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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



|x | QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2006

OR



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

For the transition period from  to

Commission
File Number: 001-32401

VERI-TEK INTERNATIONAL, CORP.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Michigan                                                       |  | 42-1628978                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)

50120 Pontiac Trail, Wixom, MI 48393

(Address of principal executive offices)

(Zip Code)

(248) 560-1000

(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 ̈

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 ̈an accelerated filer ̈or a non-accelerated filer x

The number of shares of the registrants common stock, no par value, outstanding as of April 30, 2006 was 4,875,000.



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VERI-TEK INTERNATIONAL, CORP.

FORM 10-Q INDEX

This report contains statements (including certain projections
and business trends) accompanied by such phrases as assumes, anticipates, believes, expects, estimates, projects, will and other similar expressions, that are
forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. Statements regarding future operating performance, new programs expected to be launched and other future prospects and developments are based
upon current expectations and involve certain risks and uncertainties that could cause actual results and developments to differ materially. Potential risks and uncertainties include such factors as demand for the Companys products, pricing,
the Companys growth strategy, including its ability to consummate and successfully integrate future acquisitions, industry cyclicality and seasonality, the Companys ability to continuously improve production technologies, activities of
competitors and other risks detailed in the Companys filings with the Securities and Exchange Commission (SEC). These forward looking statements are made only as of the date hereof.

TABLE OF CONTENTS



|                                                                                               |  |   
|---------------------------------------------------------------------------------------------- |  | --
|PART I: FINANCIAL INFORMATION                                                                  |  | 3 
|                                                                                               | 
|ITEM1: FINANCIAL STATEMENTS                                                                    |  | 3 
|Balance Sheets as of December 31, 2005 and March 31, 2006 (unaudited)                          |  | 3 
|Statements of Income (unaudited) for the Three Month Periods Ended March 31, 2005 and 2006     |  | 4 
|Statements of Cash Flows (unaudited) for the Three Month Periods Ended March 31, 2005 and 2006 |  | 5 
|Notes to Financial Statements (unaudited)                                                      |  | 6 
|ITEM2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS   |  | 15
|ITEM3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                              |  | 17
|ITEM4: DISCLOSURE CONTROLS AND PROCEDURES                                                      |  | 18
|                                                                                               | 
|PART II - OTHER INFORMATION                                                                    |  | 19
|                                                                                               | 
|ITEM1: LEGAL PROCEEDINGS                                                                       |  | 19
|ITEM2: CHANGES IN SECURITIES AND USE OF PROCEEDS                                               |  | 19
|ITEM3: DEFAULTS UPON SENIOR SECURITIES                                                         |  | 19
|ITEM4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS                                     |  | 19
|ITEM5: OTHER INFORMATION                                                                       |  | 19
|ITEM6: EXHIBITS AND REPORTS ON FORM 8-K                                                        |  | 19



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PART I: FINANCIAL INFORMATION



|Item 1: | Financial Statements
|------- | --------------------

VERI-TEK INTERNATIONAL, CORP.

BALANCE SHEETS

(in thousands)



|                                                                                                   |  |                          |        |   |                  |   |        |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---------------- | - | ------ | -
|                                                                                                   |  | March 31,2006(Unaudited) |        |   | December 31,2005 |  
|ASSETS                                                                                             |  |                          |        |   |                  |   |        |  
|Current Assets                                                                                     |  |                          |        |   |                  |   |        |  
|Cash and Cash Equivalents                                                                          |  | $                        | 890    |   |                  | $ | 2,025  |  
|Accounts Receivable - Trade                                                                        |  |                          | 673    |   |                  |   | 1,837  |  
|Accounts Receivable - Other                                                                        |  |                          |       |   |                  |   | 2      |  
|Cost and Estimated Earnings in Excess of Billings, net                                             |  |                          | 3,574  |   |                  |   | 2,461  |  
|Inventory at Cost                                                                                  |  |                          | 1,363  |   |                  |   | 1,162  |  
|Prepaid Expenses                                                                                   |  |                          | 236    |   |                  |   | 136    |  
|                                                                                                   |  |                          |        |   |                  |   |        |  
|Total Current Assets                                                                               |  |                          | 6,736  |   |                  |   | 7,623  |  
|Property, Plant and Equipment, net                                                                 |  |                          | 2,315  |   |                  |   | 2,085  |  
|Other Assets                                                                                       |  |                          |        |   |                  |   |        |  
|Security Deposits                                                                                  |  |                          | 48     |   |                  |   | 48     |  
|Loan Cost, net                                                                                     |  |                          | 17     |   |                  |   | 23     |  
|Patents, net                                                                                       |  |                          | 4,138  |   |                  |   | 4,212  |  
|Software, net                                                                                      |  |                          | 126    |   |                  |   | 130    |  
|Deferred Tax Asset                                                                                 |  |                          | 3,289  |   |                  |   | 3,106  |  
|                                                                                                   |  |                          |        |   |                  |   |        |  
|Total Other Assets                                                                                 |  |                          | 7,618  |   |                  |   | 7,519  |  
|                                                                                                   |  |                          |        |   |                  |   |        |  
|Total Assets                                                                                       |  | $                        | 16,669 |   |                  | $ | 17,227 |  
|                                                                                                   |  |                          |        |   |                  |   |        |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                               |  |                          |        |   |                  |   |        |  
|Current Liabilities                                                                                |  |                          |        |   |                  |   |        |  
|Accounts Payable - Trade                                                                           |  | $                        | 659    |   |                  | $ | 767    |  
|Accrued Expenses                                                                                   |  |                          | 185    |   |                  |   | 269    |  
|                                                                                                   |  |                          |        |   |                  |   |        |  
|Total Current Liabilities                                                                          |  |                          | 844    |   |                  |   | 1,036  |  
|Long Term Liabilities                                                                              |  |                          |        |   |                  |   |        |  
|Deferred Tax Liability                                                                             |  |                          | 24     |   |                  |   | 20     |  
|                                                                                                   |  |                          |        |   |                  |   |        |  
|Total Long Term Liabilities                                                                        |  |                          | 24     |   |                  |   | 20     |  
|                                                                                                   |  |                          |        |   |                  |   |        |  
|Total Liabilities                                                                                  |  |                          | 868    |   |                  |   | 1,056  |  
|Shareholders equity                                                                               |  |                          |        |   |                  |   |        |  
|Common Stock - No Par Value, Authorized 20,000,000 shares, Issued and Outstanding 4,875,000 shares |  |                          | 22,332 |   |                  |   | 22,332 |  
|Retained Earnings (Accumulated Deficit)                                                            |  |                          | (6,531 | ) |                  |   | (6,161 | )
|                                                                                                   |  |                          |        |   |                  |   |        |  
|Shareholders Equity                                                                               |  |                          | 15,801 |   |                  |   | 16,171 |  
|                                                                                                   |  |                          |        |   |                  |   |        |  
|Liabilities and Shareholders Equity                                                               |  | $                        | 16,669 |   |                  | $ | 17,227 |  
|                                                                                                   |  |                          |        |   |                  |   |        |  

The accompanying notes are an integral part of these financial statements.



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VERI-TEK INTERNATIONAL, CORP.

STATEMENTS OF INCOME

(Unaudited, in thousands, except for per share amounts)



|                                             |  |                             |           |   |      |   |           |  
|-------------------------------------------- |  | --------------------------- | --------- | - | ---- | - | --------- | -
|                                             |  | Three Months EndedMarch 31, |          
|                                             |  | 2006                        |           |   | 2005 |  
|Net Sales                                    |  | $                           | 2,237     |   |      | $ | 1,059     |  
|Cost of Sales                                |  |                             | 2,227     |   |      |   | 1,355     |  
|                                             |  |                             |           |   |      |   |           |  
|Gross Profit                                 |  |                             | 10        |   |      |   | (296      | )
|Research and Development Costs               |  |                             | 1         |   |      |   | 192       |  
|Selling, General and Administrative Expenses |  |                             | 577       |   |      |   | 692       |  
|                                             |  |                             |           |   |      |   |           |  
|Income (Loss) from Operations                |  |                             | (568      | ) |      |   | (1,180    | )
|Other Income (Expense)                       |  |                             |           |   |      |   |           |  
|Interest Income                              |  |                             | 19        |   |      |   | 6         |  
|Interest Expense                             |  |                             |          |   |      |   | (53       | )
|                                             |  |                             |           |   |      |   |           |  
|                                             |  |                             | 19        |   |      |   | (47       | )
|                                             |  |                             |           |   |      |   |           |  
|Income (Loss) Before Income Taxes            |  |                             | (549      | ) |      |   | (1,227    | )
|Income Tax Benefit                           |  |                             | 179       |   |      |   | 416       |  
|                                             |  |                             |           |   |      |   |           |  
|Net Income (Loss)                            |  |                             | (370      | ) |      |   | (811      | )
|                                             |  |                             |           |   |      |   |           |  
|Earnings Per Share                           |  |                             |           |   |      |   |           |  
|Basic                                        |  | $                           | (0.08     | ) |      | $ | (0.30     | )
|Diluted                                      |  | $                           | (0.08     | ) |      | $ | (0.24     | )
|Weighted Average Common Shares               |  |                             |           |   |      |   |           |  
|Basic                                        |  |                             | 4,875,000 |   |      |   | 2,731,818 |  
|Diluted                                      |  |                             | 4,875,000 |   |      |   | 3,343,056 |  

The accompanying notes are an integral part of these financial statements



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VERI-TEK INTERNATIONAL, CORP.

STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)



|                                                                                                   |  |                             |        |   |      |   |        |  
|-------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                   |  | Three Months EndedMarch 31, |       
|                                                                                                   |  | 2006                        |        |   | 2005 |  
|Cash Flows From Operating Activities:                                                              |  |                             |        |   |      |   |        |  
|Net Income (Loss)                                                                                  |  | $                           | (370   | ) |      | $ | (811   | )
|Adjustments to Reconcile Net Income to Cash                                                        |  |                             |        |   |      |   |        |  
|Provided by Operating Activities:                                                                  |  |                             |        |   |      |   |        |  
|Depreciation and Amortization                                                                      |  |                             | 146    |   |      |   | 99     |  
|Bad Debt Expense                                                                                   |  |                             | (4     | ) |      |   |       |  
|Changes in Operating Assets and Liabilities:                                                       |  |                             |        |   |      |   |        |  
|(Increase) Decrease in Accounts Receivable                                                         |  |                             | 1,170  |   |      |   | 459    |  
|(Increase) Decrease in Cost and Estimated Earnings in Excess of Billings                           |  |                             | (1,113 | ) |      |   | 489    |  
|(Increase) Decrease in Inventory                                                                   |  |                             | (201   | ) |      |   | (13    | )
|(Increase) Decrease in Prepaid Expenses                                                            |  |                             | (100   | ) |      |   | (10    | )
|(Increase) Decrease in Deferred Tax Asset                                                          |  |                             | (183   | ) |      |   | (418   | )
|Increase (Decrease) in Accounts Payable                                                            |  |                             | (108   | ) |      |   | (179   | )
|Increase (Decrease) in Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts |  |                             |       |   |      |   | (169   | )
|Increase (Decrease) in Accrued Expense                                                             |  |                             | (84    | ) |      |   | (162   | )
|Increase (Decrease) in Deferred Tax Liability                                                      |  |                             | 4      |   |      |   | 2      |  
|                                                                                                   |  |                             |        |   |      |   |        |  
|Net Cash Used For Operating Activities                                                             |  |                             | (843   | ) |      |   | (713   | )
|Cash Flows From Investing Activities                                                               |  |                             |        |   |      |   |        |  
|Purchase of Marketable Securities                                                                  |  |                             |       |   |      |   | (6,000 | )
|Purchase of Property and Equipment                                                                 |  |                             | (290   | ) |      |   | (82    | )
|Investment in Software                                                                             |  |                             | (2     | ) |      |   |       |  
|Investment in Patents                                                                              |  |                             |       |   |      |   | (35    | )
|                                                                                                   |  |                             |        |   |      |   |        |  
|Net Cash Used For Investing Activities                                                             |  |                             | (292   | ) |      |   | (6,117 | )
|Cash Flows Used In Financing Activities                                                            |  |                             |        |   |      |   |        |  
|Proceeds on Revolving Credit Facility                                                              |  |                             |       |   |      |   | 1,021  |  
|Payments on Revolving Credit Facility                                                              |  |                             |       |   |      |   | (7,981 | )
|Payment for Loan Fees                                                                              |  |                             |       |   |      |   | (46    | )
|Proceeds from Issuance of Stock                                                                    |  |                             |       |   |      |   | 16,042 |  
|Payment for Expenses Relating to Initial Public Offering                                           |  |                             |       |   |      |   | (533   | )
|                                                                                                   |  |                             |        |   |      |   |        |  
|Net Cash Provided By Financing Activities                                                          |  |                             |       |   |      |   | 8,503  |  
|Net Increase (Decrease) in Cash                                                                    |  |                             | (1,135 | ) |      |   | 1,673  |  
|Cash - Beginning of Period                                                                         |  |                             | 2,025  |   |      |   | 6      |  
|                                                                                                   |  |                             |        |   |      |   |        |  
|Cash - End of Period                                                                               |  | $                           | 890    |   |      | $ | 1,679  |  
|                                                                                                   |  |                             |        |   |      |   |        |  

The accompanying notes are an integral part of these financial statements



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VERI-TEK INTERNATIONAL, CORP.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Note A  Nature of Operations and Summary of Significant Accounting Policies

This summary of significant accounting policies of Veri-Tek International Corp. is presented to assist in understanding the Companys financial statements. The financial statements and notes are representations
of the Companys management who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
All figures are in thousands unless otherwise stated.

Nature of Operations

Veri-Tek International Corp. designs and manufactures testing and assembly equipment used primarily in the manufacture of driveline components in the automotive and heavy equipment industries. In addition, the Company
has utilized this technology to provide testing services to original equipment manufacturers and tier 1 suppliers in order to verify the manufacturing process. The Company is in the process of entering the drive-train manufacturing industry
utilizing its proprietary technology and processes.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all short-term securities purchased with maturity dates of three months or less to be cash equivalents.

Marketable Securities

The Company has investments in corporate debt
instruments that are available for sale to meet working capital needs. Cost represents estimated fair value at the balance sheet date and there are no gross unrealized gains or losses. Interest earned is included in interest income.

Revenue Recognition

The Company has two main businesses  the
design and manufacture of assembly and testing equipment (A & T) and the testing and manufacturing of drive-line products (T & M). The A & T business recognizes revenue under a proportions performance method. The T & M
business recognizes revenue when products are shipped or services are rendered. The testing business has not generated material revenue to date.

Accounts Receivable  Trade

The Company has adopted a policy consistent with U.S. GAAP for the periodic review of its accounts
receivable to determine whether the establishment of an allowance for doubtful accounts is warranted based on the Companys assessment of the collectibility of the accounts. The Company established an allowance for bad debts of $19 at
March 31, 2006 and 2005.

Costs and Earnings in Excess of Billings

Costs and earnings in excess of billings are the result of earned revenue on projects that are not immediately billable to customers due to agreed upon billing arrangements. As of March 31, 2006 and 2005, the
Company has established a reserve of $1,734 and $1,595, respectively, against costs in excess of billings  See Note M.



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Note A  Nature of Operations and Summary of Significant Accounting Policies (Continued)

Financial Instruments and Credit Risk Concentrations

Financial
instruments which potentially subject the Company to concentrations of credit risk consist primarily of trade receivables and payables. As of March 31, 2006, three customers accounted for 75% of accounts receivable. Three customers accounted
for 100% of unbilled revenue at March 31, 2006. One customer accounted for 68% of the revenue for the three months ended March 31, 2006.

As of
December 31, 2005, three customers accounted for 80% of accounts receivable. Two customers accounted for 82% of unbilled revenue at March 31, 2005. Two customers accounted for 83% of the revenue for the three months ended March 31,
2005.

Two suppliers accounted for 27% of accounts payable as of March 31, 2006. During the period ended March 31, 2006, the Company purchased
11% of materials from one supplier.

During the period ended March 31, 2005, the Company purchased 13% of materials from one supplier. One supplier
accounted for 28% of accounts payable as of March 31, 2005.

Inventory

Inventory consists of stock materials and various machines developed for demonstration purposes and are stated at the lower of cost (first in, first out) or market.

Property, Equipment and Depreciation

Property and equipment are
stated at cost. Depreciation of property and equipment is provided using accelerated methods used for tax purposes over the following useful lives:



|                        |  |           
|----------------------- |  | ----------
|Machinery and Equipment |  | 3 7 years
|Furniture and Fixtures  |  | 7 years   
|Leasehold Improvements  |  | 39 years  

Expenditures for major renewals and betterments that extend the useful lives of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation expense for the three months ended March 31, 2006 and 2005 was $59 and $19, respectively.

Patents

The Company capitalizes certain costs related to patent
technology as well as allocating a substantial portion of the purchase price related to the acquisition of substantially all of the assets of JCJ International, Inc. These costs are amortized on a straight-line basis over the estimated useful lives
of the assets. Amortization expense for the three months ended March 31, 2006 and 2005 was $74 and $74, respectively.

Research and Development
Expenses

The Company expenses research and development expenses as incurred. Amounts payable to third parties under product development agreements are
recorded at the earlier of the milestone achievement or when payments become contractually due. For the three months ended March 31, 2006 and 2005, $1 and $192, respectively, of research and development costs were expensed.



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Note A  Nature of Operations and Summary of Significant Accounting Policies (Continued)

Impairment of Long-Lived Assets

In accordance with SFAS No. 121,
the Company reviews its long-lived assets, including property and equipment, goodwill and other identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows, without interest charges, will be less than the carrying amount of the assets. Impairment is measured
at fair value. The Company had no loss on impairment of long-lived assets during the three months ended March 31, 2006 and 2005.

Use of Estimates

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

Fair Value of Financial Instruments

The Companys financial instruments include cash, accounts receivable, accounts payable, accrued
liabilities, line of credit and long-term debt. The carrying value of these instruments approximates their estimated fair value.

Income Taxes

The Company accounts for income taxes under the provisions of SFAS No. 109, Accounting for Income Taxes, which requires recognition of
deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Companys financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on
the differences between the financial accounting and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Computation of Earnings Per Share

Basic earnings per share were computed by dividing net loss by the weighted
average number of common shares outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur from the conversion of the subordinated debt at $6 per share.

In September 2004, the Emerging Issues Task Force reached a final consensus on Issue N. 04-8, The Effect of Contingently Convertible Debt on Diluted Earnings per
Share (EITF 04-8). Contingently convertible debt instruments are financial instruments that add a contingent feature to a convertible debt instrument. The conversion feature is triggered when one or more specified contingencies occur and at least
one of these contingencies is based on market price. Prior to the issuance of EITF 04-8, SFAS 128 had been widely interpreted to allow the exclusion of common shares underlying contingently convertible debt instruments from the calculation of
diluted earnings per share in instances where conversion depends on the achievement of a specified market price of the issuers shares. The consensus requires that these underlying common shares be included in the diluted earnings per share
computations, if dilutive, regardless of whether the market price contingency or any other contingent factor has been met. The consensus, which is effective for reporting periods ending after December 15, 2004, requires the restatement of
diluted earnings per share for all prior periods presented. Veri-Tek had a contingently convertible debt instrument, the $7,125 subordinated debt which was converted to shares of common stock in February 2005 upon the achievement of the
Companys initial public offering.



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Note A  Nature of Operations and Summary of Significant Accounting Policies (Continued)

New Accounting Pronouncements

At its September 2004 meeting, the FASB
reached a consensus on Emerging Issues Task Force (EITF) Issue No. 04-8 (EITF Issue 04-8). The Effect of Contingently Convertible Debt on Diluted Earnings Per Share, that contingently convertible debt instruments will be subject to
the if-converted method under FASB Statement of Financial Accounting Standards (SFAS) No. 128 (SFAS 128), Earnings Per Share, regardless of the contingent features included in the instrument. Under current practice, issuers of
contingently convertible debt instruments exclude potential common shares underlying the debt instruments from the calculation of diluted earnings per share until the market price or other contingency is met. The effective date for EITF Issue 04-8
is for reporting period ending after December 15, 2004. Veri-Tek has applied EITF guidance by retroactively restating earnings per share for all applicable periods (see disclosure related to Computation of Earnings Per Share located
elsewhere in this note).

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4.
This statement amends the guidance in ARB No. 43 Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB
No. 43, Chapter 4, previously stated that under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal to require treatment as a current period
charges This statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of so abnormal. In addition, this statement requires that allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this statement will be effective for inventory costs during the fiscal years beginning after June 15, 2005. Veri-Tek does not
believe that the adoption of this statement will have a material impact on its financial condition or results of operations.

On December 16, 2004,
the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123R). SFAS 123R supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and amends SFAS 95, Statement of Cash Flows. Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123. However, SFAS 123R requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123R must be adopted no later than July 1, 2005.
Early adoption will be permitted in periods in which financial statements have not yet been issued. We adopted SFAS 123R on July 1, 2005.

In December
2004, the Financial Accounting Standards Board issues two FASB Staff Positions  FSP FAS 109-1 Application of FASB Statement 109 Accounting for Income Taxes to the Tax Deduction on Qualified Production Activities provided by the
American Jobs Creation Act of 2004, and FSB FAS 109-2 Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. Neither of these affected the Company as it does not participate
in the related activities.

In March 2005, the SEC released Staff Accounting Bulletin No 107, Share Based Payment (SAB 107), which
provides interpretive guidance related to the interaction between SFAS 123(R) and certain SEC rules and regulations. In April 2005, the SEC amended the compliance dates for SFAS 123(R), to allow companies to implement the standard at the beginning
of the next fiscal year, instead of the next reporting period beginning after June 15, 2005. Management is currently evaluating the impact SAB 107 will have on our financial statements.



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Note A  Nature of Operations and Summary of Significant Accounting Policies (Continued)

In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47). FIN 47 provides
guidance relating to the identification of and financial reporting for legal obligations to perform an asset retirement activity. The Interpretation requires recognition of a liability for the fair value of a conditional asset retirement obligation
when incurred if the liabilitys fair value can be reasonably estimated. FIN 47 also defines when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The provision is effective no
later than the end of fiscal years ending after December 15, 2005. The Company will adopt FIN 47 beginning the first quarter of fiscal year 2006 and does not believe the adoption will have a material impact on its financial position of results
of operations or cash flows.

In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes and Error Corrections. This new
standard replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and represents another step in the FASBs goal to converge its standards
with those issued by the IASB. Among other changes, Statement 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is
impracticable to do so. Statement 154 also provides that (1) a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting
principle, and (2) correction of errors in previously issued financial statements should be termed a restatement. The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after
December 5, 2005. Early adoption of this standard is permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. The Company has evaluated the impact of the adoption of Statement 154 and
does not believe the impact will be significant to the Companys overall results of operations or financial position.

In February of 2006, the FASB
issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, which is intended to simplify the accounting and improve the financial reporting of certain hybrid financial instruments (i.e. derivatives embedded in other
financial instruments). The statement amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities  a replacement of FASB Statement No. 125. SFAS No. 155 is effective for all financial instruments issued or acquired after the beginning of an entitys first fiscal year that begins after September 15, 2006. The
Company is currently evaluating the impact SFAS No. 155 will have on its financial statements, if any.

Note B  Inventory

The components of inventory at March 31, 2006 and December 31, 2005 are as follows:



|                                     |  |               |       |                  |   |      
|------------------------------------ |  | ------------- | ----- | ---------------- | - | -----
|                                     |  | March 31,2006 |       | December 31,2005
|Raw Materials and Purchased Parts    |  | $             | 96    |                  | $ | 119  
|Finished Goods and Replacement Parts |  |               | 1,267 |                  |   | 1,043
|                                     |  |               |       |                  |   |      
|                                     |  | $             | 1,363 |                  | $ | 1,162



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##### Table of Contents

Note C  Property, Plant and Equipment

Property, plant and equipment consist of the following:



|                                |  |               |       |                  |   |      
|------------------------------- |  | ------------- | ----- | ---------------- | - | -----
|                                |  | March 31,2006 |       | December 31,2005
|Machinery and Equipment         |  | $             | 683   |                  | $ | 680  
|Furniture and Fixtures          |  |               | 22    |                  |   | 22   
|Leasehold Improvements          |  |               | 43    |                  |   | 43   
|Assets Under Development        |  |               | 1,588 |                  |   | 1,305
|Computer Software and Equipment |  |               | 226   |                  |   | 223  
|                                |  |               |       |                  |   |      
|                                |  |               | 2,562 |                  |   | 2,273
|Less: Accumulated Depreciation  |  |               | 247   |                  |   | 188  
|                                |  |               |       |                  |   |      
|Net Property and Equipment      |  | $             | 2,315 |                  | $ | 2,085

Note D  Revolving Credit Facility

As a result of our successful initial public offering in February 2005, our outstanding balance on our revolving credit facility was reduced to zero and the credit facility was terminated. We have since negotiated a
new credit facility with our lender under what we believe to be more favorable terms as compared to our previous facility. The new facility is a two year, $8.0 million revolving credit facility secured by substantially all of the Companys
assets. The facility expires on February 28, 2007. The facility contains customary limitations including, but not limited to, acquisitions, dividends and capital expenditures. The interest rate is variable and advances can bear interest at the
Eurodollar based rate or the prime based rate. As of March 31, 2006 the facility had a zero balance.

Note E  Subordinated Debt

The note payable to a shareholder with interest at 20% per annum required quarterly interest only payments of 8% with the remaining 12% added to
principal when due. The principal balance and all outstanding interest was originally due in full August 1, 2008. The note was subordinate to the line of credit. In April 2004, the agreement was modified to accrue all interest and add it to
principal. In October 2004, the rate was modified to include a conversion option to convert the total amount due, including interest, upon the Companys completion of its initial public offering. In February 2005, the Company issued 1,195,900
shares of common stock as settlement of $7.2 million of debt, including interest of $1.3 million.

Note F  Income Taxes

The Company has incurred a net operating loss for federal tax purposes of $514 and $1,243 for the three months ended March 31, 2006 and 2005, respectively, which it
has elected to carryforward, therefore the Company has not recorded any current tax accrual. The Company has total net operating losses that expire as follows:



|                  |  |   |      
|----------------- |  | - | -----
|December 31, 2023 |  | $ | 689  
|December 31, 2024 |  |   | 3,597
|December 31, 2025 |  |   | 3,151
|March 31, 2026    |  |   | 514  
|                  |  |   |      
|                  |  | $ | 7,951



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##### Table of Contents

Note F  Income Taxes (Continued)

The provision for income taxes consists of the following components:



|         |  |      |      |   |      |   |      |  
|-------- |  | ---- | ---- | - | ---- | - | ---- | -
|         |  | 2006 |      |   | 2005 |  
|Current  |  | $    |     |   |      | $ |     |  
|Deferred |  |      | (179 | ) |      |   | (416 | )
|         |  |      |      |   |      |   |      |  
|         |  | $    | (179 | ) |      | $ | (416 | )

Differences between income taxes calculated using the federal statutory income tax rate of 34% and the provision
for income taxes were as follows:



|                                       |  |      |      |   |      |   |        |  
|-------------------------------------- |  | ---- | ---- | - | ---- | - | ------ | -
|                                       |  | 2006 |      |   | 2005 |  
|Income (Loss) Before Income Taxes      |  | $    | 549  |   |      | $ | (1,227 | )
|                                       |  |      |      |   |      |   |        |  
|Statutory Federal Income Tax           |  | $    | (187 | ) |      | $ | (418   | )
|Non-Deductible Meals and Entertainment |  |      | 20   |   |      |   | 2      |  
|Miscellaneous Book/Tax Differences     |  |      | (12  | ) |      |   |       |  
|                                       |  |      |      |   |      |   |        |  
|                                       |  | $    | (179 | ) |      | $ | (416   | )

Deferred taxes are detailed as follows:



|                                        |  |      |       |   |      |   |       |  
|--------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                        |  | 2006 |       |   | 2005 |  
|Deferred Income Tax Liability           |  |      |       |   |      |   |       |  
|Depreciation and Amortization           |  | $    | 24    |   |      | $ | 20    |  
|                                        |  |      |       |   |      |   |       |  
|Net Deferred Income Tax Liability       |  |      | 24    |   |      |   | 20    |  
|Deferred Income Tax Assets              |  |      |       |   |      |   |       |  
|Inventory Capitalization                |  |      | (4    | ) |      |   | (12   | )
|Allowance on Cost in Excess of Billings |  |      | 589   |   |      |   | 589   |  
|Net Operating Loss                      |  |      | 2,704 |   |      |   | 2,529 |  
|                                        |  |      |       |   |      |   |       |  
|Net Deferred Income Tax Asset           |  |      | 3,289 |   |      |   | 3,106 |  
|                                        |  |      |       |   |      |   |       |  
|Net Deferred Income Tax Benefit         |  | $    | 3,265 |   |      | $ | 3,086 |  

Deferred income tax assets and liabilities are computed annually for differences between the financial statements
and tax basis of assets and liabilities that will result in taxable or deductible amounts in the futures based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Realization of the Companys deferred
tax assets is dependent on generating sufficient taxable income. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized.



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##### Table of Contents

Note G  Supplemental Cash Flow Disclosures

Interest received and paid, income taxes paid and non-cash transactions incurred during the three months ended March 31, 2006 and 2005 was as follows:



|                                         |  |      |    |      |   |      
|---------------------------------------- |  | ---- | -- | ---- | - | -----
|                                         |  | 2006 |    | 2005
|Interest Received                        |  | $    | 19 |      | $ | 6    
|                                         |  |      |    |      |   |      
|Interest Paid                            |  | $    |   |      | $ | 60   
|                                         |  |      |    |      |   |      
|Income Taxes                             |  | $    |   |      | $ |     
|                                         |  |      |    |      |   |      
|Non-Cash Transactions:                   |  |      |    |      |   |      
|Interest Expense added to Principal Debt |  | $    |   |      | $ |     
|Conversion of Debt to Stock              |  |      |   |      |   | 7,175
|                                         |  |      |    |      |   |      

Note H  Operating Leases

The Company leases its facility under an operating lease with an entity owned by a shareholder. Monthly payments under the lease are $22. The lease expires September 1, 2007. Total rent expense related to this
lease was $65 for each of the three month periods ended March 31, 2006 and 2005.

The Company leased certain equipment under an operating lease with
an entity under common ownership. Monthly payments under the lease are $5. The lease expired May 1, 2005. Total rent expense related to this lease was $14 for each of the three months ended March 31, 2006 and 2005.

The Company leases various vehicles with monthly payments ranging from $0.4-$0.7 per month, expiring at various times through 2006. Total rent expense related to these
leases was $1 and $3 for the three months ended March 31, 2006 and 2005, respectively.

Future Minimum Lease Payments
are:



|               |  |   |    
|-------------- |  | - | ---
|March 31, 2007 |  | $ | 274
|March 31, 2008 |  |   | 121
|March 31, 2009 |  |   | 9  
|March 31, 2010 |  |   |   
|March 31, 2011 |  |   |   
|               |  |   |    
|               |  | $ | 404

Note I  Related Party Transactions

As mentioned in Note H, the Company leases its facility and certain equipment from an entity owned by a shareholder. Rent paid under these leases totaled $65 and $79 for the three months ended March 31, 2006 and
2005, respectively.

As mentioned in Note E, the Company had a note payable to shareholder. This note was converted to stock in February 2005. No interest
was paid for the three months ended March 31, 2006 and 2005.



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##### Table of Contents

Note J  401K Profit Sharing Plan

The Company sponsors a 401K profit sharing plan that covers all employees of the Company. The plan allows eligible employees to withhold amounts from their pay on a pre-tax basis and invest in self directed investment
accounts. The Company has no obligation to make any contributions to the plan, however, they currently match employee contributions up to a maximum of $2 per employee. Contributions to the plan for the three months ended March 31, 2006 and 2005
was $47 and $47, respectively.

Note K  Stock Split

On February 7, 2005, the Board of Directors authorized a 1 for 3.730879244 reverse stock split to shareholders of record on February 7, 2005 effective on February 7, 2005. The share and per share information have been
restated as of January 1, 2005 to reflect the reverse stock split in accordance with GAAP.

Note L  Initial Public Offering

On February 14, 2005, the Company offered 2,500,000 shares of common stock at $6.00 per share in its initial public offering. All shares were purchased and the
Company received $14.0 million, net of fees of $1.1, on February 18, 2005.

On March 2, 2005, the underwriter exercised its option to purchase an
additional 375,000 shares at $6.00 per share. The Company received $2.1 million, net of fees of $158, on March 2, 2005.

Note M  Unrealized
Loss on Cost in Excess of Billing

During the year ended December 31, 2005, the Company recorded reserves totaling $169 against cost in excess of
billings related to two contracts for two different customers. The customers have raised questions regarding the capabilities of the specialty equipment being constructed for them. The reserves reduce the carrying value of the contract to the
estimated net realizable value of the contracts.



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##### Table of Contents

|Item 2: | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

General

Historically, our business has focused on designing, developing and building specialty equipment for the
automotive and heavy equipment industries. In October 2003, our predecessor Company was purchased by Veri-Tek International Corp., formerly known as Quantum-Veritek, Inc., an affiliate of Quantum Value Partners, LP, pursuant to an asset purchase
agreement. As a result of this transaction, we intend to implement a new growth strategy of expanding our testing services and lunching manufacturing operations. While we will continue to sell specialty equipment, we intend to build on our
experience in designing and building this equipment and our patented technology to provide axle testing services to automotive manufacturers. We also intend to become a manufacturer of precision driveshafts using a new manufacturing process that we
have developed implementing our patented True Vehicle Running Center Shaft Assembly System (TVRC). Sales of our assembly and testing equipment presently comprise most of our revenues. We have not derived material revenues to date from
providing axle testing service or manufacturing precision driveshafts.

We derive most of our revenue under purchase orders from OEMs and Tier 1 Suppliers.
The volume and timing of orders placed by our customers vary due to several factors, including variation in demand for our customers products, changes in our customers manufacturing strategies and general economic conditions. We
recognize revenue from our specialty equipment using the percentage of completion method. We recognize revenue in our testing business when services are rendered. The testing business has not generated material revenue to date. The driveshaft
manufacturing portion of our business will recognize revenue when products are shipped. To date, we have generated no revenue from selling our driveshaft manufacturing services.

Our operating profit for our specialty equipment depends on the mix between the cost of materials in the equipment and the cost of labor and manufacturing overhead allocated to the equipment. Our driveshaft assembly
products contain less sophisticated technology than our axle testing products, and therefore, have a lower cost of production. In addition, as we gain experience in manufacturing a certain kind of equipment, we usually achieve increased
efficiencies, which result in lower labor costs and manufacturing overhead for that equipment. While we may achieve some level of increased efficiency with respect to manufacturing specialty equipment, our gross margins related thereto will likely
continue to vary, as we must produce different kinds of equipment and each piece of equipment must meet certain specifications of our customers. As we implement our growth strategy of providing testing services and manufacturing precision
driveshafts, we believe that our gross margins will stabilize, as the equipment that we produce will be less varied.

On February 15, 2005 we
completed an initial public offering of 2,500,000 shares of our common stock at a price of $6.00 per share and on March 2, 2005 we completed the sale of the underwriters over-allotment option of 375,000 shares of our common stock. Net
proceeds after underwriters discount and other expenses relating to the offering are estimated to be $15.2 million.



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##### Table of Contents

Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005

Revenue.Our revenue increased by $1.1 million, or 111.2%, to $2.2 million for the period ended March 31, 2006 from $1.1 million for the same period in 2005.
This increase was primarily the result of increased orders for our specialty equipment as well as the timing of revenue recognition. We recognize revenue based on the percentage of completion method for our specialty equipment, therefore, revenue is
not recognized on an even basis. Our main sources of revenue for the period ended March 31, 2006 were driveshaft equipment, diesel engine test equipment, and NVH equipment.

Cost of Sales.Our cost of sales increased by $0.8 million, or 64.4%, to $2.2 million for the period ended March 31, 2006 from $1.4 million for the comparable period in 2005. This increase in cost of sales
was primarily attributable to greater production of our specialty equipment. As a percentage of revenue, cost of sales decreased to 99.6% in 2006 from 128.0% in 2005. Our reduction in cost of sales as a percent of revenue was a result of lower
material costs and improved engineering.

Gross Margin (Loss).Our gross margin increased $0.3 million, or 103.4%, to a break-even amount for the
2006 period from a $0.3 million loss for 2005. As a percentage of sales, gross margin increased to 0.4% in 2006 from (28.0%) in 2005.

Research and
Development Expenses.Our research and development expenses declined $0.2 million to $0 for the period ended March 31, 2006 as compared to $0.2 million in the comparable 2005 period. We focused our engineering efforts on margin improvement.

Selling, General and Administrative Expenses.Our selling, general and administrative expenses decreased $0.1 million, or 16.6%, to $0.6 million
for the period ended March 31, 2006 from $0.7 million for the 2005 period. This decrease was primarily the result of cost cutting initiatives.

Operating Profit (Loss).As a result of the foregoing factors, operating profit increased $0.6 million to a loss of $0.6 million for the 2006 period from a loss of $1.2 million for 2005.

Interest Expense.Our interest expense decreased $0.1 million to zero for the 2006 period from $0.1 million for the same period in 2005. The decrease in interest
expense was due to the paydown of our credit facility to zero and the conversion of our subordinated debt. Both of these actions were the result of our successful initial public offering in the first quarter of 2005.

Income Tax Expense (Benefit).Our income tax benefit was $0.2 million for the period ended March 31, 2006 as compared to a benefit of $0.4 million in the
2005 period due to the smaller operating loss for the 2006 period compared to the same period in 2005.

Net Earnings (Loss).As a result of the
foregoing factors, net loss from operations was $0.4 million in the 2006 period as compared to loss of $0.8 million in 2005.



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##### Table of Contents

Liquidity and Capital Resources

Our cash requirements have historically been satisfied through a combination of cash flow from operations and debt financings. Working capital needs and capital expenditures are expected to continue to increase as we
implement our growth strategy. Anticipated increases in required working capital and capital expenditures are expected to be met from our cash flow from operations, revolving credit borrowings, equipment financing and the net proceeds of our initial
public offering completed in February and March 2005.

We used cash in operations of $0.8 million for the three months ended March 31, 2006. Net cash
used by operations was primarily the result of losses from operations and increases in costs and estimated earnings in excess of billings and inventory. This was partially offset by decreases in accounts receivable.

We used cash in investing activities of $0.3 million for three months ended March 31, 2006. For the 2006 period, we used cash in investing activities for the
purchase of capital equipment and our investment in software.

No cash was used in nor provided by financing activities
for the three months ended March 31, 2006.

Effective March 1, 2005, we entered into a new credit agreement with out lender, Comerica Bank. With
the proceeds of our initial public offering, we reduced the balance of our agreement at the time of the offering to zero and terminated the agreement. The new agreement is a two year, $8.0 million revolving credit facility. Our credit facility is
secured by substantially all of our assets and provides for the issuance of up to $5.0 million in standby or documentary letters of credit. Our credit facility may be utilized for general corporate purposes, including working capital, and provides
us with borrowing options for multi-currency loans. Borrowing options include a Eurocurrency rate, or a base rate. As of the date of this report there are no borrowings on this facility.

In conjunction with our initial public offering, our subordinated debt totaling approximately $7.2 million was converted into 1,195,900 shares our common stock at $6.00 per share.



|Item 3: | Qualitative and Quantitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

We are
exposed to various market risks as a part of our operations, and we anticipate that this exposure will increase as a result of our planned growth. In an effort to mitigate losses associated with these risks, we may at times enter into derivative
financial instruments, although we have not historically done so. These may take the form of forward sales contracts, option contracts, foreign currency exchange contracts and interest rate swaps. We do not, and do not intend to, engage in the
practice of trading derivative securities for profit.

Interest Rates. We are exposed to market risks relating to changes in interest rates. Some of
the proceeds of this offering are invested in short-term, interest-bearing, investment grade securities. The value of these securities will be subject to interest rate risk and could fall in value if interest rates rise. Our credit facility allows
for borrowings based on the Eurodollar rate or a base rate. The interest rate incurred by us is based on these rates plus a premium. If these rates rise, our interest expense will increase accordingly. As of the date of this report, we have no
borrowings under our credit facility.



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##### Table of Contents

|Item 4: | Controls and Procedures
|------- | -----------------------

Disclosure Controls and
Procedures. The Company maintains disclosure controls and procedures designed to ensure that information that is required to be disclosed in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported
on a timely basis. The Companys management, with the participation of the President and the Chief Financial Officer, has reviewed and evaluated the effectiveness of the Companys disclosure controls and procedures, as defined in the
Securities Exchange Act Rules 13a-15(e) and 15d-15(e) as of March 31, 2006 and have concluded that as of March 31, 2006, the Companys disclosure controls and procedures were adequate and effective to ensure that material information
relating to the Company required to be disclosed by the Company in the reports it files with the SEC under the Securities Exchange Act of 1934 would be made known to them by others within the Company, particularly during the period in which this
Quarterly Report on Form 10-Q was being prepared.

Changes in Internal Controls over Financial Reporting. There have been no changes
in the Companys internal control over financial reporting during the quarter ended March 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Companys internal controls over financial reporting.



18



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##### Table of Contents

PART II  OTHER INFORMATION



|Item 1: | Legal Proceedings
|------- | -----------------

Not applicable.



|Item 2: | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
|------- | --------------------------------------------------------------------------------

Not applicable.



|Item 3: | Defaults Upon Senior Securities
|------- | -------------------------------

Not applicable.



|Item 4: | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

Not applicable.



|Item 5: | Other Information
|------- | -----------------

Not applicable.



|Item 6: | Exhibits and Reports on Form 8-K
|------- | --------------------------------

(a) Exhibits:



|     |  |                                                                                         
|---- |  | ----------------------------------------------------------------------------------------
|31.1 |  | Section 302 Certification by Principal Executive Officer                                
|     | 
|31.2 |  | Section 302 Certification by Chief Financial Officer                                    
|     | 
|32.1 |  | Section 906 Certification by Principal Executive Officer and the Chief Financial Officer



| | (b) | The following reports on Form 8-K were filed during the three month period ended March 31, 2006.
| | --- | ------------------------------------------------------------------------------------------------



| | (i) | Report on Form 8-K filed on March 14, 2006 concerning the appointment of Donald Brown to President and Chief Operating Officer and the resignations of Todd Antenucci, President and
Christopher Morin, Director.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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.



|                    |  |  |  |                               |  |                      |  |                                                                        
|------------------- |  |  |  | ----------------------------- |  | -------------------- |  | -----------------------------------------------------------------------
|                    |  |  |  | VERI-TEK INTERNATIONAL, CORP.
|                    |  |  | 
|Dated: May 15, 2006 |  |  |  | By:                           |  | /s/ Kyle R. Stallman
|                    |  |  |  |                               |  |                      |  | Kyle R. Stallman, Chief Financial Officer Veri-Tek International, Corp.



20