UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-K/A**


(Amendment
      No. 1)





[X]
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934


**For
      The Fiscal Year Ended December 31, 2005**





OR





[ 
                ]
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934


Commission
      File Number: 001-13924





**SIMCLAR,
      INC.**


(Exact
      name of Registrant as specified in its charter)




**Florida**
              **59-1709103**(State
                  or other jurisdiction of
              (I.R.S.
                  Employerincorporation
                  or organization)
              Identification
                  No.)
  **2230
        W. 77** **th** **Street**
 **Hialeah,
        Florida 33016**
 (Address
        of principal executive offices,
 including
        zip code)
 
 **(305)
        556-9210**
 (Registrant’s
        telephone number, including
        area code)
 
 Securities
        registered pursuant to Section 12(b) of the Act: Common
        Stock, $.01 par value
 
 Securities
        registered pursuant to Section 12(g) of the Act: None
  Indicate
        by check mark if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act. Yes
        [  ] No [ ü ]
 
 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
        [  ] No [ ü ]
 
 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
        preceding 12 months (or for such shorter period that the Registrant was required
        to file such reports), and (2) has been subject to the filing requirements
        for
        at least the past 90 days. Yes
        [ ü ]
        No [
 ]
 
 Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K 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. [ ü ]
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer (as defined in Exchange Act
        Rule
        12b-2).
  Large
                  accelerated filer [  ]
              Accelerated
                  filer [  ]
              Non-accelerated
                  filer  [ü]
 
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act. Yes
        [  ] No [ ü ]
 
 The
        aggregate market value of the Registrant’s common stock held by non-affiliates
        of the Registrant was approximately $5,538,027 on June 30, 2005.
 
 As
        of
        March 31, 2006, the Company had issued and outstanding 6,465,345 shares of
        its
        common stock.
 
 **Documents
        Incorporated By Reference**
 
 Portions
        of our Information Statement for the 2006 Annual Meeting of Shareholders
        are
        incorporated by reference in Part III.
 
  **Table
        of Contents**
  PageExplanatory
                  Note
              1**Part
                  II**Item
                  6.
              Selected
                  Financial Data
              2Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition andResults
                  of Operations
              3Item
                  7A.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              16Item
                  8.
              Financial
                  Statements and Supplementary Data
              17Item
                  9A
              Controls
                  and Procedures
              17**Part
                  IV**Item
                  15.
              Exhibits,
                  Financial Statement Schedules and Reports on Form 8-K
              20Signatures
              
              22Independent
                  Registered Public Accounting Firm’s Report on Supplemental Schedule
              S-1Schedule
                  II - Valuation and Qualifying Accounts
              S-2
  
 **Explanatory
        Note**
 
 Simclar,
        Inc (“the company”) is filing this Amendment to its Annual Report on Form 10-K
        for the year ended December 31, 2005 (the “Amendment”), which was originally
        filed on March 30, 2006. This Amendment is being filed to restate the company’s
        consolidated financial statements for the year ended December 31, 2005, which
        were misstated, resulting in overstated sales, understated cost of sales,
        overstated receivables, understated inventories, understated payables, and
        overstated net income. This misstatement was discovered by management in
        the
        course of preparing the company’s quarterly report on Form 10-Q for the quarter
        ended June 30, 2006 and relates to accounting errors associated with operations
        at the Brownsville, Texas and Matamoros, Mexico facilities of the company’s
        consolidated subsidiary, Simclar (Mexico), Inc. The company has therefore
        decided to restate its 2005 consolidated financial statements to correct
        these
        misstatements. Adjustments are made to correct: (a) overstatements of sales
        ($208,758), receivables ($208,758), and accrued expenses ($180,549); (b)
        understatements of cost of sales ($265,774), inventories ($218,834), and
        payables ($521,633); and (c) the overstatement of net income ($303,700),
        for the
        year ended December 31, 2005. Please refer to Note 2 to the accompanying
        consolidated financial statements and Item 7 of this Amendment for additional
        information.
 
 This
        Amendment amends (i) Part II, Item 6 - Selected Financial Data; (ii) Part
        II,
        Item 7 - Management’s Discussion and Analysis of Financial Condition and Results
        of Operations; (iii) Part II, Item 8 - Financial Statements and Supplementary
        Data ; (iv) Part II, Item 9A - Controls and Procedures to report management’s
        assessment of the company’s disclosure controls as of the date of the filing of
        this Amendment; and (v) the certifications required under Rules 13a-15 and
        15d-15(e) of the Securities Exchange Act of 1934, as amended, (“the Exchange
        Act”) so that they can be dated as of a current date as required by Rule 12b-15
        of the Exchange Act.
 
 This
        Amendment does not reflect events occurring after March 30, 2006, the date
        that
        the company filed its original Annual Report on Form 10-K for the year ended
        December 31, 2005, and does not update or modify the disclosures therein
        in any
        way other than as required to reflect the amendments described
        above. This
        Amendment should be read in conjunction with the Company’s filings made with the
        SEC subsequent to the filing of the 2005 Annual Report on Form
        10-K.
 
 
  **PART
        II**
 
 **** **Item
        6. Selected Financial Data**
 
 See
        the
“Explanatory Note” to this Amendment No. 1 to our Annual Report on Form 10-K/A
        and Note 2 to our consolidated financial statements for more detailed
        information regarding the restatement of our consolidated financial statements
        as of December 31, 2005. The following selected financial data should be
        read in
        conjunction with the consolidated financial statements, related notes and
        other
        financial information included herein:
 
 **Consolidated
        Statements of Operations Data**
 **(in
        thousands except per share amounts)**
 
 Years
                  Ended December 31,2005
                (As
                  Restated)
                (1)(2)
              
              
              2004
              
              
              2003(3)
              
              
              2002
              
              
              2001Revenues
              
              $
              61,005
              
              $
              53,582
              
              $
              36,187
              
              $
              33,692
              
              $
              37,042Net
                  income (loss)
              
              
              947
              
              
              2,342
              
              
              1,106
              
              
              1,390
              
              
              (2,806
              )Earnings
                  (loss) per share:Basic
                  and diluted
              
              $
              .15
              
              $
              .36
              
              $
              .17
              
              $
              .21
              
              $
              (.43
              )
 
 
 
 **Consolidated
        Balance Sheet Data**
 **(in
        thousands)**
 
 December
                  31,2005
                (As
                  Restated)
                (1)(2)
              
              
              2004
              
              
              2003
                  (3)
              
              
              2002
              
              
              2001Working
                  capital
              
              $
              4,470
              
              $
              12,137
              
              $
              11,804
              
              $
              10,018
              
              $
              8,859Total
                  assets
              
              
              37,710
              
              
              32,580
              
              
              25,674
              
              
              22,168
              
              
              21,209Long-term
                  debt
              
              
              3,000
              
              
              6,700
              
              
              6,500
              
              
              5,315
              
              
              6,371Total
                  Liabilities
              
              
              22,650
              
              
              18,462
              
              
              13,913
              
              
              11,797
              
              
              12,230Stockholders’
                  equity
              
              
              15,060
              
              
              14,119
              
              
              11,761
              
              
              10,371
              
              
              8,979
 
 
 (1)
              See
                  Note 2, “RESTATEMENT OF FINANCIAL STATEMENTS” in the Notes to Consolidated
                  Financial Statements.
 
 (2)
              The
                  2005 financial data reflects the acquisition of Simclar (North
                  America),
                  Inc.
 
 (3)
              The
                  2003 financial data reflects the acquisition of AG Technologies,
                  Inc.
                  (Simclar (Mexico), Inc.).
 
 
 2
  **Item
        7. Management’s Discussion and Analysis of Financial Condition and Results of
        Operations**
 
 **Restatement
        of 2005 Consolidated Financial Statements**
 
 On
        August
        23, 2006, management concluded that the company’s consolidated financial
        statements for the year ended December 31, 2005 were misstated **,** resulting
        in overstated sales, understated cost of sales, overstated receivables,
        understated inventories, understated payables, and overstated net
        income. ****  This
        misstatement was discovered by management in the course of preparing the
        company’s quarterly report on Form 10-Q for the quarter ended June 30, 2006 and
        relates to accounting errors associated with operations at the Brownsville,
        Texas and Matamoros, Mexico facilities of the company’s subsidiary, Simclar
        (Mexico), Inc. Adjustments are made to reduce: (a) the overstatements of
        sales
        and receivables; (b) the understatements of cost of sales, inventories, and
        payables; and (c) the overstatement of net income, for the year ended December
        31, 2005.
 
 The
        following table sets forth the impact of these restatements on certain amounts
        previously reported in the company’s consolidated financial statements for the
        year ended December 31, 2005:




Consolidated
        Balance Sheet Data
  As
                  of December 31, 2005As
                  Originally
                Reported
              
              
              As
                  Restated
                HereinAccounts
                  receivable
              $
              9,407,635
              
              $
              9,198,877Inventories
              
              12,006,627
              
              
              12,225,461Accounts
                  payable
              
              8,793,877
              
              
              9,315,510Retained
                  earnings
              
              3,843,966
              
              
              3,522,992
 
 Consolidated
        Statement of Operations Data
  Year
                  ended December 31, 2005As
                  Originally
                Reported
              
              As
                  Restated
                HereinSales
              $
              61,214,254
              
              $
              61,005,496Cost
                  of goods sold
              
              53,601,700
              
              
              53,867,474Income
                  before income taxes
              
              2,219,294
              
              
              1,744,762Income
                  tax provision
              
              968,566
              
              
              797,734Net
                  income
              
              1,250,728
              
              
              947,028Earnings
                  per share
              
              0.19
              
              
              0.15
 
 
 For
        discussion of the impact of these restatements on management’s evaluation of
        disclosure controls and procedures and the steps being taken to address the
        issues associated with the misstatements, see Item 9A “Controls and
        Procedures”.
 
 **General**
 
 Simclar,
        Inc. continued to demonstrate strong revenue growth of existing products
        and
        customers through 2005 as well as adding new products and customers. Our
        strategy remains to (1) leverage our relationship with Simclar Group to expand
        our reach globally, (2) depend upon our long-term relationships with major
        OEMs
        to increase our business with our existing customer base and to grow our
        customer base with other OEMs, and (3) seek strategic acquisitions and
        alliances.
 
 3
 Some
        of
        the key highlights to be discussed further through this discussion and analysis
        include:
 
 ·
            2005
                revenues were 13.9% above 2004; year-on-year sales increased 6.3%,
                with
                the balance coming from our acquisition of Simclar (North America),
                Inc.  ·
            fourth
                quarter sales set a new quarterly high at approximately
                $18,066,000.  ·
            fourth
                quarter earnings were exceptionally strong with earnings before tax
                of
                approximately $466,000 which brought 2005 earnings before taxes to
                approximately $1,745,000.  ·
            Bank
                of Scotland increased our term loan facility to $21,650,000 in
                anticipation of our acquisition of Litton Interconnect Technologies
                assembly business which was completed on February 24,
                2006.  We
        serve
        a wide range of businesses, from emerging growth companies to multinational
        OEMs, involved in a variety of markets including computer networking systems,
        computer workstations, telecommunications, mass data storage systems,
        instrumentation and food preparation equipment industries. A significant
        portion
        of our revenues is distributed over the following industry
        segments:
 
 Year
                  Ended December 31,2005
              2004
              2003Data
                  processing
              25%
              26%
              24
                  %Food
                  preparation equipment
              18%
              18%
              23
                  %Instrumentation
              15%
              15%
              11
                  %Power
                  equipment
              17%
              15%
              13
                  %Telecommunications
              12%
              12%
              14
                  %Military
                  and government
              4%
              5%
              9
                  %
 
 We
        seek
        to serve a sufficiently large number of customers to avoid dependence on
        any one
        customer or industry. Though historically a substantial percentage of our
        net
        sales have been to multiple locations of a small number of customers, our
        customer base has become increasingly diversified over the past four years.
        In
        2002 thirteen customers made up 80% of our sales with our largest customer
        accounting for 36% of total revenues. In the successive years of 2003, 2004,
        and
        2005 we have grown our customer base to 15, 20, and 29 customers who make
        up 80%
        of our sales. In 2005, 42% of our sales were made to numerous locations of
        five
        major customers.
 
 The
        table
        below sets forth the respective percentage of sales in the last three years
        attributable to customers and related suppliers that accounted for more than
        10%
        of our sales in each of those years.
 
 
 2005
              2004
              2003ITW
                  Food Equipment Group
              17%
              17%
              22%
 
 Significant
        reductions in sales to any of our large customers would have a material adverse
        effect on our results of operations. The level and timing of orders placed
        by a
        customer vary due to the customer’s attempts to balance its inventory, design
        modifications, changes in a customer’s manufacturing strategy, acquisitions of
        or consolidations among customers, and variation in demand for a customer’s
        products due to, among other things, product life cycles, competitive conditions
        and general economic conditions. Termination of manufacturing relationships
        or
        changes, reductions or delays in orders could have an adverse effect on our
        results of operations and financial condition, as has occurred in the past.
        Our
        results also depend to a substantial extent on the success of our OEM customers
        in marketing their products. We continue to seek to diversify our customer
        base
        to reduce our reliance on our few major customers.
 
 4
 
 The
        industry segments we serve, and the electronics industry as a whole, are
        subject
        to rapid technological change and product obsolescence. Discontinuance or
        modification of products containing components manufactured by our company
        could
        adversely affect our results of operations. The electronics industry is also
        subject to economic cycles and has in the past experienced, and is likely
        in the
        future to experience, recessionary periods. A prolonged worldwide recession
        in
        the electronics industry, as we experienced from 2001 through 2003, could
        have a
        material adverse effect on our business, financial condition and results
        of
        operations. During periods of recession in the electronics industry, our
        competitive advantages in the areas of quick-turnaround manufacturing and
        responsive customer service may be of reduced importance to electronic OEMs,
        who
        may become more price sensitive.
 
 We
        typically do not obtain long-term volume purchase contracts from our customers,
        but rather we work with our customers to anticipate future volumes of orders.
        Based upon such anticipated future orders, we will make commitments regarding
        the level of business we want and can accomplish given the current timing
        of
        production schedules and the levels of and utilization of facilities and
        personnel. Occasionally, we purchase raw materials without a customer order
        or
        commitment. Customers
        may cancel, delay or reduce orders, usually without penalty, for a variety
        of
        reasons, whether relating to the customer or the industry in general, which
        orders are already made or anticipated. Any significant cancellations,
        reductions or order delays could adversely affect our results of
        operations.
 
 We
        use Electronic
        Data Interchange **** (“EDI”) with
        both our customers and our suppliers in our efforts to continuously develop
        accurate forecasts of customer volume requirements, as well as sharing our
        future requirements with our suppliers. We depend on the
        timely availability of many components. Component shortages could result
        in
        manufacturing and shipping delays or increased component prices, which could
        have a material adverse effect on our results of operations. It
        is
        important for us to efficiently manage inventory, proper timing of expenditures
        and allocations of physical and personnel resources in anticipation of future
        sales, the evaluation of economic conditions in the electronics industry
        and the
        mix of products, whether PCBs, wire harnesses, cables, or turnkey products,
        for
        manufacture.
 
 We
        must
        continuously develop improved manufacturing procedures to accommodate our
        customers’ needs for increasingly complex products. To continue to grow and be a
        successful competitor, we must be able to maintain and enhance our technological
        capabilities, develop and market manufacturing services which meet changing
        customer needs and successfully anticipate or respond to technological changes
        in manufacturing processes on a cost-effective and timely basis. Although
        we
        believe that our operations utilize the assembly and testing technologies
        and
        equipment currently required by our customers, there can be no assurance
        that
        our process development efforts will be successful or that the emergence
        of new
        technologies, industry standards or customer requirements will not render
        our
        technology, equipment or processes obsolete or noncompetitive. In addition,
        to
        the extent that we determine that new assembly and testing technologies and
        equipment are required to remain competitive, the acquisition and implementation
        of such technologies and equipment are likely to require significant capital
        investment.
 
 Our
        results of operations are also affected by other factors, including price
        competition, the level and timing of customer orders, fluctuations in material
        costs (due to availability), the overhead efficiencies achieved by management in
        managing the costs of our operations, our experience in manufacturing a
        particular product, the timing of expenditures in anticipation of increased
        orders, selling, and general and administrative expenses. Accordingly, gross
        margins and operating income margins have generally improved during periods
        of
        high volume and high capacity utilization. We generally have idle capacity
        and
        reduced operating margins during periods of lower-volume
        production.
  5
 **Key
        Financial Performance Measures**
 
 We
        manage
        and assess the performance of our business primarily through the following
        measures:
 
 *Orders
        booked and backlog* - the
        ratio of orders booked to sales is reviewed on a monthly basis for each of
        the
        company’s five manufacturing plants.
 
 *Sales* -
        monthly sales for each plant are compared against budget and the same month
        in
        the previous year.
 
 *Gross
        margin* - the
        gross margin achieved by each plant each month is compared against budget
        and
        the same month in the previous year.
 
 *Selling,
        general and administrative expenses -* the
        ratio
        of these expenses as a percentage of sales for each
        plant each month is compared against budget.
 
 *Working
        capital* -
        movements in the balance sheet amounts of inventory, accounts receivable
        and
        accounts payable for each plant are reviewed on a monthly basis.
 
 *Bank
        borrowings* -
        movements in the company’s working capital facility with the bank are reviewed
        on a weekly basis.
 
 In
        the
        event that any of the above measures indicate unusual movements or trends,
        further review is undertaken by management to ensure that satisfactory
        explanations are obtained, and, where necessary, appropriate corrective action
        is taken.
 
 **Results
        of Operations**
 
 The
        following is a
        discussion of the key factors that have affected our business over the last
        three years. This discussion should
        be read in conjunction with our consolidated financial statements and the
        related footnotes included herein.
  **2005
        Compared to 2004**
 
 Fourth
        quarter revenues and earnings before taxes were up over both the third quarter
        of 2005 and also when compared to the fourth quarter of 2004. Sales increased
        by
        approximately $1,474,000 compared to the third quarter and by approximately
        $4,715,000 over the fourth quarter of 2004. Comparative earnings before taxes
        for the fourth quarter decreased by approximately $50,000 over the third
        quarter
        and were approximately $300,000 less than fourth quarter 2004. Our North
        Carolina operations, which were acquired in May 2005, generated approximately
        $1,429,000 in sales but $107,000 in losses in the fourth quarter of 2005.
        Gross
        margin was 11.2% compared to third quarter gross margin of 11.0% and 10.9%
        for
        the same period last year. Our cable and harness operations in Hialeah
        experienced a fourth quarter sales volume increase of 112% over the third
        quarter of 2005 and an increase of 149% over the fourth of quarter
        2004.
  Fiscal
        year 2005 revenues exceeded 2004 by approximately $7,423,000 while earnings
        before taxes were lower by approximately $1,400,000. Cable
        and
        harness assemblies made up a larger portion of total revenues. These products
        are more labor intensive than our other products which allowed us to benefit
        from our investment in the expanded operations in Mexico. SNAI generated
        approximately $4,174,000 of revenues since the date of acquisition, but lost
        approximately $349,000. We expect the performance of this operation, which
        does
        metal fabrication, injection molding, and higher level assemblies, to improve
        in
        2006 as a result of certain ongoing initiatives, together with the synergistic
        benefits from our recent acquisition of the Litton Interconnect Technologies
        backplane assembly business.
  6
 Even
        though a large portion of revenues continue to be concentrated with a small
        number of customers — 41% of our sales were made to numerous locations of five
        major customers — our customer base has become increasingly diversified over the
        past four years. In 2002 thirteen customers made up 80% of our sales, with
        our
        largest customer accounting for 36% of total revenues. In the successive
        years
        of 2003, 2004, and 2005 we have grown our customer base to 15, 20, and 29
        customers who make up 80% of our sales and our largest customer contributing
        17%
        of the revenue base.
  Gross
        margin for 2005 was down by approximately $215,000 and was down as a percentage
        of revenue to 11.7% from 13.7% for 2004; however, excluding the SNAI results,
        gross margins would have been 11.9% in the year. Excluding SNAI, which has
        a
        higher labor and overhead to materials ratio than other Simclar operations,
        material costs as a percentage of sales were 63% in 2005 and 62% 2004. Raw
        material cost pressures are a constant challenge because, while we try to
        pass
        these costs on to our customers, price competition will at times limit our
        ability to do so. Labor and burden were 25% of sales in 2005 and 2004. Due
        to
        the expansion in Mexico and acquisition of SNAI, depreciation expense was
        $245,000 greater than the previous year while amortization expense was $9,000
        for 2005 and $0 for 2004.
  Selling,
        general, and administrative (SG&A) expenses grew from 7.0% of sales in 2004
        to 8.2% in 2005. The primary reason for this increased cost was due to expansion
        of the Mexico operations and the acquisition of SNAI. As a percentage of
        sales,
        SG&A was 8.6% of sales in the first half of the year, but came down to 8.0%
        the second half.
  Interest
        expense increased due to higher interest rates and borrowings for the Mexico
        expansion and the working capital needs caused by the overall growth in the
        business in the year. Interest for 2005 was approximately $477,000 compared
        to
        approximately $213,000 in the prior year. Three month LIBOR went from 2.57%
        in
        January 2005 to 4.53% in December 2005.
  **2004
        Compared to 2003**
 
 Consolidated
        revenues increased approximately $17,395,000 (48.1%) for the year ended December
        31, 2004, compared to the preceding year. The acquisition of Simclar (Mexico)
        in
        July 2003 generated $9,941,000 of the increase in sales in 2004. Continual
        improvements in our sales to the computer peripherals, instrumentation, power
        equipment, telecommunications and food preparation equipment industries provided
        the additional $7,454.000 of increased sales in 2004, compared to the preceding
        year. Only our sales to the military-government sector declined in 2004,
        when
        compared to 2003. Our best sales improvements in 2004 were in our sales to
        computer peripherals industry of $5,099,000 and to the instrumentation industry
        of $4,260,000. Interest and other income decreased approximately $68,000
        in the
        year ended December 31, 2004, compared to the preceding year. The decrease
        was
        due to gain on the disposition of a building in Scotland in the year ending
        December 31, 2003.
  Approximately
        43% of our consolidated sales for 2004 were made to five customers. Illinois
        Tool Works (“ITW”) (17%) is the only customer that accounts for more than 10% of
        our total sales. The loss of or substantial reduction of sales to any major
        customer would have an adverse effect on our operations if such sales were
        not
        replaced. See Item 1, “Business-Customers.”
 
 Cost
        of
        goods sold as a percentage of sales amounted to 86% for the year ended December
        31, 2004 and 87% for the preceding year. The company experienced higher material
        costs as a percentage of sales, at 62% percent of sales for the products
        manufactured in 2004, compared to 58% in the preceding year. The higher material
        cost was due to price increases from suppliers of electronic components and
        higher cost bills of materials for certain products manufactured in the second
        half of the year. The labor content of our manufactured products remained
        steady
        at 8% of sales for 2004 and for 2003. The overhead component of cost of goods
        sold as a percentage of sales was 17% in 2004, compared to 21% in the preceding
        year. This was due mainly to the higher volume production in our four U.S.
        manufacturing locations in 2004.
 
 7
 Selling,
        general and administrative expenses increased by approximately $618,000 (20%)
        for the year ended December 31, 2004, compared to the preceding year, and
        amounted to approximately 7% and 9% of sales for 2004 and 2003, respectively.
        The acquisition of Simclar (Mexico) in July 2003 contributed approximately
        $409,000 of the increase in 2004 compared to 2003. Increased employee costs
        were
        the primary drivers of the remaining expense increase in 2004 compared to
        2003.
  Interest
        expense decreased approximately $5,000 for the year ended December 31,
        2004 **,** compared
        to the preceding year, reflecting the decreased borrowings until October
        2004
        when we restructure our credit facilities to acquire the land and building
        of
        our Dayton, Ohio facility, which we formerly had leased. The three month
        LIBOR
        was 2.30% and 1.13% at December 31, 2004 and 2003, respectively.
 
 **Liquidity
        and Capital Resources**
 
 Cash
        flow
        from operations was approximately $1,513,000 in the year compared to
        approximately $1,543,000 in 2004. Cash and cash equivalents were approximately
        $834,000 at December 31, 2005 compared to approximately $280,000 at the end
        of
        2004. Our current ratio dropped from 2.1:1 in 2004 to 1.2:1 in 2005. There
        were
        three primary contributors to this movement: (1) a change of approximately
        $4,800,000 from a related party receivable of approximately $2,900,000 to
        a
        related party payable of approximately $1,800,000 as part of the acquisition
        of
        SNAI; (2) a reclassification of a $2,500,000 deferred trade accounts payable
        balance with Winsson Enterprises Co., Ltd (“Winsson”), a supplier of components
        to Simclar (Mexico) ( the
        company is currently in negotiations with Winsson to renegotiate the agreement
        which expires in July 2006); and (3) our continued investment for the future
        and
        in the growth of our operations.
  Average
        day’s sales outstanding at December 31, 2005 was 54.1 compared to 54.2 in 2004. The
        increase in our average outstanding sales’ days is primarily the result of the
        nature of the customer base that we are servicing from our Mexican facilities.
        The overall trend we experienced over the last two years is that the majority
        of
        our customers are stretching out payment terms. Average inventory turnover
        was
        4.4 and 4.1 times for the years ended December 31, 2005 and 2004, respectively.
        The increase in inventory turnover is
        primarily due to our
        increased sales in 2005.
  Cash
        used
        in investing activities in 2005 was approximately $1,781,000 compared to
        approximately $3,139,000 in the preceding year. Cash used in investing
        activities was primarily comprised of approximately $1,717,000 for purchases
        of
        machinery and equipment for our new manufacturing facility in Mexico, lead-free
        solder machinery in order to comply with new requirements, and the payment
        of
        approximately $584,000 additional earn out consideration in respect of the
        acquisition of Simclar (Mexico), Inc., offset by cash received as part of
        the
        SNAI acquisition of approximately $348,000, and approximately $176,000 in
        proceeds from the sale of surplus equipment.
 
 Cash
        provided by financing activities was approximately $810,000 for the year
        ended
        December 31, 2005, compared to approximately $1,630,000 in the same period
        of
        the preceding year. Cash used in investing activities represented $1,200,000
        in
        repayments of long-term debt offset by drawdowns of $2,010,000 on our working
        capital credit facility in order to help finance our investing activities
        and
        working capital requirements. The company made all scheduled repayments on
        its
        long-term debt during the period.
 
 Our
        near-term cash requirements are primarily related to funding our operations,
        investing in acquisitions, and meeting the companies required bank debt
        obligations.  We believe that the combination of internally-generated
        funds, available cash reserves, and our existing credit facility is sufficient
        to fund our operating, investing and financing activities.
 
 8
 
  In
            December 2005, we entered into two amended and one new credit facilities
            with
            Bank of Scotland in Edinburgh, Scotland consisting of:
 **Borrower**
              **Type
                  of facility**
              **Original**
                **amount**
              **Balance
                  at**
                **December
                  31,2005**Simclar,
                  Inc.
              Working
                  capital
              $   
                  5,000,000
              $  
                  4,990,395Simclar,
                  Inc.
              Term
                  loan - four tranches (see
                detail
                  of tranches below)
              $ 
                  21,650,000
              $  
                  4,200,000Simclar
                  Interconnect Technologies, Inc.
              Working
                  Capital
              $   
                  1,000,000
              $                
                  0
 
 Interest
        on the Simclar, Inc. working capital facility accrues
        at an annual rate equal to LIBOR plus 1.5%, plus an amount, rounded to the
        nearest eighth of a percent, to cover any increases in certain regulatory
        costs
        incurred by the bank. The company may elect to pay interest on advances every
        one, three or six months, with LIBOR adjusted to correspond to the interest
        payment period selected by the company .
        The
        interest rate for the working capital facility at December 31, 2005 was 5.625%
        based on the three month election. The weighted average interest rate for
        the
        year was 4.76%
 
 Interest
        on the Simclar Interconnect Technologies, Inc. working capital facility will
        be
        a margin over LIBOR determined by a ratio of net borrowings to EBITDA for
        any
        given test period. The margin percentage can range from 1.5% to 2.5%. There
        had
        been no drawdowns on this facility at December 31, 2005 and there have been
        none
        since that date.
 
 The
        term
        loan interest is also determined by a margin over LIBOR related to the ratio
        of
        net borrowings to EBITDA for any given test period. The margin percentage
        can
        range from 1.5% to 2.5%. The term debt interest rate in effect at December
        31,
        2005 was 5.67% based on the three month election. The term loan is divided
        into
        four tranches each with its own specific purpose and repayment schedule as
        shown
        in the following table:
 
 
 **Tranche**
              **Principal
                  Amount**
              **Purpose**
              **Payments**A
              $ 
                  4,250,000
              Refinance
                  existing facilities
              Seventeen
                  quarterly payments of $250,000 beginning October 2004 through October
                  2008.B
              $ 
                  1,400,000
              Dayton
                  property acquisition
              Twenty-eight
                  quarterly payments of $50,000 beginning January 2005 through October
                  2011.C
              $13,000,000
              Acquisition
                  of certain assets of the Litton Interconnect Technologies assembly
                  operations
              Thirteen
                  quarterly payments of $500,000 beginning December 2006 through
                  December
                  2009, four quarterly payments of $250,000 from March 2010 through
                  December
                  2010, four quarterly payments of $750,000 from March 2011 through
                  December
                  2011 and four quarterly payments of $625,000 from March 2012 through
                  December 2012.D
              $ 
                  3,000,000
              Acquisition
                  of certain assets of the Litton Interconnect Technologies assembly
                  operations
              Single
                  payment due December 31, 2010.
  Tranches
          C and D were drawn on February 24, 2006.
 9
 
 Our
        credit facilities with BoS, which include an Amended Term Loan Facility Letter,
        an Amended Working Capital Facility Letter, a Working Capital Facility Letter,
        an Amended and Restated General Security Agreement, an Amended and Restated
        Pledge Agreement, a Mortgage and a Guaranty, in addition to subjecting all
        our
        assets as security for the bank financing, include substantial covenants
        that
        impose significant restrictions on us, including, among others, requirements
        that:
 
 ·
            the
                facilities take priority over all our other obligations; ·
            we
                must maintain sufficient and appropriate insurance for our business
                and
                assets; ·
            we
                must maintain all necessary licenses and authorizations for the conduct
                of
                our business; ·
            we
                indemnify the bank against all costs and expenses incurred by it
                which
                arise as a result of any actual or threatened (i) breach of environmental
                laws; (ii) release or exposure to a dangerous substance at or from
                our
                premises; or (iii) claim for an alleged breach of environmental law
                or
                remedial action or liability under such environmental law which could
                have
                an adverse material effect; ·
            if
                environmental harm has occurred to our property securing the credit
                facility, we have to ensure we were not responsible for the harm,
                and we
                have to be aware of the person responsible and its financial condition;
                and ·
            we
                must notify the bank of a variety of pension and benefit plans and
                ERISA
                issues, including, among others, (i) material adverse changes in
                the
                financial condition of any such plan; (ii) increase in benefits;
                (iii)
                establishment of any new plan; (iv) grounds for termination of any
                plan;
                and (v) our affiliation with or acquisition of any new ERISA affiliate
                that has an obligation to contribute to a plan that has an accumulated
                funding deficiency.  In
        addition, our credit facilities require us to maintain:
 
 ·
            consolidated
                adjusted net worth greater than $15,000,000 with effect from March
                31,
                2006 (tested on a quarterly basis); ·
            a
                ratio of consolidated current assets to consolidated net borrowing
                prior
                to December 31, 2007 of not less than 1:1 and thereafter not to be
                less
                than 1.5:1 (tested on a quarterly basis); ·
            a
                ratio of consolidated trade receivables to consolidated net borrowing
                of
                not less than 0.5:1 prior to December 31, 2007 and not less than
                0.75:1
                thereafter (tested on a quarterly basis); ·
            a
                ratio of EBIT to total interest not less than 3:1 until March 31,
                2006;
                not less than 3.5:1 from April 1, 2006 to June 30, 2006; and not
                less than
                4:1 thereafter (tested on a quarterly basis beginning December
                31,2005);
                and ·
            a
                ratio of net borrowings to EBITDA not to exceed 5:1 through December
                31,
                2006; not less than 4.5:1 from January 1, 2007 to December 31, 2007;
                not
                less than 4:1 from January 1, 2008 to December 31, 2008; not less
                than
                3.5:1 from January 1, 2009 to December 31, 2009; and not less than
                3:1
                thereafter (tested on a quarterly basis beginning December 31, 2006). 
 
 10
 
  Finally,
            without the prior written consent of BoS, our credit facilities prohibit
            us
            from:
 ·
            granting
                or permitting a security agreement against our consolidated assets
                except
                for permitted security agreements; ·
            declaring
                or paying any dividends or making any other payments on our capital
                stock; ·
            consolidating
                or merging with any other entity or acquiring or purchasing any equity
                interest in any other entity, or assuming any obligations of any
                other
                entity, except for notes and receivables acquired in the ordinary
                course
                of business; ·
            incurring,
                assuming, guaranteeing, or remaining liable with respect to any
                indebtedness, except for certain existing indebtedness disclosed
                in our
                financial statements; ·
            undertaking
                any capital expenditures in excess of $1,000,000 of the relevant
                estimates
                in the aggregate budget approved by BoS; ·
            effecting
                any changes in ownership of our company; ·
            making
                any material change in any of our business objectives, purposes,
                operation
                or taxes; and ·
            incurring
                any material adverse event in business conditions as defined by the
                Bank. 
 Our
        ability to comply with these provisions may be affected by changes in our
        financial condition or results of our operations, or other events beyond
        our
        control. The breach of any of these covenants would result in a default under
        our debt. A default in the covenants would permit BoS to accelerate the maturity
        of our credit facilities and to sell the assets securing them, which could
        cause
        us to cease operations or seek bankruptcy protection.
 
 Our
        indebtedness requires us to dedicate a substantial portion of our cash flow
        from
        operations to payments on our debt, which could reduce amounts for working
        capital and other general corporate purposes. The restrictions in our credit
        facility could also limit our flexibility in reacting to changes in our business
        and increases our vulnerability to general adverse economic and industry
        conditions.
 
 We
        have
        no off-balance sheet financing arrangements with related or unrelated parties
        and no unconsolidated subsidiaries. In the normal course of business, we
        enter
        into various contractual and other commercial commitments that impact or
        can
        impact the liquidity of our operations. The
        following table outlines our commitments at December 31, 2005:
 
 **Total**
              
              
              **Less
                  Than**
              
              
              **1
                  - 3**
              
              
              **4
                  - 5**
              
              
              **Over
                  5**In
                  Thousands
              
              **Amounts**
              
              
              **1
                  Year**
              
              
              **Years**
              
              
              **Years**
              
              
              **Years**Long-term
                  debt with interest
              $
              4,651
              
              $
              1,402
              
              $
              2,599
              
              $
              445
              
              $
              205Operating
                  Leases
              
              4,856
              
              
              726
              
              
              1,035
              
              
              963
              
              
              2,132Bank
                  line of credit with interest
              
              5,275
              
              
              5,275
              
              
              -
              
              
              -
              
              
              -Total
                  commitments
              $
              14,782
              
              $
              7,403
              
              $
              3,634
              
              $
              1,408
              
              $
              2,337
 
 **Subsequent
        Events**
 
 On
        February 24, 2006, the company and Simclar Interconnect Technologies, Inc.,
        its
        newly-formed wholly owned subsidiary ("Simclar IT") purchased certain U.S.
        assets associated with the backplane assembly business of the Interconnect
        Technologies Division of Litton Systems, Inc. ("Litton"), a subsidiary of
        Northrop Grumman Corporation, for $16 million in cash (subject to certain
        purchase price adjustments) and the assumption of certain liabilities (the
        "Acquisition"). At the same time, Simclar's parent  company
        in the United Kingdom, Simclar Group Limited, also acquired from Litton Systems
        International, Inc. and Litton U.K. Ltd. all of the share equity of Litton
        Electronics (Suzhou) Co. Ltd., a subsidiary organized in China, and certain
        assets of the Interconnect Technologies Division assembly business in the
        U.K.,
        respectively, through its subsidiary Simclar Interconnect Technologies
        Limited.
 
 11
 In
        connection with the Acquisition, the company and Simclar IT entered into
        an
        occupancy agreement pursuant to which Simclar IT will occupy space in Litton's
        Springfield, Missouri facility for a period of up to twelve months, and a
        transition services agreement pursuant to which Litton will provide certain
        administrative services to the company and Simclar IT to support its operations
        during the occupancy period.
 
 The
        company financed the purchase of the assets under its recently amended term
        loan
        facility with BoS. Of the $16 million borrowed under the amended facility,
        $13
        million of the principal will be repayable in quarterly installments commencing
        December 31, 2006 and through December 31, 2012. Interest on this portion
        of the
        borrowings will be payable quarterly at one, three or six month LIBOR (as
        elected by the Company) plus 2.5%. The $3 million balance of the borrowings
        under the amended facility will be repayable in one lump sum on December
        31,
        2010. Interest on this portion of the borrowings will be payable quarterly
        at
        one, three or six month LIBOR (as elected by the company) plus 3.5%. In
        addition, there is a redemption fee of $400,000 payable on December 31,
        2010.
 
 In
        connection with the loan, the company, Simclar IT and other subsidiaries
        entered
        into an amended security agreement, pursuant to which BoS was granted a security
        interest in substantially all of their respective assets to secure the company's
        borrowings under its credit facilities, and a guaranty pursuant to which
        Simclar
        IT guarantied the obligations of the company to BoS under the credit facilities.
        Additionally, the company and Simclar (Mexico), Inc. entered into an amended
        pledge agreement, pursuant to which all of the shares owned by the company
        in
        its subsidiaries were pledged as security for the Company's obligations to
        BoS
        under the credit facilities.
 
 The
        assets acquired by the Company from Litton Systems, Inc. were not accounted
        for
        by Litton as a separate "business, " and accordingly the associated operations
        were not separately accounted for, nor were separate financial statements
        prepared for the "business." Consequently, the Company is unable to supply
        financial statements of the acquired "business" as required by Rule 3-05(b)
        of
        Regulation S-X. The Company will supply an audited statement of the assets
        and
        liabilities acquired in an amendment to the Current Report on Form 8-K that
        it
        filed on March 2, 2006 within 71 calendar days following the date of the
        report.
 
 For
        the
        reasons stated above the Company is unable to supply the pro forma financial
        information required by Article 11 of Regulation S-X with respect to the
        "business" represented by the acquired assets.
 
 **Effect
        of Recently Issued Accounting Pronouncements**
 
 In
        December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
        No.
        123(R), Share-Based Payment, which would require all share-based payments
        to
        employees, including grants of employee stock options, to be recognized in
        the
        consolidated statements of operations based on their fair values, effective
        for
        public companies for interim periods beginning after June 15, 2005. SFAS
        No.123(R) permits public companies to adopt its requirements using either
        the
        modified prospective or retrospective method. The company adopted this statement
        in the third quarter of fiscal year 2005 and the adoption of this standard
        did
        not have a material effect on our consolidated results of operations, financial
        position, and cash flows.
 
 In
        November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of
        ARB No. 43, Chapter 4 Inventory Pricing”.  SFAS No. 151 requires idle
        facility costs, abnormal freight, handling costs, and amounts of wasted
        materials (spoilage) be treated as current-period costs.  Under this
        concept, if the costs associated with the actual level of spoilage or production
        defects are greater than the costs associated with the range of normal spoilage
        or defects, the difference would be charged to current-period expense, not
        included in inventory costs.  SFAS No. 151 also requires the allocation of
        fixed production overheads to the costs of conversion be based on the normal
        capacity of the production facilities.  SFAS No. 151 is effective for
        inventory costs incurred during fiscal years beginning after June 15, 2005.
         We will adopt this statement for fiscal year 2006 and currently do not
        anticipate that the adoption of this standard will have a material effect
        on our
        consolidated results of operations, financial position, and cash flows.
 
 12
 In
        December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,
        an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.”
 The amendments made by SFAS No. 153 are based on the principle that
        exchanges of nonmonetary assets should be measured based on the fair value
        of
        the assets exchanged.  The guidance in APB Opinion No. 29 provided an
        exception to this basic measurement principle for exchanges of similar
        productive assets.  That exception required that some nonmonetary exchanges
        be recorded on a carryover basis.  SFAS No. 153 eliminates this exception
        for nonmonetary exchanges of similar productive assets and replaces it with
        a
        general exception for exchanges of nonmonetary assets that do not have
        commercial substance.  An exchange would lack commercial substance if our
        future cash flows are not expected to change significantly as a result of
        that
        exchange.  SFAS No. 153 is effective for nonmonetary asset exchanges
        occurring in fiscal periods beginning after June 15, 2005.  Earlier
        application is permitted.  We will adopt this new standard for fiscal year
        2006 and do not anticipate that the adoption of this standard will have a
        material effect on our consolidated results of operations, financial position,
        and cash flows.
 
 In
        May
        2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections
        -
        a replacement of APB Opinion No. 20 and FASB Statement No. 3."  SFAS No.
        154 requires, unless impracticable, retrospective application to prior periods’
financial statements of changes in accounting principle.  SFAS No. 154 also
        requires that retrospective application of a change in accounting principle
        be
        limited to the direct effects of the change.  Indirect effects of a change
        in accounting principle should be recognized in the period of the accounting
        change.  The new standard is effective for accounting changes and
        corrections of errors made in fiscal years beginning after December 15, 2005.
         We will adopt the provisions of SFAS No. 154, as applicable, beginning in
        fiscal 2006 and do not anticipate that the adoption of this standard will
        have a
        material effect on our consolidated results of operations, financial position,
        or cash flows.
 
 **Critical
        Accounting Policies**
  We
        believe the following critical accounting policies affect our more significant
        judgments and estimates used in the preparation of our consolidated financial
        statements.
  ***Allowance
        for Doubtful Accounts--*** We
        maintain an allowance for doubtful accounts for estimated losses resulting
        from
        the inability of customers to make required payments. Based on historical
        information, we believe that our allowance is adequate. However, changes
        in
        general economic, business and market conditions could affect the ability
        of
        customers to make their required payments; therefore, the allowance for doubtful
        accounts is reviewed monthly and changes to the allowance are updated as
        new
        information is received.
 
 ***Allowance
        for Inventory Obsolescence--*** We
        maintain an allowance for inventory obsolescence for losses resulting from
        inventory items becoming unusable in the manufacturing operations due to
        loss of
        a specific customer or a customer’s product changes or discontinuations. Based
        on historical and projected sales information and concentration of customers,
        we
        believe that the allowance is adequate. However, changes in general economic,
        business and market conditions could cause customers to cancel, reduce or
        reschedule orders. These changes could affect the company inventory turnover;
        therefore, the allowance for inventory obsolescence is reviewed monthly and
        changes to the allowance are updated as new information is
        received.
 
 ***Income
        Taxes--*** Deferred
        income taxes at the end of each period are determined by applying enacted
        tax
        rates applicable to future periods in which the taxes are expected to be
        paid or
        recovered to differences between the financial accounting and tax basis of
        assets and liabilities. The decision to record a valuation allowance requires
        varying degrees of judgment based upon the nature of the item giving rise
        to the
        deferred tax asset.  As a result of continued operating losses incurred by
        SNAI, the inability to offset consolidated taxable income with the acquired
        net
        operating loss carry forwards, and uncertainty as to the timing of profitability
        in future periods, we have established a valuation allowance against all
        SNAI
        net operating loss carry forwards. Should future taxable income of SNAI be
        materially different from our estimates, changes in the valuation allowance
        could occur that would impact our tax expense in the future.
 
 13
 ***Impairment
        of Long-Lived Assets--*** In
        accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
        “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived
        assets to be held and used are reviewed for impairment whenever events or
        circumstances indicate that the carrying amount may not be recoverable. When
        required, impairment losses on assets to be held and used are recognized
        based
        on the fair value of the asset. The fair value of these assets is determined
        based upon estimates of future cash flows, market value of similar assets,
        if
        available, or independent appraisals, if required. In analyzing the fair
        value
        and recoverability using future cash flows, we make projections based on
        a
        number of assumptions and estimates of growth rates, future economic conditions,
        assignment of discount rates and estimates of terminal values. An impairment
        loss is recognized if the carrying amount of the long-lived asset is not
        recoverable from its undiscounted cash flows. The measurement of impairment
        loss
        is the difference between the carrying amount and fair value of the asset.
        Long-lived assets to be disposed of and/or held for sale are reported at
        the
        lower of carrying amount or fair value less cost to sell. We determine the
        fair
        value of these assets in the same manner as described for assets held and
        used.
        See “Long-Lived Asset Impairment” in Note 1 to our consolidated financial
        statements included in this report.
 
 Goodwill
        and indefinite-lived intangibles are required to be evaluated for impairment
        on
        an annual basis, or more frequently if impairment indicators arise, using
        a
        fair-value-based test that compares the fair value of the asset to its carrying
        value. Fair values are typically calculated using discounted expected future
        cash flows, using a risk-adjusted discount rate.
 
 The
        company performed the annual test for goodwill impairment related to the
        Lytton
        and Simclar (Mexico) acquisitions. These tests were performed at the reporting
        unit level. In the test, we determined that the discounted sum of the expected
        future cash flows exceeded the invested capital of the reporting units;
        therefore, no impairment of goodwill was recognized. In performing the tests
        for
        impairment, we made assumptions about future sales and profitability. In
        estimating expected future cash flows related to Lytton and Simclar (Mexico),
        we
        used internal forecasts that were based upon actual results, assuming an
        average
        revenue growth of 5% and 8% per year, respectively, and minimal increases
        in
        gross margin.
  The
        most
        critical estimates, in order of significance, used in the impairment test
        include (1) estimated revenue growth, (2) the terminal value assumed, and
        (3)
        the discount rate applied. We cannot predict the occurrence of future impairment
        triggering events nor the impact such events might have on reported asset
        values. Such events may include strategic decisions made in response to economic
        conditions relative to operations and the impact of technology, economic
        conditions, and industry trends on our customer base.
 
 ***Revenue
        Recognition and Accounts Receivable--*** The
        company’s sales are primarily derived from product manufacturing including, but
        not limited to, finished molded and non-molded cables, wiring harnesses,
        printed
        circuit board assemblies, electro-mechanical and electronic assemblies. Revenue
        is recognized upon shipment of the product to the customer, under contractual
        terms, which are generally FOB shipping point. Upon shipment, title transfers
        and the customer assumes the risks and rewards of ownership of the product.
        The
        selling price of the product is fixed and the ability to collect for the
        sale to
        the customer is reasonably assured when the product is shipped.
 
 Revenue
        from contract manufacturing, rework and refurbishing is recognized upon shipment
        of the product to the customer, under contractual terms, which are generally
        FOB
        shipping point.
 
 ***Business
        Combinations*** ***--*** We
        are
        required to allocate the purchase price of acquired business to the tangible
        and
        intangible assets acquired and liabilities assumed, based on their estimated
        fair values. Such valuations require us to make significant estimates and
        assumptions, especially related to intangible assets.
  14
 Critical
        estimates were used in valuing certain intangible assets and plant and equipment
        include but are not limited to: future expected cash flows from acquired
        customers’ continuing sales; and the expected useful life of plant and
        equipment. Our estimates are based upon assumptions we believe are reasonable,
        but which are inherently uncertain and unpredictable; as a result, actual
        results may differ from estimates.
 
 **Cautionary
        Statement Concerning Forward-Looking Statements**
 
 This
        Report includes certain forward-looking statements with respect to our company
        and our business that involve risks and uncertainties. These statements are
        influenced by our financial position, business strategy, budgets, projected
        costs and the plans and objectives of management for future operations. They
        use
        words such as anticipate, believe, plan, estimate, expect, intend, project,
        and
        other similar expressions. Although we believe our expectations reflected
        in
        these forward-looking statements are based on reasonable assumptions, we
        cannot
        assure you that our expectations will prove correct. Actual results and
        developments may differ materially from those conveyed in the forward-looking
        statements. For
        these
        statements, we claim the protections for forward-looking statements contained
        in
        the Private
        Securities Litigation Reform Act of 1995.
 
 Important
        factors include changes in general economic, business and market conditions,
        as
        well as changes in such conditions that may affect industries or the markets
        in
        which we operate, including, in particular, the impact of our nation’s current
        war on terrorism could cause actual results to differ materially from the
        expectations reflected in the forward-looking statements made in this Report. Further,
        information on other factors that could affect the financial results of Simclar,
        Inc. is included in the company’s other filings with the Securities and Exchange
        Commission. These
        documents are available free of charge at the Commission’s website at http://www.sec.gov and/or
        from Simclar, Inc. The
        forward-looking statements speak only as of the date on which they are made,
        and
        we undertake no obligation to update any forward-looking statement to reflect
        events or circumstances after the date of this Report.
 
 **Item
        7A. Quantitative and Qualitative Disclosures About Market
        Risk******
 
 We
        are
        exposed to market risks from changes in interest rates and foreign currency
        exchange rates.
 
 Sensitivity
        of results of operations to interest rate risks on our investments is managed
        by
        conservatively investing liquid funds in short-term government securities
        and
        interest-bearing accounts at financial institutions in which we had
        approximately $40,000 invested at December 31, 2005.
 
 Interest
        rate risks on debt are managed by negotiation of appropriate rates on new
        financing obligations based on current market rates. There is an interest
        rate
        risk associated with our variable rate debt agreements which totaled
        approximately $9,200,000 at December 31, 2005.
 
 We
        have
        exposure to both rising and falling interest rates. A 1⁄2% decrease in rates on
        our year-end investments would have an insignificant impact on our results
        of
        operations. A 1% increase in rates on our year-end variable rate debt would
        result in a negative impact of approximately $92,000 on our
        operations.
 
 Our
        exposure to market risks from foreign currency exchange rates is
        minimal.
 15
 
 **Item
        8. Financial Statements and Supplementary Data**
 
 Our
        financial statements, and the related notes, together with the report s
        of
        Battelle & Battelle LLP dated March 29, 2006, (except for Note 2, as to
        which the date is October 27, 2006) are set forth at pages F-1 through F-27
        attached hereto.
 
 **Item
        9A. Controls and Procedures**
 
 Overview
 
 The
        Company maintains disclosure controls and procedures designed to ensure that
        information required to be disclosed in reports filed under the Securities
        Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized,
        and reported within the specified time periods. As a part of these controls, our
        management is responsible for establishing and maintaining adequate internal
        control over financial reporting, as such term is defined in Rule 13a-15(f)
        under the Exchange Act. The company’s internal control over financial reporting
        is a process designed to provide reasonable assurance regarding the reliability
        of financial reporting and the preparation of financial statements for external
        purposes in accordance with generally accepted accounting principles, and
        includes those policies and procedures that:
 
 ·
            pertain
                to the maintenance of records that, in reasonable detail accurately
                reflect the transactions and dispositions of the assets of the
                company; 
 ·
            provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles and, that receipts and expenditures of the
                company
                are being made only in accordance with authorization of management
                and
                directors of the company; and 
 ·
            provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of the company's assets
                that
                could have a material effect on the financial
                statements. 
 In
        August
        2006, during the review and analysis of results of operations during the
        second
        quarter of 2006 and the company’s financial condition at June 30, 2006,
        management discovered certain accounting errors associated with operations
        at
        the Brownsville, Texas and Matamoros, Mexico facilities of the company’s
        consolidated subsidiary, Simclar (Mexico), Inc. As a result of the discovery
        of
        these errors, our management, including our Chief Executive Officer and Chief
        Financial Officer, has re-evaluated the effectiveness of the design and
        operation of our disclosure controls and procedures as of December 31, 2005.
        Due
        to the identification in this re-evaluation of a material weakness in internal
        control over financial reporting, as more fully described below, our Chief
        Executive Officer and Chief Financial Officer have concluded that, as of
        December 31, 2005, our disclosure controls and procedures were not
        effective.
 
 The
        Public Company Accounting Oversight Board’s Auditing Standard No. 2 defines a
        material weakness as “a significant deficiency, or a combination of significant
        deficiencies, that results in more than a remote likelihood that a material
        misstatement of the annual or interim financial statements will not be prevented
        or detected.” A significant deficiency is a control deficiency, or combination
        of control deficiencies, that adversely affects the company’s ability to
        initiate, authorize, record, process or report external financial data reliably
        in accordance with generally accepted accounting principles such that there
        is
        more than a remote likelihood that a misstatement of the company’s annual or
        interim financial statements that is more than inconsequential will not be
        prevented or detected.
 
 16
 The
        control deficiencies identified by our management that existed at December
        31,
        2005, which in combination, resulted in a material weakness, were (a)
        misstatement in amounts reported in a consolidated subsidiary, (b) processes
        that allowed material errors to occur and go undetected on a timely basis,
        and
        (c) the failure of key accounting managers to identify the errors and take
        appropriate corrective actions. The control deficiencies were determined
        to be a
        material weakness due to the actual misstatements identified, the potential
        for
        additional material misstatements to have occurred as a result of the
        deficiencies, and the lack of other mitigating controls.
 
 The
        misstatements identified resulted in overstated sales, understated cost of
        sales, overstated receivables, understated inventories, understated payables,
        and overstated net income. Based upon an assessment of the impact of the
        adjustments to our financial results arising from these errors, we have restated
        the financial information presented in this Amendment for the period ended
        December 31, 2005. Adjustments are made to correct: (a) overstatements of
        sales
        ($208,758), receivables ($208,758), and accrued expenses ($180,549); (b)
        understatements of cost of sales ($265,774), inventories ($218,834), and
        payables ($521,633); and (c) the overstatement of net income ($303,700),
        for the
        year ended December 31, 2005.
 
 Our
        management, including our Chief Executive Officer and Chief Financial Officer,
        does not expect that our disclosure controls and procedures will prevent
        all
        errors and all improper conduct. A control system, no matter how well conceived
        and operated, can provide only reasonable, not absolute assurance that the
        objectives of the control systems are met. Further, a design of a control
        system
        must reflect the fact that there are resource constraints, and the benefit
        of
        controls must be considered relative to their costs. Because of the inherent
        limitations in all control systems, no evaluation of controls can provide
        absolute assurance that all control issues and instances of improper conduct,
        if
        any, have been detected. These inherent limitations include the realities
        that
        judgments and decision-making can be faulty, and that breakdowns can occur
        because of a simple error or mistake. Additionally, controls can be circumvented
        by the individual acts of some persons, by collusion of two or more persons,
        or
        by management override of the control. Further, the design of any system
        of
        controls is also based in part upon assumptions about the likelihood of future
        events, and there can be no assurance that any design will succeed in achieving
        its stated goals under all potential future conditions. Over time, controls
        may
        become inadequate because of changes in conditions, or the degree of compliance
        with the policies or procedures may deteriorate. Because of the inherent
        limitations and a cost-effective control system, misstatements due to error
        or
        fraud may occur and may not be detected.
 
 Changes
        in Control Over Financial Reporting
  During
        the year ended December 31, 2005, there were no changes in our internal controls
        over financial reporting (as defined in Rule 13a-15(f) under the Exchange
        Act)
        that materially affected, or is reasonably likely to materially affect, our
        internal control over financial reporting. However, as a result of the
        subsequently discovered material weakness described above, there have been
        significant changes in our internal controls and the company is undertaking
        remedial efforts. These remedial efforts include:
 
 ·
            Identification
                and replacement of key accounting staff that had failed in their
                responsibility to identify these control weaknesses and take corrective
                action.  ·
            Re-engineering
                the operational and financial processes that allowed the mistakes
                to occur
                and go undetected and ultimately led to the misstatements in the
                financial
                reports. Specific areas of concentration include, but are not limited
                to,
                returned goods from customers, returned goods to vendors, proper
                shipping
                cutoff procedures to assure recording of sales and cost of goods
                sold in
                the proper accounting periods, and timely reconciliation of intercompany
                shipments and financial transactions.  17
  ·
            Correction
                of the standard cost system and training the employees responsible
                for its
                maintenance.  ·
            Addressing
                specific skill deficiencies within the accounting staff by both providing
                counseling and training, rearranging of responsibilities, or making
                staff
                changes.  ·
            Planned
                conversion of all company facilities to a standard enterprise resource
                planning and accounting platform and adding an internal controls
                manager. 
 The
        company continues to evaluate these and other possible improvements to its
        disclosure controls and internal control over financial reporting. Management,
        including our Chief Executive Officer and Chief Financial Officer, believes
        that
        once these remediation efforts, taken as a whole, are complete, our disclosure
        controls and procedures will be designed to provide reasonable assurance
        that
        information required to be disclosed in our reports filed under the Exchange
        Act
        have been recorded, processed, summarized and reported correctly, and that
        they
        provide such assurance with respect to the information contained in this
        Amendment. Management believes that its controls and procedures will continue
        to
        improve as a result of the further implementation and refinement of the
        remediation efforts described above.
 
 18
  **Part
        IV**
 
 **Item
        15. Exhibits and Financial Statement Schedules**
 
 **(a)** **The
        following documents are filed as part of this Report.**
 
 (1)  The
        following financial statements are filed as part of this Annual Report on
        Form
        10-K/A:
 
 Independent
        Auditors’ Report.
 
 Consolidated
        Balance Sheets as of December 31, 2005 (As Restated) and 2004.
 
 Consolidated
        Statements of Operations for the Years Ended December 31, 2005 (As Restated),
        2004, and 2003.
 
 Consolidated
        Statements of Stockholders’ Equity for the Years Ended December 31, 2005 (As
        Restated), 2004 and 2003.
 
 Consolidated
        Statements of Cash Flows for the Years Ended December 31, 2005 (As Restated),
        2004, and 2003.
 
 Notes
        to
        the Consolidated Financial Statements for Year Ended December 31,
        2005.
 
 (2)  The
        following financial statement schedule is included in this Annual Report
        on Form
        10-K/A and should be read in conjunction with the Consolidated Financial
        Statements contained in this Report:
 
 Schedule
        II - Valuation and Qualifying Accounts
 
 Schedules
        not listed above are omitted because of the absence of conditions under which
        they are required or because the required information is included in the
        financial statements or notes thereto.
 
 (3)  Exhibits:
 
 
 
 
 ***Exhibit***
                ******Number******
              
              ***Exhibit
                  Description***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
              *
              Certification
                  of Chief Executive Officer of Periodic Financial Reports pursuant
                  to
                  Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
                  1350.32.2
              *
              Certification
                  of Chief Financial Officer of Periodic Financial Reports pursuant
                  to
                  Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
                  1350.
 _________________
 *
                  Filed
                      with this Report.
 
 19
 
 **(b)**
              **Exhibits.**
 
 The
        exhibits to this report follow the Signature Page.
 
 **(c)**
              **Financial
                  Statement Schedules.**
 
 The
        financial statement schedule follows the exhibits to this
        report.




20





**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.


SIMCLAR,
                  INC.Date:
                  October 27, 2006
              By:
              /s/
                  Barry J.
                  PardonBarry J. Pardon, President and
                  Director




Pursuant
      to the requirements of the Securities Exchange Act of 1934, 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
              DateSamuel
                J. Russell*
              
              Chairman
                  of the Board of DirectorsSamuel
                J. Russell
              
              and
                  Chief Executive Officer
              October
                  27, 2006/s/
                Barry J. Pardon
              
              President
                  and Director
              October
                  27, 2006Barry
                J. Pardon
              
              (principal
                  executive officer)John
                Ian Durie*
              
              Vice-President
                  (Finance) and
              October
                  27, 2006John
                Ian Durie
              
              DirectorMarshall
                W. Griffin*
              
              Chief
                  Financial Officer and
              October
                  27, 2006Marshall
                W. Griffin
              
              Secretary(principal
                  financial and principalaccounting
                  officer)A.
                Graeme Manson *
              
              Director
              October
                  27, 2006A.
                Graeme MansonPatrick
                Lacchia *
              
              Director
              October
                  27, 2006Patrick
                LacchiaKenneth
                M. MacKay, M. D.*
              
              Director
              October
                  27, 2006Kenneth
                M. MacKay, M. D.Christina
                M. J. Russell*
              
              Director
              October
                  27, 2006Christina
                M. J. Russell*By:
              /s/
                  Barry J. PardonBarry
                  J. Pardon, Attorney-in-Fact






21




**FORM
        10-K--ITEM 8**
 
 **LIST
        OF FINANCIAL STATEMENTS**
 
 
 The
        following consolidated financial statements of Simclar, Inc. and subsidiaries
        are included in Item 8:
 
 PageConsolidated
                  Balance Sheets - December 31, 2005 (As Restated) and 2004.
              
              
              F-3Consolidated
                  Statements of Operations - Years ended December 31, 2005 (As Restated),2004,
                  and 2003.
              
              
              F-5Consolidated
                  Statements of Stockholders’ Equity - Years endedDecember
                  31, 2005 (As Restated), 2004, and 2003.
              
              
              F-6Consolidated
                  Statements of Cash Flows - Years ended December 31, 2005 (As
                  Restated),2004
                  and 2003.
              
              
              F-7Notes
                  to Consolidated Financial Statements
              
              
              F-8The
                  following financial statement schedule of Simclar, Inc. and subsidiaries
                  is includedSchedule
                  II - Valuation and qualifying accounts.
              
              
              S-2
 
 All
        other
        schedules for which provision is made in the applicable accounting regulation
        of
        the Securities and Exchange Commission are not required under the related
        instructions or are inapplicable, and therefore have been omitted.
  F-1
 
 **SIMCLAR,
          INC. AND SUBSIDIARIES**
 
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 Board
        of
        Directors and Shareholders
 Simclar,
        Inc. and Subsidiaries
 Hialeah,
        FL
 
 We
        have
        audited the accompanying consolidated balance sheet of Simclar, Inc. and
        subsidiaries as of December 31, 2005 and 2004, and the related consolidated
        statements of operations, stockholders’ equity, and cash flows, for the each of
        the three years ended December 31, 2005. 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 Accounting
        Oversight Board (United States). Those standards require that we plan and
        perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. The Company is not required
        to
        have, nor were we engaged to perform, an audit of its internal control over
        financial reporting. Our audit included consideration of internal control
        over
        financial reporting as a basis for designing audit procedures that are
        appropriate in the circumstances, but not for the purpose of expressing an
        opinion on the effectiveness of the Company’s internal control over financial
        reporting. Accordingly, we express no such opinion. 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 present fairly, in all
        material respects, the consolidated financial position of Simclar, Inc. and
        subsidiaries as of December 31, 2005 and 2004, and the consolidated results
        of
        their operations and their cash flows for each of the three years ended December
        31, 2005, in conformity with accounting principles generally accepted in
        the
        United States of America.
 
 As
        described in Note 2 to the consolidated financial statements, the Company
        has
        restated its 2005 consolidated financial statements.
 
 
 
 /S/
        BATTELLE & BATTELLE LLP
 
 
 Battelle
        & Battelle LLP
 Dayton,
        Ohio
 -March
        29, 2006, except for Note 2 to the consolidated financial statements, as
        to
        which the date is October 27, 2006.
 
 F-2
  **SIMCLAR,
        INC. AND SUBSIDIARIES**
 
 **CONSOLIDATED
        BALANCE SHEETS**
 
 December
                  31,
              
              
              December
                  31,2005
              
              
              2004(As
                  restated)**ASSETS****Current
                  assets:**Cash
                  and cash equivalents
              
              $
              833,703
              
              $
              280,015Accounts
                  receivable, less allowances of $235,000 atDecember
                  31, 2005 and $182,000 at December 31, 2004
              
              
              9,198,877
              
              
              8,066,978Amounts
                  receivable from major stockholder, net
              
              
              -
              
              
              2,918,037Inventories,
                  less allowances for obsolescence of $1,822,000 at December31,
                  2005 and $1,481,000 at December 31, 2004
              
              
              12,225,461
              
              
              11,314,911Prepaid
                  expenses and other current assets
              
              
              357,703
              
              
              317,183Deferred
                  income taxes
              
              
              985,056
              
              
              795,400**Total
                  current assets**
              
              
              23,600,800
              
              
              23,692,524**Property
                  and equipment:**Land
                  and improvements
              
              
              547,511
              
              
              547,511Buildings
                  and building improvements
              
              
              1,235,904
              
              
              1,235,904Machinery,
                  computer and office equipment
              
              
              10,944,591
              
              
              8,171,056Tools
                  and dies
              
              
              331,244
              
              
              290,873Leasehold
                  improvements
              
              
              493,694
              
              
              254,059Construction
                  in progress
              
              
              519,254
              
              
              123,023**Total
                  property and equipment**
              
              
              14,072,198
              
              
              10,622,426Less
                  accumulated depreciation and amortization
              
              
              6,003,107
              
              
              6,613,775**Net
                  property and equipment**
              
              
              8,069,091
              
              
              4,008,651**Deferred
                  expenses and other assets, net**
              
              
              61,398
              
              
              20,622**Goodwill**
              
              
              5,917,938
              
              
              4,840,545**Intangible
                  assets, net**
              
              
              60,996
              
              
              18,000**Total
                  assets**
              
              $
              37,710,223
              
              $
              32,580,342
 
 
 
 See
        notes to consolidated financial
        statements
  F-3
 
 **SIMCLAR,
          INC. AND SUBSIDIARIES**
 
 **CONSOLIDATED
        BALANCE SHEETS**
 
 December
                  31,
              
              
              December
                  31,2005
              
              
              2004(As
                  restated)**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  liabilities:**Line
                  of credit
              
              $
              4,990,395
              
              $
              2,980,000Accounts
                  payable
              
              
              9,315,510
              
              
              5,414,262Accrued
                  expenses
              
              
              1,379,763
              
              
              1,124,732Accrued
                  income taxes
              
              
              371,870
              
              
              836,709Amounts
                  payable to major stockholder, net
              
              
              1,873,463
              
              
              -Current
                  portion of long-term debt
              
              
              1,200,000
              
              
              1,200,000**Total
                  current liabilities**
              
              
              19,131,001
              
              
              11,555,703Long-term
                  debt
              
              
              3,000,000
              
              
              4,200,000Deferred
                  trade accounts payable
              
              
              -
              
              
              2,500,000Deferred
                  income taxes
              
              
              518,926
              
              
              206,000**Total
                  liabilities**
              
              
              22,649,927
              
              
              18,461,703Commitments
                  and contingencies
              
              
              -
              
              
              -**Stockholders'
                  equity:**Common
                  stock, $.01 par value, authorized 10,000,000 shares; issued
                  andoutstanding
                  6,465,345 shares at December 31, 2005 and 2004
              
              
              64,653
              
              
              64,653Capital
                  in excess of par value
              
              
              11,446,087
              
              
              11,446,087Retained
                  earnings
              
              
              3,522,992
              
              
              2,593,238Accumulated
                  other comprehensive income
              
              
              26,564
              
              
              14,661**Total
                  stockholders' equity**
              
              
              15,060,296
              
              
              14,118,639$
              37,710,223
              
              $
              32,580,342
  See
        notes
        to consolidated financial statements
   F-4
 
 **SIMCLAR,
        INC. AND SUBSIDIARIES**
  **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 
 Year
                  Ended December 31,2005
              
              
              2004
              
              
              2003(As
                  restated)Sales
              
              $
              61,005,496
              
              $
              53,582,487
              
              $
              36,187,105Cost
                  of goods sold
              
              
              53,867,474
              
              
              46,229,712
              
              
              31,316,498Gross
                  Margin
              
              
              7,138,022
              
              
              7,352,775
              
              
              4,870,607Selling,
                  general and administrative expenses
              
              
              4,984,610
              
              
              3,754,823
              
              
              3,133,170Income
                  from operations
              
              
              2,153,412
              
              
              3,597,952
              
              
              1,737,437Interest
                  expense
              
              
              476,712
              
              
              213,284
              
              
              217,833Interest
                  and other income
              
              
              (68,062
              )
              
              (50,953
              )
              
              (114,791
              )Foreign
                  currency loss on Scotland shutdown
              
              
              -
              
              
              -
              
              
              170,867Income
                  before income taxes
              
              
              1,744,762
              
              
              3,435,621
              
              
              1,463,528Income
                  tax provision
              
              
              797,734
              
              
              1,093,841
              
              
              357,207Net
                  income
              
              $
              947,028
              
              $
              2,341,780
              
              $
              1,106,321Earnings
                  per share:Basic
                  & diluted
              
              $
              0.15
              
              $
              0.36
              
              $
              0.17
 
 
 See
          notes
          to consolidated financial statements
  F-5
  **SIMCLAR,
        INC. AND SUBSIDIARIES**
 
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS’ EQUITY**
 
 **Retained**
              
              
              **Accumulated**
              
              
              **Notes****Capital
                  in**
              
              
              
              
              
              **Earnings**
              
              
              **Other**
              
              
              **Receivable****Common**
              
              
              **Excess
                  of**
              
              
              **Comprehensive**
              
              
              **(Accumulated)**
              
              
              **Comprehensive**
              
              
              **Stock****Stock**
              
              
              **Par
                  Value**
              
              
              **Income**
              
              
              **(Deficit)**
              
              
              **Income
                  (Loss)**
              
              
              **Options**
              
              
              **Total**Balance
                  at January 1, 2003
              
              $
              65,570
              
              $
              11,592,995
              
              
              
              
              $
              (854,863
              )
              $
              (224,349
              )
              $
              (207,825
              )
              $
              10,371,528Comprehensive
                  income:Net
                  income
              
              
              
              
              
              
              
              
              1,106,321
              
              
              1,106,321Other
                  comprehensive income:Foreign
                  currency translation adjustments
              
              
              
              
              
              
              
              
              223,171
              
              
              
              
              
              223,171Comprehensive
                  income
              
              
              
              
              
              
              
              $
              1,329,492
              
              
              
              
              
              
              
              
              
              
              
              1,329,492Cancellation
                  of held stock option shares due to lack of payment
              
              
              (1,217
              )
              
              (206,608
              )
              
              
              
              
              
              
              
              
              
              
              207,825Exercise
                  of stock options
              
              
              300
              
              
              59,700
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              60,000Balance
                  at December 31, 2003
              
              $
              64,653
              
              $
              11,446,087
              
              
              
              
              $
              251,458
              
              $
              (1,178
              )
              $
              -
              
              $
              11,761,020Comprehensive
                  income:Net
                  income
              
              
              
              
              
              
              
              
              2,341,780
              
              
              2,341,780Other
                  comprehensive income:Foreign
                  currency translation adjustments
              
              
              
              
              
              
              
              
              15,839
              
              
              
              
              
              15,839Comprehensive
                  income
              
              
              
              
              
              
              
              $
              2,357,619
              
              
              
              
              
              
              
              
              
              
              
              2,357,619Balance
                  at December 31, 2004
              
              $
              64,653
              
              $
              11,446,087
              
              
              
              
              $
              2,593,238
              
              $
              14,661
              
              $
              -
              
              $
              14,118,639Prior
                  period adjustment, net of tax of $9,717
              
              
              
              
              
              
              
              
              
              
              
              (17,274
              )
              
              
              
              
              
              
              
              (17,274
              )Comprehensive
                  income:Net
                  income
              
              
              
              
              
              
              
              
              947,028
              
              
              947,028Other
                  comprehensive income:Foreign
                  currency translation adjustments
              
              
              
              
              
              
              
              
              11,903
              
              
              
              
              
              11,903Comprehensive
                  income
              
              
              
              
              
              
              
              $
              958,931
              
              
              
              
              
              
              
              
              
              
              
              958,931Balance
                  at December 31, 2005
              
              $
              64,653
              
              $
              11,446,087
              
              
              
              
              $
              3,522,992
              
              $
              26,564
              
              $
              -
              
              $
              15,060,296
   See
          notes
          to consolidated financial statements
  F-6
 **SIMCLAR,
        INC. AND SUBSIDIARIES**
 
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 
 
 Year
                  ended December 31,2005
              
              
              2004
              
              
              2003(As
                  restated)Operating
                  activities:Net
                  income
              
              $
              947,028
              
              $
              2,341,780
              
              $
              1,106,321Adjustments
                  to reconcile net income to net cash (used in)provided
                  by operating activities:Effect
                  of prior period adjustment
              
              
              (17,274
              )Depreciation
                  & amortization
              
              
              1,273,533
              
              
              1,019,609
              
              
              935,883Deferred
                  expenses and other assets
              
              
              (40,776
              )
              
              (20,622
              )
              
              9,435Provision
                  for inventory obsolescence
              
              
              468,675
              
              
              382,391
              
              
              245,976Provision
                  for uncollectible accounts receivable
              
              
              55,527
              
              
              35,000
              
              
              -Loss/(Gain)
                  on disposal of property & equipment
              
              
              9,028
              
              
              -
              
              
              (47,650
              )Deferred
                  tax benefit
              
              
              (260,555
              )
              
              (22,700
              )
              
              (10,300
              )Changes
                  relating to operating activities from:Accounts
                  receivable
              
              
              (409,038
              )
              
              (2,375,164
              )
              
              (460,553
              )Amounts
                  receivable from / payable to major stockholder, net
              
              
              163,832
              
              
              (869,116
              )
              
              (104,252
              )Inventories
              
              
              (1,048,726
              )
              
              (1,944,001
              )
              
              (202,241
              )Prepaid
                  expenses and other current assets
              
              
              84,538
              
              
              (7,823
              )
              
              (180,651
              )Accounts
                  payable
              
              
              749,192
              
              
              2,453,983
              
              
              (210,661
              )Accrued
                  expenses
              
              
              2,958
              
              
              209,816
              
              
              (69,475
              )Income
                  taxes payable
              
              
              (464,839
              )
              
              340,064
              
              
              (2,182
              )Net
                  cash provided by operating activities
              
              
              1,513,103
              
              
              1,543,217
              
              
              1,009,650Investing
                  activities:Additions
                  to property and equipment, net of minor disposals
              
              
              (1,717,063
              )
              
              (2,532,792
              )
              
              (209,807
              )Proceeds
                  from sale of property and equipment
              
              
              176,518
              
              
              -
              
              
              704,433Acquisition
                  of subsidiaries, net of cash acquiredSimclar
                  (Mexico), Inc.
              
              
              (588,195
              )
              
              (606,432
              )
              
              (1,951,547
              )Simclar
                  (North America), Inc.
              
              
              347,645
              
              
              -
              
              
              -Net
                  cash used in investing activities
              
              
              (1,781,095
              )
              
              (3,139,224
              )
              
              (1,456,921
              )Financing
                  activities:Borrowing
                  on bank line of credit
              
              
              2,010,395
              
              
              1,230,000
              
              
              250,000Exercise
                  of stock options
              
              
              
              
              
              
              
              
              60,000Proceeds
                  from long-term bank borrowings
              
              
              -
              
              
              1,400,000Payments
                  on long-term bank borrowings
              
              
              (1,200,000
              )
              
              (1,000,000
              )
              
              (1,392,682
              )Net
                  cash provided by financing activities
              
              
              810,395
              
              
              1,630,000
              
              
              (1,082,682
              )Effect
                  of exchange rate fluctuations on cash
              
              
              11,285
              
              
              15,839
              
              
              223,171Net
                  change in cash and cash equivalents
              
              
              553,688
              
              
              49,832
              
              
              (1,306,782
              )Cash
                  and cash equivalents at beginning of period
              
              
              280,015
              
              
              230,183
              
              
              1,536,965Cash
                  and cash equivalents at end of period
              
              $
              833,703
              
              $
              280,015
              
              $
              230,183
 
 See
        notes to consolidated financial
        statements
 
 F-7
 **SIMCLAR,
        INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 *Consolidation*
 
 The
        consolidated financial statements include the accounts of Simclar, Inc.
        (“Simclar ”) and its subsidiaries, including Simclar (Mexico), Inc. (“Simclar
        (Mexico)”), Techdyne (Europe) Limited (“Techdyne (Europe)”) and Simclar (North
        America), Inc. (“SNAI”), collectively referred to as the “company.” During
        September 2003, the company changed its name to Simclar, Inc. from Techdyne,
        Inc. On August 13, 2003 the company merged its wholly owned subsidiary, Lytton
        Inc. into Simclar. SNAI was acquired during the second quarter of 2005 with
        an
        effective date of May 1, 2005 (refer to Note 14). All material intercompany
        accounts and transactions have been eliminated in consolidation. The company
        is
        a 73.4% owned subsidiary of Simclar Group Limited (“Simclar Group”), a privately
        owned company incorporated in the United Kingdom.
 
 *Business*
 
 The
        company operates in one business segment, the manufacture of electronic and
        electro-mechanical products primarily manufactured to customer specifications
        in
        the data processing, telecommunication, instrumentation and food preparation
        equipment industries.
 
 *Cash
        and Cash Equivalents*
 
 The
        company considers all highly liquid investments with an original maturity
        of
        three months or less when purchased to be cash equivalents. The carrying
        amounts
        reported in the balance sheets for cash and cash equivalents approximate
        their
        fair values. The credit risk associated with cash and cash equivalents is
        considered low due to the high quality of the financial institutions in which
        the assets are invested.
 
 *Inventories*
 
 Inventories,
        which consist primarily of raw materials used in the production of electronic
        components, are valued at the lower of cost (first-in, first-out and/or weighted
        average cost method) or market value. The cost of finished goods and work
        in
        process consists of direct materials, direct labor and a portion of fixed
        and
        variable-manufacturing overhead. The company reviews its inventories on an
        annual basis to identity parts that have not been used in the manufacturing
        process during the previous two year period or are not believed to be required
        for use in the manufacturing process during the next six months. The carrying
        value of these identified parts is adjusted to the estimated realizable fair
        market value with a current period charge to an allowance for obsolescence
        as
        reflected in the financial statements.
 
 *Property,
        Plant and Equipment*
 
 Property,
        plant and equipment is stated on the basis of cost. Depreciation is computed
        by
        the straight-line method over the estimated useful lives of the assets, which
        are generally 25 years for buildings and improvements; 3 to 10 years for
        machinery, computer and office equipment; 3 to 10 years for tools and dies;
        and
        5 to 15 years for leasehold improvements based on the shorter of the lease
        term
        or estimated useful life of the property. Replacements and betterments that
        extend the lives of assets are capitalized. Maintenance and repairs are expensed
        as incurred. Upon the sale or retirement of assets, the related cost and
        accumulated depreciation are removed and any gain or loss is recognized.
        Depreciation and amortization expense was approximately $1,274,000, $1,020,000,
        and $936,000 in the years ended December 31, 2005, 2004, and 2003 respectively.
 
  F-8
 **SIMCLAR,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued** **
 
 *Long-Lived
        Asset Impairment*
  In
        accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
        “Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived
        assets to be held and used are reviewed for impairment whenever events or
        circumstances indicate that the carrying amount may not be recoverable. When
        required, impairment losses on assets to be held and used are recognized
        based
        on the fair value of the asset. The fair value of these assets is determined
        based upon estimates of future cash flows, market value of similar assets,
        if
        available, or independent appraisals, if required. In analyzing the fair
        value
        and recoverability using future cash flows, the company makes projections
        based
        on a number of assumptions and estimates of growth rates, future economic
        conditions, assignment of discount rates and estimates of terminal values.
        An
        impairment loss is recognized if the carrying amount of the long-lived asset
        is
        not recoverable from its undiscounted cash flows. The measurement of impairment
        loss is the difference between the carrying amount and fair value of the
        asset.
        Long-lived assets to be disposed of and/or held for sale are reported at
        the
        lower of carrying amount or fair value less cost to sell. The company determines
        the fair value of these assets in the same manner as described for assets
        held
        and used.
  *Deferred
        Expenses*
 
 Deferred
        expenses, except for deferred loan costs, are amortized on the straight-line
        method, over their estimated benefit period ranging to 60 months. Deferred
        loan
        costs are amortized over the lives of the respective loans. The amortization
        expense for the years ended December 31, 2005, 2004, and 2003 was approximately
        $9,000, $10,000, and $11,000, respectively.
 
 *Goodwill
        and Intangible Assets*
 
 Goodwill
        is the excess of the purchase price paid over the value of net assets of
        businesses acquired and is not amortized.  Intangible assets with
        determinable lives are amortized on a straight-line basis over the estimated
        useful life.  Goodwill and indefinite-lived intangibles are evaluated for
        impairment on an annual basis, or more frequently if impairment indicators
        arise, using a fair-value-based test.  Fair values are typically calculated
        using discounted expected future cash flows, using a risk-adjusted discount
        rate.
 
 December
                  31,2005
              
              
              2004
              
              
              2003Goodwill
                  recognized on the acquisition of :Lytton
                  Inc.
              
              $
              2,954,995
              
              $
              2,954,995
              
              $
              2,954,995AG
                  Technologies, Inc.
              
              
              2,579,118
              
              
              1,885,550
              
              
              1,279,118Simclar
                  (North America), Inc.
              
              
              383,825
              
              
              -
              
              
              -$
              5,917,938
              
              $
              4,840,545
              
              $
              4,234,113
 
 F-9
  **SIMCLAR,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
        1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued**
 
  Identifiable
        intangible assets consist of the following:
  **December
                  31, 2005**
              **December
                  31, 2004****Gross**
              
              
              
              
              
              **Gross****Carrying**
              
              
              **Accumulated**
              
              
              **Carrying**
              
              
              **Accumulated****Amount**
              
              
              **Amortization**
              
              
              **Amount**
              
              
              **Amortization**Non-compete
                  agreement
              
              $
              18,000
              
              $
              (2,250
              )
              $
              18,000
              
              $
              0Customer
                  list
              
              
              0
              
              
              (6,961
              )
              
              0
              
              
              0Total
              
              $
              18,000
              
              $
              (9,211
              )
              $
              18,000
              
              $
              0
  Amortization
        expense for intangible assets was approximately $9,000 for 2005. There was
        no
        amortization expense for 2004 and 2003.  Estimated amortization expense for
        the next five years is as follows:  2006-$19,000; 2007-$17,000;
        2008-$10,000; 2009-$10,000; and 2010-$3,000.
  During
        the third quarters of 2005 and 2004, the Company performed the annual impairment
        test for goodwill related to the Simclar (Mexico), Inc. acquisition.  The
        tests were performed at the reporting unit level using a fair-value-based
        test.
 Fair values are calculated using discounted expected future cash flows,
        using a risk-adjusted discount rate.  Based upon the test results, the
        Company determined that no impairment of goodwill was required.
  During
        the fourth quarters of 2005 and 2004, the Company performed the annual
        impairment test for goodwill related to the Lytton, Inc. acquisition.  The
        tests were performed at the reporting unit level using a fair-value-based
        test.
 Fair values are calculated using discounted expected future cash flows,
        using a risk-adjusted discount rate.  Based upon the test results, the
        Company determined that no impairment of goodwill was required.
 The
        goodwill related to the Simclar (North America), Inc. acquisition will be
        performed within one year of the acquisition which will be no later than
        the
        second quarter of 2006.
 
 *Income
        Taxes*
 
 Deferred
        income taxes at the end of each period are determined by applying enacted
        tax
        rates applicable to future periods in which the taxes are expected to be
        paid or
        recovered to differences between the financial accounting and tax basis of
        assets and liabilities.
 
  F-10
 **SIMCLAR,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
        1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued** **
 
 *Earnings
        per Share*
 
 Diluted
        earnings per share gives effect to potential common shares that were dilutive
        and outstanding during the period, such as stock options and warrants using
        the
        treasury stock method and average market price, the company has various stock
        options; however, only those options which were dilutive during the periods
        being reported on have been included in the earnings per share computations.
        For
        the years provided there is no dilutive effect.
 
 
 Following
        is a reconciliation of amounts used in the basic and diluted
        computations:
 
 Year
                  Ended December 31,2005
              
              
              2004
              
              
              2003(As
                  restated)Net
                  income - numerator basic computation
              
              $
              947,028
              
              $
              2,341,780
              
              $
              1,106,321Weighted
                  average shares - denominator basiccomputation
              
              
              6,465,345
              
              
              6,465,345
              
              
              6,460,086Earnings
                  per share:Basic
                  and diluted
              
              $
              0.15
              
              $
              0.36
              
              $
              0.17
 
 Please
        see Note 2 for further information.
 
 *Estimated
        Fair Value of Financial Instruments*
 
 The
        carrying value of cash, accounts receivable and debt in the accompanying
        financial statements approximate their fair value because of the short-term
        maturity of these instruments, or in the case of debt, because such instruments
        bear variable interest rates which approximate market.
 
 *Use
        of Estimates*
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the amounts reported in the consolidated
        financial statements and accompanying notes. The accounting estimates and
        assumptions that place the most significant demands on management’s judgment
        include, but are not limited to, doubtful accounts receivable, income taxes,
        impairment of long-lived assets, business combinations, and inventory
        obsolescence. These estimates and assumptions are based on information presently
        available and actual results could differ from those estimates.
  F-11
  **SIMCLAR,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
        1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued** **
 
 *Revenue
        Recognition and Accounts Receivable*
 
 The
        company’s sales are primarily derived from product manufacturing including, but
        not limited to, finished molded and non-molded cables, wiring harnesses,
        printed
        circuit board assemblies, electro-mechanical and electronic assemblies. Revenue
        is recognized upon shipment of the product to the customer, under contractual
        terms, which are generally FOB shipping point. Upon shipment, title transfers
        and the customer assumes the risks and rewards of ownership of the product.
        The
        selling price of the product is fixed and the ability to collect for the
        sale to
        the customer is reasonably assured when the product is shipped.
 
 Revenue
        from contract manufacturing, rework and refurbishing is recognized upon shipment
        of the product  to
        the
        customer, under contractual terms, which are generally FOB shipping
        point.
 
 Trade
        receivables are uncollateralized customer obligations due under normal trade
        terms requiring payment generally within 30 days from the invoice date.
 
 The
        company’s estimate of the allowance for doubtful accounts for trade receivables
        is primarily determined based upon the length of time that the receivables
        are
        past due. In addition, management estimates are used to determine probable
        losses based upon an analysis of prior collection experience, specific account
        risks, and economic conditions.
 
 The
        company has a series of actions that occur based upon the aging of past due
        trade receivables, including letters and direct customer contact. Accounts
        are
        deemed uncollectible based on their past payment account experiences and
        their
        current financial condition.
 
 *Shipping
        Costs*
 
 Shipping
        costs related to the transportation of products sold to customers are charged
        to
        cost of goods sold.
 
 *Warranty
        Costs*
 
 The
        company warrants that products used in its manufacturing process are free
        from
        defects in material and workmanship for a period of one year from time of
        shipment to the customer. If the manufactured product fails in this one year
        period due to a defect, the company will rework the product until it functions
        per the customer’s specifications. The costs associated with the rework of any
        return of defective products are treated as a period expense when the products
        are reshipped to the customer. The company estimates the cost or reworking
        defective products to be less than 1% of its annual sales volume and thus
        has
        not recorded any liability for rework costs on its financial
        statements.
   F-12
 **SIMCLAR,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
        1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued** **
 
 *Foreign
        Operations*
 
 The
        financial statements of the foreign subsidiaries have been translated into
        U.S.
        dollars in accordance with SFAS No. 52. All balance sheet accounts have been
        translated using the current exchange rates at the balance sheet date. Income
        statement accounts have been translated using the average exchange rate for
        the
        period. The translation adjustments resulting from the change in exchange
        rates
        from period to period have been reported separately as a component of
        accumulated other comprehensive income included in stockholders’ equity. Foreign
        currency transaction gains and losses, which are not material, are included
        in
        the results of operations.
 These
        gains and losses result from exchange rate changes between the time transactions
        are recorded and settled, and for unsettled transactions, exchange rate changes
        between the time the transactions are recorded and the balance sheet date.
 
 *Comprehensive
        Income*
 
 The
        company follows SFAS No. 130, “Reporting Comprehensive Income” which contains
        rules for the reporting of comprehensive income and its components.
        Comprehensive income consists of net income and foreign currency translation
        adjustments and is presented in the Consolidated Statement of Stockholders’
Equity.
 
  *Reclassifications*
  Certain
        prior-year amounts have been reclassified to conform to the current-year
        presentation.
 
 *New
        Pronouncements*
 
 In
        December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
        No.
        123(R), Share-Based Payment, which would require all share-based payments
        to
        employees, including grants of employee stock options, to be recognized in
        the
        consolidated statements of operations based on their fair values, effective
        for
        public companies for interim periods beginning after June 15, 2005. SFAS
        No.123(R) permits public companies to adopt its requirements using either
        the
        modified prospective or retrospective method. The company adopted this statement
        in the third quarter of fiscal year 2005 and experienced no material effect
        on
        its consolidated results of operations, financial position, and cash flows.
 
  In
        November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of
        ARB No. 43, Chapter 4 Inventory Pricing”.  SFAS No. 151 requires idle
        facility costs, abnormal freight, handling costs, and amounts of wasted
        materials (spoilage) be treated as current-period costs.  Under this
        concept, if the costs associated with the actual level of spoilage or production
        defects are greater than the costs associated with the range of normal spoilage
        or defects, the difference would be charged to current-period expense, not
        included in inventory costs.  SFAS No. 151 also requires the allocation of
        fixed production overheads to the costs of conversion be based on the normal
        capacity of the production facilities.  SFAS No. 151 is effective for
        inventory costs incurred during fiscal years beginning after June 15, 2005.
         The company will adopt this statement for fiscal year 2006 and currently
        does not anticipate that the adoption of this standard will have a material
        effect on its consolidated results of operations, financial position, and
        cash
        flows.
 
 F-13
  **SIMCLAR,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
        1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued** **
  In
        December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,
        an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.”
 The amendments made by SFAS No. 153 are based on the principle that
        exchanges of nonmonetary assets should be measured based on the fair value
        of
        the assets exchanged.  The guidance in APB Opinion No. 29 provided an
        exception to this basic measurement principle for exchanges of similar
        productive assets.  That exception required that some nonmonetary exchanges
        be recorded on a carryover basis.  SFAS No. 153 eliminates this exception
        for nonmonetary exchanges of similar productive assets and replaces it with
        a
        general exception for exchanges of nonmonetary assets that do not have
        commercial substance.  An exchange would lack commercial substance if the
        company’s future cash flows are not expected to change significantly as a result
        of that exchange.  SFAS No. 153 is effective for nonmonetary asset
        exchanges occurring in fiscal periods beginning after June 15, 2005.
 Earlier application is permitted.  The company will adopt this new
        standard for fiscal year 2006 and does not anticipate that the adoption of
        this
        standard will have a material effect on its consolidated results of operations,
        financial position, and cash flows.
  In
        May
        2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections
        -
        a replacement of APB Opinion No. 20 and FASB Statement No. 3."  SFAS No.
        154 requires, unless impracticable, retrospective application to prior periods’
financial statements of changes in accounting principle.  SFAS No. 154 also
        requires that retrospective application of a change in accounting principle
        be
        limited to the direct effects of the change.  Indirect effects of a change
        in accounting principle should be recognized in the period of the accounting
        change.  The new standard is effective for accounting changes and
        corrections of errors made in fiscal years beginning after December 15, 2005.
         The company will adopt the provisions of SFAS No. 154, as applicable,
        beginning in fiscal 2006 and do not anticipate that the adoption of this
        standard will have a material effect on our consolidated results of operations,
        financial position, or cash flows.
 
 **NOTE
        2—RESTATEMENT OF FINANCIAL STATEMENTS**
 
 On
        August
        23, 2006, management concluded that the company’s consolidated financial
        statements for the year ended December 31, 2005 were misstated**,**resulting
        in overstated sales, understated cost of sales, overstated receivables,
        understated inventories, understated payables, and overstated net
        income.****This
        misstatement was discovered by management in the course of preparing the
        company’s quarterly report on Form 10-Q for the quarter ended June 30, 2006 and
        relates to accounting errors associated with operations at the Brownsville,
        Texas and Matamoros, Mexico facilities of the company’s subsidiary, Simclar
        (Mexico), Inc. Adjustments are made to correct: (a) the overstatements of
        sales
        and receivables; (b) the understatements of cost of sales, inventories, and
        payables; and (c) the overstatement of net income, for the year ended December
        31, 2005.
 
 The
        following table sets forth the impact of these restatements on certain amounts
        previously reported in the company’s consolidated financial statements for the
        year ended December 31, 2005:
 
 Consolidated
        Balance Sheet Data
  As
                  of December 31, 2005As
                  Originally
                Reported
              
              
              As
                  Restated
                HereinAccounts
                  receivable
              
              $
              9,407,635
              
              $
              9,198,877Inventories
              
              
              12,006,627
              
              
              12,225,461Accounts
                  payable
              
              
              8,793,877
              
              
              9,315,510Retained
                  earnings
              
              
              3,843,966
              
              
              3,522,992
 
 F-14
 **SIMCLAR,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        2—RESTATEMENT OF FINANCIAL STATEMENTS - continued**
 
 Consolidated
        Statement of Operations Data
  Year
                  ended December 31, 2005As
                  Originally
                Reported
              
              
              As
                  Restated
                HereinSales
              
              $
              61,214,254
              
              $
              61,005,496Cost
                  of goods sold
              
              
              53,601,700
              
              
              53,867,474Income
                  before income taxes
              
              
              2,219,294
              
              
              1,744,762Income
                  tax provision
              
              
              968,566
              
              
              797,734Net
                  income
              
              
              1,250,728
              
              
              947,028Earnings
                  per share
              
              
              0.19
              
              
              0.15
 
 **NOTE
        3--INVENTORIES**
 
 Inventories
        are comprised of the following:
  December
                  31,2005
              
              
              2004(As
                  restated)Raw
                  materials and supplies
              
              $
              9,511,799
              
              $
              8,863,347Work
                  in process
              
              
              1,794,401
              
              
              1,584,258Finished
                  goods
              
              
              919,261
              
              
              867,306$
              12,225,461
              
              $
              11,314,911
 
 Please
        see Note 2 for further information.
 
 **NOTE
        4--ACCRUED EXPENSES**
 
 Accrued
        expenses are comprised of the following:
 
 December
                  31,2005
              
              
              2004(As
                  restated)Accrued
                  compensation
              
              $
              628,369
              
              $
              523,430Accrued
                  property taxes
              
              
              265,554
              
              
              223,230Accrued
                  commissions
              
              
              147,585
              
              
              203,895Other
              
              
              338,254
              
              
              174,176$
              1,379,763
              
              $
              1,124,732
 
 Please
        see Note 2 for further information.
  F-15
 **SIMCLAR,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
        5--LONG-TERM DEBT**
 
 In
        December 2005, we entered into two amended credit facilities and one new
        credit
        facility with Bank of Scotland in Edinburgh, Scotland (“BoS”) consisting
        of:
 
 **Borrower**
              **Type
                  of facility**
              **Original**
                **amount**
              **Balance
                  at**
                **December
                  31,2005**Simclar,
                  Inc.
              Working
                  capital
              $ 
                    5,000,000
              $
                  4,990,395Simclar,
                  Inc.
              Term
                  loan - four tranches (see detail of tranches below)
              $
                   21,650,000
              $
                  4,200,000Simclar
                  Interconnect Technologies, Inc.
              Working
                  Capital
              $   
                  1,000,000
              $              
                  0
  
 Interest
        on the Simclar, Inc. working capital facility accrues
        at an annual rate equal to LIBOR plus 1.5%, plus an amount, rounded to the
        nearest eighth of a percent, to cover any increases in certain regulatory
        costs
        incurred by the bank. The company may elect to pay interest on advances every
        one, three or six months, with LIBOR adjusted to correspond to the interest
        payment period selected by the company .
        The
        interest rate for the working
 capital
        facility at December 31, 2005 was 5.625% based on the three month election.
        The
        weighted average interest rate for the year was 4.76%.
 
 Interest
        on the Simclar Interconnect Technologies, Inc. working capital facility will
        be
        a margin over LIBOR determined by a ratio of net borrowings to EBITDA for
        any
        given test period. The margin percentage can range from 1.5% to 2.5%. There
        had
        been no drawdowns on this facility at December 31, 2005 and there have been
        none
        since that date.
 
 The
        term
        loan interest is also determined by a margin over LIBOR related to the ratio
        of
        net borrowings to EBITDA for any given test period. The margin percentage
        can
        range from 1.5% to 2.5%. The term debt interest rate in effect at December
        31,
        2005 was 5.67% based on the three month election. The term loan is divided
        into
        four tranches each with its own specific purpose and repayment schedule as
        shown
        in the following table:
 
 
 Tranche
              Principal
                Amount
              Purpose
              PaymentsA
              $4,250,000
              Refinance
                  existing facilities
              Seventeen
                  quarterly payments of $250,000 beginning October 2004 through
                  October2008B
              $1,400,000
              Dayton
                  property acquisition
              Twenty-eight
                  quarterly payments of $50,000 beginning January 2005 through October
                  2011
 
 F-16
 **SIMCLAR,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
        5--LONG-TERM DEBT - Continued**
 
 C
              
              $13,000,000
              
              Acquisition
                  of certain assets of the Litton Interconnect Technolgies assembly
                  operations
              
              Thirteen
                  quarterly payments of $500,000 beginning December 2006 through
                  December
                  2009, four quarterly payments of $250,000 from March 2010 through
                  December
                  2010, four quarterly payments of $750,000 from March 2011 through
                  December
                  2011 and four quarterly payments of $625,000 from March 2012 through
                  December 2012D
              
              $
                  3,000,000
              
              Acquisition
                  of certain assets of the Litton Interconnect Technologies assembly
                  operations
              
              Single
                  payment due December 31, 2010
 
 Tranche
        C
        and Tranche D were not dispersed until February 24, 2006 when the acquisition
        of
        certain assets of Litton Interconnect Technologies assembly business was
        completed.
 
 All
        of
        the assets of the company collateralize the credit facilities. The credit
        facilities contain affirmative and negative covenants. In
        addition, our credit facilities require us to maintain:
 
 ·
            consolidated
                adjusted net worth greater than $15,000,000 with effect from March
                31,
                2006 (tested on a quarterly basis); ·
            a
                ratio of consolidated current assets to consolidated net borrowing
                prior
                to December 31, 2007 of not less than 1:1 and thereafter not to be
                less
                than 1.5:1 (tested on a quarterly basis); ·
            a
                ratio of consolidated trade receivables to consolidated net borrowing
                of
                not less than 0.5:1 prior to December 31, 2007 and not less than
                0.75:1
                thereafter (tested on a quarterly basis); and ·
            a
                ratio of EBIT to total interest not less than 3:1 until March 31,
                2006;
                not less than 3.5:1 from April 1, 2006 to June 30, 2006; and not
                less than
                4:1 thereafter (tested on a quarterly basis beginning December 31,2005); ·
            a
                ratio of net borrowings to EBITDA not to exceed 5:1 through December
                31,
                2006; not less than 4.5:1 from January 1, 2007 to December 31, 2007;
                not
                less than 4:1 from January 1, 2008 to December 31, 2008; not less
                than
                3.5:1 from January 1, 2009 to December 31, 2009; and not less than
                3:1
                thereafter (tested on a quarterly basis beginning December 31, 2006). 
 In
        connection with the loan, the company and its subsidiaries entered into an
        amended security agreement, pursuant to which BoS was granted a security
        interest in substantially all of their respective assets to secure the Company's
        borrowings under its credit facilities, and a guaranty pursuant to which
        Simclar
        IT guarantied the obligations of the Company to BoS under the credit facilities.
        Additionally, the Company and Simclar (Mexico), Inc. entered into an amended
        pledge agreement, pursuant to which all of the shares owned by the Company
        in
        its subsidiaries were pledged as security for the Company's obligations to
        BoS
        under the credit facilities. Simclar Group Limited has provided a guarantee
        to
        BoS in respect of loans advanced to Simclar, Inc. up to a maximum amount
        of
        $10,000,000; likewise, Simclar, Inc. has guaranteed certain Simclar Group
        Limited’s loans from BoS up
        to a
        maximum amount of $10,000,000. In both cases, this maximum amount reduces,
        subject to certain ratios of borrowings to EBITDA being
        achieved.
 F-17
 **SIMCLAR,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
        5--LONG-TERM DEBT - Continued**
 
 In
        addition, a t
        the
        time of the SNAI acquisition the company entered into an amended pledge
        agreement with Bank of Scotland, whereby it pledged the stock of SNAI as
        additional security for its outstanding term and working capital
        facilities.
 
 Long-term
        debt outstanding:
 
 December
                  31,2005
              
              
              2004Term
                  loan
              
              $
              4,200,000
              
              $
              5,400,000Less
                  current portion
              
              
              1,200,000
              
              
              1,200,000$
              3,000,000
              
              $
              4,200,000
 
 Scheduled
        maturities of long-term debt outstanding at December 31, 2005 are approximately:
        2006 - $1,200,000; 2007 - $1,200,000; 2008 - $1,200,000; 2009 - $200,000;
        2010 -
        $200,000; and 2011- $200,000. Interest payments on all of the above debt
        amounted to approximately $432,000, $189,000, and $231,000 in 2005, 2004,
        and
        2003 respectively.
 
 On
        July
        15, 2003, Simclar (Mexico) and Simclar entered into an agreement with Winsson
        Enterprises Co., Ltd (“Winsson”). This agreement calls for Winsson to provide to
        Simclar (Mexico) a 3-year $2,750,000 open line of credit for purchased services
        and materials. The 3-year open line of credit required a reduction of $250,000
        as of July 14, 2004. The 3-year open line of credit becomes due in July 2005;
        therefore, the entire balance owed is included in current liabilities as
        a trade
        accounts payable. The company is currently in negotiations with Winsson to
        renew
        and extend the agreement. While the company is confident the parties will
        reach
        an agreement, if the parties cannot come to an agreement by the due date
        the
        $2,500,000 will remain a trade account payable.
 
 **NOTE
        6--INCOME TAXES**
 
 For
        financial reporting purposes, income before income taxes includes the following
        components:
 
 Year
                  Ended December 31,2005
              
              
              2004
              
              
              2003United
                  States income
              
              $
              1,433,786
              
              $
              3,269,909
              
              $
              1,603,477Foreign
                  income (loss)
              
              
              310,976
              
              
              165,712
              
              
              (139,949
              )$
              1,744,762
              
              $
              3,435,621
              
              $
              1,463,528
 
 Income
        tax payments were approximately $1,253,000, $754,000, and $333,000 in 2005,
        2004, and 2003 respectively.
 
 F-18
 **SIMCLAR,
              INC. AND SUBSIDIARIES**
 
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        6--INCOME TAXES - Continued**
 
 The
        components of the current net deferred tax asset and long-term net deferred
        tax
        liability are as follows:
 
 December
                  31,2005
              
              
              2004Deferred
                  tax asset:Inventory
                  obsolescence
              
              $
              710,566
              
              $
              578,100Costs
                  capitalized in ending inventory
              
              
              94,570
              
              
              84,900Accrued
                  expenses
              
              
              88,272
              
              
              61,300Other
              
              
              91,648
              
              
              71,100Total
                  current asset
              
              
              985,056
              
              
              795,400Deferred
                  tax asset (liability):NOL
                  carryforwards
              
              
              8,307,458
              
              
              -Depreciation
                  and amortization
              
              
              (503,957
              )
              
              (206,000
              )Other
              
              
              (14,969
              )
              
              -Total
                  long-term asset (liability)
              
              
              6,670,084
              
              
              (206,000
              )Less:
                  valuation allowance
              
              
              (8,307,458
              )
              
              -Net
                  long-term liability
              
              
              (518,926
              )
              
              (206,000
              )Net
                  deferred tax asset
              
              $
              466,130
              
              $
              589,400
 
 During
        2005, the Company acquired Simclar (North America), Inc. (SNAI) and the related
        net operating loss (NOL) carry forwards. At December 31, 2005, the SNAI has
        unused U.S. federal and state net operating loss carry forwards of $6,705,292
        and $483,718, respectively, generally expiring from 2022 through 2025.  The
        NOL carry forwards from the acquisition can only be used to offset future
        taxable income of SNAI and not taxable income of the consolidated entity.
        Based
        on the available evidence, management determined that it is more likely than
        not
        that the NOL carry forwards are not realizable. Therefore, at the date of
        the
        acquisition and as of December 31, 2005, a valuation allowance has been provided
        on the tax benefit associated with these carry forwards as it was more likely
        than not that they would not be utilized before the expiration period.
  F-19
 **SIMCLAR,
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
        6--INCOME TAXES - Continued**
 
 Significant
        components of the provision (benefit) for income taxes are as
        follows:
 
 Year
                  Ended December 31,2005
              
              
              2004
              
              
              2003(As
                  restated)Current:Federal
              
              $
              838,008
              
              $
              957,109
              
              $
              309,994State
                  and local
              
              
              154,424
              
              
              59,991
              
              
              14,176Foreign
              
              
              38,575
              
              
              54,041
              
              
              22,7071,031,007
              
              
              1,071,141
              
              
              346,877DeferredFederal
              
              
              (209,348
              )
              
              19,791
              
              
              9,006State
              
              
              (23,925
              )
              
              2,909
              
              
              1,324(233,273
              )
              
              22,700
              
              
              10,330$
              797,734
              
              $
              1,093,841
              
              $
              357,207
  Techdyne
        (Europe) and Simclar de Mexico, S.A. de C.V. file separate income tax returns
        in
        the United Kingdom and Mexico, respectively.
 
 The
        reconciliation of income tax rates attributable to income before income taxes
        computed at the U.S. federal statutory rates to income tax expense (benefit)
        is:
  Year
                  Ended December 31,2005
              
              
              2004
              
              
              2003(As
                  restated)Statutory
                  tax rate (34%) applied to income beforeincome
                  taxes
              
              
              34.0
              %
              
              34.0
              %
              
              34.0
              %Increases
                  (reduction) in taxes resulting from:State
                  income taxes expense net of federalincome
                  tax effect
              
              
              4.4
              %
              
              1.2
              %
              
              0.7
              %Tax
                  rate differential relating to tax benefit offoreign
                  operating income
              
              
              -3.5
              %
              
              0.1
              %
              
              4.8
              %Non
                  deductible items
              
              
              1.0
              %
              
              0.4
              %
              
              0.5
              %Change
                  in deferred tax valuation allowance
              
              
              7.1
              %
              
              0.0
              %
              
              0.0
              %Refund
                  of prior U.S. income taxes
              
              
              0.0
              %
              
              -1.1
              %
              
              -5.8
              %Settlement
                  of U.S. income taxes
              
              
              0.0
              %
              
              -3.8
              %
              
              -13.7
              %Other
              
              
              2.7
              %
              
              1.0
              %
              
              3.8
              %45.7
              %
              
              31.8
              %
              
              24.4
              %
  F-20
 **SIMCLAR,
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
  **NOTE
        6--INCOME TAXES - Continued**
 
 The
        earnings of the Company’s Mexican subsidiary are expected to be permanently
        reinvested in the operations of that subsidiary.  As such, the Company has
        historically not recorded a deferred tax liability based on the subsidiary’s
        accumulated undistributed earnings.  However, based on U.S. tax law, there
        was a deemed distribution during 2005 of all current and accumulated earnings
        due to a pledge agreement associated with the company’s credit facilities with
        BoS.  In the future, it is expected that the pledge agreement will be
        modified and the earnings of the Mexican subsidiary will therefore not be
        subject to U.S. taxation until distributed.  Therefore,
 as
        of
        December 31, 2005, there were no undistributed earnings due to the deemed
        distribution in 2005.  Undistributed earnings as of December 31, 2004
        amounted to $287,000.
 
 Please
        see Note 2 for further information.
 
 **NOTE
        7--TRANSACTIONS WITH SIMCLAR GROUP**
 
 The
        company’s parent, Simclar Group, provides certain financial and administrative
        services to the company under a service agreement. The amount of expenses
        incurred under the service agreement totaled $415,000, $360,000, and $347,000
        in
        2005, 2004, and 2003 respectively.
 
 The
        company has a net payable due to Simclar Group of approximately $1,873,000
        at
        December 31, 2005 compared to a net receivable due from Simclar Group of
        approximately $2,918,000 and $2,049,000 at December 31, 2004 and 2003,
        respectively. During 2005 the company accrued financial and administrative
        expenses under the service agreement with Simclar Group, received net repayments
        of amounts due from Simclar Group entities, and acquired SNAI and assumed
        liabilities due to Simclar group and certain of its subsidiaries as part
        of the
        acquisition. The net payable due Simclar Group incurs interest of LIBOR +
        1.5%.
        For additional information related to pledge agreements and guarantees with
        BoS
        refer to Note 5.
  **NOTE
        8--RELATED PARTY TRANSACTIONS**
  On
        October 20, 2004, the company purchased for $1,400,000 the 77,800 square
        foot
        office, manufacturing and warehouse facility located at 1784 Stanley Avenue,
        Dayton, Ohio that it had been leasing for a term ending July 31, 2007. The
        purchase resulted from the company’s exercise of an option to purchase contained
        in the lease. The premises were purchased from the lessor, Stanley Avenue
        Properties, Ltd., an Ohio limited liability company controlled by Lytton
        F.
        Crossley, a former director of the company. The purchase price was determined
        by
        negotiation, based upon independent appraisals obtained by the company and
        the
        seller.
 
 For
        2005
        the company had sales with Simclar Corp., an affiliate of Simclar Group based
        in
        Kenosha, WI, of approximately $2,633,000 and sales to Simclar Group of
        approximately $76,000. The company transferred surplus equipment to Simclar
        China during 2005 for the net book value of approximately $158,000. The company
        had net receivables from related parties as of December 31, 2005 of
        approximately $637,700 from Simclar Corp. and approximately $152,000 from
        Simclar China.
 
 **NOTE
        9--COMMITMENTS AND CONTINGENCIES**
 
 *Commitments*
 
 The
        company leases several facilities which expire at various dates through 2017
        with renewal options for a period of five years at the then fair market rental
        value. The company’s aggregate lease commitments at December 31, 2005, are
        approximately: 2006---$726,000, 2007---$526,000, 2008---$510,000,
        2009---$510,000,
  F-21
 **SIMCLAR,
              INC. AND SUBSIDIARIES**
 
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
        9--COMMITMENTS AND CONTINGENCIES - Continued**
 
 2010
        ---$453,000 and thereafter ---$2,132,000. Total rent expense was approximately
        $1,045,000, $753,000, and $635,000 for the years ended December 31, 2005,
        2004,
        and 2003 respectively.
 
 *Retirement
        Plan*
 
 The
        company sponsors two 401(k) Profit Sharing Plans covering substantially all
        of
        its employees, excluding Techdyne (Europe) and Simclar (Mexico). The plan
        that
        covers all locations with the exception of SNAI offers a 50% corporate match
        based on the first 4% of each employee’s annual earnings contributed to the
 plan.
        The
        discretionary profit sharing and matching expense amounted to approximately
        $55,000, $73,000, and $59,000 for the years ended December 31, 2005, 2004,
        and
        2003 respectively. The SNAI plan currently does not offer a corporate
        match.
 
 *Contingencies*
 
 The
        company is involved in various legal actions arising in the ordinary course
        of
        business. In the opinion of management, the ultimate liability, if any,
        resulting from these matters will not have a material effect on the company’s
        financial position.
 
 **NOTE
        10--STOCK OPTIONS**
 
 On
        February 27, 1995 the company granted non-qualified stock options, to directors
        of Simclar and its subsidiary for 142,500 shares exercisable at $1.75 per
        share
        for five years. In April 1995, the company granted a non-qualified stock
        option
        for 10,000 shares which vested immediately, to its general counsel at the
        same
        price and terms as the directors’ options. On February 25, 2000, 145,000 of
        these options were exercised. The company received cash payment of the par
        value
        and the balance in three-year promissory notes totaling $207,825 presented
        in
        the stockholders’ equity section of the balance sheet, with interest at 6.19%.
        The notes, which were
 due
        in
        February 2003, were not repaid and, as a result, the related interest receivable
        was written off in 2002. The related shares were cancelled in 2003.
 
 In
        June
        1997, the company adopted a stock option plan for up to 500,000 options,
        and
        pursuant to this plan the board granted 375,000 options exercisable for five
        years through June 22, 2002 at $3.25 per share, with 320,000 of these options
        outstanding at December 31, 2001. On June 30, 1999, the company granted 52,000
        options exercisable for three years through September 29, 2002 at $4.00 per
        share with 10,000 options outstanding at December 31, 2001. On August 25,
        1999,
        the company granted 16,000 options exercisable for three years through August
        24, 2002 at $4.00 per share with 13,000 options outstanding at December 31,
        2001. On December 15, 1999, the company granted 19,000 options exercisable
        for
        three years through December 14, 2002 at $4.00 per share with 8,000 options
        outstanding at December 31, 2001. On May 24, 2000, the company granted 3,000
        options exercisable for three years through May 23, 2003 at $4.00 per share,
        the
        options terminated when the employee terminated his employment with the company.
        On October 16, 2000, the company granted 90,000 three year stock options
        exercisable at $2.00 per share through October 15, 2002, with one-third of
        the
        options vesting immediately, one-third vesting on October 16, 2001 and one-third
        vesting on October 16, 2002,
 but
        based
        on the change in control of the company, all options vested on June 27, 2001,
        and 30,000 options were redeemed for $4,200, 60,000 of these options remained
        outstanding at December 31, 2002. In 2003 30,000 shares were exercised and
        the
        remaining expired. There was no option activity in 2004 and 2005.
 
 F-22
  **SIMCLAR,
              INC. AND SUBSIDIARIES**
 
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        11--QUARTERLY FINANCIAL INFORMATION (Unaudited)**
 
 The
        following summarizes certain quarterly operating data:
 
 2005
                  (As restated)
              
              2004Mar
                  31
              
              
              Jun
                  30
              
              
              Sep
                  30
              
              
              Dec
                  31
              
              
              Mar
                  31
              
              
              Jun
                  30
              
              
              Sep
                  30
              
              
              Dec
                  31(In
                  thousands except per share data)Net
                  Sales
              
              $
              12,356
              
              $
              13,991
              
              $
              16,591
              
              $
              18,066
              
              $
              11,997
              
              $
              15,002
              
              $
              13,233
              
              $
              13,350Gross
                  Profit
              
              
              1,564
              
              
              1,731
              
              
              1,819
              
              
              2,023
              
              
              1,726
              
              
              2,450
              
              
              1,721
              
              
              1,456Net
                  Income
              
              
              292
              
              
              221
              
              
              242
              
              
              192
              
              
              481
              
              
              879
              
              
              486
              
              
              496Earnings
                  per share:Basic
                  & diluted
              
              $
              0.05
              
              $
              0.03
              
              $
              0.04
              
              $
              0.03
              
              $
              0.07
              
              $
              0.14
              
              $
              0.08
              
              $
              0.07
 
 Please
        see Note 2 for further information.
  **NOTE
        12--GEOGRAPHIC AREA DATA AND MAJOR CUSTOMER**
 
 Summarized
        financial information for the company’s one reportable segment is shown in the
        following table:
  Year
                  Ended December 31,**Geographic
                  Area Sales**
              
              
              2005
              
              
              2004
              
              
              2003(As
                  restated)United
                  States
              
              $
              60,742,340
              
              $
              53,551,613
              
              $
              36,187,105Mexico
              
              
              263,156
              
              
              30,874
              
              
              -$
              61,005,496
              
              $
              53,582,487
              
              $
              36,187,105
 
 Year
                  Ended December 31,**Geographic
                  Area Operating Income (loss)**
              
              
              2005
              
              
              2004
              
              
              2003(As
                  restated)United
                  States
              
              $
              1,842,436
              
              $
              2,988,243
              
              $
              1,738,623Mexico
              
              
              310,976
              
              
              609,709
              
              
              28,658Europe
              
              
              -
              
              
              -
              
              
              (29,844
              )$
              2,153,412
              
              $
              3,597,952
              
              $
              1,737,437
 
 December
                  31,**Geographic
                  Area Property, Plant and**
                **Equipment
                  (Net)**
              
              
              2005
              
              
              2004
              
              
              2003United
                  States
              
              $
              5,849,361
              
              $
              2,750,247
              
              $
              1,769,191Mexico
              
              
              2,219,730
              
              
              1,258,404
              
              
              726,277$
              8,069,091
              
              $
              4,008,651
              
              $
              2,495,468
 
  F-23
 **SIMCLAR,
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
   **NOTE
        12--GEOGRAPHIC AREA DATA AND MAJOR CUSTOMER - Continued**
 
 Sales
        to
        major customer are as follows:
  Year
                  Ended December 31,2005
              
              
              2004
              
              
              2003**Major
                  Customer**ITW
                  - Food Equipment Group
              
              $
              10,276,000
              
              $
              9,023,000
              
              $
              8,084,000
 
 The
        loss
        of or substantially reduced sales to this customer would have an adverse
        effect
        on the company’s operations if such sales were not replaced. A significant
        customer would be any customer who annual sales volume from the company is
        10%
        or more.
 
 Please
        see Note 2 for further information.
 
 **NOTE
        13--CESSATION OF SCOTLAND MANUFACTURING OPERATIONS**
  As
        a
        result of continuing operating losses, in April 2001 the company decided
        to
        discontinue the manufacturing operations of its European subsidiary, Techdyne
        (Europe).
 
 As
        of
        February 28, 2002, all remaining net assets and the remaining employee, except
        the building and land, were transferred to Simclar Group at net book value
        on
        that date. These net assets consisted principally of cash, receivables, payables
        and equipment. The management agreement with Simclar Group was also cancelled.
        On April 2, 2003, a fire started by vandals destroyed the Techdyne (Europe)
        building located in Livingston, Scotland. The claims with the insurance
        companies were settled during the third quarter in the amount of ₤365,000
        ($588,000), less demolition expenses. The company realized a net gain on
        this
        disposition of ₤34,000 ($56,000).
 
 On
        October 17, 2003, the company received the net proceeds from the sale of
        land
        located in Livingston, Scotland in the amount of ₤115,000 ($192,000). The
        company realized a net loss on this disposition of ₤5,000 ($9,000). In 2003, the
        company recognized approximately $171,000 charge for the write-off of
        accumulated foreign currency translation loss resulting from the substantial
        liquidation of Techdyne (Europe).
 
 **NOTE
        14--ACQUISITION OF AG TECHNOLOGIES, INC.**
 
 On
        July
        15, 2003, the company acquired for cash, all of the outstanding stock of
        AG
        Technologies, Inc., a privately owned company based in Schaumburg, Illinois.
        The
        company name was changed to Simclar (Mexico), Inc. on August 29, 2003.
        Additional consideration of up to $1,300,000 is payable based on Simclar
        (Mexico)’s net sales in each of the three years ending July 14, 2004, 2005 and
        2006.
 
 The
        acquisition was accounted for by the purchase method of accounting under
        SFAS
        No. 141, “Business Combinations”. The purchase price for the acquisition,
        including loan repayment and net of cash received, totaled $1,951,547 and
        was
        allocated to assets acquired and liabilities assumed based on estimated fair
        values at the date of acquisition. The company recorded $1,279,118 of goodwill
        and $18,000 of intangibles based on the opening balance sheet. The full amount
        of the additional consideration of $1,300,000 was earned by June 30, 2005.
        The
        additional earn-out for the period July 15, 2003 to July 14, 2004 of $606,432
        was recorded in the quarter ended September 30, 2004 and was paid on September
        15, 2004. The additional earn-out for the period July 15, 2004 to July 14,
        2005
        of $693,568 was recorded in the quarter ended June 30, 2005. Of this amount,
        $145,944 was paid in the three months ended September 30, 2005. $437,832
        was
        paid in the quarter ending December 31, 2005 and $109,792 will be paid in
        2006.
        These additional earn-out amounts have increased the goodwill related to
        the
 F-24
  **SIMCLAR,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
        14--ACQUISITION OF AG TECHNOLOGIES, INC. - continued**
 
 acquisition
        of Simclar (Mexico), Inc. to $2,579,118. Results of operations have been
        included in the company’s consolidated financial statements prospectively from
        the date of acquisition.
 
 **NOTE
        15--ACQUISITION OF SIMCLAR (NORTH AMERICA), INC.**
 
 On
        May
        19, 2005, the company purchased from Simclar Group all of the outstanding
        common
        shares of SNAI , a North Carolina corporation. SNAI is a comprehensive
        fabricator of sheet metal components and higher level assemblies that operates
        a
        95,000 square foot manufacturing and assembly facility in Winterville, North
        Carolina. This acquisition allows the company to expand its product offerings
        in
        the Northeast and Midwest U.S. for fabricated sheet metal and higher level
        assemblies.
 
 The
        acquisition had an effective date for accounting purposes of May 1, 2005.
        The
        purchase price was $37,000, representing the book value of the assets, less
        liabilities, of SNAI at March 31, 2005. The purchase price was settled by
        decreasing the outstanding intercompany receivable from Simclar Group to
        the
        company by the amount of the purchase price, and accordingly does not affect
        the
        company's investing activities in the cash flow statement.
 
 Simultaneous
        with the acquisition, the company entered into an amended pledge agreement
        with
        Bank of Scotland, whereby it pledged the stock of SNAI as additional security
        for its outstanding term and working capital facilities.
 
 The
        acquisition was accounted for by the purchase method of accounting under
        SFAS
        No. 141, "Business Combinations". Cash received as part of the acquisition
        was
        $347,645 and is included within current assets in the table below. The remaining
        net liabilities assumed of $310,645 include a $4,014,000 liability reflecting
        an
        intercompany payable from SNAI to Simclar Group and certain of its subsidiaries.
        The net liabilities of $310,645 were allocated to assets acquired and
        liabilities assumed based on estimated fair values at the date of acquisition.
        The company recorded a $52,207 intangible asset for the customer list of
        SNAI
        acquired as part of the acquisition. This will be amortized over a period
        of 60
        months, representing the company's best estimate of the asset's useful life.
        As
        of December 31, 2005, SNAI has a potential contingent liability for lease
        dilapidation costs which is not determinable as of December 31, 2005. The
        company has been indemnified by Simclar Group against any excess in cost
        over
        and above the current provision as part of the sale and purchase agreement,
        and
        therefore there is no risk to the company for such costs.
  During
        the allocation period from the date of the acquisition, sufficient information
        became available to properly estimate and record deferred tax assets and
        liabilities. In the fourth quarter, management was able to estimate the effects
        of realizable deferred tax amounts which resulted in the recognition of a
        current deferred tax asset of $38,765 and a long-term deferred tax liability
        of
        $422,590 for a net deferred tax liability of $383,825. Based on the purchase
        price, this resulted in excess amounts paid over the fair-value of net assets
        acquired. Therefore, goodwill in the amount of $383,825 was recorded in relation
        to the acquisition.
 F-25
  **SIMCLAR,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        15--ACQUISITION OF SIMCLAR (NORTH AMERICA), INC. -
        Continued**
 
 The
        purchase price allocation is as follows:
 
 Current
                  assets
              
              $
              1,581,590Equipment
              
              
              3,792,627Goodwill
              
              
              383,826Intangibles
              
              
              52,207Deferred
                  tax asset
              
              
              38,765Total
                  assets acquired
              
              $
              5,849,015Current
                  liabilities
              
              $
              1,375,292Long-term
                  debtAmount
                  due major stockholder, net
              
              
              4,014,132Deferred
                  Tax Liability
              
              
              422,591Total
                  liabilities
              
              $
              5,812,015Net
                  assets acquired
              
              $
              37,000
 
 
 Results
        of operations have been included in the company's consolidated financial
        statements prospectively from the effective date of acquisition. The following
        table summarizes selected unaudited pro forma financial information for years
        ended December 31, 2005 and 2004, respectively, as if SNAI had been acquired
        at
        the beginning of 2005 and 2004. The unaudited pro forma financial information
        includes adjustments for intercompany transactions.
 
 Year
                  Ended December 31,2005
              
              
              2004Pro
                  forma sales
              
              $
              64,111,000
              
              $
              59,028,000Pro
                  forma net income
              
              $
              1,027,000
              
              $
              1,649,000Pro
                  forma earnings per share:Basic
                  and diluted
              
              $
              0.16
              
              $
              0.26
 
 
 The
        pro
        forma financial information does not necessarily reflect the results that
        would
        have occurred if the acquisition had been in effect for the periods presented.
        In addition, they are not intended to be a projection of future results and
        do
        not reflect any synergies that might be achieved from combining the
        operations.
 
 **NOTE
        16—SUBSEQUENT EVENTS**
 
 On
        February 24, 2006, Simclar, Inc. ("Simclar" or "Company") and Simclar
        Interconnect Technologies, Inc., its newly-formed wholly owned subsidiary
        ("Simclar IT") purchased certain U.S. assets associated with the backplane
        assembly business of the Interconnect Technologies Division of Litton Systems,
        Inc. ("Litton"), a subsidiary of Northrop Grumman Corporation, for $16 million
        in cash (subject to certain purchase price adjustments) and the assumption
        of
        certain liabilities (the "Acquisition"). At the same time
 F-26
  **SIMCLAR,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
        16—SUBSEQUENT EVENTS - Continued**
 
 Simclar
        Group Limited, also acquired from Litton Systems International, Inc. and
        Litton
        U.K. Ltd. all of the share equity of Litton Electronics (Suzhou) Co. Ltd.,
        a
        subsidiary organized in China, and certain assets of the Interconnect
        Technologies Division assembly business in the U.K., respectively, through
        its
        subsidiary Simclar Interconnect Technologies Limited.
 
 In
        connection with the Acquisition, the company and Simclar IT entered into
        an
        occupancy agreement pursuant to which Simclar IT will occupy space in Litton's
        Springfield, Missouri facility for a period of up to twelve months, and a
        transition services agreement pursuant to which Litton will provide certain
        administrative services to the company and Simclar IT to support its operations
        during the occupancy period.
 
 The
        company financed the purchase of the assets under its recently amended term
        loan
        facility with the Bank of Scotland ("BoS"). Of the $16 million borrowed under
        the amended facility, $13 million of the principal will be repayable in
        quarterly installments commencing December 31, 2006 and through December
        31,
        2012. Interest on this portion of the borrowings will be payable quarterly
        at
        one, three or six month LIBOR (as elected by the company) plus 2.5%. The
        $3
        million balance of the borrowings under the amended facility will be repayable
        in one lump sum on December 31, 2010. Interest on this portion of the borrowings
        will be payable quarterly at one, three or six month LIBOR (as elected by
        the
        company) plus 3.5%. In addition, there is a redemption fee of $400,000 payable
        on December 31, 2010.
 
 In
        connection with the loan, the company, Simclar IT and other subsidiaries
        entered
        into an amended security agreement, pursuant to which BoS was granted a security
        interest in substantially all of their respective assets
 to
        secure
        the company's borrowings under its credit facilities, and a guaranty pursuant
        to
        which Simclar IT guarantied the obligations of the company to BoS under the
        credit facilities. Additionally, the company and Simclar (Mexico), Inc. entered
        into an amended pledge agreement, pursuant to which all of the shares owned
        by
        the company in its subsidiaries were pledged as security for the company's
        obligations to BoS under the credit facilities.
 
 F-27
 **SIMCLAR,
        INC. AND SUBSIDIARIES**
 
 **INDEPENDENT
        REGISTERED PUBLIC ACCOUNTING FIRM’S REPORT**
 **ON
        SUPPLEMENTAL SCHEDULE**
 
 
 
 Board
        of
        Directors and Shareholders
 Simclar,
        Inc. and Subsidiaries
 Hialeah,
        FL
 
 
 We
        have
        audited the consolidated financial statements of Simclar, Inc and subsidiaries
        (the “Company”) as of December 31, 2005 and 2004, and for the three years ended
        December 31, 2005. Our audits also included the accompanying consolidated
        financial statement schedule of the Company. This consolidated financial
        statement schedule is the responsibility of management. Our responsibility
        is to
        express an opinion based on our audits. In our opinion, such consolidated
        financial statement schedule, when considered in relation to the basic
        consolidated financial statements taken as a whole, presents fairly, in all
        material respects, the information set forth herein.
 
 
 
 /s/
        BATTELLE & BATTELLE LLP
 
 Battelle
        & Battelle LLP
 Dayton,
        Ohio
 March
        29,
        2006
  S-1
  **SIMCLAR,
        INC. AND SUBSIDIARIES**
  
 **A.
                  Schedule II - Valuation and Qualifying Accounts**Simclar,
                  Inc. and SubsidiariesDecember
                  31, 2005
  **COL.
                  A**
              
              
              **COL.
                  B**
              
              
              **COL.
                  C**
              
              
              **COL.
                  D**
              
              
              **COL.
                  E**
              
              
              
              
              
              **COL.
                  F****Additions****(Deductions)****Charged****Balance
                      at**
              
              
              
              
              
              **(Credited)to**
              
              
              **Other
                  Changes**
              
              
              
              
              
              **Balance****Beginning**
              
              
              
              
              
              **Costs
                  and**
              
              
              **Add
                  (Deduct)**
              
              
              
              
              
              **at
                  End of****Classsification**
              
              
              **of
                  Period**
              
              
              **Acquisition**
              
              
              **Expenses**
              
              
              **Describe**
              
              
              
              
              
              **Period****YEAR
                  ENDED**
                **DECEMBER
                  31, 2005:**Reserves
                  and allowances deductedFrom
                  asset accounts:Allowance
                  for uncollectible accounts
              
              $
              182,000
              
              $
              27,000(4
              )
              $
              55,000
              
              $
              (29,000
              )
              
              
              
              $
              235,000Reserve
                  for inventory obsolescence
              
              
              1,481,000
              
              
              30,000(4
              )
              
              469,000
              
              
              (158,000
              )
              
              
              
              
              1,822,000$
              1,663,000
              
              $
              57,000(4
              )
              $
              524,000
              
              $
              (187,000
              )
              
              
              
              $
              2,057,000**YEAR
                  ENDED**
                **DECEMBER
                  31, 2004:**Reserves
                  and allowances deductedFrom
                  asset accounts:Allowance
                  for uncollectible accounts
              
              $
              279,000
              
              
              
              
              $
              35,000
              
              $
              (132,000
              )
              
              (1)
              
              $
              182,000Reserve
                  for inventory obsolescence
              
              
              1,421,000
              
              
              
              
              
              382,000
              
              
              (322,000
              )
              
              (2)
              
              
              1,481,000$
              1,700,000
              
              $
              -
              
              $
              417,000
              
              $
              (454,000
              )
              
              
              
              $
              1,663,000**YEAR
                  ENDED**
                **DECEMBER
                  31, 2003:**Reserves
                  and allowances deductedFrom
                  asset accounts:Allowance
                  for uncollectible accounts
              
              $
              244,000
              
              $
              35,000(3
              )
              $
              -
              
              
              -
              
              
              
              
              $
              279,000Reserve
                  for inventory obsolescence
              
              
              1,115,000
              
              
              332,000(3
              )
              
              107,000
              
              
              (133,000
              )
              
              (2)
              
              
              1,421,000$
              1,359,000
              
              $
              367,000(3
              )
              $
              107,000
              
              $
              (133,000
              )
              
              
              
              $
              1,700,000
  (1)
                  Uncollectible accounts written off, net of recoveries(2)
                  Net write-offs against inventory reserves(3)
                  Acquisition of AG Technologies, Inc.(4)
                  Acquisition of Simclar (North America), Inc.
 
 S-2