U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               AMENDMENT NO. 2 TO

                                   FORM 10-KSB

(Mark One)
|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                   For the fiscal year ended December 31, 2004

|_|   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 000-30291

                           EXCALIBUR INDUSTRIES, INC.
           (Name of small business issuer as specified in its charter)

               Delaware                                       03-0453686
   (State or other jurisdiction of                         (I.R.S. Employer
    incorporation or organization)                        Identification No.)

                                  12060 FM 3083
                               Conroe, Texas 77301
          (Address of principal executive offices, including zip code)

    Registrant's  telephone  number,   including  area  code:  (936)
    539-9533 Securities  registered pursuant to Section 12(b) of the
    Act: None Securities registered pursuant to Section 12(g) of the
    Act: Common Stock, $.001 par value
                               -------------------

      Check  whether  the issuer (1) filed all  reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act of 1934  during the past 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 |_|

      Check  if  disclosure  of  delinquent  filers  pursuant  to  Item  405  of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|

      The issuer's revenues for the most recent fiscal year were $3,416,712.

      The aggregate market value of the voting and non-voting common equity held
by non-affiliates  of the registrant was approximately  $193,291 as of March 28,
2005.  Shares of common  stock held by each  officer  and  director  and by each
person or group who owns 10% or more of the  outstanding  common stock amounting
to  10,589,699  shares have been  excluded in that such persons or groups may be
deemed  to  be  affiliates.  This  determination  of  affiliate  status  is  not
necessarily a conclusive determination for other purposes.

      As of March 28,  2005,  17,032,728  shares of our common stock were issued
and outstanding.

      Documents Incorporated by Reference: None.

      Transitional Small Business Disclosure Format: No.


<PAGE>

Item 1. DESCRIPTION OF BUSINESS

General

      We are a  contract  machining  and  manufacturing  company  focused in the
energy field  services  market.  We  manufacture  products,  parts,  components,
assemblies   and   sub-assemblies   for  our   customers   designed   to   their
specifications.   Our  state  of  the  art  3-D  modeling   software,   computer
numeric-controlled, or CNC, machinery and manufacturing expertise are contracted
by  customer's   research  and  development,   engineering,   and  manufacturing
departments  to  ensure  optimization  and  timely  desired  results  for  their
products.

      The diverse line of products we manufacture includes the following:

      o     Expandable tubing manufacturing - launchers and liner hangers for
            oil & gas field service applications
      o     Blow-out Preventers and their spare service parts
      o     Top Drive Assemblies, sub-assemblies and their spare service parts
      o     Directional  Drilling  Products
      o     Exploration Products for Research and Development
      o     Natural Gas Measurement Equipment including Fittings and Valves
      o     Control and Check Valves, and
      o     SubSea Control Equipment.

      Our investment in capital  equipment and software provides us capabilities
to perform close tolerance  highly  specialized work for oil field equipment and
tools,  process controls,  gas measuring valves, and exploration  products.  Our
capabilities  include  producing  large-diameter  products  and  close-tolerance
machined  parts that range up to  thirty-four  feet in length  using a myriad of
materials  of  construction  including  high  grade  carbon  steel,  high  grade
stainless  steel,  nickel,  and chrome based alloys.  Our operating  subsidiary,
Shumate  Machine  Works,  uses state of the art, large part CNC equipment in the
production of these parts and has developed  in-house trade secrets with respect
to the manufacture of certain products.  Our company produces complex assemblies
including  expandable tubing technology  products that are used in field service
operations under extreme  environmental  conditions for oil and gas exploration.
The expandable  tubing and drilling  equipment for production  environments uses
one of the hardest alloy steels and requires close tolerance  specifications for
manufacturing.  We believe that our ability to meet the difficult  manufacturing
requirements of the expandable  tubing  equipment and our development of certain
in-house  manufacturing  trade  secrets  makes us a  leading  expandable  tubing
equipment manufacturer.

      Our customers include Baker Hughes,  BJ Services Company,  Canrig Drilling
Technology,  a Nabors Industries company,  Elmar, a Varco International company,
Halliburton  Energy  Services,   National  Oil  Well,  Oceaneering  Intervention
Engineering,   Oil  States  Industrial  Hydrotech,  R&M  Energy  Systems,  Shell
Development,  Smith International,  Texas Oil Tools, a Varco company, TMCo, Inc.
and Weatherford International.

      We employ about 38 people at a 25,000 square foot plant in Conroe,  Texas,
north of Houston.  Our executive  offices are located at 12060 FM 3083,  Conroe,
Texas 77301.  Our telephone number is (936) 539-9533 and our Internet address is
www.shumateinc.com.

Company Background

      Organization  and   Reincorporation.   Our   predecessor,   Global  Realty
Management  Group,  Inc., or GRMG, was  incorporated  in the State of Florida in
1997. In June 2002, GRMG reincorporated  under the laws of the State of Delaware
from the State of Florida  pursuant  to a merger  with a newly  formed  Delaware
corporation.  Under the terms of this  reincorporation  merger, GRMG changed its
name from "Global Realty Management Group, Inc." to "Excalibur Industries, Inc."



                                       2
<PAGE>

      We have no relation to  Excalibur  Industries,  Inc.,  a natural  resource
company  incorporated  under the laws of the State of Utah  which is  located in
Duluth, Minnesota.

      Acquisitions.  In April 2002, GRMG Acquisition  Corp., a Texas corporation
and our wholly-owned subsidiary,  merged with and into Excalibur Holdings, Inc.,
a  Texas  corporation,  whereby  Excalibur  Holdings  became  our  wholly  owned
subsidiary. Under the terms of an agreement and plan of merger, each outstanding
share of Excalibur Holdings common stock was converted into one (1) share of our
common stock,  each outstanding  share of Excalibur  Holdings Series A preferred
stock was  converted  into one (1) share of our Series A preferred  stock,  each
outstanding  share of Excalibur  Holdings Series B preferred stock was converted
into one (1) share of our Series B preferred stock,  and the outstanding  shares
of GRMG  Acquisition  Corp.  were converted into one hundred shares of Excalibur
Holdings.  In total,  we issued  11,633,699  shares of common  stock,  1,000,000
shares of Series A  preferred  stock and  806,000  shares of Series B  preferred
stock to the Excalibur Holdings  stockholders pursuant to the merger. On May 22,
2002,  each  share of our Series A and Series B  preferred  stock  automatically
converted into one (1) share of our common stock.

      In March 2002, our wholly-owned subsidiary,  Excalibur Holdings,  acquired
Shumate  Machine  Works,  Inc.,  a Texas  corporation,  pursuant  to a merger of
Shumate with and into  Excalmergeco,  Inc., a Texas corporation and wholly-owned
subsidiary of Excalibur Holdings. The purchase price for Shumate was $250,000 in
cash,  the delivery of a series of  unsecured  notes in the  aggregate  original
principal amount of $250,000,  and 1,150,000 shares of Excalibur Holdings common
stock. In addition,  Excalibur  Holdings entered into an earn-out agreement with
the former  stockholders of Shumate,  Larry Shumate and Russ Clark,  pursuant to
which Messrs.  Shumate and Clark would receive an additional  250,000  shares of
common stock if Shumate achieved certain revenue and income  thresholds in 2002,
which  Shumate did achieve.  Excalibur  Holdings  also  entered into  employment
agreements with Mr. Shumate and Mr. Clark.

      Bankruptcies.  On December 31, 2003, three of our operating  subsidiaries,
Excalibur  Steel,  Excalibur  Services,  and Excalibur  Aerospace,  each filed a
voluntary petition for protection under Chapter 7 of the U.S. Bankruptcy Code in
the United  States  Bankruptcy  Court,  Southern  District  of Texas.  The three
subsidiaries  identified  an aggregate  amount of  approximately  $6,837,000  in
liabilities on its debtor schedules in the bankruptcy  proceedings.  On July 26,
2004, the United States Bankruptcy Court, Southern District of Texas, discharged
Excalibur  Steel and  Excalibur  Aerospace  of all of its debts and  liabilities
pursuant to Chapter 7 of the U.S.  Bankruptcy  Code,  and on August 3, 2004, the
United States Bankruptcy Court, Southern District of Texas, discharged Excalibur
Services of all of its debts and  liabilities  pursuant to Chapter 7 of the U.S.
Bankruptcy Code. On our annual report on Form 10-KSB for the year ended December
31, 2003 and in our quarterly  report on Form 10-QSB for the period ending March
31, 2003, we reported $5,218,883 in net liabilities of discontinued  operations,
and these liabilities were discharged in the three bankruptcy  proceedings.  The
difference between the amount of liabilities originally identified on the debtor
schedules  and  the  amount  of  liabilities   written  off  resulted  from  the
all-inclusive  listing  of  liabilities  on the  schedules,  which  resulted  in
overlapping  liabilities among the three subsidiaries and certain  inter-company
liabilities that were netted out in consolidation.

      On March 9, 2005,  Excalibur Holdings,  Inc., our wholly-owned  subsidiary
and the parent  corporation of Shumate  Machine Works,  Inc.,  filed a voluntary
petition  for  protection  under  Chapter 7 of the U.S.  Bankruptcy  Code in the
United States Bankruptcy Court,  Southern District of Texas.  Excalibur Holdings
identified an aggregate  amount of  approximately  $13,600,000 in liabilities on
its  debtor  schedules  in  the  bankruptcy  proceeding.  As a  result  of  this
bankruptcy filing,  100% of the capital stock of Shumate Machine Works, Inc. has
become the sole asset of the  bankruptcy  estate.  The capital  stock of Shumate
Machine Works has been pledged to secure the  obligations of Excalibur  Holdings
to its senior lender,  Stillwater  National Bank. On March 11, 2005,  Stillwater
National  Bank  filed a  motion  for  abandonment  with  the  Bankruptcy  Court,
requesting that the Bankruptcy Court to order the Bankruptcy  Trustee to abandon
the capital stock of Shumate.  Concurrently therewith,  Stillwater National Bank
filed  with the  Bankruptcy  Court a motion  for  relief of the  automatic  stay
resulting from the bankruptcy filing so that Stillwater National Bank can pursue
all available remedies in connection with Excalibur Holdings' stock in Shumate.

      On April 20, 2005, the Bankruptcy Court granted Stillwater National Bank's
motion for  relief  from stay and  ordered  that the  automatic  stay is lifted,
modified, and annulled so as to permit Stillwater to exercise any and all rights
and  remedies it may have with respect to the capital  stock of Shumate  Machine
Works held by Excalibur Holdings,  including, but not limited to, exercising any
rights of foreclosure of said stock.


                                       3
<PAGE>

      On April 28, 2005,  Excalibur  Holdings  received  notice from  Stillwater
National Bank that Stillwater intends to dispose of the capital stock of Shumate
Machine  Works in a private  sale  after May 9, 2005  pursuant  to the  Oklahoma
Uniform Commercial Code.

      On May 13, 2005, we received a loan commitment  from Stillwater  which set
forth  the  basic  terms  of a  restructuring.  On May 16,  2005,  our  board of
directors  unanimously  agreed  to  accept  the  loan  commitment,  approve  the
restructuring,  and submit the  restructuring  proposal to the  stockholders for
approval. The loan commitment expires on September 30, 2005.

      On June 28, 2005,  Stillwater amended Schedule A to the loan commitment it
issued to us Company,  pursuant to which $100,000 the proceeds of an amended and
restated term note in the amount of  $3,365,000  will be applied to purchase the
capital stock of Shumate Machine Works, and Stillwater  verbally advised us that
it intended to allow us to purchase the capital stock of Shumate for $100,000 as
part of the restructuring.  On August 10, 2005, Stillwater advised us in writing
that it  intended  to allow us to  purchase  the  capital  stock of Shumate  for
$100,000 as part of the restructuring.

      In the event the restructuring does not occur, it is unlikely that we will
be able to repurchase the Shumate shares,  and it is likely that Stillwater will
either  sell the  capital  stock of Shumate  to a third  party or  foreclose  on
Shumate's remaining assets.  Further, in the event that Stillwater does sell the
Shumate shares to a third party,  the  restructuring  will not occur.  In either
event, we will have no business or operations,  and we will be unable to satisfy
our currently outstanding obligations.

      We expect  that this  bankruptcy  filing  will  result in a  reduction  of
approximately $1.8 million in liabilities on our consolidated  balance sheet and
a corresponding  non-cash gain of approximately $1.8 million of debt forgiveness
income. We also expect that our ongoing interest expense will be reduced.

Fiscal 2004 Developments

      In 2004,  after  discontinuing  the  Tulsa-based  operations  of Excalibur
Services,  Excalibur  Steel,  and Excalibur  Aerospace in 2003, we experienced a
positive impact on our revenues in our remaining operating  subsidiary,  Shumate
Machine Works. Increases in commodity prices, particularly in the energy sector,
and in  activity  level  in the  energy  field  services  industry  resulted  in
increased demand for our products from our existing customers. In particular, we
received increased orders for drilling tools and blow-out preventers in 2004. As
a result, we increased our revenues by approximately $1 million. In addition, we
were able to continue the successful implementation of our cost-cutting program,
which,  combined  with our  increase in revenue,  resulted in a reduction of our
operating loss by over $2 million.  Finally, as a result of the discharge of the
liabilities associated with the Tulsa-based  subsidiaries,  we recorded recorded
$5,218,883 in debt forgiveness income in 2004, which in turn caused us to turn a
$1.18 million profit in 2004.

      While we have improved our results from operations in 2004, we continue to
have  substantial  indebtedness  outstanding.  On September 29, 2004, we and our
subsidiaries,  Excalibur Holdings, Inc. and Shumate Machine Works, Inc., entered
into a loan agreement with Stillwater  National Bank,  which provided us and our
subsidiaries  with  a  $1,000,000  revolving  line  of  credit  facility  and  a
$2,450,000 term note. Stillwater National Bank is our senior creditor, and these
loans are in addition to all other loans  outstanding  with Stillwater  National
Bank.  The line of  credit  has a term of four  months,  is  secured  by a first
priority security interest in our accounts  receivables,  inventory,  equipment,
general intangibles, and all of our other property and that of our subsidiaries.
It bears  interest at a rate equal to the prime rate plus two percent.  The term
loan was due January 15, 2005, and is secured, along with the line of credit and
our other  indebtedness to Stillwater,  by a first priority security interest in
our inventory,  equipment, general intangibles, and all of our other property of
Excalibur and that of our  subsidiaries.  The term loan also bears interest at a
rate equal to the prime rate plus two percent.  The term loan requires  interest
only payments until its maturity.

      In March 2005, Excalibur Holdings,  Inc., our wholly-owned  subsidiary and
the parent  corporation  of  Shumate  Machine  Works,  Inc.,  filed a  voluntary
petition  for  protection  under  Chapter 7 of the U.S.  Bankruptcy  Code in the
United States Bankruptcy Court,  Southern District of Texas. As a result of this
bankruptcy filing,  100% of the capital stock of Shumate Machine Works, Inc. has
become the sole asset of the  bankruptcy  estate.  The capital  stock of Shumate
Machine Works has been pledged to secure the  obligations of Excalibur  Holdings
to its senior lender,  Stillwater  National Bank. On March 11, 2005,  Stillwater
National  Bank  filed a  motion  for  abandonment  with  the  Bankruptcy  Court,
requesting that the Bankruptcy Court to order the Bankruptcy  Trustee to abandon
the capital stock of Shumate.  Concurrently therewith,  Stillwater National Bank
filed  with the  Bankruptcy  Court a motion  for  relief of the  automatic  stay
resulting from the bankruptcy filing so that Stillwater National Bank can pursue
all available remedies in connection with Excalibur  Holdings' stock in Shumate.
Neither  Excalibur  Industries  nor Shumate  Machine Works filed for  bankruptcy
protection.



                                       4
<PAGE>

      On April 28, 2005,  Excalibur  Holdings  received  notice from  Stillwater
National Bank that Stillwater intends to dispose of the capital stock of Shumate
Machine  Works in a private  sale  after May 9, 2005  pursuant  to the  Oklahoma
Uniform Commercial Code.

      On May 13, 2005, we received a loan commitment  from Stillwater  which set
forth  the  basic  terms  of a  restructuring.  On May 16,  2005,  our  board of
directors  unanimously  agreed  to  accept  the  loan  commitment,  approve  the
restructuring,  and submit the  restructuring  proposal to the  stockholders for
approval. The loan commitment expires on September 30, 2005.

      The plan for  achieving  our  financial  goals  consists of the  following
transactions (the "restructuring transactions"):

      1. Amended and Restated Term Note.  Stillwater  has issued a commitment to
amend and restate a series of notes in the current  aggregate  principal amounts
of  approximately  $9,413,000 into an amended and restated note in the principal
amount of approximately $3,365,000.  The amended and restated note shall require
interest only payments for the three months following  closing,  and thereafter,
shall  require us to make 27 equal monthly  payments in an amount  sufficient to
fully amortize  principal and interest on the amended and restated note over 120
months.  The amended and  restated  note will be due and payable 30 months after
closing,  at which time,  we will be  required to make a balloon  payment of the
entire  outstanding  principal balance and all accrued interest.  The note shall
bear  interest at a rate equal to the prime rate plus two percent,  and it shall
be secured by a first  priority  security  interest in all of our  existing  and
future assets. The proceeds of this note will be applied as follows: $303,000 to
purchase  machines  from Larry C. Shumate,  our  President  and Chief  Executive
Officer  and from A. Earl Swift,  a former  director;  $100,000 to purchase  the
capital  stock of Shumate  Machine  Works;  and  $2,962,000 to be applied to our
existing indebtedness to Stillwater.

      2. Third  Note.  Stillwater  has issued a  commitment  to lend us funds to
settle an existing  IRS lien against us, and we have agreed to issue a term note
in the  amount  equal  to such  settlement  amount,  which we  estimate  will be
approximately $250,000. The Third Note shall require us to make 48 equal monthly
payments in an amount sufficient to fully amortize principal and interest on the
Third  Note over 48  months.  The Third  Note will be due and  payable 48 months
after closing,  at which time, we will be required to make a balloon  payment of
the entire  outstanding  principal  balance and all accrued  interest.  The note
shall bear  interest at a rate equal to the prime rate plus two percent,  and it
shall be secured by a first  priority  security  interest in all of our existing
and future assets. Each of our executive officers,  Larry C. Shumate, Matthew C.
Flemming, and Russell T. Clark, have agreed to personally guarantee a portion of
the Third Note.

      3. Revised Line of Credit.  Stillwater  has issued a commitment  to extend
our current  revolving  line of credit in an amount of up to $1,000,000  for one
year.  The  initial  balance on the line of credit  shall be the  balance of our
existing  line of credit with  Stillwater,  less the excess  transferred  to the
amended and restated note. The advances  available under the line of credit will
be  limited  to a  borrowing  base of the sum of (a)  80% of  eligible  accounts
receivable,  and (b) 50% of eligible  inventory.  The line of credit  shall bear
interest  at a rate  equal to the prime rate plus two  percent,  and it shall be
secured by a first priority  security interest in all of our existing and future
assets.

      4. Convertible Note.  Stillwater has issued a commitment to accept, and we
have agreed to issue, a convertible  note in the principal amount of $2,500,000.
The principal and accrued interest on the convertible note shall be convertible,
at Stillwater's  option, into shares of our common stock at a conversion rate of
$1.00 per share (on a post reverse  stock split  basis).  The  convertible  note
shall  mature on the  earlier of 60 months from the date of issuance or the date
on  which  it is  fully  converted  into  our  common  stock.  Interest  on  the
convertible  note shall  accrued  from the date of closing  until the earlier of
conversion or 24 months,  at which time the accrued interest will be capitalized
into principal. Beginning at the end of the ninth quarter, we would be obligated
to make quarterly  interest  payments on the  convertible  note. The convertible
note shall bear interest at a rate equal to the prime rate plus two percent, and
it shall be secured by a first priority  security  interest in all of the assets
of  Excalibur  Industries  (the parent  company).  We have agreed to include the
shares  of  common  stock  underlying  the  convertible  note  on  any  eligible
registration  statement  that we may  file  with  the  Securities  and  Exchange
Commission under the Securities Act of 1933 in the next five years.


                                       5
<PAGE>

      5. Flemming  Note.  Stillwater has issued a commitment to lend $350,000 to
our Chief Financial  Officer,  Matthew C. Flemming,  to purchase an aggregate of
250,000  newly issued  shares (post  reverse  stock split) of our common  stock,
representing  approximately  2.16% of our outstanding  common stock after giving
effect to the restructuring, for a total purchase price of $250,000. The balance
will be  applied  to the  existing  personal  indebtedness  of Mr.  Flemming  to
Stillwater  of  approximately  $10,000,000  under a  personal  guarantee  of our
indebtedness  to  Stillwater.  Under the  commitment,  Stillwater  has agreed to
release Mr. Flemming from the remainder of his personal guarantee,  as set forth
in Item 7 below.

      6.  Conversion of Prior Bank Debt.  Stillwater  has issued a commitment to
accept an offer from us to exchange  $2,368,000 of our outstanding  indebtedness
to  Stillwater  for  2,368,000  newly issued of shares of our common stock (on a
post  reverse-split  basis),  representing  not less than 20% of the outstanding
shares of our common stock after  giving  effect to the  restructuring.  We have
agreed to include  these  shares of common  stock on any  eligible  registration
statement that we may file with the Securities and Exchange Commission under the
Securities Act of 1933 in the next five years.

      7.  Releases.  Stillwater  has issued a  commitment  to release us and our
Chief Financial Officer,  Matthew C. Flemming, from their respective obligations
of the prior debt to  Stillwater,  except to the extent  that such prior debt is
amended and restated, issued, or guaranteed as set forth above.

      8. Unsecured Note Exchange Offer. Our unsecured noteholders have agreed to
exchange all of our  outstanding  unsecured  notes,  with interest rates ranging
from 6% to 12% and all  currently  due and owing,  for  approximately  1,691,310
newly  issued  shares  of our  common  stock  (on a post  reverse-split  basis),
representing  approximately 14.61% of the outstanding shares of our common stock
after giving effect to the restructuring.

      9. Restricted Stock Awards. Our board of directors have granted restricted
stock awards of approximately  3,950,000 shares of newly issued common stock (on
a post  reverse-split  basis) to our  executive  officers  and our  non-employee
directors,  representing  approximately  34.12% of the outstanding shares of our
common stock after giving effect to the restructuring.

      On June 28, 2005,  Stillwater amended Schedule A to the loan commitment it
issued to us Company,  pursuant to which $100,000 the proceeds of an amended and
restated term note in the amount of  $3,365,000  will be applied to purchase the
capital stock of Shumate Machine Works, and Stillwater  verbally advised us that
it intended to allow us to purchase the capital stock of Shumate for $100,000 as
part of the restructuring.  On August 10, 2005, Stillwater advised us in writing
that it  intended  to allow us to  purchase  the  capital  stock of Shumate  for
$100,000 as part of the restructuring.

      A  complete  description  of the  restructuring  plan is set  forth in our
preliminary  proxy  statement for a special meeting of  stockholders,  which has
been filed with the Securities and Exchange Commission.

      The loan commitment is being submitted to our  stockholders  for approval,
and we are seeking to have the restructuring completed by September 30, 2005. In
the event the restructuring  does not occur, it is unlikely that we will be able
to repurchase the Shumate  shares,  and it is likely that Stillwater will either
sell the capital  stock of Shumate to a third party or  foreclose  on  Shumate's
remaining  assets.  Further,  in the event that Stillwater does sell the Shumate
shares to a third party, the  restructuring  will not occur. In either event, we
will have no  business  or  operations,  and we will be unable  to  satisfy  our
currently outstanding obligations.

      We would  also  anticipate  substantial  reduced  overhead  costs from the
closed  Tulsa-based  companies  and further  reductions  in our holding  company
expenses.  Further,  we anticipate  that  increasing  energy  commodity  prices,
including  oil and natural gas prices,  should  cause our  customers to increase
their  drilling and other  exploration  activities.  As a result,  we anticipate
seeing  increased  oil rig counts as well as a renewal of  drilling  activity in
previously  dormant  drilling  facilities.  We believe  that such an increase in
activity  would result in increased  demand for our energy related field service
products  in  the  coming  fiscal  year.  The  proposed   reorganization,   debt
restructuring,  operating  expense  reductions,  and our intent to capitalize on
anticipated increase in demand are the steps that we are taking to try to return
to profitability.  However,  there can be no assurances that these steps will be
completed or that we will ever return to profitability.



                                       6
<PAGE>

Our Market

      The energy field  services  market,  or upstream  hydrocarbon  market,  is
comprised  of  several  markets  segments  including  oil & gas field  services,
pipeline and  transportation,  process controls,  fluid management and controls,
subsea,  refining,  and  maintenance  services  for these  areas.  We  currently
manufacture products,  spare parts,  assemblies and sub-assemblies for the oil &
gas field services market segment.  We may expand into other areas of the energy
field services market and pursue growth  strategies that complement and leverage
our current business and expertise.

      The dollar  size of the  United  States  (U.S.)  oil & gas field  services
market can be measured in dollars by the U.S.  drilling and completion  activity
spending and the total U.S. well service and workover spending.

      In their March 2005 Drilling and  Production  Outlook  report,  Spears and
Associates, a leading energy market research firm, states the following:

      o     U.S.  drilling and completion  spending was $40 billion for 2004, up
            18% from the year 2003, and
      o     U.S.  well service and workover  spending was $13.8 billion in 2004,
            up 1.5% from 2003.

      The Spears and  Associates  report was not  prepared  for us nor have they
consented to the use of this  information in our report;  rather,  the report is
widely and publicly available.

Our Strategy

      Strategies to achieve our growth objectives include the following:

      Expand and grow our contract  machining and manufacturing  business.  As a
result of  higher  commodity  prices,  activity  levels  for our  customers,  as
measured  by their  revenues,  increased  in 2004,  and our sales and  marketing
initiatives  focus on capturing  more  revenue per  customer.  Additionally,  we
solicit  historical  existing  customers  for  new  product  line  manufacturing
opportunities  and extensions of their current  business.  We also develop sales
programs  targeting  machining  services in support of research and  development
projects interfacing  directly with customer's  engineering managers and product
developers.

      Develop strategic supply chain alliances with our customers. While many of
our  energy  field  services  companies  customers  do not enter  into long term
contracts,  we focus on developing  incentive programs,  stocking programs,  and
other  short and  long-term  alliances  to enhance  our  relationships  with our
customers and raise switching costs.  This  collaborative  process can assist in
reducing costs while protecting  margins and can avoid bidding scenarios for new
orders.

      Control  Costs.  A major  part of our costs are  direct  labor and  direct
overhead  within cost of sales.  We are focused on improving  gross margins as a
percentage  of sales by reducing  costs of overtime  labor  charges,  production
wages, fixed costs, and benefits costs.

      Leverage our manufacturing  business and develop our own product lines. We
believe that our firm excels at  manufacturing  products for its  customers  and
strategically  we  believe  our  expertise,  knowledge  and  reputation  in  the
marketplace creates an opportunity to acquire, develop and sell our own products
in the energy field services market. Our customer base, channels of distribution
and market focus may provide additional product line opportunities  within areas
such as fluid management, process controls, valves and valve components.

Sales and Marketing; Customers

      Our  operating  subsidiary,  Shumate  Machine  Works,  has  developed  and
maintained  long-term  relationships  with its  customers.  We use a variety  of
methods to identify  target  customers,  including the utilization of databases,
direct mail, and participation in  manufacturers'  trade shows. The energy field
service target market usually consists of larger, well capitalized companies and
few smaller firms.  These efforts supplement our traditional sales and marketing
efforts of customer  referrals  and territory  canvassing.  In 2004, we expended
approximately  $200,000 on sales and  marketing,  which  included the  salaries,
commissions, and expenses of our sales department.



                                       7
<PAGE>

      Nearly all of our sales are on a negotiated  price  basis.  In some cases,
sales are the result of a competitive  process where a customer  sends to us and
other competitors a list of products required,  and we submit a bid on each job.
Frequently,  the ability to meet  customer  delivery  schedules as well as plant
capacities  and  capabilities  are a  significant  aspect of winning  any bid or
purchase order.

      We have a customer base of more than 33 customers.  Two of these customers
represented  about  fifty-one  percent of our revenues for 2004. We  continually
focus on developing  more volume from secondary and tertiary  customers and with
new customers to reduce customer  concentration  risk. We believe that long-term
relationships with many of our customers will contribute to our success.

Raw Materials

      The  principal  raw  materials  that we use are  carbon  steel,  aluminum,
stainless steel,  nickel,  brass,  titanium and various special alloys and other
metals.  The metals  industry as a whole is cyclical,  and at times  pricing and
availability  of raw  materials  in the metals  industry  can be volatile due to
numerous   factors  beyond  our  control,   including   general,   domestic  and
international economic conditions,  labor costs, production levels, competition,
import  duties and tariffs and currency  exchange  rates.  This  volatility  can
significantly  affect  the  availability  and  cost of raw  materials,  and may,
therefore,  adversely affect our net sales,  operating margin and net income. On
average,  pricing for raw materials  has  fluctuated  about thirty  percent on a
historical basis.  During periods of rising raw materials pricing,  we have been
able to pass through the increase in cost to our customers  approximately ninety
percent of the time.  The  remaining  ten  percent  reflects  down-time  between
reviewing costs on  standardized  repetitive work that isn't quoted on a monthly
basis.  Accordingly,  the  increase  in the  cost  of raw  materials  has had an
immaterial effect on our operations;  however, it is possible that we may not be
able to pass any portion of such increases on to our customers in the future.

Competition

      We are engaged in a fragmented and highly competitive industry.  There are
more than 800 machine shops in the greater  Houston area alone. We estimate that
our share of the  market is less than one  percent  (1%).  Competition  is based
primarily on quality,  service,  price,  performance  timeliness  and geographic
proximity.  We compete with a large number of other machining and  manufacturing
operators on a national,  regional  and local basis,  most of which have greater
financial  resources than we do, and several of which are public  companies.  We
also compete with overseas competitors whose labor costs are significantly lower
than our own.

      We  believe  that we are able to  compete by  defining  and  understanding
customer  needs and by using our  equipment and  machinery  base to  manufacture
products with difficult specifications and tolerances.

Government Regulation and Environmental Matters

      Our  operations  are  subject  to a number  of  federal,  state  and local
regulations  relating to the  protection  of the  environment  and to  workplace
health and safety.  In  particular,  our  operations  are  subject to  extensive
federal,  state and local laws and regulations governing waste disposal, air and
water emissions, the handling of hazardous substances, environmental protection,
remediation  and  workplace  exposure.  Hazardous  materials  are  used  in  our
operations include lubricants and cleaning solvents.

      We believe that we are in substantial compliance with all such laws and do
not  currently  anticipate  that we will be required  to expend any  substantial
amounts in the  foreseeable  future in order to meet  current  environmental  or
workplace health and safety requirements.

      Although no environmental claims have been made against us and we have not
been named as a potentially  responsible party by the  Environmental  Protection
Agency or any other  entity,  it is possible  that we could be identified by the
EPA, a state agency or one or more third  parties as a  potentially  responsible
party  under  CERCLA  or under  analogous  state  laws.  If so,  we could  incur
substantial  litigation  costs to prove  that we were  not  responsible  for the
environmental damage.




                                       8
<PAGE>

      Safety

      We are committed to  emphasizing  and focusing on safety in the workplace.
We currently have a variety of safety programs in place,  which include periodic
safety meetings and training sessions to teach proper safety work procedures. We
have established "best practices" processes throughout most of our operations to
ensure that our employees  comply with safety standards that we establish and to
ensure full compliance with federal,  state and local laws and  regulations.  In
addition,  we intend to  continue  to  emphasize  the need for an  accident-free
workplace.

Risk Management, Insurance and Litigation

      The  primary  risks  in  our  operations  are  property  damage,  workers'
compensation, and third-party bodily injury. We maintain insurance above certain
self-insured  limits for  liability  for  bodily  injury,  third-party  property
damage, and workers' compensation, all of which we consider sufficient to insure
against  these  risks.  We are not  currently  involved  in any  material  legal
proceedings for property damage, workers' compensation,  or third-party property
damage.

      We have been named in approximately 10 actions that have been commenced by
former vendors,  suppliers or note holders. The aggregate amount of these claims
is estimated at  approximately  $880,000,  none of which are with our  operating
company, Shumate.

      In addition, on November 7, 2003, Dwayne Lewis, the former Chief Operating
Officer of our  Tulsa-based  companies,  filed suit in  District  Court in Tulsa
County, Oklahoma, naming us and Matthew Flemming, William Stuart, Earl Swift and
Frank Marshik as  defendants.  The action is a  counterclaim  in response to the
September 15, 2003 civil suit filed by Matthew Flemming naming Dwayne Lewis as a
defendant.  The Lewis  counter  claim seeks damages of not less than $10,000 and
alleges that we breached the October 3, 2002  separation  agreement  between the
company and Dwayne Lewis.  In August 2004,  the District  court in Tulsa County,
Oklahoma  granted our motion to compel  arbitration and stayed the Lewis counter
claim until such time as any  arbitration is completed.  Mr. Lewis has not filed
for  arbitration  hearing  under  the  American  Arbitration  Association  rules
governed  under the  separation  agreement as of this time.  We believe that Mr.
Lewis' claims are baseless and without merit and we intend to continue to defend
against them vigorously.

Employees

      We  currently  employ  approximately  38 people in Conroe,  Texas.  Of the
total,  approximately  5 are in  administration,  4 are in sales,  marketing and
distribution, and 29 are in machining, manufacturing and production. None of our
employees  are  represented  by a labor  union,  and we have not entered  into a
collective bargaining agreement with any union. We have not experienced any work
stoppages and consider the relations with our employees to be good.



                                       9
<PAGE>


Item  1A.  RISK  FACTORS  AND  CAUTIONARY  STATEMENT  REGARDING  FORWARD-LOOKING
INFORMATION

      An  investment  in our common  stock  involves a high degree of risk.  You
should carefully  consider the following risk factors and the other  information
in this annual  report before  investing in our common  stock.  Our business and
results of operations  could be seriously  harmed by any of the following risks.
The trading price of our common stock could decline due to any of these risks.

      We may lose ownership of our sole operating  subsidiary,  Shumate  Machine
Works, as a result of Excalibur Holdings' filing for bankruptcy. Shumate Machine
Works, Inc. is our sole operating subsidiary. Excalibur Holdings, Inc. owns 100%
of the capital stock of Shumate Machine Works, Inc., and in turn, we own 100% of
the  capital  stock of  Excalibur  Holdings,  Inc.  On March 9, 2005,  Excalibur
Holdings filed a voluntary  petition for protection  under Chapter 7 of the U.S.
Bankruptcy  Code in the United States  Bankruptcy  Court,  Southern  District of
Texas.  As a result of this  bankruptcy  filing,  100% of the  capital  stock of
Shumate Machine Works, Inc. has become the sole asset of the bankruptcy  estate.
The capital  stock of Shumate  Machine Works has also been pledged to secure the
obligations  of Excalibur  Holdings to its senior  lender,  Stillwater  National
Bank. On March 11, 2005, Stillwater National Bank filed a motion for abandonment
with the Bankruptcy  Court,  requesting  that the Bankruptcy  Court to order the
Bankruptcy  Trustee  to  abandon  the  capital  stock of  Shumate.  Concurrently
therewith, Stillwater National Bank filed with the Bankruptcy Court a motion for
relief  of the  automatic  stay  resulting  from the  bankruptcy  filing so that
Stillwater  National Bank can pursue all available  remedies in connection  with
Excalibur  Holdings'  stock in Shumate.  It is possible that, in connection with
the  bankruptcy  proceedings,  the  capital  stock of  Shumate  could be sold to
Stillwater  National Bank or a third party,  either by the bankruptcy trustee or
by Stillwater  National  Bank. In the event that the capital stock of Shumate is
put up for sale, we intend to bid on the capital stock,  but it is possible that
we may not be able to purchase  the Shumate  capital  stock,  either  because we
don't have the assets  with  which to make a  competitive  bid or because we are
simply  outbid by Stillwater  National Bank or a third party.  In the event that
either the bank or a third  party  purchases  the capital  stock of Shumate,  we
would no longer have any operating business.

      We will need to continue to finance our operations through additional bank
borrowings under our existing line of credit or other capital financings, and if
we are unable to obtain additional  capital, we may not be able to continue as a
going concern.  We had a working  capital  deficit of $13,805,288 as of December
31, 2004. As of the date of this annual  report,  we do not believe that we will
be able to fund our operations,  working capital requirements,  and debt service
requirements  over the  fiscal  year 2005  through  cash  flows  generated  from
operations.  Shumate currently has a $1,000,000 secured revolving line of credit
facility,   subject  to  qualifying  accounts  receivable  and  inventory,  with
Stillwater  National  Bank,  which  expired  on  about  January  29,  2005.  The
outstanding  balance  on this  line of  credit  was  approximately  $429,400  at
December  31,  2004,  which is the  maximum  allowed  due to the  amount  of the
qualifying accounts receivable and inventory. Interest on the Stillwater line of
credit is payable monthly at Stillwater's  prime rate plus two percent.  We also
have several other loans with  Stillwater  National Bank,  which had outstanding
principal balances, including the line of credit, of $11,971,593 at December 31,
2004,  with maturities  ranging from August 2003 to August 2006.  Interest rates
accruing at the rate of the higher of (a) six percent or (b) Stillwater's  prime
rate plus two percent.

      We will need to continue to finance our operations through additional bank
borrowings under our Stillwater line of credit or other capital financings.  Our
collateral  may  not be  sufficient  to  borrow  additional  amounts  under  the
Stillwater line of credit at such time.

      We may also seek equity financing in the form of a private  placement or a
public offering.  Such additional financing may not be available to us, when and
if needed,  on acceptable terms or at all. If we are unable to obtain additional
financing in sufficient  amounts or on acceptable  terms, our operating  results
and prospects could be adversely  affected.  Any debt or equity  financings also
require the written consent of our lender Stillwater National Bank.

      We have  substantial  indebtedness  outstanding,  and our  operations  are
significantly  leveraged.  In order to finance our operations,  we have incurred
substantial  indebtedness primarily including our debt with Stillwater for lines
of credit and several term loans. As of December 31, 2004, we had  approximately
$11,971,593 of notes payable,  bank overdrafts and bank credit lines. We are not
in compliance  with our debt covenants under the loan agreements with Stillwater
National  Bank.  We have also  defaulted on all of our loan  obligations,  which
resulted  in  Stillwater  foreclosing  on the  assets of three of our  operating
subsidiaries  during 2003.  The  proceeds  from this  foreclosure  sale have not
satisfied our debt  obligations to Stillwater,  and they could  foreclose on our
remaining  assets at any time.  Our cash flows  from  operations  are  currently
insufficient to service our debt obligations.  We are currently negotiating with
Stillwater to reorganize and  restructure  our debt  obligations,  but if we are
unable to do so, there is a significant chance that Stillwater will foreclose on
our  remaining  assets,  in which  case we would  cease to  continue  as a going
concern.



                                       10
<PAGE>

      The liabilities of Excalibur Holdings may not be discharged in bankruptcy.
Excalibur Holdings has filed a voluntary petition for protection under Chapter 7
of the U.S.  Bankruptcy  Code in the United States  Bankruptcy  Court,  Southern
District  of  Texas.  Excalibur  Holdings  identified  an  aggregate  amount  of
$13,600,000  in   liabilities   on  its  debtor   schedules  in  the  bankruptcy
proceedings.  It is possible that these liabilities may not be discharged in the
bankruptcy proceedings.  In addition, a significant portion of these liabilities
have  been  guaranteed  and  cross-collateralized  by us  and  by  Shumate,  and
therefore,  even though the  liabilities  may be  discharged  against  Excalibur
Holdings, either we or Shumate may remain liable for these debts.

      Our  independent  auditors'  report  raises  substantial  doubt  about our
ability to continue as a going concern.  Our independent  auditors have prepared
their report on our 2004 financial  statements assuming that we will continue as
a going concern. Their report has an explanatory paragraph which states that our
recurring  losses from  operations  and our  working  capital  deficiency  raise
substantial doubt about our ability to continue as a going concern.

      The  majority  of our  revenues  are  generated  from a  small  number  of
customers,  and our results of operations cash flows will be adversely  affected
if any of our major  customers  either fail to pay on a timely basis or cease to
purchase our products. In 2004, two of our customers accounted for approximately
51%  of  our  sales.   At  December  31,  2004,  two  customers   accounted  for
approximately 50% of our trade accounts receivable  balance.  These customers do
not have any ongoing  commitment  to purchase  our  products  and  services.  We
generally do not require  collateral from our customers,  although we do perform
ongoing  credit  evaluations  of  our  customers  and  maintain  allowances  for
potential credit losses, which when realized,  have been within the range of our
expectations.  If one or more of our other major customers stops  purchasing our
products,  our results of operations will be adversely  affected.  If one of our
major customers fails to pay its account on a timely basis,  our cash flows will
be adversely affected. Furthermore, if one of our major customer defaults in its
obligation  to pay and we are unable to collect on that  account,  our operating
results will be materially adversely affected.

      Our Stillwater  line of credit and Stillwater  term loan contain  numerous
restrictive  covenants  which limit our  management's  discretion to operate our
business. These covenants place significant restrictions on, among other things,
our  ability  to  incur  additional  indebtedness,  to  create  liens  or  other
encumbrances, to make certain payments and investments, and to sell or otherwise
dispose of assets and merge or consolidate  with other entities.  The Stillwater
line of credit and the  Stillwater  term loan also  require  us to meet  certain
financial  ratios and tests and  require us to obtain  consent  from  Stillwater
National Bank in order to change our senior management.  We are currently not in
compliance  with all of our  debt  covenants  under  the  loan  agreements  with
Stillwater National Bank. Any additional failures to comply with the obligations
contained in the Stillwater loan agreements  could result in an event of default
under either the Stillwater  line of credit or the Stillwater  term loan,  which
could result in  acceleration  of the related debt and the  acceleration of debt
under   other   instruments    evidencing    indebtedness   that   may   contain
cross-acceleration or cross-default provisions.

      The rate of interest on a significant  portion of our indebtedness  varies
with the market rate of interest.  The interest on the Stillwater line of credit
is payable  monthly at the higher of (a) six percent or (b)  Stillwater's  prime
rate plus two percent.  Our Stillwater term loan accrues interest at the rate of
the higher of (a) six percent or (b)  Stillwater's  prime rate plus two percent.
The base rates on the  Stillwater  line of credit and the  Stillwater  term loan
will  fluctuate  over time, and if the base rates  significantly  increase,  our
interest  expense will increase,  which will have a direct adverse affect on our
profitability.  As an  example,  based  on the  amounts  outstanding  under  the
Stillwater  line of credit and term loan at  December  31,  2004,  a one percent
increase in  Stillwater's  prime rate would  increase our annual debt service by
more than $60,000.

      We may not be able to successfully  accelerate internal sales growth which
would result in lower revenues and earnings than we currently anticipate.  It is
possible that we may be unable to  successfully  implement any of our strategies
to increase sales, including expanding the range of processes and services which
we offer, developing long-term partnering  relationships with customers,  adding
new  customers,   improving  our  operating  margins  by  increasing   operating
efficiencies and centralizing appropriate administrative functions, or otherwise
increase  revenues  internally.  Our ability to  increase  our net sales will be
affected  by many  factors  which are  beyond our  control,  and there can be no
assurance  that our  strategies  will be  successful  or that we will be able to
generate cash flow adequate for our operations and to support internal growth.



                                       11
<PAGE>

      We may not be able to develop our own new product lines.  We are currently
seeking  opportunities to develop or acquire energy field services  products via
acquisition  or  license.  We believe  acquiring  our own  product  lines  would
leverage our expertise in manufacturing and marketplace knowledge and complement
our current contract machining business and customer relationships. However, the
energy field services market has numerous  companies larger and more financially
capable of developing product lines in this market than we are. However, even if
we do acquire or design our own  products,  it is possible  that we may not have
the working capital or financial  capacity to enter into this market, and we may
be unable to successfully  sell any products due to inadequate  working capital,
lack of capacity, or both.

      We may not be able to identify quality strategic  acquisition  candidates,
and if we do make  strategic  acquisitions,  we may not be able to  successfully
integrate their  operations.  We may seek to acquire  companies or product lines
within  the  energy  field  services  market  or  a  related  market.   For  any
acquisition,  we will be required to  assimilate  the  operations,  products and
personnel  of the  acquired  business  and train,  retain and  motivate  its key
personnel. We may be unable to maintain uniform standards,  controls, procedures
and policies if we fail in these efforts. Similarly, acquisitions may subject us
to liabilities  and risks that are not known or  identifiable at the time of the
acquisition or may cause  disruptions in our operations and divert  management's
attention from day-to-day operations,  which could impair our relationships with
our current employees,  customers and strategic  partners.  We may have to incur
debt or issue equity securities to pay for any future acquisitions. The issuance
of equity  securities could be substantially  dilutive to our  stockholders.  In
addition,  our profitability may suffer because of acquisition related costs. We
currently  have no  agreements or  commitments  concerning  any such  additional
acquisitions,  and we may not be able to identify any companies that satisfy our
acquisition criteria.

      We  face  significant  competition  in  our  markets.  The  machining  and
manufacturing  industry is highly  competitive.  Competition  in the sale of our
products is primarily based on engineering,  product design, process capability,
quality,  cost,  delivery  and  responsiveness.  Many  of  our  competitors  are
companies, or divisions or subsidiaries of companies,  which are larger and have
greater  financial  resources  than we do.  We  have  competition  from  foreign
manufacturers  that have  substantially  cheaper  labor  costs  than we do.  Our
company may not be able to successfully compete with the products of these other
companies.

      We purchase metals in the open market,  and our  profitability may vary if
prices of metals  fluctuate.  The principal raw materials that we use are carbon
steel,  aluminum,  stainless steel, nickel,  brass, titanium and various special
alloys and other  metals.  The metals  industry as a whole is  cyclical,  and at
times pricing and  availability  of raw materials in the metals  industry can be
volatile due to numerous factors beyond our control, including general, domestic
and  international   economic  conditions,   labor  costs,   production  levels,
competition,  import  duties and  tariffs  and  currency  exchange  rates.  This
volatility can significantly  affect the availability and cost of raw materials,
and may,  therefore,  adversely  affect our net sales,  operating margin and net
income.  During  periods  of  rising  raw  materials  pricing,  there  can be no
assurance  that we will be able to pass any portion of such  increases on to our
customers.  When raw material prices decline,  customer demands for lower prices
could result in lower sale prices and, as we use existing  inventory,  resulting
in lower  margins.  Changing metal prices could  adversely  affect our operating
margin and net income.

      The oil and gas industry is cyclical, which results in fluctuations in our
results  of  operations.  Most of our  products  are  sold to oil and gas  field
services companies that experience  significant  fluctuations in demand based on
economic  conditions,  energy prices,  domestic and  international  drilling rig
counts,  consumer  demand,  and other  factors  beyond our control.  In 2004, we
experienced  increased  activity levels driven by increases in energy  commodity
prices  and  increased  demand for oil field  drilling  products.  However,  the
increase in demand could be temporary as commodity  prices  fluctuate  daily and
reduced  economics  for energy  field  service  customers  would result in lower
activity  levels for our  company.  These  changes can happen  very  quickly and
without forecast or notice giving adverse impact on our business.

      Our  operations  are  subject  to a number  of  federal,  state  and local
regulations  relating to the  protection  of the  environment  and to  workplace
health and safety.  Our operations are subject to extensive  federal,  state and
local laws and regulations  governing waste disposal,  air and water  emissions,
the  handling of  hazardous  substances,  environment  protection,  remediation,
workplace  exposure,  and other matters.  Hazardous materials that we use in our
operations  primarily  include  lubricants  and  cleaning  solvents.  Our leased
facility is located in an industrial  area close to properties with histories of
heavy industrial use. Although no environmental claims have been made against us
and  we  have  not  been  named  as  a  potentially  responsible  party  by  the
Environmental Protection Agency or any other party, it is possible that we could
be  identified  by the EPA,  a state  agency or one or more  third  parties as a
potentially responsible party under CERCLA or under analogous state laws. If so,
we could incur substantial  litigation costs to prove we are not responsible for
the environmental damage.



                                       12
<PAGE>

      There is a limited active trading market for our shares.  Our common stock
is traded on the OTC Bulletin board under the symbol "EXCB.OB." Trading activity
in our stock has  fluctuated  widely and at times has been limited.  We consider
our common stock to be "thinly traded" and any last reported sale prices may not
be a true  market-based  valuation of the common stock.  A  consistently  active
trading  market  for  our  stock  may not  develop  at any  time in the  future.
Shareholders may experience difficulty selling their shares if they choose to do
so because of the illiquid market and limited public float for our stock.

      Our common stock is  considered  to be a "penny  stock" and, as such,  the
market  for our  common  stock  may be  further  limited  by  certain  SEC rules
applicable  to penny  stocks.  As long as the price of our common stock  remains
below $5.00 per share or we have net tangible  assets of $2,000,000 or less, our
common  shares  are  likely  to  be  subject  to  certain  "penny  stock"  rules
promulgated by the SEC.  Those rules impose certain sales practice  requirements
on brokers who sell penny stock to persons other than established  customers and
accredited investors (generally institutions with assets in excess of $5,000,000
or individuals with net worth in excess of $1,000,000). For transactions covered
by  the  penny  stock  rules,  the  broker  must  make  a  special   suitability
determination  for the purchaser and receive the purchaser's  written consent to
the transaction prior to the sale. Furthermore,  the penny stock rules generally
require,  among other things, that brokers engaged in secondary trading of penny
stocks provide customers with written disclosure  documents,  monthly statements
of the market value of penny stocks,  disclosure of the bid and asked prices and
disclosure of the compensation to the brokerage firm and disclosure of the sales
person working for the brokerage  firm.  These rules and  regulations  adversely
affect the ability of brokers to sell our common  shares and limit the liquidity
of our securities.

      There are options and warrants to purchase up to  1,791,482  shares of our
common stock  currently  outstanding.  We have  granted  options and warrants to
purchase an aggregate of 1,791,482 shares of our common stock to various persons
and entities,  of which options and warrants to purchase up to 1,765,145  shares
of our common stock are  currently  exercisable.  The  exercise  prices on these
options and warrants  range from $0.60 per share to $2.50 per share.  If issued,
the shares  underlying  options and warrants  would  significantly  increase the
number of shares of our common stock  currently  outstanding and will dilute the
holdings  and  voting  rights of our  then-existing  stockholders  by up to 9.4%
percent.

      We have no  immediate  plans to pay  dividends.  We have not paid any cash
dividends to date and do not expect to pay dividends for the foreseeable future.
In addition,  the terms of our Stillwater line of credit and our Stillwater term
loan prohibit us from  declaring or paying  dividends or purchasing or redeeming
any of our capital stock without Stillwater  National Bank's prior approval.  We
intend to retain  earnings,  if any, as necessary to finance the  operation  and
expansion of our business.

      Our officers and directors  collectively own a substantial  portion of our
outstanding  common  stock,  and as long as they do, they may be able to control
the outcome of stockholder  voting.  Our officers and directors are collectively
the beneficial  owners of  approximately  20% of the  outstanding  shares of our
common  stock.  As  long  as  our  officers  and  directors  collectively  own a
significant percentage of our common stock, our other stockholders may generally
be unable to affect or change the  management  or the  direction  of our company
without the support of our officers and directors.  As a result,  some investors
may be  unwilling  to purchase  our common  stock.  If the demand for our common
stock is reduced because our officers and directors have  significant  influence
over our company,  the price of our common stock could be materially  depressed.
The officers and directors will be able to exert significant  influence over the
outcome of all corporate actions requiring stockholder  approval,  including the
election of  directors,  amendments  to our  certificate  of  incorporation  and
approval of significant corporate transactions.



                                       13
<PAGE>

      Our  certificate  of  incorporation  authorizes  our board of directors to
designate and issue preferred stock with rights, preferences and privileges that
may be adverse to the rights of the  holders of our common  stock.  Our board of
directors has the authority to issue up to an  additional  10,000,000  shares of
preferred stock and to determine the price,  rights,  preferences and privileges
of those shares without any further vote or action by our stockholders. To date,
we have not issued any shares of preferred  stock. Any preferred stock issued by
our board of directors may contain rights and preferences  adverse to the voting
power and other rights of the holders of common stock.

                         Cautionary Statement Concerning
                          Forward-Looking Information

      This annual report and the documents to which we refer you and incorporate
into this annual  report by reference  contain  forward-looking  statements.  In
addition,   from   time  to  time,   we,  or  our   representatives,   may  make
forward-looking  statements  orally or in  writing.  These are  statements  that
relate to future periods and include statements  regarding our future strategic,
operational  and  financial  plans,  potential   acquisitions,   anticipated  or
projected  revenues,  expenses and  operational  growth,  markets and  potential
customers for our products and services,  plans related to sales  strategies and
efforts,  the anticipated benefits of our relationships with strategic partners,
growth of our competition,  our ability to compete,  the adequacy of our current
facilities and our ability to obtain  additional  space, use of future earnings,
and the feature, benefits and performance of our current and future products and
services.

      You  can  identify  forward-looking  statements  by  those  that  are  not
historical in nature,  particularly  those that use  terminology  such as "may,"
"should," "expects,"  "anticipates,"  "contemplates,"  "estimates,"  "believes,"
"plans,"  "projected,"  "predicts,"  "potential,"  "seek" or  "continue"  or the
negative  of  these  or  similar  terms.  In  evaluating  these  forward-looking
statements,  you should consider various  factors,  including those described in
this annual report under the heading "Risk Factors." These and other factors may
cause  our  actual  results  to  differ  materially  from  any   forward-looking
statement.  We caution you not to place undue reliance on these  forward-looking
statements.

      We  base  these   forward-looking   statements  on  our  expectations  and
projections about future events, which we derive from the information  currently
available to us. Such forward-looking  statements relate to future events or our
future  performance.   Forward-looking  statements  are  only  predictions.  The
forward-looking  events discussed in this annual report,  the documents to which
we  refer  you  and  other  statements  made  from  time  to  time  by us or our
representatives,  may not  occur,  and  actual  events  and  results  may differ
materially and are subject to risks, uncertainties and assumptions about us. For
these statements,  we claim the protection of the "bespeaks  caution"  doctrine.
The  forward-looking  statements  speak  only  as of  the  date  hereof,  and we
expressly  disclaim  any  obligation  to  publicly  release  the  results of any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this filing.



                                       14
<PAGE>

Item 2. PROPERTIES

      We lease approximately  25,000 square feet of manufacturing  facilities in
Conroe,  Texas.  In March 2003, we entered into a five-year lease for the rental
of the facilities for our Shumate subsidiary at a rate of approximately  $19,600
per month.  In June 2004,  we expanded  our building by 5,000 square feet to its
present size of 25,000 square feet to accommodate  our growth.  Since June 2004,
our lease rate is  approximately,  $22,600  per month  expiring  June 2009.  The
existing facilities are adequate for our current operations.  We anticipate that
additional  facilities may be leased or purchased as needed and that  sufficient
facilities for our needs are readily available.

Item 3. LEGAL PROCEEDINGS

      We have been named in approximately 10 actions that have been commenced by
former vendors,  suppliers or note holders. The aggregate amount of these claims
is estimated at  approximately  $880,000,  none of which are with our  operating
company, Shumate.

      In addition, on November 7, 2003, Dwayne Lewis, the former Chief Operating
Officer of our  Tulsa-based  companies,  filed suit in  District  Court in Tulsa
County, Oklahoma, naming us and Matthew Flemming, William Stuart, Earl Swift and
Frank Marshik as  defendants.  The action is a  counterclaim  in response to the
September 15, 2003 civil suit filed by Matthew Flemming naming Dwayne Lewis as a
defendant.  The Lewis  counter  claim seeks damages of not less than $10,000 and
alleges that we breached the October 3, 2002  separation  agreement  between the
company and Dwayne Lewis.  In August 2004,  the District  court in Tulsa County,
Oklahoma  granted our motion to compel  arbitration and stayed the Lewis counter
claim until such time as any  arbitration is completed.  Mr. Lewis has not filed
for  arbitration  hearing  under  the  American  Arbitration  Association  rules
governed  under the  separation  agreement as of this time.  We believe that Mr.
Lewis' claims are baseless and without merit and we intend to continue to defend
against them vigorously.

      On January 13, 2004, TW Consulting,  Inc., who sold  substantially  all of
its assets to Excalibur  Aerospace,  filed suit in the  District  Court of Tulsa
County, Oklahoma, naming William Stuart, our former Chief Executive Officer, and
Matthew Flemming,  our Chief Financial Officer in connection with their personal
guarantees of Excalibur debt issued in connection with the acquisition of the TW
Consulting assets. On or about March 9, 2004, Stillwater National Bank and Trust
notified us that it had  purchased  these notes and the related  lawsuit  claims
from TW Consulting.

      On February 17, 2004,  Stillwater  National Bank and Trust Company brought
suit in the District Court of Oklahoma County,  Oklahoma against Messrs.  Stuart
and  Flemming in  connection  with their  personal  guarantees  of the notes and
revolving  credit  lines  known as the bank  credit  facility  in the  amount of
$5,043,156.67.

      We  have  been in  ongoing  negotiations  with  Stillwater  National  Bank
regarding a restructuring and reorganization plan for our company, including the
treatment of the bank credit  facility debt.  Discussions  are ongoing and there
can be no  assurance  that we will ever  come to a  successful  conclusion  of a
reorganization and restructure of our debt, including our bank debt.

      On March 9, 2005,  Excalibur Holdings,  Inc., our wholly-owned  subsidiary
and the parent  corporation of Shumate  Machine Works,  Inc.,  filed a voluntary
petition  for  protection  under  Chapter 7 of the U.S.  Bankruptcy  Code in the
United States Bankruptcy Court,  Southern District of Texas.  Excalibur Holdings
identified an aggregate  amount of  approximately  $13,600,000 in liabilities on
its  debtor  schedules  in  the  bankruptcy  proceeding.  As a  result  of  this
bankruptcy filing,  100% of the capital stock of Shumate Machine Works, Inc. has
become the sole asset of the  bankruptcy  estate.  The capital  stock of Shumate
Machine Works has been pledged to secure the  obligations of Excalibur  Holdings
to its  senior  lender,  Stillwater  National  Bank.  It is  possible  that,  in
connection with the bankruptcy  proceedings,  the capital stock of Shumate could
be sold to  Stillwater  National  Bank or a third  party.  In the event that the
capital  stock of  Shumate is put up for sale,  we intend to bid on the  capital
stock. Neither we nor Shumate Machine Works filed for bankruptcy protection.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      None.


                                       15
<PAGE>

                                     PART II

Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      Our common  stock has traded on the OTC  Bulletin  Board  under the symbol
"EXCB" since June 10, 2002.  Before that date, our common stock is traded on the
OTC Bulletin  Board under the symbol  "GRMA," and before that,  it traded on the
OTC Bulletin Board under the symbol  "GRMG." The following  table shows the high
and low bid prices for our common stock for each quarter  since  January 1, 2003
as  reported by the OTC  Bulletin  Board.  We  consider  our stock to be "thinly
traded" and any reported sale prices may not be a true market-based valuation of
our stock.  Some of the bid  quotations  from the OTC  Bulletin  Board set forth
below may reflect  inter-dealer  prices,  without retail  mark-up,  mark-down or
commission and may not represent actual transactions.



2003 (OTC Bulletin Board)                     High Bid                  Low Bid
-------------------------------------------------------------------------------
First quarter                                 $   1.80                 $    .73
Second quarter                                    1.25                      .41
Third quarter                                      .55                      .12
Fourth quarter                                     .14                      .04

2004 (OTC Bulletin Board)                     High Bid                  Low Bid
-------------------------------------------------------------------------------
First quarter                                  $   .06                 $    .03
Second quarter                                     .06                      .02
Third quarter                                      .04                      .03
Fourth quarter                                     .19                      .03

      As of March 28, 2005, there were 326 record holders of our common stock.

      We have not  paid  any  cash  dividends  since  our  inception  and do not
contemplate paying dividends in the foreseeable  future. In addition,  the terms
of our Stillwater lines of credit and our Stillwater term loans prohibit us from
declaring or paying  dividends  or  purchasing  or redeeming  any of our capital
stock without Stillwater National Bank's prior approval.  It is anticipated that
earnings,  if any,  will be retained to retire debt and for the operation of our
business.

      Shares  eligible  for future  sale could  depress  the price of our common
stock, thus lowering the value of your investment.  Sales of substantial amounts
of our common  stock,  or the  perception  that such sales  could  occur,  could
adversely affect prevailing market prices for shares of our common stock.

      Our  revenues  and  operating  results may  fluctuate  significantly  from
quarter to quarter,  which can lead to  significant  volatility in the price and
volume of our stock. In addition,  stock markets have experienced  extreme price
and volume  volatility in recent years.  This  volatility  has had a substantial
effect on the market prices of securities of many smaller  public  companies for
reasons  unrelated  or  disproportionate  to the  operating  performance  of the
specific  companies.  These broad market  fluctuations  may adversely affect the
market price of our common stock.



                                       16
<PAGE>

      Securities  Authorized for Issuance Under Equity  Compensation  Plans. The
following  provides  information  concerning  compensation plans under which our
equity securities are authorized for issuance as of December 31, 2004:

<TABLE>
<CAPTION>
                                                (a)                        (b)                         (c)
------------------------------------    ---------------------    ----------------------     ------------------------
Plan Category                                Number of             Weighted-average          Number of securities
                                          securities to be         exercise price of          remaining available
                                            issued upon          outstanding options,         for future issuance
                                            exercise of           warrants and rights            under equity
                                            outstanding                                       compensation plans
                                         options, warrants                                   (excluding securities
                                             and rights                                       reflected in column
                                                                                                     (a))
------------------------------------    ---------------------    ----------------------     ------------------------
<S>                                      <C>                     <C>                        <C>
Equity compensation plans approved               39,500                    $0.60                   1,960,500
by security holders
Equity compensation plans not                 1,751,982                    $1.15                  11,375,556
approved by security holders
(1)(2)(3)(4)(5)
Total                                         1,791,482                    $1.13                  13,336,056
</TABLE>

(1)   Individual  Option and Warrant  Grants.  From 2001 through  2003,  we have
      granted  options and warrants on an  individual  basis.  Of the options we
      have  granted  on an  individual  basis,  there are  currently  options to
      purchase in the  aggregate  up to 340,000  shares of our common stock at a
      weighted average price of $1.35 per share. Of the warrants we have granted
      on an individual  basis,  there are currently  warrants to purchase in the
      aggregate up to 1,411,982 shares of our common stock at a weighted average
      price of $1.10 per share

(2)   Stock Bonus Plan. Our board of directors adopted our 2002 Stock Bonus Plan
      on June  10,  2002.  The  purpose  of the  plan  was to  strengthen  us by
      providing our officers,  directors, and employees added incentive for high
      levels of performance  and unusual  efforts to increase our earnings.  The
      plan provided these  individuals with an opportunity to acquire,  maintain
      and  increase  a  proprietary  interest  in our  success.  The  plan  also
      encourages  those  employees to continue their  employment with us. We are
      permitted  to issue up to 50,000  shares of common  stock  grant under the
      plan. On June 10, 2002, we issued 24,000 shares to our employees under the
      plan as a stock bonus. The employees were not required to pay cash for the
      shares. However, the fair market value of the shares issued was considered
      compensation income for tax purposes.

(3)   Stock Grant Plan. Our board of directors adopted our 2003 Stock Grant Plan
      on June 25, 2003. The purpose of this plan was to encourage and enable our
      officers,  employees,  directors,  consultants,  advisors,  and  other key
      persons upon whose judgment, initiative and efforts we largely depends for
      the successful  conduct of our business to acquire a proprietary  interest
      in us. It is  anticipated  that providing such persons with a direct stake
      in our welfare will assure a closer identification of their interests with
      those  of  us,  thereby  stimulating  their  efforts  on  our  behalf  and
      strengthening their desire to remain with us. We are permitted to issue up
      to 3,000,000  shares of common stock under this plan, and to date, we have
      issued 1,624,444 shares.

(4)   Employee Stock  Incentive  Plan.  Our board of directors  adopted our 2003
      Employee  Stock  Incentive Plan on July 17, 2003. The purpose of this plan
      was to allow designated  officers and employees of us and our subsidiaries
      to receive  options to purchase our common stock and to receive  grants of
      common stock subject to certain restrictions.  The purpose of this plan is
      to provide the employees  with  equity-based  compensation  incentives who
      make significant and  extraordinary  contributions to our long-term growth
      and  performance,  and to  attract  and  retain  these  employees.  We are
      permitted to issue up to 7,500,000 shares of common stock under this plan,
      and to date, we have issued no shares or options to purchase  shares under
      this plan.

(5)   Non-Employee  Directors and Consultants  Retainer Stock Plan. Our board of
      directors adopted our 2003 Non-Employee Directors and Consultants Retainer
      Stock Plan on July 17, 2003. The purposes of this plan are to enable us to
      promote  the  interests  of us and  our  stockholders  by  attracting  and
      retaining non-employee directors and consultants capable of furthering our
      future success and by aligning their economic  interests more closely with
      those of our stockholders, by paying their retainer or fees in the form of
      shares of our common  stock.  We are  permitted  to issue up to  2,500,000
      shares of common  stock  under this plan,  and to date,  we have issued no
      shares under this plan.


                                       17
<PAGE>

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

      The following  discussion and analysis should be read in conjunction  with
our audited consolidated financial statements and related notes included in this
report. This report contains "forward-looking  statements" within the meaning of
the Private Securities  Litigation Reform Act of 1995. The statements  contained
in this report that are not historic in nature,  particularly those that utilize
terminology  such  as  "may,"  "will,"   "should,"   "expects,"   "anticipates,"
"estimates,"    "believes,"   or   "plans"   or   comparable   terminology   are
forward-looking statements based on current expectations and assumptions.

      Various  risks and  uncertainties  could  cause  actual  results to differ
materially  from those  expressed in  forward-looking  statements.  Factors that
could cause  actual  results to differ from  expectations  include,  but are not
limited to, those set forth under the section  "Risk  Factors" set forth in this
report.

      The forward-looking  events discussed in this annual report, the documents
to which we refer you and other  statements  made from time to time by us or our
representatives,  may not  occur,  and  actual  events  and  results  may differ
materially and are subject to risks, uncertainties and assumptions about us. For
these statements,  we claim the protection of the "bespeaks  caution"  doctrine.
All  forward-looking  statements  in this  document  are  based  on  information
currently  available  to us as of the  date of this  report,  and we  assume  no
obligation to update any forward-looking statements.  Forward-looking statements
involve known and unknown risks,  uncertainties and other factors that may cause
the actual results to differ materially from any future results,  performance or
achievements expressed or implied by such forward-looking statements.

General

      We are a  contract  machining  and  manufacturing  company  focused in the
energy field  services  market.  We  manufacture  products,  parts,  components,
assemblies   and   sub-assemblies   for  our   customers   designed   to   their
specifications.  Our state of the art 3-D modeling  software,  CNC machinery and
manufacturing  expertise are contracted by customer's  research and  development
("R&D"),  engineering and manufacturing  departments to ensure  optimization and
timely desired results for their products.

      The diverse line of products we manufacture includes the following:

      o     Expandable  tubing  manufacturing  - launchers and liner hangers for
            oil & gas field service applications
      o     Blow-out Preventers and their spare service parts
      o     Top Drive Assemblies, sub-assemblies and their spare service parts
      o     Directional Drilling Products
      o     Exploration Products for Research and Development
      o     Natural Gas Measurement Equipment including Fittings and Valves
      o     Control and Check Valves, and
      o     SubSea Control Equipment.

      Our investment in capital  equipment and software provides us capabilities
to perform close tolerance  highly  specialized work for oil field equipment and
tools,  process  controls,  gas measuring valves and exploration  products.  Our
capabilities  include  producing  large-diameter  products  and  close-tolerance
machined  parts that range up to  thirty-four  feet in length  using a myriad of
materials  of  construction  including  high  grade  carbon  steel,  high  grade
stainless  steel,  nickel and chrome based  alloys.  Our  operating  subsidiary,
Shumate  Machine  Works,  uses state of the art, large part CNC equipment in the
production of these parts and has developed  in-house trade secrets with respect
to the manufacture of certain products.  Our company produces complex assemblies
including  expandable tubing technology  products that are used in field service
operations under extreme  environmental  conditions for oil and gas exploration.
The expandable  tubing and drilling  equipment for production  environments uses
one of the hardest alloy steels and requires close tolerance  specifications for
manufacturing.  We believe that our ability to meet the difficult  manufacturing
requirements of the expandable  tubing  equipment and our development of certain
in-house  manufacturing  trade  secrets  makes us a  leading  expandable  tubing
equipment manufacturer.



                                       18
<PAGE>

Fiscal 2003 - Discontinued Operations

      On  September  30,  2003,  we  discontinued  the  operations  of Excalibur
Services  and  Excalibur  Steel,  and we  also  discontinued  the  manufacturing
operations of Excalibur Aerospace, (collectively, the Tulsa-based companies). On
December 9, 2003,  Stillwater  National Bank and Trust conducted a UCC-1 sale of
the equipment, inventory and other assets of the Tulsa-based companies in Tulsa,
Oklahoma via an auctioneer  hired by the bank. The net proceeds of this auction,
in the  approximate  amount of $690,000,  were delivered  directly to Stillwater
National  Bank to pay for the in costs of the  auction  of  about  $60,000,  and
applied the  remaining  approximately  $630,000 to the  outstanding  debt of the
Excalibur credit facility.

      On December 31, 2003, Excalibur Steel,  Excalibur Services,  and Excalibur
Aerospace each filed a voluntary  petition for protection under Chapter 7 of the
U.S. Bankruptcy Code in the United States Bankruptcy Court, Southern District of
Texas.  The three  subsidiaries  identified an aggregate amount of approximately
$6,837,000 in liabilities on its debtor schedules in the bankruptcy proceedings.

      In  accordance  with the  provisions  related to  discontinued  operations
specified   within  Statement  of  Financial   Accounting   Standards  No.  144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," the results of
operations and financial  position of the Tulsa-based  companies were separately
reported as discontinued operations on our consolidated financial statements and
in the related  discussions  and  comparisons  between  current and prior fiscal
years.

Bankruptcy of Excalibur Holdings, Inc.

      On March 9, 2005,  Excalibur Holdings,  Inc., our wholly-owned  subsidiary
and the parent  corporation of Shumate  Machine Works,  Inc.,  filed a voluntary
petition  for  protection  under  Chapter 7 of the U.S.  Bankruptcy  Code in the
United States Bankruptcy Court,  Southern District of Texas.  Excalibur Holdings
identified an aggregate  amount of  approximately  $13,600,000 in liabilities on
its  debtor  schedules  in  the  bankruptcy  proceeding.  As a  result  of  this
bankruptcy filing,  100% of the capital stock of Shumate Machine Works, Inc. has
become the sole asset of the  bankruptcy  estate.  The capital  stock of Shumate
Machine Works has been pledged to secure the  obligations of Excalibur  Holdings
to its senior lender,  Stillwater  National Bank. On March 11, 2005,  Stillwater
National  Bank  filed a  motion  for  abandonment  with  the  Bankruptcy  Court,
requesting that the Bankruptcy Court to order the Bankruptcy  Trustee to abandon
the capital stock of Shumate.  Concurrently therewith,  Stillwater National Bank
filed  with the  Bankruptcy  Court a motion  for  relief of the  automatic  stay
resulting from the bankruptcy filing so that Stillwater National Bank can pursue
all available remedies in connection with Excalibur Holdings' stock in Shumate.

      On April 20, 2005, the Bankruptcy Court granted Stillwater National Bank's
motion for  relief  from stay and  ordered  that the  automatic  stay is lifted,
modified, and annulled so as to permit Stillwater to exercise any and all rights
and  remedies it may have with respect to the capital  stock of Shumate  Machine
Works held by Excalibur Holdings,  including, but not limited to, exercising any
rights of foreclosure of said stock.

      On April 28, 2005,  Excalibur  Holdings  received  notice from  Stillwater
National Bank that Stillwater intends to dispose of the capital stock of Shumate
Machine  Works in a private  sale  after May 9, 2005  pursuant  to the  Oklahoma
Uniform  Commercial  Code.  Since that time,  in  connection  with our  proposed
recapitalization  with  Stillwater,  Stillwater  has  issued  a loan  commitment
pursuant to which, upon closing of the  recapitalization,  Excalibur  Industries
would obtain direct title to the capital stock of Shumate.

Results of Operations

      Results of Discontinued Operations

      Net gains  for  discontinued  operations  (Excalibur  Services,  Excalibur
Steel, and Excalibur  Aerospace) were $5,218,883 for the year ended December 31,
2004,  compared to net losses for  discontinued  operations of $3,692,495  and a
loss of $4,610,511 on sale and abandonment for the year ended December 31, 2003.
The gains from discontinued operations resulted from the discharge of $5,218,883
of all the debts and liabilities of Excalibur  Services,  Excalibur  Steel,  and
Excalibur Aerospace pursuant to Chapter 7 of the U.S. Bankruptcy Code.



                                       19
<PAGE>

      Results of Continuing Operations

Basis of Presentation

      The results of operations  set forth below for the year ended December 31,
2004 and 2003 are those of the  continuing  operations of Excalibur  Industries,
which  include  Shumate  Machine  Works,   Excalibur  Holdings,   and  Excalibur
Industries, on a consolidated basis

      The  following  table  sets  forth,  for the  periods  indicated,  certain
selected  financial data expressed as a percentage of net sales from  continuing
operations:

                                          Year Ended            Year Ended
                                         December 31,          December 31,
                                       ------------------  ------------------
                                             2004                2003
                                       ------------------  ------------------
Net sales                                     100.0%             100.0%
Cost of sales                                 131.9              146.4
                                       ------------------  ------------------


Gross profit                                 (31.9)             (46.4)

Selling, general and administrative            45.8              114.5
Depreciation                                   12.1               18.4
Goodwill Impairment                              --               31.9
Loss on Sale of Asset                            --                5.1
                                       ------------------  ------------------

Operating income (loss)                       (89.8)%           (216.3)%
                                       ==================  ==================

Comparison of the Year's ended December 31, 2004 and 2003

      Net sales.  Net sales for continued  operations  of Shumate  Machine Works
increased to  $3,416,712,  or an increase of 41.1%,  for the year ended December
31, 2004,  from  $2,421,831 for the year ended  December 31, 2003.  Increases in
commodity  prices,  particularly in the energy sector,  and in activity level in
the energy field services industry resulted in increased demand for our products
from our existing  customers.  In particular,  we received  increased orders for
drilling  tools and blow-out  preventers in 2004. As a result of this  increased
demand, the pricing for Shumate products and components improved in 2004.

      Cost of  Sales.  Cost of  sales  for  continued  operations  increased  to
$4,507,916,  or 27.2%, for the year ended December 31, 2004, from $3,544,423 for
the year ended  December 31, 2003. As a percentage  of net sales,  cost of sales
decreased  to 131.9% of net sales for the year ended  December  31,  2004 versus
146.4% of sales for the year ended  December 31,  2003.  The decrease in cost of
sales as a percentage of net sales resulted primarily from better control of our
direct labor costs and better  pricing of our  products.  We were better able to
control our direct labor costs by instituting more efficient labor processes and
by reducing  overtime costs. We also were able improve our pricing by increasing
the average shop rate per hour we charge to our  customers  while  maintaining a
stable  price  per hour on the cost of labor.  This  improvement  was  partially
offset by higher rent from an expansion of our facilities in Conroe during early
2004. On an overall basis, we are still operating at a gross loss, as we did not
generate  enough  sales to  support  our costs of sales and  generate a positive
margin. We are continuing to implement  additional cost controls with production
wages and  reductions  in our  benefits  costs.  We are also seeking to increase
revenues by generating  more sales with higher pricing by  cultivating  products
that create better efficiencies and pricing.

      Selling,  general and administrative.  Selling, general and administrative
expenses  decreased to  $1,563,450,  or 44.6%,  for the year ended  December 31,
2004,  from  $2,771,792 for the year ended December 31, 2003. As a percentage of
net sales, selling,  general and administrative expenses were 45.8% for the year
ended  December 31,  2004,  as compared to 114.5% for the  comparable  period in
2003.  On  an  absolute  basis,  we  have  lowered  our  selling,  general,  and
administrative  expenses  by  reducing  administrative  payroll,  reducing  rent
payments by consolidating physical locations onto one premise, and cutting other
costs. On a percentage basis, our selling,  general and administrative  expenses
decreased primarily because of the reduction in administrative  payroll expenses
during 2004.



                                       20
<PAGE>

      Depreciation.  Depreciation  expense  decreased  to $413,426  for the year
ended  December 31, 2004,  from  $446,760 for the year ended  December 31, 2003.
During the fourth  quarter of 2004, we increased our estimate of useful lives of
certain  shop  equipment  from seven to twelve  years to  reflect  technological
improvements, which decreased our depreciation expense for 2004 by $62,671.

      Goodwill impairment.  For the year ended December 31, 2003, in addition to
expenses recorded as part of the selling,  general and administrative  expenses,
we incurred a goodwill impairment charge of $773,589 as a result of our periodic
review of goodwill for  impairment  under SFAS No. 142.  This  impairment  was a
result of the write off of certain intangible assets at Shumate Machine Works.

      Operating  loss. We incurred an operating  loss of $3,068,080 for the year
ended  December 31, 2004,  compared to an operating  loss of $5,237,590  for the
year ended December 31, 2003. We had lower operating  losses in the year 2004 as
compared to 2003  primarily  because we generated more revenues due to increased
demand  for  drilling  products  and  components  manufactured  by  Shumate.  In
addition,  in 2003,  we incurred  higher costs of sales,  interest  expenses,  a
$773,589  charge  for  goodwill  impairment,  and a loss on sale  of  assets  of
$122,857.  While we narrowed our operating loss in 2004, we have not reduced our
fixed costs  significantly  enough to bring them below the revenues we generated
in the period.

      Interest  expense.  Interest expense  increased to $966,788 for the twelve
months  ended  December  31, 2004,  from  $418,015  for the twelve  months ended
December 31, 2003. Our interest  expense results  primarily from notes issued to
sellers as part of the purchase price in our acquisitions, capital leases, lines
of credit and term loans from our primary  lender,  and notes issued to officers
and directors for working capital loans.

      Provision for income taxes. While we have generated net income in 2004, we
have made no provision for income taxes due to our tax loss  carry-forward  from
previous  years.  We incurred  operating  losses for the year ended December 31,
2003. Accordingly, we have made no provision for income taxes.

Liquidity and Capital Resources

      We have financed our  operations,  acquisitions,  debt service and capital
requirements  through cash flows  generated  from  operations,  debt  financing,
capital leases, and issuance of equity  securities.  Our working capital deficit
at  December  31,  2004  was  $13,805,288  and  at  December  31,  2003  it  was
$11,850,659.  We had cash of  $177,822  and a bank  overdraft  of $332,512 as of
December 31, 2004. We had cash of $10,276 and a bank  overdraft of $429,384,  as
of December  31,  2003.  This  difference  resulted  primarily  from  additional
borrowings during 2004.

      We used  $3,007,316  of net cash from  operating  activities  for the year
ended December 31, 2004 compared to using  $5,517,042 in the year ended December
31,  2003.  Net  income  of  $1,184,015   resulted  primarily  from  a  non-cash
recognition  of  $5,218,883  of  debt  forgiveness   income  from   discontinued
operations.  We further  used cash in operating  activities  by  increasing  our
accounts receivable by $160,800, our inventory by $85,395, and our other current
assets by $27,058, while we decreased our accounts payable by $67,655. This cash
used in operating  activities were offset by increasing our accrued  expenses by
$955,034 and by incurring a non-cash depreciation expense of $413,426.

      Net cash flows used in  investing  activities  was  $288,407  for the year
ended  December 31, 2004,  compared to using $36,754 in the year ended  December
31, 2003. Cash used by investing activities for the year ended December 31, 2004
was used for the purchase of fixed assets.

      Net cash flows provided by financing  activities  were  $3,463,269 for the
year ended  December  31,  2004,  compared  to net cash  provided  by  financing
activities of $1,470,189 in the year ended  December 31, 2003.  This increase in
net cash  provided by financing  activities  is primarily  due to increased  net
borrowings  of $721,996 from our lines of credit with  Stillwater  National Bank
and  $2,963,075 in additional  notes issued to Stillwater  National  Bank.  This
increase was offset by a $96,872 reduction of bank overdrafts.



                                       21
<PAGE>

Bank Credit Facility

      The primary  source of our  financing  has been our credit  facility  with
Stillwater  National  Bank.  As of  December  31,  2004,  we were  obligated  to
Stillwater in the amount of  approximately  $10 million,  which includes several
lines of credit,  term loans,  and accrued  interest.  The  following is a brief
description of the various portions of our credit facility.

      On May 8,  2002,  we  entered  into a  credit  agreement  with  Stillwater
National  Bank,  which  provided us with a $2,000,000  revolving  line of credit
facility.  The line of credit  has a term of one  year,  is  secured  by a first
priority  security  interest in our accounts  receivables  and  inventory  and a
second priority security interest in our equipment. Under the line of credit, we
borrow at a rate of interest  equal to the higher of (a) six percent (6%) or (b)
Stillwater's  prime rate plus one  percent.  The line of credit  provides for an
advance rate of 80% of qualified receivables and 50% of qualified inventory.

      On September 27, 2002,  we amended the credit  agreement  with  Stillwater
National Bank by increasing the line of credit  facility to $2,500,000.  We also
entered into an additional loan agreement with Stillwater  National Bank,  which
provides us with a $2,500,000 term loan. The term loan has a term of four years,
is secured, along with the line of credit, by a first priority security interest
in our accounts receivables, inventory and equipment. The term loan is repayable
in 48 monthly installments,  and it bears interest at a rate equal to the higher
of (a) six percent (6%) or (b) Stillwater's prime rate plus one percent.

      On September 27, 2002, in connection with our acquisition of the assets of
TW Consulting, we entered into an restructuring agreement,  which resulted in us
having the following notes outstanding in connection with that acquisition:  (i)
an unsecured note in the principal amount of $1,238,500  bearing interest at the
rate of 2% per  annum  over the prime  interest  rate as  published  in the Wall
Street Journal with monthly principal  payments of $10,321 plus accrued interest
commencing  March 18, 2002 and continuing  each month until March 18, 2007, when
all unpaid  principal and interest are due; (ii) a secured note in the principal
amount of $1,250,000 bearing interest at the rate of 7.5% per annum with monthly
principal payments of $21,748 plus accrued interest commencing February 28, 2002
and continuing each month until January 28, 2008, when all unpaid  principal and
interest are due; and (iii) a secured note in the  principal  amount of $443,973
bearing  interest  at the rate of 7.5% per  annum  with  monthly  principal  and
interest  payments of $6,392 plus accrued  interest  commencing July 1, 2003 and
continuing  each month until  September 1, 2008,  when all unpaid  principal and
interest are due. The two secured notes are secured by a second,  junior lien on
certain of our assets,  such security interest being subordinate to the security
interest  granted to Stillwater  National Bank in connection with our Stillwater
line of credit and Stillwater term loan. On February 28, 2003, we entered into a
forbearance  agreement  with  TW  Consulting,  pursuant  to  which  we  did  the
following: (a) paid $29,478 to TW Consulting,  (b) agreed to vacate the premises
that are the subject of the lease by March 31, 2003,  (c) executed and delivered
a second amended and restated consulting  agreement with TW Consulting,  and (d)
agreed to pay  $175,504  to TW  Consulting  on or before  August  15,  2003.  In
consideration of these covenants,  TW Consulting  agreed to forbear pursuing any
remedies  it may have had against us under the two notes in default or under the
lease.  On or about March 9, 2004,  Stillwater  National  Bank  purchased the TW
Consulting debt and the related security agreements,  personal  guarantees,  and
causes of action against the guarantors of this debt. The TW Consulting debt was
listed within  Excalibur  Aerospace's  Chapter 7 bankruptcy  filing and has been
discharged by the Bankruptcy Court.

      Effective  as of April 15,  2003,  we amended  the credit  agreement  with
Stillwater   National  Bank  by  decreasing  the  line  of  credit  facility  to
$1,000,000,  increasing the principal amount of the term loan to $3,500,000, and
obtaining a second term loan in the  principal  amount of $500,000.  The line of
credit has a term of one year, is secured by a first priority  security interest
in our accounts receivables,  inventory,  and equipment.  It bears interest at a
rate equal to the prime rate plus two percent. The first term loan has a term of
four years,  and is  secured,  along with the line of credit and the second term
loan,  by a  first  priority  security  interest  in our  accounts  receivables,
inventory and equipment. We have to pay interest only until August 15, 2003, and
thereafter,  we will make 31 equal monthly  payments in an amount  sufficient to
fully  amortize  principal and interest  over 72 months.  The first term loan is
then  repayable in full on April 15, 2006. The first term loan bears interest at
a rate equal to the prime rate plus two percent. The second term loan has a term
of one year,  and is  secured,  along with the line of credit and the first term
loan,  by a  first  priority  security  interest  in our  accounts  receivables,
inventory and equipment. We have to pay interest only until maturity. The second
term loan  matures on the earlier of our  receipt of  proceeds  from any private
equity  offering in an amount equal to or greater than  $1,000,000  or April 15,
2004. The second term loan bears interest at a rate equal to the prime rate plus
two percent.

      On October 30, 2003, we entered into a  supplemental  loan  agreement with
Stillwater  National Bank, which provided the Company and its Shumate subsidiary
with a $550,000  revolving line of credit facility and a $550,000 term note. The
line of credit has a term of one year, is secured by a first  priority  security
interest  in our  accounts  receivables,  inventory,  and  equipment.  It  bears
interest  at a rate equal to the prime rate plus two  percent.  The term loan is
due  December 15,  2003,  and is secured,  along with the line of credit and our
other  indebtedness to Stillwater,  by a first priority security interest in our
accounts receivables, inventory and equipment. The term loan also bears interest
at a rate equal to the prime rate plus two percent.



                                       22
<PAGE>

      On  September  30,  2003,  we  discontinued  the  operations  of Excalibur
Services  and  Excalibur  Steel,  and we  also  discontinued  the  manufacturing
operations of Excalibur Aerospace, (collectively, the Tulsa-based companies). On
December 9, 2003,  Stillwater  National Bank and Trust conducted a UCC-1 sale of
the equipment, inventory and other assets of the Tulsa-based companies in Tulsa,
Oklahoma via an auctioneer  hired by the bank. The net proceeds of this auction,
in the  approximate  amount of $690,000,  were delivered  directly to Stillwater
National  Bank to pay for the in costs of the  auction  of  about  $60,000,  and
applied the  remaining  approximately  $630,000 to the  outstanding  debt of the
Excalibur credit facility.

      On March 30,  2004,  Shumate  Machine  Works,  our  operating  subsidiary,
entered into an equipment  term loan  agreement  for  $500,000  with  Stillwater
National Bank.  The term loan is due June 30, 2006,  and is secured,  along with
the line of credit and our other indebtedness to Stillwater, by a first priority
security interest in our accounts receivables, inventory and equipment. The term
loan bears interest at a rate equal to the prime rate plus two percent. The note
requires interest only payments until July 2004.  Starting July 2004,  principal
and interest payments are due monthly using a sixty month amortizing schedule.

      On July 26, 2004, the United States Bankruptcy Court, Southern District of
Texas,  discharged  Excalibur Steel and Excalibur  Aerospace of all of its debts
and liabilities pursuant to Chapter 7 of the U.S. Bankruptcy Code, and on August
3,  2004,  the United  States  Bankruptcy  Court,  Southern  District  of Texas,
discharged  Excalibur  Services of all of its debts and liabilities  pursuant to
Chapter 7 of the U.S.  Bankruptcy Code. We have $5,218,883 in net liabilities of
discontinued  operations,  and these  liabilities  were  discharged in the three
bankruptcy  proceedings.  The  difference  between  the  amount  of  liabilities
originally  identified  on the debtor  schedules  and the amount of  liabilities
written  off  resulted  from the  all-inclusive  listing of  liabilities  on the
schedules,   which   resulted  in  overlapping   liabilities   among  the  three
subsidiaries  and  certain  inter-company  liabilities  that were  netted out in
consolidation.

      On September 29, 2004, we and our subsidiaries,  Excalibur Holdings,  Inc.
and Shumate Machine Works,  Inc.,  entered into a loan agreement with Stillwater
National  Bank,  which  provided  us and  our  subsidiaries  with  a  $1,000,000
revolving line of credit facility and a $2,450,000 term note. These loans are in
addition to all other loans outstanding with Stillwater  National Bank. The line
of credit has a term of four  months,  is secured by a first  priority  security
interest in the accounts receivables, inventory, equipment, general intangibles,
and all of our other property and that of our  subsidiaries.  The line of credit
bears interest at a rate equal to the prime rate plus two percent. The term loan
is due January 15, 2005,  and is secured,  along with the line of credit and our
other  indebtedness to Stillwater,  by a first priority security interest in the
inventory,  equipment,  general  intangibles,  and all of our other property and
that of our  subsidiaries.  The term loan also bears interest at a rate equal to
the prime rate plus two percent.  The term loan requires  interest only payments
until its maturity.

Insider and Affiliate Loans

      In 2003, we financed our operations by issuing  various  unsecured  demand
and term notes with an aggregate principal of approximately  $841,959 to various
officers and directors,  with both variable and fixed interest  rates,  and with
maturities ranging from demand notes to June 12, 2004, as follows:

Name                  Principal Amount      Interest Rate       Maturity Date
------------------    -----------------     ---------------     ----------------
WSHS, Inc.            $100,000              Prime + 1.5%        Demand
WSHS, Inc.            $75,000               Prime + 1.5%        May 2, 2003
A. Earl Swift         $100,000              10%                 March 5, 2003
A. Earl Swift         $105,000              10%                 March 7, 2003
A. Earl Swift         $10,321               10%                 March 18, 2003
A. Earl Swift         $200,000              10%                 March 24, 2003
A. Earl Swift         $53,000               6%                  Demand
A. Earl Swift         $80,000               6%                  Demand
A. Earl Swift         $39,638               8%                  February 2, 2004
A. Earl Swift         $79,000               8%                  June 12, 2004



                                       23
<PAGE>

      The proceeds from these notes were used for working capital. WSHS, Inc. is
controlled  by William S.H.  Stuart,  our former  Chairman  and Chief  Executive
Officer. Mr. Swift is a former director and is currently the beneficial owner of
approximately  7.5% of our common  stock.  Under the terms of Mr.  Swift's notes
(other  than  the  demand  notes),  the  maturity  date of such  notes  shall be
automatically extended for successive one-month periods,  unless Mr. Swift gives
written  notice  demanding  repayment of the unpaid  principal  balance of these
notes.

Capital Requirements

      As of the date of this report,  due to our  discontinuing  the Tulsa-based
companies and the amount of debt that our continuing operations have to service,
we do not believe that we will be able to fund our  operations,  working capital
requirements  and debt service  requirements for at least the next twelve months
through  cash  flows  generated  from  operations.  Since we have no  additional
borrowings  available  under  our  existing  line of credit  without  additional
receivables  growth, we will need to continue to finance our operations  through
other capital financings. We have sought, and continue to seek, equity financing
and/or  debt  financing  in the  form  of a  revised  credit  facility,  private
placement,  or public  offering to provide  additional  capital.  However,  such
additional  financing  has not been  available  to us, and it may continue to be
unavailable to us, when and if needed, on acceptable terms or at all.

      In addition  to our  discontinuing  the  Tulsa-based  companies,  the bank
liquidation  during 2003, our  discontinuing  Excalibur  Holdings,  Inc. and its
voluntary  bankruptcy,  we  have  received  a loan  commitment  from  Stillwater
National  Bank to  restructure  our debt.  The plan for  achieving our financial
goals consists of the following transactions (the "restructuring transactions"):

      1. Amended and Restated Term Note.  Stillwater  has issued a commitment to
amend and restate a series of notes in the current  aggregate  principal amounts
of  approximately  $9,413,000 into an amended and restated note in the principal
amount of approximately $3,365,000.  The amended and restated note shall require
interest only payments for the three months following  closing,  and thereafter,
shall  require us to make 27 equal monthly  payments in an amount  sufficient to
fully amortize  principal and interest on the amended and restated note over 120
months.  The amended and  restated  note will be due and payable 30 months after
closing,  at which time,  we will be  required to make a balloon  payment of the
entire  outstanding  principal balance and all accrued interest.  The note shall
bear  interest at a rate equal to the prime rate plus two percent,  and it shall
be secured by a first  priority  security  interest in all of our  existing  and
future assets. The proceeds of this note will be applied as follows: $303,000 to
purchase  machines  from Larry C. Shumate,  our  President  and Chief  Executive
Officer  and from A. Earl Swift,  a former  director;  $100,000 to purchase  the
capital  stock of Shumate  Machine  Works;  and  $2,962,000 to be applied to our
existing indebtedness to Stillwater.

      2. Third  Note.  Stillwater  has issued a  commitment  to lend us funds to
settle an existing  IRS lien against us, and we have agreed to issue a term note
in the  amount  equal  to such  settlement  amount,  which we  estimate  will be
approximately $250,000. The Third Note shall require us to make 48 equal monthly
payments in an amount sufficient to fully amortize principal and interest on the
Third  Note over 48  months.  The Third  Note will be due and  payable 48 months
after closing,  at which time, we will be required to make a balloon  payment of
the entire  outstanding  principal  balance and all accrued  interest.  The note
shall bear  interest at a rate equal to the prime rate plus two percent,  and it
shall be secured by a first  priority  security  interest in all of our existing
and future assets. Each of our executive officers,  Larry C. Shumate, Matthew C.
Flemming, and Russell T. Clark, have agreed to personally guarantee a portion of
the Third Note.

      3. Revised Line of Credit.  Stillwater  has issued a commitment  to extend
our current  revolving  line of credit in an amount of up to $1,000,000  for one
year.  The  initial  balance on the line of credit  shall be the  balance of our
existing  line of credit with  Stillwater,  less the excess  transferred  to the
amended and restated note. The advances  available under the line of credit will
be  limited  to a  borrowing  base of the sum of (a)  80% of  eligible  accounts
receivable,  and (b) 50% of eligible  inventory.  The line of credit  shall bear
interest  at a rate  equal to the prime rate plus two  percent,  and it shall be
secured by a first priority  security interest in all of our existing and future
assets.



                                       24
<PAGE>

      4. Convertible Note.  Stillwater has issued a commitment to accept, and we
have agreed to issue, a convertible  note in the principal amount of $2,500,000.
The principal and accrued interest on the convertible note shall be convertible,
at Stillwater's  option, into shares of our common stock at a conversion rate of
$1.00 per share (on a post reverse  stock split  basis).  The  convertible  note
shall  mature on the  earlier of 60 months from the date of issuance or the date
on  which  it is  fully  converted  into  our  common  stock.  Interest  on  the
convertible  note shall  accrued  from the date of closing  until the earlier of
conversion or 24 months,  at which time the accrued interest will be capitalized
into principal. Beginning at the end of the ninth quarter, we would be obligated
to make quarterly  interest  payments on the  convertible  note. The convertible
note shall bear interest at a rate equal to the prime rate plus two percent, and
it shall be secured by a first priority  security  interest in all of the assets
of  Excalibur  Industries  (the parent  company).  We have agreed to include the
shares  of  common  stock  underlying  the  convertible  note  on  any  eligible
registration  statement  that we may  file  with  the  Securities  and  Exchange
Commission under the Securities Act of 1933 in the next five years.

      5. Flemming  Note.  Stillwater has issued a commitment to lend $350,000 to
our Chief Financial  Officer,  Matthew C. Flemming,  to purchase an aggregate of
250,000  newly issued  shares (post  reverse  stock split) of our common  stock,
representing  approximately  2.16% of our outstanding  common stock after giving
effect to the restructuring, for a total purchase price of $250,000. The balance
will be  applied  to the  existing  personal  indebtedness  of Mr.  Flemming  to
Stillwater  of  approximately  $10,000,000  under a  personal  guarantee  of our
indebtedness  to  Stillwater.  Under the  commitment,  Stillwater  has agreed to
release Mr. Flemming from the remainder of his personal guarantee,  as set forth
in Item 7 below.

      6.  Conversion of Prior Bank Debt.  Stillwater  has issued a commitment to
accept an offer from us to exchange  $2,368,000 of our outstanding  indebtedness
to  Stillwater  for  2,368,000  newly issued of shares of our common stock (on a
post  reverse-split  basis),  representing  not less than 20% of the outstanding
shares of our common stock after  giving  effect to the  restructuring.  We have
agreed to include  these  shares of common  stock on any  eligible  registration
statement that we may file with the Securities and Exchange Commission under the
Securities Act of 1933 in the next five years.

      7.  Releases.  Stillwater  has issued a  commitment  to release us and our
Chief Financial Officer,  Matthew C. Flemming, from their respective obligations
of the prior debt to  Stillwater,  except to the extent  that such prior debt is
amended and restated, issued, or guaranteed as set forth above.

      8. Unsecured Note Exchange Offer. Our unsecured noteholders have agreed to
exchange all of our  outstanding  unsecured  notes,  with interest rates ranging
from 6% to 12% and all  currently  due and owing,  for  approximately  1,691,310
newly  issued  shares  of our  common  stock  (on a post  reverse-split  basis),
representing  approximately 14.61% of the outstanding shares of our common stock
after giving effect to the restructuring.

      9. Restricted Stock Awards. Our board of directors have granted restricted
stock awards of approximately  3,950,000 shares of newly issued common stock (on
a post  reverse-split  basis) to our  executive  officers  and our  non-employee
directors,  representing  approximately  34.12% of the outstanding shares of our
common stock after giving effect to the restructuring.

      A  complete  description  of the  restructuring  plan is set  forth in our
preliminary  proxy  statement for a special meeting of  stockholders,  which has
been filed with the Securities and Exchange Commission.

      The loan commitment is being submitted to our  stockholders  for approval,
and we are seeking to have the restructuring completed by September 30, 2005. In
the event the restructuring  does not occur, it is unlikely that we will be able
to repurchase the Shumate  shares,  and it is likely that Stillwater will either
sell the capital  stock of Shumate to a third party or  foreclose  on  Shumate's
remaining  assets.  Further,  in the event that Stillwater does sell the Shumate
shares to a third party, the  restructuring  will not occur. In either event, we
will have no  business  or  operations,  and we will be unable  to  satisfy  our
currently outstanding obligations.

      We may continue to incur  operating  losses if the energy  field  services
market deteriorates or softens.  Such losses could require us to renegotiate our
affirmative  covenants with our lender,  including the liquidity  ratio and debt
service  ratios.  Our ability to comply with these  covenants in the future will
depend on whether we can obtain  additional  capital  financing  or increase our
cash flows from  operations.  As of the date of this report,  all of our secured
debt is in default.

      In addition to the  recapitalization  plan, we anticipate reduced overhead
costs from further  reductions  in our holding  company  expenses.  Further,  we
anticipate that, due in part to increasing energy prices,  demand for our energy
related  field service  products  will  increase in the coming fiscal year.  The
proposed reorganization,  debt restructuring,  operating expense reductions, and
our intent to capitalize on anticipated increase in demand are the steps that we
are taking to try to return to profitability.  However, it is possible that none
of these steps will be completed and that we may never return to profitability.



                                       25
<PAGE>

      We intend to retain  any  future  earnings  to retire  debt,  finance  the
expansion  of our  business  and any  necessary  capital  expenditures,  and for
general corporate  purposes.  All our bank debt contains  restrictions as to the
payment of dividends.



                                       26
<PAGE>

Item 7. FINANCIAL STATEMENTS

      Our financial  statements  and related notes are contained on pages F-1 to
F-14 of this report.

Item  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

      See our Current  Report on Form 8-K filed on February 4, 2004 with respect
to changes in accountants.

Item 8A. CONTROLS AND PROCEDURES.

      We  carried  out  an  evaluation,  under  the  supervision  and  with  the
participation of our Chief Executive Officer and Chief Financial Officer, of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures,  as  defined in  Exchange  Act Rule  13a-15(e)  as of the end of the
period covered by this Annual Report on Form 10-KSB.  Based on that  evaluation,
they  concluded  that our  disclosure  controls and  procedures are effective to
ensure that information  required to be disclosed in our Exchange Act reports is
recorded,  processed,  summarized and reported within the time periods specified
in the  Securities  and  Exchange  Commission's  rules and forms,  and that such
information is accumulated and  communicated  to them to allow timely  decisions
regarding required disclosure.

      There has been no change in our internal control over financial  reporting
that occurred during our last fiscal quarter that has materially affected, or is
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.



                                       27
<PAGE>

                                    PART III

Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

Executive Officer and Directors

      Our executive  officers and  directors,  the positions  held by them,  and
their ages are as follows:

<TABLE>
<CAPTION>
       Name                Age                       Position
----------------         -------         ------------------------------------------------
<S>                         <C>          <C>
Larry C. Shumate            51           Chairman of the Board of Directors,
                                         President and Chief Executive Officer

Matthew C. Flemming         36           Chief Financial Officer, Executive Vice
                                         President, Treasurer, Secretary and Director

Russell T. Clark            39           Vice President and Chief Operating Officer

Frank X. Marshik            78           Director
</TABLE>

      Larry C. Shumate is our President and Chief  Executive  Officer and is the
Chairman of our Board of Directors. Mr. Shumate founded Shumate Machine Works in
1978 and has more than 27 years of manufacturing and management experience.  Mr.
Shumate has been the President of Shumate Machine since its inception and became
our President and CEO in the 2004 reorganization.

      Matthew  C.  Flemming  is a  Director  and our  Chief  Financial  Officer,
Treasurer, Secretary and Executive Vice-President. Mr. Flemming was a co-founder
of Excalibur  Holdings and has been involved with all of its acquisitions.  From
June 1999 to March 2001,  he served as Chief  Executive  Officer of  WorldByNet,
Inc. a Houston,  Texas based  privately  held Internet  start-up  company.  From
January 1994 to May 1999, Mr. Flemming served as Chief Executive Officer of FARO
Pharmaceuticals,  Inc., a privately held specialty  products  company.  From May
1991 to December 1993, he was a Series 7 licensed financial advisor with Eppler,
Guerin and Turner, a regional  investment  banking firm in the Southwest at that
time. Mr. Flemming received a Bachelor of Arts in Finance from the University of
Houston.  Mr. Flemming is a former officer of each of the Tulsa-based  companies
and Excalibur Holdings prior to their filing for bankruptcy protection.

      Russell T. Clark is a Director and our Vice President and Chief  Operating
Officer.  Mr. Clark has served as the COO of Shumate  Machine  Works since 1998,
developing  operating  procedures,  production systems and controls and managing
manufacturing personnel for growth. From 1988 to 1998, Mr. Clark worked at Baker
Hughes in a variety of  positions.  From 1996 to 1998 he was  Quality  Assurance
Manager for the western  hemisphere for the Navitrak product line, and from 1988
to 1996, Mr. Clark served as Senior Quality  Manager of Baker Hughes Develco and
Senior Quality Engineer of Baker Hughes MWD.

      Francis X. Marshik is a Director.  Mr.  Marshik  retired in 1986 from M.W.
Kellogg, an engineering,  construction and fabrication company,  where he served
as its Senior Vice President of Global  Business  Development  since 1980.  From
1974 to 1980,  Mr.  Marshik was  Commercial  Vice  President of M.W.  Kellogg in
London,  and  from  1968 to 1972,  he was the  head of the Far  East as  General
Manager of Japan.  From 1950 to 1966, Mr. Marshik held various positions at C.F.
Braun,  an  engineering  company.  He received a Bachelor of Science from Oregon
State University.

Information about our Board and its Committees.

      Our Board of Directors  established an Audit Committee which became active
in April 2002. The Board of Directors also established an Executive Committee in
January 2003.  Since the  resignations of A. Earl Swift and Donald Parr from the
board of directors, our entire board of directors has served to act as the Audit
Committee and the Executive Committee.



                                       28
<PAGE>

      The Audit  Committee  provides  assistance to our Board in satisfying  its
fiduciary  responsibilities relating to the our financial statements,  financial
reporting process, systems of internal accounting and financial controls and the
annual  independent  audit of our financial  statements.  The Audit Committee is
responsible for appointing or replacing the independent  auditors,  and approves
all  audit  engagement  fees and terms and all  non-audit  engagements  with the
independent  auditors.  The Audit  Committee  operates  under a written  charter
adopted by our Board of Directors. The Audit Committee is currently comprised of
our entire board of directors.

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors, executive officers, and stockholders holding more than 10% of our
outstanding  common stock,  to file with the Securities and Exchange  Commission
initial  reports of ownership and reports of changes in beneficial  ownership of
our  common  stock.   Executive   officers,   directors   and   greater-than-10%
stockholders  are required by SEC  regulations  to furnish us with copies of all
Section 16(a) reports they file. To our knowledge, based solely on review of the
copies of such reports  furnished to us for the period ended  December 31, 2004,
all  Section  16(a)  reports  required  to be filed by our  executive  officers,
directors and greater-than-10% stockholders were filed on a timely basis.

Code of Ethics

      We have adopted a code of ethics that applies to the  principal  executive
officer and principal  financial and accounting  officer. We will provide to any
person without charge, upon request, a copy of our code of ethics.  Requests may
be directed to our principal  executive offices at 12060 FM 3083, Conroe,  Texas
77301.

Item 10. EXECUTIVE COMPENSATION

      The  following  table sets forth the cash  compensation  paid to the Chief
Executive  Officer and to all other  executive  officers for  services  rendered
during the fiscal years ended December 31, 2004, 2003, and 2002.

<TABLE>
<CAPTION>
                                         Annual Compensation (1)                      Long-Term Compensation
                         ------------------------------------------------------------------------------------------
                                                                                                  Common Shares        All
                                                                                   Restricted       Underlying        Other
                                                                  Other Annual       Stock       Options Granted     Compen
  Name and Position       Year        Salary         Bonus       Compensation     Awards ($)       (# Shares)       -sation
-----------------------  ------  ------------------ ----------- --------------  -------------  ------------------  ------------
<S>                       <C>      <C>               <C>         <C>              <C>            <C>                <C>
Larry C. Shumate          2004     $  155,770         -0-         $    2,800(2)    -0-            -0-                -0-
Chairman, President and   2003     $  162,000         -0-         $   18,000(3)    -0-            -0-                -0-
Chief Executive Officer   2002     $  147,745         -0-         -0-              -0-            -0-                -0-

Matthew C. Flemming       2004     $  105,011         -0-         $    4,000(2)    -0-            -0-                -0-
Executive Vice            2003     $  227,500         -0-         -0-              -0-            -0-                -0-
President,                         (4)
Chief Financial           2002     $  231,544         -0-         $   32,899(5)    -0-            -0-                -0-
Officer, Secretary and
Treasurer

Russell T. Clark          2004     $  129,230         -0-         $    4,000(2)    -0-            -0-                -0-
Vice President and        2003     $  141,230         -0-         -0-              -0-            -0-                -0-
Chief Operating Officer   2002     $  128,153         -0-         -0-              -0-            -0-                -0-

William S.H. Stuart       2004     $        0         -0-         $   28,953(6)    -0-            -0-                -0-
Former Chairman,          2003     $  236,540         -0-         -0-              -0-            -0-                -0-
President and
Chief Executive Officer   2002     $  252,202         -0-         $   32,759(7)    -0-            -0-                -0-
</TABLE>

(1)   Includes  compensation  earned from Excalibur  Holdings,  Inc.  before its
      reverse merger into Excalibur  Industries,  Inc. and from Shumate  Machine
      Works, Inc.



                                       29
<PAGE>

(2)   Includes various expenses we paid on behalf of the listed officer that has
      been classified as miscellaneous 1099 compensation income.

(3)   Includes  agreement  to pay Mr.  Shumate  rent for Shumate  Machine  Works
      previous building located in Magnolia, Texas which we leased.

(4)   $192,500 of this amount was accrued salary, never paid to Mr. Flemming and
      now  listed  as  a  liability  in  the   Excalibur   Holdings   bankruptcy
      proceedings.

(5)   Includes a car allowance of $14,400.

(6)   Severance pay pursuant to an April, 2004 Release Agreement.

(7)   Includes a car allowance of $15,600.

Option Grants and Exercises

      There were no option grants or exercises by any of the executive  officers
named in the Summary Compensation Table above.

Employment Agreements

         We had entered into  employment  agreements with the former Chairman of
our Board of Directors,  and President and Chief Executive Officer,  Mr. William
S.H.  Stuart,  our current Chief  Financial  Officer,  Executive Vice President,
Treasurer and Secretary,  Mr. Matthew C. Flemming,  the current  Chairman of our
Board of Directors, and President and Chief Executive Officer, Larry C. Shumate,
and our current Vice President and Chief  Operating  Officer,  Russell T. Clark.
Pursuant to their  agreements,  each executive officer is required to devote his
entire  business  time  to our  affairs,  subject  to  certain  exceptions.  The
following  chart  sets  forth  the  annual  salary  and  term of each  executive
officer's employment agreement:

Name                            Annual Salary          Expiration of Term
---------------------------     -------------------    -------------------------
William S.H. Stuart             $225,000               December 1, 2004
Matthew C. Flemming             $210,000               December 1, 2004
Larry C. Shumate                $150,000               March 29, 2005
Matthew C. Flemming             $120,000               March 29, 2005

      Each executive officer is also entitled to receive potential discretionary
bonuses,  reimbursement  of  expenses,  vacation,  health  insurance  and  other
benefits.  All of the  employment  agreements  of these  executive  officers are
subject to automatic three month  extensions  unless either party chooses not to
renew.  All compensation  that accrued under the Flemming and Stuart  employment
agreements are now listed as liabilities in the Excalibur  Holdings'  bankruptcy
proceedings.

      In April  2004,  William  S.H.  Stuart  resigned as Chairman of our Board,
Chief  Executive  Officer and  President  pursuant to a  separation  and release
agreement,  and his employment agreement was terminated in connection therewith.
The employment agreements for Messrs. Shumate,  Flemming, and Clark have expired
and have not been renewed.  Messrs.  Shumate,  Flemming, and Clark are currently
working for us without written employment agreements.

Compensation of Directors

      All directors receive reimbursement for reasonable  out-of-pocket expenses
in attending  board of directors  meetings and for promoting our business.  From
time to time we may engage certain  members of the board of directors to perform
services  on our  behalf.  In such cases,  we  compensate  the members for their
services at rates no more  favorable  than could be obtained  from  unaffiliated
parties.


                                       30
<PAGE>


Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The  following  table  sets  forth  certain   information   regarding  the
beneficial  ownership  of our common  stock as of the date of this report by the
following persons:

      o     each  person  who is known to be the  beneficial  owner of more than
            five  percent  (5%) of our issued and  outstanding  shares of common
            stock;
      o     each of our directors and executive officers; and
      o     all of our directors and executive officers as a group.

<TABLE>
<CAPTION>
                                                         Number Of Shares
                  Name And Address                      Beneficially Owned              Percentage Owned
                  ----------------                      ------------------              ----------------
<S>                                                     <C>                            <C>
   Larry C. Shumate                                          840,000(1)                     4.93%
   Matthew C. Flemming                                     1,645,000(1)(2)                  9.63%
   Russell T. Clark                                          560,000(1)                     3.29%
   Frank X. Marshik                                          509,965(3)                     2.97%
   The Robert and Mary Stuart Irrevocable Trust.
                                                           2,195,000(4)                    12.89%
   Aubrey Earl Swift                                       1,291,668(5)                     7.50%
   Dwayne & Debra Lewis                                    1,423,000(6)                     8.35%
   TW Consulting, Inc                                      1,000,000(7)                     5.87%
   Seneca Capital, L.P.
   Seneca Capital International, Ltd                       1,945,000(8)(9)                 11.14%

   All directors and officers as a group                   3,343,365                       20.62%
</TABLE>

(1)   The address is 12060 FM 3083, Conroe, Texas 77301.

(2)   Includes  50,000  shares  underlying   presently   exercisable   warrants.
      1,595,000  shares have been pledged to Comerica Bank to secure payment for
      a loan  collateralized  by the shares.  Mr.  Flemming has defaulted on the
      loan and  Comerica  Bank  intends to  foreclose on the pledge and sell the
      shares.

(3)   Includes 50,000 shares held by Mr. Marshik's spouse, 24,000 shares held by
      Mr. Marshik as custodian for members of Mr.  Marshik's  family under state
      uniform  gift to minors  acts,  and 161,600  shares  underlying  presently
      exercisable warrants. Mr. Marshik's address is 8515 Costa Verde Boulevard,
      #90, San Diego, CA 92112.

(4)   The trust's  address is 302 Walnut Street,  Bridgeville,  Delaware  19933.
      Matthew C. Davis is the trustee of the trust and has voting and investment
      control over these shares.

(5)   Includes  508,334  shares held by a family  trust of which Mr.  Swift is a
      trustee and 183,334 shares underlying presently exercisable warrants.  Mr.
      Swift's address is 2715 S. Southern Oaks, Houston, Texas 77068.

(6)   Dwayne and Debra Lewis'  address is 6402 E. 201 Street South,  Mounds,  OK
      74047.

(7)   The address of TW  Consulting  is 405 North Redbud  Avenue,  Broken Arrow,
      Oklahoma 74012.  Tommy Worth is the sole  shareholder of TW Consulting and
      has voting and investment control over these shares.



                                       31
<PAGE>

      (8)   The address of Seneca  Capital,  L.P. is 527  Madison  Avenue,  11th
            Floor,  New  York,  NY 10022,  and the  address  of  Seneca  Capital
            International,  Ltd.  is  c/o  Consolidated  Fund  Management  (BVI)
            Limited,  PO Box HM 2257, Par La Ville Place,  14 Par La Ville Road,
            Hamilton HMJX, Bermuda.

      (9)   Seneca  Capital,   L.P.  beneficially  owns  642,366  shares,  which
            includes 135,699 shares underlying presently  exercisable  warrants.
            Seneca  Capital  International,  Ltd.  beneficially  owns  1,302,634
            shares,   which  includes   289,301  shares   underlying   presently
            exercisable  warrants.  Douglas  A.  Hirsh is the  manager of Seneca
            Capital  Advisors,  LLC, the sole general partner of Seneca Capital,
            L.P., and he is the manager of Seneca Capital Investments,  LLC, the
            investment  advisor of Seneca  Capital  International,  Ltd,  and we
            believe  that he has voting and  investment  control over the shares
            held by Seneca Capital, L.P. and Seneca Capital International,  Ltd.
            We  believe   that  Seneca   Capital,   L.P.   and  Seneca   Capital
            International,  Ltd.  constitute a "group" which  beneficially  owns
            these shares.

      Beneficial  ownership  is  determined  in  accordance  with the  rules and
regulations  of the SEC.  The number of shares and the  percentage  beneficially
owned by each individual listed above include shares that are subject to options
held by that individual that are immediately  exercisable or exercisable  within
60 days from the date of this report and the number of shares and the percentage
beneficially  owned by all officers and  directors  as a group  includes  shares
subject  to  options  held by all  officers  and  directors  as a group that are
immediately  exercisable  or  exercisable  within  60 days from the date of this
report.

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      On May 1, 2002, we retained  Spectrum Law Group, LLP as our legal counsel.
One of the  partners  at  Spectrum  Law Group,  LLP is the  son-in-law  of Frank
Marshik, one of our directors and stockholders.

      In 2003, we financed our operations by issuing  various  unsecured  demand
and term notes with an aggregate principal of approximately  $841,959 to various
officers and directors,  with both variable and fixed interest  rates,  and with
maturities ranging from demand notes to June 12, 2004, as follows:

Name                   Principal Amount      Interest Rate      Maturity Date
-------------------    -----------------     ---------------    ----------------
WSHS, Inc.             $100,000              Prime + 1.5%       Demand
WSHS, Inc.             $75,000               Prime + 1.5%       May 2, 2003
A. Earl Swift          $100,000              10%                March 5, 2003
A. Earl Swift          $105,000              10%                March 7, 2003
A. Earl Swift          $10,321               10%                March 18, 2003
A. Earl Swift          $200,000              10%                March 24, 2003
A. Earl Swift          $53,000               6%                 Demand
A. Earl Swift          $80,000               6%                 Demand
A. Earl Swift          $39,638               8%                 February 2, 2004
A. Earl Swift          $79,000               8%                 June 12, 2004

      The proceeds from these notes were used for working capital. WSHS, Inc. is
controlled  by William S.H.  Stuart,  our former  Chairman  and Chief  Executive
Officer. Under the terms of Mr. Swift's notes (other than the demand notes), the
maturity  date of such notes  shall be  automatically  extended  for  successive
one-month periods,  unless Mr. Swift gives written notice demanding repayment of
the unpaid principal balance of these notes.

      We believe that the  foregoing  transactions  were in our best  interests.
Consistent with Section 144 of the Delaware  General  Corporation Law, it is our
current policy that all transactions between us and our officers,  directors and
their affiliates will be entered into only if such  transactions are approved by
a  majority  of  the  disinterested  directors,  are  approved  by  vote  of the
stockholders,  or are fair to us as a corporation  as of the time it is us at is
authorized,  approved or ratified by the board.  We will conduct an  appropriate
review of all  related  party  transactions  on an  ongoing  basis,  and,  where
appropriate,  we will  utilize our audit  committee  for the review of potential
conflicts of interest.



                                       32
<PAGE>

Limitation  of Liability  of  Directors  and  Indemnification  of Directors  and
Officers

      As permitted by Section 145 of the Delaware  General  Corporation Law, our
certificate of  incorporation  includes a provision that eliminates the personal
liability of our directors for monetary  damages for breach or alleged breach of
their  fiduciary  duty as  directors  to the  fullest  extent  permitted  by the
Delaware General  Corporation  Law. In addition,  as permitted by Section 145 of
the Delaware  General  Corporation  Law, our bylaws  provide that we may, in our
discretion,  (i) indemnify  our  directors,  officers,  employees and agents and
persons serving in such capacities in other business enterprises at our request,
to the fullest extent permitted by Delaware law, and (ii) advance  expenses,  as
incurred,  to  our  directors  and  officers  in  connection  with  defending  a
proceeding.

      We may enter into  indemnification  agreements  with each of our directors
and  officers  that  provide  the maximum  indemnity  allowed to  directors  and
officers by Section 145 of the Delaware  General  Corporation Law and the bylaws
as well as certain additional procedural protections.

      The  indemnification  provisions  in the  bylaws  and the  indemnification
agreements  which we may  enter  into with our  directors  and  officers  may be
sufficiently  broad to permit  indemnification of our directors and officers for
liabilities  arising under the Securities Act. However, we are aware that in the
opinion of the  Securities  and  Exchange  Commission  such  indemnification  is
against  public  policy as  expressed  in the  Securities  Act and is  therefore
unenforceable.


                                       33
<PAGE>

Item 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a)   Exhibits

Exhibit No.                Description
-----------                -----------

2.1*              Agreement and Plan of Merger by and among Global Realty
                  Management Group, Inc., GRMG Acquisition Corporation,
                  Excalibur Holdings, Inc., and Michael D. Farkas

2.2*              Agreement and Plan of Merger by and among Excalibur Steel,
                  Inc., Dwayne Lewis, Debra Lewis, Excalibur Holdings, Inc.,
                  William S.H. Stuart, and Matthew C. Flemming

2.3*              Asset Purchase Agreement by and between Excalibur Aerospace,
                  Inc. and Aero Weld, Inc.

2.4*              First Amendment to Asset Purchase Agreement by and between
                  Excalibur Aerospace, Inc. and Aero Weld, Inc.

2.5*              Master Agreement by and among TW Consulting, Inc., Excalibur
                  Aerospace, Inc., Tommy Worth, William Stuart and Matthew
                  Flemming

2.6*              Agreement and Plan of Merger by and among Shumate Machine
                  Works, Inc., Larry C. Shumate, Russ Clark, Excalibur Holdings,
                  Inc., and Excalmergeco, Inc.

2.7*              Asset Purchase Agreement by and between Excalibur Services,
                  Inc. and Redhawk Industries, LLC.

3.1*              Certificate of Incorporation of Excalibur Industries, Inc.

3.2*              Bylaws of Excalibur Industries, Inc.

4.1*              Specimen Certificate of Excalibur Industries, Inc.'s common
                  stock

4.2*              Form of common stock purchase warrant

10.1*             Loan Agreement between Stillwater National Bank and Trust
                  Company of Stillwater and Excalibur Holdings, Inc. (Line of
                  Credit)

10.2*             Amendment to Loan Agreement between Stillwater National Bank
                  and Trust Company of Stillwater and Excalibur Holdings, Inc.

10.3*             Loan Agreement between Stillwater National Bank and Trust
                  Company of Stillwater and Excalibur Holdings, Inc. (Term Loan)

10.4**            Amended and Restated Loan Agreement by and between Stillwater
                  National Bank and Trust Company, Excalibur Industries, Inc.,
                  and its subsidiaries, dated as of April 15, 2003.

10.5**            Supplemental Loan Agreement by and between Stillwater National
                  Bank and Trust Company, Excalibur Industries, Inc., and its
                  subsidiaries, dated as of October 30, 2003.

10.6**            Loan Agreement by and between Stillwater National Bank and
                  Trust Company and Excalibur Industries, Inc., and its
                  subsidiaries, dated as of March 23, 2004.

10.7***           Loan Agreement by and between Stillwater National Bank and
                  Trust Company and Excalibur Industries, Inc., and its
                  subsidiaries, dated as of September 29, 2004.

                                       34
<PAGE>

10.8*             Employment Agreement between Excalibur Holdings, Inc. and
                  William S.H. Stuart

10.9*             Employment Agreement between Excalibur Holdings, Inc. and
                  Matthew C. Flemming

10.10********     Employment Agreement between Shumate Machine Works, Inc. and
                  Larry C. Shumate

10.11********     Employment Agreement between Shumate Machine Works, Inc. and
                  Russell T. Clark

10.12*            2001 Stock Option Plan of Excalibur Holdings, Inc.

10.13****         2003 Stock Grant Plan

10.14*****        2003 Employee Stock Incentive Plan

10.15*****        2003 Non-Employee Directors and Consultants Retainer Stock
                  Plan

10.16*            Real Estate Lease and Option Agreement by and between Larry C.
                  Shumate and ExcalMergeCo., Inc.

10.17******       $100,000 Promissory Note issued in favor of Aubrey Earl Swift


10.18******       $100,000 Promissory Note issued in favor of IRA FBO Frank X.
                  Marshik Donaldson, Lufkin & Jenrette, Custodian

10.19******       $15,000 Promissory Note issued in favor of William S.H. Stuart

10.20******       $15,000 Promissory Note issued in favor of Matthew C. Flemming

10.21******       $50,000 Promissory Note issued in favor of David Rains

10.22******       Security Agreement by and among David Rains, Excalibur
                  Aerospace, Excalibur Steel, Excalibur Services, and Shumate
                  Machine Works

10.23******       Form of Promissory Note issued in favor of WSHS, Inc.

10.24******       Form of Rolling Promissory Note issued in favor of Aubrey Earl
                  Swift.

10.25******       $55,000 Promissory Note issued in favor of Virgil Swift.

16.1*******       Letter on change in certifying accountant

21.1*             Subsidiaries of Excalibur Industries, Inc.

23.1********      Consent of Independent Public Accountants, Malone & Bailey, PC

31.1              Certification of Larry C. Shumate pursuant to Rule 13a-14(a)

31.2              Certification of Matthew C. Flemming pursuant to Rule
                  13a-14(a)

32.1              Certification of Larry C. Shumate pursuant to 18 U.S.C Section
                  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002

32.2              Certification of Matthew C. Flemming pursuant to 18 U.S.C
                  Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002

                                       35
<PAGE>

------------------

*           Filed as an exhibit to Amendment No. 1 to Excalibur's Registration
            Statement on Form SB-2, filed on September 5, 2002 (File No.
            333-88974), incorporated herein by reference.

**          Filed as an exhibit to our Annual Report on Form 10-KSB filed on
            April 16, 2004, incorporated herein by reference.

***         Filed as an exhibit to a Current Report on Form 8-K filed on October
            15, 2004, incorporated herein by reference.

****        Filed as an exhibit to Excalibur's Registration Statement on Form
            S-8, filed on June 26, 2003 (File No. 333-106521), incorporated
            herein by reference.

*****       Filed as an exhibit to Excalibur's Registration Statement on Form
            S-8, filed on August 1, 2003 (File No. 333-107548), incorporated
            herein by reference.

******      Filed as an exhibit to Amendment No. 2 to Excalibur's Registration
            Statement on Form SB-2, filed on December 19, 2002 (File No.
            333-88974), incorporated herein by reference.

*******     Filed as an exhibit to a Current Report on Form 8-K filed on
            February 4, 2004, incorporated herein by reference.

********    Filed as an exhibit to our Annual Report on Form 10-KSB for the year
            ended December 31, 2004, incorporated herein by reference.


-------------------


                                       36
<PAGE>


Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Appointment of Auditors

      Our Board of Directors selected Malone & Bailey, PC, independent
accountants, as our auditors for the year ending December 31, 2005. Malone &
Bailey, PC previously audited our consolidated financial statements for the
fiscal year ended December 31, 2004 and 2003.

Audit Fees

      Malone & Bailey, PC billed us $20,000 in fees for our 2004 annual audit,
$32,000 in fees for our 2003 annual audit, and $11,900 in fees for the review of
our quarterly financial statements for 2004. Our previous auditors, Cross and
Robinson, billed us $38,735 in fees for the review of our quarterly financial
statements for 2003.

Audit-Related Fees

      We did not pay any fees to Malone & Bailey, PC for assurance and related
services that are not reported under Audit Fees above in 2004 or 2003.

Tax Fees

      We did not pay any fees to Malone & Bailey, PC or Cross and Robinson for
tax compliance, tax advice or tax planning in 2004 or 2003.

All Other Fees

      In 2003, our former independent auditors, Cross and Robinson billed us
$4,373 for work in connection with our registration statement on Form SB-2, $390
for work in connection with our registration statements on Form S-8, and $2,569
for all other fees. We did not pay any fees to Malone & Bailey, PC for any
registration statement work, tax services, or any other fees in 2004 or 2003.

Pre-Approval Policies and Procedures

      We have implemented pre-approval policies and procedures related to the
provision of audit and non-audit services. Under these procedures, our audit
committee pre-approves all services to be provided by Malone & Bailey, PC and
the estimated fees related to these services.



                                       37
<PAGE>

                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this amended report to be signed on its behalf by
the undersigned, thereunto duly authorized.


                               EXCALIBUR INDUSTRIES, INC.


                               By:  /s/ Larry C. Shumate
                                   ----------------------------------------
                                        Larry C.  Shumate,  Chairman,  President
                                        and  Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this amended report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated.

<TABLE>
<CAPTION>
Signatures                             Title                                         Date
---------------------------------------------------------------------------------------------

<S>                             <C>                                           <C>
/s/ Larry C. Shumate            Chairman of the Board, President,             August 30, 2005
--------------------            Chief Executive Officer
Larry C. Shumate



/s/ Matthew C. Flemming         Executive Vice President, Chief               August 30, 2005
-----------------------         Financial Officer, Treasurer,
Matthew C. Flemming             Secretary, and Director



/s/ Russell T. Clark            Vice President, Chief Operating Officer       August 30, 2005
-----------------------         and Director
Russell T. Clark




/s/ Frank X. Marshik            Director                                      August 30, 2005
-----------------------
Frank X. Marshik
</TABLE>


                                       38

<PAGE>
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors
  Excalibur Industries, Inc.
  Conroe, Texas

We have audited the accompanying consolidated balance sheet of Excalibur
Industries, Inc. as of December 31, 2004 and the related consolidated statements
of operations, changes in stockholders' deficit and cash flows for the each of
the two years then ended. These consolidated financial statements are the
responsibility of Excalibur's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Excalibur Industries, Inc. as
of December 31, 2004 and the results of its operations and cash flows for the
two years then ended in conformity with accounting principles generally accepted
in the United States of America.

The accompanying financial statements have been prepared assuming that Excalibur
will continue as a going concern. As discussed in Note 2 to the financial
statements, Excalibur has suffered recurring losses from operations and has a
working capital deficiency, which raises substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters also are
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

As discussed in Note 18 to the financial statements, on March 9, 2005, Excalibur
Holdings, Inc., a wholly-owned subsidiary of Excalibur Industries, Inc. and the
parent corporation of Shumate, filed a voluntary petition for protection under
Chapter 7 of the U.S. Bankruptcy Code in the United States Bankruptcy Court,
Southern District of Texas. As a result of this bankruptcy filing, 100% of the
capital stock of Shumate has become the sole asset of the bankruptcy estate. The
capital stock of Shumate has been pledged to secure the obligations of Excalibur
Holdings to its senior lender, Stillwater National Bank. Shumate represents a
significant portion of Excalibur's total assets and operations.


MALONE & BAILEY, PC
www.malone-bailey.com
Houston, Texas

March 2, 2005, except for Note 18
which is dated August 10, 2005


<PAGE>


                           EXCALIBUR INDUSTRIES, INC.
                           CONSOLIDATED BALANCE SHEET
                                December 31, 2004



           ASSETS
<TABLE>
<CAPTION>

<S>                                                                    <C>
Current Assets
  Cash                                                                 $    177,822
  Accounts receivable, net of allowance
           for doubtful accounts of $77,700                                 667,066
  Inventory                                                                 133,604
  Other current assets                                                       32,984
                                                                       ------------
           Total Current Assets                                           1,011,476

Property and equipment, net of accumulated
  depreciation of $1,129,318                                              1,785,883
Deposits                                                                     30,340
                                                                       ------------
           Total Assets                                                $  2,827,699
                                                                       ============



           LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
  Bank overdraft - Stillwater National Bank                            $    332,512
  Notes Payable - Stillwater National Bank                                9,012,415
  Accounts payable                                                        1,276,482
  Accrued expenses                                                        2,618,213
  Notes payable                                                             481,343
  Notes payable - related party                                           1,095,799
                                                                       ------------
           Total Current Liabilities                                     14,816,764
                                                                       ------------

Commitments                                                                      --

Stockholders' Deficit
  Preferred stock, $.001 par value,
    10,000,000 shares authorized, no shares issued
    or outstanding
  Common stock, $.001 par value, 50,000,000 shares
    authorized, 17,032,732 shares issued and outstanding                     17,033
  Additional paid in capital                                              8,540,252
  Accumulated deficit                                                   (20,546,350)
                                                                       ------------
           Total Stockholders' Deficit                                  (11,989,065)
                                                                       ------------
                     Total Liabilities and Stockholders' Deficit       $  2,827,699
                                                                       ============
</TABLE>


                 See accompanying summary of accounting policies
                 and notes to consolidated financial statements



                                      F-1
<PAGE>

                           EXCALIBUR INDUSTRIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 For the Years Ended December 31, 2004 and 2003


<TABLE>
<CAPTION>
                                                             2004               2003
                                                       ---------------    ---------------
<S>                                                    <C>                <C>
Revenues                                               $     3,416,712    $     2,421,831
Cost of revenues                                             4,507,916          3,544,423
                                                       ---------------    ---------------
Gross loss                                                  (1,091,204)        (1,122,592)
                                                       ---------------    ---------------

Selling, general & administrative                            1,563,450          2,771,792
Depreciation                                                   413,426            446,760
Impairment                                                          --            773,589
Loss on sale of assets                                              --            122,857
                                                       ---------------    ---------------
           Total operating expenses                          1,976,876          4,114,998
                                                       ---------------    ---------------
           Net operating loss                               (3,068,080)        (5,237,590)

Other expenses
  Interest expense                                             966,788            418,015
                                                       ---------------    ---------------
           Net loss from continuing operations              (4,034,868)        (5,655,605)
                                                       ---------------    ---------------
Discontinued operations
  Loss on sale and abandonment                                      --         (4,610,511)
  Debt forgiveness income                                    5,218,883                 --
  Loss from discontinued operations                                 --         (3,692,495)
                                                       ---------------    ---------------
           Net income (loss)                           $     1,184,015    $   (13,958,611)
                                                       ===============    ===============


Basic and diluted net income (loss) per share          $           .07    $          (.89)
Basic and diluted net income (loss) per share
           resulting from continuing operations        $          (.24)   $          (.36)
Basic and diluted net income (loss) per share
           resulting from discontinued operations      $           .31    $          (.53)

Weighted average shares outstanding                         17,029,718         15,747,993
</TABLE>


                 See accompanying summary of accounting policies
                 and notes to consolidated financial statements


                                      F-2
<PAGE>

                           EXCALIBUR INDUSTRIES, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                 For the Years Ended December 31, 2004 and 2003


<TABLE>
<CAPTION>
                                              Common Stock                    Accumulated
                                         Shares         Amount         Deficit         Total
                                      ------------   ------------   ------------    ------------
<S>                                     <C>          <C>            <C>             <C>
Balance at December 31, 2002            14,709,936   $  7,461,824   $ (7,771,754)   $   (309,929)
Shares issued for:
  - services                             1,917,796        687,140             --         687,140
  - note payable                           250,000        350,000             --         350,000
  - exercise of warrants                    55,000         55,200             --          55,200
Net loss                                        --             --    (13,958,611)    (13,958,611)
                                      ------------   ------------   ------------    ------------
Balances at December 31, 2003           16,932,732      8,554,164    (21,730,365)    (13,176,201)

Shares issued for:
  - accounts payable                       100,000          3,121             --           3,121
Net income                                      --             --      1,184,015       1,184,015
                                      ------------   ------------   ------------    ------------
Balances at December 31, 2004           17,032,732      8,557,285   $(20,546,350)   $(11,989,065)
                                      ============                  ============    ============
Less:  par                                                (17,033)
                                                      ------------
Additional paid in capital                            $ 8,540,252
                                                      ============
</TABLE>


                 See accompanying summary of accounting policies
                 and notes to consolidated financial statements



                                      F-3
<PAGE>

                           EXCALIBUR INDUSTRIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                 For the Years Ended December 31, 2004 and 2003


<TABLE>
<CAPTION>
                                                             2004                2003
                                                       ---------------      ---------------
<S>                                                    <C>                  <C>
Cash flows from operating activities
  Net income (loss)                                    $     1,184,015      $   (13,958,611)
  Adjustments to reconcile net income (loss) to
    net cash used in operating activities:
    Stock issued for services                                       --              687,140
    Depreciation & amortization                                413,426              446,760
    Impairment and abandonment of assets
           - continuing operations                                  --              773,589
           - discontinued operations                        (5,218,883)           4,610,511
    Loss on sale of property   -                               122,857
    Bank fees added to debt balance                                 --              156,496
    Changes in:
           Accounts receivable                                (160,800)              (5,577)
      Accounts receivable - related party                           --              205,746
      Inventory                                                (85,395)              19,977
      Other current assets                                     (27,058)             122,516
           Accounts payable                                    (67,655)             392,295
           Accrued expenses                                    955,034              909,059
                                                       ---------------      ---------------
  Net cash used in operating activities                     (3,007,316)          (5,517,242)
                                                       ---------------      ---------------
Cash flows from investing activities
  Purchase of fixed assets                                    (288,407)            (157,154)
  Proceeds from sale of property                                    --              140,000
  Decrease in deposits                                              --              (19,600)
                                                       ---------------      ---------------
  Net cash used in investing activities                       (288,407)             (36,754)
                                                       ---------------      ---------------
Cash flows from financing activities
  Proceeds from exercise of options & warrants                      --               55,200
  Collection of subscription receivable                             --               20,084
  Proceeds from notes payable to related parties                    --              522,740
  Change on bank overdraft                                     (96,872)             429,384
  Proceeds from bank credit line, net                          721,996              771,151
  Proceeds from notes payable                                2,963,075              597,091
  Payments on note payable                                    (124,930)            (925,261)
                                                       ---------------      ---------------
  Net cash provided by financing activities                  3,463,269            1,470,389
                                                       ---------------      ---------------
Net cash provided by discontinued operations                        --            4,093,883
                                                       ---------------      ---------------
Net change in cash                                             167,546               10,276
Cash at beginning of year                                       10,276                   --
                                                       ---------------      ---------------
Cash at end of year                                    $       177,822      $        10,276
                                                       ===============      ===============
Cash paid during the year for:
  Interest                                             $        10,628      $       334,447
                                                       ===============      ===============
</TABLE>


                 See accompanying summary of accounting policies
                 and notes to consolidated financial statements



                                      F-4
<PAGE>

                           EXCALIBUR INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

Description of Business. Excalibur Industries, Inc. ("Industries") and its
subsidiaries (collectively, ("Excalibur") is a close-tolerance machining and
manufacturing company serving mostly oil-field equipment suppliers.

Discontinued Operations/Bankruptcies. In September 2003, three of Excalibur's
wholly-owned subsidiaries, Excalibur Steel, Inc., Excalibur Aerospace, Inc.,
which did business as AeroWeld, Inc., and Excalibur Services, Inc. (the
"Tulsa-based Operations") ceased operations. On December 31, 2003, Excalibur
Steel, Excalibur Services, and Excalibur Aerospace each filed a voluntary
petition for protection under Chapter 7 of the U.S. Bankruptcy Code in the
United States Bankruptcy Court, Southern District of Texas. On July 26, 2004,
the United States Bankruptcy Court, Southern District of Texas, discharged
Excalibur Steel and Excalibur Aerospace of all of its debts and liabilities
pursuant to Chapter 7 of the U.S. Bankruptcy Code, and on August 3, 2004, the
United States Bankruptcy Court, Southern District of Texas, discharged Excalibur
Services of all of its debts and liabilities pursuant to Chapter 7 of the U.S.
Bankruptcy Code. As shown in the accompanying consolidated financial statements,
Excalibur recorded $5,218,883 in debt forgiveness income resulting from the
discharge of the debts and liabilities of Excalibur Steel, Excalibur Aerospace,
and Excalibur Services in the bankruptcy proceedings.

The accompanying financial statements show the results of the Tulsa-based
Operations as discontinued as of and for the fiscal year ended December 31,
2003, with Shumate Machine Works, Inc. ("Shumate") remaining as the sole
remaining operating subsidiary of Excalibur as of December 31, 2004.

Basis of presentation. The consolidated financial statements include the
accounts of Excalibur and its wholly-owned subsidiary, Shumate Machines.
Significant inter-company accounts and transactions have been eliminated.

Reclassifications. Certain amounts in the consolidated financial statements of
the prior year have been reclassified to conform to the presentation of the
current year for comparative purposes.

Use of Estimates in Financial Statement Preparation. The preparation of
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Revenue Recognition. Revenue is derived primarily from machining of oil field
drilling parts, components and tools for Shumate customers. All revenue is
recognized when persuasive evidence of an arrangement exists, the service or
sale is complete, the price is fixed or determinable and collectibility is
reasonably assured. This typically occurs when the order is shipped. Shipping
terms are FOB shipping and title passes to the customer at the time the product
is shipped. Customers have the right to inspection and acceptance for generally
up to five days after taking delivery. Orders may not be returned by customers
due to the custom specifications of each product, but rework on items is
necessary if the product was not within the original order specifications. All
orders are tested by Excalibur against the customer's order specifications prior
to shipment. Customer requests for rework and customer rejection of shipments
has been historically low.


                                      F-5
<PAGE>

Cash and Cash Equivalents. For purposes of the statements of cash flows, cash
equivalents include all highly liquid investments with original maturities of
three months or less.

Allowance for Doubtful Accounts. Bad debt expense is recognized based on
management's estimate of likely losses per year, based on past experience and an
estimate of current year uncollectible amounts. The allowance was $77,700 as of
December 31, 2004.

Inventory is stated at the lower of cost (first-in, first-out for raw materials
and specific job cost for work-in-process and finished goods) or market.
Slow-moving inventories are periodically reviewed for impairment in value.
Work-in-process and finished goods include labor, materials and production
overhead.

Property and equipment is valued at cost. Additions are capitalized and
maintenance and repairs are charged to expense as incurred. Gains and losses on
dispositions of equipment are reflected in operations. Depreciation is provided
using the straight-line method over the estimated useful lives of the assets,
which are three to twelve years.

Impairment of Long-Lived Assets. Excalibur reviews the carrying value of its
long-lived assets annually or whenever events or changes in circumstances
indicate that the historical cost-carrying value of an asset may no longer be
appropriate. Excalibur assesses recoverability of the carrying value of the
asset by estimating the future net cash flows expected to result from the asset,
including eventual disposition. If the future net cash flows are less than the
carrying value of the asset, an impairment loss is recorded equal to the
difference between the asset's carrying value and fair value.

Income Taxes. Income tax expense is based on reported earnings before income
taxes. Deferred income taxes reflect the impact of temporary differences between
assets and liabilities recognized for consolidated financial reporting purposes
and such amounts recognized for tax purposes, and are measured by applying
enacted tax rates in effect in years in which the differences are expected to
reverse.

Stock options and warrants. Excalibur accounts for non-cash stock-based
compensation issued to non-employees in accordance with the provisions of SFAS
No. 123 and EITF No. 96-18, Accounting for Equity Investments That Are Issued to
Non-Employees for Acquiring, or in Conjunction with Selling Goods or Services.
Common stock issued to non-employees and consultants is based upon the value of
the services received or the quoted market price, whichever value is more
readily determinable. For the years ended December 31, 2004 and 2003, quoted
market prices were used for all common stock issued to non-employees and
consultants. Excalibur accounts for stock options and warrants issued to
employees under the intrinsic value method. Under this method, Excalibur
recognizes no compensation expense for stock options or warrants granted when
the number of underlying shares is known and the exercise price of the option or
warrant is greater than or equal to the fair market value of the stock on the
date of grant.

In the year ended December 31, 2003, Excalibur granted under its 2001 Plan
options to purchase up to 49,000 shares with an exercise price of $0.60 per
share. In the year ended December 31, 2004, no options were granted.



                                      F-6
<PAGE>

The following table illustrates the effect on net loss and net loss per share if
Excalibur had applied the fair value provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.

                                               2004              2003
                                          --------------    --------------
Net Income (loss) as reported             $    1,184,015    $  (13,958,611)
Add:  stock based compensation
      determined under intrinsic
      value method                                    --                --
Less: stock based compensation
      determined under fair value-
      based method                                (7,959)               --
                                          --------------    --------------
   Pro forma income (loss)                $    1,176,056    $  (13,958,611)
                                          ==============    ==============
Basic and diluted net income
      (loss) per common share:
   As reported                            $          .07    $         (.89)
   Pro forma                              $          .07              (.89)

The weighted average fair value of the stock options granted during 2004 and
2003 was N/A and .49, respectively. Variables used in the Black-Scholes
option-pricing model include (1) N/A and 1.5% risk-free interest rates,
respectively, (2) expected option life is the actual remaining life of the
options as of each year end, (3) expected volatility is N/A and 201.71%,
respectively, and (4) zero expected dividends.

Basic and diluted net loss per share calculations are presented in accordance
with Financial Accounting Standards Statement 128, and are calculated on the
basis of the weighted average number of common shares outstanding during the
year. They include the dilutive effect of common stock equivalents in years with
net income. Basic and diluted loss per share is the same due to the absence of
common stock equivalents.

Recently Issued Accounting Pronouncements:

In December 2004, FASB issued SFAS No.123R, "Accounting for Stock-Based
Compensation" SFAS No.123R establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. This Statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
SFAS No.123R requires that the fair value of such equity instruments be
recognized as expense in the historical financial statements as services are
performed. Prior to SFAS No.123R, only certain pro forma disclosures of fair
value were required. SFAS No.123R shall be effective for small business issuers
as of the beginning of the first interim or annual reporting period that begins
after December 15, 2005. While Excalibur has issued options to employees
recently, the adoption of this new accounting pronouncement is not expected to
have a material impact on the consolidated financial statements of Excalibur
during the calendar year 2006.

Excalibur does not expect the adoption of any other recently issued accounting
pronouncements to have a significant impact on their consolidated financial
position, results of operations or cash flow.



                                      F-7
<PAGE>

NOTE 2 - GOING CONCERN

As shown in the accompanying consolidated financial statements, Excalibur has
incurred net losses from continuing operations of $3,068,080 and $5,237,590 in
2004 and 2003, respectively, and has an accumulated deficit of $20,546,350 and a
working capital deficit of $13,805,288 as of December 31, 2004. These conditions
create an uncertainty as to Excalibur's ability to continue as a going concern.
Management is trying to negotiate swaps of stock for existing debt and raise
additional capital through sales of common stock and/or debt. The consolidated
financial statements do not include any adjustments that might be necessary if
Excalibur is unable to continue as a going concern.

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 2004:

   Description                            Life                    Amount
   -----------------------                -------              -----------
   Shop equipment                         5 - 12 years         $ 2,830,876
   Other equipment and furniture          3 - 7 years               84,325
                                                               -----------
                                                                 2,915,201
   Less: accumulated depreciation                               (1,129,318)
                                                               -----------
                                                               $ 1,785,883
                                                               ===========

Depreciation expense in continuing operations totaled $413,426 and $446,760 in
2004 and 2003, respectively.

During 2003, Excalibur reviewed the carrying value of certain assets and
determined that the carrying value was no longer appropriate for those assets.
Excalibur recorded an impairment expense of $773,859 during 2003.

During the fourth quarter of 2004, Excalibur increased its estimate of useful
lives of certain shop equipment from 7 to 12 years to reflect technological
improvements. This change had the effect of increasing net income for 2004 by
$62,671.


NOTE 4 - BANK OVERDRAFT

Excalibur has checking account privileges at Stillwater National Bank and Trust
Company of Tulsa, Oklahoma ("Stillwater"). In connection with this account,
Stillwater has allowed informal overdrafts as of December 31, 2004 of $332,512,
which included $33,003 in checks written on this account in December but not
clearing until January 2005. Stillwater charges overdraft fees but no interest
which are shown as interest expense.


NOTE 5 - NOTES PAYABLE - STILLWATER NATIONAL BANK

<TABLE>
<S>                                                                                 <C>
      $1,100,000 line of credit with Stillwater National Bank, expired on April
      15, 2004, secured by a first priority security interest in the accounts
      receivables, inventory, equipment, general intangibles, and all other
      property of Excalibur and that of our subsidiaries. The line of credit
      bears interest at a rate equal to the prime rate plus two percent. This
      credit line is in default.                                                    $ 1,100,000
</TABLE>


                                      F-8
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                 <C>

      $550,000 line of credit with Stillwater National Bank, expired on April
      15, 2004, secured by a first priority security interest in the accounts
      receivables, inventory, equipment, general intangibles, and all other
      property of Excalibur and that of our subsidiaries. The line of credit
      bears interest at a rate equal to the prime rate plus two percent. This
      credit line is in default.                                                        550,000

      $1,000,000 line of credit with Stillwater National Bank. It was issued on
      September 29, 2004 and expired on January 15, 2005. Outstanding balances
      earn interest at the national prime rate average plus 2 percent which is
      due monthly, and are secured by substantially all assets of Excalibur and
      its subsidiaries. The Shumate outstanding balance may not exceed 80% of
      eligible trade receivables and 50% of qualified inventory. This credit
      line is in default.                                                               721,996

      September 29, 2004, loan agreement with Stillwater National Bank, which
      provided a $2,450,000 term note. The term loan is due January 15, 2005,
      and is secured, along with the line of credit and other indebtedness to
      Stillwater, by a first priority security interest in the inventory,
      equipment, general intangibles, and all other property of Excalibur and
      that of our subsidiaries. The term loan also bears interest at a rate
      equal to the prime rate plus two percent. The term loan requires interest
      only payments until its maturity. This note is in default.                      2,450,000

      During the first and second quarter of 2004, the Bank line of credit was
      increased by $500,000 and an additional term loan of $500,000 was added,
      at prime plus two percent of interest, secured by substantially all
      assets. This note is in default.                                                  500,000

      Installment note payable to Stillwater National Bank, secured by
      substantially all assets, payable in monthly installments of $61,255
      beginning May 2003 including interest at prime plus 2%, with a balloon
      payment of remaining amounts on April 15, 2006. No principal payments were
      made during 2004. This note is in default.                                      3,500,000

      Term note payable to Stillwater National Bank, due on December 30, 2003.
      The balance was reduced by $22,396 during 2004 by a credit of proceeds
      from liquidation. This note is in default.                                        190,419
                                                                                    -----------
      Total                                                                         $ 9,012,415
                                                                                    ===========
</TABLE>



                                      F-9
<PAGE>

NOTE 6 - ACCRUED LIABILITIES

Accrued expenses as of December 31, 2004 included the following:

<TABLE>

<S>                                                                                 <C>
      Accrued interest                                                              $ 1,235,501
      Payroll taxes and estimated penalties                                             663,118
      Unpaid Salaries                                                                   608,118
      Sales and property taxes                                                           60,917
      Other                                                                              50,559
                                                                                    -----------
      Total accrued liabilities                                                     $ 2,618,213
                                                                                    ===========
</TABLE>

<TABLE>

NOTE 7 - NOTES PAYABLE

<S>                                                                                 <C>
      Notes due to various parties. Interest up to 12%.
      No collateral. Notes are past due.                                            $   402,233

      Capitalized Leases due to Wells Fargo Leasing Corp.,
      collateralized by equipment, due in monthly installments
      of $6,742, with interest at 10%.                                                   44,998

      Capitalized Lease on furniture due to Star Furniture,
      due in monthly installments of $557, collateralized by
      furniture, with interest at 18%.                                                    7,265

      Note payable to an insurance company, in 22 bi-weekly
      installments of $1,040, unsecured, including interest
      at 6%                                                                              21,038

      Note Payable to an insurance company, in 8 monthly
      installment of $5,809, unsecured, including
      interest at 0.5%        5,809
                                                                                    -----------
      Total                                                                         $   481,343
                                                                                    ===========
</TABLE>


NOTE 8 - RELATED PARTY NOTES PAYABLE

Six notes payable to officers and directors totaling $1,095,799, unsecured,
interest ranging from prime plus 1.5 percent to 10 percent per annum. All of
these notes were past due as of December 31, 2004 and Excalibur continues to
accrue interest on these loans.


NOTE 9 - INCOME TAXES

Excalibur uses the liability method, where deferred tax assets and liabilities
are determined based on the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for financial
and income tax reporting purposes. Excalibur has incurred significant net losses
in past years and, therefore, has no tax liability. The net deferred tax asset
generated by the loss carry-forward has been fully reserved. The cumulative net
operating loss carry-forward is approximately $20,546,350 at December 31, 2004,
and will expire in the years 2021 through 2024.

At December 31, 2004, deferred tax assets consisted of the following:

<TABLE>
<CAPTION>
<S>                                                                                 <C>
      Deferred tax assets
        Net operating losses                                                        $ 8,760,179
        Less: valuation allowance                                                    (8,760,179)
                                                                                    -----------
      Net deferred tax asset                                                        $        --
                                                                                    ===========
</TABLE>



                                      F-10
<PAGE>

NOTE 10 - COMMON STOCK

During 2003, 1,917,796 shares were issued for services valued at the prevailing
average share market trading price on the dates the services were performed, or
$687,140, 250,000 shares were issued in connection with the 2002 Shumate
acquisition (recorded as a $350,000 note payable in 2002), and 55,200 shares for
the exercise of options and warrants for $55,200 in cash.

During 2004, 100,000 shares were issued to satisfy a portion of a 2003 account
payable for services rendered, valued at the prevailing average share market
trading price on the date the shares were issued of $3,121.


NOTE 11 - DEBT FORGIVENESS INCOME

In September 2003, all Tulsa-based Operations were closed and on December 31,
2003, Excalibur Steel, Excalibur Services, and Excalibur Aerospace each filed a
voluntary petition for protection under Chapter 7 of the U.S. Bankruptcy Code in
the United States Bankruptcy Court, Southern District of Texas. On July 26,
2004, the Court discharged Excalibur Steel and Excalibur Aerospace of all of its
debts, and on August 3, 2004, the Court discharged Excalibur Services of all of
its debts. On December 31, 2003 Excalibur reclassified $5,218,883 as net
liabilities of discontinued operations, and these liabilities were discharged in
the three bankruptcy proceedings in 2004. As a result, Excalibur recorded
$5,218,883 in debt forgiveness income in 2004.

NOTE 12 - STOCK OPTIONS AND WARRANTS

Excalibur currently has 5 stock and option plans: (a) the 2001 Stock Option Plan
reserved 2,000,000 shares, and 2,104,000 options have been granted through
December 31, 2004 ("date") of which 2,064,500 options have expired unexercised,
(b) the 2002 Stock Bonus Plan reserved 50,000 shares, of which 24,000 have been
issued to date, (c) the 2003 Stock Grant Plan reserved 3,000,000 shares, of
which 1,624,444 shares have been issued to date, (d) the 2003 Employee Stock
Incentive Plan reserved 7,500,000 shares, of which none have been issued to
date, and (e) the 2003 Non-Employee Directors and Consultants Retainer Stock
Plan reserved 2,500,000 shares, of which none have been issued to date.

Options
-------
Under Excalibur's 2001 Stock Option Plan, options to purchase
common stock may be granted to employees and outside consultants. During 2003,
Excalibur granted options to purchase up to 49,000 shares at an exercise price
of $.60 per share. During 2004, Excalibur granted no options, and options to
purchase 9,500 shares at an exercise price of $0.60 per share expired
unexercised.

Warrants
--------
During 2003, a third party transferred 405,000 existing Excalibur warrants with
a $1 exercise price to Excalibur directors and officers as an inducement for the
directors and officers to make unsecured loans to Excalibur. The transfer did
not result in an entry to the books of Excalibur.



                                      F-11
<PAGE>

Summary information regarding options and warrants is as follows:

<TABLE>
<CAPTION>
                                                                            Weighted                                 Weighted
                                                                            average                                  average
                                                       Options              Share Price          Warrants            Share Price
                                                       ----------          ----------          ----------            -----------
<S>                                                     <C>                <C>                  <C>                   <C>
Outstanding at
  December 31, 2002                                     2,340,000          $1.33                1,566,982             $1.12

Year ended December 31, 2003:
  Granted                                                  49,000            .60                  405,000              1.00
  Exercised                                               (50,000)          1.00                   (5,000)             1.00
  Forfeited                                            (1,950,000)          1.06                 (555,000)             1.00
                                                       ----------          -----               ----------             -----
Outstanding at
  December 31, 2003                                       389,000           1.26                1,411,982              1.13

Year ended December 31, 2004:
  Granted                                                      --             --                       --                --
  Exercised                                                    --             --                       --                --
  Forfeited                                                (9,500)           .60                       --                --
                                                       ----------          -----               ----------             -----
Outstanding at
  December 31, 2004                                       379,500          $1.27                1,411,982             $1.13
                                                       ==========          =====               ==========             =====
</TABLE>

Options outstanding and exercisable as of December 31, 2004:

<TABLE>
<CAPTION>
                                                                  - - Outstanding - -                  Exercisable
                                                        Number                 Remaining                 Number
                Exercise Price                          of Shares               life                     of Shares
                --------------                        -----------              ---------               -----------
<S>             <C>                                   <C>                      <C>                     <C>
                     $ .60                                 39,500                3 years                    13,163
                      1.00                                100,000                2 years                   100,000
                      1.50                                240,000                2 years                   240,000
                                                      -----------                                      -----------
                                                          379,500                                          353,163
                                                      ===========                                      ===========
</TABLE>

Warrants outstanding and exercisable as of December 31, 2004:

<TABLE>
<CAPTION>
                                                                 - - Outstanding - -                   Exercisable
                                                          Number                Remaining                Number
                Exercise Price                          of Shares                 life                  of Shares
                --------------                        -----------              ---------               -----------
<S>             <C>                                   <C>                      <C>                     <C>
                $ .90 - $1.00                             915,934                2 years                   915,934
                $1.20 - $1.50                             496,048                2 years                   496,048
                                                      -----------                                      -----------
                                                        1,411,982                                        1,411,982
                                                      ===========                                      ===========
</TABLE>


NOTE 13 - CONCENTRATIONS

Two customers accounted for 51% of total revenues in 2004. Three customers
accounted for 56% of total revenue in 2003.


NOTE 14 - COMMITMENTS

Excalibur's current office is in Conroe, Texas. The lease expires January 31,
2008 and is payable at $22,600 per month. Future minimum lease payments under
the lease as of December 31, 2004 are $271,200 in each of 2005, 2006, 2007 and
2008 years with $135,600 due during 2009 with the lease ending June 30, 2009.
Rent expense was $253,200 and $229,198 in 2004 and 2003, respectively.



                                      F-12
<PAGE>

NOTE 15 - LITIGATION

On December 31, 2003, all Tulsa-based subsidiaries filed for protection under
Chapter 7 of the U.S. Bankruptcy Code in the United States Bankruptcy Court,
Southern District of Texas. All related assets have been sold or abandoned.
During June and July 2004, all three proceedings were dismissed and closed. See
note 11.

Excalibur has been named in approximately 10 actions that have been commenced by
former vendors, suppliers or note holders. The aggregate amount of these claims
is estimated at approximately $880,000. All of these claims are either accrued
or included in accounts payable.

On November 7, 2003 Dwayne Lewis, the former Chief Operating Officer of the
Tulsa-based companies, filed suit in District court in Tulsa County, Oklahoma
against Excalibur Holdings and several former or current officers and directors.
The suit is a counter claim in response to a civil suit filed against Dwayne
Lewis by Matthew Flemming on September 15, 2003. Mr. Lewis' action claims
tortuous interference, fraudulent inducement/deceit and constructive fraud
whereby he alleges the defendants breached a duty of good faith, misrepresented
and were negligently fraudulent by causing Excalibur to breach the separation
agreement signed by Excalibur and Dwayne Lewis on October 3, 2002. On August 18,
2004, the Court dismissed the case to compel arbitration and Excalibur has since
not been notified of the initiation of any arbitration proceedings. Management
believes that Lewis's claims are baseless and without merit.

On January 13, 2004, William Stuart and Matthew Flemming, a former and current
officer, were sued by TW Consulting, Inc., the seller of Aero Weld to Excalibur
Aerospace, in the District Court of Tulsa County, Oklahoma in connection with
their personal guarantees of Excalibur's debt.

On February 17, 2004, Stuart and Flemming were also sued by Stillwater National
Bank in the District Court of Oklahoma County, Oklahoma in connection with their
personal guarantees of Excalibur's debt.


NOTE 16 - NON-CASH TRANSACTIONS ON STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                              2004             2003
                                                          -----------      -----------
<S>                                                       <C>              <C>
Non-cash transactions:
      Debt reclassify from credit line to term note       $        --      $ 1,777,647
      Notes payable converted to common stock                      --          350,000
      Shares issued for accounts payable                        3,120                -
      Net Tulsa assets transferred to Stillwater
           for reduction of debt                                   --          259,068
      Stillwater loan fees added to note balance                   --          156,496
      Prior Year Deposit applied to equipment purchase         55,000               --
      Balance due to vendor for equipment purchase            171,120               --
</TABLE>



                                      F-13
<PAGE>

NOTE 17 - SUBSEQUENT EVENTS

On March 1, 2005, Stillwater National Bank loaned Shumate Machine Works $100,000
to pay off the remaining balance of a computer controlled lathe to a vendor.


NOTE 18 - SUBSEQUENT EVENTS - BANKRUPTCY

On March 9, 2005, Excalibur Holdings, Inc., a wholly-owned subsidiary of
Excalibur and the parent corporation of Shumate, filed a voluntary petition for
protection under Chapter 7 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court, Southern District of Texas. Excalibur Holdings identified an
aggregate amount of approximately $13,600,000 in liabilities on its debtor
schedules in the bankruptcy proceeding. As a result of this bankruptcy filing,
100% of the capital stock of Shumate has become the sole asset of the bankruptcy
estate. The capital stock of Shumate has been pledged to secure the obligations
of Excalibur Holdings to its senior lender, Stillwater National Bank.

On March 11, 2005, Stillwater filed a motion for abandonment with the Bankruptcy
Court, requesting the Court to order the Bankruptcy Trustee to abandon the
capital stock of Shumate. Stillwater filed a motion for relief of the automatic
stay resulting from the bankruptcy filing so that Stillwater can pursue all
available remedies in connection with Excalibur Holdings' stock in Shumate.

On April 20, 2005, the Court granted Stillwater's motion for relief from stay so
as to permit Stillwater to exercise any and all rights and remedies it may have
with respect to the capital stock of Shumate held by Excalibur Holdings,
including, but not limited to, exercising any rights of foreclosure of said
stock.

On April 28, 2005, Stillwater gave notice of its intention to dispose of the
capital stock of Shumate in a private sale after May 9, 2005 pursuant to the
Oklahoma Uniform Commercial Code.

On May 13, 2005, Excalibur received a loan commitment from Stillwater which set
forth the basic terms of a restructuring. On May 16, 2005, Excalibur's board of
directors unanimously agreed to accept the loan commitment, approve the
restructuring, and submit the restructuring proposal to the stockholders for
approval. The loan commitment expires on September 30, 2005.

On June 28, 2005, Stillwater amended Schedule A to the loan commitment it issued
to Excalibur, pursuant to which $100,000 the proceeds of an amended and restated
term note in the amount of $3,365,000 will be applied to purchase the capital
stock of Shumate, and Stillwater verbally advised Excalibur that it intended to
allow Excalibur to purchase the capital stock of Shumate for $100,000 as part of
the restructuring. On August 10, 2005, Stillwater advised Excalibur in writing
that it intended to allow Excalibur to purchase the capital stock of Shumate for
$100,000 as part of the restructuring.

In the event the restructuring does not occur, it is unlikely that Excalibur
will be able to repurchase the Shumate shares, and it is likely that Stillwater
will either sell the capital stock of Shumate to a third party or foreclose on
Shumate's remaining assets. Further, in the event that Stillwater does sell the
Shumate shares to a third party, the restructuring will not occur. In either
event, Excalibur will have no business or operations, and it will be unable to
satisfy its currently outstanding obligations.