on July 1, 2008. The Agreement provides for an annual base salary and an annual bonus based on the achievement of performance goals to be established annually by the Compensation Committee of our Board of Directors. The annual bonus payable, if any, shall be pro-rated from July 1, 2008 for the 2008 fiscal year. In addition, on July 1, 2008 we granted Mr. Mitchell 10,000 shares of our restricted common stock pursuant to a Restricted Stock Award Agreement. The restricted stock award will vest in one-third increments over three years on the first anniversary of its grant date, provided that Mr. Mitchell remains employed with us through these vesting dates. The Agreement contains standard confidentiality covenants with respect to our trade secrets and non-competition and non-solicitation covenants until the later of the first anniversary of the date of termination or resignation or such time as Mr. Mitchell no longer receives any payments under the Agreement. If Mr. Mitchell is terminated for any reason other than due to death, disability or cause (as defined in the Agreement), we are required to pay Mr. Mitchell an amount equal to two times his annual base pay and a single bonus payment, equal to the average annual bonus pay for the prior two fiscal years of employment, and all restricted stock grants will be fully vested. If Mr. Mitchell has not been employed by us for two full fiscal years prior to his termination of employment, the bonus payment shall be equal to fifty percent (50%) of the bonus paid, if any, for the prior fiscal year ending immediately prior to his termination of employment.
Purchase of India Assets
On May 29, 2008, we exercised the option to purchase certain complementary assets of the India manufacturing operations of HP&T Products, Inc., or HP&T, by making a deposit of $0.4 million that is an estimate of the fair market valuation of the assets. The final fair market valuation of the assets to be purchased will be determined during the third quarter of 2008, at which time we will either make a further nominal payment or be entitled to a return of deposited monies. This option was granted with the purchase of HP&T on October 29, 2007, and allowed us 270 days in which to exercise this option. We intend to utilize these assets in the formation of a subsidiary in India and expect the formation of this subsidiary to be completed during the second half of 2008.
Strategy
Our strategy is to better position ourselves to capitalize on increased domestic and international drilling activity in the oil and gas industry. We believe this increased activity will result in additional demand for our products and services. We intend to:
• Expand our manufacturing capacity through facility expansions and improvements. We have expanded our manufacturing capacity to increase the volume and number of products we manufacture, with an emphasis on our pressure and flow control product line. This organic expansion effort has included increasing our BOP manufacturing capacity from ten to twenty-five units per month by upgrading and expanding our machining capabilities at our existing facilities and expansion into Grand Junction, Colorado and Conway, Arkansas during 2007. During 2008, we will continue to expand capacity by:

• completing the expansion of our BOP repair capacity from 7 stacks per month to 11 stacks per month;

• creating an India-based manufacturing subsidiary during the second half of 2008;

• opening additional facilities for our wellhead product line; and

• opening additional facilities for our pipeline product line.

• Continue new product development. Since April 2003, we have introduced 115 new products, and we will continue to focus on new product development across all of our product lines, with a continued focus on pressure and flow control products and more recently on wellhead products. In particular, during 2007 we added a subsea line of products to our traditional surface drilling products by introducing our T-3 Diamond Series Model 6012 Subsea Double Ram BOP fitted with subsea compact tandem booster bonnets and casing shear bonnets. In addition, during 2007 we received commitments

for our new stainless steel dual block wellhead system incorporating our new Diamond Series production gate valve technology, our new under-balanced drilling deployment valve wellhead system, and a conventional wellhead system that also incorporates our new Diamond Series production gate valves.

• Expand our geographic areas of operation. We intend to expand our geographic areas of operation, with particular focus on field services for our wellhead and pipeline product lines. We are expanding our wellhead and pipeline repair and remanufacturing services by establishing facilities in areas we believe will have high drilling activity, such as the Barnett Shale in North Texas, the Cotton Valley trend in the East Texas Basin, the Fayetteville Shale in the Arkoma Basin, the Marcellus Shale in the Appalachian region and the Rocky Mountain region. For example, in January 2008 we expanded into the Oklahoma region by acquiring Pinnacle Wellhead, Inc., or Pinnacle. During 2007, we continued our expansion into the Rocky Mountain region by opening a facility in Grand Junction, Colorado and we established a presence in the Arkoma Basin by opening a facility in Conway, Arkansas.

• Pursue strategic acquisitions and alliances. Our acquisition strategy will focus on broadening our markets and existing product offerings. As noted above, in July 2008, we entered into a joint venture arrangement, to be effective September 1, 2008 or such earlier date as agreed to by the parties, with Aswan in the Middle East to repair, manufacture, remanufacture and service equipment for customers in the UAE, Kuwait, Qatar, Bahrain, Oman, Yemen, Algeria, Egypt, Pakistan and Iraq. In January 2008, we acquired Pinnacle, located in Oklahoma City, Oklahoma to expand our wellhead products and services into a strategically identified market that already has existing operations, work force and customer relationships. In October 2007, we acquired Energy Equipment Corporation, or EEC, and HP&T, both of which are located in Houston, Texas, to enhance our ability to continue to develop and introduce innovative and industry-leading technologies within our pressure and flow control product line. We will continue to seek similar strategic acquisition and alliance opportunities in the future.

How We Generate Our Revenue
We design, manufacture, repair and service products used in the drilling and completion of new oil and gas wells, the workover of existing wells, and the production and transportation of oil and gas. Our products are used in onshore, offshore and subsea applications. Our customer base, which operates in active oil and gas basins throughout the world, consists of leading drilling contractors, exploration and production companies and pipeline companies.
We have three product lines: pressure and flow control, wellhead and pipeline. Within each of those product lines, we sell original equipment products and also provide aftermarket parts and services. Original equipment products are those we manufacture or have manufactured for us by others who use our product designs. Aftermarket products and services include all remanufactured products and parts and repair and field services.
Demand for our pressure and flow control and wellhead products and services is driven by exploration and development activity levels, which in turn are directly related to current and anticipated oil and gas prices. Demand for our pipeline products and services is driven by maintenance, repair and construction activities for pipeline, gathering and transmission systems.
We typically bid for original equipment product sales and repair work. Field service work is offered at a fixed rate plus expenses.
How We Evaluate Our Operations
Our management uses the following financial and operational measurements to analyze the performance of our business:
• revenue and facility output;

• material and labor expenses as a percentage of revenue;

• selling, general and administrative expenses as a percentage of revenue;

• EBITDA;

• Return on capital employed;

• financial and operational models; and

• other measures of performance.

Revenue and Facility Output. We monitor our revenue and facility output and analyze trends to determine the relative performance of each of our facilities. Our analysis enables us to more efficiently operate our facilities and determine if we need to refine our processes and procedures at any one location to improve operational efficiency.
Material and Labor Expenses as a Percentage of Revenue. Material and labor expenses are composed primarily of cost of materials, labor costs and the indirect costs associated with our products and services. Our material costs primarily include the cost of inventory consumed in the manufacturing and remanufacturing of our products and in providing repair services. We attempt where possible to pass increases in our material costs on to our customers. However, due to the timing of our marketing and bidding cycles, there generally is a delay of several weeks or months from the time that we incur an actual price increase until the time that we can pass on that increase to our customers.
Our labor costs consist primarily of wages at our facilities. As a result of increased activity in the oil and gas industry, there have been recent shortages of qualified personnel. We may have to raise wage rates to attract workers to expand our current work force.
Selling, General and Administrative Expenses as a Percentage of Revenue. Our selling, general and administrative, or SG&A, expenses include administrative and marketing costs, the costs of employee compensation and related benefits, office and lease expenses, insurance costs and professional fees, as well as other costs and expenses not directly related to our operations. Our management continually evaluates the level of our SG&A expenses in relation to our revenue because these expenses have a direct impact on our profitability.
EBITDA. We define EBITDA as income (loss) from continuing operations before interest expense, net of interest income, provision for income taxes and depreciation and amortization expense. Our management uses EBITDA:
• as a measure of operating performance that assists us in comparing our performance on a consistent basis because it removes the impact of our capital structure and asset base from our operating results;

• as a measure for budgeting and for evaluating actual results against our budgets;

• to assess compliance with financial ratios and covenants included in our senior credit facility;

• in communications with lenders concerning our financial performance; and

• to evaluate the viability of potential acquisitions and overall rates of return.

Return on Capital Employed. We define Return on Capital Employed as income from operations divided by Capital Employed (defined as total stockholders' equity plus debt less cash). Our management uses this criterion to measure our ability to achieve the income results targeted by our Annual Business Plan while also managing our capital employed. Our Compensation Committee also uses this metric as a performance criteria in determining annual incentive bonus awards for our executive officers. This measure points to the efficiency of our earnings.
Financial and Operational Models. We couple our evaluation of financial data with performance data that tracks financial losses due to safety incidents, product warranty and quality control; customer satisfaction; employee productivity; and management system compliance. We collect the information in a proprietary

statistical tracking program that automatically compiles and statistically analyzes real-time trends. This information helps us ensure that each of our facilities improves with respect to customer and market demands.
Loss Management. We incur operational losses from employee injuries, product warranty claims and quality control costs. We track both incident rates and costs. We also track quality control and warranty expenses through specialized software. All direct expenses incurred due to warranty, quality control and safety incidents are statistically analyzed as a percentage of sales.
Customer Satisfaction. We monitor our customers' level of satisfaction regarding our delivery, product quality, and service through customer surveys and other data collection methods. We statistically compile all information collected from the customer satisfaction assessments to track annual performance. All customer complaints are processed through a corrective action program.
Employee Productivity. We provide each of our facilities with a benchmark under which its employees are evaluated through a collection of practical examinations, written examinations, presentations and in-house training videos. As the collected information is evaluated, we identify deficiencies and take corrective actions.
Management System Compliance. We currently use four management programs designed to consistently manage all aspects of our operations at each facility, while providing useful tools to limit operational liabilities and improve profitability. These programs incorporate various performance standards that are useful in the evaluation of operational performance in the pursuit of continual improvement. We evaluate compliance with the standards set forth in those programs several times a year through a combination of customer audits, third party audits and internal audits. We then evaluate each facility's compliance with the standards, analyze all deficiencies identified and take corrective actions. We use corrective actions at each facility to implement preventative action at the remaining facilities.
How We Manage Our Operations
Our management team uses a variety of tools to monitor and manage our operations, including:
• safety and environmental management systems;

• quality management systems;

• statistical tracking systems; and

• inventory turnover rates.

Safety and Environmental Management Systems. Our Safety Management System, or SMS, monitors our training program as it relates to OSHA compliance. Through a collection of regulatory audits and internal audits, we can evaluate each facility's compliance with regulatory requirements and take corrective actions necessary to ensure compliance.
We also use our SMS to ensure that we conduct employee training on a regular basis. We manage several employee qualification programs from our SMS to ensure that our employees perform their duties as safely as possible. We evaluate all employees individually with respect to their safety performance, and we incorporate these evaluations into all annual employee reviews.
Similar to the SMS, our Environmental Management System monitors compliance with environmental laws. We continually evaluate each of our facilities against collected data to identify possible deficiencies.
Quality Management Systems. We manage all manufacturing processes, employee certification programs, and inspection activities through our certified Quality Management System, or QMS. Our electronic QMS is based on several different industrial standards and is coupled with performance models to ensure continual monitoring and improvement. To date our QMS has been certified by the National Board of Boiler and Pressure Vessel Inspectors ("NBIC"), the American Petroleum Institute ("API"), and QMI Management Systems ISO 9001 Registrars. As such, we maintain a quality management system ISO 9001 - 2000 license, a NBIC VR license for repair of pressure relief valves, and several API licenses including API 6A, 6D, 16A, 16C,

16D, & 17D. Each facility has a quality management team that is charged with assuring that day-to-day operations are conducted consistently and within the protocols outlined with the corporate QMS. To ensure that all QMS elements are operating as designed and to provide an additional level of support at each facility, we have assigned a Quality Manager at each facility who monitors individual facility performance and helps manage critical operations.
Statistical Tracking Systems. We have developed a statistical tracking program that assists in the real time compilation of data from each facility and then automatically assesses the data through various data analysis tools. We provide facility managers and operational executives with summary reports, providing information about their performance and how it compares to industrial and internal benchmarks.
Inventory Turnover Rates. The cost of our material inventory represents a significant portion of our cost of revenue from our product lines. As a result, maintaining an optimum level of inventory at each of our facilities is an important factor in managing our operations. We continually monitor the inventory turnover rates for each of our product lines and adjust the frequency of inventory orders as appropriate to maintain the optimum level of inventory based on activity level for each product line. Critical Accounting Policies and Estimates The preparation of our financial statements requires us to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Our estimation process generally relates to potential bad debts, obsolete and slow moving inventory, and the valuation of long-lived and intangible assets. Our estimates are based on historical experience and on our future expectations that we believe to be reasonable under the circumstances. The combination of these factors results in the amounts shown as carrying values of assets and liabilities in the financial statements and accompanying notes. Actual results could differ from our current estimates and those differences may be material.
These estimates may change as events occur, as additional information is obtained and as our operating environment changes. There have been no material changes or developments in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies and Estimates from those as disclosed in our Annual Report on Form 10-K for the year ending December 31, 2007. New Accounting Pronouncements
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements("SFAS No. 157"), which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. We adopted the provisions of SFAS No. 157 on January 1, 2008. The adoption of SFAS No. 157 did not have any impact on our consolidated financial position, results of operations and cash flows.
In December 2007, the FASB issued Statement No. 141R, Business Combinations ("SFAS No. 141R"), which changes the requirements for an acquirer's recognition and measurement of the assets acquired and the liabilities assumed in a business combination. SFAS No. 141R is effective for annual periods beginning after December 15, 2008 and should be applied prospectively for all business combinations entered into after the date of adoption. We are currently evaluating the impact that SFAS No. 141R will have on our consolidated financial position, results of operations and cash flows. Outlook
Changes in the current and expected future prices of oil and gas influence the level of energy industry spending. Changes in spending result in an increase or decrease in demand for our products and services. Therefore, our results are dependant on, among other things, the level of worldwide oil and gas drilling activity,

and our customers' perceptions of what will happen to those levels in the future. This affects cash flows of and capital spending by other oilfield service companies and drilling contractors and pipeline maintenance activity. We believe that oil and gas market prices and the drilling rig count in the United States, Canada and international markets serve as key indicators of demand for the products we manufacture and sell and for our services. The following table sets forth oil and gas price information and rig count data as of the end of each fiscal quarter for the past two years:

                          WTI        Henry Hub      United States      Canada       International
  Quarter Ended:          Oil           Gas           Rig Count       Rig Count       Rig Count
  June 30, 2006        $  70.41      $    6.65             1,632           282               913
  September 30, 2006   $  70.42      $    6.17             1,719           494               941
  December 31, 2006    $  59.98      $    7.24             1,719           440               952
  March 31, 2007       $  58.08      $    7.17             1,733           532               982
  June 30, 2007        $  64.97      $    7.66             1,757           139             1,002
  September 30, 2007   $  75.46      $    6.25             1,788           348             1,020
  December 31, 2007    $  90.68      $    7.40             1,790           356             1,017
  March 31, 2008       $  97.94      $    8.72             1,770           507             1,046
  June 30, 2008        $ 126.35      $   11.47             1,868           199             1,084

Source: West Texas Intermediate Crude Average Spot Price for the Quarter indicated: Department of Energy, Energy Information Administration (www.eia.doe.gov); NYMEX Henry Hub Natural Gas Average Spot Price for the Quarter indicated: (www.oilnergy.com); Average rig count for the Quarter indicated: Baker Hughes, Inc. (www.bakerhughes.com).
We believe our outlook for the remainder of 2008 is favorable, as overall activity in the markets in which we operate is expected to remain high and our backlog, especially for our pressure and flow control product line, continues to remain constant. Assuming commodity prices remain at or near current levels or increase, we expect that our original equipment products sales to be higher than our 2007 levels due to our product acceptance by the industry, new product introductions (such as our subsea BOP and new wellhead systems), significant capital and geographical expansions and continued rapid response time to customers. We also expect that the continued high levels of drilling activity in the United States and the increased demand for our products to be shipped internationally will result in consistent levels of backlog. However, we believe that backlog volumes may fluctuate due to growing international sales. International orders tend to be more complex due to several factors including financing, legal arrangements, agent structures, engineering demands and delivery logistics. We also cannot be certain that commodity prices will remain at high levels and our results will also be dependent on the pace and level of activities in the markets that we serve. Please read "Item 1A. Risk Factors-Our business depends on spending by the oil and gas industry, and this spending and our business may be adversely affected by industry conditions that are beyond our control" and "-A decline in or substantial volatility of oil and gas prices could adversely affect the demand and prices for our products and services." . . .