UNITED
STATES SECURITIES AND EXCHANGE COMMISSION




WASHINGTON,
D.C. 20549




FORM
10-Q







x Quarterly Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934




For the
quarterly period ended June 30, 2008




o Transition Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934




For the
transition period from ____________ to ____________












Energy
King, Inc.


(Exact
name of registrant as specified in its charter)





Nevada
            
            0-27454
            
            20-3161375(State
      or other jurisdiction of incorporation)
            
            (Commission
      File No.)
            
            (IRS
      Employer Identification No.)




4455
Lamont Street, Suite 3, San Diego, CA 92109


(Address
of principal executive offices)




(858)
272-6600


(Issuer’s
telephone number, including area code)




Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act 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 o




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




On August
8, 2008 there were 111,762,018 shares of Registrant’s common stock, $.001 par
value, issued and outstanding.




Transitional
Small Business Disclosure Format: Yes o  No x














INDEX
TO FINANCIAL STATEMENTS




Financial
              Page
              NumberCONSOLIDATED
      BALANCE SHEETS AS OF JUNE 30, 2008 (UNAUDITED) AND DECEMBER 31, 2007
      (AUDITED)
            
            F-2CONSOLIDATED
      STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008
      AND 2007 (UNAUDITED)
            
            F-3CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE
      SIX  MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
            
            F-4CONSOLIDATED
      STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
      (UNAUDITED)
            
            F-5NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
      (UNAUDITED)
            
            F-6
      - F-19











ENERGY
KING, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE
SHEETS




June
      30,
              2008
              (Unaudited)
            
            
            December 31,
              2007
              (Restated)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
            
            $
            272,706
            
            
            $
            1,510,874Accounts
      receivable, less allowance for doubtful accounts of $10,760 and $12,000,
      respectively
            
            
            569,515
            
            
            
            168,231Other
      receivables
            
            
            325,590
            
            
            
            215,976Inventories
            
            
            915,514
            
            
            
            623,607Prepaid
      expenses
            
            
            212,432
            
            
            
            277,386Total
      current assets
            
            
            2,295,757
            
            
            
            2,796,074Property
      and equipment, net
            
            
            700,537
            
            
            
            645,628Goodwill
            
            
            6,805,885
            
            
            
            2,835,263Intangible
      assets, net
            
            
            78,178
            
            
            
            76,411Other
      assets, primarily deposits
            
            
            241,288
            
            
            
            108,738Total
      assets
            
            $
            10,121,645
            
            
            $
            6,462,114LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Accounts
      payable
            
            $
            1,986,722
            
            
            $
            1,115,513Accrued
      expenses
            
            
            1,625,043
            
            
            
            1,075,300Current
      portion of notes payable and long-term debt
            
            
            1,639,099
            
            
            
            922,096Customer
      deposits and deferred revenue
            
            
            637,958
            
            
            
            374,926Total
      current liabilities
            
            
            5,888,822
            
            
            
            3,487,835Notes
      payable and long-term debt, net of current portion
            
            
            5,627,687
            
            
            
            2,510,798Total
      liabilities
            
            
            11,516,509
            
            
            
            5,998,633Commitments
      and contingencies
            
            
            —
            
            
            
            —STOCKHOLDERS’
      EQUITY:Preferred
      stock, authorized 5,000,000 shares:
              $.01
      par value, 975,086 and 975,086 shares issued and outstanding,
      respectively
            
            
            9,751
            
            
            
            9,751$10.00
      par value, 23,000 and 23,000 shares issued and outstanding,
      respectively
            
            
            230,000
            
            
            
            230,000Common
      stock, authorized 500,000,000 shares, $.001 par value; 108,991,543 and
      105,412,850 shares issued and outstanding, respectively
            
            
            108,992
            
            
            
            105,413Additional
      paid-in capital
            
            
            2,679,404
            
            
            
            2,413,239Accumulated
      deficit
            
            
            (4,423,011
            )
            
            
            (2,294,922
            )Total
      stockholders’ equity
            
            
            (1,394,864
            )
            
            
            463,481Total
      liabilities and stockholders’ equity
            
            $
            10,121,645
            
            
            $
            6,462,114




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




F-2





ENERGY KING, INC. AND
SUBSIDIARIES


CONSOLIDATED STATEMENTS OF
OPERATIONS


(Unaudited)





Three
      Months Ended
              June
      30,
            
            Six
      Months Ended
              June
      30,2008
            
            2007
            
            2008
            
            2007Revenues,
      net
            
            $
            5,166,023
            
            $
            3,964,578
            
            $
            7,993,974
            
            $
            7,051,576Cost
      of services
            
            
            3,166,413
            
            
            2,213,615
            
            
            5,138,922
            
            
            3,920,690Gross
      profit
            
            
            1,999,610
            
            
            1,750,963
            
            
            2,855,052
            
            
            3,130,886Selling,
      general and administrative expenses
            
            
            2,423,603
            
            
            1,740,785
            
            
            4,218,980
            
            
            2,988,005Operating
      income (loss)
            
            
            (439,993
            )
            
            10,178
            
            
            (1,363,928
            )
            
            142,881Other
      income (expense)Interest
      income
            
            
            61
            
            
            642
            
            
            4,742
            
            
            990Other
      income
            
            
            20,010
            
            
            22,870
            
            
            21,371
            
            
            22,886Interest
      expense
            
            
            (422,520
            )
            
            (83,309
            )
            
            (787,874
            )
            
            (155,671
            )Total
      other income (expense)
            
            
            (402,449
            )
            
            (59,797
            )
            
            (761,761
            )
            
            (131,795
            )Income
      (Loss) before income taxes
            
            
            (826,442
            )
            
            (49,619
            )
            
            (2,125,689
            )
            
            11,086Income
      tax expense
            
            
            (385
            )
            
            —
            
            
            2,400
            
            
            3,039Net
      Income (Loss)
            
            $
            (826,057
            )
            $
            (49,619
            )
            $
            (2,128,089
            )
            $
            8,047Income
      (Loss) per share: Basic and diluted
            
            $
            (.01
            )
            $
            (.00
            )
            $
            (.02
            )
            $
            .00Shares
      used in computing income (loss) per share:Basic
            
            
            108,732,490
            
            
            102,266,068
            
            
            107,424,319
            
            
            100,407,343Diluted
            
            
            108,732,490
            
            
            102,266,068
            
            
            107,424,319
            
            
            100,407,343




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




F-3




ENERGY
KING, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’EQUITY


For
The Six Months Ended June 30, 2008 and The Year Ended December 31,
2007


(Unaudited)





AdditionalPreferred Stock
            
            
            Common Stock
            
            
            Paid-In
            
            
            AccumulatedShares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            TotalBalance
      at December 31, 2006
            
            
            998,086
            
            
            $
            239,751
            
            
            
            98,548,618
            
            
            $
            98,549
            
            
            $
            856,207
            
            
            $
            (1,216,732
            )
            
            $
            (22,225
            )Common
      stock issued in debt reduction
            
            
            —
            
            
            
            —
            
            
            
            5,440,000
            
            
            
            5,440
            
            
            
            1,149,495
            
            
            
            —
            
            
            
            1,154,935Common
      stock issued pursuant to acquisition of Barnett assets
            
            
            —
            
            
            
            —
            
            
            
            600,000
            
            
            
            600
            
            
            
            149,400
            
            
            
            —
            
            
            
            150,000Common
      stock issued for services
            
            
            —
            
            
            
            —
            
            
            
            580,091
            
            
            
            580
            
            
            
            64,431
            
            
            
            —
            
            
            
            65,011Value
      of warrants relating to first closing of convertible
      debentures
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            156,450
            
            
            
            —
            
            
            
            156,450Common
      stock issued pursuant to Trafalgar financing
            
            
            —
            
            
            
            —
            
            
            
            244,141
            
            
            
            244
            
            
            
            37,256
            
            
            
            —
            
            
            
            37,500Net
      loss (restated)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (1,078,190
            )
            
            
            (1,098,190
            )Balance
      at December 31, 2007 (restated)
            
            
            998,086
            
            
            
            239,751
            
            
            
            105,412,850
            
            
            
            105,413
            
            
            
            2,413,239
            
            
            
            (2,294,922
            )
            
            
            463,481Common
      stock issued for services and in satisfaction of accounts payable and
      accrued expenses
            
            
            —
            
            
            
            —
            
            
            
            3,578,693
            
            
            
            3,579
            
            
            
            266,165
            
            
            
            —
            
            
            
            269,744Net
      loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (2,128,089
            )
            
            
            (2,128,089
            )Balance
      at June 30, 2008
            
            
            998,086
            
            
            $
            239,751
            
            
            
            108,991,543
            
            
            $
            108,992
            
            
            $
            2,679,404
            
            
            $
            (4,423,011
            )
            
            $
            (1,394,864
            )




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




F-4




ENERGY
KING, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH
FLOWS


(Unaudited)





Six
      Months Ended
              June
      30,2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
            
            $
            (2,128,089
            )
            
            $
            8,047Adjustments
      to reconcile net income (loss) to net cash provided by
      operating activities—Stock
      compensation expense
            
            
            181,200
            
            
            
            23,000Depreciation
      and amortization expense
            
            
            112,106
            
            
            
            61,934Interest
      expense accreted on debt discounts
            
            
            289,734
            
            
            
            —Changes
      in operating assets and liabilities, net of effects of
      acquisitions:Receivables,
      net
            
            
            (281,323
            )
            
            
            (235,074
            )Inventories
            
            
            (70,121
            )
            
            
            (77,528
            )Prepaid
      expenses
            
            
            89,721
            
            
            
            63,802Accounts
      payable
            
            
            474,889
            
            
            
            108,059Accrued
      expenses
            
            
            587,384
            
            
            
            24,608Customer
      deposits and deferred revenue
            
            
            147,850
            
            
            
            300,798Net
      cash provided by (used in) operating activities
            
            
            (596,649
            )
            
            
            277,646CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
            
            
            (74,439
            )
            
            
            (458,769
            )Cash
      acquired (used) in connection with acquisition
            
            
            (328,947
            )
            
            
            (74,605
            )Other
      assets
            
            
            (22,585
            )
            
            
            (32,451
            )Net
      cash (used in) provided by investing activities
            
            
            (425,971
            )
            
            
            (565,825
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Increase
      (decrease) in notes payable and long-term debt
            
            
            (215,548
            )
            
            
            500,853Net
      cash provided by (used in) financing activities
            
            
            (215,548
            )
            
            
            500,853NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (1,238,168
            )
            
            
            212,674CASH
      AND CASH EQUIVALENTS, beginning of period
            
            
            1,510,874
            
            
            
            273,976CASH
      AND CASH EQUIVALENTS, end of period
            
            $
            272,706
            
            
            $
            486,650


Supplemental
      disclosures of cash flow information:Interest
      paid
            
            $
            264,689
            
            
            $
            12,024Income
      taxes paid
            
            
            —
            
            
            
            800Non-cash
      investing and financing activities:Acquisition
      of Gallagher’s Heating and Air Conditioning, Inc. partially for notes
      payable
            
            
            3,586,667
            
            
            
            —Acquisition
      of Energy King, Inc. Barnett assets partially for common
    stock
            
            
            —
            
            
            
            150,000Stock
      issued for debt reduction
            
            $
            88,544
            
            
            $
            1,131,025




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




F-5




ENERGY
KING, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
(Unaudited)




1
- BUSINESS AND ORGANIZATION




Energy
King, Inc. (“ENKG”), formerly Buckeye Ventures, Inc. ("BEYV"), was incorporated
in Michigan under the name World Wide Motion Pictures Corporation ("WWMO") on
December 9, 1980. Pursuant to a Share Exchange Agreement dated October 14, 2005
(which closed February 22, 2006 effective March 1, 2006), BEYV (then known as
WWMO) acquired Buckeye Ventures, Inc. ("BVI") in a "reverse acquisition"
transaction and accordingly the name was changed from WWMO to BEYV in April
2006. ENKG and collectively with its subsidiaries, the “Company”, is a national
provider of comprehensive heating, ventilation and air conditioning (“HVAC”)
installation, maintenance, repair and replacement services within the mechanical
services industry. The Company operates primarily in the residential HVAC
markets.




BVI was
incorporated in Nevada on June 24, 2005 for the purpose of acquiring and
operating businesses in the heating, ventilation and air conditioning ("HVAC")
and plumbing service industries. On September 22, 2005 (effective July 31,
2005), BVI acquired its first HVAC subsidiary.




The Share
Exchange Agreement provided for the transfer of the assets and operations of
WWMO to a WWMO subsidiary, World Wide Entertainment, whose name was subsequently
changed to World Wide Motion Pictures Corporation ("WWMPC"). WWMPC has
historically been engaged in acquiring film rights and seeking to distribute
these rights.





On July
6, 2007, BEYV (Michigan) merged with BVI (Nevada). The Nevada corporation is the
surviving entity.




Effective
February 15, 2008, Buckeye Ventures, Inc. changed its name to Energy King, Inc.
to better reflect the scope of services provided by the company.




2
- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Principles
of consolidation




The
accompanying consolidated financial statements include the accounts of ENKG and
its wholly-owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation.





The
financial statements have been prepared on a “going concern” basis, which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. However, as of June 30, 2008, the Company had
negative working capital of $3,593,065. Further, the Company incurred net losses
of $2,128,089and
$1,078,190 for the six months ended June 30, 2008 and the year ended December
31, 2007, respectively. These factors create uncertainty as to the Company’s
ability to continue as a going concern. The Company plans to improve its
financial condition by obtaining new financing. Also, the Company plans to
pursue certain acquisition prospects to attain profitable operations. However,
there is no assurance that the Company will be successful in accomplishing these
objectives. The financial statements do not include any adjustments that might
be necessary should the Company be unable to continue as a going
concern.




Cash
and cash equivalents




For
purposes of the consolidated financial statements, the Company considers all
liquid instruments purchased with original maturities of three months or less to
be cash equivalents.




Accounts
receivable




The
Company provides an allowance for uncollectible trade receivable balances for
all specific account balances that are considered uncollectible. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral. An appropriate allowance for doubtful accounts is included
in accounts receivable. Concentrations of credit risk with respect to accounts
receivable are limited due to the nature of the Company's
receivables.




Accounting
for Allowance for Doubtful Accounts




We are
required to estimate the collectibility of accounts receivable and provide an
allowance for doubtful accounts for receivable amounts we believe we will not
ultimately collect. This requires us to make certain judgments and estimates
involving, among others, the creditworthiness of the customer, our prior
collection history with the customer, ongoing relationships with the customer,
the aging of past due balances, our lien rights, if any, in the property where
we performed the work, and the availability, if any, of payment bonds
applicable to our contract. These estimates are re-evaluated and adjusted as
additional information is received.




F-6





ENERGY
KING, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
(Unaudited)





Inventories




Inventories
consist of equipment, parts and supplies that the Company purchases and holds
for use in the ordinary course of business and are stated at the lower of cost
or market using the first-in, first-out method.




Property
and Equipment




Property
and equipment are stated at cost, and depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the expected life
of the lease or the estimated useful life of the asset. Assets are depreciated
over the following estimated useful lives:




Computers
      and equipment
            3
      to   7 yearsFurniture
      and fixtures
            3
      to   7 yearsVehicles
            3
      to   5 yearsLeasehold
      Improvements
            7
      to 10 years




Expenditures
for repairs and maintenance are charged to expense when incurred. Expenditures
for major renewals and betterments, which extend the useful lives of existing
equipment, are capitalized and depreciated over the remaining useful life of the
equipment. Upon retirement or disposition of property and equipment, the cost
and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized in the statement of
operations.





Goodwill




Goodwill
represents the excess of the aggregate purchase price paid by the Company in
acquisitions over the fair value of the net tangible and intangible assets
acquired.




Long-Lived
Assets




Long-lived
assets are comprised principally of goodwill, property and equipment, and
intangible assets. The Company periodically evaluates whether events and
circumstances have occurred that indicate that the remaining balances of these
assets may not be recoverable.





The
Company uses estimates of future income from operations and cash flows, as well
as other economic and business factors, to assess the recoverability of these
assets. If the sum of the expected undiscounted cash flows is less than the
carrying value of the related asset or group of assets, a loss is recognized for
the difference between the fair value and carrying value of the asset or group
of assets. Such analyses necessarily involve significant judgment.




Revenue
recognition and deferred revenue




The
Company recognizes revenue when risk of loss and title to the product is
transferred to the customer, which occurs at installation. Shipping and handling
fees are included in sales. Payments received for uninstalled products are
deferred until installation and are included in customer deposits and deferred
revenues.





Shipping
and handling fees




Shipping
and handling costs billed to customers are included in sales and the related
costs are included in cost of goods sold.  Shipping and handling costs are
charged to expense as incurred.




Concentration
of suppliers




The
Company has a wide array of vendors to purchase products from. Interruption in
the Company's supply sources would not impact the Company's ability to meet
customer demand or adversely affect future operating results.




Warranty
Costs




The
Company typically warrants labor for the first year after installation on new
HVAC systems. The Company generally warrants labor for 30 days after servicing
of existing HVAC systems. A reserve for warranty costs is estimated and recorded
based upon the historical level of warranty claims and management’s estimate of
future costs.




F-7




ENERGY
KING, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
(Unaudited)





Earnings
(loss) per share




Basic
earnings (loss) per common share (EPS) are based on the weighted average number
of common shares outstanding during each period. Diluted earnings per common
share are based on shares outstanding (computed as under basic EPS) and
potentially dilutive common shares. For the three months ended June 30, 2008,
the Company had convertible notes payable, convertible preferred stock, and
warrants outstanding, They are potentially dilutive common shares but are not
included in the computation of diluted loss per share because their inclusion
would have been anti-dilutive.




Comprehensive
income (loss)




The
Company has no items of other comprehensive income (loss) for the six months
ended June 30, 2008 and 2007.





Income
Taxes




The
Company accounts for income taxes under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized and measured
using enacted tax rates at the balance sheet date. Deferred tax expense or
benefit is the result of changes in deferred tax assets and liabilities.
Valuation allowances are established when necessary to reduce net deferred taxes
to amounts that are more likely than not to be realized.




The
Company files a consolidated return for federal income tax purposes. Income
taxes are provided for under the liability method in accordance with SFAS
No. 109, “Accounting for Income Taxes,” which takes into account
differences between financial statement treatment and tax treatment of certain
transactions. Deferred tax assets represent the tax effect of activity that has
been reflected in the financial statements but which will not be deductible
for tax purposes until future periods. Deferred tax liabilities represent the
tax effect of activity that has been reflected in the financial statements but
which will not be taxable until future periods.




The
Company regularly evaluates valuation allowances established for deferred tax
assets for which future realization is uncertain. The Company performs this
evaluation each quarter. Estimations of required valuation allowances include
estimates of future taxable income. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which the activity underlying these assets becomes deductible. The
Company considers projected future taxable income and tax planning strategies in
making this assessment. If actual future taxable income differs from the
estimates, the Company may not realize deferred tax assets to the extent it has
estimated.




Advertising




Advertising
costs are charged to expense as incurred. Advertising costs are included in
selling, general, and administrative expenses on the accompanying consolidated
statements of operations and totaled $927,229 and $478,495 for the six months
ended June 30, 2008 and 2007, respectively.




Fair
value of financial instruments




The
carrying value of the Company's cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses, and notes payable approximate fair values
due to the short-term maturity of the instruments. The carrying value of
long-term obligations approximates the fair value based on the effective
interest rates compared to current market rates.




Segment
Disclosure




Buckeye’s
activities are within the residential market of the mechanical services
industry, which is the prominent industry segment served by the
Company.





Use
of Estimates




The
preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
revenues and expenses, and disclosures regarding contingent assets and
liabilities. Actual results could differ from those estimates. The most
significant estimates used in the Company’s financial statements affect revenue
and cost recognition, the allowance for doubtful accounts, self-insurance
accruals, deferred tax assets, warranty accruals, and the quantification of fair
value for reporting units in connection with the Company’s goodwill and other
long-lived asset impairment testing.




F-8




ENERGY
KING, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
(Unaudited)




Concentrations
of Credit Risk




The
Company provides services in a broad range of geographic regions. The Company’s
credit risk primarily consists of receivables from a variety of customers
including general contractors, property owners and developers, and commercial
and industrial companies. The Company regularly reviews its accounts receivable
and estimates an allowance for uncollectible amounts. The Company has a diverse
customer base, with no single customer accounting for more than 10% of
consolidated accounts receivable.




Reclassifications




Certain
reclassifications have been made in prior period financial statements to conform
to current period presentation.




3
- INVENTORIES




Inventories
consists of the following:




June
      30,
              2008
            
            
            December
      31,
              2007Raw
      materials
            
            $
            4,754
            
            
            $
            6,451Work
      in progress
            
            
            —
            
            
            
            —Finished
      goods
            
            
            910,760
            
            
            
            617,156$
            915,514
            
            
            $
            623,607





4 - ACQUISITIONS




BARNETT
HEATING AND AIR CONDITIONING SERVICES, INC.




Effective
January 2, 2007, EKI acquired certain assets of Barnett Heating and Air
Conditioning Services, Inc. (“Barnett”) for $300,000 cash and 600,000 shares of
ENKG common stock (valued at $150,000). Barnett was a heating and air
conditioning service company specializing in the Modesto, California residential
market.




The
identifiable net assets of Barnett at January 2, 2007 (effective date of the
acquisition) acquired by EKI consisted of:





Inventory
            
            $
            40,533Property
      and equipment
            
            
            82,650Customer
      deposits
            
            
            (47,381
            )Identifiable
      net assets
            
            $
            75,802





Goodwill
of $374,198 (excess of the $450,000 purchase price over the $75,802 identifiable
net assets of Barnett acquired) was recorded in January 2007.





The Asset
Purchase Agreement provided that in the event the fair market value on December
31, 2007 of the 600,000 shares of ENKG common stock was less than $150,000, then
EKI shall pay or cause ENKG to pay the Deficit. The agreement further provided
that the Deficit may be paid in cash, shares of ENKG common stock, or any
combination thereof. The Company determined the Deficit to be approximately
$102,000 and accordingly increased goodwill and accrued expenses payable by
$102,000 at December 31, 2007.




GALLAGHER’S
HEATING AND AIR CONDITIONING SERVICES, INC.




On
February 29, 2008, ENKG entered into a merger agreement with Gallagher's Heating
& Air Conditioning, Inc., a California corporation ("Gallagher’s"), and
certain other parties pursuant to which a wholly owned Delaware subsidiary of
ENKG was merged on February 29, 2008 with and into Gallagher’s and ENKG became
the owner of 100% of the issued and outstanding shares of
Gallagher’s.  Pursuant to the merger agreement, the shares of the
former sole stockholder of Gallagher’s were converted upon the effectiveness of
the merger into a combination of cash and promissory notes  as
follows: 1) a cash payment of $500,000; 2)  a promissory note for
$1,586,667; and 3) a convertible promissory note for $2,000,000; for a
total consideration of $4,086,667. Gallagher’s was the surviving corporation in
the merger and upon the effectiveness of the merger Gallagher’s became a
wholly-owned subsidiary of ENKG.




F-9




ENERGY
KING, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
(Unaudited)




Gallagher’s
was founded in 1989 as a residential and light commercial heating and
air-conditioning service company located in Los Molinos, CA. Gallagher’s serves
the Tehama County, CA market as well as the surrounding counties of Butte,
Glenn, Mendocino, Plumas Shasta and Trinity in North Central California.
Gallagher’s currently has 38 employees.




The
identifiable net assets of Gallagher’s at February 29, 2008 (effective date of
the acquisition) acquired by EKI consisted of:





Cash
            
            $
            171,053Accounts
      receivable, net
            
            
            229,575Inventory
            
            
            221,786Prepaid
      and deposits
            
            
            24,767Property
      and equipment, net
            
            
            85,566Intangibles,
      net
            
            
            8,777Other
      assets
            
            
            109,965Accounts
      payable
            
            
            (416,320
            )Warranty
            
            
            (30,903
            )Notes
      payable
            
            
            (173,039
            )Other
      liabilities
            
            
            (115,182
            )Identifiable
      net assets
            
            $
            116,045





Goodwill
of $3,970,622 (excess of the $4,086,667 purchase price over the $116,045
identifiable net assets of Gallagher’s acquired) was recorded in March
2008.




5 -PROPERTY AND
EQUIPMENT




Property
and equipment consists of:




June
      30,
              2008
            
            
            December
      31,
              2007Computers
      and equipment
            
            $
            733,304
            
            
            $
            333,735Vehicles
            
            
            988,733
            
            
            
            455,656Leasehold
      improvements
            
            
            181,540
            
            
            
            156,356Motion
      picture and television properties
            
            
            100,000
            
            
            
            100,000Total
            
            
            2,003,577
            
            
            
            1,045,747Accumulated
      depreciation and amortization
            
            
            (1,303,040
            )
            
            
            (400,119
            )Property
      and equipment, net
            
            $
            700,537
            
            
            $
            645,628




Depreciation
expense of $105,096 and $50,567 was recorded for the six months ended June 30,
2008 and 2007, respectively.




6
-GOODWILL




In most
businesses the Company has acquired, the consideration paid to buy the business
was greater than the value of specifically identifiable net assets in the
business. Under generally accepted accounting principles, this excess is termed
goodwill and is recognized as an asset at the time the business is acquired. It
is generally expected that future net earnings from an acquired business will
exceed the goodwill asset recognized at the time the business is bought. Under
previous generally accepted accounting principles, goodwill was required to be
amortized, or regularly charged to the Company’s operating results in its
statement of operations.




F-10




ENERGY
KING, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
(Unaudited)





SFAS
No. 142, “Goodwill and Other Intangible Assets” requires companies to
assess goodwill asset amounts for impairment each year, and more frequently if
circumstances suggest an impairment may have occurred. Impairment must be
reflected when the value of a given business unit in excess of its tangible net
assets falls below the goodwill asset balance carried for that unit on the
Company’s books. If other business units have had increases in the value of
their respective goodwill balances, such increases may not be recorded under
SFAS No. 142. Accordingly, such increases may not be netted against
impairments at other business units.




The
Company currently performs its annual impairment testing as of December 31
and any impairment charges resulting from this process are reported in the
fourth quarter. The Company segregated its operations into reporting units based
on the degree of operating and financial independence of each unit and the
Company’s related management of them. These reporting units are tested for
impairment by comparing the unit’s fair value to its carrying
value.





The fair
value of each reporting unit was estimated using a discounted cash flow model
combined with market valuation approaches. Significant estimates and assumptions
are used in assessing the fair value of reporting units. These estimates and
assumptions involved future cash flows, growth rates, discount rates, weighted
average cost of capital and estimates of market valuations for each of the
reporting units.




The
Company has not recorded goodwill impairment charges for the six months ended
June 30, 2008 and 2007.




The
changes in the carrying amount of goodwill as of June 30, 2008 are as
follows:




Goodwill
      balance as of December 31, 2005
            
            $
            —Goodwill
      related to share exchange with WWMP
            
            
            —Goodwill
      related to acquisition of Energy King Sacramento
            
            
            2,359,065Impairment
      adjustment
            
            
            —Goodwill
      balance as of December 31, 2006
            
            
            2,359,065Goodwill
      related to acquisition of Barnett assets (see note 4)
            
            
            476,198Impairment
      adjustment
            
            
            —Goodwill
      balance as of December 31, 2007
            
            
            2,835,263Goodwill
      related to acquisition of Gallagher’s (see note 4)
            
            
            3,970,622Impairment
      adjustment
            
            
            —Goodwill
      balance as of June 30, 2008
            
            $
            6,805,885




7 - NOTES PAYABLE AND LONG-TERM
DEBT




Notes
payable and long-term debt consist of:




June
      30,
              2008
            
            December
      31,
              2007Convertible
      Debenture due Trafalgar Capital Specialized Investment Fund (net of
      unamortized discounts of $79,523 and $125,159, respectively), due December
      29, 2009
            
            $
            1,270,477
            
            
            $
            1,344,841Notes
      payable to sellers of EKI (net of unamortized discount of $1,597,676 and
      $1,841,774, respectively) interest of 5%, due January 31,
      2011.
            
            
            1,702,324
            
            
            
            1,458,226Note
      payable to seller of Gallagher’s, interest at 7%, due February 28,
      2010.
            
            
            2,000,000
            
            
            
            -Note
      payable to seller of Gallagher’s, interest at 4.375%, due in monthly
      installments from January 29,2009 to April 29, 2010.
            
            
            1,586,667
            
            
            
            -Note
      payable to investor, interest at 10%, due October 31,
2008.
            
            
            200,000
            
            
            
            200,000




F-11




ENERGY
KING, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
(Unaudited)





Note
      payable to investor, interest at 12%, due October 31,
2008.
            
            
            100,000
            
            
            
            100,000Note
      payable to related party, interest at 24%, due December 31,
      2008.
            
            
            25,000
            
            
            
            25,000Note
      payable to investor, due February 29, 2008.
            
            
            -
            
            
            
            14,478Total
      ENKG
            
            
            6,884,468
            
            
            
            3,142,545HACS
      vehicle loans payable.
            
            
            118,733
            
            
            
            118,733EKI
      notes payable (primarily vehicle loans).
            
            
            87,012
            
            
            
            148,665Gallagher’s
      vehicle loans payable
            
            
            157,932
            
            
            
            -WWMPC
      notes payable
            
            
            18,641
            
            
            
            22,951Total
            
            
            7,266,786
            
            
            
            3,432,894Less
      current portion
            
            
            (1,639,099
            )
            
            
            (922,096
            )Long-term
      debt
            
            $
            5,627,687
            
            
            $
            2,510,798




At June
30, 2008, the Convertible Debenture balance consists of:





Principal
      outstanding
            
            $
            1,350,000Debt
      discounts attributable to the value of warrants issued to
      lender,
              less
      accumulated amortization of $76,927
            
            
            (79,523
            )Balance,
      net of unamortized discounts
            
            $
            1,270,477





In
connection with the private Securities Purchase Agreement with Trafalgar Capital
Specialized Investment Fund, a Luxembourg corporation (“Trafalgar”) dated June
29, 2007 (the “Agreement”) (see Note 8), the Company agreed to grant Trafalgar
warrants to purchase 1,250,000 shares at $0.001 per share and 50,000 warrants to
purchase shares of common stock at each of the first, second and third closing
for each $100,000 in Debentures, exercisable at the lower of $0.07 per share or
the closing bid price of the Registrant’s common stock on the date prior to the
issuance of each warrant. All of the warrants are exercisable for a period of 5
years from the date of issuance. At the first closing of $1,500,000 in September
2007, the Company issued Trafalgar 1,250,000 warrants exercisable at a price of
$.001 per share (valued at $106,125) and 750,000 warrants exercisable at a price
of $.07 per share (valued at $50,325).





In
accordance with Emerging Issues Task Force Issue 00-27, Application of Issue No.
98-5 to Certain Convertible Instruments ("EITF - 00-27"), and EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock” the Company recognized the $156,450 total
value attributable to the warrants as an increase in additional paid-in capital
and a discount against the Debenture.





The
Company valued the warrants in accordance with EITF 00-27 using the
Black-Scholes pricing model and the following assumptions: contractual terms of
five years, an average risk free interest rate of 4.5%, a dividend yield of 0%
and volatility of 100%.




F-12




ENERGY
KING, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
(Unaudited)





At June
30, 2008, the notes payable to sellers of EKI consists of:





Principal
      outstanding
            
            $
            3,300,000Debt
      discounts attributable to the contingent consideration due the sellers of
      EKI, less accumulated amortization of $302,324
            
            
            (1,597,676
            )Balance,
      net of unamortized discounts
            
            $
            1,702,324




On
November 15, 2007, the Company executed amendments to the agreement with the two
sellers of EKI. Pursuant to the amendments, the parties agreed to deem the
Purchase Price Adjustment Amount to be $0 and agreed to extend the maturity date
of the $3,300,000 outstanding notes payable (including the $1,900,000 considered
to be “contingent consideration”) to January 31, 2011. Pursuant to SFAS No. 15,
“Accounting by Debtors and Creditors for Troubled Debt Restructurings,” the
Company is accreting the $1,900,000 increase in notes payable to interest
expense using the interest method over the remaining 38.5 month term of the
notes.




8 -
CONVERTIBLE DEBENTURE





The
Company entered into a private Securities Purchase Agreement with Trafalgar
Capital Specialized Investment Fund, a Luxembourg corporation (“Trafalgar”)
dated June 29, 2007 (the “Agreement”). Pursuant to the Agreement, the Company
agreed to issue to Trafalgar a 10% Secured Convertible Debenture (the
“Debenture”) in the aggregate amount of $5,000,000, to be funded as follows (i)
$1,500,000 on the first closing; $1,750,000 on the second closing; and
$1,750,000 on the third closing.




In
September 2007, the first closing for $1,500,000 occurred. In addition to
interest at 10%, the Agreement (as amended) also provides commencing December
2007, for the Company’s monthly payment of principal (totals of $30,000 in 2007,
$480,000 in 2008 and $990,000 in 2009) and redemption premiums (totals of $1,800
in 2007, $63,600 in 2008, and $251,400 in 2009) equal to 6% of principal
payments in December 2007 and 1% increases each month thereafter until the
Debenture is satisfied in full.





The
Company, at its option, has the right to redeem a portion or all of the
Debenture (provided that the last trading day’s closing bid price of ENKG common
stock is below $0.20 per share) at 120% of the amount redeemed.





The
Debenture is secured by the Company’s assets. In addition, the two principal
shareholders of the Company, co-founders, each pledged 17,857,143 million shares
of common stock which represents more than 50% of their common stock holdings.
The Debenture is convertible into shares of the Company’s common stock at the
lower of $0.20 per share or an amount equal to eighty-five percent (85%) of
the lowest volume weighted average price (“VWAP”) during the ten trading days
immediately preceding the conversion only if the closing bid price or the VWAP
for the Common Stock is at or above $0.20 per share. In the event the Company
defaults on any of its obligations under the Agreement, Trafalgar is
entitled, at its option, to convert the Debenture, plus accrued interest, into
shares of the Registrant’s common stock, even if the closing price or VWAP is
less than $0.20 per share.




In
connection with the Agreement, the Company agreed to grant Trafalgar warrants to
purchase 1,250,000 shares at $0.001 per share and 50,000 warrants to purchase
shares of common stock at each of the first, second and third closing for each
$100,000 in Debentures, exercisable at the lower of $0.07 per share or the
closing bid price of the Company’s common stock on the date prior to the
issuance of each warrant. All of the warrants are exercisable for a period of 5
years from the date of issuance.




The
Company has agreed to register the shares of Common Stock underlying the
conversion of the Debentures and the exercise of the warrants, subject to the
provisions of Rule 415 under the Securities Act of 1933. The Investor
Registration Rights Agreement provides that in the event that the Registration
Statement is not declared effective by the Securities and Exchange Commission
(the “SEC”) on or before the Scheduled Effective Date (December 20, 2007, as
amended), the Company is to pay Trafalgar as liquidated damages an
amount equal to 2% of the outstanding balance for each 30 day period (or
any part thereof) after December 20, 2007 that the Registration Statement is not
declared effective by the SEC. On December 6, 2007, the Company filed a
Registration Statement with the SEC. On February 14, 2008, the Company
filed Amendment No. 1 to the Registration Statement in response to a SEC comment
letter. On April 29, 2008, the Company filed Amendment No. 2 to the Registration
Statement. As of June 30, 2008, failure to cause the Registration Statement to
be declared effective has resulted in total liquidated damages of $264,000, of
which the Company has paid $180,000 in liquidated damages. At June 30, 2008, the
Company has included $84,000 in accrued expenses in the consolidated
balance sheet to reflect the liability at that date. For the six months
ended June 30, 2008, selling, general and administrative expenses include
liquidated damages of $234,000.




F-13




ENERGY
KING, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
(Unaudited)




9
- ACCRUED EXPENSES PAYABLE




Accrued
expenses payable consisted of:




June
      30,
              2008
            
            
            December
      31,
              2007Compensation
      of officers
            
            $
            407,757
            
            
            $
            287,117Other
      compensation, payroll taxes and withholdings
            
            
            265,343
            
            
            
            188,581Interest
            
            
            468,979
            
            
            
            222,314Warranty
      reserve
            
            
            119,839
            
            
            
            81,583Liability
      related to acquisition
            
            
            33,456
            
            
            
            102,000Other
            
            
            329,669
            
            
            
            193,705Total
            
            $
            1,625,043
            
            
            $
            1,075,300





10
- EMPLOYEE BENEFIT PLANS




The
Company provides a qualified deferred arrangement 401(k) plan whereby employees
may contribute up to 25% of gross compensation to the plan. The Company has the
option to match employee contributions up to 4% of the employees’ wages. There
were no Company contributions during the six months ended June 30, 2008 and
2007.




11 - PREFERRED STOCK




From 1988
to 2003, WWMO issued different series of preferred stock, some $.01 par value
and some $10.00 par value, to acquire motion picture and television properties
and to compensate for services. The preferred stock ranks senior to the common
stock in respect of dividends and liquidation rights. Shares of preferred stock
are nonvoting and are not entitled to mandatory dividends. Some series
of preferred stock are convertible into common stock; other series are
not.




On
February 22, 2006, effective March 1, 2006 and pursuant to the Share Exchange
Agreement, WWMO issued 796,869 shares of preferred stock, $.01 par value,
designated Series 06-W, to BVI's two stockholders.





At June
30, 2008, preferred stock consisted of:




Series
            
            Number
      of Shares of
              Preferred
      Stock
            
            
            Number
      of Shares of
              Common
      Stock
              Convertible
      Into$.01
      par value total
            
            975,086
            
            
            255,268$10.00
      par value total
            
            23,000
            
            
            4,000Total
      Preferred Stock
            
            998,086
            
            
            259,268





12 - COMMON STOCK





On April
21, 2008, the Company issued 200,000 restricted shares of its common stock to a
consultant for services rendered and has included the $18,000 estimated fair
value of these shares at April 21, 2008 in selling, general and administrative
expenses in the six months ended June 30, 2008.





On April
21, 2008, the Company issued 796,875 restricted shares of its common stock in
partial settlement of a December 31, 2007 accrued obligation of $102,000. The
shares were issued to the former owner of the Barnett location assets, and the
Company has reduced the liability by the $68,544 estimated fair value of these
shares as of June 30, 2008.





On April
21, 2008, the Company issued 181,818 restricted shares of its common stock,
pursuant to an agreement on April 1, 2008, to a consultant for services rendered
and has included the $20,000 estimated fair value of these shares as a reduction
in accounts payable in the six months ended June 30, 2008.




F-14




ENERGY
KING, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
(Unaudited)




Effective
March 31, 2008, the Company is to issue a total of 1,400,000 restricted shares
of its common stock to two Company Officers pursuant to executed employment
agreements effective January 1, 2008 (see Note 15). The Company has included the
$123,200 estimated fair value of these shares at March 31, 2008 in selling,
general and administrative expense in the six months ended June 30,
2008.




On
January 28, 2008, the Company issued 1,000,000 restricted shares of its common
stock to a consultant for services rendered and has included the $40,000
estimated fair value of these shares at January 28, 2008 in selling, general and
administrative expenses in the six months ended June 30, 2008.





On June
28, 2007, the Company issued a total of 3,000,000 shares of its common stock to
the two former Energy King, Inc. (EKI) stockholders. 2,500,000 shares were
issued to one of the former EKI stockholders in satisfaction of $500,000 in
notes payable to him and 500,000 shares of the Company’s common stock were
issued to the other former EKI stockholder in satisfaction of $100,000 in notes
payable to this joint tenancy.




On June
28, 2007, the Company issued a total of 2,040,000 Units of the Company’s
securities to five investors in satisfaction of $510,000 in notes payable to
such investors. Each Unit is comprised of one share of the Company’s common
stock and three warrants, each warrant exercisable into one share of common
stock at a price of $0.05 per share and expiring at dates ranging from June 21,
2008 to September 14, 2008.




On March
31, 2007, the Company issued 400,000 shares of its common stock to an investor
it was indebted to under a note payable in the amount of $162,530 at December
31, 2006. Pursuant to a verbal agreement, the note payable to this investor was
to be reduced by amounts realized from this investor’s sale of the 400,000
shares. Through September 30, 2007, this investor sold 160,900 shares of the
Company’s common stock for net proceeds of $21,025. In October 2007, the Company
repaid the remaining balance due this investor less an agreed reduction of
$23,910 for the 239,100 unsold shares.





On
January 8, 2007, the Company issued 1,000,000 shares of its common stock to
WWMPC. Since WWMPC is a wholly owned subsidiary of ENKG, this transaction was
not reflected at the date of issuance. In the three months ended June 30, 2007,
WWMPC delivered 230,000 of the 1,000,000 shares to third parties for
certain services to be rendered to WWMPC. The Company has reflected the $23,000
estimated fair value of the 230,000 shares of its common stock as an increase in
selling, general and administrative expenses.




13 - INCOME TAXES




ENKG
files a consolidated income tax return with its subsidiaries for federal
reporting purposes with subsidiaries filing separate income tax returns for
state reporting purposes.





The
provision for income taxes consists of the following:




Six
      Months EndedJune
      30,
              2008
            
            
            June
      30,
              2007Current—Federal
            
            $
            —
            
            
            $
            —State
            
            
            2,400
            
            
            
            3,039Total
      current
            
            
            2,400
            
            
            
            3,039




Deferred—Federal
            
            
            (654,075
            )
            
            
            3,411State
            
            
            (201,940
            )
            
            
            1,053Valuation
      allowance
            
            
            856,015
            
            
            
            (4,464
            )Total
      deferred
            
            
            —
            
            
            
            —Total
      income taxes
            
            $
            2,400
            
            
            $
            3,039




F-15




ENERGY
KING, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
(Unaudited)




A
reconciliation of the expected income tax expense (benefit) to reported income
taxes follows:




Six
      Months EndedJune
      30,
              2008
            
            
            June
      30,
              2007Federal
      income tax at 34%
            
            
            (722,734
            )
            
            
            3,769State
      income tax, net
            
            
            (130,881
            )
            
            
            3,734Change
      in valuation allowance
            
            
            856,015
            
            
            
            (4,464
            )Total
            
            $
            2,400
            
            
            $
            3,039




Management
has not determined it to be more likely than not that any portion of the
deferred tax asset attributable to the future utilization of the net operating
loss carryforwards as of June 30, 2008 will be realized. Accordingly, the
Company has provided a 100% allowance against the deferred tax asset in the
financial statements at June 30, 2008. The Company will continue to review this
valuation allowance and make adjustments as appropriate. The net operating
loss carryforwards are available in varying amounts through year 2028 to offset
future taxable income. Current tax laws limit the amount of loss available to be
offset against future taxable income when a substantial change in ownership
occurs. Therefore, the amount available to offset future taxable income may be
limited.




14 - COMMITMENTS AND
CONTINGENCIES




Operating
leases:




ENKG
leased its office space (approximately 400 square feet) under a
non-cancelable lease agreement executed June 12, 2006 and which expired December
31, 2007. The lease has been continued as a month-to-month lease agreement
executed on January 3, 2008. The lease provides for monthly rental payments of
$2,038.




HACS
leases its office space (approximately 12,000 square feet) under a
non-cancelable lease agreement executed January 26, 2005 with a lessor partially
owned by the General Manager of HACS. The lease provides for monthly rental
payments of $7,500 through January 2010. EKI leases its office space
(approximately 4,000 square feet) under a month-to-month lease with a rental of
$2,700 per month at Sacramento and $1,800 per month for its Riverbank
operations, and negotiations are underway to extend the leases. WWMPC leases its
office space under a one year lease expiring December 2007 at rentals of $776
per month and has been extended on a month-to-month basis. HACS leases truck
vehicles under month to month lease agreements.




Gallagher’s
Heating and Air Conditioning (GHAC) rents its Los Molinos, CA facility
(approximately 4,000 square feet) from Tim Gallagher at $2,500 per month. The
lease is through December 31, 2009. GHAC rents a facility in Yuba City, CA
(approximately 2,000 square feet) at $1,900 per month on a month-to-month
lease.





For the
six months ended June 30, 2008 and 2007, rent expense under operating leases
consisted of:




June
      30,
              2008
            
            
            June
      30,
              2007ENKG
      Corporate office space
            
            $
            13,788
            
            
            $
            13,120HVAC
      office space
            
            
            96,073
            
            
            
            58,500HVAC
      truck vehicles
            
            
            51,684
            
            
            
            17,946WWMPC
      office space
            
            
            5,390
            
            
            
            7,259Total
            
            $
            166,935
            
            
            $
            96,825




F-16




ENERGY
KING, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
(Unaudited)





At
December 31, 2007, the aggregate future minimum lease payments under
non-cancelable lease agreements were as follows:




Year Ended December 31,
            
            Operating
            
            
            Capital2008
            
            $
            152,075
            
            
            $
            13,0562009
            
            
            137,326
            
            
            
            12,1602010
            
            
            27,014
            
            
            
            13,2852011
            
            
            4,798
            
            
            
            14,5132012
            
            
            —
            
            
            
            14,254Total
      Future Minimum Payments
            
            $
            321,213
            
            
            
            67,268Less:
      Executory and Interest Costs
            
            
            
            
            
            
            20,287Net
      Present Value of Future Minimum Lease Payments
            
            
            
            
            
            $
            46,981




Employment
Agreements:




On
February 29, 2008, ENKG entered into an employment agreement with Tim Gallagher
as its General Manger of Gallagher’s operations. The term of the agreement is
from February 29, 2008 through December 31, 2009 at an annual salary of
$150,000.





On April
1, 2008, ENKG entered into an employment agreement with its Vice President of
Operations with an effective date of January 1, 2008. The agreement runs through
December 31, 2009. His salary is set at $120,000 per year with a 5% minimum
annual increase each January 1st. Pursuant to the agreement, the employee is to
receive 700,000 shares of ENKG common stock effective March 31, 2008 and subject
to completion of certain conditions be awarded stock options to purchase up to
3,000,000 shares of ENKG common stock at prices ranging from $0.25 to $0.50 per
share.





On April
1, 2008, ENKG entered into an employment agreement with its Vice President and
Chief Financial Officer with an effective date of January 1, 2008. The agreement
runs through December 31, 2009. His salary is set at $120,000 per year with a 5%
minimum annual increase each January 1st. Pursuant to the agreement, the
employee is to receive 700,000 shares of ENKG common stock effective March 31,
2008 and subject to completion of certain conditions be awarded stock options to
purchase up to 3,000,000 shares of ENKG common stock at prices ranging from
$0.25 to $0.50 per share.





On May
23, 2008, Mr. Jeffrey R. Hultman, was appointed by the Board as CEO, pursuant to
meetings of Board members and executives, interviews by Board members and a
Board vote held May 17, 2008 for a term of two years. Mr. Hultman will
receive cash compensation for his services as CEO in the amount of $175,000
annually.  Cash compensation shall be accrued until a financing of at
least $2,000,000 (“Financing”) is completed. In addition, Mr. Hultman will
receive (1) employee stock options to purchase shares of the Company’s common
stock pursuant to a to be approved Company Stock Option Plan ("Plan"), with
an exercise price equal to the closing price of the Company’s common stock on
the grant date of the option, as reported by the OTC Bulletin Board, and (2)
options to purchase shares of the Company’s common stock equal to 5.0% of the
outstanding Common Shares after the Financing is completed. These options
shall vest over a three-year period with 1/12 of the total vesting on the last
day of each quarter starting from the Effective Date of the employment
agreement.  Vested shares subject to the options will be subject to
the terms and conditions of the Plan and any associated stock option
agreement.




Contingency:




Claims
and Lawsuits




The
Company is subject to certain claims and lawsuits arising in the normal course
of business. The Company maintains various insurance coverages to minimize
financial risk associated with these claims.




The
Company estimates and provides accruals for probable losses and related legal
fees associated with litigation. While the Company cannot predict the outcome of
proceedings, in management’s opinion and based on reports of counsel, any
liability arising from these matters individually and in the aggregate will not
have a material effect on the Company’s operating results or financial
condition, after giving effect to provisions already recorded.




F-17




ENERGY
KING, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
(Unaudited)




15– SUBSEQUENT EVENT





Effective
July 1, 2008, ENKG sold WWMPC for $1. The loss on sale of WWMPC will be included
in discontinued operations in the three months ended September 30, 2008 and,
excluding disputed items, is expected to approximate $45,758, as
follows:




Sale
      price
            
            $
            1Net
      assets of WWMPC at June 30, 2008:Cash
      and cash equivalents
            
            
            112,511Property
      and equipment, net
            
            
            80,504Accounts
      payable
            
            
            (3,025
            )Accrued
      expenses
            
            
            (21,880
            )Current
      portion of notes payable and long-term debt
            
            
            (18,641
            )Customer
      deposits and deferred revenue
            
            
            (140,000
            )Notes
      payable and long-term debt, net of current portion
            
            
            (3,750
            )Net
      assets
            
            
            5,719Fair
      value of 770,000 shares of ENKG common stock at July 1, 2008 (to be
      retained by WWMPC) (see note 12)
            
            
            40,040Expected
      loss on sale of WWMPC
            
            $
            (45,758
            )




WWMPC and
Paul Hancock have advised ENKG that ENKG is and has been obligated to pay Paul
Hancock a monthly salary (ranging from $9,166 to $15,833 per month through
February 28, 2012) pursuant to an amended Employment Contract dated March 1,
2006. WWMPC also has advised ENKG that ENKG is and has been obligated to pay
WWMPC a monthly expense allowance ($6,500 per month through February 28,
2012) pursuant to an Operating Agreement dated March 1, 2006. ENKG advised WWMPC
and Paul Hancock that, commencing January 1, 2008, ENKG was no longer
responsible for such payments. The total disputed amount at June 30, 2008, which
has not been accrued, is approximately $100,000. Further, WWMPC has advised ENKG
that ENKG is obligated to issue and deliver an additional 2,000,000 shares of
ENKG common stock to WWMPC pursuant to the Operating Agreement dated March 1,
2006 (which ENKG disputes).





On July
2, 2008, the Company issued 2,000,475 shares of its restricted common stock in
settlement of liabilities accrued at December 31, 2007.




16– RESTATEMENT OF PREVIOIUSLY ISSUED
FINANCIAL STATEMENTS





The
Company has restated its consolidated financial statements at December 31, 2007
and for the year then ended (which were previously included in the Company’s
Form 10-KSB filed with the SEC on March 31, 2008) in order to correct an error
relating to the accounting for the November 15, 2007 amendments to the agreement
with the two sellers of EKI (see note 7).





As
previously reported, the Company recorded the November 15, 2007 resolution of
the $1,900,000 contingent consideration (and extension of the maturity date of
the outstanding notes payable) relating to the EKI acquisition as a $1,900,000
addition to goodwill and notes payable. As restated, pursuant to SFAS No. 15,
the Company reflected the $1,900,000 as a discount on the notes payable and has
accreted $58,226 (of the $1,900,000) as interest expense for the period November
15, 2007 (date of amendments) to December 31, 2007.




F-18




ENERGY
KING, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
(Unaudited)




The
effect of the restatement adjustments on the consolidated balance sheet at
December 31, 2007 follows:




As
      Previously Reported
            
            
            Adjustments
            
            
            As
      RestatedASSETSTotal
      current assets
            
            $
            2,796,074
            
            
            $
            --
            
            
            $
            2,796,074Goodwill
            
            
            4,735,263
            
            
            
            (1,900,000
            )
            
            
            2,835,263Other
      non-current assets
            
            
            830,777
            
            
            
            --
            
            
            
            830,777Total
      assets
            
            $
            8,362,114
            
            
            $
            (1,900,000
            )
            
            $
            6,462,114LIABILITIES AND STOCKHOLDERS'
      EQUITYTotal
      current liabilities
            
            $
            3,487,835
            
            
            $
            --
            
            
            $
            3,487,835Notes
      payable and long-term debt, net of current portion
            
            
            4,352,572
            
            
            
            (1,841,774
            )
            
            
            2,510,798Total
      liabilities
            
            
            7,840,407
            
            
            
            (1,841,774
            )
            
            
            5,998,633Stockholders'
      equity
            
            
            521,707
            
            
            
            (58,226
            )
            
            
            463,481Total
      liabilities and stockholders' equity
            
            $
            8,362,114
            
            
            $
            (1,900,000
            )
            
            $
            6,462,114




F-19




Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations




Management's
discussion and analysis of financial condition and results of operations should
be read in conjunction with the consolidated financial statements and related
notes. This discussion may contain forward-looking statements that could involve
risks and uncertainties.





DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS AND MANAGEMENT'S STATEMENT REGARDING
INTERIM PERIOD ADJUSTMENTS




The
statements which are not historical facts contained in this Form 10-Q are
"forward looking statements" that involve risks and uncertainties. The words
"anticipate", "believes", "expect", "intend", "may" or similar expressions used
in this Form 10-Q as they relate to the Company or its Management are generally
intended to identify such forward looking statements. These risks and
uncertainties contained in this Form 10-Q include but are not limited to,
product demand and market acceptance risks, the effect of economic conditions
generally and retail/wholesale in the heating, ventilation, air conditioning,
plumbing, motion picture and television industry and marketing conditions
specifically, the impact of competition, labor shortages, increase in wage
rates, unexpected increases in general operating costs, technological
difficulties, capacity and supply constraints or difficulties, the results of
financing efforts, changes in consumer preferences and trends, the effect of the
Company's accounting policies, weather conditions, acts of God, and other risks
detailed in the Company's Securities and Exchange Commission filings. The
Company's management has made all the adjustments relative to the fiscal year
end statements and the interim period herein, which in the opinion of
management are necessary in order to make the financial statements and any
forward looking statements not misleading.





Forward-looking
statements are based on current information and expectations and are made in
good faith but we assume no obligation to update them at any stage. Therefore,
our actual experience and results achieved during the period covered by any
particular forward-looking statement may differ substantially from those
anticipated. Consequently, the inclusion of forward-looking statements should
not be regarded as a representation by us or any other person that these
estimates will be realized, and actual results may vary materially. We cannot
offer any assurance that any of these expectations will be realized or that any
of the forward-looking statements contained herein will prove to be
accurate.





RESULTS
OF OPERATIONS




Comparison
of Results of Operations for the six months ended June 30, 2008 and
2007




CONSOLIDATED
OVERVIEW




Energy
King (the "Company") reported consolidated revenues of $7,993,974 for the first
six months of 2008 which is an increase of 13.3% or $943,079 over the $7,051,576
reported in the first six months of 2007.  This second quarter of 2008
continues to reflect the economic concerns of residential homeowners across the
country. On February 29, 2008, Galalgher’s Heating and Air Conditioning, Inc.
(GHAC) was acquired. It is located in Los Molinos, CA which is about 2
hours north east of Sacramento, CA. GHAC is now expected to bring approximately
$4.5 million in revenues to the company in 2008. The Company expects revenue
growth to continue in proportion to future acquisitions’ revenue streams. The
heating ventilation and air conditioning (HVAC) industry has cyclical
components. Sales traditionally decline in the middle of the fourth quarter
through the first quarter of the new year. The Company believes that positive
factors such as greater consumer awareness of energy conservation through better
HVAC equipment utilization as well as higher consumer confidence and increased
home sales will help it overcome rising fuel costs. The Company continues to
remain focused on acquisitions, top-line sales growth, and increased customer
retention. With the opportunity of combining locally acquired HVAC businesses in
specific regions across the United States with the logo and name Energy King, a
nationally recognized brand name is getting closer to reality.




OPERATIONS
REVIEW




Currently
there are five operational HVAC locations providing direct HVAC installation and
repair services; Heating & Air Conditioning Services, Inc. ("HACS") and
Energy King, Inc.-Sacramento, California ("EKIS"), Energy King, Inc.’s Barnett
Heating and Air near Modesto, California (“EKIB”), Energy King, Inc.-Fresno,
California ("EKIS"), and Gallagher’s Heating and Air Conditioning, Inc. in Los
Molinos, CA.









20




The HVAC
operations reflect the seasonal nature of heating and cooling. Overall, the
integration plan used with HACS is providing positive operational results there
as well as with the California locations. The same plan will be tailored to
future acquisitions to improve marketing, administration and sales efforts. The
integration plan is comprised of a team of professionals with experience in the
HVAC industry who work with the acquired company's management and field staff to
develop and train their people in techniques to improve sales. Key components of
the integration include, standardized reporting of operations, customer
awareness and support, lead generation and follow through, focused marketing,
employee training and pricing strategies. The following table illustrates the
performance of each HVAC location through the first six months of 2008.





Six
      months Ended June 30, 2008HVAC
            
            101
              HACS
            
            
            102
              EKIS
            
            
            103
              EKIB
            
            
            104
              EKIF
            
            
            105
              GHAC-LM
            
            
            TOTAL
      HVACRevenues
            
            $
            2,222,516
            
            
            $
            2,225,649
            
            
            $
            1,400,445
            
            
            $
            248,358
            
            
            $
            1,897,006
            
            
            $
            7,993,974Gross
      Profit
            
            
            537,589
            
            
            
            847,967
            
            
            
            469,899
            
            
            
            94,407
            
            
            
            905,190
            
            
            
            2,855,052Gross
      Profit Percentage
            
            
            24.2%
            
            
            
            38.1%
            
            
            
            33.6%
            
            
            
            38.0%
            
            
            
            47.7%
            
            
            
            35.7%Income
      (Loss) from Operations
            
            
            68,487
            
            
            $
            13,224
            
            
            $
            (91,101
            )
            
            $
            (3,548
            )
            
            $
            151,525
            
            
            $
            138,587Income
      (Loss) from Operations Percentage of Revenues
            
            
            3.1%
            
            
            
            .6%
            
            
            
            -6.5%
            
            
            
            -1.4%
            
            
            
            7.9%
            
            
            
            1.7%




Sales of
the HVAC operations continue to increase. With the upcoming hotter weather
throughout the United States, all locations are expected to improve their
revenues and net income from operations starting with Spring through the Summer.
The introduction of windows as a product available through HVAC in California
have shown unexpected acceptance and sales. The windows that are offered help
insulate the home thereby saving on heating and cooling bills. We are looking to
improve theGreen image
of our HVAC operations through windows and other similar energy conservation
measures. Offering more energy saving air conditioning units along with similar
green heating units will improve the image of the Company and the industry.
While helping increase sales through theGreen approach for our
customers, we are looking to make a positive difference in the environment as
well.




The
following table presents selected HVAC, MEDIA, Corporate and Consolidated
financial data for the period indicated.




Six
      months Ended June 30, 2008HVAC
            
            
            Media
            
            
            Corporate
            
            
            ConsolidatedRevenues
            
            $
            7,993,974
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            7,993,974COS
      and expenses
            
            
            7,855,387
            
            
            
            110,801
            
            
            
            1,391,714
            
            
            
            9,357,902Income
      (Loss) from Operations
            
            
            138,587
            
            
            
            (110,801
            )
            
            
            (1,391,714
            )
            
            
            (1,363,928
            )Cash
      and cash equivalents
            
            
            (1,547
            )
            
            
            112,511
            
            
            
            161,742
            
            
            
            272,706Current
      assets
            
            
            1,949,755
            
            
            
            112,511
            
            
            
            233,491
            
            
            
            2,295,757Total
      assets
            
            
            5,024,395
            
            
            
            193,015
            
            
            
            4,904,235
            
            
            
            10,121,645Current
      liabilities
            
            
            2,756,640
            
            
            
            183,546
            
            
            
            2,948,636
            
            
            
            5,888,822Total
      liabilities
            
            $
            3,579,810
            
            
            $
            187,296
            
            
            $
            7,749,403
            
            
            $
            11,516,509




Consolidated
loss from operations for the first six months of 2008 is at 26.6% of net sales.
The additional $439,993 loss from operations in the second quarter of 2008 is a
45.1% increase over the first quarter this year. HVAC operations over came its
first quarter loss of $245,418 to show a six month net income of
$138,587.





Sales
increased $1,201,445 in the first six months of 2008 compared to the same period
of 2007. This 30.3% increase is driven by the acquisition of Gallagher’s Heating
and Air.





Cost of
services increased $6.1% during the first six months of 2008 over the same
period in 2007. Although sales have increased, the cost of producing those sales
has as well. The cost of fuel that made the greatest impact by increasing 42.1%
in the firs six months of 2008 as compared to the same time period in 2007. The
HVAC operations absorbed most increases in costs to secure new sales. A focused
effort on cost controls and strategic vendor alliances has helped reduce the
effect of the apparent economic downturn. With more acquisitions and greater
economies of scales, management is confident that future such economic obstacles
can be more easily absorbed.




21


Marketing
and selling expenses increased to 11.6% of net revenues in the first six months
of 2008 as compared to 8.7% for the same period in 2007. The impact of this
increased marketing effort per dollar of sales is generating returns. Of the
variety of marketing efforts used, approximately 71% of all marketing funds went
to a combination of television, yellow pages, direct mailing, radio and
newspaper efforts.





General
and administrative (G&A) expenses increased approximately 10.3% in the first
six months of 2008 over the same period of 2007, and represents 36.5% of net
revenues in the second quarter of 2008 as compared with the first six months of
the year in 2007 where G&A expenses represented only 26.3% of revenues.
Non-cost-of-service salaries and related costs were 20.1% of revenues in the
first six months of 2008 and right at 16% for the same period in 2007.
Accounting, legal and other professional costs increased from 2.8% to 5.2% of
revenues in the second quarter of 2008 compared to the same period in 2007. As a
percent of total G&A expenses, rent has remained stead at about 1% of
revenues in the first six months of both 2008 & 2007. Insurance has also
remained stead at about 2% of revenues in the first six months of both 2008
& 2007.




Interest
expense increased $632,203 to $787,874 in the second quarter of 2008 or just
under 10% of revenues through the first six months of 2008 as compared to only
2.2% for the same period in2007. The increase in interest expense is primarily
impacted by interest on debt in 2008 that did not exist in the same period of
2008 and accounting charges related to amended acquisition agreements on
November 15, 2007.




In the
midst of declining sales in the first quarter of 2008, Energy King increased its
marketing efforts, maintained its level of salesmen, technicians and installers
and has emerged in the second quarter of 2008 with increased HVAC sales and
profits. With management’s philosophy of controlling costs of services as well
as selling, general and administrative expenses, the efficacy of Energy King’s
business philosophy is strong. It is a philosophy designed to bring proven
techniques for increasing leads which result in sales. A philosophy of cost
controls and cost consciousness at all levels of the company. Energy King
practices a philosophy of training the salesmen, installers and technicians in
better techniques. The soundness of the Energy King mission is
clear.




At
Energy King, our mission is to become the leading national brand of residential
comfort services contractors by acquiring the industry's most outstanding
operators, sharing best practices, offering the most ethical and professional
services and providing solutions that meet our customers' needs and exceed
their expectations.




22




General




The terms
“Energy King,” “ENKG,” ”EKI,” “Buckeye Ventures,” “BEYV,” ”BVI,” “we,” “us,” or
“the Company” refer to Energy King, Inc. and its consolidated subsidiaries, as
appropriate in the context.




Energy
King, Inc. was formed in July 2005 for the purpose of becoming a consolidator of
independent local and regional providers of residential heating, ventilating,
air conditioning and plumbing ("HVAC/Plumbing") services and replacement
equipment through the United States.




The
Company's goal is to become a leading HVAC/Plumbing service provider in each of
the markets in which it operates or will operate. The Company's management is
comprised of executives and operators with extensive experience in the
HVAC/Plumbing industry generally as well as experience in HVAC/Plumbing service
consolidation, management and operations, including large multi-location,
national, regional and local HVAC/Plumbing companies.




The
Company believes that by pursuing its plan of combining local and regional
HVAC/Plumbing service providers into a well-managed national organization, the
Company should be able to create a national HVAC/Plumbing service provider with
brand name recognition throughout the HVAC/Plumbing service industry. We believe
that with national recognition the Company will be able to strengthen and
consolidate its customer bases and improve overall operating efficiency,
utilizing centralized management expertise and strong local presences in each
market.




Energy
King, Inc., a Nevada corporation, provides comprehensive heating,
ventilation and air conditioning (“HVAC”) installation, maintenance, repair and
replacement services within the mechanical services industry in 5 locations in
the United States. We operate primarily in the residential HVAC markets, and
perform most of our services within residential homes. In addition to standard
HVAC services, certain locations also provide specialized applications such as
improved home insulation through window installations. Approximately 80% of our
consolidated revenues were derived from residential installation customers with
approximately 15% of the revenues attributable to maintenance, repair and
replacement services and 5% attributable to windows installation.




Buckeye
Ventures, Inc. ("BEYV") was incorporated in Michigan under the name World Wide
Motion Pictures Corporation ("WWMO") on December 9, 1980. Pursuant to a Share
Exchange Agreement dated October 14, 2005 (which closed February 22, 2006,
effective March 1, 2006), BEYV (then known as WWMO) acquired Buckeye Ventures,
Inc. ("BVI") in a "reverse acquisition" transaction and accordingly the trading
symbol was changed from WWMO to BEYV in April 2006.




BVI was
incorporated in Nevada on June 24, 2005 for the purpose of acquiring and
operating businesses in the heating, ventilation and air conditioning ("HVAC")
and plumbing service industries. On September 22, 2005 (effective July 31,
2005), BVI acquired its first HVAC subsidiary located in the Boston, MA
region.





Effective
February 15, 2008, Buckeye Ventures, Inc. officially changed its name to Energy
King, Inc. and accordingly the trading symbol was changed from BEYV to ENKG to
better reflect the new name.





Our
present and future focus is on the HVAC service and replacement markets for
residential and small commercial customers because it is our management's
belief, based upon years of industry experience, that the service and
replacement market offers higher margins and exposes us to a reduced
level of credit risk compared to the levels of risk usually associated with
larger scale new construction projects. In addition, we believe that the
HVAC/Plumbing service and replacement market offers more attractive pricing due
to demands by both residential and small commercial customers in local markets
for prompt, convenient and reliable service that can be offered by local
HVAC/Plumbing service providers.




Our
Internet address ishttp://www.enkg.com. We make available free of charge on or through our
website our annual report on Form 10-KSB, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the Securities and Exchange Commission, or
the Commission.




23




GENERAL
DESCRIPTION OF THE HEATING, VENTILATION AND AIR CONDITIONG SERVICES
INDUSTRY




The
HVAC/Plumbing service industry is highly fragmented and the Company estimates,
based upon industry data, that there are at least 80,000 HVAC/Plumbing companies
in the US, mostly privately held companies that operate from a single location.
We believe based upon published industry data estimates that the market for the
service and replacement of HVAC/Plumbing systems in existing homes is in
excess of $50 billion annually.




Generally,
local HVAC/Plumbing companies are small, owner-operated, independent contractors
who serve customers in local markets, with limited access to capital for
investment in infrastructure, technology and expansion. We believe that
HVAC/Plumbing businesses are typically closely-held, single-center operators
that serve a limited geographic area and are heavily dependent upon referrals
to generate business. We also believe that, in many cases, these
small-sized service providers are operated by former service technicians who
lack the management experience and marketing expertise necessary to expand their
businesses, generate profitable operations and compete effectively with larger
operators in their local market as well as regional operators competing in their
market.




Our
management believes that larger HVAC/Plumbing contractors are generally better
able to operate efficiently and cost-effectively, offer customers a broader
array of HVAC/Plumbing related products and services and provide a higher level
of customer service than smaller operators. We believe that these competitive
advantages are the result of greater managerial and financial resources as well
as economies of scale in purchasing and marketing expenses, which factors should
enable us to promote a trend toward consolidation in the HVAC/Plumbing industry
and present an opportunity for well-capitalized operators, including
public companies such as us, to acquire additional operators on favorable
terms.





At
present, we serve the greater Sacramento, Los Molinos, Modesto, and Fresno, CA
and Boston, MA metropolitan area markets, principally providing renovation and
replacement service to residential and small business customers rather than new
construction HVAC/Plumbing installations. It is the view of our management,
based upon their experience and continuing HVAC/Plumbing industry analysis, that
many metropolitan and suburban areas in the U.S. have experienced significant
growth in residential HVAC/Plumbing renovation and replacement activity over the
last several years as a result of the past several years of strong residential
housing market nationally. We believe, even with the recent slowing in new
residential construction and the slowing of sale price increases in
residential home that the demographic trends indicate continued growth in the
areas of HVAC/Plumbing renovation and replacement as homeowners seek ways to add
value to their homes.




The
HVAC/Plumbing service industry is influenced by seasonal factors, which
generally result in lower activity during winter months than in other periods.
This factor is especially apparent in northern and mid-western regions of the
U.S. As a result, we expect that revenues and profits from our Sacramento, Los
Molinos, Modesto, and Fresno, CA and Boston, MA area operations and other such
markets in which we make acquisitions will generally be lower in the first and
fourth quarters of each fiscal year, and higher in the second and third
quarters. As we make acquisitions in the south and southwest areas of the U.S.,
seasonal factors will become less apparent in our consolidated
operations.




HVAC
systems provide the primary method of circulating fresh air in residences during
peak periods of heat and cold climate conditions. In many instances, replacing
an aging system with a modern, energy-efficient HVAC system significantly
reduces a home's heating and cooling costs and improves air quality and HVAC
system effectiveness. Older residential HVAC systems often have poor air quality
as well as inadequate air conditioning, and older HVAC systems result in
significantly higher energy costs than do modern systems. These factors cause
many residential owners to consider replacing older systems before the end
of their functioning lives. More than fifty percent of the HVAC systems replaced
are operational at the time of replacement.




Many
factors positively affect HVAC industry growth, particularly (i) population
growth, which has increased the need for residential space, (ii) an aging
installed base of HVAC equipment, (iii) increasing sophistication,
complexity, and efficiency of HVAC systems, (iv) growing emphasis on indoor
air quality, (v) reduction or elimination of the refrigerants commonly used
in older HVAC systems, and (vi) increasingly stringent regulations on minimum
HVAC and house ducting systems efficiency standards. We believe these factors
should increase demand for the reconfiguration or replacement of existing
HVAC systems and may also mitigate, to some extent, the effect on the HVAC
industry of the cyclicality inherent in the traditional construction
industry.




HVAC/PLUMBING
SERVICES




HVAC. At present, we offer HVAC
replacement and renovation services with operations and facilities in the
Sacramento, Los Molinos, Modesto, and Fresno, CA and Boston, MA metropolitan
areas, respectively. To date these operations have generated nearly all of our
revenues. HVAC systems typically involve air duct systems and air-handling and
condenser equipment. Other equipment components of an HVAC system include:
heaters, furnaces, condensers, air handlers and blowers. A typical HVAC
replacement project for residential or small commercial projects begins with a
thorough inspection of the current equipment. Engineering calculations are
performed to determine the appropriate replacement equipment. In most cases, the
air-handling equipment and condensing equipment are replaced as well as the
refrigeration lines. When necessary, duct repairs and modifications are also
made.




24





Maintenance,
Repair and Replacement. Maintenance and repair
contracting services are generally provided on a fee per visit basis. In
addition, we provide our customers with service contracts which generally have
an annual fee with additional sums due for certain products and services.
Revenues generated from repair and maintenance contracting services historically
represent a small portion of the overall revenue of the Company.




Windows. As we acquire new
HVAC/Plumbing service providers, our window replacement services will involve
the replacement of residential windows with more energy efficient models to
provide a better seal for the residential structure. Having a better seal makes
the residence more energy efficient by cutting down on heat loss in
winter operation and heat gains in summer operation thus providing cost savings
to the homeowner. The offering of energy efficient windows in tandem with HVAC
systems enhances the Company's presentation to the homeowner as a provider of a
more complete energy solution





Plumbing. We anticipate a strong
synergy between HVAC operations and plumbing. As we acquire new HVAC/Plumbing
service providers, our plumbing services will involve the repair of residential
plumbing systems that convey domestic water throughout a home or supply natural
gas to various equipment or appliances, as well as the repair and replacement of
heaters, boilers, ovens and stoves, and kitchen and bathroom equipment. A
domestic water system typically includes separate piping for hot and cold water
as well as a number of fixtures including sinks, bathtubs, showers and hot tubs.
Substantially all of the equipment and component parts we will install are
purchased from third-party wholesale suppliers or directly from the
manufacturers or "OEMs", which equipment and components will be resold to our
customers as part of the contracted installation and repairs.





Governmental
Regulation and Environmental Matters




Our
operations are subject to various federal, state and local laws and regulations,
including: (i) licensing requirements applicable to engineering,
construction and service technicians, (ii) building and HVAC codes and
zoning ordinances, (iii) regulations relating to consumer protection,
including those governing residential service agreements, and
(iv) regulations relating to worker safety and protection of the
environment. We believe we have all required licenses to conduct our operations
and are in substantial compliance with applicable regulatory requirements. If we
fail to comply with applicable regulations we could be subject to substantial
fines or revocation of our operating licenses.




Many
state and local regulations governing the HVAC services trades require
individuals to hold permits and licenses. In some cases, a required permit or
license held by a single individual may be sufficient to authorize specified
activities for all of our service technicians who work in the state or county
that issued the permit or license. We seek to ensure that, where possible, we
have two employees who hold any such permits or licenses that may be
material to our operations in a particular geographic region.




Our
operations are subject to the federal Clean Air Act, as amended, which governs
air emissions and imposes specific requirements on the use and handling of
chlorofluorocarbons, or CFCs, and certain other refrigerants. Clean Air Act
regulations require the certification of service technicians involved in the
service or repair of equipment containing these refrigerants and also regulate
the containment and recycling of these refrigerants. These requirements have
increased our training expenses and expenditures for containment and recycling
equipment. The Clean Air Act is intended ultimately to eliminate the use of CFCs
in the United States and to require alternative refrigerants to be used in
replacement HVAC systems. We do not believe these regulations involving CFCs
will materially affect our business on the whole because, although they require
us to incur modest ongoing training costs, our competitors also incur such
costs, and the regulations may encourage our customers to update their HVAC
systems.




INTERNAL
AND EXTERNAL SOURCES OF LIQUIDITY AND CAPITAL RESOURCES




For the
six months ended June 30, 2008, the Company experienced a net loss of $2,128,089
after net loss from operations of $1,363,928. At June 30, 2008, the Company had
$272,706 in cash and no cash equivalents.





With the
highest HVAC season ending in mid-September, cash flow is a concern to the
company. The Northeastern part of the country will likely experience an increase
in sales for the winter months starting in mid-October into December. This
seasonal increase is not as prevalent for existing operations in California. In
October 2008, the Company has a $200,000 note maturing. In January 2009, the
Company has increased cash needs of $100,000 per month related to the
acquisition of Gallagher’s and debt repayment. Also, the Trafalgar debt
repayment has escalating payment amounts through its maturity in December
2009. Consequently, management is seeking alternative funding sources and
analyzing operational levels to plan for the anticipated decrease in sales after
September 2008.




The
Company currently has concerns that its existing capital resources may be
inadequate to satisfy its capital requirements for the foreseeable future.
Therefore, to accomplish its planned future activities, it will need to acquire
additional funds through public or private financings in the form of debt or
equity. If the Company fails in its efforts to acquire additional funds, the
Company will be faced with the probability of major reductions in all expense
categories starting with the fourth quarter of 2008. With reductions in the
range of 20% to 30%, sales would be significantly impacted with less net income
and cash flows. These drastic measures would likely result in a loss of key
sales people, technicians and installers. Recovery of sales and cash flows from
such drastic reductions in expenses may take all of the year 2009, if even by
then. In the worst case, if the Company is unable to meet its debt obligations
and the related creditors exercise their default provisions, the Company could
potentially lose all of its existing HVAC locations.





In
accordance with Section 4(2) of the Securities Act of 1933 and subject to Rule
144 restrictions, the Company issued 3,578,693 shares of its common stock and no
shares of its preferred stock for services in the first six months ended June
30, 2008.




The
Company's principal liquidity at June 30, 2008 included cash of $272,706 and
$569,515 net accounts receivable. It is anticipated that the Company's liquidity
position will be sufficient to support on-going general administrative expense,
strategic positioning, and the garnering of contracts and
relationships.




25





Item
3. Quantitative and Qualitative Disclosures About Market Risk




Not
required of smaller business issuers.




Item 4. Controls and Procedures




The
Company's Chief Executive Officer, Jeffrey R. Hultman, its Chief Financial
Officer, Henry S. Leonard, the Audit Committee, and the Company's Secretary
Larry Weinstein, have evaluated the Company's disclosure controls and procedures
as of the end of the period covered by this report.




The
Company's disclosure controls and procedures include a roll-up of financial and
non-financial reporting that is consolidated in the offices of the Chief
Executive Officer, Chief Financial Officer and the Audit Committee.




The
reporting process is designed to ensure that information required to be
disclosed by the Company in the reports that it files with or submits to the
Securities and Exchange Commission is recorded, processed, summarized and
reported under the direction of its Internal Auditor and Compliance Officer
within the time periods specified in the Securities and Exchange Commission's
rules and forms. Based on their review of the effectiveness of the design and
operation of our disclosure controls and procedures, Messrs. Hultman, Leonard,
Weinstein and the Audit Committee have concluded that (i) our disclosure
controls and procedures are effective at the reasonable assurance level to
ensure that information required to be disclosed by us in reports that we
file or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported in accordance with and within the time periods specified
in Securities and Exchange Commission rules and forms; and (ii) our
disclosure controls and procedures are effective also to ensure that information
required to be disclosed in the reports that we file or submit under the
Securities Exchange Act of 1934 is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions about required disclosure. Management recognizes that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures .




There
were no changes in the Company's internal control over financial reporting that
occurred during the Company's most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.




Item 4A(T). Controls and
Procedures.




Not
Applicable




26




Part II. Other
Information




Item
1. Legal Proceedings




INVOLVEMENT
IN CERTAIN LEGAL PROCEEDINGS




There are
no material pending legal proceedings to which the Company is a party or to
which any of its assets are subject.




Various
legal actions, governmental investigations and proceedings and claims may be
instituted or asserted in the future by the Company or against the Company
and/or its subsidiaries including those arising out of alleged deficiencies in
the company's products; governmental or industry regulations relating to safety,
financial services; employment-related matters; distributor, exhibitor,
co-producer, vendor, supplier, or other contractual relationships; intellectual
property rights; product warranties and environmental matters. Some of the
foregoing matters involve or may involve compensatory, punitive or anti-trust or
other treble damage claims in varying amounts, environmental remediation
programs, sanctions or other relief which, if granted, would require varying
expenditures. Litigation is subject to many uncertainties, and the outcome of
individual litigated matters is not predictable with assurance. The Company does
not reasonably expect, based on its analysis, that any adverse outcome from such
matters would have a material effect on future consolidated financial statements
for a particular year, although such an outcome is possible.




Item 1A. Risk Factors








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




In
accordance with Section 4(2) of the Securities Act of 1933 and subject to SEC
Rule 144 restrictions, the Company issued a convertible promissory note,
3,578,693 shares of its common stock and no shares of its preferred stock to
employees, consultants and in connection with an acquisition in the first six
months ended June 30, 2008 as follows:





Date
      of Sale
            Title
      of Security
            Number
      Sold
            Consideration
      Received and Description of Underwriting or Other Discounts to Market
      Price or Convertible Security Afforded to Purchasers
            Exemption
      from Registration Claimed
            If
      Option, Warrant or Convertible Security, Terms of Exercise or
      ConversionJanuary
      18, 2008
            Common
      Stock, $.001 par value
            1,000,000
            Services
      rendered; no commissions paid;
            Section
      4(2)
            Not
      applicableFebruary
      29, 2008
            Convertible
      Note
            1
            Acquisition;
      no commissions paid
            Section
      4(2)
            $2,000,000
      promissory note convertible to (1:1) common stock at $.20 and $.25 per
      share through February 28, 2010.March
      31, 2008
            Common
      Stock, $.001 par value
            1,400,000
            Services
      rendered; no commissions paid
            Section
      4(2)
            Not
      applicableApril
      21, 2008
            Common
      Stock, $.001 par value
            1,178,693
            Services
      rendered; no commissions paid
            Section
      4(2)
            Not
      applicableJuly
      2, 2008
            Common
      Stock, $.001 par value
            2,000,475
            Services
      rendered; no commissions paid
            Section
      4(2)
            Not
      applicable




Item
3. Defaults Upon Senior Securities




There
were no defaults on senior securities for the six months ended June 30,
2008.




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




There
were no submissions of matters to a vote of shareholders in the six months ended
June 30, 2008.





Item 5. Other Information




None.





Item
6. Exhibits and Reports on Form 8-K




The
following exhibits are filed herewith.




27




INDEX
OF EXHIBITS




Incorporated by Reference to the
      Exhibit Indicated Below and to the
      Filing with the Commission Indicated
    BelowExhibit
              Number
            
            Description
      of Exhibits
            
            Exhibit
              Number
            
            Filing or
      File Number10.1
            
            Employment
      Agreement of Timothy J. Gallagher
            
            10.1
            
            Form
      10-Q Filed 2008-03-3110.2
            
            Promissory
      Note (1) between Energy King, Inc. and Timothy J. Gallagher dated February
      29, 2008
            
            10.2
            
            Form
      10-Q Filed 2008-03-3110.3
            
            Promissory
      Note (2) between Energy King, Inc. and Timothy J. Gallagher dated February
      29, 2008
            
            10.3
            
            Form
      10-Q Filed for 2008-03-3110.4
            
            Employment
      Agreement of Stephan Kurz
            
            10.4
            
            Form
      10-Q Filed for 2008-03-3110.5
            
            Employment
      Agreement of Henry S. Leonard
            
            10.5
            
            Form
      10-Q Filed for 2008-03-3121.1
            
            List
      of Subsidiaries
            
            21.1
            
            Form
      10-KSB Filed for 2008-03-3131.1
            
            Rule
      13a-14(a) Certification of Jeffrey R. Hultman pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002
            
            31.1
            
            Filed
      Herewith31.2
            
            Rule
      13a-14(a) Certification of Henry S. Leonard pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
            
            31.2
            
            Filed
      Herewith32.1
            
            Section
      1350 Certification of Jeffrey R. Hultman pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
            
            32.1
            
            Filed
      Herewith32.2
            
            Section
      1350 Certification of Henry S. Leonard pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
            
            32.2
            
            Filed
      Herewith





28




SIGNATURES




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




ENERGY
      KING, INC.August
      14, 2008
            
            By:
            /s/
      JEFFREY R. HULTMANJeffrey
      R. HultmanChief
      Executive OfficerAugust 14, 2008
            
            By:
            /s/
      HENRY S. LEONARDHenry
      S. LeonardChief
      Financial Officer
              and
      Chief Accounting Officer