**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      DC 20549







FORM
      10-Q




**(Mark
      One)**




**x
      QUARTERLY REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**




**For
      the Quarterly Period Ended September 30, 2007**


**OR**




**o
      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: 000-25781**





**STAMFORD
      INDUSTRIAL GROUP, INC.**


(Exact
      Name of Registrant as Specified in its Charter)




**Delaware**
            
            **41-1844584**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                Number)





**One
      Landmark Square**


**Stamford,
      Connecticut 06901**


(Address
      of principal executive offices, Zip Code)




**(203)
      428-2200**


(Registrant’s
      telephone number, including area code)




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





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





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





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





**As
      of November 1, 2007, there were outstanding 41,507,262 shares of the
      registrant’s Common Stock, $0.0001 par value.**










**STAMFORD
      INDUSTRIAL GROUP, INC.**


FORM
      10-Q


For
      the
      Quarter Ended September 30, 2007







**TABLE
      OF CONTENTS**







**Page****PART
                  I. FINANCIAL INFORMATION**Item
                  1.
              Financial
                  Statements (unaudited)Consolidated
                  Balance Sheets as of September 30, 2007 and December 31,
                  2006
              1Consolidated
                  Statements of Operations for the three months ended September 30,
                  2007 and
                  2006 and the three months ended September 30, 2006
                  (Predecessor)
              2Consolidated
                  Statements of Operations for the nine months ended September 30,
                  2007 and
                  2006 and the nine months ended September 30, 2006
                  (Predecessor)
              3Consolidated
                  Statements of Cash Flows for the nine months ended September 30,
                  2007 and
                  2006 and the nine months ended September 30, 2006
                  (Predecessor)
              4Notes
                  to the Consolidated Financial Statements
              5Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              16Item
                  3.
              Quantitative
                  and Qualitative Disclosures about Market Risk
              23Item
                  4.
              Controls
                  and Procedures
              23**PART
                  II. OTHER INFORMATION**Item
                  1A.
              Risk
                  Factors
              24Item
                  6.
              Exhibits
              25**SIGNATURES**
              26**EXHIBIT
                  INDEX**
              27





**PART
      I.** **FINANCIAL
      INFORMATION**




**Item
      1.**   **Financial
      Statements**




**STAMFORD
                  INDUSTRIAL GROUP, INC.****CONSOLIDATED
                  BALANCE SHEETS (UNAUDITED)****(in
                  thousands, except per share amounts)****September
                  30,**
                **2007**
              
              **December
                  31,**
                **2006****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              14
              
              $
              3,703Accounts
                  receivable, net
              
              
              13,025
              
              
              9,276Inventory
              
              
              15,867
              
              
              14,094Deferred
                  tax asset
              
              
              2,684
              
              
              2,684Prepaid
                  expenses and other current assets
              
              
              40
              
              
              561Total
                  current assets
              
              
              31,630
              
              
              30,318Property,
                  plant and equipment, net
              
              
              8,302
              
              
              3,773Deferred
                  financing costs, net
              
              
              683
              
              
              797Intangible
                  assets, net
              
              
              20,571
              
              
              21,572Deferred
                  tax asset
              
              
              5,368
              
              
              5,368Other
                  assets
              
              
              241
              
              
              297Total
                  assets
              
              $
              66,795
              
              $
              62,125**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**Current
                  liabilities:Notes
                  payable
              
              $
              6,786
              
              $
              3,286Current
                  portion of long-term debt
              
              
              4,000
              
              
              3,500Accounts
                  payable
              
              
              9,040
              
              
              9,596Accrued
                  expenses and other liabilities
              
              
              3,210
              
              
              3,205Total
                  current liabilities
              
              
              23,036
              
              
              19,587Long-term
                  debt, less current portion
              
              
              23,533
              
              
              27,033Total
                  liabilities
              
              
              46,569
              
              
              46,620Commitments
                  and contingencies (Note 11)Stockholders’
                  equity:Preferred
                  stock — $.0001 par value; 5,000 shares authorized; no shares issued
                  or
                outstanding
              
              
              —
              
              
              —Common
                  stock — $.0001 par value; 100,000 shares authorized; 41,760 and 41,676
                  shares
                issued
                  and outstanding at September 30, 2007 and December 31, 2006,
                  respectively
              
              
              3
              
              
              3Additional
                  paid-in capital
              
              
              247,285
              
              
              245,237Accumulated
                  deficit
              
              
              (227,062
              )
              
              (229,735
              )Total
                  stockholders’ equity
              
              
              20,226
              
              
              15,505Total
                  liabilities and stockholders’ equity
              
              $
              66,795
              
              $
              62,125See
                  accompanying notes to the consolidated financial
                  statements.  1


**STAMFORD
                  INDUSTRIAL GROUP, INC.****CONSOLIDATED
                  STATEMENTS OF OPERATIONS (UNAUDITED)****(in
                  thousands, except per share amounts)****Three
                  Months Ended****September
                  30,**
                **2007**
              
              **September
                  30,**
                **2006**
              
              **Predecessor
                  Company (1)**
                **September
                  30, 2006**Revenues:Product
              
              $
              28,197
              
              $
              —
              
              $
              22,095Total
                  revenues
              
              
              28,197
              
              
              —
              
              
              22,095Cost
                  of revenues:Product
              
              
              23,102
              
              
              —
              
              
              18,072Total
                  cost of revenues
              
              
              23,102
              
              
              —
              
              
              18,072Gross
                  margin
              
              
              5,095
              
              
              —
              
              
              4,023Operating
                  expenses:Sales
                  and marketing
              
              
              368
              
              
              —
              
              
              338General
                  and administrative
              
              
              3,065
              
              
              219
              
              
              640Related
                  party stock compensation
              
              
              —
              
              
              7,542
              
              
              —Total
                  operating expenses
              
              
              3,433
              
              
              7,761
              
              
              978Income
                  (loss) from operations
              
              
              1,662
              
              
              (7,761
              )
              
              3,045Other
                  income (expense):Interest
                  income
              
              
              —
              
              
              184
              
              
              —Interest
                  expense
              
              
              (720
              )
              
              (13
              )
              
              (150
              )Other
                  expense
              
              
              —
              
              
              (31
              )
              
              (1,865
              )Total
                  other (expense) income, net
              
              
              (720
              )
              
              140
              
              
              (2,015
              )Income
                  (loss) before taxes
              
              
              942
              
              
              (7,621
              )
              
              1,030Provision
                  for income taxes
              
              
              331
              
              
              —
              
              
              36Net
                  income (loss)
              
              $
              611
              
              $
              (7,621
              )
              $
              994Basic
                  net income (loss) per share
              
              $
              0.01
              
              $
              (0.25
              )Shares
                  used in basic calculation
              
              
              41,717
              
              
              29,908Diluted
                  net income (loss) per share
              
              $
              0.01
              
              $
              (0.25
              )Shares
                  used in diluted calculation
              
              
              48,826
              
              
              29,908(1)
                  Because the Company had no operations at the time of the Concord
                  acquisition (see Notes 1 and 13), Concord is considered to be the
                  “Predecessor” of the Company for accounting purposes and, therefore
                  relevant prior year financial information regarding the Predecessor
                  has
                  been presented herein.See
                  accompanying notes to the consolidated financial
                  statements.




2




**STAMFORD
                  INDUSTRIAL GROUP, INC.****CONSOLIDATED
                  STATEMENTS OF OPERATIONS (UNAUDITED)****(in
                  thousands, except per share amounts)****Nine
                  Months Ended****September
                  30,**
                **2007**
              
              **September
                  30,**
                **2006**
              
              **Predecessor
                  Company (1)**
                **September
                  30, 2006**Revenues:Product
              
              $
              84,382
              
              $
              —
              
              $
              60,738Service,
                  maintenance and royalty
              
              
              —
              
              
              20
              
              
              —Total
                  revenues
              
              
              84,382
              
              
              20
              
              
              60,738Cost
                  of revenues:Product
              
              
              69,540
              
              
              —
              
              
              47,867Total
                  cost of revenues
              
              
              69,540
              
              
              —
              
              
              47,867Gross
                  margin
              
              
              14,842
              
              
              20
              
              
              12,871Operating
                  expenses:Sales
                  and marketing
              
              
              1,043
              
              
              —
              
              
              905General
                  and administrative
              
              
              8,422
              
              
              568
              
              
              1,564Related
                  party stock compensation
              
              
              —
              
              
              7,542
              
              
              —Total
                  operating expenses
              
              
              9,465
              
              
              8,110
              
              
              2,469Income
                  (loss) from operations
              
              
              5,377
              
              
              (8,090
              )
              
              10,402Other
                  income (expense):Interest
                  income
              
              
              6
              
              
              519
              
              
              —Interest
                  expense
              
              
              (1,935
              )
              
              (39
              )
              
              (463
              )Other
                  expense
              
              
              (139
              )
              
              (114
              )
              
              (2,113
              )Total
                  other (expense) income, net
              
              
              (2,068
              )
              
              366
              
              
              (2,576
              )Income
                  (loss) before taxes
              
              
              3,309
              
              
              (7,724
              )
              
              7,826Provision
                  for income taxes
              
              
              636
              
              
              —
              
              
              212Net
                  income (loss)
              
              $
              2,673
              
              $
              (7,724
              )
              $
              7,614Basic
                  net income (loss) per share
              
              $
              0.06
              
              $
              (0.26
              )Shares
                  used in basic calculation
              
              
              41,690
              
              
              29,320Diluted
                  net income (loss) per share
              
              $
              0.06
              
              $
              (0.26
              )Shares
                  used in diluted calculation
              
              
              48,578
              
              
              29,320(1)
                  Because the Company had no operations at the time of the Concord
                  acquisition (see Notes 1 and 13), Concord is considered to be the
                  “Predecessor” of the Company for accounting purposes and, therefore
                  relevant prior year financial information regarding the Predecessor
                  has
                  been presented herein.See
                  accompanying notes to the consolidated financial
                  statements.  3




**STAMFORD
                  INDUSTRIAL GROUP, INC.****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS (UNAUDITED)****(in
                  thousands)****Nine
                  Months Ended****September
                  30,**
                **2007**
              
              **September
                  30,**
                **2006**
              
              **Predecessor**
                **Company
                  (1)**
                **September
                  30,**
                **2006**Cash
                  flows from operating activities:Net
                  income (loss)
              
              $
              2,673
              
              $
              (7,724
              )
              $
              7,614Reconciliation
                  of net income (loss) to net cash provided by (used in)
                operating
                  activities:Depreciation
              
              
              290
              
              
              —
              
              
              417Amortization
                  of intangibles
              
              
              786
              
              
              —
              
              
              —Amortization
                  of discount on investments, net
              
              
              —
              
              
              (353
              )
              
              —Amortization
                  of debt issuance costs
              
              
              114
              
              
              22
              
              
              —Provision
                  for doubtful accounts
              
              
              25
              
              
              —
              
              
              13Stock-based
                  compensation
              
              
              2,001
              
              
              77
              
              
              —Related
                  party stock compensation
              
              
              —
              
              
              7,542
              
              
              —Changes
                  in assets and liabilities:Accounts
                  receivable
              
              
              (3,774
              )
              
              —
              
              
              (5,930
              )Inventory
              
              
              (1,773
              )
              
              —
              
              
              312Prepaid
                  expenses and other current assets
              
              
              521
              
              
              49
              
              
              122Other
                  assets
              
              
              56
              
              
              (30
              )
              
              —Accounts
                  payable
              
              
              (556
              )
              
              65
              
              
              2,306Accrued
                  expenses and other liabilities
              
              
              220
              
              
              —
              
              
              50Net
                  cash provided by (used in) operating activities
              
              
              583
              
              
              (352
              )
              
              4,904Cash
                  flows from investing activities:Purchase
                  of marketable securities
              
              
              —
              
              
              (14,415
              )
              
              (3,312
              )Proceeds
                   from sale of marketable securities
              
              
              —
              
              
              29,433
              
              
              —Capital
                  expenditures for property, plant and equipment
              
              
              (4,819
              )
              
              (2
              )
              
              (570
              )Capitalized
                  direct business acquisition costs
              
              
              —
              
              
              (298
              )
              
              —Net
                  cash (used in) provided by investing activities
              
              
              (4,819
              )
              
              14,718
              
              
              (3,882
              )Cash
                  flows from financing activities:Proceeds
                  from line of credit
              
              
              3,500
              
              
              —
              
              
              6,613Principal
                  payments on long-term debt
              
              
              (3,000
              )
              
              
              
              
              (208
              )Proceeds
                  from exercise of stock options
              
              
              47
              
              
              —
              
              
              —Distributions
                  to members
              
              
              —
              
              
              —
              
              
              (8,430
              )Net
                  cash provided by (used in) financing activities
              
              
              547
              
              
              —
              
              
              (2,025
              )Net
                  (decrease) increase in cash and cash equivalents
              
              
              (3,689
              )
              
              14,366
              
              
              (1,003
              )Cash
                  and cash equivalents at beginning of period
              
              
              3,703
              
              
              203
              
              
              1,003Cash
                  and cash equivalents at end of period
              
              $
              14
              
              $
              14,569
              
              $
              -Supplemental
                  cash flow disclosure:Interest
                  paid
              
              $
              1,895
              
              $
              —
              
              $
              463Taxes
                  paid
              
              $
              335
              
              $
              132
              
              $
              36(1)
                  Because the Company had no operations at the time of the Concord
                  acquisition (see Notes 1 and 13), Concord is considered to be the
                  “Predecessor” of the Company for accounting purposes and, therefore
                  relevant prior year financial information regarding the Predecessor
                  has
                  been presented herein.See
                  accompanying notes to the consolidated financial
                  statements


4





STAMFORD
      INDUSTRIAL GROUP, INC.




NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(dollars
      in thousands, except per share amounts)




**Note
      1. Overview and Basis of Presentation**





***Overview***





Stamford
      Industrial Group, Inc. (“Stamford
      Industrial Group” or the “Company” which
      may be referred to as “we”, “us” or “our” )
      was
      initially established in 1996 under the name “Net Perceptions, Inc.”, as a
      provider of marketing software solutions. In 2003, as a result of continuing
      losses and the decline of its software business, the Company began exploring
      various strategic alternatives, including sale or liquidation, and ceased the
      marketing and development of its marketing solutions software business in 2004.
      On April 21, 2004, the Company announced an investment into the Company by
      Olden
      Acquisition LLC (“Olden”), an affiliate of Kanders & Company, Inc., an
      entity owned and controlled by the Company’s Non-Executive Chairman, Warren B.
      Kanders, for the purpose of initiating a strategy to redeploy the Company’s
      assets and use its cash, cash equivalent assets and marketable securities to
      enhance stockholder value. As part of this strategy, on October 3, 2006, the
      Company, acquired the assets of CRC Acquisition Co. LLC (“CRC”), a manufacturer
      of steel counterweights doing business as Concord Steel (“Concord”). With this
      initial acquisition, management is now focused on building a diversified global
      industrial manufacturing group through both organic and acquisition growth
      initiatives that are expected to complement and diversify existing business
      lines. The Company's acquisition program is focused on building a diversified
      industrial growth company providing engineered products and solutions for global
      niche markets. The Company seeks acquisitions with transactions valued up to
      $150 million and having an EBITDA range of $5-$25 million. Because the Company
      had no operations at the time of the Concord acquisition, the Concord business
      is considered to be a predecessor company (“Predecessor”) for accounting
      purposes. Accordingly, relevant financial information regarding the Predecessor
      has been presented (see Note 13 for a more detailed explanation of the
      acquisition).





Concord
      is a leading independent manufacturer of steel counterweights and structural
      weldments. Concord sells its products primarily in the United States to original
      equipment manufacturers (“OEM”) of certain construction and industrial related
      equipment that employ counterweights which are used to provide stability through
      counterweight leverage in the operation of equipment used to hoist heavy loads,
      such as elevators and cranes. The counterweight market Concord targets is
      primarily comprised of OEMs within the (i) commercial and industrial
      construction equipment industry that manufactures aerial work platforms,
      telehandlers, scissor lifts, cranes, and a variety of other construction related
      equipment and vehicles; and (ii) the elevator industry, that incorporates
      counterweights as part of the overall elevator operating mechanism to balance
      the weight of the elevator cab and load.





***Basis
      of Presentation***





The
      accompanying unaudited consolidated financial statements of Stamford Industrial
      Group as of and for the three months and nine months ended September 30, 2007
      and 2006, have been prepared in accordance with generally accepted accounting
      principles in the United States of America and instructions to Form 10-Q and
      Article 10 of Regulation S-X. Accordingly, they do not include all of the
      information in notes required by generally accepted accounting principles in
      the
      United States of America for complete financial statements. In the opinion
      of
      management, all adjustments (consisting of normal recurring accruals) necessary
      for a fair presentation of the unaudited consolidated financial statements
      have
      been included. The results of the three and nine months ended September 30,
      2007
      are not necessarily indicative of the results to be obtained for the year ending
      December 31, 2007. These interim financial statements should be read in
      conjunction with the Company’s audited consolidated financial statements and
      footnotes thereto included in the Company’s Annual Report on Form 10-K for the
      fiscal year ended December 31, 2006, filed with the Securities and Exchange
      Commission on April 2, 2007.





The
      consolidated financial statements include the accounts of the Company and its
      wholly-owned subsidiaries. All inter-company accounts and transactions have
      been
      eliminated. Certain prior period balances have been reclassified to conform
      to
      current period presentation.


5


***Critical
      Accounting Policies***




The
      Company’s discussion and analysis of financial condition and results of
      operations is based upon our consolidated financial statements, which have
      been
      prepared in accordance with accounting principles generally accepted in the
      United States. The preparation of these financial statements requires us to
      make
      estimates and judgments that affect the reported amounts of assets, liabilities,
      revenues and expenses, and related disclosure of contingent assets and
      liabilities. On an on-going basis, the Company evaluates its estimates,
      including those related to bad debts, investments, intangible assets,
      restructuring liabilities, contingencies and litigation. The Company bases
      its
      estimates on historical experience and on various other assumptions that are
      believed to be reasonable under the circumstances, the results of which form
      the
      basis for making judgments about the carrying values of assets and liabilities
      that are not readily apparent from other sources. Actual results may differ
      from
      these estimates under different assumptions or conditions.




The
      Company believes the following critical accounting policies affect significant
      judgments and estimates used in the preparation of its consolidated financial
      statements. Events occurring subsequent to the preparation of the consolidated
      financial statements may cause the Company to re-evaluate these
      policies.





*Use
      of estimates.* The
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States of America requires management to
      make estimates and assumptions that affect the reported amounts therein.
      Management’s estimates are based on historical experience and on various other
      assumptions that are believed to be reasonable under the circumstances. Estimates
      inherent in the preparation of the accompanying Consolidated Financial
      Statements include the carrying value of long-lived assets, valuation allowances
      for receivables, inventories and deferred income tax assets, liabilities for
      potential litigation claims and settlements, and potential liabilities related
      to tax filings in the ordinary course of business. Management’s
      estimates and assumptions are evaluated on an on-going basis. Due to the
      inherent uncertainty involved in making estimates, actual results may differ
      from those estimates.





*Revenue
      Recognition.* The
      Company’s revenue recognition policy requires the recognition of sales when
      there is evidence of a sales agreement, the delivery of goods has occurred,
      the
      sales price is fixed or determinable and the collectibility of revenue is
      reasonably assured. The Company generally records sales upon shipment of product
      to customers and transfer of title under standard commercial terms. When
      the Company estimates that a contract with one of its customers will result
      in a
      loss, it will accrue the entire loss as soon as it is probable and estimable.





*Allowance
      for doubtful accounts.* The
      Company maintains allowances for doubtful accounts for estimated losses resulting from
      the inability of its customers to make required payments. If the financial
      condition of our customers deteriorates, resulting in an impairment of their
      ability to make payments, additional allowances will be required.





*Litigation.* The
      Company has not recorded an estimated liability related to the pending class
      action lawsuit in which it was named. For a discussion of this matter, see
      Note
      11. Due to the uncertainties related to both the likelihood and the amount
      of
      any potential loss, no estimate was made of the liability that could result
      from
      an unfavorable outcome. As additional information becomes available, the Company
      will assess the potential liability and make or revise its estimate(s)
      accordingly, which could materially impact its results of operations and
      financial position.





*Income
      taxes.* Deferred
      income taxes are provided on the liability method whereby deferred tax assets
      are recognized for deductible temporary differences and operating loss and
      tax
      credit carryforwards and deferred tax liabilities are recognized for taxable
      temporary differences. Temporary differences are the differences between the
      reported amounts of assets and liabilities and their income tax bases. Deferred
      tax assets are reduced by a valuation allowance when, in the opinion of
      management, it is more likely than not that some portion or all of the deferred
      tax assets will not be realized. The recognition of a valuation allowance for
      deferred taxes requires management to make estimates about the Company’s future
      profitability. The estimates associated with the valuation of deferred taxes
      are
      considered critical due to the amount of deferred taxes recorded on the
      consolidated balance sheet and the judgment required in determining the
      Company’s future profitability. Deferred tax assets were $8.1 million at
      September 30, 2007 and December 31, 2006, respectively.


6


*Derivatives
      and hedging activities.* The
      Company recognizes all derivatives on the balance sheet as either an asset
      or
      liability measured at fair value. Changes in the derivative’s fair value are
      recognized currently in income unless specific hedge accounting criteria are
      met. Special accounting for qualifying hedges allows a derivative’s gains and
      losses to offset related results on the hedged item in the statement of income
      and requires the Company to formally document, designate and assess
      effectiveness of transactions that receive hedge accounting. Derivatives that
      are not hedges are adjusted to fair value through income. If the derivative
      qualifies as a hedge, depending on the nature of the hedge, changes in the
      fair
      value of derivatives are either offset against the change in fair value of
      hedged assets, liabilities, or firm commitments through earnings, or recognized
      in other comprehensive income until the hedged item is recognized in earnings.
      The ineffective portion of a derivative’s change in fair value is immediately
      recognized in earnings.





During
      the three and nine months ended September 30, 2007, there have been no
      significant changes to the Company’s critical accounting policies and estimates
      as disclosed in the Company’s Annual Report on Form 10-K for the year ended
      December 31, 2006, other than derivatives and hedging activities.




***Recent
      Accounting Pronouncements***




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, Fair Value Measurements, (“FAS 157”) and No. 159, The Fair Value Option for
      Financial Assets and Financial Liabilities, (“FAS 159”). These Standards define
      fair value, establishes a framework for measuring fair value under generally
      accepted accounting principles and expands disclosures about fair value
      measurement. FAS 157 and FAS 159 are effective for financial statements issued
      for fiscal years beginning after November 15, 2007, and interim periods within
      those fiscal years. The adoption of FAS 157 and FAS 159 are not expected to
      have
      a material impact on the Company’s financial position, results of operations and
      cash flows.





**Note
      2. Inventories**




Inventories,
      net of inventory reserves at September 30, 2007 and December 31, 2006 are as
      follows:




**September
                  30,**
                **2007**
              
              **December
                  31,**
                **2006**Finished
                  goods
              
              $
              81
              
              $
              89Work-in-process
              
              
              958
              
              
              613Raw
                  materials
              
              
              14,828
              
              
              13,392$
              15,867
              
              $
              14,094




**Note
      3** **.
      Property, Plant and Equipment**






Property,
      plant and equipment, net as of September 30, 2007 and December 31, 2006 are
      as
      follows:




**September
                    30,**
                  **2007**
              
              **December
                    31,**
                  **2006**Land
              
              $
              350
              
              $
              350Building
                  and improvements
              
              
              1,245
              
              
              883Machinery
                  and equipment
              
              
              4,208
              
              
              1,514Office
                  equipment
              
              
              405
              
              
              196Transportation
                  equipment
              
              
              547
              
              
              364Construction
                  in progress
              
              
              1,908
              
              
              5378,663
              
              
              3,844Less:
                  Accumulated depreciation
              
              
              (361
              )
              
              (71
              )Property,
                  plant and equipment, net
              
              $
              8,302
              
              $
              3,773




**Note
      4. Intangible assets**





Intangible
      assets are amortized over their expected useful lives which are between 3 and
      12
      years using the straight-line method.





Intangible
      assets, net of amortization at September 30, 2007 and December 31, 2006 are
      as
      follows:


7


**September
                  30, 2007****Gross**
              
              **Other**
                **Adjustments****(1)**
              
              **Accumulated**
                **Amortization**
              
              **Net**
              
              **Life**Intangibles
                  subject to amortization:Customer
                  relationships
              
              $
              12,399
              
              $
              (27
              )
              $
              (1,035
              )
              $
              11,337
              
              
              12
                  yrsNon-compete
                  agreements
              
              
              37
              
              
              —
              
              
              (12
              )
              
              25
              
              
              3
                  yrsIntangibles
                  not subject to amortization:Trade
                  name
              
              
              9,397
              
              
              (188
              )
              
              —
              
              
              9,209
              
              
              —Intangibles,
                  net
              
              $
              21,833
              
              $
              (215
              )
              $
              (1,047
              )
              $
              20,571
  (1)
      The
      acquisition of Concord resulted in certain tax deductible intangibles, a portion
      or all of which are not being amortized for book purposes. The intangible assets
      were reduced by $0.2 million as the result of the tax benefit generated for
      tax
      purposes during the nine months ended September 30, 2007.




**December
                  31, 2006****Gross**
              
              **Other
                  Adjustments**
              
              **Accumulated**
                **Amortization**
              
              **Net**
              
              **Life**Intangibles
                  subject to amortization:Customer
                  relationships
              
              $
              12,399
              
              $
              —
              
              $
              (258
              )
              $
              12,141
              
              
              12
                  yrsNon-compete
                  agreements
              
              
              37
              
              
              —
              
              
              (3
              )
              
              34
              
              
              3
                  yrsIntangibles
                  not subject to amortization:Trade
                  name
              
              
              9,397
              
              
              —
              
              
              —
              
              
              9,397
              
              
              —Intangibles,
                  net
              
              $
              21,833
              
              $
              —
              
              $
              (261
              )
              $
              21,572


**Note
      5. Accrued expenses and other liabilities**





Accrued
      expenses and other liabilities of the Company as of September 30, 2007 and
      December 31, 2006 are
      as follows :


**September
                  30,**
                **2007**
              
              **December
                  31,**
                **2006**Accrued
                  compensation, benefits and
                commissions
              
              $
              836
              
              $
              706Accrued
                  interest payable
              
              
              880
              
              
              840Accrued
                  professional services
              
              
              342
              
              
              25Accrued
                  insurance
              
              
              61
              
              
              216Accrued
                  property taxes
              
              
              63
              
              
              41Accrued
                  other liabilities
              
              
              1,028
              
              
              1,377$
              3,210
              
              $
              3,205


**Note
      6. Long-term Debt and Notes Payable**





In
      connection with the Company’s acquisition of Concord, Concord entered
      into a senior secured credit facility (the “Credit Agreement”) with LaSalle Bank
      National Association, as administrative agent (the “Agent”) and the lenders
      party thereto.





8


The
      Credit Agreement established a commitment to Concord to provide up to $40.0
      million in the aggregate of loans and other financial accommodations consisting
      of (i) a five-year senior secured term loan in an aggregate principal amount
      of
      $28.0 million (ii) a five-year senior secured revolving credit facility in
      the
      aggregate principal amount of $10.0 million (the “Revolving Facility”) and (iii)
      a five-year senior secured capital expenditure facility in the aggregate
      principal amount of $2.0 million. The Revolving Facility is further subject
      to a
      borrowing base consisting of up to 85% of eligible accounts receivable and
      up to
      55% of eligible inventory. The Revolving Facility includes a sublimit of up
      to
      an aggregate amount of $5.0 million in letters of credit and a sublimit of
      up to
      an aggregate amount of $2.5 million in swing line loans. The capital expenditure
      facility permits the Company to draw funds for the purchase of machinery and
      equipment during the 6-month period ending March 3, 2007, and then converts
      into
      a 4.5-year term loan. Immediately following the closing of the Concord
      acquisition, the Company drew down approximately $31.3 million and had
      additional availability under the Revolving Facility of approximately $6.7
      million. There
      were no amounts drawn under the capital expenditure facility at the time of
      closing of the credit facility nor were there any amounts drawn down prior
      to
      March 3, 2007.  The
      capital expenditure facility expired on March 3, 2007.  At
      September 30, 2007 and December 31, 2006, the outstanding balance from the
      revolving credit facility amounted to $6.8 million and $3.3 million,
      respectively. At September 30, 2007, the Company had $1.6 million available
      in
      additional borrowings net of $1.6 million in outstanding letters of credit.
      The
      balance under the term loan at September 30, 2007 and December 31, 2006 was
      $25.0 million and $28.0 million, respectively. At September 30, 2007, the
      Company had $4.0 million classified as current and $21.0 million classified
      as
      long-term .
      During the period ended September 30, 2007, the Company was in compliance with
      all covenants under the credit facility.





Borrowings
      under the Credit Agreement will bear interest, at the Company’s election, at
      either (i) a rate equal to London
      Interbank Offer Rate (“LIBOR”) ,
      plus an applicable margin ranging from 1.25% to 2.5%, depending on certain
      conditions, or (ii) an alternate base rate which will be the greater of (a)
      the
      Federal Funds rate plus 0.5% or (b) the prime rate publicly announced by the
      Agent as its prime rate, plus, in both cases, an applicable margin ranging
      from
      0% to 1.0%, depending on certain conditions. At September 30, 2007 and December
      31, 2006, respectively, the applicable interest rate for the outstanding
      borrowings under the Credit Agreement was 7.23% and 7.87%,
      respectively.





The
      Credit Agreement is guaranteed by the Company and its direct and indirect
      subsidiaries and is secured by, among other things, (a) (i) all of the equity
      interests of Concord’s subsidiaries and (ii) a pledge of all of the issued and
      outstanding shares of stock of Concord held by Stamford Industrial Group and
      (b)
      a first priority perfected security interest on substantially all the assets
      of
      the Company and its direct and indirect subsidiaries pursuant to a guaranty
      and
      collateral agreement dated October 3, 2006 and delivered in connection with
      the
      Credit Agreement (the “Guaranty Agreement”). In addition, the Agent, for the
      benefit of the lenders, has a mortgage on all owned real estate of the Company
      and its direct and indirect subsidiaries, as well as deposit account control
      agreements with respect to funds on deposit in bank accounts of the Company
      and
      its direct and indirect subsidiaries.





The
      Company is exposed to interest rate volatility with regard to existing issuances
      of variable rate debt. Primary exposure includes movements in the U.S. prime
      rate and LIBOR. The Company uses interest rate swaps to reduce interest rate
      volatility. On January 2, 2007, the Company entered into an interest rate
      protection agreement that has approximately $14 million of interest rate swaps
      fixing interest rates between 5.0% and 5.8%.





On
      April 21, 2004, the Company closed on an investment into the Company by
      Olden  for
      the purpose of initiating a strategy to redeploy the Company’s assets and use
      the Company’s cash, cash equivalent assets and marketable securities to enhance
      stockholder value. The Company issued and sold to Olden a 2% ten-year
      Convertible Subordinated Note, which is convertible after one year (or
      earlier upon a call by the Company and in certain other circumstances) at
      a conversion price of $0.45 per share of Company common stock into approximately
      19.9% of the outstanding common equity of the Company as of the closing date.
      Proceeds to the Company from this transaction totaled approximately $2.5 million
      before transaction costs of $0.3 million. The transaction costs are being
      amortized over ten years, the term of the debt. Interest on the note accrues
      semi-annually on the last day of June and December in each year and is payable,
      together with the principal sum of the note, on the maturity date of the note.
      The note matures on April 21, 2014 unless accelerated earlier as provided by
      the
      note. The convertible subordinated note was deemed to include a beneficial
      conversion feature. At the date of issue, the Company allocated $0.1 million
      to
      the beneficial conversion feature and amortized the beneficial conversion
      feature over one year (the period after which the note is convertible). As
      of
      December 31, 2005, zero remained to be amortized of the note discount due to
      the
      beneficial conversion feature. Also in connection with this transaction, the
      Company entered into a Registration Rights Agreement, which requires the
      Company, upon request of the purchaser of the note or its assignee, to register
      under the Securities Act of 1933, as amended, the resale of the shares of common
      stock into which the note is convertible. In connection with this transaction,
      the Board of Directors adopted an amendment to the Company’s Rights Agreement
      such that the transaction would not trigger the rights thereunder. As of
      September 30, 2007 and December 31, 2006, respectively, the outstanding balance
      on the note payable amounted to $2.5 million and is classified as long-term
      debt. The Company believes it has the financial ability to make all payments
      on
      this note.





9




**Note
      7. Per Share Data**




Basic
      earnings per share is computed using net income and the weighted average number
      of common shares outstanding. Diluted earnings per share reflects the weighted
      average number of common shares outstanding plus any potentially dilutive shares
      outstanding during the period. Potentially dilutive shares
      consist of shares issuable upon the exercise of stock options, convertible
      notes
      and restricted stock awards. Shares used in the diluted net income per share
      for
      the three and nine months ended September 30, 2007, exclude the impact of 250
      potential common shares issuable upon the exercise of stock options, which
      were anti-dilutive .
      Shares
      used in the diluted net income (loss) per share for the three and nine months
      ended September 30, 2006, exclude the impact of 57 and 28, respectively, of
      potential common shares issuable upon the exercise of stock options, 5,628
      potential common shares from the conversion of the convertible note and 151
      and
      141, respectively, of common shares from restricted stock awards, which
      were anti-dilutive .




**Three
                  Months Ended**
                **September
                  30,**
              
              **Nine
                  Months Ended**
                **September
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Basic
                  income (loss) per share calculation:**Net
                  income (loss)
              
              $
              611
              
              $
              (7,621
              )
              $
              2,673
              
              $
              (7,724
              )Weighted
                  average common shares - basic
              
              
              41,717
              
              
              29,908
              
              
              41,690
              
              
              29,320**Basic
                  net income (loss) per share**
              
              $
              0.01
              
              $
              (0.25
              )
              $
              0.06
              
              $
              (0.26
              )**Diluted
                  income (loss) per share calculation:**Net
                  income (loss)
              
              $
              611
              
              $
              (7,621
              )
              $
              2,673
              
              $
              (7,724
              )Weighted
                  average common shares - basic
              
              
              41,717
              
              
              29,908
              
              
              41,690
              
              
              29,320Effect
                  of dilutive stock options
              
              
              1,277
              
              
              —
              
              
              1,039
              
              
              —Effect
                  of restricted stock awards
              
              
              —
              
              
              —
              
              
              73
              
              
              —Effect
                  of convertible note
              
              
              5,628
              
              
              —
              
              
              5,628
              
              
              —Effect
                  of stock fee
              
              
              204
              
              
              —
              
              
              148
              
              
              —Weighted
                  average common shares - diluted
              
              
              48,826
              
              
              29,908
              
              
              48,578
              
              
              29,320**Diluted
                  net income (loss) per share**
              
              $
              0.01
              
              $
              (0.25
              )
              $
              0.06
              
              $
              (0.26
              )




**Note
      8. Income Taxes**





For
      federal income tax purposes, the Company has available net operating loss
      carry-forwards of approximately $122.1 million and research and development
      credit carry-forwards of $0.2 million at September 30, 2007. The net operating
      loss and research and development credit carry-forwards expire in 2011 through
      2026, if not previously utilized. The utilization of these carry-forwards may
      be
      subject to limitations based on past and future changes in ownership of the
      Company pursuant to Internal Revenue Code Section 382. The recognition of a
      valuation allowance for deferred taxes requires management to make estimates
      about the Company’s future profitability. Deferred tax assets are reduced by
      valuation allowance when, in the opinion of management, it is more likely than
      not that some portion or all of the deferred tax assets will not be realized.
      The estimates associated with the valuation of deferred taxes are considered
      critical due to the amount of deferred taxes recorded on the consolidated
      balance sheet and the judgment required in determining the Company’s future
      profitability. In 2006, the Company reduced $8.1 million of valuation allowance
      as a reduction of goodwill and intangible assets acquired from the Concord
      acquisition, based on the expectation that these deferred tax assets are more
      likely than not to be realized. Deferred tax assets were $8.1 million at
      September 30, 2007 and December 31, 2006, respectively, net of a valuation
      allowance of $34.6 million and $34.9 million, respectively.





Because
      the majority of the Company’s deferred tax asset consists of net operating loss
      carryforwards for federal tax purposes, the key to the Company’s ability to
      realize the deferred tax asset will be to generate sufficient income in future
      years to utilize the loss carryforwards prior to expiration.


10


The
      Company has an effective tax rate of 35% and 19% for the three and nine months
      ended September 30, 2007, respectively, which consists of a federal alternative
      minimum tax and state tax. There is no current or deferred federal income tax
      provision due to the availability of net operating loss carry-forwards and
      the
      maintenance of a deferred tax valuation allowance at consistent levels. The
      change in the Company’s effective tax rate is due to Concord’s taxable income
      within its respectable states.




The
      Company files income tax returns in the U.S. federal jurisdiction and various
      state jurisdictions.




The
      Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes,” on January 1, 2007. Upon the adoption of FIN 48,
      the Company commenced a review of all open tax years in all jurisdictions.
      The
      Company does not believe it has included any “uncertain tax positions” in its
      federal income tax return or any of the state income tax returns it is currently
      filing, and has no significant unrecognized tax benefits recorded. The Company
      has made an evaluation of the potential impact of additional state taxes being
      assessed by jurisdictions in which the Company does not currently consider
      itself liable. The Company does not anticipate that such additional taxes,
      if
      any, would result in a material change to its financial position.




**Note
      9. Employee Benefit Plan**





The
      Company sponsors a 401(k) Plan (the "Plan"), covering substantially all
      employees of the Company. Under this Plan, eligible employees who elect to
      participate in the Plan may contribute between 2% and 20% of eligible
      compensation (as defined herein) to the Plan. For the three and nine months
      ended September 30, 2007, the Company made matching contributions of
      approximately $52 thousand and $106 thousand, respectively. **** For
      the
      three and nine months ended September 30, 2006, the Company made matching
      contributions of approximately $20 thousand and $69 thousand,
      respectively.





**Note
      10. Stockholders’ equity**





In
      2006,
      the Company adopted SFAS No. 123R, *Share-Based Payment*(“SFAS
      123R”),**which requires all companies to measure compensation costs
      for all share-based payments (including employee stock options) at fair value
      and recognize such costs in the statement of operations. The Company estimates
      the fair value of share-based payments using the Black-Scholes model for stock
      options and the market price of the Company’s common stock for restricted stock
      awards. Total share based compensation expense for the three and nine months
      ended September 30, 2007, was $0.6 million and $2.0 million, respectively,
      including restricted stock award based compensation expense for the three and
      nine months ended September 30, 2007, of $0.1 million and $0.3 million,
      respectively. Total share based compensation expense for both the three and
      nine
      months ended September 30, 2006 was $7.6 million, including restricted stock
      award based compensation expense for the three and nine months ended September
      30, 2006, of $21 thousand and $62 thousand, respectively.




On
      June
      21, 2007 the Company’s, stockholders approved the Company’s 2007 Stock Incentive
      Plan (the “2007 Stock Incentive Plan”). Under the 2007 Stock Incentive Plan,
      10,000,000 shares of the Company’s common stock will be initially reserved for
      issuance and available for awards, subject to an automatic annual increase
      equal
      to 4% of the total number of shares of the Company’s common stock outstanding at
      the beginning of each fiscal year (the “Annual Share Increase”). Awards under
      the 2007 Stock Incentive Plan may include non-qualified stock options, incentive
      stock options, stock appreciation rights, restricted shares of common stock,
      restricted units and performance awards. Awards under the 2007 Stock Incentive
      Plan may be granted to employees, officers, directors, consultants, independent
      contractors and advisors of the Company or any subsidiary of the Company. In
      any
      calendar year, no participant may receive awards under the 2007 Stock Incentive
      Plan for more than 2,500,000 shares of the Company’s common stock. Additionally,
      no more than 2,500,000 of the total shares of common stock available for
      issuance under the 2007 Stock Incentive Plan may be granted in the form of
      restricted shares, restricted units or performance awards, subject to an
      automatic annual increase, beginning with January in year 2008 and continuing
      through January in year 2017, equal to 75% of the total number of shares of
      the
      Company’s common stock increased pursuant to the Annual Share Increase. The 2007
      Stock Incentive Plan will have a term of ten years expiring on June 21, 2017.
      As
      of September 30, 2007 no awards have been issued under this plan.





On
      June
      21, 2007, the Company’s stockholders approved the Company’s 2007 Annual
      Incentive Plan (the “2007 Annual Incentive Plan”). The 2007 Annual Incentive
      Plan will enable the Company to award certain executive officers of the Company
      or any subsidiary of the Company, with “performance-based compensation” under
      Section 162(m) of the Internal Revenue Code of 1986, as amended, which will
      enable the Company to deduct such compensation from its taxable income. As
      of
      September 30, 2007, no awards have been issued under this plan.


11


In
      April
      2000, the Company’s Board of Directors adopted the 2000 Stock Plan (the “2000
      Plan”), which provides for the issuance of non-qualified stock options to
      employees who are not officers. The options allow the holder to purchase shares
      of the Company’s common stock at fair market value on the date of the grant.
      Stock options granted under the 2000 Plan typically vest over three years and
      generally expire ten years from the date of grant. As a result of shareholder
      approval of the 2007 Stock Incentive Plan, the Company's 2000 Plan has been
      frozen and will remain in effect only to the extent of awards outstanding under
      the plan as of June 21, 2007.





In
      February 1999, the Company’s Board of Directors adopted the 1999 Equity
      Incentive Plan (the “1999 Plan”), which provides for the issuance of both
      incentive and non-qualified stock options. The options allow the holder to
      purchase shares of the Company’s common stock at fair market value on the date
      of the grant. For options granted to holders of more than 10% of the outstanding
      common stock, the option price at the date of the grant must be at least equal
      to 110% of the fair market value of the stock. Stock options granted under
      the
      1999 Plan typically vest when performance conditions are met or over three
      years
      and generally expire ten years from the date of grant. As a result of
      shareholder approval of the 2007 Stock Incentive Plan, the Company's 1999 Plan
      has been frozen and will remain in effect only to the extent of awards
      outstanding under the plan as of June 21, 2007.





A
      summary
      of option activity under the Plans as of September 30, 2007, and changes during
      the period then ended is presented below:




**Options**
              
              **Shares**
                **(000)**
              
              **Weighted-Average
                  Exercise Price**
              
              **Weighted-Average
                  Remaining Contractual Term (years)**
              
              **Aggregate
                  Intrinsic Value**Outstanding
                  at January 1, 2007
              
              
              1,591
              
              $
              0.80Granted
              
              
              63
              
              $
              2.33Exercised
              
              
              (84
              )
              $
              0.57Forfeited
                  or expired
              
              
              (129
              )
              $
              1.49Outstanding
                  at September 30, 2007
              
              
              1,441
              
              $
              0.81
              
              
              5.2
              
              $
              1,760Vested
                  or expected to vest at September 30, 2007
              
              
              1,441
              
              $
              0.81
              
              
              5.2
              
              $
              1,760Exercisable
                  at September 30, 2007
              
              
              326
              
              $
              0.65
              
              
              6.8
              
              $
              435




A
      summary
      of the activity under the performance plans as of September 30, 2007, and
      changes during the period then ended is presented below:


**Performance
                  Options**
              
              **Shares**
                **(000)**
              
              **Weighted
                  Average Exercise Price**
              
              **Remaining
                  Contractual Term (years)**
              
              **Aggregate
                  Intrinsic Value**Outstanding
                  at January 1, 2007
              
              
              1,371
              
              $
              0.81Granted
              
              
              62
              
              $
              2.33Exercised
              
              
              -Forfeited
                  or expired
              
              
              (62
              )
              $
              2.33Outstanding
                  at September 30, 2007
              
              
              1,371
              
              $
              0.81
              
              
              6.06
              
              $
              1,669Vested
                  or expected to vest at September 30, 2007
              
              
              1,371
              
              $
              0.81
              
              
              6.06
              
              $
              1,669Exercisable
                  at September 30, 2007
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -




**Note
      11. Commitments and Contingencies**





Contingencies





Except
      as
      set forth below, t he
      Company is not a
      party to nor are any of its properties subject to any pending legal,
      administrative or judicial proceedings other than routine litigation incidental
      to our business.





Public
      Offering Securities Litigation


12


On
      November 2, 2001, Timothy J. Fox filed a purported class action lawsuit against
      the Company; FleetBoston Robertson Stephens, Inc., the lead underwriter of
      the
      Company’s April 1999 initial public offering; several other underwriters who
      participated in the initial public offering; Steven J. Snyder, the Company’s
      then president and chief executive officer; and Thomas M. Donnelly, the
      Company’s then chief financial officer. The lawsuit was filed in the United
      States District Court for the Southern District of New York and was assigned
      to
      the pretrial coordinating judge for substantially similar lawsuits involving
      more than 300 other issuers. An amended class action complaint, captioned *In
      re
      Net Perceptions, Inc. Initial Public Offering Securities*  *Litigation,* 01
      Civ.
      9675 (SAS), was filed on April 22, 2002, expanding the basis for the action
      to
      include allegations relating to the Company’s March 2000 follow-on public
      offering in addition to those relating to its initial public offering.  The
      action against the Company was thereafter coordinated with the other
      substantially similar class actions as *In
      re
      Initial Public Offering Securities Litigation* ,
      21 MC
      (SAS) (the “Coordinated Class Actions”).





The
      amended complaint generally alleges that the defendants violated federal
      securities laws by not disclosing certain actions taken by the underwriter
      defendants in connection with the Company’s initial public offering and
      follow-on public offering. The amended complaint alleges specifically that
      the
      underwriter defendants, with the Company’s direct participation and agreement
      and without disclosure thereof, conspired to and did raise and increase their
      underwriters’ compensation and the market prices of the Company’s common stock
      following its initial public offering and in its follow-on public offering
      by
      requiring their customers, in exchange for receiving allocations of shares
      of
      the Company’s common stock sold in its initial public offering, to pay excessive
      commissions on transactions in other securities, to purchase additional shares
      of the Company’s common stock in the initial public offering aftermarket at
      pre-determined prices above the initial public offering price, and to purchase
      shares of the Company’s common stock in its follow-on public offering. The
      amended complaint seeks unspecified monetary damages and certification of a
      plaintiff class consisting of all persons who acquired the Company’s common
      stock between April 22, 1999 and December 6, 2000. The plaintiffs have since
      agreed to dismiss the claims against Mr. Snyder and Mr. Donnelly without
      prejudice, in return for their agreement to toll any statute of limitations
      applicable to those claims; and those claims have been dismissed without
      prejudice.





On
      August
      31, 2005, the Court gave preliminary approval to a settlement reached by the
      plaintiffs and issuer defendants in the Coordinated Class Actions. On December
      5, 2006, the United States Court of Appeals for the Second Circuit overturned
      the District Court's certification of the class of plaintiffs who are pursuing
      the claims that would be settled in the settlement against the underwriter
      defendants. Plaintiffs filed a Petition for Rehearing with the Second Circuit
      on
      January 5, 2007 in response to the Second Circuit's decision. On April 6, 2007,
      the Second Circuit denied plaintiffs' Petition for Rehearing but clarified
      that
      the plaintiffs may seek to certify a more limited class in the District Court.
      On June 25, 2007, the District Court signed an Order terminating the
      settlement.




**Note
      12. Related Party Transactions**





The
      Company occupied through September 30, 2007 space made available to it at no
      cost by Kanders & Company, Inc., an entity owned and controlled by the
      Company's Non-Executive Chairman, Warren B. Kanders. On October 2, 2007, the
      Company relocated its Corporate Headquarters to the 21 st floor of
      Landmark Square and has begun paying rent on its lease agreement.





On
      September 22, 2006, the Company entered into an Equity Compensation Agreement
      (the “Compensation Agreement”) with Kanders & Company, Inc. (“Kanders &
Company”), the sole stockholder of which is Warren B. Kanders, who was then the
      Company’s Executive Chairman of the Board of Directors, for prior strategic,
      consulting, investment banking and advisory services to the Company in
      connection with Company’s asset redeployment strategy. As compensation for such
      past services, the Company agreed to issue to Kanders & Company 8,274,000
      shares of its common stock. Kanders & Company will receive no cash payment
      for its services pursuant to the Compensation Agreement. Pursuant to the terms
      and conditions of the Compensation Agreement, the Company granted “demand” and
“piggyback” registration rights to Kanders & Company with respect to the
      shares of common stock that are issuable under the Compensation Agreement.
      The
      aggregate value of the awards was $7.4 million, which was based upon the closing
      price of the Company’s common stock of $0.89 on September 22, 2006, the date of
      the grant. The Company recorded compensation expense of $7.4 million relating
      to
      the grant of stock during the third quarter of the year ended December 31,
      2006.


13


On
      September 22, 2006, the Company entered into a five-year consulting agreement
      (the “Consulting Agreement”) with Kanders & Company, which became effective
      as of the closing of the Concord acquisition (as described in Note 13) on
      October 3, 2006. In addition, effective with the closing of the Concord
      acquisition, Mr. Kanders resigned as Executive Chairman of the Company’s Board
      of Directors upon being nominated and elected to the position of Non-Executive
      Chairman of the Board of Directors. The Consulting Agreement provides that
      Kanders & Company will render investment banking and financial advisory
      services to the Company on a non-exclusive basis, including strategic planning,
      assisting in the development and structuring of corporate debt and equity
      financings, introductions to sources of capital, guidance and advice as to
      (i)
      potential targets for mergers and acquisitions, joint ventures, and strategic
      alliances, including facilitating the negotiations in connection with such
      transactions, (ii) capital and operational restructuring, and
      (iii) shareholder relations.





The
      Consulting Agreement provides for Kanders & Company to receive a fee equal
      of (i) $0.5 million in cash per year during the term of the Consulting
      Agreement, payable monthly, and (ii) 1% of the amount by which the Company’s
      revenues as reported in the Company’s Form 10-K, or if no such report is filed
      by the Company, as reflected in the Company’s audited financial statements for
      the applicable fiscal year, exceeds $60.0 million, payable in shares of common
      stock of the Company (the “Stock Fee”) valued at the weighted average price of
      the Company’s Common Stock for the applicable fiscal year. Upon a
“change-in-control” (as defined in the Consulting Agreement), Kanders &
Company will be entitled to a one-time lump sum cash payment equal to three
      times the average amount Kanders & Company received during each of the two
      fiscal years preceding such “change-in-control,” subject to certain limitations
      as set forth in the Consulting Agreement. Upon the death or permanent disability
      of Mr. Kanders, the Company has agreed to make a one-time lump sum cash payment
      to Kanders & Company equal to that amount Kanders & Company would be
      entitled to receive upon a “change-in-control”. Upon payment of the amounts due
      to Kanders & Company either upon the occurrence of a “change-in-control”, or
      upon the death or permanent disability of Mr. Kanders, the Consulting Agreement
      will terminate. For the three and nine months ended September 30, 2007, the
      Company recorded consulting fees of $0.2 million and $0.8 million, respectively,
      related to the consulting agreement. As of September 30, 2007 and December
      31,
      2006, the accrued balance due to Kanders & Company under this agreement
      amounted to $0.5 million and $0.1million, respectively.





For
      the
      three months ended September 30, 2007 and 2006, the Company reimbursed Clarus
      Corporation (“Clarus”) an aggregate of $18 thousand and $13 thousand,
      respectively; and for the nine months ended September 30, 2007 and 2006, the
      Company reimbursed Clarus $101 thousand and $19 thousand, respectively, for
      telecommunication, professional and general office expenses which Clarus
      incurred on behalf of the Company. Warren B. Kanders, our Non-Executive
      Chairman, also serves as the Executive Chairman of Clarus.





On
      April 21, 2004, the Company closed on an investment into the Company by Olden
      for the purpose of initiating a strategy to redeploy the Company’s assets and
      use the Company’s cash, cash equivalent assets and marketable securities to
      enhance stockholder value. The Company issued and sold to Olden a 2% ten-year
      Convertible Subordinated Note, which is convertible after one year (or
      earlier upon a call by the Company and in certain other circumstances) at
      a conversion price of $0.45 per share of Company common stock into approximately
      19.9% of the outstanding common equity of the Company as of the closing date.
      Proceeds to the Company from this transaction totaled approximately $2.5 million
      before transaction costs of $0.3 million. The transaction costs are being
      amortized over ten years, the term of the debt. Interest on the note accrues
      semi-annually on the last day of June and December in each year and is payable,
      together with the principal sum of the note, on the maturity date of the note.
      The note matures on April 21, 2014 unless accelerated earlier as provided by
      the
      note. The convertible subordinated note was deemed to include a beneficial
      conversion feature. At the date of issue, the Company allocated $0.1 million
      to
      the beneficial conversion feature and amortized the beneficial conversion
      feature over one year (the period after which the note is convertible). As
      of
      December 31, 2006, zero remains to be amortized of the note discount due to
      the
      beneficial conversion feature. Also in connection with this transaction, the
      Company entered into a Registration Rights Agreement, which requires the
      Company, upon request of the purchaser of the note or its assignee, to register
      under the Securities Act of 1933, as amended, the resale of the shares of common
      stock into which the note is convertible. In connection with this transaction,
      the board of directors adopted an amendment to the Company’s Rights Agreement
      such that the transaction would not trigger the rights thereunder. As of
      September 30, 2007 and December 31, 2006, respectively, the outstanding balance
      on the note payable amounted to $2.5 million and is classified as long-term
      debt. The Company believes it has the financial ability to make all payments
      on
      this note.





**Note
      13. Acquisition**





On
      October 3, 2006, the Company acquired the assets of CRC, a manufacturer of
      steel
      counterweights doing business as Concord Steel. Concord is one of the nation’s
      leading independent manufacturers of steel counterweights that are incorporated
      into a variety of industrial equipment including aerial work platforms, cranes,
      elevators and material handling equipment. Because the Company had no operations
      at the time of the Concord acquisition, the Concord business is considered
      to be
      the Predecessor for accounting purposes. Accordingly, relevant financial
      information regarding the Predecessor has been presented.


14


The
      acquisition was accounted for under the purchase method of accounting with
      assets acquired and liabilities assumed recorded at their estimated fair values.
      Accordingly, the results of operations of Concord are included in the Company’s
      statement of operations since the date of acquisition. Goodwill was generated
      to
      the extent that the purchase price consideration exceeded the fair value of
      net
      assets acquired.





The
      total
      purchase price of the acquisition was $45.3 million, including transaction
      costs
      of approximately $3 million. In addition, CRC invested $3.0 million of their
      proceeds from the sale of CRC to purchase 3,529,412 unregistered shares of
      the
      common stock of the Company at the closing price per share of $0.85. Such shares
      are subject to a six-month lock-up agreement and a registration rights agreement
      containing customary “demand” and “piggyback” registration rights. In addition,
      pursuant to the purchase agreement, a final working capital adjustment of $0.5
      million was returned to the Company as the opening balance sheet working capital
      was reconciled with CRC.




15





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




**Forward-Looking
      Statements**





This
      report on Form 10-Q contains certain forward-looking statements, including
      information about or related to our future results, certain projections and
      business trends. Assumptions relating to forward-looking statements involve
      judgments with respect to, among other things, future economic, competitive
      and
      market conditions and future business decisions, all of which are difficult
      or
      impossible to predict accurately and many of which are beyond our control.
      When
      used in this report, the words "estimate," "project," "intend," "believe,"
      "expect" and similar expressions are intended to identify forward-looking
      statements. Although we believe that our assumptions underlying the
      forward-looking statements are reasonable, any or all of the assumptions could
      prove inaccurate, and we may not realize the results contemplated by the
      forward-looking statements. Management decisions are subjective in many respects
      and susceptible to interpretations and periodic revisions based upon actual
      experience and business developments, the impact of which may cause us to alter
      our business strategy or capital expenditure plans that may, in turn, affect
      our
      results of operations. In light of the significant uncertainties inherent in
      the
      forward-looking information included in this report, you should not regard
      the
      inclusion of such information as our representation that we will achieve any
      strategy, objectives or other plans. The forward-looking statements contained
      in
      this report speak only as of the date of this report, and we have no obligation
      to update publicly or revise any of these forward-looking statements.





These
      forward-looking and other statements, which are not historical facts, are based
      largely upon our current expectations and assumptions and are subject to a
      number of risks and uncertainties that could cause actual results to differ
      materially from those contemplated by such forward-looking statements. These
      risks and uncertainties include, among others, our inability to implement our
      acquisition growth strategy and integrate and successfully manage any businesses
      that we acquire, our inability to continue to generate revenues at historic
      levels in our newly acquired operating divisions, changes in the demand for
      counterweights, changes in the elevator or construction industries and to use
      our net operating loss carry forward, and the risks and uncertainties set forth
      in the section headed “Risk Factors” of Part I, Item 1A of our Annual Report on
      Form 10-K, for the fiscal year ended December 31, 2006 and described below.
      The
      Company cannot guarantee its future performance. We cannot assure you that
      we
      will be successful in the implementation of our growth strategy or that any
      such
      strategy will result in Stamford Industrial Group’s future profitability. Our
      failure to successfully implement our growth strategy could have a material
      adverse effect on the market price of our common stock and our business,
      financial condition and results of operations.





References
      in this report to “Stamford Industrial Group,” the “Company,” “we,” “our” and
“us” refer to Stamford Industrial Group, Inc. (formerly known as “Net
      Perceptions, Inc.”) and, if so indicated or the context requires, includes our
      wholly-owned subsidiary, Concord Steel, Inc. (formerly known as “SIG Acquisition
      Corp., Inc.”) (which is doing business as Concord Steel and is referred to in
      this report as “Concord”).




**OVERVIEW**





Stamford
        Industrial Group was initially established in 1996 under the name “Net
        Perceptions, Inc.”, as a provider of marketing software solutions. In 2003, as a
        result of continuing losses and the decline of its software business, the
        Company began exploring various strategic alternatives, including sale or
        liquidation, and ceased the marketing and development of its marketing solutions
        software business in 2004. On April 21, 2004, the Company announced an
        investment into the Company by Olden Acquisition LLC (“Olden”), an affiliate of
        Kanders & Company, Inc., an entity owned and controlled by the Company’s
        Non-Executive Chairman, Warren B. Kanders, for the purpose of initiating
        a
        strategy to redeploy the Company’s assets and use its cash, cash equivalent
        assets and marketable securities to enhance stockholder value. As part of
        this
        strategy, on October 3, 2006, the Company, acquired the assets of CRC
        Acquisition Co. LLC (“CRC”), a manufacturer of steel counterweights doing
        business as Concord Steel. With this initial acquisition, management is now
        focused on building a diversified global industrial manufacturing group through
        both organic and acquisition growth initiatives that are expected to complement
        and diversify existing business lines. The Company’s acquisition program is
        focused on building a diversified industrial growth company providing engineered
        products and solutions for global niche markets. The Company seeks acquisitions
        with transactions valued up to $150 million and having an EBITDA range of
        $5-$25
        million. Because the Company had no operations at the time of the Concord
        acquisition, the Concord business is considered to be a predecessor company
        (“Predecessor”) for accounting purposes. Accordingly, Stamford Industrial
        Group’s consolidated results for the three and nine months ended September 30,
        2007 have been compared with the combined results of Stamford Industrial
        Group’s
        results for the three and nine months ended September 30, 2006 and the
        Predecessor’s results for the three and nine months ended September 30, 2006 and
        relevant and prior year financial information regarding the Predecessor is
        presented herein.


The
      following management’s discussion and analysis of financial condition and
      results of operations of Stamford Industrial Group, Inc. and its Predecessor
      should be read in conjunction with the historical financial statements and
      footnotes of Stamford Industrial Group included elsewhere in this report and
      of
      CRC as Predecessor, included in the Company’s 2006 Annual Report on Form 10-K
      filed with the Securities and Exchange Commission. Our future results of
      operations may change materially from the historical results of operations
      reflected in Stamford Industrial Group’s, and the Predecessor’s, historical
      financial statements.


16


The
      following discussion and analysis should be read in conjunction with the
      consolidated financial statements and notes thereto appearing elsewhere in
      this
      report.





**Consolidated
      Operating Results for the Three Months Ended September 30, 2007 Compared to
      the
      Combined Three Months Ended September 30, 2006**





For
      the
      purpose of management’s discussion and analysis of financial condition and
      results of operations, we have compared the Company’s consolidated results for
      the three months ended September 30, 2007 to the Company’s results of operations
      for the three months ended September 30, 2006 combined with that of the
      Predecessor for the three months ended September 30, 2006 (“Combined”).
      Management believes that this provides the most meaningful analysis of the
      Company’s results for the three months ended September 30, 2007 and 2006. No
      proforma adjustments have been included in the table below. Our future operating
      results may change materially from the historical results of operations
      reflected in the Company’s and the Predecessor’s historical financial
      statements.




**STAMFORD
                  INDUSTRIAL GROUP, INC.****CONSOLIDATED
                  STATEMENTS OF OPERATIONS (UNAUDITED)****(in
                  thousands)****Stamford
                  Industrial Group**
                **Three
                  Months**
                **Ended**
                **September
                  30, 2007**
              
              **Stamford
                  Industrial Group**
                **Three
                  Months**
                **Ended**
                **September
                  30, 2006**
              
              **Predecessor
                  Company**
                **Three
                  Months**
                **Ended**
                **September
                  30, 2006**
              
              **Combined**
              
              **Variance****(1)**Revenues:Product
              
              $
              28,197
              
              $
              —
              
              $
              22,095
              
              $
              22,095
              
              $
              6,102Total
                  revenues
              
              
              28,197
              
              
              —
              
              
              22,095
              
              
              22,095
              
              
              6,102Cost
                  of revenues:Product
              
              
              23,102
              
              
              —
              
              
              18,072
              
              
              18,072
              
              
              5,030Total
                  cost of revenues
              
              
              23,102
              
              
              —
              
              
              18,072
              
              
              18,072
              
              
              5,030Gross
                  margin
              
              
              5,095
              
              
              —
              
              
              4,023
              
              
              4,023
              
              
              1,072Operating
                  expenses:Sales
                  and marketing
              
              
              368
              
              
              —
              
              
              338
              
              
              338
              
              
              30General
                  and administrative
              
              
              3,065
              
              
              219
              
              
              640
              
              
              859
              
              
              2,206Related
                  party stock compensation
              
              
              —
              
              
              7,542
              
              
              —
              
              
              7,542
              
              
              (7,542
              )Total
                  operating expenses
              
              
              3,433
              
              
              7,761
              
              
              978
              
              
              8,739
              
              
              (5,306
              )Income
                  (loss) from operations
              
              
              1,662
              
              
              (7,761
              )
              
              3,045
              
              
              (4,716
              )
              
              6,378Other
                  income (expense):Interest
                  income
              
              
              —
              
              
              184
              
              
              —
              
              
              184
              
              
              (184
              )Interest
                  expense
              
              
              (720
              )
              
              (13
              )
              
              (150
              )
              
              (163
              )
              
              (557
              )Other
                  income (expense)
              
              
              —
              
              
              (31
              )
              
              (1,865
              )
              
              (1,896
              )
              
              1,896Total
                  other (expense) income, net
              
              
              (720
              )
              
              140
              
              
              (2,015
              )
              
              (1,875
              )
              
              1,155Income
                  (loss) before taxes
              
              
              942
              
              
              (7,621
              )
              
              1,030
              
              
              (6,591
              )
              
              7,533Provision
                  for income taxes
              
              
              331
              
              
              —
              
              
              36
              
              
              36
              
              
              295Net
                  income (loss)
              
              $
              611
              
              $
              (7,621
              )
              $
              994
              
              $
              (6,627
              )
              $
              7,238




(1)
      Variance represents the difference between consolidated results of operations
      for the three months ended September 30, 2007 and Combined for the three months
      ended September 30, 2006 and has been presented to assist the reader in
      evaluating our financial statements.





REVENUES





Revenue
      increased $6.1 million or 27.6% to $28.2 million for the three months ended
      September 30, 2007 as compared to $22.1 million for the Combined three months
      ended September 30, 2006. The increase of $6.1 million is primarily due to
      higher sales volume resulting from increased demand for our products from
      existing customers of $5.1 million, as a result of increased spending in
      commercial and industrial construction, and infrastructure building end markets,
      increased demand in the elevator market and theatrical market of $0.6 million
      and an increase in scrap metal sales of $0.4 million.


17


GROSS
      MARGIN





Gross
      margin was $5.1 million or 18.1% of sales for the three months ended September
      30, 2007 as compared to $4.0 million or 18.1% of sales for the Combined three
      months ended September 30, 2006. Gross margin percentage remained flat, despite
      the impact of increased manufacturing overhead costs associated with the ramp
      up
      of our Essington, PA manufacturing facility, additional expenses related to
      repairs and maintenance costs and additional outside fabrication costs partially
      offset by sales volume and price increases.





OPERATING
      EXPENSES





Operating
      expenses for the three months ended September 30, 2007 decreased $5.3 million
      or
      60.9% to $3.4 million as compared to $8.7 million for the Combined three months
      ended September 30, 2006.





*Sales
      and marketing* .
      Sales
      and marketing expenses consisted primarily of freight costs, salaries, other
      employee-related costs, commissions and other incentive compensation, travel
      and
      entertainment and expenditures for marketing programs such as collateral
      materials, trade shows, public relations and creative services. For the three
      months ended September 30, 2007, sales and marketing expenses remained flat
      at
      approximately $0.4 million compared to $0.4 million for the Combined three
      months ended September 30, 2006.





*General
      and administrative* *.* General
      and administrative expenses consist primarily of employee compensation,
      insurance, legal, accounting and other professional fees as well as public
      company expenses such as transfer agent expenses. For the three months ended
      September 30, 2007, general and administrative expenses increased $2.2 million
      or 244.4% to $3.1 million as compared to $0.9 million for the Combined three
      months ended September 30, 2006. The increase is primarily the result of
      increases in deferred compensation expenses of $0.6 million, employee related
      expenses of $0.4 million, consulting expenses of $0.3 million which relate
      to
      the Kanders & Company consulting and stock fee agreements (see note 12 to
      the consolidated financial statements for further discussion), amortization
      of
      intangible assets of $0.3 million related to the acquisition of Concord and
      professional fees of $0.6 million.




*Related
      party stock compensation.* For
      the
      three months ended September 30, 2006, the Company incurred $7.5 million of
      non-cash compensation expense for grants of common stock primarily to Kanders
      & Company, as discussed in Note 12 to the financial statements. ** There
      is
      no comparable expense for the three months ended September 30,
      2007.





*Interest
      income.* Interest
      income was $0 for the three months ended September 30, 2007 compared to interest
      income of $0.2 million for the Combined three months ended September 30, 2006.
      The primary reason for the decrease is due to the sale of marketable securities
      which were used to partially finance the acquisition of Concord.





*Interest
      expense.* Interest
      expense was $0.7 million for the three months ended September 30, 2007 compared
      to interest expense of $0.2 million for the Combined three months ended
      September 30, 2006. The primary reason for the increase is attributable to
      interest costs associated with borrowings incurred to finance the acquisition
      of
      Concord.





PROVISION
      FOR INCOME TAXES





For
      income tax purposes, the Company has available federal net operating loss
      carry-forwards of approximately $122.1 million and research and development
      credit carry-forwards of approximately $0.2 million at September 30, 2007.
      The
      net operating loss and research and development credit carry-forwards expire
      in
      2011 through 2026 if not previously utilized. The utilization of these
      carry-forwards may be subject to limitations based on past and future changes
      in
      ownership of the Company pursuant to Internal Revenue Code Section 382. If
      the
      Company were to be acquired at its recent stock value such that Section 382
      is
      applicable, this would eliminate the ability to use a substantial majority
      of
      these carry-forwards. The recognition of a valuation allowance for deferred
      taxes requires management to make estimates about the Company’s future
      profitability. The estimates associated with the valuation of deferred taxes
      are
      considered critical due to the amount of deferred taxes recorded on the
      consolidated balance sheet and the judgment required in determining the
      Company’s future profitability. Deferred tax assets were $8.1 million at both
      September 30, 2007 and December 31, 2006, net of a valuation allowance of $34.6
      million and $34.9 million, respectively.


18


The
      Company has an effective tax rate of 35% for the three months ended September
      30, 2007, which consists of a federal alternative minimum tax and state tax.
      There is no current or deferred federal income tax provision due to the
      availability of net operating loss carry-forwards and the maintenance of a
      deferred tax valuation allowance at consistent levels.





**Consolidated
      Operating Results for the Nine Months Ended September 30, 2007 Compared to
      Combined Nine Months Ended September 30, 2006**





For
      the
      purpose of management’s discussion and analysis of financial condition and
      results of operations, we have compared the Company’s consolidated results for
      the nine months ended September 30, 2007 to the Company’s results of operations
      for the nine months ended September 30, 2006 combined with that of the
      Predecessor for the nine months ended September 30, 2006 (“Combined”).
      Management believes that this provides the most meaningful analysis of the
      Company’s results for the nine months ended September 30, 2007 and 2006. No
      proforma adjustments have been included in the table below. Our future operating
      results may change materially from the historical results of operations
      reflected in the Company’s and the Predecessor’s historical financial
      statements.




**STAMFORD
                  INDUSTRIAL GROUP, INC.****CONSOLIDATED
                  STATEMENTS OF OPERATIONS (UNAUDITED)****(in
                  thousands)****Stamford
                  Industrial Group**
                **Nine
                  Months**
                **Ended**
                **September
                  30, 2007**
              
              **Stamford
                  Industrial Group**
                **Nine
                  Months**
                **Ended**
                **September
                  30, 2006**
              
              **Predecessor**
                **Company**
                **Nine
                  Months**
                **Ended**
                **September
                  30, 2006**
              
              **Combined**
              
              **Variance****(1)**Revenues:Product
              
              $
              84,382
              
              $
              —
              
              $
              60,738
              
              $
              60,738
              
              $
              23,644Service,
                  maintenance and royalty
              
              
              —
              
              
              20
              
              
              —
              
              
              20
              
              
              (20
              )Total
                  revenues
              
              
              84,382
              
              
              20
              
              
              60,738
              
              
              60,758
              
              
              23,624Cost
                  of revenues:Product
              
              
              69,540
              
              
              —
              
              
              47,867
              
              
              47,867
              
              
              21,673Total
                  cost of revenues
              
              
              69,540
              
              
              —
              
              
              47,867
              
              
              47,867
              
              
              21,673Gross
                  margin
              
              
              14,842
              
              
              20
              
              
              12,871
              
              
              12,891
              
              
              1,951Operating
                  expenses:Sales
                  and marketing
              
              
              1,043
              
              
              —
              
              
              905
              
              
              905
              
              
              138General
                  and administrative
              
              
              8,422
              
              
              568
              
              
              1,564
              
              
              2,132
              
              
              6,290Related
                  party stock compensation
              
              
              —
              
              
              7,542
              
              
              —
              
              
              7,542
              
              
              (7,542
              )Total
                  operating expenses
              
              
              9,465
              
              
              8,110
              
              
              2,469
              
              
              10,579
              
              
              (1,114
              )Income
                  (loss) from operations
              
              
              5,377
              
              
              (8,090
              )
              
              10,402
              
              
              2,312
              
              
              3,065Other
                  income (expense):Interest
                  income
              
              
              6
              
              
              519
              
              
              —
              
              
              519
              
              
              (513
              )Interest
                  expense
              
              
              (1,935
              )
              
              (39
              )
              
              (463
              )
              
              (502
              )
              
              (1,433
              )Other
                  income (expense)
              
              
              (139
              )
              
              (114
              )
              
              (2,113
              )
              
              (2,227
              )
              
              2,088Total
                  other (expense) income, net
              
              
              (2,068
              )
              
              366
              
              
              (2,576
              )
              
              (2,210
              )
              
              142Income
                  (loss) before taxes
              
              
              3,309
              
              
              (7,724
              )
              
              7,826
              
              
              102
              
              
              3,207Provision
                  for income taxes
              
              
              636
              
              
              —
              
              
              212
              
              
              212
              
              
              424Net
                  income (loss)
              
              $
              2,673
              
              $
              (7,724
              )
              $
              7,614
              
              $
              (110
              )
              $
              2,783


(1)
      Variance represents the difference between consolidated results of operations
      for the nine months ended September 30, 2007 and Combined for the nine months
      ended September 30, 2006 and has been presented to assist the reader in
      evaluating our financial statements.





REVENUES


19


Revenue
      increased $23.6 million or 38.8% to $84.4 million for the nine months ended
      September 30, 2007 as compared to $60.8 million for the Combined nine months
      ended September 30, 2006. The increase of $23.6 million is primarily due to
      higher sales volume resulting from increased demand for our products from
      existing customers of approximately $20.3 million, as a result of increased
      spending in commercial and industrial construction, and infrastructure building
      end markets, increased demand in the elevator market and theatrical market
      of
      $1.3 million and an increase in scrap metal sales of $2.0 million.





GROSS
      MARGIN





Gross
      margin was $14.8 million or 17.5% of sales for the nine months ended September
      30, 2007 as compared to $12.9 million or 21.2% of sales for the Combined nine
      months ended September 30, 2006. The 17.5% decrease in margin percentage is
      primarily a result of significantly higher costs for raw material, one time
      increase in scrap related to lean manufacturing initiatives, increase in
      manufacturing overhead costs associated with the ramp up of the Essington,
      Pennsylvania manufacturing facility, additional expenses related to repairs
      and
      maintenance and additional outside fabrication costs partially offset by sales
      volume increases.





OPERATING
      EXPENSES





Operating
      expenses for the nine months ended September 30, 2007 decreased $1.1 million
      or
      10.4% to $9.5 million as compared to $10.6 million for the Combined nine months
      ended September 30, 2006.





*Sales
      and marketing* .
      Sales
      and marketing expenses consisted primarily of freight costs, salaries, other
      employee-related costs, commissions and other incentive compensation, travel
      and
      entertainment and expenditures for marketing programs such as collateral
      materials, trade shows, public relations and creative services. For the nine
      months ended September 30, 2007, sales and marketing expenses increased $0.1
      million or 11.1% to $1.0 million as compared to $0.9 million for the Combined
      nine months ended September 30, 2006. The increase is primarily the result
      of
      increased freight costs related to increased revenues and an increase in
      employee related expenses.





*General
      and administrative* *.* General
      and administrative expenses consist primarily of employee compensation,
      insurance, legal, accounting and other professional fees as well as public
      company expenses such as transfer agent expenses. For the nine months ended
      September 30, 2007, general and administrative expenses increased $6.3 million
      or 300.0% to $8.4 million as compared to $2.1 million for the Combined nine
      months ended September 30, 2006. The increase is primarily the result of
      increases in deferred compensation expenses of $1.9 million, employee related
      expenses of $1.2 million, professional fees of $1.0 million, consulting expenses
      of $0.6 million which relate to the Kanders & Company consulting and stock
      fee agreements (see note 12 to the consolidated financial statements for further
      discussion), amortization of intangible assets of $0.8 million related to the
      acquisition of Concord, and other general expenses of $0.8 million.





*Related
      party stock compensation.* For
      the
      nine months ended September 30, 2006, the Company incurred $7.5 million of
      non-cash compensation expense for the grants of common stock primarily to
      Kanders & Company, as discussed in Note 12 to the financial
      statements. ** There
      is
      no comparable expense for the nine months ended September 30, 2007.





*Interest
      income.* Interest
      income was $0 for the nine months ended September 30, 2007 compared to interest
      income of $0.5 million for the Combined nine months ended September 30, 2006.
      The primary reason for the decrease is due to the decrease in marketable
      securities which were used to partially finance the acquisition of
      Concord.





*Interest
      expense.* Interest
      expense was $1.9 million for the nine months ended September 30, 2007 compared
      to interest expense of $0.5 million for the Combined nine months ended September
      30, 2006. The primary reason for the increase is attributable to interest costs
      associated with borrowings incurred to finance the acquisition of
      Concord.





PROVISION
      FOR INCOME TAXES




For
      income tax purposes, the Company has available federal net operating loss
      carry-forwards of approximately $122.1 million and research and development
      credit carry-forwards of approximately $0.2 million at September 30, 2007.
      The
      net operating loss and research and development credit carry-forwards expire
      in
      2011 through 2026 if not previously utilized. The utilization of these
      carry-forwards may be subject to limitations based on past and future changes
      in
      ownership of the Company pursuant to Internal Revenue Code Section 382. If
      the
      Company were to be acquired at its recent stock value such that Section 382
      is
      applicable, this would eliminate the ability to use a substantial majority
      of
      these carry-forwards. The recognition of a valuation allowance for deferred
      taxes requires management to make estimates about the Company’s future
      profitability. The estimates associated with the valuation of deferred taxes
      are
      considered critical due to the amount of deferred taxes recorded on the
      consolidated balance sheet and the judgment required in determining the
      Company’s future profitability. Deferred tax assets were $8.1 million at
      September 30, 2007 and December 31, 2006, respectively, net of a valuation
      allowance of $34.6 million and $34.9 million, respectively.




20





The
      Company has an effective tax rate of 19% for the nine months ended September
      30,
      2007, which consists of a federal alternative minimum tax and state tax. There
      is no current or deferred federal income tax provision due to the availability
      of net operating loss carry-forwards and the maintenance of a deferred tax
      valuation allowance at consistent levels.




LIQUIDITY
      AND CAPITAL RESOURCES





**Liquidity**





In
      connection with the Company’s acquisition of Concord, Concord entered
      into a senior secured credit facility (the “Credit Agreement”) with LaSalle Bank
      National Association, as administrative agent (the “Agent”) and the lenders
      party thereto.





The
      Credit Agreement established a commitment to Concord to provide up to $40.0
      million in the aggregate of loans and other financial accommodations consisting
      of (i) a five-year senior secured term loan in an aggregate principal amount
      of
      $28.0 million; (ii) a five-year senior secured revolving credit facility in
      the
      aggregate principal amount of $10.0 million (the “Revolving Facility”); and
      (iii) a five-year senior secured capital expenditure facility in the aggregate
      principal amount of $2.0 million. The Revolving Facility is further subject
      to a
      borrowing base consisting of up to 85% of eligible accounts receivable and
      up to
      55% of eligible inventory. The Revolving Facility includes a sublimit of up
      to
      an aggregate amount of $5.0 million in letters of credit and a sublimit of
      up to
      an aggregate amount of $2.5 million in swing line loans. The capital expenditure
      facility permits the Company to draw funds for the purchase of machinery and
      equipment during the 6-month period ending March 3, 2007, and then converts
      into
      a 4.5-year term loan. Immediately following the closing of the Concord
      acquisition, the Company drew down approximately $31.3 million and had
      additional availability under the Revolving Facility of approximately $6.7
      million. There were no amounts drawn under the capital expenditure facility
      at
      the time of closing of the credit facility nor were there any amounts drawn
      down
      prior to March 3, 2007. The
      capital expenditure facility expired on March 3, 2007.  At
      September 30, 2007 and December 31, 2006, respectively, the outstanding balance
      from the revolving credit facility amounted to $6.8 and $3.3 million,
      respectively. At September 30, 2007, the Company had $1.6 million available
      in
      additional borrowings net of $1.6 million in outstanding letters of credit.
      The
      balance under the term loan at September 30, 2007 and December 31, 2006 was
      $25.0 million and $28.0 million, respectively. At September 30, 2007, the
      Company had $4.0 million classified as current and $21.0 million classified
      as
      long-term .
      During the nine month period ended September 30, 2007, the Company was in
      compliance with all covenants under the credit facility.





Borrowings
      under the Credit Agreement will bear interest, at the Company’s election, at
      either (i) a rate equal to London
      Interbank Offer Rate (“LIBOR”) ,
      plus an applicable margin ranging from 1.25% to 2.5%, depending on certain
      conditions, or (ii) an alternate base rate which will be the greater of (a)
      the
      Federal Funds rate plus 0.5% or (b) the prime rate publicly announced by the
      Agent as its prime rate, plus, in both cases, an applicable margin ranging
      from
      0% to 1.0%, depending on certain conditions. At September 30, 2007 and December
      31, 2006, respectively, the applicable interest rate for the outstanding
      borrowings under the Credit Agreement was 7.23% and 7.87%,
      respectively.





The
      Credit Agreement is guaranteed by the Company and its direct and indirect
      subsidiaries and is secured by, among other things, (a) (i) all of the equity
      interests of Concord’s subsidiaries and (ii) a pledge of all of the issued and
      outstanding shares of stock of Concord held by Stamford Industrial Group and
      (b)
      a first priority perfected security interest on substantially all the assets
      of
      the Company and its direct and indirect subsidiaries pursuant to a guaranty
      and
      collateral agreement dated October 3, 2006 and delivered in connection with
      the
      Credit Agreement (the “Guaranty Agreement”). In addition, LaSalle acting as the
      Agent, for the benefit of the lenders, has a mortgage on all owned real estate
      of the Company and its direct and indirect subsidiaries, as well as deposit
      account control agreements with respect to funds on deposit in bank accounts
      of
      the Company and its direct and indirect subsidiaries.





The
      Company is exposed to interest rate volatility with regard to existing issuances
      of variable rate debt. Primary exposure includes movements in the U.S. prime
      rate and LIBOR. The Company uses interest rate swaps to reduce interest rate
      volatility. On January 2, 2007, the Company entered into an interest rate
      protection agreement that has approximately $14 million of interest rate swaps
      fixing interest rates between 5.0% and 5.8%.




21




On
      April 21, 2004, the Company closed on an investment into the Company by Olden
      Acquisition LLC (“Olden”) , an
      affiliate of Kanders & Company, Inc., for
      the purpose of initiating a strategy to redeploy the Company’s assets and use
      the Company’s cash, cash equivalent assets and marketable securities to enhance
      stockholder value. The Company issued and sold to Olden a 2% ten-year
      Convertible Subordinated Note, which is convertible after one year (or
      earlier upon a call by the Company and in certain other circumstances) at
      a conversion price of $0.45 per share of Company common stock into approximately
      19.9% of the outstanding common equity of the Company as of the closing date.
      Proceeds to the Company from this transaction totaled approximately $2.5 million
      before transaction costs of $0.3 million. The transaction costs are being
      amortized over ten years, the term of the debt. Interest on the note accrues
      semi-annually on the last day of June and December in each year and is payable,
      together with the principal sum of the note, on the maturity date of the note.
      The note matures on April 21, 2014 unless
      accelerated earlier as provided by the note. The convertible subordinated
      note was deemed to include a beneficial conversion feature. At the date of
      issue, the Company allocated $0.1 million to the beneficial conversion feature
      and amortized the beneficial conversion feature over one year (the period after
      which the note is convertible). As of December 31, 2005, zero remained to be
      amortized of the note discount due to the beneficial conversion feature. Also
      in
      connection with this transaction, the Company entered into a Registration Rights
      Agreement (the “Rights Agreement”), which requires the Company, upon request of
      the purchaser of the note or its assignee, to register under the Securities
      Act
      of 1933, as amended, the resale of the shares of common stock into which the
      note is convertible. In connection with this transaction, the Board of Directors
      adopted an amendment to the Company’s Rights Agreement such that the transaction
      would not trigger the rights thereunder. As of September 30, 2007 and December
      31, 2006, respectively, the outstanding balance on the note payable amounted
      to
      $2.5 million and is classified as long-term debt. The
      Company believes it has the financial ability to make all payments on this
      note.





**Operating
      Activities**





Net
      cash
      provided by operating activities was $0.6 million for the nine months ended
      September 30, 2007, reflecting net income of $2.7 million, depreciation and
      amortization of $1.2 million, non-cash deferred stock-based compensation
      expenses of $2.0 million offset by the impact of changes in working capital
      of
      $5.3 million. The change in working capital is primarily due to the timing
      difference between increased revenues generated and cash collections. Net cash
      used in operating activities was $0.4 million for the nine months ended
      September 30, 2006, reflecting a net loss of $7.7 million, non-cash related
      party stock compensation of $7.6 million, amortization of discounts on
      investments of $0.4 million, and a change in working capital of $0.2 million
      offset by stock based compensation of $0.1 million. Net cash provided by
      operating activities for the Predecessor was $4.9 million for the nine months
      ended September 30, 2006, reflecting net income of $7.6 million, which includes
      depreciation expense of $0.4 million and a change in working capital of 3.1
      million.





**Investing
      Activities**





Net
      cash
      used in investing activities was $4.8 million for the nine months ended
      September 30, 2007, primarily resulting from the purchase of machinery and
      equipment. Net cash provided by investing activities was $14.7 million for
      the
      nine months ended September 30, 2006 and was due to the maturity of marketable
      securities primarily offset by the purchase of marketable securities. Net cash
      used in investing activities for the Predecessor was $3.9 million for the nine
      months ended September 30, 2006, resulting from the purchase of $3.3 million
      in
      marketable securities and $0.6 million in capital expenditures.





**Financing
      Activities**





Net
      cash
      provided by financing activities was $0.5 million for the nine months ended
      September 30, 2007. The net cash provided by financing activities was primarily
      from an increase in the Company’s line of credit facility of $3.5 million which
      was used for working capital expansion and capital expenditures, offset by
      cash
      used to paydown long-term debt in the amount of $3.0 million. There was no
      cash
      used or provided by financing activities for the nine months ended September
      30,
      2006. Net cash used in financing activities for the Predecessor was $2.0 million
      for the nine months ended September 30, 2006, resulting from proceeds from
      a
      line of credit which were more than offset by distributions to
      members.





We
      believe that our current cash on hand together with the Company’s revolving
      credit facility and cash from operations will be sufficient to meet our expected
      working capital needs for at least the next twelve months.





22





**Capital
      Expenditures**





The
      Company anticipates capital expenditures, excluding acquisitions, of $0.3
      million for the remainder of fiscal 2007. The Company expects capital
      expenditures will be funded from cash generated by operations and its revolving
      credit facility. The primary driver of increased capital expenditures in 2007
      is
      related to the machinery and equipment for the new Essington, Pennsylvania
      manufacturing facility.





RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, Fair Value Measurements, (“FAS 157”) and No. 159, The Fair Value Option for
      Financial Assets and Financial Liabilities, (“FAS 159”). These Standards define
      fair value, establishes a framework for measuring fair value under generally
      accepted accounting principles and expands disclosures about fair value
      measurement. FAS 157 and FAS 159 are effective for financial statements issued
      for fiscal years beginning after November 15, 2007, and interim periods within
      those fiscal years. The adoption of FAS 157 and FAS 159 are not expected to
      have
      a material impact on the Company’s financial position, results of operations and
      cash flows.





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





The
      Company’s primary exposure to market risk is interest rate risk associated with
      our senior credit facilities. The
      Company has a long-term credit facility that bears interest, at the Company’s
      election, at either (i) a rate equal to three month variable London
      Interbank Offer Rate (“LIBOR”) ,
      plus an applicable margin ranging from 1.25% to 2.5%, depending on certain
      conditions, or (ii) an alternate base rate which will be the greater of (a)
      the
      Federal Funds rate plus 0.5% or (b) the prime rate publicly announced by the
      Agent as its prime rate, plus, in both cases, an applicable margin ranging
      from
      0% to 1.0%, depending on certain conditions. At September 30, 2007, the
      applicable interest rate for the outstanding borrowings under the Credit
      Agreement was 7.23%.





The
      Company is exposed to interest rate volatility with regard to existing issuances
      of variable rate debt. Primary exposure includes movements in the United States
      prime rate and LIBOR. The Company uses interest rate swaps to reduce interest
      rate volatility. On January 2, 2007, the Company entered into an interest rate
      protection agreement that has approximately $14 million of interest rate swaps
      fixing interest rates between 5.0% and 5.8%.





The
      Company does not have any derivative financial instruments and do not hold
      any
      such instruments for trading purposes.




**Item
      4. Controls and Procedures**





**Evaluation
      of Disclosure Controls and Procedures**





The
      Company’s Chief Executive Officer and Chief Financial Officer, its principal
      executive officer and principal financial officer, respectively, carried out
      an
      evaluation of the effectiveness of the design and operation of the Company’s
      disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
      and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as
      of September 30, 2007, pursuant to Exchange Act Rule 13a-15. Such disclosure
      controls and procedures are designed to ensure that information required to
      be
      disclosed by the Company is accumulated and communicated to the appropriate
      management on a basis that permits timely decisions regarding disclosure. Based
      upon that evaluation, the Company’s Chief Executive Officer and Chief Financial
      Officer concluded that the Company’s disclosure controls and procedures as of
      September 30, 2007 are effective.





**Changes
      in Internal Control over Financial Reporting**





There
      have not been any changes in the Company’s internal control over financial
      reporting that have come to management’s attention as of the September 30, 2007
      evaluation that have materially affected, or are reasonable likely to materially
      affect the Company’s internal control over financial reporting.


23


**PART
      II. OTHER INFORMATION**




**Item
      1A.**  **Risk
      Factors**




There
      are
      no material changes to the risk factors disclosed in the factors discussed
      in
“Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form
      10-K for the year ended December 31, 2006, which could materially affect
      the Company’s business, financial condition or future results. The risks
      described in the Company’s Annual Report on Form 10-K are not the only risks
      facing the Company. Additional risks and uncertainties not currently known
      to
      the Company or that the Company currently deems to be immaterial also may
      materially adversely affect the Company’s business, financial condition and/or
      operating results.




24





**Item
      6.**  **Exhibits**




**Exhibit**
                **Number**
              
              **Description**31.1
              
              Certification
                  of Principal Executive Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200231.2
              
              Certification
                  of Principal Financial Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200232.1
              
              Certification
                  of Principal Executive Officer pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 200232.2
              
              Certification
                  of Principal Financial Officer pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002


25




**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




STAMFORD INDUSTRIAL GROUP, INC.Date: November 7, 2007
            
            By: /s/ Albert W. Weggeman Jr.Albert W. Weggeman, Jr.*President and Chief Executive
              Officer*


By: /s/ Jonathan LaBarreJonathan LaBarre*Chief Financial Officer,
                Secretary and
                Treasurer*
 26




**EXHIBIT
      INDEX**




**Exhibit**
                  **Number**
                
                **Description**31.1
                
                Certification
                    of Principal Executive Officer pursuant to Section 302 of the
                    Sarbanes-Oxley Act of 200231.2
                
                Certification
                    of Principal Financial Officer pursuant to Section 302 of the
                    Sarbanes-Oxley Act of 200232.1
                
                Certification
                    of Principal Executive Officer pursuant to Section 906 of the
                    Sarbanes-Oxley Act of 200232.2
                
                Certification
                    of Principal Financial Officer pursuant to Section 906 of the
                    Sarbanes-Oxley Act of 2002
 
 27