**U.
      S. SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-KSB**




(Mark
      One)


[X]
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIESEXCHANGE
                ACT OF 1934




For
      the
      fiscal year ended December 31, 2007




[  
              ]
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THESECURITIES
                EXCHANGE ACT OF 1934




For
      the
      transition period from ___________ to _____________




Commission
      File Number 000-30291




**SHUMATE
      INDUSTRIES, INC.**


(Name
      of
      small business issuer as specified in its charter)




**Delaware**
            **03-0453686**(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer
              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. [   ]




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act. [   ]




The
      issuer’s revenues for the most recent fiscal year will be disclosed by
      amendment.




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the registrant will be disclosed by amendment. 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 will be disclosed by amendment.
      This determination of affiliate status is not necessarily a conclusive
      determination for other purposes.




As
      of
      March 31, 2008, 20,947,071 shares of our common stock were issued and
      outstanding.




Documents
      Incorporated by Reference: None.




Transitional
      Small Business Disclosure Format: No.







**EXPLANATORY
      NOTE**





This
      annual report on Form 10-KSB does not contain all of the information required
      to
      be disclosed under the Securities Exchange Act of 1934, as amended, and the
      rules and regulations promulgated thereunder.  In particular, this annual
      report does not contain the financial statements required by Item 310 of
      Regulation S-B; management’s discussion and analysis required by Item 303 of
      Regulation S-B; disclosure controls and procedures required by Item 307 of
      Regulation S-B; internal control over financial reporting required by Item
      308
      of Regulation S-B; directors, executive officer, control persons and corporate
      governance; compliance with Section 16(a) of the Exchange Act required by Items
      401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-B; executive
      compensation required by Item 402 of Regulation S-B; security ownership of
      certain beneficial owners and management and related stockholder matters
      required by Item 201(d) of Regulation S-B and by Item 403 of Regulation S-B;
      certain relationships and related transactions, and director independence
      required by Item 404 of Regulation S-B and Item 407(a) of Regulations S-B and
      certifications required under Rule 13a-14 of the Securities Exchange Act of
      1934, as amended, and Section 1350 of the Sarbanes-Oxley Act of 2002.  The
      company intends to file an amendment to this annual report on Form 10-KSB to
      provide the missing information once it becomes available




**PART
      I**




Shumate
      Industries, Inc., including all its subsidiaries, are collectively referred
      to
      herein as “Shumate Industries,” “Shumate,” “the Company,” “us,” or
“we”.




**Item
      1.** **DESCRIPTION
      OF BUSINESS**




**Overview**





Shumate
      Industries, Inc. is a Texas based energy field services company. Shumate is
      a
      holding company that, through its subsidiaries, operates in two principal
      businesses: contract machining and manufacturing and a valve product line.
      Shumate seeks to leverage its existing infrastructure, expertise, and customer
      channels to grow its business and introduce new technologies to the energy
      markets.





We
      currently employ 87 people at two plants totaling approximately 90,000 square
      feet in Conroe, Texas, just 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 .





*Contract
      Machining and Manufacturing - Shumate Machine Works, Inc.*





Our
      contract machining and manufacturing division, Shumate Machine Works, Inc.,
      focuses in the energy field services market. We manufacture products, parts,
      components, and assemblies for our customers designed to their specifications.
      We provide state of the art 3-D modeling software, computer numeric-controlled,
      or CNC, machinery and manufacturing expertise to our customers’ research and
      development, engineering, and manufacturing departments for desired results
      with
      their products. ****





The
      diverse line of products we manufacture include the following:





·
            Expandable
                tubular products including liner hangers, launchers and sand screens
                for
                energy field service applications;


·
            Top
                drive assemblies, sub-assemblies and spare service parts;


·
            Measurement
                while drilling (MWD) products;


·
            Directional
                drilling products;·
            Completion
                tools;


·
            Exploration
                products for research and
                development;


·
            Natural
                gas measurement equipment, including fittings and
                valves;


·
            Power
                frames for centrifugal pumps and mud motors;
                and


·
            Sub-sea
                control equipment.




2




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, formation evaluation tools, and exploration and production
      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. We use state of the
      art,
      large part CNC equipment in the production of these parts and have developed
      in-house trade secrets and processes with respect to the manufacture of certain
      products. We produce complex assemblies, including expandable tubing technology
      products that are used in field service operations under extreme environmental
      conditions for oil and gas exploration.





Our
      customers include, without limitation, Baker Hughes, BJ Services Company, Canrig
      Drilling Technology, a Nabors Industries company, Enventure Global Technologies,
      FMC Technologies, Halliburton Energy Services, National Oil Well Varco,
      Oceaneering Intervention Engineering, Shell Development, Smith International,
      and Weatherford International.





*Valve
      Product Technology - Hemiwedge Valve Corporation*





We
      formed
      Hemiwedge Valve Corporation as a wholly-owned subsidiary to develop and
      commercialize a new patented technology addressing what we believe to be a
      significant opportunity in the global valve market. Our
      first
      product line, known as the Hemiwedge® Cartridge
      valve,
      is a quarter-turn hemispherical wedge valve engineered to provide what we
      believe are substantial technological improvements compared with what is
      available in the marketplace today, such as traditional butterfly, ball, and
      gate valve designs.





We
      believe that the patented design of the Hemiwedge® Cartridge valve combines the
      benefits of quarter-turn valves with the durability of gate valves. The
      Hemiwedge® Cartridge valve has a non-rotating core which guides the fluid flow
      through the valve to the Hemiwedge ® itself.
      This is a hollow hemisphere where the inner and outer walls are slightly offset,
      having non-concentric centers, producing a hemispherical wedge shape - the
      “Hemiwedge ® .”
      Operation of the valve rotates the Hemiwedge ®, a
      quarter-turn, moving it between the core and valve seat, thus controlling the
      flow. We believe that these design features in the combination of the
      Hemiwedge ® shut off
      and stationary core make the Hemiwedge® Cartridge valve unique.





We
      believe that the Hemiwedge® Cartridge valve will offer substantial improvements
      over currently available valve technologies offered by our competition as well
      as a great value proposition to future customers as a result of the following
      improvements:





*New
      cartridge replacement design reduces maintenance downtime and minimizes supply
      disruptions*





Our
      new
      top-entry cartridge design has all of the internal parts of the valve affixed
      to
      the bonnet. Therefore, once the bonnet is removed with top-entry ease for
      in-field maintenance, all the internals are removed as well, including the
      seals. A new pre-certified replacement cartridge can be installed without
      removing the valve body from its line of service. We believe this represents
      a
      substantial reduction in maintenance and service downtime from a few days to
      a
      few hours, depending on the application, location and size. We also believe
      this
      is a significant cost-reduction benefit to users, especially in severe service
      applications such as entrained solids, sour gas gathering, and CO2 flooding
      where valves fail frequently and supply disruption from shutting down a line
      during service may result in significant costs and loss of revenues.




3










*Reduced
      failure frequency rates from superior design*





We
      believe many times when valves “break,” it is usually due to leaks caused by
      leaking seals within a valve. Most ball valves, by example (see “Figure 2”),
      have more turbulent flow patterns where the fluid within the valve comes into
      direct contact with the seals during modulation, actuation and service. Our
      Hemiwedge® Cartridge valve seals (see “Figure 1”) are not placed within the flow
      path and therefore we believe our valve is more durable, lasts longer, and
      will
      not encounter seal damage as frequently as currently available valve products
      as
      a result of its protected sealing surfaces. We believe that this product
      advantage will be more evident in severe and critical service applications.




**Figure
                1**,
                shows the transition between on and off in a Hemiwedge®Cartridge valve. This demonstrates how the stationary core and moving
                Hemiwedge®guides the flow past the seal face with a minimum of flow turbulence.
                This
                protects the sealing surfaces when handling abrasive or corrosive
                fluids.
            
            **Figure
                2**,
                shows the flow through a ball or plug valve. Both the inlet and the
                outlet
                flow pass across the sealing surfaces, with the ball moving across
                the
                main flow path. This highly turbulent flow action causes premature
                failure
                of the seals in most severe
                applications.





Hemiwedge®
      Down hole Isolation valve




We
      executed a two year development agreement in July 2006 with a subsidiary of
      Shell Technology Ventures known as At Balance Americas. As a leading drilling
      services company focused in managed pressure drilling (MPD), At Balance sought
      development of a totally new design and prototype down hole valve to be used
      in
      drilling applications in connection with managed pressure drilling. Throughout
      2007, we designed, engineered, manufactured and performed above-ground testing
      on the first size of a product line. We have determined that as of the date
      of
      this report the product in development for At Balance is developed substantially
      enough to enter into licensing discussions for purposes of
      commercialization.




4




Hemiwedge®
      Sub sea high pressure valve





We
      have
      developed additional Hemiwedge® technology
      now in
      prototype stage, of a 20,000 PSI high pressure valve utilizing a metal-to-metal
      or all metal seal for chemical injection applications sub-sea. We intend to
      exclusively or non-exclusively license this technology for the specific market
      vertical of sub-sea and below two inch bore size for a high pressure chemical
      injection valve product line.





**Fiscal
      2007 and First Quarter 2008 Developments**





In
      2007,
      we continued to experience increased revenues in our Shumate Machine Works
      division. 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, liner hangers, top-drive units and
      components in 2007. As a result, we increased revenues by approximately $1.7
      million, or 23%.





While
      we
      have achieved certain milestones our results from operations in 2007, we
      continue to have substantial indebtedness outstanding. As of December 31, 2007,
      we had outstanding indebtedness to Stillwater National Bank of approximately
      $3.8 million.


.


*March
      2007 Warrant Solicitation*





On
      March
      14, 2007, we agreed that we would issue new Class B Warrants to any holders
      of
      Class A Warrants (issued in our December 2006 offering) who exercised all or
      a
      portion of their Class A Warrants by no later than 5:00 p.m. Central Daylight
      Time on March 31, 2007. The Class B Warrants have a term of five years, expiring
      on March 31, 2012, and an exercise price of $2.00 per share. The Class B
      Warrants include piggy-back registration rights, subject to customary
      underwriter cutbacks. Since the common stock underlying the Class B
      Warrants was not registered by March 31, 2008, the holders are
      entitled to exercise the Class B Warrants on a cashless basis at any time that
      there is not an effective registration statement covering the resale of the
      common stock underlying the Class B Warrants. As of March 31, 2007, an aggregate
      of 536,300 of our Class A warrants were exercised in connection herewith and
      we
      received gross proceeds of $670,375 therefrom. In addition, we issued 536,300
      shares of our common stock and 536,300 Class B Warrants in connection with
      the
      exercise of the 536,300 Class A Warrants.





*2007
      Bridge Loan*





Between
      July 10, 2007 and November 1, 2007, we sold $3,050,000 of principal amount
      of
      Bridge Notes with warrants to purchase 610,000 shares of our common stock to
      accredited investors in a private offering pursuant to an exemption from
      registration provided by Section 4(2) of the Securities Act. The Bridge Notes
      have a 1 year term and bear interest at ten percent (10%); payable monthly
      in
      arrears, however we have the right to defer any interest payment and accrue
      same
      to principal. As of December 31, 2007, approximately $116,000 in interest was
      accrued to principal. At the election of the holders, the Bridge Notes are
      convertible into our common stock at a fixed conversion price of $1.89 or into
      our next offering. If not otherwise converted, we will be required to prepay
      the
      Bridge Notes upon consummation of an offering or its maturity. An NASD
      member firm, acted as primary placement agent in connection with the offering
      and received $140,000 in commissions while another NASD member firm received
      $5,000 in placement agents fees. Our net proceeds of this offering after the
      payment of commissions, fees and other expenses of the offering were
      approximately $2,895,000.





*Amended
      Stillwater Facility*





On
      January 25, 2008, we entered into an Amended and Restated Loan Agreement with
      Stillwater National Bank and Trust Company (the “Amended Loan Agreement”.). On
      October 19, 2005 we entered into that certain Agreement (as reported in our
      Current Report on Form 8-K dated October 19, 2005) with Stillwater, which
      Agreement was amended by a certain First Amendment to Agreement and Guarantors’
Consent dated October 19, 2006, as amended by a certain Second Amendment to
      Agreement dated effective January 19, 2007 (collectively, the “Prior
      Agreement”).




5





The
      Amended Loan Agreement amends and restates the Prior Agreement as
      follows:





1.  **Term
      Loan** .
      Our
      prior Term Note dated October 19, 2005 in favor of Stillwater had an outstanding
      principal balance of $3,003,997.58 (as of January 25, 2008) and a maturity
      date
      of April 19, 2008. Stillwater loaned us (along with our co-borrowers Shumate
      Machine Works, Inc. and Hemiwedge Valve Corporation) $3,329,000 pursuant to
      a
      new term note dated January 25, 2008, which funds advanced under the new term
      note will be used to refinance the old term note and provide working capital.
      The new term note requires us to make 26 equal monthly payments (beginning
      on
      February 28, 2008) in an amount sufficient to fully amortize principal and
      interest on the amended and restated note over 64 months. The new term note
      is
      due and payable on April 19, 2010. The new term note bears interest at a rate
      equal to the prime rate plus two percent, and it is secured by a first priority
      security interest in all of our existing and future assets as well as a security
      interest in certain personal assets of Larry Shumate.





2.  **Revolving
      Loan** .
      Our
      prior revolving promissory note dated October 19, 2005 in favor of Stillwater,
      had an outstanding principal balance of $893,676.40 (as of January 25,
      2008) and a maturity date of April 19, 2008. Stillwater loaned us (and the
      other
      co-borrowers set forth above) $1,000,000 pursuant to a new revolving promissory
      note dated January 25, 2008, which funds advanced under the new revolving
      promissory will be used to refinance the old revolving promissory note and
      provide working capital. The initial balance on the new line of credit was
      equal
      to the balance of our previous line of credit with Stillwater ($893,676.40
      principal balance as of January 25, 2008). The advances available under the
      new
      revolving promissory note are limited to a borrowing base of the sum of (a)
      85%
      of eligible accounts receivable, and (b) 50% of eligible inventory. The new
      revolving promissory note bears interest at a rate equal to the prime rate
      plus
      two percent, and it is secured by a first priority security interest in all
      of
      our existing and future assets as well as a security interest in certain
      personal assets of Larry Shumate. On the 28 th day of
      each month, beginning January 28, 2008, we will pay all interest accrued on
      the
      new revolving promissory note. The amount we can borrow on the line of credit
      is
      subject to qualifying accounts receivable and inventory. The new revolving
      promissory note will mature and become fully due and payable on April 19,
      2009.





We
      anticipate that increasing energy commodity prices, including prices of oil
      and
      natural gas, should continue to 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 and production activity in
      previously dormant areas. We believe that such an increase in activity would
      result in increased demand for our energy related field service products during
      the 2008 fiscal year. In addition, we anticipate that our recent
      commercialization of the Hemiwedge® Cartridge valve product line will enhance
      our profitability, although there can be no assurance thereof.





**Business
      Development**





*Organization*





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.” In October 2005, we changed our name from
“Excalibur Industries, Inc.” to “Shumate Industries, Inc.”





*Acquisition
      of Hemiwedge Assets*





On
      December 5, 2005, we acquired the intellectual property rights to the Hemiwedge®
line of products, including the Hemiwedge® valve, from Soderberg Research and
      Development, Inc. and certain of its affiliates. The intellectual property
      rights acquired consist of all patents, trademarks, and internet website
      relating to the Hemiwedge® product line. For these intellectual property rights,
      we paid $138,500 in cash and a two-year, six percent (6%) promissory note in
      the
      principal amount of $100,000, payable in 24 equal installments of principal
      and
      interest. In addition, we agreed to deposit: (a) $72,000 into an escrow account
      to be paid in the form of a monthly advance in the amount of $3,000 for each
      month of the 24 month period beginning with the month immediately following
      the
      closing date; and (b) three percent (3%) of the net sales proceeds collected
      from customers from: (i) gross revenue from sales of products to which the
      acquired intellectual property relates, less (ii) sales and/or use taxes, import
      and/or export duties, outbound transportation costs, and amounts allowed or
      credited due to returns, which payments shall begin two years after the closing
      date and continue until March 29, 2013. The $72,000 in monthly advances shall
      be
      credited against the three percent (3%) of the net sales proceeds.




6





*Reorganization*





On
      October 19, 2005, we completed a restructuring of our company, resulting in
      a
      significant reduction of our outstanding debt and providing us with a
      strengthened balance sheet and reduced debt servicing requirement. The
      restructuring was effected through an out-of-court restructuring, or
“recapitalization plan,” which consisted of the following:





·
            an
                agreement to amend and restate a series of notes issued to Stillwater
                National Bank, or Stillwater, into one term note;





·
            the
                extension of our current line of credit with
                Stillwater;





·
            the
                issuance of a convertible note to
                Stillwater;





·
            the
                issuance of a note, by Stillwater, to our Chief Financial Officer
                to
                advance funds to purchase shares of our common stock for
                $250,000;





·
            the
                conversion of a portion of our debt to Stillwater into 20% of our
                then-outstanding common stock after giving effect to the
                restructuring;





·
            our
                reacquisition of the capital stock of our operating subsidiary, Shumate
                Machine Works;





·
            a
                release from Stillwater for any indebtedness not covered
                above;





·
            the
                exchange of our outstanding unsecured notes, including principal
                and
                accrued interest, for our common stock; and





·
            the
                grant of restricted stock awards to our executive officers, in return
                for
                their personal guarantees on new bank debt, and to our non-employee
                directors.





In
      addition, in connection with the recapitalization, we changed our name to
“Shumate Industries, Inc.” and effected a 1-for-7 reverse stock split of our
      then outstanding shares of common stock. The recapitalization plan, the name
      change, the reverse stock split, the adoption of our 2005 Stock Incentive Plan,
      and the re-election of our directors were all approved at a special meeting
      of
      our stockholders on October 19, 2005.





The
      recapitalization plan for achieving our financial goals closed on October 19,
      2005 and consisted of the following transactions (the “restructuring
      transactions”):





**Amended
      and Restated Term Note** .
      Stillwater has amended and restated 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 $5,600,000. The amended and restated
      note requires interest only payments for the six months following closing,
      and
      thereafter, requires us to make 24 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 is 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
      bears interest at a rate equal to the prime rate plus two percent, and it is
      secured by a first priority security interest in all of our existing and future
      assets. The proceeds of this note were 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 the remainder was applied to our existing
      indebtedness to Stillwater.





**Revised
      Line of Credit** .
      Stillwater has extended 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 is 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 are 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
      bears
      interest at a rate equal to the prime rate plus two percent, and it is secured
      by a first priority security interest in all of our existing and future assets.
      We failed to repay the line of credit on October 19, 2006, as we were required
      to do by our agreement with Stillwater. As of October 19, 2006 we and Stillwater
      entered into a First Amendment to Agreement and Guarantors’ Consent pursuant to
      which Stillwater agreed to redefine the line of credit maturity date to January
      19, 2007, which was subsequently extended to April 19, 2008.




7





**Convertible
      Note** .
      We
      issued a convertible note to Stillwater in the principal amount of $2,500,000.
      The principal and accrued interest on the convertible note is 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
      matures 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 accrue from the date of closing until the earlier of conversion
      or 24
      months, at which time the accrued interest was capitalized into principal.
      Beginning at the end of the ninth quarter, we are obligated to make quarterly
      interest payments on the convertible note. The convertible note bears interest
      at a rate equal to the prime rate plus two percent, and it is secured by a
      first
      priority security interest in all of our assets. 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.





On
      April
      13, 2006, we entered into a letter agreement with Stillwater pursuant to which
      Stillwater agreed to accept $500,000 from us in full satisfaction of the secured
      convertible promissory note, subject to certain conditions. On August 9, 2006,
      the letter agreement was amended to increase the payment by $25,000 to $525,000
      if payment was made between September 2, 2006 and December 1, 2006 and by
      $50,000 to $550,000 if payment was made between December 2, 2006 and March
      1,
      2007. On December 1, 2006 we repaid the secured convertible promissory note
      in
      full.





**CFO
      Note** .
      Stillwater has loaned $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 was 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. Stillwater has released
      Mr. Flemming from the remainder of his personal guarantee.





**Conversion
      of Prior Bank Debt** .
      Stillwater has exchanged $2,368,000 of our outstanding indebtedness to
      Stillwater for 2,368,000 newly issued 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.





**Releases** .
      Stillwater has released us and our Chief Financial Officer, Matthew C. Flemming,
      from our 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.





**Unsecured
      Note Exchange Offer** .
      Our
      unsecured note holders have exchanged 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.





**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. These shares vested on the closing of the
      restructuring.





As
      previously reported on a current report on Form 8-K, on April 28, 2005,
      Excalibur Holdings, our bankrupt subsidiary and holder of 100% of the common
      stock of Shumate Machine Works, Inc., our sole operating subsidiary, 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. As part of the restructuring,
      Stillwater transferred 100% of the capital stock of Shumate Machine Works to
      us.





A
      complete description of the restructuring plan is set forth in our definitive
      proxy statement for the October 19, 2005 special meeting of stockholders, which
      has been filed with the Securities and Exchange Commission.




8





*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. 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 a result of the discharge of these liabilities, we recorded $5,218,883
      in debt forgiveness income in 2004.





On
      March
      9, 2005, Excalibur Holdings, Inc., our wholly-owned subsidiary and the former
      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. On November 30, 2005 , **** the
      United States Bankruptcy Court, Southern District of Texas, discharged Excalibur
      Holdings of all of its debts and liabilities pursuant to Chapter 7 of the U.S.
      Bankruptcy Code. As a result of the discharge of these liabilities, we recorded
      $1,837,295 in debt forgiveness income in 2005.





The
      Company currently has two wholly-owned subsidiaries. Each of the following
      former subsidiaries of the Company has been dissolved: Excalibur Steel,
      Excalibur Services, Excalibur Aerospace and Excalibur Holdings.





**Our
      Markets**





The
      energy field services market is comprised of several market segments including
      oil & gas field services, pipeline and transportation, process controls,
      fluid management and controls, sub-sea, refining, and maintenance services
      for
      these areas. We currently manufacture products, spare parts, and assemblies
      for
      the oil & gas field services market segment. With our new Hemiwedge®
Cartridge valve product line, we intend to expand into process controls, which
      is sometimes known as the energy flow control market. We may also expand into
      other areas of the energy field services market to pursue growth strategies
      that
      complement and/or leverage our current business and expertise.





*Contract
      Machining and Manufacturing - Shumate Machine Works*





The
      dollar size of the United States (U.S.) oil & gas field services market can
      be measured by the U.S. drilling and completion activity spending and the total
      U.S. well service and work-over spending. In its *March
      2008*  *Drilling
      and Production Outlook* report,
      Spears and Associates, a leading energy market research firm, stated that U.S.
      drilling and completion spending was $116.9 billion for 2007, up 12% from the
      year 2006, and that U.S. well service and work-over or production spending
      was
      $16.2 billion in 2007, approximately equal to 2006.








*Valve
      Product Technology - Hemiwedge Valve Corporation*





We
      believe that the industrial valve market is large and growing. According to
      a
      recent report from The McIlvaine Company, the dollar value of industrial valve
      shipments in 2007 was projected at approximately $8.5 billion in the United
      States, up almost 4% from 2006, and $44.8 billion worldwide, up approximately
      4%
      from 2006.





Neither
      the Spears and Associates report nor the McIlvaine Company report was prepared
      for us nor has either company consented to the use of this information in our
      report; rather, these reports are available for public use.





**Our
      Strategy**





Strategies
      to achieve our growth objectives include the following:





*Commercializing
      and growing our proprietary new Hemiwedge® valve technology via the Cartridge
      valve product line, Down-hole isolation valve and licensing agreements for
      sub-sea applications of the valve.*  In
      late
      December 2006 w e launched
      our Hemiwedge *®* technology with the Hemiwedge® Cartridge valve product line, a surface-level
      engineered or flow control valve, targeting mid-stream pipeline
      operators.




9





*Generating
      more revenues and increasing our profit margins by expanding our contract
      machining and manufacturing business and through investing in additional
      state-of-the art CNC equipment which offers us the ability to make increasingly
      complex tools as required by our customers.* As
      a
      result of higher commodity prices, activity levels and pricing for our
      customers, we will continue to expand our operations at Shumate Machine Works
      and invest in additional computer-numeric controlled machinery that allows
      us to
      manufacture higher precision critical components for our customers growing
      demand of energy equipment.





*Developing
      strategic alliances with other companies to leverage our valve technology into
      market segments where we have little or no expertise.* W e
      intend
      to license and partner our Hemiwedge® technology in market verticals where we
      have little or no expertise to maximize the technology’s value. For example, our
      Hemiwedge® technology has been tested in severe service applications and the
      company may partner with another company dominate in a particular market
      vertical such as tar sands or mining utilizing their strengths to commercialize
      further Hemiwedge® technology. In addition, our Hemiwedge® technology has been
      tested at very high pressures and demonstrated “bubble-tight” sealing capability
      and functionality for sub-sea applications, providing a proof of concept needed
      to pursue licensing discussions with larger energy companies with a presence
      in
      those markets





*Acquiring
      other technology-oriented products to leverage our asset base, manufacturing
      infrastructure, market presence and experienced personnel* *.* We
      have
      extensive experience in manufacturing and machining products, and we have a
      reputation for providing quality products and services in the energy field
      services market. We have an existing base of customers and existing distribution
      channels in this market. We intend to combine our experience, reputation,
      customer base, and distribution channels with our expertise and knowledge of
      the
      industry to market and distribute other technology-oriented product lines for
      this customer base and through these distribution channels.





*Growing
      through acquisitions.* We
      believe that acquisition opportunities exist for niche-energy field service
      manufacturing oriented businesses within the energy field services industry,
      including divisions and subsidiaries within larger energy field service
      companies that remain from past mergers, acquisitions and consolidations which
      may be for sale. As a growth strategy, we seek such divestiture candidates
      that
      would be complementary to our existing business lines.





**Sales
      and Marketing; Customers**





In
      our
      contract machining and manufacturing division, we have developed and maintained
      long-term relationships with our 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 as well as smaller
      firms. These efforts supplement our traditional sales and marketing efforts
      of
      customer referrals and territory canvassing. In 2006, we expended approximately
      $510,000 on sales and marketing, which included the salaries, commissions,
      and
      expenses of our sales department.





Nearly
      all of our sales are on a negotiated price basis. In some cases, sales are
      the
      result of a competitive bid 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.





For
      our
      valve division, we intend to target the high end of the pipeline, transmission
      stations, oil & gas, power, and mining markets, where there is a demand for
      flow control or process control valves. These target markets seek rapid
      maintenance benefits that our Hemiwedge® Cartridge valve system and flow control
      properties are designed to provide. Although we believe that our valve product
      line provides significantly improved functionality for high-end severe service
      applications, we intend to price our valves competitively relative to other
      high-end valve manufacturers to establish market share. In addition to
      leveraging our existing customer base and distribution channels to market and
      distribute the valve product line, we have identified a network of established
      independent representative companies to market and distribute the valves on
      a
      success fee basis. We intend to complement this effort with inside sales
      support, catalogs, web site, and internal professionals that can travel to
      sales
      locations to consummate sales.





We
      have a
      customer base of more than 20 customers. Two of these customers represented
      approximately 74% of our revenues for fiscal year 2007. 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. While
      we intend to leverage our existing customer relationships to market the valve
      product, we also will seek additional new customers for the valve product line,
      which we anticipate would result in reduced revenue and account receivables
      concentrations.




10





**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 profitability. On average, pricing for raw
      materials has fluctuated about thirty percent annually 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 is not 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**





Both
      the
      machining and manufacturing business and anticipated valve product business
      are
      engaged in fragmented and highly competitive industry segments. We estimate
      that
      there are more than 100 machine shops in the metro-Houston area alone, and
      that
      there are more than 4,000 valve product manufacturers and distributors within
      the United States alone. We estimate that our share of the market, based on
      2007
      revenues, 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 may be significantly lower than
      our
      costs. We anticipate the valve product, when launched, will compete with a
      large
      number of companies with international and national capabilities that will
      possess greater financial resources.





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.





**Intellectual
      Property**





As
      part
      of our ongoing research, development, and manufacturing activities, we intend
      to
      seek patents when appropriate on inventions involving new products and product
      improvements. In December 2005, we acquired the intellectual property rights
      to
      the Hemiwedge® line of products, including the Hemiwedge® Cartridge valve, from
      Soderberg Research and Development, Inc. and certain of its affiliates. These
      intellectual property rights consisted of 2 unexpired United States patents,
      1
      expired United States patent, several pending United States patent
      applications, and 1 registered United States trademark. We have developed
      several new inventions to the technology which have been propagated within
      new
      patent applications during 2006 and 2007. **** We
      have
      also filed international patent applications for the inventions embodied in
      the
      pending United States patent application.





These
      intellectual property rights are of considerable importance to the Hemiwedge®
Cartridge valve product line (including the development stage down-hole
      isolation valve and sub sea high pressure valve), and we consider them, in
      the
      aggregate, to be material to our valve product division. It is possible that
      these intellectual property rights may later be invalidated by a court of
      competent jurisdiction, and it is also possible that our products or proposed
      products may be found to infringe upon the intellectual property rights of
      others.





We
      also
      rely on trade secret protection for our confidential and proprietary
      information. We seek to enter into confidentiality agreements with our
      employees, partners, and suppliers. It is possible, however, that others will
      independently obtain similar information or otherwise gain access to our trade
      secrets.




11





**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, painting product on premises,
      environmental protection, remediation and workplace exposure. Hazardous
      materials 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.





**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 and Insurance**





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.





**Employees**





We
      currently employ 87 people in Conroe, Texas. Of the total, approximately 22
      are
      in administration, 6 are in engineering and drafting, 2 are in sales,
      marketing and distribution, and 57 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.





**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 risks described below and the other information in this
      annual report, including our financial statements and the notes to those
      statements, before you purchase our common stock. The risks and uncertainties
      described below are those that we currently believe may materially adversely
      affect our company. Additional risks and uncertainties may also impair our
      business operations. If the following risks actually occur, our business,
      financial condition and results of operations could be seriously harmed, the
      trading price of our common stock could decline and you could lose all or part
      of your investment.





***Our
      business might fail, even after our 2005
      restructuring.***





Although
      we completed a restructuring
      of our debt in October 2005, and although we have increased revenues in each
      of
      the last three years, we have
      still incurred operating losses in each of the last three fiscal years. Our
      ability to become profitable will depend upon several factors, including whether
      we can continue to increase our revenues in Shumate Machine Works, Inc., and
      whether our Hemiwedge® valve products are successful in the marketplace. We
      cannot estimate with any certainty the long-term demand for our products and
      services or the degree to which we will meet that demand. If demand for our
      products and services does not increase, or if the market for our products
      and
      services declines, we may not be able to earn enough revenue to generate profits
      from operations or positive cash flow.


12




***We
      may be unable to continue as a going concern in which case our securities will
      have little or no value.***





Our
      independent auditor has noted in its report concerning our financial statements
      as of December 31, 2006 that we have incurred recurring losses from operations
      and have a working capital deficiency, which raises substantial doubt about
      our
      ability to continue as a going concern and we
      expect to receive a going concern opinion upon completion of the audit of our
      financial statements for the year ended December 31, 2007 .
      We have
      incurred recurring losses from operations in 2007 and 2006, respectively,
      and we have negative working capital as of December 31, 2007. These
      conditions raise substantial doubt as to our ability to continue as a going
      concern. We cannot assure you that we will achieve operating profits in the
      future.





***We
      have substantial indebtedness outstanding, and our operations are significantly
      leveraged. If we are unable to repay our debt obligations in a timely fashion,
      it could have a material adverse effect on our business and
      prospects.***





In
      order
      to finance our operations we have incurred substantial indebtedness, including
      the debt with Stillwater National Bank which consists of a line of credit
      and a term loan, as well as our recent 2007 bridge financing. As of
      December 31, 2007, we owed total indebtedness of approximately $3.8 million
      (not
      including accrued interest) to Stillwater National Bank, our senior lender.
      Additionally, we owe our recent bridge loan investors $3.05 million (not
      including accured interest accreted to principal) and various lenders such
      as a
      premium finance note for the annual premium of $55,000 for our directors and
      officers liability policy. Our cash flows from operations are currently not
      sufficient to service our debt obligations. If we fail to pay our debt
      obligations in a timely fashion, we will be in default under one or more of
      our
      loan agreements. If we default on our loan obligations with Stillwater National
      Bank, Stillwater National Bank could exercise its rights and remedies under
      the
      loan agreement, which could include seizing all of our assets. Any such action
      would have a material adverse effect on our business and prospects.





***We
      will likely need to finance our operations and a full-scale launch of the
      Hemiwedge® products through bank borrowings under our new line of credit or
      other capital financings. If we are unable to obtain additional capital, we
      may
      not be able to adequately fund our Hemiwedge Valve Corporation subsidiary or
      continue our business.***





We
      had
      working capital of $338,874 as of December 31, 2006 and we had a working capital
      deficit as of December 31, 2007. Since December 31, 2006, we have completed
      a
      private placement of our convertible notes which resulted in net proceeds to
      us
      of approximately $2.74 million, providing us with working capital for the
      immediate future. Currently, we believe that we will not be able to fund our
      operations, working capital requirements, and debt service requirements
      throughout the 2008 fiscal year with existing working capital and cash flows
      generated from operations. In addition, we will need additional capital to
      be
      able to fund the further development of the Hemiwedge® technology and the
      operations of the Hemiwedge® Cartridge valve products. In addition, we do not
      believe that we will be able to conduct a full-scale expansion of the Hemiwedge®
product, including an inventory buildup or an expansion of the product line,
      without obtaining additional financing.





We
      currently have a $1,000,000 secured revolving line of credit facility with
      Stillwater National Bank. This loan is subject to a borrowing base that is
      computed on our qualifying accounts receivable and inventory. The outstanding
      balance on this line of credit was approximately $893,676.40 at January 25,
      2008, which, at the time, $1,000,000 was the maximum allowed due to the amount
      of the qualifying accounts receivable and inventory, also referred to as our
      borrowing base. The outstanding balance on the line of credit and the borrowing
      base fluctuate based on our available working capital and our qualifying
      accounts receivable and inventory. As such, we may not have the ability to
      borrow additional funds on this line of credit.





In
      the
      event we seek to expand the rate of Hemiwedge® Cartridge valve’s growth and
      scale up of the product line, or in the event that our cash flows from
      operations are insufficient to fund our operations, working capital
      requirements, and debt service requirements, we would need to raise additional
      capital, either by borrowing more money, if possible, or by selling our
      securities or seeking out joint venture opportunities. Any material additional
      borrowing or significant capital expenditures require the written consent of
      our
      lender, Stillwater National Bank. We may not be successful in raising additional
      financing as and when we need it. If we are unable to obtain additional
      financing in sufficient amounts or on acceptable terms, our operating results
      and prospects could be adversely affected.


13





***The
      majority of our revenues are generated from a small number of customers, and
      our
      results of operations and 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
      2007,
      two of our customers accounted for approximately 74% of our sales. At December
      31, 2007, two customers accounted for approximately 30% 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
      major customers stops purchasing our products or defaults in its obligation
      to
      pay us, our results of operations as well as our cash flows will be adversely
      affected.





***Our
      Hemiwedge Valve Corporation subsidiary is an early stage company with no
      significant operating history.***





One
      of
      our subsidiaries, Hemiwedge Valve Corporation, is an early stage company that
      has not had significant operations. Its primary business purpose is to develop,
      manufacture, and market applications of its new valve technology known as the
      Hemiwedge® valve. The Hemiwedge® Cartridge valve, our surface-level valve
      product line targeting the mid-stream market including pipelines, transmission
      and distribution terminals, was launched in late December 2006. Other
      applications of the Hemiwedge® technology are still in the engineering, design,
      and development stage. This subsidiary only began generating product revenue
      in
      the late fourth quarter of 2006, and has incurred losses since its formation.
      As
      an early stage company, the prospects for Hemiwedge Valve Corporation are
      subject to all of the risks, uncertainties, expenses, delays, problems, and
      difficulties typically encountered in the establishment of a new business.
      We
      expect that unanticipated expenses, problems, and technical difficulties may
      occur which would result in material delays in the development and growth of
      the
      Hemiwedge® valve. We may not be able to successfully implement our plans for
      Hemiwedge Valve Corporation and achieve a significant level of
      operations.





***If
      we do not successfully commercialize the Hemiwedge® Cartridge valve product, we
      may never achieve profitability in this subsidiary.***





We
      have
      incurred substantial expenses to acquire and fund the development of our
      Hemiwedge® Cartridge valve product. We only began generating product revenue in
      the late fourth quarter of 2006 in this subsidiary in connection with the
      Hemiwedge® Cartridge valve launch in December 2006. Many of our research and
      development programs for applications of the Hemiwedge® technology are at an
      early stage. Early stage product lines are subject to inherent risks of failure.
      These risks include the possibilities that the Hemiwedge® valve may not last as
      long as the products of our competitors or may not reduce torque as anticipated.
      Even if the Hemiwedge® valve technology operates as anticipated, it may not be
      commercially successful. If we are unable to develop the Hemiwedge® product as
      anticipated, or if the product is successfully developed but not accepted in
      the
      marketplace, Hemiwedge Valve Corporation may never be profitable.





***Our
      ability to achieve any significant revenue in Hemiwedge Valve Corporation may
      depend on our ability to establish effective sales and marketing
      capabilities.***





As
      a
      result of the launch of the Hemiwedge® Cartridge valve in the late fourth
      quarter of 2006, we need to build a sales and marketing infrastructure and
      customer channels which may include independent sales representative firms,
      distributors and/or employees. If we fail to establish an effective internal
      marketing and sales force or to make alternative arrangements to have these
      products marketed and sold by others, our ability to commercialize our valve
      product line and to enter new or existing markets will be impaired.




14





***The
      line of credit and term loan with Stillwater National Bank contain numerous
      restrictive covenants which limit management*** ***’s
      discretion to operate our business.***





In
      order
      to obtain the line of credit and term loan from Stillwater National Bank, we
      will agree to certain covenants that 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 term loan also require us to meet certain
      financial ratios and tests and require us to obtain consent from Stillwater
      in
      order to change our senior management. For the year ended December 31, 2006
      and
      2007 and the fiscal periods ended March 31, June 30, September 30 and December
      31, 2007, we were not in compliance with certain covenants under the credit
      facility. Our lender issued waivers for the periods tested, except for the
      December 31, 2007 period. However, we have no reason to believe that such waiver
      will not ultimately be granted. There can be no assurance that we will be in
      compliance with the financial covenants in future periods or that Stillwater
      will issue a waiver for any future periods in which we are not in compliance
      with these covenants. Any failure to comply with the covenants included in
      the
      Stillwater National Bank loan agreements could result in an event of default,
      which could trigger an acceleration of the related debt. If we were unable
      to
      repay the debt upon any such acceleration, Stillwater could seek to foreclose
      on
      our assets in an effort to seek repayment under the loans. If Stillwater were
      successful, we would be unable to conduct our business as it is presently
      conducted and our ability to generate revenues and fund our ongoing operations
      would be materially adversely affected.  We have not yet received a waiver
      for the period from Stillwater National Bank.





***The
      interest rate on a significant portion of our indebtedness varies with the
      market rate of interest. An increase in the interest rate could have a material
      adverse effect on our results of operations.***





The
      interest on the line of credit and term loan from Stillwater National Bank
      is
      payable monthly at the prime rate plus two percent. The base rates on the line
      of credit and term loan will fluctuate over time, and if the base rates
      significantly increase, our interest expense will increase. This would have
      a
      material adverse affect on our results of operations. As an example, based
      on
      the amounts outstanding under the line of credit and term loan at December
      31,
      2007, a one percent increase in Stillwater’s prime rate would increase our
      annual debt service by $43,000.





***We
      may not be able to successfully increase our sales. If we do not increase our
      sales, we may never become profitable.***





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
      that
      we offer, developing long-term partnering relationships with customers and
      adding new customers. Our ability to increase our sales will be affected by
      many
      factors which are beyond our control, such as falling commodity prices which
      will decrease demand for our products or the failure of the marketplace to
      respond positively to our Hemiwedge® valve technology. We cannot assure you that
      our strategies to increase our sales will be successful. If they are not, we
      may
      never become profitable.





***We
      want to develop additional new energy field services products, but we may not
      have the financial ability to do so.***





We
      are
      currently seeking opportunities to develop or acquire energy field services
      products and technologies through acquisitions or licensing agreements. 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 manufacturers that are larger than we are and
      have
      greater financial resources than we do. Even if we were to acquire or design
      our
      own products, it is possible that we may not have the financial capacity to
      enter this market.





***We
      may not be able to identify additional quality strategic acquisition candidates,
      and if we do make strategic acquisitions, we may not be able to successfully
      integrate their operations.***





Our
      business plan includes acquiring 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. 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.




15





***We
      face significant competition in our markets. Our inability to compete
      successfully could have a material adverse effect on our business and results
      of
      operations.***





The
      energy field services industry, including both the machining and manufacturing
      industry and the commercial valve 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 entities that are larger and have greater financial and
      personnel resources than we do. We also compete with foreign manufacturers
      that
      have substantially cheaper labor costs than we do. We may not be able to compete
      successfully. If we do not compete successfully, our business and results of
      operations will be materially adversely affected.





***Failure
      to protect our proprietary technology could impair our competitive
      position.***





We
      have
      obtained or are in the process of obtaining U.S. and foreign patents and patent
      applications for our Hemiwedge® technology. Our success will depend in part on
      our ability to obtain patent protection for our Hemiwedge® technology, preserve
      our trade secrets, and operate without infringing the proprietary rights of
      third parties.





Although
      we place considerable importance on obtaining patent protection for our
      technologies, products and processes, the enforceability of our patents is
      uncertain and involves complex legal and factual questions. The applicant or
      inventors of subject matter covered by patent applications or patents owned
      by
      us may not have been the first to invent or the first to file patent
      applications for such inventions.





Furthermore,
      enforcement of patents and proprietary rights in many other countries may be
      problematic or unpredictable. The issuance of a patent in one country does
      not
      assure the issuance of a similar patent in another country. Claim interpretation
      and infringement laws vary by nation, so the extent of any patent protection
      is
      uncertain and may vary in different jurisdictions.





Due
      to
      uncertainties regarding patent law and the circumstances surrounding our patent
      applications, the pending or future patent applications we own may not result
      in
      the issuance of any patents. Existing or future patents owned by us may be
      challenged, infringed upon, invalidated, found to be unenforceable or
      circumvented by others. Further, any rights we may have under any issued patents
      may not provide us with sufficient protection against competitive products
      or
      otherwise cover commercially valuable products or processes.





***Litigation
      or other disputes regarding patents and other proprietary rights may be
      expensive, cause delays in bringing products to market and harm our ability
      to
      operate.***





The
      manufacture, use or sale of our Hemiwedge® product candidates may infringe on
      the patent rights of others. If we are unable to avoid infringement of the
      patent rights of others, we may be required to seek a license, defend an
      infringement action, or challenge the validity of the patents in court. Patent
      litigation is costly and time consuming. We may not have sufficient resources
      to
      bring these actions to a successful conclusion. In addition, if we do not obtain
      a license, develop or obtain non-infringing technology, or fail to successfully
      defend an infringement action or have the patents we are alleged to infringe
      declared invalid, we may incur substantial money damages, encounter significant
      delays in bringing our Hemiwedge® products to market, be precluded from
      participating in the manufacture, use, or sale of our Hemiwedge® products
      without first obtaining licenses to do so, or not be able to obtain any required
      license on favorable terms, if at all. In addition, if another party claims
      the
      same subject matter (or subject matter overlapping with the subject matter)
      that
      we have claimed in a U.S. patent application or patent, we may decide or be
      required to participate in interference proceedings in the United States Patent
      and Trademark Office in order to determine the priority of invention. Loss
      of
      such an interference proceeding would deprive us of patent protection sought
      or
      previously obtained and could prevent us from commercializing our products.
      Participation in such proceedings could result in substantial costs, whether
      or
      not the eventual outcome is favorable. These additional costs could adversely
      affect our financial results.





***Confidentiality
      agreements with employees and others may not adequately prevent disclosure
      of
      trade secrets and other proprietary information.***





In
      order
      to protect our proprietary technology and processes, we rely in part on
      confidentiality agreements with our employees, consultants, outside
      collaborators, and other advisors. These agreements may not effectively prevent
      disclosure of confidential information and may not provide an adequate remedy
      in
      the event of unauthorized disclosure of confidential information. Costly and
      time-consuming litigation could be necessary to enforce and determine the scope
      of our proprietary rights, and failure to obtain or maintain trade secret
      protection could adversely affect our competitive business
      position.




16





***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, result in lower margins. Changing metal prices could
      adversely affect our ability to attain profitably.





***The
      oil & gas industry is subject to fluctuations in demand, 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 2006 and 2007, 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. Reduced demand for oil field drilling
      products would result in lower activity levels for our company. These changes
      can happen very quickly and without forecast or notice, and may have a material
      adverse effect on our results of operations.





***We
      may need to recruit additional personnel for Hemiwedge Valve Corporation. If
      we
      are unable to attract qualified personnel, we may be unable to operate the
      business as planned.***





Our
      ability to implement our business plan and develop Hemiwedge Valve Corporation
      may depend on our ability to attract and retain other qualified management,
      engineering, machinists, project development, and sales and marketing personnel.
      We compete for such persons with other companies, some of which have
      substantially greater capital resources and facilities than we have. Further,
      demand for such personnel during periods of increased demand for energy products
      is very strong. We may not be able to recruit or retain personnel of the
      requisite caliber or in adequate numbers to enable us to conduct the Hemiwedge®
business as planned.





***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. If we were found to be responsible for significant damages related
      to
      such regulation, it could have a material adverse effect on our business and
      results of operation.***





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, 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 EPA 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, or, if we were found to be a
      responsible party, we could be liable for significant damages. This could have
      a
      material adverse effect on our business and results of operations.




17





**INVESTMENT
      RISKS**





***There
      is a limited trading market for our shares. You may not be able to sell your
      shares if you need money.***





Our
      common stock is traded on the Over-The-Counter Bulletin Board, an inter-dealer
      automated quotation system for equity securities. During the 30 trading days
      ended March 31, 2008, the average daily trading volume of our common stock
      was
      approximately 41,000 shares. As of March 31, 2008, we had approximately 400
      record holders of our common stock (not including an indeterminate number of
      stockholders whose shares are held by brokers in “street name”). There has been
      limited trading activity in our stock, and when it has traded, the price has
      fluctuated widely. 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. Stockholders may experience difficulty selling their shares if they
      choose to do so because of the illiquid market and limited public float for
      our
      common stock.





***We
      are subject to the penny stock rules and these rules may adversely affect
      trading in our common stock.***





Our
      common stock is a “low-priced” security under rules promulgated under the
      Securities Exchange Act of 1934. In accordance with these rules, broker-dealers
      participating in transactions in low-priced securities must first deliver a
      risk
      disclosure document which describes the risks associated with such stocks,
      the
      broker-dealer’s duties in selling the stock, the customer’s rights and remedies
      and certain market and other information. Furthermore, the broker-dealer must
      make a suitability determination approving the customer for low-priced stock
      transactions based on the customer’s financial situation, investment experience
      and objectives. Broker-dealers must also disclose these restrictions in writing
      to the customer, obtain specific written consent from the customer, and provide
      monthly account statements to the customer. The effect of these restrictions
      probably decreases the willingness of broker-dealers to make a market in our
      common stock, decreases liquidity of our common stock and increases transaction
      costs for sales and purchases of our common stock as compared to other
      securities.





***Transfers
      of our securities may be restricted by virtue of state securities “blue sky”
laws which prohibit trading absent compliance with individual state laws. These
      restrictions may make it difficult or impossible to sell shares in those
      states.***





Transfers
      of our common stock may be restricted under the securities or securities
      regulations laws promulgated by various states and foreign jurisdictions,
      commonly referred to as “blue sky” laws. Absent compliance with such individual
      state laws, our common stock may not be traded in such jurisdictions. Because
      the securities registered hereunder have not been registered for resale under
      the blue sky laws of any state, the holders of such shares and persons who
      desire to purchase them should be aware that there may be significant state
      blue
      sky law restrictions upon the ability of investors to sell the securities and
      of
      purchasers to purchase the securities. These restrictions may prohibit the
      secondary trading of our common stock. Investors should consider the secondary
      market for our securities to be a limited one.





***There
      are options and warrants to purchase shares of our common stock currently
      outstanding.***





As
      of
      December 31, 2007, we have granted options and warrants to purchase an aggregate
      of 4,636,120 shares of our common stock to various persons and entities, of
      which options and warrants to purchase up to 4,450,787 shares of our common
      stock are currently exercisable. The exercise prices on these options and
      warrants range from $0.63 per share to $4.20 per share. If issued, the shares
      underlying options and warrants would increase the number of shares of our
      common stock currently outstanding and will dilute the holdings and voting
      rights of our then-existing shareholders.





***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 line of credit and term loan
      from Stillwater National Bank prohibit us from declaring or paying dividends
      or
      purchasing or redeeming any of our capital stock without the approval of
      Stillwater National Bank. 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
      22% of the outstanding shares of our common stock as of the date of this report.
      As long as our officers and directors collectively own a significant percentage
      of our common stock, our other shareholders 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.


18





***We
      have the ability to issue additional shares of our common stock and shares
      of
      preferred stock without asking for stockholder approval, which could cause
      your
      investment to be diluted.***





Our
      Certificate of Incorporation authorizes the Board of Directors to issue up
      to
      50,000,000 shares of common stock and up to 10,000,000 shares of preferred
      stock. The power of the Board of Directors to issue shares of common stock,
      preferred stock or warrants or options to purchase shares of common stock or
      preferred stock is generally not subject to stockholder approval. Accordingly,
      any additional issuance of our common stock, or preferred stock that may be
      convertible into common stock, may have the effect of diluting your
      investment.





***By
      issuing preferred stock, we may be able to delay, defer or prevent a change
      of
      control.***





Our
      Certificate of Incorporation permits us to issue, without approval from our
      shareholders, a total of 10,000,000 shares of preferred stock. Our Board of
      Directors can determine the rights, preferences, privileges and restrictions
      granted to, or imposed upon, the shares of preferred stock and to fix the number
      of shares constituting any series and the designation of such
      series.  It
      is
      possible that our Board of Directors, in determining the rights, preferences and
      privileges to be granted when the preferred stock is issued, may include
      provisions that have the effect of delaying, deferring or preventing a change
      in
      control, discouraging bids for our common stock at a premium over the market
      price, or that adversely affect the market price of and the voting and other
      rights of the holders of our common stock.





***Our
      stock price is volatile.***





The
      trading price of our common stock has been and continues to be subject to
      fluctuations. The stock price may fluctuate in response to a number of events
      and factors, such as quarterly variations in operating results, the operating
      and stock performance of other companies that investors may deem as comparable
      and news reports relating to trends in the marketplace, among other factors.
      Significant volatility in the market price of our common stock may arise due
      to
      factors such as:








·
            our
                developing business;





·
            a
                continued negative cash flow;





·
            relatively
                low price per share;





·
            relatively
                low public float;





·
            variations
                in quarterly operating results;





·
            general
                trends in the industries in which we do
                business;





·
            the
                number of holders of our common stock;
                and





·
            the
                interest of securities dealers in maintaining a market for our common
                stock.





As
      long
      as there is only a limited public market for our common stock, the sale of
      a
      significant number of shares of our common stock at any particular time could
      be
      difficult to achieve at the market prices prevailing immediately before such
      shares are offered, and could cause a severe decline in the price of our common
      stock.




19





***There
      are limitations in connection with the availability of quotes and order
      information on the OTCBB.***





Trades
      and quotations on the OTCBB involve a manual process and the market information
      for such securities cannot be guaranteed. In addition, quote information, or
      even firm quotes, may not be available. The manual execution process may delay
      order processing and intervening price fluctuations may result in the failure
      of
      a limit order to execute or the execution of a market order at a significantly
      different price. Execution of trades, execution reporting and the delivery
      of
      legal trade confirmation may be delayed significantly. Consequently, one may
      not
      be able to sell shares of our Common Stock at the optimum trading
      prices.





***There
      are delays in order communication on the OTCBB.***





Electronic
      processing of orders is not available for securities traded on the OTCBB and
      high order volume and communication risks may prevent or delay the execution
      of
      one's OTCBB trading orders. This lack of automated order processing may affect
      the timeliness of order execution reporting and the availability of firm quotes
      for shares of our Common Stock. Heavy market volume may lead to a delay in
      the
      processing of OTCBB security orders for shares of our Common Stock, due to
      the
      manual nature of the market. Consequently, one may not able to sell shares
      of
      our Common Stock at the optimum trading prices.





***There
      is a risk of market fraud on the OTCBB.***





OTCBB
      securities are frequent targets of fraud or market manipulation. Not only
      because of their generally low price, but also because the OTCBB reporting
      requirements for these securities are less stringent than for listed or NASDAQ
      traded securities, and no exchange requirements are imposed. Dealers may
      dominate the market and set prices that are not based on competitive forces.
      Individuals or groups may create fraudulent markets and control the sudden,
      sharp increase of price and trading volume and the equally sudden collapse
      of
      the market price for shares of our Common Stock.





***There
      is a limitation in connection with the editing and canceling of orders on the
      OTCBB.***





Orders
      for OTCBB securities may be canceled or edited like orders for other securities.
      All requests to change or cancel an order must be submitted to, received and
      processed by the OTCBB. Due to the manual order processing involved in handling
      OTCBB trades, order processing and reporting may be delayed, and one may not
      be
      able to cancel or edit one's order. Consequently, one may not able to sell
      its
      shares of our Common Stock at the optimum trading prices.





***Increased
      dealer compensation could adversely affect our stock
      price.***





The
      dealer's spread (the difference between the bid and ask prices) may be large
      and
      may result in substantial losses to the seller of shares of our Common Stock
      on
      the OTCBB if the stock must be sold immediately. Further, purchasers of shares
      of our Common Stock may incur an immediate "paper" loss due to the price spread.
      Moreover, dealers trading on the OTCBB may not have a bid price for shares
      of
      our Common Stock on the OTCBB. Due to the foregoing, demand for shares of our
      Common Stock on the OTCBB may be decreased or eliminated.




20




**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.




21


**Item
      2. PROPERTIES**  ****




We
      lease
      approximately 90,000 square feet of manufacturing space in Conroe,
      Texas.





Approximately
      30,000 square feet is used by Shumate Machine Works for its operations. On
      April
      1, 2006, Shumate Machine Works and the lessor terminated the existing lease
      for
      these premises and entered into a new lease. The lease term ends on March 31,
      2011. The base rent is $18,600 per month, representing a reduction of rent
      of
      $4,000 per month. The new lease grants to Shumate Machine Works an option to
      purchase the premises at the end of the lease term for an agreed-upon purchase
      price or current appraised price. If it exercises this option, Shumate Machine
      Works is entitled to a credit in an amount equal to 5% of all lease payments
      paid during the term. Effective February 1, 2007, our rent increased to $22,100
      in connection with a 5,000 square foot expansion.





In
      December 2005, Shumate Machine Works entered into a lease agreement for a
      manufacturing facility of approximately 60,000 square feet to be used by
      Hemiwedge Valve Corporation. The term of the lease is three years and the rent
      is approximately $14,000 per month. The lease agreement grants to Shumate
      Machine Works an option to purchase the premises covered under the lease for
      a
      purchase price of approximately $1,825,000 before lease. Shumate Machine Works
      will be entitled to a credit against the purchase price in an amount equal
      to
      the amount necessary to amortize the purchase price at 7% over a period of
      240
      months. The option to purchase expires on September 1, 2009. Along with the
      option to purchase, the lessor granted to Shumate Machine Works a right of
      first
      refusal with respect to the premises. Shumate Machine Works has sublet a portion
      of the premises. The sublease agreement has a term of three months, with
      automatic extensions for the following 33 months, at a rate of approximately
      $4,000 per month.





The
      existing facilities are adequate for our current operations. We anticipate
      that
      additional facilities may be leased or purchased as needed and that facilities
      that are adequate for our needs are readily available.





**Item
      3. LEGAL PROCEEDINGS**





None.





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





None.




22




**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 “SHMT.OB”
since October 20, 2005. Before that date, our common stock traded on the OTC
      Bulletin Board under the symbol “EXCB.OB” since June 10, 2002. Before that date,
      our common stock traded on the OTC Bulletin Board under the symbol “GRMA.OB,”
and before that, it traded on the OTC Bulletin Board under the symbol “GRMG.OB.”
The following table shows the high and low bid prices for our common stock
      for
      each quarter since January 1, 2006 as reported by the OTC Bulletin Board. All
      share prices have been adjusted to provide for the one for seven reverse split
      which was effected on October 19, 2005 (i.e. they have been increased seven
      times to compare them to current prices).





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.


2006
                  (OTC Bulletin Board)
              
              High
                  Bid
              
              Low
                  BidFirst
                  quarter
              
              $
              1.30
              
              $
              0.65Second
                  quarter
              
              
              1.60
              
              
              0.71Third
                  quarter
              
              
              1.65
              
              
              1.00Fourth
                  quarter
              
              
              1.53
              
              
              0.90
  2007
                  (OTC Bulletin Board)
              
              
              High
                  Bid
              
              
              Low
                  BidFirst
                  quarter
              
              $
              2.30
              
              $
              1.17Second
                  quarter
              
              
              2.14
              
              
              1.30Third
                  quarter
              
              
              2.03
              
              
              1.37Fourth
                  quarter
              
              
              1.64
              
              
              0.60


As
      of
      March 31, 2008 there were approximately 400 record holders of our common stock.
      This does not include an indeterminate number of shareholders whose shares
      are
      held by brokers in street name.





We
      have
      not paid cash dividends since our inception and we do not contemplate paying
      dividends in the foreseeable future. Furthermore, the terms of our line of
      credit and term loan with Stillwater National Bank prohibit us from declaring
      or
      paying dividends or purchasing or redeeming any of our capital stock without
      the
      approval of Stillwater National Bank. We anticipate 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 and lower
      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.




23




**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,
      2007:





**(a)**
            
            **(b)**
            
            **(c)****Plan
                Category**
            
            **Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            
            **Weighted-average
                exercise price of outstanding options, warrants and
                rights**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))**Equity
                compensation plans approved by security holders
              (1)(2)
            
            1,535,810
            
            $1.42
            
            3,683,643Equity
                compensation plans not approved by security holders
              (3)(4)(5)(6)
            
            120,000
            
            $1.50
            
            --Total
            
            1,547,810
            
            $1.43
            
            3,683,643





**(1)**
            **2005
                Stock Incentive Plan.**On
                April 29, 2005, our board of directors adopted, and on October 19,
                2005,
                our stockholders approved, our 2005 Stock Incentive Plan.The
                purpose of the plan is to further align the interests of employees,
                directors and non-employee consultants with those of the stockholders
                by
                providing incentive compensation opportunities tied to the performance
                of
                the common stock and by promoting increased ownership of the common
                stock
                by such individuals. The plan is also intended to advance the interests
                of
                the company and its shareholders by attracting, retaining and motivating
                key personnel upon whose judgment, initiative and effort the successful
                conduct of the company’s business is largely dependent. We are permitted
                to grant awards of stock options, stock awards, and restricted stock
                awards under the plan. The maximum aggregate number of shares of
                common
                stock that may be issued and sold under all awards granted under
                the plan
                is 10,000,000 shares, and as of December 31, 2007, we have issued
                4,783,690 shares under the plan, and there are options to purchase
                1,532,667 shares outstanding under this plan.




**(2)**
            **2001
                Stock Option Plan.**On
                April 8, 2002, we assumed the 2001 Excalibur Holdings, Inc. Stock
                Option
                Plan, which was approved by the securities holders of Excalibur Holdings
                prior to our assumption of the plan. We are authorized to issue options
                to
                purchase up to 285,714 shares under this plan. As of December 31,
                2007,
                there were options to purchase 3,143 shares outstanding under this
                plan.




**(3)**
            **Individual
                Option and Warrant Grants.**We
                have granted warrants on an individual basis. We have granted no
                options
                on an individual basis. Of the warrants we have granted on an individual
                basis for compensatory services, there are currently warrants to
                purchase
                in the aggregate up to 12,000 shares of our common stock at a weighted
                average price of $1.50 per share.




**(4)**
            **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.
                We were
                permitted to issue up to 428,157 shares of common stock under this
                plan,
                and to date, we had issued 232,063 shares. On April 20, 2006, our
                board of
                directors terminated this plan.




**(5)**
            **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. We were permitted to issue up to 1,071,429 shares of
                common
                stock under this plan, and to date, we issued no shares or options
                to
                purchase shares under this plan. On April 20, 2006, our board of
                directors
                terminated this plan.




24




**(6)**
            **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 was 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 were permitted
                to issue
                up to 357,143 shares of common stock under this plan, and to date,
                we
                issued no shares under this plan. On April 20, 2006, our board of
                directors terminated this plan.




**Recent
      Sales of Unregistered Securities**





**1.**
            On
                November 1, 2007, we entered into a Note Purchase Agreement with
                a single
                accredited investor pursuant to which we issued a $1,000,000 of principal
                amount of convertible promissory note and a warrant to purchase 200,000
                shares of our common stock (the “Purchase Agreement”). The note has a 1
                year term and bears interest at ten percent (10%); provided, however,
                that
                we are required to prepay the note if we consummate of a subsequent
                equity
                financing (as defined) within the next 12 months. Interest is payable
                monthly in arrears, however we have right to defer any interest payment
                and accrue same to principal. The note is convertible into our common
                stock at a fixed conversion price of $1.89. In addition, if we close
                a
                subsequent equity financing within the next 12 months, the note holder
                has
                the option to convert the outstanding balance of the note into such
                financing on the same terms as the other investors in such
                financing.





Under
      the
      terms of this note and the related warrant, the note and the warrant are
      convertible/exercisable by any holder only to the extent that the number of
      shares of common stock issuable pursuant to such securities, together with
      the
      number of shares of common stock owned by such holder and its affiliates (but
      not including shares of common stock underlying unconverted shares of the note
      or unexercised portions of the warrants) would not exceed 4.99% of our then
      outstanding common stock as determined in accordance with Section 13(d) of
      the
      Securities Exchange Act of 1934, as amended





The
      note
      was issued with a warrant to purchase up to 200,000 shares of our common stock
      at an exercise price of $1.89 per share, subject to adjustment. The warrant
      holder may designate a "cashless exercise option." This option entitles the
      warrant holders to elect to receive fewer shares of common stock without paying
      the cash exercise price. The number of shares to be determined by a formula
      based on the total number of shares to which the warrant holder is entitled,
      the
      current market value of the common stock and the applicable exercise price
      of
      the warrant.





We
      granted the investor in the offering “piggyback” registration rights for the
      resale of the shares issuable upon conversion of the note and upon exercise
      of
      the warrant.





We
      relied
      on the exemption from registration provided by Regulation D and/or Section
      4(2)
      of the Securities Act of 1933, as amended, for the offer and sale of the note
      and the warrant.





The
      net
      proceeds from the financing for working capital and general corporate purposes.
      An NASD member firm, acted as placement agent in connection with the offering
      and received $140,000 in commissions. Our net proceeds of this offering after
      the payment of commissions, fees and other expenses of the offering were
      approximately $850,000.


25


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





We
      will
      file an amendment to this annual report to provide management’s discussion and
      analysis as required by Item 303 of Regulation S-B.




26




**Item
      7. FINANCIAL STATEMENTS**





We
      will
      file an amendment to this annual report to provide the financial statements
      as
      required by Item 310 of Regulation S-B.




27




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





None.





**Item
      8A. CONTROLS AND PROCEDURES.**




We
      will
      file an amendment to this annual report to provide controls and procedures
      as
      required by Items
      307
      of Regulation S-B and 308 of Regulation S-B .




**Item
      8B. OTHER INFORMATION.**





None.





28
 
  **PART
        III**





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





We
      will
      file an amendment to this annual report to provide controls and procedures
      as
      required by Items
      401, 405, 406, 407(C)(3, (d)(4) and (d)(5) of Regulation S-B .





**Item
      10. EXECUTIVE COMPENSATION**





We
      will
      file an amendment to this annual report to provide controls and procedures
      as
      required by Item
      402
      of Regulation S-B .





**Item
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**





We
      will
      file an amendment to this annual report to provide controls and procedures
      as
      required by Items
      201(d) of Regulation S-B and 403 of Regulation S-B .





**Item
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**





We
      will
      file an amendment to this annual report to provide controls and procedures
      as
      required by Items
      404
      of Regulation S-B and 407(a) of Regulation S-B .





**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,
                incorporated by reference to Amendment No. 1 to Shumate’s Registration
                Statement on Form SB-2 filed on September 5, 2002 (File No.
                333-88974).





2.2
            Agreement
                and Plan of Merger by and among Shumate Machine Works, Inc., Larry
                C.
                Shumate, Russ Clark, Excalibur Holdings, Inc., and Excalmergeco,
                Inc.,
                incorporated by reference to Amendment No. 1 to Shumate’s Registration
                Statement on Form SB-2 filed on September 5, 2002 (File No.
                333-88974).





2.3
            Asset
                Purchase Agreement by and among Hemiwedge Valve Corporation, Soderberg
                Research and Development, Inc., Inprop, Inc., and Jeanette Soderberg,
                incorporated by reference to Shumate’s Current Report on Form 8-K filed on
                December 6, 2005.





3.1
            Certificate
                of Incorporation of Excalibur Industries, Inc. (now known as Shumate
                Industries, Inc.), incorporated by reference to Amendment No. 1 to
                Shumate’s Registration Statement on Form SB-2 filed on September 5, 2002
                (File No. 333-88974).


29


3.2
            Certificate
                of Amendment to Certificate of Incorporation of Excalibur Industries,
                Inc.
                (now known as Shumate Industries, Inc.), incorporated by reference
                to
                Shumate’s Current Report on Form 8-K filed on October 26,
                2005.




3.3
            Bylaws
                of Excalibur Industries, Inc. (now known as Shumate Industries, Inc.),
                incorporated by reference to Amendment No. 1 to Shumate’s Registration
                Statement on Form SB-2 filed on September 5, 2002 (File No.
                333-88974).




4.1
            Specimen
                Certificate of Shumate Industries, Inc.’s common stock, incorporated by
                reference to Shumate’s Annual Report on Form 10-KSB for the year ended
                December 31, 2005.




4.2
            Form
                of common stock purchase warrant, incorporated by reference to Amendment
                No. 1 to Shumate’s Registration Statement on Form SB-2 filed on September
                5, 2002 (File No. 333-88974).




4.3
            Convertible
                promissory note (Stillwater National Bank), incorporated by reference
                to
                Shumate’s Annual Report on Form 10-KSB for the year ended December 31,
                2005.




4.4
            Amended
                and restated promissory note (Term Note - Stillwater National Bank),
                incorporated by reference to Shumate’s Amendment No. 1 to Current Report
                on Form 8-K, filed on November 7,
                2005.




4.5
            Stock
                Purchase Agreement by and between Shumate Industries, Inc. and A.
                Earl
                Swift, incorporated by reference to Shumate’s Annual Report on Form 10-KSB
                for the year ended December 31,
                2005.




4.6
            Form
                of Securities Purchase Agreement among Shumate Industries, Inc.,
                and
                various purchasers, incorporated by reference to Shumate’s Current Report
                on Form 8-K filed on February 23,
                2006.




4.7
            Form
                of Registration Rights Agreement among Shumate Industries, Inc.,
                and
                various purchasers, incorporated by reference to Shumate’s Current Report
                on Form 8-K filed on February 23,
                2006.




4.8
            Common
                stock purchase warrant (First Montauk Securities Corp.), incorporated
                by
                reference to Shumate’s Current Report on Form 8-K filed on February 23,
                2006.




10.1
            Restructuring
                Agreement between Shumate Industries, Inc., Shumate Machine Works,
                Inc.,
                Matthew Flemming, Larry Shumate, Russ Clark, and Stillwater National
                Bank
                and Trust Company, incorporated by reference to Shumate’s Amendment No 1.
                to Current Report on Form 8-K, filed on November 7,
                2005.




10.2
            Promissory
                Note (Line of Credit - Stillwater National Bank), incorporated by
                reference to Shumate’s Annual Report on Form 10-KSB for the year ended
                December 31, 2005.




10.3
            Security
                Agreement, incorporated by reference to Shumate’s Annual Report on Form
                10-KSB for the year ended December 31,
                2005.




10.4
            Lockbox
                Agreement, incorporated by reference to Shumate’s Annual Report on Form
                10-KSB for the year ended December 31,
                2005.




10.5
            Settlement
                and Release Agreement, incorporated by reference to Shumate’s Current
                Report on Form 8-K filed on October 26,
                2005.




10.6
            Promissory
                Note (Soderberg Research and Development), incorporated by reference
                to
                Shumate’s Current Report on Form 8-K filed on December 6,
                2005.


30




10.7
            2001
                Stock Option Plan of Excalibur Holdings, Inc., incorporated by reference
                to Amendment No. 1 to Shumate’s Registration Statement on Form SB-2 filed
                on September 5, 2002 (File No. 333-88974).




10.8
            2003
                Stock Grant Plan, incorporated by reference to Shumate’s Registration
                Statement on Form S-8, filed on June 26, 2003 (File No.
                333-106521).




10.9
            2003
                Employee Stock Incentive Plan, incorporated by reference to Shumate’s
                Registration Statement on Form S-8, filed on August 1, 2003 (File
                No.
                333-107548).




10.10
            2003
                Non-Employee Directors and Consultants Retainer Stock Plan, incorporated
                by reference to Shumate’s Registration Statement on Form S-8, filed on
                August 1, 2003 (File No.
                333-107548).




10.11
            2005
                Stock Incentive Plan, incorporated by reference to Shumate’s Registration
                Statement on Form S-8, filed on May 3, 2005 (File No.
                333-124568).




10.12
            Improved
                property commercial lease between Paul & Sherry Vick dba P & S
                Properties LLC and Shumate Machine Works, incorporated by reference
                to
                Shumate’s Annual Report on Form 10-KSB for the year ended December 31,
                2005.




10.13
            Lease
                agreement with option to purchase by and between the Brewer Family
                Charitable Remainder Annuity Trust No. 1 and Shumate Machine Works,
                incorporated by reference to Shumate’s Annual Report on Form 10-KSB for
                the year ended December 31, 2005.




10.14
            Second
                Amended and Restated Renewal Promissory Note (Line of Credit - Stillwater
                National Bank), incorporated by reference to Shumate’s Annual Report on
                Form 10-KSB for the year ended December 31,
                2006.




10.15
            Amended
                and Restated Loan Agreement dated as of January 25, 2008 between
                Shumate
                Industries, Inc, Shumate Machine Works, Inc., Hemiwedge Valve Corporation,
                Larry Shumate and Stillwater National Bank and Trust Company, incorporated
                by reference to Shumate’s Current Report on Form 8-K filed on January 31,
                2008.




10.16
            Promissory
                Note dated January 25, 2008, incorporated by reference to Shumate’s
                Current Report on Form 8-K filed on January 31,
                2008.




10.17
            Promissory
                Note dated January 25, 2008, incorporated by reference to Shumate’s
                Current Report on Form 8-K filed on January 31,
                2008.




10.18
            Lockbox
                Agreement dated January 25, 2008, incorporated by reference to Shumate’s
                Current Report on Form 8-K filed on January 31,
                2008.




10.19
            Security
                Agreement dated as of January 25, 2008 between Shumate Machine Works,
                Inc., Hemiwedge Valve Corporation, and Stillwater National Bank and
                Trust
                Company, incorporated by reference to Shumate’s Current Report on Form 8-K
                filed on January 31, 2008.




10.20
            Security
                Agreement dated as of January 25, 2008 between Larry Shumate and
                Stillwater National Bank and Trust Company, incorporated by reference
                to
                Shumate’s Current Report on Form 8-K filed on January 31,
                2008.




21.1
            Subsidiaries
                of Shumate Industries, Inc., incorporated by reference to Shumate’s Annual
                Report on Form 10-KSB for the year ended December 31,
                2005.




23.1
            Consent
                of Independent Public Accountants, Malone & Bailey, PC
                (1)




31.1
            Certificationof
                Larry C. Shumate pursuant to Rule 13a-14(a).
                (1)




31




31.2
            Certificationof
                Matthew C. Flemming pursuant to Rule 13a-14(a).
                (1)




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.(1)




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.(1)







(1)
      To be
      filed by amendment.





**Item
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.**





We
      will
      file an amendment to this annual report to provide principal accountants fees
      and services as required by Item 9(e) of Schedule 14A (Sec.240.14a-101 of this
      chapter)





32




**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.




**SHUMATE
              INDUSTRIES, INC.**By:
            /s/ Larry
              C.
              ShumateLarry
                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.




Signatures
              Title
              Date/s/
                  Larry C. Shumate
              Chairman
                  of the Board, President,
              April
                  15, 2008Larry
                  C. Shumate
              Chief
                  Executive Officer/s/
                  Matthew C. Flemming
              Executive
                  Vice President, Chief
              April
                  15, 2008Matthew
                  C. Flemming
              Financial
                  Officer, Treasurer,Secretary,
                  and Director/s/
                  Russell T. Clark
              Vice
                  President, Chief Operating OfficerRussell
                  T. Clark
              and
                  Director
              April
                  15, 2007/s/
                  Leo B. Womack
              Director
              April
                  15, 2008Leo
                  B. Womack/s/
                  Kenton Chickering III
              Director
              April
                  15, 2008Kenton
                  Chickering III





33