Simclar Inc - Quarterly Report (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 March 31, 2008

		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		(I.R.S. Employer
incorporation or organization)		Identification No.)

2230 West 77 ^th 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 x No o

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

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

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

Yes o No 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 March 31, 2008
Common Stock, $.01 par value per share		6,465,345 shares

SIMCLAR, INC.

Form 10-Q

For the quarter ended March 31, 2008

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

1) Consolidated Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007		3

2) Consolidated Statements of Operations for the three months ended March 31, 2008 and March 31, 2007 (unaudited)		5

3) Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and March 31, 2007 (unaudited)		6

4) Notes to Consolidated Financial Statements as of March 31, 2008 (unaudited)		7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		11

Item 3. Quantitative and Qualitative Disclosures About Market Risk		18

Item 4T. Controls and Procedures		19

PART II — OTHER INFORMATION

Item 6. Exhibits		20

Signatures		20

PART I - FINANCIAL INFORMATION

Item 1 Financial Statements

SIMCLAR, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31,		December 31,
	2008		2007
	(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents	$	1,563,887	$	428,538
Accounts receivable, less allowances of $165,000
and $236,000 at March 31, 2008 and December 31, 2007 respectively		18,200,009		20,804,552
Amounts receivable from major stockholder, net		675,259		904,627
Inventories, less allowances for obsolescence of $2,305,000 at March 31,
2008 and $2,364,000 at December 31, 2007		20,648,979		21,664,442
Prepaid expenses and other current assets		673,409		654,509
Prepaid income taxes		16,224		107,091
Deferred income taxes		1,214,160		1,214,160
Total current assets		42,991,927		45,777,919

Property and equipment:
Land and improvements		547,511		547,512
Buildings and building improvements		1,235,904		1,235,904
Machinery, computer and office equipment		15,493,762		15,342,401
Tools and dies		366,347		366,347
Leasehold improvements		1,964,881		1,957,170
Construction in progress		83,958		259,829
Total property and equipment		19,692,363		19,709,163
Less accumulated depreciation and amortization		10,199,454		9,922,589
Net property and equipment		9,492,909		9,786,574

Deferred expenses and other assets, net		286,681		366,265
Goodwill		9,410,704		9,410,704
Intangible assets, net		811,815		904,841
Total assets	$	62,994,036	$	66,246,303

See notes to consolidated financial statements

SIMCLAR, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Continued)

	March 31,		December 31,
	2008		2007
	(UNAUDITED)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	8,380,346	$	8,145,987
Accounts payable		19,641,483		21,447,560
Accrued expenses		1,928,862		1,907,472
Current portion of long-term debt		3,350,000		3,575,148
Total current liabilities		33,300,691		35,076,167

Long-term debt		8,300,000		9,600,000
Deferred trade accounts payable		108,637		349,257
Deferred income taxes		515,283		515,283
Other long term liabilities		400,000		400,000
Total liabilities		42,624,611		45,940,707

Stockholders' equity:
Common stock, $.01 par value, authorized 10,000,000 shares; issued and
outstanding 6,465,345 shares at March 31, 2008 and December 31, 2007		64,653		64,653
Capital in excess of par value		11,446,087		11,446,087
Retained earnings		8,788,444		8,747,959
Accumulated other comprehensive income		70,241		46,897
Total stockholders' equity		20,369,425		20,305,596
	$	62,994,036	$	66,246,303

See notes to consolidated financial statements

SIMCLAR, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

	Three Months Ended
	March 31,
	2008			2007

Sales	$	29,922,815		$	31,407,512
Cost of goods sold		27,216,025			27,581,733
Gross Margin		2,706,790			3,825,779

Selling, general and administrative expenses		2,393,452			2,378,026
Income from operations		313,338			1,447,753

Interest expense		335,797			496,121
Interest and other income		(81,560	)		(16,002	)

Income before income taxes		59,101			967,634

Income tax provision		18,616			328,995

Net income	$	40,485		$	638,639

Earnings per share:	$	0.01		$	0.10

See notes to consolidated financial statements

SIMCLAR, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	Three Months Ended
	March 31,
	2008			2007
Operating activities:
Net income	$	40,485		$	638,639
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization		449,656			530,940
Loss on disposal of property & equipment		4,575			-
Changes relating to operating activities from:
Accounts receivable, net		2,604,542			1,590,311
Amounts receivable / (payable) to major stockholder, net		229,368			(2,780,442	)
Inventories, net		1,015,462			(1,382,913	)
Prepaid expenses and other current assets		(18,900	)		(81,518	)
Accounts payable		(1,806,077	)		1,499,796
Accrued expenses		100,976			(196,471	)
Income taxes refundable		90,867			149,477
Net cash provided from (used in) operating activities		2,710,954			(32,181	)

Investing activities:
Additions to property and equipment		(74,040	)		(396,237	)
Proceeds from sale of property and equipment		6,500			525,000
Net cash (used in) provided by investing activities		(67,540	)		128,763

Financing activities:
Borrowing on bank line of credit		1,845,826			5,021,682
Repayments on bank line of credit		(1,611,467	)		(2,583,246	)
Payments on long-term borrowings		(1,765,768	)		(2,256,011	)
Net cash (used in) provided by financing activities		(1,531,409	)		182,425

Effect of exchange rate fluctuations on cash		23,344			(26,226	)

Net change in cash and cash equivalents		1,135,349			252,781
Cash and cash equivalents at beginning of period		428,538			82,154
Cash and cash equivalents at end of period	$	1,563,887		$	334,935

Cash paid for interest expense	$	304,471		$	487,835

See notes to consolidated financial statements

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 73.2% 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 8 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, 2007.

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 May 2008. the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” The new standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles. SFAS No. 162 establishes that the GAAP hierarchy should be directed to entities because it is the entity (not its auditor) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. Statement 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The company has not evaluated the potential impact of this statement on its financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133.” SFAS No. 161 changes disclosure requirements for derivative instruments and hedging activities. Entities will be required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This statement is effective for fiscal years beginning after November 15, 2008. The company has not evaluated the potential impact of this statement on its financial statements .

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” an amendment of ARB No. 51, which we will adopt on January 1, 2009. This standard will significantly change the accounting and reporting related to noncontrolling interests in a consolidated subsidiary. The company has not evaluated the potential impact of this statement on its 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 SFAS No. 115.” SFAS No. 159 permits companies to choose to measure certain financial instruments and other items at fair value. The company did not choose the fair value measurement option permitted by SFAS No. 159 for any of its assets and liabilities. Therefore, adoption of SFAS No. 159 did not impact the company’s financial statement.

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). As of January 1, 2008, the company adopted SFAS No. 157, however, the adoption of SFAS No. 157 did not impact the company’s financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations.” SFAS No. 141R will replace SFAS No. 141 and provides new rules for accounting for the acquisition of a business. This statement is effective for fiscal years beginning after December 15, 2008. Generally, the effects of SFAS No. 141R will depend on future acquisitions.

NOTE 3 - Inventories

Inventories are comprised of the following:

	March 31,			December 31,
	2008			2007
Raw materials and supplies		18,602,671		$	19,285,200
Work in process		2,544,468			2,841,656
Finished goods		1,806,845			1,902,052
Allowance for obsolescence		(2,305,005	)		(2,364,466	)
	$	20,648,979		$	21,664,442

NOTE 4 - Earnings per share

Following is a reconciliation of amounts used in the computations:

	Three Months Ended March 31,
	2008		2007

Net income - numerator basic computation	$	40,485	$	638,639

Weighted average shares - denominator basic computation		6,465,345		6,465,345

Earnings per share:	$	0.01	$	0.10

Net income for the three months ended March 31, 2008, includes costs of approximately $797,000 arising from the closure of the company’s North Carolina facility, comprising of costs for the facility clearance, the transfer of customer programs to Mexico and employee related costs.

NOTE 5 - 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. Below is a detail of comprehensive income for the three months ended March 31, 2008 and 2007:

	Three Months Ended
	March 31,
	2008		2007
Net Income	$	40,485	$	638,639
Foreign currency translation income / (loss)		23,344		(26,226	)
Comprehensive income	$	63,829	$	612,413

NOTE 6 - Indebtedness

Effective January 26, 2007, we entered into amendments of the two working capital facilities with 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. Effective March 27, 2008, the facilities were further amended to extend the maturity dates of each to March 17, 2009. No other material changes were made to either facility by the 2008 amendments, except that the default interest rate under both facilities was increased from 1.5% to 2.0% and the interest rate under the $7.5 million facility was increased from 1.5% over LIBOR to 1.75% over LIBOR.

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 facilities. The balance at March 31, 2008 was approximately $1,008,000 and is reflected as subordinated long-term debt on the face of the balance sheet, net of $675,000 reflected in current portion of long-term debt

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

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 $120,000 in the first 3 months of both 2008 and 2007.

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 ended March 31, 2008 and March 31 2007 are approximately $264,000 and $269,000 respectively.

The company had a net receivable due from its parent, Simclar Group, certain of its subsidiaries and a related party at March 31, 2008 and December 31, 2007 of approximately $675,000 and $905,000 respectively. Amounts receivable accrue interest at the rate of LIBOR plus 1.5%.

In connection with the acquisition of the Litton backplane assembly business in February 2006, 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.

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 consolidated financial statements.

The company will recognize, if applicable, interest accrued related to unrecognized tax benefits in interest expense and penalties in other expense. At March 31, 2008, 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.

The company provided income tax expense of approximately $19,000 and $329,000 for the three months ended March 31, 2008 and 2007.

Net income tax receipts amounted to approximately $91,000 and $150,000 for the three months ended March 31, 2008 and 2007..

NOTE 9 - Commitments and Contingencies

The company leases several facilities which expire at various dates through 2010 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 finalization of these matters will not have a material effect on the company's financial position.

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

Overview

Simclar, Inc. has over the past years demonstrated strong annual revenue growth of existing products and customers 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 OEMs to increase our business with our existing customer base and to grow our customer base with other OEMs, and (3) seek strategic acquisitions and alliances.

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 numerous sales offices and has approximately 820 employees.

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

·	2008 first quarter sales were approximately $29.9 million compared to approximately $31.4 million in the same period in 2007, reflecting, in the main, the postponement of a key customer’s new programs until later in the year.

·	Net income was approximately $41,000 for the three months ended March 31, 2008 compared to $639,000 in the same period in 2007, however the 2008 results includes costs of approximately $797,000 arising from the closure of our North Carolina plant.

·	Reported EPS for the quarter ended March 31, 2008 is $0.01, compared to $0.10 in the same period in 2007, however, this was after the inclusion of the above mentioned charges relating to the North Carolina plant closure.

·	Management has implemented a cost-reduction program across each location to mitigate the effect of lower sales and reduced margins, in order to improve profitability in future quarters, while retaining our competitive advantage.

·	Bank term loan repayments in the quarter were approximately $1.5 million, of which $750,000 were voluntary payments.

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.

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 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.

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.

Key Financial Performance Measures

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

Orders booked and backlog - the ratio of orders booked to sales is reviewed on a monthly basis.

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

Gross margin - the gross margin achieved 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 each month is compared against budget.

Working capital - movements in the balance sheet amounts of inventory, accounts receivable and accounts payable 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.

Weekly business control reviews - conference calls are conducted weekly by the president, CFO, and corporate controller to review key performance metrics and general business update with the general managers and financial controllers for each facility.

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 Ended March 31, 2008

Net Sales (dollars in thousands)

	Three Months Ended
	March 31,
	2008			2007

Net Sales	$	29,923		$	31,408

Change from prior year	$	(1,485	)	$	9,585
% change from prior year		-4.7	%		43.9	%

Despite forecasting growth within the first quarter, sales were approximately $1.5million behind the same period in 2007, mainly due to a key customer deferring new product introductions until later this year. The sales shortfall was particularly felt within the telecom infrastructure sector, which accounts for over 50% of the company’s revenue, and which has experienced the effects of the economic slow-down. Despite this, the order backlog grew during this period by approximately $1.7 million and forecasts indicate a stronger second quarter.

Gross Profit (dollars in thousands)

	Three Months Ended
	March 31,
	2008			2007

Gross profit margin	$	2,707		$	3,826

Change from prior year	$	(1,119	)	$	1,035
% change from prior year		-29.2	%		37.1	%

% of sales		9.0	%		12.2	%

The main factors that influence our gross margin percentage are material costs, product mix and plant utilization, however, approximately $548,000 of the gross margin reduction in the first quarter of 2008 relates to the closure of the North Carolina plant. The reduction also reflects the effect of underutilization of fixed production costs caused by the sales shortfall. While margins are continually under pressure from customer cost reductions programs, the company actively seeks to mitigate the effect through production efficiency improvements and procurement savings.

Selling, General, and Administrative Expenses (dollars in thousands)

	Three Months Ended
	March 31,
	2008			2007

Selling, general, and administrative expenses	$	2,393		$	2,378

Change from prior year	$	15		$	777
% change from prior year		0.6	%		48.5	%

% of sales		8.0	%		7.6	%

Selling, general, and administrative expenses were broadly in line with prior year levels, however, the decrease in sales caused the percentage of sales to increase slightly.

Interest Expense (dollars in thousands)

	Three Months Ended
	March 31,
	2008			2007

Interest expense	$	336		$	496

Change from prior year	$	(160	)	$	209
% change from prior year		-32.3	%		72.8	%

% of sales		1.1	%		1.6	%

The reduction in interest expense in 2008 reflects the fall in lending rates and the reduced level of debt compared to last year in line with the company’s strategy to make where possible, advance repayments in order to continually reduce the company’s bank’s borrowings. Average debt levels for the three month period ended March 31, 2008 and same period for 2007 were approximately $20.5 million and $25.7 million, respectively (including interest bearing debt owed to related parties), while average interest rates in the quarter ended March 31, 2008 were 5.7% compared to 7.8% for the quarter ended March 31, 2007.

Income Before Income Taxes

(dollars in thousands)

	Three Months Ended
	March 31,
	2008			2007

Income before taxes	$	59		$	968

Change from prior year	$	(909	)	$	76
% change from prior year		-93.9	%		8.5	%

% of sales		0.2	%		3.1	%

The decrease in income before tax in the first quarter of 2008 compared to the same period in 2007 is largely due to the closure costs of the North Carolina plant discussed above. These costs were approximately $797,000 and were slightly higher than previously forecast. Despite the closure being announced in the last quarter of 2007, current GAAP prevents, with certain exceptions, the provision of future associated closure costs, instead requiring that these are recognized in the period incurred. With the closure now complete however, management anticipates the company will benefit in the future from both improved profits and cash flow.

Income Tax Expense

(dollars in thousands)

	Three Months Ended
	March 31,
	2008			2007

Income tax expense	$	19		$	329

Change from prior year	$	(310	)	$	(58	)
% change from prior year		-94.2	%		-15.0	%

Effective tax rate		32.2	%		34.0	%

Income tax expense for the three months ended March 31, 2008 was approximately $18,000. The lower effective tax rate reflects the lower tax rates borne by our Mexican operation.

Liquidity and Capital Resources

Cash and Cash Equivalents

(dollars in thousands)

	March 31, 2008		December 31, 2007

Cash and cash equivalents	$	1,564	$	429

Cash and cash equivalents are approximately $1,135,000 higher as of March 31, 2008 compared to December 31, 2007. This is mainly due to high customer receipts at the quarter-end, rather than a sustained level of surplus cash, since as previously discussed, any surplus funds are generally used to reduce bank borrowings. Excess liquid funds are, however, invested in short-term interest-bearing accounts at financial institutions.

Net Cash Provided from (Used In) Operating Activities

(dollars in thousands)

	March 31, 2008		March 31, 2007

Net cash provided from (used in) operating activities	$	2,711	$	(32	)

Net cash provided from operating activities for the three months ended March 31, 2008 was approximately $2,711,000 compared to cash used in operating activities of approximately $32,000 for the same period last year. The main reason for this swing was the inclusion in 2007 of a repayment of approximately $2.8 million of indebtedness to Simclar Group.

Accounts Receivable

(dollars in thousands)

	March 31, 2008		December 31, 2007

Accounts receivable	$	18,200	$	20,805

Average days sales outstanding		54.7		54.9

Accounts receivable as of March 31, 2008 decreased by approximately $2.6 million compared to December 31, 2007 due to collections on the higher sales in the fourth quarter. The implementation of new collection procedures has resulted in improvements in the collection of overdue receivables.

Inventory

(dollars in thousands)

	March 31, 2008		December 31, 2007

Inventory	$	20,649	$	21,664

Average inventory turnover		5.3		5.6

Inventory as of March 31, 2008 decreased by approximately $1.0 million compared to December 31, 2007. Despite this reduction, lower sales in the quarter results in a reduction in average inventory turns which reflects the inclusion of approximately $0.5million of aged inventory due to the postponement of a customer project in the first quarter of 2008. The company continues to seek improvements in inventory turnover through smaller order quantities and vendor managed inventories, and is actively managing the liquidation of its excess inventory balances.

Net cash (used in) provided by investing activities

(dollars in thousands)

	Three Months Ended March 31,
	2008			2007

Net cash (used in) provided by investing activities	$	(68	)	$	129

Investing activities for the three months ended March 31, 2008 related, in the main, to the installation in Mexico of equipment transferred from our closed facility in North Carolina, while investing activities in the first quarter of 2007, included sales of surplus production equipment.

Net cash (used in) provided by financing activities

(dollars in thousands)

	Three Months Ended March 31,
	2008			2007
Net cash (used in) provided by financing activities	$	(1,531	)	$	182

Net cash used in financing activities in the three months ended March 31, 2008 was approximately $1,531,000 compared to cash provided from financing activities of approximately $182,000 in the same period of 2007. This fluctuation is caused by the 2007 amount including approximately $2.5 million of cash inflow from the increase in the company’s working capital line of credit with BoS.

Our near-term cash requirements are primarily related to funding our operations, investing in acquisitions, and servicing the company’s bank debt obligations. We believe that the combination of internally-generated funds, available cash reserves, and our existing credit facilities are 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 March 31, 2008
Simclar, Inc.	Working capital	$	7,500,000	$	7,522,993
Simclar, Inc.	Term loan - four tranches (see detail of tranches below )	$	21,650,000	$	10,750,000
Simclar Interconnect Technologies, Inc.	Working Capital	$	1,000,000	$	857,352

Effective March 27, 2008, 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, and amended in January 2007, was extended to March 17, 2009. The maturity date of the Simclar, Inc. $7.5 million working capital facility, last amended in January 2007, was extended to March 17, 2009. No other material changes were made to either facility by the amendments, except that the default interest rate under both facilities was increased from 1.5% to 2.0% and the interest rate under the $7.5 million facility was increased from 1.5% over LIBOR to 1.75% over LIBOR.

Interest on the Simclar, Inc. working capital facility accrues at an annual rate equal to LIBOR plus 1.5% (increasing to 1.75% after March 2008), 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 March 31, 2008 was 4.9% based on the one month election.

Interest on the Simclar Interconnect Technologies, Inc. working capital facility will 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 1.75% to 2.5%. The interest rate for this working capital facility at March 31, 2008 was 5.6%.

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 varies from 1.5% to 3.5%. The term debt interest rate was 4.2% for tranches A and B, 5.2% for tranche C, and 6.3% for tranche D at March 31, 2008 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 the quarter ended March, 31 2008 was 5.4%.

Reference should be made to the company’s annual report on 10-K report for the year ended December 31, 2007 for details of the credit facilities, all of which continue to be effective.

Due to the results for the 3 months ended March 31, 2008 being significantly reduced by the closure costs of the North Carolina plant, the company did not satisfy the EBIT to total interest coverage covenant for that period. Given these particular circumstances, BoS has agreed to waive the interest coverage covenant as at March 31, 2008.

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.

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, 2007. 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, 2007. There have been no material changes to these accounting policies during the three months ended March 31, 2008.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 4T. 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 March 31, 2008. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2008, our disclosure controls and procedures were effective to provide reasonable assurance 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 .

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 March 31, 2008, 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.

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.

Items 1A has no material changes from the corresponding item reported in the Company’s Form 10-K for the fiscal year ended December 31, 2007 and has been omitted. Items 2, 3, 4 and 5 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

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: May 15, 2008	By	/s/ Barry J. Pardon
		BARRY J. PARDON, President


Date: May 15, 2008	By	/s/ Stephen P. Donnelly
		STEPHEN P. DONNELLY, Chief Financial Officer

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