DEVELOPMENT
      AGREEMENT

     

    BETWEEN

     

    HEMIWEDGE
      VALVE CORPORATION

    AND

    AT
      BALANCE AMERICAS LLC

     

    TABLE
      OF CONTENTS

     

     

    


    
      	 	 	
              PAGE

            
	
              ARTICLE
                1

            	
              DEFINITIONS
                

            	
              2

            
	
              ARTICLE
                2

            	
              JOINT
                PROJECTS: MANAGEMENT AND STRUCTURE

            	
              5

            
	
              ARTICLE
                3

            	
              RIGHTS
                AND LICENSES 

            	
              7

            
	
              ARTICLE
                4

            	
              CONFIDENTIAL
                INFORMATION 

            	
              8

            
	
              ARTICLE
                5

            	
              TERM
                AND TERMINATION 

            	
              9

            
	
              ARTICLE
                6

            	
              REPRESENTATIONS
                AND WARRANTIES 

            	
              9

            
	
              ARTICLE
                7

            	
              LIMITATION
                OF REMEDIES 

            	
              10

            
	
              ARTICLE
                8

            	
              NOTICES
                

            	
              10

            
	
              ARTICLE
                9

            	
              MISCELLANEOUS
                

            	
              11

            
	
              ARTICLE
                10

            	
              GOVERNING
                LAW AND JURISDICTION 

            	
              13

            
	
              EXHIBIT
                A

            	
              INTELLECTUAL
                PROPERTY OF THE PARTIES 

            	
              14

            
	
              EXHIBIT
                B

            	
              DESCRIPTION
                OF PHASES OF WORK 

            	
              15

            


    

     

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
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                AGREEMENT

            	 


    

     

     

    DEVELOPMENT
      AGREEMENT

     

    This
      Development Agreement is made effective as of July 13,
      2006
      (the
      "Effective

     

    Date"),
      and is between HEMIWEDGE VALVE CORPORATION, a Texas corporation (hereinafter
      "HVC"), a wholly-owned subsidiary and Affiliate of Shumate Industries, Inc.,
      ("SHUMATE") having an office at 12060 FM 3083, Conroe, TX 77301, and AT BALANCE
      AMERICAS LLC, a Limited Liability Corporation organized under the laws of
      Delaware (hereinafter "@BALANCE"), a wholly-owned subsidiary and Affiliate
      of
      Shell Technology Ventures, having an office at 11767 Katy Freeway, Suite 1030,
      Houston, TX 77069. HVC and @BALANCE may be referred to herein individually
      as a
      "Party" or collectively as "the Parties."

     

    Whereas
      HVC has expertise in designing and manufacturing certain valves (called
      "HEMIWEDGE®"
      valves)
      and @BALANCE has expertise in well construction and workover operations that
      may
      use a subsurface valve called a "Downhole Isolation Valve" and the Parties
      desire to cooperate to develop and produce an improved valve for use as a
      Downhole Isolation Valve;

     

    Now,
      therefore, the Parties are entering into this Agreement that will set forth
      the
      terms and conditions under which the Parties may engage in development
      activities, as may be agreed by the Parties from time to time, pursuant to
      the
      procedures set forth herein.

     

    ARTICLE
      1: DEFINITIONS

     

    Unless
      expressly defined and used with an initial capital letter in this Agreement,
      words shall have their normally accepted meanings. The word "shall" is
      mandatory, the word "may" is permissive, the word "or"
      is not
      exclusive, the words "includes"
      and
"including"
      are not
      limiting, and the singular includes the plural. The following terms shall have
      the described meanings:

     

    1. "Affiliate"
      of a Party means any controlling parent company of a Party, and all present
      and
      future companies in which a Party or its parent company, directly or indirectly,
      owns or controls 50% or more of the stock.

     

    1.2 "Agreement"
      means the terms and conditions of this Development Agreement together with
      any
      exhibits or attachments including any Phase Descriptions signed by both Parties
      and referring to this Development Agreement, such as included in EXHIBIT B,
      which are incorporated herein by this reference.

     

    1.3 "Change
      of Control" means a change in ownership or control of a Party effected through
      any of the following transactions:

     

    
      


      
        
          
          

        

        
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    (i) a
      merger,
      consolidation or reorganization approved by the Party's equity holders, unless
      securities representing more than fifty percent (50%) of the total combined
      voting power of
      the
      voting securities of the successor entity are immediately thereafter
      beneficially owned, directly or indirectly and in substantially the same
      proportion, by the persons who beneficially owned such Party's outstanding
      voting securities immediately prior to such transaction, or

     

    (ii) any
      transfer or other disposition of all or substantially all of the Party's
      assets.

     

    1.4 "Confidential
      Information" means HVC Confidential Information, @BALANCE Confidential
      Information, or both if the context so indicates.

     

    1.5 "Custom
      Sales Agreement" means the agreement so titled, if executed by and between
      the
      Parties that sets out the terms under which Joint Product will be manufactured
      and sold to @BALANCE. The Custom Sales Agreement will be executed concurrently
      with the issuance of Warrants and the termination of this Agreement except
      as to
      its provisions for confidentiality.

     

    1.6 "Disclosing
      Party" means either Party hereunder that discloses its Confidential Information
      to the other Party.

     

    1.7 "HVC
      Confidential Information" means any and all information and items disclosed
      or
delivered
      by HVC to @BALANCE hereunder, that is identified by HVC as confidential,
      whether
      written,
      oral or both, in whatever form disclosed or delivered, whether tangible or
      intangible (including software). With respect to the HVC Confidential
      Information referenced in the preceding sentence, HVC agrees (i) to coordinate
      and control the disclosure thereof with an @BALANCE
      Representative, (ii) if such HVC Confidential Information is disclosed in
      tangible
      form,
      HVC will stamp or otherwise clearly mark such information as HVC Confidential
      Information,
      and (iii) if such Confidential information is disclosed orally, HVC agrees
      to
      identify
      the
      Confidential Information as confidential at the time of disclosure, and provide
      to @BALANCE written confirmation thereof within thirty (30) days after such
      disclosure.

     

    1.8 "HVC
      Licensed Patent Claims" means the claims of any patent:

     

    1.8.1 that
      are
      necessarily infringed in the manufacture or sale or other transfer of
Joint
      Products; and

     

    1.8.2 under
      which patents, claims or the relevant patent applications therefore, HVC
has
      the
      right to grant licenses to @BALANCE of the scope granted below, without such
      grant or
      the
      exercise of rights thereunder resulting in the payment of royalties or other
      consideration by HVC to third parties. The term "HVC Licensed Patent Claim"
      shall also include the corresponding claims of any reissued or reexamined
      patents containing any of the aforesaid claims provided they continue to meet
      the aforesaid criteria.

    
      


      
        
          
          

        

        
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    1.9 "HVC
      Technology" means (i) the information listed in a Phase Description as being
      provided by and that is actually provided by HVC (ii) any other information
      provided by HVC pursuant to a Phase, including technical information, know-how,
      trade secrets and other information but only to the extent such information
      described in (i) and (ii) above, is owned or controlled
      by HVC or licensed to HVC independently of a Joint Project and HVC has the
      free
      right to grant a license or a non-assertion right to the extent necessary for
      the implementation of the Joint Project.

     

    1.10 "Joint
      Product" means a Downhold Isolation Valve used in any activity related to
      forming, improving or refurbishing an hydraulic connection between a subsurface
      reservoir and the Earth's surface or water bottom, including but not limited
      to
      drilling, completing or working over a well, apparatus related to or used with
      the Valve, or any other item specified in a Phase Description to be jointly
      developed by the Parties hereunder.

     

    1.11 "Joint
      Project" means development work described in the Phase Descriptions in Exhibit
      B.

     

    1.12 "Joint
      Technology" means, unless specified otherwise in a Phase Description, those
      Inventions or other materials consisting of the specific results of the Parties'
      partial or completed design and development work pursuant to Joint Project,
      as
      embodied in all tangible, written, graphic, and other documentary forms as
      well
      as the intangible forms, and shall include but not be limited to the following:
      program material, design information, engineering notes, Joint Project design
      databases, design tool and design methodology information and designs and any
      tools developed as part of a Joint Product.

     

    1.13 "@BALANCE
      Confidential Information" means any and all information and items disclosed
      or
      delivered by @BALANCE to HVC hereunder, that is identified by @BALANCE as
      confidential, whether written, oral or both, in whatever form disclosed or
      delivered, whether tangible or intangible (including software). With respect
      to
      the @BALANCE Confidential Information referenced in the preceding sentence,
      @BALANCE agrees (i) to coordinate and control the disclosure thereof with an
      HVC
      Representative, (ii), if such @BALANCE Confidential Information is disclosed
      in
      tangible form, @BALANCE will stamp or otherwise clearly mark such information
      as
      @BALANCE Confidential Information, and (iii) if such Confidential Information
      is
      disclosed orally, @BALANCE agrees to identify the Confidential Information
      as
      confidential at the time of disclosure, and provide to HVC written confirmation
      thereof within thirty (30) days after such disclosure.

     

    1.14 "a
      BALANCE Technology" means (i) the information listed in a Phase Description
      as
      being provided by and that is actually provided by @BALANCE, (ii) any other
      information provided by @BALANCE pursuant to a Phase Description including
      technical information, know-how, trade secrets and other information, but only
      to the extent such information described in (i) and (ii) above, is owned or
      controlled by @BALANCE or licensed to @BALANCE independently of a Joint Project
      and @BALANCE has the free right to grant a license or a non-assertion right
      to
      the extent necessary for the implementation of said Joint Project.

    
      


      
        
          
          

        

        
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    1.15 "Project
      Executive Director" means the individual appointed by @BALANCE to provide
      oversight of the Joint Project.

     

    1.16 "Receiving
      Party" means either Party hereunder that receives the other Party's Confidential
      Information.

     

    1.17 "Representative"
      means, with respect to a Party, that Party's agents, representatives and
      employees (including attorneys, accountants, consultants, contract employees
      and
      advisors).

     

    1.18 "Phase
      Descriptions" means a written agreement executed by both Parties describing
      a
      Phase, such as included in EXHIBIT B.

     

    1.19 "Term"
      means the period from the Effective Date of this Agreement through the same
      date
      in the year 2008.

     

    1.20 "Warrants"
      means the security issued from HVC's publicly traded parent company Shumate
      Industries, Inc. (OTCBB:SHMT) in connection with the execution of the Custom
      Sales Agreement.

     

    ARTICLE
      2: JOINT PROJECTS: MANAGEMENT AND STRUCTURE

     

    2.1 The
      Parties agree to cooperate on a Joint Project for the design of certain Joint
      Products useful during drilling of wells. Each Phase of development work to
      be
      performed by the Parties shall be the subject of a Phase Description, which
      shall be attached as Exhibit B to this Agreement. Each Phase Description will
      establish the activities of that Phase, a plan for the conduct of the work,
      the
      schedule for task completion and the deliverables. Each Phase Description will
      set forth a budget for the Phase described. @BALANCE will pay the estimated
      costs of each Phase before work begins for the Phase. In the event of a conflict
      between the provisions of a Phase Description and the provisions of this
      Development Agreement, the provisions of the Phase Description will prevail.
      The
      Parties recognize that the budget attached in Exhibit B for each Phase is an
      estimate by HVC which may vary depending on materials costs and other variables.
      HVC will utilize a Change Order to request more money from @BALANCE during
      an
      uncompleted Phase when needed. The Parties agree that it is @BALANCE's sole
      discretion as to whether @BALANCE chooses to approve any Change
      Order.

     

    2.2 The
      initial Joint Project is described in the Phase Descriptions attached in Exhibit
      B. Future Phases, if any, will be documented in a similar mariner and will
      become a part of this Agreement upon signature by the Project Executive Director
      of @BALANCE and the Project Representative of HVC. Neither Party will be
      obligated with respect to any proposed additional Phase until and unless a
      Phase
      Description with respect thereto is signed by both Parties. Neither Party has
      an
      obligation to agree to any additional Phase.

     

    2.3 @BALANCE
      will appoint a Project Executive Director to provide oversight and coordination
      of the Joint Project.

    
      


      
        
          
          

        

        
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    2.4 HVC
      will
      appoint a Project Representative who will work with the Project Executive
      Director to ensure that appropriate development processes are being followed
      for
      all Phases.

    
      

2.5 Each
      Party agrees that its employees shall comply in all material respects with
      all
      reasonable personnel, human resources, security and safety rules, procedures
      and
      guidelines of the other Party applicable to contractors resident at or visiting
      the premises of such Party while such employees are on the other Party's
      premises.

     

    2.6 Personnel
      supplied by each Party are employees or contractors of the supplying Party
      and
      shall not for any purpose be considered employees or agents of the other Party.
      Each Party shall be responsible for the supervision, direction and control,
      payment of salary (including withholding of taxes), worker's compensation
      insurance, disability benefits and the like of its own employees while engaged
      in any Joint Project in accordance with the law of the state or states wherein
      a
      Joint Project is to be performed.

     

    2.7 To
      the
      extent permitted by law, during the Term and for one year thereafter, @BALANCE
      and HVC each agrees neither to solicit nor hire the employees of the other
      Party
      performing services hereunder without the prior written consent of the other
      Party.

     

    2.8 Each
      Party (a "Hosting Party") allowing employees of the other Parry (an "Assigning
      Party") to work on its premises assumes no liability to the Assigning Party
      for
      any injury, (including death) to persons or damage to or loss of property
      suffered on or
      about
      the
      such Hosting Party's premises or in connection with work under this Agreement
      unless caused by the willful misconduct or gross negligence of the Hosting
      Party, its employees or invitees (other than employees of the Assigning Party).
      Each Hosting Party makes no representation or warranty, written or oral, of
      any
      kind as to the condition of or the fitness for any purpose of its
      premises.

     

    ARTICLE
      3: RIGHTS AND LICENSES

     

    3.1 HVC
      shall
      contribute relevant HVC Technology, HVC Licensed Patents and HVC Confidential
      Information to the Joint Project. @BALANCE shall contribute relevant @BALANCE
      Technology. Each Party shall retain ownership of its contributed Technology,
      patent rights and Information. Joint Technology shall be owned by
      HVC.

     

    3.2 HVC
      shall
      have the right at HVC's expense to protect Joint Technology or Joint Products
      by
      U.S. and foreign patents. @BALANCE shall cooperate in prosecuting such patents
      at HVC's request. If HVC chooses not to prosecute a patent on Joint Technology,
      @BALANCE shall have the right to prosecute U.S. or foreign patents and pay
      the
      costs therefor. HVC shall pay the cost of and obtain the benefit of any action
      to enforce such patents against infringers. In the event HVC declines to take
      action to enforce such patents, @BALANCE shall have the right to take such
      action at its cost and shall obtain the benefit of any such action, and HVC
      shall join as a party to such action to enforce patents taken by @BALANCE if
      it
      is determined that HVC is a necessary party.

    


    
      
        
        

      

      
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    3.3 If
      and
      when @BALANCE reaches a decision to commercialize a Joint Product, the Parties
      will use their best efforts to negotiate and enter into a Custom Sales
      Agreement. The Custom Sales Agreement shall be executed within ninety (90)
      days
      after testing of the Joint Product
      as provided in Phase 3 (described in Exhibit B). The Custom Sales Agreement
      shall provide terms that include @BALANCE's right to have world-wide exclusivity
      in the purchase of Joint Products from HVC, provided that @BALANCE pays minimums
      (an Exclusivity Fee), purchases at least a specified value of Joint Products
      from HVC, funds part or all of any necessary capital expenditures needed by
      HVC
      to manufacture Joint Products, or any combination of the foregoing. The Custom
      Sales Agreement shall also provide @Balance the right to procure Joint Products
      from third parties to the extent HVC is not able to meet @ Balance's
      requirements for such Joint Products, and shall require HVC to license such
      third parties to such extent. The Custom Sales Agreement shall provide @BALANCE
      the right to purchase Joint Products from HVC at not more than HVC's cost to
      make same plus a markup consistent with HVC's markup on similar HVC products
      sold to third parties in arm's length transactions.

     

    3.4 When
      the
      Custom Sales Agreement provided in Section 3.3 has been executed, SHUMATE shall
      issue to @BALANCE warrants (the "Warrants") to purchase shares of common stock
      of SHUMATE. The number of shares that can be purchased upon exercise of the
      Warrants shall equal the quotient obtained by dividing (a) the amount, in U.S.
      dollars, that @BALANCE has provided to develop and test the Joint Product,
      by
      (b) $3.00. The exercise price of the Warrants shall be $3.00 per share, and
      the
      term of the Warrants shall be ten (10) years. The Warrants will contain standard
      "piggy-back" registration rights with respect to the shares of common stock
      issuable upon exercise of the Warrants. By example, if @BALANCE spends $1.5
      million during the Agreement, then in connection with agreeing to commercialize
      the
      Joint
      Product (executing the Custom Sales Agreement contemplated herein), SHUMATE
      will
      issue a
      fully-vested warrant of 500,000 shares, with a $3.00 strike price and a term
      of
      10 years. SHUMATE's assent to be bound by the foregoing obligation, and its
      representation and warranty of authority to perform such obligation are
      evidenced by signature of its authorized representative below.

     

    3.5 Each
      Party agrees that it will not assert against the other Party any patent claims
      covering technology related to Downhole Isolation Valves, to the extent and
      only
      to the extent that such technology related to Downhole Isolation Valves is
      used
      to manufacture, use, or sell a Joint Product.

     

    3.6 Upon
      request by @BALANCE, before commencement of sale of Joint Products manufactured
      by HVC, the Parties will negotiate and execute a non-exclusive, royalty-free
      Trademark License for use of the registered trademark HEMIWEDGE®
      in
      products or services sold by @BALANCE that include goods manufactured by HVC.
      The Trademark License shall include all limitations, restrictions and
      requirements necessary to avoid any impairment of the rights of HVC in the
      mark
      or any diminution in value of the mark to HVC.

    
      


      
        
          
          

        

        
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    3.7 To
      the
      extent capital investment is required by HVC to meet the demand for Joint
      Products, @BALANCE and/or its Affiliate Shell Technology Ventures shall have
      the
      right to participate in such capital investment by cash payment, and shall
      receive as consideration for such cash payment common stock of SHUMATE, subject
      to first right of refusal of certain interests of investors in SHUMATE created
      in February 2006.

     

    ARTICLE
      4: CONFIDENTIAL INFORMATION

     

    4.1 For
      a
      period of five (5) years from the date of disclosure of Confidential
      Information, the Receiving Party agrees to use the same degree of care and
      discretion to keep the Disclosing Party's Confidential Information confidential
      as it uses with its own similar information that it wishes to keep confidential.
      The Confidential Information received by a Receiving Party shall not be used
      for
      any purpose other than in connection with exercising the rights and licenses
      granted to it under this Agreement, subject to the obligation of confidentiality
      and subject to the terms and conditions of the licenses granted
      herein.

     

    4.2 The
      Receiving Party may disclose the Confidential Information of the Disclosing
      Party only to the Receiving Party's Representatives on a need-to-know basis,
      subject to the requirements of Section 4.1.

     

    4.3 Notwithstanding
      any other provisions of this Agreement, the nondisclosure and use obligations
      specified herein shall not apply to any Confidential Information
      that:

     

    4.3.1 is
      already lawfully in the possession of the Receiving Party prior to being
      furnished to the Receiving Party by the Disclosing Party, provided that the
      source of such information was not and does not become known by the Receiving
      Party, prior to disclosure by the Receiving Party, to be prohibited from
      disclosing the information to the Receiving Party by legal, contract or
      fiduciary obligation to the Disclosing Party;

     

    4.3.2 is
      independently developed by employees (without use of Confidential Information)
      of the Receiving Party or any of its subsidiaries;

     

    4.3.3 becomes
      generally publicly available without breach of this
      Agreement;

     

    4.3.4 is
      rightfully received by the Receiving Party on a non-confidential basis from
      a
      third party that is not known by the Receiving Party to be prohibited from
      disclosing the information to the Receiving Party by legal, contract, or
      fiduciary obligation to the Disclosing Party; or

     

    4.3.5 is
      released for disclosure by the Disclosing Party with its written
      consent.

    


    
      
        
        

      

      
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    4.4 Disclosure
      of Confidential Information shall not be precluded if such disclosure
      is:

     

    4.4.1 in
      response to a valid order of a court or other governmental body; or

     

    4.4.2 otherwise
      required by law; or

     

    4.4.3 necessary
      to establish the Receiving Party's rights under this Agreement.

     

    4.5 Each
      party shall obtain the consent of the other before making any press release
      or other
      publication of any activity pursuant to this Agreement, which consent
      shall
      not be
      unreasonably withheld.

     

    ARTICLE
      5: TERM AND TERMINATION

     

    5.1 During
      the Term (from the Effective Date to the same date in the year 2008) either
      Party may terminate this Agreement upon written notice to the other Party that
      it does not choose to proceed to another Phase after completion of the current
      Phase. Such notice shall be sent at least thirty (30) days before scheduled
      completion of the current Phase.

     

    5.2 @BALANCE
      may terminate this Agreement upon written notice to HVC if HVC is more than
      ninety (90) days late in completing work on a Phase.

     

    5.3 This
      Agreement shall not terminate of its own accord in the event of a Change of
      Control of either Party. In the event of a Change of Control, the Party
      undergoing same shall, to the extent not provided for by operation of law,
      provide in the agreement giving effect to the Change of Control require the
      counterparty to such agreement to accept assignment of this Agreement and be
      bound by all its terms as fully as if such counterparty were a parry to this
      Agreement, and the other Party shall accept such assignment.

     

    5.4 Upon
      expiration or termination of this Agreement, both Parties shall end the Phase
      in
      process and the following shall apply:

     

    5.4.1 Neither
      Party shall be under any obligation to make further disclosures of technical
      information of any kind to the other Party.

     

    5.4.2 All
      confidentiality obligations set forth herein shall continue.

     

    5.4.3 Joint
      Technology shall be owned by HVC and HVC shall continue to have the right to
      prosecute patents to protect the Joint Technology or Joint Products as provided
      in Section 3.2.

     

    
      


      
        
          
          

        

        
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    ARTICLE
      6: REPRESENTATIONS AND WARRANTIES

     

    6.1 Although
      the Parties will use all reasonable efforts in performing Joint Projects, the
      Parties acknowledge that the results of the design and development work to
      be
      performed are uncertain and cannot be guaranteed by either Party. Therefore,
      if
      a Party has exerted its reasonable efforts in the performance of its
      responsibilities under a Phase Description, the failure to achieve schedules
      within the Phase Description shall not constitute a breach of this Agreement.
      Further, neither Party warrants or assumes any liability in connection with
      the
      implementation or completion of any Joint Project or that its work under this
      Agreement will be error-free. Any services provided by a Party shall be provided
      on an "AS IS" basis without warranty of any kind.

     

    6.2 Each
      Party represents that it has agreements, including confidentiality agreements,
      with its employees and any other person with whom such agreement may be
      necessary sufficient to meet its obligations under this Agreement.

     

    6.3 NEITHER
      PARTY MAKES ANY WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE JOINT
      PRODUCTS, THE TECHNOLOGY CONTRIBUTED, OR THE CONFIDENTIAL INFORMATION DISCLOSED,
      INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
      FITNESS FOR A PARTICULAR PURPOSE.

     

    6.4 SHUMATE
      represents and warrants that it has obtained any necessary consent of its
      shareholders and board of Directors to issue the Warrant set forth in Section
      3.4 and the participation right set forth in Section 3.7.

     

    ARTICLE
      7 - LIMITATION OF REMEDIES

     

    7.1 In
      no
      event shall either Party be liable to the other Party for incidental damages,
      lost profits, lost savings, delayed production, lost production or any other
      consequential damages, regardless of whether the claim is for breach of
      contract, warranty, tort (including negligence), failure of a remedy to
      accomplish its purpose or otherwise, even if such Party has been advised of
      the
      possibility of such damages.

     

    7.2 Except
      for breach of SHUMATE's warranty as set forth in Paragraph 6.4, in no event
      shall either Party be liable to the other Party for actual damages resulting
      from any claim relating to this Agreement, regardless of the form of action,
      provided that this limitation will not apply to claims for bodily injury or
      damage to real property or tangible personal property for which the Party is
      legally liable.

     

    7.3 Neither
      Party will be liable for any damages claimed by the other Party based on any
      third party claim.

    
      


      
        
          
          

        

        
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    ARTICLE
      8: NOTICES

     

    8.1 Any
      notice or other communication required or permitted to be made or given to
      either Party hereto pursuant to this Agreement shall be sent to such Party
      by
      facsimile, or by certified or registered mail, postage prepaid, addressed to
      the
      person named below and shall be deemed to have been made, given or provided
      on
      the date of facsimile transmission or mailing.

    

      
        	 	
                HVC:

              	
                HEMIWEDGE
                  VALVE CORPORATION 

              
	 	 	
                12060
                  FM 3083

              
	 	 	
                Conroe,
                  TX 77301

              
	 	 	
                Attention:
                  Mr. Matthew Flemming, CFO

              
	 	 	 
	 	
                @BALANCE:

              	
                AT
                  BALANCE AMERICAS 

                LLC
                  11767 Katy Freeway, Suite 

                1030
                  Houston, TX 77079

              
	 	 	
                Attention:
                  Mr. John Samuell, CEO

              


      

    

     

    8.2 A
      Party
      hereto may change its address for the purposes of this Section 12 by giving
      ten
(10)
      days
      prior written notice of such change of address to the other Party.

     

    ARTICLE
      9: MISCELLANEOUS

     

    9.1 Nothing
      contained in this Agreement shall be construed as conferring any right to use
      in
      advertising, publicity or other promotional activities any name, trade name,
      trademark or other designation of any Party hereto (including any contraction,
      abbreviation or simulation of any of the foregoing) except as expressly provided
      in Sec. 3.6.

     

    9.2 No
      license or immunity is granted by this Agreement by either Party to the other
      Party, either directly or by implication, estoppel, or otherwise, under any
      patent or other intellectual property right now owned or hereafter obtained,
      except as expressly provided herein.

     

    9.3 Neither
      this Agreement nor any activities hereunder will impair any right of INC or
      @BALANCE to design, develop, manufacture, market, service or otherwise deal
      in,
      directly or indirectly, any products or services. Each Party may pursue
      activities independently with any third party even if similar to the activities
      under this Agreement, subject to provisions of confidentiality provided
      herein.

     

    9.4 Each
      Party is an independent contractor and is not an agent of the other Party for
      any purpose whatsoever. Neither Party will make any warranties or
      representations on the other Party's behalf, nor it will not assume or create
      any obligation on the other Party's behalf.

     

    9.5 Each
      Party may, upon written notice to the other Party, assign its rights or
      obligations without the prior written consent of the other Party only in
      connection with a merger or a sale of all or substantially all of the assets
      of
      such Party relating to the subject matter of this Agreement to a third party.
      Each Party may freely assign its rights to receive payment hereunder to any
      third party upon written notice the other Party. In all other instances, neither
      Party shall assign its rights or delegate or subcontract its obligations under
      this Agreement without prior written permission from the other Party and attempt
      to do so without such permission shall be null and void.

    
      
        


        
          
            
            

          

          
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    9.6 Each
      Party will comply with all applicable federal, state and local laws, regulations
      and ordinances of the U.S. Government including, but not limited to, the
      regulations of the U.S. Govern rent authorities relating to the export of
      commodities and technical data insofar as they relate to activities under this
      Agreement. Each Party agrees that Joint Products, design information, test
      results and any other technical data provided under this Agreement may be
      subject to restrictions under the export control laws and regulations of the
      United States of America, including but not limited to the U.S. Export
      Administration Act and the U.S. Export Administration Regulations. Neither
      Party
      shall export any Joint Product, design information or other technical data
      without appropriate government documents and approvals.

     

    9.7 This
      Agreement will not be binding upon the Parties until it has been signed herein
      below by or on behalf of each Party, in which event it shall be effective as
      of
      the date first written above. This Agreement and its Exhibits constitute the
      entire agreement between the Parties with respect to the subject matter hereof
      and shall supersede all previous communications, representations, understandings
      and agreements, whether oral or written, between the Parties or any officer
      or
      representative thereof with respect to the subject matter of this Agreement.
      No
      amendment or modification of this Agreement shall be valid or binding upon
      the
      Parties unless made in writing and signed on behalf of each Party by their
      respective representatives thereunto duly authorized. The requirement of written
      form may only be waived in writing.

     

    9.8 Any
      waiver by either Party of any breach of, or failure to enforce at any time,
      any
      of the provisions of this Agreement, shall not be construed as or constitute
      a
      continuing waiver of such provision, or a waiver of any other provision of
      this
      Agreement, nor shall it in any way affect the validity of this Agreement or
      any
      part thereof, or the right of either Party thereafter to enforce each and every
      provision of this Agreement.

     

    9.9 If
      any
      provision of this Agreement is found by competent authority to be invalid,
      illegal or unenforceable in any respect for any reason, the availability,
      legality and enforceability of any such provision in every other respect and
      the
      remainder of this Agreement shall continue in effect so long as it still
      expresses the intent of the Parties. If it no longer expresses the intent of
      the
      Parties, the Parties will negotiate a satisfactory alternative to such
      provision; if, after reasonable efforts, such alternative cannot be found,
      this
      Agreement shall be terminated.

     

    9.10 Either
      Party hereto shall be excused from the fulfillment of any obligation under
      this
      Agreement with the exception of payment obligations for so long as and to the
      extent such fulfillment may be hindered or prevented by any circumstance of
      force majeure, such as but not limited to, acts of God, war whether declared
      or
      not, riot, lockout, fire, shortages of materials or transportation, power
      failures,
      national or local government regulations, or any other circumstances outside
      its
      control.

    


    
      


      
        
          
          

        

        
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    9.11 Headings
      used in this Agreement are for convenience of reference only and are not
      intended to be part of, or to affect the meaning or interpretation of this
      Agreement. References to any given section of this Agreement are intended by
      the
      Parties to include any subsections of such section.

     

    9.12 This
      Agreement may be executed in two (2) counterparts, each of which shall be
deemed
      an
      original, but both of which together shall constitute one and the same
      agreement.

     

    ARTICLE
      10: GOVERNING LAW AND JURISDICTION

     

    This
      Agreement shall be construed, and the legal relations created herein between
      the
      Parties shall be determined, in accordance with the laws of the United States
      of
      America and, specifically, the State of Texas, as if said agreement were
      executed in, and to be fully performed within, the State of Texas.

    



     

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
      by
      their
      duly
      authorized representatives as of the day and year first above
      written.

     

    

      
        	
                HEMIWEDGE
                  VALVE CORPORATION

              	 	
                AT
                  BALANCE AMERICAS, LLC

              
	
                By:

              	
                /s/
                  Larry Shumate

              	 	
                By:

              	
                /s/
                  John Samuell

              
	
                Name:

              	
                Larry
                  Shumate

              	 	
                Name:

              	
                John
                  Samuell

              
	
                Title:

              	
                President

              	 	
                Title:

              	
                President

              
	
                Date:

              	
                7/13/06

              	 	
                Date:

              	
                7/13/06

              


      

    

     

    Assent
      to
      obligation to issue warrants as set forth herein, and representation and
      warranty of authority to perform such obligation by SHUMATE INDUSTRIES
      INC.

     

    
      
        
          	
                	 	
                
	
                  By:

                	
                  /s/
                    Larry Shumate

                	 	
                	
                
	
                  Name:

                	
                  Larry
                    Shumate

                	 	
                	
                
	
                  Title:

                	
                  President

                	 	
                	
                
	
                  Date:

                	
                  7/13/06

                	 	
                	
                


        

      

    

    


    
      


      
        
          
          

        

        
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    EXHIBIT
      A:

     

    Patents,
      Trademarks and Applications Therefor of HVC 

     

    Patents
      and Patent Applications:

     

    U.
      S.
      Patent No. 5,333,834

     

    U.S.
      Patent No. 5,507,469

     

    U.S.
      Patent Application Serial No. 11/630,150, filed Feb. 23, 2006 

     

    PCT
      Application PCT/US2006/006206, filed Feb. 22, 2006

     

    Trademark:

     

    HEMIWEDGE®,
      Registration No. 1983828, February 7, 1996

    


    
      


      
        
          
          

        

        
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    EXHIBIT
      B

     

    PHASE
      DESCRIPTIONS

     

    SEE
      THE
      FOLLOWING "CORPORATE PARTNERING DOCUMENT," DATED JUNE 7, 2006, INCORPORATED
      BY
      REFERENCE INTO AND MADE A PART OF THE DEVELOPMENT AGREEMENT.

    


    
      


      
        
          
          

        

        
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    Hemiwedge
      Valve

     

    

     

     

    Corporate
      Partnering Document

     

    HEMIWEDGE®
      Downhole Isolation Valve (DIV)

     

    Presented

     

    Hemiwedge
      Valve Corporation

     

    To

    At
      Balance Americas

     

    June
      7, 2006

    
       

    

    
      
         

         

        
 

        
          
            
            

          

          
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          Table
            of Contents

           

        

      

    

    


    
      	
              EXECUTIVE
                SUMMARY

            	
              20

            
	 	 
	
              1.0
                INTRODUCTION AND PROJECT EXPERIENCE

            	
              21

            
	 	 
	
              1.1
                A History of Development Project Success

            	
              21

            
	 	 
	
              1.2
                Key Differentiators - Why Use Shumate

            	
              21

            
	 	 
	
              1.3
                Product Development Philosophy

            	
              22

            
	 	 
	
              2.0
                THE
                HEMIWEDGE®
                DOWNHOLE ISOLATION VALVE SYSTEM DEVELOPMENT

            	
              23

            
	 	 
	
              2.1
                Overview

            	
              23

            
	 	 
	
              2.2
                Operational Sequence

            	
              23

            
	 	 
	
              2.3
                Preliminary HEMIWEDGE®
                Design Concept

            	
              24

            
	 	 
	
              2.4
                Project Summary

            	
              26

            
	 	 
	
              3.0
                PHASE DEVELOPMENT OUTLINE

            	
              26

            
	 	 
	
              3.1
                Phases 1-3

            	
              26

            
	 	 
	
              3.2
                Project Deliverables

            	
              27

            
	 	 
	
              3.3
                Project Cost Estimate

            	
              27

            
	 	 
	
              3.4
                Project Baseline: Phase Description

            	
              28

            
	 	 
	
              3.5
                Project Timeline

            	
              31

            
	 	 
	
              4.0
                COMMERCIALIZATION.

            	
              31

            
	 	 
	
              5.0
                CONCLUSION SUMMARY.

            	
              31

            


    


     

    
      
        
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    Foreword

     

    Hemiwedge
      Valve Corporation appreciates the opportunity to present this Corporate
      Partnering Document
      (to be included as Exhibit B of the proposed Agreement) to At Balance Americas
      LLC
      and its
      parent Shell Technology Ventures to explain the proposed development of a
HEMIWEDGE®
      Downhole Isolation Valve (DIV).

     

    Respectfully
      Submitted,

     

    
       

      
        
          
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    HEMIWEDGE®
      Downhole Isolation Valve Executive
      Summary

     

    Executive
      Summary

     

    Recent
      drilling technology advances led to the Dynamic Annular Pressure Control (DAPC)
      process, also known as Managed Pressure Drilling (MPD). This new drilling
      process was developed to solve lost circulation, hole instability, formation
      damage and other problems in deep water and other oil and gas drilling projects.
      The process allows the driller to maintain constant Bottom Hole Pressure (BHP)
      by using a lower mud weight with the adjustment of surface back pressure and
      circulation rates. The new technology employs a closed mud system that can
      be
      maintained under pressure. The MPD setup also provides the ability to drill
      ahead and make up pipe connections while maintaining the appropriate annular
      pressure profile. The controlled and proper pressure profile prevents both
      unintended well influx and formation damage. Well influx (loss of well control)
      when the drill pipe is removed from a well using the MDP process is controlled
      by a valve at the bottom of casing in the well, called a "Downhole Isolation
      Valve," or "DIV." The two prevailing valve designs for the DIV include the
      flapper valve and the swab ball valve. Although both valve technologies have
      been around for years, the overall system reliability for these valves has
      not
      increased greatly through the years. The drilling industry has simply accepted
      the risk of utilizing these two valve designs.

     

    This
      document (known as Exhibit B) outlines the proposed development of a
      HEMIWEDGE®
      Downhole
      Isolation Valve (DIV). Phases of a Joint Project and the deliverables, schedule
      and associated costs for each Phase are provided.

    


     

    
      
        
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    1.0 Introduction
      and Project Experience

     

    Hemiwedge
      Valve Corporation ("HVC") is in the position to develop and commercialize a
      beneficial leap in Downhole Isolation Valve ("DIV") technology. For years DIVs
      have been limited to flapper and related designs. Quarter-turn valve technology
      has been limited to variations on a theme of ball and plug valves. In arduous
      and inaccessible applications these valve styles are utilized by virtue of
      a
      lack of a superior high reliability alternative solution. Poor valve reliability
      can result in millions of dollars of productivity losses.

     

    The
      HEMIWEDGE®
      technology has been identified as a potential step change for high integrity
      valve applications. This is an evolving process in which HVC has and will
      continue to recruit the correct technical and manufacturing expertise to deliver
      the required valve design solutions. Additional machining, assembly, and
      development testing capability, along with the necessary procedural due
      diligence, are also being added as the company expands. This in turn is rapidly
      positioning HVC to provide alternative and superior valve technology solutions
      to existing ball and flapper valve applications.

     

    1.1        
      A
      History of Development Project Success

     

    The
      progressive history of recent HVC development project successes is as
      follows:

     

    
      	·          
               	
              2004:
                concept verification of HVC technology into a universal and replacement
                cartridge design for ANSI class valves 2" through
                12".

            


    

    
      	·          
               	
              2004-5:
                prototype design, manufacture and preferred flow test (1000 cycles)
                of a
                2" cartridge valve.

            


    

    
      	·         
                	
              2005:
                filing of cartridge valve provisional patent
                application.

            


    

    
      	·         
                	
              2005:
                prototype design, manufacture and pressure test (30,000psi) of
                a
                cartridge
                valve for subsea applications.

            


    

    
      	·          
               	
              2005-6:
                expansion of cartridge valve design up to 6" with concept development
                to
                12" ANSI.

            


    

     

    1.2        
      Key Differentiators - Why Use HVC?

     

    
      	·          
               	
              Technology
                - scalable and proven in surface valve applications and prototype
                tested
                for a subsea high pressure
                application.

            


    

     

    
      	·         
                	
              Safety
                - zero Lost Time Incidents since Shumate's original inception in
                1978.

            


    

     

    
      	·      
                   	
              Experience
                - more than 10 years of oil and gas tool development and
                manufacturing.

            


    

    
       

      
        
          
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      	·          
               	
              Personnel
                - broad and comprehensive oil and gas expertise including downhole
                tool
                research and development team, drilling/production engineering, subsea
                engineering and a leading class manufacturing core group focused
                and
                dedicated to the HEMIWEDGE®
                Valve development.

            


    

     

    
      	·          
               	
              Focus
                - Organization devoted to the HEMIWEDGE®
                Technology.

            


    

     

    1.3       
      Product
      Development Philosophy

     

    Since
      its
      inception, Hemiwedge Valve Corporation's product development philosophy has
      been
      geared toward developing and evolving the HEMIWEDGE®
      valve
      concept for the oil and gas industry. A building block approach has been
      utilized where each new product development progression has been leveraged
      from
      the previous product's technology base, to deliver a functional commercial
      product with a high level of quality and reliability in an accelerated time
      cycle. By continually improving the process through several product iterations,
      HVC will produce refinements and efficiency in optimizing the
      HEMIWEDGE®
      technology through modeling; testing and utilizing an iterative design
      development process (see Figure 1).

     

    
      	 	 	 	 	
              Commercialization

            
	 	 	 	
              Testing
                

              &
                Validation

            	 
	 	 	
              Prototype
                

              Manufacture

            	 	 
	 	
              Engineering
                

              Calculation
                

              &
                Verification

            	 	 	 
	
              Design
                

              Concept
                

              Development

            	 	 	 	 


    

     

    


     

    

     

    Figure
      1 - Design Development Process

     

    As
      the
      market for Dynamic Annular Pressure Control system and its various applications
      broadens, it is necessary to advance the control valve technology even further
      to achieve a more reliable pressure-isolation system during the drilling
      process. Three focus areas for development are currently underway at HVC. These
      areas are:

    
       

      
        
          
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      	·  
                	
              Enhancements
                - Designed to broaden the overall application envelope of the
                HEMIWEDGE®
                valve system. Examples include increased operational parameters such
                as
                burst and collapse ratings, gas tight pressure integrity, corrosion
                resistant alloys and overall system
                reliability.

            


    

     

    
      	·  
                	
              Improvements
                - Designed to improve the manufacturability of the HEMIWEDGE'®
                valve design by providing a scalable and standard design concept
                for ease
                of assembly and/or field repair.

            


    

     

    
      	·  
                	
              New
                Technology - To produce the next generation valve control system
                configuration, leveraged from the proven components of the existing
                HEMIWEDGE®
                valve design concept, for all aspects of the oil and gas drilling
                and
                completions environment.

            


    

     

    As
      part
      of the process, these development enhancements and technology advancements
      will
      become part of HVC's commercial product offering and be rolled into the
      mainstream business. Leveraging its technological superior valve design,
      Hemiwedge Valve Corporation will build hands-on knowledge of valve control
      systems in various downhole environments. As a result, the product improvement
      cycle advances and the knowledge database will be updated as the technology
      evolves. This approach will elevate HVC into the world leader for drilling
      and
      completions DIV technology.

     

    HVC
      believes the HEMIWEDGE®
      system
      will be the facilitator for a radical change in valve design functionality
      including enhanced reliability and robustness. With these combined learnings
      and
      experience, our company will implement the design concept development,
      qualification, and commercialization of the HEMIWEDGE®'
      DIV.

     

    2.0 The
      HEMIWEDGE®
      Downhole Isolation Valve System Development

     

    2.1 Overview

     

    Existing
      isolation valve technology currently in use with underbalanced drilling
      applications typically utilizes ball or flapper valve technology. Both
      technologies have either borehole size limitations or overall reliability
      issues. The HEMIWEDGE®
      system
      addresses both issues with its revolutionary design.

    
       

      
        
          
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    2.2 Operational
      Sequence

     

    The
      simple but revolutionary principle behind the HEMIWEDGE®
      valve
      design is defined by three primary components:

     

    
      	·  
                	
              The
                patented HEMIWEDGE®
                driver that rotates the HEMIWEDGE®
                element
                through a quarter turn arc to open or close the valve to
                flow.

            


    

     

    
      	·  
                	
              The
                spherically tapered HEMIWEDGE®
                element that effectively gives all the attributes of a rotary quarter-turn
                mechanically sealed gate valve.

            


    

     

    
      	·   
               	
              The
                integral core element that assists in the mechanical seal loading
                of the
                valve and provides a smooth full-bore flow path through the valve.
                This
                not only reduces flow turbulence through the valve during valve operation
                but minimizes seal surface damage from fluid
                impingement.

            


    

     

    
       

      
        
          
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    2.3 Preliminary
      HEMIWEDGE®
      Design Concept

     

    HEMIWEDGE®
      DIV
System Specifications

     

    7in
      - 26 ib/ft system

     

    
      	
               

              

            	
               

              Casing
                connection OD:
                7
                inches

               

               

               

               

              HEMIWEDGE®
                OD: 8
                inches

               

            


    

    


     

     

    Figure
      1: HEMIWEDGE®
      Valve
      Body (thread connection not shown).

     

    Design
      proposal:

     

    The
      7 in,
      26 lb/ft HEMIWEDGE®
      valve
      system is a technologically advanced design concept that allows maximum
      thru-bore ID with the ability to provide superior and robust seal integrity.
      This design utilizes an out-of-the-box concept that provides the ultimate
      functional and reliable isolation valve operation. Unlike today's casing
      isolation valves, the HEMIWEDGE®
      system
      will utilize a revolutionary design concept that addresses many of the problems
      inherently present with the existing isolation valves utilized in Managed
      Pressure Control (MPC) drilling practices.

     

    
      	·   
               	
              Limited
                thru-bore size

            


    

     

    
      	·   
               	
              Seal
                integrity

            


    

     

    
      	·  
                	
              Reliability

            


    

     

    
       

      
        
          
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    As
      shown
      above in Figure 1, the overall valve body OD maintains a uniform body dimension
      of 7 inches OD except for the location of the HEMIWEDGE®
      valve
      system. The HEMIWEDGE®
      valve
      location currently is designed with a max OD of 8.0 inches which allows the
      maximum thru-bore ID. Despite this small oversized section, the
      HEMIWEDGE®
      valve
      system can still pass through an 8-1/2 inch drill hole size used for a 7-inch
      casing string. Actual drill hole sizes will dictate the final
      HEMIWEDGE®
      valve
      thru-bore ID size. The increased outside dimension of the valve will require
      that there is no premature wear on the valve while running or pulling out of
      the
      well. To this end it must be protected by a wear ring or suitable
      device.

     

    General
      specifications are provided below for the standard HEMIWEDGE®
      valve
      system. Initial calculated values will be verified with further Finite Element
      Analysis and empirical testing. Due to additional customer requirements and/or
      design improvements, the specification values shown below may change. All values
      are based on an initial prototype design concept.

     

    The
      preliminary HEMIWEDGE®
      valve
      downhole specifications are based on initial input provided by At Balance and
      Shell Technology Ventures. Final specification values are subject to change
      once
      the overall valve system has been optimized and tested.

     

    
      	
              Specifications
                (1)

            
	
              Max.
                OD (2)

            	
              8.000
                inches

            
	
              Min.
                Thrubore ID

            	
              6.125
                inches

            
	
              Max.
                Casing

              connection
                OD

            	
              7.000
                inches

               

            
	
              Total
                Length(4)

            	
              40.0
                inches

            
	
              Seal
                Type

            	
              Metal
                to Metal

            
	
              Casing

              Connection

            	
              To
                Be Determined

               

            
	
              Functional

              Operation

            	
              Mechanical
                or Hydraulic

              Activation

            
	
              Burst
                (3)

            	
              5,000
                psi

            
	
              Collapse
                (3)

            	
              3,500
                psi

            
	
              Tensile

               

            	
              Determined
                by thread

              connection
                type

            
	
              Operating

              Temperature

            	
              -40°
                F thru 350° F

               

            
	
              Target
                Cost

            	
              <$10,000.00

            


    

     

    Notes
      to section 2.3:

     

    
      	1)    
              	
              Current
                specification based on calculated values and is subject to change
                due to
                design scope modifications.

            


      	2)  
               	
              Max.
                OD determined by drill bit size used to run in the 7" casing string.
                This
                drill hole size dimension will determine the overall burst and collapse
                rating due the HEMIWEDGE®
                valve design including the min. thru bore
                size.

            


      	3)    
              	
              Actual
                burst and collapse values can be increased by using high strength
                alloys
                or changing dimensions. 

            


      	4)    
              	
              Total
                length subject to change due to design scope
                modifications.

            


    

    
      
         

        
          
            
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    2.4 Project
      Summary

     

    The
      Hemiwedge valve will be developed as a "Downhole Isolation Valve" with the
      intent to hold pressure from both above and below the valve, although pressure
      will primary be from below the valve with a maximum differential pressure of
      5000 psi. The valve will typically be run on various size casing strings but
      will be initially designed for deployment on 7" casing.

     

    As
      the
      valve may require an outside dimension beyond that of conventional casing there
      will need strike a balance between the outside dimensions, internal dimensions;
      which should be at least drift dimensions of the casing it is run on, burst
      and
      collapse resistance acceptable for perhaps permanent installation. This is
      of
      course dependent on market demands. In addition the valve must prove to be
      robust enough to provide closure and sealing ability in a vertical, angled
      and
      horizontal position in a drilling environment which will be prone to drilled
      cuttings and debris.

     

    Downhole
      Isolation valves are currently activated by mechanical or hydraulic means.
      It is
      expected that Shell who has used the Weatherford DDV will be the first to deploy
      this technology and based on the current uptake of the Weatherford DDV which
      is
      hydraulically activated versus the Halliburton quick trip valve, it seems
      prudent to use a hydraulic activation method. The mechanical activation method
      will not be precluded but given that the shifting tool needs to be run on the
      BHA it is likely to not be so widely accepted.

     

    In
      a
      downhole drilling environment the valve will be installed at up to a 90 degree
      angle and perhaps beyond as well as in an environment prone to solids matter
      or
      various sorts but predominately particles and formation cuttings being of sand,
      carbonate and shale in nature. The valve will have to pass rigorous testing
      in a
      similar environment to prove suitable prior to an actual well
      installation.

     

    Commercial
      viability of both the valve Isolation systems will be attained by a
      comprehensive testing and qualification program.

     

    3.0 Phase
      Development Outline

     

    The
      HEMIWEDGE®
      project
      plan will proceed forward in a systematic approach consisting of three Phases
      as
      shown below. A complete report of phase deliverables including time and cost
      breakdown will be available at the end of each phase for review prior to moving
      ahead with the next phase.

     

    
       

      
        
          
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    3.1 Phases
      1-3

     

    Phase
      One - Engineering
      and Design

     

    Phase
      Two -
      Procurement and Manufacturing 

     

    Phase
      Three - Testing
      and Validation

     

    3.2
      Project Deliverables

     

    The
      key
      deliverables for the HEMIWEDGE®
      valve
      project are the following:

     

    
      	·  
                	
              Project
                Planning, Monitoring and Control

            


    

     

    
      	·   
               	
              Applications
                and Operations Analysis for input into Product Specification and
                Functionality

            


    

     

    
      	·   
               	
              Design
                Engineering

            


      	 	 


    

    
      	·   
               	
              Procurement
                of all Manufactured Tools

            


    

     

    
      	·   
               	
              QC/QA
                and Inspection Plans for all Manufactured
                Tools

            


    

     

    
      	·   
               	
              Test
                Coordination and Supervision

            


    

     

    
      	·   
               	
              HEMIWEDGE®
                Valve

            


    

     

    
      	·   
               	
              VO
                Certification

            


      	 	 


      	·     
	
              System
                Integration Test (complete tool string
                assembly)

            


    

    
       

    

    
      	·   
               	
              All
                related Testing Documentation

            


    

     

    
      	·  
                	
              All
                Systems' Technical Documentation

            


      	 	 


    

    
      	·   
               	
              Milestone
                reviews and reports

            


    

     

    
      	·  
                	
              A
                minimum of one commercialized HEMIWEDGE®
                DIV ready for field installation with all other milestones having
                been
                achieved.

            


    

     

    
      	·  
                	
              Custom
                Sales Agreement, the terms of which are to be negotiated in the future
                including certain minimums to be paid for exclusivity
                preservation.

            


    

     

    3.3 Project
      Cost Estimate

     

    The
      Phase
      Descriptions are listed below in section 3.4.

     

    As
      with
      any project it will be necessary to track time, equipment and materials in
      order
      to provide an auditable trail of expenditures. Any delays or additional costs
      or
      cumulative delays or costs which may cause an overrun in excess of 10% of the
      phase or project must be agreed immediately with At Balance. Additionally,
      if
      cost overrun's are agreed upon by the Parties, "Change Orders" will be utilized
      as the formal request for additional development monies.

    
      
         

        
          
            
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    The
      amounts for each milestone will be funded at the start of each milestone
      process. Any surplus from each milestone will be applied to the next
      milestone.


    
      	
              Phase/Milestone

               

            	
              Cost

               

            	
              Deliverable

               

            
	
              Phase
                I

            	
              $292,500

            	
              See
                Phase I Phase Gate Description

            
	
              Milestone
                1.1

            	
              $200,000

            	
              Hire,
                Infrastructure, Design/Eng. initiated

            
	
              Milestone
                1.2

            	
              $50,000

            	
              Further
                Design/Eng, Design Viability concluded

            
	
              Milestone
                1.3

            	
              $42,500

            	
              Fully
                Functioning Plastic Prototype

            
	 	 	 
	
              Phase
                II

            	
              $805,000

            	
              See
                Phase II Phase Gate Description

            
	
              Milestone
                2.1

            	
              $400,000

            	
              Materials
                Procurement, Machining

            
	
              Milestone
                2.2

            	
              $205,000

            	
              ECN
                Processing, Machining/Eng. Cond't.

            
	
              Milestone
                2.3

            	
              $200,000

            	
              Three
                Prototypes Built

            
	 	 	 
	
              Phase
                III

            	
              $287,300

            	
              See
                Phase Ill Phase Gate Description

            
	
              Milestone
                3.1

            	
              $150,000

            	
              Qualification
                Testing Completed

            
	
              Milestone
                3.2

            	
              $80,000

            	
              Flow
                Testing Completed

            
	
              Milestone
                3.3

            	
              $57,300

            	
              Third
                Prototype Completed and ready for down
                hole deployment

            


    

     

    Total
      for
      all Phases $1,384,800.

     

    3.4 Project
      Baseline: Phase Description

     

    Phase
      1 (Engineering and Design) Estimated time -- 4 months.

     

    Scope:
      To
      engineer and design a HEMIWEDGE®
      DIV to
      the targeted specifications listed in Section 2.3 and elsewhere within this
      document. Electronic design demonstrating Design Viability if necessary for
      design purposes, definitive FEA Modeling and a functioning Plastic prototype
      model to be built by end of Phase 1.

     

    
      	1.  	
              Hire
                and dedicate one senior and three junior engineers. Senior engineer
                is
                down-hole expert with 12 years experience. Acquisition costs of personnel
                are HVC responsibility. Project hours billed to @BALANCE via
                agreement.

            


    

     

    
      	2.  	
              Build
                out infrastructure and acquisition costs for new employees. Estimated
                cost
                $50,000.

            


    

     

    
      
         

        
          
            
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      	3.  	
              Engineering
                and design activities include the
                following:

            


      	 	 


    

    
      	a.)  	
              Design
                Viability: Identify and develop dimensional constraints and mechanical
                functionality for valve body design. Acceptance of the analysis is
                required to proceed to the next step. Estimated cost
                $8,000.

            


    

     

    
      	b.)  	
              FEA
                modeling: Insure design specifications based on preliminary calculated
                values and model load failure conditions. Acceptance of the analysis
                is
                required to proceed to the next step. Estimated cost
                $14,800.

            


    

     

    
      	c.)  	
              Rapid
                Prototype Modeling. Manufacture prototype model (i.e. plastic) to
                verify
                tool operational functionality, assembly and disassembly procedure.
                Acceptance is required to proceed to Phase 2. Estimated cost
                $10,700.

            


    

     

    
      	4.  	
              Estimated
                1,340 Engineering hours during Phase I @ average bill rate of $100.00
                per
                hour. Estimated cost $134,000.

            


    

     

    
      	5.  	
              Management
                overhead allocation to project $25,000.

            


      	 	 


    

    
      	6.  	
              Transaction
                costs and professional fees to execute Development Agreement
                $50,000.

            


    

     

    
      	7.  	
              Total
                cost for Phase I estimated at $292,500. Milestones to be paid by
                @BALANCE
                in advance. Payment overages to be applied to Phase
                II.

            


    

     

    Phase
      Gate "Go /
      No
      Go" decision to proceed to Phase II is
      based
      on HVC presenting a satisfactory electronic design and fully functional plastic
      prototype model of the HEMIWEDGE®
      DIV to
      acceptable criteria and mutual agreement of the Parties.

     

    Phase
      2 (Procurement and Manufacturing) Estimated time - 5
      months.

     

    Scope:
      Build
      at
      least three working proof of concept prototypes based on the design
      specifications of Phase 1 engineering and design results.

    
       

      
        	1.  	
                Tendering
                  process for all outside manufacturing requirements. Estimated cost
                  $20,000.

              


        	 	 


        	2.   	
                Purchase
                  machinery for manufacturing, which is HVC's
                  responsibility.

              


        	 	 


      

      
        	a.      
                	
                Haas
                  VF-5 Vertical Mill

              


        	b.       	Haas VF-6 Vertical Mill w/ 4th
                axis


        	c.       	Puma 25 CNC Lathe


      

    

     

    
      	 	
              i.

            	
              Estimated
                costs for all three at $300,000 paid for by HVC. No cost to At
                Balance.

            


    

     

    
      	3.   
	Materials, Tooling and Fixtures for
              manufacturing.


    

    
      
        
           

           

          
            
              
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              a.

            	
              Estimated
                costs at $215,000. Note this is a rough estimate, which may change
                based
                on commodity prices and market
                fluctuations.

            


    

    
       

      
        	3.   
	Materials, Tooling and Fixtures for
                manufacturing.


        	 	 


        	4.   
                	
                Engineering
                  Hours budgeted for the Phase 2 is 1,500. Estimated cost
                  $150,000.

              


        	 	 


        	5.   
                	
                Machining
                  Hours budgeted for the Phase - 3,000 hours @$125.00 per hour (which
                  includes machine operator). Estimated cost
                  $375,000.

              


        	 	 


        	6.   
                	
                Management
                  overhead allocation to this Phase of the project
                  $45,000.

              


        	 	 


        	7.   
                	
                Total
                  Cost for Phase 2 is estimated at $805,000. Milestones to be paid
                  by
                  @BALANCE in advance. Payment overages to be applied to Phase
                  III.

              


        	 	 


        	 	
                Phase
                  Gate "Go /
                  No
                  Go" decision to proceed to Phase 3 is
                  based on HVC presenting a satisfactory working prototype Proof
                  of
                  Principle of the HEMIWEDGE®
                  DIV to acceptable criteria and mutual
                  agreement.

              


      

      
         

      

    

    Phase
      3 (Testing and Validation) Estimated time - 3 months.

     

    Scope:
      In
      Phase
      3, HVC will test and validate all calculated design specifications, which
      includes but is not limited to standard API qualifications, burst and collapse
      at temperature, torque rating, tensile strength, flow rate, and corrosive
      environment testing. These tests are within the HVC standard valve testing
      and
      are not designed to replace @BALANCE's own due diligence and testing for the
      HEMIWEDGE®
      DIV in
      connection with their technology and systems.

     

    
      	1.
                	
              HVC
                will purchase internal testing equipment for Phase 3
                scope.

            


    

    
      	a. 
                  	
              Internal
                Test Kits and Assembles. Estimated
                $25,000.

            


    

    
      	b.   
                	
              High
                Pressure Pumps: Estimated $13,500

            


    

    
      	c.  
                 	
              Hydraulic
                Press: Estimated $10,000

            


    

    
      	d.   
                	
              Data
                Acquisition Unit: Estimated $7,750

            


    

    
      	e.   
                	
              Direct
                labor for internal testing: Estimated
                $37,500.

            


    

     

    
      	2.  	
              Additional
                Engineering Hours budgeted for prototype revisions during Phase 3
                of 100
                hours. Estimated cost of $10,000.

            


    

     

    
      	3.  	
              Additional
                Machining Hours budgeted for prototype revisions during Phase 3 of
                200
                hours. Estimated cost of $25,000.

            


    

     

    
      	4.  	
              Qualification
                testing (validate valve
                specifications).

            


    

     

    
      	a.    
               	
              DIV
                assembly and mechanical activation test.

            


      	b.       	
              Preliminary
                pressure test @ ambient temp.

            


    

    
      	c.   
                	
              Pressure
                test at temperature (multiple cycles per ANSI / API
                specs).

            


    

    
      	d.    
               	
              Thermal
                cycle pressure test.

            


    

    
      	e.   
                	
              Tensile
                test.

            


    

    
      
        
           

          
            
              
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      	f.  
                 	
              Torque
                test.

            


    

    
      	g.  
                 	
              Total
                estimated for item 4 is $55,050.

            


    

     

    
      	5.  	
              Cost
                for additional outside testing (Corrosive Environment, Flow Rate):
                Estimated cost of $78,500.

            


    

     

    
      	6.  	
              Management
                overhead allocation for this Phase of the project
                $25,000.

            


      	 	 


      	7.   	
              Total
                Cost for Phase 3 is estimated at $287,300. Milestones to be paid
                by
                @BALANCE in advance.

            


    

     

    Phase
      Gate "Go / No Go" decision to proceed to Custom Sales Agreement
based
      on
      acceptable testing and mutual agreement of the Parties. There will be
      at least
      one
      functioning prototype available for installation into a well at the end of
      the
      project.

     

    3.5
      Project Timeline

     

    The
      project timeline will follow the various Phases mentioned above. The table
      below
      details an
      estimated timeline for project completion with the assumption the project begins
      in late July 2006.

     

    
      	
               

              2006

               

            	
               

              2007

               

            
	
               

              JUN

               

            	
               

              JUL

               

            	
               

              AUG

               

            	
               

              SEP

               

            	
               

              OCT

               

            	
               

              NOV

               

            	
               

              DEC

               

            	
               

              JAN

               

            	
               

              FEB

               

            	
               

              MAR

               

            	
               

              APR

               

            	
               

              MAY

               

            	
               

              JUN

               

            
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	
               

              Phase
                1 (Eng. & Design)

               

            	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	
               

              Phase
                2 (Manuf.)

               

            	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	
               

              Phase
                3 (Testing)

               

            	 


    

     

    4.0
      Commercialization.

     

    Both
      @BALANCE and HVC agree to negotiate in good faith a Custom Sales
      Agreement
      according to the terms set out in Sec. 3.3.

     

    5.0
      Conclusion.

     

    It
      is
      HVC's wish to get started on this project and dedicate the appropriate personnel
      and
      resources.

    
      
        
           

          
            
              
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