**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-Q**





ý
            
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                the quarterly period ended March 31, 2007ORo
            
            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
x    No
o





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




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




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





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





Class
            
            Outstanding
                at March 31, 2007Common
                Stock, $.01 par value per share
            
            6,465,345
                shares









SIMCLAR,
      INC.





Form
      10-Q





For
      the
      quarter ended March 31, 2007





TABLE
      OF
      CONTENTS




PART
      I --
      FINANCIAL INFORMATION




Item
                  1. Condensed Consolidated Financial Statements1)
                  Consolidated Balance Sheets as of March 31, 2007 and December 31,
                  2006
              32)
                  Consolidated Statements of Operations for the three months ended
                  March 31,
                  2007 and March 31, 2006.
              53)
                  Consolidated Statements of Cash Flows for the three months ended
                  March 31,
                  2007 and March 31, 2006.
              64)
                  Notes to Consolidated Financial Statements as of March 31,
                  2007
              7Item
                  2. Management's Discussion and Analysis of Financial Condition
                  and Results
                  of Operations
              12Item
                  3. Quantitative and Qualitative Disclosures About Market
                  Risk
              21Item
                  4. Controls and Procedures
              22PART
                  II -- OTHER INFORMATIONItem
                  6. Exhibits
              24Signatures
              24









PART
      I -
      FINANCIAL INFORMATION





Item
      1
      Financial Statements





SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS




March
                  31,
              
              December
                  31,2007
              
              2006(UNAUDITED)**ASSETS****Current
                  assets:**Cash
                  and cash equivalents
              
              $
              334,935
              
              $
              82,154Accounts
                  receivable, less allowances of $295,815and
                  $293,364 at March 31, 2007 and December 31, 2006
                  respectively
              
              
              19,211,357
              
              
              20,801,668Amounts
                  receivable from major stockholder, net
              
              
              1,436,303
              
              
              -Inventories,
                  less allowances for obsolescence of $1,546,940 at March
                  31,2007
                  and $1,551,799 at December 31, 2006
              
              
              21,641,950
              
              
              20,259,037Prepaid
                  expenses and other current assets
              
              
              719,374
              
              
              637,856Prepaid
                  income taxes
              
              
              -
              
              
              15,405Deferred
                  income taxes
              
              
              1,034,532
              
              
              1,034,532**Total
                  current assets**
              
              
              44,378,451
              
              
              42,830,652**Property
                  and equipment:**Land
                  and improvements
              
              
              547,511
              
              
              547,511Buildings
                  and building improvements
              
              
              1,235,904
              
              
              1,235,904Machinery,
                  computer and office equipment
              
              
              15,329,226
              
              
              15,563,042Tools
                  and dies
              
              
              363,992
              
              
              363,992Leasehold
                  improvements
              
              
              660,949
              
              
              660,949Construction
                  in progress
              
              
              595,680
              
              
              537,879**Total
                  property and equipment**
              
              
              18,733,262
              
              
              18,909,277Less
                  accumulated depreciation and amortization
              
              
              9,361,609
              
              
              8,984,948**Net
                  property and equipment**
              
              
              9,371,653
              
              
              9,924,329Deferred
                  expenses and other assets, net
              
              
              342,338
              
              
              367,122Goodwill
              
              
              9,410,704
              
              
              9,410,704Intangible
                  assets, net
              
              
              1,223,973
              
              
              1,331,000**Total
                  assets**
              
              $
              64,727,119
              
              $
              63,863,807


See
        notes to consolidated financial statements


3




SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS


(Continued)


March
                  31,
              
              December
                  31,2007
              
              2006(UNAUDITED)**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  liabilities:**Line
                  of credit
              
              $
              7,504,207
              
              $
              5,065,771Accounts
                  payable
              
              
              17,896,203
              
              
              16,396,407Accrued
                  expenses
              
              
              1,519,544
              
              
              1,740,799Accrued
                  income taxes
              
              
              134,072
              
              
              -Amounts
                  payable to major stockholder, net
              
              
              -
              
              
              1,344,139Current
                  portion of long-term debt
              
              
              4,053,731
              
              
              4,047,408**Total
                  current liabilities**
              
              
              31,107,757
              
              
              28,594,524Long-term
                  debt
              
              
              13,250,000
              
              
              15,300,000Deferred
                  trade accounts payable
              
              
              1,005,652
              
              
              1,217,986Deferred
                  income taxes
              
              
              429,031
              
              
              429,031Other
                  long term liabilities
              
              
              400,000
              
              
              400,000**Total
                  liabilities**
              
              
              46,192,440
              
              
              45,941,541Commitments
                  and contingencies
              
              
              -
              
              
              -**Stockholders'
                  equity:**Common
                  stock, $.01 par value, authorized 10,000,000 shares; issued
                  andoutstanding
                  6,465,345 shares at March 31, 2007 and December 31, 2006
              
              
              64,653
              
              
              64,653Capital
                  in excess of par value
              
              
              11,446,087
              
              
              11,446,087Retained
                  earnings
              
              
              7,024,371
              
              
              6,385,732Accumulated
                  other comprehensive income (loss)
              
              
              (432
              )
              
              25,794**Total
                  stockholders' equity**
              
              
              18,534,679
              
              
              17,922,266$
              64,727,119
              
              $
              63,863,807


See
        notes to consolidated financial statements


4


SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      STATEMENT OF OPERATIONS


(UNAUDITED)


Three
                  Months EndedMarch
                  31,2007
              
              2006Sales
              
              $
              31,407,512
              
              $
              21,822,731Cost
                  of goods sold
              
              
              27,581,733
              
              
              19,031,264Gross
                  Margin
              
              
              3,825,779
              
              
              2,791,467Selling,
                  general and administrative expenses
              
              
              2,378,026
              
              
              1,600,811Income
                  from operations
              
              
              1,447,753
              
              
              1,190,656Interest
                  expense
              
              
              496,121
              
              
              286,610Interest
                  and other (income) expense
              
              
              (16,002
              )
              
              11,673Income
                  before income taxes
              
              
              967,634
              
              
              892,373Income
                  tax provision
              
              
              328,995
              
              
              386,629Net
                  income
              
              $
              638,639
              
              $
              505,744Earnings
                  per share:Basic
              
              $
              0.10
              
              $
              0.08
  See
        notes to consolidated financial statements


5


SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      STATEMENT OF CASH FLOWS


(UNAUDITED)


Three
                    Months EndedMarch
                    31,2007
                
                2006Operating
                    activities:Net
                    income
                
                $
                638,639
                
                $
                505,744Adjustments
                    to reconcile net income to net cash (used in)provided
                    by operating activities:Depreciation
                    and amortization
                
                
                530,940
                
                
                343,113Deferred
                    expenses and other assets
                
                
                24,784
                
                
                (385,606
                )Provision
                    for inventory obsolescence
                
                
                124,732
                
                
                86,805Other
                    liabilities
                
                
                -
                
                
                400,000Gain
                    on disposal of property and equipment
                
                
                -
                
                
                (3,238
                )Changes
                    relating to operating activities from:Accounts
                    receivable
                
                
                1,590,311
                
                
                (1,145,655
                )Amounts
                    receivable from / payable to major stockholder, net
                
                
                (2,780,442
                )
                
                172,359Inventories
                
                
                (1,507,645
                )
                
                (881,207
                )Prepaid
                    expenses and other current assets
                
                
                (81,518
                )
                
                (207,726
                )Accounts
                    payable
                
                
                1,499,796
                
                
                1,182,426Accrued
                    expenses
                
                
                (221,255
                )
                
                (34,139
                )Income
                    taxes payable
                
                
                149,477
                
                
                194,271Net
                    cash (used in) provided by operating activities
                
                
                (32,181
                )
                
                227,147Investing
                    activities:Additions
                    to property and equipment
                
                
                (396,237
                )
                
                (75,352
                )Proceeds
                    from sale of property and equipment
                
                
                525,000
                
                
                18,500Acquisition
                    of subsidiaries, net of cash acquired:Simclar
                    (Mexico), Inc.
                
                
                -
                
                
                (54,896
                )Simclar
                    Interconnect Technologies, Inc.
                
                
                -
                
                
                (16,122,149
                )Net
                    cash provided by (used in) investing activities
                
                
                128,763
                
                
                (16,233,897
                )Financing
                    activities:Borrowing
                    on bank line of credit
                
                
                5,021,682
                
                
                645,017Repayments
                    on bank line of credit
                
                
                (2,583,246
                )
                
                (446,043
                )Proceeds
                    from long-term borrowings
                
                
                -
                
                
                16,000,000Payments
                    on long-term bank borrowings
                
                
                (2,256,011
                )
                
                (300,000
                )Net
                    cash provided by financing activities
                
                
                182,425
                
                
                15,898,974Effect
                    of exchange rate fluctuations on cash
                
                
                (26,226
                )
                
                1,551Net
                    change in cash and cash equivalents
                
                
                252,781
                
                
                (106,225
                )Cash
                    and cash equivalents at beginning of period
                
                
                82,154
                
                
                833,703Cash
                    and cash equivalents at end of period
                
                $
                334,935
                
                $
                727,478Supplemental
                    disclosure of cash flow information:Interest
                    paid in cash
                
                $
                487,835
                
                $
                248,820  See
            notes to consolidated financial statements
  6
 SIMCLAR,
              INC.
 AND
              SUBSIDIARIES
  NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


**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 73.4%
      owned
      subsidiary of Simclar Group Limited ("Simclar Group"), a company incorporated
      in
      the United Kingdom.





These
      financial statements have been prepared in accordance with accounting principles
      generally accepted in the United States of America for interim financial
      information and with the instructions to Form 10-Q and Article 10 of Regulation
      S-X and have not been audited by an independent 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, 2006.





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





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an Amendment of FASB
      Statement No. 115”. This Statement allows companies the choice to measure many
      financial instruments and certain other items at fair value. The objective
      is to
      improve financial reporting by providing entities with the opportunity to
      mitigate volatility in reported earnings caused by measuring related assets
      and
      liabilities differently without having to apply complex hedge accounting
      provisions. This Statement is expected to expand the use of fair value
      measurements, which is consistent with the Board’s long-term measurement
      objectives for accounting for financial instruments. This Statement is effective
      as of the beginning of an entity’s first fiscal year that begins after November
      15, 2007, or January 1, 2008 as to the company, and interim periods within
      that
      fiscal year. Early adoption is permitted as of the beginning of a fiscal year
      that begins on or before November 15, 2007, provided the entity also elects
      to
      apply the provisions of SFAS No. 157, “Fair Value Measurements.” The company is
      currently evaluating the impact the adoption of SFAS No. 159 will have on the
      financial statements.





7


SIMCLAR,
        INC.
 AND
        SUBSIDIARIES
  NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


**NOTE
      3 - Inventories**





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


March
                  31,
              
              December
                  31,2007
              
              2006Raw
                  materials and supplies
              
              
              17,916,686
              
              $
              16,992,310Work
                  in process
              
              
              2,752,529
              
              
              2,829,592Finished
                  goods
              
              
              2,519,675
              
              
              1,988,934Allowance
                  for obsolescence
              
              
              (1,546,940
              )
              
              (1,551,799
              )$
              21,641,950
              
              $
              20,259,037





**NOTE
      4 - Earnings per share**





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


Three
                  Months Ended March 31,2007
              
              2006Net
                  income - numerator basic computation
              
              $
              638,639
              
              $
              505,744Weighted
                  average shares - denominator basiccomputation
              
              
              6,465,345
              
              
              6,465,345Earnings
                  per share:Basic
              
              $
              0.10
              
              $
              0.08




There
      were no potentially dilutive securities outstanding for the three months ended
      March 31, 2007 or 2006.





**NOTE
      5 - Comprehensive Income**





The
      company follows SFAS No. 130, "Reporting Comprehensive Income," which contains
      rules for the reporting of comprehensive income and its components.
      Comprehensive income consists of net income and foreign currency translation
      adjustments.





Below
      is
      a detail of comprehensive income for the three months ended March 31, 2007
      and
      2006:




Three
                Months EndedMarch
                31,2007
            
            2006Net
                Income
            
            $
            638,639
            
            $
            505,744Foreign
                currency translation income (loss)
            
            
            (26,226
            )
            
            1,551Comprehensive
                income
            
            $
            612,413
            
            $
            507,295





8


SIMCLAR,
      INC.


AND
      SUBSIDIARIES




NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


**NOTE
      6 - Long Term Debt**





Effective
      January 26, 2007, 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, 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.





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 Bank of Scotland (“BoS”) credit facility. The
      balance at March 31, 2007 was approximately $1,859,000 and is reflected as
      subordinated long-term debt on the face of the balance sheet, net of $854,000
      reflected in current portion of long-term debt





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





The
      company had a net receivable due from its parent, Simclar Group, certain of
      its
      subsidiaries and a related party of approximately $1,436,000 at March 31, 2007
      and a net payable of approximately $1,344,000 as of December 31, 2006. Amounts
      receivable or payable accrue interest at the rate of LIBOR plus 1.5%. Interest
      income related to this receivable was approximately $16,000 and expense related
      to this payable was approximately $8,000 for the three months ended March 31,
      2007.





Beginning
      in March 2006, 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 months ended March 31,
      2007
      totaled approximately $269,000.





During
      the three months ended March 31, 2007, the company sold goods with an
      approximate value of $897,000 to Simclar International Corporation, a related
      party to Simclar Group.





In
      connection with the acquisition of Litton (see Note 10 below), 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.





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 2003.


9


SIMCLAR,
      INC.


AND
      SUBSIDIARIES




NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


**Note
      8 - Income Taxes - continued**




The
      company is currently under examination by the Internal Revenue Service for
      the
      year ended December 31, 2005. The company expects this examination to be
      concluded and settled in the next 12 months without material adverse affect
      to
      the consolidated financial statements.





The
      company will recognize, if applicable, interest accrued related to unrecognized
      tax benefits in interest expense and penalties in other expense. At March 31,
      2007, 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.





The
      company provided income tax expense of approximately $329,000 and approximately
      $387,000 for the three months ended March 31, 2007 and 2006.





Income
      tax payments amounted to approximately $200,000 for the three months ended
      March
      31, 2007 and approximately $150,000 for the comparable 2006 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 settlement of these matters will
      not
      have a material effect on the company's financial position.





**NOTE
      10 - Acquisitions**





On
      February 24, 2006, the company and SIT, its newly-formed wholly owned
      subsidiary, purchased certain U.S. assets associated with the backplane assembly
      business of the Interconnect Technologies Division of Litton Systems, Inc.
      ("Litton"), a subsidiary of Northrop Grumman Corporation, for $16 million in
      cash and the assumption of certain liabilities. At the same time,


Simclar
      Group Limited also acquired from Litton Systems International, Inc. and Litton
      U.K. Ltd. all of the share equity of Litton Electronics (Suzhou) Co. Ltd.,
      a
      subsidiary organized in China, and certain assets of the Interconnect
      Technologies Division assembly business in the U.K., respectively, through
      its
      subsidiary Simclar Interconnect Technologies Limited.





The
      company financed the purchase of the assets under an amended term loan facility
      with BoS. Refer to Note 6 for further details of this financing
      arrangement.





The
      acquisition was accounted for by the purchase method of accounting in accordance
      with SFAS No. 141, “Business Combinations.” The purchase price and direct
      expenses incurred were allocated to assets acquired and liabilities assumed
      based on estimated fair values at the date of acquisition. The company recorded
      goodwill of approximately $3,373,397 and a $1,470,000 intangible asset for
      the
      customer relationships and a non-compete agreement with Litton Systems,
      Inc. Goodwill will be evaluated for impairment on an annual basis, or more frequently
      if impairment indicators arise, using a fair-value-based test. Intangible assets
      have been valued using fair-value-based methodology and will be amortized on
      an
      accelerated basis over the estimated useful lives.


10


SIMCLAR,
      INC.


AND
      SUBSIDIARIES




NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


**NOTE
      10 - Acquisitions - continued**





The
      finalized purchase price allocation related to this acquisition is as
      follows:




Current
                Assets
            
            $
            13,149,821Equipment
            
            
            2,539,195Intangible
                assets
            
            
            1,470,000Goodwill
            
            
            3,373,397Total
                assets acquired
            
            $
            20,532,413Current
                liabilities
            
            $
            4,410,264Net
                Assets Acquired
            
            $
            16,122,149





Management
      is of the present opinion that the recorded intangible and goodwill arising
      from
      the acquisition will be tax deductible.





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





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





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


Three
                  Months EndedMarch
                  31, 2006Pro
                  forma sales
              
              $
              30,000,000Pro
                  forma net income
              
              $
              685,000Pro
                  forma earnings per share:
              
              $
              0.11Basic




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








11




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




Introduction
      and Overview





Simclar,
      Inc. (“Simclar”) is a Florida corporation with five wholly owned subsidiaries -
      Simclar (Mexico), Inc., Simclar de Mexico S.A. de C.V., Techdyne (Europe)
      Limited, Simclar (North America), Inc. and Simclar Interconnect Technologies,
      Inc. (“SIT”). Collectively, these entities are referred to as the “company.” The
      company is 73.4% owned subsidiary of Simclar Group Limited, a company
      incorporated in the United Kingdom. On February 24, 2006, Simclar and SIT
      purchased certain U.S. assets associated with the backplane assembly business
      of
      the Interconnect Technologies Division of Litton Systems, Inc., a subsidiary
      of
      Northrop Grumman Corporation, for $16 million in cash and the assumption of
      certain liabilities (see Note 10 in the Notes to Consolidated Financial
      Statements). All material intercompany accounts and transactions have been
      eliminated in consolidation.





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. The company has five manufacturing plants
      and two sales offices and has approximately 950 employees.





The
      company’s quarter ended March 31, 2007 reflected growth in sales and profits
      through acquisition and organic growth from existing customers and facilities.
      The following overview comments are discussed in further detail throughout
      this
      Item 2:





·
            Revenues
                grew by approximately 44% for the three months ended March 31, 2007
                compared to the same period in 2006; approximately 14% of such growth
                was
                from existing customers and facilities while approximately 86% of
                the
                increased revenue resulted from
                acquisitions.


·
            Gross
                margin increased by approximately $1 million for the three months
                ended
                March 31, 2007 compared to the same period in 2006; the improved
                gross
                margin is attributed to the higher revenues mentioned
                above.


·
            Net
                income was approximately $639,000 for the three months ended March
                31,
                2007 compared to approximately $506,000 for the three months ended
                March
                31, 2006.





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 major customers.





The
      industry segments we serve, and the electronics industry as a whole, are subject
      to rapid technological change and product obsolescence. Discontinuance or
      modification of products containing components manufactured by our company
      could
      adversely affect our results of operations. The electronics industry is also
      subject to economic cycles and has in the past experienced, and is likely in
      the
      future to experience, recessionary periods. A prolonged worldwide recession
      in
      the electronics industry, as we experienced from 2001 through 2003, could have
      a
      material adverse effect on our business, financial condition and results of
      operations. During periods of recession in the electronics industry, our
      competitive advantages in the areas of quick-turnaround manufacturing and
      responsive customer service may be of reduced importance to electronic OEMs,
      who
      may become more price sensitive.





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.




12




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.





In
      December 2006, the company entered into a lease agreement for a new facility
      for
      the SIT operations in Ozark, Missouri. The lease is an operating lease with
      a
      term of 5 years with renewal options and an estimated annual lease expense
      of
      approximately $120,000. The move to the new facility was completed in April
      2007. While there was a disruption in product shipments during this process,
      we
      do not anticipate any lost revenues nor any material negative effects as a
      result of this move to the new facility.





Key
      Financial Performance Measures





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





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





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





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





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





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





·
            Bank
                borrowings - changes in the company's working capital facility with
                the
                bank are reviewed on a weekly
                basis.


13


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





Cautionary
      Statement Concerning Forward-Looking Statements





This
      report includes certain forward-looking statements with respect to our company
      and our business that involve risks and uncertainties. These statements are
      influenced by our financial position, business strategy, budgets, projected
      costs and the plans and objectives of management for future operations. They
      use
      words such as anticipate, believe, plan, estimate, expect, intend, project,
      and
      other similar expressions. Although we believe our expectations reflected in
      these forward-looking statements are based on reasonable assumptions, we cannot
      assure you that our expectations will prove correct. Actual results and
      developments may differ materially from those conveyed in the forward-looking
      statements. For these statements, we claim the protections for forward-looking
      statements contained in the Private Securities Litigation Reform Act of
      1995.





Investors
      are cautioned that forward-looking statements involve risks and uncertainties
      that could cause actual results to differ materially from historical or
      anticipated results due to many factors, including, but not limited to, the
      potential effects of a loss of 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.





Results
      of Operations - Three Months Ended March 31, 2007





Net
      Sales


(dollars
      in thousands)


Three
                  Months EndedMarch
                  31,2007
              
              2006Net
                  Sales
              
              $
              31,408
              
              $
              21,823Change
                  from prior year
              
              $
              9,585
              
              $
              9,466%
                  change from prior year
              
              
              43.9
              %
              
              76.6
              %




As
      previously stated, the increase in first quarter 2007 sales of approximately
      $9.6 million over the same period in 2006 is approximately 86% attributable
      to
      acquisition and 14% organic growth. The backlog grew during this period by
      approximately $7 million, as new orders were 121% of shipments.




14


Gross
      Profit


(dollars
      in thousands)


Three
                  Months EndedMarch
                  31,2007
              
              2006Gross
                  profit margin
              
              $
              3,826
              
              $
              2,791Change
                  from prior year
              
              $
              1,035
              
              $
              1,226%
                  change from prior year
              
              
              37.1
              %
              
              78.3
              %%
                  of sales
              
              
              12.2
              %
              
              12.8
              %


Gross
      profit increased by approximately $1.0 million for the three months ended March
      31, 2007, compared to the same period in 2006. Gross profit benefited by higher
      sales volumes as discussed above. The main factors that influence our gross
      margin percentage are material costs, product mix and plant utilization. We
      experienced some inefficiencies caused by delays in material receipts and
      changes in customer orders during the 2007 first quarter. These matters were
      the
      primary contributors to the decline in gross profit margin as a percentage
      of
      sales in the current year.





Selling,
      General, and Administrative Expenses


(dollars
      in thousands)


Three
                  Months EndedMarch
                  31,2007
              
              2006Selling,
                  general, and administrative expenses
              
              $
              2,378
              
              $
              1,601Change
                  from prior year
              
              $
              777
              
              $
              583%
                  change from prior year
              
              
              48.5
              %
              
              57.3
              %%
                  of sales
              
              
              7.6
              %
              
              7.3
              %




Selling,
      general, and administrative expenses increased by approximately $777,000, and
      were also higher as a percentage of sales for the three months ended March
      31,
      2007, compared to the same period in 2006. The increase is primarily due to
      the
      acquisition of Litton.




Interest
      Expense


(dollars
      in thousands)


Three
                  Months EndedMarch
                    31,2007
              
              2006Interest
                  expense
              
              $
              496
              
              $
              287Change
                  from prior year
              
              $
              209
              
              $
              209%
                  change from prior year
              
              
              72.8
              %
              
              267.9
              %%
                  of sales
              
              
              1.6
              %
              
              1.3
              %




15





The
      increase in interest expense in the first quarter of 2007is due to a combination
      of increased borrowing attributed to the acquisition of Litton and increased
      interest rates.





Average
      debt levels for the three month period ended March 31, 2007 and same period
      for
      2006 were approximately $25.7 million and approximately $17.1 million
      respectively (including interest bearing debt owed to related
      parties).





Average
      interest rates in the quarter ended March 31, 2007 were 7.8% compared to 6.5%
      for the quarter ended March 31, 2006.




Income
      Before Income Taxes


(dollars
      in thousands)


Three
                    Months EndedMarch
                  31,2007
              
              2006Income
                  before taxes
              
              $
              968
              
              $
              892Change
                  from prior year
              
              $
              76
              
              $
              412%
                  change from prior year
              
              
              8.5
              %
              
              85.8
              %%
                  of sales
              
              
              3.1
              %
              
              4.1
              %




The
      increase in income before taxes of approximately $76,000 for the three months
      ended March 31, 2007, compared to the same period in 2006, is directly
      attributable to higher sales. Overall profitability was down as a percentage
      of
      sales due mainly to the decline in gross profit margin and the increase in
      interest expense, both of which are discussed previously.




Income
      Tax Expense


(dollars
      in thousands)


Three
                  Months EndedMarch
                  31,2007
              
              2006Income
                  tax expense
              
              $
              329
              
              $
              387Change
                  from prior year
              
              $
              (58
              )
              $
              200%
                  change from prior year
              
              
              -15.0
              %
              
              107.0
              %Effective
                  tax rate
              
              
              34.0
              %
              
              43.4
              %


Income
      tax expense for the three months ended March 31, 2007 was approximately
      $329,000. The lower effective tax rate is the result of more effective state
      tax
      planning strategies and a lesser percentage of items which were nondeductible
      for tax purposes.





16


Liquidity
      and Capital Resources at March 31, 2007




Cash
      and
      Cash Equivalents


(dollars
      in thousands)


March
                  31,
              
              December
                  31,2007
              
              2006Cash
                  and cash equivalents
              
              $
              335
              
              $
              82




Cash
      and
      cash equivalents were approximately $335,000 as of March 31, 2007 compared
      to
      approximately $82,000 as of December 31, 2006.


Excess
      liquid funds are invested in short-term interest-bearing accounts at financial
      institutions.




Net
      Cash
      (Used In) Provided from Operating Activities


(dollars
      in thousands)


March
                  31,
              
              March
                  31,2007
              
              2006Net
                  cash (used in ) provided from operating activities
              
              $
              (32
              )
              $
              227




Net
      cash
      used in operating activities for the three months ended March 31, 2007 was
      approximately $32,000 compared to cash provided from operating activities of
      approximately $227,000 for the same period last year. In the first quarter
      of
      2007 net income adjusted for depreciation, deferred expenses and provision
      for
      obsolescence provided approximately $1.3 million, changes in working capital
      provided approximately $1.5 million, while repayment of the loan to Simclar
      Group previously discussed used approximately $2.8 million.





Accounts
      Receivable


(dollars
      in thousands)


March
                  31,
              
              December
                  31,2007
              
              2006Accounts
                  receivable
              
              $
              19,211
              
              $
              20,802Average
                  days sales outstanding
              
              
              58.0
              
              
              64.5





Accounts
      receivable as of March 31, 2007 decreased by approximately $1.6 million compared
      to December 31, 2006 due to collections on the high sales in December. The
      March
      31, 2007 days sales outstanding (DSO) is calculated on sales for the quarter
      and
      appears higher than it should due to March sales being substantially stronger
      than January or February. If DSO were calculated based on March sales it would
      approximate 50 days.








17


Inventory


(dollars
      in thousands)


March
                  31,
              
              December
                  31,2007
              
              2006Inventory
              
              $
              21,642
              
              $
              20,259Average
                  inventory turnover
              
              
              5.1
              
              
              5.3


Inventory
      as of March 31, 2007 increased by approximately $1.4 million compared to
      December 31, 2006. The growth was primarily due to customer delayed deliveries.
      The average inventory turnover was 5.1 in the three months to March 31, 2007
      compared to 5.3 in the year ended December 31, 2006. The company continues
      to
      seek improvements in inventory turnover through smaller order quantities and
      vendor managed inventories.




Cash
      Used
      in Investing Activities


(dollars
      in thousands)


Three
                  Months Ended March 31,2007
              
              2006Net
                  cash provided by (used) in investing activities
              
              $
              129
              
              $
              (16,234
              )




Investing
      activities for the three months ended March 31, 2007 included approximately
      $396,000 for equipment purchases and approximately $525,000 proceeds for
      equipment sold. The February 2006 acquisition of Litton accounted for $16.1
      million of the cash used in the first quarter of 2006.





Cash
      Provided by Financing Activities


(dollars
      in thousands)


Three
                  Months Ended March 31,2007
              
              2006Cash
                  provided by financing activities
              
              $
              182
              
              $
              15,899





Financing
      activities for the three months ended March 31, 2007 included term loan
      repayments of $2.1 million, a principal payment of approximately $206,000 on
      the
      Winsson debt, and an increase in the amount borrowed on our lines of credit
      of
      approximately $2.4 million. The $2.1 million in term loan repayments included
      $800,000 in scheduled payments plus $1.25 million of additional payments. The
      increase in the line of credit was used to repay a note due to Simclar Group.
      The financing activity in 2006 was primarily the $16 million increase in our
      long-term credit facility to fund the Litton acquisition.





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


18





Borrower
            
            Type
                of facility
            
            Originalamount
              (asamended)
            
            Balance
                at
              March
                31,2007Simclar,
                Inc.
            
            
            Working
                capital
            
            $
            7,500,000
            
            $
            7,482,234Simclar,
                Inc.
            
            
            Term
                loan - four tranches (see detail of tranches below)
            
            $
            21,650,000
            
            $
            16,450,000Simclar
                Interconnect Technologies, Inc.
            
            
            Working
                Capital
            
            $
            1,000,000
            
            $
            21,973




Effective
      January 26, 2007, 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, was extended to January 28, 2008.
      The
      Simclar, Inc. working capital facility, last amended in December 2005, was
      increased to $7.5 million from $5 million, and its maturity date was extended
      to
      January 28, 2008. No other material changes were made to either facility by
      the
      amendments.





Interest
      on the Simclar, Inc. working capital facility accrues
      at an annual rate equal to LIBOR plus 1.5%, plus an amount, rounded to the
      nearest eighth of a percent, to cover any increases in certain regulatory costs
      incurred by the bank. The company may elect to pay interest on advances every
      one, three or six months, with LIBOR adjusted to correspond to the interest
      payment period selected by the company .
      The
      interest rate for the working capital facility at March 31, 2007 was 6.84%
      based
      on the three month election.





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





The
      term
      loan interest is also determined by a margin over LIBOR related to the ratio
      of
      net borrowings to EBITDA for any given test period. The margin percentage can
      range from 1.5% to 3.5%. The interest rate in effect for tranches A and B at
      March 31, 2007 was 6.84% based on the three month election. The interest rate
      in
      effect at March 31, 2007 for tranche C was 7.82% and for tranche D was 8.83%
      based on the one month election. The term loan is divided into four tranches
      each with its own specific purpose and repayment schedule as shown in the
      following table:





Tranche
            Original
                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 2012D
            $3,000,000
            Acquisition
                of certain assets of the Litton Interconnect Technologies assembly
                operations
            
            Single
                payment due December 31, 2010




19





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





·
            the
                facilities take priority over all our other obligations;


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


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


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


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


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




In
      addition, our credit facilities require us to maintain:





·
            consolidated
                adjusted net worth greater than $15,000,000 with effect from June
                30, 2006
                (tested on a quarterly basis);


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


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


·
            a
                ratio of EBIT to total interest not less than 3:1 until March 31,
                2006;
                not less than 3.5:1 from April 1, 2006 to December 31, 2007; and
                not less
                than 4:1 thereafter (tested on a quarterly basis beginning December
                31,2005);
                and


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





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





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


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


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


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


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


·
            effecting
                any changes in ownership of our company;


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


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





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




20





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





We
      have
      no off-balance sheet financing arrangements with related or unrelated parties
      and no unconsolidated subsidiaries. In the normal course of business, we enter
      into various contractual and other commercial commitments that impact or can
      impact the liquidity of our operations. The
      following table outlines our commitments at March 31, 2007:




Total
              
              Less
                  than
              
              1
                  - 3
              
              4
                  - 5
              
              Over
                  5In
                  Thousands
              
              Amounts
              
              1
                    Year
              
              Years
              
              Years
              
              YearsLong-term
                  debt with interest
              
              $
              19,882
              
              $
              4,077
              
              $
              6,378
              
              $
              8,536
              
              $
              891Operating
                  leases
              
              
              6,684
              
              
              1,140
              
              
              2,178
              
              
              1,500
              
              
              1,866Bank
                  line of credit with interest
              
              
              8,018
              
              
              8,018
              
              
              -
              
              
              -
              
              
              -Long-term
                  subordinated debt with interest
              
              
              1,881
              
              
              854
              
              
              1,027
              
              
              -
              
              
              -$
              36,465
              
              $
              14,089
              
              $
              9,583
              
              $
              10,036
              
              $
              2,757





The
      company’s near-term cash requirements are primarily related to funding our
      operations, investing in acquisitions, and meeting the company’s required bank
      debt obligations. We believe that the combination of internally-generated funds,
      available cash reserves, and our existing credit facility is sufficient to
      fund
      our operating, investing, and financing activities.





Critical
      Accounting Policies





In
      preparing its financial statements and accounting for the underlying
      transactions and balances, the company has applied the accounting policies
      as
      disclosed in the Notes to the Consolidated Financial Statements contained in
      the
      company's annual report on Form 10-K for the year ended December 31, 2006.
      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, 2006. There have been no
      material changes to these accounting policies during the three months ended
      March 31, 2007.





**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





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





Sensitivity
      of results of operations to interest rate risks on our investments is managed
      by
      conservatively investing liquid funds in short-term interest-bearing accounts
      at
      financial institutions in which we had excess cash invested in interest bearing
      accounts at March 31, 2007.





Interest
      rate risks on debt are managed by negotiation of appropriate rates on new
      financing obligations based on current market rates. There is an interest rate
      risk associated with our variable rate debt agreements which totaled
      approximately $24,215,000 at March 31, 2007.





We
      have
      exposure to both rising and falling interest rates. A 1/2% decrease in rates
      on
      our quarter-end investments would have an insignificant impact on our results
      of
      operations. A 1% increase in rates on our quarter-end variable rate debt would
      result in a negative impact of approximately $60,000 on our quarterly results
      of
      operations.





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




21




**Item
      4. 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 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 of March
      31, 2007. Based on that evaluation, our Chief Executive Officer and Chief
      Financial Officer have concluded that, as of March 31, 2007, our disclosure
      controls and procedures are adequately designed to ensure that the information
      required to be disclosed by us in the reports we file or submit under the
      Exchange Act is recorded, processed, summarized and reported, within the time
      periods specified in the applicable rules and forms.





Material
      Weakness in Control Over Financial Reporting





In
      August
      2006, during the review and analysis of results of operations during the second
      quarter of 2006 and the company’s financial condition at June 30, 2006,
      management discovered certain accounting errors associated with operations
      at
      the Brownsville, Texas and Matamoros, Mexico facilities of the company’s
      consolidated subsidiary, Simclar (Mexico), Inc. As a result of the discovery
      of
      these errors, our management concluded that our disclosure controls and
      procedures were not effective as of December 31, 2005.




The
      Public Company Accounting Oversight Board’s Auditing Standard No. 2 defines a
      material weakness as “a significant deficiency, or a combination of significant
      deficiencies, that results in more than a remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected.” A significant deficiency is a control deficiency, or combination
      of control deficiencies, that adversely affects the company’s ability to
      initiate, authorize, record, process or report external financial data reliably
      in accordance with generally accepted accounting principles such that there
      is
      more than a remote likelihood that a misstatement of the company’s annual or
      interim financial statements that is more than inconsequential will not be
      prevented or detected.





The
      control deficiencies identified by our management, which in combination resulted
      in a material weakness, were (a) misstatement in amounts reported in a
      consolidated subsidiary, (b) processes that allowed material errors to occur
      and
      go undetected on a timely basis, and (c) the failure of key accounting managers
      to identify the errors and take appropriate corrective actions. The control
      deficiencies were determined to be a material weakness due to the actual
      misstatements identified, the potential for additional material misstatements
      to
      have occurred as a result of the deficiencies, and the lack of other mitigating
      controls.  This
      material weakness led to a restatement of our consolidated financial statements
      for 2005 and for the first quarter of 2006.




In
      order to remedy these material weaknesses, during the third and fourth quarters
      of 2006 we made significant remedial efforts to increase the effectiveness
      of
      our internal controls. Our remedial efforts included:





22




·
            Identification
                and replacement of key accounting staff that had failed in their
                responsibility to identify these control weaknesses and take corrective
                action.




·
            Re-engineering
                the operational and financial processes that allowed the mistakes
                to occur
                and go undetected and ultimately led to the misstatements in the
                financial
                reports. Specific areas of concentration included, but were not limited
                to, returned goods from customers, returned goods to vendors, proper
                shipping cutoff procedures to assure recording of sales and cost
                of goods
                sold in the proper accounting periods, and timely reconciliation
                of
                intercompany shipments and financial transactions.




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




·
            Addressing
                specific skill deficiencies within the accounting staff by both providing
                counseling and training, rearranging of responsibilities, or making
                staff
                changes.




We
      believe that these remedial efforts have been in place for a sufficient time
      to
      permit management to conclude that our controls were effective as of March
      31,
      2007.




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




Changes
      in Control Over Financial Reporting




During
      the quarter ended March 31, 2007, there were no changes in our internal controls
      over financial reporting that materially affected, or is reasonably likely
      to
      materially affect, our internal control over financial reporting.:




23


**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.





**Items
      1A, has no material changes from the corresponding item reported in the
      Company’s Form 10-K for the fiscal year ended December 31, 2006 and has been
      omitted. Items 2, 3, 4 and 5 are not applicable and have been omitted.**





**Item
      6. Exhibits**





*Exhibit
      No.*     *Description*





31.1
            Certification
                of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley
                Act of 2002


31.2
            Certification
                of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley
                Act of 2002


32.1
            Certification
                of Chief Executive Officer of Periodic Financial Reports pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
                1350


32.2
            Certification
                of Chief Financial Officer of Periodic Financial Reports pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
                1350






**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:
              May 15, 2007
            By:
            /s/
              Barry J. PardonBARRY
              J.
              PARDON, President Date:
              May 15, 2007
            By:
            /s/ Marshall
              W. GriffinMARSHALL
              W. GRIFFIN, Chief Financial Officer


24