(References to a "Note" are to the Notes to Consolidated Financial Statements contained elsewhere in this report)

COMPANY OVERVIEW

As discussed in Item 1. Business, the Company operates primarily in two industry groups, HVAC and Construction Products. Within these two industry groups, the Company has identified two reportable segments in each of the two 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, WFC of Colton, California. The Evaporative Cooling segment produces and sells evaporative coolers from the Company's wholly-owned subsidiary, PMI of Phoenix, Arizona. Sales of these two segments are nationwide, but are concentrated in the southwestern United States. Concrete, Aggregates and Construction Supplies are offered from numerous locations along the Front Range of Colorado operated by the Company's wholly-owned subsidiaries collectively referred to as TMC and RMRM of Denver. Doors are fabricated and sold along with the related hardware from Colorado Springs and Pueblo through the Company's wholly-owned subsidiary, MDHI of Pueblo, Colorado. Sales of these two segments are highly concentrated in the Front Range area in Colorado although door sales are also made throughout the United States.

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.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Sales of the Company's HVAC products are seasonal and weather sensitive except for fan coils. 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 as seasonal nor are they much affected by weather conditions. Historically, the Company has experienced operating losses during the first quarter except when the weather is mild and demand strong along the Front Range. 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. While this seasonal pattern of sales and operating profits prevailed in 2008, cash flow lagged and the Company's outstanding borrowings against its revolving credit facility peaked in September 2008 and fluctuated over the remainder of the year before declining in late December, primarily due to receipt of $2,114,000 from the sale of land in Colorado Springs, to end the year at $6,400,000. The higher level of debt during the year under the revolving credit facility was primarily due to a higher level of inventories partially offset by an increase in trade payables. The increased inventory in the Heating and Cooling segment was primarily due to a lower than expected furnace sales during the peak selling season in the latter part of the year combined with an increase in raw materials to support the increased volume of fan coil sales. The increase in the Evaporative Cooling segment was due to a decline in cooler sales combined with the increased purchase of raw materials in anticipation of increased volume for 2009 as a principal competitor went out of business at the end of 2008. Increased steel prices and the increased purchase of some raw materials from overseas also added to the increase in raw materials inventory at year-end. Overseas purchases require longer lead times and are often ordered in larger quantities to minimize shipping costs and assure the materials are available when needed by production.

Cash and cash equivalents were $1,097,000 at the end of 2008 compared to $3,326,000 at the prior year-end. Operations in 2008 provided $522,000 of cash compared to $3,104,000 in 2007 and $1,933,000 in 2006. The decrease in net cash generated by operating activities during 2008 was primarily the result of an increase in inventories of $4,199,000 compared to the increase of $2,392,000 in inventories during 2007 as discussed above. The increase in net cash generated by operating activities during 2007 was primarily the result of a decrease in receivables of $1,471,000 compared to the increase in receivables of $6,783,000 during 2006. This increase in cash generated was partially offset by the 2007 net loss and an increase in inventory levels compared to 2006.

Net cash provided by investing activities was $797,000 compared to the use of $7,489,000 in 2007 and $8,658,000 in 2006. Capital expenditures for 2008, 2007 and 2006 were $2,175,000 (including $165,000 that was included in accounts payable at January 3, 2009), $7,682,000 and $6,553,000, respectively, exclusive of the $2,452,000 expended during 2006 for those assets purchased as part of the ASCI and CSSL acquisitions. Current year expenditures were sharply curtailed during 2008 despite spending approximately $1,500,000 for a slurry wall and related expenditures associated with the next phase of mining at the Pueblo aggregates operation. Capital expenditures during 2007 were predominantly in the Concrete, Aggregates and Construction Supplies segment. Expenditures included over $1,800,000 to complete the industrial sand plant. An additional $1,800,000 was expended to purchase an existing building in Colorado Springs for the Company's Door segment to replace a smaller and older facility. Expenditures during 2006 included $724,000 for the first outlay on an industrial sand plant while the remaining additions consisted primarily of routine equipment replacements largely in the Concrete, Aggregates and Construction Supplies segment. An additional $2,452,000 was used in 2006 for the purchase of the ASCI and CSSL assets. On January 1, 2006 the Company purchased the assets of CSSL for $352,000 in cash including $100,000 of goodwill and $100,000 for a non-compete agreement. On June 30, 2006, the Company purchased certain assets of ASCI for $2,100,000 of cash and a $1,000,000 note which was paid off during 2007. In addition to the $1,735,000 of trucks, equipment and concrete plant, the ASCI purchase price included $290,000 for a non-compete agreement, $350,000 for a restrictive land covenant, $370,000 for existing customer relations and $355,000 of goodwill. Investing activities provided cash from the proceeds from the sale of property and equipment of $2,892,000, $193,000 and $347,000 during 2008, 2007 and 2006, respectively. The 2008 sales included $2,114,000 received from the sale of land in Colorado Springs and the sale of the assets of a small aggregate operation for approximately $720,000 (including the buyer's assumption of just over $85,000 of liabilities associated with the property). This operation did not provide aggregates to the Company's ready mix operations and management did not consider it to be a strategic part of the business. Proceeds from the sale of assets for 2007 included $230,000 received from the sale of stock received from the demutualization of an insurance company that provides life insurance benefits to our employees. The 2006 sales were mainly of equipment replaced during the year.

Budgeted capital expenditures for 2009 are approximately $2,283,000, which is approximately $2,739,000 less than planned depreciation, depletion and amortization. The budget includes approximately $750,000 to complete the Pueblo slurry wall and all related expenditures. In addition approximately $567,000 will be spent in late 2009 to buy-out two aggregates plants currently under lease. The remaining expenditures will primarily be made for the Heating and Cooling segment and the Evaporative Cooling segment for various equipment, tooling and facility improvements. The Company expects that the 2009 expenditures will be funded from existing cash balances, operating cash flow and funds available under the revolving credit facility.

During 2008, cash of $3,548,000 was used in financing activities. The Company made scheduled term debt payments of $2,029,000 while also reducing the outstanding balance of the revolving line of credit by $1,500,000. During 2007, cash of $4,941,000 was provided by financing activities. As more fully discussed in Note 5, $7,900,000 was borrowed during 2007 against the revolving line of credit to finance operating and working capital needs and capital expenditures. Scheduled debt repayments of $2,200,000 were made during 2007 as well as the pay-off of the remaining $666,000 owed on the note issued as part of the purchase price of ASCI. An additional $93,000 was used to acquire treasury shares during 2007. During 2006, cash of $2,666,000 was provided by financing activities. Under the Amended Credit Agreement, discussed in the following section, the principal amount of the term loan was increased by $5,000,000 during 2006, primarily to fund the acquisition of the assets of ASCI and to pay for the industrial sand plant. See additional discussion of the term loan under Revolving Credit and Term Loan Agreement, below. Scheduled debt repayments of $2,000,000 were made during 2006. In addition, scheduled payments of $334,000 were made against the $1,000,000 Note issued as part of the purchase price of ASCI.

Revolving Credit and Term Loan Agreement

As of January 3, 2009 the Company had a Revolving Credit and Term Loan Agreement (Credit Agreement) with two banks as amended on August 12, 2008 (Amended Credit Agreement). At January 3, 2009, $10,771,000 was outstanding under the term loan facility. Under the Amended Credit Agreement, the maximum amount available on the revolving credit facility was $18,000,000 which was reduced to $15,000,000 as of December 31, 2008. Borrowings under the Amended Credit Agreement are secured by the Company's accounts receivable, inventories, machinery, equipment and vehicles. At January 3, 2009 the Company was in compliance with the terms of the Amended Credit Agreement which included covenants requiring the Company to maintain certain levels of EBITDA (earnings before interest, income taxes, depreciation and amortization) or debt service coverage, consolidated tangible net worth and to maintain certain ratios including consolidated debt to cash flow (as defined). Additional borrowings, acquisition of stock of other companies, purchase of treasury shares and payment of cash dividends were either limited or require prior approval by the lenders.

At January 3, 2009, there was $6,400,000 outstanding against the revolving credit facility leaving $4,090,000 available after reserving $4,510,000 for the outstanding stand-by letters of credit. The revolving credit facility was available at the discretion of management and it was primarily used for funding the seasonal sales programs related to the evaporative cooler and furnace product lines. As noted, the line was also used to secure stand-by letters of credit primarily issued to insurance

carriers in support of self-insured amounts under the Company's risk management program. During the 2008 fiscal year, the highest amount of Company borrowings outstanding under the revolving credit facility, not including the amount securing stand-by letters of credit, was $13,100,000 and the average amount outstanding was $9,670,000.

The Amended Credit Agreement provided that, at the Company's option, the term loan and revolving credit facility would bear interest at prime or a performance-based LIBOR rate. Based on the terms of the Amended Credit Agreement and the Company's performance for the twelve months ended January 3, 2009, the performance based rate would be LIBOR plus 3.00% for both the term loan and for borrowings under the revolving credit facility, subject to adjustment depending upon the Company's performance. Payment of accrued interest was due and payable quarterly by the Company and principal under the term loan was payable on a quarterly basis until March 31, 2011.

On April 16, 2009 the Company replaced the Amended Credit Agreement with a new secured credit agreement (New Credit Agreement) whereby the new bank lender will provide a total credit facility of $30,000,000 consisting of a $20,000,000 revolving credit facility for a three year period (reduced by letters of credit that may be issued by the lender on the Company's behalf) and a $10,000,000 term loan facility. The Company's outstanding stand-by letters of credit of $4,510,000 reduce the current borrowing capacity available under the revolving credit facility such that the maximum that can be borrowed is $15,490,000. Borrowings under the New Credit Agreement are secured by the Company's accounts receivable, inventories, machinery, equipment, vehicles and certain real estate. Borrowings under the revolving credit facility are limited to 80% of eligible accounts receivable and 50% of eligible inventories. Inventory borrowings are limited to a maximum of $10,000,000. Borrowings under the New Credit Agreement will bear interest based on a performance based LIBOR or prime rate option. The base LIBOR rate will not be less than 2% and the base prime rate will not be less 4%. At inception of the New Credit Agreement, the interest rate under the LIBOR option will be 5% and 4.75% under the prime rate option. The Company also paid certain underwriting and arrangement fees at the time of closing. The New Credit Agreement requires the Company to maintain certain levels of tangible net worth and EBITDA (earnings before interest, income taxes, depreciation and amortization) or debt service coverage and to maintain certain ratios including consolidated debt to cash flow (as defined), and adjusted EBITDA to interest expense and payments on funded debt. Additional borrowings, acquisition of stock of other companies, purchase of treasury shares and payment of cash dividends are either limited or require prior approval by the lender. Payment of accrued interest is due monthly or at the end of the applicable LIBOR period on both the revolving credit borrowings and the term debt borrowings. Principal payments under the term loan are due quarterly with a final payment of all remaining unpaid principal due April 16, 2012. The Company is required to enter into an interest rate swap agreement to hedge the interest rate on a minimum amount of $5,000,000 of term debt. The Company has sufficient qualifying assets such that the entire $20,000,000 or the revolving credit facility is immediately available and is expected to be available for the foreseeable future. At the time of signing, the New Credit Agreement is expected to provide additional borrowing capacity of approximately $4,000,000 (after payment of the underwriting and arrangement fees) as compared to the amount available under the Amended Credit Agreement. See Note 5.

A standby letter of credit in the amount of $4,490,000 previously issued to an insurance company to support self-insured amounts under the Company's risk management program, was drawn upon by the beneficiary in connection with the Company's New Credit Agreement. The proceeds of the letter of credit, which now serve as cash collateral for the Company's self-insurance obligations, are treated as a revolving credit loan under the New Credit Agreement.

Due to the terms of the New Credit Agreement, the 2008 year-end borrowings of $6,400,000 against the revolving credit line have been classified as long-term on the January 3, 2009 balance sheet.

The Company has prepared a projection of cash sources and uses for the next 12 months. Under this projection, the Company believes that its existing cash balance, anticipated cash flow from operations and borrowings available under the New Credit Agreement, will be sufficient to cover expected cash needs, including servicing debt and planned capital expenditures for the next twelve months. The Company also expects to be in compliance with all debt covenants during this period.

Insurance Policies



The Company maintained insurance policies since March 31, 2008 with the
following per incident deductibles and policy limits:



                            Deductible     Policy Limits
Product liability          $    250,000   $     2,000,000
General liability               250,000         5,000,000
Workers' compensation           350,000         Statutory
Auto and truck liability        100,000         2,000,000

Should the aggregate out-of-pocket payments for the three policies exceed $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 January 3, 2009.

Payments Due by Period as of January 3, 2009, giving effect to the New Credit Agreement as described in Note 5 are as follows (amounts in thousands):

                                                                                        More
                                              Less than       1 - 3        3 - 5       than 5
Contractual Obligations           Total        1 year         years        years        years
Long-term debt including
interest (See Note 5) (a)       $  12,086    $     1,996    $   4,010    $   6,080    $       -
Revolving credit facility
without interest (See Note
5)                                  6,400              -            -        6,400            -
Operating leases (See Note
9)                                  6,771          1,646        2,198        1,719        1,208
Minimum royalty agreement
(See Note 9)                       20,920            418          837          837       18,828
FIN 48 liability (See Note
11) (b)                                20             20            -            -            -
Total contractual
obligations                     $  46,197    $     4,080    $   7,045    $  15,036    $  20,036

(b) The Company has included $20,000 of uncertain tax liabilities under FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes," that are classified as current liabilities on the consolidated balance sheet. Excluded from the table is $149,000 of uncertain tax liabilities, as the Company is unable to reasonably estimate the ultimate timing of settlement.

Amounts of Commitment Expiration per Period as of January 3, 2009 (amounts in thousands):

                                                Less than                                           More than
Other Commercial Commitments        Total        1 year        1 - 3 years       3 - 5 years         5 years
Standby letters of credit         $   4,510    $     4,510    $            -    $            -    $           -

A standby letter of credit in the amount of $4,490,000 issued to an insurance company to support self-insured amounts under the Company's risk management program, was drawn upon by the beneficiary in connection with the Company's New Credit Agreement. The proceeds of the letter of credit, which now serve as cash collateral for the Company's self-insurance obligations, are treated as a revolving credit loan under the New Credit Agreement.

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 of operations. The following sections discuss the operating results of the reporting segments and contain more detail. Consolidated sales were $157,881,000 in 2008, $168,429,000 in 2007 and $158,767,000 in 2006. The decrease in 2008 was due to the decreased level of construction along the Front Range of Colorado and the United States in general. Sales in the Concrete, Aggregates and Construction Supplies segment declined $13,443,000 or 14.9% while Door segment sales declined 19.2% although this segment's sales are also more affected by the timing of shipments based on customers' requests than our other segments. Sales in the Heating and Cooling segment increased $6,020,000 or 16.7% entirely due to an increase in fan coil sales, which was the result of higher volume and prices in response to increased raw material costs. The Evaporative Cooling segment reported a modest increase in sales despite a decline in volume. Price increases accounted for the higher revenue as a portion of the steel costs were reflected in the unit prices. The increase in 2007 was primarily realized by the Heating and Cooling segment ($6,216,000) and the Door segment ($4,924,000). Increased fan coil sales were the principal reason for the higher sales in the Heating and Cooling segment while a continued strong demand and the timing of shipments accounted for the Door segment sales increase.

Cost of sales (exclusive of depreciation, depletion and amortization) remained relatively static as a percentage of sales at 84.8% for both 2008 and 2007. Decreases in cost of sales were experienced by the Heating and Cooling segment and the Evaporative Cooling segment. Price increases were instituted for all products in these two segments in response to increased material costs incurred over the past year. Favorable workers' compensation experience during the past year also reduced costs for both segments. Margins in the Concrete, Aggregates and Construction Supplies segment declined due to lower volumes combined with higher delivery and utility costs. Also contributing to the lower margins in 2008 was the recovery of $725,000 in 2007 from an insurance claim for flood damages in 2006. Pricing became more competitive as construction activity along the Front Range in Colorado declined preventing price increases from fully recapturing the increased costs. Cost of sales (exclusive of depreciation, depletion and amortization) in the Door segment for 2008 was largely unchanged. Cost of sales increased for 2007 compared to 2006 as a percentage of sales from 82.1% to 84.8%. The increase in cost of sales was experienced by all segments except the Door segment. Increased material, healthcare and factory overhead costs drove margins lower in the Heating and Cooling segment and the Evaporative Cooling segment. Higher cement and delivery costs lead to the decreased margins in the Concrete, Aggregates and Construction Supplies segment despite the aforementioned recovery of $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 in Colorado prevented price increases from fully recapturing the increased costs. The improvement in the Door segment was largely due to the increase in sales.

Depreciation, depletion and amortization declined modestly in 2008 compared to 2007 due to the curtailment of capital spending during 2008. Depreciation, depletion and amortization increased in 2007 compared to 2006 due to the high level of capital expenditures and a full year's amortization of intangible assets associated with the ASCI and CSSL acquisitions of 2006.

Selling and administrative costs declined but remained relatively constant as a percentage of sales at 12.3% for 2008 compared to 12.4% for 2007. Selling and administrative costs increased as a percentage of sales in the Concrete, Aggregates and Construction Supplies segment as well as the Door segment due to the decline in sales and the relatively fixed nature of some of these expenses. The decreased costs as a percentage of sales were primarily due to the increase in sales of the Heating and Cooling segment and Evaporative Cooling segment. Selling and administrative costs also declined due to the reduction of incentive compensation accruals at all segments, most notably at the Corporate office which declined approximately $670,000 including a reduction in the supplemental profit sharing balances. Selling and administrative costs increased during 2007 as compared to 2006 but remained relatively constant as a percentage of sales at 12.4%. The increased costs were partially related to the increase in sales of the 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 primary causes for the increase in selling and administrative costs. Selling and administrative costs at the corporate office were relatively constant between 2007 and 2006.

The gain on the disposition of property and equipment increased during 2008 because of a $1,947,000 pre-tax profit on the sale of land in Colorado Springs. The Concrete, Aggregates and Construction Supplies segment also realized a $344,000 pre-tax gain related to the sale of the assets of a small aggregates operation during the first quarter of 2008. The aggregates operation 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 2007 gain on the disposition of property and equipment declined compared to 2006 as there were few sales during the year. During 2006, gains were realized on numerous dispositions of equipment that were replaced during the year.

At January 3, 2009, primarily due to the economic conditions in the Denver area, the Company determined that the carrying value of assets associated with RMRM within the Company's Concrete, Aggregates and Construction Supplies segment were below carrying value, resulting in an impairment charge. The fair value was determined using the current fair value of similar assets in the marketplace. The impairment reduced the book carrying value of property, plant and equipment by $758,000 and the covenant not to compete by $26,000. See the discussion in the Property, Plant and Equipment section of Note 1 and Note 4.

Operating income improved to a profit of $938,000 for 2008 from a loss of . . .