**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 June 30, 2008ORo
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                the transition period from________________to________________





Commission
      file number: 001-13924





**SIMCLAR,
      INC.**


(Exact
      name of registrant as specified in its charter)





**Florida**
            **59-1709103**(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                No.)**2230
                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 o    No x





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


Large
      accelerated filer o  Accelerated
      filer o  Non-accelerated
      filer o   Smaller
      reporting company 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 June 30, 2008Common
                Stock, $.01 par value per share
            
            6,465,345
                shares





SIMCLAR,
      INC.





Form
      10-Q





For
      the
      quarter ended June 30, 2008





TABLE
      OF
      CONTENTS





PART
                I — FINANCIAL INFORMATIONItem
                1. Condensed Consolidated Financial Statements1)
                Consolidated Balance Sheets as of June 30, 2008 (unaudited) and December
                31, 2007
            32)
                Consolidated Statements of Operations for the three months and six
                months
                ended June 30, 2008 and June 30, 2007 (unaudited)
            53)
                Consolidated Statements of Cash Flows for the six months ended June
                30,
                2008 and June 30, 2007 (unaudited) .
            64)
                Notes to Consolidated Financial Statements as of June 30, 2008
                (unaudited)
            7Item
                2. Management's Discussion and Analysis of Financial Condition and
                Results
                of Operations
            11Item
                4T. Controls and Procedures
            21PART
                II — OTHER INFORMATIONItem
                1. Legal Proceedings
            23Item
                1A. Risk Factors
            23Item
                4. Submission of Matters to a Vote of Security Holders
            23Item
                6. Exhibits
            23Signatures
            23





PART
      I –
FINANCIAL INFORMATION





Item
      1
      Financial Statements





SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS




June 30,
            
            December 31,2008
            
            2007(UNAUDITED)**ASSETS****Current
                assets:**Cash
                and cash equivalents
            
            $
            374,611
            
            $
            428,538Accounts
                receivable, less allowances of $175,000 and $236,000 at June 30,
                2008 and
                December 31, 2007 respectively
            
            
            14,273,283
            
            
            20,804,552Amounts
                receivable from major stockholder, net
            
            
            1,967,698
            
            
            904,627Inventories,
                less allowances for obsolescence of $2,248,000 at June 30, 2008 and
                $2,364,000 at December 31, 2007
            
            
            19,586,153
            
            
            21,664,442Prepaid
                expenses and other current assets
            
            
            506,971
            
            
            654,509Income
                taxe receivable
            
            
            1,821,583
            
            
            107,091Deferred
                income taxes
            
            
            1,214,160
            
            
            1,214,160**Total
                current assets**
            
            
            39,744,459
            
            
            45,777,919**Property
                and equipment:**Land
                and improvements
            
            
            547,512
            
            
            547,512Buildings
                and building improvements
            
            
            1,235,904
            
            
            1,235,904Machinery,
                computer and office equipment
            
            
            16,092,935
            
            
            15,342,401Tools
                and dies
            
            
            366,347
            
            
            366,347Leasehold
                improvements
            
            
            1,730,726
            
            
            1,957,170Construction
                in progress
            
            
            7,937
            
            
            259,829**Total
                property and equipment**
            
            
            19,981,361
            
            
            19,709,163Less
                accumulated depreciation and amortization
            
            
            11,440,585
            
            
            9,922,589**Net
                property and equipment**
            
            
            8,540,776
            
            
            9,786,574Deferred
                expenses and other assets, net
            
            
            261,897
            
            
            366,265Goodwill
            
            
            9,410,704
            
            
            9,410,704Intangible
                assets, net
            
            
            699,645
            
            
            904,841**Total
                assets**
            
            $
            58,657,481
            
            $
            66,246,303


See
      notes
      to consolidated financial statements


3


SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS


(Continued)





June 30,
            
            December 31,2008
            
            2007(UNAUDITED)**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Current
                liabilities:**Line
                of credit
            
            $
            8,431,856
            
            $
            8,145,987Accounts
                payable
            
            
            15,914,466
            
            
            21,447,560Accrued
                expenses
            
            
            2,573,772
            
            
            1,907,472Current
                portion of long-term debt
            
            
            4,832,360
            
            
            3,575,148**Total
                current liabilities**
            
            
            31,752,454
            
            
            35,076,167Long-term
                debt
            
            
            7,500,000
            
            
            9,600,000Deferred
                trade accounts payable
            
            
            723,919
            
            
            349,257Deferred
                income taxes
            
            
            515,283
            
            
            515,283Other
                long term liabilities
            
            
            400,000
            
            
            400,000**Total
                liabilities**
            
            
            40,891,656
            
            
            45,940,707**Stockholders'
                equity:**Common
                stock, $.01 par value, authorized 10,000,000 shares; issued and
                outstanding 6,465,345 shares at June 30, 2008 and December 31,
                2007
            
            
            64,653
            
            
            64,653Capital
                in excess of par value
            
            
            11,446,087
            
            
            11,446,087Retained
                earnings
            
            
            6,132,265
            
            
            8,747,959Accumulated
                other comprehensive income
            
            
            122,820
            
            
            46,897**Total
                stockholders' equity**
            
            
            17,765,825
            
            
            20,305,596$
            58,657,481
            
            $
            66,246,303


See
      notes
      to consolidated financial statements


4


SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      STATEMENT OF OPERATIONS


(UNAUDITED)





Three Months Ended
            
            Six Months EndedJune 30,
            
            June 30,2008
            
            2007
            
            2008
            
            2007Sales
            
            $
            26,622,005
            
            $
            37,118,798
            
            $
            56,544,820
            
            $
            68,526,310Cost
                of goods sold
            
            
            27,855,778
            
            
            32,154,697
            
            
            55,071,804
            
            
            59,736,431Gross
                Margin
            
            
            (1,233,773
            )
            
            4,964,101
            
            
            1,473,016
            
            
            8,789,879Selling,
                general and administrative expenses
            
            
            2,534,552
            
            
            2,446,061
            
            
            4,928,004
            
            
            4,824,087(Loss)
                / Income from operations
            
            
            (3,768,325
            )
            
            2,518,040
            
            
            (3,454,988
            )
            
            3,965,792Interest
                expense
            
            
            336,029
            
            
            494,168
            
            
            671,826
            
            
            990,289Interest
                and other income
            
            
            (43,818
            )
            
            (57,507
            )
            
            (125,378
            )
            
            (73,509
            )(Loss)
                / Income before income taxes
            
            
            (4,060,536
            )
            
            2,081,379
            
            
            (4,001,436
            )
            
            3,049,012Income
                tax (credit) / expense
            
            
            (1,404,358
            )
            
            709,033
            
            
            (1,385,742
            )
            
            1,038,028Net
                (Loss) /income
            
            $
            (2,656,178
            )
            $
            1,372,346
            
            $
            (2,615,694
            )
            $
            2,010,984(Loss)
                / Earnings per share:Basic
            
            $
            (0.41
            )
            $
            0.21
            
            $
            (0.40
            )
            $
            0.31


See
      notes
      to consolidated financial statements


5


SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      STATEMENT OF CASH FLOWS


(UNAUDITED)





Six Months EndedJune 30,2008
            
            2007Operating
                activities:Net
                (loss) / income
            
            $
            (2,615,694
            )
            $
            2,010,984Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                & amortization
            
            
            880,426
            
            
            1,053,018Loss
                / (gain) on disposal of property & equipment
            
            
            751,223
            
            
            (8,685
            )Changes
                relating to operating activities from:Accounts
                receivable, net
            
            
            6,531,269
            
            
            (654,592
            )Amounts
                (payable) / receivable to major stockholder, net
            
            
            (1,063,071
            )
            
            111,696Inventories,
                net
            
            
            2,078,288
            
            
            (518,936
            )Prepaid
                expenses and other current assets
            
            
            147,538
            
            
            (1,272
            )Accounts
                payable
            
            
            (5,533,094
            )
            
            2,647,646Accrued
                expenses
            
            
            770,669
            
            
            732,494Income
                taxes refundable
            
            
            (1,714,492
            )
            
            625,125Net
                cash provided by operating activities
            
            
            233,062
            
            
            5,997,478Investing
                activities:Additions
                to property and equipment
            
            
            (180,655
            )
            
            (1,517,521
            )Proceeds
                from sale of property and equipment
            
            
            -
            
            
            525,000Net
                cash used in investing activities
            
            
            (180,655
            )
            
            (992,521
            )Financing
                activities:Borrowing
                on bank line of credit
            
            
            3,127,031
            
            
            6,346,375Repayments
                on bank line of credit
            
            
            (2,841,162
            )
            
            (4,015,091
            )Payments
                on note payable to major stockholder
            
            
            -
            
            
            (2,500,000
            )Payments
                on long-term borrowings
            
            
            (468,126
            )
            
            (3,513,178
            )Net
                cash used in financing activities
            
            
            (182,257
            )
            
            (3,681,894
            )Effect
                of exchange rate fluctuations on cash
            
            
            75,923
            
            
            (4,934
            )Net
                change in cash and cash equivalents
            
            
            (53,927
            )
            
            1,318,129Cash
                and cash equivalents at beginning of period
            
            
            428,538
            
            
            82,154Cash
                and cash equivalents at end of period
            
            $
            374,611
            
            $
            1,400,283Supplemental
                disclosure of cash-flow information :Cash
                paid for interest expense
            
            $
            581,628
            
            $
            648,308Cash
                paid for taxes
            
            $
            402,167
            
            $
            300,250


See
      notes
      to consolidated financial statements


6


**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 de Mexico, S.A. de C.V. (“Simclar de 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 intercompany accounts and
      transactions have been eliminated in consolidation. The company is a 73.2%
      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 8 of Regulation
      S-X and have not been audited by an independent registered public accounting
      firm. 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, 2007.





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**





In
      May
      2008 the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles.” The new standard is intended to improve financial
      reporting by identifying a consistent framework, or hierarchy, for selecting
      accounting principles to be used in preparing financial statements that are
      presented in conformity with U.S. generally accepted accounting
      principles.  SFAS No. 162 establishes that the GAAP hierarchy should be
      directed to entities because it is the entity (not its auditor) that is
      responsible for selecting accounting principles for financial statements that
      are presented in conformity with GAAP.  Statement 162 is effective 60 days
      following the SEC's approval of the Public Company Accounting Oversight Board
      Auditing amendments to AU Section 411, ** “The
      Meaning of Present Fairly in Conformity with Generally Accepted Accounting
      Principles.” The company does not expect any significant impact from this
      statement on its financial statements.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities – an amendment of FASB Statement No. 133.” SFAS No. 161
      changes disclosure requirements for derivative instruments and hedging
      activities. Entities will be required to provide enhanced disclosures about
      (a)
      how and why an entity uses derivative instruments, (b) how derivative
      instruments and related hedged items are accounted for under SFAS No. 133 and
      its related interpretations, and (c) how derivative instruments and related
      hedged items affect an entity’s financial position, financial performance and
      cash flows. This statement is effective for fiscal years beginning after
      November 15, 2008. The company does not expect any significant impact from
      this
      statement on its financial statements.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements,” an amendment of ARB No. 51, which we will
      adopt on January 1, 2009. This standard will significantly change the accounting
      and reporting related to noncontrolling interests in a consolidated subsidiary.
      The company does not expect any significant impact from this statement on its
      financial statements.





In
      December 2007, the FASB issued SFAS No. 141R, “Business Combinations.” SFAS No.
      141R will replace SFAS No. 141 and provides new rules for accounting for the
      acquisition of a business. This statement is effective for fiscal years
      beginning after December 15, 2008. Generally, the effects of SFAS No. 141R
      will
      depend on future acquisitions.


7


**NOTE
      3 – Inventories**





Inventories
      are comprised of the following:





June 30,
            
            December 31,2008
            
            2007Raw
                materials and supplies
            
            
            17,767,249
            
            $
            19,285,200Work
                in process
            
            
            2,444,140
            
            
            2,841,656Finished
                goods
            
            
            1,622,893
            
            
            1,902,052Allowance
                for obsolescence
            
            
            (2,248,129
            )
            
            (2,364,466
            )$
            19,586,153
            
            $
            21,664,442





**NOTE
      4 – Earnings per share**





Following
      is a reconciliation of amounts used in the computations:





Three Months Ended June 30,
            
            Six Months Ended June 30,2008
            
            2007
            
            2008
            
            2007Net
                (loss) / income - numerator basic computation
            
            $
            (2,656,178
            )
            $
            1,372,346
            
            $
            (2,615,694
            )
            $
            2,010,984Weighted
                average shares - denominator basic computation
            
            
            6,465,345
            
            
            6,465,345
            
            
            6,465,345
            
            
            6,465,345(Loss)
                / Earnings per share:Basic
            
            $
            (0.41
            )
            $
            0.21
            
            $
            (0.40
            )
            $
            0.31





Net
      loss
      for the three months ended June 30, 2008, includes approximately $2.8 million
      pre-tax of exceptional and non-recurring costs arising from problems encountered
      in connection with the transfer of operations from the company’s North Carolina
      facilities to the facilities of Simclar de Mexico during the first half of
      2008.
      These pre-tax exceptional and non-recurring charges include a loss on the
      disposal of plant and equipment of approximately $0.75 million following the
      decision to no longer service certain customers in the plastic molding business,
      write-off of inventory of approximately $1.2 million resulting from decisions
      to
      divest low-margin business and procurement errors in the quarter of
      approximately $0.85 million. These costs are recorded as a component of cost
      of
      goods sold.




**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 and six
      month periods ended June 30, 2008 and 2007:





Three Months Ended June 30,
            
            Six Months Ended June 30,2008
            
            2007
            
            2008
            
            2007Net
                (loss) / income
            
            $
            (2,656,178
            )
            $
            1,372,346
            
            $
            (2,615,694
            )
            $
            2,010,984Foreign
                currency translation income (loss), net of tax
            
            
            52,579
            
            
            21,292
            
            
            75,943
            
            
            (4,934
            )Comprehensive
                (loss) / Income
            
            $
            (2,603,599
            )
            $
            1,393,638
            
            $
            (2,539,751
            )
            $
            2,006,050


8


**NOTE
      6 – Indebtedness**





Effective
      January 26, 2007, the company entered into amendments of the two working capital
      facilities with Bank of Scotland (“BoS”). The term of the $1 million working
      capital facility of SIT, originally entered into in December 2005, was extended
      to January 28, 2008. The Simclar, Inc. $5 million working capital facility,
      last
      amended in December 2005, was increased to $7.5 million, and its maturity date
      was extended to January 28, 2008. No other material changes were made to either
      facility by the amendments. Effective March 27, 2008, the facilities were
      further amended to extend the maturity dates of each to March 17, 2009. No
      other
      material changes were made to either facility by the 2008 amendments, except
      that the default interest rate under both facilities was increased from 1.5%
      to
      2.0% and the interest rate under the $7.5 million facility was increased from
      1.5% over LIBOR to 1.75% over LIBOR. The company was in breach of various
      financial covenants at the end of the second quarter (EBIT to total interest
      coverage ratio, trade accounts receivable to net borrowing ratio, and net
      borrowing to EBITDA ratio), which breaches have since been waived by BoS.
      Following discussions with BoS and in recognition of the high level of previous
      advanced term loan repayments made by the company, it was agreed to reschedule
      the June 2008 repayment of $0.5 million to December 31, 2008, or such later
      date
      as agreed before December 31, 2008 between the company and BoS.





On
      August
      17, 2006, Simclar (Mexico) and Simclar entered into an agreement with Winsson
      Enterprises Co., Ltd. (“Winsson”) and its affiliate, Computronics International
      Corp. This agreement replaced a deferred trade payables agreement that expired
      on July 14, 2006. The agreement is a non-cash refinance of approximately
      $2,495,000 of trade accounts payable to long-term debt to be repaid within
      a
      three year period with an interest rate of 3% per annum. The agreement calls
      for
      quarterly payments of principal and interest of $225,000 commencing August
      15,
      2006, with a final payment of approximately $123,400 payable on May 15, 2009.
      The debt is subordinated to the BoS credit facilities. The balance at June
      30,
      2008 was approximately $790,000 and is reflected on the face of the balance
      sheet as current portion of long-term debt. The company is in advance discussion
      with Winsson with regard to the deferral of the repayment of $225,000 due on
      August 14, 2008 and the implementation of a payment holiday until February
      2009
      when scheduled repayments would re-commence, and, as a result of which, the
      final payment date would be November 14, 2009.





On
      June
      5, 2008, Simclar entered into an agreement with Litton Systems Inc. effecting
      a
      deferred trade payables arrangement. The agreement is a non-cash refinance
      of
      approximately $3,067,293 of trade accounts payable to long-term debt to be
      repaid within a fifteen month period with an interest rate of 5% per annum.
      The
      agreement calls for quarterly payments of principal and interest of $1,052,573
      commencing June 30, 2008 and ending December, 30 2008. The initial quarter
      payment was made in June 30, 2008, with the outstanding balance of $2,066,162
      being reflected as long-term debt on the face of the balance sheet.





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





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 $150,000 and $270,000 respectively
      for the three and six months ending June, 30 2008.





SIT
      pays
      a monthly management fee to Simclar Interconnect Technologies Limited, a related
      party to Simclar Group, based on 2% of sales. The purpose of the fee is to
      support global research and development and sales and marketing management.
      The
      charges for the three and six months ended June 30, 2008 are approximately
      $264,000 and $514,000 respectively.





The
      company had a net receivable due from its parent, Simclar Group, certain of
      its
      subsidiaries and a related party at June 30, 2008 and December 31, 2007 of
      approximately $1,968,000 and $905,000 respectively. Amounts receivable accrue
      interest at the rate of LIBOR plus 1.5%





In
      connection with the acquisition of the Litton backplane assembly business in
      February 2006, 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 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 adopted the provisions of Financial Accounting Standards Board (“FASB”)
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”)
      on January 1, 2007. As required by FIN 48, which clarifies SFAS No. 109
“Accounting for Income Taxes,” the company recognizes the financial statement
      benefit of a tax position only after determining that the relevant tax authority
      would more likely than not sustain the position following an audit. For tax
      positions meeting the more-likely-than-not threshold, the amount recognized
      in
      the financial statements is the largest benefit that has a greater than 50
      percent likelihood of being realized upon ultimate settlement with the relevant
      tax authority. At the adoption date, the company applied FIN 48 to all tax
      positions for which the statute of limitations remained open. As a result of
      the
      implementation of FIN 48, the company was not required to record any liability
      for unrecognized tax benefits as of January 1, 2007. There have been no material
      changes in unrecognized tax benefits since January 1, 2007.


9


The
      company is subject to income taxes in the U.S. federal jurisdiction, as well
      as
      various other jurisdictions. Tax regulations within each jurisdiction are
      subject to the interpretation of the related tax laws and regulations and
      require significant judgment to apply. With few exceptions, the company is
      no
      longer subject to U.S. federal, state, and local, or non-U.S. income tax
      examinations by tax authorities for years before 2005.





The
      company will recognize, if applicable, interest accrued related to unrecognized
      tax benefits in interest expense and penalties in other expense. At June 30,
      2008, the company had no unrecognized tax benefits.





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.





Net
      income tax payments amounted to approximately $350,000, and $402,167
      respectively for the three months and six months ended June 30, 2008 and
      $100,000 and $300,000 for the comparable 2007 period.




**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
      company is involved in various legal actions arising in the ordinary course
      of
      business. In the opinion of management, the finalization of these matters will
      not have a material effect on the company's financial position.


10







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





**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 one 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,
      the
      effectiveness of our internal controls, 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.





**Overview**





Simclar,
      Inc. has over the past years demonstrated strong revenue growth of existing
      products and customers 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.





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 (“PCB”) assemblies, metal
      fabrication, cabling solutions and higher level assemblies provides 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 OEMs in a variety
      of markets including the data processing, telecommunications, instrumentation,
      and food preparation equipment industries. Following the closure of our North
      Carolina facility in the first quarter of 2008, the company has four
      manufacturing plants and numerous sales offices and has approximately 740
      employees.





The
      company has previously reported its strategic plan to transfer its North
      Carolina facility’s sheet metal fabrication business to its Simclar de Mexico
      facility. This transfer was largely completed by the end of the first quarter
      of
      the current year, with senior management from both North Carolina and Mexico
      project-managing the transition. Problems subsequently came to light beginning
      late in the second quarter which highlighted significant issues arising as
      a
      result of the transfer, along with significant deficiencies within the Mexican
      facility’s recently implemented ERP system. Given the significance of these
      matters and the fact that the internal review which had been commenced as a
      result of these issues was ongoing, management concluded in early August that
      the company was not in a position at that time to file its Form 10-Q for the
      second quarter of 2008, and that the filing should be delayed until completion
      of the internal review.





The
      internal review has now been completed and comprised a detailed review of the
      issues and deficiencies that had been highlighted along with a strategic review
      of the company’s Mexican operations. The key findings were as follows
      :





§
            Major
                procurement errors arose with a number of material components being
                purchased at significantly higher costs compared to both historic
                and
                budgeted costs.





§
            Early
                in the internal review it was clear that the transferred business
                with its
                low margins, low volumes and high variations was ill-suited to the
                Mexican
                facility, and therefore steps have been taken to exit the transferred
                business.




11


§
            The
                significant capital cost of transferring the plastic injection molding
                business from North Carolina allied to the low margins arising from
                this
                business did not align itself with the company’s strategy for its Mexican
                operations, and accordingly management decided to suspend this transfer
                and to exit this area of business.





Having
      identified the problems, the company has been aggressive in implementing
      corrective actions and has undertaken a fundamental restructuring of the Mexican
      management team, and with all senior members of management associated with
      the
      deficiencies in the transfer plan having been dismissed, the company is
      currently in the process of finalizing the completion of a new Mexican
      management team.





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





·
            2008
                second quarter sales were approximately $26.6 million compared to
                approximately $37.1 million in the same period in 2007, reflecting
                significantly reduced sales to our customers within the telecommunication
                sector, together with the impact of the operational problems within
                our
                Mexico facilities as discussed
                above.




·
            The
                company recognized a net loss of approximately $2,656,000 for the
                three
                months ended June 30, 2008 compared to a profit of approximately
                $1,372,000 in the same period in 2007. This loss, while in part caused
                by
                the reduction in sales, includes exceptional and non-recurring charges
                of
                approximately $2.4 million arising from the fundamental restructuring
                of
                the Mexican facility, and inventory impairment of approximately $0.4
                million at the company’s other manufacturing locations resulting from
                decisions to exit low-margin
                business.




·
            The
                exceptional and non-recurring charges incurred in Mexico include
                plant and
                equipment write-downs of approximately $0.8 million, inventory write-offs
                of approximately $0.9 million resulting from decisions to exit specific
                customers and business sectors, and exceptional costs of approximately
                $0.7 million arising from deficiencies in the execution of the transfer
                plan and procurement errors.




·
            Reported
                (loss) / earnings per share for the quarter ended June 30, 2008 is
                ($0.41), after the inclusion of the exceptional and non-recuuring
                costs
                described above, compared to $0.21 in the same period in 2007.




·
            Management
                has implemented cost-reduction programs across each of the company’s
                locations to mitigate the effect of lower sales and reduced
                margins.




·
            Deferred
                shipments with certain of our key customers led to a higher than
                expected
                inventory balance, with inventory turns falling to 4.9 at the end
                of the
                quarter from 5.3 at the end of the previous quarter. The reduction
                in
                inventory levels is now a key strategic imperative, and has led to
                the
                appointment of a Procurement Director to oversee and manage the company’s
                procurement and material control activities.




·
            Given
                the losses that have arisen in the quarter and the high level of
                inventory, it has now been recognized that the voluntary bank term
                loan
                repayments which have been made by the company in previous quarters
                ($3.5
                million since the beginning of 2007), were overly aggressive, and
                have
                placed undue pressure on the company’s operating cash flow. Management has
                addressed this problem with its bankers and has been successful in
                rescheduling the current term loan repayments to later
                periods.




·
            The
                company has moved quickly to address the issues caused by the failure
                to
                properly effect the transfer of the North Carolina operations to
                Mexico,
                including a significant restructuring of its senior management resources.
                The company currently has an order backlog of approximately $30 million
                and is now committed to taking whatever further steps are necessary
                in the
                coming months to return the business to
                profitability.




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.




12


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 could have a material adverse effect on our business,
      financial condition and results of operations. During periods of recession
      in
      the electronics industry, our competitive advantages in the areas of
      quick-turnaround manufacturing and responsive customer service may be of reduced
      importance to electronic OEMs, who may become more price sensitive.





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





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





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





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




**Key
      Financial Performance Measures**





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





*Orders
      booked and backlog* –
the
      ratio of orders booked to sales is reviewed on a monthly basis.





*Sales* –
monthly
      sales are compared against budget and the same month in the previous
      year.





*Gross
      margin* –
the
      gross margin achieved 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 each month is compared against
      budget.




13


*Working
      capital* –
      movements in the balance sheet amounts of inventory, accounts receivable and
      accounts payable 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.





*Weekly
      business control*  *reviews* –
      conference calls are conducted weekly by the president, CFO, and corporate
      controller to review key performance metrics and general business update with
      the general managers and financial controllers for each facility.





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.


14




**Results
      of Operations**





Three
      months and six months ended June 30, 2008





Net
      Sales
      (dollars in thousands)





Three Months Ended
            
            Six Months EndedJune 30,
            
            June 30,2008
            
            2007
            
            2008
            
            2007Net
                Sales
            
            $
            26,622
            
            $
            37,119
            
            $
            56,545
            
            $
            68,526Change
                from prior year
            
            $
            (10,497
            )
            $
            6,720
            
            $
            (11,981
            )
            $
            16,304%
                change from prior year
            
            
            -28.3
            %
            
            22.1
            %
            
            -17.5
            %
            
            31.2
            %





Despite
      our customers forecasting a stronger second quarter, shipments significantly
      failed to meet expectations with a number of customers deferring orders and
      also
      delaying the introduction of new programs which the company had previously
      been
      awarded. The worsening economic environment has been particularly felt within
      the telecommunications infrastructure sector which accounts for some 60% of
      the
      company’s business, and accounted for approximately $8 million of the sales
      decrease in the quarter compared to the same quarter in 2007. In addition,
      the
      production problems experienced in our Mexican facility had an adverse impact
      on
      the quarter’s shipments.





Gross
      Profit (dollars in thousands)




Three Months Ended
            
            Six Months EndedJune 30,
            
            June 30,2008
            
            2007
            
            2008
            
            2007Gross
                profit margin
            
            $
            (1,234
            )
            $
            4,964
            
            $
            1,473
            
            $
            8,790Change
                from prior year
            
            $
            (6,198
            )
            $
            1,190
            
            $
            (7,317
            )
            $
            2,225%
                change from prior year
            
            
            -124.9
            %
            
            31.5
            %
            
            -83.2
            %
            
            33.9
            %%
                of sales
            
            
            -4.6
            %
            
            13.4
            %
            
            2.6
            %
            
            12.8
            %





The
      main
      factors that influence our gross margin percentage are material costs, product
      mix and plant utilization. However, approximately $2.8 million of the gross
      margin reduction in the second quarter of 2008 compared to the same period
      in
      2007 relates to exceptional and non-recurring charges, recorded as cost of
      goods
      sold, resulting from the Mexico transfer and the asset write-offs arising from
      the strategic review. Notwithstanding these non-recurring exceptional costs,
      the
      reduced margin heavily reflects the effect of underutilization of fixed
      production costs caused by the significant shortfall in this quarter’s sales.
      While margins are continually under pressure from customer cost reduction
      programs, the company actively seeks to mitigate the effect through production
      efficiency improvements and procurement savings.




15


Selling,
      General, and Administrative Expenses (dollars in thousands)





Three Months Ended
            
            Six Months EndedJune 30,
            
            June 30,2008
            
            2007
            
            2008
            
            2007Selling,
                general, and administrative expenses
            
            $
            2,535
            
            $
            2,446
            
            $
            4,928
            
            $
            4,824Change
                from prior year
            
            $
            89
            
            $
            328
            
            $
            104
            
            $
            1,106%
                change from prior year
            
            
            3.6
            %
            
            15.5
            %
            
            2.2
            %
            
            29.7
            %%
                of sales
            
            
            9.5
            %
            
            6.6
            %
            
            8.7
            %
            
            7.0
            %





Selling,
      general, and administrative expenses were broadly in line with prior year
      levels, however, the decrease in sales caused the percentage of sales to
      significantly increase and actions were taken during the second quarter to
      reduce these costs.





Interest
      Expense (dollars in thousands)




Three Months Ended
            
            Six Months EndedJune 30,
            
            June 30,2008
            
            2007
            
            2008
            
            2007Interest
                expense
            
            $
            336
            
            $
            494
            
            $
            672
            
            $
            990Change
                from prior year
            
            $
            (158
            )
            $
            18
            
            $
            (318
            )
            $
            227%
                change from prior year
            
            
            -32.0
            %
            
            3.8
            %
            
            -32.1
            %
            
            29.8
            %%
                of sales
            
            
            1.3
            %
            
            1.3
            %
            
            1.2
            %
            
            1.4
            %





The
      reduction in interest expense in 2008 reflects the fall in lending rates and
      the
      reduced level of debt compared to last year in line with the company’s strategy
      of making, whenever possible, advance repayments in order to continually reduce
      the company’s bank borrowings. Average debt levels for the three month period
      ended June 30, 2008 and same period for 2007 were approximately $20.5 million
      and $25.8 million respectively (including interest bearing debt owed to related
      parties), while average interest rates in the quarter ended June 30, 2008 were
      5.2% compared to 7.8% for the quarter ended June 30, 2007.





(Loss)
      /
      Income Before Income Taxes


(dollars
      in thousands)





Three Months Ended
            
            Six Months EndedJune 30,
            
            June 30,2008
            
            2007
            
            2008
            
            2007(Loss)
                / Income before taxes
            
            $
            (4,061
            )
            $
            2,081
            
            $
            (4,001
            )
            $
            3,049Change
                from prior year
            
            $
            (6,142
            )
            $
            797
            
            $
            (7,050
            )
            $
            872%
                change from prior year
            
            
            -295.1
            %
            
            62.1
            %
            
            -231.2
            %
            
            40.1
            %%
                of sales
            
            
            -15.3
            %
            
            5.6
            %
            
            -7.1
            %
            
            4.4
            %





The
      decrease in income before tax in the second quarter of 2008 compared to the
      same
      period in 2007 is largely due to the non-recurring exceptional costs in relation
      to the problems in Mexico and asset impairments which contributed approximately
      $2.8 million of charges to the quarter. Not withstanding these non-recurring
      exceptional charges, the company margins declined reflecting the significant
      decline in sales in the quarter, and the resultant under-utilization of
      production capacity.




16


Income
      Tax (Credit) / Expense


(dollars
      in thousands)





Three Months Ended
            
            Six Months EndedJune 30,
            
            June 30,2008
            
            2007
            
            2008
            
            2007Income
                tax (credit) / expense
            
            $
            (1,404
            )
            $
            709
            
            $
            (1,386
            )
            $
            1,038Change
                from prior year
            
            $
            (2,113
            )
            $
            215
            
            $
            (2,424
            )
            $
            158%
                change from prior year
            
            
            -298.0
            %
            
            43.5
            %
            
            -233.5
            %
            
            18.0
            %Effective
                tax rate
            
            
            34.6
            %
            
            34.1
            %
            
            34.6
            %
            
            34.1
            %





Income
      tax credit for the three months ended June 30, 2008 was approximately
      $1,404,000, compared to approximately $709,000 in the same period in 2007.
      The
      higher effective tax rate reflects the rebates achieved from state tax.





Liquidity
      and Capital Resources





Cash
      and
      Cash Equivalents


(dollars
      in thousands)





June 30,
              2008
            
            December 31,
              2007Cash
                and cash equivalents
            
            $
            375
            
            $
            429





Cash
      and
      cash equivalents as of June 30, 2008 are broadly in line with balances at
      December 31, 2007, with cash generated being used to repay debt balances and
      operating costs. Excess liquid funds are invested in short-term,
      interest-bearing accounts at financial institutions.





Net
      Cash
      Provided from Operating Activities


(dollars
      in thousands)





Six Months Ended June 30,2008
            
            2007Net
                cash provided from operating activities
            
            $
            233
            
            $
            5,997





Net
      cash
      provided from operating activities for the six months ended June 30, 2008 was
      approximately $233,000 compared to approximately $5,997,000 for the same period
      last year. The main reasons for this swing are the net operating loss (adjusted
      for depreciation & disposal) of approximately $1.0 million in the period
      compared to net income (adjusted for depreciation & disposals) of
      approximately $3.1 million in the same period in 2007, and the failure of the
      company to reduce working capital in line with the reduced levels of sales
      in
      the period.




17


Accounts
      Receivable


(dollars
      in thousands)





June 30,
              2008
            
            December 31,
              2007Accounts
                receivable, net
            
            $
            14,273
            
            $
            20,805Average
                days sales outstanding
            
            
            45.4
            
            
            54.9





Accounts
      receivable as of June 30, 2008 decreased by approximately $6.5 million compared
      to December 31, 2007 due to the lower level of sales activities in the second
      quarter of 2008 as compared to the higher sales in the fourth quarter of 2007.
      In the current year, the company has introduced new collection procedures and
      this continues to improve collection of overdue receivables as evidenced in
      the
      reduction in the average days outstanding.





Inventory


(dollars
      in thousands)





June 30,
              2008
            
            December 31,
              2007Inventory
            
            $
            19,586
            
            $
            21,664Average
                inventory turnover
            
            
            4.9
            
            
            5.6





Although
      inventory as of June 30, 2008 decreased by approximately $2.1 million compared
      to December 31, 2007, average inventory turns in the same period declined to 4.9
      from 5.6. This reduction in average turns reflects the significant levels of
      inventory held for key customers that have failed to take shipments in line
      with
      forecast demand. This unacceptable increase in the company’s working capital
      requirement is being addressed as a matter of urgency with our customers and
      our
      material suppliers, as appropriate. The company has appointed a Procurement
      Director to oversee and manage its procurement and material control initiatives,
      with an immediate objective of improving inventory turnover through smaller
      order quantities, vendor managed inventories, and the active liquidation of
      excess inventory balances.





Net
      cash
      used in investing activities


(dollars
      in thousands)





Six Months Ended June 30,2008
            
            2007Net
                cash used in investing activities
            
            $
            181
            
            $
            993





Investing
      activities for the nine months ended June 30, 2008 related primarily to the
      installation in Mexico of equipment transferred from our closed facility in
      North Carolina, while investing activities in the comparable period of 2007,
      included leasehold improvements related to the move of our Missouri facility
      from Springfield to Ozark.





Net
      cash
      used in financing activities


(dollars
      in thousands)





Six
                Months Ended June 30,2008
            
            2007Net
                cash used in financing activities
            
            $
            182
            
            $
            3,682




18


Net
      cash
      used in financing activities in the three months ended June 31, 2008 was
      approximately $182,000 compared to approximately $3,682,000 in the same period
      of 2007. This large fluctuation is caused by the 2007 repayment of a $2.5
      million balance to our major stockholder in addition to advance bank repayments
      of $1.5 million.





Our
      near-term cash requirements are primarily related to funding our operations,
      and
      servicing the company’s bank debt obligations.  We believe that the
      combination of internally-generated funds, available cash reserves, and our
      existing credit facilities are 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 (BoS) in Edinburgh, Scotland consisting of:





**Borrower**
            
            **Type of facility**
            
            **Original**
              **amount**
            
            **Balance at**
              **June 30,2008**Simclar,
                Inc.
            
            Working
              capital
            
            $
            7,500,000
            
            $
            7,490,339Simclar,
                Inc.
            
            Term
              loan – four tranches (see detail of tranches below)
            
            $
            21,650,000
            
            $
            10,200,000Simclar
                Interconnect Technologies, Inc.
            
            Working
              Capital
            
            $
            1,000,000
            
            $
            941,414





Effective
      March 27, 2008, we entered into amendments of the two working capital
      facilities. The term of the $1 million working capital facility of SIT,
      originally entered into in December 2005, and amended in January 2007, was
      extended to March 17, 2009. The maturity date of the Simclar, Inc. $7.5 million
      working capital facility, last amended in January 2007, was extended to March
      17, 2009. No other material changes were made to either facility by the
      amendments, except that the default interest rate under both facilities was
      increased from 1.5% to 2.0% and the interest rate under the $7.5 million
      facility was 1.75% over LIBOR.





Interest
      on the Simclar, Inc. working capital facility accrues at an annual rate equal
      to
      LIBOR plus 1.75%, 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 June 30, 2008
      was
      4.9% based on the one month election.





Interest
      on the Simclar Interconnect Technologies, Inc. working capital facility is
      a
      margin over LIBOR determined by a ratio of net borrowings to EBITDA for any
      given test period. The margin percentage can range from 1.75% to 2.5%. The
      interest rate for this working capital facility at June 30, 2008 was
      5.6%.





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 varies
      from 1.5% to 3.5%. The term debt interest rate was 4.2% for tranches A and
      B,
      5.6% for tranche C, and 6.6% for tranche D at June 30, 2008 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:


19





Tranche
            
            Principal Amount
            
            Purpose
            
            PaymentsA
            
            $
            4,250,000
            
            Refinance
              existing facilities
            
            Seventeen
              quarterly payments of $250,000 beginning October 2004 through October
              2008B
            
            $
            1,400,000
            
            Dayton
              property acquisition
            
            Twenty-eight
              quarterly payments of $50,000 beginning January 2005 through October
              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
              
              Following
                discussions with BoS and in recognition of the high level of previous
                advanced term loan repayments made by the company, it was agreed
                to
                reschedule the June 2008 repayment of $500,000 to a later
                periodD
            
            $
            3,000,000
            
            Acquisition
              of certain assets of the Litton Interconnect Technologies assembly
              operations
            
            Single
              payment due December 31, 2010




The
      weighted average interest rate for the quarter ended June, 30 2008 was
      5.3%.





Reference
      should be made to the company’s annual report on 10-K report for the year ended
      December 31, 2007 for details of the credit facilities, all of which continue
      to
      be effective.





Due
      to
      the results for the 3 months ended June 30, 2008 being significantly reduced
      by
      the exceptional Mexico charges, the company did not satisfy certain financial
      covenants of its debt facilities for that period (EBIT to total interest
      coverage ratio, trade accounts receivable to net borrowing ratio, and net
      borrowing to EBITDA ratio), which breaches have since been waived by BoS. Given
      these particular circumstances, BoS has agreed to waive the facility covenants
      as at June 30, 2008. Further, following discussions with BoS and in recognition
      of the high level of previous advanced term loan repayments made by the company,
      it was agreed to reschedule the term loan repayments of $500,000 due on June
      30,
      2008 and September 30, 2008 to December 31, 2008, or such later date as agreed
      before December 31, 2008 between the company and BoS.





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





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





**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, 2007.
      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, 2007. There have been no
      material changes to these accounting policies during the three and six months
      ended June 30, 2008. Further, the company may be subject to the recently issued
      accounting pronouncements outlined in Note 2, to the financial
      statements.


20


**Item
      4T. Controls and Procedures**





Overview




The
      company maintains disclosure controls and procedures designed to ensure that
      information required to be disclosed in reports filed under the Securities
      Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized,
      and reported within the specified time periods. As a part of these controls,
      our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting, as such term is defined in Rule 13a-15(f)
      under the Exchange Act. The company’s internal control over financial reporting
      is a process designed to provide reasonable assurance regarding the reliability
      of financial reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting principles, and
      includes those policies and procedures that:





·
            pertain
                to the maintenance of records that, in reasonable detail accurately
                reflect the transactions and dispositions of the assets of the
                company;





·
            provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles and, that receipts and expenditures of the
                company
                are being made only in accordance with authorization of management
                and
                directors of the company; and





·
            provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of the company's assets
                that
                could have a material effect on the financial
                statements.




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 Exchange Act) as of June 30, 2008. Disclosure
      controls and procedures include, without limitation, controls and procedures
      designed to ensure that (i) information required to be disclosed by us in the
      reports that we file or submit under the Exchange Act is accumulated and
      communicated to our management, including our principal executive and principal
      financial officers, as appropriate to allow timely decisions regarding required
      disclosure, and (ii) 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.





As
      noted
      earlier in this report (Management’s Discussion and Analysis of Financial
      Condition and Results of Operations – Overview), beginning late in the second
      quarter of 2008 management became aware of problems associated with the transfer
      of the company’s sheet metal fabrication business from North Carolina to its
      Mexican facility, along with significant deficiencies within the Mexican
      facility’s recently implemented ERP system. Given the significance of these
      matters and the fact that the internal review which had been commenced as a
      result of these issues was ongoing, management concluded in early August that
      the company was not in a position at that time to file its Form 10-Q for the
      second quarter of 2008, and that the filing should be delayed until completion
      of the internal review.





The
      internal review has now been completed and comprised a detailed review of the
      issues and deficiencies that had been highlighted along with a strategic review
      of the company’s Mexican operations. The key findings were as
      follows:





·
            Major
                procurement errors arose with a number of material components being
                purchased at significantly higher costs compared to both historic
                and
                budgeted costs.





·
            Early
                in the internal review it was clear that the transferred business
                with its
                low margins, low volumes and high variations was ill-suited to the
                Mexican
                facility, and therefore steps have been taken in this quarter to
                exit the
                transferred business.





·
            The
                significant capital cost of transferring the plastic injection molding
                business from North Carolina allied to the low margins arising from
                this
                business did not align itself with the company’s strategy for its Mexican
                operations, and accordingly management decided to suspend this transfer
                and to exit this area of business.





Based
      on
      their evaluation of the effectiveness of the design and operation of our
      disclosure controls and procedures, our Chief Executive Officer and Chief
      Financial Officer have concluded that, as of June 30, 2008, our disclosure
      controls and procedures were not effective in providing reasonable assurance
      of
      achieving those objectives, due to a material weakness in internal control
      over
      financial reporting disclosed by the events described above and the resulting
      inability to timely file our report on Form 10-Q for the second quarter of
      2008 **.**




21


Rule
      12b-2 under the Exchange Act defines “material weakness” as a deficiency, or a
      combination of significant deficiencies, in internal control over financial
      reporting such that there is a reasonable possibility that a material
      misstatement of the registrant’s annual or interim financial statements will not
      be prevented or detected on a timely basis. The rule defines a “significant
      deficiency” as a deficiency, or combination of deficiencies, in internal control
      over financial reporting that is less severe than a material weakness, yet
      important enough to merit attention by those responsible for oversight of the
      registrant’s financial reporting.





The
      control deficiencies identified by our management that existed at June 30,
      2008,
      which in combination, resulted in a material weakness, were (a) failure to
      establish effective system access controls as part of the new ERP system
      implementation (b) failure to establish effective system controls over standard
      costing as part of the new ERP system implementation (c) failure of key control
      processes that allowed material errors to occur and go undetected on a timely
      basis, and (d) the failure of key management to identify the errors on a timely
      basis and take appropriate corrective actions. The control deficiencies were
      determined to be a material weakness due to the combined impact of the actual
      misstatements identified, the potential for additional material misstatements
      that could have occurred as a result of the deficiencies, and the lack of other
      mitigating controls. Whilst the misstatements were still ultimately identified
      by the reporting controls, the company was required to perform a significant
      internal review to fully identify the weaknesses, resulting in the inability
      to
      timely file our report on Form 10-Q for the second quarter of 2008 **.**





Our
      management, including our Chief Executive Officer and Chief Financial Officer,
      does not expect that our disclosure controls and procedures will prevent all
      errors and all improper conduct. A control system, no matter how well conceived
      and operated, can provide only reasonable, not absolute assurance that the
      objectives of the control systems are met. Further, a design of a control system
      must reflect the fact that there are resource constraints, and the benefit
      of
      controls must be considered relative to their costs. Because of the inherent
      limitations in all control systems, no evaluation of controls can provide
      absolute assurance that all control issues and instances of improper conduct,
      if
      any, have been detected. These inherent limitations include the realities that
      judgments and decision-making can be faulty, and that breakdowns can occur
      because of a simple error or mistake. Additionally, controls can be circumvented
      by the individual acts of some persons, by collusion of two or more persons,
      or
      by management override of the control. Further, the design of any system of
      controls is also based in part upon assumptions about the likelihood of future
      events, and there can be no assurance that any design will succeed in achieving
      its stated goals under all potential future conditions. Over time, controls
      may
      become inadequate because of changes in conditions, or the degree of compliance
      with the policies or procedures may deteriorate. Because of the inherent
      limitations and a cost-effective control system, misstatements due to error
      or
      fraud may occur and may not be detected.





Changes
      in Control Over Internal Controls




During
      the quarter ended June 30, 2008, there were no changes in our internal controls
      over financial reporting that materially affected, or are reasonably likely
      to
      materially affect, our internal control over financial reporting. However,
      as a
      result of the subsequently discovered material weakness described above, the
      company subsequently took steps to remediate the weakness. These remediation
      efforts include:




·
            Replacement
                of key management that had failed in their responsibility to identify
                control weaknesses and take corrective action.




·
            Correction
                of system access controls on new ERP system to ensure that all users
                have
                restricted access in line with internal control
                matrix.




·
            Correction
                of the standard cost system within the new ERP system and training
                of
                employees responsible for its
                maintenance.




·
            Re-engineer
                and strengthen the processes and controls throughout the procurement
                function.




The
      company continues to evaluate these and other possible improvements to its
      disclosure controls and internal control over financial reporting. Management,
      including our Chief Executive Officer and Chief Financial Officer, believes
      that
      once these remediation efforts, taken as a whole, are complete, our disclosure
      controls and procedures will be designed to provide reasonable assurance that
      information required to be disclosed in our reports filed under the Exchange
      Act
      have been recorded, processed, summarized and reported correctly, and that
      they
      provide such assurance with respect to the information contained in this report.
      Management believes that its controls and procedures will continue to improve
      as
      a result of the further implementation and refinement of the remediation efforts
      described above.




22


**PART
      II – OTHER INFORMATION**





**Item
      1. Legal Proceedings**





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





**Item
      1A. Risk Factors**





The
      following additional risk factor is added to the risk factors previously
      disclosed in Item 1A to Part 1 of our Annual Report on Form 10-K for the year
      ended December 31, 2007:





*We
      have risks related to the recent economic and credit
      conditions.*





The
      Company's operating cash flows provide funding for debt repayment and various
      discretionary items such as capital expenditures. Recent uncertainty in global
      economic conditions resulting from disruption in the credit markets has
      negatively impacted the overall economy which could adversely impact demand
      for
      our products and our ability to manage commercial relationships with our
      customers, suppliers and creditors.





**Items
      2, 3, and 5 are not applicable and have been omitted.**




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





Simclar,
      Inc. held its annual meeting of shareholders on June 9, 2008 for the purpose
      of
      electing seven directors. The nominees were: Samuel J. Russell, Barry J. Pardon,
      John Ian Durie, Christina M.J. Russell, A. Graeme Manson, Kenneth M. Mackay,
      M.D., and William J. Sim Each nominee was elected by total of 4,782,653 shares
      voted for and no votes withheld.





**Item
      6. Exhibits**





*Exhibit
                No.*
            
            *Description*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





**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:
                November 17, 2008
            By:
            /s/
                Barry J. PardonBARRY
                J. PARDON, PresidentDate:
                November 17, 2008
            By:
            /s/
                Stephen P. DonnellySTEPHEN
                P DONNELLY, Chief Financial Officer




23