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Shumate Industries Reports First Quarter 2006 Financial Results; Revenues Increase 46.1% -- Fully Diluted EPS $0.08

Posted on: Monday, 15 May 2006, 09:02 CDT

Shumate Industries, Inc. (OTCBB:SHMT), a Texas-based, energy field services company, today announced financial results for the quarter ended March 31, 2006. Revenues were $1.57 million up approximately 46% from the comparable period ended March 31, 2005. Increased volumes and higher pricing contributed to the growth of revenues. Results of the Company's operations for the quarter ended March 31, 2006, net of a $2 million non-cash gain from debt forgiveness discussed below, included an EBITDA (defined as net income plus interest, taxes, depreciation and amortization) loss of approximately $392,000 as compared to a net EBITDA loss of approximately $484,000 for the quarter ended March 31, 2005. The decreased loss results primarily from increased revenues, stronger pricing and better cost containment in the Company's Shumate Machine Works unit, offset by larger expenses associated with the pre-revenue scale up of the Hemiwedge Valve unit.

The $1.276 million net income for the period resulted in part from a $2 million non-cash gain from debt forgiveness partially offset by depreciation expense of $95,872, research and development expense of $99,208, and interest expense of $236,153. As reported on the Company's form 8-K on April 6, 2006, the Company's senior lender amended and restated the Company's term loan reducing the principal balance to $3,633,053.

The earnings per share on a fully diluted basis was $.08 cents per share, based on the March 31, 2006 weighted average total outstanding shares fully diluted of 16,023,801 as compared to a loss of $.33 cents per share in the quarter ending March 31, 2005. The total outstanding shares were 15,449,727 as of March 31, 2006.

Larry Shumate, Chief Executive Officer, said, "We are pleased with our growth and anticipate continued growth throughout the remainder of 2006. Shumate Machine Works has experienced a strong surge in demand for machined energy-related parts driven by today's commodity prices and demand for oil field related products. Additionally, our Hemiwedge Valve subsidiary is in final stages of preparing our first offering of ANSI class valves for beta testing and we hope to generate revenues from this product introduction before the end of 2006. The Company's strategy includes sourcing corporate partners for our new valve technology and we are optimistic about securing strategic alliances later this year. We are proud of our personnel for their continued support and achievements towards the Company's efforts."

Matt Flemming, Chief Financial Officer, said, "The first quarter of 2006 demonstrated continued positive trends in gross margins and cost reductions as a percentage of sales. The Company's senior lender reduced our term loan by $2 million to $3.6 million, which in turn generated a large one-time non-cash gain. Additionally, we entered into an agreement with our senior lender for an option to redeem our $2.5 million convertible debenture for $500,000, the terms of which are stated in the Company's current report on Form 8-K dated April 18, 2006." Mr. Flemming continued, "The restated term loan and anticipated redemption of the debenture will significantly reduce the Company's overall debt and debt service requirements. We also anticipate additional revenue contribution from the launch of the Hemiwedge Valve later in fiscal 2006."

For the full unaudited financial results and management's discussion and analysis of its first quarter 2006 financial operations, please see the Company's Quarterly Report filed on Form 10-QSB, filed May 15, 2006 with the Securities and Exchange Commission. The Form 10-QSB, along with other public filings can be viewed on the SEC's web site at www.sec.gov.

About Shumate Industries, Inc.

Shumate Industries, Inc. is a Texas-based, energy field services company that incorporates new technologies to bring products to market leveraging its existing infrastructure, expertise and customer channels. The Company operates through two wholly owned subsidiaries, 1.) Shumate Machine Works, a contract machining and manufacturing division and 2.) Hemiwedge Valve Corporation, a division formed to launch a proprietary new technology in a valve product line targeting energy flow control applications.

The diverse line of products Shumate Machine Works manufactures for its customers includes expandable tubular launchers and liner hangers for oil & gas field service applications, blow-out preventors, top drive assemblies, directional drilling products, natural gas measurement equipment, control & check valves and sub-sea control equipment used in energy field service.

The Company's proprietary Hemiwedge(R) Valve product line includes; quarter-turn metal seated valves with bore sizes ranging from two inch in diameter through eight inch with custom sizes up to twenty-four inches, ANSI and API certifications and multiple pressure classes, substantially reduced run torque reducing actuation costs. The Company believes its top-entry, cartridge replacement design where all the internal parts of the valve are self-contained and pre-certified will substantially reduce field maintenance costs and costly downtime during valve maintenance.

The Company's customers include Baker Hughes, BJ Services Company, Canrig Drilling Technology, a Nabors Industries company, FMC Technologies, Halliburton Energy Services, National Oil Well Varco, Oceaneering Intervention Engineering, R&M Energy Systems, Shell Development and Weatherford International.

Shumate Industries employs approximately 54 people at two plants in Conroe, Texas, north of Houston which total 85,000 square feet. The Company's executive offices are located at 12060 FM 3083, Conroe, Texas 77301. The Company's telephone number is 936-539-9533 and its Internet address is www.shumateinc.com.

SHUMATE INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS March 31, December 31, 2006 2005 (Unaudited) ASSETS Current assets: Cash and cash equivalents $1,126,702 $214,218 Accounts receivable, net of allowance for doubtful accounts of $60,000 666,746 959,916 Inventory 246,475 237,173 Prepaid expense and other current assets 88,376 87,920 ------------ ------------ Total current assets 2,128,299 1,499,227 ------------ ------------ Fixed assets, net of accumulated depreciation of $1,548,771 and $1,455,868 2,054,644 1,853,013 Patents, net of accumulated amortization of $7,260 and - 0 - 292,660 283,017 Deposits 30,340 30,340 ------------ ------------ Total assets $4,505,943 $3,665,597 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $454,785 463,141 Accrued expenses 412,717 408,796 Current portion of note payable - other 49,235 48,504 Current portion of term note payable - Stillwater National Bank 519,007 235,891 Line of credit - Stillwater National Bank 641,849 837,615 ------------ ------------ Total current liabilities 2,077,593 1,993,947 ------------ ------------ Long term liabilities: Note payable - other 38,910 51,496 Term note payable - Stillwater National Bank 3,114,046 5,397,162 Convertible note payable - Stillwater National Bank 2,500,000 2,500,000 ------------ ------------ Total long term liabilities 5,652,956 7,948,658 ------------ ------------ Total liabilities 7,730,549 9,942,605 ------------ ------------ Commitments and contingencies - - Stockholders' deficit: Preferred stock, $.001 par value, 10,000,000 shares authorized, no shares issued or outstanding - - Common stock, $.001 par value, 50,000,000 shares authorized, 15,449,727 and 12,116,394 shares issued and outstanding 15,449 12,116 Additional paid-in-capital 14,051,619 12,278,742 Accumulated deficit (17,291,674) (18,567,866) ------------ ------------ Total stockholders' deficit (3,224,606) (6,277,008) ------------ ------------ Total liabilities and stockholders' deficit $4,505,943 $3,665,597 ============ ============ SHUMATE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended March 31, 2006 and 2005 (Unaudited) 2006 2005 ----------- ----------- REVENUES $1,574,977 $1,078,003 ----------- ----------- COST OF SALES Cost of sales 1,264,025 1,127,222 Depreciation expense 82,486 59,458 ----------- ----------- Total cost of sales 1,346,511 1,186,680 ----------- ----------- GROSS INCOME (LOSS) 228,466 (108,677) ----------- ----------- OPERATING EXPENSES: Selling, general and administrative 603,527 364,475 Depreciation expense 13,386 6,542 Bad debt expense - 17,020 Research and development 99,208 53,728 ----------- ----------- Total operating expenses 716,121 441,765 ----------- ----------- LOSS FROM OPERATIONS (487,655) (550,442) OTHER INCOME (EXPENSE) Debt forgiveness income 2,000,000 - Interest expense (236,153) (257,638) ----------- ----------- NET INCOME (LOSS) FROM OPERATIONS $1,276,192 $(808,080) =========== =========== Basic net income (loss) per share $0.09 $(0.33) Diluted net income per share $0.08 N/A Weighted average shares outstanding - Basic 13,523,801 2,433,247 Weighted average shares outstanding - Diluted 16,023,801 N/A SHUMATE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOW For the Three Months Ended March 31, 2006 and 2005 (Unaudited) 2006 2005 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $1,276,192 $(808,080) Adjustments to reconcile net income to net cash used in operating activities: Debt forgiveness income (2,000,000) - Depreciation expense 95,872 66,000 Bad debt expense - 17,020 Changes in: Accounts receivable 293,170 165,847 Inventory (9,302) 68,339 Other assets (456) 25,684 Accounts payable (8,356) (303,089) Accrued expenses 3,921 285,521 ----------- ---------- Net cash used in operating activities (348,959) (482,758) ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase rebate of equipment - 11,120 Purchase of equipment (290,243) - Purchase of patents (16,903) - ----------- ---------- Net cash provided by (used in) operating activities (307,146) 11,120 ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change from bank overdraft - (332,512) Net change from bank credit line, net (195,766) (65,075) Proceeds from bank term loan - 1,100,000 Payments on note payable (11,855) (21,029) Proceeds from sales of common stock 1,810,000 - Costs of raising capital (33,790) - ----------- ---------- Net cash provided by financing activities 1,568,589 681,384 ----------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 912,484 209,746 CASH AND CASH EQUIVALENTS, beginning of period 214,218 177,822 ----------- ---------- CASH AND CASH EQUIVALENTS, end of period $1,126,702 $387,568 =========== ========== Supplemental disclosures: Cash paid for income taxes $ - $ - Cash paid for interest 171,539 - Shumate Industries, Inc. UNAUDITED CALCULATION OF EBITDA(a) (IN THOUSANDS) Three Months Ended March 31, 2006 2005 Income before income taxes $ 1,276 $ (808) Plus interest expense 236 258 Plus depreciation and amortization 96 66 -------- -------- EBITDA $ 1,608 $ (484) ======== ======== (a) EBITDA -- earnings before interest, taxes, depreciation and amortization.

(A) The term EBITDA consists of net income plus interest, taxes, depreciation and amortization. EBITDA is not a measure of financial performance under generally accepted accounting principles. You should not consider it in isolation from or as a substitute for net income or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. Additionally, EBITDA may not be comparable to other similarly titled measures of other companies. The Company has included EBITDA as a supplemental disclosure because its management believes that EBITDA provides useful information regarding our ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates. The Company uses EBITDA to compare and to monitor the performance of its business segments to other comparable public companies.

This press release contains information about the Company's EBITDA, a non-GAAP financial measure. The Company defines EBITDA as net income plus interest expense, income taxes, depreciation and amortization expense. The Company uses EBITDA as a supplemental financial measure to assess:

-- the financial performance of its assets without regard to

financing methods, capital structures, taxes or historical

cost basis;

-- its liquidity and operating performance over time in relation

to other companies that own similar assets and that the

Company believes calculate EBITDA in a similar manner; and

-- the ability of the Company's assets to generate cash

sufficient for the Company to pay potential interest costs.

The Company also understands that such data are used by investors to assess the Company's performance. However, the term EBITDA is not defined under generally accepted accounting principles and EBITDA is not a measure of operating income, operating performance or liquidity presented in accordance with generally accepted accounting principles. When assessing the Company's operating performance or liquidity, investors and others should not consider this data in isolation or as a substitute for net income, cash flow from operating activities or other cash flow data calculated in accordance with generally accepted accounting principles. In addition, the Company's EBITDA may not be comparable to EBITDA or similar titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as the Company. Further, the results presented by EBITDA cannot be achieved without incurring the costs that the measure excludes: interest, taxes, depreciation and amortization. A reconciliation of the Company's EBITDA to its net income is presented in the table following the text of this press release.

Forward-Looking Statements

This document contains discussion of items that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurances that its expectations will be achieved. Factors that could cause actual results to differ from expectations include, but are not limited to, customer concentration risk, difficulties in refinancing its debt, difficulties in consolidating the operations of the Company's operating subsidiaries, difficulties in accelerating internal sales growth, volatility of the energy business and its effects on the Company's business, difficulties in new technology acceptance within the energy industry, restrictive covenants in our existing credit facilities, fluctuations in metals prices, general economic conditions in markets in which we do business, extensive environmental and workplace regulation by federal and state agencies and other general risks related to its common stock, and other uncertainties and business issues that are detailed in its filings with the Securities and Exchange Commission. Shumate Industries disclaims any intention or obligation to revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Source: Business Wire

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