**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-Q**




ý
            
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                the quarterly period ended March 31, 2006ORo
            
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                the transition period from ________________ to
                ________________





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
                West 77****th****Street, Hialeah, FL**
            
            **33016**(Address
                of principal executive offices)
            
            (Zip
                Code)





**(305)
      556-9210**


(Registrant’s
      telephone number, including area code)





**[None]**


(Former
      name, former address and former fiscal year, if changed since last
      report)





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 such filing requirements
      for
      the past 90 days. Yes x  No
o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.


Large
                accelerated filer o
            Accelerated
                filer o
            Non-accelerated
                filer x




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





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practicable date.





Class
            
            Outstanding
                at March 31, 2006Common
                Stock, $.01 par value per share
            
            6,465,345
                shares






















SIMCLAR,
      INC.





Form
      10-Q





For
      the
      quarter ended March 31, 2006





TABLE
      OF
      CONTENTS








PART
              I -- FINANCIAL INFORMATIONItem
                1. Financial Statements1)
              Consolidated Balance Sheets as of March 31, 2006 (Unaudited) and December
              31, 2005
            
            32)
              Consolidated Statements of Operations (Unaudited) for the three months
              ended March 31, 2006 and March 31, 2005
            
            53)
              Consolidated Statements of Cash Flows (Unaudited) for the three months
              ended March 31, 2006 and March 31, 2005
            
            64)
              Notes to Consolidated Financial Statements as of March 31, 2006
              (Unaudited)
            
            7Item 2. Management's Discussion and
              Analysis of Financial Condition and Results of Operations
            
            13Item 3. Quantitative and Qualitative
              Disclosures About Market Risk
            
            21Item 4. Controls and
              Procedures
            
            21PART II -- OTHER INFORMATIONItem 6. Exhibits
            
            23Signatures
            
            23










PART
      I -
      FINANCIAL INFORMATION





Item
      1
      Financial Statements





SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS




**March
                  31,**
              
              **December
                  31,****2006**
              
              **2005
                  (A)****(Unaudited)****ASSETS****Current
                  assets:**Cash
                  and cash equivalents
              
              $
              727,478
              
              $
              833,703Accounts
                  receivable, less allowances of $233,000 and $235,000 at March 31,
                  2006 and
                  December 31, 2005 respectively
              
              
              18,915,402
              
              
              9,407,635Inventories,
                  less allowances for obsolescence of $1,855,000 at March 31, 2006 and
                  $1,822,000 at December 31, 2005
              
              
              18,407,678
              
              
              12,006,627Prepaid
                  expenses and other current assets
              
              
              549,429
              
              
              357,703Deferred
                  income taxes
              
              
              985,056
              
              
              985,056**Total
                  current assets**
              
              
              39,585,043
              
              
              23,590,724**Property
                  and equipment:**Land
                  and improvements
              
              
              547,511
              
              
              547,511Buildings
                  and building improvements
              
              
              1,235,904
              
              
              1,235,904Machinery,
                  computer and office equipment
              
              
              13,373,535
              
              
              10,944,591Tools
                  and dies
              
              
              356,243
              
              
              331,244Leasehold
                  improvements
              
              
              493,896
              
              
              493,694Construction
                  in progress
              
              
              519,254
              
              
              519,254**Total
                  property and equipment**
              
              
              16,526,343
              
              
              14,072,198Less
                  accumulated depreciation and amortization
              
              
              6,200,496
              
              
              6,003,107**Net
                  property and equipment**
              
              
              10,325,847
              
              
              8,069,090**Deferred
                  expenses and other assets, net**
              
              
              447,005
              
              
              61,398**Goodwill**
              
              
              9,856,041
              
              
              5,917,938**Intangible
                  assets, net**
              
              
              1,088,080
              
              
              60,996**TOTAL
                  ASSETS**
              
              $
              61,302,016
              
              $
              37,700,147





(A)
            Reference
                is made to the Company’s Annual Report on Form 10-K for the year ended
                December 31, 2005 filed with the United States Securities and Exchange
                Commission on March 31, 2006.




**Continued**





3




SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS


(Continued)




**March
                    31,**
                
                **December
                    31,****2006**
                
                **2005
                    (A)****(Unaudited)****LIABILITIES
                    AND STOCKHOLDERS’ EQUITY****Current
                    liabilities:**Lines
                    of credit
                
                $
                5,189,369
                
                $
                4,990,395Accounts
                    payable
                
                
                14,715,773
                
                
                8,793,877Accrued
                    expenses
                
                
                1,565,966
                
                
                1,379,763Accrued
                    income taxes
                
                
                867,173
                
                
                552,419Amounts
                    payable to major stockholder, net
                
                
                2,032,019
                
                
                1,873,463Current
                    portion of long-term debt
                
                
                2,200,000
                
                
                1,200,000**Total
                    current liabilities**
                
                
                26,570,300
                
                
                18,789,917Long-term
                    debt
                
                
                17,700,000
                
                
                3,000,000Deferred
                    income taxes
                
                
                518,926
                
                
                518,926Other
                    long term liabilities
                
                
                400,000
                
                
                —**Total
                    liabilities**
                
                
                45,189,226
                
                
                22,308,843Commitments
                    and contingencies
                
                
                —
                
                
                —**Stockholders'
                    equity:**Common
                    stock, $.01 par value, authorized 10,000,000 shares; issued and
                    outstanding 6,465,345 shares at March 31, 2006 and December 31,
                    2005
                
                
                64,653
                
                
                64,653Capital
                    in excess of par value
                
                
                11,446,087
                
                
                11,446,087Retained
                    earnings
                
                
                4,563,900
                
                
                3,843,966Accumulated
                    other comprehensive income
                
                
                38,150
                
                
                36,598**Total
                    stockholders' equity**
                
                
                16,112,790
                
                
                15,391,304**TOTAL
                    LIABILITIES AND STOCKHOLDERS’ EQUITY**
                
                $
                61,302,016
                
                $
                37,700,147





(A)
            Reference
                is made to the Company’s Annual Report on Form 10-K for the year ended
                December 31, 2005 filed with the United States Securities and Exchange
                Commission on March 31, 2006.





See
      notes to consolidated financial
      statements




4




SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      STATEMENT OF OPERATIONS


(UNAUDITED)







Three
                Months EndedMarch
                31,2006
            
            2005Sales
            
            $
            21,945,161
            
            $
            12,356,600Cost
                of goods sold
            
            
            18,766,218
            
            
            10,791,928Gross
                Margin
            
            
            3,178,943
            
            
            1,564,672Selling,
                general and administrative expenses
            
            
            1,653,614
            
            
            1,018,461Income
                from operations
            
            
            1,525,329
            
            
            546,211Interest
                expense
            
            
            286,610
            
            
            77,542Other
                expense/(income)
            
            
            11,673
            
            
            (11,126
            )Income
                before income taxes
            
            
            1,227,046
            
            
            479,795Income
                tax provision
            
            
            507,112
            
            
            187,121Net
                income
            
            $
            719,934
            
            $
            292,674Earnings
                per share:Basic
                & diluted
            
            $
            0.11
            
            $
            0.05








See
        notes
        to consolidated financial statements


5


SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      STATEMENT OF CASH FLOWS


(UNAUDITED)





Three
                Months EndedMarch
                31,2006
            
            2005Operating
                activities:Net
                income
            
            $
            719,934
            
            $
            292,674Adjustments
                  to reconcile net income to net cashprovided by operating
                  activities:Depreciation
                & amortization
            
            
            365,442
            
            
            216,124Deferred
                expenses and other assets
            
            
            (385,606
            )
            
            1,092Provision
                for inventory obsolescence
            
            
            86,805
            
            
            72,856Other
                liabilities
            
            
            400,000
            
            
            —Gain
                on disposal of property & equipment
            
            
            (3,238
            )
            
            —Changes
                relating to operating activities, net of acquisitions:Accounts
                receivable
            
            
            (1,268,084
            )
            
            1,289,198Amounts
                receivable from / payable to major stockholder, net
            
            
            158,556
            
            
            (31,412
            )Inventories
            
            
            (1,722,424
            )
            
            187,366Prepaid
                expenses and other current assets
            
            
            (191,726
            )
            
            (20,378
            )Accounts
                payable
            
            
            1,760,399
            
            
            (620,281
            )Accrued
                expenses
            
            
            (7,665
            )
            
            56,758Income
                taxes payable
            
            
            314,754
            
            
            (560,797
            )Net
                cash provided by operating activities
            
            
            227,147
            
            
            883,200Investing
                activities:Additions
                to property and equipment, net of minor disposals
            
            
            (75,352
            )
            
            (922,924
            )Proceeds
                from sale of property and equipment
            
            
            18,500
            
            
            —Acquisition
                  of subsidiaries, net of cash acquiredSimclar (Mexico),
                  Inc.
            
            
            (54,896
            )
            
            —Litton
            
            
            (16,122,149
            )
            
            —Net
                cash used in investing activities
            
            
            (16,233,897
            )
            
            (922,924
            )Financing
                activities:Borrowing
                on bank line of credit
            
            
            198,974
            
            
            520,000Proceeds
                from long-term borrowings
            
            
            16,000,000
            
            
            —Payments
                on long-term bank borrowings
            
            
            (300,000
            )
            
            (300,000
            )Net
                cash provided by financing activities
            
            
            15,898,974
            
            
            220,000Effect
                of exchange rate fluctuations on cash
            
            
            1,551
            
            
            1,265Net
                change in cash and cash equivalents
            
            
            (106,225
            )
            
            181,541Cash
                and cash equivalents at beginning of period
            
            
            833,703
            
            
            280,015Cash
                and cash equivalents at end of period
            
            $
            727,478
            
            $
            461,556




See
      notes to consolidated financial
      statements


6


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


**NOTE
      1 - Basis of Presentation**





The
      accompanying interim consolidated financial statements include the accounts
      of
      Simclar, Inc. ("Simclar") and its subsidiaries, including Simclar (Mexico),
      Inc.
      ("Simclar Mexico"), Simclar (North America), Inc. (“SNAI”), Simclar Interconnect
      Technologies, Inc. (“SIT”), and Techdyne (Europe) Limited ("Techdyne(Europe)")
      collectively referred to as the "company." All material inter-company accounts
      and transactions have been eliminated in consolidation. The company is a 73.4%
      owned subsidiary of Simclar Group Limited ("Simclar Group"), a company
      incorporated in the United Kingdom.





These
      financial statements have been prepared in accordance with accounting principles
      generally accepted in the United States of America for interim financial
      information and with the instructions to Form 10-Q and Article 10 of Regulation
      S-X. Accordingly, they do not include all of the information and footnotes
      required by accounting principles generally accepted in the United States of
      America for complete financial statements. In the opinion of management, such
      interim financial statements reflect all normal recurring adjustments considered
      necessary to present fairly the financial position and the results of operations
      and cash flows for the interim periods presented. The results of operations
      for
      the interim periods are not necessarily indicative of the results to be expected
      for the full fiscal year. These financial statements should be read in
      conjunction with the audited consolidated financial statements and footnotes
      included in the company's Annual Report on Form 10-K for the year ended December
      31, 2005.





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts and disclosures in the
      consolidated financial statements. Actual results could differ from those
      estimates.





**NOTE
      2 - Recently Issued Accounting Pronouncements**





Refer
      to
      the company’s Annual Report on Form 10-K for the year ended December 31, 2005
      for relevant accounting pronouncements adopted as of January 1, 2006. The
      adoption of those accounting pronouncements did not have a material effect
      on
      the company’s consolidated results of operations, financial position and cash
      flows. The company has reviewed all recently issued accounting pronouncements
      up
      to the time of filing and has determined that there are no new pronouncements
      that will have a material impact on the company’s consolidated financial
      statements .





**NOTE
      3 - Inventories**





Inventories
      net of allowance for obsolescence are comprised of the following:





March
                31,
            
            December
                31,2006
            
            2005Raw
                materials and supplies
            
            $
            14,668,282
            
            $
            9,167,103Work
                in process
            
            
            2,062,087
            
            
            1,794,401Finished
                goods
            
            
            1,677,309
            
            
            1,045,123$
            18,407,678
            
            $
            12,006,627





**NOTE
      4 - Earnings per share**





Following
      is a reconciliation of amounts used in the basic and diluted
      computations:





Three
                Months EndedMarch
                31,2006
            
            2005Net
                income
            
            $
            719,934
            
            $
            292,674Weighted
                average number of shares of common stock outstanding
            
            
            6,465,345
            
            
            6,465,345Earnings
                per share:Basic
                & diluted
            
            $
            0.11
            
            $
            0.05





There
      were no potentially dilutive securities for the three months ended March 31,
      2006 or for the same period of the preceding year.





7




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


**NOTE
      5 - 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.





Below
      is
      a detail of comprehensive income for the three months ended March 31, 2006
      and
      2005:





Three
                Months EndedMarch
                31,2006
            
            2005Net
                Income
            
            $
            719,934
            
            $
            292,674Foreign
                currency translation income
            
            
            1,552
            
            
            1,265Comprehensive
                income
            
            $
            721,486
            
            $
            293,939





**NOTE
      6 - Long Term Debt**





On
      February 24, 2006, the company drew down the available Tranches C and D from
      the
      credit facility with the Bank of Scotland (“BoS”) to finance the acquisition of
      Litton (see Note 12).





Of
      the
      $16 million borrowed under the 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 is payable
      quarterly at one, three or six month LIBOR (as elected by the company) plus
      2.5%. The $3 million balance of the borrowings under the facility will be
      repayable in one lump sum on December 31, 2010. Interest on this portion of
      the
      borrowings is payable quarterly at one, three or six month LIBOR (as elected
      by
      the company) plus 3.5%. In addition, there is a redemption fee of $400,000
      payable on December 31, 2010 which has been accrued and is being amortized
      on a
      straight-line basis.





In
      connection with the loans from BoS, the company, SIT 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 SIT guarantied the obligations of the company to BoS under the credit
      facilities.





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.





Cash
      payments of interest were approximately $249,000 for the three months ended
      March 31, 2006 compared with approximately $59,000 for the same period in
      2005.





**NOTE
      7 - Amounts Due to Major Stockholder and Other Related Party
      Transactions**





The
      company had a net payable due to its parent, Simclar Group and certain of its
      subsidiaries of approximately $2,032,000 at March 31, 2006 and approximately
      $1,873,000 as of December 31, 2005.





8




**SIMCLAR,
      INC.**


**AND
      SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**






Beginning
      in March 2006, SIT pays a monthly management charge to Simclar Interconnect
      Technologies Ltd. based on 2% of sales. The charge for the month of March was
      approximately $106,000.





During
      the three months ended March 31, 2006 the company sold goods with an approximate
      value of $517,000 to Simclar International Corporation, a related party to
      Simclar Group.





In
      connection with the acquisition of Litton, Simclar Group has provided a
      guarantee to BoS in respect of loans advanced to Simclar up to a maximum amount
      of $10,000,000; likewise, Simclar has guaranteed certain Simclar Group’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 borrowing to EBITDA being
      achieved.





**Note
      8 - Income Taxes**




The
      company files federal and state income tax returns separately from Simclar
      Group, and its income tax liability is therefore reflected on a separate return
      basis.





Deferred
      income taxes reflect the net tax effect of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes.





The
      company had approximately $507,000 income tax expense for the three months
      ended
      March 31, 2006, and approximately $187,000 income tax expense for the three
      months ended March 31, 2005.





Income
      tax payments amounted to approximately $150,000 in the three months ended March
      31, 2006 and approximately $748,000 in the same period of the preceding
      year.





**NOTE
      9 - Commitments and Contingencies**





The
      company leases several facilities which expire at various dates through 2010
      with renewal options for periods of up to five years at the then fair market
      rental value. 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
      company is involved in various legal actions arising in the ordinary course
      of
      business. In the opinion of management, the ultimate liability, if any,
      resulting from these matters will not have a material effect on the company's
      financial position.





**NOTE
      10 - 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, $54,896 was paid in the quarter
      ended March 31, 2006 and $54,896 remains to be paid. These additional earn-out
      amounts have increased the goodwill related to the acquisition of Simclar
      (Mexico), Inc. to $2,594,868. Results of operations have been included in the
      company’s consolidated financial statements prospectively from the date of
      acquisition.





9




SIMCLAR,
        INC.
 AND
        SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS


**NOTE
      11 - 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
      BoS, whereby it pledged the stock of SNAI as additional security for its
      outstanding term loan 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 March 31, 2006, 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.





During
      the allocation period from the date of the acquisition, sufficient information
      became available to properly estimate and record deferred tax assets and
      liabilities. In the fourth quarter of 2005, management was able to estimate
      the
      effects of realizable deferred tax amounts which resulted in the recognition
      of
      a current deferred tax asset of $38,765 and a long-term deferred tax liability
      of $422,590 for a net deferred tax liability of $383,825. Based on the purchase
      price, this resulted in excess amounts paid over the fair-value of net assets
      acquired. Therefore, goodwill in the amount of $383,825 was recorded in relation
      to the acquisition.





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 assumed
            
            $
            5,812,015Net
                assets acquired
            
            $
            37,000








10




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


Results
      of operations have been included in the company's consolidated financial
      statements prospectively from the effective date of acquisition. Refer to Note
      13 for a summary of selected unaudited pro forma financial information for
      the
      three months ended March 31, 2006 and 2005, respectively, as if SNAI had been
      acquired at the beginning of 2005.





**NOTE
      12 - Acquisition of Litton Interconnect Technologies
      Assets**





On
      February 24, 2006, the company and SIT, its newly-formed wholly owned
      subsidiary, 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. 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 SIT entered into an occupancy
      agreement pursuant to which SIT 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 SIT 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. Refer to Note 6 for further details of the financing
      arrangement.





The
      acquisition was accounted for by the purchase method of accounting in accordance
      with SFAS No. 141, “Business Combinations.” The purchase price and direct
      expenses incurred were allocated to assets acquired and liabilities assumed
      based on estimated fair values at the date of acquisition. Such allocations
      are
      preliminary and subject to change due to potential purchase price adjustments.
      The company recorded goodwill of approximately $3,938,103 and a $1,050,000
      intangible asset for the customer relationships and a non-compete agreement
      with
      Litton Systems, Inc. Goodwill
      will be evaluated for impairment on an annual basis, or more frequently if
      impairment indicators arise, using a fair-value-based test. Intangible assets
      have been valued using a fair-value-based test and will be amortized on a
      straight-line basis over the estimated useful lives.





Current
                Assets
            
            $
            13,005,115Equipment
            
            
            2,539,195Intangible
                assets
            
            
            1,050,000Goodwill
            
            
            3,938,103Total
                assets acquired
            
            $
            20,532,413Current
                liabilities
            
            $
            4,410,264Net
                Assets Acquired
            
            $
            16,122,149





Results
      of operations have been included in the company's consolidated financial
      statements prospectively from the effective date of acquisition. Refer to Note
      13 for a summary of selected unaudited pro forma financial information for
      the
      three months ended March 31, 2006 and 2005, respectively, as if Litton had
      been
      acquired at the beginning of 2005.





11




SIMCLAR,
      INC.


AND
      SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS






**NOTE
      13 - Pro Forma Financial Information (Unaudited)**





The
      following table provides selected unaudited pro forma financial information
      for
      the three-month periods ended March 31, 2006 and 2005 as if Litton and SNAI
      had
      been acquired at the beginning of 2006 and 2005 respectively. The unaudited
      pro
      forma financial information includes adjustments for intercompany
      transactions.





Three
                Months Ended March 31,2006
            
            2005Pro
                forma sales
            
            $
            31,500,000
            
            $
            27,800,000Pro
                forma net income
            
            $
            1,400,000
            
            $
            400,000Pro
                forma earnings per share:Basic
                and diluted
            
            $
            0.22
            
            $
            0.06








The
      pro
      forma financial information does not necessarily reflect the results that would
      have occurred if the acquisitions 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.





12




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




Introduction
      and Overview





Simclar,
      Inc. is a Florida corporation with four wholly owned subsidiaries - Simclar
      (Mexico), Inc. , Techdyne (Europe) limited, Simclar (North America), Inc. ,
      and
      Simclar Interconnect Technologies, Inc. Collectively, these entities are
      referred to as the “company.” On February 24, 2006, Simclar and SIT purchased
      certain U.S. assets associated with the backplane assembly business of the
      Interconnect Technologies Division of Litton Systems, Inc., a subsidiary of
      Northrop Grumman Corporation, for $16 million in cash (subject to certain
      purchase price adjustments) and the assumption of certain liabilities (see
      Note
      11 in the Notes to Consolidated Financial Statements). All material intercompany
      accounts and transactions have been eliminated in consolidation. The company
      is
      73.4% owned subsidiary of Simclar Group Limited, a company incorporated in
      the
      United Kingdom.





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 provide 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. Our
      products are manufactured to customer specifications for OEM’s in a variety of
      markets including the data processing, telecommunications, instrumentation,
      and
      food preparation equipment industries. The company has five manufacturing plants
      and two sales offices and has approximately 950 employees.





In
      the
      three months ended March 31, 2006 the company experienced growth in sales and
      profits through acquisition and organic growth through existing customers and
      facilities. The following overview comments are discussed in further detail
      throughout this item 2:





·
            Revenues
                grew by 78% for the three months ended March 31, 2006 compared to
                the same
                period in 2005; 26% growth was from existing customers and facilities
                while 52% was through acquisitions;


·
            Gross
                margin increased by approximately $1,614,000 for the three months
                ended
                March 31, 2006 compared to the same period in 2005; the improved
                gross
                margin is attributed to higher revenues as mentioned above and improved
                labor content through higher production in our Mexican
                facility;


·
            Net
                income was approximately $720,000 for the three months ended March
                31,
                2006 compared to approximately $293,000 for the three months ended
                March
                31, 2005.





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.





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.





13





We
      typically do not obtain long-term volume purchase contracts from our customers,
      but rather we work with our customers to anticipate future volumes of orders.
      Based upon such anticipated future orders, we will make commitments regarding
      the level of business we want and can accomplish given the current timing of
      production schedules and the levels of and utilization of facilities and
      personnel. Occasionally, we purchase raw materials without a customer order
      or
      commitment. Customers may cancel, delay or reduce orders, usually without
      penalty, for a variety of reasons, whether relating to the customer or the
      industry in general, which orders are already made or anticipated. Any
      significant cancellations, reductions or order delays could adversely affect
      our
      results of operations.





We
      use
      Electronic Data Interchange (EDI) with both our customers and our suppliers
      in
      our efforts to continuously develop accurate forecasts of customer volume
      requirements, as well as sharing our future requirements with our suppliers.
      We
      depend on the timely availability of many components. Component shortages could
      result in manufacturing and shipping delays or increased component prices,
      which
      could have a material adverse effect on our results of operations. It is
      important for us to efficiently manage inventory, proper timing of expenditures
      and allocations of physical and personnel resources in anticipation of future
      sales, the evaluation of economic conditions in the electronics industry and
      the
      mix of products, whether PCBs, wire harnesses, cables, or turnkey products,
      for
      manufacture.





We
      must
      continuously develop improved manufacturing procedures to accommodate our
      customers' needs for increasingly complex products. To continue to grow and
      be a
      successful competitor, we must be able to maintain and enhance our technological
      capabilities, develop and market manufacturing services which meet changing
      customer needs and successfully anticipate or respond to technological changes
      in manufacturing processes on a cost-effective and timely basis. Although we
      believe that our operations utilize the assembly and testing technologies and
      equipment currently required by our customers, there can be no assurance that
      our process development efforts will be successful or that the emergence of
      new
      technologies, industry standards or customer requirements will not render our
      technology, equipment or processes obsolete or noncompetitive. In addition,
      to
      the extent that we determine that new assembly and testing technologies and
      equipment are required to remain competitive, the acquisition and implementation
      of such technologies and equipment are likely to require significant capital
      investment.





Our
      results of operations are also affected by other factors, including price
      competition, the level and timing of customer orders, fluctuations in material
      costs (due to availability), the overhead efficiencies achieved by management
      in
      managing the costs of our operations, our experience in manufacturing a
      particular product, the timing of expenditures in anticipation of increased
      orders, selling, and general and administrative expenses. Accordingly, gross
      margins and operating income margins have generally improved during periods
      of
      high volume and high capacity utilization. We generally have idle capacity
      and
      reduced operating margins during periods of lower-volume
      production.





Our
      lease
      on the Round Rock, TX facility is due to expire on May 31, 2006. Management
      has
      chosen not to renew that lease and we have moved all customer orders to other
      Simclar facilities. We will continue to have a sales office in the greater
      Austin, TX area but with substantially fewer employees and reduced costs. We
      do
      not anticipate any loss of customers or sales as a result of this action;
      however, we do expect a cost savings. We do not anticipate any material negative
      affects as a result of this move.





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 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.






14





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.




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.





Investors
      are cautioned that forward-looking statements involve risks and uncertainties
      that could cause actual results to differ materially from historical or
      anticipated results due to many factors, including, but not limited to, the
      potential effects of a loss of on or more key customers, covenants contained
      in
      our bank loan agreements, competition in the electronics manufacturing services
      industry, the cyclical nature of our business, the lack of long-term agreements
      with our customers, shortages of and price increases in the components of
      devices we manufacture, our ability to keep up with technological changes in
      our
      industry, changes in interest rates, changes in cash flows from operations,
      and
      other risks, uncertainties and factors described in our most recent Annual
      Report on Form 10-K and other filings from time to time with the Securities
      and
      Exchange Commission. These documents are available free of charge at the
      Commission’s website at http://www.sec.gov. Forward-looking statements speak
      only as of the date on which they are made, and we undertake no obligation
      to
      update or revise any forward-looking statements to reflect events or
      circumstances occurring after the date of this report.





Results
      of Operations - Three Months Ended March 31, 2006





Net
      Sales


(dollars
      in thousands)





Three
                Months EndedMarch
                31,2006
            
            2005Net
                sales
            
            $
            21,945
            
            $
            12,357








The
      increase in first quarter 2006 sales of approximately $9.6 million over the
      same
      period in 2005 is largely attributed to SNAI sales of $1.1 million and SIT
      sales
      of approximately $5.3 million, with the balance of the increase of approximately
      $3.2 million being a result of organic growth, particularly in our plants in
      Mexico and Florida.








Gross
      Profit


(dollars
      in thousands)





Three
                Months EndedMarch
                31,2006
            
            2005Gross
                profit
            
            $
            3,179
            
            $
            1,565Gross
                profit margin
            
            
            14.5
            %
            
            12.7
            %





15


Gross
      profit increased by approximately $1.6 million for the three months ended March
      31, 2006 compared to the same period in 2005. Gross profit benefited by higher
      sales volumes as discussed above and gross profit margin that increased from
      12.7% for the three months ended March 31, 2005 to 14.5% for the three months
      ended March 31, 2006. The largest influence on our gross margin percentage
      is
      material costs and product mix. Material costs as a percentage of sales
      increased from 63% for the three months ended March 31, 2005 compared to 66%
      for
      the same period in 2006. This was offset by increased production volumes in
      our
      Mexico facility and other cost measures which reduced labor content from 20%
      for
      the three months ended March 31, 2005 to 14% for the same period in 2006. The
      overhead component for cost of goods sold was approximately 5% for the three
      months ended March 31, 2005 and 2006.








Selling,
      General, and Administrative Expenses


(dollars
      in thousands)





Three
                Months EndedMarch
                31,2006
            
            2005Selling,
                general, and administrative expenses
            
            $
            1,654
            
            $
            1,018As
                a percent of sales
            
            
            7.5
            %
            
            8.2
            %








Selling,
      general, and administrative expenses increased by approximately $636,000 for
      the
      three months ended March 31, 2006 compared to the same period in 2005. The
      increase is primarily due to the addition of SNAI and SIT. The decrease in
      these
      expenses as a percent of sales reflects the fixed nature of certain of the
      costs
      included therein.








Interest
      Expense


(dollars
      in thousands)





Three
                Months EndedMarch
                31,2006
            
            2005Interest
                expense
            
            $
            287
            
            $
            78As
                a percent of sales
            
            
            1.3
            %
            
            0.6
            %








Several
      factors have affected interest expense, including increased borrowing attributed
      to the acquisition of Litton, capital investment to expand production
      capabilities in our Mexican facilities, and increased interest rates.





Average
      debt levels for the three month period ended March 31, 2006 and same period
      for
      2005 were approximately $14.6 million and approximately $8.5 million
      respectively.





Average
      interest rates in the quarter ended March 31, 2006 were 7.85% compared to 3.65%
      for the quarter ended March 31, 2005.








Income
      Before Income Taxes


(dollars
      in thousands)





Three
                Months EndedMarch
                31,2006
            
            2005Income
                before income taxes
            
            $
            1,227
            
            $
            480As
                a percent of sales
            
            
            5.6
            %
            
            3.9
            %





The
      increase in income before taxes of approximately $747,000 is directly
      attributable to higher sales, an improved gross profit margin, and a focus
      on
      controlling other costs. SNAI has incurred losses of approximately $357,000
      in
      the three months ended March 31, 2006. However, order backlog has begun to
      strengthen and we anticipate the SNAI operations should return to profit in
      the
      third quarter of this year. We will continue to monitor the situation closely.





16





Income
      Tax Expense


(dollars
      in thousands)





Three
                Months EndedMarch
                31,2006
            
            2005Income
                Tax Expense
            
            $
            507
            
            $
            187Effective
                Income Tax Rate
            
            
            41
            %
            
            39
            %





Income
      tax expense for the first three months of 2006 was approximately $320,000 higher
      than for the same period of 2005. This is primarily attributed to higher taxable
      income as discussed in other comments within item 2.





Liquidity
      and Capital Resources at March 31, 2006








Cash
      and
      Cash Equivalents


(dollars
      in thousands)





March
                31,
            
            December
                31,2006
            
            2005Cash
                and cash equivalents
            
            $
            727
            
            $
            834





Cash
      and
      cash equivalents were approximately $727,000 as of March 31, 2006 compared
      to
      approximately $834,000 as of December 31, 2005. Excess liquid funds are invested
      in short-term interest-bearing accounts at financial institutions.








Net
      Cash
      Provided from Operating Activities


(dollars
      in thousands)





Three
                Months EndedMarch
                31,2006
            
            2005Net
                cash provided from operating activities
            
            $
            246
            
            $
            883





Net
      cash
      provided by operating activities for the three months ended March 31, 2006
      was
      approximately $246,000 compared to approximately $883,000 for the same period
      last year. Net income adjusted for depreciation and taxes accrued was
      approximately $1.4 million compared to a negative $52,000 last year; however,
      net working capital increased by approximately $1.2 million compared to a
      decrease in net working capital of approximately $856,000 last
      year.





Accounts
      Receivable


(dollars
      in thousands)





March
                31,
            
            December
                31,2006
            
            2005Accounts
                receivable
            
            $
            18,915
            
            $
            9,408Average
                days sales outstanding
            
            
            54.0
            
            
            55.3








17




Accounts
      receivable as of March 31, 2006 increased by approximately $9.5 million compared
      to December 31, 2005. Approximately $8.2 million of the increase was a result
      of
      the acquisition of Litton. The balance of the increase of approximately $1.2
      million was due to higher sales in the first quarter of 2006 compared to the
      final quarter of 2005. The average days sales outstanding were 54.0 days at
      March 31, 2006 compared to 55.3 days at December 31, 2005.








Inventory


(dollars
      in thousands)





March
                31,
            
            December
                31,2006
            
            2005Inventory
            
            $
            18,408
            
            $
            12,006Average
                inventory turnover
            
            
            5.4
            
            
            4.4





Inventory
      as of March 31, 2006 increased by approximately $6.4 million compared to
      December 31, 2005. Approximately $4.8 million of the increase was as result
      of
      the acquisition of Litton. The balance of the increase of $1.65 million was
      due
      to a build up in inventory attributed to new customers and delays by several
      customers in taking orders. The average inventory turnover was 5.4 in the three
      months to March 31, 2006 compared to 4.4 in the year to December 31, 2005.
      The
      company continues to seek improvements in inventory turnover through smaller
      order quantities and vendor managed inventories.








Cash
      Used
      in Investing Activities


(dollars
      in thousands)





Three
                Months EndedMarch
                31,2006
            
            2005Cash
                used in investing activities
            
            $
            16,234
            
            $
            923





Investing
      activities for the three months ended March 31, 2006 included approximately
      $75,000 for equipment purchases, approximately $19,000 income for equipment
      sold, approximately $55,000 for payments for additional earn-out amounts related
      to the Simclar (Mexico) acquisition, and approximately $16.1 million related
      to
      the Litton acquisition. This compares to approximately $923,000 invested in
      equipment for the same period in 2005.








Cash
      Provided by Financing Activities


(dollars
      in thousands)





Three
                Months EndedMarch
                31,2006
            
            2005Cash
                provided by financing activities
            
            $
            15,899
            
            $
            220





Financing
      activities for the three months ended March 31, 2006 included a term loan
      repayment of $300,000, an increase in the amount borrowed on our lines of credit
      of approximately $199,000, and the $16 million increase in our long term credit
      facility to fund the Litton acquisition. This is compared to a $300,000 term
      loan repayment and approximately $520,000 borrowed on our line of credit in
      the
      same period in 2005.





18





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
            
            Originalamount
            
            Balance
                at
              March
                31, 2006Simclar,
                Inc.
            
            Working
              capital
            
            $
            5,000,000
            
            $
            4,990,850Simclar,
                Inc.
            
            Term
              loan - four tranches (see detail of tranches below)
            
            $
            21,650,000
            
            $
            19,900,000Simclar
                Interconnect Technologies, Inc.
            
            Working
              Capital
            
            $
            1,000,000
            
            $
            198,519




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 March 31, 2006 was 6.13%
      based
      on the three month election.





Interest
      on the Simclar Interconnect Technologies, Inc. working capital facility is
      a
      margin over LIBOR determined by a ratio of net borrowings to EBITDA for any
      given test period. The margin percentage can range from 1.5% to 2.5%.





The
      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 3.5%. The interest rate in effect for tranches A and B at
      March 31, 2006 was 6.13% based on the three month election. The interest rate
      in
      effect at March 31, 2006 for tranche C was 7.11% and for tranche D was 8.11%
      based on the one month election. The term loan is divided into four tranches,
      each with its own specific purpose and repayment schedule as shown in the
      following table:




Tranche
              
              OriginalAmount
              
              Purpose
              
              PaymentsA
              
              $
              4,250,000
              
              Refinance
                  existing facilities
              
              Seventeen
                  quarterly payments of $250,000 beginning October 2004 through October
                  2008B
              
              $
              1,400,000
              
              Dayton
                  property acquisition
              
              Twenty-eight
                  quarterly payments of $50,000 beginning January 2005 through October
                  2011C
              
              $
              13,000,000
              
              Acquisition
                  of certain assets of the Litton Interconnect Technologies assembly
                  operations
              
              Thirteen
                  quarterly payments of $500,000 beginning December 2006 through
                  December
                  2009, four quarterly payments of $250,000 from March 2010 through
                  December
                  2010, four quarterly payments of $750,000 from March 2011 through
                  December
                  2011 and four quarterly payments of $625,000 from March 2012 through
                  December 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.





19





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
                BoS.





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.





The
      only
      off-balance sheet financing arrangements with related or unrelated parties
      would
      be a guarantee provided by Simclar Group 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’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 borrowing to EBITDA being achieved.




20





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 March 31, 2006
      (dollars in thousands):




Total
            
            Less
                than
            
            1-3
            
            4-5
            
            Over
                5Amounts
            
            1
                Year
            
            Years
            
            Years
            
            YearsLong-term
                debt with interest
            
            $
            24,016
            
            $
            3,290
            
            $
            7,827
            
            $
            7,736
            
            $
            5,163Operating
                leases
            
            
            4,644
            
            
            592
            
            
            1,031
            
            
            916
            
            
            2,105Bank
                line of credit with interest
            
            
            5,486
            
            
            5,486
            
            
            —
            
            
            —
            
            
            —Total
                commitments
            
            $
            34,146
            
            $
            9,368
            
            $
            8,858
            
            $
            8,652
            
            $
            7,268





The
      company’s 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.





Critical
      Accounting Policies





In
      preparing its financial statements and accounting for the underlying
      transactions and balances, the company has applied the accounting policies
      as
      disclosed in the Notes to the Consolidated Financial Statements contained in
      the
      company's annual report on Form 10-K for the year ended December 31, 2005.
      Preparation of the company's financial statements requires company management
      to
      make estimates and assumptions that affect the reported amount of assets and
      liabilities, disclosure of contingent assets and liabilities at the date of
      the
      financial statements and the reported amounts of revenue and expenses during
      the
      reporting period. Actual results may differ from those estimates, and the
      differences may be material. For a detailed discussion of the application of
      these and other accounting policies, see "Summary of Significant Accounting
      Policies" in the Notes to the Consolidated Financial Statements and
      "Management's Discussion and Analysis of Financial Condition and Results of
      Operations - Critical Accounting Policies" contained in the company's annual
      report on Form 10-K for the year ended December 31, 2005. There have been no
      material changes to these accounting policies during the three months ended
      March 31, 2006.





**Item
      3. 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 interest-bearing accounts
      at
      financial institutions in which we had excess cash invested in interest bearing
      accounts at March 31, 2006.





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 $25,089,000 at March 31, 2006.





We
      have
      exposure to both rising and falling interest rates. A 1/2% decrease in rates
      on
      our quarter-end investments would have an insignificant impact on our results
      of
      operations. A 1% increase in rates on our quarter-end variable rate debt would
      result in a negative impact of approximately $62,000 on our quarterly results
      of
      operations.





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





**Item
      4. 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 Quarterly Report on Form 10-Q, 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.




21


**PART
      II - OTHER INFORMATION**




**Item
      6.**  **Exhibits**





*Exhibit
                No.*
              
              *Desciption*31.1
              
              Certification
                  of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley
                  Act of 200231.2
              
              Certification
                  of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley
                  Act of 200232.1
              
              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
                  135032.2
              
              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




**Items
      1, 1A, 2, 3, 4, and 5 are not applicable and have been
      omitted**





**SIGNATURES**





Pursuant
      to the requirements 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:
            By:
            /s/ Barry
              J.
              PardonBarry
              J. Pardon, President Dated: May
              15, 2006
            By:
            /s/ Marshall
              W. Griffin, Jr.Marshall
              W. Griffin, Jr. Chief Financial
              Officer






22