10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2007
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ________________ to ________________

Commission file number: 001-13924

SIMCLAR, INC.

(Exact name of registrant as specified in its charter)

Florida	59-1709103
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2230 West 77th Street, Hialeah, FL	33016
(Address of principal executive offices)	(Zip Code)

(305) 556-9210

(Registrant’s telephone number, including area code)

[None]

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes xNo  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer oAccelerated filer oNon-accelerated filer x

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

Yes oNo x

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

Class	Outstanding at June 30, 2007
Common Stock, $.01 par value per share	6,465,345 shares

SIMCLAR, INC.

Form 10-Q

For the quarter ended June 30, 2007

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
1) Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006	3
2) Consolidated Statements of Operations for the three months and six months ended June 30, 2007 and June 30, 2006.	5
3) Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and June 30, 2006.	6
4) Notes to Consolidated Financial Statements as of June 30, 2007	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3. Quantitative and Qualitative Disclosures About Market Risk	21
Item 4. Controls and Procedures	22
PART II – OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders	24
Item 5 Other Information	24
Item 6. Exhibits	24
Signatures	24

PART I – FINANCIAL INFORMATION

Item 1 Financial Statements

SIMCLAR, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30,		December 31,
	2007		2006
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,400,283	$	82,154
Accounts receivable, less allowances of $296,398
and $293,364 at June 30, 2007 and December 31, 2006 respectively		21,456,260		20,801,668
Amounts receivable from major stockholder, net		1,044,165		-
Inventories, less allowances for obsolescence of $1,760,198 at June 30,
2007 and $1,551,799 at December 31, 2006		20,777,973		20,259,037
Prepaid expenses and other current assets		688,697		637,856
Prepaid income taxes		-		15,405
Deferred income taxes		1,050,732		1,034,532
Total current assets		46,418,110		42,830,652
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		15,682,698		15,563,042
Tools and dies		363,992		363,992
Leasehold improvements		1,847,892		660,949
Construction in progress		68,830		537,879
Total property and equipment		19,746,827		18,909,277
Less accumulated depreciation and amortization		9,660,156		8,984,948
Net property and equipment		10,086,671		9,924,329
Deferred expenses and other assets, net		317,553		367,122
Goodwill		9,410,704		9,410,704
Intangible assets, net		1,116,846		1,331,000
Total assets	$	67,349,884	$	63,863,807

See notes to consolidated financial statements

3

SIMCLAR, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Continued)

	June 30,		December 31,
	2007		2006
	(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	7,397,055	$	5,065,771
Accounts payable		19,044,053		16,396,407
Accrued expenses		2,473,293		1,740,799
Accrued income taxes		684,583		-
Amounts payable to major stockholder, net		-		1,344,139
Current portion of long-term debt		4,062,099		4,047,408
Total current liabilities		33,661,083		28,594,524
Long-term debt		12,200,000		15,300,000
Subordinated long-term debt		790,117		1,217,986
Deferred income taxes		370,368		429,031
Other long term liabilities		400,000		400,000
Total liabilities		47,421,568		45,941,541
Commitments and contingencies		-		-
Stockholders' equity:
Common stock, $.01 par value, authorized 10,000,000 shares; issued and
outstanding 6,465,345 shares at June 30, 2007 and December 31, 2006		64,653		64,653
Capital in excess of par value		11,446,087		11,446,087
Retained earnings		8,396,716		6,385,732
Accumulated other comprehensive income		20,860		25,794
Total stockholders' equity		19,928,316		17,922,266
	$	67,349,884	$	63,863,807

See notes to consolidated financial statements

4

SIMCLAR, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Sales	$	37,118,798		$	30,399,457		$	68,526,310		$	52,222,188
Cost of goods sold		32,154,697			26,625,742			59,736,431			45,657,006
Gross Margin		4,964,101			3,773,715			8,789,879			6,565,182
Selling, general and administrative expenses		2,446,061			2,117,605			4,824,087			3,718,416
Income from operations		2,518,040			1,656,110			3,965,792			2,846,766
Interest expense		494,168			476,030			990,289			762,640
Interest and other income		(57,507	)		(104,097	)		(73,509	)		(92,424	)
Income before income taxes		2,081,379			1,284,177			3,049,012			2,176,550
Income tax provision		709,033			493,836			1,038,028			880,465
Net income	$	1,372,346		$	790,341		$	2,010,984		$	1,296,085
Earnings per share:
Basic	$	0.21		$	0.12		$	0.31		$	0.20

See notes to consolidated financial statements

5

SIMCLAR, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	June 30,
	2007			2006
Operating activities:
Net income	$	2,010,984		$	1,296,085
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		1,053,018			831,552
Deferred expenses and other assets		49,569			(338,267	)
Provision for inventory obsolescence		335,671			180,142
Other liabilities		-			400,000
Gain on disposal of property and equipment		(8,685	)		(33,511	)
Deferred tax benefit		(58,663	)		-
Changes relating to operating activities from:
Accounts receivable		(654,592	)		24,434
Amounts receivable from / payable to major stockholder, net		111,696			(10,671	)
Inventories		(854,607	)		(2,714,326	)
Prepaid expenses and other current assets		(50,841	)		(358,475	)
Accounts payable		2,647,646			1,972,734
Accrued expenses		732,494			407,437
Income taxes payable		683,788			152,303
Net cash provided by operating activities		5,997,478			1,809,437
Investing activities:
Additions to property and equipment		(1,517,521	)		(320,305	)
Proceeds from sale of property and equipment		525,000			51,587
Acquisition of subsidiaries, net of cash acquired:
Simclar (Mexico), Inc.		-			(54,896	)
Simclar Interconnect Technologies, Inc.		-			(16,122,149	)
Net cash used in investing activities		(992,521	)		(16,445,763	)
Financing activities:
Borrowing on bank line of credit		6,346,375			1,094,776
Repayments on bank line of credit		(4,015,091	)		(1,134,778	)
Payments on note payable to major stockholder		(2,500,000	)		-
Proceeds from long-term borrowings		-			16,000,000
Payments on long-term bank borrowings		(3,513,178	)		(600,000	)
Net cash provided by (used in) financing activities		(3,681,894	)		15,359,998

Effect of exchange rate fluctuations on cash		(4,934	)		(9,584	)
Net change in cash and cash equivalents		1,318,129			714,088
Cash and cash equivalents at beginning of period		82,154			833,703
Cash and cash equivalents at end of period	$	1,400,283		$	1,547,791
Supplemental disclosure of cash flow information:
Interest paid in cash	$	648,308		$	620,000

See notes to consolidated financial statements

6

SIMCLAR, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 - Basis of Presentation

The accompanying interim 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”), Simclar (North America), Inc. (“SNAI”), Simclar Interconnect Technologies, Inc. (“SIT”), and Techdyne (Europe) Limited ("Techdyne (Europe)") collectively referred to as the "company." 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 company incorporated in the United Kingdom.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and have not been audited by an independent registered public accounting firm. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, such interim financial statements reflect all normal recurring adjustments considered necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the company's Annual Report on Form 10-K for the year ended December 31, 2006.

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

NOTE 2 - Recently Issued Accounting Pronouncements

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 its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115”. This Statement allows companies the choice to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurements, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, or January 1, 2008 as to the company, and interim periods within that fiscal year. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157, “Fair Value Measurements.” The company is currently evaluating the impact the adoption of SFAS No. 159 will have on its consolidated financial statements.

7

SIMCLAR, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3 – Inventories

Inventories net of allowance for obsolescence are comprised of the following:

	June 30,			December 31,
	2007			2006
Raw materials and supplies	$	17,692,379		$	16,992,310
Work in process		3,094,683			2,829,592
Finished goods		1,751,109			1,988,934
Allowance for obsolescence		(1,760,198	)		(1,551,799	)
	$	20,777,973		$	20,259,037

NOTE 4 – Earnings per share

Following is a reconciliation of amounts used in the basic and diluted computations:

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Net income - numerator basic computation	$	1,372,346	$	790,341	$	2,010,984	$	1,296,085
Weighted average shares - denominator basic computation		6,465,345		6,465,345		6,465,345		6,465,345
Earnings per share:
Basic	$	0.21	$	0.12	$	0.31	$	0.20

There were no potentially dilutive securities outstanding for the three months and six months ended June 30, 2007 or 2006.

NOTE 5 – Comprehensive Income

Comprehensive income consists of net income and foreign currency translation adjustments. Below is a detail of comprehensive income for the three months and six months ended June 30, 2007 and 2006:

	Three Months Ended June 30,					Six Months Ended June 30,
	2007		2006			2007			2006
Net income	$	1,372,346	$	790,341		$	2,010,984		$	1,296,085
Foreign currency translation income (loss)		21,292		(11,135	)		(4,934	)		(9,584	)
Comprehensive Income	$	1,393,638	$	779,206		$	2,006,050		$	1,286,501

8

SIMCLAR, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 6 – Long Term Debt

Effective January 26, 2007, the company entered into amendments of its two working capital facilities with the Bank of Scotland (“BoS”). The term of the $1 million working capital facility of SIT, 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.

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 replaced 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 credit facility. The balance at June 30, 2007 was approximately $1,652,000 and is reflected as subordinated long-term debt on the face of the balance sheet, net of $862,000 reflected in current portion of long-term debt.

NOTE 7 – Amounts Due to Major Stockholder and Other Related Party Transactions

The company had a net receivable due from its parent, Simclar Group, certain of its subsidiaries and a related party of approximately $1,044,000 at June 30, 2007 and a net payable of approximately $1,344,000 as of December 31, 2006. Amounts receivable or payable accrue interest at the rate of LIBOR plus 1.5%. Interest income net of interest expense related to this receivable was approximately $9,000 and $17,000 respectively for the three months and six months ended June 30, 2007.

Beginning in March 2006, SIT pays a monthly management fee to Simclar Interconnect Technologies Limited, a related party to Simclar Group, based on 2% of sales. The purpose of the fee is to support global research and development and sales and marketing management. The charges for the three months and six months ended June 30, 2007 totaled approximately $284,000 and $553,000 respectively.

During the three months and six months ended June 30, 2007, the company sold goods with an approximate value of $261,000 to Simclar International Corporation, a related party to Simclar Group.

In connection with the acquisition of the Litton assets (see Note 10 below), Simclar Group has provided a guarantee to BoS in respect of loans advanced to Simclar up to a maximum amount of $10,000,000; likewise, Simclar has guaranteed certain Simclar Group 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 borrowing to EBITDA being achieved.

Note 8 – Income Taxes

The company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) on January 1, 2007. As required by FIN 48, which clarifies SFAS No. 109 “Accounting for Income Taxes,” the company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the company applied FIN 48 to all tax positions for which the statute of limitations remained open. As a result of the implementation of FIN 48, the company was not required to record any liability for unrecognized tax benefits as of January 1, 2007. There have been no material changes in unrecognized tax benefits since January 1, 2007.

The company is subject to income taxes in the U.S. federal jurisdiction, as well as various other jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the company is no longer subject to U.S. federal, state, and local, or non-U.S. income tax examinations by tax authorities for years before 2003.

9

SIMCLAR, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 8 – Income Taxes - continued

The company is currently under examination by the Internal Revenue Service for the year ended December 31, 2005. The company expects this examination to be concluded and settled in the next 12 months without material adverse affect to the company’s financial position or results of operations.

The company will recognize, if applicable, interest accrued related to unrecognized tax benefits in interest expense and penalties in other expense. At June 30, 2007, the company had no unrecognized tax benefits.

The company files federal and state income tax returns separately from Simclar Group, and its income tax liability is therefore reflected on a separate return basis.

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Income tax payments amounted to approximately $100,000 and $300,000 for the three months and six months ended June 30, 2007 and approximately $450,000 and $600,000 for the comparable 2006 period.

NOTE 9 - Commitments and Contingencies

The company leases several facilities which expire at various dates through 2017 with renewal options for periods of up to five years at the then fair market rental value. The company sponsors two 401(k) profit sharing plans covering substantially all of its employees, excluding Techdyne (Europe) and Simclar Mexico.

The company is involved in various legal actions arising in the ordinary course of business. In the opinion of management, the settlement of these matters will not have a material effect on the company's financial position or results of operations.

NOTE 10 - Acquisitions

On February 24, 2006, the company and SIT, its newly-formed wholly owned subsidiary, 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 and the assumption of certain liabilities. 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.

The company financed the purchase of the assets under an amended term loan facility with BoS. Refer to Note 6 for further details of this financing arrangement.

The acquisition was accounted for by the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations.” The purchase price and direct expenses incurred were allocated to assets acquired and liabilities assumed based on estimated fair values at the date of acquisition. The company recorded goodwill of $3,373,397 and a $1,470,000 intangible asset for the customer relationships and a non-compete agreement with Litton Systems, Inc. Goodwill will be evaluated for impairment on an annual basis, or more frequently if impairment indicators arise, using a fair-value-based test. Intangible assets have been valued using fair-value-based methodology and will be amortized on an accelerated basis over the estimated useful lives.

10

SIMCLAR, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 10 – Acquisitions - continued

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

Current Assets	$	13,149,821
Equipment		2,539,195
Intangible assets		1,470,000
Goodwill		3,373,397
Total assets acquired	$	20,532,413
Current liabilities	$	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.

Results of operations have been included in the company's consolidated financial statements prospectively from the effective date of acquisition. Refer to Note 11 for a summary of selected unaudited pro forma financial information for the six months ended June 30, 2006, as if Litton had been acquired at the beginning of 2006.

NOTE 11 – Pro Forma Financial Information (Unaudited)

The following table provides selected unaudited pro forma financial information for the six-month period ended June 30, 2006 as if Litton had been acquired at the beginning of 2006. The unaudited pro forma financial information includes adjustments for intercompany transactions.

	Six Months Ended
	June 30, 2006
Pro forma sales	$	60,000,000
Pro forma net income	$	1,475,000
Pro forma earnings per share:	$	0.23
Basic

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

11

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

Introduction and Overview

Simclar, Inc. (“Simclar”) is a Florida corporation with five wholly owned subsidiaries - Simclar (Mexico), Inc., Simclar de Mexico S.A. de C.V., Techdyne (Europe) Limited, Simclar (North America), Inc. (“SNAI”) and Simclar Interconnect Technologies, Inc. (“SIT”). Collectively, these entities are referred to as the “company.” The company is a 73.4% owned subsidiary of Simclar Group Limited, a company incorporated in the United Kingdom. On February 24, 2006, Simclar and SIT 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 (see Note 10 in the Notes to Consolidated Financial Statements). All material intercompany accounts and transactions have been eliminated in consolidation.

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 (“PCB”) assemblies, metal fabrication, cabling solutions and higher level assemblies provides 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. Our products are manufactured to customer specifications for OEMs in a variety of markets including the data processing, telecommunications, instrumentation, and food preparation equipment industries. The company has five manufacturing plants and two sales offices and has approximately 1,130 employees.

The company’s financial statements for the three month and six month periods ended June 30, 2007 reflected growth in sales and profits through acquisition and organic growth from existing customers and facilities. The following overview comments are discussed in further detail throughout this Item 2:

·   Revenues grew by approximately 22% and 31% respectively for the three months and six months ended June 30, 2007 compared to the same period in 2006; all the growth in the second quarter was from existing customers and facilities while for the six month period, approximately 14% of such growth was from existing customers and facilities and there was an approximate 17% increase in revenue from acquisitions.

·   Gross margin increased by approximately $1.2 million and $2.2 million respectively for the three months and six months ended June 30, 2007 compared to the same period in 2006; the improved gross margin is attributed to the higher revenues mentioned above.

·   Net income was approximately $1.4 million and $2.0 million respectively for the three months and six months ended June 30, 2007 compared to approximately $790,000 and $1.3 million respectively for the three months and six months ended June 30, 2006.

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 manufacturing strategy, acquisitions and consolidations, and variations in demand for its 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 major customers.

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.

12

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, properly time expenditures and allocations of physical and personnel resources in anticipation of future sales, and evaluate economic conditions in the electronics industry and the mix of products for manufacture, whether PCBs, wire harnesses, cables, or turnkey products.

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, and 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.

In December 2006, the company entered into a lease agreement for a new facility for the SIT operations in Ozark, Missouri. The lease is an operating lease with a term of 5 years with renewal options and an estimated annual lease expense of approximately $120,000. The move to the new facility was completed in April 2007. While there was a disruption in product shipments during this process, there were no lost revenues nor any material negative effects as a result of this move to the new facility.

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 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.

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·   Bank borrowings - changes 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.

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.

Investors are cautioned that forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical or anticipated results due to many factors, including, but not limited to, the potential effects of a loss of one or more key customers, covenants contained in our bank loan agreements, competition in the electronics manufacturing services industry, the cyclical nature of our business, the lack of long-term agreements with our customers, shortages of and price increases in the components of devices we manufacture, our ability to keep up with technological changes in our industry, changes in interest rates, changes in cash flows from operations, the effectiveness of our internal controls, and other risks, uncertainties and factors described in our most recent Annual Report on Form 10-K and other filings from time to time with the Securities and Exchange Commission. These documents are available free of charge at the Commission’s website at http://www.sec.gov. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances occurring after the date of this report.

Results of Operations - Three months and six months ended June 30, 2007

Net Sales

(dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Net Sales	$	37,119		$	30,399		$	68,526		$	52,222
Change from prior year	$	6,720		$	16,408		$	16,304		$	25,874
% change from prior year		22.1	%		117.3	%		31.2	%		98.2	%

The increase in second quarter 2007 sales of approximately $6.7 million over the same period in 2006 is all organic growth. For the six month period ended June 30, 2007 sales grew by approximately $16.3 million over the same period in 2006. The six month sales growth is attributed to $8.8 million from acquisition and $7.5 million from existing customers and facilities. The backlog grew during this six month period by approximately 8.6% or $2.4 million. The backlog as of June 30, 2007 was $30.6 million.

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Gross Profit

(dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Gross profit margin	$	4,964		$	3,774		$	8,790		$	6,565
Change from prior year	$	1,190		$	2,043		$	2,225		$	3,269
% change from prior year		31.5	%		118.0	%		33.9	%		99.2	%
% of sales		13.4	%		12.4	%		12.8	%		12.6	%

Gross profit increased by approximately $1.2 million and $2.2 million respectively for the three months ended June 30, 2007, compared to the same period in 2006. Gross profit benefited by higher sales volumes as discussed above. The main factors that influence our gross margin percentage are material costs, product mix and plant utilization.

Selling, General, and Administrative Expenses

(dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Selling, general, and administrative expenses	$	2,446		$	2,118		$	4,824		$	3,718
Change from prior year	$	328		$	882		$	1,106		$	1,464
% change from prior year		15.5	%		71.4	%		29.7	%		65.0	%
% of sales		6.6	%		7.0	%		7.0	%		7.1	%

Selling, general, and administrative expenses increased by approximately $328,000 and $1.1 million respectively for the three months and six months ended June 30, 2007, compared to the same period in 2006. The increase is primarily due to the acquisition of Litton. Expenses did not increase in proportion to sales for the three month period and were therefore lower as a percentage of sales.

Interest Expense

(dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Interest expense	$	494		$	476		$	990		$	763
Change from prior year	$	18		$	373		$	227		$	583
% change from prior year		3.8	%		362.1	%		29.8	%		323.9	%
% of sales		1.3	%		1.6	%		1.4	%		1.5	%

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The increase in interest expense for the six months ended June 30, 2007 is due to a combination of increased borrowing attributed to the acquisition of the Litton assets, the increase in the working capital line of credit and increased interest rates. 

Average debt levels for the six month period ended June 30, 2007 and same period for 2006 were approximately $25.8 million and approximately $20.0 million respectively (including interest bearing debt owed to related parties).

Average interest rates in the quarter ended June 30, 2007 were 7.8% compared to 6.5% for the quarter ended June 30, 2006.

Income Before Income Taxes

(dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Income before taxes	$	2,081		$	1,284		$	3,049		$	2,177
Change from prior year	$	797		$	882		$	872		$	1,295
% change from prior year		62.1	%		219.4	%		40.1	%		146.8	%
% of sales		5.6	%		4.2	%		4.4	%		4.2	%

The increase in income before taxes of approximately $797,000 and $872,000 respectively for the three months and six months ended June 30, 2007, compared to the same period in 2006, is directly attributable to higher sales. Overall profitability year to date was up marginally as a percentage of sales.

Income Tax Expense

(dollars in thousands)

	June 30,						June 30,
	2007			2006			2007			2006
Income tax expense	$	709		$	494		$	1,038		$	880
Change from prior year	$	215		$	313		$	158		$	512
% change from prior year		43.5	%		172.9	%		18.0	%		139.1	%
Effective tax rate		34.1	%		38.5	%		34.0	%		40.5	%

Income tax expense for the three months and six months ended June 30, 2007 was approximately $709,000 and $1.0 million respectively. The lower effective tax rate is the result of more effective state tax planning strategies and a lower percentage of items which were nondeductible for tax purposes.

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Liquidity and Capital Resources at June 30, 2007

Cash and Cash Equivalents

(dollars in thousands)

	June 30, 2007		December 31, 2006
Cash and cash equivalents	$	1,400	$	82

Cash and cash equivalents were approximately $1.4 million as of June 30, 2007 compared to approximately $82,000 as of December 31, 2006. The increase is primarily due to the timing of our accounts payable disbursements at the end of the period. Excess liquid funds are invested in short-term interest-bearing accounts at financial institutions.

Net Cash Provided from Operating Activities

(dollars in thousands)

	Six Months Ended June 30,
	2007		2006
Net cash provided from operating activities	$	5,997	$	1,809

Net cash provided from operating activities for the six months ended June 30, 2007 was approximately $4.2 million higher than the same period last year. In the first six months of 2007 net income adjusted for depreciation, deferred expenses, gain on disposal of property and equipment and provision for obsolescence provided approximately $3.4 million changes in working capital provided approximately $2.6 million.

Accounts Receivable

(dollars in thousands)

	June 30, 2007		December 31, 2006
Accounts receivable	$	21,456	$	20,802
Average days sales outstanding		49.9		64.5

Accounts receivable as of June 30, 2007 increased by approximately $654,000 compared to December 31, 2006 due to higher sales. The June 30, 2007 days sales outstanding (DSO) is calculated on sales for the six months ended June 30, 2007. The December 31 DSO is affected by higher sales in the fourth quarter. If viewed on a period by period basis the DSO would have been in the 53 to 55 day range at December 31, 2006.

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Inventory

(dollars in thousands)

	June 30, 2007		December 31, 2006
Inventory	$	20,778	$	20,259
Average inventory turnover		6.0		5.3

Inventory as of June 30, 2007 increased by approximately $519,000 compared to December 31, 2006. The growth was primarily due to growth in customer orders. The average inventory turnover was 6.0 in the three months to June 30, 2007 compared to 5.3 in the year ended December 31, 2006. The company continues to seek improvements in inventory turnover through smaller order quantities and vendor managed inventories.

Cash Used in Investing Activities

(dollars in thousands)

	Six Months Ended June 30,
	2007		2006
Net cash used in investing activities	$	993	$	16,446

Investing activities for the six months ended June 30, 2007 included approximately $1.5 million for property and equipment purchases and approximately $525,000 proceeds for equipment sold. Approximately $958,000 of the property and equipment purchases was due to the leasehold improvements related to the move of our Missouri facility from Springfield to Ozark. The February 2006 acquisition of the Litton assets accounted for $16.1 million of the cash used in the first quarter of 2006.

Cash Provided by (Used in) Financing Activities

(dollars in thousands)

	Six Months Ended June 30,
	2007			2006
Cash provided by (used in) financing activities	$	(3,682	)	$	15,360

Financing activities for the six months ended June 30, 2007 included term loan repayments of $3.1 million, a principal payment of approximately $413,000 on the Winsson debt, a payment of a note to Simclar Group of $2.5 million and an increase in the amount borrowed on our lines of credit of approximately $2.3 million. The $3.1 million in term loan repayments included $1.6 million in scheduled payments plus $1.5 million of additional payments. The increase in the line of credit was used to repay the note due to Simclar Group. The financing activity in 2006 was primarily the $16 million increase in our long-term credit facility to fund the Litton asset acquisition.

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

Borrower	Type of facility	Originalamount (as amended)	Balance at June 30,2007
Simclar, Inc.	Working capital	$7,500,000	$7,397,055
Simclar, Inc.	Term loan – four tranches (see detail of tranches below)	$21,650,000	$15,400,000
Simclar Interconnect Technologies, Inc.	Working Capital	$1,000,000	-

Effective January 26, 2007, we entered into amendments of the two working capital facilities. The term of the $1 million working capital facility of SIT, originally entered into in December 2005, was extended to January 28, 2008. The Simclar, Inc. working capital facility, last amended in December 2005, was increased to $7.5 million from $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 June 30, 2007 was 6.82% based on the three 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 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 3.5%. The interest rate in effect for tranches A and B at June 30, 2007 was 6.84% based on the three month election. The interest rate in effect at June 30, 2007 for tranche C was 7.82% and for tranche D was 8.82% 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	Original 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

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Our credit facilities with BoS, which include an Amended Term Loan Facility Letter, an Amended Working Capital Facility Letter, a Working Capital Facility Letter, an Amended and Restated General Security Agreement, an Amended and Restated Pledge Agreement, a Mortgage and a Guaranty, 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 material adverse effect;

·   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 June 30, 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);

·   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); and

·   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 rolling 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 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 was to submit by April 30, 2007 a financial projection for the remainder of 2007 showing relevant measurements against the financial covenants. The company submitted the requested projections as required. 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 of renegotiating the debt covenants. The company is also in compliance with all other covenants, as referenced above.

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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 June 30, 2007:

In Thousands	Total Amounts		Less than 1 Year		1 - 3 Years		4 - 5 Years		Over 5 Years
Long-term debt with interest	$	18,733	$	4,297	$	5,538	$	8,645	$	253
Operating leases		6,414		1,144		2,199		1,365		1,706
Bank line of credit with interest		7,904		7,904		-		-		-
Long-term subordinated debt with interest		1,702		900		802		-		-
	$	34,753	$	14,245	$	8,539	$	10,010	$	1,959

The company’s 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.

Critical Accounting Policies

In preparing its financial statements and accounting for the underlying transactions and balances, the company has applied the accounting policies as disclosed in the Notes to the Consolidated Financial Statements contained in the company's annual report on Form 10-K for the year ended December 31, 2006. Preparation of the company's financial statements requires company management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates, and the differences may be material. For a detailed discussion of the application of these and other accounting policies, see "Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" contained in the company's annual report on Form 10-K for the year ended December 31, 2006. There have been no material changes to these accounting policies during the six months ended June 30, 2007.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Sensitivity of results of operations to interest rate risks on our investments is managed by conservatively investing liquid funds in short-term interest-bearing accounts at financial institutions in which we had excess cash invested in interest bearing accounts at June 30, 2007.

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 $22,600,000 at June 30, 2007.

We have exposure to both rising and falling interest rates. A 1/2% decrease in rates on our quarter-end investments would have an insignificant impact on our results of operations. A 1% increase in rates on our quarter-end variable rate debt would result in a negative impact of approximately $57,000 on our quarterly results of operations.

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

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Item 4. Controls and Procedures

Overview

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 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.

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 June 30, 2007. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2007, 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 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, which provided the applicable standard for assessment of the Company’s internal controls in 2005 and 2006, 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.

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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 June 30, 2007.

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.

Changes in Control Over Financial Reporting

During the quarter ended June 30, 2007, there were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. 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

Simclar, Inc. held its annual meeting of shareholders on June 8, 2007 for the purpose of electing seven directors. The nominees were: Samuel J. Russell, Barry J. Pardon, John Ian Durie, Christina M.J. Russell, A. Graeme Manson, William J. Sim, and Kenneth M. Mackay, M.D. Each nominee was elected by total of 4,797,253 shares voted for and no votes withheld.

Item 5. Other Information

Effective July 17, 2007, we amended our management services agreement with Simclar Group to extend the term to July 17, 2008.

Item 1A has no material changes from the corresponding item reported in the Company’s Form 10-K for the fiscal year ended December 31, 2006 and has been omitted. Items 2 and 3 are not applicable and have been omitted.

Item 6. Exhibits

Exhibit No.	Description
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
99.1	Amendment to Management Services Agreement, effective July 17, 2007, between Simclar, Inc. and Simclar Group Limited.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		SIMCLAR, INC.
Date: August 14, 2007	By	/s/ Barry J. Pardon
		BARRY J. PARDON, President
Date: August 14, 2007	By	/s/ Marshall W. Griffin
		MARSHALL W. GRIFFIN, Chief Financial Officer

24

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Barry J. Pardon, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, 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)) 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;

c. 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

d. 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: August 14, 2007	/s/ Barry J. Pardon
	Barry J. Pardon
	President and Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Marshall W. Griffin, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, 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)) 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;

c. 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

d. 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: August 14, 2007	/s/ Marshall W. Griffin, Jr.
	Marshall W. Griffin, Jr.
	Chief Financial Officer, Treasurer and Secretary

EX-32.1

Exhibit 32.1

CERTIFICATION OF PERIODIC FINANCIAL REPORT PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Simclar, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Barry J. Pardon, President of the Company, hereby certify as of the date hereof, solely for purpose of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

/s/ Barry J. Pardon

Barry J. Pardon, President

Simclar, Inc.

August 14, 2007

EX-32.2

Exhibit 32.2

CERTIFICATION OF PERIODIC FINANCIAL REPORT PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Simclar, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Marshall W. Griffin, Jr., Chief Financial Officer, Treasurer and Secretary of the Company, hereby certify as of the date hereof, solely for purpose of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

/s/ Marshall W. Griffin, Jr.

Marshall W. Griffin, Jr., Chief Financial Officer, Treasurer

and Secretary

Simclar, Inc.

August 14, 2007

EX-99.1

Exhibit 99.1

AMENDMENT TO SERVICE AGREEMENT

between

SIMCLAR GROUP LIMITED, incorporated under the Companies Acts

(Registered Number SC219243) and having its Registered Office at 5

Albyn Place, Edinburgh (hereinafter referred to as “Simclar”)

OF THE FIRST PART

and

SIMCLAR INC., a Florida Corporation (hereinafter referred to as “Inc”)

OF THE SECOND PART

WHEREAS, Simclar and Inc. are parties to the Service Agreement dated 17^th July 2005 (the “Agreement”); and

WHEREAS, the parties desire to amend the Agreement, effective 17 ^th July 2007;

NOW THEREFORE, in consideration of their mutual promises contained herein, the parties agree as follows:

1. Clause Two of the Agreement is hereby amended to extend the term of the Agreement to three years from the Effective Date.

2.Except to the extent expressly modified by this Amendment, the Agreement remains in full force and effect in accordance with its terms, and as so amended is hereby ratified and confirmed by the parties.

IN WITNESS WHEREOF, these presents are executed as of 17 July 2007 as follows:

On behalf of Simclar Group Limited:

/s/ Samuel J. Russell	/s/ Elaine Pryde
SJ Russell	Witness
/s/ John Ian Durie	/s/ Elaine Pryde
JI Durie	Witness

On behalf of Simclar, Inc:

/s/ Barry J. Pardon	/s/ Roxie Alvarez
BJ Pardon	Witness
/s/ Marshall Griffin	/s/ Dusty Bowser
MA Griffin	Witness