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





Commission
      file number: 001-13924





**SIMCLAR,
      INC.**


(Exact
      name of registrant as specified in its charter)





**Florida**
            
            **59-1709103**(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)**2230
                West 77****th****Street, Hialeah, FL**
            
            **33016**(Address
                of principal executive offices)
            
            (Zip
                Code)





**(305)
      556-9210**


(Registrant’s
      telephone number, including area code)





**[None]**


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





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes
o    No
x





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


Large
      accelerated filer o  Accelerated
      filer o  Non-accelerated
      filer o   Smaller
      reporting company x




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





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





Class
            
            Outstanding at September 30, 2008Common
                Stock, $.01 par value per share
            
            6,465,345
                shares








SIMCLAR,
      INC.




Form
      10-Q





For
      the
      quarter ended September 30, 2008





TABLE
      OF
      CONTENTS





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





PART
      I –
FINANCIAL INFORMATION





Item
      1
      Financial Statements





SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS





September 30,
            
            December 31,2008
            
            2007(UNAUDITED)**ASSETS****Current
                assets:**Cash
                and cash equivalents
            
            $
            578,703
            
            $
            428,538Accounts
                receivable, less allowances of $175,000and $236,000 at September
                30, 2008
                and December 31, 2007, respectively
            
            
            11,961,271
            
            
            20,804,552Amounts
                receivable from major stockholder, net
            
            
            1,915,100
            
            
            904,627Inventories,
                less allowances for obsolescence of $2,271,000 at September 30,2008
                and
                $2,364,000 at December 31, 2007
            
            
            18,992,207
            
            
            21,664,442Prepaid
                expenses and other current assets
            
            
            717,111
            
            
            654,509Income
                taxes receivable
            
            
            2,222,554
            
            
            107,091Deferred
                income taxes
            
            
            1,214,160
            
            
            1,214,160**Total
                current assets**
            
            
            37,601,106
            
            
            45,777,919**Property
                and equipment:**Land
                and improvements
            
            
            547,512
            
            
            547,512Buildings
                and building improvements
            
            
            1,235,904
            
            
            1,235,904Machinery,
                computer and office equipment
            
            
            15,950,920
            
            
            15,342,401Tools
                and dies
            
            
            366,347
            
            
            366,347Leasehold
                improvements
            
            
            1,722,965
            
            
            1,957,170Construction
                in progress
            
            
            14,748
            
            
            259,829**Total
                property and equipment**
            
            
            19,838,396
            
            
            19,709,163Less
                accumulated depreciation and amortization
            
            
            11,794,936
            
            
            9,922,589**Net
                property and equipment**
            
            
            8,043,460
            
            
            9,786,574Deferred
                expenses and other assets, net
            
            
            237,113
            
            
            366,265Goodwill
            
            
            9,410,704
            
            
            9,410,704Intangible
                assets, net
            
            
            606,618
            
            
            904,841**Total
                assets**
            
            $
            55,899,001
            
            $
            66,246,303


See
        notes
        to consolidated financial statements




3





SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS


(Continued)





September 30,
            
            December 31,2008
            
            2007(UNAUDITED)**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Current
                liabilities:**Line
                of credit
            
            $
            8,634,235
            
            $
            8,145,987Accounts
                payable
            
            
            14,236,137
            
            
            21,447,560Accrued
                expenses
            
            
            2,102,809
            
            
            1,907,472Current
                portion of long-term debt
            
            
            5,923,994
            
            
            3,575,148**Total
                current liabilities**
            
            
            30,897,175
            
            
            35,076,167Long-term
                debt
            
            
            6,950,000
            
            
            9,600,000Deferred
                trade accounts payable
            
            
            139,209
            
            
            349,257Deferred
                income taxes
            
            
            515,283
            
            
            515,283Other
                long term liabilities
            
            
            400,000
            
            
            400,000**Total
                liabilities**
            
            
            38,901,667
            
            
            45,940,707**Stockholders'
                equity:**Common
                stock, $.01 par value, authorized 10,000,000 shares; issued and
                outstanding 6,465,345 shares at September 30, 2008 and December 31,
                2007
            
            
            64,653
            
            
            64,653Capital
                in excess of par value
            
            
            11,446,087
            
            
            11,446,087Retained
                earnings
            
            
            5,421,164
            
            
            8,747,959Accumulated
                other comprehensive income
            
            
            65,430
            
            
            46,897**Total
                stockholders' equity**
            
            
            16,997,334
            
            
            20,305,596$
            55,899,001
            
            $
            66,246,303


See
        notes
        to consolidated financial statements


4


SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      STATEMENT OF OPERATIONS


(UNAUDITED)





Three Months Ended
            
            Nine Months EndedSeptember 30,
            
            September 30,2008
            
            2007
            
            2008
            
            2007Sales
            
            $
            20,412,389
            
            $
            33,149,660
            
            $
            76,957,209
            
            $
            101,675,970Cost
                of goods sold
            
            
            19,339,469
            
            
            29,925,729
            
            $
            74,411,273
            
            
            89,662,160Gross
                Margin
            
            
            1,072,920
            
            
            3,223,931
            
            
            2,545,936
            
            
            12,013,810Selling,
                general and administrative expenses
            
            
            1,956,254
            
            
            2,232,486
            
            $
            6,884,258
            
            
            7,056,573(Loss)
                / Income from operations
            
            
            (883,334
            )
            
            991,445
            
            
            (4,338,322
            )
            
            4,957,237Interest
                expense
            
            
            297,439
            
            
            404,264
            
            $
            969,265
            
            
            1,394,553Interest
                and other income
            
            
            (82,194
            )
            
            (39,387
            )
            $
            (207,572
            )
            
            (112,896
            )(Loss)
                / Income before income taxes
            
            
            (1,098,579
            )
            
            626,568
            
            
            (5,100,015
            )
            
            3,675,580Income
                tax (credit) / expense
            
            
            (387,478
            )
            
            211,238
            
            $
            (1,773,220
            )
            
            1,249,266Net
                (Loss) /income
            
            $
            (711,101
            )
            $
            415,330
            
            $
            (3,326,795
            )
            $
            2,426,314(Loss)
                / Earnings per share:Basic
            
            $
            (0.11
            )
            $
            0.06
            
            $
            (0.51
            )
            $
            0.38


See
        notes
        to consolidated financial statements


5


SIMCLAR,
      INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      STATEMENT OF CASH FLOWS


(UNAUDITED)




Nine Months EndedSeptember 30,2008
              
              2007Operating
                  activities:Net
                  (loss) / income
              
              $
              (3,326,795
              )
              $
              2,426,314Adjustments
                  to reconcile net income to net cash provided by operating activities:Depreciation
                  & amortization
              
              $
              1,327,803
              
              
              1,582,068Loss
                  on disposal of property & equipment
              
              $
              751,223
              
              
              (8,685
              )Changes
                  relating to operating activities from:Accounts
                  receivable, net
              
              $
              8,843,281
              
              
              497,177Amounts
                  receivable / (payable) to major stockholder, net
              
              $
              (1,010,473
              )
              
              226,920Inventories,
                  net
              
              $
              2,672,234
              
              
              (4,913,437
              )Prepaid
                  expenses and other current assets
              
              $
              (62,602
              )
              
              133,257Accounts
                  payable
              
              $
              (7,211,423
              )
              
              7,431,993Accrued
                  expenses
              
              $
              324,490
              
              
              (219,904
              )Income
                  taxes refundable
              
              $
              (2,115,463
              )
              
              842,799Net
                  cash provided from operating activities
              
              
              192,275
              
              
              7,998,502Investing
                  activities:Additions
                  to property and equipment
              
              $
              (201,102
              )
              
              (1,943,101
              )Proceeds
                  from sale of property and equipment
              
              $
              163,413
              
              
              526,134Net
                  cash used in investing activities
              
              
              (37,689
              )
              
              (1,416,967
              )Financing
                  activities:Borrowing
                  on bank line of credit
              
              $
              3,444,366
              
              
              8,669,543Repayments
                  on bank line of credit
              
              $
              (2,956,118
              )
              
              (6,413,775
              )Payments
                  on note payable to major stockholder
              
              $
              -
              
              
              (2,500,000
              )Payments
                  on long-term borrowings
              
              $
              (511,202
              )
              
              (5,526,226
              )Net
                  cash used in financing activities
              
              
              (22,954
              )
              
              (5,770,458
              )Effect
                  of exchange rate fluctuations on cash
              
              $
              18,533
              
              
              10,410Net
                  change in cash and cash equivalents
              
              
              150,165
              
              
              821,487Cash
                  and cash equivalents at beginning of period
              
              $
              428,538
              
              
              82,154Cash
                  and cash equivalents at end of period
              
              $
              578,703
              
              $
              903,641Supplemental
                  disclosure of cash flow information :Cash
                  paid for interest expense
              
              $
              830,479
              
              $
              1,450,806Cash
                  paid for taxes
              
              $
              402,167
              
              $
              300,250


See
        notes
        to consolidated financial statements


6





**NOTE
      1 - Basis of Presentation**





The
      accompanying interim consolidated financial statements include the accounts
      of
      Simclar, Inc. ("Simclar") and its subsidiaries, including Simclar (Mexico),
      Inc.
      ("Simclar Mexico"), Simclar de Mexico, S.A. de C.V. (“Simclar de Mexico”),
      Simclar (North America), Inc. (“SNAI”), Simclar Interconnect Technologies, Inc.
      (“SIT”), and Techdyne (Europe) Limited ("Techdyne (Europe)") collectively
      referred to as the "company." All material intercompany accounts and
      transactions have been eliminated in consolidation. The company is a 73.2%
      owned
      subsidiary of Simclar Group Limited ("Simclar Group"), a company incorporated
      in
      the United Kingdom.





These
      financial statements have been prepared in accordance with accounting principles
      generally accepted in the United States of America for interim financial
      information and with the instructions to Form 10-Q and Article 8 of Regulation
      S-X and have not been audited by an independent registered public accounting
      firm. Accordingly, they do not include all of the information and footnotes
      required by accounting principles generally accepted in the United States of
      America for complete financial statements. In the opinion of management, such
      interim financial statements reflect all normal recurring adjustments considered
      necessary to present fairly the financial position and the results of operations
      and cash flows for the interim periods presented. The results of operations
      for
      the interim periods are not necessarily indicative of the results to be expected
      for the full fiscal year. These financial statements should be read in
      conjunction with the audited consolidated financial statements and footnotes
      included in the company's Annual Report on Form 10-K for the year ended December
      31, 2007.





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





**NOTE
      2 - Recently Issued Accounting Pronouncements**





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





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





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





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


7





**NOTE
      3 – Inventories**





Inventories
      are comprised of the following:




September 30,
            
            December 31,2008
            
            2007Raw
                materials and supplies
            
            
            16,912,842
            
            $
            19,285,200Work
                in process
            
            
            2,555,708
            
            
            2,841,656Finished
                goods
            
            
            1,794,718
            
            
            1,902,052Allowance
                for obsolescence
            
            
            (2,271,061
            )
            
            (2,364,466
            )$
            18,992,207
            
            $
            21,664,442





**NOTE
      4 – Earnings per share**





Following
      is a reconciliation of amounts used in the computations:




Three Months Ended September 30,
            
            Nine Months Ended September 30,2008
            
            2007
            
            2008
            
            2007Net
                (loss) / income - numerator basic computation
            
            $
            (711,101
            )
            $
            415,330
            
            $
            (3,326,795
            )
            $
            2,426,314Weighted
                average shares - denominator basic computation
            
            
            6,465,345
            
            
            6,465,345
            
            
            6,465,345
            
            
            6,465,345(Loss)
                / Earnings per share:Basic
            
            $
            (0.11
            )
            $
            0.06
            
            $
            (0.51
            )
            $
            0.38




The
      net
      loss for the three months ended September 30, 2008 includes pre-tax operating
      losses of approximately $1.1 million from the company’s Mexico facility due to
      the disruption to production as a result of corrective actions arising from
      failures highlighted in the second quarter in the transfer of operations from
      the company’s North Carolina facility and weaknesses within the newly
      implemented ERP system. The net loss for the nine months ended September 30,
      2008 also includes second quarter’s pre-tax exceptional and non-recurring
      charges of approximately $2.8 million, including asset write-offs as a result
      of
      the problems in the company’s Mexico facility as described above. These pre-tax
      exceptional charges include a loss on the disposal of plant and equipment of
      approximately $0.75 million following the decision to no longer service certain
      customers in the plastic molding business, write-off of inventory of
      approximately $1.2 million resulting from decisions to exit low-margin business
      and procurement errors of approximately $0.85 million. These costs are recorded
      as a component of cost of goods sold.




**NOTE
      5 – Comprehensive Income**





The
      company follows SFAS No. 130, "Reporting Comprehensive Income," which contains
      rules for the reporting of comprehensive income and its components.
      Comprehensive income consists of net income and foreign currency translation
      adjustments. Below is a detail of comprehensive income for the three and nine
      month periods ended September 30, 2008 and 2007:





Three Months Ended September 30,
            
            Nine Months Ended September 30,2008
            
            2007
            
            2008
            
            2007Net
                (loss) / income
            
            $
            (711,101
            )
            $
            415,330
            
            $
            (3,326,795
            )
            $
            2,426,314Foreign
                currency translation income (loss), net of tax
            
            
            (57,391
            )
            
            (15,343
            )
            
            18,552
            
            
            10,410Comprehensive
                (loss) / Income
            
            $
            (768,492
            )
            $
            399,987
            
            $
            (3,308,243
            )
            $
            2,436,724


8





**NOTE
      6 – Indebtedness**





Effective
      January 26, 2007, the company entered into amendments of the two working capital
      facilities with Bank of Scotland (“BoS”). The term of the $1 million working
      capital facility of SIT, originally entered into in December 2005, was extended
      to January 28, 2008. The Simclar, Inc. $5 million working capital facility,
      last
      amended in December 2005, was increased to $7.5 million, and its maturity date
      was extended to January 28, 2008. No other material changes were made to either
      facility by the amendments. Effective March 27, 2008, the facilities were
      further amended to extend the maturity dates of each to March 17, 2009. No
      other
      material changes were made to either facility by the 2008 amendments, except
      that the default interest rate under both facilities was increased from 1.5%
      to
      2.0% and the interest rate under the $7.5 million facility was increased from
      1.5% over LIBOR to 1.75% over LIBOR. The company was in breach of various
      financial covenants at the end of the second and third quarters (EBIT to total
      interest coverage ratio, trade accounts receivable to net borrowing ratio,
      and
      net borrowing to EBITDA ratio), which breaches have since been waived by BoS.
      Given the adverse impact on the company’s financial position as a result of the
      significant losses arising in its Mexico facility in the current year, and
      in
      recognition of the high level of voluntary bank term loan repayments in previous
      financial periods, BoS agreed to reschedule the term loan repayments of $500,000
      due on each of June 30, 2008 and September 30, 2008 to December 31, 2008, or
      such later date as agreed before December 31, 2008 between the company and
      BoS.





On
      August
      17, 2006, Simclar (Mexico) and Simclar entered into an agreement with Winsson
      Enterprises Co., Ltd. (“Winsson”) and its affiliate, Computronics International
      Corp. This agreement replaced a deferred trade payables agreement that expired
      on July 14, 2006. The agreement is a non-cash refinance of approximately
      $2,495,000 of trade accounts payable to long-term debt to be repaid within
      a
      three year period with an interest rate of 3% per annum. The agreement calls
      for
      quarterly payments of principal and interest of $225,000 commencing August
      15,
      2006, with a final payment of approximately $123,400 payable on May 15, 2009.
      The debt is subordinated to the BoS credit facilities. The balance at September
      30, 2008 was approximately $796,000 and is reflected as long-term debt on the
      face of the balance sheet, net of $675,000 reflected in current portion of
      long-term debt. The company is in advance discussion with Winsson with regard
      to
      the deferal of the repayment of $225,000 due on August 14, 2008 and the
      implementation of a payment holiday until February 2009 when scheduled
      repayments would re-commence, and, as a result of which, the final payment
      date
      would be November 14, 2009.





On
      June
      5, 2008, Simclar entered into an agreement with Litton Systems Inc. effecting
      a
      deferred trade payables arrangement. The agreement is a non-cash refinance
      of
      approximately $3,067,293 of trade accounts payable to long-term debt to be
      repaid within a fifteen month period with an interest rate of 5% per annum.
      The
      agreement calls for quarterly payments of principal and interest of $1,052,573
      commencing June 30, 2008 and ending December, 30 2008. Although the initial
      quarter payment was made in June 30, 2008, the company is in discussions as
      to
      the rescheduling of the outstanding balance of $2,083,416 which is reflected
      as
      long-term debt on the face of the balance sheet.





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




The
      company’s parent, Simclar Group, provides certain financial and administrative
      services to the company under a service agreement. The amount of expenses
      incurred under the service agreement totaled $150,000 and $420,000 respectively
      for the three and nine months ending September, 30 2008.




SIT
      pays
      a monthly management fee to Simclar Interconnect Technologies Limited, a related
      party to Simclar Group, based on 2% of sales. The purpose of the fee is to
      support global research and development and sales and marketing management.
      The
      charges for the three and nine months ended September 30, 2008 are approximately
      $198,000 and $712,000 respectively.





The
      company had a net receivable due from its parent, Simclar Group, certain of
      its
      subsidiaries and a related party at September 30, 2008 and December 31, 2007
      of
      approximately $1,915,000 and $905,000 respectively. Amounts receivable accrue
      interest at the rate of LIBOR plus 1.5%





In
      connection with the acquisition of the Litton backplane assembly business in
      February 2006, Simclar Group has provided a guarantee to BoS in respect of
      loans
      advanced to Simclar up to a maximum amount of $10,000,000; likewise, Simclar
      has
      guaranteed certain Simclar Group loans from BoS also up to a maximum amount
      of
      $10,000,000. In both cases this maximum amount reduces, subject to certain
      ratios of borrowing to EBITDA being achieved.


9





**Note
      8 – Income Taxes**




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





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





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





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





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





Net
      income tax payments amounted to approximately $0 and $402,000 respectively
      for
      the three months and nine months ended September 30, 2008 and $0 and $300,000
      for the comparable 2007 period.








**NOTE
      9 - Commitments and Contingencies**





The
      company leases several facilities which expire at various dates through 2010
      with renewal options for periods of up to five years at the then fair market
      rental value. The company sponsors two 401(k) profit sharing plans covering
      substantially all of its employees, excluding Techdyne (Europe) and Simclar
      Mexico.





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





10


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





**Cautionary
      Statement Concerning Forward-Looking Statements**





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





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





**Overview**





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





We
      strive
      to build on our integrated manufacturing capabilities, final system assemblies
      and testing. The combination of our advanced backplane interconnect solutions
      with our capabilities to supply printed circuit board (“PCB”) assemblies, metal
      fabrication, cabling solutions and higher level assemblies provides a valuable
      one-stop-shop for OEM system design and integration needs. In addition, vertical
      integration provides us with greater control over quality, delivery and cost.
      Our products are manufactured to customer specifications for OEMs in a variety
      of markets including the data processing, telecommunications, instrumentation,
      and food preparation equipment industries. Following the closure of our North
      Carolina facility in the first quarter of 2008, the company has four
      manufacturing plants and numerous sales offices and has approximately 730
      employees.





The
      company has previously reported the problems which came to light beginning
      late
      in the second quarter which highlighted significant issues arising as a result
      of the transfer of our North Carolina sheet metal fabrication business to our
      Mexican facility, along with significant deficiencies within the Mexican
      facility’s recently implemented ERP system. A subsequent internal review was
      performed which comprised a detailed review of the issues and deficiencies
      that
      have been highlighted along with a strategic review of the company’s Mexican
      operations. The key findings were as follows :





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





§
            The
                transferred business with its low margins, low volumes and high variations
                was ill-suited to the Mexican facility, and therefore steps were
                taken to
                exit the transferred business.





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





Having
      identified the problems, the company has been aggressive in implementing
      corrective actions and has undertaken a fundamental restructuring of the Mexican
      management team. All senior members of management associated with the
      deficiencies in the transfer plan have been dismissed and the company is
      currently in the process of finalizing the completion of a new Mexican
      management team. Although the charges relating to these issues were largely
      borne in the second quarter, the extent of the necessary restructuring and
      corrective actions and the consequent disruption had an adverse impact on the
      operations of the Mexican production facility in the third quarter, resulting
      in
      net sales, below its breakeven level generating pre-tax operating losses of
      approximately $1.1 million in the 3 months to September 30, 2008.


11





The
      company’s newly recruited management team in Mexico, augmented by senior
      management seconded from within the company and the parent company has
      implemented the necessary corrective actions and have made significant
      improvements within the production process. Management anticipate that these
      improvements will see the Mexican facility return to profitability in the fourth
      quarter of this year.





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





·
            2008
                third quarter sales were approximately $20.4 million compared to
                approximately $33.1 million in the same period in 2007, reflecting
                significantly reduced sales to our customers within the telecommunication
                sector, together with the impact of the operational problems within
                our
                Mexico facility as discussed above.




·
            The
                company recognized a net loss of $711,101 for the three months ended
                September 30, 2008, compared to a profit of $415,330 in the same
                period in
                2007. This loss is caused by the reduced level of sales and the operating
                difficulties within our Mexico facility as discussed
                above.




·
            Reported
                earnings per share for the quarter ended September 30, 2008 is a
                loss of
                $0.11, compared to a profit of $0.06 in the same period in 2007.




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




·
            Deferred
                shipments with certain of our key customers led to a higher than
                expected
                inventory balance, with inventory turns falling to 4.9 from 5.6 at
                the end
                of 2007. The necessity to reduce inventory levels led to the appointment
                earlier this year of a Procurement Director to oversee and manage
                the
                company’s procurement and material control activities. As a result of the
                initiatives that have been taken in this area, progress is being
                made, and
                management expects the financial benefits of this to be seen in future
                periods.




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




·
            Management
                continues to address the issues caused by the failure to properly
                effect
                the transfer of the North Carolina operations to Mexico. The company
                retains a current order backlog of approximately $28 million and
                is
                committed to taking whatever further steps are necessary in the coming
                months to return all divisions of the business to
                profitability.




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





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


12





We
        typically do not obtain long-term volume purchase contracts from our customers,
        but rather we work with our customers to anticipate future volumes of orders.
        Based upon such anticipated future orders, we will make commitments regarding
        the level of business we want and can accomplish given the current timing
        of
        production schedules and the levels of and utilization of facilities and
        personnel. Occasionally, we purchase raw materials without a customer order
        or
        commitment. Customers may cancel, delay or reduce orders, usually without
        penalty, for a variety of reasons, whether relating to the customer or the
        industry in general, which orders are already made or anticipated. Any
        significant cancellations, reductions or order delays could adversely affect
        our
        results of operations.
 
 We
        use
        Electronic Data Interchange **** (“EDI”)
        with both our customers and our suppliers in our efforts to continuously
        develop
        accurate forecasts of customer volume requirements, as well as sharing our
        future requirements with our suppliers. We depend on the timely availability
        of
        many components. Component shortages could result in manufacturing and shipping
        delays or increased component prices, which could have a material adverse
        effect
        on our results of operations. It is important for us to efficiently manage
        inventory, proper timing of expenditures and allocations of physical and
        personnel resources in anticipation of future sales, the evaluation of economic
        conditions in the electronics industry and the mix of products, whether PCBs,
        wire harnesses, cables, or turnkey products, for manufacture.
 
 We
        must
        continuously develop improved manufacturing procedures to accommodate our
        customers’ needs for increasingly complex products. To continue to grow and be a
        successful competitor, we must be able to maintain and enhance our technological
        capabilities, develop and market manufacturing services which meet changing
        customer needs and successfully anticipate or respond to technological changes
        in manufacturing processes on a cost-effective and timely basis. Although
        we
        believe that our operations utilize the assembly and testing technologies
        and
        equipment currently required by our customers, there can be no assurance
        that
        our process development efforts will be successful or that the emergence
        of new
        technologies, industry standards or customer requirements will not render
        our
        technology, equipment or processes obsolete or noncompetitive. In addition,
        to
        the extent that we determine that new assembly and testing technologies and
        equipment are required to remain competitive, the acquisition and implementation
        of such technologies and equipment are likely to require significant capital
        investment.
 
 Our
        results of operations are also affected by other factors, including price
        competition, the level and timing of customer orders, fluctuations in material
        costs (due to availability), the overhead efficiencies achieved by management
        in
        managing the costs of our operations, our experience in manufacturing a
        particular product, the timing of expenditures in anticipation of increased
        orders, selling, and general and administrative expenses. Accordingly, gross
        margins and operating income margins have generally improved during periods
        of
        high volume and high capacity utilization. We generally have idle capacity
        and
        reduced operating margins during periods of lower-volume
        production.
  **Key
        Financial Performance Measures**
 
 We
        manage
        and assess the performance of our business primarily through the following
        performance metrics:
 
 *Orders
        booked and backlog* –
the
        ratio of orders booked to sales is reviewed on a monthly basis.
 
 *Sales* –
monthly
        sales are compared against budget and the same month in the previous
        year.
 
 *Gross
        margin* –
the
        gross margin achieved each month is compared against budget and the same
        month
        in the previous year.
 
 *Selling,
        general and administrative expenses –* the
        ratio
        of these expenses as a percentage of sales each month is compared against
        budget.
 
 *Working
        capital* –
        movements in the balance sheet amounts of inventory, accounts receivable
        and
        accounts payable are reviewed on a monthly basis.
 
 *Bank
        borrowings* -
        movements in the company’s working capital facility with the bank are reviewed
        on a weekly basis.
  13
 
 *Weekly
        business control*  *reviews* –
        conference calls are conducted weekly by the president, CFO, and corporate
        controller to review key performance metrics and general business update
        with
        the general managers and financial controllers for each facility.
 
 In
        the
        event that any of the above measures indicate unusual movements or trends,
        further review is undertaken by management to ensure that satisfactory
        explanations are obtained, and, where necessary, appropriate corrective action
        is taken.
  14
  **Results
        of Operations**
 
 Three
        months and nine months ended September 30, 2008
 
 Net
        Sales
        (dollars in thousands)
 Three Months Ended
              
              Nine Months EndedSeptember 30,
              
              September 30,2008
              
              2007
              
              2008
              
              2007$
              20,412
              
              $
              33,150
              
              $
              76,957
              
              $
              101,676Change
                  from prior year
              
              $
              (12,738
              )
              $
              2,496
              
              $
              (24,719
              )
              $
              18,800%
                  change from prior year
              
              
              -38.4
              %
              
              8.1
              %
              
              -24.3
              %
              
              22.7
              %
 
 The
        worsening global economic environment has particularly impacted the
        telecommunications infrastructure sector which accounts for some 60% of the
        company’s business, and accounted for approximately $7.5 million of the sales
        decrease in the quarter compared to the same quarter in 2007. In addition,
        the
        production problems experienced in our Mexican facility had an adverse impact
        on
        the quarter’s shipments.
 
 Gross
        Profit (dollars in thousands)
 Three Months Ended
              
              Nine Months EndedSeptember 30,
              
              September 30,2008
              
              2007
              
              2008
              
              2007Gross
                  profit margin
              
              $
              1,073
              
              $
              3,224
              
              $
              2,546
              
              $
              12,014Change
                  from prior year
              
              $
              (2,151
              )
              $
              (688
              )
              $
              (9,468
              )
              $
              1,537%
                  change from prior year
              
              
              -66.7
              %
              
              -17.6
              %
              
              -78.8
              %
              
              14.7
              %%
                  of sales
              
              
              5.3
              %
              
              9.7
              %
              
              3.3
              %
              
              11.8
              %
 
 The
        main
        factors that influence our gross margin percentage are material costs, product
        mix and plant utilization. The reduced margin reflects both the disruption
        caused by the corrective actions plan in the Mexico facility, and the effect
        of
        the under absorption of fixed production costs caused by the significant
        reduction in sales in the quarter. While margins are continually under pressure
        from customer cost reduction programs, the company actively seeks to mitigate
        the effect through production efficiency improvements and procurement
        savings.
 
 Selling,
        General, and Administrative Expenses (dollars in thousands)
 Three Months Ended
              
              Nine Months EndedSeptember 30,
              
              September 30,2008
              
              2007
              
              2008
              
              2007Selling,
                  general, and administrative expenses
              
              $
              1,956
              
              $
              2,232
              
              $
              6,884
              
              $
              7,057Change
                  from prior year
              
              $
              (276
              )
              $
              (86
              )
              $
              (173
              )
              $
              1,020%
                  change from prior year
              
              
              -12.4
              %
              
              -3.7
              %
              
              -2.5
              %
              
              16.9
              %%
                  of sales
              
              
              9.6
              %
              
              6.7
              %
              
              8.9
              %
              
              6.9
              %
  15
 
 Selling,
        general, and administrative expenses reduced compared with prior year levels
        reflecting the benefit of cost reduction plans, although the significant
        decline
        in the quarter’s sales results in this expense increasing as a percentage of
        sales compared to the prior year.
 
 Interest
        Expense (dollars in thousands)
 Three Months Ended
              
              Nine Months EndedSeptember 30,
              
              September 30,2008
              
              2007
              
              2008
              
              2007Interest
                  expense
              
              $
              297
              
              $
              404
              
              $
              969
              
              $
              1,395Change
                  from prior year
              
              $
              (107
              )
              $
              (119
              )
              $
              (426
              )
              $
              110%
                  change from prior year
              
              
              -26.5
              %
              
              -22.8
              %
              
              -30.5
              %
              
              8.6
              %%
                  of sales
              
              
              1.5
              %
              
              1.2
              %
              
              1.3
              %
              
              1.4
              %
 
 The
        reduction in interest expense in 2008 reflects the fall in lending rates
        and the
        reduced level of debt compared to last year. Average debt levels for the
        three
        month period ended September 30, 2008 and same period for 2007 were
        approximately $21.1 million and $24.7 million respectively (including interest
        bearing debt owed to related parties), while average interest rates in the
        quarter ended September 30, 2008 were 5.5% compared to 7.5% for the quarter
        ended September 30, 2007.
 
 (Loss)
        /
        Income Before Income Taxes
 (dollars
        in thousands)
 Three Months Ended
              
              Nine Months EndedSeptember 30,
              
              September 30,2008
              
              2007
              
              2008
              
              2007(Loss)
                  / Income before taxes
              
              $
              (1,099
              )
              $
              627
              
              $
              (5,100
              )
              $
              3,676Change
                  from prior year
              
              $
              (1,726
              )
              $
              (405
              )
              $
              (8,776
              )
              $
              467%
                  change from prior year
              
              
              -275.3
              %
              
              -39.2
              %
              
              -238.7
              %
              
              14.6
              %%
                  of sales
              
              
              -5.4
              %
              
              1.9
              %
              
              -6.6
              %
              
              3.6
              %
 
 The
        decrease in income before tax in the third quarter of 2008 compared to the
        same
        period in 2007 is due to the losses arising in the company’s Mexican operations,
        the reduction in margins caused by the significant decline in sales in the
        quarter, and the under-utilization of production capacity.
 
 Income
        Tax (Credit) / Expense
 (dollars
        in thousands)
 Three Months Ended
              
              Nine Months EndedSeptember 30,
              
              September 30,2008
              
              2007
              
              2008
              
              2007Income
                  tax (credit) / expense
              
              $
              (388
              )
              $
              211
              
              $
              (1,773
              )
              $
              1,249Change
                  from prior year
              
              $
              (599
              )
              $
              (203
              )
              $
              (3,022
              )
              $
              (46
              )%
                  change from prior year
              
              
              -283.9
              %
              
              -49.0
              %
              
              -242.0
              %
              
              -3.6
              %Effective
                  tax rate
              
              
              35.3
              %
              
              33.7
              %
              
              34.8
              %
              
              34.0
              %
  16
 
 Income
        tax credit for the three months ended September 30, 2008 was approximately
        $388,000, compared to a income tax expense of approximately $211,000 in the
        same
        period in 2007. The higher effective tax rate reflects the rebates achieved
        from
        state tax.
 
 Liquidity
        and Capital Resources
 
 Cash
        and
        Cash Equivalents
 (dollars
        in thousands)
 September 30,
                2008
              
              December 31,
                2007Cash
                  and cash equivalents
              
              $
              579
              
              $
              429
 
 Cash
        and
        cash equivalents as of September 30, 2008 are broadly in line with balances
        at
        December 31, 2007, with cash generated being used to repay debt balances and
        meet operating costs. Excess liquid funds are invested in short-term,
        interest-bearing accounts at financial institutions.
 
 Net
        Cash
        Provided from Operating Activities
 (dollars
        in thousands)
 
 Nine Months Ended September 30,2008
              
              2007Net
                  cash provided from operating activities
              
              $
              192
              
              $
              7,999
 
 Net
        cash
        provided in operating activities for the nine months ended September 30,
        2008
        was approximately $192,000 compared to approximately $7,999,000 for the same
        period last year. The main reasons for this significant adverse movement
        are the
        net operating loss (adjusted for depreciation) of approximately $1.4 million
        in
        the nine month period ended September 30, 2008 compared to net income (adjusted
        for depreciation) of approximately $4.0 million in the same period in 2007,
        and
        the failure to reduce working capital in line with the reduced levels of
        sales
        in the period.
 
 Accounts
        Receivable
 (dollars
        in thousands)
 September 30,
                2008
              
              December 31,
                2007Accounts
                  receivable, net
              
              $
              11,961
              
              $
              20,805Average
                  days sales outstanding
              
              
              42.0
              
              
              54.9
 
 Accounts
        receivable at September 30, 2008 decreased by approximately $8.8 million
        compared to December 31, 2007 due to the lower level of sales in the third
        quarter of 2008 compared to the higher sales in the fourth quarter of 2007.
        In
        the current year, the company has introduced new procedures which continue
        to
        help improve the collection of overdue receivables as evidenced by the reduction
        in average days outstanding.
  17
 
 Inventory
 (dollars
        in thousands)
 September 30,
                2008
              
              December 31,
                2007Inventory
              
              $
              18,992
              
              $
              21,664Average
                  inventory turnover
              
              
              4.9
              
              
              5.6
 
 Although
        inventory as of September 30, 2008 decreased by approximately $2.7 million
        compared to December 31, 2007, average inventory turns in the period reduced
        to
        4.9 from 5.6. This reduction in average turns reflects the significant levels
        of
        inventory held for key customers that have failed to take shipments in line
        with
        their forecast demand. This unacceptable increase in the company’s working
        capital requirement is being addressed as a matter of urgency with our customers
        and our material suppliers, as appropriate. The company has appointed a
        Procurement Director to oversee and manage its procurement and material control
        initiatives, with an immediate objective of improving inventory turnover
        through
        smaller order quantities, vendor managed inventories, and the active liquidation
        of excess inventory balances.
 
 Net
        cash
        used in investing activities
 (dollars
        in thousands)
 Nine Months Ended September 30,2008
              
              2007Net
                  cash used in investing activities
              
              $
              (38
              )
              $
              (1,417
              )
 
 Investing
        activities for the nine months ended September 30, 2008 related, in the main,
        to
        the installation in Mexico of equipment transferred from our closed facility
        in
        North Carolina, offset by proceeds from asset disposals, whilst the investing
        activities in the comparable period of 2007 included leasehold improvements
        related to the move of our Missouri facility from Springfield to
        Ozark.
 
 Net
        cash
        used in financing activities
 (dollars
        in thousands)
 Nine Months Ended September 30,2008
              
              2007Net
                  cash used in financing activities
              
              $
              (23
              )
              $
              (5,770
              )
 
 Net
        cash
        used in financing activities in the nine months ended September 30, 2008
        was
        approximately $23,000 compared to approximately $5,770,000 in the same period
        of
        2007. This large fluctuation is caused by the 2007 repayment of a $2.5 million
        balance to our major stockholder in addition to advance bank repayments of
        $2.0
        million.
 
 Our
        near-term cash requirements are primarily related to funding our operations
        and
        servicing the company’s bank debt obligations.  We believe that the
        combination of internally-generated funds, available cash reserves, and our
        existing credit facilities are sufficient to fund our operating, investing
        and
        financing activities.
 
 In
        December 2005, we entered into two amended and one new credit facilities
        with
        Bank of Scotland (BoS) in Edinburgh, Scotland consisting of:
  18
 
 **Borrower**
              
              **Type of facility**
              
              **Original****amount**
              
              **Balance at**
                **September 30,2008**Simclar,
                  Inc.
              
              
              Working
                  capital
              
              $
              7,500,000
              
              $
              7,524,388Simclar,
                  Inc.
              
              
              Term
                  loan – four tranches (see detail of tranches below)
              
              $
              21,650,000
              
              $
              10,150,000Simclar
                  Interconnect Technologies, Inc.
              
              
              Working
                  Capital
              
              $
              1,000,000
              
              $
              1,091,260
 
 Effective
        March 27, 2008, we entered into amendments of the two working capital
        facilities. The term of the $1 million working capital facility of SIT,
        originally entered into in December 2005, and amended in January 2007, was
        extended to March 17, 2009. The maturity date of the Simclar, Inc. $7.5 million
        working capital facility, last amended in January 2007, was extended to March
        17, 2009. No other material changes were made to either facility by the
        amendments, except that the default interest rate under both facilities was
        increased from 1.5% to 2.0% and the interest rate under the $7.5 million
        facility was increased from 1.5% over LIBOR to 1.75% over LIBOR.
 
 Interest
        on the Simclar, Inc. working capital facility accrues at an annual rate equal
        to
        LIBOR plus 1.75%, plus an amount, rounded to the nearest eighth of a percent,
        to
        cover any increases in certain regulatory costs incurred by the bank. The
        company may elect to pay interest on advances every one, three or six months,
        with LIBOR adjusted to correspond to the interest payment period selected
        by the
        company. The interest rate for the working capital facility at June 30, 2008
        was
        5.0% based on the one month election.
 
 Interest
        on the Simclar Interconnect Technologies, Inc. working capital facility will
        is
        a margin over LIBOR determined by a ratio of net borrowings to EBITDA for
        any
        given test period. The margin percentage can range from 1.75% to 2.5%. The
        interest rate for this working capital facility at September 30, 2008 was
        5.7%.
 
 The
        term
        loan interest is also determined by a margin over LIBOR related to the ratio
        of
        net borrowings to EBITDA for any given test period. The margin percentage
        varies
        from 1.5% to 3.5%. The term debt interest rate was 4.2% for tranches A and
        B,
        5.7% for tranche C, and 6.7% for tranche D at September 30, 2008 based on
        the
        one month election. The term loan is divided into four tranches each with
        its
        own specific purpose and repayment schedule as shown in the following table:
 Tranche
                
                Principal
                  Amount
                
                Purpose
                
                PaymentsA
                
                $
                4,250,000
                
                Refinance existing facilities
                
                Seventeen
                    quarterly payments of $250,000 beginning October 2004 through
                    October
                    2008B
                
                $
                1,400,000
                
                Dayton
                    property acquisition
                
                Twenty-eight
                    quarterly payments of $50,000 beginning January 2005 through
                    October
                    2011C
                
                $
                13,000,000
                
                Acquisition
                    of certain assets of the Litton Interconnect Technologies assembly
                    operations
                
                Thirteen
                    quarterly payments of $500,000 beginning December 2006 through
                    December
                    2009, four quarterly payments of $250,000 from March 2010 through
                    December
                    2010, four quarterly payments of $750,000 from March 2011 through
                    December
                    2011 and four quarterly payments of $625,000 from March 2012
                    through
                    December 2012Following
                    discussions with BoS and in recognition of the high level of
                    previous
                    advanced term loan repayments made by the company, it was agreed
                    to
                    reschedule the June 2008 repayment of $500,000 to a later
                    periodD
                
                $
                3,000,000
                
                Acquisition
                    of certain assets of the Litton Interconnect Technologies assembly
                    operations
                
                Single
                    payment due December 31,
                    2010
  19
 
 The
        weighted average interest rate for the quarter ended September, 30 2008 was
        5.5%.
 
 Reference
        should be made to the company’s annual report on 10-K report for the year ended
        December 31, 2007 for details of the credit facilities, all of which continue
        to
        be effective.
 
 Given
        the
        adverse impact on the company’s financial position as a result of the
        significant losses arising in its Mexico facility in the current year, the
        company was in breach of various financial covenants at the end of the second
        and third quarters (EBIT to total interest coverage ratio, trade accounts
        receivable to net borrowing ratio, and net borrowing to EBITDA ratio), which
        breaches have since been waived by BoS. In recognition of these factors and
        the
        high level of voluntary bank term loan repayments in previous financial periods,
        BoS agreed to reschedule the term loan repayments of $500,000 due on June
        30,
        2008 and September 30, 2008 to December 31, 2008, or such later date as agreed
        before December 31, 2008 between the company and BoS.
 
 Due
        to
        the results for the 3 months ended June 30, 2008 being significantly reduced
        by
        the exceptional Mexico charges, the company did not satisfy the EBIT to total
        interest coverage covenant of its debt facilities for that period. Given
        these
        particular circumstances, BoS has agreed to waive the facility covenants
        as at
        September 30, 2008.
 
 Our
        indebtedness requires us to dedicate a substantial portion of our cash flow
        from
        operations to payments on our debt, which could reduce amounts for working
        capital and other general corporate purposes. The restrictions in our credit
        facility could also limit our flexibility in reacting to changes in our business
        and increases our vulnerability to general adverse economic and industry
        conditions.
 
 We
        have
        no off-balance sheet financing arrangements with related or unrelated parties
        and no unconsolidated subsidiaries. In the normal course of business, we
        enter
        into various contractual and other commercial commitments that impact or
        can
        impact the liquidity of our operations.
 
 **Critical
        Accounting Policies**
 
 In
        preparing its financial statements and accounting for the underlying
        transactions and balances, the company has applied the accounting policies
        as
        disclosed in the Notes to the Consolidated Financial Statements contained
        in the
        company's annual report on Form 10-K for the year ended December 31, 2007.
        Preparation of the company's financial statements requires company management
        to
        make estimates and assumptions that affect the reported amount of assets
        and
        liabilities, disclosure of contingent assets and liabilities at the date
        of the
        financial statements and the reported amounts of revenue and expenses during
        the
        reporting period. Actual results may differ from those estimates, and the
        differences may be material. For a detailed discussion of the application
        of
        these and other accounting policies, see "Summary of Significant Accounting
        Policies" in the Notes to the Consolidated Financial Statements and
        "Management's Discussion and Analysis of Financial Condition and Results
        of
        Operations - Critical Accounting Policies" contained in the company's annual
        report on Form 10-K for the year ended December 31, 2007. There have been
        no
        material changes to these accounting policies during the three months ended
        September 30, 2008. Further, the company may be subject to the recently issued
        accounting pronouncements outlined in Note 2, to the financial
        statements.
  20
  **Item
        4T. Controls and Procedures**
 
 Overview
  The
        company maintains disclosure controls and procedures designed to ensure that
        information required to be disclosed in reports filed under the Securities
        Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized,
        and reported within the specified time periods. As a part of these controls,
        our
        management is responsible for establishing and maintaining adequate internal
        control over financial reporting, as such term is defined in Rule 13a-15(f)
        under the Exchange Act. The company’s internal control over financial reporting
        is a process designed to provide reasonable assurance regarding the reliability
        of financial reporting and the preparation of financial statements for external
        purposes in accordance with generally accepted accounting principles, and
        includes those policies and procedures that:
 
 ·
              pertain
                  to the maintenance of records that, in reasonable detail accurately
                  reflect the transactions and dispositions of the assets of the
                  company;
 
 ·
              provide
                  reasonable assurance that transactions are recorded as necessary
                  to permit
                  preparation of financial statements in accordance with generally
                  accepted
                  accounting principles and, that receipts and expenditures of the
                  company
                  are being made only in accordance with authorization of management
                  and
                  directors of the company; and
 
 ·
              provide
                  reasonable assurance regarding prevention or timely detection of
                  unauthorized acquisition, use or disposition of the company's assets
                  that
                  could have a material effect on the financial
                  statements.
  Under
        the
        supervision and with the participation of our management, including our Chief
        Executive Officer and Chief Financial Officer, we evaluated the effectiveness
        of
        the design and operation of our disclosure controls and procedures (as defined
        in Rule 13a-15(e) under the Exchange Act) as of September 30, 2008. Disclosure
        controls and procedures include, without limitation, controls and procedures
        designed to ensure that (i) information required to be disclosed by us in
        the
        reports that we file or submit under the Exchange Act is accumulated and
        communicated to our management, including our principal executive and principal
        financial officers, as appropriate to allow timely decisions regarding required
        disclosure, and (ii) the information required to be disclosed by us in the
        reports we file or submit under the Exchange Act is recorded, processed,
        summarized and reported within the time periods specified in the applicable
        rules and forms.
 
 As
        noted
        earlier in this report (Management’s Discussion and Analysis of Financial
        Condition and Results of Operations – Overview), beginning late in the second
        quarter of 2008 management became aware of problems associated with the transfer
        of the company’s sheet metal fabrication business from North Carolina to its
        Mexican facility, along with significant deficiencies within the Mexican
        facility’s recently implemented ERP system. Given the significance of these
        matters and the fact that the internal review which had been commenced as
        a
        result of these issues was ongoing, management concluded in early August
        that
        the company was not in a position at that time to file its Form 10-Q for
        the
        second quarter of 2008, and that the filing should be delayed until completion
        of the internal review.
 
 The
        internal review comprised a detailed review of the issues and deficiencies
        that
        had been highlighted along with a strategic review of the company’s Mexican
        operations, and was completed during the third quarter. The key findings
        were as
        follows :
 
 ·
              Major
                  procurement errors arose with a number of material components being
                  purchased at significantly higher costs compared to both historic
                  and
                  budgeted costs.
 
 ·
              Early
                  in the internal review it was clear that the transferred business
                  with its
                  low margins, low volumes and high variations was ill-suited to
                  the Mexican
                  facility, and therefore steps have been taken in this quarter to
                  exit this
                  the transferred business.
 
 ·
              The
                  significant capital cost of transferring the plastic injection
                  molding
                  business from North Carolina allied to the low margins arising
                  from this
                  business did not align itself with the company’s strategy for its Mexican
                  operations, and accordingly management decided to suspend this
                  transfer
                  and to exit this area of business.
  As
        a
        result of this review and evaluation, management concluded
        that
        our disclosure controls and procedures as they existed at June 30, 2008 were
        not
        effective, due to a material weakness in internal control over financial
        reporting **.**
  21
 
 Rule
        12b-2 under the Exchange Act defines “material weakness” as a deficiency, or a
        combination of significant deficiencies, in internal control over financial
        reporting such that there is a reasonable possibility that a material
        misstatement of the registrant’s annual or interim financial statements will not
        be prevented or detected on a timely basis. The rule defines a “significant
        deficiency” as a deficiency, or combination of deficiencies, in internal control
        over financial reporting that is less severe than a material weakness, yet
        important enough to merit attention by those responsible for oversight of
        the
        registrant’s financial reporting.
 
 The
        control deficiencies identified by our management that existed at June 30,
        2008,
        which in combination, resulted in a material weakness, were (a) failure to
        establish effective system access controls as part of the new ERP system
        implementation (b) failure to establish effective system controls over standard
        costing as part of the new ERP system implementation (c) failure of key control
        processes that allowed material errors to occur and go undetected on a timely
        basis, and (d) the failure of key management to identify the errors on a
        timely
        basis and take appropriate corrective actions. The control deficiencies were
        determined to be a material weakness due to combined impact of the actual
        misstatements identified, the potential for additional material misstatements
        that could have occurred as a result of the deficiencies, and the lack of
        other
        mitigating controls. While the misstatements were still ultimately identified
        by
        the reporting controls, the company was required to perform a significant
        internal review to fully identify the weaknesses, resulting in the inability
        to
        timely file our report on Form 10-Q for the second quarter of 2008 **.**
 
 However,
        based upon the changes in internal controls implemented in the third quarter
        of
        2008 as a result of management’s review, which changes are described below, and
        management’s evaluation of effectiveness of the design and operation of our
        disclosure controls and procedures after taking such changes into consideration,
        our Chief Executive Officer and Chief Financial Officer have concluded that,
        as
        of September 30, 2008, our disclosure controls and procedures were effective
        in
        providing reasonable assurance of achieving the objectives that (i) information
        required to be disclosed by us in the reports that we file or submit under
        the
        Exchange Act is accumulated and communicated to our management, including
        our
        principal executive and principal financial officers, as appropriate to allow
        timely decisions regarding required disclosure, and (ii) the information
        required to be disclosed by us in the reports we file or submit under the
        Exchange Act is recorded, processed, summarized and reported within the time
        periods specified in the applicable rules and forms.
 
 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 Internal Controls over Financial Reporting
  During
        the quarter ended September 30, 2008, there were a number of changes in our
        internal controls over financial reporting that materially affected, or are
        reasonably likely to materially affect, our internal control over financial
        reporting. These changes include:
  ·
              Replacement
                  of key management that had failed in their responsibility to identify
                  control weaknesses and take corrective action.
  ·
              Correction
                  of system access controls on new ERP system to ensure that all
                  users have
                  restricted access in line with internal control
                  matrix.
  ·
              Correction
                  of the standard cost system within the new ERP system and training
                  of
                  employees responsible for its
                  maintenance.
  ·
              Re-engineer
                  and strengthen the processes and controls throughout the procurement
                  function.
  The
        company continues to evaluate these and other possible improvements to its
        disclosure controls and internal control over financial reporting.
  22
  **PART
        II – OTHER INFORMATION**
 
 **Item
        1. Legal Proceedings**
 
 We
        are,
        from time to time, a party to litigation which arises in the normal course
        of
        our business. When a loss is deemed probable and reasonably estimable, an
        amount
        is recorded in our financial statements. Although the ultimate resolution
        of
        pending proceedings cannot be determined, in the opinion of management, the
        unfavorable resolution of these proceedings in the aggregate will not have
        a
        material adverse effect on our business, financial position, results of
        operations, or liquidity.
 
 **Item
        1A. Risk Factors**
 
 The
        following additional risk factor is added to the risk factors previously
        disclosed in Item 1A to Part 1 our Annual Report on Form 10-K for the year
        ended
        December 31, 2007:
 
 *We
        have risks related to the recent economic and credit
        conditions.*
 
 The
        Company's operating cash flows provide funding for debt repayment and various
        discretionary items such as capital expenditures. Recent uncertainty in global
        economic conditions resulting from disruption in the credit markets has
        negatively impacted the overall economy which could adversely impact demand
        for
        our products and our ability to manage commercial relationships with our
        customers, suppliers and creditors.
 
 **Items
        2, 3, and 5 are not applicable and have been omitted.**
 
 **Item
        6. Exhibits**
 
 *Exhibit
                  No.*
              *Description*31.1
              Certification
                  of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley
                  Act of 200231.2
              Certification
                  of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley
                  Act of 200232.1
              Certification
                  of Chief Executive Officer of Periodic Financial Reports pursuant
                  to
                  Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
                  135032.2
              Certification
                  of Chief Financial Officer of Periodic Financial Reports pursuant
                  to
                  Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
                  1350
 
 **SIGNATURES**
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
 
 SIMCLAR,
                  INC.Date:
                  November 17, 2008
              By:
              /s/
                  Barry J. PardonBARRY
                  J. PARDON, PresidentDate:
                  November 17, 2008
              By:
              /s/
                  Stephen P. DonnellySTEPHEN P DONNELLY, Chief Financial Officer
  23