e10vk

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K


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

For the fiscal year ended: December 31, 2006


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

For the transition period from to

Commission File Number: 0-24684

ADUDDELL INDUSTRIES, INC.

(Name of issuer in its charter)


Oklahoma		73-1587867
(State of incorporation)		(I.R.S. Employer ID no.)
1601 N W Expressway Suite 1500		73118
Oklahoma City, Oklahoma		(Zip Code)
(Address of Principal Executive Offices)

Issuer’s telephone number, including area code: (405) 810-2969

Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $0.001 per share)
(Title of Class)

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

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

On June 30, 2006, the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold was $72,772,485.

Shares of common stock outstanding as of March 1, 2007: 53,965,854.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III is incorporated by reference to the definitive proxy statement for the registrant’s 2007 annual meeting of stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2006.

Cautionary Statement Regarding Forward Looking Information

This annual report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which can be identified by the use of forward-looking terminology such as: “may”, “might”, “could”, “would”, “believe”, “expect”, “intend”, “plan”, “seek”, “anticipate”, “estimate”, “project” or “continue” or the negative thereof or other variations thereon or comparable terminology. All statements other than statements of historical fact included in this report on Form 10-K, including without limitation, the statements under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” and located elsewhere herein regarding our financial position and liquidity are forward-looking statements. These forward-looking statements also include, but are not limited to:

	•		our ability to expand our markets and maintain or increase profit margins;

	•		actions of our competitors;

	•		statements regarding our anticipated revenues, expense levels, liquidity and capital resources and projections of positive operating cash flow; and the matters described under “Part I – Item 1A – Risk Factors”

Although we believe the expectations reflected in such forward-looking statements are reasonable, we can give no assurance such expectations will prove to be correct.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. We assume no duty to update or revise our forward-looking statements based on changes in our internal estimates or expectations or otherwise.

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto.

PART I

Item 1. Description of Business

Introduction

Aduddell Industries, Inc. is engaged in the commercial and industrial roofing and re-roofing, specialty roofing metals, waterproofing and concrete restoration and consulting businesses through our subsidiaries Aduddell Roofing, Inc., Aduddell Restoration and Waterproofing, Inc., and Global Specialty Group, Inc. In addition we provide pre-event planning, event management and post-event recovery services for disaster related activities through our subsidiary Aduddell Enviro & Emergency Management Services, Inc. (“E2MS”). We were originally incorporated on March 4, 1991, in the state of Colorado. On June 7, 2006, we changed our name from Zenex International, Inc. to Aduddell Industries, Inc. and our state of incorporation from Colorado to Oklahoma.

Our revenues were historically derived from comprehensive commercial roofing services, including re-roofing, restoration and repair, new roof construction, sheet metal fabrication, waterproofing, and emergency post-event response services. In the second quarter of 2006, we increased our scope of services providing services to the total exterior envelope of a building through the asset purchase of Merit Construction, a concrete restoration company and expanded our roofing business to include standing seam and specialty metals. In the third quarter of 2006 we focused on the organic growth of these business areas, increased our marketing capability with the purchase of EyeOpener Creative Communications, LLC., and continued to execute our business plan by searching for acquisitions in key markets. On October 20, 2006, we signed a letter of intent to acquire Brent Anderson & Associates, Inc., a Minnesota based restoration, roofing and waterproofing company. This transaction closed in December 2006 adding significant resources, including below grade waterproofing to our service offerings. Additionally, we established Global Specialty Group (GSG) a new consulting business to capitalize on the national reputation of Brent Anderson himself. At year end we signed a definitive purchase agreement to acquire Hayden Building Maintenance, Inc. as well as Hudson Valley Roofing and Sheet Metal, Inc., privately held commercial roofing companies in New York. Hayden Building Maintenance has an additional office in New Orleans that is currently actively involved in commercial roofing related to disaster response. It is anticipated closing will occur on or before May 18, 2007.

Our E2MS division has had a very successful 2006 in positioning itself in the emergency response market as well as leveraging our relationships to provide growth in the roofing and restoration markets. We have increased the scope of our emergency response to pre-event planning through our strategic relationship with James Lee Witt and we have negotiated a number of pre-event contracts as first responders in the event of an emergency. In one of these contracts, E2MS has been named the preferred vendor for emergency planning and response by ASFONA, the Starwood Hotels franchise owners association, and our division president, Randall Oberlag, has been named as an honorary board member of that organization. Starwood Hotels & Resorts is one of the world’s largest hotel and leisure companies.

We are licensed in all fifty states as well as Puerto Rico and the Virgin Islands and have a unique capability of offering national account management to our customers. A direct result of this capability was the contract awarded to us by U.S. Communities in July of 2006. This three year contract with renewal opportunities awards us the sole source opportunity to provide schools, cities, states and other non-profit organizations complete roofing services under the U. S. Communities government purchasing alliance. We also offer maintenance services, which provide recurring revenues and ongoing interaction with our customers, including a new online roof asset management service.

A partial summary of our 2006 accomplishments is as follows:

	•		Increased our corporate governance capability and effectiveness at the corporate level by hiring a C.E.O., C.F.O, Senior V.P. of Corporate Development, V.P. of Sales, V.P. of National Accounts and a V.P. of Human Resources,

	•		Expanded our national accounts program and were awarded contracts with U.S Communities, Anheuser Busch, Quaker Oats, PepsiCo and 3M. The U.S. Communities account is a sole source award to our Roofing subsidiary and is estimated by U.S. Communities, based on their experience with past vendors, to exceed one hundred million dollars in revenue annually within three years.

	•		Added another independent director to our board.

	•		Purchased and integrated three new companies, with two more targeted in 2007.

	•		Established two new operating units, one in Stuart Florida and the other in Minneapolis Minnesota and a corporate headquarters in Oklahoma City.

	•		Established an exceptional marketing department and launched a comprehensive market and brand awareness campaign.

	•		Increased our sales backlog from $2 million at December 31, 2005 to over $23 million at December 31, 2006.

	•		Grew our Roofing revenue organically, by over 46% and increased revenue by over $6 million from our new Restoration subsidiary.

	•		Opened a Metals division within our Roofing subsidiary as part of our expansion of product offering to encompass the total exterior envelope of the building.

	•		Created our Enviro and Emergency Management subsidiary (E2MS), hired a President, and secured a number of pre event emergency response contracts in preparation for the next disaster. We have responded very effectively and profitably over the last fifteen years to disaster, but with our pre event contracts in place should achieve even greater results.

Revenues from fixed-price construction and renovation contracts are generally accounted for on a percentage-of-completion basis using the cost-to-cost method. The cost-to-cost method measures the percentage completion of a contract based on total costs incurred to date compared to total estimated costs to completion. Cost of revenues consists primarily of compensation and benefits to field staff, materials, subcontracted services, parts and supplies, depreciation, fuel and other vehicle expenses and equipment rentals. Our gross profit percentage, which is gross profit expressed as a percentage of revenues, depends primarily on the relative proportions of costs related to labor and materials. On jobs in which a higher percentage of the cost of revenues consists of labor costs, we typically achieve higher gross margins than on jobs where materials represent more of the cost of revenues. Margins are also affected by the competitive bidding process and the technical difficulty of the project. New roof construction work is more likely to be competitively bid than re-roofing, restoration and repair. Typically, re-roofing, restoration and repair jobs are more labor intensive and have higher margins than new roof construction.

The Marketplace

To meet the needs of a changing marketplace, Aduddell Industries is committed to providing additional building envelope protection services through organic and acquisition-based growth initiatives. We believe that we are leading the industry in providing products and services that proactively meet the needs inherent in four fundamental paradigm shifts:

Shift from local roofing resources to large national roofing companies
Expansion of the use of sophisticated metal roofing systems
Specific needs to provide innovative ways to restore the crumbling national infrastructure
National change in disaster consequence management from after-the-fact recovery services to pre-disaster planning consultation services

Shift from local roofing resources to large national roofing companies:

Aduddell Roofing has strategically positioned itself as a proven national commercial roofing resource for corporations and governmental agencies that are taking advantage of an industry change from employing independent local roofers to participating in national roof asset management programs and group purchasing alliances, which provide:

Best value products and services
Complete roof analysis reports
Controlled facility maintenance oversight

A prime example of a group taking advantage of this market opportunity is U.S. Communities, a nationwide non-profit strategic sourcing program designed by public purchasing professionals. The alliance is sponsored by the National Association of Counties (NACo), National Institute of Governmental Purchasing (NIGP), the Association of School Business Officials (ASBO), National League of Cities (NLC), and United States Conference of Mayors (USCM). More than 87,000 public entities are eligible to participate in the USC alliance, which currently has revenues of $1 billion.

We, working in a teaming relationship with Professional Services Industries, Inc., an industry-leading roof management consulting, engineering and testing firm, and W.P. Hickman Systems, a leading provider of protection products and services designed to maintain building assets, have recently won the exclusive national roofing services contract from USC. A new entity, which is named HCS, was formed to serve the USC participating public agency member accounts nationally. The solicitation process for this contract took more than six months and HCS was selected for best value over some of the largest companies in the roofing industry.

Expansion of the use of sophisticated metal roofing systems:

Architects and builders in large numbers nationally are specifying advanced metal roofing systems. Strategically positioned to answer this demand, Aduddell Roofing, with its Metal Roofing Systems division, is supplying leading-edge products and services in this important segment of the industry. The National Roofing Contractors Association 2004-2005 survey indicated the standing seam business category was the fastest growing segment of the roofing industry.

Specific needs to provide innovative ways to restore the crumbling national infrastructure:

The nation’s aging buildings, bridges, and highways are creating unprecedented government and private industry demand for structural repair, concrete restoration, and waterproofing. Aduddell Restoration and Waterproofing as well as Global Specialty Group’s purpose is to combine the latest technology with the best practices already in use, including repair, restoration, and waterproofing techniques and materials, to provide the most innovative, cost effective solution to the client’s restoration needs. The type of services that these Subsidiaries provide are vital to America’s repairing its out-of-date, damaged infrastructure.

National change in disaster consequence management from after-the-fact recovery services to pre-disaster planning consultation:

Lessons learned from recent man made and natural disasters have created a dynamic need for professional disaster management organizations. The type of service needed is rapidly evolving from primarily being related to post-disaster recovery, to complex, comprehensive pre-disaster planning. E2MS, our emergency services subsidiary, provides comprehensive pre-event planning, event management and post event recovery services either directly or through one of our strategic alliances. It is not a question of if the next disaster will occur, but when. We have responded very effectively and profitably over the last fifteen years to disaster, but with our pre-event contracts in place should achieve even greater results.

Services – Roofing

We provide a comprehensive range of commercial roofing services. We employ a knowledgeable and skilled workforce that utilizes standardized techniques and practices to determine a customer’s optimal roofing solution. These solutions are designed to maximize the average life of a new roofing system. Annual maintenance services, which can result in the identification at an early stage of problems within a roofing system, can add as many as 10 years to the useful life of a roof through repair and restoration. The following is a description of our roofing services.

Maintenance: Maintenance involves the physical inspection of an existing roof system to determine its current condition, detect weaknesses and failures and identify any potential future problems. Through a program of regularly scheduled annual or semi-annual inspections, our technicians assist owners in protecting their roofing investments by identifying damage in its early stages. Early detection of leaks and roofing system failures makes it possible for us to repair and extend the life of a roofing system through repair or restoration, which is significantly less expensive and time consuming than re-roofing. We also will soon offer to our customers a facility management program to coordinate maintenance, repair, restoration and re-roofing as needed. Although direct revenues from these preventive maintenance programs are relatively minor, we believe that these services enable us to cultivate strong relationships with our customers and establish a basis for recurring revenues.

Repair: Repair is a process where an existing roof system has additions and adjustments made to it, such as caulking, re-coating and repairing penetrations to fix leaks in the roofing system.

Restoration: Restoration involves the major repair of the roofing system, including the repair of all penetrations and re-surfacing of the roof to restore it to serviceable condition. The opportunity to perform restoration work normally exists two or three years before the end of a roof’s life cycle and before significant damage occurs. We are able to inform building owners when a roof is approaching the end of its 15-year average life cycle through our regularly scheduled maintenance and repair program. As many as ten years can be added to the useful life of the roof through restoration, and the cost of restoration is typically one-half the cost of re-roofing.

Re-Roofing: Re-roofing is the process of installing a new roof when a roofing system fails. Roofing system failure can be caused by a number of factors, including age, severe weather, poor workmanship, defective materials, improper specification of a roofing system, abuse and failure to maintain the roof through inspections. We perform re-roofing only when all repair and restoration alternatives are deemed incapable of bringing a roof back to serviceable condition, or at the specific request of a customer.

New Construction: New roof construction involves the construction of a variety of roofing systems, including metal roofing systems, built-up roofing membranes and single ply roofing systems. New roof construction coincides with the construction of a new building. New commercial roofing work usually begins with a proposal request from the building owner, property manager, general contractor or roof consultant. Initial meetings with the parties allow the roofing contractor to prepare preliminary and then more detailed design and product specifications, drawings and cost estimates. Once a project is awarded, it is conducted in scheduled phases, and progress billings are rendered to the owner of the building before payment, less a retention (defined as amounts withheld from progress billings until final and satisfactory contract completion) of 5% to 10% of the construction cost of the project. Actual field work (ordering of equipment and materials, fabrication or assembly of certain components, delivery of materials and components to the job site, scheduling of work crews and inspection and quality control) is coordinated during these phases. We generally provide the materials to be installed as a part of these contracts.

Services – Restoration and Waterproofing

Concrete is a primary element of practically every kind of construction. We have sought and developed the necessary skills and expertise required to provide the numerous specialized concrete services,

which have made us known for our pride in workmanship and our continual drive to innovate. We are approved applicators of Carlisle, Kelmar, M Brace, Permaquik, Tremco, Sika, Sonneborn, Stellar Mark, Watson Bowman and many other repair and waterproofing products. Field technicians are completely trained and certified in all the repair and waterproofing services we provide, such as:

Epoxy Coatings
Epoxy Injection
Expansion Joints
Fiber Reinforced Polymers (FRP is often referred to as Carbon Fiber Reinforcement)
High Pressure Washing
Hot Fluid Applied Waterproofing
Penetrating Sealers
Post Tension Cable Repair (Certified by the Post Tensioning Institute: http://www.post-tensioning.org)
Grout and Sealing
Shot Blasting
Traffic Coatings
Urethane Foam Injection

Concrete repair can include basic, minor repair, chip and patch, multilevel structures, structural full depth, and reinforcement or replacement of steel beams. Waterproofing can be either above or below grade as well as vertical and horizontal. Our goal is to incorporate established techniques and technologies in conjunction with the latest advancements. We also understand that projects may require immediate response and completion or long-term monitoring and maintenance work; with this in mind, our scope of what we do is primarily to meet our clients needs and goals.

Services – Emergency Response

In 2004, through the efforts of Oklahoma Development Group (ODG), we secured a subcontractor position to provide temporary roofing services related to damages caused by four different storm events. We partnered with Carothers Construction Inc. in the emergency response effort for the last two storms.

In February 2005, we contracted ODG to:

	•		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.

The bid was unsuccessful. However, because of the extensive damage caused by Hurricane Katrina, the USACE awarded an additional prime contract to us after the storm. With the exception of making Tim Aduddell, Aduddell Roofing’s President, available in Mississippi for three months, ODG fulfilled all of our management obligations related to the provision of temporary roofing services under the USACE contract.

In 2006 we expanded our emergency services subsidiary, to provide comprehensive pre-event planning, event management and post event recovery services either directly or through one of our strategic alliances. We brought the services previously provided by ODG in house, and we will manage and provide all emergency response services required by any future USACE contracts. We continue to position ourselves to maximize our revenue from the next disaster event.

Seasonal and Cyclical Nature of our Industry

The new construction industry is cyclical and is influenced by seasonal factors, as construction activities are usually lower during winter months than other periods. The re-roofing and restoration businesses do not follow the new construction cycles. We attempt to increase winter productivity by concentrating our business in the southern half of the United States. Nevertheless, we expect our revenues and operating results generally will be lower in the first and fourth quarters of each year. Additionally, the industry is affected by natural disasters, such as tornadoes, hurricanes and other windstorms. Since disaster-related work requires an immediate response and is typically covered by insurance, the margins are higher than on discretionary work.

Competition

The commercial roofing industry and restoration industry is highly fragmented with many contractors competing intensely with us on a local and regional basis. In the future, we may encounter competition from new entrants on a regional or national level. We believe that purchasing decisions in this industry are based on (i) price, (ii) reputation for reliability and quality of services provided, (iii) long-term customer relationships, and (iv) the range of services provided. We believe that our strategy of becoming a leading national provider of services for the full exterior envelope of a building will enhance our competitive position. In addition, we think that our reputation for quality and performance, brought about by our unique project management approach, and most of all safety provides us with a distinct competitive advantage. We believe that the market for our services will expand as we establish experienced sales personnel on a national basis.

Customers

In 2006, we provided commercial roofing services and restoration services to more than 190 customers. No individual customer accounted for more than 7.7% of our 2006 revenues with the exception of our Carothers Construction contract. The Carothers contact, with the work being actually performed for the Navy SeaBees, was seventeen buildings within one contract, which accounted for 40% of our total 2006 revenue. We provide roofing and restoration services to customers having a local, regional and national presence in a broad range of businesses, including the industrial, office, retail, hospitality, government and educational industries.

Suppliers

We purchase our roofing and restoration materials and other supplies from numerous suppliers and are not dependent on any one supplier for materials. Over the last calendar year, our expenses related to materials and supplies have increased, but we have had no significant problems obtaining the supplies and materials we need without extensive delays.

Sales and Marketing

We believe that our reputation for quality and performance has enabled us to obtain recurring business through customer referrals and new business. Like most competitors, we primarily use direct sales to market our services. Although our market presence is felt nationally, we have concentrated our efforts in the past in the southern half of the United States to minimize the seasonal fluctuations typically experienced within the construction industries. Given our new locations in Minnesota and our pending acquisition in New York, we expect our roofing footprint to expand dramatically. In addition our restoration and waterproofing businesses also operate nationwide

We supplement our sales and marketing activities through participation in industry trade shows and conferences, our Internet website and the yellow pages in the markets we serve. We have created a new

business development group of marketing, financial and business development professionals as well as a corporate accounts program, which is intended to develop and manage our relationship with customers having a regional or national presence. Our logo and identifying marks are featured on service trucks, marketing materials and advertising.

In the third quarter of 2006, we significantly increased marketing efforts by the purchase of EyeOpener Communications in an effort to increase revenues, profits and shareholder value. We believe this relationship can be leveraged into additional revenues in our current markets, new market opportunities and increased stockholder value.

Personnel, Training and Safety

We have a comprehensive job training program, which provides classroom and on-the-job training programs for our personnel based on the model training program developed by the NRCA. The program provides immediate training to roof laborers in our methods, procedures and standards with an emphasis on high quality service. Our training program is also designed to ensure that all of our roofing laborers meet safety standards established by us, our insurance carriers and Federal, state and local laws and regulations. Our training and safety program has been very effective as demonstrated by our EMR rating from our insurance company. This rating monitors the frequency of accidents nationally. The national average construction EMR is 1.0 and our historic EMR is 2006, .54, 2005, .58, 2004 .56. This is almost half the national average and represents one of the best, if not the best rating in the roofing industry.

Government Regulation

Our business and the activities of our roofing and restoration contractors are subject to various federal, state, and local laws, regulations and ordinances relating to, among other things, the licensing and certification of roofing contractors, OSHA standards, advertising, building and zoning regulations and environmental laws and regulations relating to the disposal of demolition debris and other solid wastes. We employ a full-time environmental specialist to assist us with environmental compliance and safety. Our expenses incurred in connection with compliance with environmental laws is not readily determinable as many of the expenses we incur, such as expenses for roof debris clean up, are aggregated with other expenses we incur when performing roofing projects. While we strive to utilize the best industry practices for waste disposal, there can be no assurance that we will not encounter future environmental claims, which could have a material adverse effect on our business, financial condition and results of operations.

In certain jurisdictions, we are required to be a licensed contractor. We are licensed in all fifty states, Puerto Rico and the Virgin Islands. In addition, certain jurisdictions require us to obtain a building permit for each roofing project. We are also subject to certain federal, state and local laws and regulations, which, among other things, regulate our advertising, warranties and disclosures to customers. Although we believe that we have been and are currently in compliance in all material respects with such laws and regulations, there can be no assurance that in the future our results of operations will not be materially adversely affected by existing or new laws or regulations applicable to our business.

Employees

At February 28, 2007, we had 283 full-time employees, including 193 employees in field operations and 90 managers and administrative employees. At December 31,2005 we had a total of 97 full time employees. Our roofing employees are unionized and covered under a collective bargaining agreement. Our managers and administrative employees are non-unionized. We have not experienced any labor-related work stoppages, and we consider our relations with our employees to be good.

Item 1A. Risk Factors

As Part of Our Growth Strategy, We Expect To Make Acquisitions and Acquisitions Involve Risk.

We intend to supplement our organic growth primarily by acquiring commercial roofing companies in existing and new markets. We also are exploring the acquisition of companies in related industries whose products or services complement our own particularly those which complete the building envelope. Our acquisition strategy presents risks that, singularly or in any combination, could materially adversely affect our business, financial condition and results of operations. These risks include the possibility of the adverse effect on our existing operations from the diversion of management attention and resources to acquisitions, the possible loss of acquired customer bases and key personnel, the possible adverse effect on earnings resulting from amortization of goodwill created in purchase transactions and the contingent and latent risks associated with the past operations and other unanticipated problems arising in the acquired businesses. The success of our acquisition strategy will depend on the extent to which we are able to identify, acquire, successfully integrate and profitably manage additional businesses, and no assurance can be given that our strategy will succeed. Competition for suitable acquisition targets could limit our ability to meet our growth strategy and could increase the cost of purchasing such acquisition targets.

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.

Our expansion through acquisitions and internal growth will require significant capital. The timing, size and success of our acquisition efforts and the associated capital commitments cannot be readily predicted. There can be no assurance we will be able to generate sufficient capital to fund our growth strategy through our operations or be able to raise sufficient capital upon terms acceptable to us, or at all. If we do not have sufficient cash resources, our growth could be limited unless we are able to obtain additional capital through equity or debt financing. Such indebtedness, if incurred, would increase our leverage, may make us more vulnerable to economic downturns and may limit our ability to withstand competitive pressures.

Commercial Roofing is a Seasonal Industry and Can Fluctuate Based on Weather Conditions.

Our results of operations and the demand for our roofing services can be expected to fluctuate from quarter to quarter due to a variety of factors, including but not limited to, adverse weather and the timing of acquisitions. For example, mild, dry weather results in reduced demand for the number of roofs in need of repair. Conversely, adverse weather increases the number of roofs in need of repair, but due to the increased demand and the inability to render services during such periods, severe weather can delay the time it takes to complete a roofing project. Accordingly, we expect our revenues and operating results generally will be lower in the first and fourth quarters of each year.

A Large Portion of Our Revenues from Prior Years has Resulted from Emergency Services to Repair Damages Caused by Hurricanes. Revenues for Emergency Based Services are Uncertain and Can Fluctuate Drastically From Year to Year.

For the years ended December 31, 2005 and 2004, approximately 71% and 38% of our revenues have derived from contracts with USACE and FEMA to provide emergency services to homeowners whose houses were damaged by hurricanes. This has been the primary reason for our dramatic increase in our revenues, net income and free cash flow over that time. We cannot predict how much, if any, damage that hurricanes or other natural disasters may cause to the United States in future years and, as such, we are unable to accurately predict how much, if any, revenue we will derive from services to repair such damage in the future. Even if there is significant damage to property from hurricanes or other natural disasters in the future, we cannot provide assurance that we will be able to obtain comparable contracts to the contracts we have obtained in the last two years or that we would be able to obtain any contracts to repair such damages. As a result, we expect that our revenues from emergency services will 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.

Historically, we had engaged ODG to prepare and submit proposals to FEMA and the USACE for emergency response services, and in the event of an actual emergency, manage all pre-event activities, labor procurement, housing and administrative responsibilities and all close-out duties including final inspections and repairs associated with the event. Payments to ODG were based on an installed price per square foot, and the price was historically less than other vendors rates for installation only. If there are no emergency events in any year, we were not obligated to pay ODG any amounts under the agreement. After considering recent successes under its USACE contracts, our board of directors deemed it in our best interest to perform the services historically performed for us by ODG in-house, rather than continuing to outsource them to ODG. By doing so, we will now bear the risk of lost costs associated with the procurement of FEMA and USACE contracts, as well as the operating risks and subcontractor liabilities associated with such contracts if awarded to us. In 2004 and 2005, ODG expended approximately $500,000 to secure FEMA and USACE emergency services contracts.

Our Ability to Increase Our Productivity and Profitability May be Limited by the Availability of Skilled Roofing Labor.

The timely provision of high-quality maintenance, repair, restoration, waterproofing, re-roofing and new roof construction services requires an adequate supply of skilled roofing labor. The supply of roofing labor is sensitive to economic and competitive conditions and the level of demand for roofing services. Accordingly, our ability to increase our productivity and profitability may be limited by our ability to employ, train and retain the skilled roofing laborers necessary to meet our service requirements. From time to time, there are shortages of skilled labor, and there can be no assurance that we will be able to maintain an adequate skilled labor force necessary to operate efficiently, that our labor expense will not increase as a result of a shortage in the supply of skilled labor or the unionization of a portion of our labor force, or that we will not have to curtail our planned internal growth as a result of labor shortages. At February 28, 2007, we had 283 full-time employees, including 193 employees in field operations and 90 managers and administrative employees as compared to 97 full time employees December 31, 2005.

Temporary Shortages or Disruptions in the Supply of Raw Materials Could Negatively Impact our Results of Operations

Temporary shortages or disruptions in the supply of raw materials or the availability of transportation can occur from time to time from a variety of causes. If we experience temporary shortages or disruptions in the supply of raw materials or the availability of transportation, our operating results could be lower than projected.

Workers Compensation Expenses are a Significant Expense of Our Business and May be Subject to Increase if We Experience Significant Claims

Our workers’ compensation insurance is a significant expense of our business and is subject to adjustment in the event that we have any significant claims by our employees. We currently have, what we believe to be, one of the lowest workers’ compensation premiums in the industry, which provides us with a competitive advantage when bidding for contracts. If we were to experience any significant claims by any of our employees, our workers’ compensation premiums could increase, thereby reducing our competitive advantage in the marketplace.

An Inability to Obtain Bonding would have a Negative Impact on Our Operations and Results

We generally are required to provide surety bonds securing our performance under the majority of our public and private sector contracts. Our inability to obtain surety bonds in the future would significantly impact our ability to obtain new contracts, which would have a material adverse effect on our business.

Our Joint Venture Contracts with Project Owners Subject Us to Joint and Several Liability

We often bid and obtain contracts through joint ventures established with other businesses. If a joint venture partner fails to perform we could be liable for completion of the entire contract and, if the contract were unprofitable, this could result in a material adverse effect on our financial position, results of operations and cash flows.

Failure of Our Subcontractors to Perform as Anticipated Could have a Negative Impact on Our Results

We subcontract a portion of many of our contracts, and we are ultimately responsible for the successful completion of the subcontractor’s work. Although we seek to require bonding or other forms of guarantees, we are not always successful in obtaining those bonds or guarantees, and there is no guarantee that we will not incur a material loss due to subcontractor performance issues.

The Commercial Roofing Industry is Highly Competitive

The commercial roofing industry is highly fragmented and competitive and is served principally by small, owner-operated private companies. We compete for sales with numerous roofing companies in each of our markets. Certain of these smaller competitors have lower overhead cost structures and may be able to provide their services at lower rates than us. There can be no assurance that we will not encounter increased competition from existing competitors or new market entrants that may be significantly larger and have greater financial and marketing resources. In addition, to the extent existing or future competitors seek to gain or retain market share by reducing prices, we may be required to lower our prices, which may adversely affect operating results. Existing or future competitors also may seek to compete with us for acquisition candidates. Other consolidators of commercial roofing companies may have greater financial and other resources than us, which could have the effect of increasing the price for acquisitions or reducing the number of suitable acquisition candidates.

We are Dependent Upon a Few Key Personnel for Our Success

Our operations depend on the continuing efforts of our corporate executive officers and the executive officers of our subsidiaries. Our business could be affected adversely if any of these persons does not continue in his management role with us or an acquired business and we are unable to attract and retain qualified replacements.

We Are Controlled By Our Officers and Directors

Our executive officers and directors beneficially own in the aggregate and on a fully diluted basis, approximately 76% of our outstanding common stock. Accordingly, such persons will have substantial influence on us, which influence might not be consistent with the interests of other shareholders on any matters submitted to our shareholders for approval. In addition, although there is no current agreement, understanding or arrangement for these shareholders to act together on any matter, these shareholders may have economic and business reasons to act together, and would be in a position to exert significant influence over our affairs if they were to act together in the future. Our majority shareholder, Timothy Aduddell, beneficially owns 67% of our outstanding common stock on a fully diluted basis and, as a practical matter, he is able to exercise control over our affairs, including the election of the entire Board of Directors and any matter submitted to a vote of shareholders.

We are Subject to Various Federal, State and Local Regulations, Which Increase Our Costs of Doing Business

Our business is subject to various federal, state, and local laws, regulations and ordinances relating to, among other things, the licensing and certification of roofing contractors, OSHA standards, advertising, building and zoning regulations and environmental laws and regulations relating to the disposal of

demolition debris and other solid wastes. In certain jurisdictions, we or one of our employees is required to be a licensed contractor. In addition, certain jurisdictions require us to obtain a building permit for each roofing project. We are also subject to certain federal, state and local laws and regulations, which, among other things, regulate our advertising, warranties and disclosures to customers. Although we believe that we have been and are currently in compliance in all material respects with such laws and regulations, there can be no assurance that in the future our results of operations will not be materially adversely affected by existing or new laws or regulations applicable to our 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

As further described in “Critical Accounting Policies and Estimates” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation,” accounting for our contract related revenues and costs as well as other cost items requires management to make a variety of significant estimates and assumptions. Although we believe we have sufficient experience and processes in place to enable us to formulate appropriate assumptions and produce reliable estimates, these assumptions and estimates may change significantly in the future and these changes could have a material adverse effect on our financial position and the results of our operations.

Item 1B. Unresolved Staff Comments

None.

Item 2. Description of Property

Facilities and Vehicles

We have an 8,000 square foot corporate office in Oklahoma City as well as our Roofing office located in a suburban Oklahoma City industrial area. The Roofing office covers 9,380 square feet and the shop and warehouse cover 11,142 square feet. In addition we have our North Central Roofing Division and our subsidiary Aduddell restoration and Waterproofing offices in Fridley Minnesota in an approximately 20,000 square foot building including warehouse space. We operate our South East Roofing division from a 2,200 square foot facility in Stuart, Florida. Each of the operating facilities also has equipment storage yards and all facilities are leased. We operate a fleet of approximately 140 trucks, vans and other vehicles. We believe that our facility and vehicles are well maintained and adequate for our current operations.

Item 3. Legal Proceedings

Eric Beitchman v. Timothy Aduddell, et al., Case No. 5:05-cv-01465-HE, United States District Court for the Western District of Oklahoma. On December 19, 2005, a shareholder’s derivative action was filed, claiming that we entered into certain non-arms length transactions with certain of our officers and/or directors. Among the transactions complained of is one in which we allegedly entered into a Telecommunications Equipment and Software Upgrade Agreement with a company partially owned and controlled by one of our officers/directors. In addition, the plaintiff complains our contracting with and making payments to Oklahoma Development Group, LLC (“ODG”) in connection with our outsourcing of emergency response services to ODG in 2005. Based on these and other allegations in the Complaint, the plaintiff claims that the individual defendants breached their fiduciary duties to us, that they abused control of us, that they engaged in gross mismanagement, and, with respect to certain officers/director defendants, that they engaged in unjust enrichment. Plaintiff seeks damages, imposition of a constructive trust, restitution and attorneys’ fees. We and the individual defendants denied the substantive allegations of the Complaint.

On February 9, 2007, the parties participated in a mediation that resulted in a settlement of the lawsuit. Final documentation has not yet occurred; however, the settlement terms include payment by us of a nonmaterial amount along with certain non-monetary relief.

We have been sued by First Bankcentre (the “Bank”) in the Oklahoma District Court of Tulsa County, Oklahoma Case No. CJ-2006-03621. The Petition was filed on June 7, 2006. Plaintiff claims that we must issue 500,000 shares of our common stock at a purchase price of $.01 per share pursuant to a warrant held by the Bank. We believe the warrant is unenforceable. We have filed an Answer setting forth our defenses. Among them are that the warrant was issued without corporate authority, that the warrant violated the anti-tying restrictions of the Bank Holding Company Act and that the warrant represents a clog on our equity of redemption from the Bank under a prior loan that was repaid in full. The lawsuit is in its early stages and discovery has not been undertaken. We intend to vigorously defend this lawsuit.

In addition, we are, from time to time, parties to various litigation matters arising in the normal course of our business, most of which involve claims for personal injury and property damage incurred in connection with our operations. We are not currently involved in any litigation of this nature that we believe, based on our examination of such matters, is likely to have a material adverse effect on our financial condition or results of operations.

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

No items were submitted to a vote of our security holders during the fourth quarter of 2006.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the OTC Bulletin Board and is quoted under the symbol “ADDL.OB”. The following table sets forth, for the periods presented, the high and low bid quotations in the over-the-counter market as quoted on the OTC Bulletin Board. The bid quotations reflect inter-dealer prices without adjustment for retail markups, markdowns, or commissions and may not reflect actual transactions. The reported quotations were obtained from the OTC Bulletin Board website.


	2006				2005
Quarter Ended	Low		High		Low		High
March 31	$	0.46	$	0.97	$	0.11	$	0.14

June 30	$	0.70	$	1.95	$	0.13	$	0.19

September 30	$	0.69	$	1.47	$	0.14	$	1.48

December 31	$	0.52	$	1.08	$	0.48	$	1.17

PERFORMANCE GRAPH

The following graph shows a five year comparison of cumulative total returns for us, the S&P 500 composite index and an index of peer companies selected by us with the investment weighted based on market capitalization at the beginning of each year.



	2001		2002		2003		2004		2005		2006
Aduddell Industries, Inc.		100		122.2		94.4		155.6		555.6		655.6
S&P 500		100		70.8		86.6		94.4		97.3		110.5
Custom Index: Aduddell Comps		100		116.7		136.9		137.2		159.8		191.3

The total cumulative return on investment ( change in the year-end stock price plus reinvested dividends) for each year for us, the peer group and the S&P 500 composite is based on the stock price or composite index at the end of fiscal year 2001.

The Custom index: Aduddell Comps (Market Cap) is composed of the following companies, which we consider to be in our peer group:

	•		PDG Environmental Inc. (OTCBB:PDGE)

	•		Comfort Systems USA Inc. (NYSE:FIX)

	•		ABM Industries Inc. (NYSE:ABM)

	•		Rollins Inc. (NYSE:ROL)

	•		Servicemaster Co. (NYSE:SVM)

	•		FirstService Corp. (TSX:FSV.SV)

	•		Home Solutions of America Inc. (AMEX:HOM)

	•		US Home Systems Inc. (NasdaqNM:USHS)

	•		InfraSource Services Inc. (NYSE:IFS)

Holders of our Common Stock

At the date of this report, we had 89 shareholders of record for our common stock. One of the shareholders of record is CEDE & CO and represents over 1,000 independent shareholders holding over 29 million shares.

Dividend Policy

Our dividend policy is to retain earnings to support the expansion of operations through organic growth or by strategic acquisitions. We have not previously paid any cash dividends, and we do not intend to pay cash dividends in the near future. Any future cash dividends will depend on our future earnings, capital requirements, financial condition and other factors deemed relevant by the Board of Directors.

Equity Compensation Plan Information

(a)

(b)

( c)

Number of

securities to

Weighted

securities

be issued upon

average

remaining for

Plan Categories

exercise of options

exercise price

future issuance

Equity compensation plans approved by
Security holders

2005 Stock Incentive Plan (1)

3,625,000

.76

1,375,000

Equity compensation plans not approved By security holders

None

.00

-0-

Total

3,625,000

.76

1,375,000


(1)		On October 17, 2005, our Board of Directors adopted the 2005 Stock Incentive plan and has since approved the issuance of options to purchase 3,625,000 shares at an average exercise price of $.78 to $.49 per share. Both the adoption of the plan and the grant of options under the plan were approved, at our 2006 annual meeting of stockholders.

Item 6. Selected Financial Data

The following table sets forth selected financial and statistical data, computed as a percentage of net sales, for the years ended December 31, 2006, 2005, 2004, 2003, and 2002. The selected financial data are derived from our audited consolidated financial statements and should be read in conjunction with them and the notes thereto. The results of operations for the periods presented are not necessarily indicative of our future operations.


	Years Ended December 31,
	2006			2005		2004		2003			2002
Revenues	$	31,660,657		$	59,227,145	$	27,828,362	$	19,309,814		$	2,869,792


Operating Expenses:
Cost of revenues		30,710,356			41,668,047		23,262,586		16,210,622			2,955,637
General and administrative		5,811,508			2,772,785		2,011,624		1,423,122			690,848
Warranty expense		130,711			138,847		110,820		89,001			18,564

		36,652,575			44,579,679		25,385,030		17,722,745			4,243,744


Operating Income (Loss)		(4,991,918	)		14,647,466		2,443,332		1,587,069			(795,257	)

Other Income (Expense):
Interest income		305,998			86,039		75,139		74,157			25,704
Gain (loss) on sale of equipment		28,751			7,369		3,228		(868	)		6,510
Gain (loss) on investment		(590,321	)		—		—		—			—
Other income (loss)		268,852			202,862		34,924		18,252			(268,231	)

		13,280			296,270		113,291		91,541			(236,017	)


Income (Loss) Before Provision For Income Taxes		(4,978,638	)		14,943,736		2,556,623		1,678,610			(1,031,274	)

Provision (benefit) for income taxes		(2,088,000	)		5,618,797		1,022,488		438,066			(277,592	)


Net Income (Loss) Before
Discontinued Operations and Sale of Discontinued Business		(2,890,638	)		9,324,939		1,534,135		1,240,544			(753,682	)

Gain (loss) on forgiveness of debt from operations, net of income taxes		—			—		—		1,312,777			(1,146,457	)

Gain (loss) on sale of discontinued operations, net of income taxes		—			—		—		(1,190,335	)		—


Net Income (Loss)		(2,890,638	)		9,324,939		1,534,135		1,362,986			(1,900,139	)

Other Comprehensive Income:
Unrealized holding gain (losses)		4,272			14,146		1,230		2,459			(275,392	)
Reclassification adjustment		—			—				—			270,882


Comprehensive Income (Loss)	$	(2,886,366	)	$	9,339,085	$	1,535,365	$	1,365,445		$	(1,904,649	)


	Years Ended December 31,
	2006			2005			2004			2003			2002
Basic Earnings (Loss) per Share	$	(0.05	)	$	0.19		$	0.03		$	0.03		$	(0.04	)
Fully Diluted Earnings (Loss) per Share	$	(0.03	)	$	0.12		$	0.02		$	0.02		$	(0.04	)


Earnings (Loss) per Share from Discontinued Operations	$	—		$	—		$	—		$	—		$	(0.02	)


Earnings (Loss) per Share from Continuing Operations	$	(0.05	)	$	0.19		$	0.03		$	0.03		$	(0.02	)


Statistical Data As a Percentage of Net Sales

Cost of revenues		97	%		70	%		84	%		84	%		103	%

Operating Income (Loss)		(16	)%		25	%		9	%		8	%		—

General and admin.		18	%		5	%		7	%		7	%		24	%
Comprehensive net income (loss)		(9	)%		16	%		5	%		7	%		—

Cash Flow Data

Net cash provided by (used in) Operating activities	$	(22,120,388	)	$	21,805,758		$	3,333,887		$	548,465		$	(32,516	)

Net cash provided by (used in) Investing activities	$	(9,996,151	)	$	(1,219,507	)	$	(123,875	)	$	(82,208	)	$	253,128

Net cash provided by (used in) Financing activities	$	9,785,788		$	(756,061	)	$	(1,109,858	)	$	(678,694	)	$	391,893


Balance Sheet Data

Total assets	$	33,340,732		$	32,703,847		$	11,048,298		$	8,239,663		$	7,586,359


Total liabilities	$	20,164,870		$	18,003,086		$	5,686,622		$	4,413,352		$	5,369,668


Stockholders Equity	$	11,657,054		$	14,700,761		$	5,361,676		$	3,826,311		$	2,216,691

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and notes thereto.

Introduction

Aduddell Industries, Inc. is engaged in the commercial and industrial roofing and re-roofing, specialty roofing metals, waterproofing and concrete restoration and consulting businesses through our subsidiaries Aduddell Roofing, Inc., Aduddell Restoration and Waterproofing, Inc., and Global Specialty Group, Inc. In addition we provide pre-event planning, event management and post-event recovery services for disaster related activities through our subsidiary Aduddell Enviro & Emergency Management Services, Inc. (“E2MS”). We provide internal corporate transportation services through our subsidiary Aduddell Financial Services, Inc. as well as marketing services through our EyeOpener Division. We were originally incorporated on March 4, 1991, in the state of Colorado. On June 7, 2006, we changed our name from

Zenex International, Inc. to Aduddell Industries, Inc. and our state of incorporation from Colorado to Oklahoma.

Our revenues were historically derived from comprehensive commercial roofing services, including re-roofing, restoration and repair, new roof construction, sheet metal fabrication, waterproofing, and emergency post-event response services. In the second quarter of 2006, we increased our focus on providing services to the total exterior shell of a building through the asset purchase of Merit Construction, a concrete restoration company and expanded our roofing business to include standing seam and specialty metals. In the third quarter of 2006 we focused on the organic growth of these business areas, increased our marketing capability with the purchase of EyeOpener Creative Communications, LLC., and continued to execute our business plan by searching for acquisitions in key markets. On October 20, 2006, we signed a letter of intent to acquire Brent Anderson & Associates, Inc., a Minnesota based restoration, roofing and waterproofing company. This transaction closed in December 2006 adding significant resources, including below grade waterproofing to our service offerings. At year end we signed a definitive purchase agreement to acquire Hayden Building Maintenance, Inc. as well as Hudson Valley Roofing and Sheet Metal, Inc., privately held commercial roofing companies in New York. Hayden Building Maintenance has an additional office in New Orleans that is currently actively involved in commercial roofing related to disaster response. It is anticipated closing will occur on or before May 18, 2007.

Cost of revenues consists primarily of compensation and benefits to field staff, materials, subcontracted services, parts and supplies, depreciation, fuel and other vehicle expenses and equipment rentals. Our gross profit percentage, which is gross profit expressed as a percentage of revenues, depends primarily on the relative proportions of costs related to labor and materials. On jobs in which a higher percentage of the cost of revenues consists of labor costs, we typically achieve higher gross margins than on jobs where materials represent more of the cost of revenues. Margins are also affected by the competitive bidding process and the technical difficulty of the project. New roof construction work is more likely to be competitively bid than re-roofing, restoration and repair. Typically, re-roofing, restoration and repair jobs are more labor intensive and have higher margins than new roof construction.

In the execution of our 2006 business plan we have spent $1,410,686 in our roofing subsidiary and $1,286,641 in our corporate office in the pursuit of national accounts and acquisitions. These expenditures resulted in a number of national accounts such as, U.S. Communities, Anheuser Busch, Pepsi, Quaker Oats and others as well as the acquisitions of Merit Construction, EyeOpener Creative Communications, Brent Anderson Associates, and the pending acquisitions of Hayden Building Maintenance and Hudson Valley Roofing. The full value and effect of these accounts and acquisitions should become evident over the next several years as we integrate them into our business model and take advantage of the economies of scale as well as synergistic reduction of cost. In addition we should have increased sales and customer penetration as we cross sell our product offerings.

In addition to the acquisition and national account expenditures we significantly expanded our corporate, roofing and restoration staff, opened three new operating locations, and expanded our corporate governance and compliance activities. These additional general and administrative costs of approximately $2.9 million were required to support our expanding business from anticipated acquisitions as well as organic growth. The increased infra structure will provide most of the support for our targeted sales revenues for 2007.

A partial summary of our 2006 accomplishments is as follows:

	•		Increased our corporate governance capability and effectivness aat the corporate level by hiring a C.E.O., C.F.O, Senior V.P. of Corporate Development, V.P. of Sales, V.P. of National Accounts and a V.P. of Human Resources,

	•		Expanded our national accounts program and were awarded contracts with U.S Communities, Anheuser Busch, Quaker Oats, Pepsico and 3M. The U.S. Communities account is a sole source award to our Roofing subsidiary and is estimated by U.S. Communities, based on their experience with past vendors, to exceed one hundred million dollars in revenue annually within three years.

	•		Added another independent director to our board.

	•		Purchased and integrated three new companies, with two more targeted in 2007.

	•		Established two new operating units, one in Stuart Florida and the other in Minneapolis Minnesota and a corporate headquarters in Oklahoma City.

	•		Established an exceptional marketing department and launched a comprehensive market and brand awareness campaign.

	•		Increased our sales backlog from $2 million at December 31, 2005 to over $23 million at December 31, 2006.

	•		Grew our Roofing business organically, by over 46% and increased revenue by over $6 million from our new Restoration subsidiary.

	•		Opened a Metals division within our Roofing subsidiary as part of our expansion of product offering to encompass the total exterior envelope of the building.

	•		Created our Enviro and Emergency Response subsidiary (E2MS), hired a President, and secured a number of pre event emergency response contracts in preparation for the next disaster. We have responded very effectively over the last fifteen years to disaster, but with our pre event contracts in place should achieve even greater results.

The following table presents the unaudited pro-forma combined results of operations of the Company, Merit Construction and Brent Anderson Associates for each of the years ended December 31, 2006, and 2005, respectively as if Merit Construction and Brent Anderson Associates had been acquired at the beginning of each of the periods.


	For the Years Ended
	December 31,
	2006			2005
Revenues		50,508,341			84,707,241

Net Income (Loss)		(4,167,288	)		9,705,244

Pro forma basic earnings (loss) per share		(0.08	)		0.20

Pro forma diluted earnings (loss) per share		(0.05	)		0.12

Weighted average shares outstanding
Basic		50,258,549			48,737,921
Diluted		79,437,367			80,737,921

The pro forma combined results are not necessarily indicative of the results that would have occurred if the acquisitions had been completed at the beginning of 2005, nor are they necessarily indicative of future consolidated results.

The following table sets forth information used by management to assess our results of operations over the prior three (3) years both in aggregate amounts and the percentage increase or decrease over the prior year:


				%					%
				Increase					Increase
	2006			(decrease)			2005		(decrease			2004
Roofing Revenue	$	25,052,924			46.9	%	$	17,045,347		(1.0	)%	$	17,216,772
Restoration Revenue	$	6,303,155			—			—					—
Other Revenue	$	304,578			—
Emergency Services Revenue	$	0			—		$	42,181,798		297.5	%	$	10,611,590
Total Revenue	$	31,660,657			(46.5	)%	$	59,227,145		112.8	%	$	27,828,362

Roofing Margin	$	2,517,889			104.8	%	$	1,229,005		(59.8	)%	$	3,060,065
Restoration Margin	$	(235,085	)		—			—					—
Other Margin	$	(1,106,108	)		—
Emergency Services Margin	$	(226,395	)		(946.9	)%	$	16,330,093		984.5	%	$	1,505,711
Total Margin	$	950,301			(945.8	)%	$	17,559,098		284.6	%	$	4,565,776

Cash Flow from Operations	$	(22,120,388	)		(201.4	)%	$	21,805,758		554.1	%	$	3,333,887

EBITDA	$	(3,787,533	)		(497.9	)%	$	15,071,019		458.9	%	$	2,696,624

Net Income	$	(2,886,366	)		(423.1	)%	$	9,324,939		507.8	%	$	1,534,135

Free Cash Flow	$	(25,939,379	)		(201.4	)%	$	20,901,181		554.0	%	$	3,195,801


	2006			2005			2004
Reconciliation of Free Cash Flow:
Cash Flow from Operations	$	(22,120,388	)	$	21,805,758		$	3,333,887
Capital Expenditures	$	3,818,991		$	904,577		$	138,086
Free Cash Flow	$	(25,939,379	)	$	20,901,181		$	3,195,801
Reconciliation of EBITDA:
Net Income	$	(2,886,366	)	$	9,324,939		$	1,534,135
Interest (Income)	$	(305,998	)	$	(86,039	)	$	(75,139	)


	2006			2005			2004
(Gain) Loss on Sale of Equipment	$	(28,751	)	$	(7,369	)	$	(3,228	)
Provision (Benefit) for Income Taxes	$	(2,088,000	)	$	5,618,797		$	1,022,488
Investment Loss	$	590,321		$			$
Depreciation	$	931,261		$	220,691		$	218,368
EBITDA	$	(3,787,533	)	$	15,071,019		$	2,696,624

Our EBITDA is determined by adding the following to net income: net interest income, (gain) loss on sale of equipment, provision (benefit) for income taxes, investment loss and depreciation. We calculate free cash flow by subtracting capital expenditures from cash flow from operations. The table above reconciles EBITDA to net income, and free cash flow to cash flow from operations.

We present EBITDA and free cash flow because we believe that each provides useful information regarding our continuing operating results. We rely on EBITDA and free cash flow as primary measures to review and assess our operating performance and our management team’s performance in connection with our executive compensation and bonus plans. We also review EBITDA and free cash flow to compare our current operating results with corresponding periods, and as an assessment of our overall liquidity and our ability to meet our debt service obligations.

We believe that EBITDA and free cash flow are useful to investors to provide disclosures of our operating results on the same basis as that used by our management. We also believe that these measures can assist investors in comparing our performance to that of other companies on a consistent basis without regard to certain items, which do not directly affect our ongoing operating performance or cash flows. EBITDA and free cash flow, which are non-GAAP financial measures, have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for net income, cash flows from operating activities and other consolidated income or cash flows statement data prepared in accordance with accounting principles generally accepted in the United States. Because of these limitations, EBITDA and free cash flow should neither be considered as measures of discretionary cash available to us to invest in the growth of our business, nor as replacements for net income. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and free cash flow as supplemental information.

Critical Accounting Policies and Estimates

General

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to allowance for doubtful accounts, the useful lives of fixed assets, impairment of long-lived assets and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We consider the following policies to be most critical in understanding the judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of operations, financial condition and cash flows.

Revenue Recognition

We recognize fixed price contract revenues on the percentage-of-completion method of accounting, measured by the percentage of cost incurred to date to the estimated total cost for each contract. Management uses this method because total cost is considered to be the best available measure of progress on the contracts. Revenues from cost-plus-fee contracts are recognized on the basis of costs incurred during the period plus the fee earned, measured by the cost-to-cost method.

Contract costs include all direct material and labor costs and those indirect costs related to contract performance such as indirect labor, interest, depreciation and supplies. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and income, which are recognized in the period in which the revisions are determined. The asset “Costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billed. The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized.

Cash and Cash Equivalents

For purposes of the Consolidated Statement of Cash Flows, short-term investments, which have maturities of ninety days or less, are considered cash equivalents.

Investments

We account for our investments in marketable securities using Statement of Financial Accounting Standards No. 115 “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”). This standard requires that investments in equity securities that have a readily determinable fair value and all investments in debt securities be adjusted to market value at the end of each accounting period. Unrealized market value gains and losses are charged to earnings if the securities are traded for short-term profit. Otherwise, such unrealized gains and losses are charged or credited to a separate component of shareholders’ equity.

Management determines the proper classification of investments in obligations with fixed maturities and marketable equity securities at the time of purchase and reevaluates such designations as of each balance sheet date. At December 31, 2006 and 2005, all securities covered by SFAS No. 115 were designated as available-for-sale. Accordingly, these securities are stated at fair value, with unrealized gains and losses reported in a separate component of shareholders’ equity. Any realized gains and losses on sales of investments, as determined on a specific identification basis, are included in our Consolidated Statement of Operations.

Fair Value of Financial Instruments

Our financial instruments include cash, receivables, notes receivable, marketable securities, short-term payables and notes payable. The carrying amounts of cash, receivables, and short-term payables approximate fair value due to their short-term nature. Marketable equity securities’ fair values are estimates based on quoted market prices. The carrying amounts of notes receivable and payable approximate fair value based on interest rates currently available.

Income Taxes

We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“SFAS No. 109”). This standard requires the recognition of deferred tax assets and liabilities for the future tax consequences attributable to temporary differences

between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, SFAS No. 109 requires the recognition of future tax benefits, such as net operating loss carry -forwards, to the extent that realization of such benefits is more likely than not. The amount of deferred tax liabilities or assets is calculated by applying the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years.

Net Income (Loss) Per Share

We compute net income (loss) per share in accordance with SFAS No. 128, Earnings per Share (“SFAS No. 128”) and SEC Staff Accounting Bulletin No. 98 (“SAB No. 98”). Under the provisions of SFAS No. 128 and SAB No. 98, basic net income (loss) per share is calculated by dividing net income (loss) available to common shareholders for the period by the weighted average number of common shares outstanding during the period.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Property and equipment are depreciated using straight-line and accelerated methods over the estimated useful lives of the assets, which range from five to thirty nine years.

Changes from the Prior Period

We have not made any material changes to our critical accounting estimates or assumptions or the judgments affecting the application of those estimates of assumptions.

Relationship with Oklahoma Development Group

In 2004 ODG, an entity owned by Tim Aduddell, Chairman of the Board, and David Aduddell, a Company Director, secured four subcontract positions for hurricane related work and engaged Aduddell Roofing to perform the work. In 2005 ODG prepared and submitted a bid to become a prime contractor on hurricane related work in 2005. As the designated manager of the activities of the JV formed by Aduddell and Carothers in response to Hurricane Katrina, ODG managed the pre-event activities, labor procurement, housing and administrative responsibilities and all close out duties including final inspections and repairs associated with the work. Prior to forming the joint venture and signing the contract with the USACE, ODG implemented the planning and readiness program, procured required hurricane response items and, along with Aduddell Roofing and Carothers, prepared the proposal and all documentation that was submitted to the USACE. ODG earned approximately $8,900,000 for the year ended December 31, 2005, and $1,300,000 for the year ended December 31, 2004.

Effective April 1, 2006, we hired certain key employees of ODG. We believe the benefits of bringing certain ODG employees in house ultimately outweighs the increased overhead cost resulting from this decision. Our decision was based on:

	•		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.

As such, all services previously provided to us by ODG will now be provided by our employees. We anticipate no future related-party transactions between us and ODG.

Corporate Governance Matters

We continue to evaluate our corporate governance policies and procedures, and after implementing certain new policies, believe they are satisfactory for a controlled company of our size. We are dedicated to further implementing sound corporate governance policies for a company within our demographics. As a growing company, we anticipate that our corporate governance policies and procedures will soon be enhanced due to our being subject to (i) the requirements of Regulation S-K rather than Regulation S-B, (ii) the corporate governance requirements of a national securities exchange or a Nasdaq market, if we become listed thereon, and (iii) the expected disclosure obligations under the SEC’s proposed executive compensation and related party disclosure rules (Release No. 33-8655). We are sensitive to our status as a controlled entity, our related-party transactions with ODG, and our stockholders’ desires for enhanced, cost-effective corporate governance policies and procedures. With the assistance of securities counsel, we will continue to consider enhancements of our corporate governance polices as we grow and our stock is hopefully listed on a national securities exchange or Nasdaq market.

Results of Operations

Comparison of 2006 and 2005

Revenues. Revenues decreased from $59,227,145 for the year ended December 31, 2005, to $31,660,657 for the year ended December 31, 2006. Our revenues were significantly affected by the absence of natural disaster related work such as tornados, hurricanes and other windstorms. Revenues for 2006 included a 46.9% organic growth in our roofing revenues as well as $6,303,155 of revenue in our new business line, restoration services.

Operating Expenses. Operating expenses for the year ended December 31, 2005, were $44,579,679, or 75% of revenue, compared to $36,652,575, or 116% of revenue, for the year ended December 31, 2006. Operating expenses for the year ended December 31, 2006, as a percentage of revenue were affected by expenditures for national account marketing, acquisition pursuit and execution as well as expanded support structure. These increases are expected to normalize in 2007.

Income(Loss) before Provision for Income Taxes. Operating income before taxes for the year ended December 31, 2005, was $14,943,736 compared to a loss of $4,978,638 for the year ended December 31, 2006. The decrease in our 2006 operating income was attributable to the lack of higher margin disaster work, $2.9 million increase in infra structure as well as $2.7 million expenditure on national account marketing and acquisition pursuit and $590,321 loss on investment.

Net Income. The net income for the year ended December 31, 2005, was $9,339,085, compared to a net loss of $2,886,366 for the year ended December 31, 2006. These results were influenced by the factors identified above under Revenues, Operating Expenses.

Comparison of 2005 and 2004

Revenues. Revenues increased from $27,828,362 for the year ended December 31, 2004 to $59,227,145 for the year ended December 31, 2005. Revenues for 2005 and 2004 were higher than expected due to the substantial amount of hurricane-related work in Florida and Mississippi. Storm related revenues were $42,181,798 in 2005 compared to $10,611,590 in 2004. Our emergency services revenues are significantly affected by the presence or absence of natural disaster related work such as tornados, hurricanes and other windstorms. Revenues for 2005 were higher than expected due to the substantial amount of hurricane related work in Mississippi during the fourth quarter. During the last quarter of 2005, a joint venture of Aduddell Roofing and Carothers Constructions contracted to provide temporary roofing for residential properties in Mississippi that were damaged by the hurricanes. Revenues from contracts through

the USACE totaled $54,400,000. Aduddell Roofing received approximately $42,286,481 of the revenue of which approximately $13,339,170 was recognized in the fourth quarter of 2005. The hurricane-related work in Mississippi required an immediate response and was covered by insurance. As a result we were able to realize higher profit margins on the hurricane-related work. The hurricane work resulted in an exception to the normal seasonal trends in which revenues in the first and fourth quarter are lower than over the second and third quarters when the warmer weather favors construction activity. Our base revenue remained constant in 2005, despite the loss of a significant account, as we rebuilt customer relationships after the departure of prior management. Since the account we lost accounted for approximately $3.2 million in 2004, we added approximately the same business in 2005. We do not anticipate similar losses of accounts in 2006. As a result of the initiatives implemented in 2005, we expect base revenues to grow significantly in 2006.

Operating Expenses. Operating expenses for the year ended December 31, 2005, were $44,579,679, or 75% of revenue, compared to $25,385,030, or 91% of revenue, for the year ended December 31, 2004. Operating expenses for the year ended December 31, 2005 as a percentage of revenue were significantly less due to increased margins on emergency services activities, partially offset by increased allocated and unallocated selling, general and administrative expenses of approximately $1,200,000. Selling, general and administrative expenses increased in the fourth quarter as a result of increased marketing efforts and strategic alliances, such as Cameron Associates, James Lee Witt Associates, Sanders, Morris and Harris et al, formed to increase revenues, profits and shareholder value.

Income before Provision for Income Taxes. Operating income before taxes for the year ended December 31, 2005, was $14,943,736 compared to $2,556,623 for the year ended December 31, 2004. The increase in our 2005 operating income was attributable to our third and fourth quarter operating income of $15,231,631, which resulted from the increased revenue due to the hurricane-related work in Mississippi.

Net Income. The net income for the year ended December 31, 2005, was $9,339,085, compared to $1,534,135 for the year ended December 31, 2004. These results were influenced by the factors identified above under Revenues and Operating Expenses.

Off-Balance Sheet Arrangements

We have operating leases and guaranties that are not accrued on the balance sheet. The payments due under these leases are disclosed in a contingent loan guaranty in footnote 16 of our consolidated financial statements. Other than the lease and note guaranty, we have no contractual commitments that do not appear on the balance sheet as of December 31, 2006.

Seasonality

The construction industry, including the roofing industry, is influenced by seasonal factors, as construction activities are usually lower during winter months than other periods. We attempt to increase winter productivity by concentrating our business in the southern half of the United States and by expanding our sales and marketing efforts to control project scheduling. Nevertheless, our revenues and operating results potentially will be lower in the first and fourth quarters.

The roofing industry is also affected by natural disasters, such as tornadoes, hurricanes and other windstorms. Because of the need for immediate repairs and since the costs of repair are typically covered by insurance, the margins are higher on disaster-related work than on discretionary work. Since disaster-related work requires an immediate response, we maintain a capacity that is scalable to respond to these needs. The absence of natural disasters will result in lower revenues and higher relative administrative expenses per revenue dollar.

Commitments and Contingencies

In regard to the sale of assets and liquidation of Zenex Communications in 2002, we are a guarantor on notes with an outstanding balance of $ 191,436 at December 31, 2006, with approximately $7,000 in monthly principal and interest payments. The purchaser is currently in default on the required payment obligations.

We warrant our work in the normal course of business. In management’s opinion, there were no outstanding claims which would have a material effect on our operations or financial position.

Information regarding our legal proceedings are discussed earlier in this document under, “Item 3. Legal Proceedings”.

Liquidity and Capital Resources

Year Ended December 31, 2006

Total assets increased from $32,703,847 to $33,340,732, liabilities increased from $18,003,086 to $21,683,678 and shareholders’ equity decreased from $14,700,761 to $11,657,054 from December 31, 2005, to December 31, 2006. The increase in assets comes from higher receivables, fixed assets and intangibles with less cash. The increase in liabilities results primarily from an increase in our draw on the line of credit as well as earn out provisions on our acquisition.

Our net cash at December 31, 2006 is overnight swept into our line of credit. We are using our line primarily due to the financing of our acquisition and capital expenditures. We are currently in the process of securing long term financing for the Anderson acquisition as well as the Hayden/Hudson Acquisition. For the year ended December 31, 2006, net cash provided by operating activities was ($22,120,388) compared to $21,805,758 for the year ended December 31, 2005. Net cash used by investing activities during this period was $9,996,151 compared to $1,219,507 used by investing activities for the year ended December 31, 2005. Net cash provided by financing activities during this period was $9,785,788 compared to net cash used of $756,061 for financing activities for the year ended December 31, 2005. At December 31, 2006, we had working capital of $8,542,070 compared to working capital at December 31, 2005, of $11,512,549. The decrease in working capital resulted from our growth and acquisitions.

We have a $10,000,000 revolving line of credit. The line bears interest at 1.375% over LIBOR (currently 6.725%) and is secured by all accounts, property and equipment. The line matures on July 30, 2007. There were no outstanding advances at December 31, 2005 and the outstanding advance at December 31, 2006 was $9,407,272.

At December 31, 2006, we had $1,518,808 of long-term debt as compared to $295,390 of long-term debt at December 31, 2005. The increase in the amount of long-term debt outstanding was primarily due to the earn out portion of our Brent Anderson acquisition.

Adequacy of Current Liquidity

We meet all of our funding needs for ongoing operations with internally generated cash flows from operations, access to our line of credit, with existing cash and short-term investment balances and with additional term debt or equity for our acquisitions. We believe that existing cash, cash equivalents, short-term investments, and our line of credit together with cash generated from operations, will be sufficient to meet our cash requirements for the foreseeable future.

Contractual Obligations

The following table summarizes our contractual obligations at December 31, 2006 and the effect such obligations are expected to have on our liquidity and cash flows in future periods.


			Less than 1		1 – 3		3 – 5		More than
	Total		Year		Years		Years		5 Years
Operating leases	$	456,820	$	147,236		268,972		40,612		N/A


Total	$	456,820	$	147,236

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk relates to changes in interest rates. Market risk is the potential loss arising from adverse changes in market prices and rates, including interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

At December 31, 2006, we had $9.4 million drawn on revolving line of credit. Interest on the revolving line of credit is variable and is equal to LIBOR plus 1.375%. Amounts drawn of the revolving line of credit are the only variable rate debt we have outstanding. A one-percentage point change in the interest rate for our revolving line of credit would change our cash interest payments on an annual basis by approximately $103,400.

Item 8. Financial Statements

Financial Statements and Financial Statement Schedules — See Index to Consolidated Financial Statements and Schedules immediately following the signature page of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Sutton Robinson Freeman & Co., P.C. has audited our financial statements for the years covered by this report. There are no disagreements with the independent accountants regarding matters of accounting or financial reporting.

Item 9A. Controls and Procedures

It is the responsibility of our chief executive officer and our chief financial officer to ensure that we maintain controls and other procedures designed to ensure that the information required to be disclosed by us in reports that we file with the Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified by in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

As of December 31, 2006, management, including the chief executive officer and chief financial officer, conducted an evaluation of disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as of the end of the period covered by this report. Based on that evaluation, the chief executive officer and chief financial officer have concluded the disclosure controls and procedures currently in place are effective. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the chief executive officer and chief financial officer completed their evaluation.

Item 9B. Other Information

None.

PART III

In accordance with the provisions of general instruction G (3), the information required by Items 10, 11, 12, 13 and 14 are incorporated herein by reference to our proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this report.

Item 15. Exhibits and Financial Statement Schedules

(a)(1) Financial Statements. See index to Consolidated Financial Statements immediately following the signature page of this report.

(a)(2) Financial Statement Schedules. See index to Consolidated Financial Statements immediately following the signature page of this report.

(a)(3) Exhibits


Exhibit No.		Description of Exhibit
2.1		Agreement and Plan of Split-off and Merger, dated as of September 27, 2002, by and among Zenex International, its subsidiary and Aduddell Roofing (filed as exhibit to our Form 8-K/A filed on November 15, 2002 and incorporated by reference herein)

3.1		Amended and Restated Articles of Incorporation of Zenex (filed as exhibit to our Form S-3 Registration Statement filed on August 2, 2000 and incorporated by reference herein)

3.2		Amended and Restated Bylaws of Zenex (filed as exhibit to our Form S-3 Registration Statement filed on August 2, 2000 and incorporated by reference herein).

3.3		Amendment to the Articles of Incorporation of Lone Wolf Energy, Inc. changing the name to Zenex Telecom, Inc. effective November 29, 2001 (filed as exhibit to our Form 8-K filed on November 28, 2001 and incorporated by reference herein)

3.4		Amendment to the Articles of Incorporation changing Zenex Telecom, Inc. to Zenex International, Inc. effective August 6, 2002 (filed as exhibit to our Form 8-K filed on August 15, 2002 and incorporated by reference herein)

14		Code of Ethics for Principal Executive and Senior Financial Officers (filed as exhibit to our Annual Report on Form 10-KSB for the year ended December 31, 2003 and incorporated by reference herein)

10.1		Service Agreement dated February 9, 2005 between Zenex International, Inc. and Oklahoma Development Group, LLC (filed as an exhibit to our Annual Report on Form 10K for the year ended December 31, 2005 and incorporated by reference herein)

10.2		Agreement and Plan of Merger for Brent Anderson Associates, Inc. acquisition. (filed herewith)

21.1		Subsidiaries of Aduddell Industries, Inc.


Exhibit No.		Description of Exhibit
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002

32.1		Section 1350 Certification of Chief Executive Officer

32.2		Section 1350 Certification of Chief Financial Officer

SIGNATURES

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


	Aduddell Industries, Inc.
Date: April 2, 2007	By:	/s/ Stan Genega
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Name	Title	Date

/s/ Stan Genega	Director, President and Chief Executive Officer	April 2, 2007

/s/ Reggie Cook	Chief Financial Officer, (Principal Accounting Officer)	April 2, 2007

/s/ Timothy Aduddell	Chairman of the Board of Directors	April 2, 2007

/s/ David Aduddell	Director	April 2, 2007

/s/ Ron Carte	Director	April 2, 2007

/s/ Thomas Parrish	Director	April 2, 2007

/s/ Jerry Whitlock	Director	April 2, 2007

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
Aduddell Industries, Inc.

We have audited the accompanying consolidated balance sheets of Aduddell Industries, Inc. as of December 31, 2006, and 2005, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above presents fairly, in all material respects, the consolidated financial position of Aduddell Industries, Inc. as of December 31, 2006, and 2005, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.

Sutton Robinson Freeman & Co., P.C.

Tulsa, Oklahoma
March 23, 2007

F - 2

ADUDDELL, INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2006 AND 2005



	2006			2005
Assets

Current Assets
Cash	$	—		$	22,330,751
Accounts and contract receivable, net of allowance for doubtful accounts		13,662,030			4,614,895
Costs and estimated earnings in excess of billings on uncompleted contracts		2,298,191			2,158,971

Inventory		472,588			—
Prepaid expenses		268,108			168,839

Income tax receivable		2,254,469			—

Related party receivable		60,088			—

Deposits		252,710			—
Employee and other receivables, net of allowance for doubtful accounts		31,484			16,199

		19,299,668			29,289,655

Non-Current Related Party Receivable		—			1,801,133

Property and Equipment
Field and shop equipment		4,023,879			637,565
Office furniture and equipment		1,263,131			228,927
Transportation equipment		3,931,118			1,107,193
Leasehold improvements		203,896			96,001

		9,422,024			2,069,686
Less: accumulated depreciation		(1,584,170	)		(879,737	)

		7,837,854			1,189,949


Other

Investments		25,156			423,110

Intangible asset customer lists, net		6,112,054			—

Deferred tax asset		66,000			—

		6,203,210			423,110

	$	33,340,732		$	32,703,847

F - 3

ADUDDELL, INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2006 AND 2005


	2006		2005
Liabilities and Stockholders’ Equity

Current Liabilities
Current portion of long-term debt	$	214,343	$	213,410

Current portion of acquisition payable		816,667		—

Advances on line of credit		9,407,272		—

Overdraft		732,778		—
Accounts and subcontract payables		7,122,863		11,825,466
Accrued liabilities		773,275		250,883

Insurance payable		39,504		40,458
Income tax payable		—		5,349,105
Billings in excess of costs and estimated earnings on uncompleted contracts		1,058,168		97,784

		20,164,870		17,777,106


Long-Term Debt (Net of Current Portion)		539,975		81,980


Long-Term Acquisition Payable (Net of Current Portion)		978,833		—


Deferred Income Taxes		—		144,000


Stockholders’ Equity
Preferred stock ($0.001 par value, 20,000,000 shares authorized, no shares issued and outstanding)		—		—
Common stock ($0.001 par value, 100,000,000 shares authorized, 52,799,191 and 48,737,921 shares issued and outstanding at December 31, 2006 and 2005)		52,799		48,738
Paid-in capital		4,699,230		4,860,632
Unrealized gain (loss) on available-for-sale securities		703		(3,569	)
Retained earnings		6,904,322		9,794,960

		11,657,054		14,700,761


	$	33,340,732	$	32,703,847

F - 4

ADUDDELL INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004


	2006			2005		2004
Revenues
Contract revenue	$	31,356,079		$	59,227,145	$	27,828,362
Material sales		304,578			—		—

		31,660,657			59,227,145		27,828,362


Operating Expenses
Cost of sales		30,710,356			41,668,047		23,262,586
Selling, general and administrative		5,811,508			2,772,785		2,011,624
Warranty expense		130,711			138,847		110,820

		36,652,575			44,579,679		25,385,030


Operating Income (Loss)		(4,991,918	)		14,647,466		2,443,332

Other Income (Expense)
Interest and dividend income		305,998			86,039		75,139
Gain on sale of equipment		28,751			12,369		3,228
Gain(loss) on investments		(590,321	)		—		—
Other income		268,852			197,862		34,924

		13,280			296,270		113,291


Net Income (Loss) from Operations
Before Income Taxes		(4,978,638	)		14,943,736		2,556,623

Provision (Benefit) for income taxes:
Current		(1,878,000	)		5,439,797		1,012,000
Deferred		(210,000	)		179,000		10,488

		(2,088,000	)		5,618,797		1,022,488


Net Income (Loss)		(2,890,638	)		9,324,939		1,534,135

Other Comprehensive Income
Unrealized holding gains		4,272			14,146		1,230
Reclassification adjustment		—			—		—


Comprehensive Income	$	(2,886,366	)	$	9,339,085	$	1,535,365


Basic Net Income (Loss) per Common Share	$	(0.06	)	$	0.19	$	0.03

Diluted Net Income (Loss) per Common Share	$	(0.04	)	$	0.12	$	0.02

Weighted Average Common Shares Basic		50,258,549			48,737,921		48,737,921

Weighted Average Common Shares Assuming Dilution		79,437,367			80,737,921		80,137,921

F - 5

ADUDDELL INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004


											Unrealized
	Shares of		Par Value		Additional						Holding			Total
	Common		Common		Paid in			Retained			Gains			Stockholders'
	Stock		Stock		Capital			Earnings			(Losses)			Equity
Balance at December 31, 2003		48,737,921	$	48,738	$	4,860,632		$	(1,064,114	)	$	(18,945	)	$	3,826,311
Unrealized holding gain		—		—		—			—			1,230			1,230
Net income		—		—		—			1,534,135			—			1,534,135


Balance at December 31, 2004		48,737,921		48,738		4,860,632			470,021			(17,715	)		5,361,676
Unrealized holding gain		—		—		—			—			14,146			14,146
Net income		—		—		—			9,324,939			—			9,324,939


Balance at December 31, 2005		48,737,921		48,738		4,860,632			9,794,960			(3,569	)		14,700,761
Exercise of stock options		1,686,270		1,686		166,940			—			—			168,626
Common stock issued for acquisitions:
Merritt Construction		250,000		250		204,750			—			—			205,000
Brent Anderston		2,000,000		2,000		1,398,000			—			—			1,400,000
EyeOpener		125,000		125		83,625			—			—			83,750
Cancellation of options for repayment of debt		—		—		(1,841,920	)		—			—			(1,841,920	)
Cancellation of options for repayment of debt		—		—		(172,797	)		—			—			(172,797	)
Unrealized holding gain		—		—		—			—			4,272			4,272
Net income (loss)		—		—		—			(2,890,638	)		—			(2,890,638	)


		52,799,191	$	52,799	$	4,699,230		$	6,904,322		$	703		$	11,657,054

F - 6

ADUDDELL INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004


	2006			2005			2004
Cash Flows from Operating Activities

Net income (loss)	$	(2,890,638	)	$	9,324,939		$	1,534,135

Reconciliation of net income to net cash provided by operating activities:

Depreciation and amortization		931,261			220,691			218,368
Issuance of debt for interest expense		—			6,000			—
Bad debt write-off (recovery)		(48,186	)		(270,710	)		—
Gain on sale of property and equipment		(28,751	)		(12,369	)		(3,228	)
(Loss) on sale investments		590,321			—			—
Property given for services		—			—			17,000
(Increase) Decrease from changes in:
Accounts receivable		(9,171,746	)		451,957			(1,545,983	)
Costs and estimated earnings in excess of billings on uncompleted contracts		(139,220	)		(795,466	)		(421,870	)
Inventory		(472,588	)		—			—
Shareholder receivable		—			—			—
Officer receivable		—			—			—
Income tax receivable		(2,254,469	)		—			—
Related party receivable		(100,875	)		(70,793	)		(60,997	)
Deposits		(252,710	)		—			—
Deferred taxes		(66,000	)		—			1,012,000
Prepaid expenses		(99,269	)		(58,845	)		(13,657	)
Employee and other receivables		(15,285	)		38,828			214,991
Intangible asset customer list		(392,537	)		—			—
Increase (Decrease) from changes in:
Overdraft		732,778			—			—
Accounts payable		(4,431,191	)		7,889,814			2,239,601
Insurance payable		(954	)		(204,641	)		202,522
Accrued liabilities		522,392			(2,446	)		(31,850	)
Income tax payable		(5,349,105	)		5,237,103			(49,595	)
Billings in excess of costs and estimated earnings on uncompleted contracts		960,384			(127,304	)		22,450
Deferred taxes		(144,000	)		179,000			—


Net adjustments to net income		(19,229,750	)		12,480,819			1,799,752


Net cash provided (used) operating activities		(22,120,388	)		21,805,758			3,333,887


Cash Flows from Investing Activities
Purchase of investments		(188,096	)		(403,225	)		—
Purchase of Brent Anderson & Associates		(6,026,915	)		—			—
Proceeds from sale of property and equipment		37,851			88,295			14,211
Purchase of property and equipment		(3,818,991	)		(904,577	)		(138,086	)


Net cash used by investing activities		(9,996,151	)		(1,219,507	)		(123,875	)

F - 7

ADUDDELL INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004


	2006			2005			2004
Cash Flows from Financing Activities
Proceeds from the issuance of stock		168,626			—			—
Net change in line of credit		9,407,272			—			(733,743	)
Proceeds from long-term debt		538,640			—			—
Retirement of long-term debt		(328,750	)		(756,061	)		(376,115	)


Net cash provide (used) by financing activities		9,785,788			(756,061	)		(1,109,858	)


Net Increase in Cash (Decrease)		(22,330,751	)		19,830,190			2,100,154

Cash at Beginning of Period		22,330,751			2,500,561			400,407


Cash at End of Period	$	—		$	22,330,751		$	2,500,561


Supplemental Disclosure of Cash Flow Information

Cash paid for:
Interest	$	134,511		$	142,950		$	152,158
Taxes		5,309,034			84,692			60,083

Supplemental Schedule of Non-Cash Investing and Financing Activities

Fixed asset additions	$	249,039		$	130,000		$	—

Liabilities assumed or incurred	$	249,039		$	130,000		$	—


Acquisition of Brent Anderson & Associates	$	1,795,500		$	130,000		$	—

Liabilities assumed or incurred	$	1,795,500		$	130,000		$	—


Common stock issued for Acquisitions	$	1,688,750		$	—			—

F - 8

ADUDDELL INDUSTRIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business

Aduddell Industries, Inc. is engaged in the commercial and industrial roofing and re-roofing, specialty roofing metals, waterproofing and concrete restoration and consulting businesses through our subsidiaries Aduddell Roofing, Inc., Aduddell Restoration and Waterproofing, Inc., and Global Specialty Group, Inc. In addition we provide pre-event planning, event management and post-event recovery services for disaster related activities through our subsidiary Aduddell Enviro & Emergency Management Services, Inc. (“E2MS”). We provide internal corporate transportation services through our subsidiary Aduddell Financial Services, Inc. as well as marketing services through our EyeOpener Division. We were originally incorporated on March 4, 1991, in the state of Colorado. On June 7, 2006, we changed our name from Zenex International, Inc. to Aduddell Industries, Inc. and our state of incorporation from Colorado to Oklahoma.

Our revenues are derived from comprehensive commercial roofing services, including re-roofing, restoration and repair, new roof construction, sheet metal fabrication, concrete restoration and waterproofing, and emergency pre- and post-event response services. The majority of our 2006 first quarter revenues were derived from re-roofing, restoration and repair services. In the second quarter of 2006, we increased our focus on providing services to the total exterior shell of a building through the asset purchase of Merit Construction, a concrete restoration company and expanded our roofing business to include standing seam and specialty metals. In the third quarter of 2006 we focused on the organic growth of these business areas, increased our marketing capability with the purchase of EyeOpener Creative Communications, LLC, as well as our continued search for acquisitions in key markets. On October 20, 2006, we signed a letter of intent to acquire Brent Anderson & Associates, Inc., a Minnesota based restoration, roofing and waterproofing company. This transaction closed in December 2006 adding significant resources, including below grade waterproofing to our service offerings. While we derived no revenues in 2007 from pre-event planning, event management and post-event recovery services for disaster related activities by E2MS, we have leveraged our relationships to provide growth in the roofing and restoration markets. In addition we have negotiated a number of pre-event contracts as first responders in the event of an emergency. In one of these contracts, E2MS has been named the preferred vendor for emergency planning and response by ASFONA, the Starwood Hotels franchise owners association, and our division president, Randall Oberlag, has been named as an honorary board member of that organization. In the last quarter, we were selected as the primary subcontractor to James Lee Witt Associates for emergency roofing and miscellaneous construction for their contracts with the State of Rhode Island and the State of Virginia. We continue to make progress in the strengthening our relationships in the hospitality areas for Emergency Preparedness Management, including Mitigation and Recovery Operations

We also offer maintenance services, which provide recurring revenues and ongoing interaction with our customers, including a new online roof asset management service. Revenues from fixed-price construction and renovation contracts are generally accounted for on a percentage-of-completion basis using the cost-to-cost method. The cost-to-cost method measures the percentage completion of a contract based on total costs incurred to date compared to total estimated costs to completion.

F - 9

ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Aduddell Roofing, Inc., Aduddell Restoration and Waterproofing, Inc., Global Specialty Group, E2MS and Aduddell Financial Services. The financial statements include all adjustments that, in the opinion of management, are necessary in order to make the financial statements not misleading. All significant intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition

The Company recognizes fixed-price contract revenues on the percentage-of-completion method of accounting, measured by the percentage of cost incurred to date to the estimated total cost for each contract. Management uses this method because total cost is considered to be the best available measure of progress on the contracts. Revenues from cost-plus-fee contracts are recognized on the basis of costs incurred during the period plus the fee earned, measured by the cost-to-cost method.

Cash and Cash Equivalents

For purposes of the Consolidated Statement of Cash Flows, short-term investments, which have maturities of ninety days or less, are considered cash equivalents.

Inventory

Inventories consist of construction materials and are stated at the lower of cost (first-in, first-out) or market (net realizable value).

Investments

The Company accounts for its investments in marketable securities using Statement of Financial Accounting Standards No. 115 “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”). This standard requires that investments in equity securities that have a readily determinable fair value and all investments in debt securities be adjusted to market value at the end of each accounting period. Unrealized market value gains and losses are charged to earnings if the securities are traded for short-term profit. Otherwise, such unrealized gains and losses are charged or credited to a separate component of shareholders’ equity.

Management determines the proper classification of investments in obligations with fixed maturities and marketable equity securities at the time of purchase and reevaluates such designations as of each balance sheet date. At December 31, 2006 and 2005, all securities covered by SFAS No. 115 were designated as available-for-sale. Accordingly, these securities are stated at fair value, with unrealized gains and losses reported in a separate component of shareholders’ equity. Any realized gains and losses on sales of investments, as determined on a specific identification basis, are included in the Consolidated Statement of Operations.

Intangible Assets

The Company accounts for intangible assets using of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (“SFAS No. 142”) which primarily addresses accounting for goodwill and

F - 10

ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

intangible assets subsequent to acquisition. Under SFAS No. 142, goodwill and separately identified intangible assets with indefinite lives are no longer amortized, but reviewed annually (or more frequently if impairment indicators arise) for impairment. In accordance with SFAS No. 142, intangibles with finite useful lives, which include customer lists, continue to be amortized over their estimated useful life. The Company amortizes customer lists using the straight-line method with an estimated useful life of five years. Impairment, if any, is calculated for all intangibles as the excess of the asset carrying value over its fair value and is charged to expense when discovered. No impairment was recorded for the year ended December 31, 2006. Accumulated amortization at December 31, 2006 totaled $89,630. Amortization expense for the year ended December 31, 2006 was $89,630. The estimated amortization of intangible assets for each of the four succeeding years is $1,240,337 with amortization of $1,150,706 in the fifth year.

Fair Value of Financial Instruments

The Company’s financial instruments include cash, receivables, notes receivable, marketable securities, short-term payables and notes payable. The carrying amounts of cash, receivables, and short-term payables approximate fair value due to their short-term nature. Marketable equity securities’ fair values are estimates based on quoted market prices or approximate fair values. The carrying amounts of notes receivable and payable approximate fair value based on interest rates currently available.

Share-Based Compensation

The Company recognizes expense for its share-based compensation based on the fair value of the awards that are granted. The fair value of stock options is estimated at the date of grant using the Black-Scholes-Merton option valuation model which was developed for use in estimating the fair value of exchange traded options that have no vesting restrictions and are fully transferable. Option valuation methods require the input of highly subjective assumptions, including the expected stock price volatility. Measured compensation cost is recognized ratably over the vesting period of the related share-based compensation award.

Depreciation

Depreciation for financial statement purposes is provided on the straight-line method over the estimated useful lives of the various assets. Depreciation expense for the years ended December 31, 2006, 2005 and 2004 was $931,261, $220,691, and 218,368 respectively. For income tax purposes, accelerated methods of depreciation are used with recognition of deferred income taxes for the resulting temporary differences. Estimated useful lives for financial statement purposes are as follows:


Field and shop equipment	5 - 7	Years
Office furniture and equipment	5 - 10	Years
Transportation equipment	3 - 7	Years
Leasehold improvements	15 – 39	Years

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“SFAS No. 109”). SFAS No. 109 requires the recognition of deferred tax assets and liabilities for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, SFAS No. 109 requires the recognition of future tax benefits, such as net operating loss carry-forwards, to the extent that realization of such benefits is more likely than not. The amount of deferred tax liabilities or assets is calculated using tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.

In determining the quarterly provision for income taxes, the Company uses an annual effective tax rate based on expected annual income and statutory tax rates. Significant discrete items are separately recognized in the income tax provision in the quarter in which they occur.

F - 11

ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The determination of the Company’s provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items.

Net Income (Loss) Per Share

The Company computes net income (loss) per share in accordance with SFAS No. 128, Earnings per Share and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). Under the provisions of SFAS No. 128 and SAB 98, basic net income (loss) per share is calculated by dividing net income (loss) available to common shareholders for the period by the weighted average number of common shares outstanding during the period.

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

NOTE 2 – ACQUISITIONS

On April 1, 2006, Aduddell Roofing acquired certain operating assets of Merit Construction Services, a privately held concrete restoration company. As a result of the acquisition, the Company established its restoration division, eliminated our need to outsource restoration projects, increased restorations market opportunity through our bonding capacity, allowed us to cross sell services to customers and increased the restoration division sales. The company’s sales increased from $4 million in 2005, to over $6 million in 9 months of 2006, and continues to grow with a backlog in excess of $10 million at year end.

The aggregate purchase price of $1,085,000 consisted of $880,000 in cash and 250,000 shares of Company common stock valued at $205,000. The value of the common shares issued was determined based on the closing market price of the Company’s common shares from the previous day. Based on the fair value of the acquired assets, the Company allocated $487,463 of the purchase price to tangible property and equipment and $597,537 to intangible assets. The intangible asset represents the benefit the Company expects to realize from the existing customer relationships and is considered to have an estimated useful life of five years.

In September 2006, we purchased the assets of EyeOpener Creative Communications, LLC, an integrated marketing company, to help develop and brand Aduddell’s operating business units. EyeOpener will provide Aduddell with professional and targeted marketing and sales support through strategic advertising, branding, web-based communications, sales tools, and market research. EyeOpener has in house media, photography and video capabilities that will be beneficial to all of our operating units. The aggregate purchase price of $212,550 consisted of $20,000 in cash, $103,800 in repayment of loans and 125,000 shares of Company common stock valued at $88,750. The value of the common shares issued was determined based on the closing market price of the Company’s common shares from the previous day.

On October 20, 2006 the company signed a non-binding letter of intent to purchase Brent Anderson Associates, Inc., a Minnesota-based restoration, roofing and waterproofing company. This transaction closed effective December 1, 2006, adding significant resources, including below grade waterproofing to our service offerings.

The aggregate purchase price of $9,222,415 consisted of $2,000,000 in cash, with $150,000 subject to an escrow agreement, $4,026,915 repayment of loans, and $2,000,000 of Company common stock with a minimum conversion value of $1.00 per share valued at $1,400,000 (Actual value of the common shares issued was determined based on the closing market price of the Company’s common shares from the day previous to closing.) The right to earn an additional $2,565,000 of shares of the Company’s common stock with a minimum conversion price of $1.00 per share. (Valued at $1,795,500 based on the share price at the day previous to closing.) Based on the fair value of the acquired assets, the Company allocated $3,618,268 of the purchase price to tangible property and equipment and

F - 12

ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

$5,604,147 to intangible assets. The intangible asset represents the benefit the Company expects to realize from the existing customer relationships and is considered to have an estimated useful life of five years.

The results for operations for Merit Construction for the nine months of April 1, 2006 through December 31, 2006 and Brent Anderson Associates for the one month period of December 31, 2006 is reflected in the Company’s results for the year ended December 31, 2006 in the accompanying consolidated statements of operations.


	For the Years Ended
	December 31,
	2006			2005
Revenues	$	50,508,341		$	84,707,241

Net Income (Loss)	$	(4,167,288	)	$	9,705,244

Proforma basic earnings (loss) per sharet	$	(0.08	)	$	0.20

Pro forma diluted earnings (loss) per share	$	(.05	)	$	0.12


Weighted average shares outstanding:
Basic		50,258,549			48,737,921

Diluted		79,437,367			80,737,921

F - 13

ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

At year end we signed a definitive purchase agreement to acquire Hayden Building Maintenance, Inc. as well as Hudson Valley Roofing and Sheet Metal, Inc., privately held commercial roofing companies in New York. Hayden Building Maintenance has an additional office in New Orleans that is currently actively involved in commercial roofing related to disaster response. It is anticipated closing will occur on or before May 18, 2007. The 2006 combined revenues of these two companies would add over $30 million to our pro forma table above.

NOTE 3 — CONTRACT RECEIVABLES

Contracts receivable consist of the following:


	December 31,		December 31,
	2006		2005
Completed contracts	$	2,465,564	$	2,510,811
Contracts in progress		9,139,408		1,439,198
Retainage		2,057,058		664,886

		13,662,030		4,614,895
Less allowance for doubtful amounts		—		—

	$	13,662,030	$	4,614,895

NOTE 4 — UNCOMPLETED CONTRACTS

Costs, estimated earnings, and billings on uncompleted contracts, are as follows:


	December 31,		December 31,
	2006		2005
Costs incurred on uncompleted contracts	$	29,126,527	$	35,222,123
Estimated earnings		145,508		16,992,366

		29,272,035		52,214,489
Billings to date		28,032,012		50,153,302

	$	1,240,023	$	2,061,187

Included in the accompanying balance sheets under the following captions:


	December 31,			December 31,
	2006			2005
Costs and estimated earnings in excess of billings on uncompleted contracts	$	2,298,191		$	2,158,971

Billings in excess of costs and estimated earnings on uncompleted contracts		(1,058,168	)		(97,784	)

	$	1,240,023		$	2,061,187

NOTE 5 — LETTER OF CREDIT

At December 31, 2006, the Company had a $175,000 letter of credit issued to its insurance carrier that matures on February 24, 2007.

F - 14

ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 — LINE OF CREDIT

The Company has a $10,000,000 revolving line of credit. The line bears interest at 1.375% over the published LIBOR Rate (currently 6.725%) and is secured by all accounts, property and equipment. The line matures on July 30, 2007. There were no outstanding advances at December 31, 2005 and the outstanding amount at December 31, 2006 was $9,407,272.

NOTE 7 — LONG-TERM DEBT

The Company has the following long-term debt as of:


	December 31		December 31,
	2006		2005
Note 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
6.63% to 21% notes payable secured by equipment, due in varying monthly installments through May 2010		68,124		—
6% to 8.25% notes payable secured by transportation equipment, due in varying monthly installments through January 2012		686,194		112,828

		754,318		295,390
Less: current portion of long-term debt		214,343		213,410

	$	539,975	$	81,980

Maturities of long-term debt subsequent to December 31, 2006 are as follows:


Year	Amount
2007	$	214,343
2008	$	227,163
2009		204,958
2010		66,156
2011		39,427
2012		2,271

	$	754,318

Interest expense was $134.510, $148,950 and $123,898 for the years ended December 31, 2006, 2005 and 2004, respectively.

F - 15

ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 — PENSION PLAN

The Company sponsors a defined contribution plan that covers all non-union employees. Employees who are twenty-one years of age and have completed one year of service are eligible to participate. Employees may contribute from one to eighty percent of eligible salary limited to the amount allowed under the Internal Revenue Code. Company profit sharing contributions are discretionary each year. Currently the Company is matching contributions up to 4%. Employees are vested 100% in salary deferral contributions. Company contributions begin vesting after two years and vest 20% a year until fully vested. Company contributions for the years ended December 31, 2006, 2005 and 2004 totaled $44,517, $42,955 and $46,636, respectively.

NOTE 9 – SHARE-BASED COMPENSATION PLANS

The Company’s 2005 Stock Incentive Plan (the “Plan”) was adopted on October 17, 2005. The Plan is administered by the Board of Directors. All officers, employees, directors and individual consultants of the Company are allowed to participate in the Plan. The Plan has a term of ten years. Accordingly, no grants may be made under the Plan after October 27, 2015, but the Plan will continue thereafter while previous grants remain subject to the Plan. The aggregate number of shares of common stock available under the Plan is 5 million shares. The Plan authorizes the Board of Directors to grant options that are incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, non statutory stock options, and restricted stock. All grants under the Plan will be made at the discretion of the Board of Directors.

Options Issued During the Quarter:

In connection with an employment agreement dated October 16, 2006, the company granted options to purchase 25,000 shares of common stock for $.74 per share, vesting in 5 equal annual installments

Options Issued Previously:

On October 17, 2005, the Company granted options exercisable for a total of 1,000,000 shares to Ron Carte in his role as President, and options exercisable for a total of 500,000 shares each to David Aduddell, Ron Carte, Tom Parrish and Jerry Whitlock in their roles as Directors at an exercise price of $0.78 per share. On April 1, 2006 the Company granted options exercisable for a total of 500,000 shares to Stan Genega in his role as a director, with an exercise price of $0.80 per share. Of the 1,000,000 options issued to Ron Carte as President, 500,000 options have vested with 500,000 rescinded with his resignation as President. The 500,000 options granted to each of Messrs. Aduddell, Carte, Parrish, Whitlock and Genega vest in five equal annual installments.

In connection with the terms of the Agreement and Plan of Split Off and Merger, signed September 27, 2002, Tim Aduddell was granted an option to purchase 30 million shares of common stock for $0.04 per share. On June 7, 2006, 1,471,182 of these options were exercised, and the underlying shares were redeemed in payment of debt, leaving 28,528,818 options outstanding.

In connection with a consulting agreement dated November 21, 2005, the company granted options to purchase 100,000 shares of common stock for $0.70 per share, vesting in one year.

On January 1, 2006, the Company granted options to purchase 250,000 shares of common stock for $0.49 per share, vesting in 5 equal annual installments to the Chief Financial Officer.

In connection with a consulting agreement dated January 15, 2006, the company granted options to purchase 200,000 shares of common stock for $0.66 per share, vesting 100,000 per year.

In connection with an employment agreement dated May 1, 2006, the company granted options to purchase 25,000 shares of common stock for $1.38 per share, vesting in 5 equal annual installments.

F - 16

ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In connection with an employment agreement dated September 1, 2006, the company granted options to purchase 25,000 shares of common stock for $1.02 per share, vesting in 5 equal annual installments.

On July 3, 2002, in connection with the financing of certain equipment, 200,000 options at $0.08 per share were granted.

NOTE 10 — INCOME TAXES

The income tax provision consist of the following:


	Years Ended
	December 31,			December 31,		December 31,
	2006			2005		2004
Current tax provision	$	(1,878,000	)	$	5,439,797	$	1,012,000
Deferred tax provision		(210,000	)		179,000		10,488

Total provision for income taxes	$	(2,088,000	)	$	5,618,797	$	1,022,488

A reconciliation of the current provision (benefit) for income taxes with amounts determined by applying the statutory U.S. federal (34%) and state (5%) income tax rates to income before income taxes is as follows:


	December 31,			December 31,			December 31,
	2006			2005			2004
Statutory federal income tax rate		34.0	%		34.0	%		34.0	%
State tax effective rate		5.0			5.0			5.0
Permanent differences		—			—			—
Benefit of graduated tax rates		—			—			—
Prior year assessments finalized		—			1.5			0.5
Increase in valuation allowance		—			—			(1.6	)
Other		3.0			(3.0	)		1.1

		42.0	%		42.0	%		40.0	%

At December 31, 2006, the Company carried back its current year operating losses to 2004 and 2005. This resulted in an income tax receivable of $2,254,469, consisting of $1,878,000 of tax benefit and prepayments of $375,469. Net operating losses of approximately $297,000 remain available to reduce future federal and state taxable income. Unless utilized, the carry forward amounts will begin to expire in 2012. For federal and state tax purposes, the Company’s net operating loss carry forward amounts are subject to an annual limitation due to a greater than 50% change in stock ownership which occurred in 2002, as defined by federal and state tax law.

Taxable temporary differences result principally from the excess of depreciation for tax purposes over the amount deducted for financial reporting purposes. Deductible temporary differences from the share based compensation deduction and the operating loss carry forward, giving rise to deferred tax assets, are reduced by a valuation allowance. The Company has established a valuation allowance for a portion of its net deferred tax assets due to the ownership change limitation on the use of the loss carry forward.

F - 17

ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The net deferred tax asset (liability) consisted of the following components:


	December 31,			December 31,
	2006			2005
Deferred tax liability on depreciation	$	(150,000	)	$	(245,000	)
Deferred tax asset for loss carry forward and share-based compensation		419,000			304,000


Deferred tax asset		269,000			59,000

Less: valuation allowance		203,000			203,000


Net deferred tax asset (liability)	$	66,000		$	(144,000	)

NOTE 11 — RELATED PARTY TRANSACTIONS

The Company engaged in certain transactions with Tim Aduddell, a majority shareholder of the Company, and entities owned by Tim Aduddell.

The Company had a note receivable from an entity owned by Tim Aduddell. The loan was secured by marketable securities and a personal guaranty. Interest was accrued quarterly based on the federal mid-term rate and added to the note principal. Accrued interest income amounted to $40,787, $ 70,793 and $60,007 for the years ended December 31, 2006, 2005 and 2004, respectively. The balance of the note receivable totaled $1,801,133 at December 31, 2005 and $1,841,920 on June 6, 2006. On June 6, 2006, the Board of Directors voted to collect the receivable by redemption of a certain portion of Tim Aduddell’s options in an amount sufficient to satisfy the outstanding unpaid accrued interest and principal on the receivable. For purposes of determining the redemption value of Mr. Aduddell’s options, the options were valued at the prior twenty day trading average ($1.52) discounted by 15% ($1.292), less the exercise price of the options ($.04) for a total value of $1.252 per option. Based upon this valuation, the Company accepted Tim Aduddell’s surrender of 1,471,182 options in satisfaction of the debt.

The Company leases its office, warehouse and yard facilities from Aduddell Holdings, Inc., a corporation wholly-owned by Tim Aduddell. The lease agreement is for one year and expires on September 30, 2007, with monthly rentals of $16,250. The Company is responsible for all taxes, insurance, maintenance and utilities on the leased premises. Rental expense under this lease amounted $195,000, $195,000 and $186,250 for the years ended December 31, 2006, 2005 and 2004, respectively.

NOTE 12 — BACKLOG

The amount of revenue the Company expects to realize from work to be performed on uncompleted contracts in progress and from contractual agreements on which work had not yet begun at December 31, 2006, was approximately $23,860,000 compared to December 31, 2005 of approximately $2,070,000.

F - 18

ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 — STOCK OPTIONS

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2005, risk-free interest rates of 5.5%, no dividend yield or assumed forfeitures; expected lives of 10.0 years; and volatility of 54%. The amounts above are not likely to be representative of future years because there is no assurance that additional awards will be made each year.

In accordance with the terms of a January 2001 loan agreement with a shareholder, a five-year option was granted for the purchase of 1.2 million shares of the Company’s common stock for $0.10 per share.

Common Stock Options and Other Warrants - The following table summarizes the Company’s stock option activity for the years ended December 31, 2006, 2005 and 2004:


			Weighted				Weighted				Weighted
			Average				Average				Average
			Exercise				Exercise				Exercise
	2006		Price		2005		Price		2004		Price
Options outstanding beginning of year		35,600,000	$	.12		32,000,000	$	.04		32,000,000	$	.04
Options issued during the year		1,025,000		.72		3,600,000		.78		—		—
Options exercised during the year		1,686,266		.10		—		—		—		—
Options cancelled during the year		2,584,916		.76		—		—		—		—
Options expired during the year		—		—		—		—		—		—

Options outstanding end of year		32,353,818	$	.12		35,600,000	$	.12		32,000,000	$	.04

The weighted average grant-date exercise price of options granted during 2006 was $.72 per share. No options were granted in 2004.

Options Outstanding

Options Exercisable

Weighted-

Average

Weighted-

Range of

Number

Remaining

Average

Number

Average

Exercise

Outstanding

Contractual

Exercise

Exercisable

Exercise

Prices

at 12/31/06

Life

Price

at 12/31/05

Price

.04

28,528,818

No term

.04

30,000,000

.04

.08 - .10

200,000

No term

.10

2,000,000

.10

.70 – 1.38

3,625,000

10 year

.78

3,600,000

.78

32,353,818

.12

35,600,000

.12

The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based compensation awards. APB No. 25 allows for no recognition of compensation cost if the exercise price

F - 19

ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

of the option is equal to the fair value of the stock at grant date. Accordingly, no compensation cost has been recognized for stock options granted in the accompanying consolidated financial statements.

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123(R), “Share Based Payment”, which revised SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123(R) requires entities to measure the fair value of equity share-based payments (stock compensation) at grant date, and recognize the fair value over the period during which an employee is required to provide services in exchange for the equity instrument as a component of the income statement. SFAS No. 123(R) is effective for periods beginning after June 15, 2005. This requires us to adopt FAS 123(R) effective January 1, 2006.

The following pro forma data is calculated net of tax as if compensation cost for the Company’s stock-based compensation awards was determined based upon the fair value at the grant date consistent with the methodology prescribed under SFAS No. 123.


	Years Ended December 31,
	2005			2005		2004
Net income as reported	$	(2,886,366	)	$	9,339,085	$	1,535,365
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(88,370	)		(86,000		—

Proforma net income	$	(2,797,996	)	$	9,232,022	$	1,535,365

Net income per common share as reported	$	(.04	)	$	.12	$	.02
Proforma net loss per common share, basic and diluted	$	(.04	)	$	.12	$	.02

Weighted average common shares outstanding, basic and diluted		79,437,367			80,737,921		80,137,921

NOTE 14 — EARNINGS PER SHARE


	December 31,			December 31,		December 31,
	2006			2005		2004
Basic earnings per share:(in thousands)
Common shares outstanding		52,799,191			48,737,921		48,737,921

Weighted average shares outstanding		50,258,549			48,737,921		48,737,921

Earnings per share	$	(.06	)	$	.19	$	.03


Fully diluted earnings per share:
Common shares outstanding		81,978,005			80,737,921		80,137,921

Weighted average shares outstanding		79437,367			80,737,921		80,137,921

Earnings per share	$	(.04	)	$	.12	$	.02

For the Year Ended

Income

Share

Per Share

December 31, 2006:

(Numerator)

(Denominator)

Amount

Earnings per common share:

Income available to common stockholders

(2,886,366

)

Weighted average common shares outstanding

50,258,549

(.06

)

Earnings per common share assuming dilution:

29,178,818

Options

(.04

)

Income available to common stockholders assuming dilution

79,437,367

F - 20

ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


For the Year Ended	Income		Share		Per Share
December 31, 2005:	(Numerator)		(Denominator)		Amount
Earnings per common share:
Income available to common stockholders	$	9,339,085
Weighted average common shares outstanding				48,737,921	$	.19

Earnings per common share assuming dilution:
Options				32,000,000


Income available to common stockholders assuming dilution	$	9,339,085		80,737,921	$	.12

Options to purchase 3,600,000 shares of common stock at an exercise price of $.79 per share were outstanding at December 31, 2005 but were not included in the computation of income per common share-assuming dilution because the options were antidilutive.

Options to purchase 3,175,000 shares of common stock at an exercise price of $.66 — $1.38 per share were outstanding at December 31, 2006 but were not included in the computation of income per common share-assuming dilution because the options were antidilutive.

NOTE 15 – LEASES

In March 2006, the Company leased its corporate office facilities under an operating lease which expires April 30, 2010. Under the terms of the lease, the Company is responsible for its share of common area maintenance and operating expenses. Rent expense under the lease totaled $56,128 for the year ended December 31, 2006.

The Company leases its office, warehouse and yard facilities from Aduddell Holdings, Inc., a corporation wholly owned by Tim Aduddell. The lease agreement is for one year and expires on September 30, 2007, with monthly rentals of $16,250. The Company is responsible for all taxes, insurance, maintenance and utilities on the leased premises. Rental expense under this lease amounted $195,000, $195,000 and $186,250 for the years ended December 31, 2006, 2005 and 2004, respectively. In November 2006, the Company leased office facilities for its EyeOpener Division under an operating lease which expires in November 2008. Rent expense under the lease totaled $2,100 for the year ended December 31, 2006.

As of December 31, 2006, the future minimum lease commitments under all non cancellable leases were as follows:


Year	Amount
2007	$	147,236
2008		147,136
2009		121,836
2010		40,612

	$	456,820

F - 21

ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The restoration division of Aduddell Roofing leases its office and shop space in Minnesota monthly with a lease expiration of October 2007and a monthly lease payment of $16,250.

The Company leases office/facilities in Florida on a month-to-month basis with monthly lease payments of $2,000.

NOTE 16 — COMMITMENTS AND CONTINGENCIES

The Company warrants its work in the normal course of business. In management’s opinion, there were no outstanding claims which would have a material effect on the Company’s operations or financial position.

The Company maintains cash balances at several financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000, and any amounts in excess of this would not be insured if the institution should fail. At times, cash in the deposit accounts may exceed the federally insured limits. The Company has not experienced any losses in such accounts and believes that it is not exposed to any significant risk.

In regard to the sale of assets and liquidation of Zenex Communications in 2002, we were a guarantor to the purchaser on notes with an outstanding balance of $191,436 at December 31, 2006, with approximately $6,353 in monthly principal and interest payments. The purchaser is currently in default on the required payment obligations. The continuance of the default is uncertain at this time and amount is not material in regards to our operations.

Lawsuit

In addition, we are, from time to time, parties to various litigation matters arising in the normal course of our business, most of which involve claims for personal injury and property damage incurred in connection with our operations. We are not currently involved in any litigation of this nature that we believe, based on our examination of such matters, are likely to have a material adverse effect on our financial condition or results of operations.

F - 22

ADUDDELL INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 — CONCENTRATIONS

In connection with providing service to customers, Aduddell Roofing does not have contractual agreements with suppliers. The material and supplies used in the business are readily available from several vendors.

Although Aduddell Roofing had a significant number of customers for the year ended December 31, 2006, one customer accounted for 40% of the revenue. The customer was Carothers Construction with the work being performed for the Navy SeaBees contract and was actually seventeen buildings within one contract. For the year ended December 31, 2005 the USACE accounted for 72% of the revenue. Two customers accounted for 38% and 10% of the revenue for the year ended December 31, 2004.

The Company’s contract receivables at December 31, 2006, are from a small number of companies in various industries which could be subject to business cycle variations. As of December 31, 2006 the Company had one customer that accounted for 40% of the contracts receivable. As of December 31, 2005, the Company had three customers that accounted for 64% of the contracts receivable. As of December 31, 2004, the Company had three customers that accounted for 66% of the contracts receivable. This concentration subjects the Company to a credit risk if the general economy or the companies fail to perform.

Supplementary Data

The following is a summary of the quarterly results of operations for the years ended December 31, 2006 and 2005. Net income (loss) per share is computed independently for each of the quarters presented; therefore, the sum of the quarterly loss per share does not necessarily equal the total for the year.


	2006
	December			September
	31			30		June 30		March 31
Revenues	$	7,713,589		$	11,574,763	$	8,637,728	$	3,734,577
Cost of sales		9,785,528			10,174,307		7,902,525		2,847,996

Gross margin		(2,071,939	)		1,400,456		735,203		886,581
S G & A and other		3,103,076			1,326,113		470,251		1,149,199

Income (Loss) before income taxes		(5,175,015	)		74,343		264,952		(262,918	)

Income tax expense (benefit)		(2,198,047	)		56,210		77,970		(148,405	)

Net income (loss)	$	(2,976,968	)	$	18,133	$	186,982	$	(114,513	)

Net income (loss) per common share – basic	$	(.06	)	$	—	$	—	$	—

Net income (loss) per common share - assuming dilution	$	(.04	)	$	—	$	—	$	—

F - 23


		Page
Certification of CEO Pursuant to Section 302

Certification of CFO Pursuant to Section 302

Section 1350 Certification of CEO

Section 1350 Certification of CFO
Agreement to Plan of Merger
Subsidiaries of Zenex
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Section 1350 Certification of CEO
Section 1350 Certification of CFO


	Page
Report of Independent Registered Public Accounting Firm		F-2

Financial Statements
Consolidated Balance Sheets as of December 31, 2006 and 2005		F-3

Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2006, 2005 and 2004		F-5

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2006, 2005, and 2004		F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004		F-7

Notes to Consolidated Financial Statements		F-9


	2005
	December		September
	31		30		June 30			March 31
Revenues	$	17,363,533	$	34,746,247	$	3,831,637		$	3,285,728
Cost of sales		12,717,344		22,543,572		3,736,607			2,670,524

Gross margin		4,646,189		12,202,675		95,030			615,204
S G & A and other		754,048		817,428		532,561			511,325

Income (Loss) before income taxes		3,892,141		11,385,247		(437,531	)		103,879
Income tax expense (benefit)		1,334,062		4,436,403		(149,636	)		(16,178	)

Net income (loss)	$	2,558,079	$	6,948,844	$	(287,895	)	$	120,057

Net income (loss) per common share – basic	$	.05	$	.14	$	—		$	—

Net income (loss) per common share - assuming dilution	$	03	$	.09	$	—		$	—


	Page
PART I

Item 1. Description of Business		4

Item 1A. Risk Factors		11

Item 1B. Unresolved Staff Comments		14

Item 2. Description of Property		14

Item 3. Legal Proceedings		14

Item 4. Submission of Matters to a Vote of Security Holders		15

PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		15

Item 6. Selected Financial Data		17

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation		19

Item 7A. Quantitative and Qualitative Disclosures About Market Risk		29

Item 8. Financial Statements and Supplementary Data		29

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		29

Item 9A. Controls and Procedures		29

Item 9B. Other Information		29

PART III **		30

PART IV.		30

Item 15. Exhibits and Financial Statement Schedules		30

Service Agreement

Subsidiaries


**		Information required by Part III is incorporated by reference from our definitive proxy statement for our 2007 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2006.