UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

|X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 For the quarterly period ended September 30, 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: 001-32428

                             TARPON INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)

            MICHIGAN                                  30-0030900
 (State or other jurisdiction of                   (I.R.S. Employer
   incorporation or organization)                   Identification No.)

                               2420 Wills Street,
                              Marysville, Michigan
                                      48040
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (810) 364-7421
              (Registrant's telephone number, including area code)

                                       N/A
              (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 an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

     The number of the registrant's common shares outstanding as of November 10,
2006 was 4,993,712.


<PAGE>

                             TARPON INDUSTRIES, INC.

                          QUARTERLY REPORT ON FORM 10-Q

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2006

                                TABLE OF CONTENTS

                                                                           PAGE
PART I - FINANCIAL INFORMATION................................................2
         ITEM 1.    FINANCIAL STATEMENTS......................................2
         ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                    CONDITION AND RESULTS OF OPERATIONS......................23
         ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                    MARKET RISK..............................................34
         ITEM 4.    CONTROLS AND PROCEDURES..................................35

PART II - OTHER INFORMATION..................................................37
         ITEM 1.    LEGAL PROCEEDINGS........................................37
         ITEM 2.    DEFAULTS UPON SENIOR SECURITIES..........................37
         ITEM 5.    OTHER INFORMATION........................................38
         ITEM 6.    EXHIBITS.................................................38


Explanatory Note:

     This report on Form 10-Q for the nine months ended  September  30, 2006 has
been submitted to the Company's  registered  independent  public accountants for
review  as  required  by  Regulation  S-X.  The  registered  independent  public
accountants  have not indicated their  concurrence with the filing of the Report
because they have been recently  appointed  and their final review  procedure is
not  complete.  If such  registered  independent  public  accountants  have  any
comments concerning this Report on Form 10-Q, the Company will consider the same
and file an amendment to this Report that may be occasioned thereby.

     Additionally,  this  report on Form 10Q is being  filed in  advance  of the
Amended 10Q's for the periods ended March 31, 2006 and June 30, 2006 to be filed
subsequent to this report.

<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                             TARPON INDUSTRIES, INC.

INDEX TO FINANCIAL STATEMENTS

                                                                           Page
Tarpon Industries, Inc.
Consolidated Balance Sheets --- September 30, 2006 and December 31, 2005.....3
Consolidated Statements of Operations --- For the Three and Nine Months
     Ended September 30, 2006 and 2005.......................................4
Consolidated Statements of Cash Flows --- For the Nine Months Ended
     September 30, 2006 and 2005.............................................5
Notes to Consolidated Financial Statements...................................6


<PAGE>

<TABLE>
<CAPTION>

                           CONSOLIDATED BALANCE SHEETS

                                                                                      September 30, 2006       December 31, 2005
ASSETS:                                                                                 (unaudited)
CURRENT ASSETS:

<S>                                                                                <C>                     <C>
Cash and cash equivalents                                                          $           174,918     $            7,317,364
Accounts receivable (less allowance for doubtful accounts for 2006 of
     $277,867 and for 2005 of $192,901)                                                     10,858,014                  7,730,029
Inventories                                                                                  8,031,991                  6,919,638
Other current assets                                                                           739,781                    367,681
                                                                                      -----------------       --------------------
                                                                                  $         19,804,704                 22,334,712
       Total current assets

Property plant and equipment - net                                                          10,502,638                 11,139,700
Deferred financing costs - net                                                               1,093,110                  1,973,754
Goodwill                                                                                             -                  2,808,800
Intangible assets, net of amortization                                                               -                    693,590
Other assets                                                                                         -                     55,365
                                                                                      -----------------       --------------------
TOTAL ASSETS                                                                       $        31,400,452     $           39,005,921
                                                                                      =================       ====================

LIABILITIES AND SHAREHOLDERS' EQUITY / (DEFICIT):
CURRENT LIABILITIES:
Short-term debt                                                                    $        13,793,505     $          11,344,379
Current maturities of long-term debt                                                         8,510,349                 9,250,944
Accounts payable - trade                                                                    10,204,601                11,270,836
Customer advance payments                                                                      267,846                   121,068
Other current liabilities                                                                    1,504,079                 1,430,401
                                                                                      -----------------       --------------------
       Total current liabilities                                                            34,280,380                33,810,537

Long-term debt less current maturities                                                           4,595                    10,242
Other long-term liabilities                                                                    126,000                   382,667
                                                                                      -----------------       --------------------
TOTAL LIABILITIES                                                                           34,410,975                33,810,537

SHAREHOLDERS' EQUITY / (DEFICIT):
Preferred shares; no par value, authorized; no shares issued at September 30,
       2006 and at December 31, 2005                                                                 -                          -
Common shares; no par value, 20,000,000 shares authorized at September 30,
       2006 and at December 31, 2005; issued and outstanding, 4,801,982 shares
       at September 30, 2006 and 4,640,130 shares at December 31, 2005                     16,124,940                 15,625,625
Accumulated deficit                                                                       (19,711,000)              (10,720,870)
Accumulated other comprehensive income                                                        575,537                    290,629
                                                                                      -----------------       --------------------
          Total shareholders' equity / (deficit)                                           (3,010,523)                 5,195,384
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY /(DEFICIT)                              $       31,400,452       $         39,005,921
                                                                                      =================       ====================
</TABLE>


<PAGE>



                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)
<TABLE>
<CAPTION>

                                                         Three Months Ended                  Nine Months Ended
                                                            September 30,                      September 30,
                                                        2006             2005              2006              2005
                                                    -------------    --------------    -------------     -------------
REVENUES:
<S>                                              <C>              <C>                <C>               <C>
Sales, net of customer discounts                 $   19,995,167   $    15,341,121    $    58,530,359   $    44,446,385

Cost of goods sold                                   18,171,033        13,794,780         53,941,848        41,509,714
                                                    -------------    --------------    -------------     -------------

          Gross Profit                                1,824,134         1,546,341          4,588,511         2,936,671

OPERATING EXPENSES:
Selling, general and administrative expenses          1,782,239         3,096,654          6,821,088         7,368,947
Impairment                                                    -                 -          4,326,177                 -
                                                    -------------    --------------    -------------     -------------
          Total operating expense                     1,782,239         3,096,654         11,147,265         7,368,947
                                                    -------------    --------------    -------------     -------------


OPERATING INCOME (LOSS)                                  41,895        (1,550,313)       (6,558,754)       (4,432,276)

OTHER (INCOME) EXPENSE:
Miscellaneous (income) expense                           23,134            10,380            55,046
                                                                                                             (28,098)
Financing costs                                          21,931             8,886            65,479            28,204
(Gain) on derivatives                                  (268,874)              -            (961,874)             -
(Gain) on Settlement of Default
Interest
Liability                                              (389,250)                           (389,250)
Foreign exchange (gain)                                 (59,564)         (555,419)         (111,028)          (608,765)
                                                    -------------    --------------    -------------     -------------
          Total other (income) - net                   (672,623)         (536,153)       (1,341,627)          (608,659)
                                                    -------------    --------------    -------------     -------------

INTEREST EXPENSE, NET:
Interest                                               1,161397           268,135         3,808,314            736,655
Interest income                                            (276)           (4,801)          (35,311)            (9,650)
                                                    -------------    --------------    -------------     -------------
          Total interest expense, net                 1,161,121           263,334         3,773,003            727,005
                                                    -------------    --------------    -------------     -------------

LOSS BEFORE INCOME TAXES                               (446,603)       (1,277,494)       (8,990,130)        (4,550,622)
INCOME TAX PROVISION (BENEFIT)                                 -          135,548                 -            (60,073)
                                                    -------------    --------------    -------------     -------------

NET LOSS                                         $     (446,603)  $    (1,413,042)  $    (8,990,130)   $    (4,490,549)
                                                    =============    ==============    =============     =============

NET LOSS PER COMMON SHARE - BASIC AND DILUTED    $        (0.09)  $         (0.30)  $        (1.89)   $         (1.11)
                                                    =============    ==============    =============     =============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES              4,929,973          4,640,130       4,750,930          4,043,596
OUTSTANDING
                                                    =============    ==============    =============     =============
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
                                                                                                Nine Months Ended
                                                                                               September 30,
                                                                                           2006              2005
                                                                                       -------------     -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                 <C>               <C>
Net Loss                                                                            $   (8,990,130)   $   (4,490,549)
Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization                                                          722,823           478,369
     Accretion of note discount and other charges                                         1,601,629                 -
     Unrealized foreign currency loss (gain)                                                284,908       (1,002,051)
     Stock option expense                                                                    99,689                 -
     Non-employee stock options                                                                   -           455,000
     Stock issued as compensation                                                           20,000
    Gain on derivative instrument                                                         (961,874)                 -
    Impairment                                                                            4,326,177                 -
  Gain on Settlement of Default Interest Liability (389,250) Changes in assets            (389,250)
    and liabilities:
          Accounts receivable (increase) decrease                                       (2,998,874)           753,096
          Refundable federal income taxes (increase) decrease                                24,863          (45,686)
          Inventory (increase) decrease                                                   (986,250)         1,619,017
          Other current assets (increase) decrease                                        (301,359)            86,046
          Customer advance payments increase                                                146,778                 -
          Accounts payable and other current liabilities increase (decrease)                464,193         (199,267)
                                                                                       -------------     -------------
               Net cash used in operating activities                                    (6,936,677)       (1,947,500)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition costs                                                                          (35,861)       (8,195,681)
Payments of FenceMaster obligations                                                       (984,733)                 -
Capital expenditures                                                                      (283,258)         (159,779)
                                                                                       -------------     -------------
     Net cash used in investing activities                                              (1,303,852)       (8,355,460)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares (net of issuance costs paid in 2005 of                    -        13,512,121
$1,154,485)
Net borrowings on credit facilities                                                       2,223,422           868,087
Proceeds from issuance of long-term debt                                                          -         1,694,232
Repayment of short-term obligations                                                       (187,500)       (4,695,731)
Repayment of long-term obligations                                                        (533,557)         (502,027)
                                                                                       -------------     -------------
     Net cash provided by financing activities                                            1,502,365        10,876,682

IMPACT OF FOREIGN CURRENCY EXCHANGE ON CASH                                               (404,282)           183,107
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                    (7,142,446)           756,829
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                            7,317,364           257,786
                                                                                       -------------     -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                            $       174,918   $     1,014,615
                                                                                       =============     =============

Supplemental disclosure of cash flow information:
     Cash paid during the period for interest                                       $     1,222,354   $       763,655
                                                                                       =============     =============
Non-cash transactions:
     Success fee obligation for acquisition                                         $             -   $       200,000
                                                                                       =============     =============
     Stock issued as payment of debt                                                $       187,500   $       303,180
                                                                                       =============     =============
     Accrued initial public offering expenditures                                   $             -   $       427,913
                                                                                       =============     =============
     Issuance of debt to purchase land and building                                 $             -   $     4,141,488
                                                                                       =============     =============
</TABLE>


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

1.   Financial Statement Presentation

         The unaudited interim consolidated financial statements in this report
reflect all adjustments which are, in our opinion, necessary to fairly state the
results for the interim periods presented. All adjustments that are material are
of a normal recurring nature. Our operating results for the nine-month period
ended September 30, 2006 do not necessarily indicate the results that should be
     expected for the year ending December 31, 2006. The unaudited interim
consolidated financial statements should be read together with the consolidated
financial statements and related notes included in our Annual Report on Form
10-K for the year ended December 31, 2005. The accounting policies followed by
the Corporation with respect to the unaudited interim financial statements are
consistent with those stated in the Company's Annual Report on Form 10-K. The
Company filed amended forms 10-Q for the quarters ended March 31, 2006 and June
30, 2006. All resulting adjustments and corrections are reflected in the
Consolidated Financial Statements, Notes to Consolidated Financial Statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operation for this Form 10-Q.

2.   Recent Accounting Pronouncements

     In June 2006, The Financial  Accounting  Standards  Board  ("FASB")  issued
Interpretation   No.  48,   Accounting  for   Uncertainty  in  Income   Taxes-an
interpretation  of FASB  Statement  No. 109.  This  interpretation  prescribes a
recognition  threshold and  measurement  attribute  for the financial  statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return, and provides guidance on derecognition, classification, interest and
penalties,  accounting in interim  periods,  disclosure,  and  transition.  This
interpretation  is effective for fiscal years beginning after December 15, 2006.
We are currently  assessing the impact of this  interpretation  on our financial
statements.

     In February 2006, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standard  ("SFAS") No. 155  "Accounting  for
Certain Hybrid  Financial  Instruments - An amendment of FASB Statements No. 133
and 140".  This  Statement  requires  evaluation of all interests in securitized
financial  assets  to  determine  whether  they  represent  either  freestanding
derivatives or contain  embedded  derivatives.  These  interests were previously
exempted from such evaluation.  SFAS No. 155 permits any hybrid instrument, such
as  an  interest  in  securitized   financial  assets   containing  an  embedded
derivative,  to be  accounted  at fair  value  as  opposed  to  bifurcating  and
accounting for the embedded derivative  separate from the host instrument.  This
Statement also eliminates  restrictions on a qualifying special purpose entity's
ability  to  hold  passive  derivative  financial   instruments   pertaining  to
beneficial  interests that are, or contain, a derivative  financial  instrument.
Tarpon  will adopt this  Statement  in the first  quarter of 2007,  and does not
expect the adoption to have a material impact on Tarpon's  financial position or
results of operations.  This  statement is effective for fiscal years  beginning
after  September  15,  2006.  We are  currently  assessing  the  impact  of this
statement on our financial statements.

     In July  2006,  the FASB  issued  Interpretation  No.  48  "Accounting  for
Uncertainty in Income taxes - An interpretation of FASB Statement No. 109" ("FIN
48").  This  Interpretation  provides a  comprehensive  model for the  financial
statement recognition, measurement, presentation and disclosure of uncertain tax
positions taken or expected to be taken in income tax returns. Tarpon will adopt
this  Interpretation  in the first quarter of 2007. The cumulative  effects,  if
any, of applying FIN 48 will be recorded as an adjustment to retained  earnings.
Tarpon is  currently  assessing  the impact of this  Interpretation  on Tarpon's
financial position and results of operations.

     In September 2006, the FASB issued SFAS No. 157 "Fair Value  Measurements".
This  Statement  replaces  multiple  existing  definitions  of fair value with a
single definition,  establishes a consistent framework for measuring fair value,
and expands financial statement  disclosures  regarding fair value measurements.
This Statement applies only to fair value measurements that are already required
or permitted  by other  accounting  standards  and does not require any new fair
value measurements.  SFAS 157 is effective for fiscal years beginning subsequent
to November 15, 2007.

     In September 2006, the SEC issued Staff  Accounting  Bulletin No. 108 ("SAB
108").  "Considering  the Effects of Prior Year  Misstatements  when Quantifying
Misstatements  in Current Year  Financial  Statements."  SAB 108  requires  that
public companies  utilize a dual-approach to assessing the quantitative  effects
of financial misstatements. This dual approach includes both an income statement
focused assessment and a balance sheet focused assessment.  Financial statements
would require adjustment when a misstatement is material.  Correcting prior year
financial  statements for immaterial  errors would not require  previously filed
reports  to be  amended.  It is not  expected  that SAB 108 will have a material
impact on the Company's financial condition or the results of its operations.

3.   Financial Position

     The accompanying financial statements have been prepared on a going concern
basis,  which  contemplates  the  realization of assets and the  satisfaction of
liabilities in the ordinary course of business. The Company has sustained losses
of  approximately  $19.5  million from its inception on January 16, 2002 through
September 30, 2006 and has negative  working  capital of $14.3 million and is in
violation  of its debt  covenants as of  September  30, 2006.  If the Company is
unable to  significantly  decrease  its losses and obtain  additional  financing
needed for growth and to meet vendor payments,  its financial resources will not
be adequate  to satisfy its  operating  and capital  requirements  over the next
twelve months.

     The  Company is  currently  attempting  to obtain  financing  via an equity
raise.  While there is a market for such  financing,  the Company is  evaluating
whether the financing can provide sufficient capital to enable it to achieve its
business plan  objectives.  If the Company is unable to generate  adequate funds
from its operations or raise  additional  funds, it may not be able to repay its
existing debt or fund its  operations.  The financial  statements do not include
any  adjustments  relating to the  recoverability  and  classification  of asset
carrying amounts or the amount and  classification  of liabilities that might be
necessary should the Company be unable to continue as a going concern.


     On September 7, 2006,  the American Stock  Exchange  ("AMEX")  notified the
Company  that it was not in  compliance  with  the  AMEX  Company  Guide  in two
respects: (1) the Company's audit committee,  as a result of a resignation of an
independent  director,  then consisted of two members  whereas three members are
required;  and (2) The  Company  was not in  compliance  with the AMEX Guide for
having  issued a total of 288,415  shares of common  stock  during 2006  without
prior approval of AMEX as required by Section 301 of the Guide.


     Additionally,  on September  30, 2006,  AMEX advised the Company that based
upon a review of the Company's Form 10-Q for the period ended June 30, 2006 that
its financial condition has become so impaired that it appeared questionable, in
the  opinion  of AMEX,  as to  whether  the  Company  would be able to  continue
operations and/or meet its obligations, as required by Part 10 of the Guide. The
Company was given  until  September  26,  2006 to submit a plan  subject to AMEX
evaluation, which would bring the Company into compliance by December 10, 2006.

     As of  October  12,  2006,  the  Company  appointed  Gerald J.  Stein as an
independent director to serve on the Company's audit committee.  The Company has
also addressed  with AMEX the measures  required to reach  compliance  regarding
approval of issuance of shares as required. Additionally, on September 26, 2006,
the Company  submitted on a timely  basis,  a plan  subject to AMEX  review,  to
enable the Company to retain its listing  status.  AMEX is currently  evaluating
this plan and the Company's capability to carry out its plan. Should the Company
fail to receive AMEX approval or be able to execute its plan,  the Company would
be subject to delisting proceedings. During the period where the Company has not
yet  demonstrated  compliance,  a "BC"  suffix has been  added to the  Company's
trading symbol to denote non-compliance.

     As of the  current  date,  the  Company has not paid and retired the first,
second and third  mortgages  on its Haines  Road  property  which  became due on
August 18, 2006.  It is in the process of completing a sale and leaseback of the
property  with Agellan  Investments,  Inc. (see note 6), the proceeds from which
would be used to retire the  mortgages.  On August 25,  2006,  the  Company  was
granted an extension of two months by First National, the first mortgage holder.
The Company has also received an extension from Bolton, the holder of the second
and third  mortgages,  as of this date. The property is currently under contract
for sale and is expected to close before year end 2006.

4.   Goodwill and Intangible Assets

     In the fourth quarter of 2005, the Company completed an impairment test for
all business  units and recorded  impairment  charges  related to the  Steelbank
acquisition  in the amount $1.1 million to goodwill and $794,000 to the customer
list  intangible.  The  impairment  resulted  from lower  sales and higher  than
expected  customer  turnover,  as  well as  rapidly  increasing  material  costs
compared  with the original  business  case  supporting  the carrying  values of
goodwill and intangibles.

     The Company  conducts  impairment  tests on an annual basis, but also on an
interim basis where impairment indicators arise. Steelbank sales and earnings in
2006 have been below forecasts  utilized in the impairment test completed in the
fourth  quarter  2005,  largely due to similar  factors  mentioned  above.  As a
result,  the Company  conducted an impairment  test as of the quarter ended June
30, 2006 and concluded that the carrying value of goodwill and intangible assets
exceeded their fair values, resulting in an impairment loss of $3.6 million. The
fair value of the Steelbank  reporting unit and  intangibles was estimated using
the expected present value of future cash flows.


         The change in goodwill is as follows:

         Balance at December 31, 2005                     $        2,808,800
         Foreign currency impact                                     114,907
         Impairment Recorded as of June 30, 2006                 (2,923,707)
                                                             ----------------
         Balance at June 30 and September 30, 2006        $                -
                                                             ================


     The  Company's  intangible  assets  are  valued  based  on  an  independent
appraisal and consist of the following:
<TABLE>
<CAPTION>

                                                          Customer Base       Covenant Not To         Total
                                                                                  Compete
<S>                 <C> <C>                            <C>                <C>                   <C>
Balance at December 31, 2005                           $         408,654  $            284,936  $       693,590
Foreign currency impact                                           16,141                11,096           27,237
Amortization                                                    (34,694)              (33,663)         (68,357)
Impairment Recorded as of June 30, 2006                        (390,101)             (262,369)        (652,470)
                                                          ---------------    ------------------    -------------
Balance at June 30 and September 30, 2006              $               -  $                  -  $             -
                                                          ===============    ==================    =============
</TABLE>


5.   Details of Balance Sheet

INVENTORIES:

                                September 30, 2006       December 31, 2005
                                --------------------    --------------------
                                --------------------    --------------------
   Raw Materials               $          4,797,574  $            3,548,251
   Work in Process                          499,940                 303,096
   Finished Goods                         2,571,081               2,882,126
   Supplies                                 163,396                 186,165
                                --------------------    --------------------
            TOTAL              $          8,031,991  $            6,919,638
                                ====================    ====================

PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>

                                                                  September 30, 2006      December 31, 2005
                                                                  --------------------    -------------------
 <S>                                                             <C>                     <C>
      Land                                                      $          2,405,749    $         2,649,939
      Building and leasehold improvements                                  2,821,421              2,916,370
      Machinery and equipment                                              6,269,165              5,891,036
      Computer equipment                                                     350,161                285,406
      Transportation equipment                                                57,619                 56,147
      Furniture and fixtures                                                  77,404                 74,683
      Construction in progress                                                37,174                 80,865
                                                                  --------------------    -------------------
           Total                                                         12,018,693              11,954,446
      Accumulated depreciation and amortization                          (1,516,055)               (814,746)
                                                                  --------------------    -------------------
           Net Property, Plant and Equipment                   $         10,502,638    $         11,139,700
                                                                  ====================    ===================
</TABLE>

<PAGE>

6.

Debt
<TABLE>
<CAPTION>

         Short Term Debt

                                                                      September 30, 2006       December 31, 2005
                                                                     --------------------     -------------------
<S>                                                                 <C>                      <C>
      EWCO revolving credit facility                                $          7,270,751     $         6,016,786
      Steelbank revolving credit facility                                      3,451,615               2,356,418
      First mortgage on Haines Road real estate                                3,071,139               2,971,175
                                                                     --------------------     -------------------
           TOTAL                                                    $         13,793,505     $        11,344,379
                                                                     ====================     ===================

         Long Term Debt

                                                                        September 30, 2006     December 31, 2005
                                                                       -------------------     ------------------
      EWCO term loan                                                $           859,633      $       1,068,733
      Steelbank term loan                                                     1,319,913              1,531,530
      Second mortgage on Haines Road real estate                              1,077,480              1,029,600
      Third mortgage on Haines Road real estate                                 448,950                 429,000
      Convertible debt (less discounts of $828,578 and
           $818,980, respectively)                                            4,796,422              5,181,020
      Other                                                                      12,546                 21,303
                                                                       -------------------     ------------------
           Total                                                              8,514,944
      Current portion                                                        (8,510,349)             (9,250,944)
                                                                       -------------------     ------------------
      Long-term portion                                             $             4,595      $          10,242
                                                                       ===================     ==================
</TABLE>


     Annual  maturities of long-term debt and capital lease obligations based on
the stated terms of the underlying agreements are as follows:

              2006            $     3,005,155
              2007                  2,913,576
              2008                  2,721,061
              2009                    609,451
              2010                     94,280
                                --------------
                                --------------
             TOTAL            $     9,343,523
                               ==============


EWCO Credit Facility - Terms and Default

     Eugene  Welding  Company  ("EWCO"),  a subsidiary  of Tarpon,  has a credit
facility with LaSalle Bank Midwest,  N.A. which includes a revolving credit line
up  to  $9,000,000  with  borrowings  based  upon  on  eligible   inventory  and
receivables  and which  matures  August 31,  2007,  and a  $1,394,000  term loan
amortizable  in equal monthly  installments  of principal over five years ending
August 1, 2009. The term loan matures August 31, 2007 in the event the revolving
credit line is not renewed.

     Both the  revolving  credit  line and term loan are  secured  by all of the
assets of EWCO,  approximately  $16.9  million as of September  30, 2006,  and a
guarantee by Tarpon.  Interest on both loans was at the bank's prime rate (8.25%
through  September 30, 2006),  but increased to prime + 2% effective  October 2,
2006 as a result of defaults with respect to certain loan covenants as discussed
below.

     Both  the  revolving  credit  line and the term  loan are  subject  to loan
covenants  which require EWCO to maintain:  (1) a minimum debt service  coverage
ratio (generally net income adjusted for depreciation, capital expenditures, and
cash  distributions and advances,  divided by principal  payments of debt) of at
least 1.50 to 1.00, and (2) a minimum tangible net worth defined as ($1,855,000)
plus 80% of its net  income  for the  preceding  fiscal  year (not  reduced  for
losses),  starting with net income for 2005.  EWCO's debt service coverage ratio
as of September  30, 2006 was 2.32 to 1.0, and tangible net worth as defined per
the loan agreement as of September 30, 2006 was  ($545,425).  Hence,  EWCO as of
September 30, 2006 was technically in compliance with these loan covenants.

     The loan agreement also generally  prohibits  dividends,  and limits EWCO's
ability  to make  capital  expenditures  in excess of  $1,500,000  during the 12
months  after its  initial  public  offering  and in excess of  $750,000  in the
subsequent  12-month period. EWCO was in compliance with these loan covenants as
well.

     EWCO must also pay a 0.25% unused line of credit fee each month and is also
subject  to a 1%  prepayment  fee if the  loans  are  prepaid  any  time  before
maturity. Approximately $248,006 was available for borrowing under the revolving
credit  facility as of September  30, 2006,  assuming  revision of existing debt
covenants.

     While EWCO was in compliance  with loan covenants as of September 30, 2006,
LaSalle  Bank issued a notice of default to EWCO on August 15,  2006  indicating
EWCO was in default on certain loan covenants on one occasion  during the period
from  November 2005 through June 2006.  On October 2, 2006,  LaSalle  reaffirmed
EWCO's  default,  citing  that  (i)  EWCO had  failed  to meet its debt  service
coverage  test on occasion  during the period from  November  2005  through June
2006, (ii) that Tarpon had breached its  subordination  agreement for payment on
debt due Laurus  Master  Trust,  a junior  creditor,  while  Tarpon's  Steelbank
subsidiary was in technical default to LaSalle Business Credit,  (iii) that EWCO
had breached its loan agreement relating to permitted application of proceeds of
a $6 million  loan from  Laurus,  and that (iv) EWCO has been  unable to pay its
obligations  as they become due.  These  circumstances,  as well as other events
such as the  withdrawal  of the firm's  independent  accountants,  constituted a
material adverse change in the loan collateral and the business condition of the
obligor. From October 1, 2006 forward, EWCO's loans will bear interest at a rate
of prime plus two percent (2%). LaSalle had agreed to waive any default interest
through September 30, 2006.


Steelbank Credit Facility - Terms and Default

     On February 17, 2005,  Steelbank entered into a Loan Agreement with LaSalle
Business  Credit  ("Lender"),  a division of ABN AMRO Bank N.V.,  Canada Branch,
which  provides for a revolving  credit line  maturing  February 17, 2008 in the
maximum principal amount of Cdn.  $8,000,000 with borrowings based upon eligible
inventory and  receivables,  and (2) a term loan in the principal amount of Cdn.
$2,100,000.  Borrowings in Canadian  dollars under the revolving credit facility
bear interest at a floating rate equal to the Lender's  Canadian prime rate plus
an  applicable  margin of between  0.75% and 1.25% (7.5% at September 30, 2006).
Borrowings  in U.S.  dollars  under the  revolving  credit  facility  are at the
Lender's U.S.  prime rate (8.25% at September  30, 2006).  The term loan matures
March 1, 2010.  Principal  on the term loan is payable  in sixty  equal  monthly
installments  of Cdn.  $35,000  beginning on April 1, 2005.  The term loan bears
interest,  payable monthly in arrears,  at a floating rate equal to the Lender's
Canadian  prime rate plus an applicable  margin of between 0.75% and 1.25% (7.5%
at September 30, 2006).

     Under certain circumstances, Steelbank has the option to convert all or any
part of its Canadian or United States  borrowings to an interest rate equal to a
LIBOR rate plus an  applicable  margin of between  2.25% and 2.75% or a Banker's
Acceptance rate plus an applicable  margin of between 2.25% and 2.75%.  Interest
on the revolving credit facility is payable monthly in arrears.

     The obligations under the Loan Agreement are unconditionally  guaranteed by
Tarpon and are secured by a security interest in substantially all of the assets
of  Steelbank,  approximating  $16.9  million,  and Tarpon,  other than Tarpon's
common shares of EWCO. Steelbank's obligations under the Loan Agreement are also
secured by a pledge of all the capital  stock of  Steelbank  pursuant to a share
pledge agreement between Tarpon and its Lender.

     The  loan  agreement  also  requires   compliance  with  several  financial
covenants including adjusted net worth of at least Cdn. $4,841,765. For quarters
ending on or after  September  30, 2005,  the minimum  adjusted net worth of the
previous  quarter  will be  increased  by 75% of the net income for that quarter
(ignoring  quarters in which there is a loss), and the required minimum adjusted
net worth for purposes of this was $4,841,765.  The loan agreement also requires
Steelbank  to  maintain a debt  service  coverage  ratio  (generally  net income
adjusted for depreciation and amortization,  non-cash transactions,  and capital
expenditures  divided by the total of all principal  payments of long-term debt,
capital  leases,   subordinated   debt  and  all  payments  in  respect  of  any
distribution),  of at least 1.25 to 1.00. It also requires Steelbank to maintain
interest coverage (generally net income adjusted for interest expense, bank fees
and  net  costs  under  interest  rate  contracts,   taxes,   depreciation   and
amortization  and non-cash items divided by interest  expense plus bank fees and
net costs under interest rate  contracts),  of at least 1.50 to 1.00.  Steelbank
used the borrowings under the credit facility to provide partial funding for the
acquisition of  substantially  all of the assets and business of the Haines Road
facility and the cash portion of the Haines Road real estate, to pay transaction
fees and expenses, to refinance Steelbank's  full-recourse factoring arrangement
and for general working capital purposes of Steelbank.

     At September 30, 2006,  Steelbank's debt service coverage ratio was 2.48 to
1.00 compared with a required ratio of 1.25 to 1.00,  and its interest  coverage
ratio was 2.69 to 1.00 compared with required 1.50 to 1.00. Steelbank was not in
compliance with its debt service coverage  covenant.  Additionally,  Steelbank's
adjusted net worth was Cdn.  $3,932,652,  below the covenant minimum as adjusted
at September 30, 2006 of $4,841,765.  Therefore, Steelbank was also in violation
of its tangible net worth covenant,  resulting from losses sustained in the nine
months  year to date 2006 and in prior  periods.  Due to  violation  of its debt
service and minimum  adjusted net worth covenants as well as the Company's going
concern qualification, the debt has been classified as a current liability.

     Steelbank's loan agreement contains other covenants which include limits on
Steelbank's ability to incur or guarantee additional indebtedness, create liens,
pay dividends,  make certain types of investments,  enter into transactions with
affiliates,  make capital  expenditures in excess of Cdn. $500,000 in any fiscal
year,  sell assets,  merge with other  companies  or enter into any  transaction
outside the ordinary course of business.

     Each  month,  Steelbank  must pay a 0.50%  unused line of credit fee and an
administrative   fee  of  approximately   $1,700.  As  of  September  30,  2006,
approximately  $740,000  was  available  for  borrowing,  assuming  revision  of
existing debt covenants.

     On October 2, 2006,  LaSalle  Business  Credit, a division of ABN AMRO Bank
N.V.,  Canada  Branch,  issued a notice of default to Steelbank,  as a result of
Steelbank's failure to meet its adjusted net worth covenant and its debt service
coverage ratio covenants. From and after October 1, 2006, Steelbank's loans will
bear  interest  at a rate of two per  cent  (2%) per  annum,  in  excess  of the
interest rate otherwise  payable.  LaSalle had agreed to waive default  interest
through September 30, 2006.


Steelbank Mortgages

     On May 18, 2005, Steelbank purchased the Haines Road real estate assets for
$4,638,000 (Cdn. $5,870,000), including closing fees and expenses. Financing for
the purchase consisted of approximately  $530,000 (Cdn. $670,000) in cash, a one
year first mortgage totaling  $2,765,000 (Cdn.  $3,500,000) due May 15, 2006 and
jointly  secured by the  property  and a guarantee  from the Company  payable in
equal  monthly  installments  of  principal  and  interest  based  on a 25  year
amortization  period and bearing  interest at 1.25%  above  Canadian  prime rate
(7.25% at September  30,  2005).  The property was also financed by a second and
third mortgage from the former owner, Bolton,  payable August 18, 2006, totaling
$948,000  (Cdn.  $1,200,000)  and $395,000  (Cdn.  $500,000)  respectively  with
interest  payable monthly at 8% and 10%  respectively per annum. As of September
30, 2006, all three mortgages were past due,  including the first mortgage in an
approximate amount of $3,071,000 (Cdn. $3,447,000),  and the remaining mortgages
with  approximate  balances of $1,077,000  (Cdn.  $1,200,000) and $449,000 (Cdn.
$500,000) respectively.

     In November 2006 Agellan Investment, Inc., a Canadian real estate developer
reached an  agreement  with Tarpon to purchase the Haines Road land and building
and to lease  back the  manufacturing  site to  Steelbank.  Although  all  three
mortgages were past due, the mortgagors agreed to extensions on their respective
due dates for the purpose of enabling Steelbank to sell the property to Agellan.
Proceeds of Cdn. $5.1 million is sufficient to pay in full all three  mortgages.
The sale is scheduled to close November 22, 2006.


Convertible Debt

     On December  13,  2005,  the Company  entered  into a  Securities  Purchase
Agreement  (the  "Agreement")  with  Laurus  Master  Fund,  Ltd.  ("Laurus")  in
connection  with the private  placement of a convertible  term note (the "Note")
issued by the Company in the  principal  amount of  $6,000,000  due December 13,
2008  and  common  stock  purchase  warrants  (the  "Warrants").   The  Note  is
collateralized  by all present and future assets of Tarpon and its subsidiaries,
including the equity interests of EWCO and Steelbank, subject to a subordination
agreement  between  Tarpon ABN AMRO Bank,  N.V.,  Canadian  Province and LaSalle
Bank,  Midwest,  N.A.  The Note is  payable  in equal  monthly  installments  of
principal  totaling  $187,500  commencing  on April 1, 2006 through the maturity
date and bears interest at prime plus 2% (10.25% at September 30, 2006). As part
of the Agreement,  the monthly payments of principal and interest, under certain
conditions,  are  convertible  into shares of the  Company's no par value common
stock at a fixed  conversion  price of $3.27 per share. The Warrants provide for
the  purchase of up to 390,000  shares of common  stock at an exercise  price of
$3.81 until December 13, 2012.

     Laurus cannot receive shares upon exercise of the warrants, upon payment of
principal and interest on the note,  or upon  conversion of the Note which would
exceed the  difference  between  4.99% of the issued and  outstanding  shares of
common  stock  and the  number  of  shares  beneficially  owned  by  Laurus,  as
determined in accordance with Section 13(d) of the Exchange Act, as amended, and
Regulation 13d-3. This limitation  automatically  becomes null and void upon the
occurrence, and during the continuance, of an event of default as defined in the
note,  or upon 75 days prior  written  notice to the Company,  except that at no
time shall the  number of shares of common  stock  beneficially  owned by Laurus
exceed 19.99% of the outstanding shares of common stock.  Further, the number of
common shares  issuable by the Company and acquirable by Laurus at a price below
$2.85 per share pursuant to the terms of the note,  the warrant,  the agreement,
any related  agreement or otherwise cannot exceed 927,560 shares of common stock
(subject to appropriate  adjustment for stock splits, stock dividends,  or other
similar  recapitalizations  affecting the common stock),  unless the issuance of
such excess amount of common stock is first approved by the  stockholders of the
Company.

     In  connection  with  this  financing,   the  Company  recorded   discounts
aggregating   approximately   $1,681,000,   of  which   approximately   $608,000
represented the value of 390,000 warrants using the Black-Scholes  model with an
interest rate of 4.4%,  volatility  of 60%, zero  dividends and expected term of
seven years; and  approximately  $1,073,000  represented the conversion  feature
inherent  in the  instrument.  Such  discounts  are  being  amortized  using the
effective  interest  method over the term of the related  debt.  The  conversion
feature  itself was deemed to be a derivative  under FASB Statement No. 133. The
Company  estimated the fair value of the conversion  feature to be $93,000 as of
September 30, 2006, $269,000 as of June 30, 2006, $873,000 as of March 31, 2006,
and $817,000 as December 31,  2005.  The $722,000  decrease in value during nine
months ended September 30, 2006 is shown as a "Gain from derivatives" within the
Statement of Operations.  In addition,  the Company  incurred fees in connection
with this financing aggregating approximately $1,685,000,  including warrants to
purchase up to 300,000  shares of common stock to Joseph  Gunnar and Company,  a
related party,  recorded as deferred financing costs and amortized over the life
of the note. The 300,000  warrants were valued at  approximately  $432,000 using
the Black-Scholes model using the same assumptions described above, except for a
term of five years.  The warrants  were deemed to be a derivative  instrument as
they can be put back to the Company, and, therefore the corresponding  liability
was marked to market and  recorded at a fair value of  $126,000 as of  September
30,  2006,  $219,000  as of June 30,  2006,  $411,000  as of March 31,  2006 and
$366,000 as of December 31, 2005. The $240,000 decrease in value during the nine
months ended  September 30, 2006 is shown under "Gain from  derivatives"  within
the Statement of Operations. These warrants are exercisable through December 13,
2010 at $3.27 per share.  Although the stated  interest rate of the  convertible
note is the prime rate plus 2%, as a result of the aforementioned  discounts and
fees, the effective interest rate of the Note is approximately 41.8% per annum.

     On May 24, 2006, the Company  executed an Omnibus  Amendment to the Secured
Convertible  Term Note between the Company and the Laurus  Master Trust  whereby
the Company executed its payment  obligation of principal due May 1, 2006 in the
amount  of  $187,500  in  common  shares  of  Tarpon  stock  in  lieu  of  cash.
Accordingly,  Tarpon  and  Laurus  agreed  to  amend  the  terms  of the  Senior
Convertible Term Note, and 153,688 shares were issued at $1.22 per share.

     As of  September  30,  2006,  the  Company,  while  current with respect to
interest  payments due Laurus,  was in default on $750,000 of principal due from
June 1, 2006 and afterward. Additionally, the Company was technically in default
on the entire  amount of principal as of January 1, 2006,  since the Laurus loan
agreement  provides  that in the event of notice of  default  issued to a Tarpon
subsidiary,  is  considered  a default on the Laurus loan and thus  subject to a
default  interest  penalty  due Laurus at a rate of two per cent per month times
the amount of outstanding principal.  Accordingly,  the Company recorded default
interest  of  $428,000   and   $341,000  in  the  first  and  second   quarters,
respectively.  In  addition,  as the Company is in  default,  Laurus may, at its
option,  require  the  Company  to make a default  payment  equal to 120% of the
outstanding principal amount of the Note, plus accrued but unpaid interest.

     On August 17,  2006,  Tarpon  reached  an  agreement  with the Laurus  fund
whereby  Tarpon  would offer  100,000  shares of Tarpon  common  stock valued at
$190,000  ($1.90 per share) to Laurus in exchange for Laurus  relinquishing  its
right to receive the default interest from Tarpon for the six month period ended
June 30, 2006. In addition,  Tarpon  agreed to award Laurus  warrants for shares
valued at  $190,000  ($1.90 per share) in the event  that  Tarpon  were to raise
equity.  An equity raise is being pursued by Tarpon with a possible closing date
anticipated in December 2006. Thus, in the quarter ended September 2006,  Tarpon
recorded a gain in the amount of $389,000, representing the value of the default
interest liability  relieved of $769,000 less the amount of consideration  given
in shares of $190,000 less accrual of the warrant obligation of $190,000.

     Additionally,  for the quarter  ended  September 30, 2006, as Tarpon was in
default on principle due Laurus,  under Tarpon's Senior  Convertible  Term Note,
$337,500 of default interest expense was recorded in the quarter.

7.   Stock Options

     The Company elected the modified prospective transition method for adopting
SFAS 123R.  Under this method,  the  provisions of SFAS 123R apply to all awards
granted  or  modified  after the date of  adoption.  We must  account  for stock
options and warrants  granted to non-employees  using the fair value method.  We
use the  Black-Scholes  valuation  model for  determining  the fair value of our
options and warrants.  That model requires us to make assumptions  regarding the
expected life of the security, the expected volatility of our stock price during
the period,  the risk free interest rate and the dividend  yield.  Varying these
assumptions can have a significant  impact on our option and warrant  valuations
and related expenses.  The valuation methodology used an assumed term based upon
the  stated  term of ten  years,  adjusted  down for  estimated  forfeitures,  a
risk-free  rate of  return  represented  by the  U.S.  Treasury  Bond  rate  and
volatility as determined by comparing the Company's risk profile with comparable
public companies.  A dividend yield of 0% was used because the Company has never
paid a dividend and does not anticipate paying dividends in the future.

     The  provisions of SFAS 123R also apply to awards  granted prior to January
1, 2006  that did not vest  before  January  1, 2006  (transition  awards).  The
compensation  cost for the portion of the transition  awards that had not vested
by January  1, 2006 is based on the  grant-date  fair value of these  transition
awards as calculated for pro forma disclosures under the provisions of SFAS 123.
Compensation  cost  for  these  transition  awards  are  attributed  to  periods
beginning  January 1, 2006 and use the Black Scholes method used under SFAS 123,
except  that an  estimate  of  expected  forfeitures  is used rather than actual
forfeitures. The expected forfeiture rate of 50% is based on forfeiture activity
through September 30, 2006.

     The  Company  recognized  as an  operating  expense,  non-cash  stock-based
compensation  cost in the amount of $35,000 in the third quarter and $100,000 in
the nine months ended  September 30, 2006. This had the effect of decreasing net
income by $35,000, or $0.01 per diluted share, for the quarter, and $100,000, or
$.02 per diluted  share for the nine months  ended  September  30,  2006.  As of
September 30, 2006, the total remaining  unrecognized  compensation cost related
to non-vested stock options amounted to $144,000,  which will be recognized over
a weighted  average  period of 1.4 years.  The total fair value of options  that
vested during the three months and nine months ended  September 30, 2006 were $0
and $94,000 respectively.

     SFAS 123R requires the Company to present pro forma information for periods
prior  to  the  adoption  as if the  Company  had  accounted  for  all  employee
stock-based  awards under the fair value method of that statement.  For purposes
of pro forma disclosure,  the estimated fair value of the stock-based  awards at
the date of the grant is amortized to expense over the requisite service period,
which generally equals the vesting period.  The following table  illustrates the
effect on net income and earnings per share for the three months and nine months
ended  September  30,  2005  as if  the  Company  had  applied  the  fair  value
recognition  provisions of SFAS 123R to its  stock-based  employee  compensation
plans (in thousands, except per share amounts):

<TABLE>
<CAPTION>

                                                           (in thousands except per share data)

                                                      Three Months Ended          Nine Months Ended
                                                           9/30/2005                  9/30/2005
                                                     ----------------------     ----------------------
Net Loss:
<S>                                                <C>                        <C>
As Reported                                        $               (1,413)    $               (4,491)
Effect of Stock-based Compensation                                       -                          -
Expense - net of tax                                                  (61)                      (151)
                                                     ----------------------     ----------------------
Pro Forma                                          $                          $
                                                     ======================     ======================

Loss Per Share:
Basic - As Reported                                $                (0.30)    $                (1.11)
Basic - Pro Forma                                  $                (0.32)    $                (1.15)
Diluted - As Reported                              $                (0.30)    $                (1.11)
Diluted - Pro Forma                                $                (0.32)    $                (1.15)

</TABLE>

     As of October 22, 2004,  the board of  directors  and  shareholders  of the
Company  adopted the Tarpon  Industries,  Inc. 2004 Stock Option Plan.  The plan
allows the Company to grant  incentive  stock  options and  non-qualified  stock
options to the directors,  officers, employees,  consultants and advisors of the
Company to purchase up to an aggregate of 650,000 common  shares.  This plan was
approved by the Company's shareholders in June 2005.

     During 2005, the Company granted options for 441,785 shares, exercisable at
$5.50 per share,  to  consultants,  officers,  employees  and  directors  of the
Company.  During the nine months ended  September 30, 2006, the Company  granted
options  for  50,000  shares,  all issued on April 26,  2006 to James  Bradshaw,
Chairman  and Chief  Executive  Officer,  exercisable  at $2.45 per  share.  All
options that have been granted  under the plan to officers and  employees of the
Company vest in cumulative annual installments over three years.  Options issued
to consultants  and directors vest  immediately  upon issuance.  No options were
granted during 2004 or 2003 and no options have yet been exercised.

Activity under this plan is shown in the following tables:

<TABLE>
<CAPTION>

                                                   Three Months Ended                           Nine Months Ended
                                                    September 30, 2006                          September 30, 2006
                                                          Weighted                                    Weighted
       Shares Subject to Option           Shares          Average      Aggregate      Shares          Average      Aggregate
                                                          Exercise     Intrinsic                      Exercise     Intrinsic
                                                           Price       (1) Value                       Price       (1) Value
--------------------------------------- ------------ -- ------------- ------------- ------------ -- ------------- -------------
<S>                                         <C>      <C>                                <C>      <C>
Outstanding at beginning of period          313,190  $          5.50       --           415,085  $          5.50       --
New Grants (based on fair value of
     common stock at dates of grant              --  $            --       --            50,000  $          2.45       --
Exercised                                        --  $            --       --                --  $            --       --
Expired                                          --  $            --       --                --  $            --       --
Forfeited                                        --  $            --       --         (151,895)  $          5.50       --
                                        ------------                                ------------
Outstanding at end of period                313,190  $          5.01       --           313,190  $          5.01       --
Exercisable at end of period                161.063  $          5.50       --           161.063  $          5.50       --

     (1)  The  intrinsic  value of a stock  option  is the  amount  by which the
          current  market  value of the  underlying  stock  exceeds the exercise
          price of the option.


                                                   Three Months Ended                          Nine Months Ended
                                                   September 30, 2005                          September 30, 2005
                                                         Weighted                                   Weighted
       Shares Subject to Option           Shares         Average      Aggregate     Shares           Average      Aggregate
                                                         Exercise     Intrinsic                     Exercise    Intrinsic (1)
                                                          Price       (1) Value                       Price         Value
--------------------------------------- ----------- -- ------------- ------------- ---------- ---- ------------ ---------------
Outstanding at beginning of period         346,785  $            --       --              --    $           --        --
New Grants (based on fair value of
     common stock at dates of grant             --  $            --       --         346,785    $         5.50        --
Exercised                                       --  $            --       --              --    $           --        --
Expired                                         --  $            --       --              --    $           --        --
Forfeited                                       --  $            --       --              --    $           --        --
                                        -----------                                ----------
Outstanding at end of period               346,785  $          5.50       --         346,785    $         5.50        --
Exercisable at end of period                    --  $            --       --              --    $           --        --

          (1)  The intrinsic  value of a stock option is the amount by which the
               current market value of the underlying stock exceeds the exercise
               price of the option.

     The total fair value of vested shares on September 30, 2006 was $94,000.
</TABLE>


<PAGE>


     The  estimated  fair value as of the date options  were granted  during the
periods presented using the Black Scholes option-pricing model, was as follows:

<TABLE>
<CAPTION>

                                                          Three                Three            Nine               Nine
                                                          Months              Months            Months            Months
                                                          Ended           Ended 9/30/2005       Ended              Ended
                          9/30/2006 9/30/2006 9/30/2005
                                                       -------------     ------------------     -----------     ------------
                                                       -------------     ------------------     -----------     ------------
Weighted Average Estimated Fair Value Per
<S>                                                                                         <C>             <C>
     Share of Options Granted During the Period            N/A                  N/A         $      1.08     $      3.03
Assumptions:
     Amortized dividend yield                              N/A                  N/A               0.00%            0.00%
     Common Stock price volatility                         N/A                  N/A               60.00%          60.00%
     Risk free rate of return                              N/A                  N/A               5.00%            3.78%
     Expected option term (in years)                       N/A                  N/A                 3                5

</TABLE>

     The following table summarizes information about stock options at September
30, 2006:

<TABLE>
<CAPTION>

                                    OPTIONS OUTSTANDING                                OPTIONS EXERCISABLE
                                Weighted Average          Weighted                  Weighted Average          Weighted
 Range of Exercise                  Remaining              Average                      Remaining             Average
      Prices          Shares    Contractual Life       Exercise Price    Shares     Contractual Life       Exercise Price
-------------------- --------- -------------------- -- ---------------- ---------- -------------------- -- ---------------

<S>        <C>       <C>              <C>           <C>                  <C>              <C>           <C>
  $2.45 to $5.50     313,190          8.68          $       5.01         161,063          8.39          $       5.50

</TABLE>

     At September 30, 2006,  options  covering 150,215 shares were available for
future grants under the 2004 Plan.

     Prior to January 1, 2006,  the Company had  accounted  for stock options to
employees using the intrinsic value method  prescribed in Accounting  Principles
Board  Opinion No. 25  "Accounting  for Stock Issued to  Employees"  and related
interpretations.  Accordingly,  compensation  costs for stock options granted to
employees  were  measured  as the  excess,  if any,  of the market  price of the
company's stock at the date of the grant over the amount an employee must pay to
acquire the stock.

     As a result of the adoption of Statement 123R, our financial results,  when
compared with our previous accounting method for share-based compensation,  were
adjusted by the following amounts:

<TABLE>
<CAPTION>

                                                            Three Months Ended            Nine Months Ended
                                                            September 30, 2006           September 30, 2006
                                                         -------------------------     ------------------------

<S>                                                   <C>                           <C>
Income from continuing operations                     $          (35,000)           $         (100,000)
Net income                                                       (35,000)                     (100,000)
Basic and diluted net earnings per common share                    (0.01)                        (0.02)
Cash flow from operations                             $               --            $               --

</TABLE>

8.   Comprehensive Loss

     Our Comprehensive losses are as follows:
<TABLE>
<CAPTION>

                                                             Three Months Ended                 Nine Months Ended
                                                                September 30,                     September 30,

                                                        2006               2005              2006               2005
                                                        ----               ----              ----               ----

<S>                                              <C>                <C>               <C>                 <C>
Net Loss                                         $      (265,753)   $    (1,413,042)  $    (8,800,130)    $   (4,490,549)
Other comprehensive income (loss):
     Foreign currency translation  adjustments           (27,613)         71,097              284,908             37,959
                                                    --------------     --------------    --------------     -------------
Comprehensive Loss                               $      (293,366)   $    (1,341,945)  $    (8,515,222)    $   (4,452,590)
                                                    ==============     ==============    ==============     =============
</TABLE>

9.   Related Party Transactions

     In April 2004, the Company entered into a Management  Consulting  Agreement
with Bainbridge Advisors, Inc. ("Bainbridge"),  an advisory firm primarily owned
by the former Chairman of the Board,  President and Chief Executive  Officer and
his son. On April 15,  2005,  the  Company  amended  the  Management  Consulting
Agreement to (1) make a one-time  payment of $50,000 in consideration of certain
advisory services rendered to the Company that were not originally  contemplated
by the  parties,  and (2)  increase  the  monthly  fee from  $15,000 to $20,000,
effective  April 2005, and (3) to revise the  calculation of the maximum success
fee to provide that the maximum  success fee shall be $300,000  plus 0.2% of the
enterprise  value of an acquisition,  but only to the extent that the enterprise
value of such  transaction  exceeds  $50,000,000.  On  December  8,  2005,  this
agreement  was  extended  in  accordance  with  the  original  agreement  for an
additional  one  year  term  commencing  April  7,  2007.  The  following  table
summarizes  the  compensation  earned  by the  former  Chairman  of  the  Board,
President  and Chief  Executive  Officer and his son,  individually  and through
Bainbridge Advisors, Inc.:

<TABLE>
<CAPTION>

                                                     Three Months Ended               Nine Months Ended
                                                      September 30,                     September 30,
                                                  2006              2005             2006             2005
                                                  ----              ----             ----             ----

<S>                                         <C>              <C>               <C>             <C>
Advisory Services and Expenses              $       64,133   $         74,664  $     200,325   $       257,572
Stock Options                                            -                  -              -           333,300
Success Fees                                             -                  -              -           200,000
                                               ------------     --------------    -----------     -------------
     TOTAL                                  $       64,133   $         74,664  $     200,325   $       790,872
                                               ============     ==============    ===========     =============
</TABLE>


     During  the nine month  period  ending  September  30,  2006 and 2005,  the
Company paid the former  Chairman of the Board,  President  and Chief  Executive
Officer and his son, individually and through Bainbridge Advisors, Inc. $295,640
and $545,790, respectively.

     The Company has fully accrued for advisory  services in accordance with its
agreement with Bainbridge and paid $15,000 toward such liability,  but has since
suspended payments.

     Between  January and August 2004, the Company  engaged one of its directors
to provide consulting services to the Company concerning its operations, general
management  and  business  development,  at times  and  places  and in an amount
determined by mutual  agreement.  The Company  accrued $22,000 in fees for these
services  including  $10,000  payable  in common  shares at the  closing  of its
initial public offering. The Company issued 2,000 common shares to this director
in February 2005.

     Joseph Gunnar and Company,  LLC ("Gunnar") was the lead  underwriter in the
Company's  2005 initial  public  offering,  and since such time has assisted the
Company in various financing transactions. Gunnar customers hold collectively, a
significant  amount  of the  Company's  common  stock.  Gunnar  is  entitled  to
participate  as an outside  observer on the  Company's  board of directors  from
which it can exercise significant  influence over the activities of the Company.
For its services for bridge  financing  in 2004,  Gunnar  received a cash fee of
$200,000 and 100,000 warrants,  subsequently  increased to 120,890 warrants as a
result of  certain  anti-dilution  privileges  contained  within  the  Company's
warrant  agreement.  Gunnar also received cash payments of $83,500 in 2004.  The
original  warrants had an exercise  price of $ 6.25 with a term of 5 years.  The
revised  exercise  price  was  reset to $5.17 as a  result  of the  issuance  of
additional warrants. The 2004 warrants,  when issued, had a fair market value of
$101,966.  In exchange for serving as the underwriter for the Company's  Initial
Public Offering (IPO) in 2005, Gunnar received a cash fee of $1,638,750. For its
assistance in securing the convertible  note financing (Note 6), Gunnar received
a cash fee of $600,000 and 300,000  warrants with an exercise price of $3.27 and
a fair market  value of  $432,000.  The Gunnar  warrants  can be put back to the
Company,  and were deemed to be a  derivative  instrument  and  classified  as a
liability.  At December 31, 2005,  these  warrants  were marked to market with a
value  of  $366,000  and a gain on the  instrument  was  recorded  to gain  from
derivatives.  Gunnar also receives a retainer  payable  monthly in the amount of
$7,500 which  expires in December  2006.  The  following  table  summarizes  the
compensation earned by Gunnar:

<TABLE>
<CAPTION>

                                                Three Months Ended                   Nine Months Ended
                                                   September 30,                    September 30,
                                              2006              2005             2006             2005
                                              ----              ----             ----             ----

<S>                                     <C>              <C>               <C>             <C>
Fees and Expenses                       $       22,500   $         22,500  $       68,500  $       102,426
Initial Public Offering                              -                  -               -        1,638,750
                                           ------------     --------------    ------------    -------------
     TOTAL                              $       22,500   $         22,500  $       68,500  $    1,741,176
                                           ============     ==============    ============    =============
</TABLE>


10.  Contingencies

     Pursuant to an agreement  executed  with the Laurus  Master Trust in August
2006,  Tarpon  agreed to exchange  100,000 worth of warrants in new equity to be
raised in the event Tarpon were  successful in  completing an equity raise.  The
contingent  award of  warrants  was agreed upon in  conjunction  with the Tarpon
exchange of 100,000  shares for Laurus'  relinquishment  of its right to default
interest  covering the six month period ended June 30, 2006.  An equity raise is
being  conducted  currently  with a closing  anticipated  in December 2006. As a
result, the Company has accrued the warrant obligation,  valued at $190,000,  as
of September 30, 2006.

     The  Company  from time to time is a party to  various  litigation  matters
arising in the ordinary  course of business.  The ultimate  legal and  financial
liability of this litigation cannot be estimated with certainty,  but management
believes,  based on their  examination of these matters,  experience to date and
discussions  with counsel,  that the ultimate  liability will not be material to
the Company's business, financial condition or results of operations.

11.  Income Taxes

     Tarpon has not recognized  potential U.S. or Canadian  federal tax benefits
from its net losses because of the uncertainty  regarding its ability to realize
future  tax  benefits  of  its  net  operating  loss  carryforwards.   The  loss
carryforward  at  September  30, 2006 is  approximately  $13.6  million.  If the
Company  achieves  profitability,  the net operating loss  carryforwards  may be
available to offset future income taxes.

12.  Segment and Geographic Information

     The Company operates in business segments that are distinguished  primarily
by geographic  location.  The EWCO United States operation  includes  mechanical
tube production as well as engineered racking system  production.  The Steelbank
Canadian  operation  includes   mechanical  tube  production  with  emphasis  on
galvanized tube. The products and services, customer base, distribution channel,
manufacturing  process,  procurement  and economic  characteristics  are similar
throughout all of the Company's  operations.  The following table sets forth the
Company's segment data.

<TABLE>
<CAPTION>

                                                        Three Months Ended September 30, 2006
                                             EWCO             Steelbank         Other (2)            TOTAL
                                             ----             ---------         ---------            -----

<S>                                   <C>                <C>               <C>               <C>
External Revenues                     $     14,193,726   $      5,801,441  $              -  $        19,995,167
Inter-Segment Sales                            107,202           (73,346)          (33,856)                    -
Depreciation and Amortization                   28,459            189,049                 -                  508
Operating Profit (Loss)                        652,329            213,434         (775,816)               89,947
Total Assets                                16,887,227         16,917,975       (2,404,750)           31,400,452
Capital Expenditures                  $         19,205   $      (18,192)*  $              -  $             1,013

        *Reflects asset transfers (primarily computer equipment) to EWCO.

                                                        Three Months Ended September 30, 2005
                                             EWCO            Steelbank         Other (2)             TOTAL
                                             ----            ---------         ---------             -----

External Revenues                     $    10,336,420    $      5,004,701   $             -  $         15,341,121
Inter-Segment Sales                           206,679                  -          (206,679)                    -
Depreciation and Amortization                  26,584            171,689                 -                198,273
Operating Profit (Loss)                    (1,419,673)          (934,134)       (2,078,469)            (4,432,276)
Total Assets                               12,263,017         22,087,818        (1,930,405)            32,420,430
Capital Expenditures                  $        13,734   $         18,762   $             -  $             32,496


                                                         Nine Months Ended September 30, 2006
                                             EWCO             Steelbank         Other (2)            TOTAL
                                             ----             ---------         ---------            -----

External Revenues                     $     41,482,858   $     17,047,501  $              -  $         58,530,359
Inter-Segment Sales                            315,997            138,011         (454,008)                     -
Depreciation and Amortization                   85,893            636,929                 -               722,822
Operating Profit (Loss)                        672,634         (4,079,253)       (3,104,083)           (6,510,702)
Total Assets                                16,887,227         16,917,975        (2,404,750)           31,400,452
Capital Expenditures                  $         19,205   $      264,053**  $              -  $           283,258

</TABLE>

**Reduction  from six month  ended  June 30,  2006  represents  asset  transfers
(primarily computer equipment) to EWCO.

<TABLE>
<CAPTION>

                                                         Nine Months Ended September 30, 2005
                                             EWCO            Steelbank         Other (2)             TOTAL
                                             ----            ---------         ---------             -----

<S>                                   <C>                <C>                <C>              <C>
External Revenues                     $    31,398,691    $     13,047,694   $             -  $        44,446,385
Inter-Segment Sales                           206,679                   -        (206,679)                     -
Depreciation and Amortization                  79,752            473,356          (37,708)               515,400
Operating Profit (Loss)                    (1,419,673)          (934,134)      (2,078,469)            (4,432,276)
Total Assets                               12,263,017         22,087,818        (1,930,405)           32,420,430
Capital Expenditures                           37,556            100,873                 -               138,429

</TABLE>

(2) Other represents information for the Company's parent company,  Tarpon which
is not allocated into the operating segments.

     Revenues by country for the three and nine months ended  September 30, 2006
and 2005 are as follows:

<TABLE>
<CAPTION>

                         Three Months Ended September 30,             Nine Months Ended
                                                                        September 30,
                               2006               2005               2006               2005
                               ----               ----               ----               ----

<S>                     <C>                <C>               <C>                <C>
United States           $     15,794,275   $     11,121,947  $      46,647,704  $      33,913,801
Canada                         4,200,892          4,219,174         11,882,655         10,532,585
                           --------------     --------------    ---------------    ---------------
     TOTAL              $     19,995,167   $     15,341,121  $      58,530,359  $      44,446,386
                           ==============     ==============    ===============    ===============
</TABLE>


13.  Subsequent Events

     Default Notices from LaSalle Bank

     On October 2, 2006 LaSalle Bank Midwest  issued a notice of default to EWCO
(i) EWCO had failed to meet its debt service  coverage  test on occasion  during
the period from November  2005 through June 2006,  (ii) that Tarpon had breached
its  subordination  agreement  for payment on debt due Laurus  Master  Trust,  a
junior creditor, while Tarpon's Steelbank subsidiary was in technical default to
LaSalle  Business  Credit,  (iii)  that  EWCO had  breached  its loan  agreement
relating to permitted  application of proceeds of a $6 million loan from Laurus,
and that (iv) EWCO has been  unable to pay its  obligations  as they become due.
These  circumstances,  as well as other  events  such as the  withdrawal  of the
firm's  independent  accountants,  constituted a material  adverse change in the
loan collateral and the business condition of the obligor.  From October 1, 2006
forward,  EWCO's  loans will bear  interest  at a rate of prime plus two percent
(2%).

     On October 2, 2006  LaSalle  Business  Credit,  a division of ABN AMRO Bank
N.V.,  Canada  Branch,  issued a notice of default to Steelbank,  as a result of
Steelbank's failure to meet its adjusted net worth covenant and its debt service
coverage ratio covenants. From and after October 1, 2006, Steelbank's loans will
bear  interest  at a rate of two per  cent  (2%) per  annum,  in  excess  of the
interest rate otherwise payable.

     Board Member Appointment

     On October 12, 2006 Tarpon  announced the appointment of Gerald J. Stein to
the Board of Directors and as a member of the board's  audit,  compensation  and
nominating committees. As a result, the Company now has three outside members on
its audit committee and is,  therefore,  in compliance with this  requirement of
the American  Stock  Exchange  pursuant to the Amex Company  Guide,  Section 121
(B)(2)(a).

     Appointment of Auditors

     On October  31,  2006 the  Company  announced  the  appointment  of Rehmann
Robson,  a division  of The Rehmann  Group,  LLC as its  independent  registered
public accounting firm.

     Haines Road Property Sale

     In  November,  2006  Agellan  Investment,  Inc.,  a  Canadian  real  estate
developer  reached an agreement with Tarpon to purchase the Haines Road land and
building and to lease back the  manufacturing  site to  Steelbank.  Although all
three  mortgages  were past due, the  mortgagors  agreed to  extensions on their
respective due dates for the purpose of enabling  Steelbank to sell the property
to Agellan. Proceeds of Cdn. $5.1 million is sufficient to pay in full all three
mortgages. The sale is scheduled to close November 22, 2006.


ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Cautionary Statement Regarding Forward Looking Statements

     Management's discussion and analysis should be read in conjunction with the
unaudited interim consolidated  financial statements and the accompanying notes.
As you read the material  below,  we urge you  carefully  consider our financial
statements and related information provided herein.

     Some of the statements in this report contain forward  looking  statements.
Forward  looking  statements  include  statements  relating  to  performance  in
"Management's  discussion  and  Analysis of Financial  Condition  and Results of
Operations."  In  addition  we may make  forward  looking  statements  in future
filings with the  Securities and Exchange  Commission and in written  materials,
press  releases  and oral  statements  issued  by us or on our  behalf.  Forward
looking statements include  statements  regarding the intent,  belief or current
expectations of our company and or its officers,  including  statements preceded
by or including  forward looking  terminology such as "may",  "will",  "should",
"expect",  "anticipate",  "believe",  "plan", "intend",  "propose",  "estimate",
"continue",  "predict"  or other  similar  expressions  with  respect to various
matters.  Our actual results may differ  materially  from those projected in the
forward looking statements due to numerous factors, particularly those discussed
in the  "Risk  Factors"  in our  annual  report  on Form 10K for the year  ended
December 31, 2005.  All forward  looking  statements in this report are based on
information  available to us on the date of this report.  We do not undertake to
update any forward looking statements that may be made by us or on our behalf in
this report otherwise.

Overview of Recent Operations

     During the third quarter of 2006, Tarpon  Industries  achieved net revenues
of $20.0  million,  a 30 percent  increase over third  quarter  2005.  Operating
income for Q3 2006 was $42,000  compared  with a loss of ($1.55)  million for Q3
2005.  Net loss after tax for the third  quarter 2006 was  ($446,000) or ($0.09)
per share  compared  with a net loss of ($1.4)  million or ($0.30) per share for
the same  period  last  year.  The  third  quarter  2006 net loss of  ($446,000)
included:

     o    Default interest expense of $266,000, representing $337,000 in default
          interest  expense for Q3 2006 offset by a $71,000 benefit arising from
          the reversal of default interest expense due LaSalle for the first six
          months of 2006 waived in Q3 2006.

     o    A gain of  $389,000  to record the relief of a  liability  for default
          interest  due Laurus for the first six months in 2006 in exchange  for
          issuance of 100,000  common  shares and 100,000  warrants to Laurus as
          described in Note 6.

     o    Amortization  of  finance  costs  and  accretion  of  note  discounts,
          recorded as interest expense, of $396,000

     o    A gain of $269,000 on derivative  instruments  related to the value of
          the convertibility option under the Senior Convertible Term Note.

     For the first  nine  months  ended  September  2006,  Tarpon  achieved  net
revenues of $58.5 million, a 32 percent increase over the $44.4 million revenues
reported  for the  comparable  period  2005.  Operating  loss in 2006 was ($6.5)
million  including $4.3 million in impairment  charges incurred in the company's
Steelbank operations, compared with an operating loss of ($4.4) million in 2005.
Net loss after taxes was ($9.0) million or ($1.89) per share for the nine months
ended 2006  compared  with a net loss of ($4.5)  million or ($1.11) per share in
2005. The net loss in 2006 included $4.3 million in impairment  charges and $3.8
million interest expense including default interest, offset by gains of $962,000
related to the change in value of  derivative  investments,  a gain of  $389,000
related to relief of liability  for default  interest,  and benefits of $111,000
from foreign  currency  exchange.  Net loss for the first nine months in 2005 of
($4.5) million included  $727,000 interest expense and a benefit of $609,000 due
to foreign currency exchange.

Comparison  of Operating  Results for the Three Months Ended  September 30, 2006
and 2005

Net Revenues

     Net revenues and sales volume  represented by tonnage shipped for the three
months ended September 30, 2006 and 2005 are shown in the table below:

<TABLE>
<CAPTION>

                                               Sales for Three Months Ended September 30,
                                             2006                                    2005
                                   Net Revenues          Tonnage           Net Revenues          Tonnage

<S>                          <C>                             <C>     <C>                             <C>
EWCO Tubular                 $           5,046,896           5,854   $           5,249,668           7,383
EWCO SpaceRak                            9,146,830           6,229               5,086,752           3,904
Steelbank Tubular                        5,801,441           4,895               5,004,701           4,604
                                -------------------    ------------     -------------------    ------------
     TOTAL                   $          19,995,167          16,978   $          15,341,121          15,891
                                ===================    ============     ===================    ============

</TABLE>


          Note:  Tonnage  shipped for  consolidated  Steelbank  is  estimated as
          tonnage  statistics prior to purchase of Haines Road in February 2005,
          the time of the  acquisition,  were not  routinely  reported by Bolton
          Tubing, the acquired company.

     Net revenue for the third quarter of 2006 increased  approximately 30% over
the same period in 2005 from $15.3 million to $20.0  million,  while volume on a
tonnage basis increased 7%.

     Sales of EWCO's SpaceRak division,  an engineering project driven business,
were $9.1 million for the third quarter 2006, an increase of approximately 79.8%
compared  with $5.1  million in Q3 2005.  The sales  increase  was driven by the
Company's objective to build a greater strategic position in racking systems, by
developing  it's  engineering  resources  and selling  efforts to develop  brand
recognition  in this sector.  In the third  quarter,  SpaceRak  continued to see
increases in revenues from national  customers  including  orders for multi-site
projects.  Large national customers accounted for more than 10% of Q3 2006 sales
whereas the Company did not have such contracts in Q3 2005. In addition to large
contracts,  selling efforts to build SpaceRak's customer base were successful as
quarterly sales to non-national customers grew approximately 25% year over year.
As a result, sales volume in Q3 2006 increased 60% to 6.2 thousand tons compared
with 3.9 thousand tons in Q3 2005.  Revenue per ton increased by 13% from $1,303
in Q3 2005 to $1,468 in Q3 2006 due mainly to selling  efforts to keep pace with
the rising costs of steel.

     EWCO Tubular sales volume  (tonnage)  decreased 21% in Q3 2006 over Q3 2005
due  primarily to: (1) a decline in tubing  industry  sales  paralleling  market
declines  including  US steel  production  which hit a 14 month low, and (2) the
Company's  efforts to reposition its tubing customer base from the  Recreational
Vehicle  ("RV")  sector  (previously  about 50% of Tarpon's  tubing  sales) to a
broader and better margin customer base including OEM's, agriculture, greenhouse
manufacturers and distributors. Third quarter revenues of $5.0 million were only
4% lower than in 2005,  as revenue on a per ton basis  increased 21% to $862 per
ton in Q3 2006 from $711 in Q3 2005,  as the Company  responded  to increases in
raw material costs, mainly from steel.

         Steelbank Tubular sales were $5.8 million in Q3 2006, a 16% increase
over Q3 2005 sales of $5.0 million. Sales tonnage over the same period increased
6% to 4.9 thousand tons in Q3 2006 compared with 4.6 thousand tons in Q3 2005.
Sales revenues and volumes reflected increased penetration in targeted market
segments, particularly the fencing and greenhouse manufacturers. Additionally,
Steelbank was able to secure new business particularly near the end of Q3 2006
with light structural tubing manufacturers. Revenue on a per ton basis increased
by 9% from $1,087 in 2005 to $1,185 in 2006 largely reflecting the rising cost
of steel, particularly for hot rolled stock.

Cost of Goods Sold and Gross Profit

     Gross profit for the three months ended September 30, 2006 was $1.8 million
or 9.1% of sales  compared  with  $1.5  million  or 10.1% of sales  for the same
period  ended 2005.  Significant  improvement  in margins were  achieved  within
SpaceRak and EWCO Tubing in Q3 2006 compared  with Q3 2005,  improving 280 basis
points and 640 basis points  respectively.  Steelbank decline in margins was the
primary  driver  explaining  the 100 basis point decline in  consolidated  gross
profit margins year over year. Although SpaceRak increased as a total percent of
consolidated  sales in Q3 2006  compared  with the prior year and its  increased
margins had a positive  impact,  the decline in  Steelbank  margins  offset this
benefit. A margin improvement program was initiated in all three divisions in Q3
2006.

     Gross margins for SpaceRak  experience positive momentum from the Company's
programs to raise margins,  increasing from 8.1% in Q3 2005 to 10.9% in Q3 2006.
A key driver was  SpaceRak's  60.0% growth in sales  volume,  which  resulted in
greater  throughput and reduced  manufacturing  cost per ton by greater than 500
basis points year over year. Selling price per ton, which increased 13% per ton,
was slightly  less than the  increase in materials  cost per ton. As a result of
rising materials  costs,  EWCO and in particular,  SpaceRak,  instituted a steel
surcharge  program  which saw traction mid way through Q3 2006,  reflecting  the
occasional length of projects .

     Gross  margins  with EWCO tubing  improved  from less than 1% in Q3 2005 to
more than 6% in Q3 2006.  The key drivers were: (1) strategic  market  selection
which  accounted  the nearly all of the margin  change  year over year,  and (2)
effective  pricing enabling the Company to preserve margins against rising steel
costs.   Although  volume   throughput  was  down  about  21%  year  over  year,
efficiencies in manufacturing  were achieved so that there was negligible impact
on gross margins in Q3 2006 compared with Q3 2005

     Gross margins for Steelbank  declined year over year from approximately 17%
in Q3'05 to 7.6% in Q3'06,  reflecting  an  increasingly  competitive  market in
Canada,  along with a change in sales mix to more  non-galvanized  product sales
which have a lower margin.  While sales per ton rose  approximately 9% year over
year,  raw material  costs per ton escalated  nearly 25% per ton, and the margin
compression  could not be offset by increased  manufacturing  efficiencies  from
greater  volume  throughput.  In Q3 2006,  Steelbank  embarked upon a program in
conjunction with Tarpon's overall strategic objectives to raise gross margins by
targeting  specific  market sectors  including  OEM's,  fencing,  and greenhouse
manufacturers  for growth as well as more  favorable  pricing  relative to steel
costs.

Selling, General and Administrative Expense

     Selling,  general and  administrative  expense  including  depreciation and
amortization  was $1.8  million or 8.7% of sales in Q3 2006  compared  with $3.1
million or 20.2% of sales in Q3 2005  including  a bad debt  charge of  $937,000
related to FenceMaster, a customer in Canada which became insolvent (FenceMaster
was  eventually  acquired by Radio Fence,  and the  FenceMaster  receivable  was
ultimately fully recovered.)  Excluding the bad debt charge,  third quarter 2005
SG&A expense was $2.2 million.  The remaining  $500,000  reductions in SG&A were
achieved through approximately $200,000 in lower salaries,  about $200,000 lower
professional  fees, and the net remainder in reduced  insurance and depreciation
charges.

Other Income and Expense

     Other  income  and  expense  (net) in Q3 2006 was  income in the  amount of
$673,000  compared  with income in Q3 2005 of  $536,000.  In Q3 2006 the Company
realized a $269,000 gain on derivatives  associated with a decreased in value of
the  convertibility  option of the  Laurus  Senior  Convertible  Term Note and a
$389,000 gain resulting  from an exchange with Laurus Master Trust,  relieving a
liability  for $769,000 of default  interest in exchange for shares and warrants
issued at a value of $380,000.  A $60,000 gain on foreign  exchange was recorded
in Q3 2006,  resulting from favorable  currency impact related to operations and
working  capital  of the  Steelbank  operation.  The  $555,000  gain on  foreign
exchange recorded in Q3 2005, with approximately  $392,000 attributed  primarily
to an  inter-company  loan made from Tarpon for the  purchase of the  Steelbank.
This loan was converted to equity at year end 2005.

Interest Expense

     Net interest  expense in Q3 2006 was $1.2 million compared with $268,000 in
Q3  2005.  Interest  expense  in Q3 2006  included  (1)  approximately  $150,000
attributed  to the senior term  convertible  note  executed in December  2005 at
prime plus 200 basis  points,  (2) $337,000 in default  interest  expense on the
Laurus note offset by reversal of $71,000 of default  interest waived in Q3 2006
applicable to the first six months of 2006 by LaSalle, (3) $144,000 of EWCO loan
interest  in Q3 2006  compared  with  $120,000  in Q3 2005  arising  from higher
revolver  loan  balances and (4) $166,000 of Steelbank  loan interest in Q3 2006
compared with $147,000 in Q3 2005 arising from higher loan balances.

Income Taxes

     We have not recognized a potential tax benefit from our net losses, because
of the  uncertainty  regarding our ability to realize  future tax benefit of our
net operating loss carry forwards. This potential loss carry forward if utilized
would be approximately $3.2 million.

     EWCO was an S  corporation  until  December  31,  2003.  As a result of its
change to a C  corporation,  EWCO is now subject to income  taxes on its taxable
income and has no  operating  loss carry  forwards  for  taxable  losses  before
January 1, 2004.

Net Loss

     Net  loss  for  the  third  quarter  2006  was  ($446,000),  a  substantial
improvement  from the ($1.4) million loss sustained in the same period 2005. The
reduced loss was attributed to better gross margins resulting from the Company's
margin improvement program,  lower selling,  general, and administrative  costs,
and larger  slightly more  favorable  other income and expense  offset by higher
borrowing costs.

Comparison of Operating  Results for the Nine Month Periods Ended  September 30,
2006 and 2005

Net Revenues

     Listed in the table below are net revenues and tonnage shipped for the nine
months ended September 30, 2006 and 2005:

<TABLE>
<CAPTION>

                                                  Nine Months Ended September 30,
                                             2006                                    2005
                                   Net Revenues          Tonnage           Net Revenues          Tonnage

<S>                          <C>                            <C>      <C>                            <C>
EWCO Tubular                 $          16,962,399          21,172   $          15,499,420          19,768
EWCO SpaceRak                           24,520,459          17,510              15,899,271          11,865
Steelbank Tubular                       17,047,501          15,500              13,047,694          11,502
                                -------------------    ------------     -------------------    ------------
     TOTAL                   $          58,530,359          54,182   $          44,446,385          43,135
                                ===================    ============     ===================    ============
</TABLE>

     Note:  Tonnage shipped for  consolidated  Steelbank is estimated as tonnage
     statistics  prior to purchase of Haines Road in February  2005, the time of
     the acquisition, were not routinely reported by Bolton Tubing, the acquired
     company.


     For the nine months ended September 30, 2006 revenue increased 32% to $58.5
million with volume on a tonnage basis  increasing 26% over the same period last
year.  The increase in revenue  results from the  acquisition  of Haines Road in
February 2005 and more  aggressive  marketing of tubing sales at EWCO Tubing and
Steelbank  as well as a  dramatic  increase  in the  number and size of jobs (as
indicated by an approximate  48% increase in tonnage sold) in racking systems at
EWCO SpaceRak.

     Sales of EWCO's SpaceRak,  an engineering  project driven business,  saw an
increase  in sales of  approximately  54.2% in the first nine  months of 2006 to
$24.5 million  compared with $15.9 million in the nine months of 2005. The sales
increase was driven by increased  selling efforts to promote the Company's value
added engineering design capability,  the ability to attract large projects from
national  customers with  multi-sites,  and improvement in pricing.  As a result
sales volume  increased  48% year over year from 11.9  thousand  tons in 2005 to
17.5 thousand  tons in 2006,  while revenue per ton increased by 5% to $1,400 in
2006 from $1,340 in 2005.

     EWCO Tubular sales volume  (tonnage)  increased 7% in the first nine months
of 2006  over the  first  nine  months  of 2005 as a  result  of  growth  in the
Company's end markets served and increased  sales  initiatives to improve volume
as well as reposition the customer base from a historical  concentration  on the
RV sector  (historically  about 80% of tubing sales) to a broader  customer base
including OEM's, agriculture, greenhouse manufacturers and distributors, most of
whom can provide  higher  margins than the RV sector.  Revenues of $17.0 million
were 9% higher than 2005 as revenue on a per ton basis  increased  by 2% to $801
in the first nine months of 2006 from $784 in the first nine months of 2005. The
decline in sales per ton  reflected the overall  market's  response to declining
steel costs,  beginning  principally  in Q3 2006.  Despite lower sales price per
ton, EWCO Tubing  margins  improved year over year as a result of  repositioning
the customer base and improved pricing relative to material costs.

     Steelbank  Tubular  sales  were $17.0  million in the first nine  months of
2006,  an increase of 30.7% over sales of $13.0 million in the first nine months
of 2005.  Sales tonnage over the same period increased 35% to 15.5 thousand tons
in 2006 compared with 11.5  thousand  tons in 2005.  Sales  revenues and volumes
reflected the Company's success in increasing market  penetration in traditional
market  segments such as fencing and greenhouse  manufacture  while expanding to
leisure   products  and   equipment  as  well  as  tier  II   automotive   parts
manufacturers.  Revenue on a per ton basis declined by 2% to $1,100 in 2006 from
$1,134 in 2005  largely  reflecting  the same trend in hot rolled  steel  prices
during the same respective periods.

Cost of Goods Sold and Gross Profit

     Gross profit increased to $4.6 million from $2.9 million for the nine month
periods ended September 30, 2006 and 2005, respectively. Gross margins increased
to 7.8%  compared with 6.6% for the nine months ended 2005.  Margin  improvement
was driven principally by SpaceRak which has improved from 3.7% to 8.7% and EWCO
tubing  from  3.4%  to  6.1%  for  the  third   quarters  ended  2006  and  2005
respectively.  Steelbank  saw a decline in margins  over the same  periods  from
14.0% to 8.1%. All three divisions  commenced a margin improvement program in Q3
2006 which  included  pricing to compensate for rising steel costs and strategic
market selection to upgrade Tarpon's customer base. .


     Gross  margins for SpaceRak  experience  positive  momentum from volume and
pricing which essentially kept pace with rising steel costs. The steel surcharge
program initiated in Q3 2006 enabled SpaceRak to match revenue per ton with cost
increases  per ton and  position  SpaceRak  for  margin  improvement  in  future
quarters.  SpaceRak's  35%  increase  in sales  volume  (tonnage)  helped  drive
conversion cost per ton down by approximately 500 basis points YTD 2006 compared
with 2005.

     Gross  margins  with EWCO tubing  improved YTD 2006  compared  with 2005 by
about 280 basis points due  primarily  to sales  initiatives  to broaden  EWCO's
customer base including sectors with historically higher margins.  Additionally,
price  increases  have been put in place to keeping  pace with rising  materials
costs.  Manufacturing  costs per ton have not had a  material  impact on margins
despite a 7% increase in volume throughput.

         Gross margins for the Steelbank declined as a result of an intensely
competitive market in Canada, culminating in Steelbank's lack of ability to pass
on pricing to customers as material costs increased. In addition, conversion
costs per ton increased about 500 basis points due primarily to a manufacturing
line conversion and operating adjustments

Selling, General and Administrative Expense

     Selling,  general and  administrative  costs  decreased for the nine months
ended 2006 to $6.8 million from $7.4 million in 2005.  The bad debt write off of
Fencemaster  of  $925,000  in 2005 the most  significant  change year over year.
Excluding this bad debt, SG&A showed  approximately  a $380,000  increase YTD in
2006.  The majority of that  increase,  about  $300,000 was attributed to higher
audit,  legal and  professional  fees,  while  insurance  costs  increased about
$90,000.

Impairment

     The Company  incurred  impairment in 2006 and none in YTD in 2005. The 2006
impairment charges were taken in Q2 2006, and there were two types of impairment
incurred.  Goodwill and  intangibles  related to the  Steelbank  and Haines Road
acquisitions  were  determined to be impaired  based upon an evaluation of these
assets  conducted in Q2 2006 in  accordance  with  provisions  of SFAS 142. This
resulted in an  impairment  charge of $3.6  million  (see Note 6  "Goodwill  and
Intangible Assets").

     Additionally,  the Company  incurred an  impairment  charge  related to the
Haines  Road site  located in  Mississauga,  Ontario  related  to  environmental
contamination.  Using estimates by environmental  firms, the Company  determined
the Haines Road land was impaired by approximately $750,000.

Other Income and Expense

     Other  income and  expense  resulted in income for the first nine months of
2006  resulted in net gains of $1.3 million  compared with net gains of $609,000
in 2005. YTD gains included a $962,000 gain on derivatives  associated  with the
convertibility option associated with the Laurus Senior Term Convertible Note, a
$390,000 gain on exchange  with the Laurus  Master Trust.  Relating to relief of
default  interest in exchange for 100,000 common shares plus 100,000 warrants of
Tarpon  Corporation,  and $111,000 gains on foreign currency  exchange offset by
about 110,000 of miscellaneous expense and amortization of bank financing costs.
The 2005 gain of $609,000 was related to foreign currency exchange,  principally
associated with inter-company items associated with the Steelbank acquisition.

Interest Expense

     Net interest expense  increased in 2006 to $3.8 million for the nine months
ended  September 30, 2006 compared  with  $727,000 in 2005.  Approximately  $3.0
million of the 2006 $3.8  million was  financed  under the Tarpon  entity,  with
about  $400,000  representing  interest on  borrowings  under the Laurus  Senior
Convertible  Term  Note  and  $2.6  million   represented  by  $1.5  million  of
amortization  of  financing  costs  under the Laurus  note and $$1.1  million in
default interest  expense.  Year to date 2006 interest expense under EWCO's line
of credit and term note borrowings were $337,000  compared with $350,000 in 2005
as average loan balances were slightly lower  following the December 2005 Laurus
financing,  but interest  rates in 2006 averaged  about 200 basis points higher.
Steelbank  interest expense YTD 2006 of $477,000  compared with $328,000 in 2005
was  attributed to higher  revolving  line credit  balances in 2006 and interest
rates ranging from 150 to 200 basis points higher in 2006.

Income Taxes

     We have not recognized a potential tax benefit from our net losses, because
of the  uncertainty  regarding our ability to realize  future tax benefit of our
net operating loss carry forwards. This potential loss carry forward if utilized
would be approximately $3.2 million.

     EWCO was an S  corporation  until  December  31,  2003.  As a result of its
change to a C  corporation,  EWCO is now subject to income  taxes on its taxable
income and has no  operating  loss carry  forwards  for  taxable  losses  before
January 1, 2004.

Net Losses

     Net losses  increased to $9.0 million in 2006 compared with $4.5 million in
2005.  Impairment charges accounted for $4.3 million of the loss in 2006 and net
gains from other  income and expense  improved  by  $700,000  in 2006.  However,
interest costs including  non-cash  interest costs of amortized loan premium and
default interest accounted for $2.6 million in added costs in 2006.

Liquidity and Capital Resources

     As of September 30, 2006, we had a net operating working capital deficit of
approximately   $14.5   million,   including   cash  and  cash   equivalents  of
approximately  $175,000,  accounts  receivable of  approximately  $10.9 million,
inventories  of  approximately   $8.0  million,   and  total  current  operating
liabilities  of  approximately  $34.3  million,  including  accounts  payable of
approximately  $10.2 million and other accrued  expenses of $1.5 million.  Other
current  liabilities  at September 30, 2006 include $7.5 million  outstanding on
revolving credit  facilities and a first mortgage on the Haines Road facility of
approximately $3.1 million,  as well as approximately $5.1 million of term loans
reclassified  as current due to the Company not being in compliance with certain
financial covenants.

     The Company has approximately  $22.3 million of short term debt and current
maturities  on long term debt due  currently.  The  Company is seeking to obtain
financing for working  capital  needs,  to refinance its short term debts and to
finance possible  acquisitions,  on terms favorable to the Company. There can be
no assurance  that such  financing can be obtained,  failing which the Company's
unmet financing  needs may have a material  adverse effect on its operations and
continuance of business operations.

Cash Flows From Operating Activities

     Net cash used by the Company's  operations  during the first nine months of
2006 was approximately $6.9 million. Cash was used primarily by (1) $9.0 million
of losses before  depreciation  and  amortization,  (2) $3.0 million increase in
accounts  receivable,  primarily  due to increased  sales,  and (3) $1.0 million
increase  in  inventories.  These uses were  partially  offset by an increase in
customer  advance  payments used to finance material costs associated with large
orders  and  a  $464,000   increase  in  accounts   payable  and  other  current
liabilities.

Cash Flows From Investing Activities

     The Company's  investing  activities used approximately $1.3 million in the
first  nine  months  of  2006.  Cash  was  used  primarily  for the  payment  of
FenceMaster obligations of $985,000 and $283,000 for capital expenditures.

Cash Flows From Financing Activities

     The Company's financing  activities provided  approximately $1.5 million of
cash flows in the first nine months of 2006. Cash was provided by  approximately
$2.2 million from  borrowing on credit  facilities.  Cash was used for principal
payments on the Company's revolving credit facilities of $188,000 and term notes
of $534,000.

Existing Financing Arrangements

     For information on the Company's existing financing arrangements,  refer to
Note 7 in the Tarpon  Industries,  Inc. and Subsidiaries - Notes to Consolidated
Financial Statements Contained elsewhere in this report on Form 10-Q.

Critical Accounting Policies and Use of Estimates

     Our  discussion  and  analysis of our  financial  condition  and results of
operations  are  based on the  related  financial  statements,  which  have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States of  America.  The  preparation  of the  financial  statements  in
accordance with accounting principles generally accepted in the United States of
America  requires  our  management  to make  estimates  that affect the reported
amounts of assets and  liabilities,  the  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues  and  expenses  during  the  reporting  period.  Our  most  significant
estimates relate to accounting for business  combinations,  including intangible
assets  acquired,  impairment  of  long-lived  assets,  allowances  for doubtful
accounts  and valuing  options and  warrants  granted to  non-employees  and tax
valuation  allowances.  Actual  results  could differ from these  estimates.  We
evaluate  our  estimates  primarily  based on  historical  experience,  business
knowledge  and  various  assumptions  we  believe  to be  reasonable  under  the
circumstances.  These  estimates  are  evaluated  by  management  and revised as
circumstances change. We believe that the following critical accounting policies
and estimates  affect our more  significant  estimates and judgments used in the
preparation of our financial  statements.  Business  Combinations and Intangible
Assets

     We have adopted SFAS No. 141,  "Business  Combinations,"  and SFAS No. 142,
"Goodwill  and other  Intangible  Assets."  SFAS No. 141  requires  all business
combinations  to be accounted for using the purchase  method of  accounting  and
that  certain  intangible  assets  acquired  in a business  combination  must be
recognized as assets  separate from  goodwill.  In arriving at the fair value of
assets and  liabilities  acquired in our  acquisitions  of EWCO,  Steelbank  and
Haines Road, we have assumed that book values approximate fair values,  with the
exception of equipment  obtained in the purchase of EWCO, which was written down
due to the fair value of the assets acquired and liabilities  assumed  exceeding
the cost of EWCO, and EWCO,  Steelbank and Haines Road  inventories,  which were
written  up to  resale  value.  Adjustments  to fair  values of the  assets  and
liabilities  acquired would generally change the value of goodwill recognized in
the acquisition by a corresponding amount.

     SFAS No. 142  addresses the  recognition  and  measurement  of goodwill and
other  intangible  assets  subsequent  to their  acquisition.  SFAS No. 142 also
addresses the initial  recognition and measurement of intangible assets acquired
outside of a business combination, whether acquired individually or with a group
of other assets.  This statement provides that intangible assets with indefinite
lives and goodwill  will not be amortized  but will be tested at least  annually
for impairment and whenever events or changes in circumstances indicate that the
carrying  value of the asset may not be  recovered.  If impairment is indicated,
then the asset will be written down to its fair value,  typically based upon its
future  expected  undiscounted  cash  flows.  The Company  completed  its annual
impairment test in the fourth quarter of 2005 and recorded an impairment loss of
$1.1 million to its goodwill and $794,000 to its customer list intangibles.  The
Company's  results for the three months and nine months ended September 30, 2006
were below the forecasts utilized in testing for goodwill  impairment during the
fourth  quarter  of 2005.  As a  result,  the  Company  recorded  an  additional
impairment  loss of $2.9  million to its  goodwill  and $652,000 to its customer
list  intangibles,  thus  eliminating  the  remaining  carrying  values of those
assets. See note 6, Goodwill and Intangible Assets.

     Long-lived   assets  include   property,   intangible   assets  subject  to
amortization,  and certain other assets. The carrying values of these assets are
periodically   reviewed  for  impairment  or  whenever   events  or  changes  in
circumstances  indicate  that the carrying  amounts may not be  recoverable.  We
evaluate  impairment by comparing the fair value of the  intangible  assets with
indefinite  lives and goodwill with their  carrying  values.  We determine  fair
value of goodwill using the sum of the  undiscounted  cash flows projected to be
generated by the acquired  business giving rise to that goodwill.  This requires
us to make long-term  forecasts of our future  revenues and costs related to the
assets subject to review.  These forecasts require  assumptions about demand for
our  products  and  services,   future  market  conditions,   and  technological
developments.  For  example,  in  evaluating  the  fair  value  of the  goodwill
recognized in connection  with the  Steelbank and Haines Road  acquisitions,  we
have assumed no annual growth in revenues.

     If actual results differ from our estimates,  including if expected  future
cash flows from the acquired business  significantly decline, and the fair value
of goodwill is less than its carrying  value, we would reduce the carrying value
of our goodwill to fair value and recognize an impairment expense in that amount
in our  income  statement  in the  period  in  which it is  determined  that the
carrying  amount is not  recoverable  because it  exceeds  the fair value of the
goodwill.  Recoverability  of  assets  to be  held  and  used is  measured  by a
comparison of the carrying amount of an asset to estimated  undiscounted  future
cash flows  expected to result  from its use and  eventual  disposition.  If the
carrying  amount  of an asset  exceeds  its  estimated  future  cash  flows,  an
impairment  charge is recognized  for the amount by which the carrying  value of
the asset exceeds its fair value.  If a readily  determinable  market price does
not exist,  fair  value is  estimated  using  undiscounted  expected  cash flows
attributable to the assets.

 Bad Debts

     We  maintain  a reserve  for bad debts.  We  evaluate  credit  risk and the
adequacy of our reserve by monitoring the age of our accounts receivable and the
credit worthiness of our customers.  In addition,  we monitor the overall status
of the industries where our products and services are utilized.  Typically, this
reserve  is not  subject  to  significant  fluctuations  from  period to period.
However,  if we incur an unusual amount of bad debt, it could alter our exposure
and the related reserve.

Grants of Options and Warrants

     The Company  adopted  Statement of Financial  Accounting  Standards No. 123
(revised 2004),  Share-Based  Payment ("SFAS 123R"),  effective January 1, 2006.
SFAS 123R requires the recognition of the fair value of stock-based compensation
in the Company's  financial  statements.  Prior to January 1, 2006,  the Company
applied the requirements of APB Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued  to  Employees,"  and  related  interpretations  in  accounting  for  its
stock-based  plans.  Under  APB  25,  generally  no  compensation   expense  was
recognized  for the  Company's  stock-based  plans since the  exercise  price of
granted  employee stock options was greater than or equal to the market value of
the underlying common stock on the date of grant.

     The Company elected the modified prospective transition method for adopting
SFAS 123R.  Under this method,  the  provisions of SFAS 123R apply to all awards
granted or modified after the date of adoption. The Company continues to use the
Black Scholes model for determining stock option  valuations.  The provisions of
SFAS 123R also  apply to awards  granted  prior to  January 1, 2006 that did not
vest before January 1, 2006 (transition  awards).  The compensation cost for the
portion of the transition awards that had not vested by January 1, 2006 is based
on the grant-date  fair value of these  transition  awards as calculated for pro
forma disclosures under the provisions of SFAS 123.  Compensation cost for these
transition  awards are attributed to periods  beginning  January 1, 2006 and use
the Black  Scholes  method  used  under SFAS 123,  except  that an  estimate  of
expected forfeitures is used rather than actual forfeitures.

     We must  account for stock  options and warrants  granted to  non-employees
using  the fair  value  method.  We use the  Black-Scholes  valuation  model for
determining  the fair value of our options and warrants.  That model requires us
to make  assumptions  regarding the expected life of the security,  the expected
volatility of our stock price during the period, the risk free interest rate and
the dividend yield.  Varying these assumptions can have a significant  impact on
our  option  and  warrant   valuations  and  related  expenses.   The  valuation
methodology  used an  assumed  term  based  upon the  stated  term of ten years,
adjusted down for estimated forfeitures,  a risk-free rate of return represented
by the U.S.  Treasury  Bond rate and  volatility  as determined by comparing the
Company's risk profile with comparable public companies.  A dividend yield of 0%
was used because the Company has never paid a dividend  and does not  anticipate
paying dividends in the future.

Contractual Obligations

     As of September 30, 2006,  EWCO and Steelbank  were in violation of certain
financial  covenants  of their loan  agreements,  resulting  primarily  from the
losses  sustained this year. The companies have not obtained a waiver from their
lenders to waive the  violation  as of  September  30,  2006.  Accordingly,  the
related  debt has been shown as current as of  September  30,  2006.  Management
believes  that it will be  successful  in its  negotiations  with its lenders to
revise the  financial  covenants to levels that are  attainable  by the Company;
however, there can be no assurance that an agreement will be reached.

     There have been no other material  changes  outside the ordinary  course of
business in the contractual  obligations  disclosed in our Annual Report on Form
10-K for the fiscal year ended December 31, 2005 under the caption  "Contractual
Obligations".

     ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to risks  associated with changes in foreign currency rates,
interest  rates and  commodity  prices.  We have not used  derivative  financial
instruments for any purpose during the periods shown.

     Our Canadian  operations,  Steelbank and Haines Road,  are accounted for in
Canadian  dollars,  converted to the U.S. dollar  equivalent  based on published
exchange rates for the period  reported and are,  therefore,  subject to risk of
exchange rate fluctuations.

     We are exposed to interest rate risk under our credit facilities because of
the variable  interest  rates  charged on those  facilities.  See  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Liquidity and Capital Resources."

     We are subject to commodity price risk, primarily with respect to purchases
of steel.  Purchased steel represents the most significant portion of EWCO's and
Haines  Road's  cost of goods  sold.  As a result,  fluctuations  in the cost of
purchased  steel,  which  can  be  volatile  and  cyclical  in  nature,  have  a
significant impact on our margins both positively and negatively.

     Significant  changes in the cost of steel products can cause changes in the
buying  patterns of customers.  In a declining  market,  many  customers  become
conservative,  reduce steel purchases and drive down  inventories.  The opposite
tends to occur in a rising market.  2005 was the  continuation  of the declining
steel market that began late in the third quarter of 2004 and bottomed  early in
the fourth  quarter of 2005.  Steel  prices  remained  relatively  stable in the
fourth quarter of 2005 and began  trending  upward in the first quarter of 2006.
It was  anticipated  that steel  imports  would begin to have an impact on steel
prices  late in the first  quarter,  but this did not  occur  due to  world-wide
demand for steel.

     We currently  seek to minimize the  potential  adverse  impact of commodity
price risks of our steel  inventory by minimizing the amount of steel  inventory
we carry.  However,  opportunities to purchase larger quantities at below market
value are considered and reviewed against current market  conditions.  We try to
coordinate our steel purchases with our sales and production forecast, generally
resulting in a one to two month supply of steel.

     The tables below provide  information about our financial  instruments that
are sensitive to changes in interest rates,  foreign currency exchange rates, or
both, consisting of debt obligations, including Canadian dollar-denominated debt
obligations.  The tables provide  information by functional currency and present
such information in U.S. dollar  equivalents.  For these financial  instruments,
the tables present  principal cash flows and related  weighted  average interest
rates by expected  maturity dates.  Weighted average variable rates are based on
current rates for the applicable period.  Weighted average fixed rates are based
on the contract rates. The information is presented in U.S. dollar  equivalents,
which is our reporting  currency.  The actual cash flows of the  instruments are
denominated in U.S. dollars (U.S. $) and Canadian dollars (Cdn. $), as indicated
in parenthesis.  The interest rates shown below do not reflect the default rates
imposed effective October 1, 2006.

<TABLE>
<CAPTION>

                               September 30, 2006
                             Expected Maturity Dates
                         (U.S.$ equivalent in thousands)

                                                                                                      There                   Fair
                                       2006           2007         2008          2009          2010   -after       Total     Value
                                       ----           ----         ----          ----          ----  -----------  -----      ----
Short-term Debt:
<S>                         <C>  <C>            <C>           <C>           <C>          <C>                  <C>         <C>
     Variable Rate (U.S.$)       $       7,271                                                                $    7,271  $    7,271
          Average Interest Rate          8.25%
     Variable Rate (Cdn.$)       $       6,523                                                                $    6,523  $    6,523
          Average Interest Rate          7.38%
Long-term Debt:
     Variable Rate (U.S.$)       $       1,382  $      2,529  $      2,341  $       232                       $    6,484  $    6,484
          Average Interest Rate          10.15%       10.02%        10.02%        8.25%
     Fixed Rate (U.S.$)          $           2  $          8  $          2                                    $       12  $       12
          Average Interest Rate          6.19%         5.24%         5.24%


         Variable Rate (Cdn.$)   $          95  $        377  $        377  $       377  $     94             $    1,320  $    1,320
          Average Interest Rate           7.50%         7.50%        7.50%        7.50%     7.50%
     Fixed Rate (Cdn.$)          $       1,526                                                                $    1,526  $    1,526
          Average Interest Rate          8.59%

</TABLE>

     The conversion  feature of our convertible  note and certain stock warrants
are considered  derivatives  under SFAS 133 and their  valuation is sensitive to
changes in our stock price.

     The table below provides  information  about the Company's  steel inventory
that is sensitive to changes in commodity prices, specifically steel prices. The
table presents the carrying amount and fair value as of the indicated date:

                                             September 30, 2006
                                        (U.S.$ equivalent in thousands)
                                  Carrying Amount                  Fair Value
Steel Inventories....                 $8,032                         $8,032


ITEM 4...CONTROLS AND PROCEDURES

     Our  management  has  evaluated,  with the  participation  of our principal
executive and principal financial officers,  the effectiveness of our disclosure
controls and procedures as of September 30, 2006.  Based on their evaluation and
review, our principal  executive and principal financial officers have concluded
that these  controls  and  procedures,  as  designed  and  implemented,  are not
operating  effectively.  There  was no  change  in  our  internal  control  over
financial reporting  identified in connection with such evaluation that occurred
during the quarter ended September 30, 2006 that has materially affected,  or is
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.

     Disclosure  controls and procedures  are our controls and other  procedures
that are designed to ensure that  information  required to be disclosed by us in
the  reports  that  we  file or  submit  under  the  Exchange  Act is  recorded,
processed,  summarized  and reported,  within the time periods  specified in the
Securities and Exchange  Commission's rules and forms.  Disclosure  controls and
procedures  include,  without  limitation,  controls and procedures  designed to
ensure that  information  required to be  disclosed by us in the reports that we
file or submit under the Exchange Act is  accumulated  and  communicated  to our
management,  including our principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.

     Until  April  2004,  we  consisted  only  of  a  holding  company  with  no
operations.  In April  and May  2004,  we  acquired  EWCO and  Steelbank.  These
companies were  established  private  companies with  accounting  procedures not
suitable  for public  company  reporting.  In July 2004,  we agreed to  purchase
Haines Road,  and in February 2005 we completed our  acquisition  of Haines Road
except for real  estate.  This was one  operation of a larger  private  company,
again with  accounting  procedures  which were not suitable  for public  company
reporting.

     Our previous Independent  Registered Public Accounting Firm, Grant Thornton
LLP, has  identified a variety of material  weaknesses in our internal  controls
over financial  reporting.  These material  weaknesses stem in significant  part
from the acquisition  policy which we are following in which private,  unrelated
companies are being combined.  A material weakness is a significant  deficiency,
or a combination of significant deficiencies, that results in more than a remote
likelihood  that a material  misstatement  of the  annual or  interim  financial
statements  will not be prevented or detected.  The material  weaknesses  are as
follows:

A.   A lack of formalized accounting policies and procedures,  including written
     procedures for monthly, quarterly and annual closing of financial books and
     records.

B.   A lack  of  common  systems  or a  common  chart  of  accounts  and  use of
     spreadsheets to perform consolidations, which resulted in errors.

C.   Insufficient  resources or knowledge to adequately  complete the process of
     documenting,  testing,  and evaluating our internal controls over financial
     reporting as required by the Sarbanes-Oxley Act.

D.   Insufficient  process to ensure financial  statements  adequately  disclose
     information required by Generally Accepted Accounting Principles (GAAP).

E.   Account  reconciliations  and  supporting  documentation  not prepared on a
     timely basis. F. Duties and control  activities within the finance function
     have not been appropriately segregated.


<PAGE>

G.   The  Company  does not have a formal  process  to ensure  that  appropriate
     system access is granted.

H.   A lack of adequate process to identify and ensure that non-standard journal
     entries are subject to an appropriate level of review.

I.   The Company's  invoicing system relies on certain manual controls which may
     not be sufficient to minimize the risk of incorrect revenue recognition.

     As  a  public  company,  we  have  significant  requirements  for  enhanced
financial  reporting  and  internal  controls.  We are taking steps to unify the
financial  reporting  of  all  of  our  component  companies,  to  increase  our
accounting  and  information  technology  staff  and to put  in  place  internal
controls concerning accounting entries and adjustments, with full documentation,
which are  responsive  to issues raised by our previous  Independent  Registered
Public  Accounting  Firm, Grant Thornton LLP, and, as of this time, we have made
progress on these points.  We have hired additional staff and are in the initial
planning phase of upgrading our information  technology systems. We expect these
steps to be completed by December 31, 2006,  but it is possible  that they might
not be completed by then.

     These efforts require  significant time and resources.  If we are unable to
establish appropriate internal financial reporting controls and procedures,  our
reported  financial   information  may  be  inaccurate  and  we  will  encounter
difficulties  in  the  audit  or  review  of  our  financial  statements  by our
independent  auditors,  which in turn may have material  adverse  effects on our
ability to prepare  financial  statements in accordance with generally  accepted
accounting principles and to comply with our SEC reporting obligations.



                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     We are involved from time to time in routine  litigation  incidental to our
business.  This  litigation  arises  principally  from  claims of defects in our
products sold, from  governmental  agency  proceedings  relating to occupational
safety and  health,  wage and hour laws and  similar  employment  and  workplace
regulations, from workers compensation,  and from employment termination claims.
Although  the amount of any  liability  that could  arise with  respect to these
actions cannot accurately be predicted,  in our opinion, such liability will not
have a material adverse effect on our financial position,  results of operations
or cash flows.

ITEM 2.  DEFAULTS UPON SENIOR SECURITIES

     The company is not in compliance with certain financial  covenants with its
lending  institutions,  for which it has  obtained  non-binding  commitments  to
adjust  such  covenants  and  maintain  compliance.  See  note 8 in  the  Tarpon
Industries,  Inc. and Subsidiaries - Notes to Consolidated  Financial Statements
contained elsewhere in this report on Form 10-Q.

ITEM 5. OTHER INFORMATION

Risk Factors

     Please  refer to,  and  carefully  consider,  the "Risk  Factors  and Risks
Related to Our  Business"  section  listed in our Annual Report on Form 10-K for
the year ended December 31, 2005,  together with the cautionary  statement under
the caption "Cautionary  Statement Regarding Forward Looking Statements" and the
other  information  included in this report For information on significant risks
affecting  our  business,  including,  but not  limited  to,  our losses and the
financing  requirements  we are  experiencing.  If any of these  risks  actually
occur,  our  business,  financial  condition or results of  operations  could be
materially adversely affected.

ITEM 6.  EXHIBITS

Exhibit           Description

31.1           Certifications  of  Chief  Executive  Officer  Pursuant  to  Rule
               13a-14(a),   as  Adopted   Pursuant   to   Section   302  of  the
               Sarbanes-Oxley Act of 2002.

31.2           Certifications  of  Chief  Financial  Officer  Pursuant  to  Rule
               13a-14(a),   as  Adopted   Pursuant   to   Section   302  of  the
               Sarbanes-Oxley Act of 2002.

32.1           Certifications  of Chief  Executive  Officer and Chief  Financial
               Officer  Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant
               to Section 906 of the Sarbanes-Oxley Act of 2002.




<PAGE>


                                   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.

                                           TARPON INDUSTRIES, INC.
                                             (Registrant)

Dated:  November 14, 2006                  By:   /s/ James W. Bradshaw
                                              ------------------------------
                                              James W. Bradshaw
                                              Its:  Chief Executive Officer


                                           By:/s/ J. Stanley Baumgartner, Jr.
                                              -------------------------------
                                              J. Stanley Baumgartner, Jr.
                                              Its: Chief Financial Officer



<PAGE>


Exhibit           Description

                                  EXHIBIT INDEX

Exhibit           Description

31.1           Certifications  of  Chief  Executive  Officer  Pursuant  to  Rule
               13a-14(a),   as  Adopted   Pursuant   to   Section   302  of  the
               Sarbanes-Oxley Act of 2002.
31.2           Certifications  of  Chief  Financial  Officer  Pursuant  to  Rule
               13a-14(a),   as  Adopted   Pursuant   to   Section   302  of  the
               Sarbanes-Oxley Act of 2002.
32.1           Certifications  of Chief  Executive  Officer and Chief  Financial
               Officer  Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant
               to Section 906 of the Sarbanes-Oxley Act of 2002.