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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

    (Mark One)
       (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
                                       OR
     ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                        FOR THE TRANSITION PERIOD FROM TO
                          COMMISSION FILE NUMBER 1-3920

                   NORTH AMERICAN GALVANIZING & COATINGS, INC.
             (Exact name of registrant as specified in its charter)

                                    DELAWARE
         (State or other jurisdiction of incorporation or organization)

                                   71-0268502
                      (I.R.S. Employer Identification No.)

            5314 SOUTH YALE AVENUE, SUITE 1000, TULSA, OKLAHOMA 74135
               (Address of principal executive offices)(Zip Code)

                                 (918) 494-0964
               (REGISTRANT'S TELEPHONE number, including AREA code

           Securities registered pursuant to Section 12(b) of the Act:

          TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
          -------------------------------------------------------------
              Common Stock, $.10 par value American Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]No [X]

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).

Large accelerated filer [ ]    Accelerated Filer [ ]   Non-accelerated filer [X]

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

The aggregate market value of Common Stock held by non-affiliates on June 30,
2006 was approximately $27.0 million. As of February 13, 2007 there were
8,111,672 shares of North American Galvanizing & Coatings, Inc. Common Stock,
$.10 par value, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be filed not later
than 120 days after the end of the fiscal year covered by this report are
incorporated by reference in Part III.
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                   NORTH AMERICAN GALVANIZING & COATINGS, INC.
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

TABLE OF CONTENTS
                                                                            PAGE

FORWARD LOOKING STATEMENTS OR INFORMATION                                     3

PART I
   Item 1.    Business                                                        4
   Item 1A.   Risk Factors                                                    7
   Item 1B.   Unresolved Staff Comments                                       9
   Item 2.    Properties                                                      9
   Item 3.    Legal Proceedings                                              10
   Item 4.    Submission of Matters to a Vote of Security Holders            11

PART II
   Item 5.    Market for Registrant's Common Equity, Related Stockholder
                Matters and Issuer Purchases of Equity Securities            11
   Item 6.    Selected Financial Data                                        12
   Item 7.    Management's Discussion and Analysis of Financial Condition
                and Results of Operation                                     13
   Item 7A.   Quantitative and Qualitative Disclosures About Market Risk     13
   Item 8.    Financial Statements and Supplementary Data                    13
   Item 9.    Changes in Disagreements with Accountants on Accounting
                and Financial Disclosure                                     13
   Item 9A.   Controls and Procedures                                        13
   Item 9B.   Other Information                                              13

PART III
   Item 10.   Directors, Executive Officers and Corporate Governance         14
   Item 11.   Executive Compensation                                         14
   Item 12.   Security Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters                   14
   Item 13.   Certain Relationships and Related Transactions, and
               Director Independence                                         14
   Item 14.   Principal Accounting Fees and Services                         14

PART IV
   Item 15.   Exhibits, Financial Statement Schedules                        14


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FORWARD LOOKING STATEMENTS OR INFORMATION

Certain statements in this Annual Report on Form 10-K, including information set
forth under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations," constitute "Forward-Looking Statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
are typically punctuated by words or phrases such as "anticipates," "estimate,"
"should," "may," "management believes," and words or phrases of similar import.
The Company cautions investors that such forward-looking statements included in
this Form 10-K, or hereafter included in other publicly available documents
filed with the Securities and Exchange Commission, reports to the Company's
stockholders and other publicly available statements issued or released by the
Company involve significant risks, uncertainties, and other factors which could
cause the Company's actual results, performance (financial or operating) or
achievements to differ materially from the future results, performance
(financial or operating) or achievements expressed or implied by such
forward-looking statements. Factors that could cause or contribute to such
differences could include, but are not limited to, changes in demand, prices,
the raw materials cost of zinc and the cost of natural gas; changes in economic
conditions of the various markets the Company serves, as well as the other risks
detailed herein and in the Company's reports filed with the Securities and
Exchange Commission. The Company believes that the important factors set forth
in the Company's cautionary statements in Exhibit 99 to this Form 10-K could
cause such a material difference to occur and investors are referred to Exhibit
99 for such cautionary statements.







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PART I

ITEM 1. BUSINESS

The Company's corporate headquarters are located in Tulsa, Oklahoma. As used in
this report, except where otherwise stated or indicated by the context, North
American Galvanizing (the "Company" and the "Registrant") means North American
Galvanizing & Coatings, Inc. and its consolidated subsidiary. At the Company's
Annual Meeting held May 14, 2003, stockholders approved an amendment of the
Company's certificate of incorporation to change the Company's name from Kinark
Corporation to North American Galvanizing & Coatings, Inc., effective July 1,
2003. The former Kinark Corporation was incorporated under the laws of the State
of Delaware in January 1955.

North American Galvanizing is a manufacturing services holding company currently
conducting business in galvanizing and coatings through its wholly-owned
subsidiary, North American Galvanizing Company and its wholly-owned subsidiaries
("NAG"). Formed in 1996, NAG merged with Rogers Galvanizing Company ("Rogers")
in 1996 and Boyles Galvanizing Company ("Boyles") in 1997, with NAG as the
surviving company. Rogers was acquired by the Company in 1996 and Boyles was
acquired in 1969.

On February 28, 2005, NAGalv-Ohio, Inc., a Delaware corporation and indirect
subsidiary of the Company, purchased the hot-dip galvanizing assets of Gregory
Industries, located in Canton, Ohio.

AVAILABLE INFORMATION

The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, the Statements of Beneficial Ownership of
Securities on Forms 3, 4 and 5 for Directors and Officers of the Company and all
amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, are available free of charge at the
Securities and Exchange Commission ("SEC") website at www.sec.gov. The Company's
website at www.nagalv.com contains a link to the SEC website. The Company has
also posted on the website its (1) Corporate Governance Guidelines; (2) Code of
Business Conduct and Ethics and, (3) the Company's charters for the Audit
Committee, the Compensation Committee, and the Corporate Governance and
Nominating Committee.

GALVANIZING

The Company conducts a service, galvanizing and coating operations, through its
NAG subsidiary. NAG is principally engaged in hot dip galvanizing of metal
products and components fabricated and owned by its customers. All of NAG's
revenue is generated from the value-added galvanizing and coating of
customer-owned products. NAG galvanizes iron and steel products by immersing
them in molten zinc. This bonding process produces an alloyed metal surface that
provides an effective barrier ("cathodic protection") against oxidation and
corrosion from exposure to the elements, for up to 50 years. Additional coating
services provided by NAG include sandblasting, quenching, metalizing (flame
sprayed), centrifuge spinner galvanizing, Corrocote Classic II painting and
INFRASHIELDsm Coating.

PLANTS

NAG operates 11 galvanizing plants in seven states. These strategically located
plants enable NAG to compete effectively by providing galvanizing to
manufacturers representing a broad range of basic industries throughout the mid
and south-central United States, and beyond. Its galvanizing plants are located
in Tulsa, Oklahoma; Kansas City, Missouri; St. Louis, Missouri; Nashville,
Tennessee; Louisville, Kentucky; Denver, Colorado; Canton, Ohio; Hurst, Texas
and Houston, Texas.

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In February 2005, NAG's new indirect subsidiary, NAGalv-Ohio, Inc. purchased the
hot-dip galvanizing assets of the galvanizing facility located in Canton, Ohio,
listed above. The Canton facility operates two hot-dip galvanizing lines
featuring 52-foot and 16-foot kettles to handle a broad range of steel
structures.

In June 2003, NAG wrote-off its investment in the Cunningham galvanizing plant
located in Houston, Texas as a discontinued operation.

In January 2003, NAG expanded services at its Nashville, Tennessee facility with
the installation of a centrifuge spinner line to galvanize small product and
threaded materials.

In the fourth quarter of 2002, NAG began operations at its galvanizing plant in
St. Louis, Missouri. This facility features a 51-foot kettle, providing the
largest galvanizing capacity in the St. Louis region.

In the third quarter of 2002, at certain of its plants, NAG introduced
INFRASHIELDsm coating, a specialty multi-part polymer coating system designed to
be applied over hot dip galvanized material. The resultant superior corrosion
protection offered by combining cathodic protection with a non-conductive
coating is applicable to many environments that have unique corrosion issues.

In 2001, the Company completed a major expansion of its galvanizing operations
with the construction of a new galvanizing plant in Houston, Texas. This
facility includes a 62-foot galvanizing kettle with capabilities to process
extra large poles for the wireless communication and electric transmission
markets. The facility became operational in the first quarter of 2001.

RAW MATERIAL

Zinc, the primary raw material and largest cost component in the Company's
galvanizing process, is currently readily available. The market price of zinc is
volatile. During 2005, the spot price of zinc quoted on the London Metal
Exchange increased $.30 per pound, starting the year at $.57 per pound and
ending the year at $.87 per pound. The zinc price continued to increase during
2006, ending the year at $1.96, a 125% increase over the 2005 year end price.
The Company's zinc procurement strategy to minimize the potential risk
associated with zinc price fluctuations primarily includes entering into forward
purchase commitments for physical delivery of up to one year.

CUSTOMERS

NAG's ten largest customers, on a combined basis, accounted for approximately
36% of the Company's consolidated sales in 2006, compared with 37% in 2005. The
backlog of orders at NAG is generally nominal due to the short turn-around time
requirement of customers which is generally demanded in the galvanizing
industry.

PRINCIPAL MARKETS

The galvanizing process provides effective corrosion protection of fabricated
steel which is used in numerous markets such as petrochemical, highway and
transportation, energy, utilities, communications, irrigation, pulp and paper,
waste water treatment, food processing, recreation and the manufacture of
original equipment. In 2006, NAG galvanized in excess of 400,000,000 pounds of
steel products for approximately 1,700 customers nationwide.

The Company maintains a sales and service network coupled with its galvanizing
plants, supplemented by national account business development at the corporate
level.

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All of the Company's sales are generated for domestic customers whose end
markets are principally in the United States. The Company markets its
galvanizing and coating services directly to its customers and does not utilize
agents or distributors. Although hot dip galvanizing is considered a mature
service industry, the Company is actively engaged in developing new markets
through participation in industry trade shows, metals trade associations and
presentation of technical seminars by its national marketing service team.

Hot dip galvanizing is highly competitive. NAG competes with other publicly and
privately owned independent galvanizing companies, captive galvanizing
facilities operated by manufacturers, and alternative forms of corrosion
protection such as paint. The type and number of competitors vary throughout the
geographic areas in which NAG does business. Competition is driven primarily by
price, rapid turn-around service time, and the quality of the finished
galvanized product. Management believes that the broad geographic disbursement
of its galvanizing plants and the reliable quality of its service enables NAG to
compete on a favorable basis. The Company continues to develop and implement
operating and market strategies to maintain its competitive position and to
develop new markets, as demonstrated by the purchase of the hot-dip galvanizing
assets of a galvanizing facility in Canton, Ohio (2005), as well as expanded
service capabilities at its existing plants.

Our management does not generally consider our business to be seasonal due to
the breadth and diversity of markets served, although sales volumes typically
are lower in the first and fourth quarters due to seasonality in certain
construction markets. NAG generated 50% of its sales volume during the first
six-months of 2006, compared with 45% in the first six-months of 2005. If the
purchase of the galvanizing facility in Canton, Ohio had taken place on January
1 of 2005, the revenues generated during the first six-months of 2005 would have
been 47%.

ENVIRONMENTAL

The Company's facilities are subject to extensive environmental legislation and
regulation affecting their operations and the discharge of wastes. The cost of
compliance with such regulations was approximately $1,333,000 and $1,354,000 in
2006 and 2005, respectively, for the disposal and recycling of wastes generated
by the galvanizing operations.

EMPLOYEE RELATIONS

NAG's labor agreement with the United Steel, Paper and Forestry, Rubber,
Manufacturing, Energy Allied Industrial and Service Workers International Union
covering production workers at its Tulsa galvanizing plants expired October 31,
2006. The union ratified a two-year extension of the expiring agreement, with
minor modifications, extending the expiration date of the agreement to October
31, 2008. The extension of the agreement brought employee contributions to the
group health plan more closely in line with contributions made by non-union
employees of the Company.

The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy Allied
Industrial and Service Workers International Union represented the labor force
at the galvanizing facility purchased in Canton, Ohio in February 2005. At the
time of purchase, NAGalv-Ohio, Inc. did not assume the existing labor agreement
and implemented wage and benefit programs similar to those at the Company's
other galvanizing facilities. In the fourth quarter of 2006, negotiations with
the union were finalized. The union ratified an agreement effective from
November 13, 2006 to November 12, 2009. The agreement contains wage and benefit
programs similar to those implemented in February, 2005.

Nationwide, the Company's total employment was 368 and 361 persons at December
31, 2006 and 2005, respectively. In February 2005, the Company added 45 persons
with the purchase of a galvanizing facility located in Canton, Ohio. The Company
believes its relationship with its employees is satisfactory.

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ITEM 1A. RISK FACTORS

In addition to important factors described elsewhere in this report, North
American Galvanizing cautions current and potential investors that the following
risk factors, among others, sometimes have affected, and in the future could
affect, the Company's actual results and could cause such results during fiscal
2007, and beyond, to differ materially from those expressed in any
forward-looking statements made by or on behalf of North American Galvanizing.
If any of the following risks actually occurs, our business, financial condition
or results of operations could be materially adversely affected and you may lose
all of your investment.

GALVANIZING IS A BUSINESS SENSITIVE TO ECONOMIC DOWNTURNS, WHICH COULD CAUSE OUR
REVENUES TO DECREASE. NAG is principally engaged in hot dip galvanizing of metal
products and components fabricated by its customers. All of the Company's
revenue is generated from the value-added galvanizing and coating of its
customer's products. NAG galvanizes iron and steel products by immersing them in
molten zinc. This bonding process produces an alloyed metal surface that
provides an effective barrier ("cathodic protection") against oxidation and
corrosion from exposure to the elements, for up to 50 years. The galvanizing
process provides effective corrosion protection of fabricated steel which is
used in numerous markets such as petrochemical, highway and transportation,
energy, utilities, communications, irrigation, pulp and paper, waste water
treatment, food processing, recreation and the manufacture of original
equipment. The demand for these products and, in turn, for our galvanizing, is
dependent on the general economy, the industries listed, and other factors
affecting domestic goods activity. If there is a reduction in demand, there
could be a material adverse effect on price levels, the quantity of galvanizing
services provided by us and our revenues.

THE VOLATILITY AND AVAILABILITY OF RAW MATERIAL AND NATURAL GAS COSTS COULD
REDUCE THE COMPANY'S PROFITS. Purchased zinc and natural gas, combined,
represent the largest portion of cost of goods sold. NAG's costs in 2005
relating to zinc and natural gas increased dramatically over the prior year. The
price and availability of zinc and natural gas that is used in the galvanizing
process is highly competitive and cyclical. The following factors, most of which
are beyond the Company's control, affect the price of zinc and natural gas:

     o   supply and demand factors;
     o   freight costs and transportation availability;
     o   inventory levels;
     o   trade duties and taxes; and
     o   labor disputes.

The Company seeks to maintain its profit margin by attempting to increase the
price of its services in response to an increase in costs, but may not be
successful in passing these price increases through to its customers.

NORTH AMERICAN GALVANIZING & COATINGS, INC. IS INVOLVED IN A LAWSUIT CONCERNING
A FORMER SUBSIDIARY'S OPERATION OF A STORAGE TERMINAL IN VIOLATION OF
ENVIRONMENTAL laws. In 2004, attorneys for the Metropolitan Water Reclamation
District of Greater Chicago (the "Water District") filed a complaint in District
Court, naming North American Galvanizing & Coatings, Inc. as an added defendant.
This Complaint seeks enforcement of an August 12, 2004 default judgment in the
amount of $1,810,463.34 against a former subsidiary of the Company, Lake River
Corporation and Lake River Holding Company, Inc. The default judgment is in
connection with the operation of a storage terminal by Lake River Corporation in
violation of environmental laws. The Complaint asserts that prior to the sale of
Lake River Corporation, North American Galvanizing directly operated the Lake
River facility. The Water District seeks to have the Court pierce the corporate
veil of Lake River Corporation and enforce the default judgment order of August
12, 2004 against

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the Company. In December 2004, the Water District filed another complaint in the
litigation, adding two claims: (1) a common law claim for nuisance; and (2) a
claim under the federal Resource Conservation and Recovery Act. In this claim,
the Water District argues that the Company is responsible for conditions on the
plaintiff's property that present an "imminent and substantial endangerment to
human health and the environment. In January 2005, the Company filed a partial
motion to dismiss the Third Amended Complaint. On April 12, 2005, the Court
issued an order denying in part and granting in part the Company's partial
motion to dismiss plaintiff's third amended complaint. The Company filed an
appeal with the Seventh Circuit Court of Appeals requesting dismissal of the
sole CERCLA claim contained in the Third Amended Complaint that was not
dismissed by the United States District Court's April 12, 2005 order. On January
17, 2007, the Seventh Circuit affirmed the judgment of the United States
District Court, stating that the Water District has a right of action under
CERCLA. The Company is evaluating the judgment and expects to file a motion for
reconsideration with the Seventh Circuit.

Meanwhile, litigation and discovery in the trial court have been stayed pending
mediation. The mediation is governed by a Settlement Protocol and Standstill
Agreement (the "Protocol") negotiated and signed by the parties. The Protocol
states that the parties will minimize discovery to focus on mediation. The court
approved the Protocol without setting any deadlines for the case. If the
mediation fails, the parties will resume discovery and the litigation in the
United States District Court will continue.

At this time, the Company has incurred a significant amount of legal costs to
defend this case and can not estimate the amount of any liability that may
result from this matter. Such a liability, if any, could have a material adverse
effect on the Company's financial condition, results of operations, or
liquidity.

THE ADDITION OF HOT-DIP GALVANIZING CAPACITY COULD REDUCE DEMAND FOR GALVANIZING
SERVICES AND ADVERSELY AFFECT REVENUES. Galvanizing is a highly competitive
business with relatively low barriers to entry. NAG competes with other
galvanizing companies, captive galvanizing facilities operated by manufacturers
and alternate forms of corrosion protection such as paint. Excessive capacity in
hot-dip galvanizing could have a material adverse effect on price levels and the
quantity of galvanized services provided by the Company.

THE COMPANY MAY NOT HAVE SUFFICIENT MANAGEMENT RESOURCES IF THERE IS TURNOVER IN
KEY PERSONNEL. Providing a competitive service acceptable in quality and price
requires a management team that is technically skilled in providing galvanizing
services. In past years, the Company has downsized administrative and management
positions as a result of cost-cutting initiatives. Lack of management resources
could impact the Company's ability to operate and compete in the galvanizing
industry.

VARIOUS GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL RISKS APPLICABLE TO THE
GALVANIZING BUSINESS MAY REQUIRE THE COMPANY TO TAKE ACTIONS WHICH WILL
ADVERSELY AFFECT ITS RESULTS OF OPERATIONS. The Company's business is subject to
numerous federal, state, provincial, local and foreign laws and regulations,
including regulations with respect to air emissions, storm water and the
generation, handling, storage, transportation, treatment and disposal of waste
materials. Although NAG believes it is in substantial compliance with all
applicable laws and regulations, legal requirements are frequently changed and
subject to interpretation, and the presently unpredictable ultimate cost of
compliance with these requirements could affect operations. The Company may be
required to make significant expenditures to comply with governmental laws and
regulations. Existing laws or regulations, as currently interpreted or
reinterpreted in the future, or future laws or regulations, could have a
material adverse effect on the results of operations and financial condition.

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THE COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD BE
IMPACTED BY FUTURE ACQUISITIONS OR BY A LACK OF POTENTIAL ACQUISITION
CANDIDATES. From time to time, the Company evaluates potential acquisition
opportunities to support and strengthen its business. NAG may not be able to
locate suitable acquisition candidates, acquire candidates on acceptable terms
or integrate acquired businesses successfully. In addition, NAG may be required
to incur additional debt and contingent liabilities, or to issue shares of its
common stock in order to consummate future acquisitions. Such issuances might
have a dilutive effect on current equity holders.

DIFFICULTIES IN INTEGRATING POTENTIAL ACQUISITIONS COULD ADVERSELY AFFECT THE
COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION. The process of
integrating acquired businesses effectively involves the following risks:

     o   assimilating operations and products may be unexpectedly difficult;
     o   management's attention may be diverted from other business concerns;
     o   the Company may enter markets in which it has limited or no direct
         experience; and
     o   the Company may lose key employees of an acquired business.

THE COMPANY'S BOARD OF DIRECTORS, WHOSE INTERESTS MAY NOT BE ALIGNED WITH OTHER
SHAREHOLDERS, WILL BE ABLE TO INFLUENCE THE OUTCOME OF SHAREHOLDER VOTES. As of
December 31, 2006, the Company's board of directors collectively owned
approximately 34.6% of the Company's common stock. Accordingly, the directors,
as a group, will be able to significantly influence the outcome of shareholder
votes, including votes concerning the election of directors, the adoption or
amendment of provisions in NAG's certificate of incorporation or bylaws, and the
approval of mergers and other significant corporate transactions, and their
interests may not be aligned with other shareholders. The existence of these
levels of ownership concentrated in a few persons makes it less likely that any
other holder of common stock will be able to affect the Company's management or
direction. These factors may also have the effect of delaying or preventing a
change in management or voting control or the Company's acquisition by a third
party.

TERMS OF THE COMPANY'S EXISTING BANK TERM LOAN AND REVOLVING CREDIT FACILITY
RESTRICT CERTAIN ASPECTS OF THE COMPANY'S OPERATIONS. These restrictions include
specified minimum values for the net worth and working capital and a maximum
debt to net worth ratio for the Company, and limitations on incurring additional
debt or capital expenditures or engaging in acquisitions and dispositions by the
Company. Among the foregoing, the most restrictive covenant is the requirement
that the aggregate expenditures for capital expenditures, debt and interest not
exceed the aggregate of earnings before interest, taxes, depreciation and
amortization (EBITDA). While the Company has maintained continuous compliance
with all of the required financial covenants of the credit facility since the
first quarter of 2005, there can be no assurance that the Company will be able
to continue to comply with these restrictions without disrupting its business.

ITEM 1B. UNRESOLVED STAFF COMMENTS

No unresolved staff comments were open as of the date of this report, February
14, 2007.

ITEM 2. PROPERTIES

NAG operates hot dip galvanizing plants located in Ohio, Oklahoma, Missouri,
Texas, Colorado, Tennessee and Kentucky. Two of the Company's plants, located in
Kansas City, Missouri and Tulsa, Oklahoma, are leased under terms which give NAG
the option to extend the leases for up to 15 years. NAG's galvanizing plants
average 20,000 square feet in size, with the largest approximately 55,000 square
feet, and it operates

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zinc kettles ranging in length from 16 to 62 feet. The Company owns all of its
galvanizing plants, except for the two plants noted above. All of the Company's
owned galvanizing plants are pledged as collateral to a bank pursuant to a
credit agreement scheduled to expire February 28, 2008, under which the Company
is provided an $8,000,000 revolving credit facility and a $5,001,000 term loan.

The Company's headquarters office is located in Tulsa, Oklahoma, in
approximately 4,600 square feet of office space leased through February, 2009.

ITEM 3. LEGAL PROCEEDINGS

On August 30, 2004, the Company was informed by counsel for the Metropolitan
Water Reclamation District of Greater Chicago (the "Water District") that the
Water District had, on August 25, 2004 filed a Second Amended Complaint in the
United States District Court, Northern District of Illinois, Eastern Division,
naming North American Galvanizing & Coatings, Inc. (formerly known as Kinark
Corporation) as an added defendant. Counsel for the Water District also gave the
Company notice of the Water District's intent to file (or amend the Complaint to
include) a Citizens Suit under the Resource Compensation and Recovery Act
("RCRA") against North American Galvanizing & Coatings, Inc., pursuant to
Section 7002 of RCRA, 42 U.S.C. Section 6972. This Second Amended Complaint
seeks enforcement of an August 12, 2004 default judgment in the amount of
$1,810,463.34 against Lake River Corporation and Lake River Holding Company,
Inc. in connection with the operation of a storage terminal by Lake River
Corporation in violation of environmental laws. Lake River Corporation conducted
business as a subsidiary of the Company until September 30, 2000, at which time
Lake River Corporation was sold to Lake River Holding Company, Inc. and ceased
to be a subsidiary of the Company. The Second Amended Complaint asserts that
prior to the sale of Lake River Corporation, the Company directly operated the
Lake River facility and, accordingly, seeks to have the Court pierce the
corporate veil of Lake River Corporation and enforce the default judgment order
of August 12, 2004 against the Company. The Company denies the assertions set
forth in the Water District's Complaint and on November 13, 2004 filed a partial
motion for dismissal of the Second Amended Complaint.

In December 2004, the Water District filed a Third Amended complaint in the
litigation, adding two claims: (1) a common law claim for nuisance; and (2) a
claim under the federal Resource Conservation and Recovery Act, in which the
Water District argues that the Company is responsible for conditions on the
plaintiff's property that present an "imminent and substantial endangerment to
human health and the environment." In January 2005, the Company filed a partial
motion to dismiss the Third Amended Complaint. On April 12, 2005, the Court
issued an order denying in part and granting in part the Company's partial
motion to dismiss plaintiff's third amended complaint. The Company filed an
appeal with the Seventh Circuit Court of Appeals requesting dismissal of the
sole CERCLA claim contained in the Third Amended Complaint that was not
dismissed by the United States District Court's April 12, 2005 order. On January
17, 2007, the Seventh Circuit affirmed the judgment of the United States
District Court, stating that the Water District has a right of action under
CERCLA. The Company is evaluating the judgment and expects to file a motion for
reconsideration with the Seventh Circuit.

Meanwhile, litigation and discovery in the trial court have been stayed pending
mediation. The mediation is governed by a Settlement Protocol and Standstill
Agreement (the "Protocol") negotiated and signed by the parties. The Protocol
states that the parties will minimize discovery to focus on mediation. The court
approved the Protocol without setting any deadlines for the case. If the
mediation fails, the parties will resume discovery and the litigation in the
United States District Court will continue.

The Company has denied any liability with respect to this claim and intends to
vigorously defend this case. The Company has not recorded any liability related
to the Water District claim and the estimated timeframe for resolution is
unknown. The potential claim with respect to the Water District claim could
exceed the amount of the default judgment. As liability and piercing of the
corporate veil are being contested and neither

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<PAGE>

a site evaluation nor a remediation plan has been developed, the Company is
unable to make a reasonable estimate of the amount or range of loss, if any,
that could result from an unfavorable outcome. Such a liability, if any, could
have a material adverse effect on the Company's financial condition, results of
operations, or liquidity.

NAG was notified in 1997 by the Illinois Environmental Protection Agency
("IEPA") that it was one of approximately 60 potentially responsible parties
("PRPs") under the Comprehensive Environmental Response, Compensation, and
Liability Information System ("CERCLIS") in connection with cleanup of an
abandoned site formerly owned by Sandoval Zinc Co. A number of the PRPs have
agreed to work together and with IEPA on a voluntary basis. The Company has been
and continues to participate in this volunteer group. The group has retained
consultants and legal representatives familiar with IEPA regulations. This
volunteer group, with its consultants, has cooperated with IEPA in attempting to
better define the environmental issues associated with the Sandoval Zinc site.
To that extent, this voluntary group prepared and submitted to IEPA in August
2000 a work plan. The purpose of this work plan is to attempt to define the
extent of environmental remediation that might be required, assess risks, and
review alternatives to addressing potential remediation. The estimated timeframe
for resolution of the IEPA contingency is unknown. The IEPA has yet to respond
to this proposed work plan or suggest any other course of action, and there has
been no activity in regards to this issue since 2001. The Company does not have
any liability accrued relating to the IEPA matter. Until the work plan is
approved and completed, the range of potential loss or remediation, if any, is
unknown. In addition, the allocation of potential loss between the 60
potentially responsible parties is unknown and not reasonably estimable.
Therefore, the Company has no basis for determining potential exposure and
estimated remediation costs at this time.

The lease term of a galvanizing facility located in Tulsa, Oklahoma, occupied by
Reinforcing Services, Inc. ("RSI"), a subsidiary of North American Galvanizing
Company, expired July 31, 2003 and has not been renewed. RSI has exercised an
option to purchase the facility, and the landlord is contesting the Company's
right to exercise this option. RSI has filed a lawsuit against the landlord
seeking enforcement of the right to exercise the option and requested a summary
judgment in its favor. The court ruled in favor of RSI and as a result, RSI is
negotiating terms of the purchase and related items with the landlord. The
Company expects this matter to be resolved during 2007 without negative
financial impact.

North American Galvanizing & Coatings, Inc. and its subsidiary are parties to a
number of other lawsuits which are not discussed herein. Management of the
Company, based upon their analysis of known facts and circumstances and reports
from legal counsel, does not believe that any such matter will have a material
adverse effect on the results of operations, financial conditions or cash flows
of the Company.

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

No matters were submitted to a vote of stockholders during the fourth quarter of
2006.


PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

STOCK INFORMATION

The Company's common stock trades on the American Stock Exchange under the
symbol "NGA". The Company does not expect to pay a dividend on its common stock
and has not done so in the past 30 years. The Company expects to continue that
policy in order to reinvest earnings to support and expand its business

                                       11
<PAGE>

operations. The Company's board of directors may review the dividend policy in
the future, recognizing that dividends may be a desirable form of return on the
investment made by many of its stockholders. Stockholders of record at February
13, 2007 numbered approximately 1,235.

QUARTERLY STOCK PRICES


                     First      Second     Third      Fourth
2005
High                 $ 3.47     $ 2.77     $ 2.64     $ 2.32
Low                  $ 1.95     $ 1.79     $ 1.87     $ 1.90

2006
High                 $ 3.00     $ 6.31     $ 8.77     $ 7.35
Low                  $ 2.01     $ 2.80     $ 4.41     $ 5.16


ISSUER PURCHASES OF EQUITY SECURITIES
<TABLE><CAPTION>
                                                                         Total         Approximate
                                                                       Number of       Dollar Value
                                                                        Shares          of Shares
                                           Total                       Purchased       that May Yet
                                         Number of       Average       as Part of      be Purchased
Period                                    Shares       Price Paid       Publicly          Under
(from/to)                                Purchased      per Share    Announced Plan     the Plan
<S>                                         <C>         <C>             <C>            <C>
February 1, 2006 - February 28, 2006         200         $ 2.25          132,461        $ 765,397
May 1, 2006 - May 31, 2006                    75           4.14          132,536          765,087
August 1, 2006 - August 31, 2006             260           7.83          132,796          763,051
October 1, 2006 - October 31, 2006           200           6.05          132,996          761,841
                                           -----         ------        ---------        ---------
Total                                        735         $ 5.45          132,996        $ 761,841
                                           =====         ======        =========        =========
</TABLE>
In August 1998, the Board of Directors authorized $1,000,000 for a share
repurchase program for shares to be purchased in private or open market
transactions. Unless terminated earlier by resolution of the Board of Directors,
the program will expire when the Company has purchased shares with an aggregate
purchase price of no more than $1,000,000.

The information required by this item concerning securities authorized for
issuance under equity compensation plans appears under the heading "Equity
Compensation Plan Information in the Company's Proxy Statement (the "2006 Proxy
Statement") or the Company's Annual Report to Shareholders (the "2006 Annual
Report") for its annual meeting of stockholders to be held on May 15, 2007 and
is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data for years 2002 through 2006 are presented on page
FS-36 of this Annual Report on Form 10-K.

                                       12
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The index to Management's Discussion and Analysis of Financial Condition and
Results of Operations is presented on page 19 of this Annual Report on Form
10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management's discussion of quantitative and qualitative disclosures about market
risk is presented on page FS-13.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The index to Financial Statements and Supplementary Data is presented on pages
14-15 of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

The certifying officers of the Company are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the Company and have (i) designed such disclosure
controls and procedures to ensure that material information relating to the
Company, including its consolidated subsidiary, is recorded, processed,
summarized and reported within the time frames specified in the SEC's rules and
forms and that such information is made known to them by others within the
Company and such entity to allow for timely decisions regarding required
disclosures; and (ii) along with other members of management, evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of the end of the period covered by this report. Based on this
evaluation, the chief executive officer and the chief financial officer of the
Company have concluded that the Company's disclosure controls and procedures
were effective during the period being reported on in this annual report.

The Company's certifying officers have indicated that there were no significant
changes in internal controls over financial reporting that have occurred during
the fiscal quarter ended December 31, 2006 that materially affected, or were
reasonably likely to materially affect, our internal controls over financial
reporting.

ITEM 9B. OTHER INFORMATION

None.

                                       13
<PAGE>

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information contained under the headings "Directors and Executive Officers,"
and "Company Information Available on Website" in the 2007 Proxy Statement is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item appears in the 2007 Proxy Statement under
the headings "Compensation of Directors and Executive Officers" and
"Compensation Plans" and is incorporated herein by reference. Information
regarding the Company's stock option plans appears herein on pages FS-23 to
FS-24, Footnotes to Consolidated Financial Statements.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information required by this item concerning security ownership of certain
beneficial owners and management appears in the 2007 Proxy Statement under the
heading "Security Ownership of Principal Stockholders and Management" and is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

The information required by this item concerning certain relationships and
related transactions and director independence appears in the 2007 Proxy
Statement under the heading "Certain Relationships and Related Transactions and
Director Independence" and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information required by this item is incorporated herein by reference from the
2007 Proxy Statement under the caption "Independent Public Accountants."


PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this report:

(1)      FINANCIAL STATEMENTS

         Report of Independent Registered Public Accounting Firm           FS-16

         Consolidated Balance Sheets at December 31, 2006 and 2005         FS-17

         Consolidated Statements of Income and Comprehensive Income
            for the Years Ended December 31, 2006, 2005 and 2004           FS-18

         Consolidated Statements of Cash Flows for the Years Ended
            December 31, 2006, 2005 and 2004                               FS-19

         Consolidated Statements of Stockholders' Equity for the Years
            Ended December 31, 2006, 2005 and 2004                         FS-20

                                       14
<PAGE>

         Notes to Consolidated Financial Statements               FS-21 to FS-34

(2)      FINANCIAL STATEMENT SCHEDULES

         Schedule II - Valuation and Qualifying Accounts                      17

         All schedules omitted are inapplicable or the information required is
         included in either the consolidated financial statements or the related
         notes to the consolidated financial statements.

(3)      EXHIBITS

         The Exhibits filed with or incorporated by reference into this report
         are listed in the following Index to Exhibits.























                                       15
<PAGE>

EXHIBIT INDEX

NO.             DESCRIPTION

3.1       Restated Certificate of Incorporation of Kinark Corporation, as
          amended on June 6, 1996 (incorporated by reference to Exhibit 3.1 of
          the Company's Pre-Effective Amendment No. 1 to Registration Statement
          on Form S-3, Registration No. 333-4937, filed with the Commission on
          June 7, 1996).

3.2       Amended and Restated Bylaws of Kinark Corporation (incorporated by
          reference to Exhibit 3.1 to the Company's Quarterly Report on Form
          10-Q dated March 31, 1996)

10.1      Credit Agreement, dated September 24, 1999, between Kinark
          Corporation, a Delaware corporation, and Bank One, Oklahoma, N.A.,
          National Association, a national banking association.

10.1.1    Amendment One to Credit Agreement, March 30, 2001.

10.1.2*   Amendment Two to Amended and Restated Credit Agreement, November 26,
          2001.

10.1.3    Amendment Three to Amended and Restated Credit Agreement, September
          26, 2003 (incorporated by reference to the Company's Form 10-Q filed
          with the Commission on November 7, 2003.

10.1.4*   Amendment Four to Amended and Restated Credit Agreement, December 15,
          2004.

10.1.5    Amendment Five to Amended and Restated Credit Agreement, February 28,
          2005 (incorporated by reference to the Company's Form 8-K filed with
          the Commission on March 4, 2005).

10.2**    2004 Incentive Stock Plan, as amended (incorporated by reference to
          the Company's Form 8-K filed with the Commission on October 3, 2006).

10.2.1**  Form of Stock Option Agreement (incorporated by reference to the
          Company's Form 8-K filed with the Commission on March 18, 2005).

10.2.2**  Schedule A to Stock Option Agreement (incorporated by reference to the
          Company's Form 8-Kfiled with the Commission on March 18, 2005).

10.3**    Director Stock Unit Program, as amended (incorporated by reference to
          the Company's Form 8-K filed with the Commission on February 17,
          2006).

21.*      Subsidiaries of the Registrant.

23.*      Consent of Independent Registered Public Accounting Firm.

24.1*     Power of attorney from Directors: Linwood J. Bundy, Ronald J. Evans,
          T. Stephen Gregory, Gilbert L. Klemann, II, Patrick J. Lynch, Joseph
          J. Morrow and John H. Sununu.

31.1*     Certification pursuant to Section 302 of the Sarbanes, Oxley Act of
          2002.

31.2*     Certification pursuant to Section 302 of the Sarbanes, Oxley Act of
          2002.

32*.      Certifications pursuant to 18 U.S.C. Section 1350, as adopted by
          Section 906 of the Sarbanes-Oxley Act of 2002.

99*       Cautionary Statements by the Company Regarding Forward Looking
          Statements.

          *Filed Herewith. **Indicates management contract or compensation plan.

                                       16
<PAGE>

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS


YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004:


                                   Balance at                           Balance
                                   Beginning                            at End
Description                         of Year    Additions   Deductions   of Year
--------------------------------------------------------------------------------

Allowance for doubtful receivables
and credit memos(deducted from
accounts receivable)

2006                               $124,000     $100,000     $27,000    $197,000

2005                                257,000       29,000     162,000     124,000

2004                                339,000       50,000     132,000     257,000

















                                       17
<PAGE>



SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, as duly authorized.

                                          NORTH AMERICAN GALVANIZING
                                          & COATINGS, INC. (Registrant)

Date: February 14, 2007                   By: /s/ Beth B. Hood
                                              ---------------------
                                          Beth B. Hood
                                          Vice President and
                                          Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on February 14, 2007, by the following persons on behalf
of the Registrant and in the capacities indicated.

/s/ Joseph J. Morrow*                             /s/ Patrick J. Lynch*
---------------------                             ---------------------
Joseph J. Morrow, Non-Executive                   Patrick J. Lynch, Director
Chairman of the Board
                                                  /s/ Gilbert L. Klemann, II*
/s/ Ronald J. Evans*                              ---------------------------
--------------------                              Gilbert L. Klemann, II
Ronald J. Evans, President and
Chief Executive Officer (Principal                /s/ John H. Sununu*
Executive Officer), and Director                  -------------------
                                                  John H. Sununu, Director
/s/ Beth B. Hood
----------------
Beth B. Hood, Vice President,
Chief Financial Officer (Principal
Financial and Accounting Officer),
and Secretary

/s/ Linwood J. Bundy*
--------------------
Linwood J. Bundy, Director

/s/ T. Stephen Gregory*
----------------------
T. Stephen Gregory, Director


*Beth B. Hood, by signing her name hereto, does hereby sign this Annual Report
on Form 10-K on behalf of each of the directors and officers of the Registrant
after whose typed names asterisks appear pursuant to powers of attorney duly
executed by such directors and officers and filed with the Securities and
Exchange Commission as exhibits to this report.


                                            By: /s/ Beth B. Hood
                                                --------------------------
                                            Beth B. Hood, Attorney-in-fact

                                       18
<PAGE>
INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS, CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA


                                                                       PAGE

Management's Discussion and Analysis                               FS-1 to FS-14

Management's Responsibility for Financial Statements                   FS-15

Report of Independent Registered Public Accounting Firm                FS-16

Consolidated Balance Sheets                                            FS-17

Consolidated Statements of Income and Comprehensive Income             FS-18

Consolidated Statements of Cash Flows                                  FS-19

Consolidated Statements of Stockholders' Equity                        FS-20

Notes to Consolidated Financial Statements                        FS-21 to FS-34

Quarterly Results                                                      FS-35

Selected Financial Data                                                FS-36













                                       19
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

GENERAL

North American Galvanizing ("NAG") is a leading provider of corrosion protection
for iron and steel components fabricated and owned by its customers. Hot dip
galvanizing is the process of applying a zinc coating to fabricated iron or
steel material by immersing the material in a bath consisting primarily of
molten zinc.


OVERVIEW

The Company's galvanizing plants offer a broad line of services including
centrifuge galvanizing for small threaded products, sandblasting, chromate
quenching, polymeric coatings, and proprietary INFRASHIELDsm Coating Application
Systems for polyurethane protective linings and coatings over galvanized
surfaces. The Company's structural and chemical engineers provide customized
assistance with initial fabrication design, project estimates and steel
chemistry selection.

The Company's galvanizing and coating operations are composed of eleven
facilities located in Colorado, Kentucky, Missouri, Ohio, Oklahoma, Tennessee
and Texas. These facilities operate galvanizing kettles ranging in length from
16 feet to 62 feet, and have lifting capacities ranging from 12,000 pounds to
40,000 pounds.






                                      FS-1
<PAGE>
The Company maintains a sales and service network coupled with its galvanizing
plants, supplemented by national account business development at the corporate
level. In 2006, the Company galvanized in excess of 400,000,000 pounds of steel
products for approximately 1,700 customers nationwide.

All of the Company's sales are generated for customers whose end markets are
principally in the United States. The Company markets its galvanizing and
coating services directly to its customers and does not utilize agents or
distributors. Although hot dip galvanizing is considered a mature service
industry, the Company is actively engaged in developing new markets through
participation in industry trade shows, metals trade associations and
presentation of technical seminars by its national marketing service team.

Hot dip galvanizing provides metals corrosion protection for many product
applications used in commercial, construction and industrial markets. The
Company's galvanizing can be found in almost every major application and
industry that requires corrosion protection where iron or steel is used,
including the following end user markets:

     o    highway and transportation

     o    power transmission and distribution

     o    wireless and telecommunications

     o    utilities

     o    petrochemical processing

     o    industrial grating

     o    infrastructure - buildings, airports, bridges and power generation

     o    wastewater treatment

     o    fresh water storage and transportation

     o    pulp and paper

     o    pipe and tube

     o    food processing

     o    agricultural (irrigation systems)

     o    recreation (boat trailers, marine docks, stadium scaffolds)

     o    bridge and pedestrian handrail, and

     o    original equipment manufactured products, including general
          fabrication.

As a value-added service provider, the Company's revenues are directly
influenced by the level of economic activity in the various end markets that it
serves. Economic activity in those markets that results in the expansion and/or
upgrading of physical facilities (i.e., construction) may involve a time-lag
factor of several months before translating into a demand for galvanizing
fabricated components. Despite the inherent seasonality associated with large
project construction work, the Company maintains a relatively stable revenue
stream throughout the year by offering fabricators, large and small, reliable
and rapid turn-around service.

The Company records revenues when the galvanizing processes and inspection
utilizing industry-specified standards are completed. The Company generates all
of its operating cash from such revenues, and utilizes a line of credit secured
by its underlying accounts receivable and zinc inventory to facilitate working
capital needs.

                                      FS-2
<PAGE>
Each of the Company's galvanizing plants operates in a highly competitive
environment underscored by pricing pressures, primarily from other public and
privately-owned galvanizers and alternative forms of corrosion protection, such
as paint. The Company's long-term response to these challenges has been a
sustained strategy focusing on providing a reliable quality of galvanizing to
standard industry technical specifications and rapid turn-around time on every
project, large and small. Key to the success of this strategy is the Company's
continuing commitment and long-term record of reinvesting earnings to upgrade
its galvanizing facilities and provide technical innovations to improve
production efficiencies; and to construct new facilities when market conditions
present opportunities for growth. The Company is addressing long-term
opportunities to expand its galvanizing and coatings business through programs
designed to increase industry awareness of the proven, unique benefits of
galvanizing for metals corrosion protection. Each of the Company's independently
operated galvanizing plants is linked to a centralized system involving sales
order entry, facility maintenance and operating procedures, quality assurance,
purchasing and credit and accounting that enable each plant to focus on
providing galvanizing and coating services in the most cost-effective manner.

The principal raw materials essential to the Company's galvanizing and coating
operations are zinc and various chemicals which are normally available for
purchase in the open market.


KEY INDICATORS

Key industries which historically have provided the Company some indication of
the potential demand for galvanizing in the near-term, (i.e., primarily within a
year) include highway and transportation, power transmission and distribution,
telecommunications and the level of quoting activity for regional metal
fabricators. In general, growth in the commercial/industrial sectors of the
economy generates new construction and capital spending which ultimately impacts
the demand for galvanizing.

Key operating measures utilized by the Company include new orders, zinc
inventory, tons of steel galvanized, revenue, pounds and labor costs per hour,
zinc usage related to tonnage galvanized, and lost-time safety performance.
These measures are reported and analyzed on various cycles, including daily,
weekly and monthly.

The Company utilizes a number of key financial measures to evaluate the
operations at each of its galvanizing plants, to identify trends and variables
impacting operating productivity and current and future business results, which
include: return on capital employed, sales, gross profit, fixed and variable
costs, selling and general administrative expenses, operating cash flows,
capital expenditures, interest expense, and a number of ratios such as profit
from operations and accounts receivable turnover. These measures are reviewed by
the Company's operating and executive management each month, or more frequently,
and compared to prior periods, the current business plan and to standard
performance criteria, as applicable.


KEY DEVELOPMENTS

During the period January, 2003 through February 2005, the Company reported a
number of developments supporting its strategic program to reposition its
galvanizing business in the national market.

On February 28, 2005, NAGalv-Ohio, Inc., a subsidiary of North American
Galvanizing Company, purchased the hot-dip galvanizing assets of a galvanizing
facility located in Canton, Ohio. The transaction was structured as an asset
purchase, pursuant to an Asset Purchase Agreement dated February 28, 2005 by and
between NAGalv-Ohio, Inc., and the privately owned Gregory Industries, Inc. for
all of the plant, property, and equipment of Gregory Industries'
after-fabrication hot dip galvanizing operation. Sales for the Canton
galvanizing operation for its most recent fiscal year ended May 28, 2004 were
approximately $7 million. Operating results of the purchased galvanizing assets
are included in the Company's financial statements commencing from the date of
purchase on February 28, 2005.

                                      FS-3
<PAGE>
This strategic expansion provides NAG an important, established customer base of
major fabricators serving industrial, OEM, and highway markets as well as
residential and commercial markets for lighting poles. Canton's 52 foot long
dipping kettle is designed to handle large steel structures, such as bridge
beams, utility poles and other steel structural components that require
galvanizing for extended-life corrosion protection. The Canton plant also
processes small parts used in construction, such as nuts and anchor rods, in a
dedicated facility with a smaller 16 foot dipping kettle and a spinner
operation.

In January 2003, the Company opened its St. Louis galvanizing plant, replacing a
smaller plant at the same location. This larger facility is providing NAG a
strategic base for extending its geographic area of service. A 51-foot kettle at
this facility provides the largest galvanizing capacity in the St. Louis region.
In 2004, production tonnage at St. Louis more than doubled compared to
production at the plant it replaced.

In January 2003, the Company expanded services at its Nashville galvanizing
plant with the announced installation of a state-of-the-art spinner line to
galvanize small products, including bolts and threaded material.

In June 2003, the Company wrote-off its investment in the formerly idled
Houston-Cunningham galvanizing plant. The write-off resulted in a net loss on
the abandoned assets of $754,000, net of taxes of $443,000 in 2003. The net loss
from operations for the Cunningham plant was $77,000, net of taxes of $45,000,
for the year ended December 31, 2003. The abandoned Cunningham plant has been
classified as a discontinued operation and its expenses are not included in the
results of continuing operations discussed below.

Effective in 2001, the Company adopted the units of production method of
depreciation, for certain equipment at new galvanizing plants and for
significant expansions of existing plants. The units of production method of
depreciation was based on projected total tonnage to be processed over the
estimated lives of the respective plant equipment. The straight-line method of
depreciation was continued for all other plant and equipment. In recognition of
subsequent experience that indicated the equipment being depreciated under the
units of production method was affected to a greater extent by age than by the
level of production activity taking place within the plants, effective July 1,
2006, the Company changed its depreciation method for these assets, with an
aggregate cost basis of $5.9 million, from the units of production method to the
straight-line method. This change in accounting estimate effected by a change in
accounting principle is preferable because the straight-line method better
allocates the cost of these assets to accounting periods in a systematic and
rational manner more closely related to the assets' pattern of consumption.

The impact on current year earnings from this change, which was applied
prospectively beginning July 1, 2006, was a decrease in operating income of
$348,000, a decrease in net income of $216,000 and a reduction in basic and
diluted earnings per share of $.03 for the year ended December 31, 2006.


                                      FS-4
<PAGE>
RESULTS OF OPERATIONS

The following table shows the Company's results of operations:
<TABLE><CAPTION>
                                                         (DOLLARS IN THOUSANDS)
                                                         YEAR ENDED DECEMBER 31,
                            ---------------------------------------------------------------------------------
                                      2006                         2005                        2004
                            ------------------------     ------------------------    ------------------------
                                             % OF                         % OF                        % OF
                              AMOUNT        SALES          AMOUNT        SALES         AMOUNT        SALES
                            ----------    ----------     ----------    ----------    ----------    ----------
<S>                         <C>           <C>            <C>           <C>           <C>           <C>
Sales                       $   74,054         100.0%    $   47,870         100.0%   $   35,822         100.0%

Cost of sales                   54,662          73.8%        35,969          75.1%       25,814          72.1%
Selling, general and
  administrative expenses        8,058          10.9%         7,196          15.0%        5,917          16.5%
Depreciation and
  amortization                   2,975           4.0%         2,532           5.3%        2,701           7.5%
                            ----------    ----------     ----------    ----------    ----------    ----------
Operating income                 8,359          11.3%         2,173           4.5%        1,390           3.9%

Interest expense                   867           1.2%         1,074           2.2%          764           2.1%
Interest income                    (62)         (0.1)%

Other income                        --            --             --            --           (25)           --
                            ----------    ----------     ----------    ----------    ----------    ----------
Income from operations
  before income taxes            7,554          10.2%         1,099           2.3%          651           1.8%

Income tax expense               3,019           4.1%           455           1.0%          248           0.7%
                            ----------    ----------     ----------    ----------    ----------    ----------

Net income                  $    4,535           6.1%    $      644           1.3%   $      403           1.1%
                            ==========    ==========     ==========    ==========    ==========    ==========
</TABLE>


2006 COMPARED TO 2005

SALES---Sales for the year ended December 31, 2006 increased 55% over the prior
year due to a higher average sales price and a 10% increase in volume. Sales
prices have increased in response to increases in zinc costs. In 2006, average
selling prices for galvanizing and related coating services increased 41% over
2005. The London Metals Exchange (LME) market price for zinc in 2006 averaged
$1.49 per pound, compared to $.63 per pound in 2005, representing a 137%
increase.

A general improvement in hot-dip galvanizing demand due to increased commercial
spending and higher construction activity led to the volume increase in 2006
compared to 2005. The Canton, Ohio galvanizing facility was purchased on
February 28, 2005. The results for 2006 include a full year for Ohio versus only
10 months included in 2005 results. The impact of Ohio revenues on total
revenues, when comparing variances from 2006 to 2005, is minimal.

COST OF SALES---The increase in cost of sales from 2005 to 2006 resulted mainly
from an increase in zinc costs and a 10% increase in volume. Forward purchases
of zinc at prices lower than current market during the first six months of 2006
reduced cost of sales by $2.9 million. Other items impacting cost of sales
include decreased utility costs, $.4 million, and decreased labor costs, $.2
million, offset by an increase in plant overhead, primarily repairs and
maintenance, $.7 million.

                                      FS-5
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES--- SG&A increased $.9
million, or 12.0%, from 2005 to 2006, but decreased as a percent of revenues
from 15% in 2005 to 10.9% in 2006. The increase is due to increases in personnel
costs, $.6 million, board of director fees $.2 million, information technology
and outsourced services related to Sarbanes-Oxley 404 compliance efforts, $.2
million, legal fees related to the Lake River litigation, $.1 million, and other
increases, $.1 million, offset by reductions in shareholder services, $.2
million, and decrease in audit and tax expenses, $.1 million.

DEPRECIATION EXPENSE--- Depreciation expense for 2006 increased $.4 million from
2005, resulting primarily from a change in depreciation method for two newer
galvanizing facilities. The Company previously used the units of production
method for machinery and equipment at these facilities. Effective July 1, 2006,
the Company changed to the straight-line method.

OPERATING INCOME--- Operating income increased $6.2 million from 2005 to 2006.
The Company's ability to increase average selling prices due to zinc cost
increases had a favorable impact on operating income of $3.5 million. Forward
purchases of zinc at prices lower than current market during the first six
months of 2006 contributed $2.9 million to operating income. Other items
impacting operating income include increased sales volume, $1.2 million,
decreased utility costs, $.4 million, and decreased labor costs, $.2 million,
offset by increases in selling, general, and administrative costs, $.9 million,
plant overhead, primarily repairs and maintenance, $.7 million, and increase in
depreciation expense, $.4 million.

INTEREST EXPENSE AND INTEREST INCOME--- Interest expense decreased $.2 million
from 2006 to 2005, due to decreased debt outstanding resulting from the payment
of long-term debt obligations and the August 31, 2006 payment of the
subordinated notes payable. In 2006, the Company recorded interest income of $.1
million resulting from investing excess cash in short-term investments,
primarily overnight repurchase agreements.

INCOME TAXES--- The Company's effective income tax rates for 2006 and 2005 were
40.0% and 41.4%, respectively. The effective tax rates differ from the federal
statutory rate primarily due to state income taxes and minor adjustments to
previous tax estimates based on actual tax returns filed.

NET INCOME--- For 2006, the Company reported net income of $4.5 million compared
to net income of $.6 million for 2005. The increase in net income is primarily a
result of the increase in revenues due to increases in sales price and volume.

2005 COMPARED TO 2004

SALES--- Sales for the year ended December 31, 2005 increased 34% over the prior
year due primarily to contribution from the Canton, Ohio galvanizing facility
that was purchased February 28, 2005. Same plant revenues for the year improved
14% over 2004. North American Galvanizing's same plants started the year with a
period of slow demand in the first two months. A general increase in demand due
to increased commercial spending and higher construction activity led to a
positive trend in same plant revenues continuing throughout the remainder of
2005. Sales volumes at same plants for the fourth quarter of 2005 were 19%
higher than the same period in 2004 and 43% higher in total, including the Ohio
plant. Sales volumes at same plants during 2005 were 11% higher than 2004 and
30% higher in total, including Ohio.

In 2005, average selling prices for galvanizing and related coating services
increased 2% over 2004. General price increases were communicated to customers
during the third quarter of 2005. Prices during the 4th quarter 2005 were on
average 8% higher than prices during the same period in 2004.

                                      FS-6
<PAGE>
COST OF SALES---

Cost of sales, as a percent of sales, increased 3.0% from 2004 to 2005. Of the
3% increase in cost of sales as a percent of sales, 1.7% was due to increased
costs in the Canton, Ohio galvanizing facility compared to same plants. The
primary difference in costs is higher labor costs at the Ohio plant. As part of
the transition program started with the February 28, 2005 purchase, management
is focused on improving labor efficiency, measured by pounds-per-man-hour and
cost-per-man-hour, at this facility.

Higher zinc and natural gas costs in 2005 were responsible for the remainder of
the increase in cost of sales as a percent of sales, 1.3%.

SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES--- SG&A increased $1.3
million, or 21.6%, from 2004 to 2005. $.5 million of the increase is due to
selling, general and administrative costs related to the Canton, Ohio
galvanizing facility acquired in early 2005, $.2 million due to audit and tax
fees and professional fees related to compliance with Sarbanes Oxley 404
requirements, $.2 million due to legal fees related to the Lake River lawsuit,
$.1 million related to increased Board of Director fees, $.1 million related to
shareholder services, $.1 million due to increases in compensation for
administrative and office personnel and $.1 million in other expenses.

Selling, general, and administrative expenses, as a % of sales, decreased from
16.5% in 2004 to 15.0% in 2005.

DEPRECIATION EXPENSE--- Depreciation expense for 2005 decreased $.2 million from
2004. Most of the decrease for 2005 relates primarily to assets becoming fully
depreciated, $.4 million, offset by increased depreciation expense for the
Canton, Ohio galvanizing plant and equipment of $.2 million.

OPERATING INCOME---Operating income increased $.8 million from 2004 to 2005.
Operating income from the Ohio galvanizing facility purchased in 2005
contributed $.2 million to operating income. Operating income at same plants was
impacted negatively by higher zinc and utility costs, $1.3 million, along with
higher SG&A costs, $.8 million. Items having a positive impact on operating
income at same plants include increased sales volume, $1.1 million, the increase
of average selling prices due to zinc cost increases, $.9 million, lower
depreciation expense, $.4 million, and lower labor and other overhead costs, $.3
million.

INTEREST EXPENSE--- Interest expense increased to $1.1 million in 2005 from $.8
million in 2004, primarily due to higher interest rates on variable-rate debt
and higher debt related to the purchase of the Canton, Ohio galvanizing facility
in the first quarter of 2005.

INCOME TAXES--- The Company's effective income tax rates for 2005 and 2004 were
41.4% and 38.1%, respectively. The effective tax rates differ from the federal
statutory rate primarily due to state income taxes and minor adjustments to
previous tax estimates based on actual tax returns filed.

NET INCOME--- For 2005, the Company reported net income of $.6 million compared
to net income of $.4 million for 2004. The increase in net income is primarily a
result of the increase in sales volume.



LIQUIDITY AND CAPITAL RESOURCES

The Company's cash flow from operations and borrowings under credit facilities
have consistently been adequate to fund its current facilities working capital
and capital spending requirements. During 2006 and 2005, operating cash flow and
borrowings under credit facilities have been the primary sources of liquidity.

                                      FS-7
<PAGE>
The Company monitors working capital and planned capital spending to assess
liquidity and minimize cyclical cash flow.

Cash flow from operating activities was $6.6 million both in 2006 and in 2005.
In 2006, cash flow from operating activities reflected higher net income offset
by a decrease in net deferred tax liabilities, and a net cash outflow of $.7
million from other operating assets and liabilities compared to a net cash
inflow of $2.6 million from other operating assets and liabilities in the prior
year.

Capital expenditures for equipment and upgrade of existing galvanizing
facilities totaled $1.4 million in 2006. Cash of $5.2 million used in 2005
investing activities consisted of $4.2 million to acquire certain assets of
Gregory Industries' Inc. and capital expenditures of $1.0 million for equipment
to maintain galvanizing facilities. The Company expects base capital
expenditures for 2007 to approximate $4.0 million.

Cash used in financing activities for the year ended December 31, 2006 totaled
$4.5 million primarily due to the payment on long-term obligations of $4.7
million and early redemption of the $1.0 million in subordinated notes payable
scheduled to mature in February of 2007, offset by $.8 million received from the
exercise of stock options. In 2005, cash used in financing activities totaled
$.7 million, including proceeds from the sale of treasury stock of $.1 million,
payments of $.7 million to a bond sinking fund, and payment on long-term
obligations of $.1 million.

In February 2005, the Company amended the three-year bank credit agreement that
was scheduled to expire in December 2007 and extended its maturity to February
28, 2008. Subject to borrowing base limitations, the amended agreement provided
(i) an $8,000,000 maximum revolving credit facility for working capital and
general corporate purposes and (ii) a $5,001,000 term loan that combined the
outstanding principal balance of the existing term loan with additional
financing for the purchase of assets of a galvanizing facility (Note 2).

Term loan payments are based on a seven-year amortization schedule with equal
monthly payments of principal and interest, and a final balloon payment in
February 2008. The term loan may be prepaid without penalty. The revolving line
of credit may be paid down without penalty, or additional funds may be borrowed
up to the maximum line of credit. At December 31, 2006, the Company had
additional borrowing capacity of $7.6 million, net of outstanding irrevocable
letters of credit, under the bank revolving line of credit based on the
borrowing base calculated under the agreement. At December 31, 2006, there were
no borrowings outstanding under the bank revolving line of credit, and $.4
million was reserved for outstanding irrevocable letters of credit to secure
payment of current and future workers' compensation claims.

Substantially all of the Company's accounts receivable, inventories, fixed
assets and the common stock of its subsidiary are pledged as collateral under
the agreement, and the credit agreement is secured by a full and unconditional
guaranty from NAG. Amounts borrowed under the agreement bear interest at the
prime rate of JPMorgan Chase Bank or the LIBOR rate, at the option of the
Company, subject to a rate margin adjustment determined by the Company's
consolidated debt service ratio. The interest rate on these borrowings was 8.5%
at December 31, 2006. In the event the Company fails to maintain a consolidated
debt service coverage ratio for any fiscal quarter of at least 1.25 to 1.00, the
Applicable LIBOR Rate Margin will be increased from 3.0% to 5.75% and the
Applicable Prime Rate Margin will be increased from .25% to 3.00%. Thereafter,
the increased rate margin will remain in effect until such time as the Company
has maintained a consolidated debt service coverage ratio greater than or equal
to 1.25 to 1.00 for a subsequent fiscal quarter.

In the event the Company fails to maintain a consolidated EBITDA to capital
expenditures ratio for any fiscal quarter of at least 1.00 to 1.00, the increase
in the Applicable LIBOR Rate Margin ranges from 3.75% to 5.75%, and the increase
in the Applicable Prime Rate Margin ranges from 1.00% to 3.00%.

                                      FS-8
<PAGE>
Amounts borrowed under the bank credit facilities bore interest ranging from
4.21% to 8.5% during the three years ended December 31, 2006 and an effective
rate of 8.5% at December 31, 2006 and 7.5% at December 31, 2005.

The bank credit agreement requires the Company to maintain compliance with
covenant limits for current ratio, debt to tangible net worth ratio, debt
service coverage ratio and a capital expenditures ratio. At December 31, 2006
the Company was in compliance with all of the covenant limits and the actual
financial ratios compared to the required ratios, were as follows: Current Ratio
- Actual 1.67 versus minimum required of 1.1; Debt to Tangible Net Worth Ratio -
Actual 1.02 versus maximum permitted of 2.50; Debt Service Coverage Ratio -
Actual 3.45 versus minimum permitted of 1.25; Capital Expenditures Coverage
Ratio - Actual 1.99 versus minimum required of 1.0.

The Company has various commitments primarily related to industrial revenue
bonds, long-term debt, vehicle and equipment operating leases, capital lease
obligations, facilities operating leases, and zinc purchase commitments. The
Company's off-balance sheet contractual obligations at December 31, 2006,
consist of $789,000 for vehicle and equipment operating leases, $788,000 for
zinc purchase commitments, and $860,000 for long-term operating leases for three
galvanizing facilities. The various leases for galvanizing facilities, including
option renewals, expire from 2015 to 2017. A lease for galvanizing equipment
expires in 2007. The vehicle leases expire annually on various schedules through
2012. NAG periodically enters into fixed price purchase commitments with
domestic and foreign zinc producers to purchase a portion of its requirements
for its hot dip galvanizing operations; commitments for the future delivery of
zinc can be for up to one year.

The Company expects to fund these commitments with cash generated from
operations and continuation of existing bank credit agreements as they mature.
The Company's contractual obligations and commercial commitments as of December
31, 2006, including estimated interest payments, using interest rates as of
December 31, 2006, are as follows (in thousands):
<TABLE><CAPTION>
                                                                                     MORE
                                            LESS THAN       1-3          3-5         THAN
                                 TOTAL      ONE YEAR       YEARS        YEARS       5 YEARS
                              ----------   ----------   ----------   ----------   ----------
<S>                           <C>          <C>          <C>          <C>          <C>
Industrial revenue bonds      $    6,022   $    1,041   $    2,987   $    1,994   $       --
Long-term debt                     4,733        1,126        3,590            6           10
Facilities operating leases          858          207          433          108          110
Vehicle and equipment
  operating leases                   789          529          240           20           --
Zinc purchase commitments            788          788           --           --           --
Capital lease obligations            382           84          252           46           --
                              ----------   ----------   ----------   ----------   ----------
Total contractual cash
  obligations                 $   13,572   $    3,775   $    7,502   $    2,174   $      120
                              ==========   ==========   ==========   ==========   ==========

Other contingent
  commitment:
  Letters of credit*          $      389   $      389   $       --   $       --   $       --
</TABLE>

     *The Company has outstanding letters of credit totaling approximately
     $6,098,000, which includes $5,709,000 related to the Company's industrial
     revenue bonds shown in the table of contractual obligations above.

                                      FS-9
<PAGE>
SHARE REPURCHASE PROGRAM

In August 1998, the Board of Directors authorized the Company to repurchase up
to $1,000,000 of its common stock in private or open market transactions. In
2006, the Company repurchased 735 shares at an average price per share of $5.31,
bringing the total number of shares repurchased through December 31, 2006 to
132,996 at an average price of $1.79 per share totaling $238,159.


ENVIRONMENTAL MATTERS

The Company's facilities are subject to extensive environmental legislation and
regulations affecting their operations and the discharge of wastes. The cost of
compliance with such regulations was approximately $1,333,000, $1,354,000, and
$1,053,000 in 2006, 2005 and 2004, respectively, for the disposal and recycling
of wastes generated by the galvanizing operations.

On August 30, 2004, the Company was informed by counsel for the Metropolitan
Water Reclamation District of Greater Chicago (the "Water District") that the
Water District had, on August 25, 2004 filed a Second Amended Complaint in the
United States District Court, Northern District of Illinois, Eastern Division,
naming North American Galvanizing & Coatings, Inc. (formerly known as Kinark
Corporation) as an added defendant. Counsel for the Water District also gave the
Company notice of the Water District's intent to file (or amend the Complaint to
include) a Citizens Suit under the Resource Compensation and Recovery Act
("RCRA") against North American Galvanizing & Coatings, Inc., pursuant to
Section 7002 of RCRA, 42 U.S.C. Section 6972. This Second Amended Complaint
seeks enforcement of an August 12, 2004 default judgment in the amount of
$1,810,463.34 against Lake River Corporation and Lake River Holding Company,
Inc. in connection with the operation of a storage terminal by Lake River
Corporation in violation of environmental laws. Lake River Corporation conducted
business as a subsidiary of the Company until September 30, 2000, at which time
Lake River Corporation was sold to Lake River Holding Company, Inc. and ceased
to be a subsidiary of the Company. The Second Amended Complaint asserts that
prior to the sale of Lake River Corporation, the Company directly operated the
Lake River facility and, accordingly, seeks to have the Court pierce the
corporate veil of Lake River Corporation and enforce the default judgment order
of August 12, 2004 against the Company. The Company denies the assertions set
forth in the Water District's Complaint and on November 13, 2004 filed a partial
motion for dismissal of the Second Amended Complaint.

In December 2004, the Water District filed a Third Amended complaint in the
litigation, adding two claims: (1) a common law claim for nuisance; and (2) a
claim under the federal Resource Conservation and Recovery Act, in which the
Water District argues that the Company is responsible for conditions on the
plaintiff's property that present an "imminent and substantial endangerment to
human health and the environment." In January 2005, the Company filed a partial
motion to dismiss the Third Amended Complaint. On April 12, 2005, the Court
issued an order denying in part and granting in part the Company's partial
motion to dismiss plaintiff's third amended complaint. The Company filed an
appeal with the Seventh Circuit Court of Appeals requesting dismissal of the
sole CERCLA claim contained in the Third Amended Complaint that was not
dismissed by the United States District Court's April 12, 2005 order. On January
17, 2007, the Seventh Circuit affirmed the judgment of the United States
District Court, stating that the Water District has a right of action under
CERCLA. The Company is evaluating the judgment and expects to file a motion for
reconsideration with the Seventh Circuit. Meanwhile, litigation and discovery in
the trial court have been stayed pending mediation. The mediation is governed by
a Settlement Protocol and Standstill Agreement (the "Protocol") negotiated and
signed by the parties. The Protocol states that the parties will minimize
discovery to focus on mediation. The court approved the Protocol without setting
any deadlines for the case. If the mediation fails, the parties will resume
discovery and the litigation in the United States District Court will continue.

The Company has denied any liability with respect to this claim and intends to
vigorously defend this case. The Company has not recorded any liability related
to the Water District claim and the estimated timeframe for resolution is
unknown. The potential claim with respect to the Water District claim could
exceed the

                                      FS-10
<PAGE>
amount of the default judgment. As liability and piercing of the corporate veil
are being contested and neither a site evaluation nor a remediation plan has
been developed, the Company is unable to make a reasonable estimate of the
amount or range of loss, if any, that could result from an unfavorable outcome.
Such a liability, if any, could have a material adverse effect on the Company's
financial condition, results of operations, or liquidity.

NAG was notified in 1997 by the Illinois Environmental Protection Agency
("IEPA") that it was one of approximately 60 potentially responsible parties
("PRPs") under the Comprehensive Environmental Response, Compensation, and
Liability Information System ("CERCLIS") in connection with cleanup of an
abandoned site formerly owned by Sandoval Zinc Co. A number of the PRPs have
agreed to work together and with IEPA on a voluntary basis. The Company has been
and continues to participate in this volunteer group. The group has retained
consultants and legal representatives familiar with IEPA regulations. This
volunteer group, with its consultants, has cooperated with IEPA in attempting to
better define the environmental issues associated with the Sandoval Zinc site.
To that extent, this voluntary group prepared and submitted to IEPA in August
2000 a work plan. The purpose of this work plan is to attempt to define the
extent of environmental remediation that might be required, assess risks, and
review alternatives to addressing potential remediation. The estimated timeframe
for resolution of the IEPA contingency is unknown. The IEPA has yet to respond
to this proposed work plan or suggest any other course of action, and there has
been no activity in regards to this issue since 2001. The Company does not have
any liability accrued relating to the IEPA matter. Until the work plan is
approved and completed, the range of potential loss or remediation, if any, is
unknown. In addition, the allocation of potential loss between the 60
potentially responsible parties is unknown and not reasonably estimable.
Therefore, the Company has no basis for determining potential exposure and
estimated remediation costs at this time.

The Company is committed to complying with all federal, state and local
environmental laws and regulations and using its best management practices to
anticipate and satisfy future requirements. As is typical in the galvanizing
business, the Company will have additional environmental compliance costs
associated with past, present, and future operations. Management is committed to
discovering and eliminating environmental issues as they arise. Because of the
frequent changes in environmental technology, laws and regulations management
cannot reasonably quantify the Company's potential future costs in this area.


CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires that management
apply accounting policies and make estimates and assumptions that affect results
of operations and the reported amounts of assets and liabilities. The following
areas are those that management believes are important to the financial
statements because they require significant judgment and estimation.

REVENUE RECOGNITION--Revenue is recognized when earned and realized or
realizable in accordance with Staff Accounting Bulletin (SAB) 104. This includes
satisfying the following criteria: the arrangement with the customer is evident,
through the receipt of a purchase order or a written agreement; the sales price
is fixed or determinable; coating services have been completed, including
inspection by the Company according to American Society for Testing and
Materials ("ASTM") standards; and collectibility is reasonably assured. The
Company does not accept title to customers' products, thus, revenue does not
include the value of the customers' products. Although most customers make
arrangements for transportation, if the Company makes transportation
arrangements, freight and shipping billed to customers is included in sales, and
the cost of freight and shipping is included in cost of sales.

INVENTORIES--Inventories are stated at the lower of cost (LIFO basis) or market.
Since substantially all of the Company's inventory is raw zinc used in the
galvanizing of customers' products, market value is based on an estimate of the
value added to the cost of raw zinc as a result of the galvanizing service.

                                      FS-11
<PAGE>
SELF-INSURANCE RESERVES--The reserves for the self-insured portion of workers
compensation and health insurance coverage is based on historical data and
current trends. Estimates for claims incurred and incurred but not reported
claims are included in the reserves. These estimates may be subject to
adjustment if the Company's actual claims are significantly different than its
historical experience. The Company has obtained insurance coverage for medical
claims exceeding $75,000 and workers' compensation claims exceeding $150,000 per
occurrence, respectively, and has implemented safety training and other programs
to reduce workplace accidents.

IMPAIRMENT OF LONG-LIVED ASSETS--The Company reviews long-lived assets for
impairment using forecasts of future cash flows to be generated by those assets.
These cash flow forecasts are based upon expected tonnage to be galvanized and
the margin to be earned by providing that service to customers. These
assumptions are susceptible to the actions of competitors and changes in
economic conditions in the industries and geographic markets the Company serves.

ENVIRONMENTAL--The Company expenses or capitalizes, where appropriate,
environmental expenditures that relate to current operations as they are
incurred. Such expenditures are expensed when they are attributable to past
operations and are not expected to contribute to current or future revenue
generation. The Company records liabilities when remediation or other
environmental assessment or clean-up efforts are probable and the cost can be
reasonably estimated.

GOODWILL--Pursuant to the provisions of SFAS No. 141, "Business Combinations"
and SFAS No. 142, "Goodwill and Other Intangible Assets," which requires
management to estimate the fair value of the Company's reporting units, the
Company conducts an annual impairment test of goodwill during the second quarter
of each year unless circumstances arise that require more frequent testing. The
determination of fair value is dependent upon many factors including, but not
limited to, management's estimate of future cash flows of the reporting units
and discount rates. Any one of a number of future events could cause management
to conclude that impairment indicators exist and that the carrying value of
these assets will not be recovered. During the second quarter of 2005, the
Company completed the annual impairment test of goodwill for 2005 and concluded
goodwill was not impaired.

NEW ACCOUNTING STANDARDS--In June, 2006, the FASB issued FIN 48, ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES. This Interpretation clarifies the accounting for
uncertainty in income taxes recognized in the financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 is effective for fiscal years beginning after December 15,
2006. The Company is currently in the process of evaluating the impact that the
adoption of FIN 48 will have on its financial position, consolidated results of
operations and cash flows.

In September 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS ("SFAS
157"). SFAS 157 defines fair value, establishes a framework for measuring fair
value under GAAP, and expands disclosures about fair value measurements. SFAS
157 is effective for fiscal years beginning after November 15, 2007. The Company
is currently in the process of evaluating the impact that the adoption of SFAS
157 will have on its financial position, consolidated results of operations and
cash flows, but does not expect it to have a material impact.

In November 2004, the FASB issued SFAS No. 151, INVENTORY COSTS-AN AMENDMENT OF
ARB NO. 43, CHAPTER 4 ("SFAS 151"). SFAS 151 amends the guidance in ARB No. 43,
Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling costs, and wasted material (spoilage).
Among other provisions, the new rule requires that items such as idle facility
expense, excessive spoilage, double freight, and rehandling costs be recognized
as current-period charges regardless of whether

                                      FS-12
<PAGE>
they meet the criterion of "so abnormal" as stated in ARB No. 43. Additionally,
SFAS 151 requires that the allocation of fixed production overhead to the costs
of conversion be based on the normal capacity of the production facilities. SFAS
151 is effective for fiscal years beginning after June 15, 2005 and was adopted
by NAG on January 1, 2006. Adoption of SFAS 151 had no material impact on its
consolidated results of operations, financial condition and cash flows.

The Company adopted Statement of Financial Accounting Standards No. 123(R),
"Share-Based Payment" ("SFAS No. 123(R)") under the modified prospective method
on January 1, 2006. Under the "modified prospective" method, compensation cost
is recognized in the financial statements beginning with the effective date,
based on the requirements of SFAS No. 123(R) for all share-based payments
granted after that date, and based on the requirements of Statement of Financial
Accounting Standards No.123, "Accounting for Stock Based Compensation" ("SFAS
No. 123") for all unvested awards granted prior to the effective date of SFAS
No. 123(R).

SFAS No. 123(R) eliminates the intrinsic value measurement method of accounting
in APB Opinion 25 and generally requires measuring the cost of the employee
services received in exchange for an award of equity instruments based on the
fair value of the award on the date of the grant. The standard requires grant
date fair value to be estimated using either an option-pricing model which is
consistent with the terms of the award or a market observed price, if such a
price exists. Such costs must be recognized over the period during which an
employee is required to provide service in exchange for the award. The standard
also requires estimating the number of instruments that will ultimately be
issued, rather than accounting for forfeitures as they occur.

The compensation cost for the Plan was $99,000 for the year ended December 31,
2006. The effect of the adoption of SFAS No. 123 (R) on the consolidated
financial statements of the Company is reflected in the tabular information in
Footnote 1 to the Consolidated Financial Statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The Company's operations include managing market risks related to changes in
interest rates and zinc commodity prices.

INTEREST RATE RISK--The Company is exposed to financial market risk related to
changes in interest rates. Changing interest rates will affect interest paid on
the Company's variable rate debt. Variable rate debt aggregating $3,751,000 and
$7,769,000 was outstanding under the credit agreement at December 31, 2006 and
2005, respectively, with effective rates of 8.5% and 7.5%, respectively. Amounts
of variable rate debt outstanding under the industrial revenue bond agreement
were $5,265,000 and $5,933,750 at December 31, 2006 and 2005, respectively, with
an effective rate of 4.0% (see Note 6 to Consolidated Financial Statements). In
addition, the Company's fixed rate obligations consisting of $345,000 in capital
lease obligations with fixed rates between 6.7% and 7.5%, and a 9.5% note
payable were outstanding at December 31, 2006. The borrowings under all of the
Company's debt obligations at December 31, 2006 are due as follows: $1,609,000
in 2007; $3,912,000 in 2008; $926,000 in 2009, $976,000 in 2010, $987,000 in
2011 and $951,000 in years 2011 through 2015. Each increase of 10 basis points
in the effective interest rate would result in an annual increase in interest
charges on variable rate debt of approximately $9,000 based on December 31, 2006
outstanding borrowings. The actual effect of changes in interest rates is
dependent on actual amounts outstanding under the various loan agreements. The
Company monitors interest rates and has sufficient flexibility to renegotiate
the loan agreement, without penalty, in the event market conditions and interest
rates change.

ZINC PRICE RISK--NAG periodically enters into fixed price purchase commitments
for physical delivery with domestic and foreign zinc producers to purchase a
portion of its zinc requirements for its hot dip galvanizing operations.
Commitments for the future delivery of zinc, typically up to one year, reflect
rates quoted on the London Metals Exchange. At December 31, 2006 and 2005, the
aggregate fixed price commitments for the

                                      FS-13
<PAGE>
procurement of zinc were approximately $788,000 and $3,424,000, respectively.
With respect to the zinc fixed price purchase commitments, a hypothetical
decrease of 10% in the market price of zinc from the December, 2006 and 2005
levels would represent potential lost gross margin opportunity of approximately
$78,800 and $342,000, respectively.

The Company's financial strategy includes evaluating the selective use of
derivative financial instruments to manage zinc and interest costs. As part of
its inventory management strategy, the Company expects to continue evaluating
hedging instruments to minimize the impact of zinc price fluctuations. The
Company's current zinc forward purchase commitments (see Note 8) are considered
derivatives, but the Company has elected to account for these purchase
commitments as normal purchases.


























                                      FS-14
<PAGE>

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of North American Galvanizing & Coatings, Inc. is responsible for
the integrity and accuracy of the accompanying consolidated financial
statements. Management believes that the consolidated financial statements for
the three years ended December 31, 2006 have been prepared in conformity with
accounting principles, appropriate in the circumstances, generally accepted in
the United States. In preparing the consolidated financial statements,
management makes informed judgments and estimates where necessary to reflect the
expected effects of events and transactions that have not been completed. The
Company's disclosure controls, including operating procedures and guidelines,
ensure that material information required to be disclosed is appropriately and
timely recorded and communicated to management.

Management relies on a system of internal operating procedures and accounting
controls that allows it to meet its responsibility for the reliability of the
consolidated financial statements. This system provides reasonable assurance
that the Company's physical and intellectual assets are safeguarded and
transactions are recorded and processed in accordance with management's
authorization that permits the preparation of consolidated financial statements
in accordance with accounting principles generally accepted in the United
States. Management believes that the Company's system of internal operating
procedures and accounting controls provide reasonable assurance that errors that
could be material to the consolidated financial statements are prevented or
would be detected within a timely period.

The Audit Committee of the Board of Directors, composed of three Independent
Directors, is responsible for overseeing the Company's financial reporting
process. The Audit Committee regularly meets with executive and financial
management to review financial reports and monitor matters that could be
material to the consolidated financial statements. The Audit Committee also
meets several times a year with the independent auditors who have free access to
the Audit Committee and the Board of Directors to discuss the quality and
acceptability of the Company's financial reporting, internal controls and
matters related to corporate governance.

The independent auditors are engaged to express an opinion on the Company's
consolidated financial statements in accordance with auditing standards of the
Public Company Accounting Oversight Board (United States). Their report is
included herein on page FS-16.





        /s/Ronald J. Evans                              /s/Beth B. Hood
        Ronald J. Evans                                 Beth B. Hood
        President and                                   Vice President and
        Chief Executive Officer                         Chief Financial Officer



                                      FS-15
<PAGE>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
NORTH AMERICAN GALVANIZING & COATINGS, INC.

We have audited the accompanying consolidated balance sheets of North American
Galvanizing & Coatings, Inc. and subsidiary (the "Company") as of December 31,
2006 and 2005, and the related consolidated statements of income and
comprehensive income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 2006. Our audits also included the
financial statement schedule listed in the Index at Item 15. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of North American Galvanizing &
Coatings, Inc. and subsidiary at December 31, 2006 and 2005, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2006 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

As discussed in Note 1 to the accompanying consolidated financial statements,
effective January 1, 2006 the Company adopted Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment.

Deloitte & Touche LLP


Tulsa, Oklahoma
February 14, 2007



                                      FS-16
<PAGE>
NORTH AMERICAN GALVANIZING & COATINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE><CAPTION>
------------------------------------------------------------------------------------------------------------

                                                                                DECEMBER 31,    DECEMBER 31,
ASSETS                                                                              2006            2005
                                                                                ------------    ------------
<S>                                                                             <C>             <C>
CURRENT ASSETS:
  Cash                                                                          $      1,979    $      1,367
  Trade receivables--less allowances of $197 for 2006 and $124 for 2005               13,032           6,808
  Inventories                                                                          6,755           6,077
  Prepaid expenses and other assets                                                      836             966
  Deferred tax asset--net                                                                784             243
                                                                                ------------    ------------
           Total current assets                                                       23,386          15,461

PROPERTY, PLANT AND EQUIPMENT--AT COSTS:
  Land                                                                                 2,167           2,167
  Galvanizing plants and equipment                                                    36,843          35,330
                                                                                ------------    ------------
                                                                                      39,010          37,497
  Less--allowance for depreciation                                                   (18,894)        (15,954)

  Construction in progress                                                             1,019             325
                                                                                ------------    ------------
           Total property, plant and equipment--net                                   21,135          21,868

GOODWILL--Net                                                                          3,448           3,448

OTHER ASSETS                                                                             242             278
                                                                                ------------    ------------
TOTAL ASSETS                                                                    $     48,211    $     41,055
                                                                                ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current maturities of long-term obligations                                   $        778    $        715
  Current portion of bonds payable                                                       830             731
  Subordinated notes payable                                                              --           1,000
  Trade accounts payable                                                               7,444           1,838
  Accrued payroll and employee benefits                                                1,082           1,222
  Accrued taxes                                                                          762             591
  Other accrued liabilities                                                            3,194           2,338
                                                                                ------------    ------------
           Total current liabilities                                                  14,090           8,435
                                                                                ------------    ------------

DEFERRED TAX LIABILITY--Net                                                              802           1,047

LONG-TERM OBLIGATIONS                                                                  3,318           7,072

BONDS PAYABLE                                                                          4,435           5,203
                                                                                ------------    ------------
           Total liabilities                                                          22,645          21,757
                                                                                ------------    ------------

COMMITMENTS AND CONTINGENCIES (NOTES 6 AND 7)

STOCKHOLDERS' EQUITY:
  Common stock--$.10 par value, 18,000,000 shares authorized:
     Issued--8,209,925 shares in 2006 and 2005                                           821             821
     Additional paid-in capital                                                       14,061          17,391
     Retained earnings                                                                11,078           6,543
  Common shares in treasury at cost-- 98,253 in 2006 and 1,362,977 in 2005              (394)         (5,457)
                                                                                ------------    ------------
           Total stockholders' equity                                                 25,566          19,298
                                                                                ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                      $     48,211    $     41,055
                                                                                ============    ============
</TABLE>

See notes to consolidated financial statements.

                                      FS-17
<PAGE>
NORTH AMERICAN GALVANIZING & COATINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE><CAPTION>
----------------------------------------------------------------------------------------------
                                                            YEARS ENDED DECEMBER 31
                                                  --------------------------------------------
                                                      2006            2005            2004
                                                  ------------    ------------    ------------
<S>                                               <C>             <C>             <C>
SALES                                             $     74,054    $     47,870    $     35,822

COSTS AND EXPENSES:
  Cost of sales                                         54,662          35,969          25,814
  Selling, general and administrative expenses           8,058           7,196           5,917
  Depreciation and amortization                          2,975           2,532           2,701
                                                  ------------    ------------    ------------
           Total costs and expenses                     65,695          45,697          34,432
                                                  ------------    ------------    ------------

OPERATING INCOME                                         8,359           2,173           1,390
  Interest expense                                         867           1,074             764
  Interest income                                          (62)             --              --
  Other income                                              --              --             (25)
                                                  ------------    ------------    ------------
INCOME FROM OPERATIONS BEFORE INCOME TAXES               7,554           1,099             651

INCOME TAX EXPENSE                                       3,019             455             248
                                                  ------------    ------------    ------------

NET INCOME                                               4,535             644             403
                                                  ------------    ------------    ------------
OTHER COMPREHENSIVE INCOME
  Unrealized holding gain on investment                     --              --              12
  Reclassification adjustment for realized gain
    included in net income                                  --              --             (18)
                                                  ------------    ------------    ------------
Total Other Comprehensive Income                            --              --               6
                                                  ------------    ------------    ------------

Comprehensive Income                              $      4,535    $        644    $        397
                                                  ============    ============    ============
NET INCOME PER COMMON SHARE:
  Net income
      Basic                                       $       0.60    $       0.09    $       0.06
      Diluted                                     $       0.58    $       0.08    $       0.05
</TABLE>

See notes to consolidated financial statements.

                                      FS-18
<PAGE>
NORTH AMERICAN GALVANIZING & COATINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE><CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                                            YEARS ENDED DECEMBER 31
                                                                                  --------------------------------------------
                                                                                      2006            2005            2004
                                                                                  ------------    ------------    ------------
<S>                                                                               <C>             <C>             <C>
OPERATING ACTIVITIES:
  Net income                                                                      $      4,535    $        644    $        403
  (Loss)/Gain on disposal of assets                                                         (6)             (2)             15
  Depreciation                                                                           2,975           2,532           2,701
  Gain on sale of investments securities                                                    --              --             (25)
  Deferred income taxes                                                                   (786)            583             193
  Non-cash directors' fees                                                                 459             245              73
  Non-cash share-based compensation                                                         99              --              --
  Changes in operating assets and liabilities, net of purchase of assets
    from Gregory Industries, Inc. (Note 2):
    Accounts receivable--net                                                            (6,224)         (1,207)            (60)
    Inventories and other assets                                                          (512)            164            (734)
    Accounts payable, accrued liabilities and other                                      6,029           3,681              15
                                                                                  ------------    ------------    ------------
           Cash provided by operating activities                                         6,569           6,640           2,581

INVESTING ACTIVITIES:
  Capital expenditures                                                                  (1,414)         (1,016)         (1,230)
  Payment for purchase of Gregory Industries' galvanizing operation                         --          (4,188)             --
  Proceeds from sale of fixed assets                                                         5              29              43
  Investment proceeds                                                                       --              --              92
                                                                                  ------------    ------------    ------------

           Cash used in investing activities                                            (1,409)         (5,175)         (1,095)

FINANCING ACTIVITIES:
  Payments on long-term obligations                                                    (20,143)        (22,452)        (18,747)
  Proceeds from long-term obligations                                                   16,089          22,313          18,541
  Payment of subordinated notes payable                                                 (1,000)
  Payment on bonds                                                                        (669)           (693)           (656)
  Proceeds from exercise of stock options                                                  771              --              --
  Tax benefit realized from stock options exercised and stock units distributed            350              --              --
  Proceeds from exercise of warrants                                                        57
  Purchase of treasury stock                                                                (3)             --             (46)
  Proceeds from sale of treasury stock                                                      --             100              --
                                                                                  ------------    ------------    ------------
           Cash used in financing activities                                            (4,548)           (732)           (908)

INCREASE IN CASH AND CASH EQUIVALENTS                                                      612             733             578

CASH AND CASH EQUIVALENTS:

  Beginning of year                                                                      1,367             634              56
                                                                                  ------------    ------------    ------------

  End of year                                                                     $      1,979    $      1,367    $        634
                                                                                  ============    ============    ============
CASH PAID DURING THE YEAR FOR:
  Interest                                                                        $        880    $      1,014    $        789
                                                                                  ============    ============    ============
  Income taxes (net of refunds of $432 in 2005)                                   $      3,419    $       (390)   $        250
                                                                                  ============    ============    ============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Acquisitions of fixed assets under capital lease obligations                   $        363    $         --    $         --
                                                                                  ============    ============    ============
   Acquisitions of fixed assets included in accounts payable at period end        $        464    $         --    $         --
                                                                                  ============    ============    ============
</TABLE>

See notes to consolidated financial statements.

                                      FS-19
<PAGE>
NORTH AMERICAN GALVANIZING & COATINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE><CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                  COMMON STOCK                                      OTHER
                                 $.10 PAR VALUE        ADDITIONAL                  COMPRE-        TREASURY STOCK
                             -----------------------    PAID-IN      RETAINED      HENSIVE    -----------------------
                               SHARES       AMOUNT      CAPITAL      EARNINGS      INCOME       SHARES       AMOUNT        TOTAL
                             ----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
<S>                          <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
BALANCE--January 1, 2004      8,209,925   $      819   $   17,343   $    5,496   $        6    1,426,788   $   (5,779)  $   17,885
  Net income                         --           --           --          403           --           --           --          403
  Other comprehensive income         --           --           --           --           (6)          --           --           (6)
  Treasury stock purchased           --           --           --           --           --      (26,876)         (46)         (46)
  Treasury stock issued              --           --          (91)          --           --       40,751          164           73
                             ----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
BALANCE--January 1, 2005      8,209,925   $      819   $   17,252   $    5,899   $       --    1,412,913   $   (5,661)  $   18,309

  Net income                         --           --           --          644           --           --           --          644
  Other                               2           (2)
  Stock units for Director
     Stock Unit Program              --           --          245           --           --           --           --          245
  Treasury stock purchased           --           --           --           --           --          (64)          --           --
  Treasury stock issued              --           --         (104)          --           --       50,000          204          100
                             ----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
BALANCE--January 1, 2006      8,209,925   $      821   $   17,391   $    6,543   $       --    1,362,977   $   (5,457)  $   19,298

  Net income                         --           --           --        4,535           --           --           --        4,535
  Stock units for Director
     Stock Unit Program              --           --          459           --           --           --           --          459
  Incentive Stock Plan
     Compensation                    --           --           99           --           --           --           --           99
  Purchase of common stock
     for the treasury                --           --           --           --           --          735           (3)          (3)
  Issuance of treasury shares
     for Director Stock Unit
  Program transactions,
     including tax benefit           --           --       (1,006)          --           --     (259,001)       1,036           30
  Issuance of treasury shares
     for warrant transactions,
     net of shares tendered
     for payment                     --           --       (2,324)          --           --     (594,635)       2,381           57
  Issuance of treasury shares
     for stock option
     transactions, net of
     shares tendered for
     payment and including
     tax benefit                     --           --         (558)          --           --     (411,823)       1,649        1,091
                             ----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------

BALANCE--December 31, 2006    8,209,925   $      821   $   14,061   $   11,078   $       --       98,253   $     (394)  $   25,566
                             ==========   ==========   ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>

See notes to consolidated financial statements

                                      FS-20
<PAGE>
NORTH AMERICAN GALVANIZING AND COATINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

DESCRIPTION OF BUSINESS

North American Galvanizing & Coatings, Inc. ("North American Galvanizing" or the
"Company") is engaged in hot dip galvanizing and coatings for corrosion
protection of customer-owned fabricated steel products through its wholly owned
subsidiary, North American Galvanizing Company ("NAG"). NAG provides metals
corrosion protection with 11 regionally located galvanizing plants. The Company
grants unsecured credit to its customers on terms standard for this industry,
typically net 30 to 45 days.

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary. All inter-company
transactions are eliminated in consolidation.

ESTIMATES--The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the balance sheet dates and the reported amounts of revenues and expenses for
each of the years. Actual results will be determined based on the outcome of
future events and could differ significantly from the estimates.

CASH AND CASH EQUIVALENTS--Cash and cash equivalents include interest bearing
deposits with original maturities of three months or less.

INVENTORIES--Inventories consist of raw zinc "pigs," molten zinc in galvanizing
kettles and other chemicals and materials used in the galvanizing process.
Inventories are stated at the lower of cost or market with market value based on
estimated realizable value from the galvanizing process. Zinc cost is determined
on a last-in first-out ("LIFO") basis. Other inventories are valued primarily on
an average cost basis. Inventories consist of the following:

                                                   (DOLLARS IN THOUSANDS)
                                                     2006         2005

       Zinc                                        $  5,679     $  5,684
       Other                                          1,076          393
                                                   --------     --------

                                                   $  6,755     $  6,077
                                                   ========     ========

Had the Company used first-in-first-out ("FIFO") basis for valuing its zinc
inventories, at December 31, 2006 and 2005 inventories would have been higher by
approximately $11,979,000 in 2006 and lower by approximately $258,000 in 2005.
The Company's LIFO inventories represented approximately 84% of total
inventories at December 31, 2006 and 94% of total inventories at December 31,
2005. Raw zinc replacement cost based on year-end market prices was $19,380,000
and $8,602,000 at December 31, 2006 and 2005, respectively. In 2005, inventory
quantities were reduced, resulting in liquidation of LIFO inventory layers which
increased the Company's net income by $39,000.

                                      FS-21
<PAGE>

In November 2004, the FASB issued SFAS No. 151, INVENTORY COSTS-AN AMENDMENT OF
ARB NO. 43, CHAPTER 4 ("SFAS No. 151"). SFAS 151 amends the guidance in ARB No.
43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs, and wasted material
(spoilage). Among other provisions, the new rule requires that items such as
idle facility expense, excessive spoilage, double freight, and rehandling costs
be recognized as current-period charges regardless of whether they meet the
criterion of "so abnormal" as stated in ARB No. 43. Additionally, SFAS 151
requires that the allocation of fixed production overhead to the costs of
conversion be based on the normal capacity of the production facilities. SFAS
151 is effective for fiscal years beginning after June 15, 2005 and was adopted
by NAG on January 1, 2006. Adoption of SFAS 151 had no material impact on its
consolidated results of operations, financial condition and cash flows.

GOODWILL--Goodwill represents the excess of purchase price over the fair value
of net assets acquired in business combinations. Goodwill and intangible assets
with an indefinite life are no longer amortized but instead are reviewed, at
least annually, for impairment. Management selected May 31 as the date of its
annual goodwill impairment test. Based upon the impairment test performed at May
31, 2006, management determined that goodwill was not impaired.

DEPRECIATION AND AMORTIZATION--Plant and equipment, including assets under
capital leases, are depreciated on the straight-line basis over their estimated
useful lives, generally at rates of 3% to 6% for buildings and 10% to 20% for
equipment, furnishings, and fixtures. Effective in 2001, the Company adopted the
units of production method of depreciation for certain equipment at new
galvanizing plants and for significant expansions of existing plants. The units
of production method was based on projected total tonnage to be processed over
the estimated lives of the respective plant equipment. The straight-line method
of depreciation was continued for all other plant and equipment. In recognition
of subsequent experience that indicated the equipment being depreciated under
the units of production method was affected to a greater extent by age than by
the level of production activity taking place within the plants, effective July
1, 2006, the Company changed its depreciation method for these assets, with an
aggregate cost basis of $5.9 million, from the units of production method to the
straight-line method. This change in accounting estimate effected by a change in
accounting principle is preferable because the straight-line method better
allocates the cost of these assets to accounting periods in a systematic and
rational manner more closely related to the assets' pattern of consumption.

The impact on current year earnings from this change, which was applied
prospectively beginning July 1, 2006, was a decrease in operating income of
$348,000, a decrease in net income of $216,000 and a reduction in basic and
diluted earnings per share of $.03 for the year ended December 31, 2006.

During 2005, the Company removed fully depreciated assets totaling $385,740 from
the accounting records.

ENVIRONMENTAL EXPENDITURES--The Company expenses or capitalizes, where
appropriate, environmental expenditures that relate to current operations as
they are incurred. Such expenditures are expensed when they are attributable to
past operations and are not expected to contribute to current or future revenue
generation. The Company records liabilities when remediation or other
environmental assessment or clean-up efforts are probable and the cost can be
reasonably estimated.

LONG-LIVED ASSETS--Long-lived assets and certain intangibles to be held and used
or disposed of are reviewed for impairment on an annual basis or when events or
circumstances indicate that such impairment may have occurred. The Company has
determined that no impairment loss need be recognized for the years ended
December 31, 2006, 2005 or 2004.

SELF-INSURANCE--The Company is self-insured for workers' compensation and
certain health care claims for its active employees. The Company carries excess
insurance providing coverage for medical claims exceeding

                                      FS-22
<PAGE>

$75,000 and workers' compensation claims exceeding $150,000 per occurrence,
respectively. The reserves for workers' compensation benefits and health care
claims represent estimates for reported claims and for claims incurred but not
reported using loss development factors. Such estimates are generally based on
historical trends and risk assessment methodologies; however, the actual results
may vary from these estimates since the evaluation of losses is inherently
subjective and susceptible to significant changing factors.

REVENUE RECOGNITION-- Revenue is recognized when earned and realized or
realizable in accordance with Staff Accounting Bulletin (SAB) 104. This includes
satisfying the following criteria: the arrangement with the customer is evident,
through the receipt of a purchase order or a written agreement; the sales price
is fixed or determinable; coating services have been completed, including
inspection by the Company according to American Society for Testing and
Materials ("ASTM") standards; and collectibility is reasonably assured. The
Company does not accept title to customers' products, thus, revenue does not
include the value of the customers' products. Although most customers make
arrangements for transportation, if the Company makes transportation
arrangements, freight and shipping billed to customers is included in sales, and
the cost of freight and shipping is included in cost of sales.

DERIVATIVE FINANCIAL INSTRUMENTS--The Company has previously utilized commodity
collar contracts as derivative instruments which are intended to offset the
impact of potential fluctuations in the market price of zinc. The Company had no
derivative instruments that were required to be reported at fair value
outstanding at December 31, 2006 and 2005, and did not utilize derivatives
during the years ended December 31, 2006, 2005 or 2004, except for the zinc
forward purchase commitments, which are accounted for as normal purchases (see
Note 8).

STOCK OPTIONS-- The Company adopted Statement of Financial Accounting Standards
No. 123(R), "Share-Based Payment" ("SFAS No. 123(R)") under the modified
prospective method on January 1, 2006. Under the "modified prospective" method,
compensation cost is recognized in the financial statements beginning with the
effective date, based on the requirements of SFAS No. 123(R) for all share-based
payments granted after that date, and based on the requirements of Statement of
Financial Accounting Standards No.123, "Accounting for Stock Based Compensation"
("SFAS No. 123") for all unvested awards granted prior to the effective date of
SFAS No. 123(R).

SFAS No. 123(R) eliminates the intrinsic value measurement method of accounting
in APB Opinion 25 and generally requires measuring the cost of the employee
services received in exchange for an award of equity instruments based on the
fair value of the award on the date of the grant. The standard requires grant
date fair value to be estimated using either an option-pricing model which is
consistent with the terms of the award or a market observed price, if such a
price exists. Such costs must be recognized over the period during which an
employee is required to provide service in exchange for the award. The standard
also requires estimating the number of instruments that will ultimately be
issued, rather than accounting for forfeitures as they occur.

The compensation cost for the Plan was $99,000 for the year ended December 31,
2006. No tax benefit was recognized for the incentive stock plan compensation
cost. There was no share-based compensation cost capitalized during 2006.

Prior to 2006, the Company accounted for its stock option plans in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", under which no compensation cost was recognized for stock option
awards. Had compensation cost for the Company's stock option plans been
determined according to the methodology of SFAS No. 123, the Company's pro forma
net earnings and basic and diluted earnings per share for the years ended
December 31, 2005 and 2004 would have been as follows:

                                      FS-23
<PAGE>

                                                                 Year Ended
                                                                December 31,
--------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)               2005       2004
--------------------------------------------------------------------------------

Net Income, as reported                                     $    644   $    403
Deduct:  Total stock-based employee compensation expense
determined under fair value based methods, net of tax       $    (63)  $    (45)
                                                            --------   --------

Pro forma net income                                        $    581   $    358
                                                            --------   --------
Earnings per share:
     Basic - as reported                                    $    .09   $    .06
                                                            --------   --------
     Basic - pro forma                                      $    .08   $    .05
                                                            --------   --------

     Diluted - as reported                                  $    .08   $    .05
                                                            --------   --------
     Diluted - pro forma                                    $    .08   $    .05
                                                            --------   --------

The fair value of options granted under the Company's stock option plans was
estimated using the Black-Scholes option-pricing model with the following
assumptions used:

                                                   Years Ended December 31
--------------------------------------------------------------------------------
 DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS  2006        2005        2004
--------------------------------------------------------------------------------

Volatility                                          54%         47%         66%
Discount Rate                                      4.7%        4.2%        6.5%
Dividend Yield                                    --          --          --
Fair Value                                     $  1.50     $  1.48     $  1.46


INCOME TAXES--Net deferred income tax assets and liabilities on the consolidated
balance sheet reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes and the benefit of net operating loss
and other tax credit carry-forwards. Valuation allowances are established
against deferred tax assets to the extent management believes it is more likely
than not that the assets will not be realized. No valuation allowance was
considered necessary at December 31, 2006 and 2005.

In June, 2006, the FASB issued FIN 48, ACCOUNTING FOR UNCERTAINTY IN INCOME
TAXES. This Interpretation clarifies the accounting for uncertainty in income
taxes recognized in the financial statements in accordance with FASB Statement
No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold
and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The Company is
currently in the process of evaluating the impact that the adoption of FIN 48
will have on its financial position, consolidated results of operations and cash
flows.

(2) BUSINESS EXPANSION - PURCHASE OF ASSETS

On February 28, 2005, NAGalv-Ohio, Inc., a subsidiary of North American
Galvanizing Company, purchased certain galvanizing assets of Gregory Industries,
Inc., located in Canton, Ohio, for a cash purchase price of $3.7 million plus
approximately $0.5 million in purchase related expenses. The purchase expands
the service area of North American Galvanizing into the northeast region of the
United States. The results of the

                                      FS-24
<PAGE>

operations of NAGalv-Ohio, Inc. have been included in the consolidated financial
statements since February 28, 2005. Goodwill of less than $0.1 million was
recognized in the purchase. The net purchase price was allocated as follows:

           Current assets                      $1.8 million
           Net property, plant & equipment      2.3
           Goodwill                             0.1
                                               ----
                Purchase price                 $4.2 million
                                               ====
Pro-forma unaudited results of operations of the Company for the years ended
December 31, 2005 and 2004, prepared as if the purchase had taken place at the
beginning of each period, would have been as follows:

                                                       Year Ended December 31,
--------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)        2005            2004
--------------------------------------------------------------------------------
Sales                                                $  48,974       $  41,937
Pro forma net income                                 $     467       $     755
Earnings per share:
     Basic                                           $     .07       $     .11
                                                     ---------       ---------
     Diluted                                         $     .06       $     .10
                                                     ---------       ---------


(3) STOCK COMPENSATION PLANS

At December 31, 2006 the Company has two share-based compensation plans, which
are shareholder-approved, the 2004 Incentive Stock Plan and the Director Stock
Unit Plan (Note 11). The Company's 2004 Incentive Stock (the Plan) permits the
grant of share options and shares to its employees and directors for up to
1,250,000 shares of common stock. The Company believes that such awards better
align the interests of its employees and directors with those of its
shareholders. Option awards are granted with an exercise price equal to the
market price of the Company's stock at the date of grant; those option awards
vest based on 4 years of continuous service and have 10-year contractual terms.

For the years ended December 31, 2006 and 2005, the Company issued stock options
for 167,500 shares at $2.14 per share, and issued stock options for 140,000
shares at $2.33 per share, respectively. The fair value of options which became
fully vested during 2006 was $32,550. The intrinsic value of options exercised
during 2006 was $1,479,000.


                                                  NUMBER OF    WEIGHTED AVERAGE
                                                   SHARES       EXERCISE PRICE
                                                  -----------------------------
Outstanding, December 31, 2004 (464,833
 exercisable)                                      574,833        $     2.06
 Granted                                           140,000              2.33
 Surrendered/expired/cancelled                      (1,500)             3.00
                                                  ---------       ----------
Outstanding, December 31, 2005 (518,333
  exercisable)                                     713,333        $     2.11
  Granted                                          167,500              2.14
  Exercised                                       (413,750)             2.19
  Surrendered/expired/cancelled                    (40,000)             2.42
                                                  ---------       ----------
Outstanding, December 31, 2006 (178,333
exercisable)                                       427,083        $     2.02
                                                  =========       ==========

                                      FS-25
<PAGE>

Information about stock options as of December 31, 2006:
<TABLE><CAPTION>

                            OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE
                   -------------------------------------       -------------------------------------
                                              WEIGHTED-                                   WEIGHTED-
                                WEIGHTED-      AVERAGE                      WEIGHTED-      AVERAGE
                                 AVERAGE      REMAINING                      AVERAGE      REMAINING
RANGE OF           NUMBER OF     EXERCISE    CONTRACTUAL       NUMBER OF    EXERCISE     CONTRACTUAL
EXERCISE PRICES     SHARES        PRICE     LIFE (YEARS)         SHARES       PRICE     LIFE (YEARS)
<S>                <C>           <C>            <C>             <C>          <C>            <C>
$1.00 to $1.50      95,833        $1.28          4.9             88,333       $1.26          5.3
$1.70 to $2.10     230,000         2.05          8.3             70,000        1.97          7.4
$2.41 to $2.85      81,250         2.51          8.3                --           --           --
$3.06 to $3.50      20,000         3.16          1.0             20,000        3.16          1.0
                    ------         ----          ---             ------        ----          ---

                   427,083        $2.02          7.2            178,333       $1.75          5.6
                   =======       ======          ===            =======      ======          ===
</TABLE>

As of December 31, 2006, the total compensation cost related to nonvested awards
not yet recognized was $279,000, which is expected to be recognized over a
weighted average period of 2.7 years. The aggregate intrinsic value of options
outstanding and options exercisable was $1,381,000 and $623,000, respectively,
at December 31, 2006.





                                      FS-26
<PAGE>

(4) EARNINGS PER SHARE RECONCILIATION

     For the Year                Income (Loss)       Shares        Per Share
     Ended December 31            (Numerator)     (Denominator)      Amount

     2006
     Net income                    $ 4,535,000            --         $  --
     Basic EPS                             --       7,548,572          0.60
     Effect of dilutive stock
       options                             --         233,055         (0.02)
                                   -----------      ---------        ------
     Diluted EPS                   $ 4,535,000      7,781,627        $ 0.58
                                   ===========      =========        ======

     2005
     Net income                      $ 644,000            --         $  --
     Basic EPS                             --       6,883,315          0.09
     Effect of dilutive stock
       options and warrants                --         724,969         (0.01)
                                   -----------      ---------        ------
     Diluted EPS                     $ 644,000      7,608,284        $ 0.08
                                   ===========      =========        ======

     2004
     Net income                      $ 403,000            --         $  --
     Basic EPS                             --       6,790,351          0.06
     Effect of dilutive stock
       options and warrants                --         700,844         (0.01)
                                   -----------      ---------        ------
     Diluted EPS                     $ 403,000      7,491,195        $ 0.05
                                   ===========      =========        ======


The number of options excluded from the calculation of diluted earnings per
share due to the option price exceeding the share market price are 295,000 and
311,500, at December 31, 2005 and 2004, respectively.


(5) LONG-TERM OBLIGATIONS

                                             (Dollars in thousands)
                                                  December 31
                                            -----------------------
                                              2006           2005

     Term loan                              $ 3,751        $ 4,465
     Revolving line of credit                   --           3,304
     Capital lease obligations                  328            --
     Other                                       17             18
                                            -------        -------
                                            $ 4,096        $ 7,787

     Less current portion                      (778)          (715)
                                            -------        -------
                                            $ 3,318        $ 7,072
                                            =======        =======

LONG TERM DEBT-- In February 2005, the Company amended the three-year bank
credit agreement that was scheduled to expire in December 2007 and extended its
maturity to February 28, 2008. Subject to borrowing base limitations, the
amended agreement provided (i) an $8,000,000 maximum revolving credit facility
for

                                      FS-27
<PAGE>

working capital and general corporate purposes and (ii) a $5,001,000 term loan
that combined the outstanding principal balance of the existing term loan with
additional financing for the purchase of assets of a galvanizing facility (Note
2).

Term loan payments are based on a seven-year amortization schedule with equal
monthly payments of principal and interest, and a final balloon payment in
February 2008. The term loan may be prepaid without penalty. The revolving line
of credit may be paid down without penalty, or additional funds may be borrowed
up to the maximum line of credit. At December 31, 2006, the Company had
borrowing capacity of $7.6 million, net of outstanding irrevocable letters of
credit, under the bank revolving line of credit based on the borrowing base
calculated under the agreement. At December 31, 2006, there were no borrowings
outstanding under the bank credit agreement, and $.4 million was reserved for
outstanding irrevocable letters of credit to secure payment of current and
future workers' compensation claims.

Substantially all of the Company's accounts receivable, inventories, fixed
assets and the common stock of its subsidiary are pledged as collateral under
the agreement, and the credit agreement is secured by a full and unconditional
guaranty from NAG. Amounts borrowed under the agreement bear interest at the
prime rate of JPMorgan Chase Bank or the LIBOR rate, at the option of the
Company, subject to a rate margin adjustment determined by the Company's
consolidated debt service ratio. The interest rate on these borrowings was 8.5%
at December 31, 2006. In the event the Company fails to maintain a consolidated
debt service coverage ratio for any fiscal quarter of at least 1.25 to 1.00, the
Applicable LIBOR Rate Margin will be increased from 3.0% to 5.75% and the
Applicable Prime Rate Margin will be increased from .25% to 3.00%. Thereafter,
the increased rate margin will remain in effect until such time as the Company
has maintained a consolidated debt service coverage ratio greater than or equal
to 1.25 to 1.00 for a subsequent fiscal quarter.

In the event the Company fails to maintain a consolidated EBITDA to capital
expenditures ratio for any fiscal quarter of at least 1.00 to 1.00, the increase
in the Applicable LIBOR Rate Margin ranges from 3.75% to 5.75%, and the increase
in the Applicable Prime Rate Margin ranges from 1.00% to 3.00%.

Amounts borrowed under the bank credit facilities bore interest ranging from
4.21% to 8.5% during the three years ended December 31, 2006 and an effective
rate of 8.5% at December 31, 2006 and 7.5% at December 31, 2005.

The bank credit agreement requires the Company to maintain compliance with
covenant limits for current ratio, debt to tangible net worth ratio, debt
service coverage ratio and a capital expenditures ratio. At December 31, 2006
the Company was in compliance with all of the covenant limits and the actual
financial ratios compared to the required ratios, were as follows: Current Ratio
- Actual 1.67 versus minimum required of 1.1; Debt to Tangible Net Worth Ratio -
Actual 1.02 versus maximum permitted of 2.50; Debt Service Coverage Ratio -
Actual 3.45 versus minimum permitted of 1.25; Capital Expenditures Coverage
Ratio - Actual 1.99 versus minimum required of 1.0.

Aggregate maturities of long-term debt of $4,096,000, exclusive of bonds are
payable as follows: $779,000 (2007), $3,106,000 (2008), $75,000 (2009), $80,000
(2010), $46,000 (2011) and $10,000 (thereafter).

(6) BONDS PAYABLE

During the first quarter of 2000, the Company issued $9,050,000 of Harris County
Industrial Development Corporation Adjustable Rate Industrial Development Bonds,
Series 2000 (the "Bonds"). The Bonds are senior to other debt of the Company.
All of the bond proceeds, which were held in trust by Bank One Trust Company,
N.A. ("Trustee"), were used by NAG for the purchase of land and construction of
a hot dip galvanizing plant in Harris County, Texas. The galvanizing plant was
completed and began operation in the first quarter of 2001. The principal amount
outstanding on these bonds was $5,265,000 at December 31, 2006.

                                      FS-28
<PAGE>

In accordance with the bond agreement, the Company is obligated to make
principal payments to a sinking fund on the following schedule: $830,000 (2007),
$806,250 (2008), $851,250 (2009), $896,250 (2010), $941,250 (2011) and $940,000
(thereafter).

The Bonds bear interest at a variable rate that can be converted to a fixed rate
upon certain conditions outlined in the bond agreement. In September 2003, the
Reimbursement Agreement with the bank trustee was amended (a) to adjust the
variable interest rate on the Company's interest deposits from 5.25% to 3.5% on
the principal amount of Bonds until such time as the trustee determines that a
subsequent adjustment is warranted and (b) to permit the Company to withdraw
excess interest from the trustee's Interest Account on or about March 31, June
30, September 30 and December 31 of each year, commencing September 30, 2003. In
2006 and 2005 the Company withdrew excess interest of $96,000 and $106,000,
respectively, from the Interest Account and applied the proceeds to pay-down the
balance due under the bank letter of credit securing the bonds. At December 31,
2006, the Company determined, in accordance with the amended Reimbursement
Agreement, that the trustee's interest account was deficient in the amount of
$22,000, which the Company recorded as an increase in interest expense.

The Bonds are subject to annual sinking fund redemption payments, which were
$705,000 in 2006 and increase annually thereafter to a maximum redemption of
$960,000 on June 15, 2012. The Company makes monthly payments of principal and
interest of approximately $76,000 into the sinking fund. The final maturity date
of the Bonds is June 15, 2013. The Company has the option of early redemption of
the Bonds at par unless the bonds are converted to a fixed interest rate, in
which case they are redeemable at a premium during a period specified in the
bond agreement. The Company's obligation under the bond agreement is secured
through a letter of credit with a bank which must remain in effect as long as
any Bonds are outstanding. The letter of credit is collateralized by
substantially all the assets of the Company.

The Internal Revenue Service is reviewing the Harris County Industrial
Development Corporation Adjustable Rate Industrial Development Bonds and
compliance with the Internal Revenue Code section (IRC) 144(a)(4)(ii)'s dollar
limitation on capital expenditures within a relevant period. The IRS review
concerns whether two operating leases commencing in January 2001 are conditional
sales contracts, not true leases, according to Revenue Ruling 55-540. Should the
Company be completely unsuccessful in its position that the bonds meet the
tax-exempt financing requirements, the bonds could lose their tax exempt status,
the Company could be required to redeem the bonds, which had a principal balance
of $5,265,000 at December 31, 2006, and the Company could be required to pay up
to $145,000 in additional income tax on the interest payments made to the
bondholders. The estimated timeframe for resolution of the IRS review is
unknown. Management of the Company, based upon their analysis of known facts and
circumstances and advice from legal counsel, does not believe that this matter
will have a material adverse effect on the results of operations, financial
conditions or cash flows of the Company and continues to classify $4,435,000 of
the bond liability as long-term according to the original terms of the bond
agreement. In addition, management believes the Company has sufficient long-term
borrowing capacity to repay the bonds in the unlikely event it is required.

(7) SUBORDINATED DEBT

In February 2001, the Company completed a $1,000,000 private placement of
unsecured subordinated debt. The Company utilized the proceeds to partially fund
construction of a galvanizing facility in St. Louis, Missouri. Participation in
the private placement was offered to accredited investors, which included
certain of the Company's directors and eligible stockholders holding a minimum
of 100,000 shares of common stock.

In February 2006, the Company offered the noteholders of its $1 million
subordinated promissory notes the opportunity to extend the maturity date one
year to February 17, 2007. The extension, which was offered on a voluntary
basis, was 100% subscribed. The notes were issued with warrants to purchase
666,666 shares of common stock of the Company. All of the warrants were
exercised by the holders during the third quarter of

                                      FS-29
<PAGE>

2006, at the exercise price of $.856 per share. On August 31, 2006, North
American Galvanizing & Coatings, Inc. prepaid the $1 million subordinated
promissory notes due to mature in February of 2007.

The amount outstanding on these notes, net of discount, was $1,000,000 at
December 31, 2005.

(8) COMMITMENTS

The Company leases its headquarters office, and certain manufacturing buildings
and equipment under non-cancelable operating leases. The Company also leases
certain facilities to third parties under non-cancelable operating leases. These
operating leases generally provide for renewal options and periodic rate
increases and are typically renewed in the normal course of business. Lease
expense was $1,003,000 in 2006, $1,006,000 in 2005, and $716,000 in 2004. The
Company leases certain equipment under non-cancelable capital leases. Minimum
annual rental commitments at December 31, 2006 are payable as follows:

                                                  (Dollars in thousands)
                                            Operating Leases    Capital Leases

     2007                                        $   736              $  84
     2008                                            320                 84
     2009                                            236                 84
     2010                                            117                 84
     2011                                             54                 46
     Thereafter                                      184                  -
                                                 -------              -----
                                                 $ 1,647                382

     Less: amount representing interest                                 (54)
                                                                      -----
                                                                      $ 328
                                                                      =====

The Company has commitments with domestic and foreign zinc producers to purchase
zinc used in its hot dip galvanizing operations. Commitments for the future
delivery of zinc reflect rates then quoted on the London Metals Exchange and are
not subject to price adjustment. These zinc purchase commitments are considered
to be derivatives and are accounted for as normal purchases. At December 31,
2006, aggregate commitments for the procurement of zinc at fixed prices were
$788,000. The Company reviews these fixed price contracts for losses using the
same methodology employed to estimate the market value of its zinc inventory.

(9) CONTINGENCIES

On August 30, 2004, the Company was informed by counsel for the Metropolitan
Water Reclamation District of Greater Chicago (the "Water District") that the
Water District had, on August 25, 2004 filed a Second Amended Complaint in the
United States District Court, Northern District of Illinois, Eastern Division,
naming North American Galvanizing & Coatings, Inc. (formerly known as Kinark
Corporation) as an added defendant. Counsel for the Water District also gave the
Company notice of the Water District's intent to file (or amend the Complaint to
include) a Citizens Suit under the Resource Compensation and Recovery Act
("RCRA") against North American Galvanizing & Coatings, Inc., pursuant to
Section 7002 of RCRA, 42 U.S.C. Section 6972. This Second Amended Complaint
seeks enforcement of an August 12, 2004 default judgment in the amount of
$1,810,463.34 against Lake River Corporation and Lake River Holding Company,
Inc. in connection with the operation of a storage terminal by Lake River
Corporation in violation of environmental laws. Lake River Corporation conducted
business as a subsidiary of the Company until September 30, 2000, at which time
Lake River Corporation was sold to Lake River Holding Company, Inc. and ceased
to be a subsidiary of the Company. The Second Amended Complaint asserts that
prior to the sale of Lake River Corporation, the Company directly operated the
Lake River facility and, accordingly, seeks to

                                      FS-30
<PAGE>

have the Court pierce the corporate veil of Lake River Corporation and enforce
the default judgment order of August 12, 2004 against the Company. The Company
denies the assertions set forth in the Water District's Complaint and on
November 13, 2004 filed a partial motion for dismissal of the Second Amended
Complaint.

In December 2004, the Water District filed a Third Amended complaint in the
litigation, adding two claims: (1) a common law claim for nuisance; and (2) a
claim under the federal Resource Conservation and Recovery Act, in which the
Water District argues that the Company is responsible for conditions on the
plaintiff's property that present an "imminent and substantial endangerment to
human health and the environment." In January 2005, the Company filed a partial
motion to dismiss the Third Amended Complaint. On April 12, 2005, the Court
issued an order denying in part and granting in part the Company's partial
motion to dismiss plaintiff's third amended complaint. The Company filed an
appeal with the Seventh Circuit Court of Appeals requesting dismissal of the
sole CERCLA claim contained in the Third Amended Complaint that was not
dismissed by the United States District Court's April 12, 2005 order. On January
17, 2007, the Seventh Circuit affirmed the judgment of the United States
District Court, stating that the Water District has a right of action under
CERCLA. The Company is evaluating the judgment and expects to file a motion for
reconsideration with the Seventh Circuit. Meanwhile, litigation and discovery in
the trial court have been stayed pending mediation. The mediation is governed by
a Settlement Protocol and Standstill Agreement (the "Protocol") negotiated and
signed by the parties. The Protocol states that the parties will minimize
discovery to focus on mediation. The court approved the Protocol without setting
any deadlines for the case. If the mediation fails, the parties will resume
discovery and the litigation in the United States District Court will continue.

The Company has denied any liability with respect to this claim and intends to
vigorously defend this case. The Company has not recorded any liability related
to the Water District claim and the estimated timeframe for resolution is
unknown. The potential claim with respect to the Water District claim could
exceed the amount of the default judgment. As liability and piercing of the
corporate veil are being contested and neither a site evaluation nor a
remediation plan has been developed, the Company is unable to make a reasonable
estimate of the amount or range of loss, if any, that could result from an
unfavorable outcome. Such a liability, if any, could have a material adverse
effect on the Company's financial condition, results of operations, or
liquidity.

NAG was notified in 1997 by the Illinois Environmental Protection Agency
("IEPA") that it was one of approximately 60 potentially responsible parties
("PRPs") under the Comprehensive Environmental Response, Compensation, and
Liability Information System ("CERCLIS") in connection with cleanup of an
abandoned site formerly owned by Sandoval Zinc Co. A number of the PRPs have
agreed to work together and with IEPA on a voluntary basis. The Company has been
and continues to participate in this volunteer group. The group has retained
consultants and legal representatives familiar with IEPA regulations. This
volunteer group, with its consultants, has cooperated with IEPA in attempting to
better define the environmental issues associated with the Sandoval Zinc site.
To that extent, this voluntary group prepared and submitted to IEPA in August
2000 a work plan. The purpose of this work plan is to attempt to define the
extent of environmental remediation that might be required, assess risks, and
review alternatives to addressing potential remediation. The estimated timeframe
for resolution of the IEPA contingency is unknown. The IEPA has yet to respond
to this proposed work plan or suggest any other course of action, and there has
been no activity in regards to this issue since 2001. The Company does not have
any liability accrued relating to the IEPA matter. Until the work plan is
approved and completed, the range of potential loss or remediation, if any, is
unknown. In addition, the allocation of potential loss between the 60
potentially responsible parties is unknown and not reasonably estimable.
Therefore, the Company has no basis for determining potential exposure and
estimated remediation costs at this time.

                                      FS-31
<PAGE>

The Internal Revenue Service is reviewing the Harris County Industrial
Development Corporation Adjustable Rate Industrial Development Bonds and
compliance with the Internal Revenue Code section (IRC) 144(a)(4)(ii)'s dollar
limitation on capital expenditures within a relevant period. The IRS review
concerns whether two operating leases commencing in January 2001 are conditional
sales contracts, not true leases, according to Revenue Ruling 55-540. Should the
Company be completely unsuccessful in its position that the bonds meet the
tax-exempt financing requirements, the bonds could lose their tax exempt status,
the Company could be required to redeem the bonds, which had a principal balance
of $5,265,000 at December 31, 2006, and the Company could be required to pay up
to $145,000 in additional income tax on the interest payments made to the
bondholders. The estimated timeframe for resolution of the IRS review is
unknown. Management of the Company, based upon their analysis of known facts and
circumstances and advice from legal counsel, does not believe that this matter
will have a material adverse effect on the results of operations, financial
conditions or cash flows of the Company and continues to classify $4,435,000 of
the bond liability as long-term according to the original terms of the bond
agreement. In addition, management believes the Company has sufficient long-term
borrowing capacity to repay the bonds in the unlikely event it is required.

The Company is committed to complying with all federal, state and local
environmental laws and regulations and using its best management practices to
anticipate and satisfy future requirements. As is typical in the galvanizing
business, the Company will have additional environmental compliance costs
associated with past, present and future operations. Management is committed to
discovering and eliminating environmental issues as they arise. Because of
frequent changes in environmental technology, laws and regulations management
cannot reasonably quantify the Company's potential future costs in this area.

North American Galvanizing & Coatings, Inc. and its subsidiary are parties to a
number of other lawsuits and environmental matters which are not discussed
herein. Management of the Company, based upon their analysis of known facts and
circumstances and reports from legal counsel, does not believe that any such
matter will have a material adverse effect on the results of operations,
financial conditions or cash flows of the Company

(10) TREASURY STOCK

During 2006, the Company issued shares from Treasury for the following
transactions: 594,635 shares issued for warrant exercises, 411,823 shares issued
for stock option exercises, and 259,001 shares issued for the Director Stock
Unit Program (Note 11). During 2005, the Company issued 50,000 shares from
Treasury.

The Director Stock Unit Program, commencing in the first quarter of 2005,
replaced a program whereby Outside Directors received shares of Company stock
issued from Treasury as payment for their quarterly board fee. In 2004,
Directors of the Company could elect to receive shares of the Company's common
stock for up to their entire fee for board service. Under this program, the
Company issued 40,751 shares from Treasury Stock in 2004 in lieu of cash
payments of $73,000. Those shares were valued at the average closing price of
North American Galvanizing & Coatings, Inc. common stock for a prior 30-day
period, as reported by the American Stock Exchange. Such shares were issued
pursuant to the Directors' prior election and notice to the Company to receive
up to all of their 2004 quarterly board fees in the Company's stock in lieu of
cash.

In August 1998, the Board of Directors authorized the Company to repurchase up
to $1,000,000 of its common stock in private or open market transactions. In
2006, the Company repurchased 735 shares at an average price per share of $5.45,
bringing the total number of shares repurchased through December 31, 2006 to
132,996 at an average price of $1.79 per share totaling $238,159.

                                      FS-32
<PAGE>

(11) DIRECTOR STOCK UNIT PROGRAM

On January 1, 2005, the Company implemented the Director Stock Unit Program
(approved by the stockholders at the Annual Meeting held July 21, 2004) under
which a Director is required to defer 50% of his or her board fee and may elect
to defer up to 100% of his or her board fee, plus a matching contribution by the
Company that varies from 25% to 75% depending on the level of deferral. Such
deferrals are converted into a stock unit grant, payable to the Director five
years following the year of deferral. All of the Company's Outside Directors
elected to defer 100% of the annual board fee for both 2006 and 2005, and the
Company's chief executive officer and Inside Director elected to defer a
corresponding amount of his salary in 2006 and 2005. Outside Directors received
an annual fee of $35,000 in 2006 and $20,000 in 2005, which includes attendance
at board meetings and service on committees of the board. During 2006, fees and
salary deferred by the Directors represented a total of 146,161 stock unit
grants values at $3.14 per stock unit. During 2005, fees and salary deferred by
the Directors represented a total of 112,847 stock unit grants valued at $2.17
per stock unit. The value of a stock unit grant is the average of the closing
prices for a share of the Company's stock for the 10 trading days before the
date the director fees otherwise would have been payable in cash.

(12) CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

A subsidiary of North American Galvanizing Company (NAGalv-Ohio, Inc.) purchased
the after-fabrication hot dip galvanizing assets of Gregory Industries, Inc.
located in Canton, Ohio on February 28, 2005. Gregory Industries, Inc. is a
manufacturer of products for the highway industry. T. Stephen Gregory, appointed
a director of North American Galvanizing & Coatings, Inc. on June 22, 2005 is
the chief executive officer, chairman of the board, and a shareholder of Gregory
Industries, Inc. Total sales to Gregory Industries, Inc. for the years ended
December 31, 2006 and 2005 were approximately $1,982,000 and $1,486,000,
respectively. The amount due from Gregory Industries, Inc. included in trade
receivables at December 31, 2006 and 2005 was $278,000 and $254,000,
respectively.

(13) INCOME TAXES

The provision for income taxes consists of the following:

                                                 (Dollars in thousands)
                                                 Year Ended December 31
                                        ---------------------------------------
                                          2006            2005           2004

     Current                            $ 2,233          $ 254          $  55
     Deferred                               786            201            193
                                        -------          -----          -----
     Income tax expense                 $ 3,019          $ 455          $ 248
                                        =======          =====          =====

The reconciliation of income taxes at the federal statutory rate to the
Company's effective tax rate is as follows:

                                                 (Dollars in thousands)
                                                 Year Ended December 31
                                        ---------------------------------------
                                          2006            2005           2004

     Federal taxes at statutory rate    $ 2,568          $ 374          $ 221
     State tax net of federal benefit       296             32             27
     Other                                  155             49             --
                                        -------          -----          -----
     Taxes at effective tax rate        $ 3,019          $ 455          $ 248
                                        =======          =====          =====

                                      FS-33
<PAGE>

The tax effects of significant items comprising the Company's net deferred tax
asset (liability) consist of the following:

                                                (Dollars in thousands)
                                                      December 31
                                                ----------------------
                                                  2006          2005
     Deferred tax assets:
       Items not currently deductible            $ 784         $  243
                                                 -----         ------
                                                   784            243
                                                 -----         ------
     Deferred tax liabilities:
       Differences between book and tax
         basis of property                         802          1,047
                                                 -----         ------
                                                 $ (18)        $ (804)
                                                 =====         ======

(14) EMPLOYEE BENEFIT PLAN

The Company offers one of two 401(k) defined contribution plans to its eligible
employees. In 2005, a newly-created defined contribution plan was offered to
NAGalv-Ohio, Inc. employees, formerly covered by a bargaining contract with
Gregory Industries, Inc. All other employees not covered by a bargaining
contract become eligible to enroll in the existing benefit plan after one year
of service with the Company. Aggregate Company contributions under these benefit
plans were $292,000 in 2006, $261,000 in 2005, and $220,000 in 2004. Assets of
the defined contribution plan consisted of short-term investments, intermediate
bonds, long-term bonds and listed stocks.

(15) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of financial instruments included in current assets and
liabilities approximates fair value. The fair value of the Company's long-term
debt is estimated to approximate carrying value based on the borrowing rates
currently available to the Company for loans with similar terms and average
maturities.

(16) UNION CONTRACTS

NAG's labor agreement with the United Steel, Paper and Forestry, Rubber,
Manufacturing, Energy Allied Industrial and Service Workers International Union
covering production workers at its Tulsa galvanizing plants expired October 31,
2006. The union ratified a two-year extension of the expiring agreement, with
minor modifications, extending the expiration date of the agreement to October
31, 2008. The extension of the agreement brought employee contributions to the
group health plan more closely in line with contributions made by non-union
employees of the Company.

The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy Allied
Industrial and Service Workers International Union represented the labor force
at the galvanizing facility purchased in Canton, Ohio in February 2005. At the
time of purchase, NAGalv-Ohio, Inc. did not assume the existing labor agreement
and implemented wage and benefit programs similar to those at the Company's
other galvanizing facilities. In the fourth quarter of 2006, negotiations with
the union were finalized. The union ratified an agreement effective from
November 13, 2006 to November 12, 2009. The agreement contains wage and benefit
programs similar to those implemented in February, 2005.

(17) SEGMENT DISCLOSURES

The Company's sole business is hot dip galvanizing and coatings, which is
conducted through its wholly owned subsidiary, North American Galvanizing
Company.

                                      FS-34
<PAGE>

QUARTERLY RESULTS (UNAUDITED)

Quarterly results of operations for the years ended December 31, 2006 and 2005
were as follows:

                          (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

                                                2006
                          -----------------------------------------------
                           MAR 31    JUN 30    SEP 30    DEC 31    TOTAL

Sales                     $15,411   $18,227   $20,155   $20,261   $74,054

Operating Income          $ 1,927   $ 2,630   $ 2,085   $ 1,717   $ 8,359

Net Income                $   982   $ 1,443   $ 1,104   $ 1,006   $ 4,535
                          =======   =======   =======   =======   =======

Income Per Common Share
  Basic                   $  0.14   $  0.20   $  0.14   $  0.12   $  0.60
                          =======   =======   =======   =======   =======
  Diluted *               $  0.13   $  0.18   $  0.14   $  0.12   $  0.58
                          =======   =======   =======   =======   =======

* Individual quarterly amounts do not add to the total due to rounding.


                          (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

                                                2005
                          -----------------------------------------------
                           MAR 31    JUN 30    SEP 30    DEC 31     TOTAL

Sales                     $ 9,280   $12,801   $12,687   $13,102   $47,870

Operating Income          $   371   $   481   $   588   $   733   $ 2,173

Net Income                $    97   $   114   $   179   $   254   $   644
                          =======   =======   =======   =======   =======

Income Per Common Share
  Basic *                 $  0.01   $  0.02   $  0.03   $  0.04   $  0.09
                          =======   =======   =======   =======   =======
  Diluted                 $  0.01   $  0.02   $  0.02   $  0.03   $  0.08
                          =======   =======   =======   =======   =======


                                      FS-35
<PAGE>

SELECTED FINANCIAL DATA

The following is a summary of selected financial data of the Company:
<TABLE><CAPTION>

                                                      (Dollars in thousands except per share amounts)

For the Years Ended December 31,               2006          2005          2004          2003*          2002*
<S>                                        <C>           <C>           <C>           <C>            <C>
Sales                                      $    74,054   $    47,870   $    35,822   $    33,200    $    38,178

Operating Income                           $     8,359   $     2,173   $     1,390   $       495    $     3,038
  Percent of sales                               11.3%          4.5%          3.9%          1.5%           8.0%

Net Income (Loss)                          $     4,535   $       644   $       403   $    (1,013)   $     1,110

Basic Earnings (Loss) per common share     $      0.60   $      0.09   $      0.06   $     (0.15)   $      0.17
Diluted Earnings (Loss) per common share   $      0.58   $      0.08   $      0.05   $     (0.15)   $      0.15

Capital Expenditures                       $     1,414   $     1,016   $     1,230   $       901    $     5,880

Depreciation and Amortization              $     2,975   $     2,532   $     2,701   $     2,880    $     3,027

Weighted Average Shares Outstanding **       7,781,627     7,608,284     7,491,195     7,437,789      7,389,084


At December 31,                                2006          2005          2004          2003           2002

Working Capital                            $     9,296   $     7,026   $     8,621   $     6,607    $     7,032

Total Assets                               $    48,211   $    41,055   $    37,114   $    37,367    $    41,431

Long-Term Obligations                      $     7,753   $    12,275   $    14,257   $    14,351    $    16,700

Stockholders' Equity                       $    25,566   $    19,298   $    18,309   $    17,885    $    18,828

Book Value Per Share                       $      3.15   $      2.82   $      2.69   $      2.64    $      2.79

Common Shares Outstanding                    8,111,672     6,846,948     6,797,012     6,783,137      6,736,919


*  All amounts for all years presented prior to 2003 have been restated to reflect discontinued operations.

** Weighted average shares outstanding include the dilutive effect of stock options and warrants, if applicable.
</TABLE>

                                      FS-36