    
    5.0Permanent differences
    
    
    
    
    
    
    Benefit of graduated tax rates
    
    
    
    
    
    
    Prior year assessments finalized
    
    
    
    
    
    
    Increase in valuation allowance
    
    
    (23.0
    %)
    
    
    (47.0
    %)Other
    
    
    
    
    
    
    16.0
    %
    
    
    (8.0
    %)
   15




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##### Table of Contents



June 30,
    
    
    December 31,2007
    
    
    2006Deferred tax liability on depreciation
    
    $
    (727,000
    )
    
    $
    (150,000
    )Deferred tax asset for loss carry forward and
share-based compensation
    
    
    1,654,985
    
    
    
    419,000Deferred tax asset
    
    
    927,985
    
    
    
    269,000Less: valuation allowance
    
    
    203,000
    
    
    
    203,000Net deferred tax asset (liability)
    
    $
    724,985
    
    
    $
    66,000
 NOTE 11  RELATED PARTY TRANSACTIONS
    NOTE 12  BACKLOG
  NOTE 13  SHARE BASED COMPENSATION
   16




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##### Table of Contents



NOTE 14  EARNINGS PER SHARE
 June 30,
    
    
    June 30,2007
    
    
    2006Basic net income (loss) per share:Common shares outstanding
    
    
    53,965,854
    
    
    
    50,187,921Weighted average shares outstanding
    
    
    53,965,854
    
    
    
    50,187,921Net Income (Loss) per share
    
    $
    0.00
    
    
    $
    0.00Diluted net income (loss) per common share:Common shares outstanding
    
    
    N/A
    
    
    
    83,666,739Weighted average shares outstanding
    
    
    N/A
    
    
    
    83,666,739Net Income (Loss) per share
    
    $
    N/A
    
    
    $
    0.00
  NOTE 15  LEASES
    Year
    
    Amount2007 (6 months)
    
    $
    76,7682008
    
    
    147,1362009
    
    
    121,8362010
    
    
    5,428$
    351,168
    17




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##### Table of Contents



NOTE 16  COMMITMENTS AND CONTINGENCIES
  Federal Deposit Insurance Corporation
  Lawsuit
     18




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##### Table of Contents



NOTE 17  CONCENTRATIONS
    19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Introduction
      20




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##### Table of Contents



Three months
    
    
    
    
    
    Three months
    
    Six months
    
    
    
    
    
    Six monthsended
    
    % Increase
    
    ended
    
    ended
    
    % Increase
    
    endedJune 30, 2007
    
    (Decrease)
    
    June 30, 2006
    
    June 30, 2007
    
    (Decrease)
    
    June 30, 2006Aduddell Roofing Revenue
    
    $
    7,927,299
    
    
    
    (8.2
    )%
    
    $
    8,637,728
    
    
    $
    14,583,845
    
    
    
    17.9
    %
    
    $
    12,372,306Aduddell Restoration
Revenue
    
    
    6,274,773
    
    
    
    
    
    
    
    
    
    
    
    9,460,244
    
    
    
    
    
    
    
    E2MS Revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Revenue
    
    
    232,305
    
    
    
    
    
    
    
    
    
    
    
    342,530
    
    
    
    
    
    
    
    Total Revenue
    
    $
    14,434,376
    
    
    
    67.1
    %
    
    $
    8,637,728
    
    
    $
    24,386,618
    
    
    
    97.1
    %
    
    $
    12,372,306Aduddell Roofing Gross
Margin
    
    $
    (209,054
    )
    
    
    (128.4
    )%
    
    $
    735,203
    
    
    $
    74,981
    
    
    
    (95.4
    )%
    
    $
    1,621,785Aduddell Restoration
Gross Margin
    
    
    2,056,229
    
    
    
    
    
    
    
    
    
    
    
    3,061,258
    
    
    
    
    
    
    
    E2MS Gross Margin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Gross Margin
    
    
    232,305
    
    
    
    
    
    
    
    
    
    
    
    342,530
    
    
    
    
    
    
    
    Total Gross Margin
    
    $
    2,079,480
    
    
    
    182.8
    %
    
    $
    735,203
    
    
    $
    3,475,731
    
    
    
    114.3
    %
    
    $
    1,621,785Cash Flow from Operations
    
    $
    812,398
    
    
    
    548.5
    %
    
    $
    (3,643,326
    )
    
    $
    499,022
    
    
    
    3,680.9
    %
    
    $
    (17,869,610
    )EBITDA
    
    $
    2,572
    
    
    
    (99.5
    )%
    
    $
    533,334
    
    
    $
    (2,146,449
    )
    
    
    (467.5
    )%
    
    $
    584,140Net Income (Loss)
    
    $
    (743,318
    )
    
    
    (497.5
    )%
    
    $
    186,982
    
    
    $
    (3,359,211
    )
    
    
    (4,735.4
    )%
    
    $
    72,469Free Cash Flow
    
    $
    683,418
    
    
    
    961.2
    %
    
    $
    (5,885,876
    )
    
    $
    30,068
    
    
    
    6,828.7
    %
    
    $
    (20,502,643
    )
  Cash Flow from Operations
    
    $
    812,398
    
    
    $
    (3,643,326
    )
    
    $
    499,022
    
    
    $
    (17,869,610
    )Capital Expenditures
    
    
    128,980
    
    
    
    2,242,550
    
    
    
    468,954
    
    
    
    2,633,033Free Cash Flow
    
    
    683,418
    
    
    
    (5,885,876
    )
    
    
    30,068
    
    
    
    (20,502,643
    )
 21




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##### Table of Contents



Net Income
    
    $
    (743,318
    )
    
    $
    186,982
    
    
    $
    (3,359,211
    )
    
    $
    72,469Interest (Income)
    
    
    179,601
    
    
    
    79,925
    
    
    
    394,341
    
    
    
    281,956(Gain) Loss on Sale
of Equipment
    
    
    5,555
    
    
    
    (22,739
    )
    
    
    5,555
    
    
    
    (26,239
    )Provision (Benefit)
for Income Taxes
    
    
    (157,836
    )
    
    
    103,800
    
    
    
    (658,985
    )
    
    
    (16,200
    )Depreciation
    
    
    718,570
    
    
    
    185,366
    
    
    
    1,471,851
    
    
    
    272,154EBITDA
    
    
    2,572
    
    
    
    533,334
    
    
    
    (2,146,449
    )
    
    
    584,140
    22




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##### Table of Contents



Critical Accounting Policies and Estimates
 Basis of Presentation
  Revenue Recognition
   Cash and Cash Equivalents
  Investments
 Statement of Financial
Accounting Standards No. 115 Accounting for Certain Investments in Debt and Equity Securities
(SFAS No. 115).
 23




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##### Table of Contents



SFAS No. 115
 Fair Value of Financial Instruments
  Share-Based Compensation
 Statement of Financial Accounting Standards No. 123R,
Share-Based Payments
 Income Taxes
 Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS No. 109) SFAS No. 109 SFAS No. 109
   24




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##### Table of Contents



Net Income (Loss) Per Common Share
 SFAS No. 128 Earnings per
Share SEC Staff Accounting Bulletin No. 98 (SAB 98). SFAS No. 128 SAB 98,
 Property and Equipment
  Changes from the Prior Period
  Results of Operations
 Comparison of 2nd Quarter 2007 and 2006
 Revenues
 Operating Expenses
 Income (Loss) before Provision for Income Taxes
 25




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##### Table of Contents



Net Income (Loss).
 Comparison of six months ended June 30, 2007 and 2006
 Revenues
 Operating Expenses
 Income (Loss) before Provision for Income Taxes
 Net Income (Loss).
 Off-Balance Sheet Arrangements
  Seasonality
  26




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##### Table of Contents



Commitments and Contingencies
    Liquidity and Capital Resources
     Adequacy of Current Liquidity
  27




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
   
 PART II OTHER INFORMATION
 
 Item 1. Legal Proceedings
   28




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##### Table of Contents



Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  29




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##### Table of Contents



Votes
    
    Votes
    
    
    
    
    
    Broker Non-Director
    
    Votes For
    
    Against
    
    Withheld
    
    Abstentions
    
    VotesDavid Aduddell
    
    
    51,224,839
    
    
    
    
    
    
    
    468,728
    
    
    
    
    
    
    
    Tim Aduddell
    
    
    51,224,839
    
    
    
    
    
    
    
    468,728
    
    
    
    
    
    
    
    Ron Carte
    
    
    51,193,789
    
    
    
    
    
    
    
    499,778
    
    
    
    
    
    
    
    Stan Genega
    
    
    51,211,039
    
    
    
    
    
    
    
    482,528
    
    
    
    
    
    
    
    Thomas Parrish
    
    
    51,223,239
    
    
    
    
    
    
    
    470,328
    
    
    
    
    
    
    
    Jerry Whitlock
    
    
    51,223,239
    
    
    
    
    
    
    
    470,328
    
    
    
    
    
    
    
    
  Votes
    
    Votes
    
    
    
    BrokerFor
    
    Against
    
    Abstentions
    
    Non-Votes51,009,285
    
    33,069
    
    651,213
    
    
 
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit No.
    
    Description of Exhibit31.1
    
    
    Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 200231.2
    
    
    Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 200232.1
    
    
    Section 1350 Certification of Chief Executive Officer32.2
    
    
    Section 1350 Certification of Chief Financial Officer
 30




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.August 14, 2007
    By:
    /s/  Stan GenegaStan Genega, PresidentAugust 14, 2007
    By:
    /s/ Reggie CookReggie Cook, Chief Financial Officer(Principal Accounting Officer) 31




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##### Table of Contents



EXHIBITNO.
    
    DESCRIPTION
    
    METHOD OF FILING31.1
    
    Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 2002
    
    Filed herewith electronically31.2
    
    Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 2002
    
    Filed herewith electronically32.1
    
    Section 1350 Certification of Chief Financial Officer
    
    Filed herewith electronically32.2
    
    Section 1350 Certification of Chief Financial Officer
    
    Filed herewith electronically
 32