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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED March 31, 2006
|- | ---------------------------------------------------------------------------------------------------------------------------

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

FOR THE TRANSITION PERIOD From  to

Commission file number 0-3821



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GENCOR INDUSTRIES, INC.



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|                                                              |  |                                     
|------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                      |  | 59-0933147                          
|(State or other jurisdiction of incorporated or organization) |  | (I.R.S. Employer Identification No.)

5201 North Orange Blossom Trail, Orlando, Florida 32810

(Address of principal executive offices) (Zip Code)

(407) 290-6000

(Registrants telephone number, including area code)



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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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark 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.)

(Check one)

Large accelerated filer ̈Accelerated Filer ̈Non-accelerated Filer  x

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

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



|                              |  |                             
|----------------------------- |  | ----------------------------
|Class                         |  | Outstanding at March 31,2006
|Common stock, $.10 par value  |  | 8,272,130 shares            
|Class B stock, $.10 par value |  | 1,642,998 shares            



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##### Table of Contents

GENCOR INDUSTRIES, INC.

Index



|           |  |                       |  |                                                                                                                   |  |     
|---------- |  | --------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                       |  |                                                                                                                   |  | Page
|Part I.    |  | Financial Information |  |                                                                                                                  
|           |  |                       | 
|           |  | Item 1.               |  | Financial Statements                                                                                              |  |     
|           |  |                       | 
|           |  |                       |  | Condensed consolidated balance sheets  March 31, 2006 (Unaudited) and September 30, 2005                         |  | 3   
|           |  |                       | 
|           |  |                       |  | Unaudited condensed consolidated statements of income  Three-months and Six-months ended March 31, 2006 and 2005 |  | 4   
|           |  |                       | 
|           |  |                       |  | Unaudited condensed consolidated statements of cash flows  Six-months ended March 31, 2006 and 2005              |  | 5   
|           |  |                       | 
|           |  |                       |  | Notes to condensed consolidated financial statements                                                              |  | 6   
|           |  |                       | 
|           |  | Item 2.               |  | Managements Discussion and Analysis of Financial Position and Results of Operations                              |  | 9   
|           |  |                       | 
|           |  | Item 3.               |  | Quantitative and Qualitative Disclosure About Market Risk                                                         |  | 11  
|           |  |                       | 
|           |  | Item 4.               |  | Controls and Procedures                                                                                           |  | 12  
|           |  |                      
|Part II.   |  | Other Information     |  |                                                                                                                  
|           |  |                       | 
|           |  | Item 6.               |  | Exhibits                                                                                                          |  | 13  
|           | 
|Signatures |  | 14                   



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##### Table of Contents

Part I. Financial Information

GENCOR INDUSTRIES, INC.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)



|                                                                                                                                                                   |  |               |        |   |                    |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------ | - | ------------------ | - | ------ | -
|                                                                                                                                                                   |  | March 31 2006 |        |   | September 30, 2005 |  
|                                                                                                                                                                   |  | (Unaudited)   |        |   |                    |  
|ASSETS                                                                                                                                                             |  |               |        |   |                    |   |        |  
|Current assets:                                                                                                                                                    |  |               |        |   |                    |   |        |  
|Cash and cash equivalents                                                                                                                                          |  | $             | 7,024  |   |                    | $ | 4,206  |  
|Marketable securities at market value (Cost $41,000 and $31,000 at March 31, 2006 and September 30, 2005
respectively)                                             |  |               | 45,400 |   |                    |   | 32,787 |  
|Accounts receivable, less allowance for doubtful accounts of $1,362 ($1,159 at September 30, 2005)                                                                 |  |               | 5,449  |   |                    |   | 3,760  |  
|Other receivables                                                                                                                                                  |  |               | 79     |   |                    |   | 189    |  
|Inventories, net                                                                                                                                                   |  |               | 17,270 |   |                    |   | 19,236 |  
|Deferred income taxes                                                                                                                                              |  |               | 1,921  |   |                    |   | 1,921  |  
|Prepaid expenses                                                                                                                                                   |  |               | 1,069  |   |                    |   | 1,646  |  
|                                                                                                                                                                   |  |               |        |   |                    |   |        |  
|Total current assets                                                                                                                                               |  |               | 78,212 |   |                    |   | 63,745 |  
|Property and equipment, net                                                                                                                                        |  |               | 13,453 |   |                    |   | 13,754 |  
|Other assets                                                                                                                                                       |  |               | 435    |   |                    |   | 511    |  
|                                                                                                                                                                   |  |               |        |   |                    |   |        |  
|Total assets                                                                                                                                                       |  | $             | 92,100 |   |                    | $ | 78,010 |  
|                                                                                                                                                                   |  |               |        |   |                    |   |        |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                               |  |               |        |   |                    |   |        |  
|Current liabilities:                                                                                                                                               |  |               |        |   |                    |   |        |  
|Accounts payable                                                                                                                                                   |  | $             | 6,042  |   |                    | $ | 4,491  |  
|Customer deposits                                                                                                                                                  |  |               | 3,207  |   |                    |   | 2,102  |  
|Income and other taxes payable                                                                                                                                     |  |               | 8,359  |   |                    |   | 143    |  
|Accrued expenses                                                                                                                                                   |  |               | 3,973  |   |                    |   | 3,625  |  
|                                                                                                                                                                   |  |               |        |   |                    |   |        |  
|Total current liabilities                                                                                                                                          |  |               | 21,581 |   |                    |   | 10,361 |  
|Long-term debt                                                                                                                                                     |  |               |       |   |                    |   |       |  
|Deferred income taxes                                                                                                                                              |  |               | 7,349  |   |                    |   | 16,214 |  
|                                                                                                                                                                   |  |               |        |   |                    |   |        |  
|Total liabilities                                                                                                                                                  |  |               | 28,930 |   |                    |   | 26,575 |  
|                                                                                                                                                                   |  |               |        |   |                    |   |        |  
|Commitments and contingencies                                                                                                                                      |  |               |        |   |                    |   |        |  
|                                                                                                                                                                   |  |              
|Shareholders equity:                                                                                                                                              |  |               |        |   |                    |   |        |  
|Preferred stock, par value $.10 per share; authorized 300,000 shares; none issued                                                                                  |  |               |       |   |                    |   |       |  
|Common stock, par value $.10 per share; 15,000,000 shares authorized; 8,359,530 shares and 8,339,857 issued at March 31, 2006 and
September 30, 2005, respectively |  |               | 836    |   |                    |   | 834    |  
|Class B stock, par value $.10 per share; 6,000,000 shares authorized; 1,734,998 shares issued at March 31, 2006 and September 30,
2005                             |  |               | 174    |   |                    |   | 174    |  
|Capital in excess of par value                                                                                                                                     |  |               | 11,657 |   |                    |   | 11,659 |  
|Retained earnings                                                                                                                                                  |  |               | 53,797 |   |                    |   | 42,054 |  
|Accumulated other comprehensive income (loss)                                                                                                                      |  |               | (1,590 | ) |                    |   | (1,582 | )
|Common stock in treasury, 179,400 shares at cost                                                                                                                   |  |               | (1,704 | ) |                    |   | (1,704 | )
|                                                                                                                                                                   |  |               |        |   |                    |   |        |  
|Total shareholders equity                                                                                                                                         |  |               | 63,170 |   |                    |   | 51,435 |  
|                                                                                                                                                                   |  |               |        |   |                    |   |        |  
|                                                                                                                                                                   |  | $             | 92,100 |   |                    | $ | 78,010 |  
|                                                                                                                                                                   |  |               |        |   |                    |   |        |  

See notes to condensed consolidated financial statements.



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GENCOR INDUSTRIES, INC.

Unaudited Condensed Consolidated Statements of Income

(In thousands, except per share data)



|                                                      |  |                              |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|----------------------------------------------------- |  | ---------------------------- | ------ | - | -------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                      |  | Three-Months Ended March 31, |        |   | Six-Months Ended March 31, |  
|                                                      |  | 2006                         |        |   | 2005                       |   |        | 2006 |  |   | 2005   |  
|Net revenue                                           |  | $                            | 21,875 |   |                            | $ | 15,948 |      |  | $ | 33,532 |   |  | $ | 25,056 |  
|                                                      |  |                              |        |  
|Costs and expenses:                                   |  |                              |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Production costs                                      |  |                              | 16,146 |   |                            |   | 11,863 |      |  |   | 24,840 |   |  |   | 18,684 |  
|Product engineering and development                   |  |                              | 529    |   |                            |   | 518    |      |  |   | 1,055  |   |  |   | 1,013  |  
|Selling, general and administrative                   |  |                              | 3,363  |   |                            |   | 2,311  |      |  |   | 6,243  |   |  |   | 4,480  |  
|                                                      |  |                              |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|                                                      |  |                              | 20,038 |   |                            |   | 14,692 |      |  |   | 32,138 |   |  |   | 24,177 |  
|                                                      |  |                              |        |  
|Operating income                                      |  |                              | 1,837  |   |                            |   | 1,256  |      |  |   | 1,394  |   |  |   | 879    |  
|                                                      |  |                              |        |  
|Other income (expense):                               |  |                              |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Interest income                                       |  |                              | 60     |   |                            |   | 52     |      |  |   | 75     |   |  |   | 55     |  
|Interest expense                                      |  |                              | (43    | ) |                            |   | (32    | )    |  |   | (62    | ) |  |   | (122   | )
|Income from Investees                                 |  |                              | 14,547 |   |                            |   | 27,382 |      |  |   | 14,547 |   |  |   | 27,382 |  
|Increase (decrease) in value of marketable Securities |  |                              | 1,868  |   |                            |   | (122   | )    |  |   | 2,613  |   |  |   | (122   | )
|Miscellaneous                                         |  |                              | 24     |   |                            |   | 34     |      |  |   | 34     |   |  |   | 36     |  
|                                                      |  |                              |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|                                                      |  |                              | 16,456 |   |                            |   | 27,314 |      |  |   | 17,207 |   |  |   | 27,229 |  
|                                                      |  |                              |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Income before income taxes                            |  |                              | 18,293 |   |                            |   | 28,570 |      |  |   | 18,601 |   |  |   | 28,108 |  
|Income taxes                                          |  |                              | 6,732  |   |                            |   | 9,738  |      |  |   | 6,858  |   |  |   | 9,619  |  
|                                                      |  |                              |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Net income                                            |  | $                            | 11,561 |   |                            | $ | 18,832 |      |  | $ | 11,743 |   |  | $ | 18,489 |  
|                                                      |  |                              |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Basic and diluted earnings per common share:          |  |                              |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Basic earnings per share                              |  | $                            | 1.17   |   |                            | $ | 2.14   |      |  | $ | 1.19   |   |  | $ | 2.10   |  
|Diluted earnings per share                            |  | $                            | 1.16   |   |                            | $ | 1.89   |      |  | $ | 1.18   |   |  | $ | 1.86   |  

See notes to condensed consolidated financial statements.



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GENCOR INDUSTRIES, INC.

Unaudited Condensed Consolidated Statements of Cash Flows

In Thousands



|                                                                           |  |                            |         |   |      |   |         |  
|-------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------- | -
|                                                                           |  | Six-Months Ended March 31, |        
|                                                                           |  | 2006                       |         |   | 2005 |  
|Cash flows from operations:                                                |  |                            |         |   |      |   |         |  
|Net income                                                                 |  | $                          | 11,743  |   |      | $ | 18,489  |  
|Adjustments to reconcile net income to cash provided (used) by operations: |  |                            |         |   |      |   |         |  
|Increase in Marketable securities                                          |  |                            | (10,000 | ) |      |   | (17,999 | )
|Increase in market value of marketable securities                          |  |                            | (2,613  | ) |      |   | 122     |  
|Deferred income taxes                                                      |  |                            | (8,865  | ) |      |   | 9,857   |  
|Depreciation and amortization                                              |  |                            | 675     |   |      |   | 410     |  
|Income from investees                                                      |  |                            | (15,547 | ) |      |   | (27,382 | )
|Provision for allowance for doubtful accounts                              |  |                            | 230     |   |      |   | 44      |  
|Change in assets and liabilities:                                          |  |                            |         |   |      |   |         |  
|Accounts receivable                                                        |  |                            | (1,809  | ) |      |   | (1,015  | )
|Inventories                                                                |  |                            | 1,966   |   |      |   | (852    | )
|Prepaid expenses                                                           |  |                            | 577     |   |      |   | 300     |  
|Other assets                                                               |  |                            | (7      | ) |      |   |        |  
|Accounts payable                                                           |  |                            | 1,551   |   |      |   | 1,850   |  
|Customer deposits                                                          |  |                            | 1,105   |   |      |   | 1,332   |  
|Income and other taxes payable                                             |  |                            | 8,216   |   |      |   | (1,243  | )
|Accrued expenses                                                           |  |                            | 348     |   |      |   | (576    | )
|                                                                           |  |                            |         |   |      |   |         |  
|Total adjustments                                                          |  |                            | (24,173 | ) |      |   | (35,152 | )
|                                                                           |  |                            |         |   |      |   |         |  
|Cash provided by (used for) operations                                     |  |                            | (12,430 | ) |      |   | (16,663 | )
|                                                                           |  |                            |         |   |      |   |         |  
|Cash flows from (used for) investing activities:                           |  |                            |         |   |      |   |         |  
|Stock options exercised                                                    |  |                            |        |   |      |   | 301     |  
|Distributions from unconsolidated investees                                |  |                            | 15,547  |   |      |   | 27,382  |  
|Capital expenditures                                                       |  |                            | (291    | ) |      |   | (858    | )
|Proceeds from assets held for sale                                         |  |                            |        |   |      |   | 48      |  
|                                                                           |  |                            |         |   |      |   |         |  
|Cash from (used for) investing activities                                  |  |                            | 15,256  |   |      |   | 26,873  |  
|                                                                           |  |                            |         |   |      |   |         |  
|Cash flows used for financing activities:                                  |  |                            |         |   |      |   |         |  
|Net repayment of debt                                                      |  |                            |        |   |      |   | (5,701  | )
|                                                                           |  |                            |         |   |      |   |         |  
|Cash provided (used) for financing activities                              |  |                            |        |   |      |   | (5,701  | )
|                                                                           |  |                            |         |   |      |   |         |  
|Effect of exchange rate changes on cash                                    |  |                            | (8      | ) |      |   | 114     |  
|                                                                           |  |                            |         |   |      |   |         |  
|Net increase (decrease) in cash                                            |  |                            | 2,818   |   |      |   | 4,623   |  
|Cash and cash equivalents at:                                              |  |                            |         |   |      |   |         |  
|Beginning of period                                                        |  |                            | 4,206   |   |      |   | 550     |  
|                                                                           |  |                            |         |   |      |   |         |  
|End of period                                                              |  |                            | 7,024   |   |      | $ | 5,173   |  
|                                                                           |  |                            |         |   |      |   |         |  

See notes to condensed consolidated financial statements.



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GENCOR INDUSTRIES, INC.

Notes to Condensed Consolidated Financial Statements

All amounts in thousands, except per share amounts

Note 1  Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of management, all material adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the
three-months and six-months ended March 31, 2006 are not necessarily indicative of the results that may be expected for the year ended September 30, 2006.

The balance sheet at September 30, 2005 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in
the Gencor Industries, Inc. Annual Report on Form 10-K for the year ended September 30, 2005.

Note 2- Marketable Securities

Marketable securities are categorized as trading securities and stated at market value. Market value is determined using the quoted closing or latest bid prices. Realized
gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the statement of income. Net unrealized gains and losses are reported in the statement of income and represent the change in the
market value of investment holdings during the period. At March 31, 2006, Marketable securities consisted of $6.1 in municipal bonds, $3.8 in money market funds, and $35.5 in equity stocks.

Note 3  Inventories

The
components of inventory consist of the following:



|                |  |               |        |                   |   |       
|--------------- |  | ------------- | ------ | ----------------- | - | ------
|                |  | March 31,2006 |        | September 30,2005
|Raw materials   |  | $             | 8,205  |                   | $ | 7,564 
|Work in process |  |               | 2,562  |                   |   | 4,823 
|Finished goods  |  |               | 5,399  |                   |   | 5,627 
|Used equipment  |  |               | 1,104  |                   |   | 1,222 
|                |  |               |        |                   |   |       
|                |  | $             | 17,270 |                   | $ | 19,236
|                |  |               |        |                   |   |       



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Note 4  Earnings Per Share Data

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated.



|                                        |  |                              |        |                            |   |        |  |      |        |  |   |       
|--------------------------------------- |  | ---------------------------- | ------ | -------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                        |  | Three-Months Ended March 31, |        | Six-Months Ended March 31,
|                                        |  | 2006                         |        | 2005                       |   | 2006   |  | 2005
|Net income                              |  | $                            | 11,561 |                            | $ | 18,832 |  | $    | 11,743 |  | $ | 18,489
|                                        |  |                              |        |                            |   |        |  |      |        |  |   |       
|Denominator (shares in thousands):      |  |                              |        |                            |   |        |  |      |        |  |   |       
|Weighted average shares outstanding     |  |                              | 9,899  |                            |   | 8,814  |  |      | 9,897  |  |   | 8,805 
|Effect of dilutive stock options        |  |                              | 26     |                            |   | 1,128  |  |      | 35     |  |   | 1,128 
|                                        |  |                              |        |                            |   |        |  |      |        |  |   |       
|Denominator for diluted EPS computation |  |                              | 9,925  |                            |   | 9,942  |  |      | 9,932  |  |   | 9,933 
|                                        |  |                              |        |                            |   |        |  |      |        |  |   |       
|Per common share:                       |  |                              |        |                            |   |        |  |      |        |  |   |       
|Basic:                                  |  |                              |        |                            |   |        |  |      |        |  |   |       
|Net income                              |  | $                            | 1.17   |                            | $ | 2.14   |  | $    | 1.19   |  | $ | 2.10  
|                                        |  |                              |        |                            |   |        |  |      |        |  |   |       
|Diluted:                                |  |                              |        |                            |   |        |  |      |        |  |   |       
|Net income                              |  | $                            | 1.16   |                            | $ | 1.89   |  | $    | 1.18   |  | $ | 1.86  
|                                        |  |                              |        |                            |   |        |  |      |        |  |   |       

Note 5  Comprehensive Income (Loss)

The total comprehensive income for the three-months and six-months ended March 31, 2006 was $11,569 and $11,735, respectively. The total comprehensive income for the three-months and six-months ended
March 31, 2005 was $18,820 and $18,603, respectively. Total comprehensive income differs from net income due to gains and losses resulting from foreign currency translation, which are reflected separately in the shareholders equity
section of the balance sheet under the caption Accumulated other comprehensive loss. Gains and losses resulting from foreign currency transactions are included in income.

Note 6  Income From Investees

The Company owns a 45% interest in Carbontronics LLC and a 25% interest in
Carbontronics Fuels LLC and Carbontronics II, LLC. These interests were earned as part of value of risk on contracts to build four synthetic fuel production plants during 1998. The Company has no basis in these equity investments or requirement to
provide future funding. The operations of Carbontronics LLC consist of the receipt of contingent payments from the sales of the plants and the distribution thereof to its members. Carbontronics LLC has no other significant operations or assets. The
operations of Carbontronics II, LLC consist of the receipt of royalty payments from the plants and the distribution thereof to its members. Carbontronics II, LLC has no other significant operations or assets. Any income arising from these
investments is dependent upon tax credits (adjusted for operating losses at the fuel plants) being generated as a result of synthetic fuel production, which will be recorded as received. The Company received no distributions in the quarter ended
December 31, 2005, nor in the quarter ended December 31, 2004. The Company recognized income of $14,547 in the quarter ended March 31, 2006, for the distribution received less an accrual of $1,000 for certain expenses associated with
efforts by the Company as plaintiff in a matter against its synthetic fuels partners. The Company received distributions of $27,382 in the quarter ended March 31, 2005. The Company received distributions of $44,238, $13,428 and $1,526,
during the fiscal years 2005, 2003, and 2002, respectively. The Company received no distributions in fiscal 2004. These distributions are subject to state and Federal income taxes.

Future distributions from these entities depend upon the production of these operations continuing to qualify for tax credits under Section 29 of the Internal Revenue Code and the ability to economically produce
and market synthetic fuel produced by the plants. One of the contingencies related to future benefits from these entities is based on the average price of crude oil. Per a provision of Section 29, if the average price of crude oil reaches a



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certain level, the tax credits will terminate. The recent escalation in oil prices raises serious doubt on the continued availability of tax credits under
Section 29 for the future. If oil prices remain at the current levels or increase, the tax credits could phase-out or terminate. The existing tax credit legislation is scheduled to expire at the end of calendar year 2007. Any one of the above
eventualities may interrupt, reduce, or terminate further distributions.



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

Results of
Operations

Net sales for the quarters ended March 31, 2006 and 2005 were $21.9 million and $15.9 million, respectively. Domestic sales during the
second quarter of fiscal 2006 increased $6.3 million from year ago levels. Domestic sales were higher than the prior years quarter due the general improvement in the construction industry, partially due to the passage of the Federal highway
bill in the summer of 2005. Foreign sales decreased $.3 million from the prior year.

Net sales for the six-months ended March 31, 2006 and 2005 were
$33.5 million and $25.1 million, respectively. Domestic sales during the first six-months of fiscal 2006 increased of $8.4 million from year ago levels. Domestic sales were higher than the prior years due the general improvement in the
construction industry, partially due to the passage of the Federal highway bill in the summer of 2005. Foreign sales remained constant from the prior year.

The Companys revenues are concentrated in the asphalt-related business and subject to a seasonal slow-down during the third and fourth quarters of the calendar year.

Gross margins as a percent of net sales remained at 26% for both three-month periods. Gross margins as a percent of net sales was also 26% for the six-months ended March 31, 2006, and 25% for the six-months ended
March 31, 2005.

Selling and administrative expense increased $1,052 for the quarter and $1,763 for the six-months due to higher wages, higher
commissions based on volume, and higher legal costs for fiscal 2006.

The Company owns a 45% interest in Carbontronics LLC and a 25% interest in
Carbontronics Fuels LLC and Carbontronics II LLC. These interests were earned as part of value of risk on contracts to build four synthetic fuel production plants during 1998. The Company has no basis in these equity investments or requirement to
provide future funding. Any income arising from these investments is dependent upon tax credits (adjusted for operating losses at the fuel plants) being generated as a result of synthetic fuel production, which will be recorded as received. The
Company received no distributions in the quarter ended December 31, 2005, nor in the quarter ended December 31, 2004. The Company recognized income of $14,547 in the quarter ended March 31, 2006, for the distribution received less an
accrual of $1,000 for certain expenses associated with efforts by the Company as plaintiff in a matter against its synthetic fuels partners. The Company received distributions of $27,382 in the quarter ended March 31, 2005. The Company
received distributions of $44,238, $13,428 and $1,526, during the fiscal years 2005, 2003, and 2002, respectively. The Company received no distributions in fiscal 2004. These distributions are subject to state and Federal income taxes.

Future distributions from these entities depend upon the production of these operations continuing to qualify for tax credits under Section 29 of the Internal
Revenue Code and the ability to economically produce and market synthetic fuel produced by the plants. One of the contingencies related to future benefits from these entities is based on the average price of crude oil. Per a provision of
Section 29, if the average price of crude oil reaches a certain level, the tax credits will terminate. The recent escalation in oil prices raises serious doubt on the continued availability of tax credits under Section 29 for the future.
If oil prices remain at the current levels or increase, the tax credits could phase-out or terminate. The existing tax credit legislation is scheduled to expire at the end of calendar year 2007. Any one of the above eventualities may interrupt,
reduce, or terminate further distributions.



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Interest expense for the first six-months of fiscal 2006 decreased by $60 from the first six-months of fiscal 2005,
reflecting a decrease in debt balance. The increase in value of marketable securities is a result of net unrealized gains during the period.

Income tax
expense decreased from year ago levels, reflecting the decrease in pre-tax income. Deferred taxes changed primarily due to the income from investees becoming taxable in the current year.

Liquidity and Capital Resources

On August 1, 2003, the Company entered into a Revolving Credit and Security
Agreement with PNC Bank, N.A. The Agreement established a three year revolving $20 million credit facility. The facility provides for advances based on accounts receivable, inventory and real estate. The facility includes a $2 million limit on
letters of credit. At March 31, 2006, the Company had $.3 million of letters of credit outstanding. The interest rate at March 31, 2006, is at prime less .25% (7.50%) and subject to change based upon the Fixed Charge Coverage Ratio.
The Company is required to maintain a Fixed Charge Coverage Ratio of 1.1:1. There are no required repayments as long as there are no defaults and there is adequate eligible collateral. Substantially all of Companys assets are pledged as
security under the Agreement. The Company is currently in process of negotiating a renewal of this facility.

As of March 31, 2006, the Company had
$7.0 million in cash and cash equivalents, and $45.4 million in marketable securities. The marketable securities are invested in stocks, bonds, and money market funds through a professional investment advisor. Investment securities are exposed to
various risks such as interest rate, market and credit. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of securities, it is possible that changes in these risk
factors could have an adverse material impact on the Companys results of operations. The securities may be liquidated at any time into cash and cash equivalents.

Seasonality

The Company is concentrated in the asphalt-related business and is subject to a seasonal slow-down
during the third and fourth quarters of the calendar year. Traditionally, the Companys customers do not purchase new equipment for shipment during the summer and fall months to avoid disrupting their peak season for highway construction and
repair work. This slow-down often results in lower reported sales and earnings and or losses during the first and fourth quarters of the Companys fiscal year ended September 30.

Forward-Looking Information

This Form 10-Q contains certain
forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which represent the Companys expectations and beliefs, including, but not limited
to, statements concerning gross margins, sales of the Companys products and future financing plans. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Companys control. Actual
results may differ materially depending on a variety of important factors, including the financial condition of the Companys customers, changes in the economic and competitive environments and demand for the Companys products.



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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company operates manufacturing facilities and sales
offices principally located in the United States and the United Kingdom. The Company is subject to business risks inherent in non-U.S. activities, including political and economic uncertainty, import and export limitations, and market risk related
to changes in interest rates and foreign currency exchange rates. The Companys principal currency exposure against the U.S. dollar is the British pound. Periodically, the Company will use derivative financial instruments consisting primarily
of interest rate hedge agreements to manage exposures to interest rate changes. The Companys objective in managing its exposure to changes in interest rates on its variable rate debt is to limit their impact on earnings and cash flow and
reduce its overall borrowing costs.

At March 31, 2006, the Company had no debt outstanding. Under the Revolving Credit and Security Agreement,
substantially all of the Companys borrowings will bear interest at variable rates based upon the prime rate.

The
Companys Marketable securities are invested in stocks, bonds, and money market funds

through a professional investment advisor. Investment
securities are exposed to various risks such as interest rate, market and credit. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of securities, it is possible that
changes in these risk factors could have an adverse material impact on the Companys results of operations or equity.

The Companys sensitivity
analysis for interest rate risk excludes accounts receivable, accounts payable and accrued liabilities because of the short-term maturity of such instruments. The analysis does not consider the effect on other variables such as changes in sales
volumes or managements actions with respect to levels of capital expenditures, future acquisitions or planned divestures, all of which could be significantly influenced by changes in interest rates.



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Item 4. Controls and Procedures

The Companys Chief Executive Officer and Chief Financial Officer
evaluated the Companys disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective in ensuring that material information required to be disclosed is included in the reports that it files with the Securities and Exchange Commission.

There were no significant changes in the Companys internal controls or, to the knowledge of the management of the Company, in other factors during
the period covered by this report that could significantly affect the Companys internal control over financial reporting.



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Part II. Other Information

Item 6. Exhibits



|     |  |                                                                                                                                 
|---- |  | --------------------------------------------------------------------------------------------------------------------------------
|3.2  |  | Amended and Restated By-laws                                                                                                    
|     | 
|31.1 |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                             
|     | 
|31.2 |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                             
|     | 
|32   |  | Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



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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.



|             |  |                         |  |                                                   
|------------ |  | ----------------------- |  | --------------------------------------------------
|             |  | GENCOR INDUSTRIES, INC.
|             |  |                        
|May 15, 2006 |  | By:                     |  | /s/ E.J. Elliott                                  
|             |  |                         |  | E.J. Elliott, Chairman and Chief Executive Officer
|             |  |                        
|May 15, 2006 |  | By:                     |  | /s/ Scott W. Runkel                               
|             |  |                         |  | Scott W. Runkel, Chief Financial Officer          



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