Company Overview

The Company operates in four reportable segments within its two principal industry groups; the Heating and Cooling segment and the Evaporative Cooling segment in the HVAC industry group and the Concrete, Aggregates and Construction Supplies segment and the Door segment in the Construction Products industry group.

The Heating and Cooling segment produces and sells gas-fired wall furnaces, console heaters and fan coils from the Company's wholly-owned subsidiary, Williams Furnace Co. of Colton, California. The Evaporative Cooling segment produces and sells evaporative coolers from the Company's wholly-owned subsidiary, Phoenix Manufacturing, Inc. of Phoenix, Arizona. Concrete, Aggregates and Construction Supplies are offered from numerous locations along the Front Range of Colorado operated by the Company's wholly-owned subsidiaries Castle Concrete Company and Transit Mix Concrete Co., of Colorado Springs, Transit Mix of Pueblo, Inc. of Pueblo and Rocky Mountain Ready Mix Concrete, Inc. of Denver. Doors are fabricated and sold along with the related hardware from Colorado Springs and Pueblo through the Company's wholly-owned subsidiary, McKinney Door and Hardware, Inc. of Pueblo, Colorado.

In addition to the above reporting segments, an "Unallocated Corporate" classification is used to report the unallocated expenses of the corporate office which provides treasury, insurance and tax services as well as strategic business planning and general management services and an "Other" classification is used to report a real estate operation. Expenses related to the corporate information technology group are allocated to all locations, including the corporate office.

Liquidity and Capital Resources

Sales of the Company's HVAC products, other than fan coils, are seasonal and weather sensitive. Revenues in the Company's Concrete, Aggregates and Construction Supplies segment are influenced by the level of construction activity and weather conditions along the Front Range of Colorado. Sales for the Door segment are not generally seasonal nor are they affected significantly by weather conditions. Historically, the Company has experienced operating losses during the first quarter except when construction activity is strong along the Front Range of Colorado and the weather is mild. Operating results typically improve in the second and third quarters reflecting more favorable weather conditions in Colorado and the seasonal sales of the Evaporative Cooling segment. Fourth quarter results can vary based on weather conditions in Colorado as well as in the principal markets for the Company's heating equipment. The Company typically experiences operating cash flow deficits during the first half of the year reflecting operating results, the use of sales dating programs (extended payment terms) related to the Evaporative Cooling segment and payments of the prior year's accrued incentive bonuses and Company profit-sharing contributions. As a result, the Company's borrowings against its revolving credit facility tend to peak during the second quarter and then decline over the remainder of the year. Neither the results of the 2007 year nor the first nine months of 2008 have followed the historical trend.

The Company's operations used $2,444,000 of cash during the first nine months of 2008 compared to providing $418,000 of cash during the first nine months of fiscal 2007. The increased use of cash in 2008 was due to the decline in operating income and higher working capital levels. Receivables increased due to slower paying customers who are extending payments during this slower economic time. Inventories increased due to higher costs of raw materials the longer lead time required for imported raw materials and some timing of purchases.

During the nine months ended September 27, 2008, investing activities used $129,000 of cash compared to using $6,626,000 in the first nine months of fiscal 2007. Capital expenditures were held to a minimum during the first nine months of 2008 due to the decline in sales and were primarily for routine replacements of equipment and the completion of improvements to the building purchased for the Door segment during 2007. The Concrete, Aggregates and Construction Materials segment sold the assets of a small aggregate operation (Table Mountain), during the first quarter of 2008 for approximately $720,000 (including the buyer's assumption of just over $85,000 of liabilities associated with the property) resulting in a pre-tax gain of about $344,000. Table Mountain did not provide aggregates to the Company's ready-mix operations and management did not consider it to be a strategic part of its business. The proceeds from the sale of assets for 2007 included $230,000 received from the June sale of stock received from the demutualization of an insurance company that provides life insurance benefits to our employees.

Financing activities provided $1,167,000 during the first nine months of 2008 compared to $6,622,000 provided during the first nine months of 2007. Although the Company repaid $300,000 of the borrowings under the revolving credit facility during the third quarter of 2008, for the nine months ended September 27, 2008 the Company borrowed $2,800,000 compared to the $8,700,000 borrowed against the revolving credit facility during the first nine months of 2007. All scheduled debt repayments were made during the first nine months of both 2008 and 2007. During the first nine months of 2008, the highest amount of Company borrowings outstanding under the revolving credit agreement was $13,100,000 and the average amount outstanding was $9,873,000.

The Company believes that anticipated cash flow from operations during the fourth quarter will be sufficient to accommodate the reduction in the revolving credit facility at December 31, 2008. In addition, the Company believes that anticipated cash flow from operations, supplemented by seasonal borrowings against the revolving line of credit, (of which $10,700,000 was outstanding at September 27, 2008) will be sufficient to cover expected cash needs, including servicing debt and planned capital expenditures for at least the next twelve months. Our existing revolving line of credit expires June 30, 2009, however we expect to be able to renew or extend the line either with our current lenders or with other financing sources beyond June 30, 2009.

Operations - Comparison of Quarter Ended September 27, 2008 to Quarter Ended September 29, 2007

Historically, the Company has experienced improved operating results during the third quarter as sales in the Concrete, Aggregates and Construction Supplies segment increase due to weather more conducive to construction activity. The 2008 operating results were consistent with this trend.

Consolidated sales during the third quarter of 2008 were $41,454,000 compared to $42,288,000 in the third quarter of 2007. The Heating and Cooling and the Door segments both reported increased sales for the quarter while the Concrete, Aggregates and Construction Supplies segment and the Evaporative Cooling segment reported declines.

Cost of sales as a percentage of sales decreased from 86.8% to 84.9% largely due higher margins in the Heating and Cooling segment and the Evaporative Cooling segment although the margins of all of the segments improved. Selling and administrative costs decreased $209,000 while also declining as a percentage of sales from 10.4% to 10.1%. The decrease for the 2008 quarter as compared to the third quarter of 2007 was due to reductions made to compensation accruals. Incentive compensation accruals were reduced as operating results deteriorated in conjunction with the slowing economy. The reduction in the cost of sales as a percentage of sales was the result of a lower level of workers' compensation claims and other cost reductions. Operating results thus improved from a loss of $65,000 in 2007 to income of $816,000 reported for the third quarter of 2008.

Interest expense increased only slightly from $341,000 for the third quarter of 2007 to $353,000 in the 2008 quarter despite higher average borrowings, due to lower interest rates.

A discussion of operations by segment follows.

Construction Products



The table below presents a summary of operating information for the two
reportable segments within the Construction Products group for the quarters
ended September 27, 2008 and September 29, 2007 (dollar amounts in thousands):



                                             Concrete,
                                          Aggregates and
                                           Construction
                                             Supplies        Doors
Quarter ended September 27, 2008
Revenues from external customers          $        23,362   $ 4,562
Segment operating income                            1,190       648
Operating income as a percent of sales                5.1 %    14.2 %
Segment assets as of September 27, 2008   $        53,000   $ 7,308
Return on assets                                      2.2 %     8.9 %

Quarter ended September 29, 2007
Revenues from external customers          $        25,585   $ 4,284
Segment operating income                            1,338       460
Operating income as a percent of sales                5.2 %    10.7 %
Segment assets as of September 29, 2007   $        58,280   $ 7,128
Return on assets                                      2.3 %     6.5 %

Concrete, Aggregates and Construction Supplies Segment

Sales in the Concrete, Aggregates and Construction Supplies segment for the third quarter of 2008 declined 8.7% from the prior year's comparable quarter. All three product lines of this segment reported lower sales volumes for the quarter ended September 27, 2008 compared to the third quarter of 2007 due to the reduced construction activity along the Front Range of Colorado, especially housing construction. Profit margins for the segment improved slightly primarily due to a reduction in workers' compensation claims. Selling prices declined slightly due to competitive pressures created by the reduced construction activity.

Selling and administrative costs declined in line with the decrease in sales; however they increased slightly as a percentage of sales between the two quarters due to the fixed nature of some of the costs. Operating income for the third quarter of 2008 was $1,190,000 compared to $1,338,000 for the comparable 2007 quarter primarily due to the reduced sales. Despite the reduction in sales, both operating income as a percent of sales and the return on assets declined only slightly due to the improved margins in the third quarter of 2008 compared to the third quarter of 2007. Segment assets declined $5,280,000 from September 29, 2007 to September 27, 2008 as depreciation outpaced capital expenditures.

Door Segment

Door segment sales increased $278,000, or 6.5%, during the third quarter of 2008 from the comparable 2007 quarter. Sales during a specific quarter can be heavily influenced by customer requests to either accelerate or delay shipments of jobs to better coincide with their own construction schedules. Sales are also influenced by the level of construction activity but the effect is generally slower to appear as the products supplied by this segment, when sold for new construction, are some of the last items installed on a project. The increase in sales during the third quarter of 2008, therefore, is more reflective of the timing of shipments as 2008 year-to-date sales are below the level achieved during the first nine months of 2007. In addition, bidding activity has slowed and the backlog has declined approximately 27% from the level at the end of the third quarter of 2007 as result of the decline in new construction over the past two years. Margins improved principally due to the increased sales volume and slightly lower material costs.

Selling and administrative costs decreased approximately 3% during the 2008 quarter due to reduced compensation accruals. Operating income increased from $460,000 during the third quarter of 2007 to $648,000 for the 2008 quarter due to the higher sales volume and lower material costs. As a result, both operating income as a percent of sales and return on assets increased in the third quarter of 2008 from the prior year's quarter.

HVAC Products



The table below presents a summary of operating information for the two
reportable segments within the HVAC products group for the quarters ended
September 27, 2008 and September 29, 2007 (dollar amounts in thousands):



                                           Heating and      Evaporative
                                             Cooling          Cooling
Quarter ended September 27, 2008
Revenues from external customers          $       9,530    $       3,910
Segment operating loss                             (595 )            (71 )
Operating loss as a percent of sales               (6.2 )%          (1.8 )%
Segment assets as of September 27, 2008   $      26,630    $      12,162
Return on assets                                   (2.2 )%           (.6 )%

Quarter ended September 29, 2007
Revenues from external customers          $       8,121    $       4,208
Segment operating loss                             (824 )           (493 )
Operating loss as a percent of sales              (10.0 )%         (11.7 )%
Segment assets as of September 29, 2007   $      23,379    $      11,222
Return on assets                                   (3.5 )%          (4.4 )%

Heating and Cooling Segment

Sales in the Heating and Cooling segment were $9,530,000 for the third quarter of 2008, an increase of $1,409,000, or 17.4%, from the comparable 2007 quarter. Fan coil volume accounted for almost all of the increase with sales rising nearly 37.7% from the prior year's quarter. This increase was the result of the continuing beneficial effect of the restructured sales representative network which was completed in late 2005 and the introduction of configuration software which aids customers in the design and selection of fan coils. Furnace volume declined slightly although sales dollars were higher due to increased prices in response to the rise in commodity prices, notably steel. Cost of sales as a percentage of sales decreased during the third quarter of 2008 to 90.8% from 93.6% for the comparable quarter of 2007 as pricing increases began to catch up with the rise in commodity prices experienced over the course of this year.

Selling and administrative expenses were higher primarily due to increased legal costs and commission expenses related to the fan coil line partially offset by a reduction in incentive compensation accruals during the quarter. Despite the increase in selling and administrative expenses, the operating loss for the 2008 quarter was reduced from $824,000 during the third quarter of 2007 to $595,000. As a result of the reduced loss, both operating loss as a percent of sales and return on assets improved in the 2008 quarter from the prior year's quarter.

Evaporative Cooling Segment

Sales in the Evaporative Cooling segment declined to $3,910,000, or 7.1%, during the third quarter of 2008 from the comparable 2007 quarter. Unit sales for the 2008 quarter were lower by approximately 3.9% compared to the 2007 quarter in what is usually a slow quarter. Cost of sales as a percentage of sales decreased during the third quarter of 2008 to 86.8% from 96.9% as an increase in average selling prices combined with a reduction of some factory overhead costs, including workers compensation claims.

Selling and administrative costs declined in the third quarter of 2008 as compared to the 2007 third quarter due to the lower sales and reductions to incentive compensation accruals during the 2008 quarter. The operating loss was reduced to $71,000 compared to the $493,000 loss for the third quarter of 2007 largely due to the improvement in cost of sales. As a result, both operating income as a percent of sales and return on assets improved in the 2008 quarter from the prior year's quarter.

Operations - Comparison of Nine Months Ended September 27, 2008 to Nine Months Ended September 29, 2007

Consolidated sales during the first nine months of 2008 were $117,727,000 compared to $128,018,000 during the first nine months of 2007. The decline was largely due to the decrease in the Concrete, Aggregates and Construction Supplies segment although the Door and Evaporative Cooling segments also experienced lower sales. The Heating and Cooling segment reported increased sales for the nine months ended September 27, 2008 compared to the nine months ended September 29, 2007. Cost of sales as a percentage of sales increased slightly from 84.2% for the first nine months of 2007 to 85.2% during the first nine months of 2008. The increased cost of sales ratio was largely due to lower volume in the Concrete, Aggregates and Construction

Supplies segment and the recovery of $725,000 from an insurance claim during the second quarter of 2007 from our insurance carrier as settlement of flood claims that occurred during the third quarter of 2006. All expenses incurred to repair the damage and resume production had been recognized in cost of sales as incurred. No recovery was anticipated or recorded prior to receipt of the settlement during the second quarter of 2007. Selling and administrative costs decreased $476,000 during the nine months ended September 27, 2008 primarily related to reductions to compensation accruals at all segments. The above factors resulted in an operating loss of $536,000 for the first nine months of 2008 compared to operating income of $1,445,000 reported for the first nine months of 2007. Other income for the first nine months of 2008 includes a pre-tax gain of $344,000 related to the sale of the assets of a small aggregate operation (Table Mountain), during the first quarter of 2008. Table Mountain did not provide aggregates to the Company's ready-mix operations and management did not consider it to be a strategic part of its business. Other income during 2007 included $230,000 received from the June sale of stock received from the demutualization of an insurance company that provides life insurance benefits to our employees.

A discussion of operations by segment follows.

Construction Products



The table below presents a summary of operating information for the two
reportable segments within the Construction Products group for the nine months
ended September 27, 2008 and September 29, 2007 (dollar amounts in thousands):



                                             Concrete,
                                          Aggregates and
                                           Construction
                                             Supplies        Doors
Nine Months ended September 27, 2008
Revenues from external customers          $        58,026   $ 12,187
Segment operating income                              462      1,434
Operating income as a percent of sales                 .8 %     11.8 %
Segment assets as of September 27, 2008   $        53,000   $  7,308
Return on assets                                       .9 %     19.6 %

Nine Months ended September 29, 2007
Revenues from external customers          $        71,110   $ 13,733
Segment operating income                            3,656      1,627
Operating income as a percent of sales                5.1 %     11.8 %
Segment assets as of September 29, 2007   $        58,280   $  7,128
Return on assets                                      6.3 %     22.8 %

Concrete, Aggregates and Construction Supplies Segment

Sales in the Concrete, Aggregates and Construction Supplies segment for the first nine months of 2008 decreased 18.4% from the comparable 2007 period. As with the third quarter, all three product lines of this segment reported lower sales for the first nine months of 2008 compared to the comparable 2007 period for the reasons noted in the discussion of the third quarter's results above. Similar to the results of the third quarter, margins declined due to the decreased volume and the fixed nature of some of the costs in this segment.

For the first nine months of 2008, selling and administrative expenses were reduced by approximately 7.3% but increased as a percent of sales. Operating income declined to $462,000 during the 2008 period from $3,656,000 during the comparable 2007 period. The decline was due to the reduced sales volume and margins for the concrete and aggregates lines. In addition, the 2007 nine months' results were aided by the recovery of $725,000 from our insurance carrier as settlement of flood claims that occurred during the third quarter of 2006 as discussed above. As a result, both operating results as a percent of sales and return on assets declined for the nine months ended September 27, 2008 compared to the nine months ended September 28, 2007.

Door Segment

Sales in the Door segment for the first nine months of 2008 decreased $1,546,000 from the comparable 2007 period due to the lower construction activity and the timing of shipments as described in the above discussion for the current quarter.

Operating income also declined from $1,627,000 during the first nine months of 2007 to $1,434,000 for the first nine months of 2008 due to lower sales volume. Lower material costs were offset by expenses associated with the consolidation of the Colorado Springs operations into the new facility and increased compensation costs. As a result, operating income as a percent of sales remained virtually identical for the nine months ended September 27, 2008 compared to the nine months ended September 29, 2007 while the return on assets declined.

HVAC Products



The table below presents a summary of operating information for the two
reportable segments within the HVAC products group for the nine months ended
September 27, 2008 and September 29, 2007 (dollar amounts in thousands):



                                                 Heating and      Evaporative
                                                   Cooling          Cooling
Nine Months ended September 27, 2008
Revenues from external customers                $      29,134    $      18,109
Segment operating (loss) income                        (1,017 )            459
Operating (loss) income as a percent of sales            (3.5 )%           2.5 %
Segment assets as of September 27, 2008         $      26,630    $      12,162
Return on assets                                         (3.8 )%           3.8 %

Nine Months ended September 29, 2007
Revenues from external customers                $      24,297    $      18,607
Segment operating loss                                 (1,503 )           (366 )
Operating loss as a percent of sales                     (6.2 )%          (2.0 )%
Segment assets as of September 29, 2007         $      23,379    $      11,222
Return on assets                                         (6.4 )%          (3.3 )%

Heating and Cooling Segment

Sales in the Heating and Cooling segment increased $4,837,000, or 19.9%, during the first nine months of 2008 over the comparable 2007 period. As with the quarter's results above, fan coil volume was responsible for the increase as furnace volume for the nine months trailed the 2007 period by approximately 3.9% due to milder weather during the first quarter of 2008. Cost of sales as a percentage of sales decreased slightly during the nine months of 2008 to 86.8% from 86.5% for the comparable period of 2007 due to the reasons noted in the quarter's discussion above.

Selling and administrative costs increased due to the reasons noted in the quarter's discussion above. The operating loss narrowed from $1,503,000 during the first nine months of 2007 to a loss of $1,017,000 for the 2008 period. As a result of the improved sales volume and related margins, both operating loss as a percent of sales and the return on assets improved for the first nine months of 2008 compared to the prior year's period.

Evaporative Cooling Segment

Sales in the Evaporative Cooling segment declined $498,000, or 2.7%, during the first nine months of 2008 from the comparable 2007 period. The decrease in sales was due to lower third quarter sales and slow sales during March and April resulting from milder weather during 2008 compared to 2007. Hotter, less humid weather arrived in May and June but it was too late to reach last year's sales level. Cost of sales as a percentage of sales decreased during the nine months ended September 27, 2008 to 84.1% from 88.1% for the 2007 period due to the reasons noted in the quarter's discussion above as well as improved labor efficiencies. Increased steel prices partially offset these gains.

Selling and administrative expenses declined during the first nine months of 2008 both in dollars and as a percentage of sales compared to the comparable 2007 period largely due to lower advertising and compensation costs. The segment reported operating income of $459,000 for the first nine months of 2008 compared to a loss of $366,000 for the comparable 2007 period. The improved operating results were the result of improved cost of sales and the lower selling and administrative costs. As a result, both operating results as a percent of sales and return on assets increased in the first nine months of 2008 from the prior year's period.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of September 27, 2008 and December 29, 2007 and affect the reported amounts of revenues and expenses for the periods reported. Actual results could differ from those estimates.

Information with respect to the Company's critical accounting policies which the Company believes could have the most significant effect on the Company's reported results and require subjective or complex judgments by management is contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2007.

OUTLOOK

The Concrete, Aggregates and Construction Supplies segment continues to be adversely affected by the on-going decline in construction activity along the Front Range of Colorado. New residential construction which has dropped sharply is likely to remain weak throughout 2009. Historically, pricing competition has escalated in times of diminished demand which would further adversely affect this segment. Although fuel costs have recently declined, future prices remain unpredictable. The sales volume and pricing in the Door segment is also beginning to feel the effects of the construction slow-down with both the backlog and bidding activity declining in recent months.

Financial challenges faced by a leading manufacturer of evaporative coolers may present some opportunities for increased sales in the Evaporative Cooling segment during the forthcoming year. Weather will continue to be a significant factor. Increased steel prices have negatively impacted margins; however, recently there have been modest decreases in steel prices.

RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS . . .