**Table
            of Contents**





**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-Q**




ý
            
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                the quarterly period ended June 30, 2006ORo
            
            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 June 30, 2006Common
                Stock, $.01 par value per share
            
            6,465,345
                shares







**Table
        of Contents**




SIMCLAR,
      INC.





FORM
      10-Q





For
      the
      quarter ended June 30, 2006





TABLE
      OF CONTENTS




PART
                I -- FINANCIAL INFORMATIONItem
                1. Financial Statements1)
                Consolidated Balance Sheets as of June 30, 2006 (Unaudited)
                and December 31, 2005
            32)
                Consolidated Statements of Operations (Unaudited)
                for the
                three months and six months ended June 30, 2006 and June 30,
                2005.
            53)
                Consolidated Statements of Cash Flows (Unaudited)
                for the
                six months ended June 30, 2006 and June 30, 2005.
            64)
                Notes to Consolidated Financial Statements as of
                June 30,
                2006 (Unaudited)
            7Item
                2. Management's Discussion and Analysis of Financial
                Condition and Results of Operations
            13Item
                3. Quantitative and Qualitative Disclosures About
                Market Risk
            21Item
                4. Controls and Procedures
            22PART
                II -- OTHER INFORMATIONItem
                4. Submission of Matters to a Vote of Security
                Holders
            24Item
                6. Exhibits
            24Signatures
            25




-2-
 **Table
          of Contents**




PART
      I - FINANCIAL INFORMATION





ITEM
      1 FINANCIAL STATEMENTS




SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS




June
                  30,
              
              December
                  31,2006
              
              2005
                  (A)(Unaudited)**ASSETS****Current
                  assets:**Cash
                  and cash equivalents
              
              $
              1,547,791
              
              $
              833,703Accounts
                  receivable, less allowances of $209,000
                and
                  $235,000 at June 30, 2006 and December 31, 2005
                  respectively
              
              
              17,414,126
              
              
              9,198,877Inventories,
                  less allowances for obsolescence of $1,721,000 at June 30,
                2006
                  and $1,822,000 at December 31, 2005
              
              
              19,525,077
              
              
              12,225,461Prepaid
                  expenses and other current assets
              
              
              716,178
              
              
              357,703Deferred
                  income taxes
              
              
              985,056
              
              
              985,056**Total
                  current assets**
              
              
              40,188,228
              
              
              23,600,800**Property
                  and equipment:**Land
                  and improvements
              
              
              547,511
              
              
              547,511Buildings
                  and building improvements
              
              
              1,235,904
              
              
              1,235,904Machinery,
                  computer and office equipment
              
              
              13,439,986
              
              
              10,944,591Tools
                  and dies
              
              
              356,992
              
              
              331,244Leasehold
                  improvements
              
              
              636,033
              
              
              493,694Construction
                  in progress
              
              
              218,534
              
              
              519,254**Total
                  property and equipment**
              
              
              16,434,960
              
              
              14,072,198Less
                  accumulated depreciation and amortization
              
              
              6,274,054
              
              
              6,003,107**Net
                  property and equipment**
              
              
              10,160,906
              
              
              8,069,091**Deferred
                  expenses and other assets, net**
              
              
              399,665
              
              
              61,398**Goodwill**
              
              
              9,856,041
              
              
              5,917,938**Intangible
                  assets, net**
              
              
              1,029,053
              
              
              60,996**TOTAL
                  ASSETS**
              
              $
              61,633,893
              
              $
              37,710,223






(A)
            Reference
                is made to the Company’s Annual Report on Form 10-K/A for the year ended
                December 31, 2005 filed with the United States Securities and Exchange
                Commission on October 27, 2006.





**Continued**


-3-
 **Table
          of Contents**




SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS


(Continued)




June
                  30,
              
              December
                  31,2006
              
              2005
                  (A)(Unaudited)**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  liabilities:**Lines
                  of credit
              
              $
              4,950,393
              
              $
              4,990,395Accounts
                  payable
              
              
              13,002,118
              
              
              9,315,510Accrued
                  expenses
              
              
              1,981,072
              
              
              1,379,763Accrued
                  income taxes
              
              
              524,173
              
              
              371,870Amounts
                  payable to major stockholder, net
              
              
              1,862,792
              
              
              1,873,463Current
                  portion of long-term debt
              
              
              3,600,000
              
              
              1,200,000**Total
                  current liabilities**
              
              
              25,920,548
              
              
              19,131,001Long-term
                  debt
              
              
              16,900,000
              
              
              3,000,000Long-term
                  debt, subordinated
              
              
              1,547,622
              
              
              —Deferred
                  income taxes
              
              
              518,926
              
              
              518,926Other
                  long term liabilities
              
              
              400,000
              
              
              —**Total
                  liabilities**
              
              
              45,287,096
              
              
              22,649,927Commitments
                  and contingencies
              
              
              —
              
              
              —**Stockholders'
                  equity:**Common
                  stock, $.01 par value, authorized 10,000,000 shares; issued and
                  outstanding 6,465,345 shares at June 30, 2006 and December
                  31,
                  2005
              
              
              64,653
              
              
              64,653Capital
                  in excess of par value
              
              
              11,446,087
              
              
              11,446,087Retained
                  earnings
              
              
              4,819,077
              
              
              3,522,992Accumulated
                  other comprehensive income
              
              
              16,980
              
              
              26,564**Total
                  stockholders' equity**
              
              
              16,346,797
              
              
              15,060,296**TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY**
              
              $
              61,633,893
              
              $
              37,710,223


(A)
            Reference
                is made to the Company’s Annual Report on Form 10-K/A for the year ended
                December 31, 2005 filed with the United States Securities and Exchange
                Commission on October 27, 2006.


See
      notes
      to consolidated financial statements


-4-
 **Table
          of Contents**




SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      STATEMENT OF OPERATIONS


(UNAUDITED)




Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,2006
            
            2005
            
            2006
            
            2005Sales
            
            $
            30,399,457
            
            $
            13,991,410
            
            $
            52,222,188
            
            $
            26,348,010Cost
                of goods sold
            
            
            26,625,742
            
            
            12,260,307
            
            
            45,657,006
            
            
            23,052,235Gross
                Margin
            
            
            3,773,715
            
            
            1,731,103
            
            
            6,565,182
            
            
            3,295,775Selling,
                general and administrative expenses
            
            
            2,117,605
            
            
            1,235,760
            
            
            3,718,416
            
            
            2,254,221Income
                from operations
            
            
            1,656,110
            
            
            495,343
            
            
            2,846,766
            
            
            1,041,554Interest
                expense
            
            
            476,030
            
            
            102,864
            
            
            762,640
            
            
            180,406Other
                income
            
            
            (104,097
            )
            
            (10,011
            )
            
            (92,424
            )
            
            (21,137
            )Income
                before income taxes
            
            
            1,284,177
            
            
            402,490
            
            
            2,176,550
            
            
            882,285Income
                tax provision
            
            
            493,836
            
            
            181,363
            
            
            880,465
            
            
            368,484Net
                income
            
            $
            790,341
            
            $
            221,127
            
            $
            1,296,085
            
            $
            513,801Earnings
                per share:Basic
                & diluted
            
            $
            0.12
            
            $
            0.03
            
            $
            0.20
            
            $
            0.08


See
      notes
      to consolidated financial statements


-5-
 **Table
          of Contents**




SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      STATEMENT OF CASH FLOWS


(UNAUDITED)





Six
                Months EndedJune
                30,2006
            
            2005Operating
                activities:Net
                income
            
            $
            1,296,085
            
            $
            513,801Adjustments
                to reconcile net income to net cashprovided
                by operating activities:Depreciation
                & amortization
            
            
            831,552
            
            
            548,494Deferred
                expenses and other assets
            
            
            (338,267
            )
            
            (973
            )Provision
                for inventory obsolescence
            
            
            180,142
            
            
            (1,793
            )Gain
                on disposal of property & equipment
            
            
            (33,511
            )
            
            —Changes
                relating to operating activities, net of acquisitions:Accounts
                receivable
            
            
            24,434
            
            
            2,123,979Amounts
                receivable from / payable to major stockholder, net
            
            
            (10,671
            )
            
            344,286Inventories
            
            
            (2,714,326
            )
            
            (1,714,555
            )Prepaid
                expenses and other current assets
            
            
            (358,475
            )
            
            (186,274
            )Accounts
                payable
            
            
            1,972,734
            
            
            (103,305
            )Accrued
                expenses
            
            
            407,437
            
            
            223,722Other
                liabilities
            
            
            400,000
            
            
            154,439Income
                taxes payable
            
            
            152,303
            
            
            (775,052
            )Net
                cash provided by operating activities
            
            
            1,809,437
            
            
            1,126,769Investing
                activities:Additions
                to property and equipment, net of minor disposals
            
            
            (320,305
            )
            
            (982,872
            )Proceeds
                from sale of property and equipment
            
            
            51,587
            
            
            —Acquisition
                of subsidiaries, net of cash acquiredSimclar
                (North America), Inc.
            
            
            —
            
            
            347,645Simclar
                (Mexico), Inc.
            
            
            (54,896
            )
            
            —Litton
            
            
            (16,122,149
            )
            
            —Net
                cash used in investing activities
            
            
            (16,445,763
            )
            
            (634,227
            )Financing
                activities:Borrowing
                on bank line of credit
            
            
            (40,002
            )
            
            473,168Proceeds
                from long-term borrowings
            
            
            16,000,000
            
            
            —Payments
                on long-term bank borrowings
            
            
            (600,000
            )
            
            (600,000
            )Net
                cash provided by (used in) financing activities
            
            
            15,359,998
            
            
            (126,832
            )Effect
                of exchange rate fluctuations on cash
            
            
            (9,584
            )
            
            12,610Net
                change in cash and cash equivalents
            
            
            714,088
            
            
            378,320Cash
                and cash equivalents at beginning of period
            
            
            833,703
            
            
            280,015Cash
                and cash equivalents at end of period
            
            $
            1,547,791
            
            $
            658,335


See
        notes
        to consolidated financial statements
 -6-
 **Table
            of Contents**
  SIMCLAR,
        INC.
 AND
        SUBSIDIARIES
 
 NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS


**NOTE
      1 - Basis of Presentation**





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





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





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





**NOTE
      2 - Recently Issued Accounting Pronouncements**





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





**NOTE
      3 - Inventories**





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





June
                30,
            
            December
                31,2006
            
            2005Raw
                materials and supplies
            
            $
            14,874,795
            
            $
            9,511,799Work
                in process
            
            
            2,545,752
            
            
            1,794,401Finished
                goods
            
            
            2,104,530
            
            
            919,261$
            19,525,077
            
            $
            12,225,461





**NOTE
      4 - Earnings per share**





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





Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,2006
            
            2005
            
            2006
            
            2005Net
                income
            
            $
            790,341
            
            $
            221,127
            
            $
            1,296,085
            
            $
            513,801Weighted
                average number of shares of common stock outstanding
            
            
            6,465,345
            
            
            6,465,345
            
            
            6,465,345
            
            
            6,465,345Earnings
                per share:Basic
                & diluted
            
            $
            0.12
            
            $
            0.03
            
            $
            0.20
            
            $
            0.08




-7-
 **Table
          of Contents**


SIMCLAR,
        INC.
 AND
        SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS


There
      were no potentially dilutive securities for the three months or six months
      ended
      June 30, 2006 or for the same period of the preceding year.





**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 June 30, 2006 and
      2005:





Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,2006
            
            2005
            
            2006
            
            2005Net
                Income
            
            $
            790,341
            
            $
            221,127
            
            $
            1,296,085
            
            $
            513,801Foreign
                currency translation income
            
            
            (11,135
            )
            
            11,345
            
            
            (9,584
            )
            
            12,610Comprehensive
                income
            
            $
            780,206
            
            $
            232,472
            
            $
            1,286,501
            
            $
            526,411





**NOTE
      6 - Long Term Debt**





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





Of
      the
      $16 million borrowed under the facility, $13 million of the principal will
      be
      repayable in quarterly installments commencing December 31, 2006 and through
      December 31, 2012. Interest on this portion of the borrowings is payable
      quarterly at one, three or six month LIBOR (as elected by the company) plus
      2.5%. The $3 million balance of the borrowings under the facility will be
      repayable in one lump sum on December 31, 2010. Interest on this portion of
      the
      borrowings is payable quarterly at one, three or six month LIBOR (as elected
      by
      the company) plus 3.5%. In addition, there is a redemption fee of $400,000
      payable on December 31, 2010 which has been accrued and is being amortized
      on a
      straight-line basis.





In
      connection with the loans from BoS, the company, SIT and other subsidiaries
      entered into an amended security agreement, pursuant to which BoS was granted
      a
      security interest in substantially all of their respective assets to secure
      the
      company's borrowings under its credit facilities, and a guaranty pursuant to
      which SIT guarantied the obligations of the company to BoS under the credit
      facilities.





On
      August
      17, 2006, Simclar (Mexico) and Simclar entered into an agreement with Winsson
      Enterprises Co., Ltd. (“Winsson”) and its affiliate Computronics International
      Corp. This agreement replaces the deferred trade payables agreement that expired
      on July 14, 2006. The agreement is a non-cash refinance of approximately
      $2,495,000 of trade accounts payable to long-term debt to be repaid within
      a
      three year period with an interest rate of 3% per annum. The agreement calls
      for
      quarterly payments of principal and interest of $225,000 commencing August
      15,
      2006 with a final payment of approximately $123,400 payable on May 15, 2009.
      The
      debt is subordinated to the BoS debt. The open credit balance at June 30, 2006
      was approximately $2,448,000 and is reflected as a long-term debt, subordinated
      on the face of the financial statements with $900,000 of the balance reflected
      as current portion of long-term debt.





Cash
      payments of interest were approximately $371,000 and $620,000 for the three
      months and six months ended June 30, 2006, respectively compared with
      approximately $53,000 and $112,000 for the same periods in 2005.





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





The
      company had a net payable due to its parent, Simclar Group and certain of its
      subsidiaries of approximately $1,863,000 at June 30, 2006 and approximately
      $1,873,000 as of December 31, 2005.


-8-
 **Table
          of Contents**


SIMCLAR,
        INC.
 AND
        SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS


Beginning
      in March 2006, SIT pays a monthly management fee to Simclar Interconnect
      Technologies Limited 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 and six months ended June 30, 2006, respectively were
      approximately $273,000 and $379,000.





During
      the three months and six months ended June 30, 2006 the company sold goods
      with
      an approximate value of $536,000 and $1,040,000, respectively to Simclar
      International Corporation, a related party to Simclar Group.





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





**Note
      8 - Income Taxes**




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





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





The
      company had approximately $494,000 and $880,000 income tax expense for the
      three
      months and six months ended June 30, 2006, respectively, and approximately
      $181,000 and $368,000 income tax expense for the same periods ended June 30,
      2005.





Income
      tax payments amounted to approximately $450,000 and $600,000 for the three
      months and six months ended June 30, 2006, respectively, and approximately
      $372,000 and $1,120,000 for the same periods of the preceding year.





**NOTE
      9 - Commitments and Contingencies**





The
      company leases several facilities which expire at various dates through 2010
      with renewal options for periods of up to five years at the then fair market
      rental value. The company sponsors two 401(k) profit sharing plans covering
      substantially all of its employees, excluding Techdyne (Europe) and Simclar
      Mexico. The plan that covers all locations, with the exception of SNAI, offers
      a
      50% corporate match based on the first 4% of each employee’s annual earnings
      contributed to the plan.





On
      October 13, 2006, the Company has entered into a letter of intent to lease
      a new
      facility for the SIT operations in Missouri. The lease will be an operating
      lease with a term of 5 years with renewal options with an estimated annual
      lease
      expense of approximately $120,000.





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





**NOTE
      10 - Acquisition of AG Technologies, Inc.**





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





The
      acquisition was accounted for by the purchase method of accounting under SFAS
      No. 141, “Business Combinations”. The purchase price for the acquisition,
      including loan repayment and net of cash received, totaled $1,951,547 and was
      allocated to assets acquired and liabilities assumed based on estimated fair
      values at the date of acquisition. The company recorded $1,279,118 of goodwill
      and $18,000 of intangibles based on the opening balance sheet. The full amount
      of the additional consideration of $1,300,000 was earned by June 30, 2005.
      The
      additional earn-out for the period July 15, 2003 to July 14, 2004 of $606,432
      was recorded in the quarter ended September 30, 2004 and was paid on September
      15, 2004. The additional earn-out for the period July 15, 2004 to July 14,
      2005
      of $693,568 was recorded in the quarter ended June 30, 2005. Of this amount,
      $145,944 was paid in the three months ended September 30, 2005, $437,832 was
      paid in the quarter ended December 31, 2005, $54,896 was paid in the quarter
      ended March 31, 2006 and $54,896 remains to be paid as of June 30, 2006. These
      additional earn-out amounts have increased the goodwill related to the
      acquisition of Simclar (Mexico), Inc. to $2,579,118. Results of operations
      have
      been included in the company’s consolidated financial statements prospectively
      from the date of acquisition.


-9-
 **Table
          of Contents**




SIMCLAR,
        INC.
 AND
        SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS


**NOTE
      11 - Acquisition of Simclar (North America), Inc.**





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




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





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





The
      acquisition was accounted for by the purchase method of accounting under SFAS
      No. 141, "Business Combinations". Cash received as part of the acquisition
      was
      $347,645 and is included within current assets in the table below. The remaining
      net liabilities assumed of $310,645 include a $4,014,000 liability reflecting
      an
      intercompany payable from SNAI to Simclar Group and certain of its subsidiaries.
      The net liabilities of $310,645 were allocated to assets acquired and
      liabilities assumed based on estimated fair values at the date of acquisition.
      The company recorded a $52,207 intangible asset for the customer list of SNAI
      acquired as part of the acquisition. This will be amortized over a period of
      60
      months, representing the company's best estimate of the asset's useful life.
      As
      of June 30, 2006, SNAI has a potential contingent liability for lease
      dilapidation costs which is not determinable. The company has been indemnified
      by Simclar Group against any excess in cost over and above the current provision
      as part of the sale and purchase agreement, and therefore there is no risk
      to
      the company for such costs.





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





The
      purchase price allocation is as follows:





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




-10-
 **Table
          of Contents**




SIMCLAR,
        INC.
 AND
        SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS


Results
      of operations have been included in the company's consolidated financial
      statements prospectively from the effective date of acquisition. Refer to Note
      13 for a summary of selected unaudited pro forma financial information for
      the
      three months ended June 30, 2006 and 2005, respectively, as if SNAI had been
      acquired at the beginning of 2005.





**NOTE
      12 - Acquisition of Litton**





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





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





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





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


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





Results
      of operations have been included in the company's consolidated financial
      statements prospectively from the effective date of acquisition. Refer to Note
      13 for a summary of selected unaudited pro forma financial information for
      the
      three and six months ended June 30, 2006 and 2005, respectively, as if Litton
      had been acquired at the beginning of 2005.


-11-
 **Table
          of Contents**




SIMCLAR,
        INC.
 AND
        SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS


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





The
      following table provides selected unaudited pro forma financial information
      for
      the three-month and six-month periods ended June 30, 2006 and 2005 as if Litton
      and SNAI had been acquired at the beginning of 2006 and 2005 respectively.
      The
      unaudited pro forma financial information includes adjustments for intercompany
      transactions.





Three
                Months Ended June 30,
            
            Six
                Months Ended June 30,2006
            
            2005
            
            2006
            
            2005Pro
                forma sales
            
            $
            30,399,000
            
            $
            28,749,000
            
            $
            61,780,000
            
            $
            56,538,000Pro
                forma net income
            
            $
            790,000
            
            $
            853,000
            
            $
            2,009,000
            
            $
            1,742,000Pro
                forma earnings per share:Basic
                and diluted
            
            $
            0.12
            
            $
            0.13
            
            $
            0.31
            
            $
            0.27




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


-12-
 **Table
          of Contents**




**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS**




Introduction
      and Overview





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





We
      strive
      to build on our integrated manufacturing capabilities, final system assemblies
      and testing. The
      combination of our advanced backplane interconnect solutions with our
      capabilities to supply printed circuit board assemblies, metal fabrication,
      cabling solutions and higher level assemblies provide a valuable one-stop-shop
      for OEM system design and integration needs. In
      addition, vertical integration provides us with greater control over quality,
      delivery and cost. Our
      products are manufactured to customer specifications for OEM’s in a variety of
      markets including the data processing, telecommunications, instrumentation,
      and
      food preparation equipment industries. The company has five manufacturing plants
      and two sales offices and has approximately 950 employees.





In
      the
      three months ended June 30, 2006 the company experienced growth in sales and
      profits through acquisition and organic growth through existing customers and
      facilities. The following overview comments are discussed in further detail
      throughout this item 2:





·
            Revenues
                grew by approximately 117% and 98%, respectively, for the three months
                and
                six months ended June 30, 2006 compared to the same period in 2005;
                for
                the three month period approximately 20% growth was from existing
                customers and facilities while there was approximately 97% growth
                in
                revenue through acquisitions; for the six month period growth from
                existing customers accounted for 22% while acquisitions contributed
                76%.


·
            Gross
                margin increased by approximately $2,043,000 and $3,269,407, respectively,
                for the three months and six months ended June 30, 2006 compared
                to the
                same period in 2005; the improved gross margin is attributed to higher
                revenues as mentioned above.


·
            Net
                income was approximately $790,000 for the three months ended June
                30, 2006
                compared to approximately $221,000 for the three months ended June
                30,
                2005.





Our
      operations have continued to depend upon a relatively small number of customers
      for a significant percentage of our net revenue. Significant reductions in
      sales
      to any of our large customers would have a material adverse effect on our
      results of operations. The level and timing of orders placed by a customer
      vary
      due to the customer's attempts to balance its inventory, design modifications,
      changes in a customer's manufacturing strategy, acquisitions of or
      consolidations among customers, and variation in demand for a customer's
      products due to, among other things, product life cycles, competitive conditions
      and general economic conditions. Termination of manufacturing relationships
      or
      changes, reductions or delays in orders could have an adverse effect on our
      results of operations and financial condition, as has occurred in the past.
      Our
      results also depend to a substantial extent on the success of our OEM customers
      in marketing their products. We continue to seek to diversify our customer
      base
      to reduce our reliance on our few major customers.





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


-13-
 **Table
          of Contents**





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





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





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





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





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





On
      October 13, 2006, the company has entered into a letter of intent to lease
      a new
      facility for the SIT operations in Missouri. The lease will be an operating
      lease with a term of 5 years with renewal options with an estimated annual
      lease
      expense of approximately $120,000.





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.




-14-
 **Table
          of Contents**




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





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





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





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




Cautionary
      Statement Concerning Forward-Looking Statements





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





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





Results
      of Operations - Three Months and Six Months Ended June 30, 2006





Net
      Sales


(dollars
      in thousands)


Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,2006
            
            2005
            
            2006
            
            2005Net
                sales
            
            $
            30,399
            
            $
            13,991
            
            $
            52,222
            
            $
            26,348




The
      increase in second quarter 2006 sales of approximately $16.4 million over the
      same period in 2005 is largely attributed to SNAI sales of $1.6 million and
      SIT
      sales of approximately $13.6 million, with the balance of the increase of
      approximately $1.2 million being a result of organic growth, particularly in
      our
      plants in Mexico and Florida.





Gross
      Profit


(dollars
      in thousands)


Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,2006
            
            2005
            
            2006
            
            2005Gross
                profit
            
            $
            3,774
            
            $
            1,731
            
            $
            6,565
            
            $
            3,296Gross
                profit margin
            
            
            12.4
            %
            
            12.4
            %
            
            12.6
            %
            
            12.5
            %




-15-
 **Table
          of Contents**




Gross
      profit increased by approximately $2.0 million for the three months ended June
      30, 2006 compared to the same period in 2005. Gross profit benefited by higher
      sales volumes as discussed above. The largest influence on our gross margin
      percentage is material costs and product mix.





Selling,
      General, and Administrative Expenses


(dollars
      in thousands)


Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,2006
            
            2005
            
            2006
            
            2005Selling,
                general, and administrative expenses
            
            $
            2,118
            
            $
            1,236
            
            $
            3,718
            
            $
            2,254As
                a percent of sales
            
            
            7.0
            %
            
            8.8
            %
            
            7.1
            %
            
            8.6
            %





Selling,
      general, and administrative expenses increased by approximately $882,000 for
      the
      three months ended June 30, 2006 compared to the same period in 2005. The
      increase is primarily due to the addition of SNAI and SIT. The decrease in
      these
      expenses as a percent of sales reflects the fixed nature of certain of the
      costs
      included therein.





Interest
      Expense


(dollars
      in thousands)


Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,2006
            
            2005
            
            2006
            
            2005Interest
                expense
            
            $
            476
            
            $
            103
            
            $
            763
            
            $
            180As
                a percent of sales
            
            
            1.6
            %
            
            0.7
            %
            
            1.5
            %
            
            0.7
            %





Several
      factors have affected interest expense since the second quarter of 2005,
      including increased borrowing attributed to the acquisition of Litton, capital
      investment to expand production capabilities in our Mexican facilities, and
      increased interest rates.





Average
      debt levels for the three month period ended June 30, 2006 and same period
      for
      2005 were approximately $24.7 million and approximately $8.7 million
      respectively.





Average
      interest rates in the quarter ended June 30, 2006 were 7.7% compared to 4.9%
      for
      the quarter ended June 30, 2005.





Income
      Before Income Taxes


(dollars
      in thousands)


Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,2006
            
            2005
            
            2006
            
            2005Income
                before income taxes
            
            $
            1,284
            
            $
            402
            
            $
            2,177
            
            $
            882As
                a percent of sales
            
            
            4.2
            %
            
            2.9
            %
            
            4.2
            %
            
            3.3
            %




-16-
 **Table
          of Contents**




The
      increase in income before taxes of approximately $882,000 is directly
      attributable to higher sales and a focus on controlling costs. SNAI has incurred
      losses of approximately $200,000 in the three months ended June 30, 2006.
      However, this is an improvement over the three months ended March 31, 2006
      and
      order backlog has continued to strengthen and we anticipate the SNAI operations
      should return to profit in the third quarter of this year. We will continue
      to
      monitor the situation closely.




Income
      Tax Expense


(dollars
      in thousands)


Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,2006
            
            2005
            
            2006
            
            2005Income
                tax expense
            
            $
            494
            
            $
            181
            
            $
            880
            
            $
            368As
                a percent of sales
            
            
            1.6
            %
            
            1.3
            %
            
            1.7
            %
            
            1.4
            %





Income
      tax expense for the three months and six months ended June 30, 2006 were
      approximately $313,000 and $512,000 higher than for the same respective periods
      of 2005. This is primarily attributed to higher taxable income as discussed
      in
      other comments within item 2.





Liquidity
      and Capital Resources at June 30, 2006





Cash
      and
      Cash Equivalents


(dollars
      in thousands)


June
                30,
            
            December
                31,2006
            
            2005Cash
                and cash equivalents
            
            $
            1,548
            
            $
            834





Cash
      and
      cash equivalents were approximately $1,548,000 as of June 30, 2006 compared
      to
      approximately $834,000 as of December 31, 2005. Excess liquid funds are invested
      in short-term interest-bearing accounts at financial institutions.





Net
      Cash
      Provided from Operating Activities


(dollars
      in thousands)


Six
                Months EndedJune
                30,2006
            
            2005Net
                cash provided from operating activities
            
            $
            1,809
            
            $
            1,127





Net
      cash
      provided by operating activities for the six months ended June 30, 2006 was
      approximately $1,809,000 compared to approximately $1,127,000 for the same
      period last year. This increase of approximately $682,000 is substantially
      due
      to the acquisition of Litton.





Accounts
      Receivable


(dollars
      in thousands)


June
                30,
            
            December
                31,2006
            
            2005Accounts
                receivable
            
            $
            17,414
            
            $
            9,199Average
                days sales outstanding
            
            
            51.6
            
            
            54.1




-17-
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          of Contents**




Accounts
      receivable as of June 30, 2006 increased by approximately $8.2 million compared
      to December 31, 2005. Approximately $7.8 million of the increase was a result
      of
      the acquisition of Litton. The balance of the increase of approximately $400,000
      was due to higher sales in the three months ended June 30, 2006 compared to
      the
      same period in 2005.





Inventory


(dollars
      in thousands)


June
                30,
            
            December
                31,2006
            
            2005Inventory
            
            $
            19,525
            
            $
            12,225Average
                inventory turnover
            
            
            5.5
            
            
            4.4




Inventory
      as of June 30, 2006 increased by approximately $7.3 million compared to December
      31, 2005. Approximately $6.6 million of the increase was as result of the
      acquisition of Litton. The balance of the increase of $700,000 was due to a
      build up in inventory attributed to new customers and delays by several
      customers in taking orders. The average inventory turnover was 5.5 in the three
      months to June 30, 2006 compared to 4.4 in the year to December 31, 2005. The
      company continues to seek improvements in inventory turnover through smaller
      order quantities and vendor managed inventories.





Cash
      Used
      in Investing Activities


(dollars
      in thousands)


Six
                Months EndedJune
                30,2006
            
            2005Net
                cash used in investing activities
            
            
            ($
                16,446
            )
            
            ($
                634
            )





Investing
      activities for the six months ended June 30, 2006 included approximately
      $320,000 for equipment purchases and approximately $52,000 proceeds for
      equipment sold, approximately $55,000 for payments for additional earn-out
      amount related to the Simclar (Mexico) acquisition, and approximately $16.1
      million related to the Litton acquisition. This compares to approximately
      $59,000 invested in equipment and approximately $348,000 received through the
      acquisition of SNAI during the same period in 2005.





Cash
      Provided by (Used in) Financing Activities


(dollars
      in thousands)


Six
                Months EndedJune
                30,2006
            
            2005Cash
                provided by (used in) financing activities
            
            $
            15,360
            
            
            ($
                127
            )





Financing
      activities for the six months ended June 30, 2006 included term loan repayments
      of $600,000 and a decrease in the amount borrowed on our lines of credit of
      approximately $40,000 and the $16 million increase in our long-term credit
      facility to fund the Litton acquisition. This is compared to $600,000 term
      loan
      repayments and approximately $473,000 increase to our line of credit in the
      same
      period in 2005.


-18-
 **Table
          of Contents**




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





Borrower
            
            Type
                of facility
            
            Originalamount
            
            Balance
                at
              June
                30,2006Simclar,
                Inc.
            
            
            Working
                capital
            
            $
            5,000,000
            
            $
            4,950,393Simclar,
                Inc.
            
            
            Term
                loan - four tranches (see detail of tranches below)
            
            $
            21,650,000
            
            $
            19,600,000Simclar
                Interconnect Technologies, Inc.
            
            
            Working
                Capital
            
            $
            1,000,000
            
            $
            0




Interest
      on the Simclar, Inc. working capital facility accrues
      at an annual rate equal to LIBOR plus 1.5%, plus an amount, rounded to the
      nearest eighth of a percent, to cover any increases in certain regulatory costs
      incurred by the bank. The company may elect to pay interest on advances every
      one, three or six months, with LIBOR adjusted to correspond to the interest
      payment period selected by the company .
      The
      interest rate for the working capital facility at June 30, 2006 was 6.67% 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
      June 30, 2006 was 6.67% based on the three month election. The interest rate
      in
      effect at June 30, 2006 for tranche C was 7.71% and for tranche D was 8.71%
      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
                2008.B
            
            $1,400,000
            
            Dayton
                property acquisition
            
            Twenty-eight
                quarterly payments of $50,000 beginning January 2005 through October
                2011.C
            
            $13,000,000
            
            Acquisition
                of certain assets of the Litton Interconnect Technologies assembly
                operations
            
            Thirteen
                quarterly payments of $500,000 beginning December 2006 through December
                2009, four quarterly payments of $250,000 from March 2010 through
                December
                2010, four quarterly payments of $750,000 from March 2011 through
                December
                2011 and four quarterly payments of $625,000 from March 2012 through
                December 2012.D
            
            $3,000,000
            
            Acquisition
                of certain assets of the Litton Interconnect Technologies assembly
                operations
            
            Single
                payment due December 31, 2010.


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


-19-
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          of Contents**







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





·
            the
                facilities take priority over all our other obligations;


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


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


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


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


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




In
      addition, our credit facilities require us to maintain:





·
            consolidated
                adjusted net worth greater than $15,000,000 with effect from 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 June 30,
                2006; not
                less than 3.5:1 from April 1, 2006 to June 30, 2006; and not less
                than 4:1
                thereafter (tested on a quarterly basis beginning December 31,2005);
                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 quarterly basis beginning December 31, 2006).





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





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


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


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


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


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


·
            effecting
                any changes in ownership of our company;


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


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





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


-20-
 **Table
          of Contents**





The
      only
      off-balance sheet financing arrangements with related or unrelated parties
      would
      be a guarantee provided by Simclar Group to BoS in respect of loans advanced
      to
      Simclar, Inc. up to a maximum amount of $10,000,000; likewise, Simclar, Inc.
      has
      guaranteed certain Simclar Group’s loans from BoS also up to a maximum amount of
      $10,000,000. In both cases this maximum amount reduces subject to certain ratios
      of borrowing to EBITDA being achieved. 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.





On
      August
      17, 2006, Simclar (Mexico) and Simclar entered into an agreement with Winsson
      Enterprises Co., Ltd. (“Winsson”) and its affiliate Computronics International
      Corp. This agreement replaces the deferred trade payables agreement that expired
      on July 14, 2006. The agreement is a non-cash refinance of approximately
      $2,495,000 of trade accounts payable to long-term debt to be repaid within
      a
      three year period with an interest rate of 3% per annum. The agreement calls
      for
      quarterly payments of principal and interest of $225,000 commencing August
      15,
      2006 with a final payment of approximately $123,400 payable on May 15, 2009.
      The
      debt is subordinated to the BoS debt. The open credit balance at June 30, 2006
      was approximately $2,448,000 and is reflected as a long-term debt, subordinated
      on the face of the financial statements with $900,000 of the balance reflected
      as current portion of long-term debt.





The
      following table outlines our commitments at June 30, 2006 (dollars in
      thousands):




Total
            
            Less
                than
            
            1-3
            
            4-5
            
            Over
                5Amounts
            
            1
                Year
            
            Years
            
            Years
            
            YearsLong-term
                debt with interest
            
            $
            23,438
            
            $
            3,759
            
            $
            7,493
            
            $
            7,892
            
            $
            4,294Operating
                leases
            
            
            4,450
            
            
            529
            
            
            1,027
            
            
            868
            
            
            2,026Bank
                line of credit with interest
            
            
            5,233
            
            
            5,233
            
            
            —
            
            
            —
            
            
            —Long-term
                subordinated debt with interest
            
            
            2,544
            
            
            846
            
            
            1,698
            
            
            —
            
            
            —Total
                commitments
            
            $
            35,665
            
            $
            10,367
            
            $
            10,218
            
            $
            8,760
            
            $
            6,320





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/A for the year ended December 31, 2005.
      Preparation of the company's financial statements requires company management
      to
      make estimates and assumptions that affect the reported amount of assets and
      liabilities, disclosure of contingent assets and liabilities at the date of
      the
      financial statements and the reported amounts of revenue and expenses during
      the
      reporting period. Actual results may differ from those estimates, and the
      differences may be material. For a detailed discussion of the application of
      these and other accounting policies, see "Summary of Significant Accounting
      Policies" in the Notes to the Consolidated Financial Statements and
      "Management's Discussion and Analysis of Financial Condition and Results of
      Operations - Critical Accounting Policies" contained in the company's annual
      report on Form 10-K/A for the year ended December 31, 2005. There have been
      no
      material changes to these accounting policies during the six months ended June
      30, 2006.





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





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





Sensitivity
      of results of operations to interest rate risks on our investments is managed
      by
      conservatively investing liquid funds in short-term interest-bearing accounts
      at
      financial institutions in which we had excess cash invested in interest bearing
      accounts at June 30, 2006.





Interest
      rate risks on debt are managed by negotiation of appropriate rates on new
      financing obligations based on current market rates. There is an interest rate
      risk associated with our variable rate debt agreements which totaled
      approximately $24,550,000 at June 30, 2006.


-21-
 **Table
          of Contents**





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 $61,000 on our quarterly results
      of
      operations.





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





**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.




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. Management’s investigation of
      these errors led to a restatement of the company’s consolidated financial
      statements for 2005 that are described in the company’s amended 2005 report on
      Form 10-K/A, filed October 27, 2006. Management’s investigation of the errors in
      the 2005 consolidated financial statements disclosed similar errors in the
      preparation of our consolidated financial statements for the three months ended
      March 31, 2006, leading to a restatement of these financial statements as
      described in the company’s amended report on Form 10-Q/A, filed on October 27,
      2006. The discovery of these errors and the resulting investigation also delayed
      the filing of this report, which was originally due on August 14, 2006. Because
      of this delay, the company was unable to report within the specified time period
      including the allowable extension period. Our management, including our Chief
      Executive Officer and Chief Financial Officer, has evaluated the effectiveness
      of the design and operation of our disclosure controls and procedures (as
      defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”)) as of June 30, 2006. As more fully described below, due to the
      identification in this evaluation of a continuing material weakness in internal
      control over financial reporting that had been identified in the previous
      periods referenced above and the inability to report within the specified time
      period, our Chief Executive Officer and Chief Financial Officer have concluded
      that, as of June 30, 2006, our disclosure controls and procedures were not
      effective.




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 that existed at June 30,
      2006,
      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.


-22-
 **Table
          of Contents**




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 three months ended June 30, 2006, other than indicated above, there were
      no
      changes in our internal controls over financial reporting (as defined in Rule
      13a-15(f) under the Exchange Act) that materially affected, or is reasonably
      likely to materially affect, our internal control over financial reporting.
      However, as a result of the subsequently discovered material weakness described
      above, the company is currently in the remediation process. These remediation
      efforts include:




·
            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 include, but are 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.




·
            Planned
                conversion of all company facilities to a standard enterprise resource
                planning and accounting platform and adding an internal controls
                manager.





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


-23-
 **Table
            of Contents**




**PART
      II - OTHER INFORMATION**





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS**





Simclar,
      Inc. held its annual meeting of shareholders on June 9, 2006 for the purpose
      of
      electing seven directors. The nominees were: Samuel J. Russell, Barry J. Pardon,
      John Ian Durie, Christina M.J. Russell, A. Graeme Manson, Patrick Lacchia,
      and
      Kenneth M. Mackay, M.D. Each nominee was elected by total of 4,745,120 shares
      voted for and no votes withheld.





**Items
      1, 1A, 2, 3, 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




-24-
 **Table
          of Contents**




**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:
      October 27, 2006




By: /s/
      Barry
      J. Pardon


BARRY
      J.
      PARDON, President




Date:
      October 27, 2006




By: /s/
      Marshall W. Griffin


MARSHALL
      W. GRIFFIN, Chief Financial Officer


-25-