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**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, 2005**





OR





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


Commission
      File Number: 0-14659





**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:  None





Securities
      registered pursuant to Section 12(g) of the Act:  Common
      Stock, $.01 par value


Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes
      [ ]
      No [ ü ]





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





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





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





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule
      12b-2).  Large
      accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ü ]





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





The
      aggregate market value of the Registrant’s common stock held by non-affiliates
      of the Registrant was approximately $5,538,027 on June 30, 2005.





As
      of
      March 15, 2006, the Company had issued and outstanding 6,465,345 shares of
      its
      common stock.





**Documents
      Incorporated By Reference**





Portions
      of our Information Statement for the 2006 Annual Meeting of Shareholders are
      incorporated by reference in Part III.





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          Statements**


**TABLE
      OF CONTENTS**


PagePart
                IItem
                1.
            Business
            2Item
                1A.
            Risk
                Factors
            11Item
                1B.
            Unresolved
                Staff Comments
            17Item
                2.
            Properties
            17Item
                3.
            Legal
                Proceedings
            18Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            18Part
                IIItem
                5.
            Market
                for Registrant’s Common Equity and Related
                Stockholder Matters
            19Item
                6.
            Selected
                Financial Data
            20Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            20Item
                7A.
            Quantitative
                and Qualitative Disclosure About Market
                Risk
            31Item
                8.
            Financial
                Statements and Supplementary
                Data
            31Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosure
            31Item
                9A
            Controls
                and Procedures
            31Item
                9B
            Other
                Information
            31Part
                IIIItem
                10.
            Directors
                and Executive Officers of the
                Registrant
            32Item
                11.
            Executive
                Compensation
            32Item
                12.
            Security
                Ownership of Certain Beneficial Owners and
                Management And Related Stockholder Matters
            32Item
                13.
            Certain
                Relationships and Related
                Transactions
            32Item
                14.
            Fees
                and Services of Independent Registered Public
                Accounting Firm
            32Part
                IVItem
                15.
            Exhibits,
                Financial Statement Schedules and Reports on Form
                8-K
            33Signatures
            
            36Independent
              Registered Public Accounting Firm’s Report on
              Supplemental Schedule
            S-1Schedule
              II - Valuation and Qualifying
              Accounts
            S-2






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            Statements**





**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 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
      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 71.3% 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.





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 450 Fifth Street, NW, Washington, DC
      20549





**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 2004 and 2005. 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.




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            Statements**




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 2005. These factors include increased capital requirements
      for OEMs to acquire modern, highly automated manufacturing equipment, and their
      continuing effort to reduce inventory costs and the relative cost advantages
      of
      contract manufacturers. Using outsourcing for their 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.





**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.




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            Statements**





On
      February 24, 2006, we further strengthened our product and service offerings
      to
      the OEM market by acquiring certain assets of the assembly
      business of Litton Interconnect Technologies, 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.





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 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.





**Products
      and Services**





We
      manufacture approximately 850 products, including complete turnkey finished
      products, sub-assemblies, molded and non-molded cable assemblies, wire
      harnesses, 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.




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 **Index
            to Financial
            Statements**





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 OEMs 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 51% of total revenues in 2005 and 52% of total
      revenues in 2004.





*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.





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 33% and 30% of total sales
      revenue for 2005 and 2004, respectively.





*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.




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            Statements**





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 Simclar NA in May 2005.
      Simclar NA 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, reworking and refurbishing together amounted to approximately
      16%
      and 19% of sales for 2005 and 2004 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, Simclar, Inc. acquired certain assets of Litton Interconnect
      Technologies assembly business. 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.





**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.




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            Statements**





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, Round Rock, Texas, 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.





**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.





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. See “Business Strategy”
above and Item 7, “Management’s Discussion and Analysis of Financial Condition
      and Results of Operations.”




**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.




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 **Index
            to Financial
            Statements**





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.





**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. A
      significant portion of our revenues is distributed over the following industry
      segments:





Year
                Ended December 31,2005
            
            2004
            
            2003Data
                processing
            
            
            25
            %
            
            26
            %
            
            24
            %Food
                preparation equipment
            
            
            18
            %
            
            18
            %
            
            23
            %Instrumentation
            
            
            16
            %
            
            15
            %
            
            11
            %Power
                equipment
            
            
            17
            %
            
            15
            %
            
            13
            %Telecommunications
            
            
            12
            %
            
            12
            %
            
            14
            %Military
                and government
            
            
            4
            %
            
            5
            %
            
            9
            %





We
      seek to serve a sufficiently large number of customers to avoid dependence
      on
      any one customer or industry. Though historically a substantial percentage
      of
      our net sales have been to multiple locations of a small number of customers,
      our customer base has become increasingly diversified over the past four years.
      In 2002 thirteen customers made up 80% of our sales with our largest customer
      accounting for 36% of total revenues. In the successive years of 2003, 2004,
      and
      2005 we have grown our customer base to 15, 20, and 29 customers who make up
      80%
      of our sales and our largest customer contributing 17% of the revenue base.




Significant
      reductions or delays in sales to any of those 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. In 2005, 42% of
      our
      sales were made to numerous locations of five major customers.




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 **Index
            to Financial
            Statements**





The
      table below sets forth the respective percentage of sales in the last three
      years attributable to customers and related suppliers that accounted for more
      than 10% of our sales in each of those years.


2005
            
            2004
            
            2003ITW
                Food Equipment Group
            
            
            17
            %
            
            17
            %
            
            22
            %


**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 sales
      representative agreements for specific territories 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**





Order
      backlogs as of December 31, 2005 were approximately $21,892,000 compared to
      $13,652,000 at December 31, 2004. 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 frequently 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.




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            to Financial
            Statements**





**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. Certain competitors may
      have
      broader geographic coverage and competitive price advantage based on their
      less
      expensive offshore operations, particularly in the Far East. 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.
      However, additional or modified requirements that may require substantial
      additional expenditures may be imposed in the future.




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            to Financial
            Statements**





**Employees**





We
      presently have 429 employees located in our U.S. facilities and 408 employees
      located at our Mexican facilities; 119 of our employees are employed as part
      time or temporary help. Approximately 721 of our employees are engaged in
      manufacturing, quality assurance, related operations and support activities,
      42
      are in material handling and procurement, 16 are in sales and marketing, 18
      are
      in engineering, and 40 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 42% of our sales for the year ended
      December 31, 2005, has been to five customers, the loss of any of which would
      adversely affect us. A substantial portion of our sales (17%) is with one major
      customer, Illinois Tool Works (formerly PMI Foods Equipment Group) (“ITW”).
      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. In
      December 2005, we entered into two amended credit facilities and one new credit
      facility with Bank of Scotland in Edinburgh, Scotland (“BoS”). These credit
      facilities include
      an Amended Term Loan Facility Letter, an Amended Working Capital Facility
      Letter, a Working Capital Facility Letter, an Amended and Restated General
      Security Agreement, an Amended and Restated Pledge Agreement, and a Mortgage
      and
      a Guaranty. 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, , in addition to subjecting all our assets as
      security for the bank financing, include substantial covenants that impose
      significant restrictions. Please
      refer to the Liquidity and Capital Resources section under Item 7 for a further
      description of these restrictions.




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            Statements**





Our
      ability to comply with these covenants 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;


·
            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.




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            Statements**





*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 did not experience any substantial supply
      shortages in 2003, but experienced some shortages in 2004 and 2005, which may
      increase as the world economy continues to recover and demand for electronic
      products increases. Should our industry experience a rapid recovery, 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.




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            Statements**





*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.





*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 a 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.




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            Statements**





*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 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.





*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 $6.80 per share in the
      second quarter of 2005 to as low as $.52 per share in the fourth quarter of
      2002. Our
      common stock has limited trading volume, and it closed at $3.50 per share on
      March 15, 2006.





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.





*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.




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            Statements**





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 1,6583,092 shares, and as the
      closing price of our shares on March 15, 2006 was $3.50 per share, 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. 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 earning.*




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.




*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.




-16-
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            to Table of Contents**
 **Index
            to Financial
            Statements**





**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, 200818,225
                sq. ft.
              (mfg.,
                office, warehouse)
            
            800
                Paloma Dr.
              Round
                Rock (Austin), TX
            
            1
                yr. to May 31, 200616,000
                sq. ft.
              (office,
                warehouse)
            
            2685
                N. Coria
              Brownsville,
                TX
            
            Month
                to month






-17-





**Space**
            
            **Property**
            
            **Term**37,919
                sq. ft.
              (mfg.,
                office, warehouse)
            
            Parque
                Industrial CYLSA
              Matamoros,
                Mexico
            
            5
                yrs. to July 15, 200655,524
                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
            
            Lease
                expires March 31, 2006 at which time we will continue on a month
                to month
                basis




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 of
      $1,400,000.





With
      effect from February 24, 2006, Simclar Interconnect Technologies, Inc. occupies,
      on a temporary basis, portions of a facility of Litton Systems, Inc. located
      at
      4811 W. Kearney, Springfield, MO pursuant to a License Agreement which expires
      on February 23, 2007.





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. Although the ultimate resolution of pending proceedings cannot
      be
      determined, in the opinion of management, the resolution of these proceedings
      in
      the aggregate will not have a material adverse effect on our financial position,
      results of operations, or liquidity.





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





None.




-18-
 **Back
            to Table of Contents**
 **Index
            to Financial
            Statements**





**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”, formerly under the symbol “TCDN”, 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.





**2005**High
            
            Low1stQuarter
            
            $
            4.68
            
            $
            3.052ndQuarter
            
            $
            6.80
            
            $
            3.293rdQuarter
            
            $
            5.16
            
            $
            3.094thQuarter
            
            $
            4.24
            
            $
            3.15**2004**High
            
            
            Low1stQuarter
            
            $
            3.10
            
            $
            2.202ndQuarter
            
            $
            4.79
            
            $
            2.303rdQuarter
            
            $
            6.60
            
            $
            3.104thQuarter
            
            $
            6.65
            
            $
            3.27





**Approximate
      Number of Holders of Common Stock**





On
      December 31, 2005, there were approximately 55 shareholders of record of our
      common stock.




**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 2005, 2004 and 2003.




-19-
 **Back
            to Table of Contents**
 **Index
            to Financial
            Statements**





**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 31,2005
            
            2004
            
            2003
            
            2002
            
            2001Revenues
            
            $
            61,214
            
            $
            53,582
            
            $
            36,187
            
            $
            33,692
            
            $
            37,042Net
                income (loss)
            
            
            1,251
            
            
            2,342
            
            
            1,106
            
            
            1,390
            
            
            (2,806
            )Earnings
                (loss) per share:Basic
                and diluted
            
            $
            .19
            
            $
            .36
            
            $
            .17
            
            $
            .21
            
            $
            (.43
            )








**Consolidated
      Balance Sheet Data**


**(in
      thousands)**





December
                31,2005
            
            2004
            
            2003
            
            2002
            
            2001Working
                capital
            
            $
            4,801
            
            $
            12,137
            
            $
            11,804
            
            $
            10,018
            
            $
            8,859Total
                assets
            
            
            37,700
            
            
            32,580
            
            
            25,674
            
            
            22,168
            
            
            21,209Long-term
                debt
            
            
            3,000
            
            
            6,700
            
            
            6,500
            
            
            5,315
            
            
            6,371Total
                Liabilities
            
            
            22,309
            
            
            18,462
            
            
            13,913
            
            
            11,797
            
            
            12,230Stockholders’
                equity
            
            
            15,391
            
            
            14,119
            
            
            11,761
            
            
            10,371
            
            
            8,979




The
      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**





Simclar,
      Inc. continued to demonstrate strong revenue growth of existing products and
      customers through 2005 as well as adding new products and customers. Our
      strategy remains to (1) leverage our relationship with Simclar Group to expand
      our reach globally, (2) depend upon our long-term relationships with major
      OEMs
      to increase our business with our existing customer base and to grow our
      customer base with other OEMs, and (3) seek strategic acquisitions and
      alliances.





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





·
            2005
                revenues were 14.2% above 2004; year-on-year sales increased 6.5%,
                with
                the balance coming from our acquisition of Simclar (North America),
                Inc.




·
            fourth
                quarter sales set a new quarterly high at approximately
                $18,276,000




·
            fourth
                quarter earnings were exceptionally strong with earnings before tax
                of
                approximately $941,000 which brought 2005 earnings before taxes to
                approximately $2,219,000




·
            Bank
                of Scotland increased our term loan facility to $21,650,000 in
                anticipation of our acquisition of Litton Interconnect Technologies
                assembly business which was completed on February 24,
                2006






-20-
 **Back
            to Table of Contents**
 **Index
            to Financial
            Statements**




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.




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.




-21-
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            to Table of Contents**
 **Index
            to Financial
            Statements**





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.




**Key
      Financial Performance Measures**





We
      manage and assess the performance of our business primarily through the
      following measures:




*Orders
      booked and backlog* - the ratio of orders booked to sales is reviewed on a monthly basis for each
      of
      the company’s five manufacturing plants.




*Sales* - monthly sales for each plant are compared against budget and the same month
      in
      the previous year.




*Gross
      margin* - the gross margin achieved by each plant each month is compared against budget
      and the same month in the previous year.




*Selling,
      general and administrative expenses -* the
      ratio
      of these expenses as a percentage of sales for each
      plant each month is compared against budget.




*Working
      capital* - movements in the balance sheet amounts of inventory, accounts receivable
      and
      accounts payable for each plant are reviewed on a monthly basis.




*Bank
      borrowings* - movements in the company’s working capital facility with the bank are reviewed
      on a weekly basis.





In
      the event that any of the above measures indicate unusual movements or trends,
      further review is undertaken by management to ensure that satisfactory
      explanations are obtained, and, where necessary, appropriate corrective action
      is taken.





**Results
      of Operations**





The
      following is a discussion of the key factors that have affected our business over the
      last
      three years. This discussion should be read in conjunction with our consolidated financial statements and
      the
      related footnotes included herein.




**2005
      Compared to 2004**




Fourth
      quarter revenues and earnings before taxes were up over both the third quarter
      of 2005 and also when compared to the fourth quarter of 2004. Sales increased
      by
      approximately $1,683,000 compared to the third quarter and by approximately
      $4,924,000 over the fourth quarter of 2004. Comparative earnings before taxes
      for the same periods improved by approximately $545,000 and $482,000
      respectively. Our North Carolina operations, which were acquired in May 2005,
      generated approximately $1,429,000 in sales but $107,000 in losses in the fourth
      quarter of 2005. Gross Margin improved to 13.7% compared to third quarter gross
      margin of 11.0% and 10.9% for the same period last year. We benefited from
      higher plant utilization and favorable product sales mix. Our cable and harness
      operations in Hialeah experienced a fourth quarter sales volume increase of
      112%
      over the third quarter of 2005 and an increase of 149% over the fourth of
      quarter 2004.




-22-
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            to Table of Contents**
 **Index
            to Financial
            Statements**




Fiscal
      year 2005 revenues exceeded 2004 by approximately $7,631,000 while earnings
      before taxes were lower by approximately $1,216,000. Cable
      and
      Harness assemblies made up a larger portion of total revenues. These products
      are more labor intensive than our other products which allowed us to benefit
      from our investment in the expanded operations in Mexico. SNAI generated
      approximately $4,174,000 of revenues since the date of acquisition, but lost
      approximately $349,000. We expect the performance of this operation, which
      does
      metal fabrication, injection molding, and higher level assemblies, to improve
      in
      2006 as a result of certain ongoing initiatives, together with the synergistic
      benefits from our recent acquisition of the Litton Interconnect Technologies
      backplane assembly business.




Even
      though a large portion of revenues continue to be concentrated with a small
      number of customers — 42% of our sales were made to numerous locations of five
      major customers — our customer base has become increasingly diversified over the
      past four years. In 2002 thirteen customers made up 80% of our sales, with
      our
      largest customer accounting for 36% of total revenues. In the successive years
      of 2003, 2004, and 2005 we have grown our customer base to 15, 20, and 29
      customers who make up 80% of our sales and our largest customer contributing
      17%
      of the revenue base.




Gross
      margin for 2005 was up by approximately $260,000, but was down as a percentage
      of revenue to 12.4% from 13.7% for 2004; however, excluding the SNAI results,
      gross margins would have been 12.7% in the year. Excluding SNAI, which has
      a
      higher labor and overhead to materials ratio than other Simclar operations,
      material costs as a percentage of sales were 62% in both 2005 and 2004. Raw
      material cost pressures are a constant challenge because, while we try to pass
      these costs on to our customers, price competition will at times limit our
      ability to do so. Labor and burden were 24% of sales in 2005, down slightly
      from
      25% for 2004. Due to the expansion in Mexico and acquisition of SNAI,
      depreciation expense was $245,000 greater than the previous year while
      amortization expense was $9,000 for 2005 and $0 for 2004.




Selling,
      general, and administrative (SG&A) expenses grew from 7.0% of sales in 2004
      to 8.1% in 2005. The primary reason for this increased cost was due to expansion
      of the Mexico operations and the acquisition of SNAI. As a percentage of sales,
      SG&A was 8.6% of sales in the first half of the year, but came down to 7.7%
      the second half.




Interest
      expense increased due to higher interest rates and borrowings for the Mexico
      expansion and the working capital needs caused by the overall growth in the
      business in the year. Interest for 2005 was approximately $477,000 compared
      to
      approximately $213,000 in the prior year. Three month LIBOR went from 2.57%
      in
      January 2005 to 4.53% in December 2005.




**2004
      Compared to 2003**





Consolidated
      revenues increased approximately $17,395,000 (48.1%) for the year ended December
      31, 2004, compared to the preceding year. The acquisition of Simclar (Mexico)
      in
      July 2003 generated $9,941,000 of the increase in sales in 2004. Continual
      improvements in our sales to the computer peripherals, instrumentation, power
      equipment, telecommunications and food preparation equipment industries provided
      the additional $7,454.000 of increased sales in 2004, compared to the preceding
      year. Only our sales to the military-government sector declined in 2004, when
      compared to 2003. Our best sales improvements in 2004 were in our sales to
      computer peripherals industry of $5,099,000 and to the instrumentation industry
      of $4,260,000. Interest and other income decreased approximately $68,000 in
      the
      year ended December 31, 2004, compared to the preceding year. The decrease
      was
      due to gain on the disposition of a building in Scotland in the year ending
      December 31, 2003.




Approximately
      43% of our consolidated sales for 2004 were made to five customers. Illinois
      Tool Works (“ITW”) (17%) is the only customer that accounts for more than 10% of
      our total sales. The loss of or substantial reduction of sales to any major
      customer would have an adverse effect on our operations if such sales were
      not
      replaced. See Item 1, “Business-Customers.”




-23-
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            to Table of Contents**
 **Index
            to Financial
            Statements**





Cost
      of goods sold as a percentage of sales amounted to 86% for the year ended
      December 31, 2004 and 87% for the preceding year. The company experienced higher
      material costs as a percentage of sales, at 62% percent of sales for the
      products manufactured in 2004, compared to 58% in the preceding year. The higher
      material cost was due to price increases from suppliers of electronic components
      and higher cost bills of materials for certain products manufactured in the
      second half of the year. The labor content of our manufactured products remained
      steady at 8% of sales for 2004 and for 2003. The overhead component of cost
      of
      goods sold as a percentage of sales was 17% in 2004, compared to 21% in the
      preceding year. This was due mainly to the higher volume production in our
      four
      U.S. manufacturing locations in 2004.





Selling,
      general and administrative expenses increased by approximately $618,000 (20%)
      for the year ended December 31, 2004, compared to the preceding year, and
      amounted to approximately 7% and 9% of sales for 2004 and 2003, respectively.
      The acquisition of Simclar (Mexico) in July 2003 contributed approximately
      $409,000 of the increase in 2004 compared to 2003. Increased employee costs
      were
      the primary drivers of the remaining expense increase in 2004 compared to
      2003.




Interest
      expense decreased approximately $5,000 for the year ended December 31,
      2004 **,** compared
      to the preceding year, reflecting the decreased borrowings until October 2004
      when we restructure our credit facilities to acquire the land and building
      of
      our Dayton, Ohio facility, which we formerly had leased. The three month LIBOR
      was 2.30% and 1.13% at December 31, 2004 and 2003, respectively.





**Liquidity
      and Capital Resources**





Cash
      flow
      from operations was approximately $1,503,000 in the year compared to
      approximately $1,543,000 in 2004. Cash and cash equivalents were approximately
      $834,000 at December 31, 2005 compared to approximately $280,000 at the end
      of
      2004. Our current ratio dropped from 2.1:1 in 2004 to 1.3:1 in 2005. There
      were
      three primary contributors to this movement: (1) a change of approximately
      $4,800,000 from a related party receivable of approximately $2,900,000 to a
      related party payable of approximately $1,800,000 as part of the acquisition
      of
      SNAI; (2) a reclassification of a $2,500,000 deferred trade accounts payable
      balance with Winsson Enterprises Co., Ltd. (“Winsson”), a supplier of components
      to Simclar (Mexico) ( the
      company is currently in negotiations with Winsson to renegotiate the agreement
      which expires in July 2006); and (3) our continued investment for the future
      and
      in the growth of our operations.




Average
      day’s sales outstanding at December 31, 2005 was 55.3 compared to 54.2 in 2004. The
      increase in our average outstanding sales’ days is primarily the result of the
      nature of the customer base that we are servicing from our Mexican facilities.
      The overall trend we experienced over the last two years is that the majority
      of
      our customers are stretching out payment terms. Average inventory turnover
      was
      4.4 and 4.1 times for the years ended December 31, 2005 and 2004, respectively.
      The increase in inventory turnover is primarily due to our
      increased sales in 2005.




Cash
      used
      in investing activities in 2005 was approximately $1,781,000 compared to
      approximately $3,139,000 in the preceding year. Cash used in investing
      activities was primarily comprised of approximately $1,717,000 for purchases
      of
      machinery and equipment for our new manufacturing facility in Mexico, lead-free
      solder machinery in order to comply with new requirements, and the payment
      of
      approximately $584,000 additional earn out consideration in respect of the
      acquisition of Simclar (Mexico), Inc., offset by cash received as part of the
      SNAI acquisition of approximately $348,000, and approximately $176,000 in
      proceeds from the sale of surplus equipment.





Cash
      provided by financing activities was approximately $810,000 for the year ended
      December 31, 2005, compared to approximately $1,630,000 in the same period
      of
      the preceding year. Cash used in investing activities represented $1,200,000
      in
      repayments of long-term debt offset by drawdowns of $2,010,000 on our working
      capital credit facility in order to help finance our investing activities and
      working capital requirements. The company made all scheduled repayments on
      its
      long-term debt during the period.




-24-
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            to Table of Contents**
 **Index
            to Financial
            Statements**





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, 2005**Simclar,
                Inc.
            
            
            Working
                capital
            
            $
            5,000,000
            
            $
            4,990,395Simclar,
                Inc.
            
            
            Term
                loan - four tranches (see detail of tranches below)
            
            $
            21,650,000
            
            $
            4,200,000Simclar
                Interconnect Technologies, Inc.
            
            
            Working
                Capital
            
            $
            1,000,000
            
            $
            0




Interest
      on the Simclar, Inc. working capital facility accrues
      at an annual rate equal to LIBOR plus 1.5%, plus an amount, rounded to the
      nearest eighth of a percent, to cover any increases in certain regulatory costs
      incurred by the bank. The company may elect to pay interest on advances every
      one, three or six months, with LIBOR adjusted to correspond to the interest
      payment period selected by the company .
      The
      interest rate for the working capital facility at December 31, 2005 was 5.625%
      based on the three month election. The weighted average interest rate for the
      year was 4.76%





Interest
      on the Simclar Interconnect Technologies, Inc. working capital facility will
      be
      a margin over LIBOR determined by a ratio of net borrowings to EBITDA for any
      given test period. The margin percentage can range from 1.5% to 2.5%. There
      had
      been no drawdowns on this facility at December 31, 2005 and there have been
      none
      since that date.




The
      term
      loan interest is also determined by a margin over LIBOR related to the ratio
      of
      net borrowings to EBITDA for any given test period. The margin percentage can
      range from 1.5% to 2.5%. The term debt interest rate in effect at December
      31,
      2005 was 5.67% based on the three month election. The term loan is divided
      into
      four tranches each with its own specific purpose and repayment schedule as
      shown
      in the following table:




**Tranche**
            
            **Principal
                Amount**
            
            **Purpose**
            
            **Payments**A
            
            $4,250,000
            
            Refinance
                existing facilities
            
            Seventeen
                quarterly payments of $250,000 beginning October 2004 through October
                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 2012.D
            
            $3,000,000
            
            Acquisition
                of certain assets of the Litton Interconnect Technologies assembly
                operations
            
            Single
                payment due December 31, 2010




Tranches
      C and D were drawn on February 24, 2006.




-25-
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            to Table of Contents**
 **Index
            to Financial
            Statements**





Our
      credit facilities with BoS, which include an Amended Term Loan Facility Letter,
      an Amended Working Capital Facility Letter, a Working Capital Facility Letter,
      an Amended and Restated General Security Agreement, an Amended and Restated
      Pledge Agreement, a Mortgage and a Guaranty, in addition to subjecting all
      our
      assets as security for the bank financing, include substantial covenants that
      impose significant restrictions on us, including, among others, requirements
      that:





·
            the
                facilities take priority over all our other obligations;


·
            we
                must maintain sufficient and appropriate insurance for our business
                and
                assets;


·
            we
                must maintain all necessary licenses and authorizations for the conduct
                of
                our business;


·
            we
                indemnify the bank against all costs and expenses incurred by it
                which
                arise as a result of any actual or threatened (i) breach of environmental
                laws; (ii) release or exposure to a dangerous substance at or from
                our
                premises; or (iii) claim for an alleged breach of environmental law
                or
                remedial action or liability under such environmental law which could
                have
                an adverse material effect;


·
            if
                environmental harm has occurred to our property securing the credit
                facility, we have to ensure we were not responsible for the harm,
                and we
                have to be aware of the person responsible and its financial condition;
                and


·
            we
                must notify the bank of a variety of pension and benefit plans and
                ERISA
                issues, including, among others, (i) material adverse changes in
                the
                financial condition of any such plan; (ii) increase in benefits;
                (iii)
                establishment of any new plan; (iv) grounds for termination of any
                plan;
                and (v) our affiliation with or acquisition of any new ERISA affiliate
                that has an obligation to contribute to a plan that has an accumulated
                funding deficiency.




In
      addition, our credit facilities require us to maintain:





·
            consolidated
                adjusted net worth greater than $15,000,000 with effect from March
                31,
                2006 (tested on a quarterly basis);


·
            a
                ratio of consolidated current assets to consolidated net borrowing
                prior
                to December 31, 2007 of not less than 1:1 and thereafter not to be
                less
                than 1.5:1 (tested on a quarterly basis);


·
            a
                ratio of consolidated trade receivables to consolidated net borrowing
                of
                not less than 0.5:1 prior to December 31, 2007 and not less than
                0.75:1
                thereafter (tested on a quarterly basis); and


·
            a
                ratio of EBIT to total interest not less than 3:1 until March 31,
                2006;
                not less than 3.5:1 from April 1, 2006 to June 30, 2006; and not
                less than
                4:1 thereafter (tested on a quarterly basis beginning December
                31,2005);


·
            a
                ratio of net borrowings to EBITDA not to exceed 5:1 through December
                31,
                2006; not less than 4.5:1 from January 1, 2007 to December 31, 2007;
                not
                less than 4:1 from January 1, 2008 to December 31, 2008; not less
                than
                3.5:1 from January 1, 2009 to December 31, 2009; and not less than
                3:1
                thereafter (tested on a quarterly basis beginning December 31, 2006).





Finally,
      without the prior written consent of BoS, our credit facilities prohibit us
      from:





·
            granting
                or permitting a security agreement against our consolidated assets
                except
                for permitted security agreements;


·
            declaring
                or paying any dividends or making any other payments on our capital
                stock;


·
            consolidating
                or merging with any other entity or acquiring or purchasing any equity
                interest in any other entity, or assuming any obligations of any
                other
                entity, except for notes and receivables acquired in the ordinary
                course
                of business;


·
            incurring,
                assuming, guaranteeing, or remaining liable with respect to any
                indebtedness, except for certain existing indebtedness disclosed
                in our
                financial statements;


·
            undertaking
                any capital expenditures in excess of $1,000,000 of the relevant
                estimates
                in the aggregate budget approved by BoS;


·
            effecting
                any changes in ownership of our company;


·
            making
                any material change in any of our business objectives, purposes,
                operation
                or taxes; and


·
            incurring
                any material adverse event in business conditions as defined by the
                Bank.





Our
      ability to comply with these provisions may be affected by changes in our
      financial condition or results of our operations, or other events beyond our
      control. The breach of any of these covenants would result in a default under
      our debt. A default in the covenants would permit BoS to accelerate the maturity
      of our credit facilities and to sell the assets securing them, which could
      cause
      us to cease operations or seek bankruptcy protection.





Our
      indebtedness requires us to dedicate a substantial portion of our cash flow
      from
      operations to payments on our debt, which could reduce amounts for working
      capital and other general corporate purposes. The restrictions in our credit
      facility could also limit our flexibility in reacting to changes in our business
      and increases our vulnerability to general adverse economic and industry
      conditions.




-26-
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            to Table of Contents**
 **Index
            to Financial
            Statements**





We
      have
      no off-balance sheet financing arrangements with related or unrelated parties
      and no unconsolidated subsidiaries. In the normal course of business, we enter
      into various contractual and other commercial commitments that impact or can
      impact the liquidity of our operations. The
      following table outlines our commitments at December 31, 2005:





**Total**
            
            **Less
                Than**
            
            **1
                - 3**
            
            **4
                - 5**
            
            **Over
                5**In
                Thousands
            
            **Amounts**
            
            **1
                Year**
            
            **Years**
            
            **Years**
            
            **Years**Long-term
                debt with interest
            
            $
            4,651
            
            $
            1,402
            
            $
            2,599
            
            $
            445
            
            $
            205Operating
                Leases
            
            
            4,856
            
            
            726
            
            
            1,035
            
            
            963
            
            
            2,132Bank
                line of credit with interest
            
            
            5,275
            
            
            5,275
            
            
            —
            
            
            —
            
            
            —Total
                commitments
            
            $
            14,782
            
            $
            7,403
            
            $
            3,634
            
            $
            1,408
            
            $
            2,337





**Subsequent
      Events**





On
      February 24, 2006, the company and Simclar Interconnect Technologies, Inc.,
      its
      newly-formed wholly owned subsidiary ("Simclar IT") purchased certain U.S.
      assets associated with the backplane assembly business of the Interconnect
      Technologies Division of Litton Systems, Inc. ("Litton"), a subsidiary of
      Northrop Grumman Corporation, for $16 million in cash (subject to certain
      purchase price adjustments) and the assumption of certain liabilities (the
      "Acquisition"). At the same time, Simclar's parent  company
      in the United Kingdom, Simclar Group Limited, also acquired from Litton Systems
      International, Inc. and Litton U.K. Ltd. all of the share equity of Litton
      Electronics (Suzhou) Co. Ltd., a subsidiary organized in China, and certain
      assets of the Interconnect Technologies Division assembly business in the U.K.,
      respectively, through its subsidiary Simclar Interconnect Technologies
      Limited.




In
      connection with the Acquisition, the company and Simclar IT entered into an
      occupancy agreement pursuant to which Simclar IT will occupy space in Litton's
      Springfield, Missouri facility for a period of up to twelve months, and a
      transition services agreement pursuant to which Litton will provide certain
      administrative services to the company and Simclar IT to support its operations
      during the occupancy period.




The
      company financed the purchase of the assets under its recently amended term
      loan
      facility with BoS. Of the $16 million borrowed under the amended facility,
      $13
      million of the principal will be repayable in quarterly installments commencing
      December 31, 2006 and through December 31, 2012. Interest on this portion of
      the
      borrowings will be payable quarterly at one, three or six month LIBOR (as
      elected by the Company) plus 2.5%. The $3 million balance of the borrowings
      under the amended facility will be repayable in one lump sum on December 31,
      2010. Interest on this portion of the borrowings will be payable quarterly
      at
      one, three or six month LIBOR (as elected by the company ) plus 3.5%. In
      addition, there is a redemption fee of $400,000 payable on December 31,
      2010.




In
      connection with the loan, the company, Simclar IT and other subsidiaries entered
      into an amended security agreement, pursuant to which BoS was granted a security
      interest in substantially all of their respective assets to secure the company's
      borrowings under its credit facilities, and a guaranty pursuant to which Simclar
      IT guarantied the obligations of the company to BoS under the credit facilities.
      Additionally, the company and Simclar (Mexico), Inc. entered into an amended
      pledge agreement, pursuant to which all of the shares owned by the company
      in
      its subsidiaries were pledged as security for the Company's obligations to
      BoS
      under the credit facilities.




The
      assets acquired by the Company from Litton Systems, Inc. were not accounted
      for
      by Litton as a separate "business," and accordingly the associated operations
      were not separately accounted for, nor were separate financial statements
      prepared for the "business." Consequently, the Company is unable to supply
      financial statements of the acquired "business" as required by Rule 3-05(b)
      of
      Regulation S-X. The Company will supply an audited statement of the assets
      and
      liabilities acquired in an amendment to the Current Report on Form 8-K that
      it
      filed on on March 2, 2006 within 71 calendar days following the date of the
      report.




For
      the
      reasons stated above the Company is unable to supply the pro forma financial
      information required by Article 11 of Regulation S-X with respect to the
      "business" represented by the acquired assets.





**Effect
      of Recently Issued Accounting Pronouncements**





In
      December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
      No.
      123(R), Share-Based Payment, which would require all share-based payments to
      employees, including grants of employee stock options, to be recognized in
      the
      consolidated statements of operations based on their fair values, effective
      for
      public companies for interim periods beginning after June 15, 2005. SFAS
      No.123(R) permits public companies to adopt its requirements using either the
      modified prospective or retrospective method. The company adopted this statement
      in the third quarter of fiscal year 2005 and the adoption of this standard
      did
      not have a material effect on our consolidated results of operations, financial
      position, and cash flows.




-27-
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            to Table of Contents**
 **Index
            to Financial
            Statements**





In
      November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of
      ARB No. 43, Chapter 4 Inventory Pricing”.  SFAS No. 151 requires idle
      facility costs, abnormal freight, handling costs, and amounts of wasted
      materials (spoilage) be treated as current-period costs.  Under this
      concept, if the costs associated with the actual level of spoilage or production
      defects are greater than the costs associated with the range of normal spoilage
      or defects, the difference would be charged to current-period expense, not
      included in inventory costs.  SFAS No. 151 also requires the allocation of
      fixed production overheads to the costs of conversion be based on the normal
      capacity of the production facilities.  SFAS No. 151 is effective for
      inventory costs incurred during fiscal years beginning after June 15, 2005.
       We will adopt this statement for fiscal year 2006 and currently do not
      anticipate that the adoption of this standard will have a material effect on
      our
      consolidated results of operations, financial position, and cash
      flows.




In
      December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,
      an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.”
 The amendments made by SFAS No. 153 are based on the principle that
      exchanges of nonmonetary assets should be measured based on the fair value
      of
      the assets exchanged.  The guidance in APB Opinion No. 29 provided an
      exception to this basic measurement principle for exchanges of similar
      productive assets.  That exception required that some nonmonetary exchanges
      be recorded on a carryover basis.  SFAS No. 153 eliminates this exception
      for nonmonetary exchanges of similar productive assets and replaces it with
      a
      general exception for exchanges of nonmonetary assets that do not have
      commercial substance.  An exchange would lack commercial substance if our
      future cash flows are not expected to change significantly as a result of that
      exchange.  SFAS No. 153 is effective for nonmonetary asset exchanges
      occurring in fiscal periods beginning after June 15, 2005.  Earlier
      application is permitted.  We will adopt this new standard for fiscal year
      2006 and do not anticipate that the adoption of this standard will have a
      material effect on our consolidated results of operations, financial position,
      and cash flows.




In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections
      -
      a replacement of APB Opinion No. 20 and FASB Statement No. 3."  SFAS No.
      154 requires, unless impracticable, retrospective application to prior periods’
financial statements of changes in accounting principle.  SFAS No. 154 also
      requires that retrospective application of a change in accounting principle
      be
      limited to the direct effects of the change.  Indirect effects of a change
      in accounting principle should be recognized in the period of the accounting
      change.  The new standard is effective for accounting changes and
      corrections of errors made in fiscal years beginning after December 15, 2005.
       We will adopt the provisions of SFAS No. 154, as applicable, beginning in
      fiscal 2006 and do not anticipate that the adoption of this standard will have
      a
      material effect on our consolidated results of operations, financial position,
      or cash flows.





**Critical
      Accounting Policies**




We
      believe the following critical accounting policies affect our more significant
      judgments and estimates used in the preparation of our consolidated financial
      statements.




***Allowance
      for Doubtful Accounts--*** We
      maintain an allowance for doubtful accounts for estimated losses resulting
      from
      the inability of customers to make required payments. Based on historical
      information, we believe that our allowance is adequate. However, changes in
      general economic, business and market conditions could affect the ability of
      customers to make their required payments; therefore, the allowance for doubtful
      accounts is reviewed monthly and changes to the allowance are updated as new
      information is received.




***Allowance
      for Inventory Obsolescence--*** We
      maintain an allowance for inventory obsolescence for losses resulting from
      inventory items becoming unusable in the manufacturing operations due to loss
      of
      a specific customer or a customer’s product changes or discontinuations. Based
      on historical and projected sales information and concentration of customers,
      we
      believe that the allowance is adequate. However, changes in general economic,
      business and market conditions could cause customers to cancel, reduce or
      reschedule orders. These changes could affect the company inventory turnover;
      therefore, the allowance for inventory obsolescence is reviewed monthly and
      changes to the allowance are updated as new information is
      received.




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 **Index
            to Financial
            Statements**




***Income
      Taxes--*** Deferred
      income taxes at the end of each period are determined by applying enacted tax
      rates applicable to future periods in which the taxes are expected to be paid
      or
      recovered to differences between the financial accounting and tax basis of
      assets and liabilities. The decision to record a valuation allowance requires
      varying degrees of judgment based upon the nature of the item giving rise to
      the
      deferred tax asset.  As a result of continued operating losses incurred by
      SNAI, the inability to offset consolidated taxable income with the acquired
      net
      operating loss carry forwards, and uncertainty as to the timing of profitability
      in future periods, we have established a valuation allowance against all SNAI
      net operating loss carry forwards. Should future taxable income of SNAI be
      materially different from our estimates, changes in the valuation allowance
      could occur that would impact our tax expense in the future.




***Impairment
      of Long-Lived Assets--*** In
      accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
      “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived
      assets to be held and used are reviewed for impairment whenever events or
      circumstances indicate that the carrying amount may not be recoverable. When
      required, impairment losses on assets to be held and used are recognized based
      on the fair value of the asset. The fair value of these assets is determined
      based upon estimates of future cash flows, market value of similar assets,
      if
      available, or independent appraisals, if required. In analyzing the fair value
      and recoverability using future cash flows, we make projections based on a
      number of assumptions and estimates of growth rates, future economic conditions,
      assignment of discount rates and estimates of terminal values. An impairment
      loss is recognized if the carrying amount of the long-lived asset is not
      recoverable from its undiscounted cash flows. The measurement of impairment
      loss
      is the difference between the carrying amount and fair value of the asset.
      Long-lived assets to be disposed of and/or held for sale are reported at the
      lower of carrying amount or fair value less cost to sell. We determine the
      fair
      value of these assets in the same manner as described for assets held and used.
      See “Long-Lived Asset Impairment” in Note 1 to our consolidated financial
      statements included in this report.




Goodwill
      and indefinite-lived intangibles are required to be evaluated for impairment
      on
      an annual basis, or more frequently if impairment indicators arise, using a
      fair-value-based test that compares the fair value of the asset to its carrying
      value. Fair values are typically calculated using discounted expected future
      cash flows, using a risk-adjusted discount rate.




The
      company performed the annual test for goodwill impairment related to the Lytton
      and Simclar (Mexico) acquisitions. These tests were performed at the reporting
      unit level. In the test, we determined that the discounted sum of the expected
      future cash flows exceeded the invested capital of the reporting units;
      therefore, no impairment of goodwill was recognized. In performing the tests
      for
      impairment, we made assumptions about future sales and profitability. In
      estimating expected future cash flows related to Lytton and Simclar (Mexico),
      we
      used internal forecasts that were based upon actual results, assuming an average
      revenue growth of 5% and 8% per year, respectively, and minimal increases in
      gross margin.




The
      most
      critical estimates, in order of significance, used in the impairment test
      include (1) estimated revenue growth, (2) the terminal value assumed, and (3)
      the discount rate applied. We cannot predict the occurrence of future impairment
      triggering events nor the impact such events might have on reported asset
      values. Such events may include strategic decisions made in response to economic
      conditions relative to operations and the impact of technology, economic
      conditions, and industry trends on our customer base.




***Revenue
      Recognition and Accounts Receivable--*** The
      company’s sales are primarily derived from product manufacturing including, but
      not limited to, finished molded and non-molded cables, wiring harnesses, printed
      circuit board assemblies, electro-mechanical and electronic assemblies. Revenue
      is recognized upon shipment of the product to the customer, under contractual
      terms, which are generally FOB shipping point. Upon shipment, title transfers
      and the customer assumes the risks and rewards of ownership of the product.
      The
      selling price of the product is fixed and the ability to collect for the sale
      to
      the customer is reasonably assured when the product is shipped.




-29-
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            to Table of Contents**
 **Index
            to Financial
            Statements**




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 Simclar, Inc. The
      forward-looking statements speak only as of the date on which they are made,
      and
      we undertake no obligation to update any forward-looking statement to reflect
      events or circumstances after the date of this Report.




-30-
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            to Table of Contents**
 **Index
            to Financial
            Statements**




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





We
      are exposed to market risks from changes in interest rates and foreign currency
      exchange rates.





Sensitivity
      of results of operations to interest rate risks on our investments is managed
      by
      conservatively investing liquid funds in short-term government securities and
      interest-bearing accounts at financial institutions in which we had
      approximately $40,000 invested at December 31, 2005.





Interest
      rate risks on debt are managed by negotiation of appropriate rates on new
      financing obligations based on current market rates. There is an interest rate
      risk associated with our variable rate debt agreements which totaled
      approximately $9,200,000 at December 31, 2005.





We
      have exposure to both rising and falling interest rates. A 1⁄2% decrease in rates
      on our year-end investments would have an insignificant impact on our results
      of
      operations. A 1% increase in rates on our year-end variable rate debt would
      result in a negative impact of approximately $92,000 on our
      operations.





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





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





Our
      financial statements, and the related notes, together with the report s
      of Battelle & Battelle LLP dated March
      29,
      2006, are set forth at pages F-4 through F-8 attached hereto.





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





None




**Item
      9A. Controls and Procedures**





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 defined
      in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange
      Act”)). Based on that evaluation, our Chief Executive Officer and Chief
      Financial Officer have concluded that, as of the end of the period covered
      by
      this report, 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.
      During the period covered by this Annual Report on Form 10-K, there was no
      change in our internal control over financial reporting (as defined in Rule
      13a-15(f) under the Exchange Act) that materially affected, or is reasonably
      likely to materially affect, our internal control over financial reporting.
      Subsequent to the date of this evaluation, there have been no significant
      changes in our internal controls or in other factors that could significantly
      affect these controls, and no corrective actions taken with regard to
      significant deficiencies or perceived weaknesses in such controls.





**Item
      9B. Other Information**





None.




-31-
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 **Index
            to Financial
            Statements**


**Part
      III**





**Item
      10. Directors and Executive Officers of the
      Registrant**





The
      information required by this item is included under the caption **“Information
      About Directors and Executive Officers”** in our Information Statement relating to our 2006 Annual Meeting of Shareholders
      (the “Information Statement”) to be held on June 9, 2006, 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**




The
      information required by this item is included under the caption **“Certain
      Relationships and Related Transactions”** 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.




-32-
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            to Table of Contents**
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            to Financial
            Statements**




**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:





Independent
      Auditors’ Report.


Consolidated
      Balance Sheets as of December 31, 2005 and
      2004.


Consolidated
      Statements of Operations for the Years Ended December
      31, 2005, 2004, and 2003.


Consolidated
      Statements of Stockholders’ Equity for the Years Ended
      December 31, 2005, 2004 and


Consolidated
      Statements of Cash Flows for the Years Ended December
      31, 2005, 2004, and 2003.


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:




ExhibitNumber
              
              Exhibit
                  Description3.1
              
              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.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.
   -33-
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              to Table of Contents**
 **Index
              to Financial
              Statements**
  ExhibitNumber
                  
                  Exhibit
                      Description
 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.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. de C.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. de C.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.10.13
              *
              Transition
                  Services Agreement, dated February 24, 2006, between the Company
                  and
                  Litton Systems, Inc.10.14
              
              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).10.15
              
              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).
   -34-
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              to Table of Contents**
 **Index
              to Financial
              Statements**
  ExhibitNumber
                  
                  Exhibit
                      Description
 10.16
              
              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).10.17
              
              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).10.18
              
              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).10.19
              
              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).10.20
              *
              Amendment
                  Letter 4, dated December 21, 2005, to Term Loan Facility Letter
                  between
                  the Company and Bank of Scotland.10.21
              *
              Working
                  Capital Facility Letter, dated December 21, 2005, between the Company
                  and
                  Bank of Scotland.10.22
              
              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).10.23
              *
              Employment
                  Agreement between the Company and Barry Pardon dated February 22,
                  2006.10.24
              *
              Second
                  Amended and Restated General Security Agreement, dated February
                  23, 2006,
                  among the Company, Simclar (Mexico) Inc, Simclar Interconnect
                  Technologies, Inc., Simclar De Mexico, S.A. de C.V. and Bank of
                  Scotland.10.25
              *
              Third
                  Amended and Restated Pledge Agreement, dated February 23, 2006,
                  among the
                  Company, Simclar (Mexico) Inc, and Bank of Scotland.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.




-35-
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            to Financial
            Statements**


**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: March
                30, 2006
              By:
              /s/ Barry
                J.
                PardonName:  
                  Barry J. Pardon
                Title:    
                  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
            
            March
                30, 2006/s/
                Barry J. Pardon
            
            President
                and Director
            
            March
                30, 2006Barry
                J. Pardon
            
            (principal
                executive officer)John
                Ian Durie*
            
            Vice-President
                (Finance) and Director
            
            March
                30, 2006John
                Ian DurieMarshall
                W. Griffin*
            
            Chief
                Financial Officer and Secretary
            
            March
                30, 2006Marshall
                W. Griffin
            
            (principal
                financial and principalaccounting
                officer)A.
                Graeme Manson *
            
            Director
            
            March
                30, 2006A.
                Graeme MansonPatrick
                Lacchia *
            
            Director
            
            March
                30, 2006Patrick
                LacchiaKenneth
                M. MacKay, M. D.*
            
            Director
            
            March
                30, 2006Kenneth
                M. MacKay, M. D.Christina
                M. J. Russell*
            
            Director
            
            March
                30, 2006Christina
                M. J. Russell*By:
                /s/ Barry J. PardonBarry
                J. Pardon, Attorney-in-Fact






-36-
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            to Table of Contents**
 **Index
            to Financial
            Statements**
  **FORM
        10-K--ITEM 8**





**LIST
      OF FINANCIAL STATEMENTS**





The
      following consolidated financial statements of Simclar, Inc. and subsidiaries
      are included in Item 8:





PageIndependent
                Auditors’ Report.
            F-2Consolidated
                Balance Sheets - December 31, 2005 and
                2004.
            F-3Consolidated
                Statements of Operations - Years ended December
                31, 2005, 2004, and 2003.
            F-5Consolidated
                Statements of Stockholders’ Equity - Years ended
                December 31, 2005, 2004, and 2003.
            F-6Consolidated
                Statements of Cash Flows - Years ended December
                31, 2005, 2004 and 2003.
            F-7Notes
                to Consolidated Financial Statements
            F-8The
                following financial statement schedule of Simclar, Inc. and subsidiaries
                is includedSchedule
                II - Valuation and qualifying accounts.
            S-2





All
      other
      schedules for which provision is made in the applicable accounting regulation
      of
      the Securities and Exchange Commission are not required under the related
      instructions or are inapplicable, and therefore have been omitted.




F-1
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            to Financial
            Statements**





**SIMCLAR,
      INC. AND SUBSIDIARIES**





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**








Board
      of
      Directors and Shareholders


Simclar,
      Inc. and Subsidiaries


Hialeah,
      FL





We
      have
      audited the accompanying consolidated balance sheet of Simclar, Inc. and
      subsidiaries as of December 31, 2005 and 2004, and the related consolidated
      statements of operations, stockholders’ equity, and cash flows, for the each of
      the three years ended December 31, 2005. These financial statements are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Accounting
      Oversight Board (United States). Those standards require that we plan and
      perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit includes examining,
      on a test basis, evidence supporting the amounts and disclosures in the
      financial statements. An audit also includes assessing the accounting principles
      used and significant estimates made by management, as well as evaluating the
      overall financial statement presentation. We believe that our audits provide
      a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated financial position of Simclar, Inc. and
      subsidiaries as of December 31, 2005 and 2004, and the consolidated results
      of
      their operations and their cash flows for each of the three years ended December
      31, 2005, in conformity with accounting principles generally accepted in the
      United States of America.








/s/
      BATTELLE & BATTELLE LLP




Battelle
      & Battelle LLP


Dayton,
      Ohio


March
      29,
      2006




F-2
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            to Financial
            Statements**





**SIMCLAR,
      INC. AND SUBSIDIARIES**





**CONSOLIDATED
      BALANCE SHEETS**





December
                31,
            
            December
                31,2005
            
            2004**ASSETS****Current
                assets:**Cash
                and cash equivalents
            
            $
            833,703
            
            $
            280,015Accounts
                receivable, less allowances of $235,000 atDecember
                31, 2005 and $182,000 at December 31, 2004
            
            
            9,407,635
            
            
            8,066,978Amounts
                receivable from major stockholder, net
            
            
            —
            
            
            2,918,037Inventories,
                less allowances for obsolescence of $1,822,000 at December31,
                2005 and $1,481,000 at December 31, 2004
            
            
            12,006,627
            
            
            11,314,911Prepaid
                expenses and other current assets
            
            
            357,703
            
            
            317,183Deferred
                income taxes
            
            
            985,056
            
            
            795,400**Total
                current assets**
            
            
            23,590,724
            
            
            23,692,524**Property
                and equipment:**Land
                and improvements
            
            
            547,511
            
            
            547,511Buildings
                and building improvements
            
            
            1,235,904
            
            
            1,235,904Machinery,
                computer and office equipment
            
            
            10,944,591
            
            
            8,171,056Tools
                and dies
            
            
            331,244
            
            
            290,873Leasehold
                improvements
            
            
            493,694
            
            
            254,082Construction
                in progress
            
            
            519,254
            
            
            123,023**Total
                property and equipment**
            
            
            14,072,198
            
            
            10,622,426Less
                accumulated depreciation and amortization
            
            
            6,003,107
            
            
            6,613,775**Net
                property and equipment**
            
            
            8,069,091
            
            
            4,008,651**Deferred
                expenses and other assets, net**
            
            
            61,398
            
            
            20,622**Goodwill**
            
            
            5,917,938
            
            
            4,840,545**Intangible
                assets, net**
            
            
            60,996
            
            
            18,000**Total
                assets**
            
            $
            37,700,147
            
            $
            32,580,342






See
      notes
      to consolidated financial statements




F-3
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            to Table of Contents**
 **Index
            to Financial
            Statements**





**SIMCLAR,
      INC. AND SUBSIDIARIES**





**CONSOLIDATED
      BALANCE SHEETS**





December
                31,
            
            December
                31,2005
            
            2004**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Current
                liabilities:**Line
                of credit
            
            $
            4,990,395
            
            $
            2,980,000Accounts
                payable
            
            
            8,793,877
            
            
            5,414,262Accrued
                expenses
            
            
            1,379,763
            
            
            1,124,732Accrued
                income taxes
            
            
            552,419
            
            
            836,709Amounts
                payable to major stockholder, net
            
            
            1,873,463
            
            
            —Current
                portion of long-term debt
            
            
            1,200,000
            
            
            1,200,000**Total
                current liabilities**
            
            
            18,789,917
            
            
            11,555,703Long-term
                debt
            
            
            3,000,000
            
            
            4,200,000Deferred
                trade accounts payable
            
            
            —
            
            
            2,500,000Deferred
                income taxes
            
            
            518,926
            
            
            206,000**Total
                liabilities**
            
            
            22,308,843
            
            
            18,461,703Commitments
                and contingencies
            
            
            —
            
            
            —**Stockholders'
                equity:**Common
                stock, $.01 par value, authorized 10,000,000 shares; issued
                andoutstanding
                6,465,345 shares at December 31, 2005 and 2004
            
            
            64,653
            
            
            64,653Capital
                in excess of par value
            
            
            11,446,087
            
            
            11,446,087Retained
                earnings
            
            
            3,843,966
            
            
            2,593,238Accumulated
                other comprehensive income
            
            
            36,598
            
            
            14,661**Total
                stockholders' equity**
            
            
            15,391,304
            
            
            14,118,639$
            37,700,147
            
            $
            32,580,342






See
      notes
      to consolidated financial statements




F-4
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            to Table of Contents**
 **Index
            to Financial
            Statements**





**SIMCLAR,
      INC. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





Year
                EndedDecember
                31,2005
            
            2004
            
            2003Sales
            
            $
            61,214,254
            
            $
            53,582,487
            
            $
            36,187,105Cost
                of goods sold
            
            
            53,601,700
            
            
            46,229,712
            
            
            31,316,498Gross
                Margin
            
            
            7,612,554
            
            
            7,352,775
            
            
            4,870,607Selling,
                general and administrative expenses
            
            
            4,984,610
            
            
            3,754,823
            
            
            3,133,170Income
                from operations
            
            
            2,627,944
            
            
            3,597,952
            
            
            1,737,437Interest
                expense
            
            
            476,712
            
            
            213,284
            
            
            217,833Interest
                and other income
            
            
            (68,062
            )
            
            (50,953
            )
            
            (114,791
            )Foreign
                currency loss on Scotland shutdown
            
            
            0
            
            
            0
            
            
            170,867Income
                before income taxes
            
            
            2,219,294
            
            
            3,435,621
            
            
            1,463,528Income
                tax provision
            
            
            968,566
            
            
            1,093,841
            
            
            357,207Net
                income
            
            $
            1,250,728
            
            $
            2,341,780
            
            $
            1,106,321Earnings
                per share:Basic
                & diluted
            
            $
            0.19
            
            $
            0.36
            
            $
            0.17






See
      notes
      to consolidated financial statements




F-5
 **Back
            to Table of Contents**
 **Index
            to Financial
            Statements**





**SIMCLAR,
      INC. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’
EQUITY**


**Retained**
            
            **Accumulated**
            
            **Notes****Capital
                in**
            
            
            
            **Earnings**
            
            **Other**
            
            **Receivable****Common**
            
            **Excess
                of**
            
            **Comprehensive**
            
            **(Accumulated)**
            
            **Comprehensive**
            
            **Stock****Stock**
            
            **Par
                Value**
            
            **Income**
            
            **(Deficit)**
            
            **Income
                (Loss)**
            
            **Options**
            
            **Total**Balance
                at January 1, 2003
            
            $
            65,570
            
            $
            11,592,995
            
            
            
            
            $
            (854,863
            )
            $
            (224,349
            )
            $
            (207,825
            )
            $
            10,371,528Comprehensive
                income:Net
                income
            
            
            
            
            
            
            
            
            1,106,321
            
            
            1,106,321Other
                comprehensive income:Foreign
                currency translation adjustments
            
            
            
            
            
            
            
            
            223,171
            
            
            
            
            
            223,171Comprehensive
                income
            
            
            
            
            
            
            
            $
            1,329,492
            
            
            
            
            
            
            
            
            
            
            
            1,329,492Cancellation
                of held stock option shares due to lack of payment
            
            
            (1,217
            )
            
            (206,608
            )
            
            
            
            
            
            
            
            
            
            
            207,825Exercise
                of stock options
            
            
            300
            
            
            59,700
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            60,000Balance
                at December 31, 2003
            
            $
            64,653
            
            $
            11,446,087
            
            
            
            
            $
            251,458
            
            $
            (1,178
            )
            $
            —
            
            $
            11,761,020Comprehensive
                income:Net
                income
            
            
            
            
            
            
            
            
            2,341,780
            
            
            2,341,780Other
                comprehensive income:Foreign
                currency translation adjustments
            
            
            
            
            
            
            
            
            15,839
            
            
            
            
            
            15,839Comprehensive
                income
            
            
            
            
            
            
            
            $
            2,357,619
            
            
            
            
            
            
            
            
            
            
            
            2,357,619Balance
                at December 31, 2004
            
            $
            64,653
            
            $
            11,446,087
            
            
            
            
            $
            2,593,238
            
            $
            14,661
            
            $
            —
            
            $
            14,118,639Comprehensive
                income:Net
                income
            
            
            
            
            
            
            
            
            1,250,728
            
            
            1,250,728Other
                comprehensive income:Foreign
                currency translation adjustments
            
            
            
            
            
            
            
            
            21,937
            
            
            
            
            
            21,937Comprehensive
                income
            
            
            
            
            
            
            
            $
            1,272,665
            
            
            
            
            
            
            
            
            
            
            
            1,272,665Balance
                at December 31, 2005
            
            $
            64,653
            
            $
            11,446,087
            
            
            
            
            $
            3,843,966
            
            $
            36,598
            
            $
            —
            
            $
            15,391,304






See
      notes
      to consolidated financial statements




F-6
 **Back
            to Table of Contents**
 **Index
            to Financial
            Statements**





**SIMCLAR,
      INC. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


Year
                ended December 31,2005
            
            2004
            
            2003Operating
                activities:Net
                income
            
            $
            1,250,728
            
            $
            2,341,780
            
            $
            1,106,321Adjustments
                to reconcile net income to net cashprovided
                by operating activities:Depreciation
                & amortization
            
            
            1,273,533
            
            
            1,019,609
            
            
            935,883Deferred
                expenses and other assets
            
            
            (40,776
            )
            
            (20,622
            )
            
            9,435Provision
                for inventory obsolescence
            
            
            468,675
            
            
            382,391
            
            
            245,976Provision
                for uncollectible accounts receivable
            
            
            55,527
            
            
            35,000
            
            
            —Loss/(gain)
                on disposal of property & equipment
            
            
            9,028
            
            
            —
            
            
            (47,650
            )Deferred
                tax benefit
            
            
            (260,555
            )
            
            (22,700
            )
            
            (10,300
            )Changes
                relating to operating activities from:Accounts
                receivable
            
            
            (617,796
            )
            
            (2,375,164
            )
            
            (460,553
            )Amounts
                receivable from / payable to major stockholder, net
            
            
            163,832
            
            
            (869,116
            )
            
            (104,252
            )Inventories
            
            
            (829,892
            )
            
            (1,944,001
            )
            
            (202,241
            )Prepaid
                expenses and other current assets
            
            
            84,538
            
            
            (7,823
            )
            
            (180,651
            )Accounts
                payable
            
            
            227,559
            
            
            2,453,983
            
            
            (210,661
            )Accrued
                expenses
            
            
            2,958
            
            
            209,816
            
            
            (69,475
            )Income
                taxes (payable)/recoverable
            
            
            (284,290
            )
            
            340,064
            
            
            (2,182
            )Net
                cash provided by operating activities
            
            
            1,503,065
            
            
            1,543,217
            
            
            1,009,650Investing
                activities:Additions
                to property and equipment, net of minor disposals
            
            
            (1,717,063
            )
            
            (2,532,792
            )
            
            (209,807
            )Proceeds
                from sale of property and equipment
            
            
            176,518
            
            
            —
            
            
            704,433Acquisition
                of subsidiaries, net of cash acquiredSimclar
                (Mexico), Inc.
            
            
            (588,195
            )
            
            (606,432
            )
            
            (1,951,547
            )Simclar
                (North America), Inc.
            
            
            347,645
            
            
            —
            
            
            —Net
                cash used in investing activities
            
            
            (1,781,095
            )
            
            (3,139,224
            )
            
            (1,456,921
            )Financing
                activities:Borrowing
                on bank line of credit
            
            
            2,010,395
            
            
            1,230,000
            
            
            250,000Exercise
                of stock options
            
            
            
            
            
            
            
            
            60,000Proceeds
                from long-term bank borrowings
            
            
            —
            
            
            1,400,000Payments
                on long-term bank borrowings
            
            
            (1,200,000
            )
            
            (1,000,000
            )
            
            (1,392,682
            )Net
                cash provided by financing activities
            
            
            810,395
            
            
            1,630,000
            
            
            (1,082,682
            )Effect
                of exchange rate fluctuations on cash
            
            
            21,319
            
            
            15,839
            
            
            223,171Net
                change in cash and cash equivalents
            
            
            553,688
            
            
            49,832
            
            
            (1,306,782
            )Cash
                and cash equivalents at beginning of period
            
            
            280,015
            
            
            230,183
            
            
            1,536,965Cash
                and cash equivalents at end of period
            
            $
            833,703
            
            $
            280,015
            
            $
            230,183






See
      notes
      to consolidated financial statements




F-7
 **Back
            to Table of Contents**
 **Index
            to Financial
            Statements**




**SIMCLAR,
      INC. AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





*Consolidation*





The
      consolidated financial statements include the accounts of Simclar, Inc.
      (“Simclar ”) and its subsidiaries, including Simclar (Mexico), Inc. (“Simclar
      (Mexico)”), Techdyne (Europe) Limited (“Techdyne (Europe)”) and Simclar (North
      America), Inc. (“SNAI”), collectively referred to as the “company.” During
      September 2003, the company changed its name to Simclar, Inc. from Techdyne,
      Inc. On August 13, 2003 the company merged its wholly owned subsidiary, Lytton
      Inc. into Simclar. SNAI was acquired during the second quarter of 2005 with
      an
      effective date of May 1, 2005 (refer to Note 14). All material intercompany
      accounts and transactions have been eliminated in consolidation. The company
      is
      a 73.4% owned subsidiary of Simclar Group Limited (“Simclar Group”), a privately
      owned company incorporated in the United Kingdom.





*Business*





The
      company operates in one business segment, the manufacture of electronic and
      electro-mechanical products primarily manufactured to customer specifications
      in
      the data processing, telecommunication, instrumentation and food preparation
      equipment industries.





*Cash
      and Cash Equivalents*





The
      company considers all highly liquid investments with an original maturity of
      three months or less when purchased to be cash equivalents. The carrying amounts
      reported in the balance sheets for cash and cash equivalents approximate their
      fair values. The credit risk associated with cash and cash equivalents is
      considered low due to the high quality of the financial institutions in which
      the assets are invested.





*Inventories*





Inventories,
      which consist primarily of raw materials used in the production of electronic
      components, are valued at the lower of cost (first-in, first-out and/or weighted
      average cost method) or market value. The cost of finished goods and work in
      process consists of direct materials, direct labor and a portion of fixed and
      variable-manufacturing overhead. The company reviews its inventories on an
      annual basis to identity parts that have not been used in the manufacturing
      process during the previous two year period or are not believed to be required
      for use in the manufacturing process during the next six months. The carrying
      value of these identified parts is adjusted to the estimated realizable fair
      market value with a current period charge to an allowance for obsolescence
      as
      reflected in the financial statements.





*Property,
      Plant and Equipment*





Property,
      plant and equipment is stated on the basis of cost. Depreciation is computed
      by
      the straight-line method over the estimated useful lives of the assets, which
      are generally 25 years for buildings and improvements; 3 to 10 years for
      machinery, computer and office equipment; 3 to 10 years for tools and dies;
      and
      5 to 15 years for leasehold improvements based on the shorter of the lease
      term
      or estimated useful life of the property. Replacements and betterments that
      extend the lives of assets are capitalized. Maintenance and repairs are expensed
      as incurred. Upon the sale or retirement of assets, the related cost and
      accumulated depreciation are removed and any gain or loss is recognized.
      Depreciation expense was approximately $1,264,000, $1,020,000, and $936,000
      in
      the years ended December 31, 2005, 2004, and 2003 respectively.




F-8
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            to Financial
            Statements**





**SIMCLAR,
      INC. AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued** **





*Long-Lived
      Asset Impairment*




In
      accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
      “Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived
      assets to be held and used are reviewed for impairment whenever events or
      circumstances indicate that the carrying amount may not be recoverable. When
      required, impairment losses on assets to be held and used are recognized based
      on the fair value of the asset. The fair value of these assets is determined
      based upon estimates of future cash flows, market value of similar assets,
      if
      available, or independent appraisals, if required. In analyzing the fair value
      and recoverability using future cash flows, the company makes projections based
      on a number of assumptions and estimates of growth rates, future economic
      conditions, assignment of discount rates and estimates of terminal values.
      An
      impairment loss is recognized if the carrying amount of the long-lived asset
      is
      not recoverable from its undiscounted cash flows. The measurement of impairment
      loss is the difference between the carrying amount and fair value of the asset.
      Long-lived assets to be disposed of and/or held for sale are reported at the
      lower of carrying amount or fair value less cost to sell. The company determines
      the fair value of these assets in the same manner as described for assets held
      and used.




*Deferred
      Expenses*





Deferred
      expenses, except for deferred loan costs, are amortized on the straight-line
      method, over their estimated benefit period ranging to 60 months. Deferred
      loan
      costs are amortized over the lives of the respective loans. The amortization
      expense for the years ended December 31, 2005, 2004, and 2003 was approximately
      $9,000, $10,000, and $11,000, respectively.





*Goodwill
      and Intangible Assets*





Goodwill
      is the excess of the purchase price paid over the value of net assets of
      businesses acquired and is not amortized.  Intangible assets with
      determinable lives are amortized on a straight-line basis over the estimated
      useful life.  Goodwill and indefinite-lived intangibles are evaluated for
      impairment on an annual basis, or more frequently if impairment indicators
      arise, using a fair-value-based test.  Fair values are typically calculated
      using discounted expected future cash flows, using a risk-adjusted discount
      rate.





December
                31,2005
            
            2004
            
            2003Goodwill
                recognized on the acquisition of :Lytton
                Inc.
            
            $
            2,954,995
            
            $
            2,954,995
            
            $
            2,954,995AG
                Technologies, Inc.
            
            
            2,579,118
            
            
            1,885,550
            
            
            1,279,118Simclar
                (North America), Inc.
            
            
            383,825
            
            
            —
            
            
            —$
            5,917,938
            
            $
            4,840,545
            
            $
            4,234,113






F-9
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            to Financial
            Statements**




**SIMCLAR,
      INC. AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued**





Identifiable
      intangible assets consist of the following:




December
                31, 2005
            
            December
                31, 2004Gross
            
            
            
            Grosscarrying
            
            Accumulated
            
            carrying
            
            Accumulatedamount
            
            amortization
            
            amount
            
            amortizationNon-compete
                agreement
            
            $
            18,000
            
            $
            (2,250
            )
            $
            18,000
            
            $
            0Customer
                list
            
            
            0
            
            
            (6,961
            )
            
            0
            
            
            0Total
            
            $
            18,000
            
            $
            (9,211
            )
            $
            18,000
            
            $
            0




Amortization
      expense for intangible assets was approximately $9,000 for 2005. There was
      no
      amortization expense for 2004 and 2003.  Estimated amortization expense for
      the next five years is as follows:  2006-$19,000; 2007-$17,000;
      2008-$10,000; 2009-$10,000; and 2010-$3,000.




During
      the third quarters of 2005 and 2004, the company performed the annual impairment
      test for goodwill related to the Simclar (Mexico) acquisition.  The tests
      were performed at the reporting unit level using a fair-value-based test.
 Fair values are calculated using discounted expected future cash flows,
      using a risk-adjusted discount rate.  Based upon the test results, the
      company determined that no impairment of goodwill was required.




During
      the fourth quarters of 2005 and 2004, the company performed the annual
      impairment test for goodwill related to the Lytton, Inc. acquisition.  The
      tests were performed at the reporting unit level using a fair-value-based test.
       Fair values are calculated using discounted expected future cash flows,
      using a risk-adjusted discount rate.  Based upon the test results, the
      company determined that no impairment of goodwill was required. The
      goodwill related to the SNAI acquisition will be performed within one year
      of
      the acquisition which will be no later than the second quarter of
      2006.





*Income
      Taxes*





Deferred
      income taxes at the end of each period are determined by applying enacted tax
      rates applicable to future periods in which the taxes are expected to be paid
      or
      recovered to differences between the financial accounting and tax basis of
      assets and liabilities.




F-10
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            to Financial
            Statements**





**SIMCLAR,
      INC. AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued** **





*Earnings
      per Share*





Diluted
      earnings per share gives effect to potential common shares that were dilutive
      and outstanding during the period, such as stock options and warrants using
      the
      treasury stock method and average market price, the company has various stock
      options; however, only those options which were dilutive during the periods
      being reported on have been included in the earnings per share computations.
      For
      the years presented there is no dilutive effect.




Following
      is a reconciliation of amounts used in the computations:





Year
                Ended December 31,2005
            
            2004
            
            2003Net
                income - numerator basic computation
            
            $
            1,250,728
            
            $
            2,341,780
            
            $
            1,106,321Weighted
                average shares - denominator basiccomputation
            
            
            6,465,345
            
            
            6,465,345
            
            
            6,460,086Earnings
                per share:Basic
                and diluted
            
            $
            0.19
            
            $
            0.36
            
            $
            0.17





*Estimated
      Fair Value of Financial Instruments*





The
      carrying value of cash, accounts receivable and debt in the accompanying
      financial statements approximate their fair value because of the short-term
      maturity of these instruments, or in the case of debt, because such instruments
      bear variable interest rates which approximate market.





*Use
      of Estimates*





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the amounts reported in the consolidated
      financial statements and accompanying notes. The accounting estimates and
      assumptions that place the most significant demands on management’s judgment
      include, but are not limited to, doubtful accounts receivable, income taxes,
      impairment of long-lived assets, business combinations, and inventory
      obsolescence. These estimates and assumptions are based on information presently
      available and actual results could differ from those estimates.




F-11
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            Statements**





**SIMCLAR,
      INC. AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued** **





*Revenue
      Recognition and Accounts Receivable*





The
      company’s sales are primarily derived from product manufacturing including, but
      not limited to, finished molded and non-molded cables, wiring harnesses, printed
      circuit board assemblies, electro-mechanical and electronic assemblies. Revenue
      is recognized upon shipment of the product to the customer, under contractual
      terms, which are generally FOB shipping point. Upon shipment, title transfers
      and the customer assumes the risks and rewards of ownership of the product.
      The
      selling price of the product is fixed and the ability to collect for the sale
      to
      the customer is reasonably assured when the product is shipped.





Revenue
      from contract manufacturing, rework and refurbishing is recognized upon shipment
      of t he
      product to the
      customer, under contractual terms, which are generally FOB shipping
      point.





Trade
      receivables are uncollateralized customer obligations due under normal trade
      terms requiring payment generally within 30 days from the invoice date.





The
      company’s estimate of the allowance for doubtful accounts for trade receivables
      is primarily determined based upon the length of time that the receivables
      are
      past due. In addition, management estimates are used to determine probable
      losses based upon an analysis of prior collection experience, specific account
      risks, and economic conditions.





The
      company has a series of actions that occur based upon the aging of past due
      trade receivables, including letters and direct customer contact. Accounts
      are
      deemed uncollectible based on their past payment account experiences and their
      current financial condition.





*Shipping
      Costs*





Shipping
      costs related to the transportation of products sold to customers are charged
      to
      cost of goods sold.





*Warranty
      Costs*





The
      company warrants that products used in its manufacturing process are free from
      defects in material and workmanship for a period of one year from time of
      shipment to the customer. If the manufactured product fails in this one year
      period due to a defect, the company will rework the product until it functions
      per the customer’s specifications. The costs associated with the rework of any
      return of defective products are treated as a period expense when the products
      are reshipped to the customer. The company estimates the cost of reworking
      defective products to be less than 1% of its annual sales volume and thus has
      not recorded any liability for rework costs on its financial
      statements.




F-12
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            Statements**





**SIMCLAR,
      INC. AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued** **





*Foreign
      Operations*





The
      financial statements of the foreign subsidiaries have been translated into
      U.S.
      dollars in accordance with SFAS No. 52. All balance sheet accounts have been
      translated using the current exchange rates at the balance sheet date. Income
      statement accounts have been translated using the average exchange rate for
      the
      period. The translation adjustments resulting from the change in exchange rates
      from period to period have been reported separately as a component of
      accumulated other comprehensive income included in stockholders’ equity. Foreign
      currency transaction gains and losses, which are not material, are included
      in
      the results of operations.


These
      gains and losses result from exchange rate changes between the time transactions
      are recorded and settled, and for unsettled transactions, exchange rate changes
      between the time the transactions are recorded and the balance sheet date.





*Comprehensive
      Income*





The
      company follows SFAS No. 130, “Reporting Comprehensive Income” which contains
      rules for the reporting of comprehensive income and its components.
      Comprehensive income consists of net income and foreign currency translation
      adjustments and is presented in the Consolidated Statement of Stockholders’
Equity.







*Reclassifications*




Certain
      prior-year amounts have been reclassified to conform to the current-year
      presentation.





*New
      Pronouncements*





In
      December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
      No.
      123(R), Share-Based Payment, which would require all share-based payments to
      employees, including grants of employee stock options, to be recognized in
      the
      consolidated statements of operations based on their fair values, effective
      for
      public companies for interim periods beginning after June 15, 2005. SFAS
      No.123(R) permits public companies to adopt its requirements using either the
      modified prospective or retrospective method. The company adopted this statement
      in the third quarter of fiscal year 2005 and experienced no material effect
      on
      its consolidated results of operations, financial position, and cash flows.




In
      November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of
      ARB No. 43, Chapter 4 Inventory Pricing.”  SFAS No. 151 requires idle
      facility costs, abnormal freight, handling costs, and amounts of wasted
      materials (spoilage) be treated as current-period costs.  Under this
      concept, if the costs associated with the actual level of spoilage or production
      defects are greater than the costs associated with the range of normal spoilage
      or defects, the difference would be charged to current-period expense, not
      included in inventory costs.  SFAS No. 151 also requires the allocation of
      fixed production overheads to the costs of conversion be based on the normal
      capacity of the production facilities.  SFAS No. 151 is effective for
      inventory costs incurred during fiscal years beginning after June 15, 2005.
       The company will adopt this statement for fiscal year 2006 and currently
      does not anticipate that the adoption of this standard will have a material
      effect on its consolidated results of operations, financial position, and cash
      flows.




F-13
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            Statements**





**SIMCLAR,
      INC. AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued**





In
      December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,
      an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.”
 The amendments made by SFAS No. 153 are based on the principle that
      exchanges of nonmonetary assets should be measured based on the fair value
      of
      the assets exchanged.  The guidance in APB Opinion No. 29 provided an
      exception to this basic measurement principle for exchanges of similar
      productive assets.  That exception required that some nonmonetary exchanges
      be recorded on a carryover basis.  SFAS No. 153 eliminates this exception
      for nonmonetary exchanges of similar productive assets and replaces it with
      a
      general exception for exchanges of nonmonetary assets that do not have
      commercial substance.  An exchange would lack commercial substance if the
      company’s future cash flows are not expected to change significantly as a result
      of that exchange.  SFAS No. 153 is effective for nonmonetary asset
      exchanges occurring in fiscal periods beginning after June 15, 2005.
 Earlier application is permitted.  The company will adopt this new
      standard for fiscal year 2006 and does not anticipate that the adoption of
      this
      standard will have a material effect on its consolidated results of operations,
      financial position, and cash flows.




In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections
      -
      a replacement of APB Opinion No. 20 and FASB Statement No. 3."  SFAS No.
      154 requires, unless impracticable, retrospective application to prior periods’
financial statements of changes in accounting principle.  SFAS No. 154 also
      requires that retrospective application of a change in accounting principle
      be
      limited to the direct effects of the change. Indirect effects of a change in
      accounting principle should be recognized in the period of the accounting
      change. The new standard is effective for accounting changes and corrections
      of
      errors made in fiscal years beginning after December 15, 2005.  The company
      will adopt the provisions of SFAS No. 154, as applicable, beginning in fiscal
      2006 and do not anticipate that the adoption of this standard will have a
      material effect on our consolidated results of operations, financial position,
      or cash flows.





**NOTE
      2--INVENTORIES**





Inventories
      are comprised of the following:


December
                31,2005
            
            2004Raw
                materials and supplies
            
            $
            9,167,103
            
            $
            8,863,347Work
                in process
            
            
            1,794,401
            
            
            1,584,258Finished
                goods
            
            
            1,045,123
            
            
            867,306$
            12,006,627
            
            $
            11,314,911





**NOTE
      3--ACCRUED EXPENSES**





Accrued
      expenses are comprised of the following:





December
                31,2005
            
            2004Accrued
                compensation
            
            $
            628,369
            
            $
            523,430Accrued
                property taxes
            
            
            265,554
            
            
            223,230Accrued
                commissions
            
            
            147,585
            
            
            203,895Other
            
            
            338,254
            
            
            174,176$
            1,379,763
            
            $
            1,124,732






F-14
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            to Financial
            Statements**




**SIMCLAR,
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**NOTE
      4--LONG-TERM DEBT**





In
      December 2005, we entered into two amended credit facilities and one new credit
      facility with Bank of Scotland in Edinburgh, Scotland (“BoS”) consisting
      of:





**Borrower**
            
            **Type
                of facility**
            
            **Original****amount**
            
            **Balance
                at**
              **December
                31,2005**Simclar,
                Inc.
            
            
            Working
                capital
            
            $
            5,000,000
            
            $
            4,990,395Simclar,
                Inc.
            
            
            Term
                loan - four tranches (see detail of tranches below)
            
            $
            21,650,000
            
            $
            4,200,000Simclar
                Interconnect Technologies, Inc.
            
            
            Working
                Capital
            
            $
            1,000,000
            
            $
            0




Interest
      on the Simclar, Inc. working capital facility accrues
      at an annual rate equal to LIBOR plus 1.5%, plus an amount, rounded to the
      nearest eighth of a percent, to cover any increases in certain regulatory costs
      incurred by the bank. The company may elect to pay interest on advances every
      one, three or six months, with LIBOR adjusted to correspond to the interest
      payment period selected by the company .
      The
      interest rate for the working capital facility at December 31, 2005 was 5.625%
      based on the three month election. The weighted average interest rate for the
      year was 4.76%.





Interest
      on the Simclar Interconnect Technologies, Inc. working capital facility will
      be
      a margin over LIBOR determined by a ratio of net borrowings to EBITDA for any
      given test period. The margin percentage can range from 1.5% to 2.5%. There
      had
      been no drawdowns on this facility at December 31, 2005 and there have been
      none
      since that date.





The
      term
      loan interest is also determined by a margin over LIBOR related to the ratio
      of
      net borrowings to EBITDA for any given test period. The margin percentage can
      range from 1.5% to 2.5%. The term debt interest rate in effect at December
      31,
      2005 was 5.67% based on the three month election. The term loan is divided
      into
      four tranches each with its own specific purpose and repayment schedule as
      shown
      in the following table:





Tranche
            
            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
                2011






F-15
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            Statements**


**SIMCLAR,
      INC. AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      4--LONG-TERM DEBT - Continued**





Tranche
            
            Principal
                Amount
            
            Purpose
            
            PaymentsC
            
            $13,000,000
            
            Acquisition
                of certain assets of the Litton Interconnect Technologies assembly
                operations
            
            Thirteen
                quarterly payments of $500,000 beginning December 2006 through December
                2009, four quarterly payments of $250,000 from March 2010 through
                December
                2010, four quarterly payments of $750,000 from March 2011 through
                December
                2011 and four quarterly payments of $625,000 from March 2012 through
                December 2012.D
            
            $3,000,000
            
            Acquisition
                of certain assets of the Litton Interconnect Technologies assembly
                operations
            
            Single
                payment due December 31, 2010





Tranche
      C
      and Tranche D were not dispersed until February 24, 2006 when the acquisition
      of
      certain assets of the Litton Interconnect Technologies assembly business was
      completed.





All
      of
      the assets of the company collateralize the credit facilities. The credit
      facilities contain affirmative and negative covenants. In
      addition, our credit facilities require us to maintain:





·
            consolidated
                adjusted net worth greater than $15,000,000 with effect from March
                31,
                2006 (tested on a quarterly basis);


·
            a
                ratio of consolidated current assets to consolidated net borrowing
                prior
                to December 31, 2007 of not less than 1:1 and thereafter not to be
                less
                than 1.5:1 (tested on a quarterly basis);


·
            a
                ratio of consolidated trade receivables to consolidated net borrowing
                of
                not less than 0.5:1 prior to December 31, 2007 and not less than
                0.75:1
                thereafter (tested on a quarterly basis); and


·
            a
                ratio of EBIT to total interest not less than 3:1 until March 31,
                2006;
                not less than 3.5:1 from April 1, 2006 to June 30, 2006; and not
                less than
                4:1 thereafter (tested on a quarterly basis beginning December
                31,2005);


·
            a
                ratio of net borrowings to EBITDA not to exceed 5:1 through December
                31,
                2006; not less than 4.5:1 from January 1, 2007 to December 31, 2007;
                not
                less than 4:1 from January 1, 2008 to December 31, 2008; not less
                than
                3.5:1 from January 1, 2009 to December 31, 2009; and not less than
                3:1
                thereafter (tested on a quarterly basis beginning December 31, 2006).





In
      connection with the 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 a guaranty pursuant to which Simclar
      Interconnect Technologies, inc. 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 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.




F-16
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**SIMCLAR,
      INC. AND SUBSIDIARIES**


**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      4--LONG-TERM DEBT - Continued**




In
      addition, at the time of the SNAI acquisition the company entered into an
      amended pledge agreement with Bank of Scotland, whereby it pledged the stock
      of
      SNAI as additional security for its outstanding term and working capital
      facilities.





Long-term
      debt outstanding:





December
                31,2005
            
            2004Term
                loan
            
            $
            4,200,000
            
            $
            5,400,000Less
                current portion
            
            
            1,200,000
            
            
            1,200,000$
            3,000,000
            
            $
            4,200,000





Scheduled
      maturities of long-term debt outstanding at December 31, 2005 are approximately:
      2006 - $1,200,000; 2007 - $1,200,000; 2008 - $1,200,000; 2009 - $200,000; 2010
      -
      $200,000; and 2011 - $200,000. Interest payments on all of the above debt
      amounted to approximately $432,000, $189,000, and $231,000 in 2005, 2004, and
      2003 respectively.





On
      July
      15, 2003, Simclar (Mexico) and Simclar entered into an agreement with Winsson
      Enterprises Co., Ltd (“Winsson”). This agreement calls for Winsson to provide to
      Simclar (Mexico) a 3-year $2,750,000 open line of credit for purchased services
      and materials. The 3-year open line of credit required a reduction of $250,000
      as of July 14, 2004. As this line of credit becomes due in July 2006 the entire
      balance owed is included in current liabilities within trade accounts payable.
      The company is currently in negotiations with Winsson to renew and extend the
      agreement. While the company is confident the parties will reach an agreement,
      if the parties cannot come to an agreement by the due date the $2,500,000 will
      remain a trade account payable.





**NOTE
      5--INCOME TAXES**





For
      financial reporting purposes, income before income taxes includes the following
      components:





Year
                Ended December 31,2005
            
            2004
            
            2003United
                States income
            
            $
            1,933,515
            
            $
            3,269,909
            
            $
            1,603,477Foreign
                income (loss)
            
            
            285,779
            
            
            165,712
            
            
            (139,949
            )$
            2,219,294
            
            $
            3,435,621
            
            $
            1,463,528





Income
      tax payments were approximately $1,253,000, $754,000, and $333,000 in 2005,
      2004, and 2003 respectively.




F-17
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**SIMCLAR,
      INC. AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      5--INCOME TAXES - Continued**





The
      components of the current net deferred tax asset and long-term net deferred
      tax
      liability are as follows:


December
                31,2005
            
            2004Deferred
                tax asset:Inventory
                obsolescence
            
            $
            710,566
            
            $
            578,100Costs
                capitalized in ending inventory
            
            
            94,570
            
            
            84,900Accrued
                expenses
            
            
            88,272
            
            
            61,300Other
            
            
            91,648
            
            
            71,100Total
                current asset
            
            
            985,056
            
            
            795,400Deferred
                tax asset (liability):NOL
                carryforwards
            
            
            8,307,458
            
            
            —Depreciation
                and amortization
            
            
            (503,957
            )
            
            (206,000
            )Other
            
            
            (14,969
            )
            
            —Total
                long-term asset (liability)
            
            
            6,670,084
            
            
            (206,000
            )Less:
                valuation allowance
            
            
            (8,307,458
            )
            
            —Net
                long-term liability
            
            
            (518,926
            )
            
            (206,000
            )Net
                deferred tax asset
            
            $
            466,130
            
            $
            589,400





During
      2005, the company acquired SNAI and the related net operating loss (NOL) carry
      forwards. At December 31, 2005, SNAI had unused U.S. federal and state net
      operating loss carry forwards of approximately $7,800,000 and $499,000,
      respectively, generally expiring from 2022 through 2025.  The NOL carry
      forwards from the acquisition can only be used to offset future taxable income
      of SNAI and not taxable income of the consolidated entity. Based on the
      available evidence at the date of the acquisition and as of December 31, 2005
      regarding the likelihood of utilizing these loss carry forwards before the
      expiration date, a valuation allowance has been provided on the tax benefit
      associated with these loss carry forwards.





Significant
      components of the provision (benefit) for income taxes are as
      follows:


Year
                Ended December 31,2005
            
            2004
            
            2003Current:Federal
            
            $
            1,008,367
            
            $
            957,109
            
            $
            309,994State
                and local
            
            
            154,897
            
            
            59,991
            
            
            14,176Foreign
            
            
            38,575
            
            
            54,041
            
            
            22,7071,201,839
            
            
            1,071,141
            
            
            346,877DeferredFederal
            
            
            (209,348
            )
            
            19,791
            
            
            9,006State
            
            
            (23,925
            )
            
            2,909
            
            
            1,324(233,273
            )
            
            22,700
            
            
            10,330$
            968,566
            
            $
            1,093,841
            
            $
            357,207






F-18
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            Statements**




**SIMCLAR,
      INC. AND SUBSIDIARIES**


**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      5--INCOME TAXES - Continued**




Techdyne
      (Europe) and Simclar de Mexico, S.A. de C.V. file separate income tax returns
      in
      the United Kingdom and Mexico, respectively.





The
      reconciliation of income tax rates attributable to income before income taxes
      computed at the U.S. federal statutory rates to income tax expense (benefit)
      is:


Year
                Ended December 31,2005
            
            2004
            
            2003Statutory
                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
            
            
            3.5
            %
            
            1.2
            %
            
            0.7
            %Tax
                rate differential relating to tax benefit offoreign
                operating income
            
            
            -2.8
            %
            
            0.1
            %
            
            4.8
            %Non
                deductible items
            
            
            0.8
            %
            
            0.4
            %
            
            0.5
            %Dividend
                from non-U.S. subsidiary
            
            
            5.6
            %
            
            0.0
            %
            
            0.0
            %Refund
                of prior U.S. income taxes
            
            
            0.0
            %
            
            -1.1
            %
            
            -5.8
            %Settlement
                of U.S. income taxes
            
            
            0.0
            %
            
            -3.8
            %
            
            -13.7
            %Other
            
            
            2.5
            %
            
            1.0
            %
            
            3.8
            %43.6
            %
            
            31.8
            %
            
            24.4
            %





The
      earnings of the company’s Mexican subsidiary are expected to be permanently
      reinvested in the operations of that subsidiary.  As such, the company has
      historically not recorded a deferred tax liability based on the subsidiary’s
      accumulated undistributed earnings.  However, based on U.S. tax law, there
      was a deemed distribution during 2005 of all current and accumulated earnings
      due to a pledge agreement associated with the company’s credit facilities with
      BoS.  In the future, it is expected that the pledge agreement will be
      modified and the earnings of the Mexican subsidiary will therefore not be
      subject to U.S. taxation until distributed.  Therefore, as of December 31,
      2005, there were no undistributed earnings due to the deemed distribution in
      2005.  Undistributed earnings as of December 31, 2004 amounted to
      approximately $287,000.





**NOTE
      6--TRANSACTIONS WITH SIMCLAR GROUP**





The
      company’s parent, Simclar Group, provides certain financial and administrative
      services to the company under a service agreement. The amount of expenses
      incurred under the service agreement totaled $415,000, $360,000, and $347,000
      in
      2005, 2004, and 2003 respectively.





The
      company has a net payable due to Simclar Group of approximately $1,873,000
      at
      December 31, 2005 compared to a net receivable due from Simclar Group of
      approximately $2,918,000 and $2,049,000 at December 31, 2004 and 2003,
      respectively. During 2005 the company accrued financial and administrative
      expenses under the service agreement with Simclar Group, received net repayments
      of amounts due from Simclar Group entities, and acquired SNAI and assumed
      liabilities due to Simclar Group and certain of its subsidiaries as part of
      the
      acquisition. The net payable due Simclar Group incurs interest of LIBOR + 1.5%.
      For additional information related to pledge agreements and guarantees with
      BoS
      refer to Note 4.




F-19
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**SIMCLAR,
      INC. AND SUBSIDIARIES**


**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      7--RELATED PARTY TRANSACTIONS**




On
      October 20, 2004, the company purchased for $1,400,000 the 77,800 square foot
      office, manufacturing and warehouse facility located at 1784 Stanley Avenue,
      Dayton, Ohio that it had been leasing for a term ending July 31, 2007. The
      purchase resulted from the company’s exercise of an option to purchase contained
      in the lease. The premises were purchased from the lessor, Stanley Avenue
      Properties, Ltd., an Ohio limited liability company controlled by Lytton F.
      Crossley, a former director of the company. The purchase price was determined
      by
      negotiation, based upon independent appraisals obtained by the company and
      the
      seller.





For
      2005
      the company had sales with Simclar Corp., an affiliate of Simclar Group based
      in
      Kenosha, WI, of approximately $2,633,000 and sales to Simclar Group of
      approximately $76,000. The company transferred surplus equipment to Simclar
      China during 2005 for the net book value of approximately $158,000. The company
      had net receivables from related parties as of December 31, 2005 of
      approximately $637,000 from Simclar Corp. and approximately $152,000 from
      Simclar China.





**NOTE
      8--COMMITMENTS AND CONTINGENCIES**





*Commitments*





The
      company leases several facilities which expire at various dates through 2017
      with renewal options for a period of five years at the then fair market rental
      value. The company’s aggregate lease commitments at December 31, 2005, are
      approximately: 2006---$726,000, 2007---$526,000, 2008---$510,000,
      2009---$510,000, 2010 ---$453,000 and thereafter ---$2,132,000. Total rent
      expense was approximately $1,045,000, $753,000, and $635,000 for the years
      ended
      December 31, 2005, 2004, and 2003 respectively.





*Retirement
      Plan*





The
      company sponsors two 401(k) Profit Sharing Plans covering substantially all
      of
      its employees, excluding Techdyne (Europe) and Simclar (Mexico). The plan that
      covers all locations with the exception of SNAI offers a 50% corporate match
      based on the first 4% of each employee’s annual earnings contributed to the
      plan. The discretionary profit sharing and matching expense amounted to
      approximately $55,000, $73,000, and $59,000 for the years ended December 31,
      2005, 2004, and 2003 respectively. The SNAI plan currently does not offer a
      corporate match.





*Contingencies*





The
      company is involved in various legal actions arising in the ordinary course
      of
      business. In the opinion of management, the ultimate liability, if any,
      resulting from these matters will not have a material effect on the company’s
      financial position.





**NOTE
      9--STOCK OPTIONS**





On
      February 27, 1995 the company granted non-qualified stock options, to directors
      of Simclar and its subsidiary for 142,500 shares exercisable at $1.75 per share
      for five years. In April 1995, the company granted a non-qualified stock option
      for 10,000 shares which vested immediately, to its general counsel at the same
      price and terms as the directors’ options. On February 25, 2000, 145,000 of
      these options were exercised. The company received cash payment of the par
      value
      and the balance in three-year promissory notes totaling $207,825 presented
      in
      the stockholders’ equity section of the balance sheet, with interest at 6.19%.
      The notes, which were due
      in
      February 2003, were not repaid and, as a result, the related interest receivable
      was written off in 2002. The related shares were cancelled in
      2003.




F-20
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            Statements**




**SIMCLAR,
      INC. AND SUBSIDIARIES**


**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      9--STOCK OPTIONS - Continued**




In
      June
      1997, the company adopted a stock option plan for up to 500,000 options, and
      pursuant to this plan the board granted 375,000 options exercisable for five
      years through June 22, 2002 at $3.25 per share, with 320,000 of these options
      outstanding at December 31, 2001. On June 30, 1999, the company granted 52,000
      options exercisable for three years through September 29, 2002 at $4.00 per
      share with 10,000 options outstanding
      at December 31, 2001. On August 25, 1999, the company granted 16,000 options
      exercisable for three years through August 24, 2002 at $4.00 per share with
      13,000 options outstanding at December 31, 2001. On December 15, 1999, the
      company granted 19,000 options exercisable for three years through December
      14,
      2002 at $4.00 per share with 8,000 options outstanding at December 31, 2001.
      On
      May 24, 2000, the company granted 3,000 options exercisable for three years
      through May 23, 2003 at $4.00 per share, the options terminated when the
      employee terminated his employment with the company. On October 16, 2000, the
      company granted 90,000 three year stock options exercisable at $2.00 per share
      through October 15, 2002, with one-third of the options vesting immediately,
      one-third vesting on October 16, 2001 and one-third vesting on October 16,
      2002, but
      based
      on the change in control of the company, all options vested on June 27, 2001,
      and 30,000 options were redeemed for $4,200, 60,000 of these options remained
      outstanding at December 31, 2002. In 2003 30,000 options were exercised and
      the
      remaining expired. There was no option activity in 2004 and 2005.





**NOTE
      10--QUARTERLY FINANCIAL INFORMATION (Unaudited)**





The
      following summarizes certain quarterly operating data:





2005
              
              2004Mar
                  31
              
              Jun
                  30
              
              Sep
                  30
              
              Dec
                  31
              
              Mar
                  31
              
              Jun
                  30
              
              Sep
                  30
              
              Dec
                  31(In
                  thousands except per share data)Net
                  Sales
              
              $
              12,356
              
              $
              13,991
              
              $
              16,591
              
              $
              18,276
              
              $
              11,997
              
              $
              15,002
              
              $
              13,233
              
              $
              13,350Gross
                  Profit
              
              
              1,564
              
              
              1,731
              
              
              1,819
              
              
              2,499
              
              
              1,726
              
              
              2,450
              
              
              1,721
              
              
              1,456Net
                  Income
              
              
              292
              
              
              221
              
              
              242
              
              
              496
              
              
              481
              
              
              879
              
              
              486
              
              
              496Earnings
                  per share:Basic
                  & diluted
              
              $
              0.05
              
              $
              0.03
              
              $
              0.04
              
              $
              0.07
              
              $
              0.07
              
              $
              0.14
              
              $
              0.08
              
              $
              0.07




**NOTE
      11--GEOGRAPHIC AREA DATA AND MAJOR CUSTOMER**





Summarized
      financial information for the company’s one reportable segment is shown in the
      following table:


Year
                Ended December 31,**Geographic
                Area Sales**
            
            2005
            
            2004
            
            2003United
                States
            
            $
            60,976,295
            
            $
            53,551,613
            
            $
            36,187,105Mexico
            
            
            237,959
            
            
            30,874
            
            
            —$
            61,214,254
            
            $
            53,582,487
            
            $
            36,187,105






F-21
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            Statements**


**SIMCLAR,
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      11--GEOGRAPHIC AREA DATA AND MAJOR CUSTOMER - Continued**





Year
                Ended December 31,**Geographic
                Area Operating Income (loss)**
            
            2005
            
            2004
            
            2003United
                States
            
            $
            2,035,747
            
            $
            2,988,243
            
            $
            1,738,623Mexico
            
            
            592,197
            
            
            609,709
            
            
            28,658Europe
            
            
            —
            
            
            —
            
            
            (29,844
            )$
            2,627,944
            
            $
            3,597,952
            
            $
            1,737,437





December
                31,**Geographic
                Area Property, Plant and Equipment (Net)**
            
            2005
            
            2004
            
            2003United
                States
            
            $
            5,849,361
            
            $
            2,750,247
            
            $
            1,769,191Mexico
            
            
            2,219,730
            
            
            1,258,404
            
            
            726,277$
            8,069,091
            
            $
            4,008,651
            
            $
            2,495,468





Sales
      to
      major customer are as follows:


Year
                Ended December 31,2005
            
            2004
            
            2003**Major
                Customer**ITW
                - Food Equipment Group
            
            $
            10,276,000
            
            $
            9,023,000
            
            $
            8,084,000





The
      loss
      of or substantially reduced sales to this customer would have an adverse effect
      on the company’s operations if such sales were not replaced. A significant
      customer would be any customer who annual sales volume from the company is
      10%
      or more.





**NOTE
      12--CESSATION OF SCOTLAND MANUFACTURING OPERATIONS**




As
      a
      result of continuing operating losses, in April 2001 the company decided to
      discontinue the manufacturing operations of its European subsidiary, Techdyne
      (Europe).





As
      of
      February 28, 2002, all remaining net assets and the remaining employee, except
      the building and land, were transferred to Simclar Group at net book value
      on
      that date. These net assets consisted principally of cash, receivables, payables
      and equipment. The management agreement with Simclar Group was also cancelled.
      On April 2, 2003, a fire started by vandals destroyed the Techdyne (Europe)
      building located in Livingston, Scotland. The claims with the insurance
      companies were settled during the third quarter in the amount of approximately
      ₤365,000 ($588,000), less demolition expenses. The company realized a net gain
      on this disposition of approximately ₤34,000 ($56,000).





On
      October 17, 2003, the company received the net proceeds from the sale of land
      located in Livingston, Scotland in the amount of approximately ₤115,000
      ($192,000). The company realized a net loss on this disposition of approximately
      ₤5,000 ($9,000). In 2003, the company recognized approximately $171,000 charge
      for the write-off of accumulated foreign currency translation loss resulting
      from the substantial liquidation of Techdyne (Europe).




F-22
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            Statements**




**SIMCLAR,
      INC. AND SUBSIDIARIES**


**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      13--ACQUISITION OF AG TECHNOLOGIES, INC.**





On
      July
      15, 2003, the company acquired for cash, all of the outstanding stock of AG
      Technologies, Inc., a privately owned company based in Schaumburg, Illinois.
      The
      company name was changed to Simclar (Mexico), Inc. on August 29, 2003.
      Additional consideration of up to $1,300,000 is payable based on Simclar
      (Mexico)’s net sales in each of the three years ending July 14, 2004, 2005 and
      2006.





The
      acquisition was accounted for by the purchase method of accounting under SFAS
      No. 141, “Business Combinations”. The purchase price for the acquisition,
      including loan repayment and net of cash received, totaled $1,951,547 and was
      allocated to assets acquired and liabilities assumed based on estimated fair
      values at the date of acquisition. The company recorded $1,279,118 of goodwill
      and $18,000 of intangibles based on the opening balance sheet. The full amount
      of the additional consideration of $1,300,000 was earned by June 30, 2005.
      The
      additional earn-out for the period July 15, 2003 to July 14, 2004 of $606,432
      was recorded in the quarter ended September 30, 2004 and was paid on September
      15, 2004. The additional earn-out for the period July 15, 2004 to July 14,
      2005
      of $693,568 was recorded in the quarter ended June 30, 2005. Of this amount,
      $145,944 was paid in the three months ended September 30, 2005. $437,832 was
      paid in the quarter ended December 31, 2005 and $109,792 will be paid in 2006.
      These additional earn-out amounts have increased the goodwill related to the
      acquisition of Simclar (Mexico), Inc. to $2,579,118. Results of operations
      have
      been included in the company’s consolidated financial statements prospectively
      from the date of acquisition.





**NOTE
      14--ACQUISITION OF SIMCLAR (NORTH AMERICA), INC.**





On
      May
      19, 2005, the company purchased from Simclar Group all of the outstanding common
      shares of SNAI, a North Carolina corporation. SNAI is a comprehensive fabricator
      of sheet metal components and higher level assemblies that operates a 95,000
      square foot manufacturing and assembly facility in Winterville, North Carolina.
      This acquisition allows the company to expand its product offerings in the
      Northeast and Midwest U.S. for fabricated sheet metal and higher level
      assemblies.





The
      acquisition had an effective date for accounting purposes of May 1, 2005. The
      purchase price was $37,000, representing the book value of the assets, less
      liabilities, of SNAI at March 31, 2005. The purchase price was settled by
      decreasing the outstanding intercompany receivable from Simclar Group to the
      company by the amount of the purchase price, and accordingly does not affect
      the
      company's investing activities in the cash flow statement.





Simultaneous
      with the acquisition, the company entered into an amended pledge agreement
      with
      Bank of Scotland, whereby it pledged the stock of SNAI as additional security
      for its outstanding term and working capital facilities.





The
      acquisition was accounted for by the purchase method of accounting under SFAS
      No. 141, "Business Combinations." Cash received as part of the acquisition
      was
      $347,645 and is included within current assets in the table below. The remaining
      net liabilities assumed of $310,645 include a $4,014,000 liability reflecting
      an
      intercompany payable from SNAI to Simclar Group and certain of its subsidiaries.
      The net liabilities of $310,645 were allocated to assets acquired and
      liabilities assumed based on estimated fair values at the date of acquisition.
      The company recorded a $52,207 intangible asset for the customer list of SNAI
      acquired as part of the acquisition. This will be amortized over a period of
      60
      months, representing the company's best estimate of the asset's useful life.
      As
      of December 31, 2005, SNAI has a potential contingent liability for lease
      dilapidation costs which is not determinable. The company has been indemnified
      by Simclar Group against any excess in cost over and above the current provision
      as part of the sale and purchase agreement, and therefore there is no risk
      to
      the company for such costs.




F-23
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            Statements**




**SIMCLAR,
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      14--ACQUISITION OF SIMCLAR (NORTH AMERICA), INC. -
      Continued**




During
      the allocation period from the date of the acquisition, sufficient information
      became available to properly estimate and record deferred tax assets and
      liabilities. In the fourth quarter, management was able to estimate the effects
      of realizable deferred tax amounts which resulted in the recognition of a
      current deferred tax asset of $38,765 and a long-term deferred tax liability
      of
      $422,590 for a net deferred tax liability of $383,825. Based on the purchase
      price, this resulted in excess amounts paid over the fair-value of net assets
      acquired. Therefore, goodwill in the amount of $383,825 was recorded in relation
      to the acquisition.





The
      purchase price allocation is as follows:


Current
                assets
            
            $
            1,581,590Equipment
            
            
            3,792,627Goodwill
            
            
            383,825Intangibles
            
            
            52,207Deferred
                tax asset
            
            
            38,765Total
                assets acquired
            
            $
            5,849,015Current
                liabilities
            
            $
            1,375,292Long-term
                debtAmount
                due major stockholder, net
            
            
            4,014,132Deferred
                tax liability
            
            
            422,590Total
                liabilities
            
            $
            5,812,015Net
                assets acquired
            
            $
            37,000




Results
      of operations have been included in the company's consolidated financial
      statements prospectively from the effective date of acquisition. The following
      table summarizes selected unaudited pro forma financial information for years
      ended December 31, 2005 and 2004, respectively, as if SNAI had been acquired
      at
      the beginning of 2005 and 2004. The unaudited pro forma financial information
      includes adjustments for intercompany transactions.





Year
                Ended December 31,2005
            
            2004Pro
                forma sales
            
            $
            64,319,803
            
            $
            59,028,189Pro
                forma net income
            
            $
            1,331,052
            
            $
            1,648,856Pro
                forma earnings per share:Basic
                and diluted
            
            $
            0.21
            
            $
            0.26




The
      pro
      forma financial information does not necessarily reflect the results that would
      have occurred if the acquisition had been in effect for the periods presented.
      In addition, they are not intended to be a projection of future results and
      do
      not reflect any synergies that might be achieved from combining the
      operations.




F-24
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**SIMCLAR,
      INC. AND SUBSIDIARIES**


**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      15—SUBSEQUENT EVENTS**





On
      February 24, 2006, the company and Simclar Interconnect Technologies, Inc.,
      its
      newly-formed wholly owned subsidiary ("Simclar IT") purchased certain U.S.
      assets associated with the backplane assembly business of the Interconnect
      Technologies Division of Litton Systems, Inc. ("Litton"), a subsidiary of
      Northrop Grumman Corporation, for $16 million in cash (subject to certain
      purchase price adjustments) and the assumption of certain liabilities (the
      "Acquisition"). At the same time, Simclar Group Limited also acquired from
      Litton Systems International, Inc. and Litton U.K. Ltd. all of the share equity
      of Litton Electronics (Suzhou) Co. Ltd., a subsidiary organized in China, and
      certain assets of the Interconnect Technologies Division assembly business
      in
      the U.K., respectively, through its subsidiary Simclar Interconnect Technologies
      Limited.




In
      connection with the Acquisition, the company and Simclar IT entered into an
      occupancy agreement pursuant to which Simclar IT will occupy space in Litton's
      Springfield, Missouri facility for a period of up to twelve months, and a
      transition services agreement pursuant to which Litton will provide certain
      administrative services to the company and Simclar IT to support its operations
      during the occupancy period.




The
      company financed the purchase of the assets under its recently amended term
      loan
      facility with the BoS. Of the $16 million borrowed under the amended facility,
      $13 million of the principal will be repayable in quarterly installments
      commencing December 31, 2006 and through December 31, 2012. Interest on this
      portion of the borrowings will be payable quarterly at one, three or six month
      LIBOR (as elected by the company) plus 2.5%. The $3 million balance of the
      borrowings under the amended facility will be repayable in one lump sum on
      December 31, 2010. Interest on this portion of the borrowings will be payable
      quarterly at one, three or six month LIBOR (as elected by the company) plus
      3.5%. In addition, there is a redemption fee of $400,000 payable on December
      31,
      2010.




In
      connection with the loan, the company, Simclar IT and other subsidiaries entered
      into an amended security agreement, pursuant to which BoS was granted a security
      interest in substantially all of their respective assets to
      secure
      the company's borrowings under its credit facilities, and a guaranty pursuant
      to
      which Simclar IT guarantied the obligations of the company to BoS under the
      credit facilities. Additionally, the company and Simclar (Mexico), Inc. entered
      into an amended pledge agreement, pursuant to which all of the shares owned
      by
      the company in its subsidiaries were pledged as security for the company's
      obligations to BoS under the credit facilities.




F-25
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            Statements**





**SIMCLAR,
        INC. AND SUBSIDIARIES**
 **INDEPENDENT
        REGISTERED PUBLIC ACCOUNTING FIRM’S
        REPORT**


**ON
      SUPPLEMENTAL SCHEDULE**








Board
      of
      Directors and Shareholders


Simclar,
      Inc. and Subsidiaries


Hialeah,
      FL




We
      have
      audited the consolidated financial statements of Simclar, Inc and subsidiaries
      (the “Company”) as of December 31, 2005 and 2004, and for the three years ended
      December 31, 2005. Our audits also included the accompanying consolidated
      financial statement schedule of the Company. This consolidated financial
      statement schedule is the responsibility of management. Our responsibility
      is to
      express an opinion based on our audits. In our opinion, such consolidated
      financial statement schedule, when considered in relation to the basic
      consolidated financial statements taken as a whole, presents fairly, in all
      material respects, the information set forth herein.







/s/
      BATTELLE & BATTELLE LLP





Battelle
      & Battelle LLP


Dayton,
      Ohio


March
      29,
      2006




S-1
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            Statements**


**SIMCLAR,
        INC. AND SUBSIDIARIES**


**A.
                Schedule II - Valuation and Qualifying
                Accounts**Simclar,
                Inc. and SubsidiariesDecember
                31, 2005**COL.
                A**
            
            **COL.
                B**
            
            **COL.
                C**
            
            **COL.
                D**
            
            **COL.
                E**
            
            
            
            **COL.
                F****Additions****Balance
                at**
            
            
            
            **(Deductions)**
            
            **Other
                Changes**
            
            
            
            **Balance****Beginning**
            
            
            
            **Charged
                (Credited) to**
            
            **Add
                (Deduct)**
            
            
            
            **at
                End of****Classification**
            
            **of
                Period**
            
            **Acquisition**
            
            **Costs
                and Expenses**
            
            **Describe**
            
            ****
            
            **Period****YEAR
                ENDED DECEMBER 31, 2005:**Reserves
                and allowances deductedFrom
                asset accounts:Allowance
                for uncollectible accounts
            
            $
            182,000
            
            $
            27,000(4
            )
            $
            55,000
            
            $
            (29,000
            )
            
            
            
            $
            235,000Reserve
                for inventory obsolescence
            
            
            1,481,000
            
            
            30,000(4
            )
            
            469,000
            
            
            (158,000
            )
            
            
            
            
            1,822,000$
            1,663,000
            
            $
            57,000(4
            )
            $
            524,000
            
            $
            (187,000
            )
            
            
            
            $
            2,057,000**YEAR
                ENDED DECEMBER 31, 2004:**Reserves
                and allowances deductedFrom
                asset accounts:Allowance
                for uncollectible accounts
            
            $
            279,000
            
            
            
            
            $
            35,000
            
            $
            (132,000
            )
            
            (1)
            
            $
            182,000Reserve
                for inventory obsolescence
            
            
            1,421,000
            
            
            
            
            
            382,000
            
            
            (322,000
            )
            
            (2)
            
            
            1,481,000$
            1,700,000
            
            $
            —
            
            $
            417,000
            
            $
            (454,000
            )
            
            
            
            $
            1,663,000**YEAR
                ENDED DECEMBER 31, 2003:**Reserves
                and allowances deductedFrom
                asset accounts:Allowance
                for uncollectible accounts
            
            $
            244,000
            
            $
            35,000(3
            )
            $
            —
            
            
            —
            
            
            
            
            $
            279,000Reserve
                for inventory obsolescence
            
            
            1,115,000
            
            
            332,000(3
            )
            
            107,000
            
            
            (133,000
            )
            
            (2)
            
            
            1,421,000$
            1,359,000
            
            $
            367,000(3
            )
            $
            107,000
            
            $
            (133,000
            )
            
            
            
            $
            1,700,000





(1)
                Uncollectible accounts written off, net of recoveries(2)
                Net write-offs against inventory reserves(3)
                Acquisition of AG Technologies, Inc.(4)
                Acquisition of Simclar (North America), Inc.






S-2