10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For The Fiscal Year Ended December 31, 2006

OR

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

Commission File Number: 001-13924

SIMCLAR, INC.

(Exact name of Registrant as specified in its charter)

Florida	59-1709103
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

2230 W. 77^th Street

Hialeah, Florida 33016

(Address of principal executive offices,

including zip code)

(305) 556-9210

(Registrant’s telephone number,

including area code)

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

Title of Class	Name of Exchange on which Registered
Common Stock, $.01 par value	The Nasdaq Capital Market

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No þ

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 o No þ

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 the filing requirements for at least the past 90 days. Yes þ No o

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. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule 12b-2 ).

Large accelerated filer o   Accelerated filer o   Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.

Yes o No þ

The aggregate market value of the Registrant’s common stock held by non-affiliates of the Registrant was approximately $17,642,099 on June 30, 2006.

As of March 15, 2007, the Company had issued and outstanding 6,465,345 shares of its common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our Information Statement for the 2007 Annual Meeting of Shareholders are incorporated by reference in Part III

Table of Contents

		Page
Part I
Item 1.	Business	2
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
Part II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	20
Item 6.	Selected Financial Data	21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	34
Item 8.	Financial Statements and Supplementary Data	35
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	35
Item 9A	Controls and Procedures	35
Item 9B	Other Information	38
Part III
Item 10.	Directors and Executive Officers of the Registrant	38
Item 11.	Executive Compensation	38
Item 12.	Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters	38
Item 13.	Certain Relationships and Related Transactions	38
Item 14.	Fees and Services of Independent Registered Public Accounting Firm	38
Part IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	39
Signatures		43
Report of Grant Thornton LLP on Supplemental Schedule		S-1
Report of Battelle & Battelle LLP on Supplemental Schedule		S-2
Schedule II - Valuation and Qualifying Accounts		S-3

Part I

Forward-Looking Statements

This document contains certain forward-looking statements that are based upon current expectations and involve certain risks and uncertainties within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words or expressions such as “anticipate,” “believe,” “plan,” “expect,” “future,” “intend,” “estimate,” “project,” or variations of these words as well as similar words or expressions are intended to identify forward-looking statements. Readers should not place undue reliance on the forward-looking statements contained in this document, which apply only as of the date of this report. We undertake no obligation to update the information contained herein. Our actual performance and results could differ materially from those anticipated in these forward-looking statements for many reasons, including, but not limited to economic changes and changes in the electronics manufacturing services industry generally. Key Risk Factors that might cause or contribute to such differences include, but are not limited to, those discussed under the section entitled “Risk Factors” included herein at Item 1A.

Item 1. Business

Introduction

Simclar, Inc. (“we,” “our,” “us,” “Simclar” or “the company”) is a contract manufacturer of electronic and electro-mechanical products, providing advanced electronics manufacturing services (EMS) to original equipment manufacturers (OEMs). Our products are manufactured to customer specifications and designed for OEMs in the data processing, telecommunications, instrumentation and food preparation equipment industries. Our principal custom-designed products include complex printed circuit boards (PCBs), conventional and molded cables, wire harnesses, backplanes, and electro-mechanical assemblies. In addition, we provide OEMs with value-added, turnkey contract manufacturing services and total systems assembly and integration. We also deliver manufacturing and test engineering services and materials management, with flexible and service-oriented manufacturing and assembly services for our customers’ high-tech and rapidly changing products.

We were incorporated in Florida in 1976, acquired by Medicore, Inc., our former parent, in 1982, and became a public company in 1985. Effective June 27, 2001, control of our company was acquired by Simclar International Limited, which then transferred its ownership of our company to its parent, Simclar Group Limited(“Simclar Group”) both of which are private United Kingdom companies. Other companies of the Simclar Group are engaged in the same electronic and electro-mechanical subcontract manufacturing industry as is our company. Effective September 2, 2003, we changed our name from Techdyne, Inc. to Simclar, Inc.

Since we were acquired by Simclar Group, we have completed a series of acquisitions in North America. In July, 2003 we acquired for approximately $3.4 million in cash the outstanding stock of AG Technologies, Inc., which has since changed its name to Simclar (Mexico), Inc. In May 2005, we acquired from Simclar Group all of the outstanding shares of Simclar (North America), Inc. for a net $37,000 adjustment of an intercompany receivable. In February 2006, we acquired through a subsidiary, Simclar Interconnect Technologies, Inc., certain U.S. assets associated with the backplane assembly business of the Interconnect Technologies division of Litton Systems, Inc., a subsidiary of Northrop Grumman Corporation, for approximately $16 million in cash and the assumption of certain liabilities. See Notes 14, 15 and 16 to our accompanying audited consolidated financial statements for more information regarding these acquisitions.

Our executive offices are located at 2230 West 77th Street, Hialeah, Florida 33016. Our telephone number is (305) 556-9210. Our common stock is traded on the Nasdaq Capital Market (Ticker: SIMC). We maintain an Internet website at http://www.simclar.com, along with other members of the Simclar Group. We make available free of charge on our website links to our annual reports on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 (http://www.simclar.com/investor.htm). Information on our website is not incorporated by reference into this report. Additionally, individuals can access our electronically filed reports, proxy statements and other information through the Internet site maintained by the Securities and Exchange Commission at http://www.sec.gov. The public may also read and copy any materials we file with the Securities and Exchange Commission at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549

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In Part III of this Form 10-K, we incorporate by reference certain information from our Information Statement for our 2007 Annual Meeting of Shareowners. We expect to file that Information Statement with the Securities and Exchange Commission (“SEC”) within 120 days of December 31, 2006, and we will promptly make it available on our website. Please refer to the Information Statement when it is available.

Electronics Manufacturing Services Industry

Until 2001, our industry exhibited significant year to year growth, due both to the growth in the overall electronics industry, and the steadily increasing number of OEMs deciding to outsource all or a significant portion of the production of their products. As a result of the general global recession beginning in 2001, and its magnified effect in the computer and telecommunications equipment segments, this pattern of growth in our industry was interrupted, and both our company and the industry as a whole experienced a decline in sales starting in 2001 and continuing through the third quarter of 2003. Beginning in the fourth quarter of 2003, our company and the industry began to experience a recovery in sales, which continued through 2006. We are continually seeking new business opportunities with existing and new customers and considering strategic acquisitions, but there is no assurance we will be successful in generating additional sales.

We believe that the fundamental factors contributing to the growth of our industry prior to 2001 contributed to the resumption of the pattern of growth that continued throughout 2006. These factors include increased capital requirements for OEMs to acquire modern, highly automated manufacturing equipment, their continuing effort to reduce inventory costs and the relative cost advantages of contract manufacturers. Using outsourcing for production of electronic assemblies also enables OEMs to focus on product development, reduce working capital requirements, and improve inventory management and marketability. We believe OEMs will continue to rely on contract manufacturers, not only for partial component assemblies, but complete turnkey manufacturing of entire finished products. We also believe that OEMs will look more to contract manufacturers to provide a broader scope of value-added services, including manufacturing, engineering and test services.

We assist our customers from initial design and engineering through materials procurement, to manufacturing of the complete product and testing. Involving contract manufacturers earlier in the manufacturing process through “concurrent engineering” allows OEMs to realize greater efficiencies and gives contract manufacturers greater impact in product design, component selection, production methods and the preparation of assembly drawings and test schematics. This process also gives the customer the ability to draw upon our manufacturing expertise at the outset and minimize manufacturing bottlenecks.

Another factor which will continue to lead OEMs to utilize contract manufacturers is reduced time-to-market. Due to the intense competition in the electronics industry, OEMs are faced with increasingly shorter product life-cycles which pressure them to reduce time constraints in bringing a product to market. This reduction can be accomplished by using a contract manufacturer’s established manufacturing expertise with its sophisticated, technically advanced and automated manufacturing processes. We believe that this, coupled with the elements discussed above, such as reduced production costs through economies of scale in materials procurement, improved inventory management, access to our manufacturing technology, engineering, testing and related expertise, will motivate OEMs to work with electronic contract manufacturers such as us.

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Business Strategy

We have focused continuous attention on controlling costs to allow us to remain competitive within our industry. Our affiliation with Simclar Group allows us to participate in the global economy, expands the product lines and services we are able to offer our customers, and increases our purchasing power for supplies and equipment.

The primary industries we serve, electronics and technology, are constantly innovating and tend to have short product life cycles. We have focused on product development and marketing in order to remain a competitive provider of electronic contract manufacturing services for OEM customers. We continue to seek to develop strong, long-term alliances with major-growth OEMs of complex, market leading products. We believe that creating and maintaining long-term relationships with customers requires providing high quality, cost-effective manufacturing services marked by a high degree of customer responsiveness and flexibility. Therefore, our strategy is to focus on leading manufacturers of advanced electronic products that generally require custom-designed, more complex interconnect products and short lead-time manufacturing services.

On May 19, 2005, the company purchased Simclar (North America), Inc. (“SNAI”) from Simclar Group. This acquisition added comprehensive sheet metal fabrication and higher level assembly capabilities.

On February 24, 2006, we further strengthened our product and service offerings to the OEM market by acquiring certain assets of the Interconnect Technologies assembly business of Litton Systems, Inc. (“Litton”), a world-leading supplier of high-performance backplane interconnect solutions to major blue-chip customers in markets as diverse as network, wireline and wireless infrastructure, and electronic data processing. Backplane interconnect systems form the core of high-end electronic systems and provide the means for power distribution and data communications between electronic sub-system building blocks.

We strive to build on our integrated manufacturing capabilities, final system assemblies and testing. The combination of our advanced backplane interconnect solutions with our capabilities to supply printed circuit board assemblies, metal fabrication, cabling solutions and higher level assemblies will create a valuable one-stop-shop for OEM system design and integration needs. In addition, vertical integration provides us with greater control over quality, delivery and cost.

To further satisfy customer needs, we develop long-term customer relationships by using our state-of-the-art technology to provide timely and quick-turnaround manufacturing and comprehensive support for materials purchases and inventory control. Through our use of electronic data interchange technology (“EDI”), the customer is able to convey its inventory and product needs on a weekly basis based on a rolling quantity forecast. More emphasis is placed on value-added turnkey business for the manufacture of complete finished assemblies. This is accomplished with extended technology, continuous improvement of our processes, and our early involvement in the design process using our computer-aided design system.

We believe that we can develop closer and more economically beneficial relationships with our customers through our geographically diverse manufacturing and assembly operations, presently located in Florida, Texas, Massachusetts, Missouri, Ohio, North Carolina and Mexico. Our diverse locations have multiple advantages by helping satisfy costs, timely deliveries and local market requirements of our customers. We will continue to pursue expansion in different markets to better serve existing customers and to obtain additional new customers. In alliance with Simclar Group, we anticipate experiencing growth and the ability to increase our global presence and competitive position.

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Products and Services

We manufacture over 1,000 products, including complete turnkey finished products, sub-assemblies, molded and non-molded cable assemblies, wire harnesses, printed circuit boards (PCBs), injection molded and electronic assembly products, for over 100 OEM customers.

Printed Circuit Boards

PCB assemblies are electronic assemblies consisting of a basic printed circuit laminate with electronic components including diodes, resistors, capacitors and transistors, inserted and wave soldered. PCBs may be used either internally within the customer’s products or in peripheral devices. The PCBs produced by the company include pin-through-hole assemblies, low and medium volume surface mount technology assemblies, and mixed technology PCBs, which include multilayer PCBs.

In pin-through-hole assembly production, electronic components with pins or leads are inserted through pre-drilled holes in a PCB and the pins are soldered to the electrical surface of a PCB. In surface mount technology production, electronic components are attached and soldered directly onto the surface of a circuit board, rather than inserted through holes. Surface mount technology components are smaller so they can be spaced more closely together and, unlike pin-through-hole components, surface mount technology components can be placed on both sides of a PCB. This allows for product miniaturization, while enhancing the electronic properties of the circuit. Surface mount technology manufacturing requires substantial capital investment in expensive, automated production equipment, which requires high usage. We are utilizing computerized testing systems in order to verify that all components have been installed properly and meet certain functional standards, that the electrical circuits have been properly completed, and that the PCB assembly will perform its intended functions.

In 1997, we acquired LyttonIncorporated (“Lytton”), whose Ohio operations, with six automated lines, are more focused on PCB manufacturing, primarily for the food preparation equipment industry. Lytton was merged into Simclar effective August 13, 2003.

In July 2003, we acquired all of the outstanding stock of AG Technologies, Inc. (now Simclar (Mexico), Inc.) which operates a manufacturing facility in Matamoros, Mexico, and which we currently operate through an indirect, wholly-owned subsidiary, Simclar de México, S.A. de C.V. This Matamoros facility provides PCB manufacturing capacity similar to our Ohio facility, but enables us to compete more effectively on medium and higher volume PCB orders. Additional contract manufacturing capabilities were added with the opening of a second Matamoros facility in January 2005. Simclar (Mexico) is an international value added provider of comprehensive electronic manufacturing services to OEM’s serving the, industrial controls, medical, power equipment and automotive industries. Simclar (Mexico)’s Mexican facilities enable us to be competitive in the higher volume arena for assembly in North America.

PCB sales contributed approximately 26% of total revenues in 2006 and 51 % of total revenues in 2005. The drop is attributed to the addition of the Litton backplane operations, not a drop in PCB revenues.

Cable and Harness Assemblies

A cable is an assembly of electrical conductors insulated from each other, twisted around a central core and jacketed. Cables may be molded or non-molded.

Simclar offers a wide range of custom manufactured cable and harness assemblies for molded and mechanical applications. These assemblies include multiconductor, ribbon, co-axial cable, and discrete wire harness assemblies. We use advanced manufacturing processes, in-line inspection and computerized automated test equipment.

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We maintain a large assortment of standard tooling for D-Subminiature, DIN connectors and phono connectors. D-Subminiatures are connectors which are over-molded with the imprint of the customer’s name and part number. DIN connectors are circular connectors consisting of two to four pairs of wires used for computer keyboards.

Flat ribbon cable or ribbon cable assemblies are cables with wires (conductors) on the same plane with connectors at each end. Flat ribbon cables are used in computer assemblies and instrumentation.

Discrete cable assemblies are wires with contacts and connectors. Harnesses are prefabricated wiring with insulation and terminals ready to be attached to connectors. Our cable sales comprised approximately 24% and 33% of total revenue for 2006 and 2005, respectively. The drop is attributed to the addition of the Litton backplane operations, not a drop in cable revenues.

Contract Manufacturing

Contract manufacturing involves the manufacture of complete finished assemblies with all sheet metal, power supplies, fans, PCBs as well as complete sub-assemblies for integration into an OEM’s finished products, such as speaker and lock-key assemblies and diode assemblies that consist of wire, connectors and diodes that are over-molded, packaged and bar coded for distribution. These products can be totally designed and manufactured by the company through our computer-aided design system, engineering and supply procurement. We develop manufacturing processes and tooling, and test sequences for new products of our customers. We provide design and engineering services in the early stages of product development, thereby assuring mechanical and electrical considerations are integrated with a total system. Alternatively, the customer may provide specifications and we will assist in the design and engineering or manufacture to the customer’s specifications.

In January 2005, we opened a second manufacturing facility in Matamoros, Mexico, providing additional capability to process soft-tooled sheet metal fabrication and finishing. Further expansion phases will include hard-tooled sheet metal fabrication, along with plastic injection molding, and overmolding for more complex cable and harness manufacturing.

The company expanded its product offerings by acquiring SNAI in May 2005. SNAI is a comprehensive fabricator of sheet metal components and higher level assemblies operating from a 95,000 square foot facility in Winterville, NC.

Reworking and Refurbishing

Customers provide us with materials and sub-assemblies acquired from other sources, which the customer has determined require modified design or engineering changes. We redesign, rework, refurbish and repair these materials and sub-assemblies.

Contract manufacturing, sheet metal fabrication, reworking and refurbishing together amounted to approximately 11% and 16% of sales for 2006 and 2005 respectively. Our expanded sheet metal fabrication and assembly capabilities along with the 2006 addition of backplane assembly should open additional opportunities in contract manufacturing over the next few years. Our affiliation with Simclar Group gives us access to a larger customer base and the ability to handle large customers both in the USA and Europe.

Backplane Interconnect Systems

In February 2006, we acquired certain backplane assembly assets of Litton. Litton has a reputation as a world-leading supplier of high-performance backplane interconnect solutions to major blue-chip customers in markets as diverse as network, wireline and wireless infrastructure, defense and electronic data processing. Backplane interconnect systems form the core of high-end electronic systems and provide the means for power distribution and data communications between electronic sub-system building blocks. Adding the ability to provide backplane interconnect solutions with our metal fabrication, cable and harness, printed circuit board, and high level assembly capabilities enables Simclar to offer a highly appealing single source solution to the electronics OEM market.

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Backplane sales contributed approximately 39% to total revenues in 2006.

Manufacturing

We manufacture components and products that are custom designed and developed to fit specific customer requirements and specifications. Such service includes computer integrated manufacturing and engineering services, quick-turnaround manufacturing and prototype development, materials procurement, inventory management, developing customer oriented manufacturing processes, tooling and test sequences for new products from product designs received from our customers or developed by Simclar from customer requirements. Our industrial, electrical and mechanical engineers work closely with our customers’ engineering departments from inception through design, prototypes, production and packaging. We evaluate customer designs and, if appropriate, recommend design changes to improve the quality of the finished product, reduce manufacturing costs or other necessary design modifications. Upon completion of engineering, we produce prototype or preproduction samples. Materials procurement includes planning, purchasing and warehousing electronic components and materials used in the assemblies and finished products. Our engineering staff reviews and structures the bill of materials for purchase, coordinates manufacturing instructions and operations, and reviews inspection criteria with the quality assurance department. The engineering staff also determines any special capital equipment requirements, tooling and dies, which must be acquired.

We attempt to develop a “partnership” relationship with many of our customers by providing a responsive, flexible, total manufacturing service. We have “supplier partnerships” with certain customers pursuant to which we must satisfy in-house manufacturing requirements of the customer that are based on the customer’s need on a weekly basis based on a rolling quarterly forecast.

Our PCB assembly operations are geared toward advanced surface mount technology. We provide the PCB production through state-of-the-art manufacturing equipment and processes and a highly trained and experienced engineering and manufacturing workforce. We also offer a wide range of custom manufactured cables and harnesses for molded and mechanical applications. We use advanced manufacturing processes, in-line inspection and testing to focus on process efficiencies and quality. The cable and harness assembly process is accomplished with automated and semi-automated preparation and insertion equipment and manual assembly techniques.

Finished turnkey assemblies include the entire manufacturing process from design and engineering to purchasing raw materials, manufacturing and assembly of the component parts, testing, packaging and delivery of the finished product to the customer. By contracting assembly production, OEMs are able to keep pace with continuous and complex technological changes and improvements by making rapid modifications to their products without costly retooling and without any extensive capital investments for new or altered equipment.

At our Hialeah, Florida, and Matamoros, Mexico facilities, we maintain modern state-of-the-art equipment for crimping, stripping, terminating, soldering, sonic welding and sonic cleaning which permits us to produce conventional and complex molded cables. We also maintain a large assortment of standard tooling. New manufacturing jobs may require new tooling and dies, but most presses and related equipment are standard.

The acquisition of Litton’s backplane assembly assets added these capabilities to our product offerings. Backplanes are the backbone of sophisticated electronics. They are printed circuit boards with sockets that provide interconnection for multiple printed circuit board cards. At our Springfield, Missouri facility, we maintain specialized equipment for solder and press fit technology. This equipment is designed specifically to accommodate oversized PCB's. We are focused on back panel technology through chassis integration, up to frame or rack level assembly and test.

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Supplies and Materials Management

Materials used in our operations consist of metals, electronic components such as cable, wire, resistors, capacitors, diodes, memory products, PCBs and plastic resins. On occasion some of these materials may be placed on a stringent allocation basis by our suppliers; however, due to the excess manufacturing capacity currently available at most component manufacturers, we do not anticipate any major material purchasing or availability problems occurring in the foreseeable future.

We have improved our overall efficiency of manufacturing, particularly in the area of inventory management, including purchasing, which is geared more closely to current needs resulting in reduced obsolescence problems The company procures components from a select group of vendors which meet our standards for timely delivery, high quality and cost effectiveness. In order to control inventory investment and minimize material obsolescence, components are generally ordered when we have a purchase order or commitment from our customer for the completed assembly. In addition, several of our vendors have agreed to consigned inventory arrangements, which allow us to have their product in stock but not receive it until we pull it for production. This will have a positive impact on working capital as we expand vendor participation. We continue our efforts to consolidate the majority of our electronics material “spend” with that of the entire Simclar Group, and quote and initiate contracts to the most competitive suppliers.

We use Enterprise Resource Planning (“ERP”) management technologies and manage our material pipelines and vendor base to allow our customers to increase or decrease volume requirements within established frameworks. We have Visual Manufacturing, Symix and Made 2 Manage computerized software systems providing us with material requirements planning, purchasing, and sales and marketing functions. In 2005, the company made a commitment to convert all locations to Visual Manufacturing. The goal is to create consistency in our information systems to facilitate more timely, accurate, and meaningful management information. In 2006 we successfully converted the Springfield, MO operations to Visual and in February 2007 the Dayton, OH operations successfully converted to Visual. We plan to convert our Mexico and North Carolina locations in the current year.

Quality and Process Control

All of our manufacturing locations are certified under the ISO 9001/2000 quality assurance designation. These quality assurance designations are only provided to those manufacturers which exhibit stringent quality and process control assurances after extensive evaluation and auditing by these independent quality assurance organizations. Quality control is essential to the company’s operations since customers demand strict compliance with design and product specifications, and high quality production is a primary competitive standard vital to our services.

Product components, assemblies and sub-assemblies manufactured by the company are thoroughly inspected visually and electronically to ensure all components are made to strict specifications and are functional and safe. Strict process controls relating to the entire manufacturing process are part of our standard operating procedure.

Over the years, our product and manufacturing quality have received excellent ratings. Total quality, timely delivery and customer satisfaction is our philosophy. High levels of quality in every area of our operations are essential. Quality standards are established for each operation, performance tracked against those standards, and identifying workflow and implementing necessary changes to deliver higher quality levels. We maintain regular contact with our customers to ensure adequate information exchange and other activities necessary to ensure customer satisfaction and to support our high level of quality and on-time delivery. Any adverse change in our quality and process controls could adversely affect our relationships with customers and ultimately our revenues and profitability.

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Customers

We serve a wide range of businesses, from emerging growth companies to multinational OEMs, involved in a variety of markets including computer networking systems, computer workstations, telecommunications, mass data storage systems, instrumentation and food preparation equipment industries. Our revenues are distributed over the following industry segments:

	Year Ended December 31,
	2006			2005			2004
Telecommunications		43	%		12	%		12	%
Data processing		12	%		25	%		26	%
Contract manufacturing		12	%		1	%		1	%
Power equipment		9	%		17	%		15	%
Food prep equipment		8	%		18	%		18	%
Instrumentation		8	%		16	%		15	%
Electrical equipment and appliances		3	%		0	%		0	%
Military and government		2	%		4	%		5	%
Other		3	%		7	%		8	%

Though historically a substantial percentage of our net sales have been to multiple locations of a small number of customers, our customer base has become increasingly diversified over the past four years. We seek to serve a sufficiently large number of customers to avoid dependence on any one customer or industry. In 2002 thirteen customers made up 80% of our sales with our largest customer accounting for 36% of total revenues. In the successive years of 2003, 2004, and 2005 we grew our customer base to 15, 20, and 29 customers who made up 80% of our sales, with our largest customer contributing 20% of the revenue base. The acquisition of Litton and strong internal growth in 2006 contributed to an over 90% increase in revenues and dramatically shifted our customer and industry mix. In 2006, there were 32 customers that made up 80% of our sales with our largest customer contributing approximately 20% of the revenue.

Significant reductions or delays in sales to any of these major customers would have a material adverse effect on our results of operations. In the past, certain of our customers have terminated their manufacturing relationship with us, or significantly reduced their product orders. We cannot assure you that any of our major customers will not terminate or significantly reduce or delay manufacturing orders, any of which such terminations or changes in manufacturing orders could have a material adverse effect on our results of operations.

We depend upon the continued growth, viability and financial stability of our customers, who in turn substantially depend on the growth of the personal computer, computer peripherals, communications, instrumentation, data processing and food preparation equipment industries. Most of these industries have been characterized by rapid technological change, short product life cycles, pricing and margin pressures. In addition, many of our customers in these industries are affected by general economic conditions. The factors affecting these industries in general, and/or our customers in particular, could have a material adverse effect on our results of operations. In addition, we generate significant accounts receivable in connection with providing manufacturing services to our customers. If one or more of our customers were to become insolvent or otherwise were unable to pay us for manufacturing services we have provided, our operating results and financial condition would be adversely affected.

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The table below sets forth the respective percentage of sales for the applicable period attributable to customers and related suppliers who accounted for more than 10% of our sales in any respective period.

	2006			2005			2004
Customer 1		7	%		17	%		17	%
Customer 2		20	%		0	%		0	%

Marketing and Sales

We are continually pursuing expansion and diversification of our customer base. We are seeking to develop long term relationships by working closely with customers, starting with the initial product design and development stage, and continuing throughout the manufacturing and distribution process. Our principal sources of new business are the expansion in the volume and scope of services provided to existing customers, referrals from customers and suppliers, direct sales through our sales managers and executive staff, and through independent sales representatives. Our operations generate sales through eight regional sales/general managers covering the Northeast, Southeast, West and Southwest regions of the United States, as well as parts of Mexico. There are 13 in-house sales/marketing personnel in the United States. In addition to sales through sales representatives and in-house sales personnel, sales are also generated through our website at http://www.simclar.com and through catalogues, brochures and trade shows.

The independent manufacturer sales representatives, primarily marketing electronic and similar high-technology products, are retained under exclusive or non-exclusive sales representative agreements for specific territories or specific customers and are paid on a commission basis. Unless otherwise approved by Simclar, the sales representatives cannot represent any other person engaged in the business of manufacturing services similar to those of the company, nor represent any person who may be in competition with us. The agreements further prohibit the sales representative from disclosing trade secrets or calling on our customers for a period of six months to one year from termination of their agreement.

Substantially all of our sales and reorders are affected through competitive bidding. Most sales are accomplished through purchase orders with specific quantity, price and delivery terms. Some production, such as for our Kanban and Pull programs, is accomplished under open purchase orders with components released against customer request.

Backlog and Returns

Order backlogs as of December 31, 2006 were approximately $29,908,000 compared to $21,892,000 at December 31, 2005. Based on past experience and relationships with our customers and knowledge of our manufacturing capabilities, we believe that most of our backlog orders are firm and should be filled within six months. Most of the purchase orders within which the company performs do not provide for cancellation. Over the last several years, cancellations have been minimal and management does not believe that any significant amount of the backlog orders will be cancelled. However, based upon relationships with our customers, we occasionally allow cancellations and more frequently provide for the rescheduling of deliveries. The variations in the size and delivery schedules of purchase orders received by the company may result in substantial fluctuations in backlog from period to period. Since orders and commitments may be rescheduled or cancelled, and customers’ lead times may vary, backlog does not necessarily reflect the timing or amount of future sales. Historically, customer returns have not had a material adverse effect on our results of operations.

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Patents and Trademarks

We do not have nor do we rely on patents or trademarks to establish or protect our market position. Rather, we depend on design, engineering and manufacturing, cost containment, quality, and marketing skills to establish or maintain market position.

Seasonality

Our business is not seasonal.

Competition

Simclar is a part of highly competitive electronic manufacturing services industry. We face competition from divisions of large electronics and high-technology firms, as well as numerous smaller specialized companies. Many of our competitors are larger and more geographically diverse and have greater financial, manufacturing and marketing resources than we have. Our main PCB competitors in the Midwest region include SMC, Diversified Systems, Epic Technologies, and CDR Manufacturing,. The primary competitors for our Mexico PCB operations include Kimball Electronics, Method Electronics, and Jabil. We have numerous competitors in the cable and harness assembly market, including Tyco, Advanced Interconnect, Amphenol, Sapphire, Volex Interconnect Systems, and Foxconn.

We believe that we are favorably positioned with regard to primary competitive factors - price, quality of production, manufacturing capability, prompt customer service, timely delivery, engineering expertise, and technical support. We also believe that our affiliation with Simclar Group enhances our competitive position internationally. However, recent consolidation trends in the electronic manufacturing services industry are resulting in changes in the competitive landscape. Increased competition could result in lower priced components and lower profit margins, or loss of customers, which could have a material adverse effect on our business, financial condition and results of operations. Compared to manufacturers who have greater direct buying power with component suppliers or who have lower cost structures, we may be operating at a cost disadvantage.

Due to the number and variety of competitors, reliable data reflective to our competitive position in the electronic components and assembly industry is difficult to develop and is not known.

Research and Development

We spend limited amounts on research and development efforts. Our products are generally manufactured to customer specifications.

Governmental Regulation

Our operations are subject to certain federal, state and local regulatory requirements relating to environmental waste management and health and safety matters. We believe that we comply with applicable regulations pertaining to health, safety and the use, storage and disposal of materials that are considered hazardous waste under applicable law. To date, our costs for compliance and governmental permits and authorizations have not been material, and we do not believe that compliance with current regulatory requirements will have a material effect on our capital expenditures, net income or competitive position. However, additional or modified requirements that may require substantial additional expenditures may be imposed in the future.

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Employees

As of December 31, 2006 we had a total of 934 employees with 467 employees located in our U.S. facilities and 467 employees located at our Mexican facilities; 154 of our employees are employed as part time or temporary help. Approximately 777 of our employees are engaged in manufacturing, quality assurance, related operations and support activities, 43 are in material handling and procurement, 22 are in sales and marketing, 29 are in engineering, and 63 are in administrative, accounting, and support activities.

We have no unions in our U. S. facilities, but have two unions in our Matamoros facilities. We believe that our relationships with our employees, both union and non-union, are good.

Item 1A. Risk Factors

This Report contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the prospects discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those listed below.

The loss of a major customer would adversely affect us

A substantial percentage, approximately 46% of our sales for the year ended December 31, 2006, has been to five customers, the loss of any of which would adversely affect us. A substantial portion of our sales (20%) is with one major customer. There are no long-term contracts with any customer. Substantially all of our sales and reorders are subject to competitive bids. Sales are dependent on the success of our customers, some of which operate in businesses associated with rapid technological change, vigorous competition, short product life cycles, and pricing and margin pressures. Additionally, certain of the industries served by us are subject to economic cycles and have in the past experienced, and are likely in the future to experience, recessionary periods. Developments adverse to our major customers or their products could have an adverse effect on us. A variety of conditions, both specific to each individual customer and generally affecting each customer’s industry, may cause customers to cancel, reduce or delay purchase orders and commitments without penalty, except for payment for services rendered, materials purchased and, in certain circumstances, charges associated with such cancellation, reduction or delay.

In addition, we generate large accounts receivable in connection with our providing of electronic contract manufacturing. If one or more of our customers experiences financial difficulty and is unable to pay for the services provided by us, our operating results and financial condition would be adversely affected. We expect to continue to depend on sales to a limited number of major customers.

Secured loans - existence of liens on certain assets

All of our assets have been pledged as collateral for three bank loans. We have entered into two amended credit facilities and one new credit facility with Bank of Scotland in Edinburgh, Scotland (“BoS”). These facilities were amended and increased in January 2007. Please refer to the Liquidity and Capital Resources section under Item 7 for further discussion regarding these credit facilities.

Our credit facilities impose operational and financial restrictions on us

Our credit facilities with BoS, which include an Amended Term Loan Facility Letter, an Amended Working Capital Facility Letter, a Working Capital Facility Letter, and related security agreements, guaranties and mortgage. In addition to subjecting all our assets as security for the bank financing, these debt agreements include substantial covenants that impose significant restrictions. Please refer to the Liquidity and Capital Resources section under Item 7 for further discussion regarding these restrictions.

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Our ability to comply with these provisions may be affected by changes in our financial condition or results of our operations, or other events beyond our control. The breach of any of the covenants would result in a default under our debt facilities. A default in the covenants would permit BoS to accelerate the maturity of our credit facilities and to sell the assets securing them, which could cause us to cease operations or seek bankruptcy protection.

Our indebtedness requires us to dedicate a substantial portion of our cash flow from operations to payments on our debt, which could reduce amounts available for working capital and other general corporate purposes. The restrictions in our credit facility could also limit our flexibility in reacting to changes in our business and increases our vulnerability to general adverse economic and industry conditions.

We operate in a highly competitive industry and our business may be harmed by competitive pressures

Manufacturing and assembly of electro-mechanical and electronic components is a highly competitive industry characterized by a diversity and sophistication of products and components. We compete with major electronics firms that have substantially greater financial and technical resources and personnel than we do. We also face competition from many smaller, more specialized companies. We believe the primary competitive factors are pricing, quality of production, prompt customer service, timely delivery, engineering expertise, and technical assistance to customers. Among this mix of competitive standards, we believe we are competitive with respect to delivery time, quality, price and customer service. Price sensitivity becomes a paramount competitive issue in recessionary periods, and we may be at a competitive disadvantage with manufacturers with a lower cost structure, particularly off-shore manufacturers with lower labor and related production costs. To compete effectively, we must also provide technologically advanced manufacturing services, and respond flexibly and rapidly to customers’ design and schedule changes. Our inability to do so could have adverse effects on us. Customers in our industry are price-sensitive and, particularly in the recent economic downturn, there is substantial pressure from customers to reduce our prices. Our ability to remain competitive depends on our ability to meet these customer and competitive price pressures while protecting our profit margins. We have been engaged in and will have to continue cost reductions in overhead, manufacturing processes, and equipment retooling, while maintaining product flow, inventory control, and just-in-time shipping to our customers. If we are unable to accomplish these factors, we will not be competitive, and our business and operating results will be adversely impacted.

Our revenues are contingent on the health of the industries we serve

We rely on the continued growth and financial stability of our customers who operate in the following industry segments:

· food preparation equipment;

· data processing;

· telecommunications;

· contract manufacturing;

· power equipment;

· instrumentation; and

· military and government.

These industry segments, to a varying extent, are subject to dynamic changes in technology, competition, short product life cycles, and economic recessionary periods. When our customers are adversely affected by these factors, we may be similarly affected.

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Manufacture of electronic and electro-mechanical products, particularly designed for OEMs and manufactured to custom specifications, is cyclical, and demand for our products may decline

Our business depends substantially on both the volume of electronic and electro-mechanical production by OEMs in the data processing, telecommunications, instrumentation and food preparation industries, and new specifications and designs for these OEMs. These industries have been cyclical over the years, and have experienced oversupply as well as significantly reduced demand, as we have experienced in recent years. An economic downturn can result in lower capacity utilization of our manufacturing operations and a shift in product mix toward lower margin assemblies. Changes in economic conditions and demand can result in customer rescheduling of orders and shipments, which affect our results of operations. Moreover, our need to invest in engineering, marketing, and customer services and support capabilities will limit our ability to reduce expenses, as we would attempt to do, in response to such downturns.

We do not have long-term contracts with customers, and cancellations, reductions or delays in orders affect our profitability

We do not typically obtain firm long-term contracts from our customers. Instead, we work closely with our customers to develop forecasts for upcoming orders, which are not binding, in order to properly schedule inventory and manufacturing. Our customers may alter or cancel their orders or demand delays in production for a number of reasons beyond our control, which may include:

· market demand for products;

· change in inventory control and procedures;

· acquisitions of or consolidations among competing customers;

· electronic design and technological advancements; and

· recessionary economic environment.

Any one of these factors may significantly change the total volume of sales and affect our operating results, in times of a recessionary environment and reduced demand for our customers’ products and in turn, our products and services. In addition, since much of our costs and operating expenses are relatively fixed, a reduction in customer demand would adversely affect our gross margins and operating income. Although we are always seeking new business and customers, we cannot be assured that we will be able to replace deferred, reduced or cancelled orders.

Shortages of components as well as price fluctuations specified by our customers would delay shipments and adversely affect our profitability

Substantially all of our sales are derived from electro-mechanical and subcontract electronic manufacturing in which we purchase components specified by our customers. Industry-wide shortages of electronic components, particularly components for PCB assemblies, have occurred. We experienced some supply shortages in 2004 and 2005. Should our industry experience a rapid increase, shortages of components mostly likely will occur, and we may be forced to delay shipments, which could have an adverse effect on our profit margins and customer relations. Because of the continued increase in demand for surface mount components, we anticipate component shortages and longer lead times for certain components to occur from time to time. Also, we typically bear the risk of component price increases that occur, which accordingly could adversely affect our gross profit margins. As price increase pressures continue we are beginning to pass these increases on as competition allows. At times, we are forced to purchase components beyond customer demand on items which are in short supply. To the extent there is less customer demand or cancellations, we could have increased obsolescence.

Technological developments, satisfying customer designs and production requirements, quality and process controls are factors impacting our operations

Our existing and future operations are and will be influenced by several factors, including technological developments, our ability to efficiently meet the design and production requirements of our customers, our ability to control costs, our ability to evaluate new orders to target satisfactory profit margins, and our capacity to develop and manage the introduction of new products. We also may not be able to adequately identify new product trends or opportunities, or respond effectively to new technological changes. Quality control is also essential to our operations, since customers demand strict compliance with design and product specifications. Any deviation from our quality and process controls would adversely affect our relationship with customers, and ultimately our revenues and profitability.

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Our operating results are subject to annual and quarterly fluctuation which could negatively impact our stock price

There are a number of factors, beyond our control, that may affect our annual and quarterly results. These factors include:

· the volume and timing of customer orders;

· changes in labor and operating prices;

· fluctuations in material cost and availability;

· changes in domestic and international economies;

· timing of our expenditures in anticipation of future orders;

· increase in price competition, and competitive pressures on delivery time and product reliability;

· changes in demand for customer products;

· the efficiency and effectiveness of our automated manufacturing processes;

· market acceptance of new products introduced by our customers; and

· uneven seasonal demands by our customers.

Any one or combination of these factors can cause an adverse effect on our future annual and quarterly financial results. Fluctuations in our operating results could materially and adversely affect the market price of our common stock.

Environmental laws may expose us to financial liability and restrictions on operations

We are subject to a variety of federal, state and local laws and regulations relating to environmental, waste management, and health and safety concerns, including the handling, storage, discharge and disposal of hazardous materials used in or derived from our manufacturing processes. Proper waste disposal is a major consideration for printed circuit board manufacturers, which is a substantial part of our business, since metals and chemicals are used in our manufacturing process. Environmental controls are also essential in our other areas of electronic assembly. If we fail to comply with such environmental laws and regulations, then we could incur liabilities and fines and our operations could be suspended. This could also trigger indemnification of our lender under our credit facilities, as well as being deemed a default under such credit facilities. See “Our credit facilities impose operational and financial restrictions on us” above. Such laws and regulations could also restrict our ability to modify or expand our facilities, could require us to acquire costly equipment, or could impose other significant capital expenditures. In addition, our operations may give rise to claims of property contamination or human exposure to hazardous chemicals or conditions. Although we have not incurred any environmental problems in our operations, there can be no assurance that violations of environmental laws will not occur in the future due to failure to obtain permits, human error, equipment failure, or other causes. Furthermore, environmental laws may become more stringent and impose greater compliance costs and increase risks and penalties for violations.

Simclar Group controls over 73% of our common stock and the affairs of our company

Simclar Group owns 73.4% of our outstanding common stock. Our common stock does not provide for cumulative voting, and therefore, the remaining shareholders, other than Simclar Group, will be unable to elect any directors or have any significant impact in controlling the business or affairs of our company. The concentration of ownership with Simclar Group may also have the effect of delaying, deterring or preventing a change in control of our company, and would make transactions relating to our operations more difficult or impossible without the support of Simclar Group. Also, since we are a “controlled company” for purposes of the Nasdaq Stock Market’s corporate governance requirements, we are not required to comply with the provisions requiring that a majority of listed company directors be independent, the compensation of our executives to be determined by independent directors or nominees for election to our board of directors to be selected by independent directors.

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The price of our shares is volatile

The market price of our common stock has substantially fluctuated in the past. The market price of our common stock has been as high as $13.18 in the third quarter of 2006 to as low as $0.52 in the fourth quarter of 2002. Our common stock has limited trading volume, and it closed at $5.37 on March 16, 2007.

There are a variety of factors which contribute to the volatility of our common stock. These factors include domestic and international economic conditions, stock market volatility, our reported financial results, fluctuations in annual and quarterly operating results, and general conditions in the contract manufacturing and technology sectors. Announcements concerning our company and competitors, our operating results, and any significant amount of shares eligible for future sale may also have an impact on the market price of our common stock. As a result of these factors, the volatility of our common stock prices may continue in the future.

We have not declared dividends, and our credit facilities prohibit us from paying dividends without written consent from our lender

Under Florida corporate law, holders of our common stock are entitled to receive dividends from legally available funds, when and if declared by our board of directors. We have not paid any cash dividends, and our board of directors does not intend to declare dividends in the foreseeable future. Our future earnings, if any, will be used to finance our capital requirements, repay bank borrowings and fund our operations.

Our credit facilities prohibit us from paying any dividends without the written consent of the lender or making any other payments on our capital stock without the written consent of the lender. There can be no assurance that the lender will provide such consent.

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Possible delisting of our stock

Our common stock trades on the Nasdaq Capital Market. There are certain qualitative and quantitative criteria for continued listing on the Nasdaq Capital Market, known as continued listingrequirements. Failure to satisfy any one of these continued listing requirements could result in our securities being delisted from the Nasdaq Capital Market. These criteria include at least two active market makers, maintenance of $2,500,000 of stockholders’ equity (or alternatively, $35,000,000 in market capitalization or $500,000 in net income from operations in the latest fiscal year or 2 of the last 3 fiscal years), a minimum bid price for our common stock of $1.00, and at least 500,000 publicly held shares with a market value of at least $1,000,000, among others. Continued listing also requires compliance with the Nasdaq Stock Market’s corporate governance listing criteria. Usually, if a deficiency occurs for a period of 30 consecutive trading days (10 consecutive trading days for failure to satisfy the minimum market capitalization requirement), the particular company is notified by Nasdaq and has a grace period in which to achieve compliance. If the company is unable to demonstrate compliance after the expiration of any applicable grace period, the security is subject to delisting. The security might be able to trade on the Nasdaq OTC Bulletin Board, a less transparent trading market which may not provide the same visibility for the company or liquidity for its securities, as does the Nasdaq Capital Market. As a consequence, an investor may find it more difficult to dispose of or obtain prompt quotations as to the price of our securities, and may be exposed to a risk of decline in the market price of our common stock.

The Nasdaq Capital Market requires that we maintain a minimum market value of public float of $1,000,000 for continued listing. The publicly trading shares, exclusive of any affiliate ownership, which is the float for our common stock, is approximately 1,658,092 shares, and as the closing price of our shares on March 16, 2007 was $5.37, we currently satisfy that maintenance requirement.

Our common stock has limited trading volume. There is the risk of being delisted from the Nasdaq Capital Market should our common stock fail to maintain a minimum bid price of $1.00 per share for 30 consecutive days, or we fail to meet other continued listing requirements. During 2004 we were notified by Nasdaq of a failure to meet its qualitative listing requirements due to the failure of our audit committee to comply with the independence criteria, although the company was able to correct this deficiency before further action by Nasdaq. In 2006, we were notified by Nasdaq of failure to meet its listing requirements due to a delay in filing our quarterly report for the second quarter of 2006, as a result of accounting errors at our Simclar (Mexico), Inc. subsidiary that led to a restatement of our 2005 and first quarter 2006 results. Again, we were able to correct this deficiency before further action to delist our common stock. Continued satisfaction of certain of the Nasdaq Capital Market continued listing requirements is beyond our control. There is no assurance that we will continue to satisfy the continued listing maintenance criteria, which, without a timely cure, could cause our securities to be delisted from the Nasdaq Capital Market.

A significant downturn in the general economy could adversely affect our revenue, gross margin and earnings.

Our business is subject to inflation, rising interest rates, availability of capital markets, consumer spending rates, the effects of governmental plans to manage economic conditions and other national and global economic occurrences beyond our control which could have an adverse affect on our revenue, gross margin and earnings.  As suppliers to the OEM market many of our products, and hence our revenue and gross margin, is strongly correlated with general economic conditions and with the level of business activity of our customers.  Economic weakness and constrained customer spending has resulted in the past, and may result in the future, in decreased revenue, gross margin, earnings, or growth rates.  We also have experienced, and may experience in the future, gross margin declines reflecting the effects of increased pressure for price concessions as our customers attempt to lower their cost structures and increased material costs as our suppliers attempt to increase their prices.  In this environment, we may not be able to reduce our costs sufficiently to maintain our margins.   

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Failure to attract and retain qualified personnel may result in difficulties in managing our business effectively and meeting revenue growth objective.

Our ability to profitably manage and grow our business depends upon the contributions and abilities of key executives, operating officers and other personnel.  The loss of the services of any of these key employees could have a material impact on the Company's business and results of operations. In addition, continued growth and expansion of the Company's contract manufacturing business in an extremely competitive market will require that it attract, motivate and retain additional skilled and experienced personnel. The inability to satisfy these requirements could have a negative impact on the Company's ability to remain competitive in the future.

There are inherent limitations in all control systems, and misstatements due to error or fraud may occur and may not be detected.

Simclar’s management, including our Chief Executive Officer and Chief Financial Officer, does not expect that any company’s controls, including our own, will prevent all error and all fraud.  A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  The design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be evaluated in relation to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, in the company have been detected.  These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake.  Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls.  The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may be inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.  Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The following chart summarizes the principal properties leased by the company:

Space	Property	Term
16,000 sq. ft. (exec. offices, mfg.)	2230 W 77th St. Hialeah, FL	10 yrs. to August 31, 2010
12,000 sq. ft. (mfg., warehouse)	2230 W 77th St. Hialeah, FL	10 yrs. to August 31, 2010
5,500 sq. ft. (mfg., offices)	171 Commonwealth Ave. Attleboro, MA	3 yrs. to March 31, 2008
1,418 sq. ft. (office)	2013 Wells Branch Pkwy, #312. Austin, TX	3 yrs. to May 31, 2009

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Space	Property	Term
16,000 sq. ft. (office, warehouse)	2685 N. Coria Brownsville, TX	3 yrs. to April 30, 2008
37,919 sq. ft. (mfg., office, warehouse)	Parque Industrial CYLSA Matamoros, Mexico	5 yrs. to July 15, 2011
55,524 sq. ft. (mfg., office, warehouse)	Parque Industrial CYLSA Matamoros, Mexico	13 yrs. to October 31, 2017
90,000 sq. ft. (mfg., office, warehouse)	176 Laurie Ellis Road Winterville, NC	5 yrs. to May 31, 2011
52,826 sq. ft. (mfg., office, warehouse)	1624 West Jackson Ozark, MO	5 yrs. to December 31, 2011

In October, 2004, we exercised an option to purchase for $1,400,000 a 77,800 square foot manufacturing, office and warehouse facility located at 1784 Stanley Avenue in Dayton, Ohio, which we had previously leased. The facility is encumbered by a mortgage to the Bank of Scotland to secure the acquisition indebtedness.

Simclar Interconnect Technologies, Inc. temporarily occupies portions of a facility of Litton Systems, Inc. located in Springfield, Missouri pursuant to a License Agreement which expired on February 23, 2007. We will continue to occupy the facility on a month to month basis until such time as the facility in Ozark, Missouri is ready for occupancy.

We maintain state-of-the-art manufacturing, quality control, testing and packaging equipment at all of our facilities.

We believe that our equipment and facilities are suitable and adequate for our current operations and provide us with the productive capacity we need for our current business levels. We utilize approximately 60% of the capacity of each of our facilities on a one shift schedule for our business.

We are subject to a variety of environmental regulations relating to our manufacturing processes and facilities. See “Government Regulation” under Item 1 and “Risk Factors” under Item 1A.

Item 3. Legal Proceedings

We are, from time to time, a party to litigation which arises in the normal course of our business. When a loss is deemed probable and reasonably estimable, an amount is recorded in our financial statements. Although the ultimate resolution of pending proceedings cannot be determined, in the opinion of management, the unfavorable resolution of these proceedings in the aggregate will not have a material adverse effect on our business, financial position, results of operations, or liquidity.

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

None.

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Part II

Item 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities

Market for Common Stock

The table below reflects the high and low closing sales prices for our common stock, which trades under the symbol “SIMC”, as reported by the Nasdaq Capital Market. The prices shown represent quotations between dealers, without adjustment for retail markups, markdowns or commissions and may not represent actual transactions.

2006
	High		Low
1st Quarter	$	3.83	$	3.15
2nd Quarter	$	11.33	$	3.70
3rd Quarter	$	13.18	$	4.36
4th Quarter	$	8.99	$	4.35
2005
		High		Low
1st Quarter	$	4.68	$	3.05
2nd Quarter	$	6.80	$	3.29
3rd Quarter	$	5.16	$	3.09
4th Quarter	$	4.24	$	3.15

Approximate Number of Holders of Common Stock

On December 31, 2006, there were approximately 49 shareholders of record of our common stock. Our transfer agent is Continental Stock Transfer & Trust Company, 17 Battery Place, 8^th Floor, New York, New York 10004. 

Dividends

We have not paid, nor do we have any present plans to pay cash dividends on our common stock in the immediate future. In addition, our credit facilities with the Bank of Scotland prohibit us from declaring or paying dividends on our common stock without the Bank of Scotland’s written consent. See Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Liquidity and Capital Resources.”

Issuer Repurchases

No purchases of any of our outstanding shares were made by or on behalf of the company or any affiliated purchaser during 2006, 2005 and 2004.

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Item 6. Selected Financial Data

The following selected financial data should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein:

Consolidated Statements of Operations Data

(in thousands except per share amounts)

	Years Ended December 31,
	2006		2005		2004		2003		2002
Revenues	$	116,031	$	61,005	$	53,582	$	36,187	$	33,692
Net income		2,863		947		2,342		1,106		1,390
Earnings per share:
Basic and diluted	$	0.44	$	0.15	$	0.36	$	0.17	$	0.21

Consolidated Balance Sheet Data

(in thousands)

	December 31,
	2006		2005		2004		2003		2002
Working capital	$	14,236	$	4,470	$	12,137	$	11,804	$	10,018
Total assets		63,864		37,710		32,580		25,674		22,168
Long-term debt		20,565		4,200		6,700		6,500		5,315
Total Liabilities		45,942		22,650		18,462		13,913		11,797
Stockholders’ equity		17,922		15,060		14,119		11,761		10,371

The 2006 financial data reflects the acquisition of Litton, 2005 financial data reflects the acquisition of Simclar (North America), Inc., and the 2003 financial data reflects the acquisition of AG Technologies, Inc. (Simclar (Mexico), Inc.).

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Simclar, Inc. continued to demonstrate strong revenue growth of existing products and customers through 2006 as well as adding new products and customers. Our strategy remains to (1) leverage our relationship with Simclar Group to expand our reach globally, (2) depend upon our long-term relationships with major OEM’s to increase our business with our existing customer base and to grow our customer base with other OEM’s, and (3) seek strategic acquisitions and alliances.

Some of the key highlights to be discussed further through this discussion and analysis include:

· Acquisition of certain U.S. assets associated with the backplane assembly business of the Interconnect Technologies Division of Litton Systems, Inc. ("Litton"), a subsidiary of Northrop Grumman Corporation, for $16 million in cash and the assumption of certain liabilities

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· 2006 revenues were approximately $116 million; this is 90% above 2005. Year-on-year sales increased 13% with the balance coming from our acquisition of the Litton assets and the full year effect of SNAI which was acquired in May 2005

· fourth quarter sales set a new quarterly high at approximately $33,156,000

· net income for 2006 was approximately $2,863,000 and earnings per share was $0.44

Our operations have continued to depend upon a relatively small number of customers for a significant percentage of our net revenue. Significant reductions in sales to any of our large customers would have a material adverse effect on our results of operations. The level and timing of orders placed by a customer vary due to the customer’s attempts to balance its inventory, design modifications, changes in a customer’s manufacturing strategy, acquisitions of or consolidations among customers, and variation in demand for a customer’s products due to, among other things, product life cycles, competitive conditions and general economic conditions. Termination of manufacturing relationships or changes, reductions or delays in orders could have an adverse effect on our results of operations and financial condition, as has occurred in the past. Our results also depend to a substantial extent on the success of our OEM customers in marketing their products. We continue to seek to diversify our customer base to reduce our reliance on our few major customers. See “Business Strategy” and “Customers” under Item 1, “Business.”

The industry segments we serve, and the electronics industry as a whole, are subject to rapid technological change and product obsolescence. Discontinuance or modification of products containing components manufactured by our company could adversely affect our results of operations. The electronics industry is also subject to economic cycles and has in the past experienced, and is likely in the future to experience, recessionary periods. A prolonged worldwide recession in the electronics industry, as we experienced from 2001 through 2003, could have a material adverse effect on our business, financial condition and results of operations. During periods of recession in the electronics industry, our competitive advantages in the areas of quick-turnaround manufacturing and responsive customer service may be of reduced importance to electronic OEMs, who may become more price sensitive.

We typically do not obtain long-term volume purchase contracts from our customers, but rather we work with our customers to anticipate future volumes of orders. Based upon such anticipated future orders, we will make commitments regarding the level of business we want and can accomplish given the current timing of production schedules and the levels of and utilization of facilities and personnel. Occasionally, we purchase raw materials without a customer order or commitment. Customers may cancel, delay or reduce orders, usually without penalty, for a variety of reasons, whether relating to the customer or the industry in general, which orders are already made or anticipated. Any significant cancellations, reductions or order delays could adversely affect our results of operations.

We use Electronic Data Interchange(“EDI”) with both our customers and our suppliers in our efforts to continuously develop accurate forecasts of customer volume requirements, as well as sharing our future requirements with our suppliers. We depend on the timely availability of many components. Component shortages could result in manufacturing and shipping delays or increased component prices, which could have a material adverse effect on our results of operations. It is important for us to efficiently manage inventory, proper timing of expenditures and allocations of physical and personnel resources in anticipation of future sales, the evaluation of economic conditions in the electronics industry and the mix of products, whether PCBs, wire harnesses, cables, or turnkey products, for manufacture. See “Electronic Manufacturing Industry” and “Supplies and Materials Management” under Item 1, “Business” and “Results of Operations” below.

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We must continuously develop improved manufacturing procedures to accommodate our customers’ needs for increasingly complex products. To continue to grow and be a successful competitor, we must be able to maintain and enhance our technological capabilities, develop and market manufacturing services which meet changing customer needs and successfully anticipate or respond to technological changes in manufacturing processes on a cost-effective and timely basis. Although we believe that our operations utilize the assembly and testing technologies and equipment currently required by our customers, there can be no assurance that our process development efforts will be successful or that the emergence of new technologies, industry standards or customer requirements will not render our technology, equipment or processes obsolete or noncompetitive. In addition, to the extent that we determine that new assembly and testing technologies and equipment are required to remain competitive, the acquisition and implementation of such technologies and equipment are likely to require significant capital investment.

Our results of operations are also affected by other factors, including price competition, the level and timing of customer orders, fluctuations in material costs (due to availability), the overhead efficiencies achieved by management in managing the costs of our operations, our experience in manufacturing a particular product, the timing of expenditures in anticipation of increased orders, selling, and general and administrative expenses. Accordingly, gross margins and operating income margins have generally improved during periods of high volume and high capacity utilization. We generally have idle capacity and reduced operating margins during periods of lower-volume production.

Acquisition of Litton Assets

In 2006, Simclar, Inc. and Simclar Interconnect Technologies, Inc., its newly-formed wholly owned subsidiary ("Simclar IT") purchased certain U.S. assets associated with the backplane assembly business of the Interconnect Technologies Division of Litton Systems, Inc., a subsidiary of Northrop Grumman Corporation, for $16 million in cash and the assumption of certain liabilities (the "Acquisition"). At the same time, Simclar's parentcompany in the United Kingdom, Simclar Group Limited, also acquired from Litton Systems International, Inc. and Litton U.K. Ltd. all of the share equity of Litton Electronics (Suzhou) Co. Ltd., a subsidiary organized in China, and certain assets of the Interconnect Technologies Division assembly business in the U.K., respectively, through its subsidiary Simclar Interconnect Technologies Limited.

In connection with the Acquisition, the company and Simclar IT entered into an occupancy agreement pursuant to which Simclar IT was permitted to occupy space in Litton's Springfield, Missouri facility for a period of up to twelve months, and a transition services agreement pursuant to which Litton will provide certain administrative services to the company and Simclar IT to support its operations during the occupancy period. Simclar IT has recently entered into a lease for a facility in Ozark, Missouri, into which it is in the process of moving its operations, but will continue to occupy portions of the shared Litton facility until that relocation is complete.

The company financed the purchase of the assets under an amended term loan facility with the Bank of Scotland ("BoS"). Of the $16 million borrowed under the amended facility, $13 million of the principal is repayable in quarterly installments with the first installment paid December 31, 2006 and continuing through December 31, 2012. Interest on this portion of the borrowings is payable quarterly at one, three or six month LIBOR (as elected by the Company) plus 2.5%. The $3 million balance of the borrowings under the amended facility is repayable in one lump sum on December 31, 2010. Interest on this portion of the borrowings is payable quarterly at one, three or six month LIBOR (as elected by the Company) plus 3.5%. In addition, there is a redemption fee of $400,000 payable on December 31, 2010.

In connection with the loan, the company, Simclar IT and other subsidiaries entered into an amended security agreement, pursuant to which BoS was granted a security interest in substantially all of their respective assets to secure the company's borrowings under its credit facilities, and a guaranty pursuant to which Simclar IT guarantied the obligations of the company to BoS under the credit facilities. Additionally, the company and Simclar (Mexico), Inc. entered into an amended pledge agreement, pursuant to which all of the shares owned by the company in its subsidiaries (other than Simclar de Mexico) were pledged as security for the company's obligations to BoS under the credit facilities. These facilities were amended in January 2007, and Simclar (North America), Inc. was added as a guarantor.

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Key Financial Performance Measures

We manage and assess the performance of our business primarily through the following measures:

Orders booked and backlog - the ratio of orders booked to sales is reviewed on a monthly basis for each of the company’s five manufacturing plants.

Sales - monthly sales for each plant are compared against budget and the same month in the previous year.

Gross margin - the gross margin achieved by each plant each month is compared against budget and the same month in the previous year.

Selling, general and administrative expenses - the ratio of these expenses as a percentage of sales for each plant each month is compared against budget.

Working capital - movements in the balance sheet amounts of inventory, accounts receivable and accounts payable for each plant are reviewed on a monthly basis.

Bank borrowings - movements in the company’s working capital facility with the bank are reviewed on a weekly basis.

In the event that any of the above measures indicate unusual movements or trends, further review is undertaken by management to ensure that satisfactory explanations are obtained, and, where necessary, appropriate corrective action is taken.

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Results of Operations

The following is a discussion of the key factors that have affected our business over the last three years. This discussion should be read in conjunction with our consolidated financial statements and the related footnotes included herein.

Net Sales

(dollars in thousands)

	2006			2005			2004
Net Sales	$	116,031		$	61,005		$	53,582
Change from prior year	$	55,026		$	7,423		$	17,395
% change from prior year		90.2	%		13.9	%		48.1	%

Revenues were up approximately $55 million for year ended December 31, 2006 compared to the same period in 2005. Revenues from acquisitions represented approximately $47.1 million and approximately $7.9 million of the revenue growth came from existing operations. This represents an approximate 77% growth through acquisition and 13% through organic growth. Acquisitions caused a significant shift in our customer and industry segment mix. Refer to the customer discussion under Item 1 for an industry segment comparison.

Gross Profit Margin

(dollars in thousands)

	2006			2005			2004
Gross profit margin	$	14,324		$	7,138		$	7,353
Change from prior year	$	7,186		$	(215	)	$	2,482
% change from prior year		100.7	%		-2.9	%		51.0	%
% of sales		12.3	%		11.7	%		13.7	%

Gross profit margin was up primarily due to the growth in revenues. Higher volumes allowed for improved plant utilization which allowed for improved gross profit margins as a percentage of sales. We have been successful in obtaining pricing concessions from customers for raw material price increases. The change in product mix has also changed our cost structure. In 2004 and 2005 material costs were approximately 62% of sales. In 2006 material costs were approximately 68% of sales. Labor and burden were approximately 24% of sales in 2004 and 2005 and approximately 19% in 2006. For the same operations from 2005 to 2006 material costs were 63% and labor and burden costs were 24%. Commissions are included in cost of goods sold and constitute approximately ½% of sales.

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Selling, General, and Administrative Expenses

(dollars in thousands)

		2006			2005			2004
Selling, general, and administrative expenses	$	8,368		$	4,985		$	3,755
Change from prior year	$	3,383		$	1,230		$	622
% change from prior year		67.9	%		32.8	%		19.8	%
% of sales		7.2	%		8.2	%		7.0	%

Approximately $3.1 million of the increased selling, general, and administrative costs (SG&A) were directly attributed to acquisitions. SG&A includes approximately $600,000 in amortization costs for intangibles related to the acquisitions and approximately $200,000 related to our investigation and restatements related to accounting irregularities in our Mexico operations.

Interest Expense

(dollars in thousands)

	2006			2005			2004
Interest expense	$	1,835		$	477		$	213
Change from prior year	$	1,358		$	264		$	(5	)
% change from prior year		284.7	%		123.9	%		-2.3	%
% of sales		1.6	%		0.8	%		0.4	%

Interest expense increased $1.1 million for debt related to the acquisition of the Litton assets. Increased interest rates affected interest cost unfavorably. Also, the additional $16 million was at a higher interest rate than existing bank debt. The average interest rate for tranches A and B of our credit facilities was approximately 6.7% while the average interest rates for tranches C and D were approximately 7.7% and 8.7% respectively. These credit facilities are described in further detail below. Our weighted average interest rate for the year was approximately 7.7% compared to approximately 4.8% in 2005.

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Income Before Income Taxes

(dollars in thousands)

	2006			2005			2004
Income before income taxes	$	4,202		$	1,745		$	3,436
Change from prior year	$	2,457		$	(1,691	)	$	1,972
% change from prior year		140.8	%		-49.2	%		134.7	%
% of sales		3.6	%		2.9	%		6.4	%

A 90% increase in revenues and improved gross margin percentage contributed to $2.4 million increase in income before taxes and an increase as a percentage of sales from 2.9% to 3.6%.

Income Tax Expense

(dollars in thousands)

	2006			2005			2004
Income tax expense	$	1,339		$	798		$	1,094
Change from prior year	$	542		$	(296	)	$	737
% change from prior year		67.9	%		-27.1	%		206.4	%
% of Income before tax		31.9	%		45.7	%		31.8	%

Income tax expense for 2006 increased due to higher income before tax; however, the effective rate was lower than 2005 primarily because of a deemed dividend from our Mexican operations that was realized 2005.

Liquidity and Capital Resources

Cash and Cash Equivalents

(dollars in thousands) 

	December 31, 2006		December 31, 2005
Cash and cash equivalents	$	82	$	834

We continue to prudently manage our cash flow as the business continues to grow. Our cash balances have been affected both by our strong growth and repayment of term loans as well as amounts payable to Simclar Group. Excess liquid funds are invested in short-term interest-bearing accounts at financial institutions.

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Net Cash Provided from Operating Activities

(dollars in thousands)

	December 31, 2006		December 31, 2005
Net cash provided from operating activities	$	2,781	$	1,513

The largest contributor to the improvement in net cash provided from operating activities was income before depreciation which was approximately $4.7 million in 2006 compared to approximately $2.2 million in 2005. This was offset by higher working capital requirements due to the acquisition of the Litton assets and an overall increase in sales in 2006 compared to 2005.

Accounts Receivable

(dollars in thousands)

	December 31, 2006		December 31, 2005
Accounts receivable	$	20,802	$	9,199
Average days sales outstanding		64.5		54.3

Accounts receivable grew due to the increased sales volume. The days sales outstanding (DSO) as calculated by dividing ending accounts receivable balance by daily sales (annual sales/365) makes the DSO appear higher than it truly is. The record sales volume in the fourth quarter distorts the annual calculation. If viewed on a period by period basis the DSO is consistently in the 53 to 55 day range.

Inventory

(dollars in thousands)

	December 31, 2006		December 31, 2005
Inventory	$	20,259	$	12,225
Average inventory turnover		5.3		4.4

Inventories have grown in relationship to the increased volumes. We continue to focus on improving our inventory utilization through improved systems, expanding our use of consigned inventories, reducing order quantities, and shortening lead times.

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Cash Used in Investing Activities

(dollars in thousands)

	December 31, 2006			December 31, 2005
Net cash used in investing activities	$	(17,074	)	$	(1,782	)

The most significant investing activity was approximately $16.1 million related to the Litton asset acquisition. Additions to property and equipment were approximately $1.1 million in 2006 compared to approximately $1.7 million in 2005.

Cash Provided by Financing Activities

(dollars in thousands)

	December 31, 2006		December 31, 2005
Cash provided by financing activities	$	13,543	$	810

The BoS increased our long-term credit facility $16 million to fund the Litton asset acquisition. Term loan repayments were $1.7 million and payments on other borrowings totaled $450,000 in 2006. This compares to an increase on the line of credit of approximately $2.0 million and term loan repayments of $1.2 million in 2005.

Our near-term cash requirements are primarily related to funding our operations, investing in acquisitions, and meeting the company’s required bank debt obligations.  We believe that the combination of internally-generated funds, available cash reserves, and our existing credit facility is sufficient to fund our operating, investing and financing activities.

In December 2005, we entered into two amended and one new credit facilities with Bank of Scotland in Edinburgh, Scotland consisting of:

Borrower	Type of facility		Original amount		Balance at December 31, 2006
Simclar, Inc.		Working capital	$	5,000,000	$	4,990,395
Simclar, Inc.		Term loan - four tranches (see detail of tranches below)	$	21,650,000	$	4,200,000
Simclar Interconnect Technologies, Inc.		Working Capital	$	1,000,000	$	127,759

Effective January 26, 2007, we entered into amendments of the two working capital facilities. The term of the $1 million working capital facility of Simclar IT, originally entered into in December 2005, was extended to January 28, 2008. The Simclar, Inc. $5 million working capital facility, last amended in December 2005, was increased to $7.5 million, and its maturity date was extended to January 28, 2008. No other material changes were made to either facility by the amendments.

Interest on the Simclar, Inc. working capital facility accrues at an annual rate equal to LIBOR plus 1.5%, plus an amount, rounded to the nearest eighth of a percent, to cover any increases in certain regulatory costs incurred by the bank. The company may elect to pay interest on advances every one, three or six months, with LIBOR adjusted to correspond to the interest payment period selected by the company. The interest rate for the working capital facility at December 31, 2006 was 6.85% based on the one month election.

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Interest on the Simclar Interconnect Technologies, Inc. working capital facility will be a margin over LIBOR determined by a ratio of net borrowings to EBITDA for any given test period. The margin percentage can range from 1.5% to 2.5%. The interest rate for this working capital facility at December 31, 2006 was 6.85%.

The term loan interest is also determined by a margin over LIBOR related to the ratio of net borrowings to EBITDA for any given test period. The margin percentage can range from 1.5% to 2.5%. The term debt interest rate was 6.85% for tranches A and B, 7.85% for tranche C, and 8.85% for tranche D at December 31, 2006 based on the one month election. The term loan is divided into four tranches each with its own specific purpose and repayment schedule as shown in the following table:

Tranche	Principal Amount	Purpose	Payments
A	$4,250,000	Refinance existing facilities	Seventeen quarterly payments of $250,000 beginning October 2004 through October 2008
B	$1,400,000	Dayton property acquisition	Twenty-eight quarterly payments of $50,000 beginning January 2005 through October 2011

C	$13,000,000	Acquisition of certain assets of the Litton Interconnect Technologies assembly operations	Thirteen quarterly payments of $500,000 beginning December 2006 through December 2009, four quarterly payments of $250,000 from March 2010 through December 2010, four quarterly payments of $750,000 from March 2011 through December 2011 and four quarterly payments of $625,000 from March 2012 through December 2012
D	$3,000,000	Acquisition of certain assets of the Litton Interconnect Technologies assembly operations	Single payment due December 31, 2010

The weighted average interest rate for 2006 was approximately 7.7%.

Our credit facilities with BoS, which include an Amended Term Loan Facility Letter, an Amended Working Capital Facility Letter, a Working Capital Facility Letter, and related security agreements, guaranties and a mortgage, in addition to subjecting all our assets as security for the bank financing, include substantial covenants that impose significant restrictions on us, including, among others, requirements that:

· the facilities take priority over all our other obligations;

· we must maintain sufficient and appropriate insurance for our business and assets;

· we must maintain all necessary licenses and authorizations for the conduct of our business;

· we indemnify the bank against all costs and expenses incurred by it which arise as a result of any actual or threatened (i) breach of environmental laws; (ii) release or exposure to a dangerous substance at or from our premises; or (iii) claim for an alleged breach of environmental law or remedial action or liability under such environmental law which could have an adverse material effect;

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· if environmental harm has occurred to our property securing the credit facility, we have to ensure we were not responsible for the harm, and we have to be aware of the person responsible and its financial condition; and

· we must notify the bank of a variety of pension and benefit plans and ERISA issues, including, among others, (i) material adverse changes in the financial condition of any such plan; (ii) increase in benefits; (iii) establishment of any new plan; (iv) grounds for termination of any plan; and (v) our affiliation with or acquisition of any new ERISA affiliate that has an obligation to contribute to a plan that has an accumulated funding deficiency.

In addition, our credit facilities require us to maintain:

· consolidated adjusted net worth greater than $15,000,000 with effect from March 31, 2006 (tested on a quarterly basis);

· a ratio of consolidated current assets to consolidated net borrowing prior to December 31, 2007 of not less than 1:1 and thereafter not to be less than 1.5:1 (tested on a quarterly basis);

· a ratio of consolidated trade receivables to consolidated net borrowing of not less than 0.5:1 prior to December 31, 2007 and not less than 0.75:1 thereafter (tested on a quarterly basis); and

· a ratio of EBIT to total interest not less than 3:1 until March 31, 2006; not less than 3.5:1 from April 1, 2006 to December 31, 2007; and not less than 4:1 thereafter (tested on a quarterly basis beginning December 31,2005);

· a ratio of net borrowings to EBITDA not to exceed 5:1 through December 31, 2006; not less than 4.5:1 from January 1, 2007 to December 31, 2007; not less than 4:1 from January 1, 2008 to December 31, 2008; not less than 3.5:1 from January 1, 2009 to December 31, 2009; and not less than 3:1 thereafter (tested on a quarterly basis beginning December 31, 2006).

Finally, without the prior written consent of BoS, our credit facilities prohibit us from:

· granting or permitting a security agreement against our consolidated assets except for permitted security agreements;

· declaring or paying any dividends or making any other payments on our capital stock;

· consolidating or merging with any other entity or acquiring or purchasing any equity interest in any other entity, or assuming any obligations of any other entity, except for notes and receivables acquired in the ordinary course of business;

· incurring, assuming, guaranteeing, or remaining liable with respect to any indebtedness, except for certain existing indebtedness disclosed in our financial statements;

· undertaking any capital expenditures in excess of $1,000,000 of the relevant estimates in the aggregate budget approved by BoS;

· effecting any changes in ownership of our company;

· making any material change in any of our business objectives, purposes, operation or taxes; and

· incurring any material adverse event in business conditions as defined by the Bank.

The company did not satisfy the EBIT to total interest coverage covenant contained in the credit facilities at December 31, 2006. Bank of Scotland has nonetheless agreed to suspend the effectiveness of this covenant until the earlier of December 31, 2007 or the negotiation of revised financial covenants. In this regard, the company will submit by April 30, 2007 a financial projection for the remainder of 2007 showing relevant measurements against the financial covenants. EBIT to total interest coverage, pending renegotiation of the covenant, must exceed 3:1 on a quarterly basis and the other financial covenants must be complied with. The company is in compliance with the 3:1 interest coverage ratio and management is of the opinion that such compliance will be maintained during such period.

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Our indebtedness requires us to dedicate a substantial portion of our cash flow from operations to payments on our debt, which could reduce amounts for working capital and other general corporate purposes. The restrictions in our credit facility could also limit our flexibility in reacting to changes in our business and increases our vulnerability to general adverse economic and industry conditions.

We have no off-balance sheet financing arrangements with related or unrelated parties and no unconsolidated subsidiaries. In the normal course of business, we enter into various contractual and other commercial commitments that impact or can impact the liquidity of our operations. The following table outlines our commitments at December 31, 2006:

	Total		Less than		1 - 3		4 - 5		Over 5
In Thousands	Amounts		1 Year		Years		Years		Years
Long-term debt with interest	$	22,983		4,529 $	$	7,383	$	8,465	$	2,606
Operating leases		6,957		1,125		2,189		1,777		1,866
Bank line of credit with interest		5,284		5,284
Long-term subordinated debt with interest		2,099		847		1,252
	$	37,323	$	11,785	$	10,824	$	10,242	$	4,472

Effect of Recently Issued Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109”, (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. The provisions of FIN 48 prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, the provisions of FIN 48 provide guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006 or January 1, 2007 as to the company. The company adopted FIN 48 in the first quarter of 2007 as required with no material adverse effect on the Company's consolidated financial position or results of operations.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”) to clarify the definition of fair value, establish a framework for measuring fair value and expand the disclosures on fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). SFAS No. 157 also stipulates that, as a market-based measurement, fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability, and establishes a fair value hierarchy that distinguishes between (a) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (b) the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). SFAS No. 157 becomes effective for the Company in its fiscal year ending December 31, 2008. The company is currently evaluating the impact of the provisions of SFAS No. 157 on the Company's consolidated financial statements.

Critical Accounting Policies

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

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Allowance for Doubtful Accounts--We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. Based on historical information, we believe that our allowance is adequate. However, changes in general economic, business and market conditions could affect the ability of customers to make their required payments; therefore, the allowance for doubtful accounts is reviewed monthly and changes to the allowance are updated as new information is received.

Allowance for Inventory Obsolescence--We maintain an allowance for inventory obsolescence for losses resulting from inventory items becoming unusable in the manufacturing operations due to loss of a specific customer or a customer’s product changes or discontinuations. Based on historical and projected sales information and concentration of customers, we believe that the allowance is adequate. However, changes in general economic, business and market conditions could cause customers to cancel, reduce or reschedule orders. These changes could affect the company inventory turnover; therefore, the allowance for inventory obsolescence is reviewed monthly and changes to the allowance are updated as new information is received.

Income Taxes--Deferred income taxes at the end of each period are determined by applying enacted tax rates applicable to future periods in which the taxes are expected to be paid or recovered to differences between the financial accounting and tax basis of assets and liabilities. The decision to record a valuation allowance requires varying degrees of judgment based upon the nature of the item giving rise to the deferred tax asset.  As a result of continued operating losses incurred by SNAI, the inability to offset consolidated taxable income with the acquired net operating loss carry forwards, and uncertainty as to the timing of profitability in future periods, we have established a valuation allowance against all SNAI net operating loss carryforwards. Should future taxable income of SNAI be materially different from our estimates, changes in the valuation allowance could occur that would impact our tax expense in the future.

Impairment of Long-Lived Assets--In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived assets to be held and used are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value of these assets is determined based upon estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. In analyzing the fair value and recoverability using future cash flows, we make projections based on a number of assumptions and estimates of growth rates, future economic conditions, assignment of discount rates and estimates of terminal values. An impairment loss is recognized if the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows. The measurement of impairment loss is the difference between the carrying amount and fair value of the asset. Long-lived assets to be disposed of and/or held for sale are reported at the lower of carrying amount or fair value less cost to sell. We determine the fair value of these assets in the same manner as described for assets held and used. See “Long-Lived Asset Impairment” in Note 1 to our consolidated financial statements included in this report.

Goodwill and indefinite-lived intangibles are required to be evaluated for impairment on an annual basis, or more frequently if impairment indicators arise, using a fair-value-based test that compares the fair value of the asset to its carrying value. Fair values are typically calculated using discounted expected future cash flows, using a risk-adjusted discount rate.

The company performed the annual test for goodwill impairment related to the Lytton, Simclar (Mexico), and Simclar (North America), Inc. acquisitions. These tests were performed at the reporting unit level. In the test, we determined that the discounted sum of the expected future cash flows exceeded the invested capital of the reporting units; therefore, no impairment of goodwill was recognized. In performing the tests for impairment, we make assumptions about future sales and profitability.

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The most critical estimates, in order of significance, used in the impairment test include (1) estimated revenue growth, (2) the terminal value assumed, and (3) the discount rate applied. We cannot predict the occurrence of future impairment triggering events nor the impact such events might have on reported asset values. Such events may include strategic decisions made in response to economic conditions relative to operations and the impact of technology, economic conditions, and industry trends on our customer base.

Revenue Recognition and Accounts Receivable-- The company’s sales are primarily derived from product manufacturing including, but not limited to, finished molded and non-molded cables, wiring harnesses, printed circuit board assemblies, electro-mechanical and electronic assemblies. Revenue is recognized upon shipment of the product to the customer, under contractual terms, which are generally FOB shipping point. Upon shipment, title transfers and the customer assumes the risks and rewards of ownership of the product. The selling price of the product is fixed and the ability to collect for the sale to the customer is reasonably assured when the product is shipped.

Revenue from contract manufacturing, rework and refurbishing is recognized upon shipment of the product to the customer, under contractual terms, which are generally FOB shipping point.

Business Combinations--We are required to allocate the purchase price of acquired business to the tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values. Such valuations require us to make significant estimates and assumptions, especially related to intangible assets.

Critical estimates were used in valuing certain intangible assets and plant and equipment include but are not limited to: future expected cash flows from acquired customers’ continuing sales; and the expected useful life of plant and equipment. Our estimates are based upon assumptions we believe are reasonable, but which are inherently uncertain and unpredictable; as a result, actual results may differ from estimates.

Cautionary Statement Concerning Forward-Looking Statements

This Report includes certain forward-looking statements with respect to our company and our business that involve risks and uncertainties. These statements are influenced by our financial position, business strategy, budgets, projected costs and the plans and objectives of management for future operations. They use words such as anticipate, believe, plan, estimate, expect, intend, project, and other similar expressions. Although we believe our expectations reflected in these forward-looking statements are based on reasonable assumptions, we cannot assure you that our expectations will prove correct. Actual results and developments may differ materially from those conveyed in the forward-looking statements. For these statements, we claim the protections for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Important factors include changes in general economic, business and market conditions, as well as changes in such conditions that may affect industries or the markets in which we operate, including, in particular, the impact of our nation’s current war on terrorism could cause actual results to differ materially from the expectations reflected in the forward-looking statements made in this Report. Further, information on other factors that could affect the financial results of Simclar, Inc. is included in the company’s other filings with the Securities and Exchange Commission. These documents are available free of charge at the Commission’s website at http://www.sec.gov and/or from the company. The forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date of this Report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks from changes in interest rates and foreign currency exchange rates.

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Sensitivity of results of operations to interest rate risks on our investments is managed by conservatively investing liquid funds in short-term government securities and interest-bearing accounts at financial institutions.

Interest rate risks on debt are managed by negotiation of appropriate rates on new financing obligations based on current market rates. There is an interest rate risk associated with our variable rate debt agreements which totaled approximately $23,600,000 at December 31, 2006.

We have exposure to both rising and falling interest rates. A ½% decrease in rates on our year-end investments would have an insignificant impact on our results of operations. A 1% increase in rates on our year-end variable rate debt would result in a negative impact of approximately $236,000 on our operations.

Our exposure to market risks from foreign currency exchange rates is minimal.

Item 8. Financial Statements and Supplementary Data

Our financial statements, and the related notes, together with the reports of Grant Thornton LLP dated April 2, 2007 and Battelle & Battelle LLP dated March 29, 2006, except for Note 2, as to which the date is October 27, 2006 are set forth at pages F-4 through F-27 attached hereto.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Effective November 30, 2006 the company changed its independent registered public accounting firm to Grant Thornton LLP (“Grant”) from Battelle & Battelle LLP (“Battelle”). The company and Battelle terminated their relationship by mutual agreement, which decision was approved by the Audit Committee of the Board of Directors of the company. The company’s engagement of Grant was made in conjunction with the decision by the company’s parent corporation, Simclar Group Limited, to engage Grant as the audit firm for Simclar Group and all of its worldwide subsidiaries.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized, and reported within the specified time periods. As a part of these controls, our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. The company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

· pertain to the maintenance of records that, in reasonable detail accurately reflect the transactions and dispositions of the assets of the company;

· provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and, that receipts and expenditures of the company are being made only in accordance with authorization of management and directors of the company; and

· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

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Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2006. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2006, our disclosure controls and procedures are adequately designed to ensure that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms.

Material Weakness in Internal Control Over Financial Reporting

In August 2006, during the review and analysis of results of operations during the second quarter of 2006 and the company’s financial condition at June 30, 2006, management discovered certain accounting errors associated with operations at the Brownsville, Texas and Matamoros, Mexico facilities of the company’s consolidated subsidiary, Simclar (Mexico), Inc. As a result of the discovery of these errors, our management concluded that our disclosure controls and procedures were not effective as of December 31, 2005.

The Public Company Accounting Oversight Board’s Auditing Standard No. 2 defines a material weakness as “a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.” A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the company’s ability to initiate, authorize, record, process or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected.

The control deficiencies identified by our management, which in combination, resulted in a material weakness, were (a) misstatement in amounts reported in a consolidated subsidiary, (b) processes that allowed material errors to occur and go undetected on a timely basis, and (c) the failure of key accounting managers to identify the errors and take appropriate corrective actions. The control deficiencies were determined to be a material weakness due to the actual misstatements identified, the potential for additional material misstatements to have occurred as a result of the deficiencies, and the lack of other mitigating controls. This material weakness led to a restatement of our consolidated financial statements for 2005 and for the first quarter of 2006.

36

In order to remedy these material weaknesses, during the third and fourth quarters of 2006 we made significant remedial efforts to increase the effectiveness of our internal controls. Our remedial efforts included:

· Identification and replacement of key accounting staff that had failed in their responsibility to identify these control weaknesses and take corrective action.

· Re-engineering the operational and financial processes that allowed the mistakes to occur and go undetected and ultimately led to the misstatements in the financial reports. Specific areas of concentration included, but were not limited to, returned goods from customers, returned goods to vendors, proper shipping cutoff procedures to assure recording of sales and cost of goods sold in the proper accounting periods, and timely reconciliation of intercompany shipments and financial transactions.

· Correction of the standard cost system and training the employees responsible for its maintenance.

· Addressing specific skill deficiencies within the accounting staff by both providing counseling and training, rearranging of responsibilities, or making staff changes.

We believe that these remedial efforts have been in place for a sufficient time to permit management to conclude that our controls were effective as of December 31, 2006.

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures will prevent all errors and all improper conduct. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the control systems are met. Further, a design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of improper conduct, if any, have been detected. These inherent limitations include the realities that judgments and decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more persons, or by management override of the control. Further, the design of any system of controls is also based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations and a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

37

Changes in Control Over Financial Reporting

Except for the efforts to strengthen our internal controls described above, during the quarter ended December 31, 2006, there were no changes in our internal controls over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

Part III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item is included under the caption, “Information About Directors, Executive Officers, and Corporate Governance” in our Information Statement relating to our 2007 Annual Meeting of Shareholders (the “Information Statement”) to be held on June 8, 2007, to be filed with the Securities and Exchange Commission pursuant to Regulation 14C under the Securities Exchange Act of 1934, is incorporated herein by reference.

We have adopted a code of conduct and ethics that applies to our directors, officers and all employees. The code of business conduct and ethics is posted on our website at www.simclar.com, and may be obtained free of charge by writing to Simclar, Inc., Attn: Chief Financial Officer, 1784 Stanley Avenue, Dayton, Ohio 45404.

Item 11. Executive Compensation

The information required by this item is included under the caption, “Executive Compensation” in the Information Statement and is incorporated herein by reference.

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

The information required by this item is included under the caption, “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Information Statement and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions,and Director Independence

The information required by this item is included under the caption, “Certain Relationships and Related Transactions, and Director Independence” in the Information Statement and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information required by this item is included under the caption“Report of the Audit Committee” in the Information Statement, and is incorporated herein by reference.

38

Part IV

Item 15. Exhibits and Financial Statement Schedules

(a)The following documents are filed as part of this Report.

(1)The following financial statements are filed as part of this Annual Report on Form 10-K:

Reports of Independent Registered Public Accountants.

Consolidated Balance Sheets as of December 31, 2006 and 2005.

Consolidated Statements of Operations for the Years Ended December 31, 2006, 2005, and 2004.

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2006, 2005 and 2004 .

Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005, and 2004.

Notes to the Consolidated Financial Statements.

(2)The following financial statement schedule is included in this Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements contained in this Report:

Schedule II - Valuation and Qualifying Accounts

Schedules not listed above are omitted because of the absence of conditions under which they are required or because the required information is included in the financial statements or notes thereto.

(3)Exhibits:

Exhibit Number	Exhibit Description
3.1	Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed November 14, 2003).
3.2	Amended By-Laws of Simclar, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K filed March 31, 2006).
4.1	Form of Common Stock Certificate (incorporated by reference to Exhibit 4(i) to the Company’s Annual Report on Form 10-K filed March 30, 2004).
10.1	Stock Purchase Agreement, dated May 19, 2005 but effective May 1, 2005, between Simclar, Inc. and Simclar Group Limited (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report of Form 10-Q filed August 12, 2005).
10.2	Share and Asset Purchase and Sale Agreement, dated as of December 21, 2005, by and among Litton Systems, Inc., Litton Systems International, Inc. and Litton U.K., Inc. as Sellers, and Simclar Group Limited, Simclar, Inc., Simclar Interconnect Technologies, Inc., and Simclar Interconnect Technologies Limited. (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K filed March 31, 2006).

39

10.3		First Amendment to Share and Asset Purchase and Sale Agreement, dated as of February 24, 2006 by and among Litton Systems, Inc., Litton Systems International, Inc. and Litton U.K., Inc. as Sellers, and Simclar Group Limited, Simclar, Inc., Simclar Interconnect Technologies, Inc., and Simclar Interconnect Technologies Limited. (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K filed March 31, 2006).
10.4		Lease Agreement, dated August 29, 2000, between the Company and Medicore, Inc. (incorporated by reference to Exhibit 10(i) to Medicore Inc.’s Current Report on Form 8-K filed December 19, 2000).
10.5		Lease Agreement, dated March 25, 1997, between the Company and Route 495 Commerce Park Limited Partnership(incorporated by reference to Exhibit 10(i) to the Company’s Quarterly Report on Form 10-Q filed May 9, 1997).
10.6		Lease Agreement, dated April 30, 1997, between the Company and PruCrow Industrial Properties, L.P., (incorporated by reference to Exhibit 10(i) to the Company’s Current Report on Form 8-K dated June 4, 1997).
10.7		Lease Agreement, dated July 16, 2001, between Simclar de Mexico, SA de CV and Consorcio Inmobiliario Del Noreste, S.A. de C.V. (incorporated by reference to Exhibit 10(x) to the Company’s Annual Report on Form 10-K filed March 30, 2004 ).
10.8		Lease Agreement, dated as of November 1, 2004, between Simclar de Mexico, SA de CV and Consorcio Inmobiliario Del Noreste, S.A. de C.V., (incorporated by reference to Exhibit 10(xviii) to the Company’s Annual Report on Form 10-K filed March 31, 2005).
10.9		Commercial Lease, dated October 1, 1999, between Simclar (Mexico) and Fleet Management Co. (incorporated by reference to Exhibit 10(xi) to the Company’s Annual Report on Form 10-K filed March 30, 2004).
10.10		Sublease, dated August 23, 1999, between the Company and United Consulting Group (incorporated by reference to Exhibit (10)(xiv) of the Company’s Annual Report on Form 10-K filed March 30, 2000).
10.11		Amendment to Sublease and Consent to Sublease among the Company, United Consulting Group, Inc., and United Computing Group, Inc. (incorporated by reference to Exhibit 10(xxv) to the Company’s Annual Report on Form 10-K filed March 30, 2001).
10.12		License Agreement, dated February 24, 2006, between the Company and Litton Systems, Inc. (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K filed March 31, 2006).
10.13		Transition Services Agreement, dated February 24, 2006, between the Company and Litton Systems, Inc. (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K filed March 31, 2006).
10.14	*	Lease Agreement, dated as of December 28, 2006, between Simclar Interconnect Technologies, Inc. and Phillip A. Wiland and Linda S. Wiland.
10.15		Facility Letter, dated October 2, 2001, between the Company and the Bank of Scotland (incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q filed November 14, 2001).

40

10.16		Working Capital Facility Letter, dated October 2, 2001, between the Company and the Bank of Scotland (incorporated by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q filed November 14, 2001).
10.17		Letter Agreement, dated November 10, 2003, between the Company and the Bank of Scotland (incorporated by reference to Exhibit 10(xviii) to the Company’s Annual Report on Form 10-K filed March 30, 2004).
10.18		Letter Agreement dated January 17, 2003 with the Bank of Scotland (incorporated by reference to Exhibit 10(xvii) to the Company’s Annual Report on Form 10-K filed March 30, 2004).
10.19		Amendment Letter, dated October 14, 2004, to Term Loan Facility Letter between the Company and Bank of Scotland, (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed October 20, 2004).
10.20		Amendment Letter, dated October 14, 2004, to Working Capital Facility Letter between the Company and Bank of Scotland (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed October 20, 2004).
10.21		Amendment Letter 4, dated December 21, 2005, to Term Loan Facility Letter between the Company and Bank of Scotland. (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K filed March 31, 2006).
10.22		Working Capital Facility Letter, dated December 21, 2005, between the Company and Bank of Scotland. (incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K filed March 31, 2006).
10.23		Amendment Letter 1, dated January 26, 2007, to Working Capital Facility Letter between the Company and Simclar Interconnect Technologies, Inc., as borrowers, and Bank of Scotland , (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed February 19, 2007).
10.24		Amendment Letter 5, dated January 26, 2007, to Working Capital Facility Letter between the Company and Bank of Scotland , (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed February 19, 2007).
10.25	*	Third Amended and Restated General Security Agreement, dated February 28, 2007, among the Company, Simclar (Mexico) Inc, Simclar Interconnect Technologies, Inc., Simclar De Mexico, S.A. de C.V. and Bank of Scotland.
10.26		Third Amended and Restated Pledge Agreement, dated February 23, 2006, among the Company, Simclar (Mexico) Inc, and Bank of Scotland. (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed March 31, 2006).
10.27		Management Services Agreement, effective July 17, 2005, between Simclar, Inc. and Simclar Group Limited (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed August 12, 2005).
10.28		Employment Agreement between the Company and Barry Pardon dated February 22, 2006. (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K filed March 31, 2006).

41

21	*	Subsidiaries of the registrant.
24	*	Powers of Attorney.
31.1	*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	*	Certification of Chief Executive Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
32.2	*	Certification of Chief Financial Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

_________________

* Filed with this Report.

(b) Exhibits.

The exhibits to this report follow the Signature Page.

(c) Financial Statement Schedules.

The financial statement schedule follows the exhibits to this report.

42

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, thereunto duly authorized.

	SIMCLAR, INC.
Date: April 6, 2007	By:	/s/ Barry J. Pardon
		Barry J. Pardon, President and Director

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.

Name	Title	Date
Samuel J. Russell*	Chairman of the Board of Directors
Samuel J. Russell	and Chief Executive Officer	April 6, 2007
/s/ Barry J. Pardon	President and Director	April 6, 2007
Barry J. Pardon	(principal executive officer)
John Ian Durie*	Vice-President (Finance) and	April 6, 2007
John Ian Durie	Director
Marshall W. Griffin*	Chief Financial Officer and Secretary	April 6, 2007
Marshall W. Griffin	(principal financial and principal
	accounting officer)
A. Graeme Manson *	Director	April 6, 2007
A. Graeme Manson
Patrick Lacchia *	Director	April 6, 2007
Patrick Lacchia
Kenneth M. MacKay, M. D.*	Director	April 6, 2007
Kenneth M. MacKay, M. D.
Christina M. J. Russell*	Director	April 6, 2007
Christina M. J. Russell
*By: /s/ Barry J. Pardon
Barry J. Pardon, Attorney-in-Fact

43

SIMCLAR, INC. AND SUBSIDIARIES

FORM 10-K--ITEM 8

LIST OF FINANCIAL STATEMENTS

The following reports of independent registered public accounting firms and consolidated financial statements of Simclar, Inc. and subsidiaries are included in Item 8:

	Page
Report of Independent Registered Public Accounting Firm Grant Thornton LLP		F-2
Report of Independent Registered Public Accounting Firm Battelle and Battelle LLP		F-3
Consolidated Balance Sheets - December 31, 2006 and 2005.		F-4
Consolidated Statements of Operations - Years ended December 31, 2006,2005, and 2004.		F-6
Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2006, 2005, and 2004.		F-7
Consolidated Statements of Cash Flows - Years ended December 31, 2006,2005 and 2004.		F-8
Notes to Consolidated Financial Statements		F-9
The following financial statement schedule of Simclar, Inc. and subsidiaries is included
Report of Grant Thornton LLP on Supplemental Schedule		S-1
Report of Battelle and Battelle LLP on Supplemental Schedule		S-2
Schedule II - Valuation and qualifying accounts.		S-3

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

F-1

SIMCLAR, INC. AND SUBSIDIARIES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Simclar, Inc. and subsidiaries:

We have audited the accompanying consolidated balance sheet of Simclar, Inc. and subsidiaries (the “Company”) (a Florida corporation) as of December 31, 2006, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended. 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 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 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 financial position of Simclar, Inc. and subsidiaries as of December 31, 2006, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ GRANT THORNTON LLP

Cincinnati, Ohio

April 6, 2007

F-2

SIMCLAR, INC. AND SUBSIDIARIES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Simclar, Inc. and Subsidiaries

Hialeah, FL

We have audited the accompanying consolidated balance sheet of Simclar, Inc. and subsidiaries as of December 31, 2005 and the related consolidated statements of operations, stockholders’ equity, and cash flows, for the each of the years ended December 31, 2005 and 2004. 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 audits in accordance with the standards of the Public 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 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 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 audits provide 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 Simclar, Inc. and subsidiaries as of December 31, 2005 and the consolidated results of their operations and their cash flows for each of the years ended December 31, 2005 and 2004, in conformity with accounting principles generally accepted in the United States of America.

As described in Note 2 to the consolidated financial statements, the Company has restated its 2005 consolidated financial statements.

/S/ BATTELLE & BATTELLE LLP

Battelle & Battelle LLP

Dayton, Ohio

March 29, 2006, except for Note 2 to the consolidated financial statements, as to which the date is October 27, 2006.

F-3

SIMCLAR, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,		December 31,
	2006		2005
ASSETS
Current assets:
Cash and cash equivalents	$	82,154	$	833,703
Accounts receivable, less allowances of $294,000 and $235,000 at
December 31, 2006 and December 31, 2005, respectively		20,801,668		9,198,877
Inventories, less allowances of $1,552,000 and $1,822,000 at
December 31, 2006 and 2005, respectively		20,259,037		12,225,461
Prepaid expenses and other current assets		637,856		357,703
Prepaid income taxes		15,405		-
Deferred income taxes		1,034,532		985,056
Total current assets		42,830,652		23,600,800
Property and equipment:
Land and improvements		547,511		547,511
Buildings and building improvements		1,235,904		1,235,904
Machinery, computer and office equipment		15,563,042		10,944,591
Tools and dies		363,992		331,244
Leasehold improvements		660,949		493,694
Construction in progress		537,879		519,254
Total property and equipment		18,909,277		14,072,198
Less accumulated depreciation and amortization		8,984,948		6,003,107
Net property and equipment		9,924,329		8,069,091
Deferred expenses and other assets, net		367,122		61,398
Goodwill		9,410,704		5,917,938
Intangible assets, net		1,331,000		60,996
Total assets	$	63,863,807	$	37,710,223

See notes to consolidated financial statements

F-4

SIMCLAR, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,		December 31,
	2006		2005
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	5,065,771	$	4,990,395
Accounts payable		16,396,407		9,315,510
Accrued expenses		1,740,799		1,379,763
Accrued income taxes		-		371,870
Amounts payable to major stockholder, net		1,344,139		1,873,463
Current portion of long-term debt		4,047,408		1,200,000
Total current liabilities		28,594,524		19,131,001
Long-term debt		15,300,000		3,000,000
Long-term debt, subordinated		1,217,986		-
Deferred income taxes		429,031		518,926
Other long term liabilities		400,000		-
Total liabilities		45,941,541		22,649,927
Commitments and contingencies		-		-
Stockholders' equity:
Common stock, $.01 par value, authorized 10,000,000 shares; issued and
outstanding 6,465,345 shares at December 31, 2006 and 2005		64,653		64,653
Capital in excess of par value		11,446,087		11,446,087
Retained earnings		6,385,732		3,522,992
Accumulated other comprehensive income		25,794		26,564
Total stockholders' equity		17,922,266		15,060,296
	$	63,863,807	$	37,710,223

See notes to consolidated financial statements

F-5

SIMCLAR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2006			2005			2004
Sales	$	116,031,435		$	61,005,496		$	53,582,487
Cost of goods sold		101,689,972			53,867,474			46,229,712
Gross Profit		14,341,463			7,138,022			7,352,775
Selling, general and administrative expenses		8,368,288			4,984,610			3,754,823
Income from operations		5,973,175			2,153,412			3,597,952
Interest expense		1,834,736			476,712			213,284
Interest and other income		(63,679	)		(68,062	)		(50,953	)
Income before income taxes		4,202,118			1,744,762			3,435,621
Income tax provision		1,339,378			797,734			1,093,841
Net income	$	2,862,740		$	947,028		$	2,341,780
Earnings per share:
Basic & diluted	$	0.44		$	0.15		$	0.36

See notes to consolidated financial statements

F-6

SIMCLAR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004

								Retained			Accumulated
			Capital in					Earnings			Other
	Common		Excess of		Comprehensive			(Accumulated)			Comprehensive
	Stock		Par Value		Income			(Deficit)			Income (Loss)			Total
Balance at January 1, 2004	$	64,653	$	11,446,087				$	251,458		$	(1,178	)	$	11,761,020
Comprehensive income:
Net income						2,341,780			2,341,780
Other comprehensive income:
Foreign currency translation adjustments						15,839						15,839
Comprehensive income					$	2,357,619									2,357,619
Balance at December 31, 2004	$	64,653	$	11,446,087				$	2,593,238		$	14,661		$	14,118,639
Prior period adjustment, net of tax of $9,717									(17,274	)
Comprehensive income:
Net income						947,028			947,028
Other comprehensive income:
Foreign currency translation adjustments						11,903						11,903
Comprehensive income					$	958,931									958,931
Balance at December 31, 2005	$	64,653	$	11,446,087				$	3,522,992		$	26,564		$	15,060,296
Comprehensive income:
Net income						2,862,740			2,862,740
Other comprehensive income:
Foreign currency translation adjustments						(770	)					(770	)
Comprehensive income					$	2,861,970									2,861,970
Balance at December 31, 2006	$	64,653	$	11,446,087				$	6,385,732		$	25,794		$	17,922,266

See notes to consolidated financial statements

F-7

SIMCLAR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2006			2005			2004
Operating activities:
Net income	$	2,862,740		$	947,028		$	2,341,780
Adjustments to reconcile net income to net cash
provided by operating activities:
Effect of prior period adjustment		-			(17,274	)		-
Depreciation and amortization		1,807,917			1,273,533			1,019,609
Deferred expenses and other assets		(1,818	)		(40,776	)		(20,622	)
Provision for inventory obsolescence		356,438			468,675			382,391
Provision for uncollectable accounts		-			55,527			-
Other liabilities		400,000			-			35,000
Loss / (gain) on disposal of property and equipment		(26,961	)		9,028			-
Deferred income taxes (benefit) expense		(139,371	)		(233,273	)		22,700
Changes, net of acquisitions, relating to operating activities from:
Accounts receivable		(3,363,108	)		(409,038	)		(2,375,164	)
Amounts payable to major stockholder, net		(529,324	)		163,832			(869,116	)
Inventories		(3,624,582	)		(1,048,726	)		(1,944,001	)
Prepaid expenses and other current assets		(181,017	)		84,538			(7,823	)
Accounts payable		5,414,486			749,192			2,453,983
Accrued expenses		167,164			2,958			209,816
Other		25,337			-			-
Income taxes payable (refundable)		(387,275	)		(492,121	)		294,664
Net cash provided by operating activities		2,780,626			1,513,103			1,543,217
Investing activities:
Additions to property and equipment		(1,131,369	)		(1,717,681	)		(2,532,792	)
Proceeds from sale of property and equipment		234,367			176,518			-
Acquisition of subsidiaries, net of cash acquired:
Simclar (Mexico), Inc.		(54,896	)		(588,195	)		(606,432	)
Simclar (North America), Inc.		-			347,645			-
Simclar Interconnect Technologies, Inc.		(16,122,149	)		-			-
Net cash used in investing activities		(17,074,047	)		(1,781,713	)		(3,139,224	)
Financing activities:
Borrowings on bank line of credit		2,498,907			2,010,395			1,230,000
Repayments on bank line of credit		(2,423,531	)		-			-
Proceeds from long-term borrowings		16,000,000			-			1,400,000
Debt issuance costs		(403,042	)		810,395			1,630,000
Payments on long-term bank borrowings		(2,129,692	)		(1,200,000	)		(1,000,000	)
Net cash provided by financing activities		13,542,642			(1,620,790	)		(3,260,000	)
Effect of exchange rate fluctuations on cash		(770	)		11,903			15,839
Net change in cash and cash equivalents		(751,549	)		553,688			49,832
Cash and cash equivalents at beginning of year		833,703			280,015			230,183
Cash and cash equivalents at end of year	$	82,154		$	833,703		$	280,015
Cash paid for interest expense	$	1,719,762		$	432,414		$	188,685

See notes to consolidated financial statements

F-8

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of Simclar, Inc. (“Simclar ”) and its subsidiaries, including Simclar (Mexico), Inc. (“Simclar (Mexico)”), Simclar de Mexico, S.A. de C.V. (“Simclar de Mexico”), Techdyne (Europe) Limited (“Techdyne (Europe)”), Simclar (North America), Inc. (“SNAI”), and Simclar Interconnect Technologies, Inc. (“SIT”), collectively referred to as the “company.” During 2003, the company changed its name to Simclar, Inc. from Techdyne, Inc. following a merger with its wholly owned subsidiary, Lytton Inc. SIT was acquired during the first quarter of 2006 (refer to Note 15). All material intercompany accounts and transactions have been eliminated in consolidation. The company is a 73.4% owned subsidiary of Simclar Group Limited (“Simclar Group”), a privately owned company incorporated in the United Kingdom.

Business

The company operates in one business segment, manufacturing electronic and electro-mechanical products in the data processing, telecommunication, instrumentation and food preparation equipment industries.

Cash and Cash Equivalents

The company considers all highly liquid investments with an original maturity of three months or less as cash equivalents. The carrying amounts reported in the balance sheets for cash and cash equivalents approximate fair values. The credit risk associated with cash and cash equivalents is considered low due to the high quality of the financial institutions in which the assets are invested.

Inventories

Inventories, which consist primarily of raw materials used in the production of electronic components, are valued at the lower of cost (first-in, first-out and/or weighted average cost method) or market value. The cost of finished goods and work in process consists of direct materials, direct labor and a portion of fixed and variable-manufacturing overhead. The company reviews its inventories on an annual basis to identify parts that have not been used in the manufacturing process during the previous two year period or are not believed to be required for use in the manufacturing process during the next six months. The carrying value of these identified parts is reduced to estimated realizable value with a charge to the allowance for obsolescence. Additional write-downs, if required, are recorded in the period identified.

Property, Plant and Equipment

Property, plant and equipment is stated on the basis of cost. Depreciation is computed by the straight-line method over the useful lives of the assets, generally estimated to be 25 years for buildings and improvements; 3 to 10 years for machinery, computer and office equipment; 3 to 10 years for tools and dies; and 5 to 15 years for leasehold improvements. Replacements and betterments that extend the lives of assets are capitalized. Maintenance and repairs are expensed as incurred. Upon the sale or retirement of assets, the related cost and accumulated depreciation are removed and any gain or loss is recognized. Depreciation expense totaled approximately $1,608,000, $1,274,000, and $1,020,000 for the years ended December 31, 2006, 2005, and 2004 respectively.

F-9

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Long-Lived Asset Impairment

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets to be held and used are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value of these assets is determined based upon estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. In analyzing the fair value and recoverability using future cash flows, the company makes projections based on a number of assumptions and estimates of growth rates, future economic conditions, assignment of discount rates and estimates of terminal values. An impairment loss is recognized if the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows. The measurement of impairment loss is the difference between the carrying amount and fair value of the asset. Long-lived assets to be disposed of and/or held for sale are reported at the lower of carrying amount or fair value less cost to sell. The company determines the fair value of these assets in the same manner as described for assets held and used.

Deferred Expenses

Deferred expenses, except for deferred loan costs, are amortized on the straight-line method, over their estimated benefit period ranging to 60 months. Deferred loan costs are amortized over the lives of the respective loans. Amortization expense for the years ended December 31, 2006, 2005, and 2004 was approximately $282,000, $9,000, and $10,000 respectively.

Goodwill and Intangible Assets

Goodwill is the excess of the purchase price paid over the fair value of the businesses acquired and is not amortized.  Intangible assets with determinable lives are amortized over the estimated useful life in a manner reflective of the pattern in which the economic benefits of the intangible assets are used up. Goodwill and indefinite-lived intangibles are evaluated for impairment on an annual basis, or more frequently if impairment indicators arise, using fair-value-based tests.  During 2006, 2005, and 2004, the company evaluated goodwill and other intangible assets in accordance with SFAS No. 142. The company will evaluate the Litton assets acquisition in the first quarter of 2007. The Simclar (North America) acquisition is tested during the second quarter of each year while the AG Technologies acquisition is tested in the third quarter. The company determined no impairment related to the carrying value of such assets. The goodwill recognized in the acquisitions of Lytton, Inc., AG Technologies, Inc., Simclar (North America), Inc. and the Litton assets is:

Balance of goodwill as of January 1, 2004 and 2005	$	4,840,545
Goodwill arising from acquisitions in 2005		1,077,393
Balance as of December 31, 2005		5,917,938
Goodwill arising from acquistions in 2006	$	3,492,766
Balance at December 31, 2006	$	9,410,704

F-10

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Identifiable intangible assets consist of the following:

	December 31, 2006					December 31, 2005
	Gross					Gross
	carrying		Accumulated			carrying		Accumulated
	amount		amortization			amount		amortization
Non-compete agreement	$	68,000	$	(25,139	)	$	18,000	$	(2,250	)
Customer list		1,472,207		(184,068	)		52,207		(6,961	)
	$	1,540,207	$	(209,207	)	$	70,207	$	(9,211	)

Amortization expense for intangible assets was approximately $200,000 for 2006 and $9,000 for 2005. There was no amortization expense for 2004. Estimated amortization expense for the next five years is as follows:   2007-$411,000; 2008-$365,000; 2009-$273,000; 2010-$137,000; and 2011 and thereafter -$145,000. At December 31, 2006, the weighted average amoritization period for intangible assets was 5.95 years.  

Income Taxes

Deferred income taxes at the end of each period are determined by applying enacted tax rates applicable to future periods in which the taxes are expected to be paid or recovered on differences between the financial accounting and tax basis of assets and liabilities.

F-11

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Earnings per Share

Diluted earnings per share gives effect to potential common shares that were dilutive and outstanding during the period, such as stock options and warrants using the treasury stock method. The company had no stock options during the reported periods. Accordingly, for the years presented, there is no dilutive effect.

Following is a reconciliation of amounts used in the computations:

	Year Ended December 31,
	2006		2005		2004
Net income - numerator basic computation	$	2,862,740	$	947,028	$	2,341,780
Weighted average shares - denominator basic
computation		6,465,345		6,465,345		6,465,345
Earnings per share:
Basic and diluted	$	0.44	$	0.15	$	0.36

Estimated Fair Value of Financial Instruments

The carrying value of cash, accounts receivable and debt in the accompanying financial statements approximate their fair value because of the short-term maturity of these instruments, or in the case of debt, because such instruments bear variable interest rates which approximate market rates.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The accounting estimates and assumptions that place the most significant demands on management’s judgment include, but are not limited to, doubtful accounts receivable, income taxes, impairment of goodwill and long-lived assets, business combinations, and inventory obsolescence. These estimates and assumptions are based on information presently available and actual results could differ from those estimates.

F-12

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Revenue Recognition and Accounts Receivable

The company’s sales are primarily derived from product manufacturing including, but not limited to, finished molded and non-molded cables, wiring harnesses, printed circuit board assemblies, electro-mechanical and electronic assemblies. Revenue is recognized upon shipment of the product to the customer which, under contractual terms, is generally FOB shipping point. Upon shipment, title transfers and the customer assumes the risks and rewards of ownership of the product. The selling price of the product is fixed and the ability to collect for the sale to the customer is reasonably assured when the product is shipped.

Revenue from contract manufacturing, rework and refurbishing is recognized upon shipment of the product to the customer which, under contractual terms, is generally FOB shipping point.

Trade receivables are uncollateralized customer obligations due under normal trade terms generally requiring payment within 30 days from the invoice date.

The company’s estimate of the allowance for doubtful accounts for trade receivables is primarily determined based upon the length of time that the receivables are past due. In addition, management estimates are used to determine probable losses based upon an analysis of prior collection experience, specific account risks, and economic conditions.

The company undertakes a series of actions based upon the aging of past due trade receivables, including letters and direct customer contact. Accounts are deemed uncollectible based on a customer’s payment experience and current financial condition.

Shipping Costs

Shipping costs related to the transportation of products sold to customers are charged to cost of goods sold.

Warranty Costs

The company warrants that products used in its manufacturing process are free from defects in material and workmanship for a period of one year from shipment to the customer. If the manufactured product fails in this period due to defect, the company will rework the product until it functions per the customer’s specifications. The costs associated with the rework of any return of defective products are treated as a period expense when the products are reshipped to the customer. The company estimates the cost or reworking defective products is historically less than 1% of its annual sales and thus has not recorded any liability for rework costs on its financial statements.

F-13

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Foreign Operations

The financial statements of the foreign subsidiaries have been translated into U.S. dollars in accordance with SFAS No. 52. All balance sheet accounts have been translated using the current exchange rates at the balance sheet date. Income statement accounts have been translated using the average exchange rate for the period. The translation adjustments resulting from the change in exchange rates from period to period have been reported separately as a component of accumulated other comprehensive income in stockholders’ equity. Foreign currency transaction gains and losses, which are not material, are included in the results of operations.

These gains and losses result from exchange rate changes between the time transactions are recorded and settled, and for unsettled transactions, exchange rate changes between the time the transactions are recorded and the balance sheet date.

Comprehensive Income

The company follows SFAS No. 130, “Reporting Comprehensive Income” which contains rules for the reporting of comprehensive income and its components. Comprehensive income consists of net income and foreign currency translation adjustments and is presented in the Consolidated Statement of Stockholders’ Equity.

Reclassifications

Certain prior-year amounts have been reclassified to conform to the current-year presentation.

New Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109”, (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. The provisions of FIN 48 prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, the provisions of FIN 48 provide guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006 or January 1, 2007 as to the company. The company will adopt FIN 48 in the first quarter of 2007 as required. Management is presently concluding the analysis required under the prouncement, but does not believe adoption will have a material adverse effect on the Company's consolidated financial position or results of operations.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”) to clarify the definition of fair value, establish a framework for measuring fair value and expand the disclosures on fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). SFAS No. 157 also stipulates that, as a market-based measurement, fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability, and establishes a fair value hierarchy that distinguishes between (a) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (b) the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). SFAS No. 157 becomes effective for the Company in its fiscal year ending December 31, 2008. The company is currently evaluating the impact of the provisions of SFAS No. 157 on the Company's consolidated financial statements.

F-14

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2—RESTATEMENT OF FINANCIAL STATEMENTS

During 2006, management concluded that the company’s consolidated financial statements for the year ended December 31, 2005 were misstated, resulting in overstated sales, understated cost of sales, overstated receivables, understated inventories, understated payables, and overstated net income. The misstatement related to accounting errors associated with the company’s subsidiary, Simclar (Mexico), Inc. The following adjustments were made to correct: (a) the overstatements of sales and receivables; (b) the understatements of cost of sales, inventories, and payables; and (c) the overstatement of net income, for the year ended December 31, 2005.

The following table sets forth the impact of these restatements on certain amounts previously reported in the company’s consolidated financial statements for the year ended December 31, 2005:

Consolidated Balance Sheet Data

	As of December 31, 2005
	As Originally Reported		As Restated Herein
Accounts receivable	$	9,407,635	$	9,198,877
Inventories		12,006,627		12,225,461
Accounts payable		8,793,877		9,315,510
Retained earnings		3,843,966		3,522,992

Consolidated Statement of Operations Data

	Year ended December 31, 2005
	As Originally Reported		As Restated Herein
Sales	$	61,214,254	$	61,005,496
Cost of goods sold		53,601,700		53,867,474
Income before income taxes		2,219,294		1,744,762
Income tax provision		968,566		797,734
Net income		1,250,728		947,028
Earnings per share		0.19		0.15

In addition, a prior period adjustment for $17,274 related to the above matter was charged to retained earnings as of December 31, 2004.

NOTE 3—INVENTORIES

Inventories are comprised of the following:

	December 31,
	2006			2005
Raw materials and supplies	$	16,992,310		$	11,333,762
Work in process		2,829,592			1,794,401
Finished goods		1,988,934			919,261
Allowance for obsolescence		(1,551,799	)		(1,821,963	)
	$	20,259,037		$	12,225,461

F-15

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4—ACCRUED EXPENSES

Accrued expenses are comprised of the following:

	December 31,
	2006		2005
Accrued compensation	$	975,130	$	628,369
Accrued property taxes		160,338		265,554
Accrued commissions		166,640		147,585
Other		438,691		338,255
	$	1,740,799	$	1,379,763

NOTE 5—LONG-TERM DEBT

In December 2005, we entered into two amended credit facilities and one new credit facility with Bank of Scotland in Edinburgh, Scotland (“BoS”) consisting of:

			Original		Balance at
Borrower	Type of facility		amount		December 31, 2006
Simclar, Inc.		Working capital	$	5,000,000	$	4,944,843
Simclar, Inc.		Term loan - four tranches (see
		detail of tranches below)	$	21,650,000	$	18,500,000
Simclar Interconnect
Technologies, Inc.		Working capital	$	1,000,000	$	127,759

Interest on the Simclar, Inc. working capital facility accrues at an annual rate equal to LIBOR plus 1.5%, plus an amount, rounded to the nearest eighth of a percent, to cover any increases in certain regulatory costs incurred by the bank. The company may elect to pay interest on advances every one, three or six months, with LIBOR adjusted to correspond to the interest payment period selected by the company. The interest rate for the working capital facility at December 31, 2006 was 6.85% based on the one month election.

Interest on the Simclar Interconnect Technologies, Inc. working capital facility is a margin over LIBOR determined by a ratio of net borrowings to EBITDA for any given test period. The margin percentage can range from 1.5% to 2.5%. The interest rate for this working capital facility at December 31, 2006 was 6.85%.

F-16

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The term loan interest is also determined by a margin over LIBOR related to the ratio of net borrowings to EBITDA for any given test period. The margin percentage can range from 1.5% to 2.5%. The term debt interest rate was 6.85% for tranches A and B, 7.85% for tranche C, and 8.85% for tranche D at December 31, 2006 based on the one month election. The term loan is divided into four tranches each with its own specific purpose and repayment schedule as shown in the following table:

NOTE 5—LONG-TERM DEBT - Continued

Tranche	Principal Amount		Purpose		Payments
A	$	4,250,000		Refinance existing facilities		Seventeen quarterly payments of $250,000 beginning October 2004 through October 2008
B	$	1,400,000		Dayton property acquisition		Twenty-eight quarterly payments of $50,000 beginning January 2005 through October 2011
C	$	13,000,000		Acquisition of certain assets of the Litton Interconnect Technologies assembly operations		Thirteen quarterly payments of $500,000 beginning December 2006 through December 2009, four quarterly payments of $250,000 from March 2010 through December 2010, four quarterly payments of $750,000 from March 2011 through December 2011 and four quarterly payments of $625,000 from March 2012 through December 2012
D	$	3,000,000		Acquisition of certain assets of the Litton Interconnect Technologies assembly operations		Single payment due December 31, 2010

The weighted average interest rate on long-term debt for the year was 7.7%

All of the assets of the company collateralize the credit facilities. The credit facilities contain affirmative and negative covenants. In addition, our credit facilities require us to maintain:

· consolidated adjusted net worth greater than $15,000,000 from March 31, 2006 (tested on a quarterly basis);

· a ratio of consolidated current assets to consolidated net borrowing prior to December 31, 2007 of not less than 1:1 and thereafter not to be less than 1.5:1 (tested on a quarterly basis);

· a ratio of consolidated trade receivables to consolidated net borrowing of not less than 0.5:1 prior to December 31, 2007 and not less than 0.75:1 thereafter (tested on a quarterly basis); and

· a ratio of EBIT to total interest not less than 3:1 until March 31, 2006; not less than 3.5:1 from April 1, 2006 to December, 2007; and not less than 4:1 thereafter (tested on a quarterly basis beginning December 31^,,2005)

F-17

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5—LONG-TERM DEBT - Continued

·         a ratio of net borrowings to EBITDA not to exceed 5:1 through December 31, 2006; not less than 4.5:1 from January 1, 2007 to December 31, 2007; not less than 4:1 from January 1, 2008 to December 31, 2008; not less than 3.5:1 from January 1, 2009 to December 31, 2009; and not less than 3:1 thereafter (tested on a quarterly basis beginning December 31, 2006).

Effective January 26, 2007, we entered into amendments of the two working capital facilities. The term of the $1 million working capital facility of Simclar IT, originally entered into in December 2005, was extended to January 28, 2008. The Simclar, Inc. $5 million working capital facility, last amended in December 2005, was increased to $7.5 million, and its maturity date was extended to January 28, 2008. No other material changes were made to either facility by the amendments.

The company did not satisfy the EBIT to total interest coverage covenant contained in the credit facilities at December 31, 2006. Bank of Scotland has nonetheless agreed to suspend the effectiveness of this covenant until the earlier of December 31, 2007 or the negotiation of revised financial covenants. In this regard, the company will submit by April 30, 2007 a financial projection for the remainder of 2007 showing relevant measurements against the financial covenants. EBIT to total interest coverage pending renegotiation of the covenant must exceed 3:1 on a quarterly basis and the other financial covenants must be complied with. The company is in compliance with the 3:1 interest coverage ratio and management is of the opinion that such compliance will be maintained during such period.

In connection with the credit facilities, the company and its subsidiaries entered into an amended security agreement, pursuant to which BoS was granted a security interest in substantially all of their respective assets to secure the company's borrowings under its credit facilities, and guarantees pursuant to which SIT and SNAI guaranteed the obligations of the company to BoS under the credit facilities. Additionally, the company and Simclar (Mexico) entered into an amended pledge agreement, pursuant to which all of the shares owned by the company in its subsidiaries, other than Simclar de Mexico were pledged as security for the company's obligations to BoS under the credit facilities. Simclar Group Limited has provided a guarantee to BoS in respect of loans advanced to Simclar, Inc. up to a maximum amount of $10,000,000; likewise, Simclar, Inc. has guaranteed certain Simclar Group

Limited’s loans from BoS also up to a maximum amount of $10,000,000. In both cases, this maximum amount reduces, subject to certain ratios of borrowings to EBITDA being achieved.

In addition, at the time of the SNAI acquisition the company entered into an amended pledge agreement with BoS, whereby it pledged the stock of SNAI as additional security for its outstanding term and working capital facilities.

Long-term debt outstanding:

	December 31,
	2006		2005
Term loan	$	18,500,000	$	4,200,000
Less current portion		3,200,000		1,200,000
	$	15,300,000	$	3,000,000

Scheduled maturities of long-term debt outstanding at December 31, 2006 are approximately: 2007 - $3,200,000; 2008 - $3,200,000; 2009 - $2,200,000; 2010 - $4,200,000; 2011 - $3,200,000; and 2012 - $2,500,000. Interest payments on all of the above debt amounted to approximately $1,651,184, $432,000, and $189,000 in 2006, 2005, and 2004 respectively.

F-18

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On August 17, 2006, Simclar (Mexico) and Simclar entered into an agreement with Winsson Enterprises Co., Ltd. (“Winsson”) and its affiliate, Computronics International Corp. This agreement replaces a deferred trade payables agreement that expired on July 14, 2006. The agreement is a non-cash refinance of approximately $2,495,000 of trade accounts payable to long-term debt to be repaid within a three year period with an interest rate of 3% per annum. The agreement calls for quarterly payments of principal and interest of $225,000 commencing August 15, 2006, with a final payment of approximately $123,400 payable on May 15, 2009. The debt is subordinated to the BoS debt. The balance at December 31, 2006 was approximately $2,065,000 and is reflected as subordinated long-term debt on the face of the financial statements, net of $847,000 reflected in current portion of long-term debt.

F-19

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6—INCOME TAXES

For financial reporting purposes, income before income taxes includes the following components:

	Year Ended December 31,
	2006		2005		2004
United States income	$	3,841,168	$	1,433,786	$	3,269,909
Foreign income		360,950		310,976		165,712
	$	4,202,118	$	1,744,762	$	3,435,621

Income tax payments were approximately $ 1,356,000, $1,253,000, and $754,000 in 2006, 2005, and 2004 respectively.

The components of the current net deferred tax asset and long-term net deferred tax liability are as follows:

	December 31,
	2006			2005
Deferred tax asset:
Inventory obsolescence	$	605,201		$	710,566
Costs capitalized in ending inventory		129,880			94,570
Accrued expenses		185,039			88,272
Other		114,412			91,648
Total current asset		1,034,532			985,056
Deferred tax asset (liability)
NOL carryforwards		8,286,335			8,307,458
Depreciation and amortization		(414,062	)		(503,957	)
Other		(14,969	)		(14,969	)
Total long-term asset		7,857,304			7,788,532
Less: valuation allowance		(8,286,335	)		(8,307,458	)
Net long-term liability		(429,031	)		(518,926	)
Net deferred tax asset	$	605,501		$	466,130

During 2005, the company acquired SNAI and the related net operating loss (NOL) carryforwards. At December 31, 2006, SNAI had unused U.S. federal and state net operating loss carryforwards of approximately $22,000,000 and $7,000,000, respectively, generally expiring from 2022 through 2025.  The NOL carryforwards from the acquisition can only be used to offset future taxable income of SNAI and not taxable income of the consolidated entity. Based on the available evidence at the date of the acquisition and as of December 31, 2006 regarding the likelihood of utilizing these loss carryforwards before the expiration date, a valuation allowance has been provided for the full amount of possible tax benefit. The company has not provided a valuation allowance for the remainder of the deferred tax asset based on taxes paid in the current year and available carryback years.  

F-20

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6—INCOME TAXES - Continued

The company’s 2005 federal income tax return is presently under examination by the Internal Revenue Service. In the opinion of management, the completion of such examination will not result in the assessment of taxes which will have a material adverse effect on the company’s financial position or results of operations.

Significant components of the provision for income taxes are as follows:

	Year Ended December 31,
	2006			2005			2004
Current:
Federal	$	1,276,535		$	838,008		$	957,109
State and local		124,616			154,424			59,991
Foreign		77,597			38,575			54,041
		1,478,748			1,031,007			1,071,141
Deferred
Federal		(149,272	)		(209,348	)		19,791
State		9,901			(23,925	)		2,909
		(139,371	)		(233,273	)		22,700
	$	1,339,377		$	797,734		$	1,093,841

Techdyne (Europe) and Simclar de Mexico. file separate income tax returns in the United Kingdom and Mexico, respectively.

The reconciliation of income tax rates attributable to income before income taxes computed at the U.S. federal statutory rates to income tax expense is:

	Year Ended December 31,
	2006			2005			2004
Statutory tax rate (34%) applied to income before
income taxes		34.0	%		34.0	%		34.0	%
Increases (reduction) in taxes resulting from:
State income taxes expense net of federal
income tax effect		1.9	%		4.4	%		1.2	%
Tax rate differential relating to tax benefit of
foreign operating income		-1.1	%		-3.5	%		0.1	%
Nondeductible items		1.2	%		1.0	%		0.4	%
Dividend from non-U.S. subsidiary		0.0	%		7.1	%		0.0	%
Refund of prior U.S. income taxes		-0.6	%		0.0	%		-1.1	%
Settlement of U.S. income taxes		-2.2	%		0.0	%		-3.8	%
Other		-1.3	%		2.7	%		1.0	%
		31.9	%		45.7	%		31.8	%

F-21

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The earnings of the company’s Mexican subsidiary are expected to be permanently reinvested in the operations of that subsidiary.  As such, the company has historically not recorded a deferred tax liability based on the subsidiary’s accumulated undistributed earnings.  However, based on U.S. tax law, there was a deemed distribution during 2005 of all current and accumulated earnings due to a pledge agreement associated with the company’s credit facilities with BoS.  The pledge agreement has been modified; therefore, the earnings of the Mexican subsidiary will not be subject to U.S. taxation until distributed.  Therefore, as of December 31, 2005, there were no undistributed earnings due to the deemed distribution in 2005. As of December 31, 2006 undistributed earnings were approximately $361,000.

NOTE 7—TRANSACTIONS WITH SIMCLAR GROUP

The company’s parent, Simclar Group, provides certain financial and administrative services to the company under a service agreement. The amount of expenses incurred under the service agreement totaled $480,000, $415,000, and $360,000 in 2006, 2005, and 2004 respectively.

The company has a net payable due to Simclar Group of approximately $1,344,000 at December 31, 2006 compared to a net payable due to Simclar Group of $1,873,000 at December 31, 2005. During 2006 the company accrued financial and administrative expenses under the service agreement with Simclar Group, and received net repayments of amounts due from Simclar Group entities. The net payable due Simclar Group incurs interest of LIBOR + 1.5%. For additional information related to pledge agreements and guarantees with BoS refer to Note 5.

NOTE 8—RELATED PARTY TRANSACTIONS

On October 20, 2004, the company purchased for $1,400,000 the 77,800 square foot office, manufacturing and warehouse facility located at 1784 Stanley Avenue, Dayton, Ohio that it had been leasing for a term ending July 31, 2007. The purchase resulted from the company’s exercise of an option to purchase contained in the lease. The premises were purchased from the lessor, Stanley Avenue Properties, Ltd., an Ohio limited liability company controlled by Lytton F. Crossley, a former director of the company. The purchase price was determined by negotiation, based upon independent appraisals obtained by the company and the seller.

For 2006 and 2005 the company had sales with Simclar Corp., a related party of Simclar Group, totaling approximately $1,521,000 and $2,633,000 respectively, and sales to Simclar Group of approximately $94,000 and $76,000 respectively. The company transferred surplus equipment to Simclar China during 2005 for the net book value of approximately $158,000. The company had net receivables from related parties as of December 31, 2006 of approximately $593,000 from Simclar Corp. and approximately $152,000 from Simclar China.

NOTE 9—COMMITMENTS AND CONTINGENCIES

Commitments

The company has leases for several facilities which expire at various dates through 2017 with renewal options for a period of five years at the then fair market rental value. The company’s aggregate lease commitments at December 31, 2006, are approximately: 2007—$1,125,000, 2008—$1,096,000, 2009—$1,092,000, 2010 —$1,095,000, 2011—$681,000 and thereafter —$1,866,000. Total rent expense was approximately $1,040,000, $1,045,000, and $753,000 for the years ended December 31, 2006, 2005, and 2004 respectively.

F-22

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Retirement Plan

The company sponsors two 401(k) Profit Sharing Plans covering substantially all of its employees, excluding Techdyne (Europe) and Simclar (Mexico). The plan which covers all locations with the exception of SNAI, offers a 50% corporate match based on the first 4% of each employee’s annual earnings contributed to the plan. The discretionary profit sharing and matching expense amounted to approximately $95,000, $55,000, and $73,000 for the years ended December 31, 2006, 2005, and 2004 respectively. The SNAI plan currently does not offer a corporate match.

Contingencies

The company is involved in various legal actions arising in the ordinary course of business. In the opinion of management, the ultimate liability, if any, resulting from these matters will not have a material effect on the company’s financial position, results of operations, or cash flow.

NOTE 10—STOCK OPTIONS

From time to time, the company has granted stock options to employees based on the fair value of the common stock on the date of the grant. At December 31, 2006, there were no stock options outstanding and there was no activity in the company’s stock option plan for the years ended December 31, 2006, 2005, or 2004.

NOTE 11—QUARTERLY FINANCIAL INFORMATION (Unaudited)

The following summarizes certain quarterly operating data:

	2006								2005
	Mar 31		Jun 30		Sep 30		Dec 31		Mar 31		Jun 30		Sep 30		Dec 31
	(In thousands except per share data)
Net Sales	$	21,823	$	30,399	$	30,654	$	33,156	$	12,356	$	13,991	$	16,591	$	18,066
Gross Profit		2,791		3,774		3,912		3,865		1,564		1,731		1,819		2,023
Net Income		506		790		618		949		292		221		242		192
Earnings per share:
Basic & diluted	$	0.08	$	0.12	$	0.10	$	0.15	$	0.05	$	0.03	$	0.04	$	0.03

NOTE 12—GEOGRAPHIC AREA DATA AND MAJOR CUSTOMER

Summarized financial information for the company’s one reportable segment is shown in the following table:

	Year Ended December 31,
Geographic Area Sales	2006		2005		2004
United States	$	115,870,810	$	60,742,340	$	53,551,613
Mexico		160,625		263,156		30,874
	$	116,031,435	$	61,005,496	$	53,582,487

F-23

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Year Ended December 31,
Geographic Area Operating Income (Loss)	2006		2005		2004
United States	$	5,607,712	$	1,842,436	$	2,988,243
Mexico		365,463		310,976		609,709
	$	5,973,175	$	2,153,412	$	3,597,952

Sales to major customer are as follows:

	Year Ended December 31,
Major Customers	2006			2005			2004
Customer 1		7	%		17	%		17	%
Customer 2		20	%		0	%		0	%

The loss of or substantially reduced sales to these customers would have an adverse effect on the company’s operations if such sales were not replaced. A significant customer would be any customer with annual sales volume from the company of 10% or more.

NOTE 13—ACQUISITION OF AG TECHNOLOGIES, INC.

In 2003, the company acquired for cash, all of the outstanding stock of AG Technologies, Inc., a privately owned company based in Schaumburg, Illinois. The company name was changed to Simclar (Mexico), Inc. Additional consideration of up to $1,300,000 was payable based on Simclar (Mexico)’s net sales in each of the three years ending July 14, 2004, 2005 and 2006. Such amount was paid in installments as sales goals were met through the first quarter of 2006.

The acquisition was accounted for by the purchase method of accounting under SFAS No. 141, “Business Combinations”. The purchase price for the acquisition, including loan repayment and net of cash received, totaled $1,951,547 and was allocated to assets acquired and liabilities assumed based on estimated fair values at the date of acquisition. The company recorded $1,279,118 of goodwill and $18,000 of intangibles based on the opening balance sheet. The $1,300,000 additional earn-out amounts increased the goodwill related to the acquisition of Simclar (Mexico), Inc. to $2,579,118.

F-24

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14—ACQUISITION OF SIMCLAR (NORTH AMERICA), INC.

In 2005, the company purchased from Simclar Group all of the outstanding common shares of SNAI , a North Carolina corporation. SNAI is a comprehensive fabricator of sheet metal components and higher level assemblies that operates a 95,000 square foot manufacturing and assembly facility in North Carolina. This acquisition allowed the company to expand its product offerings in the northeast and midwest U.S. for fabricated sheet metal and higher level assemblies.

The acquisition had an effective date for accounting purposes of May 1, 2005. The purchase price was $37,000, representing the book value of the assets, less liabilities, of SNAI at March 31, 2005. The purchase price was settled by decreasing the outstanding intercompany receivable from Simclar Group to the company by the amount of the purchase price, and accordingly does not affect the company's investing activities in the cash flow statement.

Simultaneous with the acquisition, the company entered into an amended pledge agreement with Bank of Scotland, whereby it pledged the stock of SNAI as additional security for its outstanding term and working capital facilities.

The acquisition was accounted for by the purchase method of accounting under SFAS No. 141, "Business Combinations". Cash received as part of the acquisition was $347,645 and is included within current assets in the table below. The remaining net liabilities assumed of $310,645 include a $4,014,000 liability reflecting an intercompany payable from SNAI to Simclar Group and certain of its subsidiaries. The net liabilities of $310,645 were allocated to assets acquired and liabilities assumed based on estimated fair values at the date of acquisition. The company recorded a $52,207 intangible asset for the customer list of SNAI acquired as part of the acquisition. This intangible asset will be amortized over a period of 60 months, representing the company's best estimate of the asset's useful life. As of December 31, 2005, SNAI has a potential contingent liability for lease dilapidation costs which is not determinable. The company has been indemnified by Simclar Group against any excess in cost over and above the current provision as part of the sale and purchase agreement, and therefore, in the opinion of management, there is limited risk to the company for any additional costs.

During the allocation period from the date of the acquisition, sufficient information became available to properly estimate and record deferred tax assets and liabilities. In the fourth quarter of 2005, management was able to estimate the effects of realizable deferred tax amounts which resulted in the recognition of a current deferred tax asset of $38,765 and a long-term deferred tax liability of $422,590 for a net deferred tax liability of $383,825. Based on the purchase price, this resulted in excess amounts paid over the fair-value of net assets acquired. Therefore, goodwill in the amount of $383,825 was recorded in relation to the acquisition.

F-25

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14—ACQUISITION OF SIMCLAR (NORTH AMERICA), INC. - Continued

The purchase price allocation related to this acquisition is as follows:

Current assets	$	1,581,590
Equipment		3,792,627
Goodwill		383,825
Intangibles		52,207
Deferred tax asset		38,765
Total assets acquired	$	5,849,014
Current liabilities	$	1,375,292
Amount due major stockholder, net		4,014,132
Deferred tax liability		422,590
Total liabilities assumed	$	5,812,014
Net assets acquired	$	37,000

Results of operations have been included in the company's consolidated financial statements prospectively from the effective date of acquisition.

NOTE 15—ACQUISTION OF CERTAIN U.S. ASSETS OF LITTON SYSTEMS, INC.

In 2006, the company and Simclar Interconnect Technologies, Inc., its newly-formed wholly owned subsidiary ("Simclar IT") purchased certain U.S. assets associated with the backplane assembly business of the Interconnect Technologies Division of Litton Systems, Inc. ("Litton"), a subsidiary of Northrop Grumman Corporation, for $16 million in cash (subject to certain purchase price adjustments) and the assumption of certain liabilities (the "Acquisition"). At the same time, Simclar Group Limited also acquired from Litton Systems International, Inc. and Litton U.K. Ltd. all of the share equity of Litton Electronics (Suzhou) Co. Ltd., a subsidiary organized in China, and certain assets of the Interconnect Technologies Division assembly business in the U.K., respectively, through its subsidiary Simclar Interconnect Technologies Limited.

In connection with the Acquisition, the company and Simclar IT entered into an occupancy agreement pursuant to which Simclar IT will occupy space in Litton's Springfield, Missouri facility for a period of up to one year, and a transition services agreement pursuant to which Litton will provide certain administrative services to the company and Simclar IT to support its operations during the occupancy period.

The company financed the purchase of the assets under its amended term loan facility with the BoS.

In connection with the loan, the company, Simclar IT and other subsidiaries entered into an amended security agreement, pursuant to which BoS was granted a security interest in substantially all of their respective assets to secure the company's borrowings under its credit facilities, and a guaranty pursuant to which Simclar IT guarantied the obligations of the company to BoS under the credit facilities. Additionally, the company and Simclar (Mexico), Inc. entered into an amended pledge agreement, pursuant to which all of the shares owned by the company in its subsidiaries other than Simclar de Mexico were pledged as security for the company's obligations to BoS under the credit facilities.

F-26

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15—ACQUISTION OF CERTAIN U.S. ASSETS OF LITTON SYSTEMS, INC. - Continued

The finalized purchase price allocation related to this acquisition is as follows:

Current assets	$	13,149,821
Equipment		2,539,195
Goodwill		3,373,397
Intangibles		1,470,000
Total assets acquired	$	20,532,413
Current liabilities		4,410,264
Total liabilities assumed	$	4,410,264
Net assets acquired	$	16,122,149

Management is of the present opinion that the recorded intangible and goodwill arising from the acquisition will be tax deductible.

F-27

SIMCLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16— PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The following table summarizes selected unaudited pro forma financial information for years ended December 31, 2006 and 2005, respectively, as if SNAI and Litton had been acquired as of January 2005. The unaudited pro forma financial information includes adjustments for intercompany transactions.

	Year Ended December 31,
	2006		2005
Pro forma sales	$	125,600,000	$	114,800,000
Pro forma net income	$	3,600,000	$	3,000,000
Pro forma earnings per share:	$	0.56	$	0.46
Basic and diluted

The pro forma financial information does not necessarily reflect the results that would have occurred if the acquisition had been in effect for the periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might ultimately be achieved from combining the operations.

F-28

SIMCLAR, INC. AND SUBSIDIARIES

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S REPORT

ON SUPPLEMENTAL SCHEDULE

To the Board of Directors and Stockholders of Simclar, Inc. and subsidiaries:

We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated financial statements of Simclar, Inc. and subsidiaries referred to in our report dated April 6, 2007, which is included in Part II on Form 10-K. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedule II of Simclar, Inc. and subsidiaries for the three years ended December 31, 2006 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The schedule for the two years ended December 31, 2005 was audited by other auditors, whose report is set forth elsewhere herein. This schedule for the year ended December 31, 2006 has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/s/ GRANT THORNTON LLP

Cincinnati, Ohio

April 6, 2007

S-1

SIMCLAR, INC. AND SUBSIDIARIES

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S REPORT

ON SUPPLEMENTAL SCHEDULE

Board of Directors and Shareholders

Simclar, Inc. and Subsidiaries

Hialeah, FL

We have audited the consolidated financial statements of Simclar, Inc and subsidiaries (the “Company”) as of December 31, 2005 and 2004, and for each of the years then ended. Our audits also included the accompanying consolidated financial statement schedule of the Company. This consolidated financial statement schedule is the responsibility of management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth herein.

/s/ BATTELLE & BATTELLE LLP

Battelle & Battelle LLP

Dayton, Ohio

March 29, 2006

S-2

SIMCLAR, INC. AND SUBSIDIARIES

A. Schedule II - Valuation and Qualifying Accounts

Simclar, Inc. and Subsidiaries

December 31, 2006

COL. A	COL. B		COL. C			COL. D		COL. E			COL. F
						Additions
						(Deductions)		Other
						Charged		Changes
	Balance at					(Credited)		Add			Balance
	Beginning					toCosts and		(Deduct)			at End of
Classsification	of Period		Acquisition			Expenses		Describe			Period
YEAR ENDED DECEMBER 31,
2006:
Reserves and allowances
deducted
From asset accounts:
Allowance for uncollectible
accounts	$	235,000				$	135,020	$	(76,020	)	$	294,000
Reserve for inventory
obsolescence		1,822,000					862,000		(1,132,000	)		1,552,000
	$	2,057,000	$	-		$	997,020	$	(1,208,020	)	$	1,846,000
YEAR ENDED DECEMBER 31,
2005:
Reserves and allowances
deducted
From asset accounts:
Allowance for uncollectible
accounts	$	182,000	$	27,000(3	)	$	55,000	$	(29,000	)	$	235,000
Reserve for inventory
obsolescence		1,481,000		30,000(3	)		469,000		(158,000	)		1,822,000
	$	1,663,000	$	57,000(3	)	$	524,000	$	(187,000	)	$	2,057,000
YEAR ENDED DECEMBER 31,
2004:
Reserves and allowances
deducted
From asset accounts:
Allowance for uncollectible
accounts	$	279,000				$	35,000	$	(132,000(1	))	$	182,000
Reserve for inventory
obsolescence		1,421,000					382,000		(322,000(2	))		1,481,000
	$	1,700,000	$	-		$	417,000	$	(454,000	)	$	1,663,000

(1) Uncollectible accounts written off, net of recoveries

(2) Net write-offs against inventory reserves

(3) Acquisition of Simclar (North America), Inc.

S-3

EX-10.14

LEASE AGREEMENT

THIS LEASE AGREEMENT (the “Lease Agreement”), made this day 28^th day of December, 2006 (“Effective Date”), by and between PHILLIP A. WILAND and LINDA S. WILAND, both individuals who reside in the State of Colorado (collectively, the “Landlord”) and SIMCLAR INTERCONNECT TECHNOLOGIES, INC., a Delaware corporation (“Simclar”).

WITNESSETH

WHEREAS, Landlord is the owner of Lots 1 and 4 of Wiland Park Subdivision (the “Wiland Park Subdivision” and each lot individually referred to as “Lot 1” and “Lot 4”), a subdivision in Ozark, Christian County, Missouri, the final plat of which is recorded in Book H, at Page 524 in the Office of the Recorder, Christian County, Missouri, a copy of which is attached hereto as Exhibit A and incorporated herein by this reference;

WHEREAS, located on Lot 1 is a building containing approximately 171,238 square feet (the “Building”), together with certain improvements, including, but not limited to, an entrance and drive off of Highway 14, a loading and unloading dock and various areas of parking;

WHEREAS, Lot 4 contains no buildings but is paved for use as a parking area;

WHEREAS, prior to the execution of this Lease Agreement, the Building was under lease to Astral Direct, LLC, a Delaware limited liability company (“Astral”);

WHEREAS, Astral has agreed to terminate its lease of the Building in order to enter into a new lease for a portion of the Building and to allow Simclar to lease the remaining portion of the Building;

WHEREAS, Landlord desires to lease to Simclar and Simclar desires to lease from Landlord (1) approximately 52,826 square feet of space in the Building (30.85% of the total square footage of the Building) as set forth and described in Exhibit B, which is attached hereto and incorporated herein by this reference, (2) with the exception of any areas specifically reserved for use by Astral, including, but not limited to the portion of the Building leased to Astral and the parking areas reserved to them as set forth in Exhibit E, attached hereto (the “Astral Lease”), the interior and exterior common and public areas and facilities on Lot 1 (as further defined in Section 1 below) and (3) all of Lot 4 (the “Simclar Premises”);

WHEREAS, Simclar acknowledges that the remaining portion of the Building (that portion not being leased by Simclar as provided for herein) and certain parking areas are being leased to Astral pursuant to the Astral Lease executed simultaneously with this Lease Agreement; and

WHEREAS, the parties agree that this Lease Agreement is contingent upon and is to be executed simultaneously with the Astral Lease; and

WHEREAS, Landlord desires to grant Simclar an option to purchase and a right of first refusal with respect to Lots 1, 2, 3 and 4 of Wiland Park Subdivision upon the terms and conditions granted herein;

NOW THEREFORE, in consideration of the mutual covenants and agreements between the parties hereto and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by both parties, Landlord and Simclar agree as follows:

1.Premises. Landlord hereby leases to Simclar and Simclar agrees to lease from Landlord, upon and subject to the terms and provisions of this Lease Agreement, the Simclar Premises, subject to the following:

(a)The drive, as currently constructed, which provides access to the Building from and to State Highway 14 shall only be used for the purpose of ingress and egress and is not to be used for parking;

(b)The loading dock area and the truck turnaround area on the east side of the Building on Lot 1 are reserved for use by Astral, except that Simclar will generally have the right of passage through this area for ingress and egress to the other Lots and to the other entrances to the building and other parking areas;

(c)Ten (10) of the parking spaces located on the north side of the Building on Lot 1 shall be reserved and designated for parking by Simclar. More specifically, five (5) of the parking spaces which face the Building and five (5) of the parking spaces which face State Highway 14 shall be reserved and designated for parking by Simclar. All remaining parking spaces on the north side of the Building on Lot 1 shall be reserved for use by Astral. Simclar and Astral shall mutually agree as to the exact location of the ten (10) parking spaces subject to the above.

(d)All the parking on the south side of the Building on Lot 1 will be shared equally by Simclar and Astral on a daily first-come, first-served basis.

(e)The lease of Lot 4 is strictly for use as parking and no improvements may be constructed thereon;

Simclar acknowledges that Lot 2 and Lot 3, which are also owned by Landlord and are a part of Wiland Park Subdivision, are not a part of the Simclar Premises or this Lease Agreement (except as they relate to the Option, as defined in Section 30 below) and Simclar has no right to use any portion of said Lots.

2.Term. Simclar takes and accepts this Lease Agreement commencing on the Effective Date and expiring on December 31, 2011, unless sooner terminated or extended as provided in this Lease Agreement or otherwise agreed to in writing by the parties (“Lease Term”). Assuming Simclar is not otherwise in default under the Lease Agreement, Simclar may, at its sole option, renew the Lease Agreement for a five year term beginning January 1, 2012 and expiring December 31, 2016, by giving notice to Landlord on or before June 30, 2011. In the event of renewal, rent shall be increased based upon the change in the Consumer Price Index (“CPI”) during the period October 1, 2006 through September 30, 2011.

For purposes hereof, the term “CPI” shall mean the Consumer Price Index-All Urban Consumers, U.S. All Items (1982-84= 100) as published by the United States Department of Labor, Bureau of Labor Statistics. In the event that the United States Department of Labor, Bureau of Labor Statistics discontinues the publication of the present CPI, the index to be used hereunder shall be such index as may be published by any other United States government bureau or department to replace the present CPI. The percentage increase in CPI shall be determined by (a) taking the September CPI reported for the calendar year prior to the calendar year for which the increase is effective and subtracting the September CPI reported one year earlier (the “Prior Period CPI”) and (b) dividing the result by the Prior Period CPI.

2

3.Rent. Simclar covenants and agrees to pay Landlord without demand or offset (unless specifically provided herein), at Landlord's office located at 8000 North 41st Street, Longmont, Colorado 80503 or at such place as Landlord may from time to time designate in writing, minimum rent (“Rent”) as follows:

(a)From the Effective Date through January 31, 2007, including any partial months, rent shall be fully abated, with no payment of rent by Simclar; and

(b)From February 1, 2007, through December 31, 2011, including any partial months, at the rate of One Hundred Eighteen Thousand Eight Hundred Fifty Eight and 50/100 Dollars ($118,858.50) per annum, payable in equal monthly installments of Nine Thousand Nine Hundred Four and 88/100 Dollars ($9,904.88); and

(c)From January 1, 2012, through December 31, 2016, at the rates specified in Section 2 hereof, if Simclar chooses to exercise its renewal option as outlined in that Section.

(d)Simclar shall reimburse Landlord for Landlord's actual Real Property Taxes (as defined in Section 9(b)) and its reasonable cost of real estate insurance. Such reimbursement shall be shared on a pro-rata square footage basis with other tenants in the Building as set forth in Exhibit B hereto. It is estimated that the combined expense for Real Property Taxes and insurance for the current year will be $0.26 per square foot. Such reimbursement shall be paid monthly in the amount of $1,144.56, to be paid along with the Rent and adjusted annually if Real Property Taxes and insurance costs differ materially from the estimate. After comparing the estimated payments made by Simclar with the actual tax and insurance expenses, any overpayment or shortfall by Simclar shall be refunded to Simclar or paid to Landlord, as the case may be. Landlord will provide Simclar with a copy of the tax bill and invoice for the insurance premium within five (5) business days after receipt of written demand therefor.

4.Maintenance.

(a)Simclar. Simclar agrees at its sole cost and expense to (i) keep the Simclar Premises in good order, condition and repair, normal wear and tear excepted; (ii) maintain and repair that portion of the roof over the Simclar Premises unless covered by Landlord's insurance or warranty thereon, in which case Landlord shall have sole responsibility therefor; (iii) maintain the grounds area on Lot 4, which shall be limited to litter and trash clean up and snow and ice removal; and (iv) maintain the grounds area on Lot 1 together with Astral, which maintenance shall be limited to mowing, litter and trash clean up, and snow and ice removal, the cost of which Simclar agrees to share with Astral in a prorated amount equal to its percentage portion of the Building (30.85%). With respect to snow removal, mowing and similar maintenance for Lot 1, Simclar and Astral have discussed the possibility and are entitled to reach a separately negotiated agreement concerning the payment of such maintenance items as between them which deviates from the strict percentage prorata allocation provided above. For purposes of clarity, the parties agree that Simclar shall have no responsibility for maintaining or repairing any portion of the roof that is not directly over the Simclar Premises. Additionally, the parties agree that Simclar shall be responsible for the installation and maintenance of any existing or required sprinkler system or other fire protection system. With respect to the maintenance of grounds area on Lot 4, it is agreed that the area to the south of the paved parking on Lot 4 quickly transitions from pavement to grass to heavily wooded area. The parties agree that neither the Landlord nor Simclar is obligated to mow or otherwise maintain that area to the south of Lot 4. Simclar shall be responsible for coordinating the procurement and payment of any shared grounds maintenance with Astral. Notwithstanding the foregoing, any damage that is the result of an act or omission or the negligence of Landlord or Landlord's employee, customer, supplier, or guest, the cost and repair of which shall be the responsibility of Landlord.

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(b)Landlord. Landlord agrees at its sole cost and expense to (i) keep the structure, exterior walls and foundation of the Building in good order, condition and repair and repair the roof over the Simclar Premises if and to the extent damage to the roof is covered by insurance or manufacturer's warranty, (ii) maintain and repair the portion of the Building not being leased by Simclar, and (iii) maintain and repair the parking areas on Lot 1 and Lot 4, including paving, sealing, and striping the parking areas; provided, however, any such maintenance of the parking areas shall be done solely at Landlord's sole discretion on an as needed basis and Simclar acknowledges that Landlord has no present plans to do any such maintenance. Landlord shall not be responsible for any maintenance, repair or replacement of any of the Simclar Premises other than as is specifically set forth herein. Notwithstanding the foregoing, any damage to the exterior walls, foundation, or roof that is the result of an act or omission or the negligence of Simclar or Simclar's employee, customer, supplier, or guest, the cost and repair of which shall be the responsibility of Simclar.

(c)Simclar will make repairs promptly upon becoming aware of a condition needing repair. If it is a condition for which Landlord is responsible and Landlord fails to complete any repairs within twenty (20) days of receiving Simclar's notice of a defective condition (or if Landlord fails to commence repair and diligently pursue the same to completion if the defective condition is of the type can not be remedied within 20 days), then Simclar may make the necessary repairs and deduct the actual costs for the repairs, provided they are commercially reasonable, from the Rent payments next coming due until Simclar has been completely reimbursed.

5.Use of Simclar Premises; Compliance with Law. Simclar shall use the Simclar Premises only for lawful purposes. Landlord shall maintain (1) the portions of the Simclar Premises that Landlord is obligated to maintain, repair or replace pursuant to this Lease Agreement, (2) the portion of the Building not being leased by Simclar and (3) the parking areas on Lot 1 and Lot 4 (hereinafter “Landlord Items”) at all times so as to comply with and conform to the laws, ordinances, orders and regulations of applicable governmental authorities, including those relating to public health, sanitation and safety (hereinafter “Governmental Requirements”), and that Landlord will promptly make any changes or alterations necessary in order that the Landlord Items conform to all Governmental Requirements then in force and effect. Simclar shall maintain the portions of the Simclar Premises that Simclar is obligated to maintain, repair, or replace pursuant to this Lease Agreement (hereinafter “Tenant Items”) at all times so as to comply with and conform to Governmental Requirements, and Simclar shall promptly make any changes or alterations necessary in order that the Tenant Items conform to all Governmental Requirements then in force and effect. Additionally, Simclar shall be responsible for any compliance with Governmental Requirements that is necessitated by (a) alterations, changes or additions made by Simclar; or (b) Simclar's particular use of the Simclar Premises.

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6.Destruction or Damage to Simclar Premises. If the Simclar Premises are destroyed or damaged to an extent that Simclar's ability to carry on its normal business function is effectively denied by casualty, this Lease Agreement shall, at the option of Simclar, terminate as of the date specified by Simclar in a written notice to Landlord. If, as allowed above, Simclar does not elect to terminate this Lease Agreement or the damage does not rise to the level that Simclar's ability to carry on its normal business function is effectively denied, Landlord shall promptly restore the Simclar Premises to an architectural unit as nearly like its condition prior to such casualty, and the Rent shall be abated on an equitable basis, based upon the extent to which the Simclar Premises are untenable or unusable, until the date of completion of restorations by Landlord.

7.Simclar's Property. All movable partitions, other fixtures, business and trade fixtures, machinery and equipment, communications equipment and office equipment, including, without limitation, all furniture, furnishings and other articles of movable personal property owned by Simclar and located on the Simclar Premises shall be and shall remain the property of Simclar and may be removed by Simclar at any time during the Lease Term or any extension or renewal thereof. All alterations of a construction nature, including walls, ceilings, electrical fixtures, and other such items shall become a part of the Building and belong to the Landlord upon expiration of the Lease Agreement. For purposes of clarity, all improvements such as free-standing cabinets and specialty equipment that can be removed without damaging walls, floors or any other part of the Building shall belong to Simclar, and Simclar may, at Simclar's option, remove any such non-permanently affixed alterations constituting trade fixtures, fixtures, furniture, equipment, and other personal property at the expiration or termination of the Lease Term or renewal term. Any personal property of Simclar which shall remain on the Simclar Premises after Simclar gives up possession of the Simclar Premises may, at the option of the Landlord, be deemed to have been abandoned and may be retained by Landlord as its property or may be disposed of without accountability, in such manner as the Landlord may see fit. The terms of this Paragraph 7 shall survive the expiration or earlier termination of the Lease Agreement.

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8.Condemnation.

(a)If during the Lease Term the whole of the Simclar Premises shall be lawfully condemned or taken (hereinafter both are referred to as a “Taking” or being “Taken”) in any manner for any public or quasi-public use or purpose, this Lease Agreement and the term and estate hereby granted shall forthwith cease and terminate as of the date of vesting of title pursuant to the Taking.

(b)If a part of the Simclar Premises shall be Taken during the Lease Term, then the part so Taken shall no longer constitute part of the Simclar Premises, but this Lease Agreement shall continue in force and effect as to the part not so Taken. If any partial Taking materially impairs Simclar's ability to conduct its business from the Simclar Premises, Simclar (in its sole discretion) may deem the partial taking a Taking of the entire Simclar Premises and terminate this Lease Agreement. If a partial Taking does not result in the termination of this Lease Agreement, Landlord shall promptly restore that portion of the Simclar Premises that remains to an architectural unit as nearly like its condition prior to such Taking and the Rent shall be reduced on an equitable basis, based upon the extent of the partial Taking (effective the first day after the Taking).

(c)Landlord shall be entitled to receive the entire award in any proceeding with respect to any Taking (other than for a temporary use and occupancy) provided for in this Paragraph 10 which occurs during the Lease Term without deduction therefrom for any estate vested in Simclar by this Lease Agreement, and Simclar shall receive no part of and shall and does hereby assign to Landlord any such award, except as hereinafter expressly provided. Simclar shall have the right to make a separate claim with the condemning authority for (i) any moving expenses incurred by Simclar as a result of such condemnation; (ii) any costs incurred and paid by Simclar in connection with any alteration or improvement made by Simclar to the Simclar Premises; (iii) the value of any of Simclar's property so Taken; and (iv) any other separate claim which Simclar may be lawfully permitted to make.

(d)If all or any part of the Simclar Premises shall be temporarily Taken during the Lease Term, then, at the option of Simclar, this Lease Agreement shall remain in full force and effect, except that the Rent shall be reduced on an equitable basis, based upon the extent and duration of the temporary Taking. Simclar shall continue to be responsible for all of its obligations hereunder insofar as such obligations are not affected by such Taking. Upon the expiration of any temporary Taking, Landlord shall have no obligation to restore the Simclar Premises to their former condition.

9.Utilities and Taxes.

(a)Utilities. The parties hereto acknowledge that utilities for the Building have not been separately metered for the individual tenants. The parties further acknowledge that the cost to meter the utilities separately is high. Therefore, the parties agree that electric, gas, and water utilities will be paid in full to the utility provider by Simclar and that Simclar will invoice Astral for Astral's portion of such utilities, defined as follows:

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i.Simclar hereby agrees to enter into a Shared Utilities Agreement with Astral in a form substantively identical to Exhibit C hereto.

ii.Simclar shall contract for and pay for any utilities it requires other than electric, gas, and water, including but not limited to telephone, data lines, communications lines, cable and other such services.

iii.Subject to Simclar's right of reimbursement, Simclar is responsible for paying utilities that Simclar or Astral consume until the end of the Lease Term and such liability shall survive the expiration or termination of the Lease Agreement. For purposes of clarity, the parties agree that, in the event Astral fails to pay for its share of the utilities as is required in the Shared Utilities Agreement, Simclar shall be responsible for all utilities incurred on Lot 1 and Simclar shall have the right to seek legal redress from Astral as set forth in the Shared Utilities Agreement. Landlord shall never be responsible for any utilities on Lot 1; provided, however, should Astral vacate the portion of the Building being leased by Astral, Landlord will take reasonable steps to reduce the utility consumption in that portion of the Building as much as reasonably possible by, for example, setting the thermostat at a seasonally appropriate setting, turning off the lights, and making sure there are no running water faucets.

iv.In the event that the Astral Lease expires or is terminated and Landlord desires to lease the premises to another tenant, Landlord shall give Simclar written notice of the name and any information reasonably necessary for Simclar to determine the financial responsibility of the proposed tenant (the “Proposed Tenant Notice”). Simclar in its sole discretion shall make a determination in writing no later than 15 days after receipt of the Proposed Tenant Notice as to whether Simclar will enter into a shared utilities agreement with the proposed tenant or require Landlord to cause the utilities to be separately metered (which right Landlord agrees Simclar shall have)

(b)Taxes. Landlord shall be responsible for paying all Real Property Taxes, in a timely fashion as the same become due and payable for Lot 1 and Lot 4. The term 'Real Property Taxes' shall include, without limitation, all real estate taxes assessed by any federal, state, county, municipal or quasi-governmental authority, ad valorem real estate taxes, special assessments, value added taxes, documentary taxes, stamp taxes and any other taxes based on or relating to the real property or improvements thereof. Simclar is responsible for and shall reimburse Landlord 30.85% of the Real Property Taxes for Lot 1 (said 30.85% representing the percentage of the total square footage of the Building leased by Simclar) and 100% of the Real Property Taxes for Lot 4.

10.Insurance; Release; and Indemnity.

(a)Landlord Insurance. Landlord agrees to purchase (at its sole cost and expense) and keep in force (i) insurance on the Building against damage by fire and other perils under ISO Special form in an amount equal to the full replacement cost thereof with such reasonable deductions as would be carried by a prudent owner of a reasonably similar building, having regard to size, age and location; (ii) Comprehensive General Liability Insurance at the minimum limit of not less than $1,000,000.00 per occurrence for bodily injury and property damage (iii) such other insurance as Landlord reasonably considers advisable in such reasonable amounts and with such reasonable deductions as would be carried by a prudent owner of a reasonably similar building, having regard to size, age and location. Simclar shall reimburse Landlord for its share of such insurance as set forth in Section 3 (d) hereof.

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(b)Simclar Insurance. Simclar agrees to purchase (at its sole cost and expense) and keep in force Comprehensive General Liability Insurance on Lots 1 and 4 and the Building, at the minimum limit of not less than $1,000,000.00 per occurrence for bodily injury and property damage arising out of the activities and operations of Simclar and any other person on the Simclar Premises or performing work on behalf of Simclar and shall name Landlord as an additional insured. Such Comprehensive General Liability Insurance may be carried by Simclar through an Umbrella Liability policy. Upon request by Landlord, Simclar shall furnish Landlord a certificate indicating that the insurance policy is in full force and effect, that Landlord has been named as an additional insured, and that the policy may not be cancelled unless ten (10) days prior written notice of the proposed cancellation has been given to Landlord. Simclar agrees to purchase (at its sole cost and expense) and keep in force property insurance including fire and other perils under ISO Special form, including, but not limited to sprinkler leakage, in an amount equal to the full replacement cost of all property owned by Simclar, or for which Simclar is responsible, including all of the Simclar improvements constructed by or on behalf of Simclar. Simclar agrees to maintain workers' compensation insurance on its employees on the Simclar Premises with at least the statutorily mandated limits of coverage. Nothing contained in this Section 12 shall be construed as a requirement for Landlord to insure Simclar's personal property or equipment.

(c)Release. Notwithstanding anything to the contrary contained herein, Landlord and Simclar each herewith and hereby releases and relieves the other and waives its entire right of action against the other for any loss or damage to the Building or Simclar Premises or Lots 1 or 4, which loss or damage is insured the coverage actually maintained by the damaged party as required by this Section 10. The casualty insurance obtained by Landlord and Simclar, respectively, shall include a full waiver of subrogation by the respective insurers of Landlord and Simclar.

(d)Indemnity. Landlord agrees to indemnify and hold Simclar and its agents and employees, harmless from and against all costs, claims, suits, causes of action, damages, and liability (including reasonable attorney's fees) in connection with any loss of life, personal injury, or damage to property in or about Lot 1 or Lot 4 or arising out of the use of Lot 1 or Lot 4 or arising out of the use of the Simclar Premises by Landlord, its agents, employees, invitees, or contractors, or occasioned in whole or in part by Landlord, its agents, employees, invitees, or contractors unless such loss, injury or damage was caused by the negligence or willful misconduct of Simclar, its agents, employees, invitees, or contractors. Simclar agrees to indemnify and hold Landlord and its agents and employees, harmless from and against all costs, claims, suits, causes of action, damages, and liability (including reasonable attorney's fees) in connection with any loss of life, personal injury, or damage to property in or about the Simclar Premises or arising out of the use or occupancy of the Simclar Premises by Simclar, its agents, employees, invitees or contractors, or occasioned in whole or in part by Simclar, its agents, employees, invitees or contractors, unless such loss, injury or damage was caused by the negligence or willful misconduct of Landlord, its agents, employees, invitees, or contractors. The covenants, obligations and liabilities under this Section 10(d) shall survive the expiration or earlier termination of this Lease Agreement.

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11.Default. Rights and Remedies.

A.The following shall constitute events of default:

(1)Nonpayment. Simclar's failure to pay Rent or any other amount due under this Lease Agreement and such failure continues for ten (10) days after written notice from Landlord that such rental or amount was not paid when due.

(2)Failure to Perform. Simclar's failure to perform any material obligation under this Lease Agreement (other than the payment of Rent or any other amounts due under this Lease Agreement and including, but not limited to the Shared Utilities Agreement) within thirty (30) days after notice of nonperformance; provided, however, that if the breach is of such a nature that it cannot be cured within thirty (30) days, Simclar shall be deemed to have cured if cure is commenced promptly and diligently pursued to completion; and provided further, that in the event of a breach involving an imminent threat to health or safety, Landlord may in its notice of breach reduce the period for cure to such shorter period as may be reasonable under the circumstances.

(3)Assignment or Sublease Without Consent. If there shall be an assignment or sublease by Simclar, whether voluntarily or involuntarily, other than in accordance with Section 13;

(4)Execution and Attachment Against Simclar. If Simclar's interest under this Lease Agreement or in the Simclar Premises shall be taken upon execution or by other process of law directed against Simclar, or shall be subject to any attachment at the instance of any creditor or claimant against Simclar and said attachment shall not be discharged or disposed of within thirty (30) days after the levy thereof; and

(5)Bankruptcy or Related Proceedings. If Simclar shall file a petition in bankruptcy or insolvency .or for reorganization or arrangement under the bankruptcy laws of the United States or under any similar act of any state, or shall voluntarily take advantage of any such law or act by answer or otherwise, or shall be dissolved or shall make an assignment for the benefit of creditors; if involuntary proceedings under any such bankruptcy or insolvency law or for the dissolution of Simclar shall be instituted against Simclar and is not dismissed within sixty (60) days; or if a receiver or trustee shall be appointed for the Simclar Premises or for all or substantially all of the property of Simclar, and such proceedings shall not be dismissed or such receivership or trustee vacated within sixty (60) days after such institution or appointment.

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B.Upon any event of default by Simclar, Landlord shall have the right, at Landlord's election, then or any time thereafter, to exercise any one or more of the following remedies, provided exercise of any of these remedies shall not prevent the concurrent or subsequent exercise of any other remedy provided for in this Lease Agreement or otherwise available to Landlord at law or in equity:

(1)Cure by Landlord. Landlord may, at Landlord's option, but without obligation to do so, and without releasing Simclar from any obligations under this Lease Agreement, make any payment or take any action as Landlord may deem necessary or desirable to cure any such Simclar default in such manner and to such extent as Landlord may deem necessary or desirable. Landlord may do so without demand on, or written notice to, Simclar. Simclar shall pay Landlord, within ten (10) days after demand, all advances, costs and expenses of Landlord in connection with the making of any such payment or the taking of any such action.

(2)Termination of Lease and Damages. Landlord may terminate this Lease Agreement, effective at such time as may be specified by written notice to Simclar, and demand and recover possession of the Simclar Premises from Simclar. Simclar shall remain liable to Landlord for damages in an amount equal to the Rent and other amounts payable hereunder which would have been owing by Simclar hereunder for the balance of the Lease Term had this Lease Agreement not been terminated, less the net proceeds, if any, of any re-letting of the Simclar Premises by Landlord subsequent to such termination, after deducting all Landlord's expenses in connection with such recovery of possession or re-letting. Landlord shall be entitled to collect and receive such damages from Simclar on the days on which the applicable Rent would have been payable if this Lease Agreement had not been terminated.

(3)Repossession and Re-letting. Landlord may reenter and take possession of the Simclar Premises or any part thereof without demand or notice, and repossess the same and expel Simclar and any party claiming by, through or under Simclar, and remove the effects of both using such force for such purposes as may be necessary, without being liable for prosecution on account thereof or being deemed guilty of any manner of trespass, and without prejudice to any remedies for arrears of rent or right to bring any proceeding for any default. No such reentry or taking possession of the Simclar Premises by Landlord shall be construed as anelection by Landlord to terminate this Lease Agreement unless a written notice of such intention is given to Simclar. No notice from Landlord hereunder or under a forcible entry and detainer statute or similar law shall constitute an election by Landlord to terminate this Lease Agreement unless such notice specifically so states. Landlord reserves the right, following any reentry or re-letting, to exercise its right to terminate this Lease Agreement by giving Simclar such written notice, in which event the Lease Agreement will terminate as specified in said notice. After recovering possession of the Simclar Premises, Landlord may re-let the Simclar Premises, or any part thereof: for the account of Simclar, for such term and on such conditions as Landlord, in its sole and subjective discretion, may determine. Landlord may make such repairs, alterations or improvements as Landlord may consider appropriate to accomplish such re-letting. Notwithstanding Landlord's recovery of possession of the Simclar Premises, Simclar shall continue to pay on the dates herein specified, the amounts which would be payable hereunder if such repossession had not occurred. Upon the expiration or earlier termination of this Lease Agreement, Landlord shall refund to Simclar any amount, without interest, by which the amounts paid by Simclar, when added to the net amount, if any, recovered by Landlord through any re-letting of the Simclar Premises, exceeds the amounts payable by Simclar under this Lease Agreement.

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(4)Other Remedies. Pursue any other remedies available at law or in equity.

12.Landlord Default. Unless otherwise specified elsewhere in this Lease Agreement, if Landlord fails to perform any material provision of this Lease Agreement within thirty (30) days (or such additional time as Landlord shall reasonably require in the event such failure cannot be reasonably cured within such thirty (30) day period and Landlord has within thirty (30) days after notice of default from Simclar commenced to cure said default and is diligently prosecuting same to completion) after the receipt of written notice from Simclar to Landlord that Landlord is in default hereunder, then Simclar may terminate this Lease Agreement by giving to Landlord notice of Simclar's intention to do so, in which event the Lease Term shall end, and all obligations shall cease asof and on the date stated in such notice.

13.Assignment.

(a)Simclar may assign or transfer this Lease Agreement or any interest herein, voluntarily or by operation of law, and may sublet or license the whole or any part of the Simclar Premises upon the written consent of Landlord, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, upon ten (10) days prior written notice to Landlord, Simclar shall have the right, without Landlord's consent, to sublet all or a portion of the Simclar Premises or to assign this Lease Agreement to any entity which is an Affiliate (as hereinafter defined) of Simclar. As used herein, “Affiliate” shall mean any entity (a) that directly owns more than fifty percent (50%) of the voting shares, membership interests or other controlling interests in Simclar, or (b) in which Simclar owns such controlling interests, or (c) with which Simclar is in common control by virtue of the ownership of such controlling interests in the entity and Simclar by one or more persons or entities. No consent to an assignment or sublease shall constitute consent to any further assignment or subletting. Simclar shall remain fully liable for the payment and performance of all obligations of Simclar under this Lease Agreement, notwithstanding any assignment or sublease, for the entire Lease Term.

(b)Landlord may assign this Lease Agreement without the consent of Simclar. Furthermore, Landlord hereby acknowledges the option to purchase and the right of first refusal set forth in Section 30 held by Simclar, which option and right of first refusal shall be unaffected by any assignment by Landlord. In the event of any transfer of Landlord's interest in this Lease Agreement, the transferor shall cease to be liable and shall be released from all liability for the performance or observance of any agreements or conditions on the part of Landlord to be performed or observed subsequent to the time of said transfer, provided thatsuch transferee assumes in writing all of Landlord's obligations hereunder.

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14.Time of Essence. Time is of the essence relative to this Lease Agreement.

15.Holding Over. If Simclar remains in possession after the termination or expiration of the Lease Term, without any written agreement of the parties, Simclar shall occupy the Simclar Premises on a month-to-month basis at two times the rental rate then in effect. Simclar's month-to-month tenancy may be terminated by either party on thirty (30) days prior written notice.

16.Surrender of Simclar Premises. Upon expiration of the Lease Term, Simclar shall surrender the Simclar Premises and keys thereto to Landlord, broom clean, in the same condition (except for the alterations made pursuant to Section 26, which Simclar shall not be required to remove) as at the commencement of the Lease Term, normal wear and tear and repairs that are the Landlord's responsibility excepted.

17.Notices. Any and all notices or other communications required or permitted to be given hereunder shall be sent by United States registered or certified mail (return receipt requested), postage prepaid, and addressed as follows:

If to Simclar:

Simclar Interconnect Technologies, Inc.

1624 West Jackson

Ozark, Missouri 65721

Attn: President

With a copy to:

William J. Kelly

Porter Wright Morris & Arthur LLP

41 South High Street

Columbus, OH 43215

If to Landlord:

Phillip Wiland

8000 North 40^st Street

Longmont, CO 80503

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With a copy to:

Mike Nichols

Husch & Eppenberger

1949 East Sunshine, Suite 2-300

Springfield, MO 65804

Either party may from time to time change the address to which notice or other communications may be delivered or sent by giving the other party written notice of such change sent in accordance with this Paragraph 17.

18.Quiet Enjoyment. Landlord covenants that it has the right to lease the Simclar Premises for the Lease Term, and agrees Simclar shall and may peaceably and quietly have, hold and enjoy the Simclar Premises without disturbance by Landlord or anyone claiming by, through or under Landlord.

19.Subordination. This Lease Agreement is and shall be subject and subordinate to all the terms and conditions of all underlying mortgages that may now or hereafter encumber Lots 1 and 4. Landlord at Landlord's cost and expense shall obtain for the benefit of Simclar within 30 days after the date of this Lease Agreement or the date any subsequent mortgage is executed a nondisturbance agreement satisfactory to Simclar and Landlord's mortgage lender from any and all mortgage lenders, if any, having a lien on Lot 1, Lot 4, or Simclar Premises prior to this Lease Agreement or a leasehold or ownership interest on Lot 1, Lot 4, or Simclar Premises prior to this Lease Agreement pursuant to which such party acknowledges that Simclar's interest in the Simclar Premises and rights under this Lease Agreement shall not be disturbed so long as Simclar is not in default hereunder beyond any applicable grace or cure period. The party holding the instrument to which this Lease Agreement is subordinate shall recognize and preserve this Lease Agreement in the event of any foreclosure sale or possessory action, and in such case this Lease Agreement shall continue in full force and effect, and Simclar shall attorn to such party and shall execute, acknowledge and deliver any instrument that has for its purpose and effect the confirmation of such attornment.

20.Definitions. The term “Landlord” as used in this Lease Agreement shall include Landlord's heirs, executors, administrators, personal representatives, successors, assigns and successors-in-title to the Simclar Premises. The term “Simclar” as used in this Lease Agreement shall include Simclar's heirs, executors, administrators, personal representatives and successors and, if this Lease Agreement shall be validly assigned or sublet, shall also include Simclar's assignees or subtenants, as to that portion of the Simclar Premises covered by such assignment or sublease. The terms “Landlord” and “Simclar” shall include male and female, singular and plural, corporation, partnership or individual, as may fit the particular parties, and as may be required by the particular context.

21.Applicable Law. This Lease Agreement shall be governed by and construed in accordance with the laws of the state where the Simclar Premises are located.

22.Severability. If any term, covenant or condition of this Lease Agreement or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, neither the remainder of this Lease_. Agreement nor the application of such term, covenant or condition to any other person or circumstance shall be affected thereby; and each term, covenant or condition of this Lease Agreement shall be valid and enforceable to the fullest extent permitted by law.

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23.Entire Agreement. This Lease Agreement sets forth the entire agreement between Landlord and Simclar relative to the Premises and no representations, warranties, inducements, promises or agreements, oral or written, between the parties not embodied herein shall be of any force or effect.

24.Memorandum of Lease Agreement. Landlord and Simclar shall execute and deliver a Memorandum of Lease Agreement (the “Memorandum”), if requested by either party, after the execution and delivery of this Lease Agreement, in recordable form, and which either party may record at its own expense at the applicable Recorder of Deeds or similar office in the County wherein the Simclar Premises are located.

25.Right to Enter.

(a)Permitted Entries. Landlord and its agents, servants, and employees may enter the Simclar Premises during Simclar's normal business hours, or other times mutually agreed to by Landlord and Simclar, accompanied by Simclar if requested by Simclar, to: (i) examine the Simclar Premises; (ii) show the Simclar Premises to prospective lessees, lenders or purchasers; (iii) post notices of non-responsibility; (vi) post “For Sale” and “For Lease” signs; and (v) perform any maintenance or repairs on or in the Simclar Premises as are required or allowed by Landlord.

(b)Entry Conditions. Notwithstanding Paragraph 25(a), entry is conditioned upon Landlord: (i) giving Simclar at least twenty-four (24) hours advance notice, except in an emergency; (ii) promptly finishing any work for which it entered; and (iii) causing no practical interference to Simclar's business. If the Landlord or Landlord's agents cause damage to Simclar's property, Landlord shall be liable for any such damage.

26.Alterations.

(a)Simclar accepts the Simclar Premises in as-is condition. Simclar's acceptance of the Simclar Premises as-is does not alter nor diminish Landlord's maintenance, repair and replacement obligations contained elsewhere in this Lease Agreement.

(b)Simclar shall, at its sole cost and expense and subject to the provisions set forth in the Work Letter which is attached hereto as Exhibit D and incorporated herein by this reference, furnish and install or cause to be furnished and installed in the Simclar Premises, in a good and workmanlike manner and with reasonable diligence, the Tenant Improvements (as defined in the Work Letter). With respect to the Tenant Improvements and all other alterations and improvements performed by Simclar at the Simclar Premises or the Building, Simclar shall be solely responsible, at Simclar's sole cost and expense, to obtain and maintain all applicable governmental approvals, permits, and licenses.

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(c)Simclar will promptly pay all costs associated with the Tenant Improvements, including but not limited to architectural, engineering, permit, construction, and other related costs, so that no lien against Lot 1 or Lot 4 can legitimately be placed. Simclar shall not cause or permit any mechanics' liens, materialmen's liens or other liens to be filed against the Simclar Premises as a result of any alterations or other work performed on the Simclar Premises, and will (within thirty (30) days after notice from Landlord to Simclar of such lien(s)) cause any such liens to be removed or Simclar shall obtain a bond in the amount of such lien while the matter is resolved.

(d)All improvements or alterations to the Simclar Premises including, but not limited to the Tenant Improvements described above, shall be at Simclar's sole cost and expense and shall be performed in a good and workmanlike manner in accordance with all applicable laws and ordinances.

(e)All improvements or alterations to the Simclar Premises, except the Tenant Improvements described above which shall be approved in accordance with the Work Letter, shall be subject to Landlord's prior written consent, which such consent shall not be unreasonably withheld; provided, however, Simclar may perform interior, non-structural modifications to the Simclar Premises, such as painting, relocation of a light fixture, etc., without the prior written consent of Landlord.

27.Brokers. Each party hereto represents and warrants to the other that the only real estate broker or agent involved in this transaction is R.B. Murray Company of Springfield, Missouri, (“R.B. Murray”) and that the fee due to R.B. Murray shall be paid exclusively by the Landlord. Each party hereto agrees to indemnify the other and hold it harmless from and against any and all claims, losses, costs or expenses (including reasonable attorney's fees and expenses) for commissions or other compensation or charges claimed by a broker or agent other than R.B. Murray for dealings with such party with respect to this Lease Agreement.

The parties hereto acknowledge that R.B. Murray Company has a listing contract with the Landlord, and all brokerage fees due thereunder are being paid by Landlord. In the event Simclar does not exercise its renewal option as set forth in Section 2, Simclar shall reimburse Landlord an amount equal to the unamortized brokerage fees paid by Landlord to R.B. Murray relative to this Lease Agreement, which was calculated based on a lease term of 10 years. The parties acknowledge and agree that the fee paid to R.B Murray by Landlord with respect to this Lease Agreement was Seventy Thousand Seven Hundred Twenty Dollars ($70,720.00).

28.Counterparts. This Lease Agreement may be signed in one or more counterparts, each of which is deemed an original, but any of which taken together constitutes one and the same instrument.

29.Attorney's Fees. In the event either party shall find it necessary to obtain the services of an attorney to enforce any of the covenants or conditions of this Lease Agreement, the prevailing party shall be entitled to reimbursement for all costs and expenses, including reasonable attorney's fees, whether or not litigation is commenced, but including litigation and any associated appeals.

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30.Option to Purchase.

(a)Definition. For purposes of this Section 30, “Property” shall mean Lots 1, 2, 3 and 4, and all improvements thereon, or the remainder of the Lots and improvements thereon not purchased by a third party in the event that Simclar declines to exercise its right of first refusal as set forth in Section 31.

(b)Grant of Option. Landlord hereby grants Simclar the non-exclusive option to purchase the Property, during the initial Term or renewal term of this Lease Agreement (the “Option”) in accordance with the provision of this Lease Agreement; provided, however, Landlord shall have the right to market and offer said property for sale to any interested purchaser. Simclar may exercise the Option at any time during the initial Lease Term or renewal term by giving written notice to Landlord (the “Option Notice”). The Option shall expire automatically upon the earlier of (1) Simclar being in default under the Lease Agreement and failing to timely cure said default as provided herein or (2) the expiration of the Lease Term or renewal term. In addition, the Option shall expire automatically upon Landlord entering into a contract with a third party for the sale of Lots 1, 2, 3 or 4 or any portion thereof after Simclar declined its Right of First Refusal described in Section 31 but only as to the Lots or portion to which the contract relates.

(c)Purchase Price. The purchase price shall be such amount as mutually agreed upon by the parties, or, if the parties are unable to reach an agreement within 30 days of Landlord's receipt of the Option Notice, the following appraisal process will be undertaken to determine the purchase price (the “Purchase Price”):

(i)Landlord and Simclar shall each appoint an appraiser, each of which shall work independently without making comparisons. If the higher of the two appraisals is no more than 10% greater than the lower appraisal the Purchase Price shall be the average of the two appraisals. If the higher of the two appraisals is more than 10% greater than the lower then section 30(b)(ii) shall apply.

(ii)If section 30(b)(i) does not establish the Purchase Price then the two appraisers utilized as set forth in Section 30(b)(i) shall select a third appraiser from a list of appraisers prepared by having Simclar select 3 candidates and Landlord select 3 candidates. The Purchase Price shall be the average of the three appraisals.

Notwithstanding the foregoing, if Simclar exercises the Option on or before April 1, 2007 to purchase all of Lots 1, 2, 3, and 4, then no appraisal shall be necessary and the Purchase Price for Lots 1, 2, 3, and 4 shall be four million five hundred fifty thousand dollars ($4,550,000). The parties further agree that notwithstanding the foregoing, if the Option is exercised after April 1, 2007, Landlord shall not be obligated to sell Lots 1, 2, 3, and 4 for less than four million six hundred thousand dollars ($4,600,000).

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(d)Title. Within thirty (30) days after the date Simclar delivers the Option Notice to Landlord, Landlord shall furnish to Simclar, at Landlord's expense, a current commitment (the “Title Commitment”) for an ALTA owner's title insurance policy covering the Property (the “Title Policy”) in an amount equal to the Purchase Price for the Property, issued by a title insurance company acceptable to Landlord and Simclar, together with a copy of each document referred to in the Title Commitment. The Title Commitment shall show marketable fee simple title to the Premises to be vested in Landlord, free and clear of all liens and encumbrances except (a) those created, approved, assumed, or not objected to by Simclar; (b) real estate taxes and special assessments; (c) utility easements, (d) this Lease Agreement and (e) the Astral Lease. Any title exceptions or encumbrances not permitted hereunder or otherwise waived by Simclar shall be deemed “Unapproved Title Exceptions.”

Simclar shall notify Landlord within twenty (20) days after Simclar's receipt of the Title Commitment if title to the Premises is subject to any Unapproved Title Exceptions. Landlord shall have twenty (20) days after receipt of such notice to use commercially reasonable efforts to cure, remove, or obtain title insurance coverage against such Unapproved Title Exceptions. If Landlord elects not to cure, remove or obtain title insurance against such Unapproved Title Exceptions, Simclar shall have the right either to (a) obtain specific enforcement of this Section and proceed to close the purchase without waiving any rights against Landlord with respect to such Unapproved Title Exceptions, or (b) refuse to close the purchase and pursue such other rights and remedies as are provided by law. At closing, Landlord shall provide an affidavit as to off-record title matters in accordance with community custom. If Simclar desires a survey (except if one is required to obtain a transferable and recordable legal description of the Property for the deed), Simclar shall obtain the survey and pay the cost thereof.

(e)Environmental. Simclar shall have ninety (90) days from the date Simclar delivers the Option Notice to Landlord to conduct environmental testing of the Property. If Simclar is unsatisfied with the results of its environmental testing, Simclar shall have the right on or prior to expiration of the ninety (90) day period to rescind in writing its Option Notice, in which case the Option shall terminate and be of no further force or effect.

(f)Closing. If the purchase transaction closes as provided herein, this Lease Agreement shall terminate as of the Closing Date. The conveyance of the Property may be closed at such location as the parties may agree, on the later of (a) 5 business days after the later of the date (i) of satisfaction of Landlord's obligations with respect to title pursuant to this Section or (ii) completion of Tenant's environmental testing pursuant to this Section; or (b) on a date mutually agreeable to the parties (the “Closing Date”). If the closing occurs after the expiration date of the Lease Term or the renewal term, the Lease Term or renewal term shall be deemed extended to the Closing Date on the same terms as existed immediately prior thereto, and the parties shall continue to perform all obligations (including the payment of Rent by Simclar) required to be performed under this Lease Agreement.

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(g)Closing Costs. At closing, Landlord shall pay the search fee charged in connection with the issuance of the Owners Title Commitment, the costs of curing or removing any Unapproved Title Exceptions, its own attorneys' fees, all transfer or conveyance fees or taxes, and all other closing costs customarily paid by sellers of real property in Christian County, Missouri. At closing, Simclar shall pay all recording fees or costs, all survey expenses, its own attorneys' fees, all financing costs, the premium for the Title Policy, the mortgagee's Title Commitment and Policy (if applicable), and any other closing costs customarily paid by buyers of real property in Christian County, Missouri. Rent shall be prorated through the Closing Date. Any advance payments of Real Property Taxes paid to Landlord by Simclar pursuant to Section 3(d) and those paid or obligated to be paid to Landlord by Astral pursuant to the Astral Lease but not yet paid by Landlord to the applicable taxing authority shall, at Landlord's option, either be transferred to Simclar at closing or credited against the Purchase Price, and Simclar shall be responsible for the payment of all Real Property Taxes on Lots 1, 2, 3 and 4 for the calendar year in which the Closing shall occur.

(h)Closing Deliveries. On the Closing Date, Landlord and Simclar shall deliver or cause to be delivered to each other the following closing documents, all of which shall be duly executed and acknowledged (where appropriate):

(i)Landlord shall deliver or cause to be delivered to Simclar a general warranty deed conveying Landlord's interest in Lots 1, 2, 3 and 4 to Simclar, its successors and assigns, and such additional documents as might be reasonably required by Simclar to consummate the purchase of Lots 1, 2, 3 and 4 by Simclar.

(ii)Simclar shall deliver or cause to be delivered to Landlord current funds in the amount of the Purchase Price for Lots 1, 2, 3 and 4 and such additional documents as might be reasonably required by Landlord to consummate the sale of the Property to Simclar

(i)Continuation of Lease. If the Option is cancelled by Simclar for any reason permitted herein after the Option Notice is delivered to Landlord, the Lease Agreement, except for the Option, shall continue in full force and effect.

31.Right of First Refusal. Notwithstanding the provisions of Section 30 hereof, Landlord shall have the right to sell Lots 1, 2, 3 and 4, and any improvements thereon, individually or collectively, at any time, subject to this right of first refusal granted to Simclar.

If, during the Lease Term, Landlord receives and desires to accept any bona fide offer for the sale of all or part of Lots 1, 2, 3 or 4, Landlord shall notify Simclar in writing of such offer. This notice shall contain a copy of the offer and all terms and conditions applicable to the offer. Simclar shall have the right to purchase the property to which the offer applies at the purchase price set forth in the offer. Simclar shall exercise its right of first refusal, if at all, by giving written notice of exercise to the Landlord no later than 10 days after receipt of the notice of offer from the Landlord and closing, in cash, within 45 days of such notice. If Simclar does not exercise its right of first refusal such decision not to exercise shall not impair this Lease Agreement and Simclar shall continue to have all rights and obligations set forth herein, whether or not the sale to a third party occurs.

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32.Contingent Upon Astral Lease. This Lease Agreement is specifically contingent upon the execution of a lease by Astral for the remaining portion of the Building and which terminates any option to purchase or right of first refusal Astral may have relating to Lots 1, 2, 3 and 4 or any part thereof. Landlord shall cause any memorandum of lease recognizing Astral's option to purchase and right of first refusal to be terminated of record.

33.Waiver of Lien. Landlord, within ten (10) days after demand from Simclar, shall execute and shall cause any and all mortgage lenders having a lien on the Simclar Premises prior to this Lease Agreement to execute and deliver any document required by any lessor or lender in connection with the installation in the Simclar Premises of Simclar's personal property or Simclar's trade fixtures in which Landlord and any mortgage lender waives any rights each may have or acquire with respect to that property, if Simclar, the lessor or lender agrees in writing that it will remove that property from the Simclar Premises before the expiration of the Lease Term or within thirty (30) days after termination of the Lease Term, but if it does not remove the property within thirty (30) days, it shall have waived any rights it may have had to the property.

34.Environmental Matters.

(a)“Environmental Statutes” means all applicable present and future federal, state, municipal and other governmental statutes, ordinances, regulations, orders, directives and other requirements, and all present and future requirements of common law, concerning the environment including, without limitation, (i) those relating to the generation, use, handling, treatment, storage, transportation, release, emission, disposal, remediation or presence of any material, substance, liquid, effluent or product, including, without limitation, hazardous substances, hazardous waste or hazardous materials, (ii) those concerning conditions at, below or above the surface of the ground and (iii) those concerning conditions in, at or outside the Building.

(b)“Hazardous Substances” means any quantity of hazardous, toxic or otherwise dangerous substances, materials or wastes, whether solid, liquid or gas, including but not limited to urea formaldehyde, PCB's, radon gas, crude oil or any fraction thereof, all forms of natural gas, petroleum products or by-products, any radioactive substance, asbestos or asbestos containing materials, any infectious, reactive, corrosive, ignitable or flammable chemical or chemical compound, or any other substance or material regulated by Environmental Statutes.

(c)Simclar hereby agrees to indemnify and to hold harmless Landlord, its agents and employees, of, from and against any and all expense, loss or liability suffered by Landlord by reason of the presence of Hazardous Substance on the Simclar Premises or Lots 1 or 4 resulting and arising solely from Simclar. In the event that any Hazardous Substances, which are located within the Simclar Premises or Lots 1 or 4 and which require remediation under applicable Environmental Statutes, are not so remediated by Simclar within ninety (90) days after written request by Landlord therefore, Landlord shall have the right to terminate this Lease Agreement and pursue all remedies available to it pursuant to this Lease Agreement or at law or in equity; provided, however, that, except in the event that such Hazardous Substance creates a health hazard, Simclar shall have such additional time as necessary to complete such remediation so long as Simclar proceeds promptly and diligently.

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(d)Landlord hereby agrees to indemnify and to hold harmless Simclar, its agents and employees, of, from and against any and all expense, loss or liability suffered by Simclar by reason of the presence of Hazardous Substance on the Simclar Premises or Lots 1 or 4 resulting and arising from Landlord or which existed prior to Landlord's acquisition of Lots 1, 2, 3 or 4. In the event that any of the foregoing Hazardous Substances, which are located within the Simclar Premises or Lots 1 or 4 and which require remediation under applicable Environmental Statutes, are not so remediated by Landlord within ninety (90) days after written request by Simclar therefore, Simclar shall have the right to terminate this Lease Agreement and pursue all remedies available to it pursuant to this Lease Agreement or at law or in equity; provided, however, that, except in the event that such Hazardous Substance creates a health hazard, Landlord shall have such additional time as necessary to complete such remediation so long as Landlord proceeds promptly and diligently.

(e)Simclar acknowledges that Landlord has provided to Simclar, prior to the execution of this Lease Agreement, a copy of the Phase 1 environmental study it has with respect to the Simclar Premises and the documentation it has with respect to the asbestos removal that was performed in the Building.

(f)The covenants, obligations and liabilities under this Section shall survive the expiration or earlier termination of this Lease Agreement.

[Signatures appear on the following page.]

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IN WITNESS WHEREOF, the parties have executed this Lease Agreement as of the Effective Date first above written.

LANDLORD

By:              /s/ Phillip A. Wiland                            

Phillip A. Wiland

                    /s/ Linda S. Wiland                              

Linda S. Wiland

SIMCLAR INTERCONNECT TECHNOLOGIES, INC.

By:              /s/ Ken Cleeton                                    

Name:                      Ken Cleeton                             

Title:                       Director of Operations            

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Exhibit A

Plat of Wiland Park Subdivision

Exhibit B

Floor Plan of the Building

Exhibit C

Shared Utilities Agreement

THIS SHARED UTILITIES AGREEMENT, made this 28th day of December 2006 (“Effective Date”), by and between SIMCLAR INTERCONNECT TECHNOLOGIES, INC., a Delaware corporation, (“Simclar”) and ASTRAL DIRECT, LLC., a Delaware limited liability company (“Astral”) and PHILLIP A. WILAND and LINDA S. WILAND, both individuals who reside in the State of Colorado (collectively, the “Landlord”).

WITNESSETH

WHEREAS, Simclar and Astral entered into separate lease agreements with Landlord on this same date for collectively all of the space in their building commonly known as 1600 West Jackson, City of Ozark, State of Missouri (the “Building”); and

WHEREAS, the parties desire to avoid separate metering of electric, gas, water and sewer utilities at the Building; and

WHEREAS, all such utilities are now currently in the name of and paid entirely by Astral; and

WHEREAS, it is anticipated that Simclar will consume a larger share of such utilities; and

WHEREAS, the parties desire to change such utilities from Astral’s name into Simclar’s name and arrange for Astral to reimburse Simclar for its fair share of such utility costs as set forth herein.

NOW THEREFORE, in consideration of the sum of ten and 00/100 Dollars ($10.00), the mutual covenants and agreements between the parties hereto and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.Transfer of Utilities. During the days immediately following the Effective Date hereof Astral and Simclar agree to cooperate fully and swiftly with each other to transfer electric and gas utilities to the name of Simclar. Astral and Simclar shall use their best efforts to make such transfer effective within 45 days of the Effective Date, or sooner. Until such transfer is complete Astral shall pay all such utilities in full and invoice Simclar for its pro-rata share of utilities, it being agreed that Simclar’s share is 30.85% and Astral’s share is 69.15%. If transfer is delayed beyond 45 days and Simclar clearly consumes utilities at a higher rate than has been customary for Astral (as is defined in Section 4 below) then Astral may invoice Simclar for such increase.

2.Payment to Utility Companies. After the gas and electric utilities are transferred to Simclar, Simclar shall be responsible for the timely payment of all electric, gas, water and sewer utilities for the entire Building, subject to partial reimbursement by Astral as set forth herein.

3.Payment of Water and Sewer Utilities. The parties acknowledge that the water and sewer utilities have historically been very low cost, and that such utilities are on a single meter that serves the Building and also serves a neighboring building occupied by a third party, SLS International, Inc. (“SLS”). SLS receives the invoice, pays it, and sometimes invoices Astral monthly but sometimes does not because the amount is so small. Astral will introduce Simclar to SLS and work with them to arrange for the monthly billing to be sent to Simclar for payment. Upon receipt of said invoices, Simclar shall pay the invoices and Astral shall reimburse Simclar for Astral’s pro-rata share. If SLS does not cooperate, then Astral will continue to pay the Water and Sewer Utilities and invoice Simclar monthly for its pro-rata share.

4.Partial Reimbursement by Astral. Astral has provided to Simclar an exact copy of all electric and gas utility costs incurred by Astral for the entire building during a recent 12-month period. The parties acknowledge that the sum of those costs (including water and sewer costs estimated to be $100 per month) was $134,386.69. The parties also acknowledge and agree that Astral’s pro-rata square footage in the building is 69.15%. The parties further acknowledge and agree that Astral will pay Simclar a fixed amount of $7,976.35 monthly, on or before the first business day of each month, as its full share of electric, gas, and water and sewer utility costs (calculated by taking the pro-rata share of 12-month utilities, and increasing that amount 3% to account for possible higher rates). The parties further agree that each year beginning in January 2008 Simclar may increase its billing to Astral for Shared Utilities in an amount not to exceed the lesser of 5% or the actual percentage increase in utility rates. All payments by Astral shall be forwarded to Simclar at 1624 W. Jackson, Ozark, Missouri 65721, Attention: President. All invoices, notices and updated payment amounts shall be forwarded to Astral at 1600 W. Jackson, Ozark, Missouri 65721, Attention: President.

5.Other Utilities. Each tenant shall contract for and pay for any utilities it requires other than electric, gas, and water, including but not limited to telephone, data lines, communications lines, cable and other such services.

6.Ongoing Obligation. Simclar and Astral are liable for the payment of utility services as set forth herein until the end of their Lease Term with Landlord.

7.Incorporated into Leases. This Shared Utilities Agreement is hereby incorporated into and a part of the leases Simclar and Astral entered into with Landlord effective the same date hereof. A breach of this Shared Utilities Agreement shall constitute a breach of Simclar’s and Astral’s respective leases with Landlord.

[Signatures appear on the following page.]

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ASTRAL DIRECT, LLC

By:              /s/ Phillip A. Wiland                            

Name:         Phillip A. Wiland                                 

Title:           President                                               

SIMCLAR INTERCONNECT TECHNOLOGIES, INC.

By:              /s/ Ken Cleeton                                    

Name:         Ken Cleeton                                          

Title:           Director of Operations                        

LANDLORD

By:              /s/ Phillip A. Wiland                            

Phillip A. Wiland

                    /s/ Linda S. Wiland                              

Linda S. Wiland

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Exhibit D

Work Letter

Simclar shall, subject to the provisions set forth below, furnish and install or cause to be furnished and installed in the Simclar Premises or the remainder of Lots 1 and 4, in a good and workmanlike manner and with reasonable diligence, the items of work, including, but not limited to, the construction of the demising wall between the Simclar Premises and the area of the Building being leased by Astral, (“Tenant’s Work”, the “Work” or the “Tenant Improvements”) shown on the approved Space Plans and Working Drawings (as hereinafter defined) and any changes, modifications, deletions or additions thereto approved in writing by Landlord. Landlord shall cause the Simclar Premises and remainder of Lots 1 and 4 to be in the Required Condition (as defined below). Unless defined otherwise in this Work Letter, capitalized terms used herein shall have the meanings ascribed to them in the Lease Agreement to which this Exhibit D is attached.

1.Condition of the Property. Landlord shall deliver the Premises to Simclar and Simclar agrees to accept the Premises, in its as-is condition. Landlord warrants that, to Landlord’s knowledge as of the date hereof, the Simclar Premises and the remainder of Lot 1 and Lot 4 comply with all applicable laws and regulations and is structurally sound (“Required Condition”).

2.Tenant’s Work.

(a)Simclar shall prepare and submit to Landlord for its approval Simclar’s space plans (“Space Plans”) for the Premises. Landlord shall have five (5) Business Days (defined herein) to approve or disapprove of the Space Plans (such approval not to be unreasonably withheld, as provided in this Work Letter). If disapproved, Landlord shall meet with Simclar and their respective contractors and/or consultants to endeavor to finalize the Space Plans within five (5) Business Days of Landlord’s disapproval. If the parties are unable to reach agreement, Simclar, in its sole discretion, shall have the option to terminate the Lease Agreement without further obligation to Landlord. Once the Space Plans have been approved by Landlord, Simclar shall cause its architect/engineer to prepare “permit-ready” working drawings from the Space Plans, which shall include, among others, all architectural, mechanical/HVAC, electrical and structural engineering drawings, locations of doors, partitioning, reflected ceiling, electrical fixtures, outlets and switches, telephone outlets, plumbing fixtures, extraordinary floor loads and other special requirements and finish schedules (the “Working Drawings”). The Working Drawings shall conform to all applicable building codes, shall be sealed by a Missouri licensed architect and shall be in a form satisfactory for filing with appropriate governmental authorities for permits and licenses required for construction. The Working Drawings shall be submitted to Landlord for its approval, which shall not be unreasonably withheld, as provided in this Work Letter. Landlord shall, within five (5) Business Days after receipt of the Working Drawings, either approve or disapprove of the Working Drawings, and, if disapproved, Landlord shall meet with Simclar and their respective contractors and/or consultants to endeavor to finalize the Working Drawings within five (5) Business Days of Landlord’s disapproval. If Landlord fails to respond within the aforesaid five (5) Business Days after receipt of complete Space Plans and Working Drawings, such Space Plans and Working Drawings, as the case may be, shall be deemed approved. Landlord shall have the right to disapprove or withhold approval of Space Plans, Working Drawings or other requests for approval of changes or additions by Simclar only for reasonable and material reasons which shall be limited to the following (i) adverse effect on the Building structure, (ii) possible damage or adverse effect to the Building systems, (iii) noncompliance with applicable codes, or (iv) adverse effect on the exterior appearance of the Building. In the event that Landlord’s required changes materially increase the cost of the Tenant Work or make the Simclar Premises unsuitable for Simclar’s purposes, in the sole reasonable discretion of Simclar, Simclar shall have the right to terminate the Lease without further obligation to Landlord. As used herein the term “Business Days” shall mean Monday through Friday, except when such days are nationally recognized holidays.

(b)Upon approval of the final Space Plans, Working Drawings and any changes, modifications, deletions or additions thereto, such documents shall be deemed attached hereto and incorporated herein by reference and shall become a part of the Lease as if fully set forth therein.

(c)Any changes, modifications, deletions or additions to the approved final Space Plans or Working Drawings (“Change Orders”) shall be subject to the approval of Landlord (i) within two (2) Business Days following Landlord’s receipt of such request for approval of cosmetic or finish selection Change Orders and (ii) within three (3) Business Days following Landlord’s receipt of such request for approval of all other Change Orders.

(d)Simclar shall be required to obtain or provide any completion or performance bond required by any local governmental authority in connection with any construction, alteration or improvement work performed by or on behalf of Simclar.

(e)The commencement of Rent as set forth in Section 3(b) which is scheduled to commence as of February 1, 2007, shall be delayed by one (1) day for each day that Tenant’s Work extends beyond the February 1, 2007 as a direct result of any Landlord Delay (as defined below). Except as otherwise provided herein, no Landlord Delay shall be deemed to have occurred unless Simclar has provided written notice to the Landlord specifying the action or inaction that Simclar contends constitutes a Landlord Delay (“Delay Notice”). If Landlord has not cured a Landlord Delay within two (2) Business Days after receipt of the Delay Notice, a Landlord Delay, as set forth in such Delay Notice, shall be deemed to have occurred commencing as of the date the Delay Notice is received by Landlord and continuing until Landlord reasonably and substantially corrects the Landlord Delay specified in the Delay Notice or the Tenant’s Improvements are substantially complete.

“Landlord Delay” means any delay in the completion of the Tenant’s Work that is a direct result of Landlord’s negligent or intentional (1) delay in giving approvals or authorizations or (2) failure or refusal to permit Simclar, its agents, or contractors access to and use of the Simclar Premises for performance of the Tenant’s Work.

3.Landlord’s Work. Landlord shall remove all personal property from the Simclar Premises and construction area within five (5) Business Days after execution of the Lease Agreement. Landlord shall further cause Astral Direct to remove all personal property from the Simclar Premises and construction area within five (5) Business Days after execution of this Lease Agreement.

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4.Subject to the requirements of this Work Letter, Simclar and its contractors shall have control over the means and methods for the construction of the Tenant Improvements.

5.In the event that at any time the Simclar Premises or the Common Areas are found to contain hazardous substances (as defined in Section 34 of the Lease Agreement), Simclar shall have the right, by notice to Landlord, to require Landlord to remove, at Landlord’s sole cost and expense, all hazardous substances within sixty (60) days following receipt of such notice. If Landlord does not remove such hazardous substances within such time period, Simclar may remove, encapsulate, contain, or otherwise dispose of such hazardous substances, and the cost incurred by Simclar in connection therewith shall be reimbursed by Landlord to Simclar within ten (10) days after receipt by Landlord from Simclar of an invoice documenting such costs. Any delay incurred by Tenant in the design or construction of the Tenant Improvements because of the presence of hazardous substances shall constitute a Landlord Delay.

6.In the event that Simclar is unable to obtain any required permits or conform to applicable zoning codes, Simclar has the right to terminate the Lease Agreement without further obligation to Landlord.

7.In the event of a conflict between the terms of this Work Letter and the terms of the Lease, the terms of the Work Letter shall prevail.

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Exhibit E

Astral Lease

LEASE AGREEMENT

THIS LEASE AGREEMENT, made this 28th of December, 2006 (“Effective Date”), by and between PHILLIP A. WILAND and LINDA S. WILAND, both individuals who reside in the State of Colorado (collectively, the “Landlord”) and ASTRAL DIRECT, LLC., a Delaware limited liability company (“Astral”).

WITNESSETH

WHEREAS, Astral currently leases the Building (as defined below) from Landlord pursuant to a Consent to Assignment Agreement dated March 23, 2006, under which a prior lease agreement dated August 17, 2005, between Landlord and a predecessor company of Astral was assigned to Astral (the “Prior Lease”), said Prior Lease also granting to Astral a purchase option on the Building; and

WHEREAS, the parties desire to terminate the Prior Lease and purchase option, reduce the area leased to Astral, reduce the monthly rent, and modify certain terms and conditions as provided for in the Prior Lease according to the terms and conditions set forth herein; and

WHEREAS, Landlord is the owner of Lots 1 and 2 of Wiland Park Subdivision (the “Wiland Park Subdivision” and each lot individually referred to as “Lot 1” and “Lot 2”), a subdivision in Ozark, Christian County, Missouri, the final plat of which is recorded in Book H, at Page 524 in the Office of the Recorder, Christian County, Missouri, a copy of which is attached hereto as Exhibit A and incorporated herein by this reference;

WHEREAS, located on Lot 1 is a building containing approximately 171,238 square feet (the “Building”), together with certain improvements, including, but not limited to, an entrance and drive off of Highway 14, a loading and unloading dock and various areas of parking;

WHEREAS, Lot 2 contains no buildings but is for use as parking area;

WHEREAS, Landlord desires to lease to Astral and Astral desires to lease from Landlord (1) approximately 118,412 square feet of space in the Building (69.15% of the total square footage of the Building) as set forth and described in Exhibit B, which is attached here and incorporated herein by this reference, (2) with the exception of any areas specifically reserved for use by Simclar, including, but not limited to the portion of the Building leased to Simclar and the parking areas reserved to them, the non-exclusive right to use any interior and exterior common and public areas and facilities on Lot 1 (as further defined in Section 1 below) and (3) all of Lot 2 (the “Simclar Premises”);

WHEREAS, Astral acknowledges that the remaining portion of the Building (that portion not being leased by Astral as provided for herein) and certain parking areas are being leased exclusively to Simclar Interconnect Technologies, Inc., a Delaware corporation (“Simclar”) pursuant to a lease that was executed simultaneously with this Lease Agreement (the “Simclar Lease”); and

WHEREAS, the parties agree that this Lease Agreement is contingent upon and is to be executed simultaneously with the Simclar Lease, which said Simclar Lease grants Simclar an option to purchase and a right of first refusal with respect to Lots 1, 2, 3 and 4 of Wiland Park Subdivision;

NOW THEREFORE, in consideration of the sum of ten and 00/100 Dollars ($10.00), the mutual covenants and agreements between the parties hereto and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by both parties, Landlord and Astral agree as follows:

1.Premises. Landlord hereby leases to Astral and Astral agrees to lease from Landlord, upon and subject to the terms and provisions of this Lease Agreement, the Astral Premises.

The Astral Premises is limited by the following:

(a)The drive, as currently constructed, which provides access to the Building from and to State Highway 14 shall only be used for the purpose of ingress and egress and is not to be used for parking;

(b)The loading dock area and the truck turnaround area on the east side of the Building on Lot 1 and all of Lot 2, except that Simclar will generally have the right of passage through this area on Lot 1 for ingress and egress to the other Lots and to the other entrances to the building and other parking areas;

(c)Ten (10) of the parking spaces located on the north side of the Building on Lot 1 shall be reserved and designated for parking by Simclar. More specifically, five (5) of the parking spaces which face the Building and five (5) of the parking spaces which face State Highway 14 shall be reserved and designated for parking by Simclar. All remaining parking spaces on the north side of the Building on Lot 1 shall be reserved for use by Astral. Simclar and Astral shall mutually agree as to the exact location of the ten (10) parking spaces subject to the above.

(d)All the parking on the south side of the Building on Lot 1 will be shared equally by Simclar and Astral on a daily first-come, first-served basis.

(e)The lease of Lot 2 is strictly for use as parking and no improvements may be constructed thereon;

Astral acknowledges that Lot 3 and Lot 4, which are also owned by Landlord and are a part of Wiland Park Subdivision, are not a part of the Astral Premises or this Lease Agreement and Astral has no right to use any portion of said Lots.

2.Term. Astral takes and accepts this lease commencing on the Effective Date and expiring on August 31, 2015, unless sooner terminated or extended as provided in this Lease or otherwise agreed to in writing by the parties (“Lease Term”).

3.Rent. Astral covenants and agrees to pay Landlord without demand or offset (unless specifically provided herein), at Landlord’s office located at 8000 North 41st Street, Longmont, Colorado 80503 or at such place as Landlord may from time to time designate in writing, minimum rent (“Rent”) as follows:

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(i)From the Effective Date through January 31, 2007, including any partial months, at the rate of Three Hundred Seventy Three Thousand Fifty One and 50/100 Dollars ($373,051.50) per annum, payable in equal monthly installments of Thirty One Thousand Eighty Seven and 63/100 Dollars ($31,087.63); and

(ii)From February 1, 2007, through December 31, 2007, including any partial months, at the rate of Two Hundred Seventy Seven Thousand Fifty One and 50/100 Dollars ($277,051.50) per annum, payable in equal monthly installments of Twenty Three Thousand Eighty Seven and 63/100 Dollars ($23,087.63); and

(iii)From January 1, 2008, through the remainder of the Lease Term, including any partial months, the Rent shall be adjusted annually on January 1st of each year in an amount not to exceed the lesser of (a) five percent (5%) of the previous year’s rental rate per annum, or (b) the percentage change in “CPI”. The first such increase, effective January 1, 2008, shall be an increase related to the change in CPI for the period January 1, 2005, through December 31, 2007, or such earlier end date for which information is available at the time of the increase. Subsequent increases shall relate to the change in CPI for the prior 12-month period.

For purposes hereof, the term “CPI” shall mean the Consumer Price Index-All Urban Consumers, U.S. All Items (1982-84= 100) as published by the United States Department of Labor, Bureau of Labor Statistics. In the event that the United States Department of Labor, Bureau of Labor Statistics discontinues the publication of the present CPI, the index to be used hereunder shall be such index as may be published by any other United States government bureau or department to replace the present CPI. The percentage increase in CPI shall be determined by (a) taking the September CPI reported for the calendar year prior to the calendar year for which the increase is effective and subtracting the September CPI reported one year earlier (the “Prior Period CPI”) and (b) dividing the result by the Prior Period CPI.

(iv)Astral shall reimburse Landlord for Landlord’s real estate taxes and reasonable cost of real estate insurance. Such reimbursement shall be shared on a pro-rata square footage basis with other tenants in the Building as set forth in Exhibit B hereto. The total cost of real estate taxes and insurance for the remaining pro-rata portion of 2006 and for the 2007 calendar year is estimated to be $0.26 per square foot of leasable space in the Astral Premises. Such reimbursement shall be paid monthly in the amount of $2,565.59, to be paid along with the Rent and adjusted annually if taxes and insurance costs differ materially from the estimate, beginning on the Effective Date hereof.

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4.Maintenance. Astral agrees at its sole cost and expense to keep the Astral Premises in good order, condition and repair, normal wear and tear excepted (unless the need for such repairs results from the act or neglect of Landlord), including grounds maintenance. Landlord shall at its sole cost and expense keep the exterior walls and foundation in good order, condition and repair. Astral will repair minor leaks in the roof. Landlord shall be responsible for major roof maintenance if needed, to the extent covered by insurance. Other roof repair will be paid by Astral. Notwithstanding the foregoing, any damage to the exterior walls, foundation, or roof that is the result of negligence by Astral or an Astral employee, customer, supplier or guest, the cost of repair will be borne by Astral.

Specifically with respect to the maintenance of grounds area on Lot 1, Astral shall be responsible to the extent of and in a prorated amount equal to its percentage portion of the Building (69.15%). Simclar shall be responsible for the remaining 30.85% of the grounds area maintenance on Lot 1 in accordance with the Simclar Lease. With respect to snow removal, mowing and similar maintenance for Lot 1, Simclar and Astral have discussed the possibility and are entitled to reach a separately negotiated agreement concerning the payment of such maintenance items as between them which deviates from the strict percentage prorata allocation provided above.

Astral will make repairs promptly upon becoming aware of a condition needing repair. If it is a condition for which Landlord is responsible and Landlord fails to make any repairs within twenty (20) days of receiving Astral’s notice of a defective condition (or if Landlord fails to commence repair and diligently pursue the same to completion if the defective condition is of the type can not be remedied within 20 days), then Astral may make the necessary repairs and deduct reasonable costs for the repairs from the Rent payments next coming due until Astral has been completely reimbursed.

5.Use of Astral Premises. Astral shall use the Astral Premises only for lawful purposes, and shall, at Astral’s own expense, comply in all material respects with all laws, statutes, ordinances, regulations, rules and orders of all governmental bodies and authorities relating to such use or its occupancy of the Astral Premises.

6.Destruction or Damage to Astral Premises. If the Astral Premises are destroyed or damaged to an extent that Astral’s ability to carry on its normal business function is effectively denied by casualty, this Lease Agreement shall, at the option of Astral, terminate as of the date specified by Astral in a written notice to Landlord. If, as allowed above, Astral does not elect to terminate this Lease Agreement or the damage does not rise to the level that Astral’s ability to carry on its normal business function is effectively denied, Landlord shall promptly restore the Astral Premises to an architectural unit as nearly like its condition prior to such casualty, and the Rent shall be abated on an equitable basis, based upon the extent to which the Astral Premises are untenable or unusable, until the date of completion of restorations by Landlord.

7.Astral’s Property. All movable partitions, other fixtures, business and trade fixtures, machinery and equipment, communications equipment and office equipment, including, without limitation, all furniture, furnishings and other articles of movable personal property owned by Astral and located on the Astral Premises shall be and shall remain the property of Astral and may be removed by Astral at any time during the term of this Lease Agreement. Any personal property of Astral which shall remain on the Astral Premises after Astral gives up possession of the Astral Premises may, at the option of the Landlord, be deemed to have been abandoned and may be retained by Landlord as its property or may be disposed of without accountability, in such manner as the Landlord may see fit. The terms of this Paragraph 7 shall survive the expiration or earlier termination of the Lease Agreement.

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8.Condemnation.

(a)If during the Lease Term the whole of the Astral Premises shall be lawfully condemned or taken (hereinafter both are referred to as a “Taking” or being “Taken”) in any manner for any public or quasi-public use or purpose, this Lease Agreement and the term and estate hereby granted shall forthwith cease and terminate as of the date of vesting of title pursuant to the Taking.

(b)If a part of the Astral Premises shall be Taken during the Lease Term, then the part so Taken shall no longer constitute part of the Astral Premises, but this Lease Agreement shall continue in force and effect as to the part not so Taken. If any partial Taking materially impairs Astral’s ability to conduct its business from the Astral Premises, Astral (in its sole discretion) may deem the partial Taking a Taking of the entire Astral Premises and terminate the lease. If a partial Taking does not result in the termination of this Lease Agreement, Landlord shall promptly restore that portion of the Astral Premises that remains to an architectural unit as nearly like its condition prior to such Taking and the Rent shall be reduced on an equitable basis, based upon the extent of the partial Taking (effective the first day after the Taking).

(c)Landlord shall be entitled to receive the entire award in any proceeding with respect to any Taking (other than for a temporary use and occupancy) provided for in this Paragraph 10 which occurs during the Lease Term without deduction therefrom for any estate vested in Astral by this Lease Agreement, and Astral shall receive no part of and shall and does hereby assign to Landlord any such award, except as hereinafter expressly provided. Astral shall have the right to make a separate claim with the condemning authority for (i) any moving expenses incurred by Astral as a result of such condemnation; (ii) any costs incurred and paid by Astral in connection with any alteration or improvement made by Astral to the Astral Premises; (iii) the value of any of Ten ant’s property so Taken; and (iv) any other separate claim which Astral may be lawfully permitted to make, provided, however, that such other separate claim shall not reduce or adversely affect the amount of Landlord’s award.

(d)If all or any part of the Astral Premises shall be temporarily taken during the Lease Term, then, at the option of Astral, this Lease Agreement shall remain in full force and effect. Astral shall continue to be responsible for all of its obligations hereunder insofar as such obligations are not affected by such Taking. Upon the expiration of any temporary taking, Landlord shall have no obligation to restore the Astral Premises to their former condition.

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9.Utilities and Taxes.

(a)Utilities. The parties hereto acknowledge that utilities for the Building have not been separately metered for the individual tenants. The parties further acknowledge that the cost to meter the utilities separately is high. Therefore, the parties agree that electric, gas, and water utilities will be paid in full to the utility provider by Simclar, and that Astral will reimburse Simclar directly upon receipt of an invoice for Astral’s pro rata portion of such utilities, defined as follows:

i.Astral hereby agrees to enter into a Shared Utilities Agreement with Simclar in a form substantively identical to Exhibit C hereto.

ii.Astral shall contract for and pay for any utilities it requires other than electric, gas, and water, including but not limited to telephone, data lines, communications lines, cable and other such services.

iii.Notwithstanding anything contained in the Shared Utilities Agreement and in the event Simclar does not abide by the Shared Utilities Agreement, Astral is liable for the payment of all of its pro rata share of the utility services for the Astral Premises until the end of the Lease Term and such liability shall survive the expiration or termination of the Lease Agreement.

(b)Taxes. Landlord shall be responsible for paying all real estate taxes, in a timely fashion as the same become due and payable, for Lot 1 and Lot 2. The term ‘real estate taxes’ shall include, without limitation, all real estate taxes assessed by any federal, state, county, municipal or quasi-governmental authority, ad valorem real estate taxes, special assessments, transfer or gift taxes, value added taxes, documentary taxes, stamp taxes and any other taxes based on or relating to the real property or improvements thereof. Astral is responsible for and shall reimburse Landlord for 69.15% of the real estate taxes for Lot 1 (said 69.15% representing the percentage of the total square footage of the Building leased by Astral) and 100% of the real estate taxes for Lot 2.

10.Insurance, Release, and Indemnity.

(a)Landlord Insurance. Landlord agrees to purchase (at its sole cost and expense) and keep in force (i) insurance on the Building against damage by fire and extended perils coverage in an amount equal to the full replacement cost thereof with such reasonable deductions as would be carried by a prudent owner of a reasonably similar building, having regard to size, age and location; (ii) public liability and property damage insurance in such reasonable amounts and with such reasonable deductions as would be carried by a prudent owner of a reasonably similar building, having regard to size, age and location; and (iii) such other insurance as Landlord reasonably considers advisable in such reasonable amounts and with such reasonable deductions as would be carried by a prudent owner of a reasonably similar building, having regard to size, age and location. Astral shall reimburse Landlord for its share of such insurance as set forth in Section 3(iv) hereof.

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(b)Astral Insurance. Astral agrees to purchase (at its sole cost and expense) and keep in force Comprehensive General Liability Insurance on Lot 1, Lot 2 and the Building, with provisions adequate to protect both Landlord and Astral and at the minimum limit of not less than $1,000,000.00 per occurrence for bodily injury and property damage arising out of the activities and operations of Astral and any other person on the Astral Premises or performing work on behalf of Astral and shall name Landlord as an additional insured. Such Comprehensive General Liability Insurance may be carried by Astral through an Umbrella Liability policy. Upon request by Landlord, Astral shall furnish Landlord a certificate indicating that the insurance policy is in full force and effect, that Landlord has been named as an additional insured, and that the policy may not be cancelled unless ten (10) days prior written notice of the proposed cancellation has been given to Landlord. Astral agrees to purchase (at its sole cost and expense) and keep in force “All Risk” property insurance including fire, sprinkler leakage and other such perils in an amount equal to the full replacement cost of all property owned by Astral, or for which Astral is responsible, including all of the Astral improvements constructed by or on behalf of Astral. Astral agrees to maintain workers’ compensation insurance on its employees on the Astral Premises with at least the statutorily mandated limits of coverage. Nothing contained in this Section 12 shall be construed as a requirement for Landlord to insure Astral’s personal property or equipment.

(c)Release. Notwithstanding anything to the contrary contained herein, Landlord and Astral each herewith and hereby releases and relieves the other and waives its entire right of action against the other for any loss or damage to the Building or Astral Premises or Lots 1 and 2, which loss or damage is insured by the coverage required by this Section 10. The casualty insurance obtained by Landlord and Astral, respectively, shall include a full waiver of subrogation by the respective insurers of Landlord and Astral.

(d)Indemnity. Landlord agrees to indemnify and hold Astral harmless from and against all costs, claims, suits, causes of action, losses, bodily injury (including loss of life) or property damage arising from or out of any occurrence in or upon Lot 1 or Lot 2, or the Building, occurring before the execution of this Lease Agreement, other than any such claims arising out of the negligent actions or omissions of the Astral. Astral agrees to indemnify and hold Landlord harmless from and against all costs, claims, suits, causes of action, losses, bodily injury (including loss of life) or property damage arising from or out of the occupancy or use by Astral, its agents, contractors or employees of the Astral Premises or the licensed area, from and after the execution of this Lease Agreement, other than any such claims arising out of the negligent actions or omissions of Landlord.

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11.Default, Rights and Remedies.

A.The following shall constitute events of default:

(1)Nonpayment. Astral’s failure to pay rent or any other amount due under this Lease Agreement and such failure continues for ten (10) days after written notice from Landlord that such rental or amount was not paid when due.

(2)Failure to Perform. Astral’s failure to perform any obligation under this Lease Agreement (other than the payment of rent or any other amounts due under this Lease Agreement and including, but not limited to the Shared Utilities Agreement) within thirty (30) days after notice of nonperformance; provided, however, that if the breach is of such a nature that it cannot be cured within thirty (30) days, Astral shall be deemed to have cured if cure is commenced promptly and diligently pursued to completion; and provided further, that in the event of a breach involving an imminent threat to health or safety, Landlord may in its notice of breach reduce the period for cure to such shorter period as may be reasonable under the circumstances.

(3)Assignment or Sublease Without Consent. If there shall be an assignment or sublease by Astral, whether voluntarily or involuntarily, without Landlord’s prior written consent, or if Astral’s interest under this Lease Agreement or in the Astral Premises shall be transferred to or pass to any other party, without Landlord’s prior written consent;

(4)Execution and Attachment Against Astral. If Astral’s interest under this Lease Agreement or in the Astral Premises shall be taken upon execution or by other process of law directed against Astral, or shall be subject to any attachment at the instance of any creditor or claimant against Astral and said attachment shall not be discharged or disposed of within thirty (30) days after the levy thereof; and

(5)Bankruptcy or Related Proceedings. If Astral shall file a petition in bankruptcy or insolvency .or for reorganization or arrangement under the bankruptcy laws of the United States or under any similar act of any state, or shall voluntarily take advantage of any such law or act by answer or otherwise, or shall be dissolved or shall make an assignment for the benefit of creditors; if involuntary proceedings under any such bankruptcy or insolvency law or for the dissolution of Ten ant shall be instituted against Astral and is not dismissed within sixty (60) days; or if a receiver or trustee shall be appointed for the Astral Premises or for all or substantially all of the property of Astral,

and such proceedings shall not be dismissed or such receivership or trustee vacated within sixty (60) days after such institution or appointment

B.Upon any event of default by Astral, Landlord shall have the right, at Landlord’s election, then or any time thereafter, to exercise any one or more of the following remedies, provided exercise of any of these remedies shall not prevent the concurrent or subsequent exercise of any other remedy provided for in this Lease Agreement or otherwise available to Landlord at law or in equity:

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(1)Cure by Landlord. Landlord may, at Landlord’s option, but without obligation to do so, and without releasing Astral from any obligations under this Lease Agreement, make any payment or take any action as Landlord may deem necessary or desirable to cure any such Astral default in such manner and to such extent as Landlord may deem necessary or desirable. Landlord may do so without demand on, or written notice to, Astral. Astral shall pay Landlord, within ten (10) days after demand, all advances, costs and expenses of Landlord in connection with the making of any such payment or the taking of any such action.

(2)Termination of Lease and Damages. Landlord may terminate this Lease Agreement, effective at such time as may be specified by written notice to Astral, and demand and recover possession of the Astral Premises from Astral. Astral shall remain liable to Landlord for damages in an amount equal to the rent and other amounts payable hereunder which would have been owing by Astral hereunder for the balance of the Lease Term had this Lease Agreement not been terminated, less the net proceeds, if any, of any re-letting of the Astral Premises by Landlord subsequent to such termination, after deducting all Landlord’s expenses in connection with such recovery of possession or re-letting. Landlord shall be entitled to collect and receive such damages from Astral on the days on which the applicable rent would have been payable if this Lease Agreement had not been terminated.

(3)Repossession and Re-letting. Landlord may reenter and take possession of the Astral Premises or any part thereof, or the licensed area: without demand or notice, and repossess the same and expel Astral and any party claiming by, through or under Astral, and remove the effects of both using such force for such purposes as may be necessary, without being liable for prosecution on account thereof or being deemed guilty of any manner of trespass, and without prejudice to any remedies for arrears of rent or right to bring any proceeding for any default. No such reentry or taking possession of the Astral Premises by Landlord shall be construed as an election by Landlord to terminate this Lease Agreement unless a written notice of such intention is given to Astral. No notice from Landlord hereunder or under a forcible entry and detainer statute or similar law shall constitute an election by Landlord to terminate this Lease Agreement unless such notice specifically so states. Landlord reserves the right, following any reentry or re-letting, to exercise its right to terminate this Lease Agreement by giving Astral such written notice, in which event the Lease Agreement will terminate as specified in said notice. After recovering possession of the Astral Premises, Landlord may re-let the Astral Premises, or any part thereof: for the account of Astral, for such term and on such conditions as Landlord, in its sole and subjective discretion, may determine. Landlord may make such repairs, alterations or improvements as Landlord may consider appropriate to accomplish such re-letting. Notwithstanding Landlord’s recovery of possession of the Astral Premises, Astral shall continue to pay on the dates herein specified, the amounts which would be payable hereunder if such repossession had not occurred. Upon the expiration or earlier termination of this Lease Agreement, Landlord shall refund to Astral any amount, without interest, by which the amounts paid by Astral, when added to the net amount, if any, recovered by Landlord through any re-letting of the Astral Premises, exceeds the amounts payable by Astral under this Lease Agreement.

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(4)Other Remedies. Pursue any other remedies available at law or in equity.

12.Landlord Default. Unless otherwise specified elsewhere in this Lease Agreement, if Landlord fails to perform any material provision of this Lease Agreement within thirty (30) days (or such additional time as Landlord shall reasonably require in the event such failure cannot be reasonably cured within such thirty (30) day period and Landlord has within thirty (30) days after notice of default from Astral commenced to cure said default and is diligently prosecuting same to completion) after the receipt of written notice from Astral to Landlord that Landlord is in default hereunder, then Astral may terminate this Lease Agreement by giving to Landlord notice of Astral’s intention to do so, in which event the Lease Term shall end, and all obligations shall cease as of and on the date stated in such notice.

13.Assignment.

(1)Astral may assign or transfer this Lease Agreement or any interest herein, voluntarily or by operation of law, and may sublet or license the whole or any part of the Astral Premises upon the written consent of Landlord, which consent shall not be unreasonably withheld. No consent to an assignment or sublease shall constitute consent to any further assignment or subletting. Astral shall remain fully liable for the payment and performance of all obligations of Astral under this Lease Agreement, notwithstanding any assignment or sublease, for the entire Lease Term.

(2)Landlord may assign this Lease Agreement without the consent of Astral. Furthermore, Astral hereby acknowledges the existence of the option to purchase and the right of first refusal on Lots 1, 2, 3 and 4 (including the Astral Premises) that Landlord has granted to Simclar. In the event of any transfer or assignment of Landlord’s interest in this Lease Agreement, the transferor shall cease to be liable and shall be released from all liability for the performance or observance of any agreements or conditions on the part of Landlord to be performed or observed subsequent to the time of said transfer, provided that such transferee assumes in writing all of Landlord’s obligations hereunder.

14.Time of Essence. Time is of the essence relative to this Lease Agreement.

15.Holding Over. If Astral remains in possession after the termination or expiration of the Lease Term, without any written agreement of the parties, Astral shall occupy the Astral Premises on a month-to-month basis at two times the rental rate then in effect. Therefore, Astral’s month-to-month tenancy may be terminated by either party on thirty (30) days prior written notice.

16.Surrender of Astral Premises. Upon expiration of the term of this Lease Agreement, Astral shall surrender the Astral Premises and keys thereto to Landlord, broom clean, in the same condition as at the commencement of the Lease Term, normal wear and tear excepted.

17.Notices. Any and all notices or other communications required or permitted to be given hereunder shall be sent by United States registered or certified mail (return receipt requested), postage prepaid, and addressed as follows:

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If to Astral:

Astral Direct, Inc.

1600 West Jackson

Ozark, Missouri 65721

Attn: President

With a copy to:

Thompson Coburn LLP

One US Bank Plaza

St. Louis, MO 63101

Attn: Thomas A. Litz, Esq.

If to Landlord:

Phillip Wiland

8000 North 41^st Street

Longmont, CO 80503

With a copy to:

Mike Nichols

Husch & Eppenberger

1949 East Sunshine, Suite 2-300

Springfield, MO 65804

Either party may from time to time change the address to which notice or other communications may be delivered or sent by giving the other party written notice of such change sent in accordance with this Paragraph 17.

18.Quiet Enjoyment. Landlord covenants that it has the right to lease the Astral Premises for the Lease Term, and agrees Astral shall and may peaceably and quietly have, hold and enjoy the Astral Premises without disturbance by Landlord or anyone claiming by, through or under Landlord.

19.Subordination, Acknowledgement of Security Interest.

(a)This Lease Agreement is and shall be subject and subordinate in all respects to all existing and future mortgages now or hereafter encumbering the Astral Premises or any part hereof; provided, however, that Astral’s possession of the Astral Premises shall not be disturbed upon any foreclosure of the mortgage so long as Astral is not in default under this Lease Agreement. Astral shall not be obligated to attorn to the purchaser at any foreclosure sale under any mortgage until such mortgagee enters into a written agreement with Astral to the effect that, in the event of a foreclosure, this Lease Agreement and the rights of Astral hereunder shall not be disturbed but shall continue in full force and effect so long as Astral shall not be in default hereunder and is not in default beyond any applicable grace or cure period hereunder.

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(b)Landlord hereby acknowledges that Astral’s interest in this Lease Agreement is subject to a security agreement which constitutes a lien against Astral’s interest under this Lease Agreement. Landlord hereby agrees that Astral’s failure to remove any lien pursuant to said security agreement is not a default under the terms of this Lease Agreement. Landlord’s acknowledgement of Astral’s security agreement and non-default under this Paragraph 19 is self-operative and no further instrument of acknowledgement shall be required.

20.Definitions. The term “Landlord” as used in this Lease Agreement shall include Landlord’s heirs, executors, administrators, personal representatives, successors, assigns and successors-in-title to the Astral Premises. The term “Astral” as used in this Lease Agreement shall include Astral’s heirs, executors, administrators, personal representatives and successors and, if this Lease Agreement shall be validly assigned or sublet, shall also include Astral’s assignees or subtenants, as to that portion of the Astral Premises covered by such assignment or sublease. The terms “Landlord” and “Astral” shall include male and female, singular and plural, corporation, partnership or individual, as may fit the particular parties, and as may be required by the particular context.

21.Applicable Law. This Lease Agreement shall be governed by and construed in accordance with the laws of the state where the Astral Premises is located.

22.Severability. If any term, covenant or condition of this Lease Agreement or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, neither the remainder of this Lease Agreement nor the application of such term, covenant or condition to any other person or circumstance shall be affected thereby; and each term, covenant or condition of this Lease Agreement shall be valid and enforceable to the fullest extent permitted by law.

23.Entire Agreement. This Lease Agreement sets forth the entire agreement between Landlord and Astral with respect to the lease of the Astral Premises and no representations, warranties, inducements, promises or agreements, oral or written, between the parties not embodied herein shall be of any force or effect.

24.Memorandum of Lease Agreement. Landlord and Astral shall execute and deliver a Memorandum of Lease Agreement (the “Memorandum”), if requested by either party, after the execution and delivery of this Lease Agreement, in recordable form, and which either party may record at its own expense at the applicable Recorder of Deeds or similar office in the County wherein the Property is located.

25.Right to Enter.

(a)Permitted Entries. Landlord and its agents, servants, and employees may enter the Astral Premises during Astral’s normal business hours, or other times mutually agreed to by Landlord and Astral, accompanied by Astral if requested by Astral, to: (i) examine the Astral Premises; (ii) show the Astral Premises to prospective leasees, lenders or purchasers; (iii) post notices of non-responsibility; (vi) post “For Sale” and “For Lease” signs; and (v) perform any maintenance or repairs on or in the Astral Premises as are required or allowed by Landlord.

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(b)Entry Conditions. Notwithstanding Paragraph 26(a), entry is conditioned upon Landlord: (i) giving Astral at least twenty-four (24) hours advance notice, except in an emergency; (ii) promptly finishing any work for which it entered; and (iii) causing no practical interference to Astral’s business. If the Landlord or Landlord’s agents cause damage to Astral’s property, Landlord shall be liable for any such damage.

26.Alterations. Astral may make any non-structural alterations to the Astral Premises without the Landlord’s prior written consent. Any alterations to the Astral Premises which modify or affect in any way the structural components of the Astral Premises must be approved in writing by Landlord. Landlord shall have the right to approve plans for such structural improvements prior to work beginning. Landlord agrees not to unreasonably withhold approval and further agrees to review plans in a timely manner. Alterations made under this Paragraph 26 shall be at Astral’s sole cost and expense. The alterations shall belong to Astral, and Astral may, at Astral’s option, remove any non-permanently affixed alterations constituting trade fixtures, fixtures, furniture, equipment, and other personal property at the expiration or termination of the Lease Term. Astral shall make no alterations to the licenses areas. Astral shall not cause or permit any mechanics’ liens, materialmen’s liens or other liens to be filed against the Astral Premises as a result of any alterations or other work performed on the Astral Premises, and will (within thirty (30) days after notice from Landlord to Astral of such lien(s)) cause any such liens to be removed or Astral shall obtain a bond in the amount of such lien while the matter is resolved.

27.Brokers. Each party hereto represents and warrants to the other that they have had no dealings with any broker or agent in connection with the negotiation or execution of this Lease Agreement, and each agrees to indemnify the other and hold it harmless from and against any and all claims, losses, costs or expenses (including reasonable attorney’s fees and expenses) for commissions or other compensation or charges claimed by a broker or agent for dealings with such party with respect to this Lease Agreement.

28.Counterparts. This Lease Agreement may be signed in one or more counterparts, each of which is deemed an original, but any of which taken together constitutes one and the same instrument.

29.Attorney’s Fees. In the event either party shall find it necessary to obtain the services of an attorney to enforce any of the covenants or conditions of this Lease Agreement, the prevailing party shall be entitled to reimbursement for all costs and expenses, including reasonable attorney’s fees, whether or not litigation is commenced, but including litigation and any associated appeals.

30.Contingent Upon Simclar Lease. This Lease Agreement is specifically contingent upon the execution of a lease by Simclar for the remaining portion of the Building.

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31.Termination of Prior Lease. The parties acknowledge and agree that the Prior Lease between the parties, as well as the option to purchase described therein are hereby terminated and replaced, in its entirety, by this Lease Agreement.

[Signatures appear on the following page.]

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IN WITNESS WHEREOF, the parties have executed this Lease Agreement as of the Effective Date first above written.

LANDLORD:

By:              /s/ Phillip A. Wiland                            

Phillip A. Wiland

                    /s/ Linda S. Wiland                              

Linda S. Wiland

ASTRAL DIRECT, INC.

By:               /s/ Philip S. Minix                                , President

                    /s/ [Signature Illegible]                        , Controller

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EX-10.25

EXHIBIT 10.25

THIRD AMENDED AND RESTATED GENERAL SECURITY AGREEMENT

THIS THIRD AMENDED AND RESTATED GENERAL SECURITY AGREEMENT dated as of February 28, 2007 (this "Agreement"), between Simclar, Inc., a Florida corporation ("Simclar"), Simclar (Mexico) Inc, a Illinois corporation ("Simclar - Mexico"), Simclar Interconnect Technologies, Inc. ("SIT"), a Delaware corporation, Simclar (North America), a North Carolina corporation (“Simclar NA”), Simclar De Mexico, S.A. de C.V., an entity organized under the laws of Mexico ("Simclar SA") (Simclar SA, SIT, Simclar, Simclar NA and Simclar - Mexico shall be individually known as a "Grantor" and collectively as the "Grantors"), and The Governor and Company of the Bank of Scotland (the "Lender") of the Facility Letter in respect of a $5,650,000 term loan originally dated October 2, 2001, as amended on January 17, 2003, July 1, 2003, October 14, 2004 and December 21, 2005, between Lender and Simclar (the "Term Loan Facility Letter"), the Facility Letter in respect of $7,500,000 working capital facilities originally dated October 2, 2001, as amended on July 25, 2002, November 10, 2003, October 14, 2004, December 21, 2005 and January 26, 2007 between Lender and Simclar (the "Working Capital Facilities Letter") and the Facility Letter in respect of $1,000,000 additional working capital facilities dated December 21, 2005, as amended on January 26, 2007, between Lender, Simclar and SIT (the “Additional Working Capital Facilities Letter,” and together with the Term Loan Facility Letter and the Working Capital Facilities Letter, the "Facilities Letters") and for and on behalf of each person or other entity which is now or hereafter a Security Beneficiary (as such term is defined below).

As an express condition of Lender agreeing to make additional loans to Simclar and SIT, the Lender required, inter alia, that Grantors provide additional security for the performance of all of the obligations under the Loan Documents, which security Simclar agreed to provide in accordance with the terms of that certain Second Amended and Restated General Security Agreement dated as of February 23, 2006, between Simclar, Lender and the other parties named therein (the "Original Security Agreement"); and

Grantors desire to amend and restate the terms of the Original General Security Agreement in order to, inter alia, provide additional collateral to the Lender in order to induce Lender to fund the additional amounts under the Facilities Letters, and Lender is amenable to such amendment and restatement in accordance with the terms set forth herein; and

Each Grantor acknowledges that it has benefited from the loans already extended by the Lender to Simclar pursuant to the terms of the Loan Documents, and that is willing to derive further benefit from the funding by Lender; and

It is a condition precedent to the obligation of Lender agreeing to make available to Simclar the facilities under the Facilities Letters (and the execution of any amendment thereto) that Grantors shall have executed and delivered this Agreement to the Lender for the benefit of the Security Beneficiaries.

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Accordingly, the Grantors and the Lender, for the benefit of each of the Security Beneficiaries, hereby agree as follows:

1. DEFINITIONS

Capitalized terms used in this Agreement but not defined herein shall have the meanings given to such terms in the Facilities Letters. As used herein, the following terms shall have the following meanings:

"Accounts" means, with respect to each Grantor, all "accounts" (as defined in the UCC), including health-care-insurance receivables and Supporting Obligations, now owned or hereafter acquired by such Grantor and shall also mean and include all accounts receivable, contract rights, book debts, Facilities Letters, drafts and other obligations or indebtedness owing to such Grantor arising from the sale, lease or exchange of goods or other property by it and/or the performance of services by it (including any such obligation which might be characterized as an account, contract right or General Intangible under the UCC in effect in any jurisdiction) and all of such Grantor's rights in, to and under all purchase orders for goods, services or other property, and all of such Grantor's rights to any goods, services or other property represented by any of the foregoing (including returned or repossessed goods and unpaid sellers' rights of rescission, replevin, reclamation and rights to stoppage in transit) and all monies due to or to become due to such Grantor under all contracts for the sale, lease or exchange of goods or other property and/or the performance of services by it (whether or not yet earned by performance on the part of such Grantor), in cash case whether now in existence or hereafter arising or acquired including the right to receive the proceeds of such purchase orders and contracts and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing.

"Chattel Paper" has the meaning set forth in the UCC (whether tangible or electronic).

"Collateral" means (a) with respect to any Grantor, all of the following types and categories of personal property, wherever located, in which such Grantor now has or hereafter acquires any right or interest: all Accounts, Chattel Paper, Commercial Tort Claims identified on Annex V hereto (including any supplement to such Annex), Contracts, Deposit Accounts, Documents, Fixtures, General Intangibles, Goods (including Inventory, Equipment and any accessions thereto), Instruments, Intellectual Property, Investment Property, Pledged Deposits, Receivables, special collateral accounts and all books and records, customer lists and credit files related to any of the foregoing, and all proceeds and products of any of the foregoing, and (b) when used generally, all of the foregoing in which any Grantor now has or hereafter acquires any right or interest, provided, however, the term "Collateral" shall not include, (x) any Intellectual Property or software licenses to the extent that: (i) such Intellectual Property or software licenses are not assignable or capable of being encumbered as a matter of law or under the terms of the agreement for such Intellectual Property or licenses, without the consent of the other parties thereto or licensor thereof, and (ii) such consent has not been obtained or (y) any equipment leased by a third party to Grantor to the extent that: (i) such leased equipment is not assignable or capable of being encumbered as a matter of law or under the terms of the equipment lease for such leased equipment, without the consent of the lessor thereof, and (ii) such consent has not

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been obtained, and (z) any Contract, contract right, license, agreement, lease pertaining to real or personal property or any other document, instrument or agreement of any Grantor (each such item referred to in clause (x), (y) and (z) hereof of such Grantor being hereinafter referred to as "Excluded Property"), if the granting of a security interest therein by such Grantor to the Lender is expressly prohibited by the terms and provisions of the written agreement, document or instrument creating or evidencing such Excluded Property or rights related thereto or by applicable law (it being understood and agreed that the Grantors shall provide to the Lender written notice of any Excluded Property and, promptly following a request by the Lender, such Grantor shall use its best efforts to obtain from the Person in whose favor the prohibition has been granted any waiver or consent necessary in order to remove or terminate such prohibition or permit the Lender to have a security interest in the Grantors rights to any such Excluded Property subject to such a prohibition and referred to in such request, and that any such Excluded Property so referred to shall constitute part of the Collateral as of the date hereof automatically upon the execution and delivery of the applicable waiver or consent).

"Commercial Tort Claim" has the meaning set forth in the UCC.

"Contracts" means all contracts, agreements and other similar consensual obligations, as the same may from time to time be amended, supplemented or otherwise modified, including (a) all rights to receive moneys due and to become due thereunder or in connection therewith, (b) all rights to damages arising out of any breach or default in respect thereof and (c) all rights to perform and to exercise remedies thereunder.

"Copyrights" means (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in, connection therewith, including all registrations, recordings and applications in the United States Copyright Office, and (ii) the right to obtain all renewals thereof.

"Copyright Licenses" means any written agreement naming any Grantor as licensor or licensee, granting any right under any Copyright, including the grant of rights to manufacture, distribute, exploit, and sell materials derived from any Copyright.

"Default Period" means any period during which one or more Events of Default are continuing.

"Deposit Accounts" has the meaning set forth in the UCC.

"Documents" means all "documents" (as defined in the UCC) or other receipts covering, evidencing or representing Goods, now owned or hereafter acquired, by any Grantor.

"Equipment" means all "equipment" (as defined in the UCC) now owned or hereafter acquired by any Grantor, including all rolling stock.

"Event of Default" means an "Event of Default" as set forth in the Term Loan Facility Letter.

"Excluded Property" has the meaning set forth in the definition of Collateral.

"Farm Products" has the meaning set forth in the UCC.

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"Fixtures" means all "fixtures" (as defined in the UCC) and all goods which are or are to be attached to real property in such a manner that their removal would cause damage to the real property and which have therefore taken on the character of the property.

"General Intangibles" means all "general intangibles" (as defined in the UCC), including payment intangibles and Software, now owned or hereafter acquired by any Grantor, including (i) all right, title and interest in or under any Contract, models, drawings, materials and records, claims, literary rights, goodwill, rights of performance and warranties, (ii) all Intellectual Property, copyright licenses, copyrights, patent licenses, patents, trademark licenses, trademarks, other intellectual property rights, trade secrets, permits and licenses and (iii) all rights under insurance policies and rights of indemnification.

"Goods" has the meaning set forth in the UCC, including, without limitation, embedded Software to the extent included in such Goods.

"Grantor Obligations" means the collective reference to the unpaid principal and interest under the Facilities Letters (including interest accruing at the then applicable rate provided in the Facilities Letters after the final repayment date referred to therein or any acceleration thereof pursuant to the terms of the Facilities Letters or after the commencement of any insolvency, reorganization or like proceeding relating to Simclar) and all other obligations and liabilities of any Grantor to the Lender or the Security Beneficiaries, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of or in connection with the Facilities Letters, the other Loan Documents or any other document made, delivered or given by any Grantor in connection with the Loan Documents, in each case whether on account of principal, interest, reimbursement obligations, foes, indemnities, costs, expenses or otherwise (including all fees and disbursements of counsel to the Lender or the Security Beneficiaries that are required to be paid by any Grantor pursuant to the terms of any of the foregoing).

"Instruments" means all "instruments," "chattel paper" (whether tangible or electronic) or "letters of credit" (each as defined in the UCC), including those evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Accounts, including (but not limited to) the Facilities Letters, drafts, bills of exchange, trade acceptances and Letter-of-Credit Rights, now owned or hereafter acquired by any Grantor.

"Intellectual Property" means all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign law or otherwise, including: all patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); all trademarks, service marks, trade dress, trade names and corporate names and all the goodwill associated therewith; all registered and unregistered statutory and common law copyrights; all registrations, applications and renewals for any of the foregoing; all mask works; all trade secrets, confidential information, ideas, formulae, compositions, know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, improvements, proposals, technical and computer data, financial, business and marketing plans, and customer

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and supplier lists and related information; all other proprietary rights (including all computer software and documentation and all license agreements and sublicense agreements to and from third parties relating to any of the foregoing); all copies and tangible embodiments of the foregoing (in whatever form or medium); all damages and payments for past, present and future infringements of the foregoing; all royalties and income due with respect to the foregoing; and the right to sue (whether at law or in equity) and recover for past, present and future infringements of the foregoing, and for the avoidance of doubt, to the extant not included in, the foregoing, all Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses.

"Intellectual Property Collateral" means any Intellectual Property constituting a part of the Collateral.

"Inventory" means all "inventory" (as defined in the UCC), now owned or hereafter acquired by any Grantor, wherever located, and shall also mean and include all raw materials and other materials and supplies, work-in-process and finished goods and any products made or processed therefrom and all substances, if any, commingled therewith or added thereto.

"Investment Property" has the meaning set forth in the UCC.

"Letter-of-Credit Rights" has the meaning set forth in the UCC (whether or not the letter of credit is evidenced by a writing).

"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or similar encumbrance, whether voluntary or involuntary or arising by operation of law, in respect of such asset, including the Security Interests. For purposes of this Agreement, a Person shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.

"Loan Document" the "BoS Documents" as defined in Term Loan Facility Letter, together with this Agreement or any other financing statement, agreement, document or instrument entered into or delivered pursuant thereto or hereto.

"Material Alteration" has the meaning set forth in Section 4.8(b)(ii).

"Patents" means (i) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof and all goodwill associated therewith, (ii) all applications for letters patent of the United States or any other country or any political subdivision thereof an all divisions, continuations and continuations-in-part thereof, and (iii) all rights to obtain any reissues or extensions of the foregoing.

"Patent License" means all agreements, whether written or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent.

"Permitted Liens" means (i) Liens for taxes, assessments, governmental charges or claims that are not yet due and payable or that are being contested in good faith by appropriate legal

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proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with generally accepted accounting principals ("GAAP") shall have been made, (ii) statutory and common law Liens of landlords and carriers, warehousemen, mechanics, suppliers, repairmen or other similar liens arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made, (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, (iv) those Liens on Equipment set forth on Annex IV hereto, and (v) Liens permitted pursuant to the Facilities Letters.

"Person" means any individual, corporation, company, limited liability company, voluntary association, partnership, limited liability partnership, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof).

"Pledge Agreement" means that certain Third Amended and Restated Pledge Agreement dated February 23, 2006 and executed in connection with the Facilities Letters.

"Pledged Account" has the meaning set forth in Section 7.1.

"Pledged Deposits" means all deposits of money, whether or not evidenced by certificates, with any bank (including all rights to receive interest on such deposits and all other sums credited by or due from third parties with respect thereto), which originate from Collateral or Proceeds and which are deposited with any bank or other financial institution following an Event of Default.

"Proceeds" means all proceeds of, and all other profits, products, rentals or receipts, in whatever form, arising from the collection, sale, lease, exchange, assignment, licensing or other disposition of, or other realization upon, collateral, including all claims of any Granter against third parties for loss of, damage to or destruction of, or for proceeds payable under, or unearned premiums with respect to, policies of insurance in respect of, any Collateral, and any condemnation or requisition payments with respect to any Collateral, in each case whether now existing or hereafter arising.

"Receivables" means the Accounts, Chattel Paper, Pledged Deposits, Documents, General Intangibles, Intellectual Property representing rights to the payment of money (however arising), and any related Instruments.

"Released Collateral" has the meaning set forth in Section 9.10(c).

"Security Beneficiary" means the Lender and any assignee, novatee or transferee of any of the rights and obligations of the Lender under the Facilities Letters.

"Security Interests" means the security interests in the Collateral granted hereunder securing the Grantor Obligations.

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"Software" has the meaning set forth in the UCC.

"Supporting Obligations" has the meaning set forth in the UCC.

"Trademarks" means (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivisions thereof, or otherwise and all common-law rights related thereto, and (ii) the right to obtain all renewals thereof.

"Trademark License" means any agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark.

"UCC" means the Uniform Commercial Code as from time to time in effect in the State of Florida; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of a security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than Florida, "UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection; and providedfurther that to the extent that the UCC is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern.

2. GRANT.

To secure payment, performance and observance of the Grantor Obligations, each Grantor hereby: (i) pledges, and grants to the Lender, for the benefit of the Lender and the other Security Beneficiaries, a continuing security interest in, and a right of set-off against, such Grantor's Collateral (including the Intellectual Property Collateral) and all present and future right, title and interest of such Grantor therein; and (ii) upon demand by the Lender, upon the occurrence of an Event of Default and until such Event of Default shall have been cured, assigns, transfers and conveys the Intellectual Property Collateral to the Lender, for the benefit of the Lender and the other Security Beneficiaries.

The security interests and assignments granted herein shall not relieve any Grantor from the performance of any term, covenant, condition or agreement on such Grantor's part to be performed or observed under or in respect of any of the Collateral or impose any obligation on the Lender or any Security Beneficiary to perform or observe any such term, covenant, condition or agreement on such Grantor's part to be so performed or observed or impose any liability on the Lender or any Security Beneficiary for any act or omission on the part of such Grantor relative thereto or for any breach of any representation or warranty on the part of such Grantor contained in this Agreement or any of the Loan Documents or in respect of the Collateral or made in connection herewith or therewith.

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3. REPRESENTATIONS AND WARRANTIES.

Each Grantor hereby represents and warrants to the Lender and to each Security Beneficiary, as of the date hereof (which representations and warranties are in addition to, and not in lieu of or in limitation of any representations and warranties made in any of the other Loan Documents) that:

Section 3.1.Principal Location; Jurisdiction of Incorporation. Such Grantor's mailing address, and the location of its chief executive office and each location of any books and records (including all computer data and related software including source codes) relating to the Accounts is disclosed in Annex I hereto; such Grantor has no other places of business except those set forth in Annex I hereto. Simclar is a corporation duly organized, validly existing and in good standing in the State of Florida. Simclar - Mexico is a corporation duly organized, validly existing and in good standing in the State of Illinois. Simclar SA is an entity duly organized, validly existing and in good standing under the laws of Mexico. Simclar NA is an entity duly organized, validly existing and in good standing in the State of North Carolina.

Section 3.2.Property Locations. Except as permitted hereby, the Inventory, Equipment and Fixtures are located solely at the locations described in Annex I hereto. Except as permitted hereby, none of such locations are leased by such Grantor as lessee except those so designated in Annex I hereto.

Section 3.3.No Other Names. Except as listed on Annex II hereto, such Grantor does not conduct or has not conducted any trade or business under any name except the name in which it has executed this Agreement. Such Grantor has not been a party to any merger or consolidation in the last five years except as disclosed on Annex II.

Section 3.4.Filing Requirements. None of the Equipment is covered by any certificate of title. None of the Collateral consists of property subject to a statute or treaty referred to in Section 9-311 of the UCC (other than Intellectual Property Collateral). None of the Collateral is of a type with respect to which any Lien may be filed under any federal statute except for patents, copyrights and trademarks held by such Grantor and described in Annex III hereto.

Section 3.5.No Financing Statements. Except for financing statements filed with respect to the Equipment set forth on Annex IV, no financing statement describing all or any portion of the Collateral which has not lapsed or been terminated has been filed in any jurisdiction except financing statements naming the Lender as secured party.

Section 3.6.Title to Properties. Such Grantor has good and marketable title to and ownership of the Collateral held by it, free and clear of all Liens except Permitted Liens. Such Grantor has taken all actions necessary under the UCC to perfect its interest in any Accounts purchased or otherwise acquired by it, as against its assignors and creditors of its assignors. Except for the Equipment set forth on Annex IV, no Collateral is in the possession of any Person (other than such Grantor) asserting any claim thereto or Security Interest therein, except that the Lender may have possession of Collateral as contemplated hereby.

Section 3.7.Intellectual Property. Annex III hereto contains a complete and accurate list as of the date hereof of all patented and registered Intellectual Property owned by such

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Grantor and all pending patent applications and applications for the registration of other Intellectual Property owned or filed by such Grantor. Annex III also contains a complete and accurate list of all licenses and other rights granted by such Grantor to any third party with respect to the Intellectual Property and licenses and other rights granted by any third party to such Grantor. Except as set forth on Annex III such Grantor has made all necessary filings and recordations and has paid all required fees and taxes to record and maintain its ownership of the patented or registered intellectual property rights in the United States Patent and Trademark Office and the United States Copyright Office and in each other applicable filing office (whether in the United States or otherwise) and no consents are required under any licenses listed in Annex III to the grant of the security interest to, and exercise of any rights and remedies of, the Lender.

Section 3.8.Contracts. No consent of any party to any Contract is required in connection with the execution, delivery and performance of this Agreement, other than consents which if not obtained could not, individually or in the aggregate, result in a Material Adverse Effect and those consents set forth in clauses (x)(i) and (y)(i) under the definition of "Collateral."

Section 3.9.Farm Products. None of the Collateral constitutes, or is the Proceeds of, Farm Products.

Section 3.10.Perfection Certificate. The information set forth in the Perfection Certificate substantially in the form of Exhibit A attached hereto and delivered to the Lender on the date hereof and prior to the execution and delivery of this Agreement is correct and complete.

Section 3.11.Security Interest. The Security Interests constitute valid security interests under the UCC and other applicable law securing the Grantor Obligations. The Security Interests constitute perfected security interests in the Collateral to the extent that a security interest therein may be perfected (a) by filing pursuant to the UCC, (b) with respect to registered Intellectual Property Collateral, by filing with the United States Patent and Trademark Office or the United States Copyright Office, or (c) with respect to money, letters of credit, instruments and certificated securities, by possession of the Collateral if maintained by the Lender or any Security Beneficiary. Such perfected Security Interests are and at all times shall be prior to all Liens and rights of others therein except for (a) unrecorded Permitted Liens which are (i) not for borrowed money, (ii) are not securing obligations which are past due and (iii) have priority over the Security Interests by operation of law, and (b) Permitted Liens on Equipment existing on the date hereof and identified on Annex IV.

Section 3.12.Receivables. No amount payable to such Grantor under or in connection with any Receivable is evidenced by any Instrument or Chattel Paper which has not been delivered to the Lender; none of the obligors on any Receivable is a governmental authority (including any the United States, any state thereof, or any other United States or foreign federal, state or local governmental agency, authority, instrumentality, regulatory body or subdivision); and the amounts represented by each Grantor to the Lender or any Security Beneficiary from time to time as owing to such Grantor in respect of the Receivables will at all such times be accurate in all material respects.

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4. COVENANTS.

From the date of this Agreement, and thereafter until this Agreement is terminated:

Section 4.1.Inspection and Verification. The Lender and such Persons as the Lender may designate from time to time shall have the right, at any reasonable time or times upon prior notice and during each Grantor's usual business hours, to inspect the Collateral, all records related thereto (and to make extracts and copies from such records), and the promises upon which any of the Collateral is located. In addition, the Lender and its designees shall have such other inspection and verification rights concerning the Collateral as are provided or permitted under other of the Loan Documents.

Section 4.2.Records and Reports. Each Grantor will maintain complete and accurate books and records with respect to the Collateral, and furnish to the Lender such reports relating to the Collateral as the Lender shall from time to time reasonably request.

Section 4.3.Financing Statements and Other Actions. Each Grantor will execute and deliver to the Lender and hereby authorizes the Lender to file all financing statements and amendments thereto and other documents, and take such other actions, as are from time to time reasonably requested by the Lender in order to perfect and to maintain and protect a first priority perfected Security Interest in the Collateral or to enable the Lender, on behalf of the Security Beneficiaries, to exercise and enforce its rights and remedies hereunder with respect to the Collateral.

Section 4.4.Change in Location or Name; Change in Jurisdiction of Organization. Each Grantor will not (i) have any Inventory or Equipment or products thereof (other than Inventory sold in the ordinary course of its business) at a location other than a location specified in Annex I hereto, except for Inventory and Equipment in transit between such locations, (ii) maintain records relating to the Receivables at a location other than those locations specified on Annex I hereto as a location where such records are kept, (iii) maintain a place of business at a location other than a location specified on Annex I hereto, (iv) change its name or jurisdiction of organization, or (v) change its mailing address, unless in each such case such Grantor shall have given the Lender at least 30 days' prior written notice thereof and delivered any financing statements or other documents requested by the Lender.

Section 4.5.Other Financing Statements; Other Liens. Each Grantor will not sign, authorize the signing on its behalf or authorize the filing of any financing statement naming it as debtor which covers all or any portion of the Collateral, except financing statements naming the Lender as secured party and those filed in respect of Permitted Liens. Each Grantor shall not create, permit or suffer to exist any Liens on or with respect to any of the Collateral except Permitted Liens on Equipment existing on the date hereof and identified on Annex IV. Each Grantor acknowledges that it is not authorized to file any amendment or termination statement with respect to any financing statement without the prior written consent of the Lender and agrees that it will not do so without the prior written consent of the Lender (other than such filings that are made with respect to Permitted Liens), subject to such Grantor's rights under Section 9-509(d)(2) of the UCC.

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Section 4.6.Accounts.

(a)Except as otherwise provided in this Agreement, each Grantor will collect and enforce in accordance with its past collection practices and procedures, at each Grantor's sole expense, all amounts due or hereafter due to such Grantor under the Accounts.

(b)Except in the ordinary course of business, each Grantor will not, without the Lender's prior written consent, grant any extension of the time of payment of any of the Accounts, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any Person liable for the payment thereof, or allow any credit or discount whatsoever thereon.

Section 4.7.Maintenance of Inventory and Equipment. Each Grantor will do all things necessary to maintain, preserve, protect and keep the Inventory in saleable condition and the Equipment in as good a state of repair and condition as at the date hereof except for ordinary wear and tear.

Section 4.8.Insurance.

(a)Each Grantor hereby irrevocably makes, constitutes, and appoints the Lender (and all officers, employees, or agents designated by the Lender) as such Grantor's true and lawful attorney (and agent-in-fact) for the purpose of making, settling, and adjusting claims under policies of insurance, endorsing the name of such Grantor on any check, draft, instrument, or other item of payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect thereto. In the event that a Grantor at any time or times shall fail to obtain or maintain any of the policies of insurance required by Section 4.8(b) or to pay any premium in whole or part relating thereto, the Lender may, without waiving or releasing any obligation or liability of such Grantor hereunder or any Event of Default, in its sole discretion, obtain and maintain such policies of insurance and pay such premium and take any other action with respect thereto as the Lender deems advisable. All such sums so disbursed by the Lender, including reasonable attorneys' fees and expenses, court costs, expenses and other charges relating thereto, shall be payable, upon demand, by such Grantor to the Lender and shall be additional Grantor Obligations secured hereby.

(b)(i)Each Grantor will maintain, with financially sound and reputable companies, insurance policies (A) insuring the Collateral against loss by fire, explosion, theft and such other casualties in accordance with its past business practices and (B) to the extent requested by the Lender, insuring such Grantor, the Lender and the Security Beneficiaries against liability for loss by fire, explosion, theft and such other casualties, personal injury and property damage relating to such Collateral in such form and amounts as may be reasonably required by the Lender.

(ii)All such insurance shall at all times (A) provide that no cancellation, material reduction in amount or material change in coverage (collectively, a "Material Alteration"), thereof shall be effective until at least 30 days after receipt by the Lender of written notice thereof except, in the case of any Material Alteration resulting from nonpayment of premiums, in which instance such Material Alteration shall not be effective until at least 10 days after receipt

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by the Lender of written notice thereof, (B) name the Lender as insured party or loss payee, and (C) be reasonably satisfactory to the Lender in all other respects.

(iii)Each Grantor shall deliver to the Lender a report of a reputable insurance broker with respect to such insurance as the Lender may from time to time reasonably request.

Section 4.9.Titled Vehicles. Upon request of the Lender, each Grantor shall promptly execute and deliver any instruments and documents that may be necessary or that the Lender may request in order to perfect the Security Interests in all property now or hereafter owned by such Grantor and subject to a certificate of title.

Section 4.10.Bailees. If any Collateral of a Grantor is in the possession or control of any warehouseman, processor or other bailee, such Grantor shall notify such warehousemen, processors and other bailees in writing (with a copy to the Lender) of the Lender's security interest therein and, upon the occurrence and continuation of an Event of Default and upon the Lender's request, instruct such Persons to hold all such Collateral for the Lender's account and subject to the Lender's instructions. Each Grantor will use its best efforts to obtain from any warehouseman, processor or other bailee written acknowledgment, in form and substance satisfactory to Lender, that such warehouseman, processor or other bailee holds possession of the Collateral for the Lender's benefit. If any Grantor is unable to obtain a written acknowledgment of the type required by the previous sentence from any warehouseman, processor or other bailee, then such Grantor shall move such Collateral to a warehouseman, processor or bailee who will provide the required acknowledgment. If more than $100,000 of Collateral of a Grantor is held by a bailee, such Grantor will file a financing statement in the appropriate jurisdiction against such bailee in a form appropriate for the underlying transaction. In addition, each Grantor agrees that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued with respect to any of its Inventory, such warehouse receipt or receipt in the nature of a warehouse receipt shall not be "negotiable" (as such term is defined in Section 7-104 of the Uniform Commercial Code as in effect in any relevant jurisdiction or under other relevant law), or, if any warehouse receipt or receipt in the nature thereof is "negotiable" (as such term is so used), such Grantor shall promptly take all action as may be required under the relevant jurisdiction to grant a perfected security interest in such Collateral to the Lender for the benefit of the Security Beneficiaries.

Section 4.11.Delivery of Pledged Collateral; Control of Collateral. To the extent not required to be delivered to the Lender pursuant to another provision of this Agreement or pursuant to another Loan Document, each Grantor will hold in trust for the Lender upon receipt and, upon the occurrence of an Event of Default and the continuation thereof or if otherwise requested by the Lender, promptly deliver to the Lender the originals of all Instruments, Documents, Chattel Paper, letters of credit, certificated securities and certificates issued in respect of Pledged Deposits, which shall be endorsed in blank, marked with such legends and accompanied by such stock powers and assignments as the Lender shall specify. To the extent Pledged Deposits constitute Deposit Accounts, each Grantor shall take all steps that may be required (including the obtaining and furnishing to the Lender appropriate account control agreements as required under Section 9-104 of the UCC) to grant "control" (as defined in Section 9-104 of the UCC) to the Lender. Each Grantor further agrees to take such steps as Lender may reasonably request for the Lender to obtain "control" (as set forth in corresponding provisions in

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Sections 9-104, 9-105, 9-106 and 9-107 relating to what constitutes "control" for such items of Collateral) of any Investment Property, other Deposit Accounts, Letter-of-Credit Rights or electronic Chattel Paper, with any agreements establishing control to be in form and substance satisfactory to the Lender.

Section 4.12.Investment Property. If a Grantor acquires any Investment Property (whether or not a certificated security), such Grantor (i) shall take and cause all other relevant parties to take all such actions as may be requested by the Lender (including obtaining for the Lender the agreement of any securities intermediary to comply with instructions and entitlement orders originated by the Lender without further consent of such Grantor or other registered owner or entitlement holder) in order to cause the Security Interests in such Collateral to be perfected by "control" (as such term is used in Articles 8 and 9 of the UCC) and (ii) will take and will cause such other relevant parties to take all other action necessary or appropriate to create and maintain a perfected first priority Lien in such Investment Property in favor of the Lender for the benefit of the Security Beneficiaries.

Section 4.13.Intellectual Property Covenant. Each Grantor shall make all necessary filings and recordings and pay all required fees and taxes to record and maintain its registration and ownership of, and do all other things and take all other actions necessary to preserve, protect and maintain, each item of Intellectual property owned by it, other than such items the loss or forfeiture of which would not individually or in the aggregate have a Material Adverse Effect. Without limiting the foregoing:

(a)Each Grantor (either itself or through licensees) will (i) continue to use each material Trademark on each and every trademark class of goods applicable to its current line as reflected in its current catalogs, brochures and price lists in order to maintain such trademark in full force free from any claim of abandonment for non-use, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable requirements of law, (iv) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Lender, for the benefit of the Security Beneficiaries, shall obtain a perfected Security Interest in such mark pursuant to this Agreement, and (v) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark may become invalidated or impaired in any way.

(b)Each Grantor (either itself or through licensees) will not do any act, or omit to do any act, whereby any material Patent may become forfeited, abandoned or dedicated to the public.

(c)Each Grantor (either itself or through licensees) (i) will employ each material Copyright and (ii) will not (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any material portion of the Copyrights may become invalidated or otherwise impaired. Such Grantor will not (either itself or through licensees) do any act whereby any material portion of the Copyrights may fall into the public domain.

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(d)Each Grantor (either itself or through licensees) will not do any act that knowingly uses any material Intellectual Property to infringe the intellectual property rights of any other Person.

(e)Each Grantor will notify the Lender and the Security Beneficiaries immediately if it knows, or has reason to know, that any application or registration relating to any material Intellectual Property may become forfeited, abandoned or dedicated to the public, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding such Grantor's ownership of, or the validity of, any material Intellectual Property or such Grantor's right to register the same or to own and maintain the same.

(f)Whenever a Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, such Grantor shall report such filing to the Lender within five business days after the last day of the fiscal quarter in which such filing occurs. Upon request of the Lender, each Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Lender may request to evidence the Security Interest in any Copyright, Patent or Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby.

(g)Each Grantor shall take all reasonable and necessary steps, including in any proceeding before the United Status Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the material Intellectual Property, including filing of applications for renewal, affidavits of use and affidavits of incontestability.

(h)In the event that any material Intellectual Property is infringed, misappropriated or diluted by a third party, each Grantor shall (i) take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property and (ii) if such Intellectual Property is of material economic value, promptly notify the Lender after it learns thereof and sue for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution.

Section 4.14.Federal Claim.

(a)Claims. Each Grantor will notify the Lender of any material Receivable which constitutes a claim against the United States government or any instrumentality or agency thereof, the assignment of which claim is restricted by federal law.

(b)Action. Upon the request of the Lender, each Grantor will take all reasonable actions required to comply to the Lender's satisfaction, with the Assignment of Claims Act of 1940, as amended, or any similar applicable law, with respect to any such material Receivable.

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Section 4.15.Commercial Tort Claims. If any Grantor shall at any time acquire a Commercial Tort Claim, then such Grantor shall immediately notify the Lender in writing signed by such Grantor of the brief details thereof and grant to the Lender in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Lender.

Section 4.16.Subsidiaries. If any Grantor shall at any time control, directly or indirectly, or acquire any direct or indirect equity participation in, any corporation, partnership, trust or other business association, then such Grantor shall immediately notify the Lender in writing signed by such Grantor of the details thereof and take all action with may be necessary to grant to the agent a security interest therein. Simclar agrees to cause Simclar - England to become a party to this Agreement upon the acquisition of any assets.

5. REMEDIES UPON DEFAULT.

Upon the occurrence and during the continuance of an Event of Default, whether or not all of the Grantor Obligations shall have become due and payable, the Lender may, in addition to its rights under any of the Loan Documents:

Section 5.1.General. Exercise any or all of the rights and remedies provided (i) in this Agreement, (ii) to a secured party when a debtor is in default under a security agreement governed by the UCC or (iii) to a secured party when a debtor is in default by any other applicable law including any law governing the exercise of a bank's right of set-off or bankers' lien. Without precluding any other methods of sale, the sale of Collateral shall be deemed to have been made in a commercially reasonable manner if conducted in conformity with reasonable commercial practices of commercial lenders disposing of similar property, but in any event the Lender may sell Collateral on such terms as the Lender may choose without assuming any credit risk and without any obligation to advertise or give notice of any kind not expressly required under this Agreement or required by applicable law (to the extent such notice may not be waived under applicable law).

Section 5.2.Sale or Disposition of Collateral. Collect, receive, appropriate and realize upon the Collateral, and sell, resell, assign, lease, give option or options to purchase, or otherwise dispose of, transfer and deliver all or any part of the Collateral (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of the Lender or any Security Beneficiary or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Lender or any Security Beneficiary shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released to the fullest extent permitted by applicable law. To the fullest extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against the Lender or any Security Beneficiary arising out of the exercise by them of any rights hereunder.

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Section 5.3.Access to Leased Premises. Immediately enter upon any premises leased by any Grantor for the storage, warehousing or maintenance of Inventory and remove, take possession and dispose of, or store at another site, such Inventory in the Lender's sole discretion.

Section 5.4.Pledged Deposits. Without any necessity on the Lender's part to resort to other security or sources of reimbursement for the Grantor Obligations, at any time during the continuance of an Event of Default and without notice to any Person, exercise rights of set-off against any of the Pledged Deposits (general or special, time or demand, provisional or final) or other sums of any Grantor in the possession of or in transit to the Lender for application to the Grantor Obligations, which rights shall be cumulative with the Lender's other rights and remedies including other rights of set-off.

Section 5.5.Grant of License to Use General Intangibles. For the purpose of enabling the Lender to exercise rights and remedies thereunder during the continuation of an Event of Default, each Grantor hereby grants to the Lender an irrevocable, nonexclusive license (to the extent permitted by applicable law, exercisable without payment of royalty or other compensation to such Grantor) to use, assign, license or sublicense any of the General Intangibles to the extent permitted by the terms of such General Intangibles, wherever the same may be located, including in such license reasonable access to all media in which any of the General intangibles may be recorded or stored and to all computer programs used for the compilation or printout thereof. Notwithstanding the foregoing, the Lender shall have no obligations or liabilities regarding any or all or the General Intangibles by reason of or arising out of, this Agreement.

Section 5.6.Specific Performance. Each Grantor agrees that, in addition to all other rights and remedies granted to the Lender in this Agreement and any other Loan Document, the Lender shall be entitled to specific performance said injunctive and other equitable relief, and each Grantor further agrees to waive any requirement for the securing or posting of any bond or other security in connection with the obtaining of any such specific performance and injunctive or other equitable relief.

Section 5.7.Additional Liabilities Upon Default. Upon the request of the Lender after the occurrence and during the continuance of an Event of Default, each Grantor will promptly

(a)Assembly of Collateral. Assemble and make available to the Lender the Collateral and all records relating thereto at any place or places specified by the Lender within the continental United States of America.

(b)Secured Party Access. Permit the Lender, or the Lender's representatives and agents, to enter any premises where all or any part of the Collateral, or the books and records relating thereto, or both, are located, to take possession of all or any part of the Collateral and to remove all or any part of the Collateral.

6. WAIVERS, AMENDMENTS AND REMEDIES.

No failure on the part of the Lender to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy by the Lender preclude any other or further exercise

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thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law. The Lender shall not be deemed to have waived any rights hereunder or under any other agreement or instrument unless such waiver shall be in writing and signed by such parties.

7. PROCEEDS; COLLECTION OF RECEIVABLES.

Section 7.1.Collection of Receivables. The Lender may at any time during a Default Period, without notice to any Grantor, elect to enforce collection of any Receivable, require that the Proceeds of Receivables or other Collateral be paid directly to the Lender or to any account specified by the Lender and/or require that Proceeds of Receivables or other Collateral received by such Grantor be deposited into any account specified by the Lender (any account referred to in this sentence being a "Pledged Account"). During any Default Period, each Grantor shall (if requested to do so by Lender), and/or Lender may, promptly notify the account debtors or obligors of the Receivables of the Lender's interest therein and direct such account debtors or obligors to make payment of all amounts then or thereafter due under the Receivables directly to the Lender or to any account specified by the Lender. During a Default Period, each Grantor shall hold in trust for the Lender all amounts and Proceeds received by it with respect to the Receivables and other Collateral, shall segregate all such amounts and Proceeds from other funds of such Grantor, and shall at all tames thereafter promptly deliver to the Lender (or into any Pledged Account as the Lender may specify) all such amounts and Proceeds in the same form as so received, whether by cash, check, draft or otherwise, with any necessary endorsements. Each Grantor will execute and deliver to the Lender, for delivery by the Lender to each bank or other financial institution with which it maintains any bank or deposit account (or if so instructed by the Lender will execute and deliver directly to each such bank or other financial institution) such notices as the Lender may from time to time request advising each such bank or other financial institution that Proceeds deposited to an account during a Default Period constitute Pledged Deposits hereunder, subject to the Security Interest granted hereby, and instructing each such bank or other financial institution that during the Default Period each Pledged Account and all Pledged Deposits are to be maintained by such bank or other financial institution subject to the absolute dominion and control of the Lender and are to be delivered, disbursed or otherwise distributed solely in accordance with the instructions of the Lender, and such Grantor shall take all such other actions as may otherwise be required under applicable law to perfect the Security Interest in the Pledged Accounts and Pledged Deposits.

Section 7.2.Application of Proceeds.

(a)During the continuance of an Event of Default, the Lender shall have the continuing and exclusive right to apply or reverse and re-apply any and all payments to any portion of the Grantor Obligations. To the extent that a Grantor makes a payment or payments to the Lender or the Lender receives any payment or proceeds of the Collateral, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds, the Grantor Obligations or part thereof intended to be satisfied and this Agreement shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by such party.

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(b)The proceeds of any sale of or collection of Collateral, as well as any Collateral consisting of cash, shall be applied by the Lender first, to the payment of the costs and expenses of any such sale or collection, including reasonable fees and disbursements of the Lender's agents and counsel, and of any judicial proceeding wherein the same may be made, and of all expenses, liabilities and advances (to the extent such advances are reasonably made for the protection of the Collateral or the enforcement of the Lender's security interest in the Collateral) made or incurred by the Lender, together with interest thereon, second, in satisfaction of the Grantor Obligations in the order set forth in the Facilities Letter, and third, to whomsoever may be lawfully entitled to receive any surplus. Each Grantor shall remain liable for any deficiency if the proceeds of sale or other disposition of the Collateral are insufficient to pay the Grantor Obligations and the fees and disbursements of any attorneys employed by the Lender or any Security Beneficiary to collect such deficiency. Upon any sale of the Collateral by the Lender (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Lender or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Lender or such officer or be answerable in any way for the misapplication thereof.

8. GENERAL PROVISIONS.

Section 8.1.Notice of Disposition of Collateral. Any notice of any public sale or the time after which any private sale or other disposition of all or any part of the Collateral may be made shall be deemed reasonable if given to each Grantor at least 10 days prior to the time of any such public sale or the time after which any such private sale or other disposition may be made.

Section 8.2.Compromises and Collection. Each Grantor recognizes that set-offs, counterclaims, defenses and other claims may be asserted by obligors with respect to certain of the Receivables, that certain of the Receivables may be or become uncollectible in whole or in part and that the expense and probability of success in litigating a disputed Receivable may exceed the amount that reasonably may be expected to be recovered with respect to a Receivable. In view of the foregoing, each Grantor agrees that the Lender may at any time and from time to tune upon the occurrence and during the continuance of an Event of Default, compromise with the obligor on any Receivable, accept in full payment of any Receivable such amount as the Lender in its sole discretion shall determine or abandon any Receivable, and any such action by the Lender shall be commercially reasonable so long as the Lender acts in good faith based on information known to it at the time it takes any such action.

Section 8.3.Secured Party Performance of Debtor Secured Liabilities. Without having any obligation to do so, the Lender may perform or pay any obligation which any Grantor has agreed to perform or pay in this Agreement but has not performed or paid on the due date therefor and such Grantor shall reimburse the Lender for any amounts paid or incurred pursuant to this Section 8.3. Each Grantor's obligation to reimburse pursuant to the preceding sentence shall be Grantor Obligations payable on demand.

Section 8.4.Authorization for Secured Party To Take Certain Action. Each Grantor irrevocably authorizes the Lender at any time and from time to time in the sole discretion of the

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Lender and appoints the Lender as its attorney-in-fact to act on behalf of such Grantor, in the name of such Grantor or otherwise, from time to time in the Lender's discretion, to take any action and to execute any instrument which the Lender may deem necessary or advisable to accomplish the purposes of this Agreement, including (but as to the matters described in the following clauses (ii), (iv), (vi), (vii), (viii), (x) and (xi), only upon the occurrence and during the continuance of an Event of Default): (i) to execute on behalf of such Grantor as debtor and to file financing statements, continuation statements and amendments thereto necessary or desirable in the Lender's sole discretion to perfect and to maintain the perfection and priority of the Lender's security interest in the Collateral; (ii) to endorse, deposit and collect any cash, Instruments and other proceeds of the Collateral: (iii) to file a carbon, photographic or other reproduction of this Agreement or any financing statement with respect to the Collateral as a financing statement in such offices as the Lender in its sole discretion deems necessary or desirable to perfect and to maintain the perfection and priority of the Lender's security interest in the Collateral; (iv) to enforce payment of the Receivables in the name of the Lender or such Grantor; (v) to cause the proceeds of any Collateral received by the Lender or any Security Beneficiary to be applied to the Grantor Obligations as contemplated by the Loan Documents; (vi) to sign such Grantor's name on any invoice or bill of lading relating to any Receivable, on drafts against customers, on schedules and assignments of Receivables, on notices of assignment, financing statements and other public records, on verifications of accounts and on notices to customers; (vii) to notify the post office authorities to change the address for delivery of such Grantor's mail to an address designated by the Lender, and to receive, open and dispose of all mail addressed to such Grantor; (viii) to send requests for verification of Receivables to customers or account debtors (provided that this clause shall not limit the Lender's rights under Section 4.1); (ix) to do any act or thing which the Lender ought to execute and do under the terms of this Agreement or which may be required or deemed proper in the exercise of any rights or powers conferred on the Lender for any of the purposes of this Agreement; (x) to grant or issue any exclusive or nonexclusive license under the Collateral to anyone; (xi) to assign, pledge, convey or otherwise transfer title in or to or dispose of the Collateral to anyone, including assignments, recordings, registrations and applications therefor in the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency of the United States, any State thereof or any other country or political subdivision thereof, and to execute and deliver any and all agreements, documents, instruments of assignment or other papers necessary or advisable to effect any of the foregoing or the recordation, registration, filing or perfection thereof; and (xii) to file financing statements, continuation statements and amendments thereto that describe the Collateral (a) as all assets of such Grantor or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC, or (b) as being of an equal or lesser scope or with greater detail, and which contain any other information required by Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including (x) whether the Grantor is an organization, the type of organization and any organization identification number issued to the Grantor and (y) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to cut, a sufficient description of the real property to which the Collateral relates. Each Grantor hereby ratifies all that such attorneys shall lawfully do or cause to be done by virtue hereof and also ratifies its authorization for the Lender to have filed in any UCC jurisdiction any like initial financing statements or amendments thereto if filed prior to the date hereof. All powers, authorizations and agencies contained in this Agreement are

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coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. The powers conferred on the Lender and the other Security Beneficiaries hereunder are solely to protect the Lender's and the Security Beneficiaries' interests in the Collateral and shall not impose any duty upon the Lender or any Security Beneficiary to exercise any such powers. The Lender and the Security Beneficiaries shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.

Section 8.5.Use and Possession of Certain Premises. Upon the occurrence and during the continuance of an Event of Default, the Lender or its agents or representatives shall be entitled to occupy and use any premises owned or leased by any Grantor where any of the Collateral or any records relating to the Collateral are located until the Grantor Obligations are paid in full or until the Collateral is removed therefrom, whichever occurs first, without any obligation to pay such Grantor for such use and occupancy.

Section 8.6.Standard of Care. The Lender's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Lender deals with similar property for its own account. Neither the Lender, any Security Beneficiary nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof.

Section 8.7.Specific Provisions Regarding Execution and Filing of Financing Statements. Pursuant to the UCC and any other applicable law, each Grantor authorizes the Lender to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral or to use a generic description such as "all assets" or "all property" without the signature of such Grantor in such form and in such offices as the Lender reasonably determines appropriate to perfect the security interests granted hereunder. To the extent permitted under the UCC, a photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction.

9. MISCELLANEOUS.

Section 9.1.[Intentionally Omitted]

Section 9.2.[Intentionally Omitted]

Section 9.3.Security Interest Absolute. The obligations of each Grantor under this Agreement are independent of the obligations under any of the other Loan Documents, and a separate action or actions may be brought and prosecuted against any single, or every, Grantor to enforce this Agreement. All rights of the Lender hereunder, the security interests granted

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hereby, and all Grantor Obligations of each Grantor hereunder, shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of any of the Loan Documents, any agreement with respect to any of the Grantor Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Grantor Obligations, or any other amendment or waiver of or any consent to any departure from any of the Loan Documents or any other agreement or instrument, (c) any exchange, release or non-perfection of any other Collateral, or any release, amendment or waiver of, or consent to or departure from, any guaranty for all or any of the Grantor Obligations, or (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, any Grantor in respect of the Grantor Obligations or in respect of this Agreement.

Section 9.4.Lender's Fees and Expenses - Indemnification.

(a)Each Grantor agrees to pay upon demand to the Lender the amount of any and all out-of-pocket expenses, including the reasonable fees and expenses of its counsel and of any experts or agents, which the Lender may reasonably incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Lender hereunder, or (iv) the failure by any Grantor to perform or observe any of the provisions hereof.

(b)Without limiting the foregoing, each Grantor agrees to pay, and to save the Lender and the Security Beneficiaries harmless from, and to indemnify them against, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. Any such amounts payable as provided hereunder shall be additional Grantor Obligations secured by this Agreement and the other Loan Documents to which the Grantors are a party. Each Grantor further agrees to pay, and to save the Lender and the Security Beneficiaries harmless from, and to indemnify them against, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, or arising out of or relating to the Lender's or any Security Beneficiary's relationship with such Grantor hereunder or under any other Loan Document.

Section 9.5.Binding Agreement; Assignments. This Agreement, and the terms, covenants and conditions hereof, shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that no Grantor shall be permitted to assign this Agreement or any interest herein.

Section 9.6.Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Florida, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Florida or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Florida.

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Section 9.7.Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, no party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable and the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal and unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

Section 9.8.Section Headings; Interpretation. Section headings used herein are for convenience only and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. The use of the word "including" or any variation or derivative thereof in this Agreement is by way of example rather than by limitation. The language used in this Agreement will be deemed to be the language chosen, by the Lender and the Grantors to express their mutual intent. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the Grantors and the Lender, and no presumption or burden of proof will arise favoring or disfavoring any Person by virtue of the authorship of any of the provisions of this Agreement.

Section 9.9.Counterparts. This Agreement may be authenticated in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and any of the parties hereto may authenticate this Agreement by signing any such counterpart. This Agreement may be authenticated by manual signature, facsimile or, if approved in writing by the Lender and the Grantors, electronic means, all of which shall be equally valid.

Section 9.10.Termination.

(a)At such time as all of the Grantor Obligations (other than any indemnity and similar obligations which expressly survive termination of this Agreement and are not then due and payable) have been paid irrevocably and in full, this Agreement and all obligations (other than those expressly stated to survive such termination) of the Lender and the Grantors shall terminate, and the Collateral shall be released from the Security Interests created hereby, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantors. At the request and sole expense of the Grantors following any such termination, the Lender shall deliver to each Grantor any Collateral of such Grantor then held by the Lender hereunder and shall execute and deliver to such Grantor or authorize the filing of but without recourse to or warranty by the Lender, such Uniform Commercial Code termination statements and similar documents prepared by such Grantor which such Grantor shall reasonably request to evidence the release of the Collateral from the security constituted hereby.

(b)Notwithstanding anything to the contrary contained in this Agreement, this Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against any Grantor for liquidation or reorganization, should any Grantor become insolvent or make are assignment for any benefit of creditors or should a receiver or trustee be appointed for all or any significant part of any Grantor's assets, and shall continue to be effective

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or be reinstated, as the case may be, if at any time payment and performance of the Grantor Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Grantor Obligations, whether as a "voidable preference," "fraudulent conveyance" or otherwise, all as though such payment, or any part thereof, had not been made.

(c)Notwithstanding anything in this Security Agreement to the contrary, the Grantors may, to the extent permitted by the Facility Letters sell, assign, transfer or otherwise dispose of any Collateral. In addition, the Collateral shall be subject to release from time to time (with the Collateral referred to in the immediately preceding sentence, the "Released Collateral") in accordance with the facility Letters. The Liens under this Security Agreement shall terminate with respect to the Released Collateral (other than Released Collateral that is sold, assigned, transferred or otherwise disposed to a Grantor or any other Guarantor) upon such sale, transfer, assignment, disposition or release, and upon the written request of the Grantor, the Lender shall execute and deliver such instrument or document as may be necessary to release the Liens granted hereunder; provided, however, that (i) the Lender shall not be required to execute any such documents on terms which, in the Lender's opinion, would expose the Lender to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Grantor Obligations or any Liens on (or obligations of any Grantor in respect of all interests retained by any Grantor, including without limitation, the proceeds of any sale, all of which shall continue to constitute part of the Collateral unless and until applied strictly in accordance with the Loan Documents.

Section 9.11.CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GRANTOR WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN MIAMI, FLORIDA AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT EACH GRANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. TO THE EXTENT PERMITTED BY LAW, EACH GRANTOR AND THE AGENT ON BEHALF OF ITSELF AND EACH OF THE LENDERS HEREBY AGREES THAT SERVICE UPON IT BY CERTIFIED MAIL SHALL CONSTITUTE SUFFICIENT NOTICE AND SERVICE OF PROCESS. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE AGENT TO BRING PROCEEDINGS AGAINST ANY GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION.

Section 9.12.WAIVER OF JURY TRIAL. EACH GRANTOR AND THE AGENT, ON BEHALF OF ITSELF AND EACH OF THE LENDERS, EACH HEREBY IRREVOCABLY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT HEREOF; AND EACH GRANTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE

-23-

LAW, THE RIGHT TO INTERPOSE ANY SET OFF OR COUNTERCLAIM OR CROSS-CLAIM IN CONNECTION WITH ANY SUCH LITIGATION, IRRESPECTIVE OF THE NATURE OF SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM EXCEPT TO THE EXTENT THAT THE FAILURE SO TO ASSERT ANY SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM WOULD PERMANENTLY PRECLUDE THE PROSECUTION OF OR RECOVERY UPON SAME, Notwithstanding anything contained In this Agreement to the contrary, no claim may be made by any Grantor against the Lender or any Security Beneficiary for any lost profits or any special, indirect or consequential damages in respect of any breach or wrongful conduct (other than willful misconduct or actual fraud) in connection with, arising out of or in any way related to the transactions contemplated hereunder, or any act, omission or event occurring in connection therewith; and each Grantor hereby waives, releases and agrees not to sue upon any such claim for any such damages. EACH GRANTOR AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT THE LENDERS WOULD NOT EXTEND TO THE GRANTORS THE FACILITIES UNDER THE FACILITIES LETTERS IF THIS SECTION WERE NOT PART OF THIS AGREEMENT.

Section 9.13.Notices.

All notices and other communications provided for hereunder shall be in writing (including telegraphic or telecopier communication) and mailed, telegraphed, telecopied or delivered to the address set forth in the Facilities Letters or to such other address and/or with such other copy or copies as the intended recipient may have specified by prior notice to the notifying party. All such notices and other communications shall, when mailed, telegraphed, telecopied or telexed, be effective when deposited in the mails, delivered to the telegraph company or telecopied and confirmed by answerback, respectively, addressed as aforesaid; except that notices and other communications to the Lender shall not be effective until received by the Lender. Delivery by telecopier of an executed counterpart of any amendment or waiver or any provision of any Loan Document shall be effective as delivery of an original executed counterpart thereof.

Section 9.14.Acknowledgements. Each Grantor acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) neither the Lender, any other Lender nor any Security Beneficiary has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between each Grantor, on the one hand, and the Lender, each other Lender and the other Security Beneficiaries, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Security Beneficiaries or among any Grantor and the Security Beneficiaries.

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written.

GRANTORS:	SIMCLAR, INC. By:  /s/ Barry J. Pardon Name: Barry J. Pardon Title: President
	SIMCLAR (MEXICO) INC. By:  /s/ Barry J. Pardon Name: Barry J. Pardon Title: President
	SIMCLAR DE MEXICO, S.A. DE C.V. By:  /s/ Barry J. Pardon Name: Barry J. Pardon Title: President
	SIMCLAR INTERCONNECT TECHNOLOGIES INC. By:  /s/ Barry J. Pardon Name: Barry J. Pardon Title: President
	SIMCLAR (NORTH AMERICA) By:  /s/ Barry J. Pardon Name: Barry J. Pardon Title: President

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STATE OF FLORIDA	)
	) ss:
COUNTY OF MIAMI-DADE	)

The foregoing instrument was acknowledged before me this 28th day of February, 2007, by Barry J. Pardon as President of Simclar, Inc., a Florida corporation (the "Borrower"), and before me executed the attached Third Amended and Restated Security Agreement dated February 28, 2007, on behalf of the Borrower.

/s/ Roxana L. Alvarez

NOTARY PUBLIC

[Stamp]

(Print, Type or Stamp Commissioned Name of Notary Public)

STATE OF FLORIDA	)
	) ss:
COUNTY OF MIAMI-DADE	)

The foregoing instrument was acknowledged before me this 28th day of February, 2007, by Barry J. Pardon as President of Simclar (Mexico) Inc., an Illinois corporation (the "Borrower"), and before me executed the attached Third Amended and Restated Security Agreement dated February 28, 2007, on behalf of the Borrower.

/s/ Roxana L. Alvarez

NOTARY PUBLIC

[Stamp]

(Print, Type or Stamp Commissioned Name of Notary Public)

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STATE OF FLORIDA	)
	) ss:
COUNTY OF MIAMI-DADE	)

The foregoing instrument was acknowledged before me this 28th day of February, 2007, by Barry J. Pardon as President of Simclar Interconnect Technologies, Inc., a Delaware corporation (the "Borrower"), and before me executed the attached Third Amended and Restated Security Agreement dated February 28, 2007, on behalf of the Borrower.

/s/ Roxana L. Alvarez

NOTARY PUBLIC

[Stamp]

(Print, Type or Stamp Commissioned Name of Notary Public)

STATE OF FLORIDA	)
	) ss:
COUNTY OF MIAMI-DADE	)

The foregoing instrument was acknowledged before me this 28th day of February, 2007, by Barry J. Pardon as President of Simclar Mexico, S.A. de C.V. (the "Borrower"), and before me executed the attached Third Amended and Restated Security Agreement dated February 28, 2007, on behalf of the Borrower.

/s/ Roxana L. Alvarez

NOTARY PUBLIC

[Stamp]

(Print, Type or Stamp Commissioned Name of Notary Public)

STATE OF FLORIDA	)
	) ss:
COUNTY OF MIAMI-DADE	)

The foregoing instrument was acknowledged before me this 28th day of February, 2007, by Barry J. Pardon as President of Simclar (North America), a North Carolina corporation (the "Borrower"), and before me executed the attached Third Amended and Restated Security Agreement dated February 28, 2007, on behalf of the Borrower.

/s/ Roxana L. Alvarez

NOTARY PUBLIC

[Stamp]

(Print, Type or Stamp Commissioned Name of Notary Public)

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LENDER:

EXECUTED and DELIVERED

for and on behalf of THE GOVERNOR

AND COMPANY OF THE BANK OF

SCOTLAND in the presence of:-                                                                                   /s/ Peter Gordon

Authorized Signatory

/s/ Douglas A. Archibald            Witness

Doublas A. Archibald                  Full Name

Bank of Scotland                           Address

Edinburgh

-28-

EX-21

EXHIBIT 21

Subsidiaries of Simclar, Inc.

_______________________________________

Subsidiaries	Jurisdiction of Incorporation	Percentage Owned By Registrant
Simclar (Mexico) Inc.	Illinois	100%
Techdyne (Europe) Limited	Scotland	100%
Simclar Interconnect Technologies, Inc.	Delaware	100%
Simclar (North America), Inc.	North Carolina	100%
Simclar de Mexico, S.A. de C.V.	Mexico	100% owned by Simclar (Mexico) Inc.
Techdyne (Livingston) Limited	Scotland	100% owned by Techdyne (Europe) Limited

EX-24

EXHIBIT 24

POWER OF ATTORNEY

Each of the undersigned officers and directors of Simclar, Inc., a Florida corporation (the “Company”), hereby appoints Barry J. Pardon and Marshall W. Griffin, Jr. as his or her true and lawful attorneys-in-fact, or either one of them individually with power to act without the other, as his or her true and lawful attorney-in-fact, in his or her name and on his or her behalf, and in any and all capacities stated below, to sign and to cause to be filed with the United States Securities and Exchange Commission the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and any and all amendments thereto, hereby granting unto said attorneys, and to each of them, full power and authority to do and perform in the name and on behalf of the undersigned, in any and all such capacities, every act and thing whatsoever necessary to be done in and about the premises as fully as each of the undersigned could or might do in person, hereby granting to each such attorney full power of substitution and revocation, and hereby ratifying all that any such attorney or his substitute may do by virtue hereof.

IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney, in counterparts if necessary, effective as of March 1, 2007.

Signature	Title
/s/ Samuel J. Russell	Chairman of the Board of Directors and
Samuel J. Russell	Chief Executive Officer
/s/ Barry J. Pardon	President and Director
Barry J. Pardon	(principal executive officer)
/s/ John Ian Durie	Vice President (Finance) and Director
John Ian Durie
/s/ Marshall W. Griffin, Jr.	Chief Financial Officer, Treasurer and Secretary
Marshall W. Griffin, Jr.	(principal financial and principal accounting officer)
/s/ Patrick Lacchia	Director
Patrick Lacchia
/s/ A. Graeme Manson	Director
A. Graeme Manson
/s/ Kenneth M. MacKay, M.D.	Director
Kenneth M. MacKay, M.D.
/s/ Christina M. J. Russell	Director
Christina M. J. Russell

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Barry J. Pardon, certify that:

1. I have reviewed this Annual Report on Form 10-K of Simclar, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  April 6, 2007

/s/ Barry J. Pardon

Barry J. Pardon

President

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Marshall W. Girffin, certify that:

1. I have reviewed this Annual report on Form 10-K of Simclar, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  April 6, 2007

/s/ Marshall W. Griffin

Marshall W. Girffin

Chief Financial Officer and Secretary

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Simclar, Inc, (the “Company”) on Form 10-K for the period ending December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Barry J. Pardon, President of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Barry J. Pardon

Barry J. Pardon, President

Simclar, Inc.

April 6, 2007

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Simclar, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Marshall W. Griffin, Chief Financial Officer and Secretary of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Marshall W. Griffin

Marshall W. Griffin, Chief Financial Officer and Secretary

Simclar, Inc.

April 6, 2007