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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549



FORM 10-K



(Mark One)

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



For the fiscal year ended December 31, 2005



or



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



For the transition period
from                    to



Commission File Number 0-23426

REPTRON ELECTRONICS, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Florida                                                        |  | 38-2081116                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



|                                         |  |           
|---------------------------------------- |  | ----------
|13700 Reptron Boulevard, Tampa, Florida  |  | 33626     
|(Address of principal executive offices) |  | (Zip Code)



Registrants
telephone number, including area code: (813) 854-2000



Securities registered pursuant to Section 12(b) of the Act: None



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



|                              
|------------------------------
|Title of Each Class           
|Common Stock, $.01 par value  
|Senior Secured Notes, due 2009



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



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



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



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule
12b-2).    Yes ̈No  x



Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer.

|                        |   |  |                   |   |  |                       |  
|----------------------- | - |  | ----------------- | - |  | --------------------- | -
|Large accelerated filer |  ̈ |  | Accelerated filer |  ̈ |  | Non-accelerated filer | x



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



The aggregate market value of shares of the registrants common stock held by non-affiliates of the registrant based upon the closing sale price of our common stock on June 30, 2005, the last day of our second
fiscal quarter as reported on the Over-The-Counter Bulletin Board, was approximately $5,500,000.



Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  x    No ̈



The number of shares of the registrants common stock issued and outstanding as of March 30, 2006 was 5,000,000.



Documents Incorporated by Reference:



Portions of Reptrons definitive proxy statement for the 2006 Annual Meeting of Reptrons Shareholders are incorporated by reference into
Part III of this Form 10-K.

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##### Table of Contents

REPTRON ELECTRONICS, INC.



FORM 10-K ANNUAL REPORT

Fiscal Year ended December 31, 2005



TABLE OF CONTENTS



|                        |  |                                                                                                                 |  |     
|----------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|Item Number inForm 10-K |  |                                                                                                                 |  | Page
|PART I                 
|                        |  |                                                                                                                
|1.                      |  | Business                                                                                                        |  | 3   
|                        |  |                                                                                                                
|1A.                     |  | Risk Factors                                                                                                    |  | 10  
|                        |  |                                                                                                                
|1B.                     |  | Unresolved Staff Comments                                                                                       |  | 15  
|                        |  |                                                                                                                
|2.                      |  | Properties                                                                                                      |  | 15  
|                        |  |                                                                                                                
|3.                      |  | Legal Proceedings                                                                                               |  | 15  
|                        |  |                                                                                                                
|4.                      |  | Submission of Matters to a Vote of Security Holders                                                             |  | 15  
|                       
|PART II                
|                        |  |                                                                                                                
|5.                      |  | Market For Registrants Common Stock, Related Stockholder Matters and and Issuer Purchases of Equity Securities |  | 16  
|                        |  |                                                                                                                
|6.                      |  | Selected Financial Data                                                                                         |  | 17  
|                        |  |                                                                                                                
|7.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 17  
|                        |  |                                                                                                                
|7A.                     |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 26  
|                        |  |                                                                                                                
|8.                      |  | Financial Statements and Supplementary Data                                                                     |  | 26  
|                        |  |                                                                                                                
|9.                      |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                            |  | 26  
|                        |  |                                                                                                                
|9A.                     |  | Controls and Procedures                                                                                         |  | 26  
|                        |  |                                                                                                                
|9B.                     |  | Other Information                                                                                               |  | 26  
|PART III               
|                        |  |                                                                                                                
|10.                     |  | Directors and Executive Officers of the Registrant                                                              |  | 27  
|                        |  |                                                                                                                
|11.                     |  | Executive Compensation                                                                                          |  | 27  
|                        |  |                                                                                                                
|12.                     |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                  |  | 27  
|                        |  |                                                                                                                
|13.                     |  | Certain Relationships and Related Transactions                                                                  |  | 27  
|                        |  |                                                                                                                
|14.                     |  | Principal Accountant Fees and Services                                                                          |  | 27  
|                        |  |                                                                                                                
|15.                     |  | Exhibits and Financial Statement Schedules                                                                      |  | 28  
|                        | 
|Exhibit Index           |  | 28                                                                                                             
|                        |  |                                                                                                                
|Signatures              |  |                                                                                                                 |  | 30  



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PART I



References to Reptron, the Company, we, us and our refer to Reptron Electronics, Inc.,
unless the context otherwise requires. This document contains certain forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements are within the meaning of that term in Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended and are made in reliance on the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. Factors that could cause or
contribute to actual results to differ materially include the following: business conditions and growth in Reptrons industry and in the general economy; competitive factors; risks due to shifts in market demand; the ability of Reptron to
complete acquisitions; the risks discussed in Item 1A of this report titled Risk Factors and the risk factors listed from time to time in Reptrons reports filed with the Securities and Exchange Commission as well as
assumptions regarding the foregoing. The words believe, plans, estimate, expect, intend, should, may, will, appear, hope,
anticipate, and similar expressions and variations thereof identify certain of such forward-looking statements, which speak only as of the dates on which they were made. These statements are only predictions. Reptron undertakes no
obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors. Readers are cautioned not to place undue reliance on these forward-looking
statements.



|Item 1. | Business
|------- | --------



General



We are an electronics manufacturing services (EMS) company
providing engineering services, display and systems integration services and electronic manufacturing services through our two divisions: Reptron Manufacturing Services (RMS) and Reptron Outsource Manufacturing and Design
(ROMD). RMS offers full electronics manufacturing services including complex circuit board assembly, complete supply chain services and manufacturing engineering services to original equipment manufacturers (OEMs) in a wide
variety of industries including medical, industrial/instrumentation, banking, telecommunications, and semiconductor equipment. ROMD provides value-added display design engineering and system integration services to OEMs primarily in the medical,
semiconductor equipment, and industrial/instrumentation industries.



During 2003, we divested two divisions enabling the Company to focus solely on our core competency as an EMS provider. In June, 2003, we sold certain assets and liabilities of our electronic components distribution business, Reptron
Distribution Services (RDS). In October, 2003, we sold substantially all of the assets and certain liabilities of our memory module division, Reptron Computer Products (RCP). RDS and RCP together comprised our electronic
components distribution (ECD) segment. Descriptions of the ECD segment and its operating results have been included in financial statements and various other documents previously prepared by the Company. However, this annual report and
other future reports filed with the Securities and Exchange Commission will focus primarily on our remaining operations in the EMS industry.



Reptron was incorporated under the laws of Michigan in 1973, reincorporated under the laws of Florida in 2003 and reorganized as a Florida corporation
under Chapter 11 of the U.S. Bankruptcy Code in 2004. Reptrons principle executive offices are located at 13700 Reptron Boulevard, Tampa, Florida 33626, and the telephone number is (813) 854-2000. Information about our Company is also
available at our website at www.reptron.comwhich includes links free of charge to reports and filings we have made with the Securities and Exchange Commission (SEC). The contents of our website are not incorporated by reference
in this Annual Report on Form 10-K and are not part of this report.



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Reorganization



On February 3, 2004, Reptron implemented its previously announced financial restructuring when its pre-negotiated Plan of Reorganization under
Chapter 11 of the U.S. Bankruptcy Code (the Plan or Plan of Reorganization) became effective. Events occurring during 2003 and through February 3, 2004 related to the Chapter 11 proceedings are summarized as follows.



In January 2003, we announced that we were seeking to
restructure $76.3 million principal amount of our outstanding 63/4% Convertible Subordinated Notes (the
Convertible Notes). As part of this initiative, we discontinued all interest payments on the Convertible Notes.



In February 2003, we commenced discussions with certain holders of the Convertible Notes (Ad-hoc Committee) to discuss the financial condition
of the Company and the proposed restructuring. We engaged in extensive, arms length negotiations with the Ad-hoc Committee regarding the terms of the consensual restructuring of Reptron.



On October 28, 2003, we filed a voluntary petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. Under the terms of the Plan, substantially all of our general unsecured creditors (except for holders of the Convertible Notes and certain other creditors) received full payment for all prepetition
claims within ninety days subsequent to the Plans effective date. The Plan was confirmed by the bankruptcy court on January 14, 2004 and became effective February 3, 2004, resulting in conversion of the $76.3 million of Convertible
Notes, $6.4 million of accrued interest and $0.8 million of other liabilities into $30 million of Senior Secured Notes due in 2009 (New Notes) and the issuance of 95% of the common stock of the reorganized entity (New Common
Stock). Previously outstanding common stock was exchanged for 5% of the New Common Stock. The New Notes carry an interest rate of seven percent per annum during the first two years and eight percent per annum during the remaining three years.



In accordance with the Plan, Reptron, among other matters:



| |  |  | Issued 5,000,000 shares of New Common Stock;
| | - |  | --------------------------------------------



| |  |  | Issued the New Notes;
| | - |  | ---------------------



| |  |  | Adopted a new stock option plan;
| | - |  | --------------------------------



| |  |  | Canceled the Convertible Notes, previously outstanding common stock, and previously outstanding stock options.
| | - |  | --------------------------------------------------------------------------------------------------------------



Interest expense of approximately $4.3 million on the Convertible Notes was
accrued through October 28, 2003, the Chapter 11 petition filing date, even though we discontinued interest payments on such debt. Interest expense for 2003 excludes $0.9 million of stated contractual interest associated with the Convertible
Notes between October 28, 2003 and December 31, 2003. No interest expense was recorded on the Convertible Notes in 2004.



The Company incurred $4.1 million of reorganization costs during 2003 and $1.0 million in 2004, which primarily includes professional fees of
approximately $2.4 million, a write-off of debt issuance costs of approximately $1.5 million, and contract settlement and other miscellaneous costs of approximately $1.2 million.



The Companys emergence from Chapter 11 bankruptcy proceedings on February 3, 2004 resulted in a new reporting
entity and adoption of fresh start reporting, in accordance with Statement of Position No. 90-7 (SOP 90-7), Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. Although the effective date of the Plan
was February 3, 2004, the Company has accounted for the consummation of the Plan as if it occurred on January 31, 2004. As a result of the extinguishment of the liabilities subject to compromise, Reptron recognized a reorganization gain on
debt discharge amounting to $3.5 million, representing the excess of the



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carrying value of those liabilities compared to managements estimate of the fair value of the New Common Stock and the New Notes. As provided for in
the Companys Plan of Reorganization, the holders of the liabilities subject to compromise would receive their ratable portion of the New Common Stock and New Notes in full satisfaction of those liabilities.



The following unaudited financial information reflects the implementation of
the Plan as of the close of business on January 31, 2004. Reorganization adjustments have been made to reflect the discharge of debt and adoption of fresh start reporting in accordance with SOP 90-7. The reorganization value of the Company
immediately after the restructuring was approximately $78.1 million which was the basis used to allocate the value of the assets and liabilities of Reptron in conformity with Statement of Financial Accounting Standards No. 141 (SFAS
141), Business Combinations. Reptron determined that independent third party appraisals of its long-term tangible and intangible assets was necessary in order to allocate the reorganization value of the Company to its various
assets at January 31, 2004. The fresh-start adjustments included in the table which follows represent managements estimate of adjustments necessary to record assets and liabilities at fair value with consideration given to the appraisal
work that has been completed. The amount of net operating losses (NOL) that can be utilized in any given year is limited based on Section 382 of the Internal Revenue Code. In this regard, the amount of NOL generated prior to
February 2004 that can be utilized in future periods is limited to approximately $3.0 million per year.



|                                           |  |                              |         |   |               |   |         |            |  |   |                    |      |  |   |       
|------------------------------------------ |  | ---------------------------- | ------- | - | ------------- | - | ------- | ---------- |  | - | ------------------ | ---- |  | - | ------
|                                           |  | January 31, 2004 (unaudited)
|                                           |  | PredecessorCompany           |         |   | DebtDischarge |   |         | FreshStart |  |   | ReorganizedCompany
|                                           |  | (In Thousands)              
|Cash and cash equivalents                  |  | $                            | 82      |   |               |   |         |            |  |   |                    |      |  | $ | 82    
|Restricted cash                            |  |                              | 1,690   |   |               |   |         |            |  |   |                    |      |  |   | 1,690 
|Account receivabletrade, net              |  |                              | 13,083  |   |               |   |         |            |  |   |                    |      |  |   | 13,083
|Inventories, net                           |  |                              | 18,845  |   |               |   |         |            |  |   |                    |      |  |   | 18,845
|Prepaid expenses and other                 |  |                              | 3,831   |   |               |   |         |            |  |   | (178               | )(h) |  |   | 3,653 
|Property, plant & equipment                |  |                              | 19,737  |   |               |   |         |            |  |   | 2,808              | (f)  |  |   | 22,545
|Goodwill                                   |  |                              | 18,970  |   |               |   |         |            |  |   | (6,798             | )(i) |  |   | 12,172
|Other intangible assets                    |  |                              |        |   |               |   |         |            |  |   | 4,168              | (g)  |  |   | 4,168 
|Deferred income tax                        |  |                              | 1,843   |   |               |   |         |            |  |   |                    |      |  |   | 1,843 
|Other assets                               |  |                              | 52      |   |               |   |         |            |  |   |                    |      |  |   | 52    
|                                           |  |                              |         |   |               |   |         |            |  |   |                    |      |  |   |       
|Total assets                               |  | $                            | 78,133  |   |               | $ |        |            |  | $ |                   |      |  | $ | 78,133
|                                           |  |                              |         |   |               |   |         |            |  |   |                    |      |  |   |       
|Accounts payabletrade                     |  | $                            | 15,441  |   |               |   |         |            |  |   |                    |      |  | $ | 15,441
|Note payable to bank                       |  |                              | 4,854   |   |               |   |         |            |  |   |                    |      |  |   | 4,854 
|Current portion of long-term obligations   |  |                              | 450     |   |               |   |         |            |  |   |                    |      |  |   | 450   
|Accrued expenses                           |  |                              | 15,063  |   |               |   | (7,077  | )(a)       |  |   |                    |      |  |   | 7,986 
|Convertible subordinated notes due 2004    |  |                              | 76,315  |   |               |   | (76,315 | )(a)       |  |   |                    |      |  |   |      
|Senior secured notes due 2009              |  |                              |        |   |               |   | 30,000  | (b)        |  |   |                    |      |  |   | 30,000
|Long-term obligations                      |  |                              | 3,627   |   |               |   |         |            |  |   |                    |      |  |   | 3,627 
|                                           |  |                              |         |   |               |   |         |            |  |   |                    |      |  |   |       
|Total liabilities                          |  |                              | 115,750 |   |               |   | (53,392 | )          |  |   |                   |      |  |   | 62,358
|                                           |  |                              |         |   |               |   |         |            |  |   |                    |      |  |   |       
|Common stock                               |  |                              | 64      |   |               |   |         |            |  |   | (14                | )(e) |  |   | 50    
|Additional paid-in capital                 |  |                              | 23,146  |   |               |   | 49,875  | (c)        |  |   | (57,296            | )(e) |  |   | 15,725
|Accumulated deficit                        |  |                              | (60,827 | ) |               |   | 3,517   | (d)        |  |   | 57,310             | (e)  |  |   |      
|                                           |  |                              |         |   |               |   |         |            |  |   |                    |      |  |   |       
|Total liabilities and shareholders equity |  | $                            | 78,133  |   |               | $ |        |            |  | $ |                   |      |  | $ | 78,133
|                                           |  |                              |         |   |               |   |         |            |  |   |                    |      |  |   |       

---

|(a) | Reduction of Convertible Notes, accrued interest on the Convertible Notes, and other liabilities subject to compromise for the implementation of the Plan of $83.4 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Increase in long-term obligations of $30.0 million associated with the issuance of the New Notes.
|--- | -------------------------------------------------------------------------------------------------



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|(c) | Increase in additional paid-in capital of $49.9 million reflecting the reorganization and issuance of the New Common Stock.
|--- | ---------------------------------------------------------------------------------------------------------------------------



|(d) | Effect of the gain on the extinguishment of debt. The income tax effects are reflected in the predecessor historical information. As a result, the effect on accumulated deficit is
recognized excluding tax effects.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(e) | Elimination of accumulated deficit and issuance of New Common Stock reflecting the reorganized entity.
|--- | ------------------------------------------------------------------------------------------------------



|(f) | Increase in property, plant and equipment of $2.8 million reflecting the estimated fair market value of the assets on January 31, 2004 based primarily on third party
appraisals.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(g) | Increase in other intangible assets of $4.2 million reflecting the value of the Companys customer relationships on January 31, 2004 based primarily on a third party
appraisal. This asset was determined to have a 12 year life and will be amortized at rates such that 75% of the asset will be amortized in the first five years of the assets life and the remaining 25% of the asset will be amortized over the
remaining seven years of its life.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(h) | Decrease in other current assets based on managements assessment of fair value.
|--- | --------------------------------------------------------------------------------



|(i) | Net effect of the fresh start adjustments detailed in items (f) (g) and (h), above.
|--- | -----------------------------------------------------------------------------------



Background of the Electronic Manufacturing Services Industry



Electronics Manufacturing Services.    The EMS industry has experienced rapid changes over the
past several years as an increasing number of original equipment manufacturers (OEMs) have chosen to outsource printed circuit board assemblies, display product integration, and total product assembly to electronics manufacturing
specialists such as Reptron Manufacturing Services and Reptron Outsource Manufacturing and Design. Factors driving OEMs to favor outsourcing to electronics manufacturing specialists include:



| |  |  | Reduced Time to Market.    Because of the intense competitive pressures and rapidly progressing technology in the electronics industry, OEMs are faced
with increasingly short product life-cycles and therefore have a growing need to reduce the time required to bring a product to market. OEMs can reduce their time to market by using an electronics manufacturers established manufacturing
expertise, engineering capabilities, and other infrastructure.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Minimized Capital Investment.    As electronic products have become more technologically advanced, the manufacturing process has become increasingly
automated and highly intricate, and manufacturers have had to invest in new capital equipment at an accelerated rate. By outsourcing to electronics manufacturing specialists, OEMs are able to lower their investment in inventory, facilities and
equipment, thereby enabling them to allocate capital to other activities such as sales and marketing and research and development.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Focused Resources.    Because the electronics industry is experiencing greater levels of competition and more rapid technological change, many OEMs
increasingly seek to focus their resources on activities and technologies that add greater value. By offering turnkey manufacturing services and comprehensive electronic assembly, electronics manufacturing specialists permit OEMs to focus on their
core business activities, such as product development and marketing.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Access to Leading Edge Manufacturing Technology.    Electronic products and electronics manufacturing technology have become increasingly sophisticated
and complex. OEMs desire to work with electronics manufacturing specialists in order to gain access to their technological expertise.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Improved Inventory Management and Purchasing Power.    Electronics industry OEMs are faced with increasing difficulties in planning, procuring and
managing their inventories efficiently due to frequent design changes, short product life-cycles, large investments in electronic components, component price fluctuations and the need to achieve economies of scale in materials procurement.
Electronics manufacturing specialists are able to manage both procurement and inventory, and have demonstrated proficiency in purchasing components at improved pricing.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Access to Low Cost Manufacturing.    The rapid move towards globalization has rendered the electronics industry to be more competitive than ever before.
Therefore, OEMs require access to low cost manufacturing regions. Electronic manufacturing services providers have established facilities and supply chains in these low cost regions enabling access to low cost manufacturing and materials.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Strategy



Reptrons principal business objective is to expand its
presence as an electronics manufacturing services provider within specific market segments. Reptron has formed a strategy to achieve this objective based upon the following key elements:



| |  |  | Target Manufacturing Customers in Specific Market Segments.    Reptron Manufacturing Services follows a well-defined strategy which focuses on complex
assemblies in medium-to-high volumes for commercial and industrial customers. Additionally, Reptron Manufacturing Services seeks customers that will utilize its engineering expertise and its ability to assemble customers products by
integrating printed circuit board assemblies into other elements of the customers products (sometimes referred to as total box build). Reptron Manufacturing Services also seeks customer relationships in which Reptron Manufacturing
Services is the primary source and avoids engagements requiring an overflow supplier. Reptron Manufacturing Services targets customers in a variety of industries to establish diversity among the customers and industries served. Primary target
industry segments include medical and industrial/instrumentation.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Leverage Investments Made in its Manufacturing Facilities and Other Infrastructures.    Reptron has invested in facilities and other infrastructures that
will allow it to expand its business. Reptron believes its manufacturing facilities can accommodate approximately $300 million in annual contract manufacturing net sales based on its current mix of business. Reptrons 2005 net sales totaled
approximately $138 million. Consequently, Reptron believes there is adequate capacity to support future sales growth.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Focus On Market Segments Seeking Domestic Manufacturing.    Reptron has four manufacturing facilities all located within the continental United States. In
recent years the global outsourcing trend to low cost labor regions has gained significant momentum. Reptron seeks to engage market segments and customers whose products cannot be efficiently produced in such low cost labor areas and whose
preference is to have their products manufactured in the United States. The Company seeks relationships where there is a good match between the customers requirements and our service offering. These characteristics often include: various forms
of engineering assistance, new product introduction and early stage production, difficulty in forecasting requiring flexible delivery schedules, concern over theft of intellectual property, heavy or bulky product which possesses a U.S. destination
creating significant shipping costs.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Electronic Manufacturing
Services (EMS)



Our operations include Reptron
Manufacturing Services and Reptron Outsource Manufacturing and Design. Reptron Manufacturing Services currently operates from three locations and represents approximately 87% of total 2005 net sales. Reptron Outsource Manufacturing and Design was
acquired in 1999 and operates from a single facility. Reptron Outsource Manufacturing and Design represents approximately 13% of our total 2005 net sales.



Manufacturing Operations.    Reptron Manufacturing Services provides turnkey manufacturing services, including the purchase of
customer-specified components from its extensive network of component suppliers, assembly of components on printed circuit boards, performance of post-production testing and in certain instances total box build assembly. Reptron Manufacturing
Services attempts to perform as much of a given manufacturing process as is feasible and generally does not perform labor-only, consignment assembly functions unless management believes that such engagements may provide a direct route to turnkey
contracts. Typical manufacturing engagements include medium to high volume assembly of complex products.



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Reptron Manufacturing Services provides design-for-manufacturability engineering services as well as
surface mount technology (SMT) conversion from pin through hole (PTH) interconnection technologies and printed circuit board layout services for existing products. Reptron Manufacturing Services also provides test process
design capabilities that include the design and development of test fixtures and procedures and software for both in-circuit tests and functional tests of circuit boards, components and products.



Reptron Manufacturing Services is able to efficiently manage its materials
procurement and inventory management functions. The inherent scheduling and procurement challenges in medium volume production of a large number of different circuit board assemblies require a high level of expertise in material procurement. Reptron
Manufacturing Services obtains its electronic components from a wide variety of manufacturers and distributors.



Reptron Outsource Manufacturing and Design performs product assembly services primarily for customers in the medical, industrial and semiconductor
equipment market niches. This division also possesses specific expertise in flat panel display technology. We provide various forms of engineering, product burn-in, clean room environments and other services. This total service approach tends to
produce customer loyalty and higher margins.



Marketing and
Customers.    Reptron Manufacturing Services follows a well-defined marketing strategy, which includes the following key elements:



| |  |  | Target Customers Requiring Complex Printed Circuit Board Assemblies Produced Domestically.Reptron Manufacturing Services focuses on complex
assemblies in medium-to-high volumes for customers primarily in the medical, industrial/instrumentation, banking and telecommunications industries. Reptron Manufacturing Services does not manufacture extremely high volume printed circuit board
assemblies for the personal computer, consumer products or automotive industries. We target complex assemblies that require engineering capabilities and are not easily produced in low labor cost regions of the world. Reptron Manufacturing Services
gains access to a significant number of these kinds of customers through its direct sales force and independent manufacturers representatives. Additionally, Reptron Manufacturing Services expands its market and customer development through its
participation in industry consortiums and targeted trade shows within its chosen market niches.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Target Customer Relationships where Reptron Manufacturing Services is the Primary Source.    Reptron Manufacturing Services seeks customers that have
decided to strategically outsource substantially all circuit board assembly. Consequently, Reptron Manufacturing Services markets its services as a partnership with the customer and encourages the customer to view Reptron Manufacturing
Services as an extension of its own manufacturing capabilities. Reptron Manufacturing Services attempts to avoid relationships where it is used as an overflow supplier to manage peak volume requirements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Maintain a Diverse Customer and Industry Base.    Reptron Manufacturing Services targets customers primarily in the medical, industrial/instrumentation,
banking and telecommunications industries and seeks to maintain a diversity of customers among these industries and within each industry. In addition, Reptron Manufacturing Services believes that the industries that it targets make products that
generally have longer life cycles, more stable demand and less price pressure compared to consumer oriented products. Nevertheless, Reptron Manufacturing Services customers from time to time, experience downturns in their respective businesses
resulting in fluctuations in demand for Reptron Manufacturing Services services. See Risk Factors.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Target Customers Seeking Value-Added Services.    Reptron Manufacturing Services offers a wide variety of services in addition to circuit board assembly
and total product assembly. Theses services include various forms of engineering and inventory control programs. Reptron Manufacturing Services seeks to include its services offering in customer engagements to avoid a commodity service business
model. We believe selling these value-added services promotes customer longevity and more profitable customer engagements and differentiates the Company from low cost global EMS solutions.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Our marketing cycle for customers meeting these criteria normally spans six-to-twelve months.
Additionally, the start-up phase for an engagement may run another six months. Typically, during this phase, significant investments are made by Reptron Manufacturing Services and the customer to successfully launch a high number of different,
complex circuit board assemblies. Reptron Manufacturing Services works closely with its customers in all phases of design, start-up and production, and through this cooperative effort develops a close working relationship with the customer. These
relationships, and the investments made both in time and financial resources by the customer and Reptron Manufacturing Services, management believes, promotes long-term customer loyalty.



Reptron seeks to maintain diversity within its customer base and industries served. During 2005, Reptrons largest
three EMS customers represented 15%, 11%, and 10%, respectively, of total Reptron EMS net sales. During 2004, Reptrons largest three EMS customers represented 13%, 12%, and 12%, respectively, of total Reptron EMS net sales. The following table
sets forth the principle industries served and the percentage of Reptrons EMS net sales derived from these industries for 2005 and 2004.



|                           |  |            |   |  |            |  
|-------------------------- |  | ---------- | - |  | ---------- | -
|                           |  | 2005       |   |  | 2004       |  
|Industry                   |  | % of Sales |   |  | % of Sales |  
|Medical                    |  | 42         | % |  | 42         | %
|Semiconductor Equipment    |  | 6          | % |  | 8          | %
|Industrial/Instrumentation |  | 19         | % |  | 16         | %
|Telecommunications         |  | 17         | % |  | 15         | %
|Banking                    |  | 14         | % |  | 15         | %
|Other                      |  | 2          | % |  | 4          | %



Manufacturing
Facilities.    Reptron Manufacturing Services operates three plants. These manufacturing facilities are equipped with advanced SMT assembly equipment and PTH insertion equipment. The Gaylord, Michigan 80,000 square foot
manufacturing facility is owned by us and was constructed in 1988. The Tampa, Florida 150,000 square foot manufacturing and corporate headquarters facility is owned by us and was completed in the first quarter of 1997. Reptron Manufacturing Services
currently leases five buildings in Hibbing, Minnesota, which total 100,000 square feet. These buildings are owned in part by two individuals on Reptron Manufacturings senior management team. Additionally, we own a 40,300 square foot building
in Hibbing, Minnesota which is occupied by Reptron Manufacturing Services. Reptron Outsource Manufacturing and Design operates from a 68,000 square foot leased facility in Fremont, California.



The Hibbing, Minnesota manufacturing plant accounted for approximately 30% of
Reptrons, 2005 EMS net sales, with the Tampa, Florida manufacturing plant totaling approximately 35% of 2005 EMS net sales, the Gaylord, Michigan plant totaling approximately 22% of 2005 EMS net sales, and the Fremont, California facility
producing the remaining 13% of 2005 EMS net sales.



Competition



We face substantial competition. Many of our competitors
have international operations and significantly greater manufacturing, financial, marketing and research and development resources and broader name recognition than we do. Reptron competes in a highly fragmented market composed of a diverse group of
EMS providers. We believe that the key competitive factors in our markets are manufacturing flexibility, price, manufacturing quality, advanced manufacturing technology and reliable delivery. Many EMS providers operate extremely high-volume
facilities and focus on target markets, such as the computer industry, that Reptron does not seek to serve. Reptron considers its key competitive advantages to include its expertise in medium-to-high volume, flexible batch processing, its provision
of value-added services and its material management techniques. We believe that our expertise in flexible, batch processing differentiates us from high-volume competitors because of the relative complexity of economically fulfilling a large number
of batch contracts. We also believe that by focusing on medium-to-high volume production runs, Reptron competes effectively.



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Reptron Outsource Manufacturing and Design competes in a highly fragmented market composed of a diverse
group of display integration companies and electronic component distributors that have strategic alliances with display integration companies. We believe that market reputation combined with a high degree of technical competency, has allowed Reptron
Outsource Manufacturing and Design to compete effectively in the marketplace.



Management Information Systems



We have made
significant investments in computer hardware, software and management information system (MIS) personnel. We employ approximately 16 individuals who are responsible for hardware upgrades, maintenance of current software and related
databases and augmenting software packages with custom programming. We currently maintain an internet web page that provides a wide variety of information. Our expanded use of web based technologies include enhanced e-mail and interactive use of our
intranet for data warehouse applications such as quality documentation, human resources documentation, MIS systems documentation and interactive corporate forms.



We operate Reptron Manufacturing Services with UNIX-based software packages written in a fourth generation language. The
UNIX-based software packages used by Reptron Manufacturing Services may be operated on a variety of hardware platforms. Therefore, the Company is not restricted to the use of computer hardware from any one supplier and does not have the constraints
associated with proprietary hardware.



Reptron Manufacturing
Services operates an integrated MRP II package which has also been greatly enhanced by its MIS staff through custom programming. This system is used to operate and integrate Reptron Manufacturing Services manufacturing plants with central
administrative functions.



Reptron Outsource Manufacturing and
Design operates an integrated software package, MAS90. This client-server software has minimal hardware performance requirements and interfaces with a number of database formats, allowing the flexibility of utilizing third-party reporting tools.



Employees



As of March 1, 2006, we employed 952 persons, of whom 889 were
dedicated to Reptron Manufacturing Services, 59 were dedicated to Reptron Outsource Manufacturing and Design and 4 were corporate employees. Hourly employees at the manufacturing plant in Hibbing, Minnesota are covered under a collective bargaining
agreement with the International Brotherhood of Electrical Workers. The current term of the collective bargaining agreement expires in September 2006.



|Item 1A. | Risk Factors
|-------- | ------------



An
investment in our common stock or our Senior Secured Notes is extremely risky. The following risks identify some of the factors we believe could cause our actual results to differ materially from expected and historical results. The trading price of
our common stock or Senior Secured Notes could decline due to any of these risks and you may lose all or any part of your investment.



No Assurance of Success of Cost Reduction Plan.    Due to the significant and continuing operating losses we have experienced
since emerging from bankruptcy, we have initiated a cost reduction plan in an effort to better align our operating cost structure with our reduced level of sales. As part of this plan, we expect to reduce our labor costs through minimizing overtime
and the use of temporary employees, natural employee attrition, and reductions in our work force. We are also reviewing other potential areas of cost reduction including medical benefits, workers compensation risk management and consolidation of
administrative functions. There can be no assurance that we will be successful in implementing this plan or reducing our operation costs.



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No assurance we will be able to achieve profitability.    Since our emergence
from bankruptcy we have experienced significant operating losses and significant unused excess capacity in our facilities. We must increase our revenues and gross profit and/or reduce operating costs and more effectively utilize our excess capacity
in our plants in order to achieve profitability. We cannot be certain that we can achieve profitability in the future or, if we do, that we can sustain or increase profitability on a quarterly or annual basis.



Volatility in the market price of our common
stock.    Our second quarter and year ending December 31, 2005 operating results were negatively impacted by the impairment charges on our goodwill and deferred tax asset. In addition, we continued to experience
significant operating losses in the three and nine months ended September 30, 2005 and year ended December 31, 2005. These factors and others listed below may cause the price of our common stock to fluctuate:



| |  |  | demand for our services and timing of orders for our services;
| | - |  | --------------------------------------------------------------



| |  |  | the loss of one or more of our key customers or a reduction, delay or cancellation of orders from one or more of these parties;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to effectively utilize the existing excess capacity in our plants;
| | - |  | ------------------------------------------------------------------------------



| |  |  | actual or anticipated fluctuations in our operating results; and
| | - |  | ----------------------------------------------------------------



| |  |  | inconsistent or low levels of trading volume of our common stock.
| | - |  | -----------------------------------------------------------------



Our operating expenses and inventory levels are based on our expectations of future revenues and our operating expenses are relatively fixed in the short
term. Additionally, our sales have historically been significantly concentrated towards the end of the quarter. Consequently, if anticipated sales and shipments in any quarter do not occur in any quarter when expected, operating expenses and
inventory levels could be disproportionately high, and our operating results for that quarter and, potentially, future quarters may be negatively impacted. Because our operating results have been volatile, you should not rely on the results of one
quarter as an indication of our future performance. Our stock price has and may continue to fluctuate substantially.



Customer Effect from Bankruptcy Filing and Lack of Profitability.    During 2001 through 2005, we incurred significant
financial losses. These losses combined with defaults incurred on our senior secured revolving credit facility (Credit Agreement) and Convertible Notes culminated in us filing a voluntary petition under Chapter 11 of the U.S. Bankruptcy
Code on October 28, 2003. Our customers engage us to produce complex electronic products. These manufacturing engagements require significant investment and planning by both our customers and us. Our inability to perform for our customers for
whatever reason would have a significant impact on their business operations. Although we have subsequently completed our bankruptcy proceedings, we have not succeeded in achieving profitability since emerging from bankruptcy. It is possible that
our major customers could suspend or terminate business activity with us due to their concerns about our long term financial stability. These factors could have a material adverse effect on our financial position, cash flows, and operating results.



Supplier Effect from Bankruptcy
Filing.    We rely on a supply chain comprised of approximately 900 different suppliers. Many of the materials delivered by this supply chain are custom or built to order requiring advanced planning, tooling and significant
disengagement costs. Our Plan confirmed by the bankruptcy court provided for the vast majority of the Companys suppliers to be paid in full for both pre-petition and post-petition shipments. Although our suppliers have been paid in full, it is
possible that our bankruptcy filing and subsequent financial condition could result in several adverse actions including restricting our credit limit and the time allowed to pay outstanding obligations, elimination of all credit lines requiring cash
in advance or cash on delivery terms, price increases to compensate for perceived risks and choosing not to supply us altogether thereby requiring additional time and investment to source materials. These actions could have a material adverse effect
on our Company.



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Need to Add New Customers.    Our future success is greatly dependent upon our
ability to increase sales. Our growth strategy includes maintaining and growing sales from current customers as well as adding new customers. Although the Plan has become effective, our ability to attract new customers could be negatively impacted
due to their concerns about our long term financial stability and the fact that we have not achieved profitability since emerging from bankruptcy. Our inability to add new customers could have a material adverse effect on our business.



Customer Concentration and Related Factors Affecting Operating
Results.    We have certain customers that account for a significant part of total net sales. Our three largest customers accounted for approximately 15% (Datascope), 11% (Diebold), and 10% (Hunt Technologies) of total net
sales in 2005, respectively, and 13% (Datascope), 12% (Diebold), and 12% (Eastern Research) of total net sales in 2004, respectively. The loss of one or more of these major customers, or a reduction in their level of purchasing, could have a
material adverse effect on our business, results of operations and financial condition. Some of our customers have expressed concern over the continuing losses we have incurred since emerging from bankruptcy and the previous bankruptcy filing. It is
possible that our major customers could suspend or terminate business activity with us due to these concerns. This action would have a material adverse effect on our business.



Our operating results are affected by a number of factors, including fixed plant utilization, price competition, ability to
keep pace with technological developments, the degree of automation that can be used in an assembly process, efficiencies that can be achieved by managing inventories and fixed assets, the timing of orders from major customers, the timing of capital
expenditures in anticipation of increased sales, the substantial start-up costs routinely incurred on new assemblies, customer product delivery requirements and costs and shortages of components and labor. In addition, because of the limited number
of our customers and the corresponding concentration of their accounts receivable, the insolvency or other inability or unwillingness of our customers to pay for manufacturing services could have a material adverse effect on our operating results.



The Volume and Timing of Customer Sales May
Vary.    The volume and timing of purchase orders placed by our customers are affected by a number of factors, including variation in demand for customers products, customer attempts to manage inventory, changes in
product design or specifications and changes in the customers manufacturing strategies. We typically do not obtain long-term purchase orders or commitments but instead work with our customers to develop nonbinding forecasts of future
requirements. Based on such nonbinding forecasts, we make commitments regarding the level of business that we will seek and accept, the timing of production schedules and the levels and utilization of personnel and other resources. A variety of
conditions, both specific to each individual customer and generally affecting each customers industry, may cause our customers to cancel, reduce or delay orders that were either previously made or anticipated. For example, voting equipment
accounted for approximately 11% of our net sales in 2003, however, we received no sales orders for voting equipment in 2004 or 2005. The timing and level of acceptance of the use of voting equipment as opposed to current methods makes this market
segment highly volatile. Generally, our customers may cancel, reduce or delay purchase orders and commitments without penalty, except for payment for services rendered or products completed and, in certain circumstances, payment for materials
purchased and charges associated with such cancellation, reduction or delay. Significant or numerous cancellations, reductions or delays in orders by our customers, or any inability by our customers to pay for services provided by us or to pay for
components and materials purchased by us on our customers behalf, could have a material adverse effect on our operating results.



Competition.    We face substantial competition. We believe that many of our competitors have international operations and
significantly greater manufacturing, financial, marketing, research and development resources, and broader name recognition than we do. We compete in a highly fragmented market composed of a diverse group of EMS providers. We believe that the key
competitive factors in our markets are manufacturing flexibility, price, manufacturing quality, advanced manufacturing technology, reliable delivery and financial stability. Additionally, We face the potential risk that our customers may elect to
produce their products internally, thereby eliminating our manufacturing opportunities. There can be no assurance that we will be able to continue to compete effectively with existing or potential competitors.



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Availability of Components and Inventory Management.    We rely on third-party
suppliers for electronic components. We believe that component shortages would have a material adverse effect on our ability to service our customers. At various times, there have been shortages of components in the electronics industry and from
time to time the supply of certain electronic components is subject to limited allocations. If shortages of components occur, we expect that we may be forced to delay shipment or to purchase components at higher prices (that we may not be able to be
pass on to our customers), which may have a material adverse effect on customer demand, our ability to service customer needs or our gross margins. We believe that any of these events could have a material adverse effect on our operating results. If
we fail to manage our inventory effectively, we may bear the risk of fluctuations in materials costs, scrap, and excess inventory, all of which could have a material adverse effect on our business, financial condition and results of operations. We
are required to forecast our future inventory requirements based upon the anticipated demands of our customers. Inaccuracies in making these forecasts could result in a shortage or excess of materials. In addition, delays, cancellations, or
reduction of orders by our customers could result in an excess of materials. A shortage of materials could lengthen production schedules and increase costs. An excess of materials may increase the costs of maintaining inventory and may increase the
risk of inventory obsolescence, both of which may increase expenses and decrease profit margins and operating income.



Dependence Upon Key Personnel.    Reptron is largely dependent on the efforts and abilities of its key managerial and technical
employees. We have not offered consistent increases in compensation for the last five years. Additionally, we have reduced medical and other benefits during this time frame in an effort to reduce operating expenses. The loss of the services of
certain key employees or an inability to attract or retain qualified employees could have a material adverse effect on our operating results.



Migration of Electronic Manufacturing to Asia and Other Low-Cost Regions.    A growing number of electronic manufacturing
service providers have relocated a portion or all of their manufacturing operations to Asia and other low cost regions. In particular, the growth rate in China has been very strong in recent years to the detriment of other regions of the world. This
trend is driven primarily by high availability of low cost labor. In order for us to remain competitive in the markets we serve and have targeted, we may need to expand a portion of our manufacturing capability to low cost regions. If we are unable
to develop a low-cost manufacturing presence, our ability to effectively compete may be materially and adversely affected. There can be no assurance that we will develop a manufacturing presence in low cost regions.



Implementation of European RoHS Requirements and Other Environmental
Regulations.    The European Union and the United Kingdom have developed additional manufacturing requirements aimed at the elimination of lead and other substances from most products sold in this region. These regulations
become effective in 2006 and will require the industry to significantly change its manufacturing process and materials used in producing electronic products. These regulations will require us to make substantial additional capital investments in
manufacturing equipment and introduce additional costs to the manufacturing and materials procurement process. There can be no assurance that we will be able to comply with these new requirements in a timely fashion or that the additional costs
associated with compliance will not have a material adverse effect on our operating results.



Expiration of Labor Union Contract.    The production workers in the Hibbing, Minnesota facility are organized and represented by a labor union. The current labor agreement expires in
September, 2006. There can be no assurance that we will be able to negotiate a new labor agreement with favorable terms and conditions that will allow for profitable operating results or that work stoppages will be avoided during the negotiation
period.



Start-up Costs and Inefficiencies Related To New or
Transferred Programs Can Adversely Affect Our Operating Results.    Start-up costs, the management of labor and equipment resources in connection with the establishment of new programs and new customer relationships, and the
need to estimate required resources in advance can adversely affect our gross margins and operating results. These factors are particularly prominent in the early stages of the life cycle of new products and new programs. The effects of these
start-up costs and



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inefficiencies can also occur when, and if, we open new facilities. These factors also affect our ability to efficiently use labor and equipment. Due to the
improved economy and more successful marketing efforts, we routinely manage a number of new programs and new customer relationships. Consequently, our exposure to these factors has increased. In addition, if any of these new programs or new customer
relationships were to be terminated, our operating results could be harmed, particularly in the near term.



Governmental Regulation Could Adversely Affect Our Business.    Our operations are subject to various federal, state and
local regulatory requirements on environmental, waste management and health and safety measures relating to the use, release, storage, treatment, transportation, discharge, disposal and clean-up of hazardous substances and wastes, as well as
practices and procedures applicable to the construction and operation of our plants. In addition, we have registered with the United States Food and Drug Administration as a medical device manufacturer. The FDA and various state agencies inspect our
facilities from time to time to determine whether we are in compliance with the FDAs Quality Systems Regulation relating to medical device manufacturing companies, including regulations concerning manufacturing, testing and quality control.
Our failure to comply with any of these applicable laws or regulations could result in regulatory penalties, fines and legal liabilities, suspension of production or curtailment of our operations or sales.



Excess Manufacturing Capacity may Adversely Effect Our
Operations.    Our facilities in Hibbing, Gaylord and Tampa have significant underutilized capacity. The excess capacity means we incur increased fixed costs in our products relative to the revenue we generate which could
have an adverse effect on our results of operation. If we are unable to improve utilization levels and correctly manage capacity, the increased expense levels will have an adverse effect on our business, financial condition and results of
operations.



Natural Disasters and Acts of Terrorism Could
Adversely Affect Our Business.    We have a facility located in Tampa, Florida. Hurricanes, tropical storms, flooding and other natural disasters are common events for Florida which could affect our operations in this
geographic region. Any disruption from these or other natural disasters could have a material adverse impact on our operations and financial results. Acts of terrorism or war against the United States of America could reduce consumer confidence and
create general economic weakness which could also adversely affect our business.



We Have Substantial Indebtedness. We have $30 million of indebtedness in the form of senior secured notes due in 2009. The level of our indebtedness, among other things, could:



| |  |  | make it difficult for us to obtain any necessary future financing for working capital, capital expenditures, debt service requirements or other purposes;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | require us to dedicate a substantial portion of our expected cash flow from operations to service our indebtedness, which would reduce the amount of our expected cash flow available
for other purposes, including working capital and capital expenditures;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit our flexibility in planning for or reacting to, changes in our business: and
| | - |  | ----------------------------------------------------------------------------------



| |  |  | make us more vulnerable in the event of a downturn in our business.
| | - |  | -------------------------------------------------------------------



There can be no assurance that we will be able to meet our debt service obligations, including our obligation under the Senior Secured Notes.



We May Not Be Able to Pay Our Debt and Other
Obligations.    If our cash balance and cash flows from operations are inadequate to meet our obligations, we could face substantial liquidity problems. If we are unable to generate sufficient cash flow or otherwise obtain
funds necessary to make required payments on our Senior Secured Notes or our other obligations, we would be in default under the terms thereof. Default under the indenture would permit the holder of the notes to accelerate the maturity of the notes
and could cause cross defaults under our other indebtedness. Any such default could have a material adverse effect on our business, prospects, financial condition and operating results. In addition, we can not assure you that we would be able to
repay amounts due in respect of the notes if payment of the notes were to be accelerated following the occurrence of an event of default as defined in the indenture.



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##### Table of Contents

|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------



None



|Item 2. | Properties
|------- | ----------



Owned
facilities.    We own a 150,000 square foot facility located in Tampa, Florida which is occupied by the Tampa Reptron Manufacturing Services plant and the corporate headquarters for the entire Company. We also own an 80,000
square foot Reptron Manufacturing Services facility in Gaylord, Michigan. Finally, we own a 40,300 square foot manufacturing building which is one of six buildings that forms our manufacturing campus in Hibbing, Minnesota.



Leased Facilities.    We currently lease a total
of 100,000 square feet of manufacturing and administrative offices for the Reptron Manufacturing Services operation in Hibbing, Minnesota. The lease on these buildings expires in December 2007.



We lease a total of 68,000 square feet of manufacturing and administrative
offices for the Reptron Outsource Manufacturing and Design operation in Fremont, California. The lease on the building expires in November 2008.



|Item 3. | Legal Proceedings
|------- | -----------------



We are, from time to time, involved in litigation relating to claims arising out of our operations in the ordinary course of business. We believe that none of these claims, which were outstanding as of December 31, 2005, should have a
material adverse impact on our financial condition or results of operations.



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



None



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##### Table of Contents

PART II



|Item 5. | Market For Registrants Common Stock and Related Stockholder Matters
|------- | --------------------------------------------------------------------



On October 28, 2003, the Company filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Our Plan of Reorganization was
confirmed by the bankruptcy court on January 14, 2004 and became effective on February 3, 2004. The Companys common stock was cancelled and 5,000,000 shares of new common stock (New Common Stock) were issued pursuant to
the Plan. The New Common Stock was distributed on March 22, 2004. The New Common Stock is traded on the Over the Counter Bulletin Board system (OTCBB) under the symbol RPRN. The following table sets forth, for the
periods indicated, the high and low closing prices of our New Common Stock as reported by the OTCBB:



|               |  |      |       |     |   |      
|-------------- |  | ---- | ----- | --- | - | -----
|Fiscal 2005    |  | High |       | Low
|First Quarter  |  | $    | 7.05  |     | $ | 4.70 
|Second Quarter |  | $    | 4.60  |     | $ | 0.80 
|Third Quarter  |  | $    | 1.30  |     | $ | 0.40 
|Fourth Quarter |  | $    | 0.59  |     | $ | 0.22 
|               |  |     
|Fiscal 2004    |  | High |       | Low
|First Quarter  |  | $    | 13.00 |     | $ | 10.50
|Second Quarter |  | $    | 11.61 |     | $ | 6.75 
|Third Quarter  |  | $    | 8.65  |     | $ | 6.25 
|Fourth Quarter |  | $    | 8.45  |     | $ | 6.98 



On March 2, 2005,
the last sale price of our New Common Stock, as reported by The OTCBB was $0.65 per share.



As of March 2, 2005, there were approximately 115 holders of record of our New Common Stock.



We have never declared or paid dividends on our common stock. We do not intend, for the foreseeable future, to declare or pay any cash dividends and
intend to retain earnings, if any, for the future operation and expansion of our business. Our current Credit Agreement prohibits the payment of dividends and our Senior Secured Notes contain restrictive covenants which limit our ability to pay cash
dividends.



The following table sets forth certain information
relating to our equity compensation plans as of December 31, 2005.



EQUITY COMPENSATION PLAN INFORMATION



|                                                       |  |                                                                                                |  |                                                                                |      |                                                                                                                                                |       
|------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------ | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------- | ------
|Plan Category                                          |  | Number of Securitiesto be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) |  | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(b) |      | Number of Securities Remaining Available for Future Issuance UnderEquity Compensation Plans (Excluding Securities Reflected in Column (a))
(c)
|Equity Compensation Plans Approved by Shareholders     |  | 471,666                                                                                        |  | $                                                                              | 6.10 |                                                                                                                                                | 28,334
|Equity Compensation Plans Not Approved by Shareholders |  |                                                                                               |  | $                                                                              |     |                                                                                                                                                |      
|                                                       |  |                                                                                                |  |                                                                                |      |                                                                                                                                                |       
|Total                                                  |  | 471,666                                                                                        |  | $                                                                              | 6.10 |                                                                                                                                                | 28,334
|                                                       |  |                                                                                                |  |                                                                                |      |                                                                                                                                                |       



The equity
compensation plans which existed as of December 31, 2003 were cancelled in conjunction with the Companys Plan of Reorganization filed under Chapter 11 of the U.S. Bankruptcy Code and subsequently confirmed by the bankruptcy court. The
Plan allowed for a new stock option plan with a total of 500,000 options available for future issuance as shown in the table above.



16



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##### Table of Contents

|Item 6. | Selected Financial Data
|------- | -----------------------



As discussed above, the Companys Plan of Reorganization became effective on February 3, 2004. As a result of the implementation of fresh start accounting as of January 31, 2004, the Companys results of operations after
that date are not comparable to results reported in prior periods because of differences in the bases of accounting and the capital structure for the Predecessor Company and the Reorganized Company. To facilitate comparisons to prior periods, the
results of operations for the year ended December 31, 2004, shown below, includes the one month period ended January 31, 2004 for the Predecessor Company and the eleven months ended December 31, 2004 for the Reorganized Company. The
following table summarizes selected financial data and should be read in conjunction with the Consolidated Financial Statements and Notes thereto and Managements Discussion and Analysis of Financial Condition and Results of
Operations appearing elsewhere in this Annual Report on Form 10-K.



|                                                                    |  |                         |           |                     |                               |   |                                    |      |  |                            |           |   |  |   |           |  |   |           |   |  |   |           |  
|------------------------------------------------------------------- |  | ----------------------- | --------- | ------------------- | ----------------------------- | - | ---------------------------------- | ---- |  | -------------------------- | --------- | - |  | - | --------- |  | - | --------- | - |  | - | --------- | -
|                                                                    |  | Predecessor Company     |           | Reorganized Company |                              
|                                                                    |  | Year Ended December 31, |           |                     | One MonthEndedJanuary 31,2004 |   | Eleven MonthsEndedDecember 31,2004 |      |  | Year EndedDecember 31,2005 |          
|(In thousands, except share data)                                   |  | 2001                    |           |                     | 2002                          |   |                                    | 2003 |  |                            |           |  
|Operating Statement Data:                                           |  |                         |           |                     |                               |   |                                    |      |  |                            |           |   |  |   |           |  |   |           |   |  |   |           |  
|Net sales                                                           |  | $                       | 171,388   |                     |                               | $ | 165,101                            |      |  | $                          | 150,067   |   |  | $ | 12,368    |  | $ | 129,230   |   |  | $ | 138,463   |  
|Gross Profit                                                        |  |                         | 14,982    |                     |                               |   | 17,096                             |      |  |                            | 18,932    |   |  |   | 889       |  |   | 15,595    |   |  |   | 16,412    |  
|Income (loss) from continuing operations (1)                        |  |                         | (11,324   | )                   |                               |   | (12,119                            | )    |  |                            | (16,734   | ) |  |   | 1,268     |  |   | (2,113    | ) |  |   | (14,689   | )
|Income (loss) from continuing operations per common sharebasic     |  | $                       | (1.77     | )                   |                               | $ | (1.89                              | )    |  | $                          | (2.61     | ) |  | $ | 0.20      |  | $ | (0.42     | ) |  | $ | (2.93     | )
|Weighted average Common Stock equivalent shares outstandingbasic   |  |                         | 6,389,474 |                     |                               |   | 6,416,319                          |      |  |                            | 6,417,196 |   |  |   | 6,417,196 |  |   | 5,000,000 |   |  |   | 5,000,000 |  
|Income (loss) from continuing operations per common sharediluted   |  | $                       | (1.77     | )                   |                               | $ | (1.898                             | )    |  | $                          | (2.61     | ) |  | $ | 0.20      |  | $ | (0.42     | ) |  | $ | (2.93     | )
|Weighted average Common Stock equivalent shares outstandingdiluted |  |                         | 6,389,474 |                     |                               |   | 6,416,319                          |      |  |                            | 6,417,196 |   |  |   | 6,417,196 |  |   | 5,000,000 |   |  |   | 5,000,000 |  
|                                                                    |  |                         |           |                     |                               |  
|(In thousands)                                                      |  |                         |           |                     |                               |   |                                    |      |  |                            |           |   |  |   |           |  |  
|Balance Sheet Data:                                                 |  |                         |           |                     |                               |   |                                    |      |  |                            |           |   |  |   |           |  |   |           |   |  |   |           |  
|Total assets                                                        |  | $                       | 199,395   |                     |                               | $ | 156,974                            |      |  | $                          | 81,223    |   |  | $ | 78,133    |  | $ | 76,192    |   |  | $ | 67,497    |  
|Long-term obligationsincluding current portion                     |  | $                       | 132,704   |                     |                               | $ | 81,487                             |      |  | $                          | 80,422    |   |  | $ | 80,392    |  | $ | 33,741    |   |  | $ | 33,361    |  

---

|(1) | Includes inventory write-down charge of approximately $0.7 million in the fourth quarter of 2003 and a goodwill impairment charge of approximately $7.8 million also recorded in the
fourth quarter of 2003. Additionally, the Company recorded a goodwill impairment charge of $10.1 million in the second quarter of 2005.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



References to Reptron, the Company, we, us and our refer to Reptron Electronics, Inc.,
unless the context otherwise requires. This document contains certain forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements are within the meaning of that term in Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended and are made in reliance on the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. Factors that could cause or
contribute to actual results to differ materially include the following: business conditions and growth in Reptrons industry and in the general economy; competitive factors; risks due to shifts in market demand; the ability of Reptron to
complete acquisitions; the risks discussed in Item 1A of this report titled Risk Factors and the risk factors listed from time to time in Reptrons reports filed with the Securities and Exchange Commission as well as
assumptions regarding the foregoing. The words believe, plans, estimate, expect, intend, should, may, will, appear, hope,
anticipate, and similar expressions and variations thereof identify certain of such forward-looking statements, which speak only as of the dates on which they were made These statements are only predictions. Reptron undertakes no
obligation to



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publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned that
any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors.
Readers are cautioned not to place undue reliance on these forward-looking statements.



This Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this
report.



Overview



In each of the first three quarters of 2005, we incurred a sizeable
operating loss. As a result, we instituted a cost reduction plan to better align our operating cost structure with current customer demand. This plan included reduction in labor costs through minimizing overtime and the use of temporary employees,
natural employee attrition, and additional reductions in our workforce. These steps were initiated during the second quarter of 2005. Additionally, we also reviewed other areas for cost reductions including medical benefits, workers compensation
risk management and consolidation of administrative functions. We believe these steps as well as potential new customer opportunities had a positive impact on our operating performance in the fourth quarter of 2005 and should continue to benefit our
future operating performance.



2005 Compared to 2004



As discussed elsewhere in this report, the Companys Plan of
Reorganization became effective on February 3, 2004. As a result of the implementation of fresh start accounting as of January 31, 2004, the Companys results of operations after that date are not comparable to results reported in
prior periods because of differences in the bases of accounting and the capital structure for the Predecessor Company and the Reorganized Company.



Net Sales.Net sales increased $9.2 million, or 7.1%, from $129.2 million in the eleven months ended December 31, 2004
to $138.5 million in the year ended December 31, 2005. Predecessor Company sales for the one month period ending January 31, 2004 were approximately $12.4 million which is the primary reason for the sales increase noted above. Considering
the effect of the Predecessor Company, sales decreased year over year by approximately $3.2 million. This decrease is primarily attributable to decreased demand from our established customer base and insufficient sales to new customers. During 2005
and 2004 we transacted business with approximately 50 customers. The three largest customers accounted for approximately 15%, 11% and 10%, respectively, of 2005 net sales as compared to 13%, 12% and 12%, respectively, of 2004 net sales.



Gross Profit.    Gross profit increased $0.8
million or 5.2%, from $15.6 million in the eleven months ended December 31, 2004 to $16.4 million in the year ended December 31, 2005. Predecessor Company gross profit for the one month period ending January 31, 2004 was approximately
$0.9 million which is the primary reason for the increase in gross profit noted above. Considering the effect of the Predecessor Company, gross profit decreased year over year by approximately $0.1 million. The gross margin decreased from 12.1% in
the eleven months ended December 31, 2004 to 11.9% in the year ended December 31, 2005. The variances in gross profit percentages from the prior year periods are primarily attributable to higher labor costs incurred in 2005, in part due to
production inefficiencies associated with new customers and new assembly programs from legacy customers, as well as lower amounts of fixed cost absorption at the lower sales levels experienced in 2005.



Selling, General, and Administrative Expenses
(SG&A).    Selling, general, and administrative expenses increased $2.4 million, or 16.5%, from $14.8 million in the eleven months ended December 31, 2004 to $17.2 million in the year ended
December 31, 2005. Predecessor Company SG&A expense for the one month period



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ending January 31, 2004 was approximately $1.4 million which is the primary reason for the increase in SG&A expenses noted above. Considering the
effect of the Predecessor Company, SG&A expenses increased year over year by approximately $1.0 million. This increase in SG&A expenses is primarily the result of amortization expense related to our intangible assets and increased payroll
expenses including severance costs associated with our cost reduction plan. These increases were partially offset by reimbursement of workers compensation and medical claims from our stop-loss insurance contracts.



Goodwill Impairment Charges.    We test our
goodwill for impairment in accordance with Financial Accounting Standards Board Statement 142 (Goodwill and other Intangible Assets), as noted below under Critical Accounting Policies and Estimates. In preparing our financial
statements, we recorded a non-cash impairment charge of $10.1 million related to the carrying value of our goodwill for the second quarter of 2005. Fair value of the reporting unit was estimated primarily based on the market capitalization of our
common stock and projected discounted cash flows. The goodwill impairment recognition of $10.1 million was based on preliminary estimates. The Company engaged an independent third party valuation specialist to finalize the valuation and impairment
analysis of goodwill in the third quarter of 2005. Based on the report of the independent valuation specialist, no additional adjustment to goodwill and other intangible assets was required in the third quarter of 2005. The charge will not result in
future cash expenditures or affect compliance with the financial covenants with our lender.



Interest Expense.    Net interest expense increased $0.5 million, or 20.9%, from $2.9 million in the eleven months ended December 31, 2004 to $3.4 million in the year ended
December 31, 2005. Predecessor Company interest expense for the one month period ending January 31, 2004 was approximately $0.1 million. This increase is primarily the result of increases in the average outstanding debt, excluding interest
on the Senior Secured Notes, of approximately $3.5 million from $12.2 million in 2004 to $15.7 million in 2005 and an increase in the average interest rate, excluding interest associated with the Senior Secured Notes, from 6.7% in 2004 to 7.4% in
2005. No interest expense was recorded for the one month ended January 31, 2004 related to the Convertible Notes that were cancelled in accordance with the Plan of Reorganization. The Senior Secured Notes are due February 1, 2009 and have
a five year term and stated interest rates of 7% during the first two years and 8% in the remaining three years. Interest expense associated with these Senior Secured Notes is currently recorded on a straight-line basis.



Reorganization Costs.On October 28, 2003,
the Company filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. The Companys Plan of Reorganization was confirmed by the bankruptcy court on January 14, 2004 and became effective on February 3, 2004. The Company
incurred costs as a result of this reorganization totaling $6,000 in 2005 and $1.0 million in 2004 for various items including legal and consulting fees, financing costs and severance payments.



Income Taxes.    During the year ended
December 31, 2005, the Company incurred losses before income taxes of $14.3 million. As a result, Reptron recognized a deferred tax asset and an offsetting valuation allowance of approximately $1.7 million resulting in no income tax benefit.
Additionally, during the second quarter ended June 30, 2005 the Company recorded an additional valuation allowance of approximately $0.4 million against the deferred tax asset, resulting in income tax expense in the identical amount. The
additional valuation allowance was made based on the Companys estimates of future results of operations over the next one to two years. The Company recorded income tax expense from continuing operations of $0.8 million and an income tax
benefit from discontinued operations of $0.2 million for the month ended January 31, 2004. Also, the deferred tax asset was reduced by a corresponding amount. The income tax provision resulted primarily from the reorganization gain on debt
discharge that was partially offset by operating losses. During the eleven month period ended December 31, 2004, we incurred losses before income taxes of $2.1 million. As a result, we recognized a deferred tax asset and an offsetting valuation
allowance of $0.8 million, resulting in no income tax benefit. Realization of the tax loss carryforwards are contingent upon future taxable earnings in the appropriate jurisdiction. Each carryforward item is reviewed for expected utilization, using
a more likely than not



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approach, based on the character of the carryforward item (credit, loss, etc.), the associated taxing jurisdiction (federal or state), the relevant history
for the particular item, the applicable expiration dates, and identified actions under our control in realizing the associated carryforward benefits. We assess the available positive and negative evidence surrounding the recoverability of the
deferred tax assets, including our expected taxable income over the next one to two years, and apply judgement in estimating the amount of valuation allowance necessary under the circumstances. We continue to assess and evaluate strategies that will
enable the carryforward, or a greater portion thereof, to be utilized, and will reduce the valuation allowance appropriately for each item at such time when it is determined that the more likely than not criterion is satisfied. The
Company will reduce the goodwill balance to the extent that the tax assets are consumed in excess of the net deferred tax asset recorded and increase additional paid in capital upon the exhaustion of the goodwill balance. The amount of net operating
losses (NOL) that can be utilized in any given year is limited based on Section 382 of the Internal Revenue Code. In this regard, the amount of NOL generated prior to February 2004 that can be utilized in future periods is limited
to approximately $3.0 million per year.



Discontinued
Operations.    Our combined discontinued operations generated earnings of approximately $0.2 million and $0.4 million during the year ended and the eleven months ended December 31, 2005 and 2004, respectively. These
earnings resulted primarily from the realization of assets that had previously been written down and liabilities that were ultimately discharged in amounts less than accrued. The Company incurred a loss from discontinued operations in January 2004
of approximately $0.5 million excluding an income tax benefit of approximately $0.2 million. See additional discussion of discontinued operations contained elsewhere herein.



2004 Compared to 2003



As previously discussed, the Companys Plan of Reorganization became effective on February 3, 2004. As a result of the implementation of fresh
start accounting as of January 31, 2004, the Companys results of operations after that date are not comparable to results reported in prior periods because of differences in the bases of accounting and the capital structure for the
Predecessor Company and the Reorganized Company. To facilitate comparisons to prior periods, the results of operations for the year ended December 31, 2004, discussed below, includes the one month period ended January 31, 2004 for the
Predecessor Company and the eleven months ended December 31, 2004 for the Reorganized Company.



Net Sales.Net sales decreased $8.5 million, or 5.6%, from $150.1 million in 2003 to $141.6 million in 2004. This decrease
is primarily attributable to continued weakness in the overall electronics industry and decreased demand of electronic voting equipment from our customer in the governmental segment. During 2004 and 2003 we transacted business with approximately 50
customers. The three largest customers accounted for approximately 13%, 12% and 12%, respectively, of 2004 net sales as compared to 21%, 12% and 6%, respectively, of 2003 net sales.



Gross Profit.    Gross profit decreased $2.4 million or 12.7%, from $18.9 million in 2003 to
$16.5 million in 2004. The gross margin decreased from 12.6% in 2003 to 11.6% in 2004. The decrease in gross margin is primarily attributable to a combination of lower fixed cost absorption rates at the lower sales levels experienced in 2004 and
production inefficiencies due to significant start-up costs associated with new customers and new circuit card assemblies.



Selling, General, and Administrative Expenses (SG&A).    Selling, general, and administrative expenses
decreased $9.9 million, or 38.1%, from $26.1 million in 2003 to $16.2 million in 2004. The decrease in expense during 2004 is primarily attributable to a non-cash goodwill impairment charge of approximately $7.8 million in 2003. Without the goodwill
impairment charge, selling, general and administrative expenses decreased $2.1 million, or 8.0%, from 2003 to 2004. This decrease in selling, general and administrative expenses is primarily attributable to reductions of these costs from prior
periods as a result of our reorganization and the divesture of the distribution and computer products divisions. Additionally, certain operating expenses are variable with sales and were reduced in conjunction with the 5.6% net sales reduction in
2004.



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Interest Expense.    Net interest expense allocated to the continuing EMS
operations, decreased $2.5 million, or 46.4%, from $5.4 million in 2003 to $2.9 million in 2004. The decrease is primarily the result of the discharge of $76.3 million of Convertible Notes and the issuance of $30.0 million of Senior Secured Notes in
accordance with the Plan of Reorganization. Approximately $4.3 million of interest expense was recorded in 2003 related to the Convertible Notes as compared to $2.1 million of interest expense for 2004 associated with the Senior Secured Notes. No
interest expense was recorded for the two months ending December 31, 2003 and the one month ended January 31, 2004 related to the Convertible Notes. The remaining decrease in net interest expense is the result of a decrease in average
outstanding debt, excluding the Convertible Notes and Senior Secured Notes, of $12.3 million from $24.5 million in 2003 to $12.2 million in 2004. Interest expense of $0.9 million was allocated to the discontinued operations of our electronic
component distribution business and computer products division in 2003. The basis for this allocation was interest expense which could reasonably have been expected to be avoided through the collection of our distribution divisions trade
receivables, proceeds from the sales of assets held for sale, and subsequent payment on our working capital credit facility.



Reorganization Costs.On October 28, 2003, the Company filed a voluntary petition under Chapter 11 of the U.S.
Bankruptcy Code. The Companys Plan of Reorganization was confirmed by the bankruptcy court on January 14, 2004 and became effective on February 3, 2004. The Company incurred costs as a result of this reorganization totaling $4.1
million in 2003 and $1.0 million in 2004 for various items including legal and consulting fees, financing costs and severance payments.



Income Taxes.    The Company recorded income tax expense from continuing operations of $0.8 million and an income tax benefit
from discontinued operations of $0.2 million for the month ended January 31, 2004. Also, the deferred tax asset was reduced by a corresponding amount. The income tax provision resulted primarily from the reorganization gain on debt discharge
that was partially offset by operating losses. During the eleven month period ended December 31, 2004, we incurred losses before income taxes of $2.1 million. As a result, we recognized a deferred tax asset and an offsetting valuation allowance
of $0.8 million, resulting in no income tax benefit. Realization of the tax loss carryforwards are contingent upon future taxable earnings in the appropriate jurisdiction. Each carryforward item is reviewed for expected utilization, using a
more likely than not approach, based on the character of the carryforward item (credit, loss, etc.), the associated taxing jurisdiction (federal or state), the relevant history for the particular item, the applicable expiration dates,
and identified actions under our control in realizing the associated carryforward benefits. We assess the available positive and negative evidence surrounding the recoverability of the deferred tax assets, including our expected taxable income over
the next one to two years, and apply judgement in estimating the amount of valuation allowance necessary under the circumstances. We continue to assess and evaluate strategies that will enable the carryforward, or a greater portion thereof, to be
utilized, and will reduce the valuation allowance appropriately for each item at such time when it is determined that the more likely than not criterion is satisfied. As noted above, the effect of the reorganization may reduce the amount
of net operating losses and/or limit the amount that may be available to the company in a given period.



Discontinued Operations.The Company incurred a loss from discontinued operations in 2004 of approximately $0.1 million
excluding an income tax benefit of approximately $0.2 million. See additional discussion of discontinued operations contained elsewhere herein.



Liquidity and Capital Resources



On October 28, 2003, we filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Under the terms of the Plan,
substantially all of our general unsecured creditors (except for holders of the Convertible Notes and certain other creditors) received full payment for all pre-petition claims within ninety days subsequent to the Plans effective date. The
Plan was confirmed by the bankruptcy court on January 14, 2004 and became effective February 3, 2004, resulting in conversion of the $76.3 million of Convertible Notes, $6.4 million of accrued interest and $0.8 million of other liabilities
into $30 million of Senior Secured Notes due in 2009 (Senior Secured Notes or New Notes) and the issuance of 95% of the common



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stock of the reorganized entity (New Common Stock). Previously outstanding common stock was exchanged for 5% of the New Common Stock. The New
Notes carry an interest rate of seven percent per annum during the first two years and eight percent per annum during the remaining three years.



As of December 31, 2005, we had cash and cash equivalents of $0.2 million, restricted cash of $0.7 million and working capital of $6.8 million. The
current ratio at December 31, 2005 and 2004 was 1.19 to 1 and 1.27 to 1, respectively. We primarily finance our operations through the Senior Secured Notes, bank credit lines, operating cash flows, and short-term financing through supplier
credit lines. Net cash used in or provided by operating activities has historically been provided by net income (loss) levels combined with fluctuations in inventory, accounts receivable and accounts payable. Operating activities for 2005 consumed
cash of approximately $1.9 million. This consisted primarily of $14.7 million of net loss from continuing operations, $15.2 million of non-cash depreciation, amortization, and impairment charges, $0.4 million reduction of deferred tax assets, $0.6
million increase in accrued liabilities, $2.1 million increase in accounts payable, offset by $0.4 million increase in prepaid expenses, $3.4 million increase in accounts receivable, and $1.6 million increase in inventory. Days sales outstanding in
accounts receivable were approximately 45 days at December 31, 2005 compared to 37 days at December 31, 2004. Annualized inventory turns for 2005 were 5.9 times compared to 6.6 times for 2004.



Capital expenditures totaled approximately $1.7 million in 2005 and $3.3
million in 2004. These capital expenditures were primarily for manufacturing equipment and were funded by the working capital credit facility, as defined below.



Credit Agreement.    The Company has a revolving credit facility with Wachovia Capital Finance Corporation that provides up
to $25 million (the Credit Agreement) to fund the Companys operations through February 2007. The Credit Agreement contains certain covenants including a minimum quarterly measure of earnings before interest, taxes, depreciation and
amortization (EBITDA) as defined by the Credit Agreement. The Company was in compliance with the covenants contained in the Credit Agreement as of December 31, 2005. The interest rate on the credit facility is based on the
lenders prime rate plus one percent. The Credit Agreement is collateralized by substantially all of the Companys assets. Management believes that this credit facility, together with the Companys available cash reserves and cash
expected to be provided by operations, will provide sufficient liquidity for the Company to pay for goods and services within standard terms. Under the advance rates contained in the Credit Agreement, there was approximately $6.3 million of unused
available credit on December 31, 2005.



Senior Secured
Notes due in 2009.As of December 31, 2005, there were Senior Secured Notes outstanding with a principal balance of $30 million. The Senior Secured Notes will become due February 3, 2009. These notes carry a
seven percent annual interest rate in the first two years and an eight percent annual interest rate in the remaining three years. On February 3, 2006 we began paying interest at eight percent per annum. Interest expense associated with these
Senior Secured Notes is currently recorded on a straight-line basis. The Senior Secured Notes are secured by a second security position, behind the security position on the Credit Agreement, in all assets of the Company.



Management believes that available credit facilities in addition to our
current cash and cash flows expected to be generated from operations will be sufficient to meet our known capital requirements and working capital needs of our operations for fiscal 2006. Our continued viability depends on our ability to generate
cash from operations or obtain additional sources of funds for working capital. Our future liquidity and cash requirements will depend on a wide range of factors including the level of business in existing operations, credit lines extended by
lenders and trade suppliers, the need for expansion of manufacturing operations in low cost regions, capital expenditure requirements and the continued success of our recently implemented cost reduction plan. To the extent we pursue acquisitions or
other strategic growth opportunities, we may need to raise additional capital through debt or equity financings to fund such opportunities. There can be no assurance that financing will be available in amounts and on terms acceptable to management.
If our operating goals are not met, we may need to



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secure waivers of any resulting covenant violations under existing lending facilities, secure additional financing from lenders or sell additional
securities.



The following table summarizes as of
March 21, 2006 our known contractual obligations, excluding interest:



|                            |  |                                               |        |                |   |          |  |          |       |                 |   |        |  |   |      
|--------------------------- |  | --------------------------------------------- | ------ | -------------- | - | -------- |  | -------- | ----- | --------------- | - | ------ |  | - | -----
|                            |  | Payments Due By Period (amounts in thousands)
|Contractual Obligations     |  | Total                                         |        | LessThan 1Year |   | 1-3Years |  | 3-5Years |       | MoreThan 5Years
|Long-Term Debt Obligations  |  | $                                             | 33,361 |                | $ | 315      |  | $        | 756   |                 | $ | 30,610 |  | $ | 1,680
|Capital Lease Obligations   |  |                                               |       |                |   |         |  |          |      |                 |   |       |  |   |     
|Operating Lease Obligations |  |                                               | 2,274  |                |   | 934      |  |          | 1,340 |                 |   |       |  |   |     
|Purchase Obligations        |  |                                               |       |                |   |         |  |          |      |                 |   |       |  |   |     
|                            |  |                                               |        |                |   |          |  |          |       |                 |   |        |  |   |      
|                            |  | $                                             | 35,635 |                | $ | 1,249    |  | $        | 2,096 |                 | $ | 30,610 |  | $ | 1,680
|                            |  |                                               |        |                |   |          |  |          |       |                 |   |        |  |   |      



Critical Accounting Policies and
Estimates



The Companys emergence from Chapter 11
bankruptcy proceedings on February 3, 2004 resulted in a new reporting entity and adoption of fresh start reporting, in accordance with Statement of Position No. 90-7 (SOP 90-7), Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code. Although the effective date of the Plan was February 3, 2004, the Company has accounted for the consummation of the Plan as if it occurred on the close of business on January 31, 2004. The
adoption of SOP 90-7 creates, in substance, a new reporting entity. SOP 90-7 also requires that changes in accounting principles required in the financial statements of the emerging entity within twelve months of fresh start reporting to be adopted
at the time fresh start reporting is adopted, of which there were none.



The Companys financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make significant
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period and related disclosure of contingent assets and liabilities. These estimates and assumptions are based upon
managements evaluation of historical results, anticipated future events and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or
conditions.



The Securities and Exchange Commission (the
SEC) defines critical accounting polices as those that are, in managements view, most important to the portrayal of the Companys financial condition and results of operations and those that require significant judgments and
estimates. Management believes the following critical accounting policies involve the more significant judgments and estimates used in the preparation of its consolidated financial statements:



Valuation of Receivables.    The Company maintains
an allowance for doubtful accounts for estimated losses resulting from customer defaults. The Company performs ongoing credit evaluations of its customers considering among other things, the customers payment history and current ability to
pay. A provision for uncollectible amounts is adjusted based on these evaluations and historical experience. If the financial condition of a customer were to deteriorate, resulting in an impairment of that customers ability to make payments to
the Company, additional reserves may be required. Generally, accounts are written-off upon the exhaustion of all reasonable collection efforts.



Valuation of Inventories.    Inventories are recorded at the lower of cost or estimated market value. Cost is determined using
the first-in, first-out and average cost methods. The Companys inventories are comprised, in part, of high technology components used in assemblies produced under contract with our customers. Inventories in excess of demand may be subject to
technological obsolescence.



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The Company evaluates inventories for excess, obsolescence or other factors that may render inventories
unmarketable at normal margins. Write-downs are recorded so that inventories reflect the approximate net realizable value and take into consideration the Companys contractual provisions with its customers and suppliers. If assumptions about
future demand change or the financial strength of customers diminish significantly or actual market conditions are less favorable than those projected by management, additional write-downs of inventories may be required. In any case, actual amounts
could be different from those estimated.



Impairment of
Assets.    Reptrons policy is to periodically review and evaluate whether there has been a permanent impairment in the value of long-lived assets. Factors considered in the evaluation include current operating results,
trends and anticipated undiscounted future cash flows. An impairment loss is recognized to the extent that fair value of the assets measured as the sum of discounted estimated future cash flows (using the Companys incremental borrowing rate
over a period of less than 30 years) that is expected to result from the use of the asset or other measure of fair value, is less than the carrying value. There have been no impairment losses in 2005, 2004, or 2003.



Goodwill.    In assessing the Companys
goodwill for impairment in accordance with the Financial Accounting Standards Boards (FASB) Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible Assets, the
Company is required to assess the valuation of its reporting units, which involves making significant assumptions about the future cash flows and overall performance of its reporting units. Should these assumptions or the structure of the reporting
units change in the future based upon market conditions or changes in business strategy, the Company may be required to record impairment charges to its goodwill.



In 2003, goodwill of approximately $3.3 million which was recorded in conjunction with a prior business acquisition by our
Reptron Distribution Services division, was expensed and included in the loss from discontinued operations. The Company updated its analysis in response to filing a voluntary petition for reorganization under Chapter 11 of the United States
Bankruptcy Code in the fourth quarter of 2003. This discounted cash flow analysis indicated that the goodwill recorded as a result of the purchase of a flat panel display business was fully impaired. Accordingly, the Company recorded an impairment
charge of approximately $7.8 million in 2003.



As previously
discussed, the Company applied fresh start accounting during the first quarter of 2004 and has allocated the reorganization value among the companys assets. This allocation resulted in recognition of goodwill totaling approximately $12.2
million, which is $6.8 million less than the amount recognized prior to adoption of fresh start accounting.



Due to the significant decline in the Companys stock price and operating losses that occurred during the second quarter of 2005, the Company
performed an internal interim analysis of goodwill and other intangible assets for impairment of fair value as of June 30, 2005. Based on the preliminary internal analysis, the Company concluded that the fair value of its goodwill was
approximately $2.1 million as of June 30, 2005, resulting in a non-cash impairment charge of $10.1 million related to the carrying value of goodwill for the second quarter of 2005. The charge will not result in future cash expenditures or
affect compliance with the financial covenants with our lender. Fair value of the reporting unit was estimated primarily based on the market capitalization of our common stock and projected discounted cash flows. The Companys internal interim
analysis of other intangible assets did not indicate that the remaining asset was impaired. The goodwill impairment recognition of $10.1 million was based on preliminary estimates. The Company engaged an independent third party valuation specialist
to finalize the valuation and impairment analysis of goodwill in the third quarter of 2005. Based on the report of the independent valuation specialist, no additional adjustment to goodwill and other intangible assets was required in the third
quarter of 2005.



Deferred Income
Taxes.    The carrying value of the Companys deferred income tax assets is dependent upon the Companys ability to generate sufficient future taxable income in certain tax jurisdictions. Should the



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Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would
be expensed in the period such determination was made. The Company presently records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not expected to be realized. While the Company has considered future
taxable income expected to be earned over the next one to two years and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event that the Company were not able to achieve these objectives
additional valuation allowances and corresponding costs would be recorded. The Company will reduce the goodwill balance to the extent that the tax assets are consumed in excess of the net deferred tax asset recorded and increase additional paid in
capital upon the exhaustion of the goodwill balance. The amount of net operating losses (NOL) that can be utilized in any given year is limited based on Section 382 of the Internal Revenue Code. In this regard, the amount of NOL
generated prior to February 2004 that can be utilized in future periods is limited to approximately $3.0 million per year.



Contingencies.    The Company is the subject of various threatened or pending legal actions and contingencies in the normal
course of conducting its business. The Company provides for costs related to these matters when a loss is probable and the amount can be reasonably estimated. The Company assesses the likelihood of adverse judgements or outcomes to these matters, as
well as the range of potential losses. A determination of the reserves required, if any, is made after careful analysis. The required reserves may change in the future due to new developments.



New Accounting Pronouncements



In November 2004, the Financial Accounting Standards Board issued Statement
151,Inventory Costs, an amendment of ARB No. 43, Chapter 4, which is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The amendments made by Statement 151 will improve financial
reporting by clarifying that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and by requiring the allocation of fixed production overheads to
inventory based on the normal capacity of the production facilities. The Company does not believe that the adoption of Statement 151 will have a significant effect on its financial statements.



In December 2004, the Financial Accounting Standards Board issued Statement
123 (revised 2004),Share-Based Payment (Statement 123(R)). This Statement, effective on January 1, 2006, requires that the costs of employee share-based payments be measured at fair value on the awards grant date using an
option-pricing model and recognized in the financial statements over the requisite service period. Statement 123(R) supersedes Opinion 25,Accounting for Stock Issued to Employees and its related interpretations, and eliminates the
alternative to use Opinion 25s intrinsic value method of accounting, which the Company is currently using.



Statement 123(R) allows for two alternative transition methods. The first method is the modified prospective application whereby compensation cost
for the portion of awards for which the requisite service has not yet been rendered that are outstanding as of the adoption date will be recognized over the remaining service period. The compensation cost for that portion of awards will be
based on the grant-date fair value of those awards as calculated for pro forma disclosures under Statement 123, as originally issued. All new awards and awards that are modified, repurchased, or cancelled after the adoption date will be
accounted for under the provisions of Statement 123(R). The second method is the modified retrospective application, which requires that the Company restates prior period financial statements. The modified retrospective application may be
applied either to all prior periods or only to prior interim periods in the year of adoption of this statement. The Company has determined that Statement 123(R) will not have a significant impact on its financial position, results of
operations, EPS and cash flows upon adoption of the Statement.



On October 28, 2005, in response to the issuance of SFAS 123(R), the Companys Compensation Committee of the Board of Directors approved accelerating the vesting of the out-of-the-money, unvested stock options held by current
employees, including executive officers, and directors. Unvested options to purchase



25



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##### Table of Contents

approximately 296,666 shares became exercisable as a result of the vesting acceleration. The accelerated vesting was effective as of October 31, 2005.
The decision to accelerate vesting of these options was made primarily to avoid recognizing compensation cost in the statement of earnings in future financial statements upon the effectiveness of SFAS 123(R). Also on October 28, 2005, the
Companys Compensation Committee of the Board of Directors made additional option grants to directors and executive officers to purchase 185,000 shares of the Companys common stock. The new options have an exercise price of $0.36 per
share and are fully vested as of the grant date.



|Item 7A. | Quantitative and Qualitative Disclosures about Market Risk
|-------- | ----------------------------------------------------------



While Reptron had no holdings of derivative financial or commodity instruments at December 31, 2005, we are exposed to financial market risks,
including changes in interest rates. Approximately 71% of our interest bearing borrowings have a fixed interest rate. However, borrowings under the working capital Credit Agreement bear interest at a variable rate based on the Domestic Rate Loan (8%
at December 31, 2005). Based on the average floating rate borrowings outstanding throughout 2005, a 90 basis point change in the interest rate would have caused Reptrons interest expense, net of the income tax effect, to change by
approximately $109,000. Reptron believes that this amount is not significant to its 2005 results of operations.



|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------



The financial statements required by this Item are listed under Item 15 of the Report and contained in pages F-1 through F-28 of this Report and are incorporated into this Item by reference.



|Item 9. | Ch
anges in and Disagreements With Accountants on Accounting and Financial Disclosure
|------- | -------------------------------------------------------------------------------------



None



|Item 9A. | Controls and P
rocedures
|-------- | ------------------------



Evaluation of disclosure controls and procedures.    Our management evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are effective.



Disclosure controls and procedures are defined by Rule 13a  15(e) of the Securities Exchange Act of 1934 (the Exchange Act) as controls and other procedures that are designed to ensure that
information required to be disclosed by us in reports filed with or submitted to the Securities and Exchange Commission (SEC) under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
SEC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 reports filed or submitted under the Exchange Act is
accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.



Changes in internal control over financial
reporting.    There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the fourth quarter of the fiscal year covered by this Annual Report on
Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



|Item 9B. | Other Information
|-------- | -----------------



None



26



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##### Table of Contents

PART III



|It
em 10. | Directors and Executive Officers of the Registrant
|--------- | --------------------------------------------------



Information required by this Item is included under the captions Executive Officers, Section 16(a) Beneficial Ownership Reporting Compliance, and
Election of Directors, in our definitive Proxy Statement for our 2006 Annual Meeting of Shareholders and is incorporated herein by this reference.



|Item 11. | Executi
ve Compensation
|-------- | -----------------------



Information required by this Item is included under the caption Executive Compensation and Other Matters, Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option Values, Employment Contracts and Termination of Employment
and Change-of-Control Arrangements, Compensation Committee Interlocks and Insider Participation in our definitive Proxy Statement for our 2006 Annual Meeting of Shareholders and is incorporated herein by this reference.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------



Information required by this Item is included under the caption Security Ownership of Certain Beneficial Owners in our definitive Proxy Statement for our
2006 Annual Meeting of Shareholders and is incorporated herein by this reference.



|Item 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------



Information required by this Item is included under the caption Certain Relationships and Related Transactions in our definitive Proxy Statement for our 2006 Annual Meeting of Shareholders and is incorporated herein
by this reference.



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------



Information required by this Item is included under the caption Ratification of Appointment of Independent Auditors Fees and Services in our definitive Proxy Statement for our 2006 Annual Meeting of
Shareholders and is incorporated herein by this reference.



27



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##### Table of Contents

PART IV



|Item 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------



(a)(1) and (2) Financial Statements and Schedules



|                                                                                                                                                                                                                                                                              |  |     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                                                                                                                                              |  | Page
|Report of Kirkland, Russ, Murphy & Tapp, P.A., Independent Registered Public Accounting Firm                                                                                                                                                                                  |  | F-2 
|Report of Grant Thornton LLP, Independent Registered Public Accounting Firm                                                                                                                                                                                                   |  | F-3 
|                                                                                                                                                                                                                                                                              | 
|Consolidated Balance Sheets as of December 31, 2005 (Reorganized Company) and December 31, 2004 (Reorganized
Company)                                                                                                                                                         |  | F-4 
|Consolidated Statements of Operations for the year ended December 31, 2005 (Reorganized Company), eleven months ended December 31,
2004 (Reorganized Company), one month ended January 31, 2004 and the year ended December 31, 2003 (Predecessor Company)                    |  | F-5 
|Consolidated Statements of Shareholders Equity (Deficit) for the year ended December 31, 2005 (Reorganized Company), eleven months ended
December 31, 2004 (Reorganized Company), one month ended January 31, 2004 and the year ended December 31, 2003 (Predecessor Company) |  | F-6 
|Consolidated Statements of Cash Flows for the year ended December 31, 2005 (Reorganized Company), eleven months ended December 31,
2004 (Reorganized Company), one month ended January 31, 2004 and the year ended December 31, 2003 (Predecessor Company)                    |  | F-7 
|Notes to Consolidated Financial Statements                                                                                                                                                                                                                                    |  | F-8 
|Report of Independent Registered Public Accounting Firms                                                                                                                                                                                                                      |  | F-27
|Schedule II Valuation and Qualifying Accounts                                                                                                                                                                                                                                 |  | F-29



(a)(3) Exhibits



The following exhibits are filed
herewith and this list is intended to constitute the exhibit index. An asterisk (*) beside the exhibit number indicates the exhibits containing a management contract, compensatory plan or arrangement, which are required to be identified in this
report.



|            |   |  |                                                                                                                                                                                                                                                                     
|----------- | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |   |  | Description                                                                                                                                                                                                                                                         
|3.1         |   |  | Articles of IncorporationIncorporated by reference to Exhibit 3.1 to Form 10-K dated December 31, 2003, as filed with the Securities and Exchange Commission on March 30,
2004.                                                                                    
|            |  
|3.2         |   |  | Amended and Restated BylawsIncorporated by reference to Exhibit 3.2 to Form 10-K dated December 31, 2003, as filed with the Securities and Exchange Commission on March 30,
2004.                                                                                  
|            |  
|4.1         |   |  | Specimen Certificate for the Common Stock of RegistrantIncorporated by reference to Exhibit 4.1 to Form 10-K dated December 31, 2003, as filed with the Securities and Exchange
Commission on March 30, 2004.                                                      
|            |  
|4.2         |   |  | Form of IndentureIncorporated by reference to Exhibit 4.2 to Form T-3, as filed with the Securities and Exchange Commission.                                                                                                                                       
|            |  
|4.3         |   |  | Form of Senior Secured NoteIncorporated by reference to Exhibit 4.3 to Form T-3, as filed with the Securities and Exchange Commission.                                                                                                                             
|            |  
|10.1        | * |  | Employment Agreement between Paul Plante and Reptron Electronics, Inc., dated February 3, 2004Incorporated by reference to Exhibit 10.1 to Form 10-K dated December 31, 2003, as
filed with the Securities and Exchange Commission on March 30, 2004.              
|            |  
|10.2        |   |  | Loan and Security Agreement between Congress Financial and Reptron Electronics, Inc., dated February 3, 2004Incorporated by reference to Exhibit 10.2 to Form 10-K dated December 31,
2003, as filed with the Securities and Exchange Commission on March 30, 2004.



28



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                           
|            | 
|10.3*       |  | Employment Agreement between Charles L. Pope and Reptron Electronics, Inc., dated February 4, 2005Incorporated by reference to Exhibit 10.1 to Form 8-K dated February 4, 2005, as
filed with the Securities and Exchange Commission on February 10, 2005.                                                                           
|            | 
|10.4*       |  | Separation Agreement and Release, dated August 25, 2005, and signed or delivered by Mrs. Fena September 9, 2005, by and between Reptron Electronics, Inc. and Bonitta FenaIncorporated by
reference to Exhibit 10.10 to Form 8-K dated September 9, 2005, as filed with the Securities and Exchange Commission on September 14, 2005.
|            | 
|10.5*       |  | Reptron Electronics, Inc. Stock Option PlanIncorporated by reference to Exhibit 10.3 to Form 10-K dated December 31, 2004, as filed with the Securities and Exchange Commission on March
31, 2005.                                                                                                                                   
|            | 
|10.6*       |  | Amendment No. 1 to the Reptron Electronics, Inc. Stock Option PlanIncorporated by reference to Exhibit 10.4 to Form 10-K dated December 31, 2004, as filed with the Securities and
Exchange Commission on March 31, 2005.                                                                                                            
|            | 
|10.7        |  | Lease agreement between North Bay Trail and Reptron Electronics, Inc.Incorporated by reference to Exhibit 10.5 to Form 10-K dated December 31, 2004, as filed with the Securities and
Exchange Commission on March 31, 2005.                                                                                                         
|            | 
|10.8        |  | Lease agreement between Nor-Tec Properties, et al, and Reptron Electronics, Inc.Incorporated by reference to Exhibit 10.6 to Form 10-K dated December 31, 2004, as filed with the
Securities and Exchange Commission on March 31, 2005.                                                                                              
|            | 
|10.9        |  | Lease agreement between Nor-Tec Properties, et al, and Reptron Electronics, Inc.Incorporated by reference to Exhibit 10.7 to Form 10-K dated December 31, 2004, as filed with the
Securities and Exchange Commission on March 31, 2005.                                                                                              
|            | 
|10.10       |  | Agreement between International Brotherhood of Electrical Workers and Reptron Electronics, Inc.Incorporated by reference to Exhibit 10.8 to Form 10-K dated December 31, 2004, as filed
with the Securities and Exchange Commission on March 31, 2005.                                                                               
|            | 
|10.11       |  | Amendment to Agreement between International Brotherhood of Electrical Workers and Reptron Electronics, Inc.Incorporated by reference to Exhibit 10.9 to Form 10-K dated December 31,
2004, as filed with the Securities and Exchange Commission on March 31, 2005.                                                                  
|            | 
|10.12       |  | Amendment No. 2 to the Reptron Electronics, Inc. Stock Option Plan.                                                                                                                                                                                                                                                                   
|            | 
|24.1        |  | Power of Attorney (See Signature Page)                                                                                                                                                                                                                                                                                                
|            | 
|31.1        |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Paul J. Plante                                                                                                                                                                                                                                             
|            | 
|31.2        |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Charles L. Pope                                                                                                                                                                                                                                            
|            | 
|32.1        |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Paul J. Plante                                                                                                                                                                                                                                             
|            | 
|32.2        |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Charles L. Pope                                                                                                                                                                                                                                            



29



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##### Table of Contents

SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Tampa, State of Florida, on
March 31, 2006.



REPTRON ELECTRONICS, INC.By:

/S/    PAUL J.
PLANTEPaul J. Plante, Chief Executive Officer and President (Principal Executive Officer)By:

/S/    CHARLES L.
POPECharles L. Pope, Chief Financial Officer (Principal Financial and Accounting Officer)




Power of
Attorney



Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Each person whose signature appears below constitutes and appoints Paul J. Plante, his
true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite
and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, may lawfully do or cause to be
done by virtue hereof.



|                                              |  |                                                                                |  |               
|--------------------------------------------- |  | ------------------------------------------------------------------------------ |  | --------------
|SIGNATURES                                    |  | TITLE                                                                          |  | DATE          
|                                              |  |                                                                               
|/S/    PAUL J.
PLANTEPaul J.
Plante           |  | Chief Executive Officer, President, and Director (Principal Executive Officer) |  | March 31, 2006
|                                              |  |                                                                               
|/S/    CHARLES L. POPECharles L. Pope         |  | Chief Financial Officer (Principal Financial and Accounting Officer)           |  | March 31, 2006
|                                              |  |                                                                               
|/S/    CARL R.
VERTUCACarl R.
Vertuca         |  | Chairman of the Board of Directors                                             |  | March 31, 2006
|                                              |  |                                                                               
|/S/    ROBERT C.
BRADSHAWRobert C.
Bradshaw   |  | Director                                                                       |  | March 31, 2006
|                                              |  |                                                                               
|/S/    WILLIAM J.
KULLBACKWilliam J.
Kullback |  | Director                                                                       |  | March 31, 2006
|                                              |  |                                                                               
|/S/    HAROLD L
PURKEYHarold L
Purkey         |  | Director                                                                       |  | March 31, 2006
|                                              |  |                                                                               
|/S/    KIRK
WALDRONKirk
Waldron               |  | Director                                                                       |  | March 31, 2006



30



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##### Table of Contents

REPTRON ELECTRONICS, INC.



I
NDEX TO FINANCIAL STATEMENTS AND SCHEDULE



|                                                                                                                                                                                                                                                                                         |  |            
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|                                                                                                                                                                                                                                                                                         |  | Page Number
|REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS                                                                                                                                                                                                                                |  | F-2        
|                                                                                                                                                                                                                                                                                         | 
|CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                        |  |            
|                                                                                                                                                                                                                                                                                         | 
|Consolidated Balance SheetsDecember 31, 2005 (Reorganized Company) and December 31, 2004 (Reorganized Company)                                                                                                                                                                          |  | F-4        
|                                                                                                                                                                                                                                                                                         | 
|Consolidated Statements of OperationsYear ended December 31, 2005 (Reorganized Company), eleven months ended December 31, 2004 (Reorganized Company), one month ended January 31, 2004 (Predecessor Company)
and year ended December 31, 2003 (Predecessor Company)                     |  | F-5        
|                                                                                                                                                                                                                                                                                         | 
|Consolidated Statements of Shareholders Equity (Deficit)Year ended December 31, 2005 (Reorganized Company), eleven months ended December 31, 2004 (Reorganized Company), one month ended January 31,
2004 (Predecessor Company) and year ended December 31, 2003 (Predecessor Company) |  | F-6        
|                                                                                                                                                                                                                                                                                         | 
|Consolidated Statements of Cash FlowsYear ended December 31, 2005 (Reorganized Company), eleven months ended December 31, 2004 (Reorganized Company), one month ended January 31, 2004 (Predecessor Company)
and year ended December 31, 2003 (Predecessor Company)                     |  | F-7        
|                                                                                                                                                                                                                                                                                         | 
|Notes to Consolidated Financial Statements                                                                                                                                                                                                                                               |  | F-8        
|                                                                                                                                                                                                                                                                                         | 
|REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS                                                                                                                                                                                                                                |  | F-27       
|                                                                                                                                                                                                                                                                                         | 
|Schedule IIValuation and Qualifying Accounts for the years ended December 31, 2003, 2004, and 2005                                                                                                                                                                                      |  | F-29       



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##### Table of Contents

Report Of Independent Registered Public Accounting Firm



Board of Directors and Shareholders of

Reptron Electronics, Inc.:



We
have audited the accompanying consolidated balance sheet of Reptron Electronics, Inc. as of December 31, 2005 (Reorganized Company) and the related consolidated statements of operations, shareholders deficit and cash flows for the year
then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.



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



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Reptron Electronics, Inc. as of December 31, 2005
(Reorganized Company) and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.



/s/ KIRKLAND, RUSS, MURPHY & TAPP, P.A.



Clearwater, Florida

March 3, 2006





F-2



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##### Table of Contents

Report Of Independent Registered Public Accounting Firm



Board of Directors and Shareholders of

Reptron Electronics, Inc.



We have audited the accompanying consolidated balance sheets of Reptron Electronics, Inc. and its wholly owned subsidiaries as of December 31, 2004
(Reorganized Company) and the related consolidated statements of operations, shareholders equity, and cash flows for the eleven months ended December 31, 2004 (Reorganized Company), the one month ended January 31, 2004 (Predecessor
Company) and the year ended December 31, 2003 (Predecessor Company). These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our
audits.



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



In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Reptron Electronics, Inc. and subsidiaries as of December 31, 2004
(Reorganized Company), and the consolidated results of its operations and cash flows for the eleven month period ended December 31, 2004 (Reorganized Company), the one month period ended January 31, 2004 (Predecessor Company) and the one
year ended December 31, 2003 (Predecessor Company), in conformity with accounting principles generally accepted in the United States of America.



As discussed in Note A to the consolidated financial statements, effective February 3, 2004, the Company was reorganized under a plan of
reorganization confirmed by the United States Bankruptcy Court for the Southern District of Florida. In connection with its reorganization, the Company applied fresh start accounting as of February 1, 2004.



/s/ GRANT THORNTON LLP



Tampa, Florida

February 11, 2005





F-3



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##### Table of Contents

REPTRON ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



|                                                                                                      |  |                                       |         |   |                                       |   |        |  
|----------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ------------------------------------- | - | ------ | -
|                                                                                                      |  | Reorganized Company December 31, 2005 |         |   | Reorganized Company December 31, 2004 |  
|ASSETS                                                                                                |  |                                       |         |   |                                       |   |        |  
|CURRENT ASSETS                                                                                        |  |                                       |         |   |                                       |   |        |  
|Cash and cash equivalents                                                                             |  | $                                     | 230     |   |                                       | $ | 227    |  
|Restricted cash                                                                                       |  |                                       | 740     |   |                                       |   | 1,014  |  
|Account receivabletrade, net                                                                         |  |                                       | 17,990  |   |                                       |   | 14,569 |  
|Inventories, net                                                                                      |  |                                       | 21,378  |   |                                       |   | 19,774 |  
|Prepaid expenses and other                                                                            |  |                                       | 1,266   |   |                                       |   | 826    |  
|                                                                                                      |  |                                       |         |   |                                       |   |        |  
|Total current assets                                                                                  |  |                                       | 41,604  |   |                                       |   | 36,410 |  
|PROPERTY, PLANT & EQUIPMENTNET                                                                       |  |                                       | 18,937  |   |                                       |   | 21,770 |  
|GOODWILL                                                                                              |  |                                       | 2,100   |   |                                       |   | 12,172 |  
|OTHER INTANGIBLE ASSETS, NET                                                                          |  |                                       | 3,230   |   |                                       |   | 3,855  |  
|DEFERRED INCOME TAX                                                                                   |  |                                       | 1,543   |   |                                       |   | 1,902  |  
|OTHER ASSETS                                                                                          |  |                                       | 83      |   |                                       |   | 83     |  
|                                                                                                      |  |                                       |         |   |                                       |   |        |  
|TOTAL ASSETS                                                                                          |  | $                                     | 67,497  |   |                                       | $ | 76,192 |  
|                                                                                                      |  |                                       |         |   |                                       |   |        |  
|                                                                                                      |  |                                      
|LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                        |  |                                       |         |   |                                       |   |        |  
|                                                                                                      |  |                                      
|CURRENT LIABILITIES                                                                                   |  |                                       |         |   |                                       |   |        |  
|Accounts payabletrade                                                                                |  | $                                     | 15,008  |   |                                       | $ | 12,885 |  
|Accrued expenses                                                                                      |  |                                       | 5,613   |   |                                       |   | 5,049  |  
|Note payable to bank                                                                                  |  |                                       | 13,900  |   |                                       |   | 10,431 |  
|Current portion of long-term obligations                                                              |  |                                       | 315     |   |                                       |   | 380    |  
|                                                                                                      |  |                                       |         |   |                                       |   |        |  
|Total current liabilities                                                                             |  |                                       | 34,836  |   |                                       |   | 28,745 |  
|SENIOR SECURED NOTES                                                                                  |  |                                       | 30,000  |   |                                       |   | 30,000 |  
|LONG-TERM OBLIGATIONS, less current portion                                                           |  |                                       | 3,046   |   |                                       |   | 3,361  |  
|                                                                                                      |  |                                      
|SHAREHOLDERS EQUITY (DEFICIT)                                                                        |  |                                       |         |   |                                       |   |        |  
|Preferred Stockauthorized 15,000,000 shares of $.10 par value; no shares issued                      |  |                                       |        |   |                                       |   |       |  
|Common Stockauthorized 50,000,000 shares of $.01 par value; issued and outstanding, 5,000,000 shares |  |                                       | 50      |   |                                       |   | 50     |  
|Additional paid-in capital                                                                            |  |                                       | 15,725  |   |                                       |   | 15,725 |  
|Accumulated deficit                                                                                   |  |                                       | (16,160 | ) |                                       |   | (1,689 | )
|                                                                                                      |  |                                       |         |   |                                       |   |        |  
|TOTAL SHAREHOLDERS EQUITY (DEFICIT)                                                                  |  |                                       | (385    | ) |                                       |   | 14,086 |  
|                                                                                                      |  |                                       |         |   |                                       |   |        |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                  |  | $                                     | 67,497  |   |                                       | $ | 76,192 |  
|                                                                                                      |  |                                       |         |   |                                       |   |        |  



The accompanying notes
are an integral part of these statements.



F-4



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##### Table of Contents

REPTRON ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share
data)



|                                                                                     |  |                            |           |   |                                   |   |           |                               |  |   |                            |   |  |   |           |  
|------------------------------------------------------------------------------------ |  | -------------------------- | --------- | - | --------------------------------- | - | --------- | ----------------------------- |  | - | -------------------------- | - |  | - | --------- | -
|                                                                                     |  | Reorganized Company        |           |   | Predecessor Company               |  
|                                                                                     |  | Year EndedDecember 31,2005 |           |   | ElevenMonthsEndedDecember 31,2004 |   |           | One MonthEndedJanuary 31,2004 |  |   | Year EndedDecember 31,2003 |  
|Net Sales                                                                            |  | $                          | 138,463   |   |                                   | $ | 129,230   |                               |  | $ | 12,368                     |   |  | $ | 150,067   |  
|Cost of goods sold                                                                   |  |                            | 122,051   |   |                                   |   | 113,635   |                               |  |   | 11,479                     |   |  |   | 131,135   |  
|                                                                                     |  |                            |           |   |                                   |   |           |                               |  |   |                            |   |  |   |           |  
|Gross profit                                                                         |  |                            | 16,412    |   |                                   |   | 15,595    |                               |  |   | 889                        |   |  |   | 18,932    |  
|Selling, general and administrative expenses                                         |  |                            | 17,195    |   |                                   |   | 14,758    |                               |  |   | 1,447                      |   |  |   | 18,319    |  
|Impairment charges                                                                   |  |                            | 10,072    |   |                                   |   |          |                               |  |   |                           |   |  |   | 7,809     |  
|                                                                                     |  |                            |           |   |                                   |   |           |                               |  |   |                            |   |  |   |           |  
|Operating income (loss)                                                              |  |                            | (10,855   | ) |                                   |   | 837       |                               |  |   | (558                       | ) |  |   | (7,196    | )
|Other income (expense):                                                              |  |                            |           |   |                                   |   |           |                               |  |   |                            |   |  |   |           |  
|Interest expense, net                                                                |  |                            | (3,445    | ) |                                   |   | (2,850    | )                             |  |   | (61                        | ) |  |   | (5,433    | )
|Gain on debt discharge                                                               |  |                            |          |   |                                   |   |          |                               |  |   | 3,517                      |   |  |   |          |  
|Reorganization costs (Note A)                                                        |  |                            | (6        | ) |                                   |   | (100      | )                             |  |   | (853                       | ) |  |   | (4,105    | )
|                                                                                     |  |                            |           |   |                                   |   |           |                               |  |   |                            |   |  |   |           |  
|Total other income (expense)                                                         |  |                            | (3,451    | ) |                                   |   | (2,950    | )                             |  |   | 2,603                      |   |  |   | (9,538    | )
|                                                                                     |  |                            |           |   |                                   |   |           |                               |  |   |                            |   |  |   |           |  
|Earnings (loss) before income taxes                                                  |  |                            | (14,306   | ) |                                   |   | (2,113    | )                             |  |   | 2,045                      |   |  |   | (16,734   | )
|Income tax provision                                                                 |  |                            | 383       |   |                                   |   |          |                               |  |   | 777                        |   |  |   |          |  
|                                                                                     |  |                            |           |   |                                   |   |           |                               |  |   |                            |   |  |   |           |  
|Income (loss) from continuing operations                                             |  |                            | (14,689   | ) |                                   |   | (2,113    | )                             |  |   | 1,268                      |   |  |   | (16,734   | )
|                                                                                     |  |                            |           |  
|Discontinued operations (Note C)                                                     |  |                            |           |   |                                   |   |           |                               |  |   |                            |   |  |   |           |  
|Income (loss) from discontinued operations                                           |  |                            | 218       |   |                                   |   | 424       |                               |  |   | (507                       | ) |  |   | (24,348   | )
|Income tax benefit                                                                   |  |                            |          |   |                                   |   |          |                               |  |   | 193                        |   |  |   |          |  
|                                                                                     |  |                            |           |   |                                   |   |           |                               |  |   |                            |   |  |   |           |  
|Income (loss) on discontinued operations                                             |  |                            | 218       |   |                                   |   | 424       |                               |  |   | (314                       | ) |  |   | (24,348   | )
|                                                                                     |  |                            |           |   |                                   |   |           |                               |  |   |                            |   |  |   |           |  
|Net earnings (loss)                                                                  |  | $                          | (14,471   | ) |                                   | $ | (1,689    | )                             |  | $ | 954                        |   |  | $ | (41,082   | )
|                                                                                     |  |                            |           |   |                                   |   |           |                               |  |   |                            |   |  |   |           |  
|Net earnings (loss) from continuing operations per common sharebasic and diluted:   |  | $                          | (2.93     | ) |                                   | $ | (0.42     | )                             |  | $ | 0.20                       |   |  | $ | (2.61     | )
|Net earnings (loss) from discontinued operations per common sharebasic and diluted: |  | $                          | 0.04      |   |                                   | $ | 0.08      |                               |  | $ | (0.05                      | ) |  | $ | (3.79     | )
|                                                                                     |  |                            |           |   |                                   |   |           |                               |  |   |                            |   |  |   |           |  
|Net earnings (loss) per common sharebasic and diluted                               |  | $                          | (2.89     | ) |                                   | $ | (0.34     | )                             |  | $ | 0.15                       |   |  | $ | (6.40     | )
|                                                                                     |  |                            |           |   |                                   |   |           |                               |  |   |                            |   |  |   |           |  
|Weighted average Common Stock equivalent shares outstandingbasic and diluted        |  |                            | 5,000,000 |   |                                   |   | 5,000,000 |                               |  |   | 6,417,196                  |   |  |   | 6,417,196 |  
|                                                                                     |  |                            |           |   |                                   |   |           |                               |  |   |                            |   |  |   |           |  



The accompanying notes
are an integral part of these statements.



F-5



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##### Table of Contents

REPTRON ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)

(in thousands,
except share data)



|                                                                                                                           |  |                   |   |  |                           |     |   |                            |   |         |                                    |  |   |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | - |  | ------------------------- | --- | - | -------------------------- | - | ------- | ---------------------------------- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                           |  | Common Stock      |   |  | Additional Paid-InCapital |     |   | Retained Earnings(Deficit) |   |         | Total ShareholdersEquity(Deficit) | 
|                                                                                                                           |  | SharesOutstanding |   |  | ParValue                  |     |   |                            |  
|Predecessor Company                                                                                                        |  |                   |   |  |                           |     |   |                            |   |         |                                    |  |   |         |   |  |   |         |  
|Balance at December 31, 2002                                                                                               |  | 6,417,196         |   |  |                           | 64  |   |                            |   | 23,146  |                                    |  |   | (17,182 | ) |  |   | 6,028   |  
|Net Loss                                                                                                                   |  |                  |   |  |                           |    |   |                            |   |        |                                    |  |   | (41,082 | ) |  |   | (41,082 | )
|                                                                                                                           |  |                   |   |  |                           |     |   |                            |   |         |                                    |  |   |         |   |  |   |         |  
|Balance at December 31, 2003                                                                                               |  | 6,417,196         |   |  |                           | 64  |   |                            |   | 23,146  |                                    |  |   | (58,264 | ) |  |   | (35,054 | )
|Net Income Month Ended January 31, 2004                                                                                    |  |                  |   |  |                           |    |   |                            |   |        |                                    |  |   | 954     |   |  |   | 954     |  
|                                                                                                                           |  |                   |   |  |                           |     |   |                            |   |         |                                    |  |   |         |   |  |   |         |  
|Balance at January 31, 2004                                                                                                |  | 6,417,196         |   |  |                           | 64  |   |                            |   | 23,146  |                                    |  |   | (57,310 | ) |  |   | (34,100 | )
|Cancellation of predecessor common stock, additional paid-in capital, and accumulated deficit under Plan of Reorganization |  | (6,417,196        | ) |  |                           | (64 | ) |                            |   | (23,146 | )                                  |  |   | 57,310  |   |  |   | 34,100  |  
|                                                                                                                           |  |                   |   |  |                           |     |   |                            |   |         |                                    |  |   |         |   |  |   |         |  
|Balance at January 31, 2004                                                                                                |  |                  |   |  |                           |    |   |                            |   |        |                                    |  |   |        |   |  |   |        |  
|                                                                                                                           |  |                   |   |  |                           |     |   |                            |   |         |                                    |  |   |         |   |  |   |         |  
|Reorganized Company                                                                                                        |  |                   |   |  |                           |     |   |                            |   |         |                                    |  |   |         |   |  |   |         |  
|Balance at January 31, 2004                                                                                                |  |                  |   |  | $                         |    |   |                            | $ |        |                                    |  | $ |        |   |  | $ |        |  
|Issuance of common stock under Plan of Reorganization                                                                      |  | 5,000,000         |   |  |                           | 50  |   |                            |   | 15,725  |                                    |  |   |        |   |  |   | 15,775  |  
|Net Loss                                                                                                                   |  |                  |   |  |                           |    |   |                            |   |        |                                    |  |   | (1,689  | ) |  |   | (1,689  | )
|                                                                                                                           |  |                   |   |  |                           |     |   |                            |   |         |                                    |  |   |         |   |  |   |         |  
|Balance at December 31, 2004                                                                                               |  | 5,000,000         |   |  |                           | 50  |   |                            |   | 15,725  |                                    |  |   | (1,689  | ) |  |   | 14,086  |  
|Net Loss                                                                                                                   |  |                  |   |  |                           |    |   |                            |   |        |                                    |  |   | (14,471 | ) |  |   | (14,471 | )
|                                                                                                                           |  |                   |   |  |                           |     |   |                            |   |         |                                    |  |   |         |   |  |   |         |  
|Balance at December 31, 2005                                                                                               |  | 5,000,000         |   |  | $                         | 50  |   |                            | $ | 15,725  |                                    |  | $ | (16,160 | ) |  | $ | (385    | )
|                                                                                                                           |  |                   |   |  |                           |     |   |                            |   |         |                                    |  |   |         |   |  |   |         |  





The accompanying notes are an integral part of these statements.



F-6



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##### Table of Contents

REPTRON ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                                                              |  |                            |         |   |                                    |   |        |                               |  |   |                            |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ---------------------------------- | - | ------ | ----------------------------- |  | - | -------------------------- | - |  | - | ------- | -
|                                                                                                                              |  | Reorganized Company        |         |   | Predecessor Company                |  
|                                                                                                                              |  | Year EndedDecember 31,2005 |         |   | Eleven MonthsEndedDecember 31,2004 |   |        | One MonthEndedJanuary 31,2004 |  |   | Year EndedDecember 31,2003 |  
|Increase (decrease) in cash and cash equivalents:                                                                             |  |                            |         |   |                                    |   |        |                               |  |   |                            |   |  |   |         |  
|Cash flows from operating activities of continuing operations:                                                                |  |                            |         |   |                                    |   |        |                               |  |   |                            |   |  |   |         |  
|Net earnings (loss)                                                                                                           |  | $                          | (14,471 | ) |                                    | $ | (1,689 | )                             |  | $ | 954                        |   |  | $ | (41,082 | )
|Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities of continuing operations: |  |                            |         |   |                                    |   |        |                               |  |   |                            |   |  |   |         |  
|Net (earnings) loss from discontinued operations                                                                              |  |                            | (218    | ) |                                    |   | (424   | )                             |  |   | 314                        |   |  |   | 24,348  |  
|Depreciation                                                                                                                  |  |                            | 4,484   |   |                                    |   | 3,923  |                               |  |   | 412                        |   |  |   | 5,268   |  
|Amortization                                                                                                                  |  |                            | 625     |   |                                    |   | 313    |                               |  |   |                           |   |  |   | 1,430   |  
|Goodwill impairment                                                                                                           |  |                            | 10,072  |   |                                    |   |       |                               |  |   |                           |   |  |   | 7,808   |  
|Deferred income taxes                                                                                                         |  |                            | 359     |   |                                    |   | (59    | )                             |  |   | 606                        |   |  |   |        |  
|Reorganization gain on debt discharge                                                                                         |  |                            |        |   |                                    |   |       |                               |  |   | (3,517                     | ) |  |   |        |  
|Change in assets and liabilities:                                                                                             |  |                            |         |   |                                    |   |        |                               |  |   |                            |   |  |   |         |  
|Accounts receivable                                                                                                           |  |                            | (3,421  | ) |                                    |   | (1,618 | )                             |  |   | 23                         |   |  |   | 7,913   |  
|Inventories                                                                                                                   |  |                            | (1,604  | ) |                                    |   | (929   | )                             |  |   | 701                        |   |  |   | 6,601   |  
|Prepaid expenses and other current assets                                                                                     |  |                            | (440    | ) |                                    |   | 2,028  |                               |  |   | (1,024                     | ) |  |   | (656    | )
|Other assets                                                                                                                  |  |                            |        |   |                                    |   | (35    | )                             |  |   | 666                        |   |  |   | (674    | )
|Accounts payable                                                                                                              |  |                            | 2,123   |   |                                    |   | (2,366 | )                             |  |   | 281                        |   |  |   | (3,272  | )
|Accrued expenses                                                                                                              |  |                            | 564     |   |                                    |   | (983   | )                             |  |   | 1,238                      |   |  |   | 6,197   |  
|                                                                                                                              |  |                            |         |   |                                    |   |        |                               |  |   |                            |   |  |   |         |  
|Net cash provided by (used in) operating activities of continuing operations                                                  |  |                            | (1,927  | ) |                                    |   | (1,839 | )                             |  |   | 654                        |   |  |   | 13,881  |  
|                                                                                                                              |  |                            |         |   |                                    |   |        |                               |  |   |                            |   |  |   |         |  
|Cash flows from investing activities of continuing operations:                                                                |  |                            |         |   |                                    |   |        |                               |  |   |                            |   |  |   |         |  
|(Increase) decrease in restricted cash                                                                                        |  |                            | 274     |   |                                    |   | 676    |                               |  |   | 950                        |   |  |   | (2,640  | )
|Purchases of property, plant & equipment                                                                                      |  |                            | (1,651  | ) |                                    |   | (3,280 | )                             |  |   | (51                        | ) |  |   | (2,074  | )
|                                                                                                                              |  |                            |         |   |                                    |   |        |                               |  |   |                            |   |  |   |         |  
|Net cash provided by (used in) investing activities of continuing operations                                                  |  |                            | (1,377  | ) |                                    |   | (2,604 | )                             |  |   | 899                        |   |  |   | (4,714  | )
|                                                                                                                              |  |                            |         |   |                                    |   |        |                               |  |   |                            |   |  |   |         |  
|Cash flows from financing activities of continuing operations:                                                                |  |                            |         |   |                                    |   |        |                               |  |   |                            |   |  |   |         |  
|Net proceeds (payments) on notes payable to banks                                                                             |  |                            | 3,469   |   |                                    |   | 5,577  |                               |  |   | (1,360                     | ) |  |   | (27,392 | )
|Payments on long-term obligations                                                                                             |  |                            | (380    | ) |                                    |   | (336   | )                             |  |   | (30                        | ) |  |   | (1,064  | )
|                                                                                                                              |  |                            |         |   |                                    |   |        |                               |  |   |                            |   |  |   |         |  
|Net cash provided by (used in) financing activities of continuing operations                                                  |  |                            | 3,089   |   |                                    |   | 5,241  |                               |  |   | (1,390                     | ) |  |   | (28,456 | )
|                                                                                                                              |  |                            |         |   |                                    |   |        |                               |  |   |                            |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                                                          |  |                            | (215    | ) |                                    |   | 798    |                               |  |   | 163                        |   |  |   | (19,289 | )
|Net increase (decrease) in cash and cash equivalents from discontinued operations from operating activities (see Note D)      |  |                            | 218     |   |                                    |   | (653   | )                             |  |   | (392                       | ) |  |   | 19,230  |  
|Cash and cash equivalents at the beginning of the period                                                                      |  |                            | 227     |   |                                    |   | 82     |                               |  |   | 311                        |   |  |   | 370     |  
|                                                                                                                              |  |                            |         |   |                                    |   |        |                               |  |   |                            |   |  |   |         |  
|Cash and cash equivalents at the end of the period                                                                            |  | $                          | 230     |   |                                    | $ | 227    |                               |  | $ | 82                         |   |  | $ | 311     |  
|                                                                                                                              |  |                            |         |   |                                    |   |        |                               |  |   |                            |   |  |   |         |  



The accompanying notes
are an integral part of these statements.



F-7



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005, 2004 and 2003



NOTE AORGANIZATION AND DESCRIPTION OF BUSINESS



Reptron Electronics, Inc. (Reptron) is an
electronics manufacturing services company providing engineering services, electronics manufacturing services and display integration services. Reptron Manufacturing Services offers full electronics manufacturing services including complex circuit
board assembly, complete supply chain services and manufacturing engineering services to original equipment manufacturers (OEMs) in a wide variety of industries including medical, industrial/instrumentation, banking, telecommunications,
and semiconductor equipment. Reptron Outsource Manufacturing and Design provides value-added display design engineering and system integration services to OEMs.



On February 3, 2004, Reptron implemented its previously announced financial restructuring when its pre-negotiated Plan of Reorganization under
Chapter 11 of the U.S. Bankruptcy Code (the Plan or Plan of Reorganization) became effective. Events occurring during 2003 and through February 3, 2004 related to the Chapter 11 proceedings are summarized below.



In January 2003, the Company announced that it was seeking to
restructure $76.3 million principal amount of Reptrons outstanding 63/4% Convertible Subordinated Notes
(the Convertible Notes). As part of this initiative, Reptron discontinued all interest payments on the Convertible Notes.



In February 2003, the Company commenced discussions with certain holders of the Convertible Notes (Ad-hoc Committee) to discuss the financial
condition of the Company and the proposed restructuring. The Company engaged in extensive, arms length negotiations with the Ad-hoc Committee regarding the terms of the consensual restructuring of Reptron.



On October 28, 2003, Reptron filed a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. Under the terms of the Plan, substantially all of Reptrons general unsecured creditors (except for holders of the Convertible Notes and certain other creditors) received full payment
for all prepetition claims within ninety days subsequent to the Plans effective date. The Plan was confirmed by the bankruptcy court on January 14, 2004 and became effective February 3, 2004, resulting in conversion of the $76.3
million of Convertible Notes, $6.4 million of accrued interest and $0.8 million of other liabilities into $30 million of Senior Secured Notes due in 2009 (New Notes) and the issuance of 95% of the common stock of the reorganized entity
(New Common Stock). Previously outstanding common stock was exchanged for 5% of the New Common Stock. The New Notes carry an interest rate of seven percent per annum during the first two years and eight percent per annum during the
remaining three years.



In accordance with the Plan, in the
first quarter of 2004 the Company, among other matters:



| |  |  | Issued 5,000,000 shares of New Common Stock,
| | - |  | --------------------------------------------



| |  |  | Issued the New Notes;
| | - |  | ---------------------



| |  |  | Adopted a new stock option plan;
| | - |  | --------------------------------



| |  |  | Canceled the Convertible Notes, previously outstanding common stock, and previously outstanding stock options.
| | - |  | --------------------------------------------------------------------------------------------------------------



Interest expense of approximately $4.3 million on the Convertible Notes was
accrued through October 28, 2003, the Companys Chapter 11 petition filing date, even though the Company discontinued interest payments on such debt. Interest expense for 2003 excludes $0.9 million of stated contractual interest associated
with the



F-8



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



Convertible Notes between October 28, 2003 and December 31, 2003. No interest expense was recorded on the Convertible Notes in 2004.



The Company incurred $1.0 million of reorganization costs during 2004, which
primarily includes professional fees of approximately $0.4 million, debt issuance costs of approximately $0.2 million, and contract settlement and other miscellaneous costs of approximately $0.4 million. The Company incurred $4.1 million of
reorganization costs during 2003, which primarily includes professional fees of approximately $2.0 million, a write-off of debt issuance costs of approximately $1.5 million, and contract settlement and other miscellaneous costs of approximately $0.6
million.



The Companys emergence from Chapter 11
bankruptcy proceedings on February 3, 2004 resulted in a new reporting entity and adoption of fresh start reporting, in accordance with Statement of Position No. 90-7 (SOP 90-7), Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code. Although the effective date of the Plan was February 3, 2004, the Company has accounted for the consummation of the Plan as if it occurred at the close of business on January 31, 2004. As a result of the
extinguishment of the liabilities subject to compromise, the Company recognized a reorganization gain on debt discharge amounting to $3.5 million, representing the excess of the carrying value of those liabilities compared to managements
estimate of the fair value of the New Common Stock and the New Notes. As provided for in the Companys Plan of Reorganization, the holders of the liabilities subject to compromise would receive their ratable portion of the New Common Stock and
New Notes in full satisfaction of those liabilities.



F-9



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



The following unaudited financial information reflects the implementation of the Plan as of the close
of business on January 31, 2004. Reorganization adjustments have been made to reflect the discharge of debt and adoption of fresh start reporting in accordance with SOP 90-7. The reorganization value of the Company immediately after the
restructuring was approximately $78.1 million which was the basis used to allocate the value of the assets and liabilities of Reptron in conformity with Statement of Financial Accounting Standards No. 141 (SFAS 141), Business
Combinations. The Company determined that independent third party appraisals of its long-term tangible and intangible assets was necessary in order to allocate the reorganization value of the Company to its various assets at January 31,
2004. The fresh-start adjustments included in the table which follows represent managements estimate of adjustments necessary to record assets and liabilities at fair value with consideration given to the appraisal work that has been
completed. The amount of net operating losses (NOL) that can be utilized in any given year is limited based on Section 382 of the Internal Revenue Code. In this regard, the amount of NOL generated prior to February 2004 that can be
utilized in future periods is limited to approximately $3.0 million per year.



|                                           |  |                              |         |   |               |   |         |            |  |   |                    |      |  |   |       
|------------------------------------------ |  | ---------------------------- | ------- | - | ------------- | - | ------- | ---------- |  | - | ------------------ | ---- |  | - | ------
|                                           |  | January 31, 2004 (unaudited)
|(In Thousands)                             |  | PredecessorCompany           |         |   | DebtDischarge |   |         | FreshStart |  |   | ReorganizedCompany
|Cash and cash equivalents                  |  | $                            | 82      |   |               |   |         |            |  |   |                    |      |  | $ | 82    
|Restricted cash                            |  |                              | 1,690   |   |               |   |         |            |  |   |                    |      |  |   | 1,690 
|Account receivabletrade, net              |  |                              | 13,083  |   |               |   |         |            |  |   |                    |      |  |   | 13,083
|Inventories, net                           |  |                              | 18,845  |   |               |   |         |            |  |   |                    |      |  |   | 18,845
|Prepaid expenses and other                 |  |                              | 3,831   |   |               |   |         |            |  |   | (178               | )(h) |  |   | 3,653 
|Property, plant & equipment                |  |                              | 19,737  |   |               |   |         |            |  |   | 2,808              | (f)  |  |   | 22,545
|Goodwill                                   |  |                              | 18,970  |   |               |   |         |            |  |   | (6,798             | )(i) |  |   | 12,172
|Other intangible assets                    |  |                              |        |   |               |   |         |            |  |   | 4,168              | (g)  |  |   | 4,168 
|Deferred income tax                        |  |                              | 1,843   |   |               |   |         |            |  |   |                    |      |  |   | 1,843 
|Other assets                               |  |                              | 52      |   |               |   |         |            |  |   |                    |      |  |   | 52    
|                                           |  |                              |         |   |               |   |         |            |  |   |                    |      |  |   |       
|Total assets                               |  | $                            | 78,133  |   |               | $ |        |            |  | $ |                   |      |  | $ | 78,133
|                                           |  |                              |         |   |               |   |         |            |  |   |                    |      |  |   |       
|Accounts payabletrade                     |  | $                            | 15,441  |   |               |   |         |            |  |   |                    |      |  | $ | 15,441
|Note payable to bank                       |  |                              | 4,854   |   |               |   |         |            |  |   |                    |      |  |   | 4,854 
|Current portion of long-term obligations   |  |                              | 450     |   |               |   |         |            |  |   |                    |      |  |   | 450   
|Accrued expenses                           |  |                              | 15,063  |   |               |   | (7,077  | )(a)       |  |   |                    |      |  |   | 7,986 
|Convertible subordinated notes due 2004    |  |                              | 76,315  |   |               |   | (76,315 | )(a)       |  |   |                    |      |  |   |      
|Senior secured notes due 2009              |  |                              |        |   |               |   | 30,000  | (b)        |  |   |                    |      |  |   | 30,000
|Long-term obligations                      |  |                              | 3,627   |   |               |   |         |            |  |   |                    |      |  |   | 3,627 
|                                           |  |                              |         |   |               |   |         |            |  |   |                    |      |  |   |       
|Total liabilities                          |  |                              | 115,750 |   |               |   | (53,392 | )          |  |   |                   |      |  |   | 62,358
|                                           |  |                              |         |   |               |   |         |            |  |   |                    |      |  |   |       
|Common stock                               |  |                              | 64      |   |               |   |         |            |  |   | (14                | )(e) |  |   | 50    
|Additional paid-in capital                 |  |                              | 23,146  |   |               |   | 49,875  | (c)        |  |   | (57,296            | )(e) |  |   | 15,725
|Accumulated deficit                        |  |                              | (60,827 | ) |               |   | 3,517   | (d)        |  |   | 57,310             | (e)  |  |   |      
|                                           |  |                              |         |   |               |   |         |            |  |   |                    |      |  |   |       
|Total liabilities and shareholders equity |  | $                            | 78,133  |   |               | $ |        |            |  | $ |                   |      |  | $ | 78,133
|                                           |  |                              |         |   |               |   |         |            |  |   |                    |      |  |   |       

---

|(a) | Reduction of Convertible Notes, accrued interest on the Convertible Notes, and other liabilities subject to compromise for the implementation of the Plan of $83.4 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Increase in long-term obligations of $30.0 million associated with the issuance of the New Notes.
|--- | -------------------------------------------------------------------------------------------------



|(c) | Increase in additional paid-in capital of $49.9 million reflecting the reorganization and issuance of the New Common Stock.
|--- | ---------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



|(d) | Effect of the gain on the extinguishment of debt. The income tax effects are reflected in the predecessor historical information. As a result, the effect on accumulated deficit is
recognized excluding tax effects.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(e) | Elimination of accumulated deficit and issuance of New Common Stock reflecting the reorganized entity.
|--- | ------------------------------------------------------------------------------------------------------



|(f) | Increase in property, plant and equipment of $2.8 million reflecting the estimated fair market value of the assets on January 31, 2004 based primarily on third party
appraisals.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(g) | Increase in other intangible assets of $4.2 million reflecting the value of the Companys customer relationships on January 31, 2004 based on a third party appraisal. This
asset was determined to have a 12 year life and will be amortized at rates such that 75% of the asset will be amortized in the first five years of the assets life and the remaining 25% of the asset will be amortized over the remaining seven years of
its life.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(h) | Decrease in other current assets based on managements assessment of fair value.
|--- | --------------------------------------------------------------------------------



|(i) | Net effect of the fresh start adjustments detailed in items (f), (g) and (h), above.
|--- | ------------------------------------------------------------------------------------



NOTE BSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.



|1. | Principles of Consolidation
|-- | ---------------------------



The financial statements include the accounts of Reptron Electronics, Inc and its wholly-owned subsidiaries. All significant inter-company balances and
transactions have been eliminated.



|2. | Cash and Cash Equivalents
|-- | -------------------------



For purposes of the statement of cash flows, Reptron considers all highly liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. Restricted cash represents funds set aside pursuant to the requirements of certain letters of credit outstanding at December 31, 2005 and 2004.



|3. | Inventories
|-- | -----------



Inventories are stated at the lower of cost or market determined using the first-in, first-out method (FIFO). The Company evaluates inventories for
excess, obsolescence or other factors that may render inventories unmarketable at normal margins. Write-downs and obsolescence reserves are recorded so that inventories reflect the approximate net realizable value and take into consideration the
Companys contractual provisions with its customers and suppliers governing return privileges relating to obsolescence.



|4. | Property, Plant and Equipment
|-- | -----------------------------



Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided for, using the straight-line method, in
amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives (buildings 39 1/2 years, most other asset categories 5 years). Leasehold improvements are amortized using the straight-line method over the
lives of the respective leases or the service lives of the improvements, whichever is shorter. Leased equipment under capital leases is amortized using the straight-line method over the lives of the respective leases or over the service lives of the
assets for those leases which substantially transfer ownership. Accelerated methods are used for tax depreciation. Repairs



F-11



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



and maintenance costs are expensed as incurred. As discussed in Note A, the Company applied fresh start accounting during the first quarter of 2004 which
resulted in an adjustment of $2.8 million of additional value assigned to property and equipment based primarily on third party appraisals.



|5. | Goodwill
|-- | --------



Goodwill represents the excess of acquisition costs over the fair value of the net assets acquired. The 2004 goodwill balance of $12.2 million is stated
at cost.



The Company accounts for its goodwill in accordance
with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). Under this standard, the Company is required to perform a goodwill impairment test at least on an annual basis
and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from estimated future cash flows. The testing for impairment of goodwill is performed in two steps: (1) potential impairment is identified
by comparing the fair value of a reporting unit (based on market capitalization, undiscounted cash flows, or other acceptable methods) with its carrying amount; and (2) if fair value is less than the carrying amount, an impairment loss is
estimated as the excess of the carrying amount of the goodwill over its fair value. Goodwill must be written down when impaired.



The Company updated its analysis in response to filing a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in
the fourth quarter of 2003. This discounted cash flow analysis indicated that the goodwill recorded as a result of the purchase of a flat panel display business was fully impaired. Accordingly, the Company recorded an impairment charge of
approximately $7.8 million in 2003. As discussed in Note A, the Company applied fresh start accounting during the first quarter of 2004 which resulted in decreased value assigned to goodwill of approximately $6.8 million.



Due to the significant decline in the Companys stock price and
operating losses that occurred during the second quarter of 2005, the Company performed an internal interim analysis of goodwill and other intangible assets for impairment of fair value as of June 30, 2005. Based on the preliminary internal
analysis, the Company concluded that the fair value of its goodwill was approximately $2.1 million as of June 30, 2005, resulting in a non-cash impairment charge of $10.1 million related to the carrying value of goodwill for the second quarter
of 2005. The charge will not result in future cash expenditures or affect compliance with the financial covenants with our lender. Fair value of the reporting unit was estimated primarily based on the market capitalization of our common stock and
projected discounted cash flows. The Companys internal interim analysis of other intangible assets did not indicate that the remaining asset was impaired. The goodwill impairment recognized of $10.1 million was based on preliminary estimates.
The Company engaged an independent third party valuation specialist to finalize the valuation and impairment analysis of goodwill in the third quarter of 2005. Based on the report of the independent valuation specialist, no additional adjustment to
goodwill and other intangible assets was required in the third quarter of 2005.



|6. | Customer List
|-- | -------------



Upon the adoption of fresh start accounting, the Company recognized an intangible asset that reflects the value of the Companys customer
relationships on January 13, 2004 based primarily on a third party appraisal. This asset was determined to have a value of $4.2 million and a twelve year life. Amortization expense will be recorded in amounts such that 75% of the asset value
will be amortized in the first five years of the assets life and the remaining 25% of the asset value will be amortized over the remaining seven years of its life. The Company recorded approximately $0.3 million of amortization expense related to
this asset in the eleven months ending December 31, 2004 and approximately $0.6 million in the year ended December 31, 2005. The Company expects



F-12



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



to record amortization expense of $625,000 annually in 2006 through 2008, and $387,000 in 2009 and thereafter until fully amortized.



|7. | Impairment of Assets
|-- | --------------------



Reptrons policy is to periodically review and evaluate whether there has been a permanent impairment in the value of long-lived assets. Factors
considered in the evaluation include current operating results, trends and anticipated undiscounted future cash flows. An impairment loss is recognized to the extent that fair value of the assets measured as the sum of discounted estimated future
cash flows (using the Companys incremental borrowing rate over a period of less than 30 years) that is expected to result from the use of the asset or other measure of fair value, is less than the carrying value. There have been no impairment
losses in 2005, 2004, or 2003.



|8. | Income Taxes
|-- | ------------



Reptron accounts for income taxes on the liability method, as provided by Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting For Income Taxes. Under the liability method specified by SFAS 109, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured
by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities.



|9. | Earnings Per Common Share
|-- | -------------------------



Earnings per share are computed using the basic and diluted calculations, as provided by SFAS No. 128 Earnings per Share. SFAS
No. 128 eliminates primary and fully diluted earnings per share and requires presentation of basic and diluted earnings per share together with disclosure of how the per share amounts were computed.



As discussed in Note A, the Company emerged from bankruptcy on
February 3, 2004 and has a reorganized equity structure. In particular, implementation of the Companys Plan of Reorganization resulted in the cancellation of all of the shares of the Companys common stock and stock options that were
outstanding prior to the Petition Date.



|10. | Use of Estimates
|--- | ----------------



In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting
period. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, inventories, goodwill, deferred income taxes, restructuring costs and contingent liabilities. Actual results could differ from those
estimates.



|11. | Revenue Recognition
|--- | -------------------



Revenues are recognized upon shipment of product, at which time title to goods has transferred to the buyer. The Company performs periodic credit
evaluations of its customers financial condition and does not require collateral on its accounts receivable. Credit losses are provided for in the financial statements based on managements assessment of specific customer balances,
considering the age of receivables and financial stability of the customer and have been within managements expectations. Accounts receivable are presented net



F-13



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



of an allowance for doubtful accounts of $113,000 and $37,000 in 2005 and 2004, respectively. Generally, accounts are written-off upon the exhaustion of all
reasonable collection efforts. During 2004, the Company recovered approximately $172,000 of accounts written off in prior years that were primarily associated with discontinued operations. The Company incurred $76,000, $0, and $521,000 of bad debt
expense during 2005, 2004, and 2003, respectively, including bad debt expense included in loss from discontinued operations.



The Companys three largest customers accounted for approximately 15%, 11%, and 10%, respectively, of net sales for the year ended December 31,
2005. No other customers accounted for sales of 10% or more during 2005. The Companys three largest customers accounted for approximately 13%, 12%, and 12%, respectively, of net sales for the year ended December 31, 2004. No other
customers accounted for sales of 10% or more during 2004. The Companys two largest customers accounted for approximately 21% and 12%, respectively, of net sales for the year ended December 31, 2003. No other customers accounted for sales
of 10% or more during 2003.



|12. | Stock Based Compensation
|--- | ------------------------



The Company follows Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation
(SFAS 123), which establishes a fair value based method of accounting for stock-based employee compensation plans; however, the Company has elected to account for its employee stock compensation plans using the intrinsic value method
under Accounting Principles Board Opinion No. 25 with pro forma disclosures of net earnings and earnings per share, as if the fair value based method of accounting defined in SFAS 123 had been applied.



Had compensation cost for the Companys stock option plan been
determined on the fair value at the grant dates for stock-based employee compensation arrangements consistent with the method required by SFAS 123, the Companys net loss and net loss per common share would have been the pro forma amounts
indicated below (see also Note L):



|                                                                                                                                                                      |  |                            |         |   |                                    |   |        |                               |  |                            |      |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ---------------------------------- | - | ------ | ----------------------------- |  | -------------------------- | ---- |  | - | ------- | -
|                                                                                                                                                                      |  | Reorganized Company        |         |   | Predecessor Company                |  
|(In thousands except per share data)                                                                                                                                  |  | Year EndedDecember 31,2005 |         |   | Eleven MonthsEndedDecember 31,2004 |   |        | One MonthEndedJanuary 31,2004 |  | Year EndedDecember 31,2003 |     
|Reported net income (loss)                                                                                                                                            |  | $                          | (14,471 | ) |                                    | $ | (1,689 | )                             |  | $                          | 954  |  | $ | (41,082 | )
|                                                                                                                                                                      |  |                            |         |  
|Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects                                                              |  |                            |        |   |                                    |   |       |                               |  |                            |     |  |   |        |  
|                                                                                                                                                                      |  |                            |         |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for awards granted, modified, or settled, net
of related tax effects |  |                            | 740     |   |                                    |   | 626    |                               |  |                            |     |  |   | 38      |  
|                                                                                                                                                                      |  |                            |         |   |                                    |   |        |                               |  |                            |      |  |   |         |  
|Pro forma net income (loss)                                                                                                                                           |  | $                          | (15,211 | ) |                                    | $ | (2,315 | )                             |  | $                          | 954  |  | $ | (41,120 | )
|                                                                                                                                                                      |  |                            |         |   |                                    |   |        |                               |  |                            |      |  |   |         |  
|Net income (loss) per common sharebasic:                                                                                                                             |  |                            |         |   |                                    |   |        |                               |  |                            |      |  |   |         |  
|As reported                                                                                                                                                           |  | $                          | (2.89   | ) |                                    | $ | (0.34  | )                             |  | $                          | 0.15 |  | $ | (6.40   | )
|Pro forma                                                                                                                                                             |  | $                          | (3.04   | ) |                                    | $ | (0.46  | )                             |  | $                          | 0.15 |  | $ | (6.41   | )
|Net income (loss) per common sharediluted:                                                                                                                           |  |                            |         |   |                                    |   |        |                               |  |                            |      |  |   |         |  
|As reported                                                                                                                                                           |  | $                          | (2.89   | ) |                                    | $ | (0.34  | )                             |  | $                          | 0.15 |  | $ | (6.40   | )
|Pro forma                                                                                                                                                             |  | $                          | (3.04   | ) |                                    | $ | (0.46  | )                             |  | $                          | 0.15 |  | $ | (6.41   | )



F-14



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



|13. | Recent Accounting Pronouncements
|--- | --------------------------------



In November 2004, the Financial Accounting Standards Board issued Statement 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4, which is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The amendments made by Statement 151 will improve financial reporting by clarifying that abnormal amounts of idle facility
expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and by requiring the allocation of fixed production overheads to inventory based on the normal capacity of the production
facilities. The Company does not believe that the adoption of Statement 151 will have a significant effect on its financial statements.



In December 2004, the Financial Accounting Standards Board issued Statement 123 (revised 2004), Share-Based Payment, (Statement
123(R)). This Statement, effective on January 1, 2006, requires that the costs of employee share-based payments be measured at fair value on the awards grant date using an option-pricing model and recognized in the financial
statements over the requisite service period. This Statement does not change the accounting for stock ownership plans, which are subject to American Institute of Certified Public Accountants SOP 93-6, Employers Accounting for
Employee Stock Ownership Plans. Statement 123(R) supersedes Opinion 25, Accounting for Stock Issued to Employees and its related interpretations, and eliminates the alternative to use Opinion 25s intrinsic
value method of accounting, which the Company is currently using.



Statement 123(R) allows for two alternative transition methods. The first method is the modified prospective application whereby compensation cost for the portion of awards for which the requisite service has not yet been rendered that
are outstanding as of the adoption date will be recognized over the remaining service period. The compensation cost for that portion of awards will be based on the grant-date fair value of those awards as calculated for pro forma disclosures
under Statement 123, as originally issued. All new awards and awards that are modified, repurchased, or cancelled after the adoption date will be accounted for under the provisions of Statement 123(R). The second method is the modified
retrospective application, which requires that the Company restates prior period financial statements. The modified retrospective application may be applied either to all prior periods or only to prior interim periods in the year of adoption of
this statement. The Company has determined that Statement 123(R) will not have a significant impact on its financial position, results of operations, EPS and cash flows upon adoption of the Statement.



On October 28, 2005, in response to the issuance of SFAS 123(R),
the Companys Compensation Committee of the Board of Directors approved accelerating the vesting of the out-of-the-money, unvested stock options held by current employees, including executive officers, and directors. Unvested options to
purchase approximately 296,666 shares became exercisable as a result of the vesting acceleration. The accelerated vesting was effective as of October 31, 2005. Also on October 28, 2005, the Companys Compensation Committee of the
Board of Directors made additional option grants to directors and executive officers to purchase 185,000 shares of the Companys common stock, The new options have an exercise price of $0.36 per share and are completely vested as of the grant
date.



The decision to accelerate vesting of these options was
made primarily to avoid recognizing compensation cost in the statement of earnings in future financial statements upon the effectiveness of SFAS 123(R).



|14. | Fresh Start Accounting
|--- | ----------------------



As discussed in Note A, the Company adopted fresh start accounting during the first quarter of 2004, creating, in substance, per SOP 90-7 a new reporting
entity. SOP 90-7 also requires that changes in accounting



F-15



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



principles required in the financial statements of the emerging entity within twelve months of fresh start reporting should be adopted at the time fresh
start reporting is adopted. No such changes occurred.



NOTE CDISCONTINUED OPERATIONS



Electronic Component
Distribution



As a result of significant losses incurred
by the Companys Electronic Component Distribution (ECD) segment during 2001 and 2002, the Company decided to exit the component distribution business either through a sale of the business or by discontinuance of its operations in
2003. Management completed a sale of identified assets of this division on June 13, 2003. Accordingly, the results of this division have been reported as a discontinued operation for all periods presented.



Revenue for the ECD division was approximately $36.2 million for the year
ended December 31, 2003. The ECD divisions combined loss from operations and the loss on the sale of identified assets of this division was $19.2 million in 2003. Included in the loss from discontinued operations in 2003 is an impairment
writedown of $3.3 million of goodwill, an $8.1 million writedown of inventory, a $1.7 million impairment of fixed assets, and other costs of $0.8 million. The inventory writedown was determined with consideration given to the sale proceeds for the
inventory included in the sale. The goodwill impairment was also recognized in response to the near term expectations established by the board of directors in March 2003 to either sell or otherwise discontinue these operations. As a result, the
long-term turnaround previously estimated by management for this segment was no longer feasible and recovery of these assets was not expected in the near term. Also included in the pre-tax loss in 2003 is interest expense of $0.5 million that was
allocated to the electronic component distribution business. The basis for this allocation considered interest expense which can reasonably be expected to be avoided through the collection of the electronic component distribution divisions
trade receivables, proceeds from the sales of assets held for sale, and subsequent payment on the working capital credit facility. Included in the loss from discontinued operations in January 2004 is $0.2 million representing an increase in
estimated workers compensation costs.



Computer Products Division



The Company exited the Computer Products (CP)
business through a sale of identified assets of the division that was completed on October 27, 2003. Accordingly, the results of this division have been reported as a discontinued operation for all periods presented. Revenue for the CP division
was $24.9 million for the year ended December 31, 2003. The CP divisions loss from operations before income taxes was $5.1 million in 2003. Included in the pre-tax operations in 2003 is interest expense of $0.3 million that was allocated
to the CP division. The basis for this allocation considered interest expense which can reasonably be expected to be avoided through the proceeds from the sales of assets held for sale, and subsequent payment on the working capital credit facility.



The combined discontinued operations generated earnings of
approximately $0.2 million and $0.4 million during the year ended and the eleven months ended December 31, 2005 and 2004, respectively. These earnings resulted primarily from the realization of assets that had previously been written down and
liabilities that were ultimately discharged in amounts less than accrued.



F-16



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



NOTE DSTATEMENTS OF CASH FLOWS



Supplemental disclosures of cash flow information (in thousands):



|                                                                                |  |                            |       |                                    |                     |        |                               |  |   |                            |   |  |   |         |  
|------------------------------------------------------------------------------- |  | -------------------------- | ----- | ---------------------------------- | ------------------- | ------ | ----------------------------- |  | - | -------------------------- | - |  | - | ------- | -
|                                                                                |  | Reorganized Company        |       |                                    | Predecessor Company |       
|(In Thousands)                                                                  |  | Year EndedDecember 31,2005 |       | Eleven MonthsEndedDecember 31,2004 |                     |        | One MonthEndedJanuary 31,2004 |  |   | Year EndedDecember 31,2003 |  
|Cash paid for:                                                                  |  |                            |       |                                    |                     |        |                               |  |   |                            |   |  |   |         |  
|Interest                                                                        |  | $                          | 3,267 |                                    | $                   | 1,625  |                               |  | $ | 61                         |   |  | $ | 1,990   |  
|                                                                                |  |                            |       |                                   
|Supplemental disclosures of cash flow information from discontinued operations: |  |                            |       |                                    |                     |        |                               |  |   |                            |   |  |   |         |  
|                                                                                |  |                            |       |                                   
|Net earnings (loss) from discontinued operations                                |  | $                          | 218   |                                    | $                   | 424    |                               |  | $ | (314                       | ) |  | $ | (24,348 | )
|Depreciation and amortization                                                   |  |                            |      |                                    |                     |       |                               |  |   |                           |   |  |   | 301     |  
|Goodwill impairment                                                             |  |                            |      |                                    |                     |       |                               |  |   |                           |   |  |   | 3,294   |  
|Fixed asset impairment                                                          |  |                            |      |                                    |                     |       |                               |  |   |                           |   |  |   | 1,800   |  
|Reduction in inventories, including LCM adjustment and sale to buyer            |  |                            |      |                                    |                     |       |                               |  |   |                           |   |  |   | 27,201  |  
|Reduction in accounts receivable                                                |  |                            |      |                                    |                     | 132    |                               |  |   | (132                       | ) |  |   | 20,856  |  
|Prepaid expenses and other current assets                                       |  |                            |      |                                    |                     | 799    |                               |  |   | 709                        |   |  |   | (701    | )
|Other assets                                                                    |  |                            |      |                                    |                     | 5      |                               |  |   | 1                          |   |  |   | 270     |  
|Reduction in accounts payable, including accounts assumed by the buyer          |  |                            |      |                                    |                     | (1,561 | )                             |  |   | (7                         | ) |  |   | (7,310  | )
|Accrued expenses                                                                |  |                            |      |                                    |                     | (452   | )                             |  |   | (649                       | ) |  |   | (2,133  | )
|                                                                                |  |                            |       |                                    |                     |        |                               |  |   |                            |   |  |   |         |  
|Net cash provided by (used in) discontinued operations                          |  | $                          | 218   |                                    | $                   | (653   | )                             |  | $ | (392                       | ) |  | $ | 19,230  |  
|                                                                                |  |                            |       |                                    |                     |        |                               |  |   |                            |   |  |   |         |  



Reptron did not incur
any additional obligations under capital leases for the acquisition of equipment during 2005, 2004, or 2003.



NOTE EINVENTORIES



Inventories consist of the following (in thousands):



|                                               |  |                                    |        |   |                                    |   |        |  
|---------------------------------------------- |  | ---------------------------------- | ------ | - | ---------------------------------- | - | ------ | -
|                                               |  | ReorganizedCompanyDecember 31,2005 |        |   | ReorganizedCompanyDecember 31,2004 |  
|Raw materials                                  |  | $                                  | 14,533 |   |                                    | $ | 13,324 |  
|Work in process                                |  |                                    | 5,700  |   |                                    |   | 4,799  |  
|Finished goods                                 |  |                                    | 2,027  |   |                                    |   | 2,349  |  
|                                               |  |                                    |        |   |                                    |   |        |  
|                                               |  |                                    | 22,260 |   |                                    |   | 20,472 |  
|Less reserve for excess and obsolete inventory |  |                                    | (882   | ) |                                    |   | (698   | )
|                                               |  |                                    |        |   |                                    |   |        |  
|                                               |  | $                                  | 21,378 |   |                                    | $ | 19,774 |  
|                                               |  |                                    |        |   |                                    |   |        |  



The Company recorded
expenses of $0.2, $0.2, and $0.7 million, included in cost of goods sold, to writedown inventories to the lower of cost or market during the fourth quarter of 2005, 2004, and 2003, respectively. The 2005 and 2003 writedowns were necessitated by
excess components due to reductions in



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



customer demands. The 2004 writedown was necessitated by excess labor costs due to start-up activities associated with a new customer.



NOTE FPROPERTY, PLANT AND EQUIPMENT



Property, plant and equipment consist of the following (in thousands):



|                                               |  |                                    |        |   |                                    |   |        |  
|---------------------------------------------- |  | ---------------------------------- | ------ | - | ---------------------------------- | - | ------ | -
|                                               |  | ReorganizedCompanyDecember 31,2005 |        |   | ReorganizedCompanyDecember 31,2004 |  
|Land and buildings                             |  | $                                  | 11,512 |   |                                    | $ | 11,482 |  
|Furniture, fixtures and equipment              |  |                                    | 15,399 |   |                                    |   | 13,900 |  
|Leashold improvements                          |  |                                    | 484    |   |                                    |   | 471    |  
|                                               |  |                                    |        |   |                                    |   |        |  
|                                               |  |                                    | 27,395 |   |                                    |   | 25,853 |  
|Less accumulated depreciation and amortization |  |                                    | (8,458 | ) |                                    |   | (4,083 | )
|                                               |  |                                    |        |   |                                    |   |        |  
|                                               |  | $                                  | 18,937 |   |                                    | $ | 21,770 |  
|                                               |  |                                    |        |   |                                    |   |        |  



NOTE
GNOTE PAYABLE TO BANK



The Company has a revolving
credit facility with Wachovia Capital Finance Corporation that provides up to $25 million (the Credit Agreement) to fund the Companys operations through February 2007. The Credit Agreement contains certain covenants including a
minimum quarterly measure of earnings before interest, taxes, depreciation and amortization (EBITDA) as defined by the Credit Agreement. The Company was in compliance with the covenants contained in the Credit Agreement as of
December 31, 2005. The interest rate on the credit facility is based on the lenders prime rate plus one percent. The Credit Agreement is collateralized by substantially all of the Companys assets. Management believes that this
credit facility, together with the Companys available cash reserves and cash expected to be provided by operations, will provide sufficient liquidity for the Company to pay for goods and services within standard terms. Under the advance rates
contained in the Credit Agreement, there was approximately $6.3 million of unused available credit on December 31, 2005.



NOTE HSENIOR SECURED NOTES & LONG-TERM OBLIGATIONS



Long-term obligations consist of the following (in thousands):



|                                                                                                                                                                                |  |                                    |        |   |                                    |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------- | ------ | - | ---------------------------------- | - | ------ | -
|                                                                                                                                                                                |  | ReorganizedCompanyDecember 31,2005 |        |   | ReorganizedCompanyDecember 31,2004 |  
|Senior Secured Notes due 2009, with semi-annual interest installments at a rate of 7.0% through February 2006, and 8.0%
thereafter.                                             |  | $                                  | 30,000 |   |                                    | $ | 30,000 |  
|                                                                                                                                                                                |  |                                    |        |   |                                    |   |        |  
|Notes payable collateralized by the Tampa manufacturing facility, due in monthly principal and interest installments of $39.6, through March
2015, at an interest rate of 8.6%. |  | $                                  | 3,008  |   |                                    | $ | 3,215  |  
|Others                                                                                                                                                                          |  |                                    | 353    |   |                                    |   | 526    |  
|                                                                                                                                                                                |  |                                    |        |   |                                    |   |        |  
|                                                                                                                                                                                |  |                                    | 3,361  |   |                                    |   | 3,741  |  
|Less current maturities                                                                                                                                                         |  |                                    | (315   | ) |                                    |   | (380   | )
|                                                                                                                                                                                |  |                                    |        |   |                                    |   |        |  
|                                                                                                                                                                                |  | $                                  | 3,046  |   |                                    | $ | 3,361  |  
|                                                                                                                                                                                |  |                                    |        |   |                                    |   |        |  



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



On October 28, 2003, the Company filed a voluntary petition for reorganization under Chapter 11
of the United States Bankruptcy Code to implement a pre-negotiated plan to restructure the then outstanding 63/4% Convertible Subordinated Notes, due 2004 (the Convertible Notes). Under the plan of reorganization, the existing Convertible Notes along with all related accrued and unpaid interest, were exchanged for new notes, the
Senior Secured Notes due 2009 (the Senior Secured Notes or New Notes), with a total principal balance of $30 million. The term of the New Notes is five years and carries a seven percent annual interest rate during the first
two years and an eight percent annual interest rate during the remaining three years. Interest expense associated with these Senior Secured Notes is currently recorded on a straight-line basis. The Senior Secured Notes are secured by a second
security position, behind the security position on the Credit Agreement, in all assets of the Company. The holders of the Convertible Notes also received ninety-five percent of the Companys new common shares outstanding as part of the
reorganization plan. The Bankruptcy Court confirmed the pre-negotiated plan of reorganization on January 14, 2004 and the Plan became effective on February 3, 2004.



At December 31, 2005, aggregate maturities of long-term obligations are as follows (in thousands):



|                         |  |   |       
|------------------------ |  | - | ------
|Year ending December 31, |  |  
|2006                     |  | $ | 315   
|2007                     |  |   | 455   
|2008                     |  |   | 301   
|2009                     |  |   | 30,292
|2010                     |  |   | 318   
|Thereafter               |  |   | 1,680 
|                         |  |   |       
|                         |  | $ | 33,361
|                         |  |   |       



At December 31,
2005 and 2004, the net book value of equipment under capital leases is approximately $0.



Interest payable was $1,402,000 and $1,225,000 at December 31, 2005 and 2004, respectively. Interest payable at December 31, 2005 and 2004 consists primarily of accrued interest on the Senior Secured Notes
which have interest payment dates of January 1 and July 1.



NOTE IINCOME TAXES



The
income tax provision (benefit) for the for the respective periods is as follows (in thousands):



|         |  |                            |     |                               |                     |     |                          |  |   |                            |   |  |   |  
|-------- |  | -------------------------- | --- | ----------------------------- | ------------------- | --- | ------------------------ |  | - | -------------------------- | - |  | - | -
|         |  | Reorganized Company        |     |                               | Predecessor Company
|         |  | Year EndedDecember 31,2005 |     | Eleven MonthsDecember 31,2004 |                     |     | One MonthJanuary 31,2004 |  |   | Year EndedDecember 31,2003
|Current  |  | $                          | 383 |                               | $                   | 59  |                          |  | $ | (22                        | ) |  | $ | 
|Deferred |  |                            |    |                               |                     | (59 | )                        |  |   | 606                        |   |  |   | 
|         |  |                            |     |                               |                     |     |                          |  |   |                            |   |  |   |  
|         |  | $                          | 383 |                               | $                   |    |                          |  | $ | 584                        |   |  | $ | 
|         |  |                            |     |                               |                     |     |                          |  |   |                            |   |  |   |  



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



Reptrons effective tax rate differs from the statutory U. S. federal income tax rate as a
result of the following:



|                                                                                     |  |                            |   |  |                                    |   |  |                               |   |  |                            |  
|------------------------------------------------------------------------------------ |  | -------------------------- | - |  | ---------------------------------- | - |  | ----------------------------- | - |  | -------------------------- | -
|                                                                                     |  | Reorganized Company        |   |  | Predecessor Company                |  
|                                                                                     |  | Year EndedDecember 31,2005 |   |  | Eleven MonthsEndedDecember 31,2004 |   |  | One MonthEndedJanuary 31,2004 |   |  | Year EndedDecember 31,2003 |  
|Statutory federal tax rate                                                           |  | 34.0                       | % |  | 34.0                               | % |  | 34.0                          | % |  | 34.0                       | %
|State income taxes of approximately 7.4% for all periods, net of federal tax benefit |  | 7.0                        |   |  | 5.0                                |   |  | 5.0                           |   |  | 5.0                        |  
|Meals and entertainment                                                              |  | 0.0                        |   |  | (1.0                               | ) |  | 0.0                           |   |  | 0.0                        |  
|Reorganization expenses                                                              |  | 0.0                        |   |  | (2.0                               | ) |  | 19.0                          |   |  | 0.0                        |  
|OtherGoodwill impairment                                                            |  | (24.0                      | ) |  | 0.0                                |   |  | 0.0                           |   |  | 0.0                        |  
|Deferred tax valuation allowance                                                     |  | (14.0                      | ) |  | (36.0                              | ) |  | (20.0                         | ) |  | (39.0                      | )
|                                                                                     |  |                            |   |  |                                    |   |  |                               |   |  |                            |  
|Effective tax rate                                                                   |  | 3.0                        | % |  | 0.0                                | % |  | 38.0                          | % |  | 0.0                        | %
|                                                                                     |  |                            |   |  |                                    |   |  |                               |   |  |                            |  



Deferred income tax
assets and liabilities resulting from differences between accounting for financial statement purposes and tax purposes pursuant to SFAS No. 109, are summarized as follows (in thousands):



|                                      |  |                                    |         |   |                                    |   |         |  
|------------------------------------- |  | ---------------------------------- | ------- | - | ---------------------------------- | - | ------- | -
|                                      |  | ReorganizedCompanyDecember 31,2005 |         |   | ReorganizedCompanyDecember 31,2004 |  
|Deferred tax assets:                  |  |                                    |         |   |                                    |   |         |  
|Net operating loss carryforward       |  | $                                  | 25,614  |   |                                    | $ | 24,701  |  
|AMT and other tax credit carryforward |  |                                    | 200     |   |                                    |   | 200     |  
|Inventory reserves                    |  |                                    | 353     |   |                                    |   | 280     |  
|Accrued expenses                      |  |                                    | 20      |   |                                    |   |        |  
|Accrued vacation                      |  |                                    | 271     |   |                                    |   | 166     |  
|Allowance for bad debts               |  |                                    | 45      |   |                                    |   | 15      |  
|Goodwill                              |  |                                    | 2,114   |   |                                    |   | 2,348   |  
|Other                                 |  |                                    |        |   |                                    |   | 3       |  
|                                      |  |                                    |         |   |                                    |   |         |  
|                                      |  |                                    | 28,617  |   |                                    |   | 27,713  |  
|                                      |  |                                    |         |   |                                    |   |         |  
|Deferred tax liabilities:             |  |                                    |         |   |                                    |   |         |  
|Depreciation                          |  |                                    | 94      |   |                                    |   | 697     |  
|Other intangible assets               |  |                                    | 1,292   |   |                                    |   | 1,542   |  
|Other                                 |  |                                    |        |   |                                    |   |        |  
|                                      |  |                                    |         |   |                                    |   |         |  
|                                      |  |                                    | 1,386   |   |                                    |   | 2,239   |  
|                                      |  |                                    |         |   |                                    |   |         |  
|Net deferred tax asset (liability)    |  |                                    | 27,231  |   |                                    |   | 25,474  |  
|Less: valuation allowance             |  |                                    | (25,688 | ) |                                    |   | (23,572 | )
|                                      |  |                                    |         |   |                                    |   |         |  
|                                      |  | $                                  | 1,543   |   |                                    | $ | 1,902   |  
|                                      |  |                                    |         |   |                                    |   |         |  



Reptron has net
operating loss carryforwards of approximately $67.6 million for Federal and $80.4 million for state income tax purposes, which expire in the years 2018 through 2023. Realization of the tax loss and credit carryforwards is contingent upon future
taxable earnings in the appropriate jurisdictions. Valuation



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



allowances have been recorded in 2003, 2004, and 2005 for deferred tax assets which may not be realized. Additionally, during the second quarter ended
June 30, 2005 the Company recorded an additional valuation allowance of approximately $0.4 million against the deferred tax asset, resulting in income tax expense in the identical amount. The additional valuation allowance was made based on the
Companys estimates of future results of operations over the next one to two years. Each carryforward item is reviewed for expected utilization, using a more likely than not approach, based on the character of the carryforward item
(credit, loss, etc.), the associated taxing jurisdiction (federal or state), the relevant history for the particular item, the applicable expiration dates, and identified actions under the control of the Company in realizing the associated
carryforward benefits. The Company assesses the available positive and negative evidence surrounding the recoverability of the deferred tax assets, including estimated taxable income for a limited forecast period of one to two years, and applies its
judgment in estimating the amount of valuation allowance necessary under the circumstances. The Company continues to assess and evaluate strategies that will enable the carryforward, or a greater portion thereof, to be utilized, and will reduce the
valuation allowance appropriately for each item at such time when it is determined that the more likely than not criterion is satisfied. The Company will reduce the goodwill balance to the extent that the tax assets are consumed in
excess of the net deferred tax asset recorded and increase additional paid in capital upon the exhaustion of the goodwill balance. The amount of net operating losses (NOL) that can be utilized in any given year is limited based on
Section 382 of the Internal Revenue Code. In this regard, the amount of NOL generated prior to February 2004 that can be utilized in future periods is limited to approximately $3.0 million per year.



NOTE JCOMMITMENTS AND CONTINGENCIES



Operating Leases



Reptron has operating leases for facilities and certain equipment which expire at various dates through 2008. Certain leases
provide for payment by Reptron of any increases in property taxes and insurance over a base amount and others provide for payment of all property taxes and insurance by Reptron. See Note M for leases with related parties.



Future minimum payments, by year and in the aggregate, under noncancellable
operating leases consist of the following at December 31, 2005 (in thousands):



|                         |  |   |    
|------------------------ |  | - | ---
|Year ending December 31, |  |  
|2006                     |  | $ | 934
|2007                     |  |   | 919
|2008                     |  |   | 421
|2009                     |  |   |   
|2010                     |  |   |   
|Thereafter               |  |   |   



Total rent expense for
the year ended December 31, 2005 was approximately $1,134,000. Total rent expense for the eleven months ended December 31, 2004 and the one month ended January 31, 2004 was approximately $1,127,000 and $100,000, respectively. Total
rent expense for the year ended December 31, 2003 was approximately $1,821,000 including rent expenses included in loss from discontinued operations.



Litigation



Reptron was one of ninety-one defendants in a patent infringement action commenced by the Lemelson Medical, Education & Research Foundation,
Limited Partnership (Lemelson). Lemelson alleged that Reptron and the other co-defendants have infringed various patents that purportedly cover the use of machine vision



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



and bar code scanning equipment. Lemelson has asserted similar claims against other companies in Reptrons industry, as well as against
companies in other industries. However, the Lemelson claim against the Company was stricken by the Bankruptcy Court.



Reptron is, from time to time, involved in litigation relating to claims arising out of its operations in the ordinary course of business. Reptron
believes that none of these claims, which were outstanding as of December 31, 2005, should have a material adverse impact on its financial condition or results of operations.



Indemnifications



The Company indemnified its officers and directors against costs and expenses related to shareholder and other claims (i.e., only actions taken in their
capacity as officers and directors) that are not covered by the Companys directors and officers insurance policy. This indemnification is ongoing and does not include a limit on the maximum potential future payments, nor are there any recourse
provisions or collateral that may offset the cost. As of December 31, 2005, the Company has not recorded a liability for any obligations arising as a result of these indemnifications.



Restructuring



The Company recognized restructuring costs of approximately $1,246,000 during the fourth quarter of 2002 primarily for ECD
employee separation and facility consolidation costs. Substantially all of these costs were paid during 2003 and the remainder were paid in February 2004.



NOTE KSHAREHOLDERS EQUITY



The Board of Directors is authorized, without further shareholder action, to divide any or all shares of the authorized Preferred Stock into series and to
fix and determine the designations, preferences, relative rights, qualifications, limitations or restrictions thereon, of any series so established, including voting powers, dividend rights, liquidation preferences, redemption rights and conversion
privileges. The Board of Directors has not authorized any issuance of Preferred Stock and there are no plans, agreements, or understandings for the authorization or issuance of any shares of Preferred Stock. As a result of the Plan of
reorganization, there is no Preferred Stock outstanding following the effective date of the Plan. The Company is restricted from paying dividends by the terms of its notes payable.



NOTE LEMPLOYEE BENEFITS



Stock Option Plans



Prior to the effective date of the Plan of Reorganization of February 3, 2004, the Company provided for three stock option plans (the Old Stock
Option Plans), which plans were terminated in February 2004. Reptrons Incentive Stock Option Plan (the ISO Plan) was adopted in November, 1993 and provided for the grant to employees of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code. A total of 2,000,000 shares of Common Stock was reserved for issuance under the ISO Plan. In May 2001, Reptrons shareholders approved the establishment of the Reptron 2002 Incentive
Stock Option Plan (the 2002 Plan). The 2002 Plan had essentially the same terms and conditions and was administered identically to the ISO Plan. A total of 1,000,000 shares of Common Stock had been reserved for issuance under the 2002
Plan. Reptron also offered a Directors Stock Option Plan (the DSO Plan) that had a total of 450,000 shares of Common Stock reserved for issuance under this plan. Both the ISO Plan and DSO Plan were intended to provide incentives to
directors, officers, and other key employees and to enhance Reptrons ability to attract and retain qualified



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



employees. Stock options were granted for the purchase of Common Stock at a price not less than the fair market value on the date of grant.



The Plan of Reorganization provides for the adoption of a new stock option
plan (New Stock Option Plan or New Plan) whereby up to 10% of the Companys new common stock may be issued in connection with options granted under the new plan. The New Plan was adopted in February 2004 as the Reptron
Electronics, Inc. Stock Option Plan and provides for the issuance of options to purchase up to 500,000 shares of the Companys common stock. As of December 31, 2005, a total of 471,666 options has been granted under the New Plan.



The following table summarizes the activity in the Old Stock
Option Plans subject to options for the two years ended December 31, 2003, the one month ending January 31, 2004, and the New Stock Option Plan for the eleven months and year ending December 31, 2004 and 2005, respectively:



|                                 |  |          |   |  |                        |               |                              |   |      
|-------------------------------- |  | -------- | - |  | ---------------------- | ------------- | ---------------------------- | - | -----
|                                 |  | Shares   |   |  | Range ofExercise Price |               | WeightedAverageExercisePrice
|Outstanding at December 31, 2003 |  | 899,575  |   |  | $                      | 3.15  13.48  |                              | $ | 6.42 
|Granted                          |  |         |   |  | $                      | 0.00    0.00 |                              | $ | 0.00 
|Exercised                        |  |         |   |  | $                      | 0.00    0.00 |                              | $ | 0.00 
|Canceled                         |  | (899,575 | ) |  | $                      | 3.15  13.48  |                              | $ | 6.46 
|                                 |  |          |   |  |                        |               |                              |   |      
|Outstanding at January 31, 2004  |  |         |   |  | $                      | 0.00    0.00 |                              | $ | 0.00 
|                                 |  |          |   |  |                        |               |                              |   |      
|Outstanding at February 1, 2004  |  |         |   |  | $                      | 0.00    0.00 |                              | $ | 0.00 
|Granted                          |  | 441,666  |   |  | $                      | 7.50  10.38  |                              | $ | 10.05
|Exercised                        |  |         |   |  | $                      | 0.00    0.00 |                              | $ | 0.00 
|Forfeited                        |  |         |   |  | $                      | 0.00    0.00 |                              | $ | 0.00 
|                                 |  |          |   |  |                        |               |                              |   |      
|Outstanding at December 31, 2004 |  | 441,666  |   |  | $                      | 7.50  10.38  |                              | $ | 10.05
|Granted                          |  | 210,000  |   |  | $                      | 0.36    6.10 |                              | $ | 1.04 
|Exercised                        |  |         |   |  | $                      | 0.00    0.00 |                              | $ | 0.00 
|Forfeited                        |  | (180,000 | ) |  | $                      | 7.50  10.38  |                              | $ | 9.90 
|                                 |  |          |   |  |                        |               |                              |   |      
|Outstanding at December 31, 2005 |  | 471,666  |   |  | $                      | 0.36  10.38  |                              | $ | 6.10 
|                                 |  |          |   |  |                        |               |                              |   |      



The following table
summarizes information about Common Stock options outstanding at December 31, 2005:



|                        |  |                              |  |                                           |  |                                |       |                              |         |                                |   |      
|----------------------- |  | ---------------------------- |  | ----------------------------------------- |  | ------------------------------ | ----- | ---------------------------- | ------- | ------------------------------ | - | -----
|Options Outstanding     |  | Options Exercisable         
|Range ofExercise Prices |  | NumberOutstanding at12/31/05 |  | Weighted AverageRemainingContractual Life |  | Weighted AverageExercise Price |       | NumberExercisable at12/31/05 |         | Weighted AverageExercise Price
|                        |  |                              |  | (In Years)                                |  |                                |       |                              |         |                               
|$  0.36                 |  | 185,000                      |  | 9.8                                       |  | $                              | 0.36  |                              | 185,000 |                                | $ | 0.36 
|$  6.10                 |  | 25,000                       |  | 9.2                                       |  | $                              | 6.10  |                              | 25,000  |                                | $ | 6.10 
|$  7.50                 |  | 20,000                       |  | 9.0                                       |  | $                              | 7.50  |                              | 20,000  |                                | $ | 7.50 
|$10.38                  |  | 241,666                      |  | 8.4                                       |  | $                              | 10.38 |                              | 241,666 |                                | $ | 10.38
|                        |  |                              |  |                                           |  |                                |       |                              |         |                                |   |      
|                        |  | 471,666                      |  | 9.0                                       |  | $                              | 6.10  |                              | 471,666 |                                | $ | 6.10 
|                        |  |                              |  |                                           |  |                                |       |                              |         |                                |   |      



The duration of
options granted under the ISO Plan is ten years from the date of grant, or such other date as determined by the Board of Directors. In general, the options must be exercised while employed by Reptron or 90 days thereafter. The options generally
vested in three equal annual increments, cumulatively, beginning one



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



year after the date of grant, and all such options may be exercised in full three years after the date of grant. The options are non-transferable other than
by will or by the laws of descent and distribution.



On
October 28, 2005, in response to the issuance of SFAS 123(R), the Companys Compensation Committee of the Board of Directors approved accelerating the vesting of the out-of-the-money, unvested stock options held by current employees,
including executive officers, and directors. Unvested options to purchase approximately 296,666 shares became exercisable as a result of the vesting acceleration. The accelerated vesting was effective as of October 31, 2005. Also on
October 28, 2005, the Companys Compensation Committee of the Board of Directors made additional option grants to directors and executive officers to purchase 185,000 shares of the Companys common stock. The new options have an
exercise price of $0.36 per share and are completely vested as of the grant date.



The decision to accelerate vesting of these options was made primarily to avoid recognizing compensation cost in the statement of earnings in future financial statements upon the effectiveness of SFAS 123(R).



The fair value of each option grant is estimated on the date
of grant using the Binomial options pricing model with the following weighted average assumptions used for grants in 2005 and 2004 (no options were granted in 2003), respectively, no dividend yields for all years; expected volatility of 100.0% and
45.0%; risk free interest rates of approximately 5.0% and 4.75%; and expected lives of 3.5 and 5.75 years. The weighted average fair value of options granted in 2005 and 2004 are $0.59 and $3.41, respectively.



401(k) Plans



In 1993, Reptron established a deferred compensation plan (the Plan) under section 401(a) of the Code.
Substantially all of the officers and employees of Reptron are eligible to participate in the Plan. Employees are eligible to participate in the Plan after ninety days of service and after attaining age 18. At its discretion, Reptron may make
matching contributions to the Plan. Employees are always vested in their contributions and are fully vested in the employer contributions after five years of service. Reptron did not make any matching contributions to the Plan in 2005, 2004 and
2003.



NOTE MRELATED PARTY TRANSACTIONS



A former director of Reptron served as its general counsel
through the effective date of the Plan of Reorganization and received approximately $72,000 for services rendered through January 2004, and $333,000 for services rendered during 2003.



Reptron leased one of its distribution sales offices (Detroit, Michigan) from the former CEO of Reptron. The building
includes office and warehouse space and totals approximately 10,000 square feet. Rent expenses on this facility totaled $12,000 in 2003. The lease was terminated in February 2003. Reptron also leases a total of 127,000 square feet of manufacturing
and administrative offices for the Hibbing, Minnesota manufacturing operation. These properties are owned, in part, by two individuals on the Companys senior management team. Rent expense on these properties totaled approximately $49,000 for
the one month ended January 31, 2004 and approximately $536,000 for the eleven months ended December 31, 2004 and approximately $535,000 and $585,000 for the years ended December 31, 2005, and 2003, respectively. During 2005, two of
the related party leases on a building in Hibbing, Minnesota were terminated.



Reptron purchased approximately $428,000, $1,014,000 and $904,000 of inventory during 2005, 2004 and 2003, respectively, from a company controlled by the children of a Reptron board member. The Directors service
on the Companys Board of Directors ended in May 2005.



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



During the year ended December 31, 2005 and the eleven months ended December 31, 2004, the
Company paid approximately $45,000 and $134,000, respectively, to a consultant who is a family member of a member of Reptrons Board of Directors. The Directors service on the Companys Board of Directors ended on July 26, 2005.



NOTE NFAIR VALUE OF FINANCIAL
INSTRUMENTS



At December 31, 2005, the carrying amount of
cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term maturities of these items.



The fair market value of the Senior Secured Notes was approximately $9,000,000 and $27,450,000, based on the average prices of the notes from various
pricing sources on December 31, 2005 and 2004, respectively. The carrying amounts of all other current and long-term portions of notes payable, and long-term obligations approximate fair market value since the interest rates on most of these
instruments change with market interest rates.



NOTE OEARNINGS (LOSS) FROM CONTINUING OPERATIONS PER SHARE



The following table sets forth the computation of basic and diluted earnings (loss) from continuing operations per common share:



|                                                            |  |                            |           |   |                                    |   |           |                               |  |                            |           |  |   |           |  
|----------------------------------------------------------- |  | -------------------------- | --------- | - | ---------------------------------- | - | --------- | ----------------------------- |  | -------------------------- | --------- |  | - | --------- | -
|                                                            |  | Reorganized Company        |           |   | Predecessor Company                |  
|                                                            |  | Year EndedDecember 31,2005 |           |   | Eleven MonthsEndedDecember 31,2004 |   |           | One MonthEndedJanuary 31,2004 |  | Year EndedDecember 31,2003 |          
|Numerator (in thousands):                                   |  |                            |           |   |                                    |   |           |                               |  |                            |           |  |   |           |  
|Net earnings (loss) from continuing operations              |  | $                          | (14,689   | ) |                                    | $ | (2,113    | )                             |  | $                          | 1,268     |  | $ | (16,734   | )
|                                                            |  |                            |           |   |                                    |   |           |                               |  |                            |           |  |   |           |  
|Denominator:                                                |  |                            |           |   |                                    |   |           |                               |  |                            |           |  |   |           |  
|For basic earnings (loss) per shareWeighted average shares |  |                            | 5,000,000 |   |                                    |   | 5,000,000 |                               |  |                            | 6,417,196 |  |   | 6,417,196 |  
|Effect of dilutive securities:Employee stock options        |  |                            |          |   |                                    |   |          |                               |  |                            |          |  |   |          |  
|                                                            |  |                            |           |   |                                    |   |           |                               |  |                            |           |  |   |           |  
|For diluted earnings (loss) per share                       |  |                            | 5,000,000 |   |                                    |   | 5,000,000 |                               |  |                            | 6,417,196 |  |   | 6,417,196 |  
|                                                            |  |                            |           |   |                                    |   |           |                               |  |                            |           |  |   |           |  
|Net earnings (loss) per common sharebasic                  |  | $                          | (2.93     | ) |                                    | $ | (0.42     | )                             |  | $                          | 0.20      |  | $ | (2.61     | )
|                                                            |  |                            |           |   |                                    |   |           |                               |  |                            |           |  |   |           |  
|Net earnings (loss) per common sharediluted                |  | $                          | (2.93     | ) |                                    | $ | (0.42     | )                             |  | $                          | 0.20      |  | $ | (2.61     | )
|                                                            |  |                            |           |   |                                    |   |           |                               |  |                            |           |  |   |           |  



The pro forma shares
and pro forma loss from continuing operations is based on the 5,000,000 shares of New Common Stock issued following the effective date of the Plan of Reorganization.



All options have been excluded from the computation of diluted earnings per share for all periods presented because their
effect on earnings per share would be anti-dilutive.



The
Convertible Notes were not included in the computation of earnings per share for the year ended December 31, 2003, and the one month period ended January 31, 2004 because the conversion price of $28.50 exceeded the average market price of
the common stock. Therefore, the effect would be anti-dilutive. The



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##### Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31,
2005, 2004 and 2003



Convertible Notes were not included in the computation of earnings per share for the eleven month period ended December 31, 2004 because the notes were
cancelled effective January 31, 2004.



NOTE PSUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)



The following is a summary of the quarterly results of operations for the quarterly periods of 2005 and 2004, (in thousands except per share data):



|                                  |  |                    |        |   |         |   |         |              |  |   |             |   |  |   |        |  
|--------------------------------- |  | ------------------ | ------ | - | ------- | - | ------- | ------------ |  | - | ----------- | - |  | - | ------ | -
|                                  |  | Three Months Ended |       
|                                  |  | March 31           |        |   | June 30 |   |         | September 30 |  |   | December 31 |  
|2005                              |  |                    |        |   |         |   |         |              |  |   |             |   |  |   |        |  
|Net sales                         |  | $                  | 34,757 |   |         | $ | 34,525  |              |  | $ | 32,579      |   |  | $ | 36,602 |  
|Gross profit                      |  | $                  | 3,822  |   |         | $ | 3,593   |              |  | $ | 4,122       |   |  | $ | 4,875  |  
|Operating income (loss)           |  | $                  | (606   | ) |         | $ | (10,590 | )            |  | $ | (493        | ) |  | $ | 834    |  
|Net earnings (loss)               |  | $                  | (1,451 | ) |         | $ | (11,838 | )            |  | $ | (1,178      | ) |  | $ | (4     | )
|Net loss per common sharebasic   |  | $                  | (0.29  | ) |         | $ | (2.37   | )            |  | $ | (0.24       | ) |  | $ | 0.00   |  
|Net loss per common sharediluted |  | $                  | (0.29  | ) |         | $ | (2.37   | )            |  | $ | (0.24       | ) |  | $ | 0.00   |  
|                                  |  |                    |        |  
|                                  |  | March 31(1)        |        |   | June 30 |   |         | September 30 |  |   | December 31 |  
|2004                              |  |                    |        |   |         |   |         |              |  |   |             |   |  |   |        |  
|Net sales                         |  | $                  | 35,555 |   |         | $ | 35,590  |              |  | $ | 34,378      |   |  | $ | 36,075 |  
|Gross profit                      |  | $                  | 3,531  |   |         | $ | 4,497   |              |  | $ | 4,765       |   |  | $ | 3,691  |  
|Operating income (loss)           |  | $                  | (468   | ) |         | $ | 547     |              |  | $ | 655         |   |  | $ | (455   | )
|Net earnings (loss)               |  | $                  | 587    |   |         | $ | (147    | )            |  | $ | (45         | ) |  | $ | (1,130 | )
|Net loss per common sharebasic   |  | $                  | 0.12   |   |         | $ | (0.03   | )            |  | $ | (0.01       | ) |  | $ | (0.23  | )
|Net loss per common sharediluted |  | $                  | 0.12   |   |         | $ | (0.03   | )            |  | $ | (0.01       | ) |  | $ | (0.23  | )

---

(1) The financial information for the one month ended
January 31, 2004 (Predecessor Company) and the two months ended March 31, 2004 (Reorganized Company) have been presented together for comparative purposes.



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors and

Shareholders of Reptron Electronics, Inc.:



We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated financial statements of Reptron Electronics, Inc. referred to in our report dated
March 3, 2006, which is included in Part II of this Annual Report on SEC Form 10-K. Our audit was conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The changes in valuation and
qualifying accounts as of and for the year ended December 31, 2005, included in this schedule, have been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, are fairly
stated in all material respects in relation to the basic consolidated financial statements taken as a whole.



/s/ KIRKLAND, RUSS, MURPHY & TAPP, P.A.



Clearwater, Florida

March 3, 2006



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors and

Shareholders of Reptron Electronics, Inc.



We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated financial statements of
Reptron Electronics, Inc. referred to in our report dated February 11, 2005, which is included in Part II of this 2005 Annual Report on SEC Form 10-K. Our report on the consolidated financial statements includes an emphasis paragraph for a
plan of reorganization matter. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The changes in valuation and valuation accounts included in this schedule have been subjected to
the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.



/s/ GRANT THORNTON LLP



Tampa, Florida

February 11, 2005



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##### Table of Contents

SCHEDULE II



REPTRON ELECTRONICS,
INC.



Valuation and Qualifying Accounts

For the Years Ended December 31, 2003, 2004, and 2005

(in thousands)



|                                          |  |                            |       |                             |   |                         |  |   |                      |   |  |   |      
|----------------------------------------- |  | -------------------------- | ----- | --------------------------- | - | ----------------------- |  | - | -------------------- | - |  | - | -----
|Column A                                  |  | Column B                   |       | Column C                    |   | Column D                |  |   | Column E            
|Description                               |  | Balance atBeginningOf Year |       | Charged toCosts andExpenses |   | AccountsWritten Off,Net |  |   | Balance atEnd ofYear
|Allowance for Doubtful Accounts           |  |                            |       |                             |   |                         |  |   |                      |   |  |   |      
|Year Ended December 31, 2003              |  | $                          | 1,064 |                             | $ | 521                     |  | $ | (632                 | ) |  | $ | 953  
|One Month Ended January 31, 2004          |  | $                          | 953   |                             | $ | 38                      |  | $ | (103                 | ) |  | $ | 888  
|Eleven Months Ended December 31, 2004     |  | $                          | 888   |                             | $ |                        |  | $ | (851                 | ) |  | $ | 37   
|Year Ended December 31, 2005              |  | $                          | 37    |                             | $ | 76                      |  | $ |                     |   |  | $ | 113  
|                                          |  |                            |       |                            
|Reserve for Excess and Obsolete Inventory |  |                            |       |                             |   |                         |  |   |                      |   |  |   |      
|Year Ended December 31, 2003 (a)          |  | $                          | 6,066 |                             | $ | 849                     |  | $ | (5,211               | ) |  | $ | 1,704
|One Month Ended January 31, 2004          |  | $                          | 1,704 |                             | $ | 28                      |  | $ |                     |   |  | $ | 1,732
|Eleven Months Ended December 31, 2004     |  | $                          | 1,732 |                             | $ | 163                     |  | $ | (1,197               | ) |  | $ | 698  
|Year Ended December 31, 2005              |  | $                          | 698   |                             | $ | 184                     |  | $ |                     |   |  | $ | 882  

---

|(a) | Including amounts held for sale.
|--- | --------------------------------



F-29