##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
 For
the fiscal year ended: December 31, 2006
 or
 o
    
    Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number: 0-24684
 ADUDDELL INDUSTRIES, INC.
  Oklahoma
    
    73-1587867(State of incorporation)
    
    (I.R.S. Employer ID no.)1601 N W Expressway Suite 1500
    
    73118Oklahoma City, Oklahoma
    
    (Zip Code)(Address of Principal Executive Offices)
  None   Common Stock (par value $0.001 per share)
 o þ
 o þ
 þ o
 o
  o o þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
2006 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
 PagePART IItem 1. Description of Business
    
    
    4Item 1A. Risk Factors
    
    
    11Item 1B. Unresolved Staff Comments
    
    
    14Item 2. Description of Property
    
    
    14Item 3. Legal Proceedings
    
    
    14Item 4. Submission of Matters to a Vote of Security Holders
    
    
    15PART IIItem 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    15Item 6. Selected Financial Data
    
    
    17Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    19Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 8. Financial Statements and Supplementary Data
    
    
    29Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    29Item 9A. Controls and Procedures
    
    
    29Item 9B. Other Information
    
    
    29PART III **
    
    
    30PART IV.
    
    
    30Item 15. Exhibits and Financial Statement Schedules
    
    
    30Service AgreementSubsidiaries
 1




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##### Table of Contents



PageCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Section 1350 Certification of CEOSection 1350 Certification of CFOAgreement to Plan of MergerSubsidiaries of ZenexCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Section 1350 Certification of CEOSection 1350 Certification of CFO
  
 **
    
    Information required by Part III is incorporated by reference from our definitive proxy statement for our 2007
annual meeting of shareholders, which will be filed with the Securities and Exchange Commission not later than
120 days after December 31, 2006. 2




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##### Table of Contents



Cautionary Statement Regarding Forward Looking Information
  
    
    our ability to expand our markets and maintain or increase profit margins;
    
    actions of our competitors;
    
    statements regarding our anticipated revenues, expense levels, liquidity
and capital resources and projections of positive operating cash
flow; and 
the matters described under Part I  Item 1A  Risk Factors
    3




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##### Table of Contents



PART I
 
 Item 1. Description of Business
 Introduction
     4




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##### Table of Contents




    
    Increased our corporate governance capability and effectiveness at the
corporate level by hiring a C.E.O., C.F.O, Senior V.P. of Corporate Development,
V.P. of Sales, V.P. of National Accounts and a V.P. of Human Resources,
    
    Expanded our national accounts program and were awarded contracts with U.S
Communities, Anheuser Busch, Quaker Oats, PepsiCo and 3M. The U.S. Communities
account is a sole source award to our Roofing subsidiary and is estimated by U.S.
Communities, based on their experience with past vendors, to exceed one hundred
million dollars in revenue annually within three years.
    
    Added another independent director to our board.
    
    Purchased and integrated three new companies, with two more targeted in 2007.
    
    Established two new operating units, one in Stuart Florida and the other in
Minneapolis Minnesota and a corporate headquarters in Oklahoma City.
    
    Established an exceptional marketing department and launched a comprehensive
market and brand awareness campaign.
    
    Increased our sales backlog from $2 million at December 31, 2005 to over $23
million at December 31, 2006.
    
    Grew our Roofing revenue organically, by over 46% and increased revenue by
over $6 million from our new Restoration subsidiary.
    
    Opened a Metals division within our Roofing subsidiary as part of our expansion
of product offering to encompass the total exterior envelope of the building.
    
    Created our Enviro and Emergency Management subsidiary (E2MS), hired a
President, and secured a number of pre event emergency response contracts in
preparation for the next disaster. We have responded very effectively and
profitably over the last fifteen years to disaster, but with our pre event
contracts in place should achieve even greater results.
  The Marketplace
  Shift from local roofing resources to large national roofing companies
Expansion of the use of sophisticated metal roofing systems
Specific needs to provide innovative ways to restore the crumbling national
infrastructure
National change in disaster consequence management from after-the-fact recovery
services to pre-disaster planning consultation services
 5




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##### Table of Contents



Shift from local roofing resources to large national roofing companies:
  Best value products and services
Complete roof analysis reports
Controlled facility maintenance oversight
   Expansion of the use of sophisticated metal roofing systems:
  Specific needs to provide innovative ways to restore the crumbling national infrastructure:
  National change in disaster consequence management from after-the-fact recovery services to
pre-disaster planning consultation:
  6




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##### Table of Contents



Services  Roofing
  Maintenance:
 Repair:
 Restoration:
 Re-Roofing
 New Construction:
 Services  Restoration and Waterproofing
  7




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##### Table of Contents



Services  Emergency Response
   
    
    prepare and submit proposals to USACE as a prime contractor to provide temporary
roofing services in the event of an emergency; and
    
    in the event of an actual emergency, manage all pre-event activities, labor
procurement, housing and administrative responsibilities and manage all close out duties
including final inspections and repairs associated with the event.
   8




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##### Table of Contents



Seasonal and Cyclical Nature of our Industry
  Competition
  Customers
 ,
 Suppliers
  Sales and Marketing
   9




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##### Table of Contents



Personnel, Training and Safety
  Government Regulation
   Employees
  10




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##### Table of Contents



Item 1A. Risk Factors
 As Part of Our Growth Strategy, We Expect To Make Acquisitions and Acquisitions Involve Risk.
  Our Growth Strategy Will Require Significant Additional Capital. If We Are Unable to Generate or
Raise Sufficient Capital, Our Growth Strategy May be Delayed or Limited.
  Commercial Roofing is a Seasonal Industry and Can Fluctuate Based on Weather Conditions.
  A Large Portion of Our Revenues from Prior Years has Resulted from Emergency Services to Repair
Damages Caused by Hurricanes. Revenues for Emergency Based Services are Uncertain and Can
Fluctuate Drastically From Year to Year.
  11




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##### Table of Contents



We are No Longer Outsourcing our Provision of Emergency Response Services. As a Result, We will be
obligated to pay all Costs of Preparing, Bidding for and Providing Services Under any Future FEMA
or USACE contracts.
  Our Ability to Increase Our Productivity and Profitability May be Limited by the Availability of
Skilled Roofing Labor.
  Temporary Shortages or Disruptions in the Supply of Raw Materials Could Negatively Impact our
Results of Operations
  Workers Compensation Expenses are a Significant Expense of Our Business and May be Subject to
Increase if We Experience Significant Claims
  An Inability to Obtain Bonding would have a Negative Impact on Our Operations and Results
  12




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Our Joint Venture Contracts with Project Owners Subject Us to Joint and Several Liability
  Failure of Our Subcontractors to Perform as Anticipated Could have a Negative Impact on Our Results
  The Commercial Roofing Industry is Highly Competitive
  We are Dependent Upon a Few Key Personnel for Our Success
  We Are Controlled By Our Officers and Directors
  We are Subject to Various Federal, State and Local Regulations, Which Increase Our Costs of Doing
Business
  13




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##### Table of Contents



Accounting for Our Revenues and Costs Involves Significant Estimates Which, if Incorrect, Could
Have a Material Adverse Effect on Our Financial Position and Results of Operations
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Description of Property
 Facilities and Vehicles
  
 Item 3. Legal Proceedings
  14




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
  
 PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
  2006
    
    2005Quarter Ended
    
    Low
    
    High
    
    Low
    
    HighMarch 31
    
    $
    0.46
    
    
    $
    0.97
    
    
    $
    0.11
    
    
    $
    0.14June 30
    
    $
    0.70
    
    
    $
    1.95
    
    
    $
    0.13
    
    
    $
    0.19September 30
    
    $
    0.69
    
    
    $
    1.47
    
    
    $
    0.14
    
    
    $
    1.48December 31
    
    $
    0.52
    
    
    $
    1.08
    
    
    $
    0.48
    
    
    $
    1.17
 15




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##### Table of Contents



PERFORMANCE GRAPH
  
 2001
    
    
    
    2002
    
    
    
    2003
    
    
    
    2004
    
    
    
    2005
    
    
    
    2006Aduddell Industries, Inc.
    
    
    
    100
    
    
    
    
    122.2
    
    
    
    
    94.4
    
    
    
    
    155.6
    
    
    
    
    555.6
    
    
    
    
    655.6S&P 500
    
    
    
    100
    
    
    
    
    70.8
    
    
    
    
    86.6
    
    
    
    
    94.4
    
    
    
    
    97.3
    
    
    
    
    110.5Custom Index: Aduddell Comps
    
    
    
    100
    
    
    
    
    116.7
    
    
    
    
    136.9
    
    
    
    
    137.2
    
    
    
    
    159.8
    
    
    
    
    191.3
   
    
    PDG Environmental Inc. (OTCBB:PDGE)
    
    Comfort Systems USA Inc. (NYSE:FIX)
    
    ABM Industries Inc. (NYSE:ABM)
    
    Rollins Inc. (NYSE:ROL)
    
    Servicemaster Co. (NYSE:SVM)
    
    FirstService Corp. (TSX:FSV.SV)
    
    Home Solutions of America Inc. (AMEX:HOM)
    
    US Home Systems Inc. (NasdaqNM:USHS)
    
    InfraSource Services Inc. (NYSE:IFS)
 16




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##### Table of Contents



Holders of our Common Stock
  Dividend Policy
  Equity Compensation Plan Information
 (a)
    
    (b)
    
    ( c)Number of
    
    
    
    
    
    Number ofsecurities to
    
    Weighted
    
    securitiesbe issued upon
    
    average
    
    remaining forPlan Categories
    
    exercise of options
    
    exercise price
    
    future issuanceEquity compensation plans approved by

Security holders2005 Stock Incentive Plan (1)
    
    
    3,625,000
    
    
    $
    .76
    
    
    
    1,375,000Equity compensation plans not approved
By security holdersNone
    
    
    0
    
    
    $
    .00
    
    
    
    -0-Total
    
    
    3,625,000
    
    
    $
    .76
    
    
    
    1,375,000
 (1)
    
    On October 17, 2005, our Board of Directors adopted the 2005 Stock Incentive plan and has since
approved the issuance of options to purchase 3,625,000 shares at an average exercise price of $.78
to $.49 per share. Both the adoption of the plan and the grant of options under the plan were
approved, at our 2006 annual meeting of stockholders. 
 Item 6. Selected Financial Data
  17




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Years Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Revenues
    
    $
    31,660,657
    
    
    $
    59,227,145
    
    
    $
    27,828,362
    
    
    $
    19,309,814
    
    
    $
    2,869,792Operating Expenses:Cost of revenues
    
    
    30,710,356
    
    
    
    41,668,047
    
    
    
    23,262,586
    
    
    
    16,210,622
    
    
    
    2,955,637General and administrative
    
    
    5,811,508
    
    
    
    2,772,785
    
    
    
    2,011,624
    
    
    
    1,423,122
    
    
    
    690,848Warranty expense
    
    
    130,711
    
    
    
    138,847
    
    
    
    110,820
    
    
    
    89,001
    
    
    
    18,56436,652,575
    
    
    
    44,579,679
    
    
    
    25,385,030
    
    
    
    17,722,745
    
    
    
    4,243,744Operating Income (Loss)
    
    
    (4,991,918
    )
    
    
    14,647,466
    
    
    
    2,443,332
    
    
    
    1,587,069
    
    
    
    (795,257
    )Other Income (Expense):Interest income
    
    
    305,998
    
    
    
    86,039
    
    
    
    75,139
    
    
    
    74,157
    
    
    
    25,704Gain (loss) on sale of equipment
    
    
    28,751
    
    
    
    7,369
    
    
    
    3,228
    
    
    
    (868
    )
    
    
    6,510Gain (loss) on investment
    
    
    (590,321
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income (loss)
    
    
    268,852
    
    
    
    202,862
    
    
    
    34,924
    
    
    
    18,252
    
    
    
    (268,231
    )13,280
    
    
    
    296,270
    
    
    
    113,291
    
    
    
    91,541
    
    
    
    (236,017
    )Income
(Loss) Before Provision For Income Taxes
    
    
    (4,978,638
    )
    
    
    14,943,736
    
    
    
    2,556,623
    
    
    
    1,678,610
    
    
    
    (1,031,274
    )Provision (benefit) for income taxes
    
    
    (2,088,000
    )
    
    
    5,618,797
    
    
    
    1,022,488
    
    
    
    438,066
    
    
    
    (277,592
    )Net Income (Loss) BeforeDiscontinued Operations and
Sale of Discontinued Business
    
    
    (2,890,638
    )
    
    
    9,324,939
    
    
    
    1,534,135
    
    
    
    1,240,544
    
    
    
    (753,682
    )Gain (loss) on forgiveness of debt from
operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,312,777
    
    
    
    (1,146,457
    )Gain (loss) on sale of discontinued
operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,190,335
    )
    
    
    Net Income (Loss)
    
    
    (2,890,638
    )
    
    
    9,324,939
    
    
    
    1,534,135
    
    
    
    1,362,986
    
    
    
    (1,900,139
    )Other Comprehensive Income:Unrealized holding gain (losses)
    
    
    4,272
    
    
    
    14,146
    
    
    
    1,230
    
    
    
    2,459
    
    
    
    (275,392
    )Reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    270,882Comprehensive Income (Loss)
    
    $
    (2,886,366
    )
    
    $
    9,339,085
    
    
    $
    1,535,365
    
    
    $
    1,365,445
    
    
    $
    (1,904,649
    )
 18




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##### Table of Contents



Years Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Basic Earnings (Loss) per Share
    
    $
    (0.05
    )
    
    $
    0.19
    
    
    $
    0.03
    
    
    $
    0.03
    
    
    $
    (0.04
    )Fully
Diluted Earnings (Loss) per Share
    
    $
    (0.03
    )
    
    $
    0.12
    
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    (0.04
    )Earnings (Loss) per Share from
Discontinued Operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.02
    )Earnings (Loss) per Share from
Continuing Operations
    
    $
    (0.05
    )
    
    $
    0.19
    
    
    $
    0.03
    
    
    $
    0.03
    
    
    $
    (0.02
    )Statistical Data As a Percentage of Net SalesCost of revenues
    
    
    97
    %
    
    
    70
    %
    
    
    84
    %
    
    
    84
    %
    
    
    103
    %Operating Income (Loss)
    
    
    (16
    )%
    
    
    25
    %
    
    
    9
    %
    
    
    8
    %
    
    
    General and admin.
    
    
    18
    %
    
    
    5
    %
    
    
    7
    %
    
    
    7
    %
    
    
    24
    %Comprehensive net income (loss)
    
    
    (9
    )%
    
    
    16
    %
    
    
    5
    %
    
    
    7
    %
    
    
    Cash Flow DataNet cash provided by (used in)
Operating activities
    
    $
    (22,120,388
    )
    
    $
    21,805,758
    
    
    $
    3,333,887
    
    
    $
    548,465
    
    
    $
    (32,516
    )Net cash provided by (used in)
Investing activities
    
    $
    (9,996,151
    )
    
    $
    (1,219,507
    )
    
    $
    (123,875
    )
    
    $
    (82,208
    )
    
    $
    253,128Net cash provided by (used in)
Financing activities
    
    $
    9,785,788
    
    
    $
    (756,061
    )
    
    $
    (1,109,858
    )
    
    $
    (678,694
    )
    
    $
    391,893Balance Sheet DataTotal assets
    
    $
    33,340,732
    
    
    $
    32,703,847
    
    
    $
    11,048,298
    
    
    $
    8,239,663
    
    
    $
    7,586,359Total liabilities
    
    $
    20,164,870
    
    
    $
    18,003,086
    
    
    $
    5,686,622
    
    
    $
    4,413,352
    
    
    $
    5,369,668Stockholders Equity
    
    $
    11,657,054
    
    
    $
    14,700,761
    
    
    $
    5,361,676
    
    
    $
    3,826,311
    
    
    $
    2,216,691
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Introduction
  19




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##### Table of Contents




    
    Increased our corporate governance capability and effectivness aat the
corporate level by hiring a C.E.O., C.F.O, Senior V.P. of Corporate Development,
V.P. of Sales, V.P. of National Accounts and a V.P. of Human Resources,
    
    Expanded our national accounts program and were awarded contracts with U.S
Communities, Anheuser Busch, Quaker Oats, Pepsico and 3M. The U.S. Communities
account is a sole source award to our Roofing subsidiary and is estimated by U.S.
Communities, based on their experience with past vendors, to exceed one hundred
million dollars in revenue annually within three years.
 20




---



##### Table of Contents




    
    Added another independent director to our board.
    
    Purchased and integrated three new companies, with two more targeted in 2007.
    
    Established two new operating units, one in Stuart Florida and the other in
Minneapolis Minnesota and a corporate headquarters in Oklahoma City.
    
    Established an exceptional marketing department and launched a comprehensive
market and brand awareness campaign.
    
    Increased our sales backlog from $2 million at December 31, 2005 to over $23
million at December 31, 2006.
    
    Grew our Roofing business organically, by over 46% and increased revenue by
over $6 million from our new Restoration subsidiary.
    
    Opened a Metals division within our Roofing subsidiary as part of our expansion
of product offering to encompass the total exterior envelope of the building.
    
    Created our Enviro and Emergency Response subsidiary (E2MS), hired a
President, and secured a number of pre event emergency response contracts in
preparation for the next disaster. We have responded very effectively over the
last fifteen years to disaster, but with our pre event contracts in place should
achieve even greater results.
  For the Years EndedDecember 31,2006
    
    2005Revenues
    
    
    50,508,341
    
    
    
    84,707,241Net Income (Loss)
    
    
    (4,167,288
    )
    
    
    9,705,244Pro forma basic earnings (loss) per share
    
    
    (0.08
    )
    
    
    0.20Pro forma diluted earnings (loss) per share
    
    
    (0.05
    )
    
    
    0.12Weighted average shares outstandingBasic
    
    
    50,258,549
    
    
    
    48,737,921Diluted
    
    
    79,437,367
    
    
    
    80,737,921
  21




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##### Table of Contents



%
    
    
    
    
    
    %Increase
    
    
    
    
    
    Increase2006
    
    (decrease)
    
    2005
    
    (decrease
    
    
    
    
    
    2004Roofing Revenue
    
    $
    25,052,924
    
    
    
    46.9
    %
    
    $
    17,045,347
    
    
    
    (1.0
    )%
    

    
    
    
    
    $
    17,216,772Restoration Revenue
    
    $
    6,303,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Revenue
    
    $
    304,578
    
    
    
    Emergency Services Revenue
    
    $
    0
    
    
    
    
    
    
    $
    42,181,798
    
    
    
    297.5
    %
    

    
    
    
    
    $
    10,611,590Total Revenue
    
    $
    31,660,657
    
    
    
    (46.5
    )%
    
    $
    59,227,145
    
    
    
    112.8
    %
    

    
    
    
    
    $
    27,828,362Roofing Margin
    
    $
    2,517,889
    
    
    
    104.8
    %
    
    $
    1,229,005
    
    
    
    (59.8
    )%
    
    
    
    
    
    $
    3,060,065Restoration Margin
    
    $
    (235,085
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Margin
    
    $
    (1,106,108
    )
    
    
    Emergency Services Margin
    
    $
    (226,395
    )
    
    
    (946.9
    )%
    
    $
    16,330,093
    
    
    
    984.5
    %
    
    
    
    
    
    $
    1,505,711Total Margin
    
    $
    950,301
    
    
    
    (945.8
    )%
    
    $
    17,559,098
    
    
    
    284.6
    %
    
    
    
    
    
    $
    4,565,776Cash Flow from Operations
    
    $
    (22,120,388
    )
    
    
    (201.4
    )%
    
    $
    21,805,758
    
    
    
    554.1
    %
    
    
    
    
    
    $
    3,333,887EBITDA
    
    $
    (3,787,533
    )
    
    
    (497.9
    )%
    
    $
    15,071,019
    
    
    
    458.9
    %
    
    
    
    
    
    $
    2,696,624Net Income
    
    $
    (2,886,366
    )
    
    
    (423.1
    )%
    
    $
    9,324,939
    
    
    
    507.8
    %
    
    
    
    
    
    $
    1,534,135Free Cash Flow
    
    $
    (25,939,379
    )
    
    
    (201.4
    )%
    
    $
    20,901,181
    
    
    
    554.0
    %
    
    
    
    
    
    $
    3,195,801
 2006
    
    2005
    
    2004Reconciliation of Free
Cash Flow:Cash Flow from Operations
    
    $
    (22,120,388
    )
    
    $
    21,805,758
    
    
    $
    3,333,887Capital Expenditures
    
    $
    3,818,991
    
    
    $
    904,577
    
    
    $
    138,086Free Cash Flow
    
    $
    (25,939,379
    )
    
    $
    20,901,181
    
    
    $
    3,195,801Reconciliation of EBITDA:Net Income
    
    $
    (2,886,366
    )
    
    $
    9,324,939
    
    
    $
    1,534,135Interest (Income)
    
    $
    (305,998
    )
    
    $
    (86,039
    )
    
    $
    (75,139
    )
 22




---



##### Table of Contents



2006
    
    2005
    
    2004(Gain) Loss on Sale of Equipment
    
    $
    (28,751
    )
    
    $
    (7,369
    )
    
    $
    (3,228
    )Provision (Benefit) for Income Taxes
    
    $
    (2,088,000
    )
    
    $
    5,618,797
    
    
    $
    1,022,488Investment Loss
    
 $
    590,321
    
 
 $
    
    

    
 $Depreciation
    
    $
    931,261
    
    
    $
    220,691
    
    
    $
    218,368EBITDA
    
    $
    (3,787,533
    )
    
    $
    15,071,019
    
    
    $
    2,696,624
    Critical Accounting Policies and Estimates
 General
  23




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##### Table of Contents



Revenue Recognition
   Cash and Cash Equivalents
  Investments
   Fair Value of Financial Instruments
  Income Taxes
  24




---



##### Table of Contents



Net Income (Loss) Per Share
  Property and Equipment
  Changes from the Prior Period
  Relationship with Oklahoma Development Group
   
    
    our need for skilled manpower to assist us in our expected expansion through
acquisitions and internal core growth;
    
    the benefits we have received from business development and other consulting services
provided to us by ODG without cost; and
    
    our emergency response successes in 2004 and 2005 resulting from the efforts of ODG.
  25




---



##### Table of Contents



Corporate Governance Matters
  Results of Operations
 Comparison of 2006 and 2005
 Revenues
 Operating Expenses
 Income(Loss) before Provision for Income Taxes
 Net Income.
 Comparison of 2005 and 2004
 Revenues
 26




---



##### Table of Contents



Operating Expenses
 Income before Provision for Income Taxes
 Net Income.
 Off-Balance Sheet Arrangements
  Seasonality
   27




---



##### Table of Contents



Commitments and Contingencies
    Liquidity and Capital Resources
 Year Ended December 31, 2006
     Adequacy of Current Liquidity
  28




---



##### Table of Contents



Contractual Obligations
  Less than 1
    
    
    1  3
    
    
    3  5
    
    
    More thanTotal
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    5 YearsOperating leases
    
    $
    456,820
    
    
    $
    147,236
    
    
    
    268,972
    
    
    
    40,612
    
    
    
    N/ATotal
    
    $
    456,820
    
    
    $
    147,236
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 8. Financial Statements
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures
   
 Item 9B. Other Information
 None.
 29




---



##### Table of Contents



PART III
  
 Item 15. Exhibits and Financial Statement Schedules
    Exhibit No.
    
    Description of Exhibit2.1
    
    Agreement and Plan of Split-off and Merger, dated as
of September 27, 2002, by and among Zenex International,
its subsidiary and Aduddell Roofing (filed as exhibit to
our Form 8-K/A filed on November 15, 2002 and
incorporated by reference herein)3.1
    
    Amended and Restated Articles of Incorporation of
Zenex (filed as exhibit to our Form S-3 Registration
Statement filed on August 2, 2000 and incorporated by
reference herein)3.2
    
    Amended and Restated Bylaws of Zenex (filed as
exhibit to our Form S-3 Registration Statement filed on
August 2, 2000 and incorporated by reference herein).3.3
    
    Amendment to the Articles of Incorporation of Lone
Wolf Energy, Inc. changing the name to Zenex Telecom,
Inc. effective November 29, 2001 (filed as exhibit to our
Form 8-K filed on November 28, 2001 and incorporated by
reference herein)3.4
    
    Amendment to the Articles of Incorporation changing
Zenex Telecom, Inc. to Zenex International, Inc.
effective August 6, 2002 (filed as exhibit to our Form
8-K filed on August 15, 2002 and incorporated by
reference herein)14
    
    Code of Ethics for Principal Executive and Senior Financial
Officers (filed as exhibit to our Annual Report on Form 10-KSB
for the year ended December 31, 2003 and incorporated by
reference herein)10.1
    
    Service Agreement dated
February 9, 2005 between Zenex International, Inc. and Oklahoma
Development Group, LLC (filed as an exhibit to our Annual Report on
Form 10K for the year ended December 31, 2005 and
incorporated by reference herein)10.2
    
    Agreement and Plan of Merger for
Brent Anderson Associates, Inc. acquisition. (filed herewith)21.1
    
    Subsidiaries of Aduddell Industries, Inc.
 30




---



##### Table of Contents



Exhibit No.
    
    Description of Exhibit31.1
    
    Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 200232.1
    
    Section 1350 Certification of Chief Executive Officer32.2
    
    Section 1350 Certification of Chief Financial Officer
 
 SIGNATURES
  Aduddell Industries, Inc.Date: April 2, 2007
    By:
    /s/ Stan GenegaPresident and Chief Executive Officer  Name
    
    Title
    
    Date/s/ Stan Genega
    
    Director, President and Chief
Executive Officer
    
    April 2, 2007/s/ Reggie Cook
    
    Chief Financial Officer, (Principal
Accounting Officer)
    
    April 2, 2007/s/ Timothy Aduddell
    
    Chairman of the Board of Directors
    
    April 2, 2007/s/ David Aduddell
    
    Director
    
    April 2, 2007/s/ Ron Carte
    
    Director
    
    April 2, 2007/s/ Thomas Parrish
    
    Director
    
    April 2, 2007/s/ Jerry Whitlock
    
    Director
    
    April 2, 2007
 31




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##### Table of Contents



Aduddell Industries, Inc.
 Consolidated Financial Statements
 And
 Report of Independent Registered Public Accounting Firm
 Years Ended December 31, 2006, 2005 and 2004




---



##### Table of Contents



Aduddell Industries, Inc.
 Table of Contents
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Financial StatementsConsolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    F-3Consolidated Statements of Operations and Comprehensive Income
for the years ended December 31, 2006, 2005 and 2004
    
    
    F-5Consolidated Statements of Stockholders Equity
for the years ended December 31, 2006, 2005, and 2004
    
    
    F-6Consolidated Statements of Cash Flows
for the years ended December 31, 2006, 2005 and 2004
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9




---



##### Table of Contents



Sutton Robinson Freeman & Co.,
P.C.  2727 E. 21 st Street, Suite 600
Tulsa, OK 74114
 
 Report of Independent Registered
Public Accounting Firm
 To the Board of Directors
    
  
 F - 2




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##### Table of Contents



ADUDDELL, INDUSTRIES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 AS
OF DECEMBER 31, 2006 AND 2005
 2006
    
    
    2005AssetsCurrent AssetsCash
    
    $
    
    
    
    $
    22,330,751Accounts and contract receivable, net of allowance
for doubtful accounts
    
    
    13,662,030
    
    
    
    4,614,895Costs and estimated earnings in excess of
billings on uncompleted contracts
    
    
    2,298,191
    
    
    
    2,158,971Inventory
    
    
    472,588
    
    
    
    Prepaid expenses
    
    
    268,108
    
    
    
    168,839Income tax receivable
    
    
    2,254,469
    
    
    
    Related party receivable
    
    
    60,088
    
    
    
    Deposits
    
    
    252,710
    
    
    
    Employee and other receivables, net of
allowance for doubtful accounts
    
    
    31,484
    
    
    
    16,19919,299,668
    
    
    
    29,289,655Non-Current Related Party Receivable
    
    
    
    
    
    
    1,801,133Property and EquipmentField and shop equipment
    
    
    4,023,879
    
    
    
    637,565Office furniture and equipment
    
    
    1,263,131
    
    
    
    228,927Transportation equipment
    
    
    3,931,118
    
    
    
    1,107,193Leasehold improvements
    
    
    203,896
    
    
    
    96,0019,422,024
    
    
    
    2,069,686Less: accumulated depreciation
    
    
    (1,584,170
    )
    
    
    (879,737
    )7,837,854
    
    
    
    1,189,949OtherInvestments
    
    
    25,156
    
    
    
    423,110Intangible asset customer lists, net
    
    
    6,112,054
    
    
    
    Deferred tax asset
    
    
    66,000
    
    
    
    6,203,210
    
    
    
    423,110$
    33,340,732
    
    
    $
    32,703,847
 F - 3




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##### Table of Contents



ADUDDELL, INDUSTRIES, INC.
 CONSOLIDATED BALANCE SHEETS
 AS
OF DECEMBER 31, 2006 AND 2005
 2006
    
    
    2005Liabilities and Stockholders EquityCurrent LiabilitiesCurrent portion of long-term debt
    
    $
    214,343
    
    
    $
    213,410Current portion of acquisition payable
    
    
    816,667
    
    
    
    Advances on line of credit
    
    
    9,407,272
    
    
    
    Overdraft
    
    
    732,778
    
    
    
    Accounts and subcontract payables
    
    
    7,122,863
    
    
    
    11,825,466Accrued liabilities
    
    
    773,275
    
    
    
    250,883Insurance payable
    
    
    39,504
    
    
    
    40,458Income tax payable
    
    
    
    
    
    
    5,349,105Billings in excess of costs and estimated
earnings on uncompleted contracts
    
    
    1,058,168
    
    
    
    97,78420,164,870
    
    
    
    17,777,106Long-Term Debt (Net of Current Portion)
    
    
    539,975
    
    
    
    81,980Long-Term Acquisition Payable (Net of Current Portion)
    
    
    978,833
    
    
    
    Deferred Income Taxes
    
    
    
    
    
    
    144,000Stockholders EquityPreferred stock ($0.001 par value, 20,000,000
shares authorized, no shares issued and outstanding)
    
    
    
    
    
    
    Common stock ($0.001 par value, 100,000,000
shares authorized, 52,799,191 and 48,737,921
shares issued and outstanding at December 31,
2006 and 2005)
    
    
    52,799
    
    
    
    48,738Paid-in capital
    
    
    4,699,230
    
    
    
    4,860,632Unrealized gain (loss) on available-for-sale securities
    
    
    703
    
    
    
    (3,569
    )Retained earnings
    
    
    6,904,322
    
    
    
    9,794,96011,657,054
    
    
    
    14,700,761$
    33,340,732
    
    
    $
    32,703,847
 F - 4




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
 2006
    
    
    2005
    
    
    2004RevenuesContract revenue
    
    $
    31,356,079
    
    
    $
    59,227,145
    
    
    $
    27,828,362Material sales
    
    
    304,578
    
    
    
    
    
    
    
    31,660,657
    
    
    
    59,227,145
    
    
    
    27,828,362Operating ExpensesCost of sales
    
    
    30,710,356
    
    
    
    41,668,047
    
    
    
    23,262,586Selling, general and administrative
    
    
    5,811,508
    
    
    
    2,772,785
    
    
    
    2,011,624Warranty expense
    
    
    130,711
    
    
    
    138,847
    
    
    
    110,82036,652,575
    
    
    
    44,579,679
    
    
    
    25,385,030Operating Income (Loss)
    
    
    (4,991,918
    )
    
    
    14,647,466
    
    
    
    2,443,332Other Income (Expense)Interest and dividend income
    
    
    305,998
    
    
    
    86,039
    
    
    
    75,139Gain on sale of equipment
    
    
    28,751
    
    
    
    12,369
    
    
    
    3,228Gain(loss) on investments
    
    
    (590,321
    )
    
    
    
    
    
    
    Other income
    
    
    268,852
    
    
    
    197,862
    
    
    
    34,92413,280
    
    
    
    296,270
    
    
    
    113,291Net Income (Loss) from OperationsBefore Income Taxes
    
    
    (4,978,638
    )
    
    
    14,943,736
    
    
    
    2,556,623Provision (Benefit) for income taxes:Current
    
    
    (1,878,000
    )
    
    
    5,439,797
    
    
    
    1,012,000Deferred
    
    
    (210,000
    )
    
    
    179,000
    
    
    
    10,488(2,088,000
    )
    
    
    5,618,797
    
    
    
    1,022,488Net Income (Loss)
    
    
    (2,890,638
    )
    
    
    9,324,939
    
    
    
    1,534,135Other Comprehensive IncomeUnrealized holding gains
    
    
    4,272
    
    
    
    14,146
    
    
    
    1,230Reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    Comprehensive Income
    
    $
    (2,886,366
    )
    
    $
    9,339,085
    
    
    $
    1,535,365Basic Net Income (Loss) per
Common Share
    
    $
    (0.06
    )
    
    $
    0.19
    
    
    $
    0.03Diluted Net Income (Loss) per
Common Share
    
    $
    (0.04
    )
    
    $
    0.12
    
    
    $
    0.02Weighted Average Common
Shares Basic
    
    
    50,258,549
    
    
    
    48,737,921
    
    
    
    48,737,921Weighted Average Common
Shares Assuming Dilution
    
    
    79,437,367
    
    
    
    80,737,921
    
    
    
    80,137,921
 F - 5




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
 UnrealizedShares of
    
    
    Par Value
    
    
    Additional
    
    
    
    
    
    
    Holding
    
    
    TotalCommon
    
    
    Common
    
    
    Paid in
    
    
    Retained
    
    
    Gains
    
    
    Stockholders'Stock
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    (Losses)
    
    
    EquityBalance at December 31, 2003
    
    
    48,737,921
    
    
    $
    48,738
    
    
    $
    4,860,632
    
    
    $
    (1,064,114
    )
    
    $
    (18,945
    )
    
    $
    3,826,311Unrealized holding gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,230
    
    
    
    1,230Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,534,135
    
    
    
    
    
    
    
    1,534,135Balance at December 31, 2004
    
    
    48,737,921
    
    
    
    48,738
    
    
    
    4,860,632
    
    
    
    470,021
    
    
    
    (17,715
    )
    
    
    5,361,676Unrealized holding gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,146
    
    
    
    14,146Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,324,939
    
    
    
    
    
    
    
    9,324,939Balance at December 31, 2005
    
    
    48,737,921
    
    
    
    48,738
    
    
    
    4,860,632
    
    
    
    9,794,960
    
    
    
    (3,569
    )
    
    
    14,700,761Exercise of stock options
    
    
    1,686,270
    
    
    
    1,686
    
    
    
    166,940
    
    
    
    
    
    
    
    
    
    
    
    168,626Common stock issued for acquisitions:Merritt Construction
    
    
    250,000
    
    
    
    250
    
    
    
    204,750
    
    
    
    
    
    
    
    
    
    
    
    205,000Brent Anderston
    
    
    2,000,000
    
    
    
    2,000
    
    
    
    1,398,000
    
    
    
    
    
    
    
    
    
    
    
    1,400,000EyeOpener
    
    
    125,000
    
    
    
    125
    
    
    
    83,625
    
    
    
    
    
    
    
    
    
    
    
    83,750Cancellation of options for
repayment of debt
    
    
    
    
    
    
    
    
    
    
    (1,841,920
    )
    
    
    
    
    
    
    
    
    
    
    (1,841,920
    )Cancellation of options for
repayment of debt
    
    
    
    
    
    
    
    
    
    
    (172,797
    )
    
    
    
    
    
    
    
    
    
    
    (172,797
    )Unrealized holding gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,272
    
    
    
    4,272Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,890,638
    )
    
    
    
    
    
    
    (2,890,638
    )52,799,191
    
    
    $
    52,799
    
    
    $
    4,699,230
    
    
    $
    6,904,322
    
    
    $
    703
    
    
    $
    11,657,054
 F - 6




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
 2006
    
    
    2005
    
    
    2004Cash Flows from Operating ActivitiesNet income (loss)
    
    $
    (2,890,638
    )
    
    $
    9,324,939
    
    
    $
    1,534,135Reconciliation of net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    931,261
    
    
    
    220,691
    
    
    
    218,368Issuance of debt for interest expense
    
    
    
    
    
    
    6,000
    
    
    
    Bad debt write-off (recovery)
    
    
    (48,186
    )
    
    
    (270,710
    )
    
    
    Gain on sale of property and equipment
    
    
    (28,751
    )
    
    
    (12,369
    )
    
    
    (3,228
    )(Loss) on sale investments
    
    
    590,321
    
    
    
    
    
    
    
    Property given for services
    
    
    
    
    
    
    
    
    
    
    17,000(Increase) Decrease from changes in:Accounts receivable
    
    
    (9,171,746
    )
    
    
    451,957
    
    
    
    (1,545,983
    )Costs and estimated earnings in excess of
billings on uncompleted contracts
    
    
    (139,220
    )
    
    
    (795,466
    )
    
    
    (421,870
    )Inventory
    
    
    (472,588
    )
    
    
    
    
    
    
    Shareholder receivable
    
    
    
    
    
    
    
    
    
    
    Officer receivable
    
    
    
    
    
    
    
    
    
    
    Income tax receivable
    
    
    (2,254,469
    )
    
    
    
    
    
    
    Related party receivable
    
    
    (100,875
    )
    
    
    (70,793
    )
    
    
    (60,997
    )Deposits
    
    
    (252,710
    )
    
    
    
    
    
    
    Deferred taxes
    
    
    (66,000
    )
    
    
    
    
    
    
    1,012,000Prepaid expenses
    
    
    (99,269
    )
    
    
    (58,845
    )
    
    
    (13,657
    )Employee and other receivables
    
    
    (15,285
    )
    
    
    38,828
    
    
    
    214,991Intangible asset customer list
    
    
    (392,537
    )
    
    
    
    
    
    
    Increase (Decrease) from changes in:Overdraft
    
    
    732,778
    
    
    
    
    
    
    
    Accounts payable
    
    
    (4,431,191
    )
    
    
    7,889,814
    
    
    
    2,239,601Insurance payable
    
    
    (954
    )
    
    
    (204,641
    )
    
    
    202,522Accrued liabilities
    
    
    522,392
    
    
    
    (2,446
    )
    
    
    (31,850
    )Income tax payable
    
    
    (5,349,105
    )
    
    
    5,237,103
    
    
    
    (49,595
    )Billings in excess of costs and estimated
earnings on uncompleted contracts
    
    
    960,384
    
    
    
    (127,304
    )
    
    
    22,450Deferred taxes
    
    
    (144,000
    )
    
    
    179,000
    
    
    
    Net adjustments to net income
    
    
    (19,229,750
    )
    
    
    12,480,819
    
    
    
    1,799,752Net cash provided (used) operating activities
    
    
    (22,120,388
    )
    
    
    21,805,758
    
    
    
    3,333,887Cash Flows from Investing ActivitiesPurchase of investments
    
    
    (188,096
    )
    
    
    (403,225
    )
    
    
    Purchase of Brent Anderson & Associates
    
    
    (6,026,915
    )
    
    
    
    
    
    
    Proceeds from sale of property and equipment
    
    
    37,851
    
    
    
    88,295
    
    
    
    14,211Purchase of property and equipment
    
    
    (3,818,991
    )
    
    
    (904,577
    )
    
    
    (138,086
    )Net cash used by investing activities
    
    
    (9,996,151
    )
    
    
    (1,219,507
    )
    
    
    (123,875
    )
 F - 7




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
 2006
    
    
    2005
    
    
    2004Cash Flows from Financing ActivitiesProceeds from the issuance of stock
    
    
    168,626
    
    
    
    
    
    
    
    Net change in line of credit
    
    
    9,407,272
    
    
    
    
    
    
    
    (733,743
    )Proceeds from long-term debt
    
    
    538,640
    
    
    
    
    
    
    
    Retirement of long-term debt
    
    
    (328,750
    )
    
    
    (756,061
    )
    
    
    (376,115
    )Net cash provide (used) by financing activities
    
    
    9,785,788
    
    
    
    (756,061
    )
    
    
    (1,109,858
    )Net Increase in Cash (Decrease)
    
    
    (22,330,751
    )
    
    
    19,830,190
    
    
    
    2,100,154Cash at Beginning of Period
    
    
    22,330,751
    
    
    
    2,500,561
    
    
    
    400,407Cash at End of Period
    
    $
    
    
    
    $
    22,330,751
    
    
    $
    2,500,561Supplemental Disclosure of Cash Flow
InformationCash paid for:Interest
    
    $
    134,511
    
    
    $
    142,950
    
    
    $
    152,158Taxes
    
    
    5,309,034
    
    
    
    84,692
    
    
    
    60,083Supplemental Schedule of Non-Cash
Investing and Financing ActivitiesFixed asset additions
    
    $
    249,039
    
    
    $
    130,000
    
    
    $
    Liabilities assumed or incurred
    
    $
    249,039
    
    
    $
    130,000
    
    
    $
    Acquisition of Brent Anderson & Associates
    
    $
    1,795,500
    
    
    $
    130,000
    
    
    $
    Liabilities assumed or incurred
    
    $
    1,795,500
    
    
    $
    130,000
    
    
    $
    Common stock issued for Acquisitions
    
    $
    1,688,750
    
    
    $
    
    
    
    
    
 F - 8




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##### Table of Contents



ADUDDELL
INDUSTRIES, INC.
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Organization and Nature of Business
     F - 9




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Principles of Consolidation
  Revenue Recognition
   Cash and Cash Equivalents
 
 Inventory
  Investments
 Statement of Financial
Accounting Standards No. 115 Accounting for Certain Investments in Debt and Equity Securities
(SFAS No. 115).
 SFAS No. 115
 Intangible Assets
 Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets
 F - 10




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 SFAS No. 142 SFAS No.
142
 Fair Value of Financial Instruments
  Share-Based Compensation
  Depreciation
  Field and shop equipment
    
    5  - 7
    
    YearsOffice furniture and equipment
    
    5  - 10
    
    YearsTransportation equipment
    
    3  - 7
    
    YearsLeasehold improvements
    
    15  39
    
    Years
 Income Taxes
 Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS No. 109) SFAS No. 109 SFAS No. 109
  F - 11




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Net Income (Loss) Per Share
 SFAS No. 128 Earnings per
Share SEC Staff Accounting Bulletin No. 98 (SAB 98). SFAS No. 128 SAB 98,
 Use of Estimates
  NOTE 2  ACQUISITIONS
      F - 12




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    For the Years EndedDecember 31,2006
    
    
    2005Revenues
    
    $
    50,508,341
    
    
    $
    84,707,241Net Income (Loss)
    
    $
    (4,167,288
    )
    
    $
    9,705,244Proforma basic earnings (loss) per sharet
    
    $
    (0.08
    )
    
    $
    0.20Pro forma diluted earnings (loss) per share
    
    $
    (.05
    )
    
    $
    0.12Weighted average shares outstanding:Basic
    
    
    50,258,549
    
    
    
    48,737,921Diluted
    
    
    79,437,367
    
    
    
    80,737,921
  F - 13




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 3  CONTRACT RECEIVABLES
  December 31,
    
    
    December 31,2006
    
    
    2005Completed contracts
    
    $
    2,465,564
    
    
    $
    2,510,811Contracts in progress
    
    
    9,139,408
    
    
    
    1,439,198Retainage
    
    
    2,057,058
    
    
    
    664,88613,662,030
    
    
    
    4,614,895Less allowance for doubtful amounts
    
    
    
    
    
    
    $
    13,662,030
    
    
    $
    4,614,895
 NOTE 4  UNCOMPLETED CONTRACTS
  December 31,
    
    
    December 31,2006
    
    
    2005Costs incurred on uncompleted contracts
    
    $
    29,126,527
    
    
    $
    35,222,123Estimated earnings
    
    
    145,508
    
    
    
    16,992,36629,272,035
    
    
    
    52,214,489Billings to date
    
    
    28,032,012
    
    
    
    50,153,302$
    1,240,023
    
    
    $
    2,061,187
  December 31,
    
    
    December 31,2006
    
    
    2005Costs and estimated
earnings in excess
of billings on
uncompleted
contracts
    
    $
    2,298,191
    
    
    $
    2,158,971Billings in excess
of costs and
estimated earnings
on uncompleted
contracts
    
    
    (1,058,168
    )
    
    
    (97,784
    )$
    1,240,023
    
    
    $
    2,061,187
 NOTE 5  LETTER OF CREDIT
  F - 14




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6  LINE OF CREDIT
  NOTE 7  LONG-TERM DEBT
  December 31
    
    
    December 31,2006
    
    
    2005Note payable secured by all accounts,
equipment and general intangibles,
bearing interest at 2.75% over New
York Prime, with a maximum of 7.75%
and a minimum of 5.75% (7.75%
currently), due in monthly
installments of $17, 581 through
November 2006
    
    $
    
    
    
    $
    182,5626.63% to 21% notes payable secured by
equipment, due in varying monthly
installments through May 2010
    
    
    68,124
    
    
    
    6% to 8.25% notes payable secured by
transportation equipment, due in
varying monthly installments through
January 2012
    
    
    686,194
    
    
    
    112,828754,318
    
    
    
    295,390Less: current portion of long-term debt
    
    
    214,343
    
    
    
    213,410$
    539,975
    
    
    $
    81,980
  Year
    
    Amount2007
    
    $
    214,3432008
    
    $
    227,1632009
    
    
    204,9582010
    
    
    66,1562011
    
    
    39,4272012
    
    
    2,271$
    754,318
  F - 15




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 8  PENSION PLAN
 Internal Revenue Code
 NOTE 9  SHARE-BASED COMPENSATION PLANS
 Section 422 Internal Revenue Code of 1986
 Options Issued During the Quarter:
  Options Issued Previously
       F - 16




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 10  INCOME TAXES
  Years EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2004Current tax provision
    
    $
    (1,878,000
    )
    
    $
    5,439,797
    
    
    $
    1,012,000Deferred tax provision
    
    
    (210,000
    )
    
    
    179,000
    
    
    
    10,488Total provision for income taxes
    
    $
    (2,088,000
    )
    
    $
    5,618,797
    
    
    $
    1,022,488
  December 31,
    
    December 31,
    
    December 31,2006
    
    2005
    
    2004Statutory federal income tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State tax effective rate
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0Permanent differences
    
    
    
    
    
    
    
    
    
    
    Benefit of graduated tax rates
    
    
    
    
    
    
    
    
    
    
    Prior year assessments finalized
    
    
    
    
    
    
    1.5
    
    
    
    0.5Increase in valuation allowance
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Other
    
    
    3.0
    
    
    
    (3.0
    )
    
    
    1.142.0
    %
    
    
    42.0
    %
    
    
    40.0
    %
   F - 17




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  December 31,
    
    
    December 31,2006
    
    
    2005Deferred tax liability on depreciation
    
    $
    (150,000
    )
    
    $
    (245,000
    )Deferred tax asset for loss carry forward and
share-based compensation
    
    
    419,000
    
    
    
    304,000Deferred tax asset
    
    
    269,000
    
    
    
    59,000Less: valuation allowance
    
    
    203,000
    
    
    
    203,000Net deferred tax asset (liability)
    
    $
    66,000
    
    
    $
    (144,000
    )
 NOTE 11  RELATED PARTY TRANSACTIONS
     NOTE 12  BACKLOG
  F - 18




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 13  STOCK OPTIONS
   Common Stock Options and Other Warrants
 Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    Exercise2006
    
    
    Price
    
    
    2005
    
    
    Price
    
    
    2004
    
    
    PriceOptions outstanding
beginning of year
    
    
    35,600,000
    
    
    $
    .12
    
    
    
    32,000,000
    
    
    $
    .04
    
    
    
    32,000,000
    
    
    $
    .04Options issued
during the year
    
    
    1,025,000
    
    
    
    .72
    
    
    
    3,600,000
    
    
    
    .78
    
    
    
    
    
    
    
    Options exercised
during the year
    
    
    1,686,266
    
    
    
    .10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options cancelled
during the year
    
    
    2,584,916
    
    
    
    .76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options expired
during the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options outstanding
end of year
    
    
    32,353,818
    
    
    $
    .12
    
    
    
    35,600,000
    
    
    $
    .12
    
    
    
    32,000,000
    
    
    $
    .04
  Options Outstanding
    
    Options ExercisableWeighted-Average
    
    Weighted-
    
    
    
    
    
    Weighted-Range of
    
    Number
    
    Remaining
    
    Average
    
    Number
    
    AverageExercise
    
    Outstanding
    
    Contractual
    
    Exercise
    
    Exercisable
    
    ExercisePrices
    
    at 12/31/06
    
    Life
    
    Price
    
    at 12/31/05
    
    Price.04
    
    
    28,528,818
    
    
    No term
    
    
    .04
    
    
    
    30,000,000
    
    
    .04.08 - .10
    
    
    200,000
    
    
    No term
    
    
    .10
    
    
    
    2,000,000
    
    
    .10.70  1.38
    
    
    3,625,000
    
    
    10 year
    
    
    .78
    
    
    
    3,600,000
    
    
    .7832,353,818
    
    
    
    
    
    .12
    
    
    
    35,600,000
    
    
    .12
  F - 19




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    Years Ended December 31,2005
    
    
    2005
    
    
    2004Net income as reported
    
    $
    (2,886,366
    )
    
    $
    9,339,085
    
    
    $
    1,535,365Less: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects
    
    
    (88,370
    )
    
    
    (86,000
    
    
    
    Proforma net income
    
    $
    (2,797,996
    )
    
    $
    9,232,022
    
    
    $
    1,535,365Net income per common share as reported
    
    $
    (.04
    )
    
    $
    .12
    
    
    $
    .02Proforma net loss per common share, basic and diluted
    
    $
    (.04
    )
    
    $
    .12
    
    
    $
    .02Weighted average common shares outstanding, basic
and diluted
    
    
    79,437,367
    
    
    
    80,737,921
    
    
    
    80,137,921
 NOTE 14  EARNINGS PER SHARE
 December 31,
    
    
    December 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2004Basic earnings per share:(in thousands)Common shares outstanding
    
    
    52,799,191
    
    
    
    48,737,921
    
    
    
    48,737,921Weighted average shares outstanding
    
    
    50,258,549
    
    
    
    48,737,921
    
    
    
    48,737,921Earnings per share
    
    $
    (.06
    )
    
    $
    .19
    
    
    $
    .03Fully diluted earnings per share:Common shares outstanding
    
    
    81,978,005
    
    
    
    80,737,921
    
    
    
    80,137,921Weighted average shares outstanding
    
    
    79437,367
    
    
    
    80,737,921
    
    
    
    80,137,921Earnings per share
    
    $
    (.04
    )
    
    $
    .12
    
    
    $
    .02
 For the Year Ended
    
    Income
    
    
    Share
    
    
    Per ShareDecember 31, 2006:
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountEarnings per common share:Income available to common
stockholders
    
    
    (2,886,366
    )Weighted average common
shares outstanding
    
    
    
    
    
    
    50,258,549
    
    
    
    (.06
    )Earnings per common share
assuming dilution:
    
    
    
    
    
    
    29,178,818Options
    
    
    
    
    
    
    
    
    
    
    (.04
    )Income available to common
stockholders assuming
dilution
    
    
    
    
    
    
    79,437,367
 F - 20




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 For the Year Ended
    
    Income
    
    
    Share
    
    
    Per ShareDecember 31, 2005:
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountEarnings per common share:Income available to common
stockholders
    
    $
    9,339,085Weighted average common
shares outstanding
    
    
    
    
    
    
    48,737,921
    
    
    $
    .19Earnings per common share
assuming dilution:Options
    
    
    
    
    
    
    32,000,000Income available to common
stockholders assuming dilution
    
    $
    9,339,085
    
    
    
    80,737,921
    
    
    $
    .12
   NOTE 15  LEASES
    Year
    
    Amount2007
    
    $
    147,2362008
    
    
    147,1362009
    
    
    121,8362010
    
    
    40,612$
    456,820
 F - 21




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 16  COMMITMENTS AND CONTINGENCIES
  Federal Deposit Insurance Corporation
  Lawsuit
     F - 22




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  CONCENTRATIONS
    Supplementary Data
  2006December
    
    
    September31
    
    
    30
    
    
    June 30
    
    
    March 31Revenues
    
    $
    7,713,589
    
    
    $
    11,574,763
    
    
    $
    8,637,728
    
    
    $
    3,734,577Cost of sales
    
    
    9,785,528
    
    
    
    10,174,307
    
    
    
    7,902,525
    
    
    
    2,847,996Gross margin
    
    
    (2,071,939
    )
    
    
    1,400,456
    
    
    
    735,203
    
    
    
    886,581S G & A and other
    
    
    3,103,076
    
    
    
    1,326,113
    
    
    
    470,251
    
    
    
    1,149,199Income (Loss)
before income taxes
    
    
    (5,175,015
    )
    
    
    74,343
    
    
    
    264,952
    
    
    
    (262,918
    )Income tax expense
(benefit)
    
    
    (2,198,047
    )
    
    
    56,210
    
    
    
    77,970
    
    
    
    (148,405
    )Net income (loss)
    
    $
    (2,976,968
    )
    
    $
    18,133
    
    
    $
    186,982
    
    
    $
    (114,513
    )Net income (loss)
per common share 
basic
    
    $
    (.06
    )
    
    $
    
    
    
    $
    
    
    
    $
    Net income (loss)
per common share -
assuming dilution
    
    $
    (.04
    )
    
    $
    
    
    
    $
    
    
    
    $
    
 F - 23




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##### Table of Contents



ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 2005December
    
    
    September31
    
    
    30
    
    
    June 30
    
    
    March 31Revenues
    
    $
    17,363,533
    
    
    $
    34,746,247
    
    
    $
    3,831,637
    
    
    $
    3,285,728Cost of sales
    
    
    12,717,344
    
    
    
    22,543,572
    
    
    
    3,736,607
    
    
    
    2,670,524Gross margin
    
    
    4,646,189
    
    
    
    12,202,675
    
    
    
    95,030
    
    
    
    615,204S G & A and other
    
    
    754,048
    
    
    
    817,428
    
    
    
    532,561
    
    
    
    511,325Income (Loss)
before income taxes
    
    
    3,892,141
    
    
    
    11,385,247
    
    
    
    (437,531
    )
    
    
    103,879Income tax expense
(benefit)
    
    
    1,334,062
    
    
    
    4,436,403
    
    
    
    (149,636
    )
    
    
    (16,178
    )Net income (loss)
    
    $
    2,558,079
    
    
    $
    6,948,844
    
    
    $
    (287,895
    )
    
    $
    120,057Net income (loss)
per common share 
basic
    
    $
    .05
    
    
    $
    .14
    
    
    $
    
    
    
    $
    Net income (loss)
per common share -
assuming dilution
    
    $
    03
    
    
    $
    .09
    
    
    $
    
    
    
    $
    
 F - 24