based ratesrate would be LIBOR plus 1.50%2.50% for both the term loan and LIBOR plus 1.25% for borrowings under the revolving credit facility. Such rate is subject to adjustment depending upon the Company’s performance. Payment of accrued interest is due and payable quarterly by the Company. Payments of principal under the term loan are payable on a quarterly basis, ending on March 31, 2011. The Fourth AmendmentAmended Credit Agreement extends the Revolving Credit facility until July 31, 2008.June 30, 2009 and accordingly, the outstanding revolving credit balance at December 29, 2007 was classified as a long-term obligation.

At December 30, 2006, $15,000,00029, 2007, there was $7,900,000 outstanding on the term loan. There were no borrowings against the revolving credit facility leaving $10,415,000$2,590,000 available after reserving $4,585,000$4,510,000 for the outstanding stand-by letters of credit. The revolving credit facility is available at the discretion of management. It is primarily used for funding

the seasonal sales programs related to the furnaceevaporative cooler and evaporative coolerfurnace product lines. As noted, the line is also used to secure stand-by letters of credit to insurance carriers in support of self-insured amounts under the Company’s risk management program. During the 20062007 fiscal year, the highest amount of Company borrowings outstanding under the revolving credit agreement, not including the amount securing stand-by letters of credit, was $4,500,000$9,300,000 and the average amount outstanding was $685,000.$5,632,000. At December 30, 2006,29, 2007, the Company was not in compliance with the Cash FlowLeverage Ratio as defined in the loan agreement.Credit Agreement. The Company has obtained waiversa waiver of the requirement for the 2006 year-end and2007 year-end. The Leverage Ratio requirement has been modified by the first quarter of 2007.Amended Credit Agreement beginning in 2008. The Company expects to be in compliance with the covenant at the end of the second quarter of 2007. Aamended agreement throughout 2008. The principal reasonreasons for not meeting the required ratioLeverage Ratio was the high level of capital expenditures during 2006.and the loss incurred in 2007.

During fiscal 2001, the Company entered into an interest rate swap agreement (Swap Agreement) covering the period December 17, 2001 through December 18, 2006 in order to minimize the adverse impact of the floating interest rate characteristic of some of the Company’s term loan borrowings.borrowing. The Company’s effective interest rate on the portion of the outstanding term loan covered by the Swap Agreement was 5.88% during 2006. The effect on the 2006 operations was to increase net income by approximately $21,000. There were no swap agreements outstanding during 2007.

The Company believes that its existing cash balance and anticipated cash flow from operations, supplemented by seasonal borrowings againstavailable under the revolving line of credit as amended, will be sufficient to cover expected cash needs, including servicing debt and planned capital expenditures for the next twelve months.

Insurance Policies

The Company maintained insurance policies since March 31, 20062007 with the following per incident deductibles and policy limits:

Should the aggregated out-of-pocket payments for the three policies exceed $3,400,000$5,580,000 during a policy year, deductibles on future claims are waived and the policies pay all amounts up to the policy limits. Should any, or all policy limits be exceeded, an umbrella policy is maintained which covers the next $25,000,000 of claims.

Obligations and Commitments

The following tables represent our obligations and commitments to make future payments under contracts, such as debt and lease agreements, and under contingent commitments as of December 30, 2006.29, 2007.

Payments Due by Period as of December 30, 200629, 2007 (amounts in thousands):

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Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements that would be likely to have a material current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

RESULTS OF OPERATIONS

This section discusses consolidated results. The following sections discuss the results of the reporting segments and contain more detail. Consolidated sales were $168,429,000 in 2007, $158,767,000 in 2006 and $138,999,000 in 20052005. The increase in 2007 was primarily realized by the Heating and $126,940,000Cooling segment ($6,216,000) and the Door segment ($4,924,000). Increased fan coil sales were the principal reason for the higher sales in 2004.the Heating and Cooling segment while a continued strong demand and the timing of shipments accounted for the Door segment sales increase. The increase in 2006 over 2005 was realized by all four segments as virtually all products ended the year with higher volumes than achieved in 2005. The primary driver of the sales increase was the Concrete, Aggregates and Construction Supplies segment as a result of both volume and price increases.

Cost of sales (exclusive of depreciation, depletion and amortization) increased as a percentage of sales from 82.1% to 84.8%. The increase in 2005 over the 2004cost of sales was realized primarilyexperienced by the Concrete, Aggregates and Construction Supplies segment althoughall segments except the Door segment. Increased material, healthcare and factory overhead costs drove margins lower in the Heating and Cooling and Evaporative Cooling segments also reported gains. The increased salessegments. Higher cement and delivery costs lead to the decreased margins in the Concrete, Aggregates and Construction Supplies segment wasdespite the resultrecovery of both volume increases due to$725,000 in 2007 from the insurance claim for flood damages in 2006. Increased competitive pricing resulting from reduced construction activity along the Front Range ofin Colorado as well asprevented price increases in response to higher cement and fuelfrom fully recapturing the increased costs. The sales volume declined modestlyimprovement in the Heating and CoolingDoor segment where warmer than usual weatherwas largely due to the increase in California throughout most of the year depressed sales. Although all of the segments experienced a high level of price competition during 2005, some price improvements were introduced in response to higher costs.

Cost of sales (exclusive of depreciation, depletion and amortization) remained relatively constant at 82.1% for both 2006 and 2005. The effect of flooding at two of our aggregates operations in July and August of 2006 reduced the effect of price increases and operating efficiencies in the Concrete, Aggregates and Construction Supplies segment. Door margins declined due to lower margins in the newly acquired electronic access business. Price competition and some dramatic material cost increases narrowed the margins of the Heating and Cooling segment while the Evaporative Cooling segment improved margins primarily due to a shift in product mix to larger industrial units. Cost of sales (exclusive of depreciation,

Depreciation, depletion and amortization)amortization increased as a percentage of sales from 81.4% for 2004in 2007 compared to 82.1% for 2005. The increase in percentage was2006 due to competitive market conditions which prevented sales price increases from fully recovering the material and fuel cost increases. An increase in workers’ compensation claims also added to the costs during 2005.

high level of capital expenditures. Depreciation, depletion and amortization increased from 2005 to 2006 due to increased capital expenditures during 2006 and amortization of intangible assets associated with the ASCI and CSSL acquitions. Depreciation, depletionacquisitions.

Selling and amortization had declined from 2004administrative costs increased but remained relatively constant as a percentage of sales at 12.4%. The increased costs were partially related to 2005 reflecting the effectincrease in sales of reduced capital spendingthe Heating and Cooling segment and the Door segment. However, increases in employee healthcare, compliance costs associated with SOX, insurance and legal expenses associated with product liability claims were the prior three years.

Sellingprimary causes for the increase in selling and administrative costs. During 2006, selling and administrative costs increased both in dollars and as a percentage of sales, although the latter only modestly from 12.3% in 2005 to 12.4% in 2006. While muchMuch of the increase was due to the increased sales volume, a substantial increase in the Heating and Cooling segment as well as additional costs of approximately $163,000 associated with the redefinition of our segments and related late filing of the 2005 Form 10-K also drove these costs higher.volume. Selling and administrative costs at the corporate office were relatively constant between 2007 and 2006.

Operating results declined from a profit of $3,849,000 to a loss of $554,000. The dramatic decline was the result of the deterioration of margins in all but the Door segment combined with the lower volume in the Concrete business. Administrative costs for 2006 declined from the 2005 level largely due to lower incentive based compensation. Selling and administrative costs increased during 2005 as compared to 2004 primarily due to the increased sales volume. As a percentage of sales, these costs declined modestly as compared to 2004. The administrative costs at the corporate office increased largely due to compensation. Selling and administrative costs within the segments varied and are discussed below.

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The gain on the disposition of property and equipment decreaseddeclined during 20062007 compared to 2005. Current year2006 as there were few sales primarily related toduring the dispositionyear. During 2006, gains were realized on numerous dispositions of equipment that waswere replaced during the year. The 2005 amount includes gains ofwere unusually high as they included $721,000 on the sales of property in Colorado Springs and Pueblo while the 2004 gain includes $489,000 generated by sales of two parcels of real estate in Colorado.

Operating income declined from $4,052,000 in 2005 to $3,849,000 in 2006 despite the increase in sales largely due to the margin decline and increased selling and administrative costs in the Heating and Cooling segment. The expenses related to the flooding at two of our aggregate operations, as well as the decrease in gains on the sale of property and equipment, also reduced operating income in 2006. Operating

Other income increased from $3,505,000 for 2004 to $4,052,000 for 2005 primarily as2007 included a result of the increased sales volume, the decrease in depreciation expense and the increased$230,000 gain on the sale of property and equipment. These positive factors were partially offset by higher material and fuel costs.stock received from the demutualization of one of our insurance carriers.

Net interest expense increased over the prior year in both 20062007 and 20052006 due to increased borrowings as well as higher average interest rates during both years.

The Company’s effective income tax rates reflect federal and state statutory rates adjusted for non-deductible and other tax items. The effective tax rate for 2007 was a benefit of 61.6%. The primary increases to the benefit from the statutory rate of 34% was the 19.4% benefit realized from percentage depletion and the 16.3% benefit for future state tax credits resulting from operations within an Enterprise Zone in California. The effective rate for 2006 (35.3%) was increased by 6.1% for adjustments made to state taxes and reduced by 5.4% for the benefit realized from percentage depletion. The effective rate for 2005 (22.5%) was reduced by 8.1% for adjustments made to the accrual for tax contingencies as a result of the closure of tax years subject to audits by taxing authorities. The 2005 effective rate was also reduced by 2.4% for percentage depletion. The effective rate for 2004 (24.0%) was reduced by 4.2% for adjustments made to the accrual for tax contingencies. The 2004 rate was also reduced by 5.5% for state tax credits and 3.1% for percentage depletion. The Company reviews its tax positions on a quarterly basis and accrues amounts for potential tax contingencies. Based on these reviews and the closure of tax years subject to tax audit, reserves are adjusted as necessary. Reserves for these tax matters are included in income taxes payable on the consolidated balance sheets. See Note 9.11.

As discussed above, the Company operates primarily in two industry groups both of which are somewhat seasonal, weather sensitive and subject to cyclical factors. The following addresses various aspects of operating performance focusing on the reportable segments within each of the two industry groups.

Construction Products Industry Group

As discussed in Note 13, as a result of certain organizational changes, we have reevaluated our segments reporting under Financial Accounting Standards Board (FASB) Statement 131, “Disclosure about Segments of an Enterprise and Related Information.” The Door Division of TMC, previously reported within the Concrete, Aggregates and Construction Supplies Segment is now reported within the Door Segment. Accordingly, the 2006 information presented in the table below has been restated to conform to the current year’s segment composition. The table below presents a summary of operating information for the two reportable segments within the Construction Products industry group for the fiscal years 2007, 2006 2005 and 20042005 (amounts in thousands).

Concrete, Aggregates and Construction Supplies Segment

Sales in the Concrete, Aggregates and Construction Supplies segment declined $1,776,000 to $90,438,000 despite increased sales prices. The decline was attributable to a 6.9% decline in concrete volume as construction

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along the Front Range of Colorado has slowed significantly over the past year. Delivery costs increased due to higher prices for diesel fuel and a higher level of repairs and maintenance expenditures. As the communities serviced expand, traffic increases and more of our sales occur further from our batch plant sites. In the Pueblo market, a significant portion of the increased delivery costs can be attributable to the quick turn around times we enjoyed servicing two very large jobs in 2006. Pricing became more competitive in all Colorado markets as demand fell which prevented our price increases from fully recovering the increased costs. The Aggregates division reported improved sales during 2007 although profits were aided by the $725,000 insurance recovery related to the 2006 flood damage claims. The Construction Supplies division reported declines in sales directly related to the lower construction activity during 2007.

Sales in the Concrete, Aggregates and Construction Supplies segment improved to $96,862,000$92,214,000 in 2006, an increase of $14,218,000,$13,858,000, or 17.2%17.7% over the 2005 amount of $82,644,000.$78,356,000. The improvement was primarily due to three large commercial jobs in the Pueblo area, the relatively strong construction market during the first half of 2006 coupled with favorable weather conditions during the first quarter of the year as compared to the 2005 quarter and concrete price increases. Although the housing market slowed midyear, continued work on the three large industrial jobs allowed us to increase sales volume for 2006 despite volume declines in Denver and Colorado Springs for the year. The purchase of ASCI on June 30, 2006 also helped offset some of the effect of the slowing market in Colorado Springs. Concrete pricing improved during 2006 althoughtalthough the increases were largely instituted to offset increased cement and fuel cost. Aggregates sales improved in combination with the concrete volume. Sales of the supplies division declined in a slower, more price competitive market.

Sales for 2005 in the Concrete, Aggregates and Construction Supplies segment increased $9,333,000, or 12.7% over the 2004 amount of $73,311,000. Concrete volume increased in Colorado Springs and Denver while Pueblo saw a small decline. Volumes improved primarily as a result of increased construction activity along the Front Range of Colorado. Pricing improved at all locations largely in response to the higher cost of cement and fuel. The Denver operations also experienced an increase in their cost of aggregates. Although prices in the Denver ready mix concrete market rose for the first time in three years, conditions remain very competitive. Management estimates that the market-wide cement shortage during the months of September and October 2005 resulted in lost concrete volume of 3% to 4% for the year. Aggregates sales improved as demand for concrete rose. Sales of construction supplies mirrored the increases experienced by the other products.

Operating income is highly sensitive to sales volume in the Concrete, Aggregates and Construction Supplies segment. This segment has also historically required a sizable investment in capital assets resulting in a largesignificant portion of its costs being relatively fixed in nature. Operating income as a percent of sales, therefore, generally increases and decreases at a higher rate but in tandem with sales changes.

Operating income for 2007 was $5,723,000$2,980,000 as compared to the 2006 operating profit of $4,888,000. Cost of sales as a percentage of sales increased from 83.9% in 2006 to 85.7% in 2007 despite the insurance recovery of $725,000 from the 2006 flood damage claims. As noted above, due to the increased competitive pricing caused by the decline in construction activity, sales prices were not able to be fully passed on to customers to offset the higher costs. In addition, depreciation expense rose approximately $200,000 in 2007 compared to 2006 due to the high capital spending in recent years and the amortization of intangibles related to the ASCI acquisition. The segment also sold numerous assets during 2006 which resulted in gains of $195,000 compared to the small loss of $9,000 incurred during 2007.

Operating income for 2006 and increased at a greater rate than sales aswas $4,888,000 compared to the 2005 results of $3,805,000.$3,159,000. Cost of sales as a percentage of sales declined from 85.4% in 2005during 2006 compared to 83.9% in 2006.2005. The improvement iswas the result of some price increases in excess of the higher cement and fuel costs, delivery cost efficiencies on the large industrial jobs, lower workers’ compensation claims, and the relatively fixed nature of some costs that rose at a lower rate than the sales increases.did not increase proportionately with sales. Selling and administrative costs increased but declined as a percentage of sales due to the fixed nature of some of the costs. Partially offsetting these improvements were the $726,000 decrease in the 2006 gain on dispositions of property and equipment from the 2005 level in this segment and the effect of flooding at our two Arkansas River operations in July and a second flood at our Pueblo East pit in late August. Both were the result of heavy rains in the area. All expenses incurred to repair the damage and resume production have been recognized in 2006 cost of sales. Both quarries arewere back in operation during 2006 although some measures to mitigate future vulnerability haveflood losses were not yet been finalized.completed until 2007. Management estimates that the effect of the flooding added over $1,000,000 in expenses at the two gravel operations.aggregate operations in 2006. The Company has filed insurance claims. The claims which are subject to policy deductibles, are currently being reviewed by the insurance companies.and settled those claims for $725,000 during 2007. No recovery hashad been anticipated or recorded in the 2006 results of operations.

Operating income was $3,805,000 during 2005 and increased at a greater rate than sales as compared to

As expected the 2004 results of $2,331,000. Cost of sales as a percentage of sales, however, increased from 84.7% during 2004 to 85.4% for 2005. The increased percentage was the result of a highly competitive market. A higherreduced profit level of workers’ compensation claims also increased costs at our Colorado Springs operations during 2005. The effect of the increased cost of sales dampened the effect of increased sales on2007 resulted in lower operating profit. There were several other factors that increased operating income during 2005. Selling and administrative costs increased at a lesser rate than the improved sales primarily due to office staff reductions in Denver. Depreciation, depletion and amortization declined reflecting the effect of reduced capital spending in recent years. Finally, the 2005 gain on disposition of property and equipment increased from the 2004 level primarily due to the transactions noted above in the discussion of consolidated results. Operating income as a percent of sales improved as a result of these factors.

and lower return on assets from the 2006 level. The return on assets for 2006 increased as a result of the higher sales and improved profit margins partially offset by the investment related to the ASCI acquisition and a higher level of receivables. The return on assets in 2005 as compared to the return for 2004 was enhanced by the $2,890,000 decrease in assets that related to this segment’s portion of the receivable for insured losses.  This asset, which we are required to record by Financial Accounting Standards Board (FASB) Interpretation 39, “Offsetting of Amounts Related to Certain Contracts,” is offset by an equal liability for unpaid claims covered by insurance. A change in this asset between years distorts the return on assets percentage.

Door Segment

Sales in the Door segment increased $5,352,000 or 38% during 2007 over the 2006 level as demand remained strong and sales of electronic access systems increased. Sales are also affected by the timing of shipments as contractors may accelerate or delay shipments depending on the progress of their projects. Backlog was reduced over the course of 2007 but remains at a strong level. Sales in the Door segment for 2006 increased $725,000$1,085,000 or 8.3% over 2005 primarily due to the acquisition of CSSL at the beginning of the year. Sales in the Door segment for 2005 were $8,727,000, an increase of $1,640,000, or 23.1% over the 2004 amount of $7,087,000. The increase was the result of a slightly stronger market and, to some extent, higher sales prices resulting from increased costs.

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Operating income was $657,000$2,245,000 during 2007 compared to $1,492,000 during 2006 compareddue principally to $777,000 during 2005 despite the increase in sales resulting fromvolume. Operating income increased $69,000 during 2006 over the acquisition of CSSL. Narrower margins in$1,423,000 level achieved during 2005 due to the electronic access business andincreased sales volume. Margins were slightly narrower due to expenses associated with the assimilation of the businesses contributed to the decline. Operating income was $777,000 during 2005 compared to $486,000 for 2004. The improvement was the result of the increased sales.CSSL acquisition.

Operating income as a percentage of sales for 2007 improved as the electronic access products were assimilated into more projects and the Company was able to lever their electronics capability to increase sales and pricing. Operating income as a percentage of sales for 2006 returned todeclined slightly from the 20042005 level due to the narrower margins in the newly acquired CSSL electronic access business noted above. business.

The higher percentage of operating income to sales achievedreturn on assets during 2005 was2007 declined slightly from the 2006 level primarily due to the higher operating income resulting fromacquisition of the increase in sales. Similarly,Colorado Springs facility during 2007 which increased the asset base of the segment. The return on assets for 2006  also declined from the 2005 level although it remainedpartly due to the narrower margins noted above the 2004 return. The decline in 2006 as compared to 2005 was the resultbut also because of both the decreased operating income in 2006 combined with an increase in the segment assets primarilyduring 2006 chiefly due to higher receivables and inventories which are higher due to the increase in sales. The return on assets for 2005 was much higher than during 2004 due to the higher operating income while the segment assets declined slightly. The increase in sales for 2005 as compared to 2004 did not result in a higher receivable balance at year-end 2005 as the increase was achieved more ratably over the year while the increased sales in 2004 came more heavily at the year-end.

HVAC Industry Group

The table below presents a summary of operating information for the two reportable segments within the HVAC industry group for the fiscal years 2007, 2006 2005 and 20042005 (amounts in thousands).

Heating and Cooling Segment

Sales in the Heating and Cooling segment improved to $36,146,000, an increase of $6,216,000 or 20.8% from the $29,930,000 in 2006. Furnace volume increased a modest 1.2% while the fan coil line added over $6,000,000 in sales during 2007. Profit margins, however, were lower compared to 2006. The reduced margins were due to significantly higher plant overhead costs, higher than expected material costs and more generous sales incentive plans offered to key furnace customers. Factory overhead expenses were significantly higher in part due to an increase in employee healthcare costs and workers’ compensation claims. Factory indirect payroll costs were higher due to additional personnel hired to accommodate the increased fan coil volume. Expenses associated with a business systems conversion and the implementation of a product configurator program for the fan coil line reduced the 2007 operating results. Selling expenses increased by almost 3% of sales due to volume incentives and other marketing expenses related to programs offered to major furnace customers.

Sales in the Heating and Cooling segment in 2006 increased to $29,930,000, an increase of $3,194,000 or 11.9%, from the 2005 amount of $26,736,000. Sales of both furnaces and fan coils rose during the year. Furnace volume increased due to the recapture of all of the business of a large national home center account. The fan coil sales increase is attributable to the Company’s restructuring of its sales representative network and the addition of internal sales and support staff.

Sales for 2005 declined $862,000 or 3.1%

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Operating results fell to a loss of $1,858,000 from the 2004 amount$161,000 profit reported for 2006. As noted above, the addition of $27,598,000. A declinepersonnel in furnace sales was partially offset by an increaseanticipation of continued growth in fan coil sales. The declinesales, increased factory costs and pricing pressures primarily in furnacethe form of enhanced sales was largely dueincentive programs all combined to diminish profit margins. Higher insurance premiums and legal costs associated with product liability claims contributed to the loss in 2007. The Company also continued to be affected by raw material price increases. Fan coil pricing is generally determined and fixed at the time the contract is awarded. The period of businesstime from the awarding of a contract to a large national home center account in one geographic locationthe production and warmer than usual weather in California throughout mostdelivery of the year. Fan coil sales improved in a still weak market asproduct can vary. Commodity price increases during the result of more competitive pricing.intervening period will significantly impact the margins realized.

Operating income declined from $2,777,000 for 2005 to $161,000 during 2006. The decline iswas the result of numerous factors, all reducing income. Pricing decisions made to retain and expand our furnace business with a national home center account reduced our selling price and the related margin. A substantial price increase in copper prices coupled with increases in aluminum and steel narrowed margins for both product lines although the primary effect was on the fan coil line due to its considerable copper content.lines. Furnace prices are established at the beginning of the season. FanAs noted above, fan coil pricing is generally determined and fixed at the time the contract is awarded. The period of time from the awarding of a contract andto the production and delivery of the product can vary. During this intervening period in 2006, we experienced significant increases in copper prices which were the principal contributor to the lower fan coil margins. The Company has not used financial instruments to hedge copper or other commodity prices. The addition of sales, engineering and support staff and the opening of a sales and service center in Oklahoma City made to increase fan coil sales increased selling and administrative expenses. Expenditures for computer system upgrades and product configuration software and the cost of general business consultants engaged to review all aspects of the business and organization also increased selling and administrative costs. Finally, our earthquake insurance premiums increased by approximately $100,000.

Operating income declined from $3,170,000 for 2004 to $2,777,000 for 2005 partially due to the decrease in sales. Cost of sales,results as a percent of sales decreased from 74.5% to 72.0%. Margins improved as currentand the return on assets were both negative for the year selling prices were adjusted to recover most of the increase in steel costs incurred during 2004; however this recovery was partially offset by pricing decisions made from time to time in response to competition. Selling and administrative expenses increased during 2005 as a result of costs relateddue to the replacement of the general manager at Williams Furnace Co., including severance pay, and the addition of personnel in the sales and engineering departments.

loss reported for 2007. Operating income as a percent of sales and the return on assets were both much lower in 2006 compared to 2005 due to the lower operating income. The factors that resulted in the reduced operating income are discussed above. Operating income as a percent of sales and the return on assets were both lower in 2005 compared to 2004 as a result of the lower operating income as discussed above. The decline in the return on assets was slightly higher as an increase in receivables and inventories raised the 2005 year-end assets level at the same time that operating income declined.

Evaporative Cooling Segment

Sales in the Evaporative Cooling segment increased slightly to $22,460,000, up $293,000 or 1.3% over the 2006 amount of $22,167,000. The increase was due to modest sales price gains as unit sales were essentially equal to the 2006 level. Sales of a custom manufactured electrical distribution box declined partially offsetting the price gains on coolers. Contribution margins declined substantially due to higher material costs as well as higher employee benefit expenses. Workers’ compensation claims, self-insured healthcare claims and maintenance costs were all higher in 2007. Sales during 2006 in the Evaporative Cooling segment improved to $22,167,000, an increase of $1,622,000 or 7.9%, over the 2005 amount of $20,545,000. Unit volume increased notably fordue to an increase in industrial cooling units in the larger industrial applications. Sales for 2005 increased $1,947,000 or 10.5% over the 2004 amountlatter part of $18,598,000. Sales of evaporative coolers increased as a result of the partial recapture of the window unit business at a large national home center account and favorable weather that extended into August.2006.

Operating results slipped from a profit of $267,000 in 2006 to a loss of $906,000 in 2007. As noted above, the increased costs combined with aggressive competition that limited sales price increases, were the causes for the decline. Operating results for 2006 improved from thea loss of $177,000 forin 2005 to a profit of $267,000 in 2006. The overall increased sales volume combined with thea shift to the larger industrial units resulted in improved the margins. Reduced workers’ compensation claims also aided the return to profitability. Operating results for 2005 declined from $266,000 for 2004 to a loss of  $177,000 for 2005 despite the increase in sales. Cost of sales, as a percent of sales, increased from 80.1% to 85.4%. The increased percentage was due to pricing decisions made in response to pricing introduced by our largest competitor. Higher workers’ compensation claims and lower production volume also contributed to the higher cost ratio.results.

Operating results as a percent of sales are still very low due to the modest amount of operating income but it has returned to a level approaching 2004’s level after the loss incurred during 2005. The return on assets slightly exceeded the 2004 level due to the decrease in segment assets, the result of lower inventory levels and the reduced net book value of property, plant and equipment.

Operating results as a percent of sales and the return on assets were both negative for 2005 are not meaningful2007 due to the loss noted above. Operating results as a percent of sales and the return on assets were both improved in 2006 compared to 2005 as a result of the modest amount of operating income in 2006 compared to the loss incurred during the year. The factors that resulted in the loss are discussed above.2005.

CRITICAL ACCOUNTING POLICIES

Financial Reporting Release No. 60, issued by the Securities and Exchange Commission, requires all registrants, including the Company, to include a discussion of “critical” accounting policies or methods used in the preparation of financial statements. We believe the following are our critical accounting policies and methods.

Intangibles

In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” goodwill is not amortized as a charge to earnings. The Company annually assesses goodwill for potential impairment as of the last day of its fiscal year. In addition, to the extent that events occur, either involving the relevant Company subsidiaries or in their industries, the Company revisits its assessment of the recorded goodwill

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to determine if impairment has occurred and should be immediately recognized. This assessment requires us to make significant assumptions and estimates about the extent and timing of future cash flows, discount rates, growth rates and costs. In addition, the terms of recent industry transactions/mergers are considered. No impairment was indicated in the current year. If the assessment had indicated that the carrying value of goodwill was impaired, an impairment charge would have been recorded for the amount by which the carrying value of the goodwill exceeded its fair value. Management believes that the assumptions and estimates used to determine the estimated fair values are reasonable; however, changes in the aforementioned assumptions and estimates, as well as the effects of unknown future events or circumstances could materially affect the estimated fair value.

Liabilities

The Company purchases insurance coverage for workers’ compensation, general product and automobile liability, retaining certain levels of risk (self-insured portion). Provision for workers’ compensation claims is estimated with the assistance of an independent expert who applies actuarial methodology to information provided by the Company’s independent claims administrator. Provision for automobile claims is estimated based upon information provided by the Company’s independent claims administrator and the Company’s own experience. With regard to product liability, provisions for both claims and unasserted claims that would be covered under the self-insured portion of the policies are recorded in accordance with the requirements of SFAS No. 5, “Accounting for Contingencies,” and are reviewed at least annually for revisions in estimates.

The Company records a reserve for future reclamation work to be performed at its various aggregate operations based upon an estimate of the total expense that will be incurred to reclaim the disturbed areas. Actual reclamation costs are charged against the reserve. The adequacy of the recorded reserve is assessed annually. The assessment may be done more frequently if events or circumstances arise that may indicate a change in estimated costs, recoverable material or the period of mining activity. The Company periodically engages an independent professional to assist in reevaluating the estimates of both the quantities of recoverable material and the cost of reclamation. This analysis requires the independent professional and us to make significant assumptions and estimates about the mining plans, homogeneity of the deposits, third party costs to perform work, method of reclamation to be used, etc. Management believes that the assumptions and estimates used to determine the reserve are reasonable; however, changes in the aforementioned assumptions and estimates, as well as the effects of unknown future events or circumstances, including legislative requirements, could materially affect estimated costs, the quantititesquantities of recoverable material or the period of mining. Depletion of rock and sand deposits and amortization of deferred development costs are computed by the units-of-production method based upon estimated recoverable quantities of rock and sand.

Sales

The Company recognizes revenue as products are shipped to customers. Sales are recorded net of estimates of applicable provisions for discounts, volume incentives, returns and allowances based upon current program terms and historical experience. At the time of revenue recognition, the Company also provides an estimate of potential bad debt and warranty expense as well as an amount anticipated to be granted to customers under cooperative advertising programs based upon current program terms and historical experience.

Recently Issued Accounting Standards

TheIn “Recently Issued Accounting Pronouncement” section of Note 1 to the Consolidated Financial Accounting Standards Board (FASB) hasStatements discusses new accounting policies adopted by the Company since 2006 and the expected impact of accounting pronouncements recently issued but not yet required to be adopted. To the following statements and interpretations:

In September 2006,extent the FASB issued Staff Accounting Bulletin (SAB) 108, “Considering the Effectsadoption of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 was issued to provide interpretive guidancenew accounting standards has an affect on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 is effective for annual financial statements covering the first fiscal year beginning after November 15, 2006. Adoption of SAB 108 in fiscal 2007 is not expected to have a material impact on the Company’s consolidatedcondition, results of operations cash flows or financial condition.

In September 2006,liquidity, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair valueimpacts are discussed in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We have not completed our evaluation of the impact ofapplicable notes to the adoption of FSAS No. 157.

In February 2007, the FASB issued a related statement, SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities to choose to measure at fair value many financial instruments and certain other items such as investments, debt and derivative instruments. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We have not yet begun evaluating the potential impact, if any, the adoption of SFAS No. 159 could have on our consolidated financial position, results of operations, and cash flows.statements.

In June 2006, the FASB issued Interpretation No. (FIN) 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, “Accounting for Income Taxes.”

FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

FIN 48 is effective for fiscal years beginning after December 15, 2006. We plan to adopt FIN 48 effective for the first quarter of the 2007 fiscal year. We are currently evaluating the effect that the adoption of FIN 48 will have on our consolidated results of operations and are not yet in a position to determine such effects.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which replaces Accounting Principles Board Opinion No. 20 “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005 and requires retrospective application to prior period financial statements of voluntary changes in accounting principle, unless it is impractical to determine either the period-specific effects or the cumulative effect of the change. Adoption of SFAS No. 154 during 2006 did not have an impact on the Company’s consolidated results of operations, cash flows or financial condition. Furthermore, future consolidated results of operations, cash flows or financial condition will only be impacted by SFAS 154 if the Company implements a voluntary change in accounting principle or identifies and corrects accounting errors in future periods.

In March 2005, the Emerging Issues Task Force reached a consensus on Issue 04-6, “Accounting for Stripping Costs in the Mining Industry” (EITF 04-6) which is effective on January 1, 2006. EITF 04-6 states that stripping costs incurred after the first saleable minerals are extracted from the mine (i.e. post-production stripping costs) should be considered costs of the extracted minerals and recognized as a component of inventory to be recognized in costs of sales in the same period as the revenue from the sale of the inventory. The Company has historically treated post-production stripping costs in the manner proscribed by EITF 04-6, therefore, adoption of EITF 04-6 during fiscal 2006 did not have a material impact on the Company’s consolidated results of operations, cash flows or financial condition.

In December 2004, SFAS No. 123R, “Share-Based Payment” was issued and replaces SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees.”  SFAS 123R requires using a fair-value based model for the measurement of all employee share-based payments, including grants of employee stock options. Deferred compensation calculated under the fair value method would then be amortized into income over the respective vesting period of the stock option. The accounting provisions of SFAS 123R are effective for reporting periods beginning after June 15, 2005. There are no stock options outstanding as of December 30, 2006 therefore the adoption of SFAS 123R did not have an impact on the Company’s consolidated results of operations, cash flows or financial condition.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions,” as part of its short-term international convergence project with the International Accounting Standards Board. Under SFAS 153, nonmonetary exchanges are required to be accounted for at fair value, recognizing any gains or losses, if their fair value is determinable within reasonable limits and the transaction has commercial substance. SFAS 153 is effective for fiscal years beginning after June 15, 2005. Adoption of SFAS 153 did not have a material impact on the Company’s 2006 consolidated results of operations, cash flows or financial condition.

In November 2004, Statement of Financial Accounting Standards (SFAS) No. 151, “Inventory Costs - An Amendment of ARB No. 43, Chapter 4,” was issued which amends the guidance in Accounting Research Bulletin (“ARB”) No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material.  Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight and rehandling costs be recognized as current - -period charges regardless of whether they meet the criteria of “so abnormal” as stated in ARB No. 43. Additionally, SFAS 151 requires the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.  SFAS 151 is effective for fiscal years beginning after June 1, 2005. The adoption of SFAS 151 during fiscal 2006 did not have a material impact on its consolidated results of operations, cash flows or financial condition.

FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements are based on the beliefs of the Company’s management as well as on assumptions made by and information available to the Company at the time such statements were made. When used in this Report, words such as “anticipates,” “believes,” “contemplates,” “estimates,”  “expects,” “plans,” “projects” and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of factors including but not limited to: weather, interest rates, availability of raw materials and their related costs, economic conditions and competitive forces in the regions where the Company does business, and the ability of the Company to obtain credit on commercially reasonable terms. Changes in accounting pronouncements could also alter projected results. Forward-looking statements speak only as of the date they were made and we undertake no obligation to publicly update them.

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Item 7A7A.  .  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risks related to commodity prices and interest rates. To manage interest rate risk, the Company has, from time to time, entered into interest rate swaps as cash flow hedges. These swaps are authorized by the Company’s policies and procedures. The Company does not use swaps or hedging instruments for trading purposes, and is not a party to any transaction involving leveraged derivatives. The Company entered into an interest rate swap agreement (Swap Agreement) covering the period December 17, 2001 through December 18, 2006 in order to minimize the adverse impact of the floating interest rate characteristic of some of the Company’s term loan borrowings. The Company’s effective interest rate on the portion of the term loan covered by the Swap Agreement was 5.88% during 2006. Cash payments or receipts associated with this agreement are reflected in interest expense. The fixed rate under the Swap Agreement was less than the floating rate on the term loan during 2006 but exceeded the floating rate during 2005 and 2004.2005. The effect on operations was to increase net income by $21,000 for 2006 while reducing net income by $31,000 and $162,000 for 2005 and 2004, respectively. The2005. During the swap period, the fair value of the Swap Agreement iswas recorded on the balance sheet with subsequent changes recorded as a separate component of accumulated other comprehensive income in shareholders’ equity. See paragraph below and above discussion under Financial Condition, Liquidity and Capital Resources. See Note 3.

Interest Rates

The Company utilizes revolving credit and term-loan facilities that bear interest at either prime or an adjusted LIBOR rate. The amount outstanding under these facilities aggregated $15,000,000$20,700,000 at December 30, 2006.29, 2007. The Company is not currently a party to any financial debt instruments that contain fixed interest charges. The Company is not a party to any capital lease agreements as of December 30, 2006.29, 2007. See Note 3.

Commodities

The Company purchases commodities, such as steel, copper, aluminum, cement, fuel and cardboard for packaging, at market prices and doesdid not currently use financial instruments to hedge commodity prices.prices during 2007. Subsequent to year-end, the Company entered into fixed swap for 320,000 pounds of copper at a price of $3.22 per pound. The copper hedge contract expires in 40,000 pound increments from February 2008 to November 2008.

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Item 8.              FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA