UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-K**





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




**For
      The Fiscal Year Ended December 31, 2006**





OR





o
            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:





*Title
                of Class*
            *Name
                of Exchange on which Registered*Common
                Stock, $.01 par value
            The
                Nasdaq Capital Market




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
oNo
þ





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.


Yes
oNo
þ





Indicate
      by check mark whether the Registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      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 þNo
o





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. þ





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 o Accelerated filer o Non-accelerated filer þ




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act.


Yes
oNo
þ





The
      aggregate market value of the Registrant’s common stock held by non-affiliates
      of the Registrant was approximately $17,642,099 on June 30, 2006.





As
      of
      March 15, 2007, the Company had issued and outstanding 6,465,345 shares of
      its
      common stock.


**D** **OCUMENTS** **I** **NCORPORATED
        BY** **R** **EFERENCE**





Portions
      of our Information Statement for the 2007 Annual Meeting of Shareholders are
      incorporated by reference in Part III







**Table
      of Contents**




Page**Part
                I**Item
                1.
            Business
            
            2Item
                1A.
            Risk
                Factors
            
            12Item
                1B.
            Unresolved
                Staff Comments
            
            18Item
                2.
            Properties
            
            18Item
                3.
            Legal
                Proceedings
            
            19Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            19**Part
                II**Item
                5.
            Market
                for Registrant’s Common Equity and Related Stockholder
                Matters
            
            20Item
                6.
            Selected
                Financial Data
            
            21Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            21Item
                7A.
            Quantitative
                and Qualitative Disclosure About Market Risk
            
            34Item
                8.
            Financial
                Statements and Supplementary Data
            
            35Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            35Item
                9A
            Controls
                and Procedures
            
            35Item
                9B
            Other
                Information
            
            38**Part
                III**Item
                10.
            Directors
                and Executive Officers of the Registrant
            
            38Item
                11.
            Executive
                Compensation
            
            38Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management And Related
                Stockholder Matters
            
            38Item
                13.
            Certain
                Relationships and Related Transactions
            
            38Item
                14.
            Fees
                and Services of Independent Registered Public Accounting
                Firm
            
            38**Part
                IV**Item
                15.
            Exhibits,
                Financial Statement Schedules and Reports on Form 8-K
            
            39Signatures
            
            
            43Report
                of Grant Thornton LLP on Supplemental Schedule
            
            S-1Report
                of Battelle & Battelle LLP on Supplemental Schedule
            
            S-2Schedule
                II - Valuation and Qualifying Accounts
            
            S-3










**Part
      I**





**Forward-Looking
      Statements**





This
      document contains certain forward-looking statements that are based upon current
      expectations and involve certain risks and uncertainties within the meaning
      of
      the U.S. Private Securities Litigation Reform Act of 1995. Words or expressions
      such as “anticipate,” “believe,” “plan,” “expect,” “future,” “intend,”
“estimate,” “project,” or variations of these words as well as similar words or
      expressions are intended to identify forward-looking statements. Readers should
      not place undue reliance on the forward-looking statements contained in this
      document, which apply only as of the date of this report. We undertake no
      obligation to update the information contained herein. Our actual performance
      and results could differ materially from those anticipated in these
      forward-looking statements for many reasons, including, but not limited to
      economic changes and changes in the electronics manufacturing services industry
      generally. Key Risk Factors that might cause or contribute to such differences
      include, but are not limited to, those discussed under the section entitled
      “Risk Factors” included herein at Item 1A.





**Item
      1. Business**





**Introduction**





Simclar,
      Inc. (“we,” “our,” “us,” “Simclar” or “the company”) is a contract manufacturer
      of electronic and electro-mechanical products, providing advanced electronics
      manufacturing services (EMS) to original equipment manufacturers (OEMs). Our
      products are manufactured to customer specifications and designed for OEMs
      in
      the data processing, telecommunications, instrumentation and food preparation
      equipment industries. Our principal custom-designed products include complex
      printed circuit boards (PCBs), conventional and molded cables, wire harnesses,
      backplanes, and electro-mechanical assemblies. In addition, we provide OEMs
      with
      value-added, turnkey contract manufacturing services and total systems assembly
      and integration. We also deliver manufacturing and test engineering services
      and
      materials management, with flexible and service-oriented manufacturing and
      assembly services for our customers’ high-tech and rapidly changing
      products.





We
      were
      incorporated in Florida in 1976, acquired by Medicore, Inc., our former parent,
      in 1982, and became a public company in 1985. Effective June 27, 2001, control
      of our company was acquired by Simclar International Limited ,
      which
      then transferred its ownership of our company to its parent, Simclar Group
      Limited **** (“Simclar
      Group”) both of
      which are private United Kingdom companies. Other companies of the Simclar
      Group
      are engaged in the same electronic and electro-mechanical subcontract
      manufacturing industry as is our company . Effective September 2, 2003, we changed our name from Techdyne, Inc. to Simclar,
      Inc.





Since
      we
      were acquired by Simclar Group, we have completed a series of acquisitions
      in
      North America. In July, 2003 we acquired for approximately $3.4 million in
      cash
      the outstanding stock of AG Technologies, Inc., which has since changed its
      name
      to Simclar (Mexico), Inc. In May 2005, we acquired from Simclar Group all of
      the
      outstanding shares of Simclar (North America), Inc. for a net $37,000 adjustment
      of an intercompany receivable. In February 2006, we acquired through a
      subsidiary, Simclar Interconnect Technologies, Inc., certain U.S. assets
      associated with the backplane assembly business of the Interconnect Technologies
      division of Litton Systems, Inc., a subsidiary of Northrop Grumman Corporation,
      for approximately $16 million in cash and the assumption of certain liabilities.
      See Notes 14, 15 and 16 to our accompanying audited consolidated financial
      statements for more information regarding these acquisitions.





Our
      executive offices are located at 2230 West 77th Street, Hialeah, Florida 33016.
      Our telephone number is (305) 556-9210. Our common stock is traded on the Nasdaq
      Capital Market (Ticker: SIMC). We maintain an Internet website at
      http://www.simclar.com, along with other members of the Simclar Group. We make
      available free of charge on our website links to our annual reports on Form
      10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K, and
      any
      amendments to those reports filed or furnished pursuant to Section 13(a) of
      the
      Securities Exchange Act of 1934 (http://www.simclar.com/investor.htm).
      Information on our website is not incorporated by reference into this report.
      Additionally, individuals can access our electronically filed reports, proxy
      statements and other information through the Internet site maintained by the
      Securities and Exchange Commission at http://www.sec.gov. The public may also
      read and copy any materials we file with the Securities and Exchange Commission
      at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC
      20549




2





In
      Part
      III of this Form 10-K, we incorporate by reference certain information from
      our
      Information Statement for our 2007 Annual Meeting of Shareowners. We expect
      to
      file that Information Statement with the Securities and Exchange Commission
      (“SEC”) within 120 days of December 31, 2006, and we will promptly make it
      available on our website. Please refer to the Information Statement when it
      is
      available.





**Electronics
      Manufacturing Services Industry**





Until
      2001, our industry exhibited significant year to year growth, due both to the
      growth in the overall electronics industry, and the steadily increasing number
      of OEMs deciding to outsource all or a significant portion of the production
      of
      their products. As a result of the general global recession beginning in 2001,
      and its magnified effect in the computer and telecommunications equipment
      segments, this pattern of growth in our industry was interrupted, and both
      our
      company and the industry as a whole experienced a decline in sales starting
      in
      2001 and continuing through the third quarter of 2003. Beginning in the fourth
      quarter of 2003, our company and the industry began to experience a recovery
      in
      sales, which continued through 2006. We are continually seeking new business
      opportunities with existing and new customers and considering strategic
      acquisitions, but there is no assurance we will be successful in generating
      additional sales.




We
      believe that the fundamental factors contributing to the growth of our industry
      prior to 2001 contributed to the resumption of the pattern of growth that
      continued throughout 2006. These factors include increased capital requirements
      for OEMs to acquire modern, highly automated manufacturing equipment, their
      continuing effort to reduce inventory costs and the relative cost advantages
      of
      contract manufacturers. Using outsourcing for production of electronic
      assemblies also enables OEMs to focus on product development, reduce working
      capital requirements, and improve inventory management and marketability. We
      believe OEMs will continue to rely on contract manufacturers, not only for
      partial component assemblies, but complete turnkey manufacturing of entire
      finished products. We also believe that OEMs will look more to contract
      manufacturers to provide a broader scope of value-added services, including
      manufacturing, engineering and test services.





We
      assist
      our customers from initial design and engineering through materials procurement,
      to manufacturing of the complete product and testing. Involving contract
      manufacturers earlier in the manufacturing process through “concurrent
      engineering” allows OEMs to realize greater efficiencies and gives contract
      manufacturers greater impact in product design, component selection, production
      methods and the preparation of assembly drawings and test schematics. This
      process also gives the customer the ability to draw upon our manufacturing
      expertise at the outset and minimize manufacturing bottlenecks.





Another
      factor which will continue to lead OEMs to utilize contract manufacturers is
      reduced time-to-market. Due to the intense competition in the electronics
      industry, OEMs are faced with increasingly shorter product life-cycles which
      pressure them to reduce time constraints in bringing a product to market. This
      reduction can be accomplished by using a contract manufacturer’s established
      manufacturing expertise with its sophisticated, technically advanced and
      automated manufacturing processes. We believe that this, coupled with the
      elements discussed above, such as reduced production costs through economies
      of
      scale in materials procurement, improved inventory management, access to our
      manufacturing technology, engineering, testing and related expertise, will
      motivate OEMs to work with electronic contract manufacturers such as
      us.


3


**Business
      Strategy**





We
      have
      focused continuous attention on controlling costs to allow us to remain
      competitive within our industry. Our affiliation with Simclar Group allows
      us to
      participate in the global economy, expands the product lines and services we
      are
      able to offer our customers, and increases our purchasing power for supplies
      and
      equipment.





The
      primary industries we serve, electronics and technology, are constantly
      innovating and tend to have short product life cycles. We have focused on
      product development and marketing in order to remain a competitive provider
      of
      electronic contract manufacturing services for OEM customers. We continue to
      seek to develop strong, long-term alliances with major-growth OEMs of complex,
      market leading products. We believe that creating and maintaining long-term
      relationships with customers requires providing high quality, cost-effective
      manufacturing services marked by a high degree of customer responsiveness and
      flexibility. Therefore, our strategy is to focus on leading manufacturers of
      advanced electronic products that generally require custom-designed, more
      complex interconnect products and short lead-time manufacturing services.





On
      May
      19, 2005, the company purchased Simclar (North America), Inc. (“SNAI”) from
      Simclar Group. This acquisition added comprehensive sheet metal fabrication
      and
      higher level assembly capabilities.





On
      February 24, 2006, we further strengthened our product and service offerings
      to
      the OEM market by acquiring certain assets of the
      Interconnect Technologies assembly business of Litton Systems, Inc. (“Litton”),
      a world-leading supplier of high-performance backplane interconnect solutions
      to
      major blue-chip customers in markets as diverse as network, wireline and
      wireless infrastructure, and electronic data processing. Backplane interconnect
      systems form the core of high-end electronic systems and provide the means
      for
      power distribution and data communications between electronic sub-system
      building blocks.





We
      strive
      to build on our integrated manufacturing capabilities, final system assemblies
      and testing. The
      combination of our advanced backplane interconnect solutions with our
      capabilities to supply printed circuit board assemblies, metal fabrication,
      cabling solutions and higher level assemblies will create a valuable
      one-stop-shop for OEM system design and integration needs. In
      addition, vertical integration provides us with greater control over quality,
      delivery and cost.





To
      further satisfy customer needs, we develop long-term customer relationships
      by
      using our state-of-the-art technology to provide timely and quick-turnaround
      manufacturing and comprehensive support for materials purchases and inventory
      control. Through our use of electronic data interchange technology (“EDI”), the
      customer is able to convey its inventory and product needs on a weekly basis
      based on a rolling quantity forecast. More emphasis is placed on value-added
      turnkey business for the manufacture of complete finished assemblies. This
      is
      accomplished with extended technology, continuous improvement of our processes,
      and our early involvement in the design process using our computer-aided design
      system.





We
      believe that we can develop closer and more economically beneficial
      relationships with our customers through our geographically diverse
      manufacturing and assembly operations, presently located in Florida, Texas,
      Massachusetts, Missouri, Ohio, North Carolina and Mexico. Our diverse locations
      have multiple advantages by helping satisfy costs, timely deliveries and local
      market requirements of our customers. We will continue to pursue expansion
      in
      different markets to better serve existing customers and to obtain additional
      new customers. In alliance with Simclar Group, we anticipate experiencing growth
      and the ability to increase our global presence and competitive position.


4


**Products
      and Services**





We
      manufacture over 1,000 products, including complete turnkey finished products,
      sub-assemblies, molded and non-molded cable assemblies, wire harnesses, printed
      circuit boards (PCBs), injection molded and electronic assembly products, for
      over 100 OEM customers.





*Printed
      Circuit Boards*





PCB
      assemblies are electronic assemblies consisting of a basic printed circuit
      laminate with electronic components including diodes, resistors, capacitors
      and
      transistors, inserted and wave soldered. PCBs may be used either internally
      within the customer’s products or in peripheral devices. The PCBs produced by
      the company include pin-through-hole assemblies, low and medium volume surface
      mount technology assemblies, and mixed technology PCBs, which include multilayer
      PCBs.





In
      pin-through-hole assembly production, electronic components with pins or leads
      are inserted through pre-drilled holes in a PCB and the pins are soldered to
      the
      electrical surface of a PCB. In surface mount technology production, electronic
      components are attached and soldered directly onto the surface of a circuit
      board, rather than inserted through holes. Surface mount technology components
      are smaller so they can be spaced more closely together and, unlike
      pin-through-hole components, surface mount technology components can be placed
      on both sides of a PCB. This allows for product miniaturization, while enhancing
      the electronic properties of the circuit. Surface mount technology manufacturing
      requires substantial capital investment in expensive, automated production
      equipment, which requires high usage. We are utilizing computerized testing
      systems in order to verify that all components have been installed properly
      and
      meet certain functional standards, that the electrical circuits have been
      properly completed, and that the PCB assembly will perform its intended
      functions.





In
      1997,
      we acquired Lytton **** Incorporated
      (“Lytton”) ,
      whose
      Ohio operations, with six automated lines, are more focused on PCB
      manufacturing, primarily for the food preparation equipment industry. Lytton
      was
      merged into Simclar effective August 13, 2003.





In
      July
      2003, we acquired all of the outstanding stock of AG Technologies, Inc. (now
      Simclar (Mexico), Inc.) which operates a manufacturing facility in Matamoros,
      Mexico, and which we currently operate through an indirect, wholly-owned
      subsidiary, Simclar de México, S.A. de C.V. This Matamoros facility provides PCB
      manufacturing capacity similar to our Ohio facility, but enables us to compete
      more effectively on medium and higher volume PCB orders. Additional contract
      manufacturing capabilities were added with the opening of a second Matamoros
      facility in January 2005. Simclar
      (Mexico) is an international value added provider of comprehensive electronic
      manufacturing services to OEM’s serving the, industrial controls, medical, power
      equipment and automotive industries. Simclar (Mexico)’s Mexican facilities
      enable us to be competitive in the higher volume arena for assembly in North
      America.





PCB
      sales
      contributed approximately 26% of total revenues in 2006 and 51 % of total
      revenues in 2005. The drop is attributed to the addition of the Litton backplane
      operations, not a drop in PCB revenues.





*Cable
      and Harness Assemblies*





A
      cable
      is an assembly of electrical conductors insulated from each other, twisted
      around a central core and jacketed. Cables may be molded or
      non-molded.





Simclar
      offers a wide range of custom manufactured cable and harness assemblies for
      molded and mechanical applications. These assemblies include multiconductor,
      ribbon, co-axial cable, and discrete wire harness assemblies. We use advanced
      manufacturing processes, in-line inspection and computerized automated test
      equipment.




5





We
      maintain a large assortment of standard tooling for D-Subminiature, DIN
      connectors and phono connectors. D-Subminiatures are connectors which are
      over-molded with the imprint of the customer’s name and part number. DIN
      connectors are circular connectors consisting of two to four pairs of wires
      used
      for computer keyboards.





Flat
      ribbon cable or ribbon cable assemblies are cables with wires (conductors)
      on
      the same plane with connectors at each end. Flat ribbon cables are used in
      computer assemblies and instrumentation.





Discrete
      cable assemblies are wires with contacts and connectors. Harnesses are
      prefabricated wiring with insulation and terminals ready to be attached to
      connectors. Our cable sales comprised approximately 24% and 33% of total revenue
      for 2006 and 2005, respectively. The drop
      is attributed to the addition of the Litton backplane operations, not a drop
      in
      cable revenues.





*Contract
      Manufacturing*





Contract
      manufacturing involves the manufacture of complete finished assemblies with
      all
      sheet metal, power supplies, fans, PCBs as well as complete sub-assemblies
      for
      integration into an OEM’s finished products, such as speaker and lock-key
      assemblies and diode assemblies that consist of wire, connectors and diodes
      that
      are over-molded, packaged and bar coded for distribution. These products can
      be
      totally designed and manufactured by the company through our computer-aided
      design system, engineering and supply procurement. We develop manufacturing
      processes and tooling, and test sequences for new products of our customers.
      We
      provide design and engineering services in the early stages of product
      development, thereby assuring mechanical and electrical considerations are
      integrated with a total system. Alternatively, the customer may provide
      specifications and we will assist in the design and engineering or manufacture
      to the customer’s specifications.





In
      January 2005, we opened a second manufacturing facility in Matamoros, Mexico,
      providing additional capability to process soft-tooled sheet metal fabrication
      and finishing. Further expansion phases will include hard-tooled sheet metal
      fabrication, along with plastic injection molding, and overmolding for more
      complex cable and harness manufacturing.





The
      company expanded its product offerings by acquiring SNAI in May 2005. SNAI
      is a
      comprehensive fabricator of sheet metal components and higher level assemblies
      operating from a 95,000 square foot facility in Winterville, NC.





*Reworking
      and Refurbishing*





Customers
      provide us with materials and sub-assemblies acquired from other sources, which
      the customer has determined require modified design or engineering changes.
      We
      redesign, rework, refurbish and repair these materials and sub-assemblies.





Contract
      manufacturing, sheet metal fabrication, reworking and refurbishing together
      amounted to approximately 11% and 16% of sales for 2006 and 2005 respectively.
      Our expanded sheet metal fabrication and assembly capabilities along with the
      2006 addition of backplane assembly should open additional opportunities in
      contract manufacturing over the next few years. Our affiliation with Simclar
      Group gives us access to a larger customer base and the ability to handle large
      customers both in the USA and Europe.





*Backplane
      Interconnect Systems*





In
      February 2006, we acquired certain backplane assembly assets of Litton. Litton
      has a reputation as a world-leading supplier of high-performance backplane
      interconnect solutions to major blue-chip customers in markets as diverse as
      network, wireline and wireless infrastructure, defense and electronic data
      processing. Backplane interconnect systems form the core of high-end electronic
      systems and provide the means for power distribution and data communications
      between electronic sub-system building blocks. Adding the ability to provide
      backplane interconnect solutions with our metal fabrication, cable and harness,
      printed circuit board, and high level assembly capabilities enables Simclar
      to
      offer a highly appealing single source solution to the electronics OEM
      market.


6





Backplane
      sales contributed approximately 39% to total revenues in 2006.





**Manufacturing**





We
      manufacture components and products that are custom designed and developed
      to
      fit specific customer requirements and specifications. Such service includes
      computer integrated manufacturing and engineering services, quick-turnaround
      manufacturing and prototype development, materials procurement, inventory
      management, developing customer oriented manufacturing processes, tooling and
      test sequences for new products from product designs received from our customers
      or developed by Simclar from customer requirements. Our industrial, electrical
      and mechanical engineers work closely with our customers’ engineering
      departments from inception through design, prototypes, production and packaging.
      We evaluate customer designs and, if appropriate, recommend design changes
      to
      improve the quality of the finished product, reduce manufacturing costs or
      other
      necessary design modifications. Upon completion of engineering, we produce
      prototype or preproduction samples. Materials procurement includes planning,
      purchasing and warehousing electronic components and materials used in the
      assemblies and finished products. Our engineering staff reviews and structures
      the bill of materials for purchase, coordinates manufacturing instructions
      and
      operations, and reviews inspection criteria with the quality assurance
      department. The engineering staff also determines any special capital equipment
      requirements, tooling and dies, which must be acquired.





We
      attempt to develop a “partnership” relationship with many of our customers by
      providing a responsive, flexible, total manufacturing service. We have “supplier
      partnerships” with certain customers pursuant to which we must satisfy in-house
      manufacturing requirements of the customer that are based on the customer’s need
      on a weekly basis based on a rolling quarterly forecast.





Our
      PCB
      assembly operations are geared toward advanced surface mount technology. We
      provide the PCB production through state-of-the-art manufacturing equipment
      and
      processes and a highly trained and experienced engineering and manufacturing
      workforce. We also offer a wide range of custom manufactured cables and
      harnesses for molded and mechanical applications. We use advanced manufacturing
      processes, in-line inspection and testing to focus on process efficiencies
      and
      quality. The cable and harness assembly process is accomplished with automated
      and semi-automated preparation and insertion equipment and manual assembly
      techniques.





Finished
      turnkey assemblies include the entire manufacturing process from design and
      engineering to purchasing raw materials, manufacturing and assembly of the
      component parts, testing, packaging and delivery of the finished product to
      the
      customer. By contracting assembly production, OEMs are able to keep pace with
      continuous and complex technological changes and improvements by making rapid
      modifications to their products without costly retooling and without any
      extensive capital investments for new or altered equipment.





At
      our
      Hialeah, Florida, and Matamoros, Mexico facilities, we maintain modern
      state-of-the-art equipment for crimping, stripping, terminating, soldering,
      sonic welding and sonic cleaning which permits us to produce conventional and
      complex molded cables. We also maintain a large assortment of standard tooling.
      New manufacturing jobs may require new tooling and dies, but most presses and
      related equipment are standard.





The
      acquisition of Litton’s backplane assembly assets added these capabilities to
      our product offerings. Backplanes are the backbone of sophisticated electronics.
      They are printed circuit boards with sockets that provide interconnection for
      multiple printed circuit board cards. At
      our
      Springfield, Missouri facility, we maintain specialized equipment for solder
      and
      press fit technology. This equipment is designed specifically to accommodate
      oversized PCB's. We are focused on back panel technology through chassis
      integration, up to frame or rack level assembly and test.




7




**Supplies
      and Materials Management**





Materials
      used in our operations consist of metals, electronic components such as cable,
      wire, resistors, capacitors, diodes, memory products, PCBs and plastic resins.
      On occasion some of these materials may be placed on a stringent allocation
      basis by our suppliers; however, due to the excess manufacturing capacity
      currently available at most component manufacturers, we do not anticipate any
      major material purchasing or availability problems occurring in the foreseeable
      future.





We
      have
      improved our overall efficiency of manufacturing, particularly in the area
      of
      inventory management, including purchasing, which is geared more closely to
      current needs resulting in reduced obsolescence problems The company procures
      components from a select group of vendors which meet our standards for timely
      delivery, high quality and cost effectiveness. In order to control inventory
      investment and minimize material obsolescence, components are generally ordered
      when we have a purchase order or commitment from our customer for the completed
      assembly. In addition, several of our vendors have agreed to consigned inventory
      arrangements, which allow us to have their product in stock but not receive
      it
      until we pull it for production. This will have a positive impact on working
      capital as we expand vendor participation. We continue our efforts to
      consolidate the majority of our electronics material “spend” with that of the
      entire Simclar Group, and quote and initiate contracts to the most competitive
      suppliers.





We
      use
      Enterprise Resource Planning (“ERP”) management technologies and manage our
      material pipelines and vendor base to allow our customers to increase or
      decrease volume requirements within established frameworks. We have *Visual
      Manufacturing, Symix* and *Made
      2 Manage* computerized software systems providing us with material requirements planning,
      purchasing, and sales and marketing functions. In 2005, the company made a
      commitment to convert all locations to *Visual
      Manufacturing* .
      The
      goal is to create consistency in our information systems to facilitate more
      timely, accurate, and meaningful management information. In 2006 we successfully
      converted the Springfield, MO operations to Visual and in February 2007 the
      Dayton, OH operations successfully converted to Visual. We plan to convert
      our
      Mexico and North Carolina locations in the current year.




**Quality
      and Process Control**





All
      of
      our manufacturing locations are certified under the ISO 9001/2000 quality
      assurance designation. These quality assurance designations are only provided
      to
      those manufacturers which exhibit stringent quality and process control
      assurances after extensive evaluation and auditing by these independent quality
      assurance organizations. Quality control is essential to the company’s
      operations since customers demand strict compliance with design and product
      specifications, and high quality production is a primary competitive standard
      vital to our services.





Product
      components, assemblies and sub-assemblies manufactured by the company are
      thoroughly inspected visually and electronically to ensure all components are
      made to strict specifications and are functional and safe. Strict process
      controls relating to the entire manufacturing process are part of our standard
      operating procedure.





Over
      the
      years, our product and manufacturing quality have received excellent ratings.
      Total quality, timely delivery and customer satisfaction is our philosophy.
      High
      levels of quality in every area of our operations are essential. Quality
      standards are established for each operation, performance tracked against those
      standards, and identifying workflow and implementing necessary changes to
      deliver higher quality levels. We maintain regular contact with our customers
      to
      ensure adequate information exchange and other activities necessary to ensure
      customer satisfaction and to support our high level of quality and on-time
      delivery. Any adverse change in our quality and process controls could adversely
      affect our relationships with customers and ultimately our revenues and
      profitability.





8




**Customers**





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. Our revenues are
      distributed over the following industry segments:


Year
                  Ended December 31,2006
              
              2005
              
              2004Telecommunications
              
              
              43
              %
              
              12
              %
              
              12
              %Data
                  processing
              
              
              12
              %
              
              25
              %
              
              26
              %Contract
                  manufacturing
              
              
              12
              %
              
              1
              %
              
              1
              %Power
                  equipment
              
              
              9
              %
              
              17
              %
              
              15
              %Food
                  prep equipment
              
              
              8
              %
              
              18
              %
              
              18
              %Instrumentation
              
              
              8
              %
              
              16
              %
              
              15
              %Electrical
                  equipment and appliances
              
              
              3
              %
              
              0
              %
              
              0
              %Military
                  and government
              
              
              2
              %
              
              4
              %
              
              5
              %Other
              
              
              3
              %
              
              7
              %
              
              8
              %





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. We seek to serve a
      sufficiently large number of customers to avoid dependence on any one customer
      or industry. 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 grew our customer base to 15, 20, and 29 customers
      who made up 80% of our sales, with our largest customer contributing 20% of
      the
      revenue base. The acquisition of Litton and strong internal growth in 2006
      contributed to an over 90% increase in revenues and dramatically shifted our
      customer and industry mix. In 2006, there were 32 customers that made up 80%
      of
      our sales with our largest customer contributing approximately 20% of the
      revenue.





Significant
      reductions or delays in sales to any of these major customers would have a
      material adverse effect on our results of operations. In the past, certain
      of
      our customers have terminated their manufacturing relationship with us, or
      significantly reduced their product orders. We cannot assure you that any of
      our
      major customers will not terminate or significantly reduce or delay
      manufacturing orders, any of which such terminations or changes in manufacturing
      orders could have a material adverse effect on our results of operations.





We
      depend
      upon the continued growth, viability and financial stability of our customers,
      who in turn substantially depend on the growth of the personal computer,
      computer peripherals, communications, instrumentation, data processing and
      food
      preparation equipment industries. Most of these industries have been
      characterized by rapid technological change, short product life cycles, pricing
      and margin pressures. In addition, many of our customers in these industries
      are
      affected by general economic conditions. The factors affecting these industries
      in general, and/or our customers in particular, could have a material adverse
      effect on our results of operations. In addition, we generate significant
      accounts receivable in connection with providing manufacturing services to
      our
      customers. If one or more of our customers were to become insolvent or otherwise
      were unable to pay us for manufacturing services we have provided, our operating
      results and financial condition would be adversely affected.




9





The
      table
      below sets forth the respective percentage of sales for the applicable period
      attributable to customers and related suppliers who accounted for more than
      10%
      of our sales in any respective period.





2006
            
            2005
            
            2004Customer
                1
            
            
            7
            %
            
            17
            %
            
            17
            %Customer
                2
            
            
            20
            %
            
            0
            %
            
            0
            %




**Marketing
      and Sales**





We
      are
      continually pursuing expansion and diversification of our customer base. We
      are
      seeking to develop long term relationships by working closely with customers,
      starting with the initial product design and development stage, and continuing
      throughout the manufacturing and distribution process. Our principal sources
      of
      new business are the expansion in the volume and scope of services provided
      to
      existing customers, referrals from customers and suppliers, direct sales through
      our sales managers and executive staff, and through independent sales
      representatives. Our operations generate sales through eight regional
      sales/general managers covering the Northeast, Southeast, West and Southwest
      regions of the United States, as well as parts of Mexico. There are 13 in-house
      sales/marketing personnel in the United States. In addition to sales through
      sales representatives and in-house sales personnel, sales are also generated
      through our website at http://www.simclar.com and through catalogues, brochures
      and trade shows.





The
      independent manufacturer sales representatives, primarily marketing electronic
      and similar high-technology products, are retained under exclusive or
      non-exclusive sales representative agreements for specific territories or
      specific customers and are paid on a commission basis. Unless otherwise approved
      by Simclar, the sales representatives cannot represent any other person engaged
      in the business of manufacturing services similar to those of the company,
      nor
      represent any person who may be in competition with us. The agreements further
      prohibit the sales representative from disclosing trade secrets or calling
      on
      our customers for a period of six months to one year from termination of their
      agreement.




Substantially
      all of our sales and reorders are affected through competitive bidding. Most
      sales are accomplished through purchase orders with specific quantity, price
      and
      delivery terms. Some production, such as for our Kanban and Pull programs,
      is
      accomplished under open purchase orders with components released against
      customer request.





**Backlog
      and Returns**





Order
      backlogs as of December 31, 2006 were approximately $29,908,000 compared to
      $21,892,000 at December 31, 2005. Based on past experience and relationships
      with our customers and knowledge of our manufacturing capabilities, we believe
      that most of our backlog orders are firm and should be filled within six months.
      Most of the purchase orders within which the company performs do not provide
      for
      cancellation. Over the last several years, cancellations have been minimal
      and
      management does not believe that any significant amount of the backlog orders
      will be cancelled. However, based upon relationships with our customers, we
      occasionally allow cancellations and more frequently provide for the
      rescheduling of deliveries. The variations in the size and delivery schedules
      of
      purchase orders received by the company may result in substantial fluctuations
      in backlog from period to period. Since orders and commitments may be
      rescheduled or cancelled, and customers’ lead times may vary, backlog does not
      necessarily reflect the timing or amount of future sales. Historically, customer
      returns have not had a material adverse effect on our results of
      operations.


10


**Patents
      and Trademarks**





We
      do not
      have nor do we rely on patents or trademarks to establish or protect our market
      position. Rather, we depend on design, engineering and manufacturing, cost
      containment, quality, and marketing skills to establish or maintain market
      position.





**Seasonality**





Our
      business is not seasonal.





**Competition**





Simclar
      is a part of highly competitive electronic manufacturing services industry.
      We
      face competition from divisions of large electronics and high-technology firms,
      as well as numerous smaller specialized companies. Many of our competitors
      are
      larger and more geographically diverse and have greater financial, manufacturing
      and marketing resources than we have. Our main PCB competitors in the Midwest
      region include SMC, Diversified Systems, Epic Technologies, and CDR
      Manufacturing,. The primary competitors for our Mexico PCB operations include
      Kimball Electronics, Method Electronics, and Jabil. We have numerous competitors
      in the cable and harness assembly market, including Tyco, Advanced Interconnect,
      Amphenol, Sapphire, Volex Interconnect Systems, and Foxconn.





We
      believe that we are favorably positioned with regard to primary competitive
      factors - price, quality of production, manufacturing capability, prompt
      customer service, timely delivery, engineering expertise, and technical support.
      We also believe that our affiliation with Simclar Group enhances our competitive
      position internationally. However, recent consolidation trends in the electronic
      manufacturing services industry are resulting in changes in the competitive
      landscape. Increased competition could result in lower priced components and
      lower profit margins, or loss of customers, which could have a material adverse
      effect on our business, financial condition and results of operations. Compared
      to manufacturers who have greater direct buying power with component suppliers
      or who have lower cost structures, we may be operating at a cost
      disadvantage.





Due
      to
      the number and variety of competitors, reliable data reflective to our
      competitive position in the electronic components and assembly industry is
      difficult to develop and is not known.





**Research
      and Development**





We
      spend
      limited amounts on research and development efforts. Our products are generally
      manufactured to customer specifications.





**Governmental
      Regulation**





Our
      operations are subject to certain federal, state and local regulatory
      requirements relating to environmental waste management and health and safety
      matters. We believe that we comply with applicable regulations pertaining to
      health, safety and the use, storage and disposal of materials that are
      considered hazardous waste under applicable law. To date, our costs for
      compliance and governmental permits and authorizations have not been material,
      and we do not believe that compliance with current regulatory requirements
      will
      have a material effect on our capital expenditures, net income or competitive
      position. However, additional or modified requirements that may require
      substantial additional expenditures may be imposed in the future.




11





**Employees**





As
      of
      December 31, 2006 we had a total of 934 employees with 467 employees located
      in
      our U.S. facilities and 467 employees located at our Mexican facilities; 154
      of
      our employees are employed as part time or temporary help. Approximately 777
      of
      our employees are engaged in manufacturing, quality assurance, related
      operations and support activities, 43 are in material handling and procurement,
      22 are in sales and marketing, 29 are in engineering, and 63 are in
      administrative, accounting, and support activities.





We
      have
      no unions in our U. S. facilities, but have two unions in our Matamoros
      facilities. We believe that our relationships with our employees, both union
      and
      non-union, are good.





**Item
      1A. Risk Factors**





This
      Report contains forward-looking statements that involve risks and uncertainties.
      Our actual results may differ significantly from the prospects discussed in
      the
      forward-looking statements. Factors that could cause or contribute to such
      differences include, but are not limited to, those listed below.





*The
      loss of a major customer would adversely affect us*





A
      substantial percentage, approximately 46% of our sales for the year ended
      December 31, 2006, has been to five customers, the loss of any of which would
      adversely affect us. A substantial portion of our sales (20%) is with one major
      customer. There are no long-term contracts with any customer. Substantially
      all
      of our sales and reorders are subject to competitive bids. Sales are dependent
      on the success of our customers, some of which operate in businesses associated
      with rapid technological change, vigorous competition, short product life
      cycles, and pricing and margin pressures. Additionally, certain of the
      industries served by us are subject to economic cycles and have in the past
      experienced, and are likely in the future to experience, recessionary periods.
      Developments adverse to our major customers or their products could have an
      adverse effect on us. A variety of conditions, both specific to each individual
      customer and generally affecting each customer’s industry, may cause customers
      to cancel, reduce or delay purchase orders and commitments without penalty,
      except for payment for services rendered, materials purchased and, in certain
      circumstances, charges associated with such cancellation, reduction or delay.





In
      addition, we generate large accounts receivable in connection with our providing
      of electronic contract manufacturing. If one or more of our customers
      experiences financial difficulty and is unable to pay for the services provided
      by us, our operating results and financial condition would be adversely
      affected. We expect to continue to depend on sales to a limited number of major
      customers.




*Secured
      loans - existence of liens on certain assets*





All
      of
      our assets have been pledged as collateral for three bank loans. We
      have
      entered into two amended credit facilities and one new credit facility with
      Bank
      of Scotland in Edinburgh, Scotland (“BoS”). These facilities were amended and
      increased in January 2007. Please refer to the Liquidity and Capital Resources
      section under Item 7 for further discussion regarding these credit facilities.





*Our
      credit facilities impose operational and financial restrictions on
      us*





Our
      credit facilities with BoS, which include an Amended Term Loan Facility Letter,
      an Amended Working Capital Facility Letter, a Working Capital Facility Letter,
      and related security agreements, guaranties and mortgage. In addition to
      subjecting all our assets as security for the bank financing, these debt
      agreements include substantial covenants that impose significant restrictions. Please
      refer to the Liquidity and Capital Resources section under Item 7 for further
      discussion regarding these restrictions.




12





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 the covenants would result in a default under
      our
      debt facilities. 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 available 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
      operate in a highly competitive industry and our business may be harmed by
      competitive pressures*





Manufacturing
      and assembly of electro-mechanical and electronic components is a highly
      competitive industry characterized by a diversity and sophistication of products
      and components. We compete with major electronics firms that have substantially
      greater financial and technical resources and personnel than we do. We also
      face
      competition from many smaller, more specialized companies. We believe the
      primary competitive factors are pricing, quality of production, prompt customer
      service, timely delivery, engineering expertise, and technical assistance to
      customers. Among this mix of competitive standards, we believe we are
      competitive with respect to delivery time, quality, price and customer service.
      Price sensitivity becomes a paramount competitive issue in recessionary periods,
      and we may be at a competitive disadvantage with manufacturers with a lower
      cost
      structure, particularly off-shore manufacturers with lower labor and related
      production costs. To compete effectively, we must also provide technologically
      advanced manufacturing services, and respond flexibly and rapidly to customers’
design and schedule changes. Our inability to do so could have adverse effects
      on us. Customers in our industry are price-sensitive and, particularly in the
      recent economic downturn, there is substantial pressure from customers to reduce
      our prices. Our ability to remain competitive depends on our ability to meet
      these customer and competitive price pressures while protecting our profit
      margins. We
      have
      been engaged in and will have to continue cost reductions in overhead,
      manufacturing processes, and equipment retooling, while maintaining product
      flow, inventory control, and just-in-time shipping to our customers. If
      we are
      unable to accomplish these factors, we will not be competitive, and our business
      and operating results will be adversely impacted.





*Our
      revenues are contingent on the health of the industries we serve*





We
      rely
      on the continued growth and financial stability of our customers who operate
      in
      the following industry segments:





·
            food
                preparation equipment;


·
            data
                processing;


·
            telecommunications;


·
            contract
                manufacturing;


·
            power
                equipment;


·
            instrumentation;
                and


·
            military
                and government.




These
      industry segments, to a varying extent, are subject to dynamic changes in
      technology, competition, short product life cycles, and economic recessionary
      periods. When
      our
      customers are adversely affected by these factors, we may be similarly affected.




13




*Manufacture
      of electronic and electro-mechanical products, particularly designed for OEMs
      and manufactured to custom specifications, is cyclical, and demand for our
      products may decline*





Our
      business depends substantially on both the volume of electronic and
      electro-mechanical production by OEMs in the data processing,
      telecommunications, instrumentation and food preparation industries, and new
      specifications and designs for these OEMs. These
      industries have been cyclical over the years, and have experienced oversupply
      as
      well as significantly reduced demand, as we have experienced in recent years.
      An
      economic downturn can result in lower capacity utilization of our manufacturing
      operations and a shift in product mix toward lower margin assemblies. Changes
      in economic conditions and demand can result in customer rescheduling of orders
      and shipments, which affect our results of operations. Moreover,
      our need to invest in engineering, marketing, and customer services and support
      capabilities will limit our ability to reduce expenses, as we would attempt
      to
      do, in response to such downturns.





*We
      do
      not have long-term contracts with customers, and cancellations, reductions
      or
      delays in orders affect our profitability*





We
      do not
      typically obtain firm long-term contracts from our customers. Instead, we work
      closely with our customers to develop forecasts for upcoming orders, which
      are
      not binding, in order to properly schedule inventory and manufacturing. Our
      customers may alter or cancel their orders or demand delays in production for
      a
      number of reasons beyond our control, which may include:





·
            market
                demand for products;


·
            change
                in inventory control and procedures;


·
            acquisitions
                of or consolidations among competing customers;


·
            electronic
                design and technological advancements; and


·
            recessionary
                economic environment.





Any
      one
      of these factors may significantly change the total volume of sales and affect
      our operating results, in times of a recessionary environment and reduced demand
      for our customers’ products and in turn, our products and services. In
      addition, since much of our costs and operating expenses are relatively fixed,
      a
      reduction in customer demand would adversely affect our gross margins and
      operating income. Although
      we are always seeking new business and customers, we cannot be assured that
      we
      will be able to replace deferred, reduced or cancelled orders.





*Shortages
      of components as well as price fluctuations specified by our customers would
      delay shipments and adversely affect our profitability*





Substantially
      all of our sales are derived from electro-mechanical and subcontract electronic
      manufacturing in which we purchase components specified by our customers.
      Industry-wide shortages of electronic components, particularly components for
      PCB assemblies, have occurred. We experienced some supply shortages in 2004
      and
      2005. Should our industry experience a rapid increase, shortages of components
      mostly likely will occur, and we may be forced to delay shipments, which could
      have an adverse effect on our profit margins and customer relations. Because
      of
      the continued increase in demand for surface mount components, we anticipate
      component shortages and longer lead times for certain components to occur from
      time to time. Also, we typically bear the risk of component price increases
      that
      occur, which accordingly could adversely affect our gross profit margins. As
      price increase pressures continue we are beginning to pass these increases
      on as
      competition allows. At times, we are forced to purchase components beyond
      customer demand on items which are in short supply. To the extent there is
      less
      customer demand or cancellations, we could have increased obsolescence.





*Technological
      developments, satisfying customer designs and production requirements, quality
      and process controls are factors impacting our operations*





Our
      existing and future operations are and will be influenced by several factors,
      including technological developments, our ability to efficiently meet the design
      and production requirements of our customers, our ability to control costs,
      our
      ability to evaluate new orders to target satisfactory profit margins, and our
      capacity to develop and manage the introduction of new products. We also may
      not
      be able to adequately identify new product trends or opportunities, or respond
      effectively to new technological changes. Quality control is also essential
      to
      our operations, since customers demand strict compliance with design and product
      specifications. Any deviation from our quality and process controls would
      adversely affect our relationship with customers, and ultimately our revenues
      and profitability.




14





*Our
      operating results are subject to annual and quarterly fluctuation which could
      negatively impact our stock price*





There
      are
      a number of factors, beyond our control, that may affect our annual and
      quarterly results. These factors include:





·
            the
                volume and timing of customer orders;


·
            changes
                in labor and operating prices;


·
            fluctuations
                in material cost and availability;


·
            changes
                in domestic and international economies;


·
            timing
                of our expenditures in anticipation of future orders;


·
            increase
                in price competition, and competitive pressures on delivery time
                and
                product reliability;


·
            changes
                in demand for customer products;


·
            the
                efficiency and effectiveness of our automated manufacturing processes;


·
            market
                acceptance of new products introduced by our customers; and


·
            uneven
                seasonal demands by our customers.





Any
      one
      or combination of these factors can cause an adverse effect on our future annual
      and quarterly financial results. Fluctuations in our operating results could
      materially and adversely affect the market price of our common stock.





*Environmental
      laws may expose us to financial liability and restrictions on operations*





We
      are
      subject to a variety of federal, state and local laws and regulations relating
      to environmental, waste management, and health and safety concerns, including
      the handling, storage, discharge and disposal of hazardous materials used in
      or
      derived from our manufacturing processes. Proper waste disposal is a major
      consideration for printed
      circuit board manufacturers,
      which is a substantial part of our business, since metals and chemicals are
      used
      in our manufacturing process. Environmental controls are also essential in
      our
      other areas of electronic assembly. If we fail to comply with such environmental
      laws and regulations, then we could incur liabilities and fines and our
      operations could be suspended. This could also trigger indemnification of our
      lender under our credit facilities, as well as being deemed a default under
      such
      credit facilities. See
“Our
      credit facilities impose operational and financial restrictions on us” above.
      Such laws and regulations could also restrict our ability to modify or expand
      our facilities, could require us to acquire costly equipment, or could impose
      other significant capital expenditures. In addition, our operations may give
      rise to claims of property contamination or human exposure to hazardous
      chemicals or conditions. Although we have not incurred any environmental
      problems in our operations, there can be no assurance that violations of
      environmental laws will not occur in the future due to failure to obtain
      permits, human error, equipment failure, or other causes. Furthermore,
      environmental laws may become more stringent and impose greater compliance
      costs
      and increase risks and penalties for violations.





*Simclar
      Grou* *p
      controls over 73% of our common stock and the affairs of our company*





Simclar
      Group owns
      73.4% of our outstanding common stock. Our common stock does not provide for
      cumulative voting, and therefore, the remaining shareholders, other than Simclar
      Group, will be unable to elect any directors or have any significant impact
      in
      controlling the business or affairs of our company. The concentration of
      ownership with Simclar Group may also have the effect of delaying, deterring
      or
      preventing a change in control of our company, and would make transactions
      relating to our operations more difficult or impossible without the support
      of
      Simclar Group. Also, since we are a “controlled company” for purposes of the
      Nasdaq Stock Market’s corporate governance requirements, we are not required to
      comply with the provisions requiring that a majority of listed company directors
      be independent, the compensation of our executives to be determined by
      independent directors or nominees for election to our board of directors to
      be
      selected by independent directors.




15





*The
      price of our shares is volatile*





The
      market price of our common stock has substantially fluctuated in the past. The
      market price of our common stock has been as high as $13.18 in the third quarter
      of 2006 to as low as $0.52 in the fourth quarter of 2002. Our
      common stock has limited trading volume, and it closed at $5.37 on March 16,
      2007.





There
      are
      a variety of factors which contribute to the volatility of our common stock. These
      factors include domestic and international economic conditions, stock market
      volatility, our reported financial results, fluctuations in annual and quarterly
      operating results, and general conditions in the contract manufacturing and
      technology sectors. Announcements
      concerning our company and competitors, our operating results, and any
      significant amount of shares eligible for future sale may also
      have an impact on the market price of our common stock. As
      a
      result of these factors, the volatility of our common stock prices may continue
      in the future.




*We
      have not declared dividends, and our credit facilities prohibit us from paying
      dividends without written consent from our lender*





Under
      Florida corporate law, holders of our common stock are entitled to receive
      dividends from legally available funds, when and if declared by our board of
      directors. We have not paid any cash dividends, and our board of directors
      does
      not intend to declare dividends in the foreseeable future. Our future earnings,
      if any, will be used to finance our capital requirements, repay bank borrowings
      and fund our operations.





Our
      credit facilities prohibit
      us from paying any dividends without the written consent of the lender or making
      any other payments on our capital stock without the written consent of the
      lender. There can be no assurance that the lender will provide such consent.





16





*Possible
      delisting of our stock*





Our
      common stock trades on the Nasdaq Capital Market. There
      are
      certain qualitative and quantitative criteria for continued listing on the
      Nasdaq Capital Market, known as continued listing **** requirements.
      Failure to satisfy any one of these continued listing requirements could result
      in our securities being delisted from the Nasdaq Capital Market. These criteria
      include at least two active market makers, maintenance of $2,500,000 of
      stockholders’ equity (or alternatively, $35,000,000 in market capitalization or
      $500,000 in net income from operations in the latest fiscal year or 2 of the
      last 3 fiscal years), a minimum bid price for our common stock of $1.00, and
      at
      least 500,000 publicly held shares with a market value of at least $1,000,000,
      among others. Continued listing also requires compliance with the Nasdaq Stock
      Market’s corporate governance listing criteria. Usually, if a deficiency occurs
      for a period of 30 consecutive trading days (10 consecutive trading days for
      failure to satisfy the minimum market capitalization requirement), the
      particular company is notified by Nasdaq and has a grace period in which to
      achieve compliance. If
      the
      company is unable to demonstrate compliance after the expiration of any
      applicable grace period, the security is subject to delisting. The security
      might be able to trade on the
      Nasdaq OTC
      Bulletin Board, a less transparent trading market which may not provide the
      same
      visibility for the company or liquidity for its securities, as does the Nasdaq
      Capital Market. As
      a
      consequence, an investor may find it more difficult to dispose of or obtain
      prompt quotations as to the price of our securities, and may be exposed to
      a
      risk of decline in the market price of our common
      stock.





The
      Nasdaq Capital Market requires that we maintain a minimum market value of public
      float of $1,000,000 for continued listing. The
      publicly trading shares, exclusive of any affiliate ownership, which is the
      float for our common stock, is approximately 1,658,092 shares, and as the
      closing price of our shares on March 16, 2007 was $5.37, we currently satisfy
      that maintenance requirement.





Our
      common stock has limited trading volume. There is the risk of being delisted
      from the Nasdaq Capital Market should our common stock fail to maintain a
      minimum bid price of $1.00 per share for 30 consecutive days, or we fail to
      meet
      other continued listing requirements. During
      2004 we were notified by Nasdaq of a failure to meet its qualitative listing
      requirements due to the failure of our audit committee to comply with the
      independence criteria, although the company was able to correct this deficiency
      before further action by Nasdaq. In 2006, we were notified by Nasdaq of failure
      to meet its listing requirements due to a delay in filing our quarterly report
      for the second quarter of 2006, as a result of accounting errors at our Simclar
      (Mexico), Inc. subsidiary that led to a restatement of our 2005 and first
      quarter 2006 results. Again, we were able to correct this deficiency before
      further action to delist our common stock. Continued satisfaction of certain
      of
      the Nasdaq Capital Market continued listing requirements is beyond our control.
      There is no assurance that we will continue to satisfy the continued listing
      maintenance criteria, which, without a timely cure, could cause our securities
      to be delisted from the Nasdaq Capital Market.




*A
      significant downturn in the general economy could adversely affect our revenue,
      gross margin and earnings.*




Our
      business is subject to inflation, rising interest rates, availability of capital
      markets, consumer spending rates, the effects of governmental plans to manage
      economic conditions and other national and global economic occurrences beyond
      our control which could have an adverse affect on our revenue, gross margin
      and
      earnings.  As suppliers to the OEM market many of our products, and hence
      our revenue and gross margin, is strongly correlated with general economic
      conditions and with the level of business activity of our customers.
 Economic weakness and constrained customer spending has resulted in the
      past, and may result in the future, in decreased revenue, gross margin,
      earnings, or growth rates.  We also have experienced, and may experience in
      the future, gross margin declines reflecting the effects of increased pressure
      for price concessions as our customers attempt to lower their cost structures
      and increased material costs as our suppliers attempt to increase their prices.
       In this environment, we may not be able to reduce our costs sufficiently
      to maintain our margins.





17




*Failure
      to attract and retain qualified* *personnel
      may result in difficulties in managing our business effectively and meeting
      revenue growth objective.*





Our
      ability to profitably manage and grow our business depends upon the
      contributions and abilities of key executives, operating officers and other
      personnel. The
      loss
      of the services of any of these key employees could have a material impact
      on
      the Company's business and results of operations. In addition, continued growth
      and expansion of the Company's contract manufacturing business in an extremely
      competitive market will require that it attract, motivate and retain additional
      skilled and experienced personnel. The inability to satisfy these requirements
      could have a negative impact on the Company's ability to remain competitive
      in
      the future.




*There
      are inherent limitations in all control systems, and misstatements due to error
      or fraud may occur and may not be detected.*





Simclar’s
      management, including our Chief Executive Officer and Chief Financial Officer,
      does not expect that any company’s controls, including our own, will prevent all
      error and all fraud.  A control system, no matter how well designed and
      operated, can provide only reasonable, not absolute, assurance that the
      objectives of the control system are met.  The design of a control system
      must reflect the fact that there are resource constraints and the benefit of
      controls must be evaluated in relation to their costs.  Because of the
      inherent limitations in all control systems, no evaluation of controls can
      provide absolute assurance that misstatements due to error or fraud will not
      occur or that all control issues and instances of fraud, if any, in the company
      have been detected.  These inherent limitations include the realities that
      judgments in decision making can be faulty and that breakdowns can occur because
      of simple error or mistake.  Further, controls can be circumvented by
      individual acts of some persons, by collusion of two or more persons, or by
      management override of the controls.  The design of any system of controls
      is based in part upon certain 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, a control may
      be
      inadequate because of changes in conditions or the degree of compliance with
      the
      policies or procedures may deteriorate.  Because of inherent limitations in
      a cost-effective control system, misstatements due to error or fraud may occur
      and not be detected.





**Item
      1B. Unresolved Staff Comments**





None.





**Item
      2. Properties**





The
      following chart summarizes the principal properties leased by the
      company:





**Space**
            
            **Property**
            
            **Term**16,000
                sq. ft.
              (exec.
                offices, mfg.)
            
            2230
                W 77th St.
              Hialeah,
                FL
            
            10
                yrs. to August 31, 201012,000
                sq. ft.
              (mfg.,
                warehouse)
            
            2230
                W 77th St.
              Hialeah,
                FL
            
            10
                yrs. to August 31, 20105,500
                sq. ft.
              (mfg.,
                offices)
            
            171
                Commonwealth Ave.
              Attleboro,
                MA
            
            3
                yrs. to March 31, 20081,418
                sq. ft.
              (office)
            
            2013
                Wells Branch Pkwy, #312.
              Austin,
                TX
            
            3
                yrs. to May 31, 2009




18




**Space**
            
            **Property**
            
            **Term**16,000
                sq. ft.
              (office,
                warehouse)
            
            2685
                N. Coria
              Brownsville,
                TX
            
            3
                yrs. to April 30, 200837,919
                sq. ft.
              (mfg.,
                office, warehouse)
            
            Parque
                Industrial CYLSA
              Matamoros,
                Mexico
            
            5
                yrs. to July 15, 201155,524
                sq. ft.
              (mfg.,
                office, warehouse)
            
            Parque
                Industrial CYLSA
              Matamoros,
                Mexico
            
            13
                yrs. to October 31, 201790,000
                sq. ft.
              (mfg.,
                office, warehouse)
            
            176
                Laurie Ellis Road
              Winterville,
                NC
            
            5
                yrs. to May 31, 201152,826
                sq. ft.
              (mfg.,
                office, warehouse)
            
            1624
                West Jackson
              Ozark,
                MO
            
            5
                yrs. to December 31, 2011




In
      October, 2004, we exercised an option to purchase for $1,400,000 a 77,800 square
      foot manufacturing, office and warehouse facility located at 1784 Stanley Avenue
      in Dayton, Ohio, which we had previously leased. The facility is encumbered
      by a
      mortgage to the Bank of Scotland to secure the acquisition
      indebtedness.





Simclar
      Interconnect Technologies, Inc. temporarily occupies portions of a facility
      of
      Litton Systems, Inc. located in Springfield, Missouri pursuant to a License
      Agreement which expired on February 23, 2007. We will continue to occupy the
      facility on a month to month basis until such time as the facility in Ozark,
      Missouri is ready for occupancy.





We
      maintain state-of-the-art manufacturing, quality control, testing and packaging
      equipment at all of our facilities.





We
      believe that our equipment and facilities are suitable and adequate for our
      current operations and provide us with the productive capacity we need for
      our
      current business levels. We utilize approximately 60% of the capacity of each
      of
      our facilities on a one shift schedule for our business.





We
      are
      subject to a variety of environmental regulations relating to our manufacturing
      processes and facilities. See “Government Regulation” under Item 1 and “Risk
      Factors” under Item 1A.





**Item
      3. Legal Proceedings**





We
      are,
      from time to time, a party to litigation which arises in the normal course
      of
      our business. When a loss is deemed probable and reasonably estimable, an amount
      is recorded in our financial statements. Although the ultimate resolution of
      pending proceedings cannot be determined, in the opinion of management, the
      unfavorable resolution of these proceedings in the aggregate will not have
      a
      material adverse effect on our business, financial position, results of
      operations, or liquidity.





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





None.


19


**Part
      II**





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





**Market
      for Common Stock**





The
      table
      below reflects the high and low closing sales prices for our common stock,
      which
      trades under the symbol “SIMC”, as reported by the Nasdaq Capital Market. The
      prices shown represent quotations between dealers, without adjustment for retail
      markups, markdowns or commissions and may not represent actual
      transactions.





2006High
            
            Low1stQuarter
            
            $
            3.83
            
            $
            3.152ndQuarter
            
            $
            11.33
            
            $
            3.703rdQuarter
            
            $
            13.18
            
            $
            4.364thQuarter
            
            $
            8.99
            
            $
            4.352005High
            
            
            Low1stQuarter
            
            $
            4.68
            
            $
            3.052ndQuarter
            
            $
            6.80
            
            $
            3.293rdQuarter
            
            $
            5.16
            
            $
            3.094thQuarter
            
            $
            4.24
            
            $
            3.15





**Approximate
      Number of Holders of Common Stock**





On
      December 31, 2006, there were approximately 49 shareholders
      of record of our common stock. Our
      transfer agent is Continental Stock Transfer & Trust Company, 17 Battery
      Place, 8 th Floor,
      New York, New York 10004.




**Dividends**





We
      have
      not paid, nor do we have any present plans to pay cash dividends on our common
      stock in the immediate future. In addition, our credit facilities with the
      Bank
      of Scotland prohibit us from declaring or paying dividends on our common stock
      without the Bank of Scotland’s written consent. See Item 7, “Management’s
      Discussion and Analysis of Financial Conditions and Results of Operations -
      Liquidity and Capital Resources.”





**Issuer
      Repurchases**





No
      purchases of any of our outstanding shares were made by or on behalf of the
      company or any affiliated purchaser during 2006, 2005 and
      2004.


20


**Item
      6. Selected Financial Data**





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 31,2006
            
            2005
            
            2004
            
            2003
            
            2002Revenues
            
            $
            116,031
            
            $
            61,005
            
            $
            53,582
            
            $
            36,187
            
            $
            33,692Net
                income
            
            
            2,863
            
            
            947
            
            
            2,342
            
            
            1,106
            
            
            1,390Earnings
                per share:Basic
                and diluted
            
            $
            0.44
            
            $
            0.15
            
            $
            0.36
            
            $
            0.17
            
            $
            0.21




**Consolidated
      Balance Sheet Data**


**(in
      thousands)**





December
                31,2006
            
            2005
            
            2004
            
            2003
            
            2002Working
                capital
            
            $
            14,236
            
            $
            4,470
            
            $
            12,137
            
            $
            11,804
            
            $
            10,018Total
                assets
            
            
            63,864
            
            
            37,710
            
            
            32,580
            
            
            25,674
            
            
            22,168Long-term
                debt
            
            
            20,565
            
            
            4,200
            
            
            6,700
            
            
            6,500
            
            
            5,315Total
                Liabilities
            
            
            45,942
            
            
            22,650
            
            
            18,462
            
            
            13,913
            
            
            11,797Stockholders’
                equity
            
            
            17,922
            
            
            15,060
            
            
            14,119
            
            
            11,761
            
            
            10,371




The
      2006
      financial data reflects the acquisition of Litton, 2005 financial data reflects
      the acquisition of Simclar (North America), Inc., and the 2003 financial data
      reflects the acquisition of AG Technologies, Inc. (Simclar (Mexico),
      Inc.).




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





**Overview**





Simclar,
      Inc. continued to demonstrate strong revenue growth of existing products and
      customers through 2006 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
      OEM’s
      to increase our business with our existing customer base and to grow our
      customer base with other OEM’s, and (3) seek strategic acquisitions and
      alliances.





Some
      of
      the key highlights to be discussed further through this discussion and analysis
      include:





·
            Acquisition
                of 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 and
                the assumption of certain
                liabilities




21




·
            2006
                revenues were approximately $116 million; this is 90% above 2005.
                Year-on-year sales increased 13% with the balance coming from our
                acquisition of the Litton assets and the full year effect of SNAI
                which
                was acquired in May 2005




·
            fourth
                quarter sales set a new quarterly high at approximately
                $33,156,000




·
            net
                income for 2006 was approximately $2,863,000 and earnings per share
                was
                $0.44




Our
      operations have continued to depend upon a relatively small number of customers
      for a significant percentage of our net revenue. 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. See “Business Strategy” and
“Customers” under Item 1, “Business.”





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. See “Electronic Manufacturing Industry” and “Supplies and Materials
      Management” under Item 1, “Business” and “Results of Operations”
below.




22





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.




**Acquisition
      of Litton Assets**





In
      2006,
      Simclar, Inc. 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., a subsidiary of Northrop Grumman Corporation, for
      $16
      million in cash 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.





In
      connection with the Acquisition, the company and Simclar IT entered into an
      occupancy agreement pursuant to which Simclar IT was permitted to 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. Simclar IT has recently entered into
      a
      lease for a facility in Ozark, Missouri, into which it is in the process of
      moving its operations, but will continue to occupy portions of the shared Litton
      facility until that relocation is complete.





The
      company financed the purchase of the assets under an amended term loan facility
      with the Bank of Scotland ("BoS"). Of the $16 million borrowed under the amended
      facility, $13 million of the principal is repayable in quarterly installments
      with the first installment paid December 31, 2006 and continuing through
      December 31, 2012. Interest on this portion of the borrowings is 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 is
      repayable in one lump sum on December 31, 2010. Interest on this portion of
      the
      borrowings is 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 (other than Simclar de Mexico) were pledged
      as
      security for the company's obligations to BoS under the credit facilities.
      These
      facilities were amended in January 2007, and Simclar (North America), Inc.
      was
      added as a guarantor.




23





**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.


24


**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.




Net
      Sales


(dollars
      in thousands)


2006
              
              2005
              
              2004Net
                  Sales
              
              $
              116,031
              
              $
              61,005
              
              $
              53,582Change
                  from prior year
              
              $
              55,026
              
              $
              7,423
              
              $
              17,395%
                  change from prior year
              
              
              90.2
              %
              
              13.9
              %
              
              48.1
              %


Revenues
      were up approximately $55 million for year ended December 31, 2006 compared
      to
      the same period in 2005. Revenues from acquisitions represented approximately
      $47.1 million and approximately $7.9 million of the revenue growth came from
      existing operations. This represents an approximate 77% growth through
      acquisition and 13% through organic growth. Acquisitions caused a significant
      shift in our customer and industry segment mix. Refer to the customer discussion
      under Item 1 for an industry segment comparison.




Gross
      Profit Margin


(dollars
      in thousands)


2006
              
              2005
              
              2004Gross
                  profit margin
              
              $
              14,324
              
              $
              7,138
              
              $
              7,353Change
                  from prior year
              
              $
              7,186
              
              $
              (215
              )
              $
              2,482%
                  change from prior year
              
              
              100.7
              %
              
              -2.9
              %
              
              51.0
              %%
                  of sales
              
              
              12.3
              %
              
              11.7
              %
              
              13.7
              %


Gross
      profit margin was up primarily due to the growth in revenues. Higher volumes
      allowed for improved plant utilization which allowed for improved gross profit
      margins as a percentage of sales. We have been successful in obtaining pricing
      concessions from customers for raw material price increases. The change in
      product mix has also changed our cost structure. In 2004 and 2005 material
      costs
      were approximately 62% of sales. In 2006 material costs were approximately
      68%
      of sales. Labor and burden were approximately 24% of sales in 2004 and 2005
      and
      approximately 19% in 2006. For the same operations from 2005 to 2006 material
      costs were 63% and labor and burden costs were 24%. Commissions are included
      in
      cost of goods sold and constitute approximately 1⁄2% of sales.




25


Selling,
      General, and Administrative Expenses


(dollars
      in thousands)


2006
              
              
              2005
              
              
              2004Selling,
                  general, and administrative expenses
              
              $
              8,368
              
              $
              4,985
              
              $
              3,755Change
                  from prior year
              
              $
              3,383
              
              $
              1,230
              
              $
              622%
                  change from prior year
              
              
              67.9
              %
              
              32.8
              %
              
              19.8
              %%
                  of sales
              
              
              7.2
              %
              
              8.2
              %
              
              7.0
              %




Approximately
      $3.1 million of the increased selling, general, and administrative costs
      (SG&A) were directly attributed to acquisitions. SG&A includes
      approximately $600,000 in amortization costs for intangibles related to the
      acquisitions and approximately $200,000 related to our investigation and
      restatements related to accounting irregularities in our Mexico
      operations.




Interest
      Expense


(dollars
      in thousands)


2006
              
              2005
              
              2004Interest
                  expense
              
              $
              1,835
              
              $
              477
              
              $
              213Change
                  from prior year
              
              $
              1,358
              
              $
              264
              
              $
              (5
              )%
                  change from prior year
              
              
              284.7
              %
              
              123.9
              %
              
              -2.3
              %%
                  of sales
              
              
              1.6
              %
              
              0.8
              %
              
              0.4
              %




Interest
      expense increased $1.1 million for debt related to the acquisition of the Litton
      assets. Increased interest rates affected interest cost unfavorably. Also,
      the
      additional $16 million was at a higher interest rate than existing bank debt.
      The average interest rate for tranches A and B of our credit facilities was
      approximately 6.7% while the average interest rates for tranches C and D were
      approximately 7.7% and 8.7% respectively. These credit facilities are described
      in further detail below. Our weighted average interest rate for the year was
      approximately 7.7% compared to approximately 4.8% in 2005.




26


Income
      Before Income Taxes


(dollars
      in thousands)


2006
              
              2005
              
              2004Income
                  before income taxes
              
              $
              4,202
              
              $
              1,745
              
              $
              3,436Change
                  from prior year
              
              $
              2,457
              
              $
              (1,691
              )
              $
              1,972%
                  change from prior year
              
              
              140.8
              %
              
              -49.2
              %
              
              134.7
              %%
                  of sales
              
              
              3.6
              %
              
              2.9
              %
              
              6.4
              %




A
      90%
      increase in revenues and improved gross margin percentage contributed to $2.4
      million increase in income before taxes and an increase as a percentage of
      sales
      from 2.9% to 3.6%.




Income
      Tax Expense


(dollars
      in thousands)


2006
              
              2005
              
              2004Income
                  tax expense
              
              $
              1,339
              
              $
              798
              
              $
              1,094Change
                  from prior year
              
              $
              542
              
              $
              (296
              )
              $
              737%
                  change from prior year
              
              
              67.9
              %
              
              -27.1
              %
              
              206.4
              %%
                  of Income before tax
              
              
              31.9
              %
              
              45.7
              %
              
              31.8
              %


Income
      tax expense for 2006 increased due to higher income before tax; however, the
      effective rate was lower than 2005 primarily because of a deemed dividend from
      our Mexican operations that was realized 2005.





**Liquidity
      and Capital Resources**





Cash
      and
      Cash Equivalents


(dollars
      in thousands)


December
                  31,
                2006
              
              December
                    31,2005Cash
                  and cash equivalents
              
              $
              82
              
              $
              834




We
      continue to prudently manage our cash flow as the business continues to grow.
      Our cash balances have been affected both by our strong growth and repayment
      of
      term loans as well as amounts payable to Simclar Group. Excess liquid funds
      are
      invested in short-term interest-bearing accounts at financial
      institutions.




27


Net
      Cash
      Provided from Operating Activities


(dollars
      in thousands)


December
                  31,
                2006
              
              December
                  31,
                2005Net
                  cash provided from operating activities
              
              $
              2,781
              
              $
              1,513




The
      largest contributor to the improvement in net cash provided from operating
      activities was income before depreciation which was approximately $4.7 million
      in 2006 compared to approximately $2.2 million in 2005. This was offset by
      higher working capital requirements due to the acquisition of the Litton assets
      and an overall increase in sales in 2006 compared to 2005.





Accounts
      Receivable


(dollars
      in thousands)


December
                  31,
                2006
              
              December
                  31,
                2005Accounts
                  receivable
              
              $
              20,802
              
              $
              9,199Average
                  days sales outstanding
              
              
              64.5
              
              
              54.3




Accounts
      receivable grew due to the increased sales volume. The days sales outstanding
      (DSO) as calculated by dividing ending accounts receivable balance by daily
      sales (annual sales/365) makes the DSO appear higher than it truly is. The
      record sales volume in the fourth quarter distorts the annual calculation.
      If
      viewed on a period by period basis the DSO is consistently in the 53 to 55
      day
      range.





Inventory


(dollars
      in thousands)


December
                  31,
                2006
              
              December
                  31,
                2005Inventory
              
              $
              20,259
              
              $
              12,225Average
                  inventory turnover
              
              
              5.3
              
              
              4.4




Inventories
      have grown in relationship to the increased volumes. We continue to focus on
      improving our inventory utilization through improved systems, expanding our
      use
      of consigned inventories, reducing order quantities, and shortening lead times.


28


Cash
      Used
      in Investing Activities


(dollars
      in thousands)


December
                  31,
                2006
              
              December
                  31,
                2005Net
                  cash used in investing activities
              
              $
              (17,074
              )
              $
              (1,782
              )




The
      most
      significant investing activity was approximately $16.1 million related to the
      Litton asset acquisition. Additions to property and equipment were approximately
      $1.1 million in 2006 compared to approximately $1.7 million in
      2005.




Cash
      Provided by Financing Activities


(dollars
      in thousands)


December
                  31,
                2006
              
              December
                  31,
                2005Cash
                  provided by financing activities
              
              $
              13,543
              
              $
              810




The
      BoS
      increased our long-term credit facility $16 million to fund the Litton asset
      acquisition. Term loan repayments were $1.7 million and payments on other
      borrowings totaled $450,000 in 2006. This compares to an increase on the line
      of
      credit of approximately $2.0 million and term loan repayments of $1.2 million
      in
      2005.





Our
      near-term cash requirements are primarily related to funding our operations,
      investing in acquisitions, and meeting the company’s 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.





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, 2006**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
            
            $
            127,759




Effective
      January 26, 2007, we entered into amendments of the two working capital
      facilities. The term of the $1 million working capital facility of Simclar
      IT,
      originally entered into in December 2005, was extended to January 28, 2008.
      The
      Simclar, Inc. $5 million working capital facility, last amended in December
      2005, was increased to $7.5 million, and its maturity date was extended to
      January 28, 2008. No other material changes were made to either facility by
      the
      amendments.





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, 2006 was 6.85%
      based on the one month election.




29




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%. The
      interest rate for this working capital facility at December 31, 2006 was
      6.85%.





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 was 6.85% for tranches
      A
      and B, 7.85% for tranche C, and 8.85% for tranche D at December 31, 2006 based
      on the one 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 October
                2008B
            
            $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 2012D
            
            $3,000,000
            
            Acquisition
                of certain assets of the Litton Interconnect Technologies assembly
                operations
            
            Single
                payment due December 31, 2010





The
      weighted average interest rate for 2006 was approximately 7.7%.





Our
      credit facilities with BoS, which include an Amended Term Loan Facility Letter,
      an Amended Working Capital Facility Letter, a Working Capital Facility Letter,
      and related security agreements, guaranties and a mortgage, 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;









30


·
              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); 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 December 31, 2007; 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).




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.






The
      company did not satisfy the EBIT to total interest coverage covenant contained
      in the credit facilities at December 31, 2006. Bank of Scotland has nonetheless
      agreed to suspend the effectiveness of this covenant until the earlier of
      December 31, 2007 or the negotiation of revised financial covenants. In this
      regard, the company will submit by April 30, 2007 a financial projection for
      the
      remainder of 2007 showing relevant measurements against the financial covenants.
      EBIT to total interest coverage, pending renegotiation of the covenant, must
      exceed 3:1 on a quarterly basis and the other financial covenants must be
      complied with. The company is in compliance with the 3:1 interest coverage
      ratio
      and management is of the opinion that such compliance will be maintained during
      such period.





31


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, 2006:


Total
              
              Less
                  than
              
              1
                  -
                  3
              
              4
                  -
                  5
              
              Over
                  5In
                  Thousands
              
              Amounts
              
              1
                  Year
              
              Years
              
              Years
              
              YearsLong-term
                  debt with interest
              
              $
              22,983
              
              
              4,529
                  $
              
              $
              7,383
              
              $
              8,465
              
              $
              2,606Operating
                  leases
              
              
              6,957
              
              
              1,125
              
              
              2,189
              
              
              1,777
              
              
              1,866Bank
                  line of credit with interest
              
              
              5,284
              
              
              5,284Long-term
                  subordinated debt with interest
              
              
              2,099
              
              
              847
              
              
              1,252$
              37,323
              
              $
              11,785
              
              $
              10,824
              
              $
              10,242
              
              $
              4,472




**Effect
      of Recently Issued Accounting Pronouncements**




In
      June 2006, the Financial Accounting Standards Board issued Financial
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
      interpretation of FASB Statement No. 109”, (“FIN 48”). FIN 48 clarifies the
      accounting for uncertainty in income taxes recognized in an enterprise’s
      financial statements in accordance with FASB Statement No. 109, *Accounting
      for Income Taxes.* The
      provisions of FIN 48 prescribe a recognition threshold and measurement attribute
      for the financial statement recognition and measurement of a tax position taken
      or expected to be taken in a tax return. In addition, the provisions of FIN
      48
      provide guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure, and transition. The provisions of
      FIN
      48 are effective for fiscal years beginning after December 15, 2006 or
      January 1, 2007 as to the company. The company adopted FIN 48 in the first
      quarter of 2007 as required with no material adverse effect on the Company's
      consolidated financial position or results of operations.





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value
      Measurements” (“SFAS No. 157”) to clarify the definition of fair value,
      establish a framework for measuring fair value and expand the disclosures on
      fair value measurements. SFAS No. 157 defines fair value as the price that
      would
      be received to sell an asset or paid to transfer a liability in an orderly
      transaction between market participants at the measurement date (an exit price).
      SFAS No. 157 also stipulates that, as a market-based measurement, fair value
      measurement should be determined based on the assumptions that market
      participants would use in pricing the asset or liability, and establishes a
      fair
      value hierarchy that distinguishes between (a) market participant assumptions
      developed based on market data obtained from sources independent of the
      reporting entity (observable inputs) and (b) the reporting entity’s own
      assumptions about market participant assumptions developed based on the best
      information available in the circumstances (unobservable inputs). SFAS No.
      157
      becomes effective for the Company in its fiscal year ending December 31, 2008.
      The company is currently evaluating the impact of the provisions of SFAS No.
      157
      on the Company's consolidated financial statements.





**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.




32


***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 carryforwards. 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.





***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,
      Simclar (Mexico), and Simclar (North America), Inc. 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 make assumptions about future sales
      and
      profitability.




33




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.




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 the company. 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.




34





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.





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 $23,600,000 at December 31, 2006.





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 $236,000 on our
      operations.





Our
      exposure to market risks from foreign currency exchange rates is
      minimal.




**Item
      8. Financial Statements and Supplementary Data**





Our
      financial statements, and the related notes, together with the report s
      of
      Grant Thornton LLP dated April 2, 2007 and 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-4 through F-27 attached hereto.




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


Effective
        November 30, 2006 the company changed its independent registered public
        accounting firm to Grant Thornton LLP (“Grant”) from Battelle & Battelle LLP
        (“Battelle”). The company and Battelle terminated their relationship by mutual
        agreement, which decision was approved by the Audit Committee of the Board
        of
        Directors of the company. The company’s engagement of Grant was made in
        conjunction with the decision by the company’s parent corporation, Simclar Group
        Limited, to engage Grant as the audit firm for Simclar Group and all of its
        worldwide subsidiaries.
  **Item
        9A. Controls and Procedures**
 
 **Evaluation
        of Disclosure Controls and Procedures**
 
 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.
  35
 Under
        the
        supervision and with the participation of our management, including our chief
        executive officer and chief financial officer, we evaluated the effectiveness
        of
        the design and operation of our disclosure controls and procedures as of
        December 31, 2006. Based on that evaluation, our Chief Executive Officer
        and
        Chief Financial Officer have concluded that, as of December 31, 2006, our
        disclosure controls and procedures are adequately designed to ensure that
        the
        information required to be disclosed by us in the reports we file or submit
        under the Exchange Act is recorded, processed, summarized and reported, within
        the time periods specified in the applicable rules and forms.
 
 **Material
        Weakness in Internal Control Over Financial Reporting**
 
 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 concluded that our disclosure controls and
        procedures were not effective as of December 31, 2005.
 
 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.
 
 The
        control deficiencies identified by our management, 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. This material weakness led to a restatement of our consolidated
        financial statements for 2005 and for the first quarter of 2006.
 
 36
 In
        order
        to remedy these material weaknesses, during the third and fourth quarters
        of
        2006 we made significant remedial efforts to increase the effectiveness of
        our
        internal controls. Our remedial efforts included:
 
 ·
              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 included, but were 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.
 ·
              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.
 
 We
        believe that these remedial efforts have been in place for a sufficient time
        to
        permit management to conclude that our controls were effective as of December
        31, 2006.
 
 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.
 
 37
 **Changes
        in Control Over Financial Reporting**
  Except
        for the efforts to strengthen our internal controls described above, during
        the
        quarter ended December 31, 2006, there were no changes in our internal controls
        over financial reporting that materially affected, or is reasonably likely
        to
        materially affect, our internal control over financial reporting.
 
 **Item
        9B. Other Information**
 
 None.
 
 **Part
        III**
 
 **Item
        10. Directors, Executive Officers and Corporate Governance**
 
 The
        information required by this item is included under the caption, **“Information
        About Directors, Executive Officers, and Corporate
        Governance”** in our
        Information Statement relating to our 2007 Annual Meeting of Shareholders
        (the
“Information Statement”) to be held on June 8, 2007, to be filed with the
        Securities and Exchange Commission pursuant to Regulation 14C under the
        Securities Exchange Act of 1934, is incorporated herein by
        reference.
 
 We
        have
        adopted a code of conduct and ethics that applies to our directors, officers
        and
        all employees. The code of business conduct and ethics is posted on our website
        at www.simclar.com ,
        and may
        be obtained free of charge by writing to Simclar, Inc., Attn: Chief Financial
        Officer, 1784 Stanley Avenue, Dayton, Ohio 45404.
 
 **Item
        11. Executive Compensation**
 
 The
        information required by this item is included under the caption, **“Executive
        Compensation”** in the
        Information Statement and is incorporated herein by reference.
 
 **Item
        12. Security Ownership of Certain Beneficial Owners and Management and Related
        Stockholder Matters**
 
 The
        information required by this item is included under the caption, **“Security
        Ownership of Certain Beneficial Owners and Management”** and
“ **Equity
        Compensation Plan Information** ”
in
        the
        Information Statement and is incorporated herein by reference.
 
 **Item
        13. Certain Relationships and Related Transactions,**  **and
        Director Independence**
 
 The
        information required by this item is included under the caption, **“Certain
        Relationships and Related Transactions, and Director
        Independence”** in the
        Information Statement and is incorporated herein by reference.
 
 **Item
        14. Principal Accountant Fees and Services**
 
 The
        information required by this item is included under the caption **“Report
        of the Audit Committee”** in the
        Information Statement, and is incorporated herein by reference.
   38
  **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:
 
 Reports
        of Independent Registered Public Accountants.
 
 Consolidated
        Balance Sheets as of December 31, 2006 and 2005.
 
 Consolidated
        Statements of Operations for the Years Ended December 31, 2006, 2005, and
        2004.
 
 Consolidated
        Statements of Stockholders’ Equity for the Years Ended December 31, 2006, 2005
        and 2004 .
 
 Consolidated
        Statements of Cash Flows for the Years Ended December 31, 2006, 2005, and
        2004.
 
 Notes
        to
        the Consolidated Financial Statements.
 
 (2)  The
        following financial statement schedule is included in this Annual Report
        on Form
        10-K 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***3.1
                
                Amended
                    and Restated Articles of Incorporation (incorporated by reference
                    to
                    Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed November
                    14, 2003).3.2
                
                Amended
                    By-Laws of Simclar, Inc. (incorporated by reference to Exhibit
                    3.2 to the
                    Company’s Annual Report on Form 10-K filed March 31,
                    2006).4.1
                
                Form
                    of Common Stock Certificate (incorporated by reference to Exhibit
                    4(i) to
                    the Company’s Annual Report on Form 10-K filed March 30, 2004).10.1
                
                Stock
                    Purchase Agreement, dated May 19, 2005 but effective May 1, 2005,
                    between
                    Simclar, Inc. and Simclar Group Limited (incorporated by reference
                    to
                    Exhibit 10.1 of the Company’s Quarterly Report of Form 10-Q filed August
                    12, 2005).10.2
                
                Share
                    and Asset Purchase and Sale Agreement, dated as of December 21,
                    2005, by
                    and among Litton Systems, Inc., Litton Systems International,
                    Inc. and
                    Litton U.K., Inc. as Sellers, and Simclar Group Limited, Simclar,
                    Inc.,
                    Simclar Interconnect Technologies, Inc., and Simclar Interconnect
                    Technologies Limited. (incorporated by reference to Exhibit 10.2
                    to the
                    Company’s Annual Report on Form 10-K filed March 31,
                    2006).
  39
   10.3
                
                First
                    Amendment to Share and Asset Purchase and Sale Agreement, dated
                    as of
                    February 24, 2006 by and among Litton Systems, Inc., Litton Systems
                    International, Inc. and Litton U.K., Inc. as Sellers, and Simclar
                    Group
                    Limited, Simclar, Inc., Simclar Interconnect Technologies, Inc.,
                    and
                    Simclar Interconnect Technologies Limited. (incorporated by reference
                    to
                    Exhibit 10.3 to the Company’s Annual Report on Form 10-K filed March 31,
                    2006).10.4
                
                Lease
                    Agreement, dated August 29, 2000, between the Company and Medicore,
                    Inc.
                    (incorporated by reference to Exhibit 10(i) to Medicore Inc.’s Current
                    Report on Form 8-K filed December 19, 2000).10.5
                
                Lease
                    Agreement, dated March 25, 1997, between the Company and Route
                    495
                    Commerce Park Limited Partnership(incorporated by reference to
                    Exhibit
                    10(i) to the Company’s Quarterly Report on Form 10-Q filed May 9,
                    1997).10.6
                
                Lease
                    Agreement, dated April 30, 1997, between the Company and PruCrow
                    Industrial Properties, L.P., (incorporated by reference to Exhibit
                    10(i)
                    to the Company’s Current Report on Form 8-K dated June 4,
                    1997).10.7
                
                Lease
                    Agreement,dated
                    July 16, 2001,between Simclar de Mexico, SA de CV and Consorcio Inmobiliario
                    Del
                    Noreste,S.A.deC.V.(incorporated by reference to Exhibit 10(x) to the Company’s Annual Report
                    on Form 10-K filed March 30, 2004 ).10.8
                
                Lease
                    Agreement,dated
                    as of November 1, 2004,between
                    Simclar de Mexico, SA de CV and Consorcio Inmobiliario Del Noreste,S.A.deC.V.,(incorporated
                    by reference to Exhibit 10(xviii) to the Company’s Annual Report on Form
                    10-K filed March 31, 2005).10.9
                
                Commercial
                    Lease, dated October 1, 1999, between Simclar (Mexico) and Fleet
                    Management Co. (incorporated by reference to Exhibit 10(xi) to
                    the
                    Company’s Annual Report on Form 10-K filed March 30,
                    2004).10.10
                
                Sublease,
                    dated August 23, 1999, between the Company and United Consulting
                    Group
                    (incorporated by reference to Exhibit (10)(xiv) of the Company’s Annual
                    Report on Form 10-K filed March 30, 2000).10.11
                
                Amendment
                    to Sublease and Consent to Sublease among the Company, United
                    Consulting
                    Group, Inc., and United Computing Group, Inc. (incorporated by
                    reference
                    to Exhibit 10(xxv) to the Company’s Annual Report on Form 10-K filed March
                    30, 2001).10.12
                
                License
                    Agreement, dated February 24, 2006, between the Company and Litton
                    Systems, Inc. (incorporated by reference to Exhibit 10.12 to
                    the Company’s
                    Annual Report on Form 10-K filed March 31, 2006).10.13
                
                Transition
                    Services Agreement, dated February 24, 2006, between the Company
                    and
                    Litton Systems, Inc. (incorporated by reference to Exhibit 10.13
                    to the
                    Company’s Annual Report on Form 10-K filed March 31,
                    2006).10.14
                *
                Lease
                    Agreement, dated as of December 28, 2006, between Simclar Interconnect
                    Technologies, Inc. and Phillip A. Wiland and Linda S.
                    Wiland.10.15
                
                Facility
                    Letter, dated October 2, 2001, between the Company and the Bank
                    of
                    Scotland (incorporated by reference to Exhibit 10(a) to the Company’s
                    Quarterly Report on Form 10-Q filed November 14,
                    2001).
   40
  10.16
                
                Working
                    Capital Facility Letter, dated October 2, 2001, between the Company
                    and
                    the Bank of Scotland (incorporated by reference to Exhibit 10(b)
                    to the
                    Company’s Quarterly Report on Form 10-Q filed November 14,
                    2001).10.17
                
                Letter
                    Agreement, dated November 10, 2003, between the Company and the
                    Bank of
                    Scotland (incorporated by reference to Exhibit 10(xviii) to the
                    Company’s
                    Annual Report on Form 10-K filed March 30, 2004).10.18
                
                Letter
                    Agreement dated January 17, 2003 with the Bank of Scotland (incorporated
                    by reference to Exhibit 10(xvii) to the Company’s Annual Report on Form
                    10-K filed March 30, 2004).10.19
                
                Amendment
                    Letter, dated October 14, 2004, to Term Loan Facility Letter
                    between the
                    Company and Bank of Scotland, (incorporated by reference to Exhibit
                    99.1
                    to the Company’s Current Report on Form 8-K filed October 20,
                    2004).10.20
                
                Amendment
                    Letter, dated October 14, 2004, to Working Capital Facility Letter
                    between
                    the Company and Bank of Scotland (incorporated by reference to
                    Exhibit
                    99.2 to the Company’s Current Report on Form 8-K filed October 20,
                    2004).10.21
                
                Amendment
                    Letter 4, dated December 21, 2005, to Term Loan Facility Letter
                    between
                    the Company and Bank of Scotland. (incorporated by reference
                    to Exhibit
                    10.20 to the Company’s Annual Report on Form 10-K filed March 31,
                    2006).10.22
                
                Working
                    Capital Facility Letter, dated December 21, 2005, between the
                    Company and
                    Bank of Scotland. (incorporated by reference to Exhibit 10.21
                    to the
                    Company’s Annual Report on Form 10-K filed March 31,
                    2006).10.23
                
                Amendment
                    Letter 1, dated January 26, 2007, to Working Capital Facility
                    Letter
                    between the Company and Simclar Interconnect Technologies, Inc.,
                    as
                    borrowers, and Bank of Scotland , (incorporated by reference
                    to Exhibit
                    99.1 to the Company’s Current Report on Form 8-K filed February 19,
                    2007).10.24
                
                Amendment
                    Letter 5, dated January 26, 2007, to Working Capital Facility
                    Letter
                    between the Company and Bank of Scotland , (incorporated by reference
                    to
                    Exhibit 99.2 to the Company’s Current Report on Form 8-K filed February
                    19, 2007).10.25
                *
                Third
                    Amended and Restated General Security Agreement, dated February
                    28, 2007,
                    among the Company,Simclar
                    (Mexico) Inc, Simclar Interconnect Technologies, Inc., Simclar
                    De Mexico,
                    S.A. de C.V. and Bank of Scotland.10.26
                
                Third
                    Amended and Restated Pledge Agreement, dated February 23, 2006,
                    among the
                    Company, Simclar (Mexico) Inc, and Bank of Scotland. (incorporated
                    by
                    reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K
                    filed March 31, 2006).10.27
                
                Management
                    Services Agreement, effective July 17, 2005, between Simclar,
                    Inc. and
                    Simclar Group Limited (incorporated by reference to Exhibit 10.2
                    to the
                    Company’s Quarterly Report on Form 10-Q filed August 12,
                    2005).10.28
                
                Employment
                    Agreement between the Company and Barry Pardon dated February
                    22, 2006.
                    (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report
                    on Form 10-K filed March 31, 2006).
  41
  21
                *
                Subsidiaries
                    of the registrant.24
                *
                Powers
                    of Attorney.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.
 
 **(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.
  42




**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:
                April 6, 2007
            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
                
                April
                    6, 2007/s/
                    Barry J. Pardon
                
                President
                    and Director
                
                April
                        6, 2007Barry
                    J. Pardon
                
                (principal
                    executive officer)John
                    Ian Durie*
                
                Vice-President
                    (Finance) and
                
                April
                        6, 2007John
                    Ian Durie
                
                DirectorMarshall
                    W. Griffin*
                
                Chief
                    Financial Officer and Secretary
                
                April
                        6, 2007Marshall
                    W. Griffin
                
                (principal
                      financial and principalaccounting
                      officer)A.
                    Graeme Manson *
                
                Director
                
                April
                        6, 2007A.
                    Graeme MansonPatrick
                    Lacchia *
                
                Director
                
                April
                        6, 2007Patrick
                    LacchiaKenneth
                    M. MacKay, M. D.*
                
                Director
                
                April
                        6, 2007Kenneth
                    M. MacKay, M. D.Christina
                    M. J. Russell*
                
                Director
                
                April
                        6, 2007Christina
                    M. J. Russell*By:
                    /s/ Barry J. PardonBarry
                    J. Pardon, Attorney-in-Fact






43




**SIMCLAR,
            INC. AND SUBSIDIARIES**
 **FORM
          10-K--ITEM 8**
 
 **LIST
          OF FINANCIAL STATEMENTS**
 
 The
          following reports of independent registered public accounting firms and
          consolidated financial statements of Simclar, Inc. and subsidiaries are
          included
          in Item 8:
 
 PageReport
                    of Independent Registered Public Accounting Firm Grant Thornton
                    LLP
                
                
                F-2Report
                    of Independent Registered Public Accounting Firm Battelle and
                    Battelle
                    LLP
                
                
                F-3Consolidated
                    Balance Sheets - December 31, 2006 and 2005.
                
                
                F-4Consolidated
                    Statements of Operations - Years ended December 31, 2006,2005,
                    and
                    2004.
                
                
                F-6Consolidated
                    Statements of Stockholders’ Equity - Years ended December 31, 2006, 2005,
                    and 2004.
                
                
                F-7Consolidated
                    Statements of Cash Flows - Years ended December 31, 2006,2005
                    and
                    2004.
                
                
                F-8Notes
                    to Consolidated Financial Statements
                
                
                F-9The
                    following financial statement schedule of Simclar, Inc. and subsidiaries
                    is includedReport
                    of Grant Thornton LLP on Supplemental Schedule
                
                
                S-1Report
                    of Battelle and Battelle LLP on Supplemental Schedule
                
                
                S-2Schedule
                    II - Valuation and qualifying accounts.
                
                
                S-3
 
 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**
 
 To
          the
          Board of Directors and Stockholders of Simclar, Inc. and
          subsidiaries:
 
 We
          have
          audited the accompanying consolidated balance sheet of Simclar, Inc. and
          subsidiaries (the “Company”) (a Florida corporation) as of December 31, 2006,
          and the related consolidated statements of operations, stockholders’ equity and
          cash flows for the year then ended. 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
          audit.
 
 We
          conducted our audit in accordance with the standards of the Public Company
          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 also includes
          examining, on a test basis, evidence supporting the amounts and disclosures
          in
          the financial statements, assessing the accounting principles used and
          significant estimates made by management, as well as evaluating the overall
          financial statement presentation. We believe that our audit provides a
          reasonable basis for our opinion.
 
 In
          our
          opinion, the consolidated financial statements referred to above present
          fairly,
          in all material respects, the financial position of Simclar, Inc. and
          subsidiaries as of December 31, 2006, and the results of their operations
          and
          their cash flows for the year then ended, in conformity with accounting
          principles generally accepted in the United States of America.
  /s/
          GRANT
          THORNTON LLP
 
 Cincinnati,
          Ohio
 April
          6,
          2007
  F-2
  **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 the related consolidated statements
          of
          operations, stockholders’ equity, and cash flows, for the each of the years
          ended December 31, 2005 and 2004. 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 the consolidated results of their
          operations and their cash flows for each of the years ended December 31,
          2005
          and 2004, 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-3
  **SIMCLAR,
          INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          BALANCE SHEETS**
 December
                        31,
                    
                    December
                        31,2006
                    
                    2005**ASSETS****Current
                        assets:**Cash
                        and cash equivalents
                    
                    $
                    82,154
                    
                    $
                    833,703Accounts
                        receivable, less allowances of $294,000 and $235,000 atDecember
                        31, 2006 and December 31, 2005, respectively
                    
                    
                    20,801,668
                    
                    
                    9,198,877Inventories,
                        less allowances of $1,552,000 and $1,822,000 atDecember
                        31, 2006 and 2005, respectively
                    
                    
                    20,259,037
                    
                    
                    12,225,461Prepaid
                        expenses and other current assets
                    
                    
                    637,856
                    
                    
                    357,703Prepaid
                        income taxes
                    
                    
                    15,405
                    
                    
                    -Deferred
                        income taxes
                    
                    
                    1,034,532
                    
                    
                    985,056**Total
                        current assets**
                    
                    
                    42,830,652
                    
                    
                    23,600,800**Property
                        and equipment:**Land
                        and improvements
                    
                    
                    547,511
                    
                    
                    547,511Buildings
                        and building improvements
                    
                    
                    1,235,904
                    
                    
                    1,235,904Machinery,
                        computer and office equipment
                    
                    
                    15,563,042
                    
                    
                    10,944,591Tools
                        and dies
                    
                    
                    363,992
                    
                    
                    331,244Leasehold
                        improvements
                    
                    
                    660,949
                    
                    
                    493,694Construction
                        in progress
                    
                    
                    537,879
                    
                    
                    519,254**Total
                        property and equipment**
                    
                    
                    18,909,277
                    
                    
                    14,072,198Less
                        accumulated depreciation and amortization
                    
                    
                    8,984,948
                    
                    
                    6,003,107**Net
                        property and equipment**
                    
                    
                    9,924,329
                    
                    
                    8,069,091**Deferred
                        expenses and other assets, net**
                    
                    
                    367,122
                    
                    
                    61,398**Goodwill**
                    
                    
                    9,410,704
                    
                    
                    5,917,938**Intangible
                        assets, net**
                    
                    
                    1,331,000
                    
                    
                    60,996**Total
                        assets**
                    
                    $
                    63,863,807
                    
                    $
                    37,710,223
  See
            notes
            to consolidated financial statements
 F-4
 **SIMCLAR,
            INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          BALANCE SHEETS**
 December
                      31,
                  
                  December
                      31,2006
                  
                  2005**LIABILITIES
                      AND STOCKHOLDERS’ EQUITY****Current
                      liabilities:**Line
                      of credit
                  
                  $
                  5,065,771
                  
                  $
                  4,990,395Accounts
                      payable
                  
                  
                  16,396,407
                  
                  
                  9,315,510Accrued
                      expenses
                  
                  
                  1,740,799
                  
                  
                  1,379,763Accrued
                      income taxes
                  
                  
                  -
                  
                  
                  371,870Amounts
                      payable to major stockholder, net
                  
                  
                  1,344,139
                  
                  
                  1,873,463Current
                      portion of long-term debt
                  
                  
                  4,047,408
                  
                  
                  1,200,000**Total
                      current liabilities**
                  
                  
                  28,594,524
                  
                  
                  19,131,001Long-term
                      debt
                  
                  
                  15,300,000
                  
                  
                  3,000,000Long-term
                      debt, subordinated
                  
                  
                  1,217,986
                  
                  
                  -Deferred
                      income taxes
                  
                  
                  429,031
                  
                  
                  518,926Other
                      long term liabilities
                  
                  
                  400,000
                  
                  
                  -**Total
                      liabilities**
                  
                  
                  45,941,541
                  
                  
                  22,649,927Commitments
                      and contingencies
                  
                  
                  -
                  
                  
                  -**Stockholders'
                      equity:**Common
                      stock, $.01 par value, authorized 10,000,000 shares; issued
                      andoutstanding
                      6,465,345 shares at December 31, 2006 and 2005
                  
                  
                  64,653
                  
                  
                  64,653Capital
                      in excess of par value
                  
                  
                  11,446,087
                  
                  
                  11,446,087Retained
                      earnings
                  
                  
                  6,385,732
                  
                  
                  3,522,992Accumulated
                      other comprehensive income
                  
                  
                  25,794
                  
                  
                  26,564**Total
                      stockholders' equity**
                  
                  
                  17,922,266
                  
                  
                  15,060,296$
                  63,863,807
                  
                  $
                  37,710,223
 See
          notes to consolidated financial
          statements
 F-5
  SIMCLAR,
          INC. AND
          SUBSIDIARIES
 **CONSOLIDATED
          STATEMENTS OF OPERATIONS**
 Year
                      Ended December 31,2006
                  
                  2005
                  
                  2004Sales
                  
                  $
                  116,031,435
                  
                  $
                  61,005,496
                  
                  $
                  53,582,487Cost
                      of goods sold
                  
                  
                  101,689,972
                  
                  
                  53,867,474
                  
                  
                  46,229,712Gross
                      Profit
                  
                  
                  14,341,463
                  
                  
                  7,138,022
                  
                  
                  7,352,775Selling,
                      general and administrative expenses
                  
                  
                  8,368,288
                  
                  
                  4,984,610
                  
                  
                  3,754,823Income
                      from operations
                  
                  
                  5,973,175
                  
                  
                  2,153,412
                  
                  
                  3,597,952Interest
                      expense
                  
                  
                  1,834,736
                  
                  
                  476,712
                  
                  
                  213,284Interest
                      and other income
                  
                  
                  (63,679
                  )
                  
                  (68,062
                  )
                  
                  (50,953
                  )Income
                      before income taxes
                  
                  
                  4,202,118
                  
                  
                  1,744,762
                  
                  
                  3,435,621Income
                      tax provision
                  
                  
                  1,339,378
                  
                  
                  797,734
                  
                  
                  1,093,841Net
                      income
                  
                  $
                  2,862,740
                  
                  $
                  947,028
                  
                  $
                  2,341,780Earnings
                      per share:Basic
                      & diluted
                  
                  $
                  0.44
                  
                  $
                  0.15
                  
                  $
                  0.36
  See
            notes
            to consolidated financial statements
 F-6
  SIMCLAR,
          INC. AND
          SUBSIDIARIES
  **CONSOLIDATED
          STATEMENTS OF STOCKHOLDERS’ EQUITY**
 **YEARS
          ENDED DECEMBER 31, 2006, 2005, AND 2004**
 **Retained**
                  
                  **Accumulated****Capital
                      in**
                  
                  
                  
                  **Earnings**
                  
                  **Other****Common**
                  
                  **Excess
                      of**
                  
                  **Comprehensive**
                  
                  **(Accumulated)**
                  
                  **Comprehensive****Stock**
                  
                  **Par
                      Value**
                  
                  **Income**
                  
                  **(Deficit)**
                  
                  **Income
                      (Loss)**
                  
                  **Total**Balance
                      at January 1, 2004
                  
                  $
                  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
                  )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
                  
                  $
                  15,060,296Comprehensive
                      income:Net
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  2,862,740
                  
                  
                  2,862,740Other
                      comprehensive income:Foreign
                      currency translation adjustments
                  
                  
                  
                  
                  
                  
                  
                  
                  (770
                  )
                  
                  
                  
                  
                  (770
                  )Comprehensive
                      income
                  
                  
                  
                  
                  
                  
                  
                  $
                  2,861,970
                  
                  
                  
                  
                  
                  
                  
                  
                  2,861,970Balance
                      at December 31, 2006
                  
                  $
                  64,653
                  
                  $
                  11,446,087
                  
                  
                  
                  
                  $
                  6,385,732
                  
                  $
                  25,794
                  
                  $
                  17,922,266
  See
          notes to consolidated financial
          statements
  F-7
  SIMCLAR,
          INC. AND
          SUBSIDIARIES
 
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 Year
                      Ended December
                      31,2006
                  
                  2005
                  
                  2004Operating
                      activities:Net
                      income
                  
                  $
                  2,862,740
                  
                  $
                  947,028
                  
                  $
                  2,341,780Adjustments
                      to reconcile net income to net cashprovided
                      by operating activities:Effect
                      of prior period adjustment
                  
                  
                  -
                  
                  
                  (17,274
                  )
                  
                  -Depreciation
                      and amortization
                  
                  
                  1,807,917
                  
                  
                  1,273,533
                  
                  
                  1,019,609Deferred
                      expenses and other assets
                  
                  
                  (1,818
                  )
                  
                  (40,776
                  )
                  
                  (20,622
                  )Provision
                      for inventory obsolescence
                  
                  
                  356,438
                  
                  
                  468,675
                  
                  
                  382,391Provision
                      for uncollectable accounts
                  
                  
                  -
                  
                  
                  55,527
                  
                  
                  -Other
                      liabilities
                  
                  
                  400,000
                  
                  
                  -
                  
                  
                  35,000Loss
                      / (gain) on disposal of property and equipment
                  
                  
                  (26,961
                  )
                  
                  9,028
                  
                  
                  -Deferred
                      income taxes (benefit) expense
                  
                  
                  (139,371
                  )
                  
                  (233,273
                  )
                  
                  22,700Changes,
                      net of acquisitions, relating to operating activities
                      from:Accounts
                      receivable
                  
                  
                  (3,363,108
                  )
                  
                  (409,038
                  )
                  
                  (2,375,164
                  )Amounts
                      payable to major stockholder, net
                  
                  
                  (529,324
                  )
                  
                  163,832
                  
                  
                  (869,116
                  )Inventories
                  
                  
                  (3,624,582
                  )
                  
                  (1,048,726
                  )
                  
                  (1,944,001
                  )Prepaid
                      expenses and other current assets
                  
                  
                  (181,017
                  )
                  
                  84,538
                  
                  
                  (7,823
                  )Accounts
                      payable
                  
                  
                  5,414,486
                  
                  
                  749,192
                  
                  
                  2,453,983Accrued
                      expenses
                  
                  
                  167,164
                  
                  
                  2,958
                  
                  
                  209,816Other
                  
                  
                  25,337
                  
                  
                  -
                  
                  
                  -Income
                      taxes payable (refundable)
                  
                  
                  (387,275
                  )
                  
                  (492,121
                  )
                  
                  294,664Net
                      cash provided by operating activities
                  
                  
                  2,780,626
                  
                  
                  1,513,103
                  
                  
                  1,543,217Investing
                      activities:Additions
                      to property and equipment
                  
                  
                  (1,131,369
                  )
                  
                  (1,717,681
                  )
                  
                  (2,532,792
                  )Proceeds
                      from sale of property and equipment
                  
                  
                  234,367
                  
                  
                  176,518
                  
                  
                  -Acquisition
                      of subsidiaries, net of cash acquired:Simclar
                      (Mexico), Inc.
                  
                  
                  (54,896
                  )
                  
                  (588,195
                  )
                  
                  (606,432
                  )Simclar
                      (North America), Inc.
                  
                  
                  -
                  
                  
                  347,645
                  
                  
                  -Simclar
                      Interconnect Technologies, Inc.
                  
                  
                  (16,122,149
                  )
                  
                  -
                  
                  
                  -Net
                      cash used in investing activities
                  
                  
                  (17,074,047
                  )
                  
                  (1,781,713
                  )
                  
                  (3,139,224
                  )Financing
                      activities:Borrowings
                      on bank line of credit
                  
                  
                  2,498,907
                  
                  
                  2,010,395
                  
                  
                  1,230,000Repayments
                      on bank line of credit
                  
                  
                  (2,423,531
                  )
                  
                  -
                  
                  
                  -Proceeds
                      from long-term borrowings
                  
                  
                  16,000,000
                  
                  
                  -
                  
                  
                  1,400,000Debt
                      issuance costs
                  
                  
                  (403,042
                  )
                  
                  810,395
                  
                  
                  1,630,000Payments
                      on long-term bank borrowings
                  
                  
                  (2,129,692
                  )
                  
                  (1,200,000
                  )
                  
                  (1,000,000
                  )Net
                      cash provided by financing activities
                  
                  
                  13,542,642
                  
                  
                  (1,620,790
                  )
                  
                  (3,260,000
                  )Effect
                      of exchange rate fluctuations on cash
                  
                  
                  (770
                  )
                  
                  11,903
                  
                  
                  15,839Net
                      change in cash and cash equivalents
                  
                  
                  (751,549
                  )
                  
                  553,688
                  
                  
                  49,832Cash
                      and cash equivalents at beginning of year
                  
                  
                  833,703
                  
                  
                  280,015
                  
                  
                  230,183Cash
                      and cash equivalents at end of year
                  
                  $
                  82,154
                  
                  $
                  833,703
                  
                  $
                  280,015Cash
                    paid for interest expense
                  
                  $
                  1,719,762
                  
                  $
                  432,414
                  
                  $
                  188,685
  See
            notes to consolidated financial
            statements
 F-8
  **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)”), Simclar de Mexico, S.A. de C.V. (“Simclar de Mexico”), Techdyne
          (Europe) Limited (“Techdyne (Europe)”), Simclar (North America), Inc. (“SNAI”),
          and Simclar Interconnect Technologies, Inc. (“SIT”), collectively referred to as
          the “company.” During 2003, the company changed its name to Simclar, Inc. from
          Techdyne, Inc. following a merger with its wholly owned subsidiary, Lytton
          Inc.
          SIT was acquired during the first quarter of 2006 (refer to Note 15). 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, manufacturing electronic and
          electro-mechanical products 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 as cash equivalents. The carrying amounts reported
          in the
          balance sheets for cash and cash equivalents approximate 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 identify 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 reduced to estimated realizable value
          with a
          charge to the allowance for obsolescence. Additional write-downs, if required,
          are recorded in the period identified.
 
 *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 useful lives of the assets, generally
          estimated to be 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. 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 expense totaled approximately $1,608,000, $1,274,000, and
          $1,020,000 for the years ended December 31, 2006, 2005, and 2004 respectively.
 
 F-9
  **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. Amortization
          expense
          for the years ended December 31, 2006, 2005, and 2004 was approximately
          $282,000, $9,000, and $10,000 respectively.
 
 *Goodwill
          and Intangible Assets*
 
 Goodwill
          is the excess of the purchase price paid over the fair value of the businesses
          acquired and is not amortized.  Intangible assets with determinable lives
          are amortized over the estimated useful life in a manner reflective of
          the
          pattern in which the economic benefits of the intangible assets are used
          up. Goodwill and indefinite-lived intangibles are evaluated for impairment
          on an annual basis, or more frequently if impairment indicators arise,
          using
          fair-value-based tests.  During 2006, 2005, and 2004, the company evaluated
          goodwill and other intangible assets in accordance with SFAS No. 142. The
          company will evaluate the Litton assets acquisition in the first quarter
          of
          2007. The Simclar (North America) acquisition is tested during the second
          quarter of each year while the AG Technologies acquisition is tested in
          the
          third quarter. The company determined no impairment related to the carrying
          value of such assets. The goodwill recognized in the acquisitions of Lytton,
          Inc., AG Technologies, Inc., Simclar (North America), Inc. and the Litton
          assets is:
 Balance
                      of goodwill as of January 1, 2004 and 2005
                  
                  $
                  4,840,545Goodwill
                      arising from acquisitions in 2005
                  
                  
                  1,077,393Balance
                      as of December 31, 2005
                  
                  
                  5,917,938Goodwill
                      arising from acquistions in 2006
                  
                  $
                  3,492,766Balance
                      at December 31, 2006
                  
                  $
                  9,410,704
 F-10
 **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, 2006
                  
                  December
                      31, 2005Gross
                  
                  
                  
                  Grosscarrying
                  
                  Accumulated
                  
                  carrying
                  
                  Accumulatedamount
                  
                  amortization
                  
                  amount
                  
                  amortizationNon-compete
                      agreement
                  
                  $
                  68,000
                  
                  $
                  (25,139
                  )
                  $
                  18,000
                  
                  $
                  (2,250
                  )Customer
                      list
                  
                  
                  1,472,207
                  
                  
                  (184,068
                  )
                  
                  52,207
                  
                  
                  (6,961
                  )$
                  1,540,207
                  
                  $
                  (209,207
                  )
                  $
                  70,207
                  
                  $
                  (9,211
                  )
 Amortization
          expense for intangible assets was approximately $200,000 for 2006 and $9,000
          for
          2005. There was no amortization expense for 2004. Estimated amortization
          expense for the next five years is as follows:   2007-$411,000;
          2008-$365,000; 2009-$273,000; 2010-$137,000; and 2011 and thereafter -$145,000.
          At December 31, 2006, the weighted average amoritization period for intangible
          assets was 5.95 years.
  *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 on differences between the financial accounting and tax basis
          of
          assets and liabilities.
 
 F-11
  **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. The company had no stock options during the reported
          periods. Accordingly, for the years presented, there is no dilutive
          effect.
 
 Following
          is a reconciliation of amounts used in the computations:
 Year
                      Ended December 31,2006
                  
                  2005
                  
                  2004Net
                      income - numerator basic computation
                  
                  $
                  2,862,740
                  
                  $
                  947,028
                  
                  $
                  2,341,780Weighted
                      average shares - denominator basiccomputation
                  
                  
                  6,465,345
                  
                  
                  6,465,345
                  
                  
                  6,465,345Earnings
                      per share:Basic
                      and diluted
                  
                  $
                  0.44
                  
                  $
                  0.15
                  
                  $
                  0.36
 *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 rates.
 
 *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 goodwill and 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-12
  **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 which, under
          contractual terms, is 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 t he
          product to the
          customer which, under contractual terms, is generally FOB shipping
          point.
 
 Trade
          receivables are uncollateralized customer obligations due under normal
          trade
          terms generally requiring payment 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 undertakes a series of actions based upon the aging of past due
          trade
          receivables, including letters and direct customer contact. Accounts are
          deemed
          uncollectible based on a customer’s payment experience and 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 shipment
          to
          the customer. If the manufactured product fails in this period due to 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
          is
          historically less than 1% of its annual sales and thus has not recorded
          any
          liability for rework costs on its financial statements.
 
 F-13
  **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 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
          Accounting Pronouncements*
 
 In
          June 2006, the Financial Accounting Standards Board issued Financial
          Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
          interpretation of FASB Statement No. 109”, (“FIN 48”). FIN 48 clarifies the
          accounting for uncertainty in income taxes recognized in an enterprise’s
          financial statements in accordance with FASB Statement No. 109, *Accounting
          for Income Taxes.* The
          provisions of FIN 48 prescribe a recognition threshold and measurement
          attribute
          for the financial statement recognition and measurement of a tax position
          taken
          or expected to be taken in a tax return. In addition, the provisions of
          FIN 48
          provide guidance on derecognition, classification, interest and penalties,
          accounting in interim periods, disclosure, and transition. The provisions
          of FIN
          48 are effective for fiscal years beginning after December 15, 2006 or
          January 1, 2007 as to the company. The company will adopt FIN 48 in the
          first
          quarter of 2007 as required. Management is presently concluding the analysis
          required under the prouncement, but does not believe adoption will have
          a
          material adverse effect on the Company's consolidated financial position
          or
          results of operations.
 
 In
          September 2006, the Financial Accounting Standards Board (“FASB”) issued
          Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value
          Measurements” (“SFAS No. 157”) to clarify the definition of fair value,
          establish a framework for measuring fair value and expand the disclosures
          on
          fair value measurements. SFAS No. 157 defines fair value as the price that
          would
          be received to sell an asset or paid to transfer a liability in an orderly
          transaction between market participants at the measurement date (an exit
          price).
          SFAS No. 157 also stipulates that, as a market-based measurement, fair
          value
          measurement should be determined based on the assumptions that market
          participants would use in pricing the asset or liability, and establishes
          a fair
          value hierarchy that distinguishes between (a) market participant assumptions
          developed based on market data obtained from sources independent of the
          reporting entity (observable inputs) and (b) the reporting entity’s own
          assumptions about market participant assumptions developed based on the
          best
          information available in the circumstances (unobservable inputs). SFAS
          No. 157
          becomes effective for the Company in its fiscal year ending December 31,
          2008.
          The company is currently evaluating the impact of the provisions of SFAS
          No. 157
          on the Company's consolidated financial statements.
 
 F-14
  **SIMCLAR,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
          2—RESTATEMENT OF FINANCIAL STATEMENTS**
 
 During
          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.
          The
          misstatement related to accounting errors associated with the company’s
          subsidiary, Simclar (Mexico), Inc. The following adjustments were 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
 
 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
 
 In
          addition, a prior period adjustment for $17,274 related to the above matter
          was
          charged to retained earnings as of December 31, 2004.
 
 **NOTE
          3—INVENTORIES**
 
 Inventories
          are comprised of the following:
 December
                      31,2006
                  
                  2005Raw
                      materials and supplies
                  
                  $
                  16,992,310
                  
                  $
                  11,333,762Work
                      in process
                  
                  
                  2,829,592
                  
                  
                  1,794,401Finished
                      goods
                  
                  
                  1,988,934
                  
                  
                  919,261Allowance
                      for obsolescence
                  
                  
                  (1,551,799
                  )
                  
                  (1,821,963
                  )$
                  20,259,037
                  
                  $
                  12,225,461
 F-15
 **SIMCLAR,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
          4—ACCRUED EXPENSES**
 
 Accrued
          expenses are comprised of the following:
 December
                      31,2006
                  
                  2005Accrued
                      compensation
                  
                  $
                  975,130
                  
                  $
                  628,369Accrued
                      property taxes
                  
                  
                  160,338
                  
                  
                  265,554Accrued
                      commissions
                  
                  
                  166,640
                  
                  
                  147,585Other
                  
                  
                  438,691
                  
                  
                  338,255$
                  1,740,799
                  
                  $
                  1,379,763
  **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:
 Original
                  
                  Balance
                      atBorrower
                  
                  Type
                      of facility
                  
                  amount
                  
                  December
                      31, 2006Simclar,
                      Inc.
                  
                  
                  Working
                      capital
                  
                  $
                  5,000,000
                  
                  $
                  4,944,843Simclar,
                      Inc.
                  
                  
                  Term
                      loan - four tranches (seedetail
                        of tranches below)
                  
                  $
                  21,650,000
                  
                  $
                  18,500,000Simclar
                      InterconnectTechnologies,
                      Inc.
                  
                  
                  Working
                      capital
                  
                  $
                  1,000,000
                  
                  $
                  127,759
  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, 2006 was
          6.85%
          based on the one month election.
 
 Interest
          on the Simclar Interconnect Technologies, Inc. working capital facility
          is 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%. The
          interest rate for this working capital facility at December 31, 2006 was
          6.85%.
  F-16
 **SIMCLAR,
              INC. AND SUBSIDIARIES**
 
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 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 was 6.85% for tranches
          A
          and B, 7.85% for tranche C, and 8.85% for tranche D at December 31, 2006
          based
          on the one 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:
  **NOTE
          5—LONG-TERM DEBT - Continued**
 
 Tranche
                
                PrincipalAmount
                
                Purpose
                
                PaymentsA
                
                $
                4,250,000
                
                
                Refinance
                    existing facilities
                
                
                Seventeen
                    quarterly payments of $250,000 beginning October 2004 through
                    October
                    2008B
                
                $
                1,400,000
                
                
                Dayton
                    property acquisition
                
                
                Twenty-eight
                    quarterly payments of $50,000 beginning January 2005 through
                    October
                    2011C
                
                $
                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 2012D
                
                $
                3,000,000
                
                
                Acquisition
                    of certain assets of the Litton Interconnect Technologies assembly
                    operations
                
                
                Single
                    payment due December 31, 2010
 
 The
          weighted average interest rate on long-term debt for the year was
          7.7%
 
 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 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 December, 2007; and
                    not less
                    than 4:1 thereafter (tested on a quarterly basis beginning December
                    31,,2005)
 
 F-17
 **SIMCLAR,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
          5—LONG-TERM DEBT - Continued**
 
 ·
              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). 
 Effective
          January 26, 2007, we entered into amendments of the two working capital
          facilities. The term of the $1 million working capital facility of Simclar
          IT,
          originally entered into in December 2005, was extended to January 28, 2008.
          The
          Simclar, Inc. $5 million working capital facility, last amended in December
          2005, was increased to $7.5 million, and its maturity date was extended
          to
          January 28, 2008. No other material changes were made to either facility
          by the
          amendments.
 
 The
          company did not satisfy the EBIT to total interest coverage covenant contained
          in the credit facilities at December 31, 2006. Bank of Scotland has nonetheless
          agreed to suspend the effectiveness of this covenant until the earlier
          of
          December 31, 2007 or the negotiation of revised financial covenants. In
          this
          regard, the company will submit by April 30, 2007 a financial projection
          for the
          remainder of 2007 showing relevant measurements against the financial covenants.
          EBIT to total interest coverage pending renegotiation of the covenant must
          exceed 3:1 on a quarterly basis and the other financial covenants must
          be
          complied with. The company is in compliance with the 3:1 interest coverage
          ratio
          and management is of the opinion that such compliance will be maintained
          during
          such period.
 
 In
          connection with the credit facilities, 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 guarantees pursuant to which
          SIT and
          SNAI guaranteed the obligations of the company to BoS under the credit
          facilities. Additionally, the company and Simclar (Mexico) entered into
          an
          amended pledge agreement, pursuant to which all of the shares owned by
          the
          company in its subsidiaries, other than Simclar de Mexico 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 also 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.
 
 In
          addition, a t
          the
          time of the SNAI acquisition the company entered into an amended pledge
          agreement with BoS, whereby it pledged the stock of SNAI as additional
          security
          for its outstanding term and working capital facilities.
  Long-term
          debt outstanding:
 December
                      31,2006
                  
                  2005Term
                      loan
                  
                  $
                  18,500,000
                  
                  $
                  4,200,000Less
                      current portion
                  
                  
                  3,200,000
                  
                  
                  1,200,000$
                  15,300,000
                  
                  $
                  3,000,000
 Scheduled
          maturities of long-term debt outstanding at December 31, 2006 are approximately:
          2007 - $3,200,000; 2008 - $3,200,000; 2009 - $2,200,000; 2010 - $4,200,000;
          2011
          - $3,200,000; and 2012 - $2,500,000. Interest payments on all of the above
          debt
          amounted to approximately $1,651,184, $432,000, and $189,000 in 2006, 2005,
          and
          2004 respectively.
 
 F-18
 
 **SIMCLAR,
                INC. AND SUBSIDIARIES**
 
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS**
 On
          August
          17, 2006, Simclar (Mexico) and Simclar entered into an agreement with Winsson
          Enterprises Co., Ltd. (“Winsson”) and its affiliate, Computronics International
          Corp. This agreement replaces a deferred trade payables agreement that
          expired
          on July 14, 2006. The agreement is a non-cash refinance of approximately
          $2,495,000 of trade accounts payable to long-term debt to be repaid within
          a
          three year period with an interest rate of 3% per annum. The agreement
          calls for
          quarterly payments of principal and interest of $225,000 commencing August
          15,
          2006, with a final payment of approximately $123,400 payable on May 15,
          2009.
          The debt is subordinated to the BoS debt. The balance at December 31, 2006
          was
          approximately $2,065,000 and is reflected as subordinated long-term debt
          on the
          face of the financial statements, net of $847,000 reflected in current
          portion
          of long-term debt.
  F-19
 **SIMCLAR,
              INC. AND SUBSIDIARIES**
 
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
          6—INCOME TAXES**
 
 For
          financial reporting purposes, income before income taxes includes the following
          components:
 Year
                      Ended December 31,2006
                  
                  2005
                  
                  2004United
                      States income
                  
                  $
                  3,841,168
                  
                  $
                  1,433,786
                  
                  $
                  3,269,909Foreign
                      income
                  
                  
                  360,950
                  
                  
                  310,976
                  
                  
                  165,712$
                  4,202,118
                  
                  $
                  1,744,762
                  
                  $
                  3,435,621
 Income
          tax payments were approximately $ 1,356,000, $1,253,000, and $754,000 in
          2006,
          2005, and 2004 respectively. ****
 
 The
          components of the current net deferred tax asset and long-term net deferred
          tax
          liability are as follows:
 December
                      31,2006
                  
                  2005Deferred
                      tax asset:Inventory
                      obsolescence
                  
                  $
                  605,201
                  
                  $
                  710,566Costs
                      capitalized in ending inventory
                  
                  
                  129,880
                  
                  
                  94,570Accrued
                      expenses
                  
                  
                  185,039
                  
                  
                  88,272Other
                  
                  
                  114,412
                  
                  
                  91,648Total
                      current asset
                  
                  
                  1,034,532
                  
                  
                  985,056Deferred
                      tax asset (liability)NOL
                      carryforwards
                  
                  
                  8,286,335
                  
                  
                  8,307,458Depreciation
                      and amortization
                  
                  
                  (414,062
                  )
                  
                  (503,957
                  )Other
                  
                  
                  (14,969
                  )
                  
                  (14,969
                  )Total
                      long-term asset
                  
                  
                  7,857,304
                  
                  
                  7,788,532Less:
                      valuation allowance
                  
                  
                  (8,286,335
                  )
                  
                  (8,307,458
                  )Net
                      long-term liability
                  
                  
                  (429,031
                  )
                  
                  (518,926
                  )Net
                      deferred tax asset
                  
                  $
                  605,501
                  
                  $
                  466,130
 During
          2005, the company acquired SNAI and the related net operating loss (NOL)
          carryforwards. At December 31, 2006, SNAI had unused U.S. federal and state
          net
          operating loss carryforwards of approximately $22,000,000 and $7,000,000,
          respectively, generally expiring from 2022 through 2025.  The NOL
          carryforwards 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 at the date of the acquisition and as of December 31,
          2006
          regarding the likelihood of utilizing these loss carryforwards before the
          expiration date, a valuation allowance has been provided for the full amount
          of
          possible tax benefit. The company has not provided a valuation allowance
          for the
          remainder of the deferred tax asset based on taxes paid in the current
          year and
          available carryback years.
  F-20
 **SIMCLAR,
              INC. AND SUBSIDIARIES**
 
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
          6—INCOME TAXES - Continued**
 
 The
          company’s 2005 federal income tax return is presently under examination by the
          Internal Revenue Service. In the opinion of management, the completion
          of such
          examination will not result in the assessment of taxes which will have
          a
          material adverse effect on the company’s financial position or results of
          operations.
 
 Significant
          components of the provision for income taxes are as follows:
 Year
                      Ended December 31,2006
                  
                  2005
                  
                  2004Current:Federal
                  
                  $
                  1,276,535
                  
                  $
                  838,008
                  
                  $
                  957,109State
                      and local
                  
                  
                  124,616
                  
                  
                  154,424
                  
                  
                  59,991Foreign
                  
                  
                  77,597
                  
                  
                  38,575
                  
                  
                  54,0411,478,748
                  
                  
                  1,031,007
                  
                  
                  1,071,141DeferredFederal
                  
                  
                  (149,272
                  )
                  
                  (209,348
                  )
                  
                  19,791State
                  
                  
                  9,901
                  
                  
                  (23,925
                  )
                  
                  2,909(139,371
                  )
                  
                  (233,273
                  )
                  
                  22,700$
                  1,339,377
                  
                  $
                  797,734
                  
                  $
                  1,093,841
  Techdyne
            (Europe) and Simclar de Mexico. 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
          is:
 Year
                      Ended December 31,2006
                  
                  2005
                  
                  2004Statutory
                      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
                  
                  
                  1.9
                  %
                  
                  4.4
                  %
                  
                  1.2
                  %Tax
                      rate differential relating to tax benefit offoreign
                      operating income
                  
                  
                  -1.1
                  %
                  
                  -3.5
                  %
                  
                  0.1
                  %Nondeductible
                      items
                  
                  
                  1.2
                  %
                  
                  1.0
                  %
                  
                  0.4
                  %Dividend
                      from non-U.S. subsidiary
                  
                  
                  0.0
                  %
                  
                  7.1
                  %
                  
                  0.0
                  %Refund
                      of prior U.S. income taxes
                  
                  
                  -0.6
                  %
                  
                  0.0
                  %
                  
                  -1.1
                  %Settlement
                      of U.S. income taxes
                  
                  
                  -2.2
                  %
                  
                  0.0
                  %
                  
                  -3.8
                  %Other
                  
                  
                  -1.3
                  %
                  
                  2.7
                  %
                  
                  1.0
                  %31.9
                  %
                  
                  45.7
                  %
                  
                  31.8
                  %
 F-21
 
 **SIMCLAR,
                INC. AND SUBSIDIARIES**
 
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS**
 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.  The pledge agreement has been modified; therefore, the earnings of
          the Mexican subsidiary will 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. As of December
          31, 2006 undistributed earnings were approximately $361,000.
 
 **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 $480,000, $415,000, and $360,000
          in
          2006, 2005, and 2004 respectively.
 
 The
          company has a net payable due to Simclar Group of approximately $1,344,000
          at
          December 31, 2006 compared to a net payable due to Simclar Group of $1,873,000
          at December 31, 2005. During 2006 the company accrued financial and
          administrative expenses under the service agreement with Simclar Group,
          and
          received net repayments of amounts due from Simclar Group entities. 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
          2006
          and 2005 the company had sales with Simclar Corp., a related party of Simclar
          Group, totaling approximately $1,521,000 and $2,633,000 respectively, and
          sales
          to Simclar Group of approximately $94,000 and $76,000 respectively. 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, 2006 of approximately $593,000 from Simclar
          Corp. and
          approximately $152,000 from Simclar China.
 
 **NOTE
          9—COMMITMENTS AND CONTINGENCIES**
 
 *Commitments*
 
 The
          company has leases for 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, 2006,
          are approximately: 2007**—**$1,125,000,
          2008**—**$1,096,000, 2009**—**$1,092,000, 2010
**—**$1,095,000, 2011**—**$681,000
          and thereafter
**—**$1,866,000. Total rent expense was approximately $1,040,000,
          $1,045,000, and $753,000 for the years ended December 31, 2006, 2005, and
          2004
          respectively.
  F-22
 **SIMCLAR,
              INC. AND SUBSIDIARIES**
 
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 *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
          which
          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 $95,000, $55,000, and $73,000 for the years ended December
          31,
          2006, 2005, and 2004 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, results of operations, or cash flow.
 
 **NOTE
          10—STOCK OPTIONS**
 
 From
          time
          to time, the company has granted stock options to employees based on the
          fair
          value of the common stock on the date of the grant. At December 31, 2006,
          there
          were no stock options outstanding and there was no activity in the company’s
          stock option plan for the years ended December 31, 2006, 2005, or
          2004.
 
 **NOTE
          11—QUARTERLY FINANCIAL INFORMATION (Unaudited)**
 
 The
          following summarizes certain quarterly operating data:
 2006
                  
                  2005Mar
                      31
                  
                  Jun
                      30
                  
                  Sep
                      30
                  
                  Dec
                      31
                  
                  Mar
                      31
                  
                  Jun
                      30
                  
                  Sep
                      30
                  
                  Dec
                      31(In
                      thousands except per share data)Net
                      Sales
                  
                  $
                  21,823
                  
                  $
                  30,399
                  
                  $
                  30,654
                  
                  $
                  33,156
                  
                  $
                  12,356
                  
                  $
                  13,991
                  
                  $
                  16,591
                  
                  $
                  18,066Gross
                      Profit
                  
                  
                  2,791
                  
                  
                  3,774
                  
                  
                  3,912
                  
                  
                  3,865
                  
                  
                  1,564
                  
                  
                  1,731
                  
                  
                  1,819
                  
                  
                  2,023Net
                      Income
                  
                  
                  506
                  
                  
                  790
                  
                  
                  618
                  
                  
                  949
                  
                  
                  292
                  
                  
                  221
                  
                  
                  242
                  
                  
                  192Earnings
                      per share:Basic
                      & diluted
                  
                  $
                  0.08
                  
                  $
                  0.12
                  
                  $
                  0.10
                  
                  $
                  0.15
                  
                  $
                  0.05
                  
                  $
                  0.03
                  
                  $
                  0.04
                  
                  $
                  0.03
  **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**
                  
                  2006
                  
                  2005
                  
                  2004United
                      States
                  
                  $
                  115,870,810
                  
                  $
                  60,742,340
                  
                  $
                  53,551,613Mexico
                  
                  
                  160,625
                  
                  
                  263,156
                  
                  
                  30,874$
                  116,031,435
                  
                  $
                  61,005,496
                  
                  $
                  53,582,487
 F-23
  **SIMCLAR,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
  Year
                        Ended December 31,**Geographic
                        Area Operating **Income
                        (Loss)****
                    
                    2006
                    
                    2005
                    
                    2004United
                        States
                    
                    $
                    5,607,712
                    
                    $
                    1,842,436
                    
                    $
                    2,988,243Mexico
                    
                    
                    365,463
                    
                    
                    310,976
                    
                    
                    609,709$
                    5,973,175
                    
                    $
                    2,153,412
                    
                    $
                    3,597,952
 Sales
          to
          major customer are as follows:
  Year
                      Ended December 31,**Major
                      Customers**
                  
                  2006
                  
                  2005
                  
                  2004Customer
                      1
                  
                  
                  7
                  %
                  
                  17
                  %
                  
                  17
                  %Customer
                      2
                  
                  
                  20
                  %
                  
                  0
                  %
                  
                  0
                  %
 The
          loss
          of or substantially reduced sales to these customers would have an adverse
          effect on the company’s operations if such sales were not replaced. A
          significant customer would be any customer with annual sales volume from
          the
          company of 10% or more.
 
 **NOTE
          13—ACQUISITION OF AG TECHNOLOGIES, INC.**
 
 In
          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. Additional consideration of up to
          $1,300,000 was payable based on Simclar (Mexico)’s net sales in each of the
          three years ending July 14, 2004, 2005 and 2006. Such amount was paid in
          installments as sales goals were met through the first quarter of
          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 $1,300,000
          additional earn-out amounts increased the goodwill related to the acquisition
          of
          Simclar (Mexico), Inc. to $2,579,118.
 
 F-24
 **SIMCLAR,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
          14—ACQUISITION OF SIMCLAR (NORTH AMERICA), INC.**
 
 In
          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 North Carolina. This acquisition
          allowed
          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
          intangible asset 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. 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, in the opinion of management, there
          is
          limited risk to the company for any additional 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 of 2005, 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
          14—ACQUISITION OF SIMCLAR (NORTH AMERICA), INC. -
          Continued**
 
 The
          purchase price allocation related to this acquisition is as
          follows:
 
 Current
                    assets
                
                $
                1,581,590Equipment
                
                
                3,792,627Goodwill
                
                
                383,825Intangibles
                
                
                52,207Deferred
                    tax asset
                
                
                38,765Total
                    assets acquired
                
                $
                5,849,014Current
                    liabilities
                
                $
                1,375,292Amount
                    due major stockholder, net
                
                
                4,014,132Deferred
                    tax liability
                
                
                422,590Total
                    liabilities assumed
                
                $
                5,812,014Net
                    assets acquired
                
                $
                37,000
  Results
          of operations have been included in the company's consolidated financial
          statements prospectively from the effective date of acquisition.
 
 **NOTE
          15—ACQUISTION OF CERTAIN U.S. ASSETS OF LITTON SYSTEMS,
          INC.**
 
 In
          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
          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 one year, 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 amended term loan
          facility
          with the BoS.
 
 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 other than Simclar de Mexico were pledged
          as
          security for the company's obligations to BoS under the credit
          facilities.
  F-26
 **SIMCLAR,
              INC. AND SUBSIDIARIES**
 
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
          15—ACQUISTION OF CERTAIN U.S. ASSETS OF LITTON SYSTEMS, INC. -
          Continued**
 
 The
          finalized purchase price allocation related to this acquisition is as
          follows:
 Current
                      assets
                  
                  $
                  13,149,821Equipment
                  
                  
                  2,539,195Goodwill
                  
                  
                  3,373,397Intangibles
                  
                  
                  1,470,000Total
                      assets acquired
                  
                  $
                  20,532,413Current
                      liabilities
                  
                  
                  4,410,264Total
                      liabilities assumed
                  
                  $
                  4,410,264Net
                      assets acquired
                  
                  $
                  16,122,149
 Management
          is of the present opinion that the recorded intangible and goodwill arising
          from
          the acquisition will be tax deductible.
  F-27
 **SIMCLAR,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
          16— PRO FORMA FINANCIAL INFORMATION (UNAUDITED)**
 
 The
          following table summarizes selected unaudited pro forma financial information
          for years ended December 31, 2006 and 2005, respectively, as if SNAI and
          Litton
          had been acquired as of January 2005. The unaudited pro forma financial
          information includes adjustments for intercompany transactions.
 Year
                      Ended December 31,2006
                  
                  2005Pro
                      forma sales
                  
                  $
                  125,600,000
                  
                  $
                  114,800,000Pro
                      forma net income
                  
                  $
                  3,600,000
                  
                  $
                  3,000,000Pro
                      forma earnings per share:
                  
                  $
                  0.56
                  
                  $
                  0.46Basic
                      and diluted
 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 ultimately be achieved from combining
          the
          operations.
 
 F-28
 **SIMCLAR,
            INC. AND SUBSIDIARIES**
 **INDEPENDENT
          REGISTERED PUBLIC ACCOUNTING FIRM’S REPORT**
 **ON
          SUPPLEMENTAL SCHEDULE**
 
 To
          the
          Board of Directors and Stockholders of Simclar, Inc. and subsidiaries:
 
 We
          have
          audited in accordance with the standards of the Public Company Accounting
          Oversight Board (United States) the consolidated financial statements of
          Simclar, Inc. and subsidiaries referred to in our report dated April 6,
          2007,
          which is included in Part II on Form 10-K. Our audit was conducted for
          the purpose of forming an opinion on the basic financial statements taken
          as a
          whole. The Schedule II of Simclar, Inc. and subsidiaries for the three
          years ended December 31, 2006 is presented for purposes of additional analysis
          and is not a required part of the basic financial statements. The schedule
          for
          the two years ended December 31, 2005 was audited by other auditors, whose
          report is set forth elsewhere herein. This schedule for the year ended
          December
          31, 2006 has been subjected to the auditing procedures applied in the audit
          of
          the basic financial statements and, in our opinion, is fairly stated in
          all
          material respects in relation to the basic financial statements taken as
          a
          whole.
 
 /s/
          GRANT
          THORNTON LLP
 
 Cincinnati,
          Ohio
 April
          6,
          2007
 
 S-1
 **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 each of the years then
          ended. 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-2
  **SIMCLAR,
          INC. AND SUBSIDIARIES**
  **A.
          Schedule II - Valuation and Qualifying Accounts**
 
 Simclar,
          Inc. and Subsidiaries
 December
          31, 2006
  **COL.
                    A**
                
                **COL.
                    B**
                
                **COL.
                    C**
                
                **COL.
                    D**
                
                **COL.
                    E**
                
                **COL.
                    F****Additions****(Deductions)**
                
                **Other****Charged**
                
                **Changes****Balance
                      at**
                
                
                
                **(Credited)**
                
                **Add**
                
                **Balance****Beginning**
                
                
                
                **toCosts
                    and**
                
                **(Deduct)**
                
                **at
                      End of****Classsification**
                
                **of Period**
                
                **Acquisition**
                
                **Expenses**
                
                **Describe**
                
                **Period****YEAR
                    ENDED DECEMBER 31,****2006:**Reserves
                    and allowancesdeductedFrom
                    asset accounts:Allowance
                    for uncollectibleaccounts
                
                $
                235,000
                
                
                
                
                $
                135,020
                
                $
                (76,020
                )
                $
                294,000Reserve
                    for inventoryobsolescence
                
                
                1,822,000
                
                
                
                
                
                862,000
                
                
                (1,132,000
                )
                
                1,552,000$
                2,057,000
                
                $
                -
                
                $
                997,020
                
                $
                (1,208,020
                )
                $
                1,846,000**YEAR
                    ENDED DECEMBER 31,****2005:**Reserves
                    and allowancesdeductedFrom
                    asset accounts:Allowance
                    for uncollectibleaccounts
                
                $
                182,000
                
                $
                27,000(3
                )
                $
                55,000
                
                $
                (29,000
                )
                $
                235,000Reserve
                    for inventoryobsolescence
                
                
                1,481,000
                
                
                30,000(3
                )
                
                469,000
                
                
                (158,000
                )
                
                1,822,000$
                1,663,000
                
                $
                57,000(3
                )
                $
                524,000
                
                $
                (187,000
                )
                $
                2,057,000**YEAR
                    ENDED DECEMBER 31,****2004:**Reserves
                    and allowancesdeductedFrom
                    asset accounts:Allowance
                    for uncollectibleaccounts
                
                $
                279,000
                
                
                
                
                $
                35,000
                
                $
                (132,000(1
                ))
                $
                182,000Reserve
                    for inventoryobsolescence
                
                
                1,421,000
                
                
                
                
                
                382,000
                
                
                (322,000(2
                ))
                
                1,481,000$
                1,700,000
                
                $
                -
                
                $
                417,000
                
                $
                (454,000
                )
                $
                1,663,000
 
 (1)
                    Uncollectible accounts written off, net of
                    recoveries
 (2)
                    Net write-offs against inventory
                    reserves
 (3)
                    Acquisition of Simclar (North America),
                    Inc.
 
 S-3