##### 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, 2005
 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
 ZENEX INTERNATIONAL, INC.
  Colorado
    
    73-1587867(State of incorporation)
    
    (I.R.S. Employer ID no.)14220 S. Meridian Ave.
    
    73173Oklahoma 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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##### 



ZENEX INTERNATIONAL, INC.
2005 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
 PagePART IItem 1. Description of Business
    
    
    4Item 1A. Risk Factors
    
    
    9Item 1B. Unresolved Staff Comments
    
    
    12Item 2. Description of Property
    
    
    12Item 3. Legal Proceedings
    
    
    12Item 4. Submission of Matters to a Vote of Security Holders
    
    
    13PART IIItem 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    13Item 6. Selected Financial Data
    
    
    14Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    16Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 8. Financial Statements and Supplementary Data
    
    
    26Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    26Item 9A. Controls and Procedures
    
    
    26Item 9B. Other Information
    
    
    26PART III **
    
    
    26PART IV.Item 15. Exhibits and Financial Statement Schedules
    
    
    27Service AgreementSubsidiariesCertification 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 2006
annual meeting of shareholders, which will be filed with the Securities and Exchange Commission not later than
120 days after December 31, 2005. 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; and
    
    statements regarding our anticipated revenues, expense
levels, liquidity and capital resources and projections of positive operating cash flow.
    3




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##### Table of Contents



PART I
 
 Item 1. Description of Business
 Introduction
  Aduddell Roofing
   Business Strategy
  Further Penetrate the Commercial Roofing Market
 Expansion of Product Offering.
 4




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Expansion of Emergency Services Contracts.
  The Roofing Industry
    5




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Services  Core Business
  Maintenance
 Repair
 Restoration
 Re-Roofing
 New Construction
 6




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Services  Emergency Response Services
   
    
    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.
   Seasonal and Cyclical Nature of the Commercial Roofing Industry
  Competition
  Customers
  7




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Suppliers
  Sales and Marketing
    Personnel, Training and Safety
  Government Regulation
   8




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##### Table of Contents



Employees
  
 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.
  9




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A Large Portion of Our Revenues for the Past Two 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.
  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.
  10




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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.
  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.
  11




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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.
  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
  12




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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
  2005
    
    2004Quarter Ended
    
    Low
    
    High
    
    Low
    
    HighMarch 31
    
    $
    0.11
    
    
    $
    0.14
    
    
    $
    0.07
    
    
    $
    0.12June 30
    
    $
    0.13
    
    
    $
    0.19
    
    
    $
    0.08
    
    
    $
    0.12September 30
    
    $
    0.14
    
    
    $
    1.48
    
    
    $
    0.08
    
    
    $
    0.19December 31
    
    $
    0.48
    
    
    $
    1.17
    
    
    $
    0.12
    
    
    $
    0.14
 Holders of our Common Stock
  13




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##### Table of Contents



Dividend Policy
  Equity Compensation Plan Information
 (a)
    
    
    (b)
    
    
    (c)Number of
    
    
    
    
    
    
    Number ofsecurities to
    
    
    
    
    
    
    securitiesbe issued upon
    
    
    Weighted
    
    
    remaining forexercise of
    
    
    average
    
    
    futurePlan Categories
    
    options
    
    
    exercise price
    
    
    issuanceEquity compensation plans approved by
Security holdersEquity compensation plans not approved
By security holders2005 Stock Incentive Plan (1)
    
    
    3,750,000
    
    
    $
    .76
    
    
    
    1,250,000Prior equity compensation (2)
    
    
    600,000
    
    
    $
    .10
    
    
    
    -0-Total
    
    
    4,350,000
    
    
    $
    .67
    
    
    
    1,250,000
 
 (1)
    
    On October 17, 2005, our Board of Directors adopted the 2005 Stock Incentive plan and approved
the issuance of options to purchase 3,500,000 shares at an average exercise price of $.78 per
share. Our Board of Directors later approved the issuance of options to purchase 250,000 shares at
an average exercise price of $.49 per share. Both the adoption of the plan and the grant of
options under the plan are subject to stockholder approval, which will be sought at our 2006 annual
meeting of stockholders.(2)
    
    Prior to 2005 Stock Option Plan, we issued 900,000 stock options to affiliates of which 600,000
are still active. These options are evergreen and are exercisable, in whole or in part at any time,
and have an exercise price of $.10 per share. The options may be assigned or transferred, in whole
or in part, so long as such assignment or transfer is in accordance with and subject to the
provisions of the Securities Act of 1933, as amended, and the rules promulgated there under. 
 Item 6. Selected Financial Data
  14




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##### Table of Contents



Years Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Revenues
    
    $
    59,227,145
    
    
    $
    27,828,362
    
    
    $
    19,309,814
    
    
    $
    2,869,792
    
    
    $
    3,617,389Operating Expenses:Cost of revenues
    
    
    41,668,047
    
    
    
    23,262,586
    
    
    
    16,210,622
    
    
    
    2,955,637
    
    
    
    2,357,848Selling, general and administrative
    
    
    2,772,785
    
    
    
    2,011,624
    
    
    
    1,423,122
    
    
    
    690,848
    
    
    
    1,885,896Warranty expense
    
    
    138,847
    
    
    
    110,820
    
    
    
    89,001
    
    
    
    18,564
    
    
    
    44,579,679
    
    
    
    25,385,030
    
    
    
    17,722,745
    
    
    
    3,665,049
    
    
    
    4,243,744Operating Income
    
    
    14,647,466
    
    
    
    2,443,332
    
    
    
    1,587,069
    
    
    
    (795,257
    )
    
    
    (626,355
    )Other Income (Expense):Interest income
    
    
    86,039
    
    
    
    75,139
    
    
    
    74,157
    
    
    
    25,704
    
    
    
    5,556Gain (loss) on sale of equipment
    
    
    7,369
    
    
    
    3,228
    
    
    
    (868
    )
    
    
    6,510
    
    
    
    Other income
    
    
    202,862
    
    
    
    34,924
    
    
    
    18,252
    
    
    
    (268,231
    )
    
    
    136,757296,270
    
    
    
    113,291
    
    
    
    91,541
    
    
    
    (236,017
    )
    
    
    142,313Income Before Provision For
Income Taxes
    
    
    14,943,736
    
    
    
    2,556,623
    
    
    
    1,678,610
    
    
    
    (1,031,274
    )
    
    
    (484,042
    )Provision (benefit) for income taxes
    
    
    5,618,797
    
    
    
    1,022,488
    
    
    
    438,066
    
    
    
    (277,592
    )
    
    
    (193,000
    )Net
Income (Loss) Before Discontinued Operations and
Sale of Discontinued Business
    
    
    9,324,939
    
    
    
    1,534,135
    
    
    
    1,240,544
    
    
    
    (753,682
    )
    
    
    (291,042
    )Discontinued Operations:Gain (loss) on forgiveness of debt from
operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    1,312,777
    
    
    
    (1,146,457
    )
    
    
    (47,902
    )Gain (loss) on sale of discontinued
operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    (1,190,335
    )
    
    
    
    
    
    
    214,219Net Income (Loss)
    
    
    9,324,939
    
    
    
    1,534,135
    
    
    
    1,362,986
    
    
    
    (1,900,139
    )
    
    
    (124,725
    )Other Comprehensive Income:Unrealized holding gain (losses)
    
    
    14,146
    
    
    
    1,230
    
    
    
    2,459
    
    
    
    (275,392
    )
    
    
    (257,402
    )Reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    270,882
    
    
    
    14,364Comprehensive Income
    
    $
    9,339,085
    
    
    $
    1,535,365
    
    
    $
    1,365,445
    
    
    $
    (1,904,649
    )
    
    $
    (367,763
    )
 15




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Years Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Primary Earnings (Loss) per Share
    
    $
    0.191
    
    
    $
    0.032
    
    
    $
    0.028
    
    
    $
    (0.039
    )
    
    $
    Fully Diluted Earnings(Loss) per Share
    
    $
    0.115
    
    
    $
    0.019
    
    
    $
    0.017
    
    
    $
    (0.039
    )
    
    $
    Earnings (Loss) per Share from
Discontinued Operations
    
    $
    
    
    
    $
    
    
    
    $
    0.002
    
    
    $
    (0.024
    )
    
    $
    Earnings (Loss) per Share from
Continuing Operations
    
    $
    0.191
    
    
    $
    0.032
    
    
    $
    0.026
    
    
    $
    (0.015
    )
    
    $
    Statistical Data As a Percentage of Net SalesCost of revenues
    
    
    70
    %
    
    
    84
    %
    
    
    84
    %
    
    
    103
    %
    
    
    65
    %Operating Income
    
    
    25
    %
    
    
    9
    %
    
    
    8
    %
    
    
    
    
    
    
    Selling, general and admin.
    
    
    5
    %
    
    
    7
    %
    
    
    7
    %
    
    
    24
    %
    
    
    52
    %Comprehensive net income (loss)
    
    
    16
    %
    
    
    5
    %
    
    
    7
    %
    
    
    
    
    
    
    Cash Flow DataNet cash provided by (used in)
Operating activities
    
    $
    21,805,758
    
    
    $
    3,333,887
    
    
    $
    548,465
    
    
    $
    (32,516
    )
    
    $
    (427,330
    )Net cash provided by (used in)
Investing activities
    
    $
    (1,219,507
    )
    
    $
    (123,875
    )
    
    $
    (82,208
    )
    
    $
    253,128
    
    
    $
    257,235Net cash provided by (used in)
Financing activities
    
    $
    (756,061
    )
    
    $
    (1,109,858
    )
    
    $
    (678,694
    )
    
    $
    391,893
    
    
    $
    170,434Balance Sheet DataTotal assets
    
    $
    32,703,847
    
    
    $
    11,048,298
    
    
    $
    8,239,663
    
    
    $
    7,586,359
    
    
    $
    2,513,847Total liabilities
    
    $
    18,003,086
    
    
    $
    5,686,622
    
    
    $
    4,413,352
    
    
    $
    5,369,668
    
    
    $
    1,932,229Stockholders Equity
    
    $
    14,700,761
    
    
    $
    5,361,676
    
    
    $
    3,826,311
    
    
    $
    2,216,691
    
    
    $
    581,618
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Introduction
   16




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%
    
    
    
    
    
    %Increase
    
    
    
    
    
    Increase2005
    
    (decrease)
    
    2004
    
    (decrease
    
    2003Core Business Revenue
    
    $
    17,045,347
    
    
    
    (1.0
    )%
    
    $
    17,216,772
    
    
    
    6.4
    %
    
    $
    16,185,047Emergency Services Revenue
    
    $
    42,181,798
    
    
    
    297.5
    %
    
    $
    10,611,590
    
    
    
    239.6
    %
    
    $
    3,124,767Total Revenue
    
    $
    59,227,145
    
    
    
    112.8
    %
    
    $
    27,828,362
    
    
    
    44.1
    %
    
    $
    19,309,814Core Business Margin
    
    $
    1,229,005
    
    
    
    (59.8
    )%
    
    $
    3,060,065
    
    
    
    65.5
    %
    
    $
    1,849,034Emergency Services Margin
    
    $
    16,330,093
    
    
    
    984.5
    %
    
    $
    1,505,711
    
    
    
    20.4
    %
    
    $
    1,250,158Total Margin
    
    $
    17,559,098
    
    
    
    284.6
    %
    
    $
    4,565,776
    
    
    
    47.3
    %
    
    $
    3,099,192Cash Flow from Operations
    
    $
    21,805,758
    
    
    
    554.1
    %
    
    $
    3,333,887
    
    
    
    507.9
    %
    
    $
    548,465EBITDA
    
    $
    15,071,019
    
    
    
    458.9
    %
    
    $
    2,696,624
    
    
    
    51.3
    %
    
    $
    1,781,954Net Income
    
    $
    9,324,939
    
    
    
    507.8
    %
    
    $
    1,534,135
    
    
    
    12.6
    %
    
    $
    1,362,986Free Cash Flow
    
    $
    20,901,181
    
    
    
    554.0
    %
    
    $
    3,195,801
    
    
    
    592.8
    %
    
    $
    461,257
 Reconciliation of Free Cash Flow:
 2005
    
    
    2004
    
    
    2003Cash Flow from Operations
    
    $
    21,805,758
    
    
    $
    3,333,887
    
    
    $
    548,465Capital Expenditures
    
    $
    904,577
    
    
    $
    138,086
    
    
    $
    87,208Free Cash Flow
    
    $
    20,901,181
    
    
    $
    3,195,801
    
    
    $
    461,257Reconciliation of EBITDA:Net Income
    
    $
    9,324,939
    
    
    $
    1,534,135
    
    
    $
    1,362,986
 17




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Years Ended December 31,2005
    
    
    2004
    
    
    2003Interest (Income)
    
    $
    (86,039
    )
    
    $
    (75,139
    )
    
    $
    (74,157
    )(Gain) Loss on Sale of Equipment
    
    $
    (7,369
    )
    
    $
    (3,228
    )
    
    $
    868Provision (Benefit) for Income Taxes
    
    $
    5,618,797
    
    
    $
    1,022,488
    
    
    $
    438,066Discontinued Operations
    
    $
    
    
    
    $
    
    
    
    $
    (122,442
    )Depreciation
    
    $
    220,691
    
    
    $
    218,368
    
    
    $
    176,633EBITDA
    
    $
    15,071,019
    
    
    $
    2,696,624
    
    
    $
    1,781,954
    Discontinued Operations
  18




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##### Table of Contents



Critical Accounting Policies and Estimates
 General
  Revenue Recognition
   Cash and Cash Equivalents
  Investments
   19




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##### Table of Contents



Fair Value of Financial Instruments
  Income Taxes
  Net Income (Loss) Per Share
  Property and Equipment
  Changes from the Prior Period
  Relationship with Oklahoma Development Group
   20




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##### Table of Contents




    
    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.
     o
    
    The USACE forecasts were established on an estimated average square foot per house model;o
    
    The average decreased significantly over the original forecast; ando
    
    The homeowner cancellation rate escalated over the course of the project.
  21
    Table of Contents     
    
    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.
  Corporate Governance Matters
  Results of Operations
 Comparison of 2005 and 2004
 Revenues 22
    Table of Contents    Operating Expenses
 Income before Provision for Income Taxes
 Net Income.
 Comparison of 2004 and 2003
 Revenues
 Operating Expenses
 Income before Provision for Income Taxes
 Discontinued Operations
 23




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##### Table of Contents



Net Income.
 Off-Balance Sheet Arrangements
  Seasonality
   Commitments and Contingencies
    Liquidity and Capital Resources
 Year Ended December 31, 2005
   24




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##### Table of Contents



Adequacy of Current Liquidity
  Contractual Obligations
  Total
    
    
    Less than 1 Year
    
    
    1  3 Years
    
    
    3  5 Years
    
    
    More than 5 YearsOperating leases
    
    $
    195,000
    
    
    $
    195,000
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ATotal
    
    $
    195,000
    
    
    $
    195,000
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  25




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##### Table of Contents



Interest Rate 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.
 
 PART III
  26




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##### Table of Contents



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)10.1
    
    
    Service Agreement dated February 9, 2005 between Zenex
International, Inc. and Oklahoma Development Group, LLC (filed
herewith)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)21.1
    
    
    Subsidiaries of Zenex31.1
    
    
    Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 2002
 27




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##### Table of Contents



Exhibit No.
    
    Description of Exhibit31.2
    
    
    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
  Zenex International, Inc.Date: March 15, 2006
    
    By:
    
    /s/ Ron CartePresident and Chief Executive Officer
  Name
    
    Title
    
    Date/s/ Ron Carte
    
    Chairman of the Board of
Directors, President and Chief
Executive Officer
    
    March 15, 2006/s/ Reggie Cook
    
    Chief Financial Officer, (Principal
Accounting Officer)
    
    March 15, 2006/s/ Timothy Aduddell
    
    Director
    
    March 15, 2006/s/ David Aduddell
    
    Director
    
    March 15, 2006/s/ Debra Morehead
    
    Director
    
    March 15, 2006/s/ Thomas Parrish
    
    Director
    
    March 15, 2006/s/ Jerry Whitlock
    
    Director
    
    March 15, 2006
 28




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##### Table of Contents



Zenex International, Inc.
 Consolidated Financial Statements
 And
 Report of Independent Registered Public Accounting Firm
 Years Ended December 31, 2005, 2004 and 2003
 29




---



##### 



Zenex International, Inc.
 Table of Contents
 PageReport of Independent Registered Public Accounting Firm
    
    F-2Financial StatementsConsolidated Balance Sheets
as of December 31, 2005 and 2004
    
    F-3Consolidated Statements of Operations and Comprehensive Income
for the years ended December 31, 2005, 2004 and 2003
    
    F-5Consolidated Statements of Stockholders Equity
for the years ended December 31, 2005, 2004, and 2003
    
    F-7Consolidated Statements of Cash Flows
for the years ended December 31, 2005, 2004 and 2003
    
    F-8Notes to Consolidated Financial Statements
    
    F-10
  F-1




---



##### 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




---



##### Table of Contents



ZENEX INTERNATIONAL, INC.
 
 CONSOLIDATED BALANCE SHEETS
 DECEMBER 31,
 2005
    
    
    2004AssetsCurrent AssetsCash
    
    $
    22,330,751
    
    
    $
    2,500,561Accounts receivable, net of allowance
for doubtful accounts
    
    
    4,614,895
    
    
    
    4,756,142Costs and estimated earnings in excess of
billings on uncompleted contracts
    
    
    2,158,971
    
    
    
    1,363,505Prepaid expenses
    
    
    168,839
    
    
    
    109,994Employee and other receivables, net of
allowance for doubtful accounts
    
    
    16,199
    
    
    
    95,02729,289,655
    
    
    
    8,825,229Non-Current Related Party Receivable
    
    
    1,801,133
    
    
    
    1,730,340Property and Equipment
    
    
    2,069,686
    
    
    
    1,839,807Less: accumulated depreciation
    
    
    (879,737
    )
    
    
    (1,387,818
    )1,189,949
    
    
    
    451,989OtherInvestments
    
    
    423,110
    
    
    
    5,740Deferred tax asset
    
    
    
    
    
    
    35,000423,110
    
    
    
    40,740$
    32,703,847
    
    
    $
    11,048,298
  F-3




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
 2005
    
    
    2004Liabilities and Stockholders EquityCurrent LiabilitiesCurrent portion of long-term debt
    
    $
    213,410
    
    
    $
    734,257Accounts and subcontract payables
    
    
    11,825,466
    
    
    
    3,935,652Accrued liabilities
    
    
    250,883
    
    
    
    253,329Insurance payable
    
    
    40,458
    
    
    
    245,099Income tax payable
    
    
    5,349,105
    
    
    
    112,002Billings in excess of costs and estimated
earnings on uncompleted contracts
    
    
    97,784
    
    
    
    225,08817,777,106
    
    
    
    5,505,427Long-Term Debt (Net of Current Portion)
    
    
    81,980
    
    
    
    181,195Deferred Income Taxes
    
    
    144,000
    
    
    
    Stockholders 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, 48,737,921 and 48,737,921
shares issued and outstanding at December 31,
2005 and 2004)
    
    
    48,738
    
    
    
    48,738Paid-in capital
    
    
    4,860,632
    
    
    
    4,860,632Unrealized gain (loss) on available-for-sale securities
    
    
    (3,569
    )
    
    
    (17,715
    )Retained earnings
    
    
    9,794,960
    
    
    
    470,02114,700,761
    
    
    
    5,361,676$
    32,703,847
    
    
    $
    11,048,298
  F-4




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR THE YEARS ENDED DECEMBER 31,
 2005
    
    
    2004
    
    
    2003Revenues
    
    $
    59,227,145
    
    
    $
    27,828,362
    
    
    $
    19,309,814Operating ExpensesCost of sales
    
    
    41,668,047
    
    
    
    23,262,586
    
    
    
    16,210,622Selling, general and administrative
    
    
    2,772,785
    
    
    
    2,011,624
    
    
    
    1,423,122Warranty expense
    
    
    138,847
    
    
    
    110,820
    
    
    
    89,00144,579,679
    
    
    
    25,385,030
    
    
    
    17,722,745Operating Income
    
    
    14,647,466
    
    
    
    2,443,332
    
    
    
    1,587,069Other Income (Expense)Interest and dividend income
    
    
    86,039
    
    
    
    75,139
    
    
    
    74,157Gain(loss) on sale of equipment
    
    
    12,369
    
    
    
    3,228
    
    
    
    (868
    )Other income
    
    
    197,862
    
    
    
    34,924
    
    
    
    18,252296,270
    
    
    
    113,291
    
    
    
    91,541Net Income from Operations
Before Income Taxes
    
    
    14,943,736
    
    
    
    2,556,623
    
    
    
    1,678,610Income tax expense
    
    
    5,618,797
    
    
    
    1,022,488
    
    
    
    438,066Net Income Before Discontinued
Operations and Sale of Discontinued
Business
    
    
    9,324,939
    
    
    
    1,534,135
    
    
    
    1,240,544Discontinued OperationsGain (loss) on forgiveness of debt from
operations net of income taxes
    
    
    
    
    
    
    
    
    
    
    1,312,777Gain (loss) on sale of discontinued
operations net of income taxes
    
    
    
    
    
    
    
    
    
    
    (1,190,335
    )Net Income
    
    
    9,324,939
    
    
    
    1,534,135
    
    
    
    1,362,986
  F-5




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
 2005
    
    
    2004
    
    
    2003Other Comprehensive IncomeUnrealized holding gains
    
    
    14,146
    
    
    
    1,230
    
    
    
    2,459Reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    Comprehensive Income
    
    $
    9,339,085
    
    
    $
    1,535,365
    
    
    $
    1,365,445Primary Earnings per Share
    
    $
    0.191
    
    
    $
    0.032
    
    
    $
    0.028Fully Diluted Earnings per Share
    
    $
    0.115
    
    
    $
    0.019
    
    
    $
    0.017Earnings per Share from
Discontinued Operations
    
    $
    
    
    
    $
    
    
    
    $
    0.020Earnings per Share from
Continuing Operations
    
    $
    0.191
    
    
    $
    0.032
    
    
    $
    0.026
  F-6




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 For the Years Ended December 31, 2002, 2004 and 2003
 UnrealizedShares of
    
    
    Par Value
    
    
    Additional
    
    
    
    
    
    
    Holding
    
    
    TotalCommon
    
    
    Common
    
    
    Paid in
    
    
    Retained
    
    
    Gains
    
    
    StockholdersStock
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    (Losses)
    
    
    EquityBalance at December 31, 2002
    
    
    48,342,290
    
    
    $
    48,342
    
    
    $
    4,616,853
    
    
    $
    (2,427,100
    )
    
    $
    (21,404
    )
    
    $
    2,216,691Common stock issued earn-out conversion
    
    
    3,395,631
    
    
    
    3,396
    
    
    
    240,779
    
    
    
    
    
    
    
    
    
    
    
    244,175Cancellation of shares for non-performance
    
    
    (3,000,000
    )
    
    
    (3,000
    )
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    Unrealized Holding Gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,459
    
    
    
    2,459Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,362,986
    
    
    
    
    
    
    
    1,362,986Balance 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
    )
    
    $
    14,700,761
  F-7




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31,
 2005
    
    
    2004
    
    
    2003Cash Flows from Operating ActivitiesNet income
    
    $
    9,324,939
    
    
    $
    1,534,135
    
    
    $
    1,362,986Reconciliation of net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    220,691
    
    
    
    218,368
    
    
    
    176,633Issuance of debt for interest expense
    
    
    6,000
    
    
    
    
    
    
    
    1,404Bad debt write-off
    
    
    40,000
    
    
    
    
    
    
    
    Gain on sale of property and equipment
    
    
    (12,369
    )
    
    
    (3,228
    )
    
    
    1,127,883Bad debt write-off
    
    
    (310,710
    )
    
    
    
    
    
    
    (1,312,777
    )Property given for services
    
    
    
    
    
    
    17,000
    
    
    
    (Increase) Decrease from changes in:Accounts receivable
    
    
    451,957
    
    
    
    (1,545,983
    )
    
    
    (525,944
    )Costs and estimated earnings in excess of
billings on uncompleted contracts
    
    
    (795,466
    )
    
    
    (421,870
    )
    
    
    (929,158
    )Shareholder receivable
    
    
    
    
    
    
    
    
    
    
    1,828Officer receivable
    
    
    
    
    
    
    
    
    
    
    (890
    )Income tax receivable
    
    
    
    
    
    
    
    
    
    
    136,592Related party receivable
    
    
    (70,793
    )
    
    
    (60,997
    )
    
    
    (53,650
    )Deferred taxes
    
    
    
    
    
    
    1,012,000
    
    
    
    94,559Prepaid expenses
    
    
    (58,845
    )
    
    
    (13,657
    )
    
    
    111,983Employee and other receivables
    
    
    38,828
    
    
    
    214,991
    
    
    
    143,609Increase (Decrease) from changes in:Accounts payable
    
    
    7,889,814
    
    
    
    2,239,601
    
    
    
    377,772Insurance payable
    
    
    (204,641
    )
    
    
    202,522
    
    
    
    (136,589
    )Accrued liabilities
    
    
    (2,446
    )
    
    
    (31,850
    )
    
    
    (71,678
    )Income tax payable
    
    
    5,237,103
    
    
    
    (49,595
    )
    
    
    161,597Billings in excess of costs and estimated
earnings on uncompleted contracts
    
    
    (127,304
    )
    
    
    22,450
    
    
    
    (117,695
    )Deferred taxes
    
    
    179,000
    
    
    
    
    
    
    
    Net adjustments to net income
    
    
    12,480,819
    
    
    
    1,799,752
    
    
    
    (814,521
    )Net cash provided by operating activities
    
    
    21,805,758
    
    
    
    3,333,887
    
    
    
    548,465
  F-8




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
 2005
    
    
    2004
    
    
    2003Cash Flows from Investing ActivitiesPurchase of investment securities
    
    
    (403,225
    )
    
    
    
    
    
    
    Proceeds from sale of property and equipment
    
    
    88,295
    
    
    
    14,211
    
    
    
    5,000Purchase of property and equipment
    
    
    (904,577
    )
    
    
    (138,086
    )
    
    
    (87,208
    )Net cash used by investing activities
    
    
    (1,219,507
    )
    
    
    (123,875
    )
    
    
    (82,208
    )Cash Flows from Financing ActivitiesNet change in line of credit
    
    
    
    
    
    
    (733,743
    )
    
    
    (441,257
    )Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    249,953Retirement of long-term debt
    
    
    (756,061
    )
    
    
    (376,115
    )
    
    
    (487,390
    )Net cash used by financing activities
    
    
    (756,061
    )
    
    
    (1,109,858
    )
    
    
    (678,694
    )Net Increase in Cash
    
    
    19,830,190
    
    
    
    2,100,154
    
    
    
    (212,437
    )Cash at Beginning of Period
    
    
    2,500,561
    
    
    
    400,407
    
    
    
    612,844Cash at End of Period
    
    $
    22,330,751
    
    
    $
    2,500,561
    
    
    $
    400,407Supplemental Disclosure of Cash Flow
InformationCash paid for:Interest
    
    $
    142,950
    
    
    $
    152,158
    
    
    $
    150,850Taxes
    
    
    84,692
    
    
    
    60,083
    
    
    
    3,103Supplemental Schedule of Non-Cash
Investing and Financing ActivitiesFixed asset additions
    
    $
    130,000
    
    
    $
    
    
    
    $
    38,808Liabilities assumed or incurred
    
    $
    130,000
    
    
    $
    
    
    
    $
    38,808Common stock issued for services
    
    $
    
    
    
    $
    
    
    
    $
    35,000
  F-9




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Organization and Nature of Business
     F-10




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##### Table of Contents



ZENEX
INTERNATIONAL, INC.NOTES TO THE CONSOLIDATED FINACIAL STATEMENTS
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  
    
    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.
     F-11




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Principles of Consolidation
  Revenue Recognition
   Cash and Cash Equivalents
  F-12




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Investments
 Statement of Financial
Accounting Standards No. 115 Accounting for Certain Investments in Debt and Equity Securities
(SFAS No. 115).
 SFAS No. 115
 Fair Value of Financial Instruments
  Income Taxes
 Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes SFAS No. 109 SFAS No. 109
 Net Income (Loss) Per Share
 SFAS No. 128 Earnings per
Share SEC Staff Accounting Bulletin No. 98 (SAB 98). SFAS No. 128 SAB 98,
 F-13




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Use of Estimates
  NOTE 2  CONTRACT RECEIVABLES
  December 31,
    
    
    December 31,2005
    
    
    2004Completed contracts
    
    $
    2,510,811
    
    
    $
    1,384,011Contracts in progress
    
    
    1,439,198
    
    
    
    2,919,282Retainage
    
    
    664,886
    
    
    
    452,8494,614,895
    
    
    
    4,756,142Less allowance for doubtful amounts
    
    
    
    
    
    
    $
    4,614,895
    
    
    $
    4,756,142
 NOTE 3  UNCOMPLETED CONTRACTS
  December 31,
    
    
    December 31,2005
    
    
    2004Costs incurred on uncompleted contracts
    
    $
    35,222,123
    
    
    $
    14,201,734Estimated earnings
    
    
    16,992,366
    
    
    
    2,633,96452,214,489
    
    
    
    16,835,698Billings to date
    
    
    50,153,302
    
    
    
    15,697,281$
    2,061,187
    
    
    $
    1,138,417
  December 31,
    
    
    December 31,2005
    
    
    2004Costs and estimated
earnings in excess
of billings on
uncompleted
contracts
    
    $
    2,158,971
    
    
    $
    1,363,505Billings in excess
of costs and
estimated earnings
on uncompleted
contracts
    
    
    (97,784
    )
    
    
    (225,088
    )$
    2,061,187
    
    
    $
    1,138,417
 F-14




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 4  PROPERTY AND EQUIPMENT
  Property and Equipment
    
    Cost
    
    
    YearsDecember 31,
    
    
    December 31,2005
    
    
    2004Field and shop equipment
    
    $
    637,565
    
    
    $
    465,869
    
    
    
    5-7Office furniture and equipment
    
    
    228,927
    
    
    
    193,596
    
    
    
    5-10Transportation equipment
    
    
    1,107,193
    
    
    
    1,150,934
    
    
    
    5Leasehold improvements
    
    
    96,001
    
    
    
    29,408
    
    
    
    15-392,069,686
    
    
    
    1,839,807Less: accumulated depreciation
    
    
    879,737
    
    
    
    1,387,818Net property and equipment
    
    $
    1,189,949
    
    
    $
    451,989
 NOTE 5  LETTER OF CREDIT
  NOTE 6  LINE OF CREDIT
  
 F-15




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 7  LONG-TERM DEBT
  December 31,
    
    
    December 31,2005
    
    
    2004Note payable secured by the personal
guaranty of certain Directors, bearing
interest at 7.5%, due in monthly
installments of $8,673 through June 2006
    
    $
    
    
    
    $
    386,987Note 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
    
    
    182,562
    
    
    
    372,924Note payable to shareholder bearing
interest at 5%, due in monthly
installments of $5,000 with a balloon
payment in September 2006
    
    
    
    
    
    
    132,768Note payable secured by transportation
equipment, bearing interest at 6%, due
in monthly installments of $3,065 through
June 2009
    
    
    112,828
    
    
    
    Non-interest bearing notes secured by
transportation equipment, due in varying
monthly installments through October 2005
    
    
    
    
    
    
    22,773295,390
    
    
    
    915,452Less: current portion of long-term debt
    
    
    213,410
    
    
    
    734,257$
    81,980
    
    
    $
    181,195
  Year
    
    Amount2006
    
    $
    213,4102007
    
    
    32,7522008
    
    
    34,7722009
    
    
    14,456$
    295,390
 F-16




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 7  LONG-TERM DEBT (continued)
  NOTE 8  PENSION PLAN
 Internal Revenue Code
 NOTE 9  STOCK INCENTIVE PLAN
 Section 422 Internal Revenue Code of 1986
 
 F-17




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 10  INCOME TAXES
    December 31,
    
    
    December 31,2005
    
    
    2004Deferred tax liability on depreciation
    
    $
    (245,000
    )
    
    $
    (85,000
    )Deferred tax asset for loss carry forward
    
    
    304,000
    
    
    
    323,000Deferred tax asset
    
    
    59,000
    
    
    
    238,000Less: valuation allowance
    
    
    203,000
    
    
    
    203,000Net deferred tax asset (liability)
    
    $
    (144,000
    )
    
    $
    35,000
 NOTE 11  RELATED PARTY TRANSACTIONS
  
 F-18




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 11  RELATED PARTY TRANSACTIONS (continued)
    NOTE 12  BACKLOG
  NOTE 13  STOCK OPTIONS
     F-19




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 14  EARNINGS PER SHARE
 December 31,
    
    
    December 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2003Primary earnings per share:(in thousands)Common shares outstanding
    
    
    48,737,921
    
    
    
    48,737,921
    
    
    
    47,836,558Weighted average shares outstanding
    
    
    48,737,921
    
    
    
    48,737,921
    
    
    
    47,836,558Earnings per share
    
    $
    0.191
    
    
    $
    0.032
    
    
    $
    0.028Fully diluted earnings per share:Common shares outstanding
    
    
    80,737,921
    
    
    
    80,137,921
    
    
    
    78,536,558Weighted average shares outstanding
    
    
    80,737,921
    
    
    
    80,137,921
    
    
    
    78,536,558Earnings per share
    
    $
    0.115
    
    
    $
    0.019
    
    
    $
    0.017
 NOTE 15  COMMITMENTS AND CONTINGENCIES
   Federal Deposit Insurance Corporation
 Lawsuit
  F-20




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##### Table of Contents



ZENEX INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 16  CONCENTRATIONS
    F-21